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European Shares Slide On Inflation, Rate Hike Worries

(RTTNews) - European stocks were moving lower on Friday after U.S. central bankers offered divergent signals over the size of the next interest-rate hike. Inflation and recession worries were back in focus after data showed Germany's producer price inflation accelerated unexpectedly to a new record high in July, primarily driven by higher energy costs. Producer prices grew 37.2 percent year-over-year in July, well above the 32.7 percent surge in June, Destatits reported. The upward trend in July was largely caused by a 105.0 percent jump in energy prices amid soaring natural gas and electricity costs. Elsewhere, U.K. retail sales unexpectedly recovered in July while consumer sentiment hit a new record low in August amid the deepening cost of living crisis caused by rising inflation and the bleak economic prospects, separate data revealed. Investors now look ahead to a Federal Reserve conference next week for indications of when and how much the U.S. central bank might raise rates. The pan European Stoxx 600 dropped half a percent to 438.37 after gaining 0.4 percent on Thursday. The German DAX fell nearly 1 percent and France's CAC 40 index shed 0.7 percent while the U.K.'s FTSE 100 was little changed. Swedish commercial vehicle manufacturer Volvo Group fell over 1 percent on news that Deputy CEO Jan Gurander will step down from his role as of December 31, 2022. Danish mining equipment and cement maker FLSmidth surged 11.5 percent after raising its annual sales outlook. French catering and food services group Sodexo fell almost 2 percent after Jefferies cut its rating on the stock. Greatland Gold tumbled 3.2 percent. The mining company said it had retained 30 percent ownership of the Haverion project following Newcrest's decision to not buy an additional 5 percent interest in the joint-venture at the agreed price of $60 million. Kingspan Group surged 6.3 percent. The Irish building materials company delivered a record trading performance in the first six months of the year. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Today’s Big Picture Asia-Pacific equity indexes ended today’s session mixed. Hong Kong’s Hang Seng fell 0.67%, China’s Shanghai Composite ended the day essentially flat, down a mere 0.02% while Australia’s ASX All Ordinaries gained 0.50%, Taiwan’s TAIEX advanced 0.84%, and Japan’s Nikkei rose 1.14%. India’s markets are closed to mark the country’s Independence Day holiday and South Korean markets are closed today to mark that country’s Liberation Day. Interestingly, Liberation Day is celebrated in both South and North Korea. By mid-day trading, major European equity indices are up moderately, and U.S. futures point to a down open later this morning. Following the robust movement in equities over the last few weeks, as we start the new week off, they look to give back at least some of those gains. The surprise rate cut by the People’s Bank of China this morning raises fresh questions over the speed of the global economy, especially after July economic data for China missed expectations. Even though we have a sizable downshift in the number of companies reporting their quarterly earnings this week, we see a meaningful pivot toward retail companies, the majority of which were plagued with bloated inventories when they reported their prior quarter. Expectations are for margin and bottom line pain as they look to clear out those inventories in time to prepare for the important holiday shopping season. As these reports roll in, we’ll know how bad the pain is and whether consumers are biting. Data Download International Economy The People's Bank of China surprised by cutting its one-year lending facility rate by 10 basis points to 2.75% and cut the seven-day lending rate, the same amount to 2%. The move preceded weaker than expected July data for the country. China's July Industrial Production rose 3.8% YoY, below the expected 4.6%, and slightly lower than June’s 3.9% figure. Retail sales increased 2.7% YoY in July below the 5% forecast. Manufacturing hubs and popular tourist spots imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant were found. On Friday, China reported more than 2,000 local Covid-19 cases as infections in the southern Hainan island edged higher with mass testing and several lockdowns resulting. Japan’s preliminary GDP for 2Q 2022 came in at 