Early Morning Call: European equity markets hesitant while yen weakens

Equity market overview

Equity markets in Europe are hesitant this morning, following small gains in the US yesterday and in the APAC region overnight.

In Japan, trade deficit more than doubled in August compared to July to its biggest shortfall on record. Imports jumped 49.9% in the year to August, more than the 46.7% expected, driven by costs of crude oil, coal and liquefied natural gas.

Japan is particularly vulnerable to energy costs as it imports around 94% of its primary energy supply. The weakness of the yen, now at a 24-year low against the dollar, makes it more expensive, which leads to importing inflation.

Unlike other major central banks, the Bank of Japan (BoJ) has so far adopted an ultra-accommodative policy, prioritising its support to the economy, which led to a depreciation of the yen, now down nearly 30% this year. Yesterday, the BoJ conducted a rate check with banks, suggesting it is planning to take measures to tame sharp yen falls.

In Australia, the unemployment rate rose to 3.5% in August from 3.4% the previous month, but only because more people went looking for work. Net employment rose 33,500, in line with market forecasts, after a 41,000 fall in July.

In the US, we expect a few macroeconomic indicators, starting at 1.30pm with initial jobless claims. 226,000 new claimants are expected for last week’s retail sales. The past four weeks have showed a steady decline, from the 252,000 recorded in the first week of August.

Also, at 1.30pm, economists expect retail sales to remain flat for the second month running on a month-on-month (MoM) basis. Then at 2.15pm industrial production, anticipated to increase by 0.1% in August month-on-month (MoM), followed at 3pm by business inventories, expected to have increased by 0.6% in July MoM.

Earnings overview

Kier Group PLC posted a 20% operating profit increase to £121 million. Revenue remains unchanged at £3.3 billion. Kier Group sees no change in its current market outlook.

Wickes Group Limited reported earnings and revenue broadly unchanged in the first half (H1) and reiterated that the DIY market has softened.

Adobe Systems Inc (All Sessions) is expected to show a rise in quarterly earnings and revenue tonight after the US closing bell. Analysts estimate earnings of $3.33 per share. For the same quarter last year, the company reported earnings of $3.11 per share. Revenue is forecast to increase 12.6% in revenue to $4.43bn.

Tech stocks have been particularly affected by soaring inflation and associated interest rate increases. Since its November 2021 highs, the stock has fallen nearly 50%.

Commodities

According to the EIA, crude inventories rose by 2.4 million barrels last week, about three times more than analysts’ expectations. The gains were boosted by an 8.4-million-barrel release from the US strategic petroleum reserves.

US gasoline stocks fell by 1.8 million barrels in the week, while distillate stockpiles increased by 4.2 million barrels.

Finally, gold is trading at eight-week lows and is closing down on July support.