European Midday Briefing: Mood Lifted by New China Stimulus

MARKET WRAPS

European stocks made solid gains Thursday, with markets picking up momentum from Asia, where Chinese property stocks soared after the country's top policymakers pledged to offer more stimulus for the sector.

This improved sentiment boosted shares of luxury companies in particular, with Kering leading the way, 7.8% higher.

LVMH, Richemont and Hermes were similarly up 6.8%, 5.6% and 5.5% respectively.

The main event Thursday is a speech from Jerome Powell at 1320 GMT. Several other Fed officials will also speak and might provide "some extra color" on their rate cut projections, ING said.

U.S. Markets:

Stock futures rose, with contracts tied to Nasdaq-100 up well over 1%.

Costco earnings are due.

U.S economic data could be a bigger focus over the remainder of the week. Weekly jobs data and durable-goods orders are due Thursday, plus a third estimate of GDP for last quarter.

Perhaps more notably, the Commerce Department will release closely watched data on personal income and spending trends on Friday, as well as the Federal Reserve's preferred inflation gauge.

Forex:

The dollar traded steady ahead of Powell's speech and U.S. data later.

The Swiss franc rose after the Swiss National Bank cut interest rates by 25 basis points to 1.0% and although the decision was largely expected, market participants had anticipated a possibility of a bigger reduction.

Swiss overnight index swaps implied expectations were evenly split between a 25 basis-point and 50 basis-point cut ahead of the decision, ING said.

The SNB said further reductions may be necessary in the coming quarters while it remains willing to be active in the foreign exchange market as necessary.

ING had expected the SNB to be more explicit in its response to the franc's strength.

Bonds:

An underperformance in French bonds is likely to continue for a while and Barclays Research favors long positions in Spanish government bonds.

"OATs have suffered a fresh wave of underperformance in recent days as political uncertainty and supply pressures refuse to fade away."

This dynamic is likely to persist until the political and fiscal fog clears, with rating reviews also looming, it adds.

Commerzbank Research suggests buying dips in 10-year Bunds towards 2.2%, a level around which yields are expected to find support.

BTPs are expected to get marginal support from the supply side after the treasury's fourth-quarter supply outlook confirmed this year's gross government bond issuance at 350 billion euros, Citi Research said.

This gross bond issuance target for 2024 is at the lower end of the 350 billion-360 billion euros target, in line with Citi's expectations, it said.

The Italian Treasury also said Wednesday that it envisages 65 billion euros of bond supply for the fourth quarter.

Energy:

Crude futures fell more than 2% on signs that supply disruptions in Libya could ease and reports that Saudi Arabia might abandon its oil price target.

According to the U.N., representatives from Libya's rival administrations agreed on the process to appoint a central bank governor--a step that could help resolve a crisis over the control of the country's oil revenue and revive production.

Meanwhile, Saudi Arabia is ready to abandon its unofficial price target of $100 a barrel for crude as it prepares to increase output, the Financial Times reported, citing people familiar with the matter.

A firmer dollar and prospects of a potential temporary ceasefire between Israel and Hezbollah are also weighing on prices.

Metals:

Gold continued to edge higher as the latest U.S. data bolstered the case for another aggressive rate cut and heightened geopolitical tensions in the Middle East drove safe haven demand.

"U.S. consumer confidence unexpectedly fell in August--by the most in three years--raising concerns about the labour market," ANZ said.

"This saw swaps traders price in 75bp of cuts for the remainder of the year."

Angel One said gold was likely to trade higher on the back of intensified geo-political tensions, and projected support for gold at $2,595-$2,644 and resistance at $2,735-$2,788.

The intensifying conflict between Iran-backed Hezbollah in Lebanon and Israel is supporting the haven metal amid increasing fears of a wider conflict, it said.

Investors will also be focusing on Powell's remarks due later, along with Friday's U.S. inflation data, it added.

Industrial Metals

China's stimulus package won't materially alter its commodity demand outlook, Capital Economics said.

EMEA HEADLINES

Commerzbank Confirms Independent Strategy, Raises Returns Targets

Commerzbank plans to improve its profitability and boost shareholder returns in the coming years, the German lender said as it confirmed its independent strategy while it grapples with a possible takeover attempt by Italy's UniCredit.

