European Midday Briefing: Shares Boosted by Fed's Super-Sized Cut; BOE Awaited

MARKET WRAPS

Stocks:

European stocks rose on Thursday after the Federal Reserve lowered its interest rate for the first time in four years, while investors awaited a rate decision from the Bank of England.

"The U.S. may have experienced whipsaw price action on the back of yesterday's Fed rate cut, but there has been a straightforward welcome to the Fed's dovish leap into its rate cutting cycle in Asia and Europe, " XTB said.

The Bank of England is likely to leave rates unchanged in a decision at 1100 GMT and deliver its next rate cut in November, Jefferies said.

U.S. Markets:

Stock futures rallied following the Fed's rate cut.

Focus turned to the weekly initial jobless claims due at 1230 GMT, followed by data on existing home sales at 1400 GMT.

Forex:

Sterling rose ahead of the Bank of England's policy decision later as the central bank is widely expected to leave interest rates unchanged.

Inflation hasn't eased enough to warrant further rate cuts just yet, ING said.

The notion that the BOE is treading more carefully than the Federal Reserve is contributing to sterling's strength, it said. "That shouldn't change after today's meeting."

GBP/USD could rise above 1.33 by the end of the week while EUR/GBP could fall below 0.84, ING said.

The dollar rose after briefly falling to a near 14-month low on Wednesday in reaction to the Fed's rate cut.

The dollar's recovery is "probably because the move did not come out of the blue after recent adjustments in market rate-cut expectations and because Powell made it clear that the 50 basis-point easing did not represent the new pace," Unicredit Research said.

The Norwegian krone rose to a near three-week high against the euro after Norges Bank left interest rates unchanged at 4.5% and said it expects to hold rates steady until year-end.

The Norges Bank said restrictive monetary policy is still needed to bring inflation down to target. It was concerned that inflation could remain above target for too long if rates are lowered prematurely, although overly tight policy could weigh on growth.

"We believe that there is a need to keep the policy rate at today's level for a period ahead but that the time to ease monetary policy is approaching," Governor Ida Wolden Bache said.

Bonds:

Eurozone government bond yields traded higher as markets absorbed the Fed's 50-basis-point rate cut.

Treasurys "bear-steepened" after the meeting--with the gap between short- and long-dated yields widening, driven by long-dated bond yields rising faster than short-dated ones--with 10-year Treasury yields rising above 3.7%.

Energy:

Oil prices edged higher after a large interest-rate cut from the Fed, but market concerns over the global demand outlook lingered.

Meanwhile, traders were keeping a close eye on the Middle East after Iran-backed Hezbollah was hit by another wave of exploding devices that pointed to a complex attack carried out by Israel.

Both Brent and WTI recently rebounded from multi-year lows, but widespread concerns over weakening demand appeared to be capping further gains.

Metals:

Gold prices nudged higher after the Fed kicked off its monetary easing cycle.

"The FOMC reassured investors that it's ready and willing to pull the trigger on bigger rate adjustments if needed, but Powell's cautious message moderated some of that optimism," Peak Trading Research said.

EMEA HEADLINES

New Car Registrations Slump in Europe Amid Weakening Demand, Steep EV Decline

Stellantis and Volkswagen posted significant drops in August new-car registrations in the European Union, contributing to a sharp overall decline as demand weakened in key markets and electric-vehicle sales fell.

Consumers in core markets of Germany, France, Italy and Spain drove an 18% on-year drop in the bloc's monthly registrations, which reflect sales, the European Automobile Manufacturers' Association said Thursday. EU registrations came to around 643,600 for the month, with every major European carmaker posting declines.

Campari's Top Investor to Buy Up to $111 Million in Shares, Citing Market Value

Davide Campari-Milano's controlling shareholder Lagfin said it plans to buy shares in the Aperol maker valued at up to 100 million euros ($111.2 million), saying the company's market price doesn't reflect its true value.

The move followed news that Matteo Fantacchiotti, chief executive of the Italian liquor maker, resigned from his role for personal reasons, just months after taking the helm.

Ocado Retail Lifts Sales Guidance on Improved Volumes

Ocado Retail, the joint venture between Ocado and Marks & Spencer Group, lifted its revenue guidance for fiscal 2024 after a sharp increase in third-quarter sales, supported by improved volumes.

The online grocer said Thursday that it now expects revenue growth in fiscal 2024 to be in the low double digits, compared with previous guidance of mid-high single digits.

Next PLC Lifts Guidance Again on Sales Strength

Next PLC raised its guidance for fiscal 2025 again, citing the strength of its full-price sales over the past six weeks.

The fashion retailer-seen as a bellwether for the sector in the U.K.-said it now expects to report 995 million pounds ($1.31 billion) in pretax profit for the year ending in January, up 15 million pounds from the previous guidance. Last month, it lifted its view for by 20 million pounds to 980 million pounds, citing extra sales and cost savings in logistics.

GLOBAL NEWS

Big Rate Cut Forces Fed to Contend With New Obstacles

Fed Chair Jerome Powell entered a new phase in his campaign to softly land the U.S. economy, lowering interest rates Wednesday with an audacious half-point cut. The move raised new questions the central bank can't easily answer.

At the same time, the rate cut did clarify the answer to a more important question about the Fed's overarching goal. It underscored Powell's desire to prevent the central bank's past rate rises from tipping the economy into recession now that inflation is heading down.

The Fed Has Significantly Improved the Odds of a Soft Landing

In the past month, something that once seemed impossible suddenly became likely. After four years of upheaval, the U.S. now seems to have low inflation, low unemployment, and solid economic growth.

The popular term for this is soft landing. A better word is "normal." This is what an economy is supposed to look like.

Republican Divisions Sink House Bill as Government Shutdown Nears

WASHINGTON-An initial proposal by House Speaker Mike Johnson (R., La.) to fund the government was voted down Wednesday, underscoring the divisions within the Republican Party but potentially setting the stage for talks with Democrats on avoiding a partial shutdown at the end of the month.

The vote on the short-term funding bill was 202 in favor to 220 against, with more than a dozen holdout Republicans joining most Democrats in opposition. Two Republicans voted present.

Pentagon Worries Israel Is Close to Launching Ground War in Lebanon

A wave of deadly explosions of pagers and other electronic devices carried by militants in Lebanon has sharply heightened Pentagon concern about a potential ground war erupting in southern Lebanon between Israel and Hezbollah.

Even before the hundreds of widely dispersed detonations Tuesday and Wednesday, U.S. Defense Secretary Lloyd Austin told other senior Pentagon officials in a Monday meeting that he feared Israel could soon launch an offensive, after months of back-and-forth rocket and air attacks with Hezbollah, an Iranian-backed militia group that controls much of southern Lebanon.

Putin Is Under Pressure to Call Up More Troops for War of Attrition

Months before President Vladimir Putin's inauguration in May, he met with Defense Ministry officials who pushed for a fresh round of mobilization to recruit more troops to offset Russia's losses on the front line in Ukraine, said a person briefed on the exchange.

Putin dismissed the idea, saying he wanted to use only those who were voluntarily signing military contracts, the person said.

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September 19, 2024 05:24 ET (09:24 GMT)

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