2.2% YoY, better than the 0.1% reading for the prior quarter but below the expected 2.5% figure. On a QoQ basis, the preliminary reading was 0.5%, up from 0.0% in 1Q 2022 but again below the expected figure of 0.6%. Wholesale prices in Germany increased by 19.5% YoY in July of 2022 following the 21.2% gain the prior month. Compared with the previous month, wholesale prices fell 0.4% in July, the first decline since October 2020. Domestic Economy At 8:30 AM ET, we’ll get the NY Empire Manufacturing Index data for August and the headline reading is projected to fall to 5.5 from July’s 11.1 reading. AT 10 AM ET, the NAHB Housing Market Index for August will be published, and the consensus view has it unchanged MoM at 55. The U.S. House of Representatives voted 220 to 207 along party lines on Friday to pass the Inflation Reduction Act, paving the way for wide-ranging reforms in healthcare and clean energy. President Biden is expected to sign the bill into law. Data from AAA put the national average gas price at $3.959 over the weekend, but Goldman Sachs (GS) sees the price surging back to $5 by the end of the year with Brent crude returning to $130 a barrel as the market still needs to balance rising demand and tight supplies. Following last week’s inflation data, markets see a 50% chance the Fed will hike by 75 basis points in September and that rates will rise to around 3.50-3.75% by the end of the year. Meanwhile, the bond market continues to question if the Fed can deliver a soft landing, with the yield curve remaining deeply inverted. Markets Markets closed the week on a strong note with Friday seeing almost all sectors up over 1.00% and Consumer Discretionary names well over 2.00%. The Dow rose 1.37%, the S&P 500 advanced 1.73% and both the Nasdaq Composite and the Russell 2000 posted a 2.09% gain on the day. In reviewing top contributors to returns across the sectors, Apple (AAPL) and Microsoft (MSFT) combined to account for about 48% of Technology sector returns, while Tesla (TSLA) managed to do that all on its own for the Consumer Discretionary sector. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -7.09% S&P 500: -10.20% Nasdaq Composite: -16.60% Russell 2000: -10.19% Bitcoin (BTC-USD): -48.93% Ether (ETH-USD): -48.19% Stocks to Watch Before trading kicks off for U.S.-listed equities, Clear Secure (YOU), Li Auto (LI), Tufin Software (TUFN), and Weber (WEBR) will be among the companies issuing their latest quarterly results and guidance. Bloomberg reports Wells Fargo (WFC) is looking to shrink its once dominant mortgage business. Shares of PlayAGS (AGS) jumped in after-hours trading on Friday after confirming Inspired Entertainment (INSE) made a $10 per share offer for the slot machine maker. IPOs GigaCloud Technology (GCT) and Innovative Eyewear (LUCY) could price their respective IPOs this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Fabrinet (FN), Global-E Online (GLBE), Navitas Semiconductor (NVTS), World Wrestling (WWE), and ZipRecruiter (ZIP) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Tuesday, August 16 UK: Employment Change, Average Hourly Earnings – June Germany: ZEW Current Conditions & Economic Sentiment – August Eurozone: ZEW Economic Sentiment – August US: Housing Starts & Building Permits – July US: Industrial Production & Capacity Utilization – July Wednesday, August 17 Japan: Core Machinery Orders – June Japan: Imports/Exports – July UK: CPI, PPI – July Eurozone: 2Q 2022 GDP US: Weekly MBA Mortgage Applications US: Retail Sales – July US: Business Inventories – June US: Weekly EIA Crude Oil Inventories US: Federal Reserve FOMC Meeting Minutes - July Thursday, August 18 Eurozone: CPI - July US: Weekly Initial & Continuing Jobless Claims US: Philadelphia Fed Index – August US: Existing Home Sales – July US: Weekly EIA Natural Gas Inventories Friday, August 19 Japan: CPI – July UK: Retail Sales – July Germany: PPI - July Thought for the Day “People who avoid failure also avoid success.” ~ Derrick Lewis Disclosures Tufin Software (TUFN) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Tesla (TSLA), Li Auto (LI) are constituents of the Tematica BITA Cleaner Living Index Tesla (TSLA), Li Auto (LI) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index Apple (AAPL), Microsoft (MSFT) are constituents of the Tematica Research Thematic Dividend All-Stars Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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