The board of the Frankfurt-based group, which is the country's leading bank for small and medium-sized companies, on Thursday unanimously confirmed the strategy to 2027 it outlined in November and said that its implementation is progressing rapidly and on schedule.

Diageo Warns of Continued Challenges as Consumers Remain Cautious

Spirits maker Diageo confirmed its outlook for the near and medium term, but cautioned that a tough consumer backdrop means both the beverage industry and the company continue to face challenges.

The company behind brands like Johnnie Walker scotch and Smirnoff vodka said it continued to expect its organic operating margin to remain under pressure this year, with a challenging consumer environment weighing on sales growth. For the medium term, it still forecasts organic net sales growth of between 5% and 7%.

BASF Open to Shed Noncore Assets to Streamline Portfolio

BASF is open to divesting its noncore businesses, starting off with its Brazil decorative paints unit, in an effort to streamline its portfolio, the latest in a string of Chief Executive Officer Markus Kamieth's restructuring measures.

The German chemical giant said Thursday ahead of its capital markets day that as part of its new corporate strategy for 2028 it will focus on its chemicals, materials, industrial solutions and nutrition and care segments as its core business. It is open to pursue active portfolio options for its environmental catalyst and metal solutions, battery materials, coatings and agricultural units, which it considers standalone businesses.

H&M to Miss Margin Target Despite Strong September Sales

H&M Hennes & Mauritz will miss a key profitability target this year but said sales momentum picked up through July and August before accelerating further in September.

Sales in September-the first month of the fast-fashion retailer's fourth quarter-are expected to rise 11% in local currencies on the year as its first collections of the fall have been well received by customers with good sales and strong resonance on social media, it said.

German Consumer Sentiment Edges Higher, But Outlook Remains Gloomy

The consumer mood in Germany improved slightly this month, but the still-subdued level, declining economic expectations and data showing Europe's largest economy continues to slow don't signal a recovery.

The forward-looking consumer-climate index for Germany, published Thursday by research group GfK and the Nuremberg Institute for Market Decisions, forecasts confidence to tick up 0.7 points to minus 21.2 points in October, marginally better than consensus expectations.

GLOBAL NEWS

China Politburo Pledges More Support for Economy, Sparking Fiscal Stimulus Hopes

China's top leaders surprised markets by pledging even more support for the economy, sparking hopes that policymakers are readying the sort of fiscal stimulus analysts say is key to the country's recovery.

The Politburo, China's highest decision-making body, on Thursday said it will extend additional fiscal and monetary measures to boost the economy, according to state media Xinhua. That comes days after the central bank unveiled a raft of aggressive easing moves, underscoring a rising sense of urgency among policymakers to revive the world's second-largest economy.

China Market Support May Fizzle Out If Key Issues Remain Unsolved

China's over $100 billion push to bolster its stock markets has stirred optimism, but begs the question of whether investors and businesses will take the bait amid lingering doubts about the economy's underlying weakness.

In an unprecedented move, the People's Bank of China vowed to invest 800 billion yuan of liquidity, equivalent to $113.77 billion, into Chinese stock markets through new swap and loan facilities, a move cautiously welcomed by analysts.

The Fed Wants to Lower Interest Rates Gradually. Wall Street Sees it Differently.

Wall Street and the Federal Reserve agree the recent half-point cut in the fed-funds rate is the first in many, but they disagree on how quickly rates should decline.

Fed policymakers are set on continuing to lower interest rates at a slow-and-steady pace. Markets, meanwhile, appear to be betting that worsening economic conditions will force the Fed to move more quickly. The data will tell who's right.

China-Linked Hackers Breach U.S. Internet Providers in New 'Salt Typhoon' Cyberattack

Hackers linked to the Chinese government have broken into a handful of U.S. internet-service providers in recent months in pursuit of sensitive information, according to people familiar with the matter.

The hacking campaign, called Salt Typhoon by investigators, hasn't previously been publicly disclosed and is the latest in a series of incursions that U.S. investigators have linked to China in recent years. The intrusion is a sign of the stealthy success Beijing's massive digital army of cyberspies has had breaking into valuable computer networks in the U.S. and around the globe.

Israel Prepares Possible Lebanon Invasion as Hezbollah Fires Missile at Tel Aviv

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September 26, 2024 05:28 ET (09:28 GMT)

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