Stock market: Caution in Europe in the absence of Wall Street and before PMIs

by Claude Chendjou

PARIS (Reuters) – Major European stock markets are expected to open on a cautious note on Monday ahead of the release of PMI activity indices, while the rest of the week will be marked by other economic indicators and U.S. employment figures.

According to the first available indications, the Parisian CAC 40 should gain 0.03% at the opening. The Dax in Frankfurt could gain 0.02%, while the FTSE 100 in London should advance by 0.26%. The EuroStoxx 50 index is expected to fall by 0.08% and the Stoxx 600 could gain 0.10%.

With markets closed in the United States and Canada for a public holiday, trading volumes are expected to be reduced.

Investors will see the final data on manufacturing activity for August in the main European countries from 07:50 GMT before the publication of the data in the United States on Tuesday.

These data are important as the recovery on the Old Continent remains fragile and a recession is still feared across the Atlantic, where the American Department of Labor will publish the official monthly employment report on Friday.

The assumption of a soft landing for the US economy, which has fuelled the rally in stock markets, is set to be confirmed as the US Federal Reserve (Fed) prepares to follow the European Central Bank (ECB) in its monetary easing.

On the political front in Europe, the historic victory of the far right in Thuringia in the regional elections in Germany one year before the federal legislative elections not only weakens the social democratic chancellor Olaf Scholz but could also fuel uncertainty in Europe’s largest economy. Especially since in France, the second largest economy in the eurozone, Emmanuel Macron is struggling to get the country out of the impasse in which it is plunged despite the multiplication of consultations with a view to appointing a head of government.

A WALL STREET

The New York Stock Exchange ended higher on Friday, as the release of PCE inflation figures reinforced investors’ expectations of an interest rate cut in September.

The Dow Jones index gained 0.6%, or 228.03 points, to 41,563.08 points.

The broader S&P 500 gained 56.44 points, or 1 percent, to 5,648.40.

The Nasdaq Composite rose 197.194 points, or 1.1%, to 17,713.624 points.

The personal consumption expenditures (PCE) index rose 2.5% in July from a year earlier as traders expect the Fed to cut rates by 25 basis points in September, according to CME Group’s FedWatch tool.

In terms of values, Amazon.com and Tesla rose, as did Broadcom.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index ended with a gain of 0.14% at 38,700.87 points in a volatile session after touching the 39,000-point mark for the first time since the end of July. The broader Topix gained 0.12% to 2,715.99 points.

The MSCI index of Asia and Pacific stocks (excluding Japan) fell by 0.40%, while the Kospi index in South Korea rose by 0.30%.

In China, the Shanghai SSE Composite fell by 0.61% and the CSI 300 fell by 1.19%, with the indices being penalized by the real estate sector, which fell by 3.54%.

On the indicator side, manufacturing activity in China rebounded in August with an index calculated by Caixin/S&P Global at 50.4 against 49.8 the previous month.

VALUES TO FOLLOW IN EUROPE:

CHANGES

The dollar hit a two-week high against the euro on Monday, with market attention now turning to the U.S. jobs report due later this week.

At around 07:05 GMT, the greenback was practically stable (-0.01%) against a basket of reference currencies, after having climbed to 101.79 points, a level not seen since August 20.

The euro stood at $1.1057 on Monday (+0.07%) after falling to $1.042, its lowest since August 19, amid political uncertainty in Germany and France.

The pound sterling is trading at $1.3131 (+0.01%), close to the $1.31095 reached during the session on Friday, the lowest level since August 23.

RATE

The yield on the 10-year German Bund rose about 1.1 basis points to 2.301% after gaining three points on Friday.

While it is almost certain that the ECB will cut its borrowing costs next week by a quarter of a point given recent inflation figures, Joseph Capurso, chief economist at CBA, believes that what happens next is less clear.

“We expect another rate cut in 2024 after the September cut, but we think it will be a tight choice between one or two additional cuts,” he said.

OIL

The oil market fell on Monday, penalized by the prospect of an increase in OPEC+ production from October and signs of sluggish demand in China and the United States, the two largest consumers of crude in the world.

Brent fell 0.74% to $76.36 per barrel and US light crude (West Texas Intermediate, WTI) fell 0.65% to $73.08.

The decline comes after Brent fell 0.3% last week and WTI fell 1.7%.

(Written by Claude Chendjou, edited by Kate Entringer)