European Midday Briefing: Stellantis Warning Drags Auto Sector Sharply Lower

MARKET WRAPS

European stocks were weaker at the start of a data-heavy week, with carmakers deep in the red after a flurry of guidance cuts.

Stellantis and Aston Martin were the biggest fallers after they downgraded their full-year expectations. And their warnings on a deteriorating outlook for the auto industry dragged down other car stocks in the region.

Stocks to Watch

Commerzbank raised the bar for a UniCredit takeover deal by lifting its targets, JP Morgan said.

UniCredit would now have to offer at least 18 euros per Commerzbank share--compared to the 14.1 euros it paid for the first 9% stake.

BBVA faces uncertainty from headwinds in Mexico, where it makes two thirds of its profits, and from its hostile takeover bid for peer Sabadell, Alantra Equities said, adding that visibility on both fronts is key before turning positive on the stock.

U.S. Markets:

Stock futures edged lower at the start of a week which brings more important economic data, including the employment report on Friday.

The Federal Reserve's greater focus on the employment side of its mandate means the market could show high sensitivity to the details of the payrolls data, ING said.

The earnings calendar is relatively light though, with investors following Nike results Tuesday for signs of consumer health.

Carnival is expected to report Monday ahead of the market open and Jerome Powell is due to speak in Nashville at 1755 GMT.

Forex:

The euro rose after German regional data showed headline inflation eased in September but core and services inflation remained sticky.

"The German data suggest that any decline in services inflation, which the European Central Bank has been paying particular attention to, could be small and/or mainly driven by the reversal of the boost from the Paris Olympics," Capital Economics said.

Markets are pricing in a 93% chance of an October interest rate cut and this might be too high given the data, it added.

The dollar was steady as investors looked ahead to the speech from Powell for clues on the Fed's next steps.

"A 50 basis-point cut from the Fed in November continues to be seen as a likely possibility," IG said, although it added that the speech was unlikely to change views much, though it might reinforce comments from the recent decision.

ING said the currency was at risk of falling as nonfarm payrolls data on Friday could show the unemployment rate unexpectedly rose in September.

"If we are right with our call for a tick higher in unemployment, expect a softer dollar as markets stick to expectations for a [50 basis-point Fed interest-rate cut] in either November or December."

Sterling was unmoved by data showing a slight downward revision to second-quarter U.K. gross domestic product growth, and could strengthen further against the euro in coming days in the absence of major U.K. economic data, ING said.

Eurozone inflation data on Tuesday could cement expectations for a 25 basis-point ECB rate cut in October, potentially sending EUR/GBP below 0.83, ING said.

"There isn't a major U.K. release until the October 15 jobs figures, with only the partial exception of the Bank of England's Decision Maker Panel survey [on Thursday]."

Bonds:

Credit investors were expected to stay in a wait-and-see stance ahead of European inflation and U.S. labor data this week, unfazed by the announcement of more stimulus for the Chinese housing market, UniCredit said.

Moderating inflation data has led markets to expect that the ECB could proceed with interest-rate cuts faster, which could weigh on banks' net-interest-income outlooks while benefiting more-leveraged corporate issuers, it added.

Austrian government bond yields dropped in line with their German peers after Sunday's elections .

The far-right Freedom Party emerged as the biggest party, however, all other traditional parties have promised not to work with them and instead seek to create a majority among themselves.

"Austria already has a tradition for negotiations to take months and talks may stretch well into next year," KBC Bank said.

Citi said that while further tightening in [the] 10-year BTP-OAT spread to 25 basis points remains its medium-term base case, the pace might slow down for coming weeks given a lot is in the price.

The key risks for OATs are further foreign outflows and fortnightly supply not finding a meaningful offset from cashflows until end-November, it added.

Government bond supply in the eurozone is expected to decline in October from September, Barclays said.

Energy:

Oil prices rose, boosted by China's latest stiumulus measures aimed at stabilizing the country's property market, as well as supply disruption risks in the Middle East.

Fears of a broader war in the Middle East grew after Israel launched airstrikes against Houthi targets in Yemen and Hezbollah targets in Lebanon.

"The recent escalation of attacks in the Middle East is increasing the likelihood of Iran being directly dragged into the conflict, putting a significant risk around supply disruptions at the OPEC producer," ANZ said.

Metals:

Gold edged higher in early trading, driven by optimism around further U.S. rate cuts and demand for safe-haven assets amid heightened geopolitical tensions.

Meanwhile, optimism over the economic backdrop is improving, supporting the broader commodities complex.

Jefferies said the Fed rate cut and China stimulus are likely to accelerate demand for metals and other mined commodities.

"This provides for a very good fundamental backdrop for the mining sector, and it is happening just as sentiment had reached levels of extreme bearishness."

Jefferies reckons iron ore and met coal will be standout performers between now and year end, helped by seasonal tailwinds, while "copper should perform best over a 6-12 month horizon."

Copper

Copper was higher, and BHP expects world copper demand will rise by roughly 70% to more than 50 million metric tons a year by 2050, and reckons the world will need roughly 10 million tons a year of new mine supply in the next decade

EMEA HEADLINES

Rightmove Rejects REA's Latest $8.3 Billion Offer

Rightmove rejected News Corp-controlled REA Group's fourth proposal, valued at 6.2 billion pounds ($8.29 billion), and called on the company to put forward its best and final offer ahead of Monday's bid deadline.

The London-listed online property portal said it had fully considered the latest proposal and that Chairman Andrew Fisher agreed to meet with REA Chair Hamish McLennan to present the offer and start talks, with a further meeting held with executives from both companies.

Vodafone to Sell Italian Operations to Swisscom Without Need of Shareholder Approval

Vodafone said the sale of Vodafone Italy to Swisscom will no longer require shareholder approval given that the new U.K. listing rules classifies the deal as a significant transaction.

The U.K. telecom company said Monday that its board believes the transaction is in the best interests of its shareholders.

The Disruptive Bank Deal Everyone Wanted-Until It Happened

It is a deal that Europe has wanted for a generation: two big banks combining forces across borders, uniting economies and unleashing growth that has long eluded the region.

Instead, Italian banker Andrea Orcel's surprise attempt to combine his UniCredit with Germany's Commerzbank has turned into a case study on what holds Europe back from keeping pace with the U.S. in economic heft.

GLOBAL NEWS

Chinese Property Stocks Surge as Barrage of Stimulus Continues

Chinese property stocks powered higher in mainland and Hong Kong stock markets, thanks to a barrage of measures from Beijing to stabilize the country's struggling property market.

The rally followed the central bank's announcement on Sunday directing commercial banks to lower mortgage rates for existing home loans by at least 30 basis points below the Loan Prime Rate before Oct. 31.

China PMIs Signal Continued Weakness, Backing Case for Bolder Policy Action

China's latest batch of manufacturing and services activity data didn't give much to cheer about, backing the case for stronger policy action to tackle deepening economic challenges.

The official purchasing managers index signaled shrinking activity for a fifth straight month in September, pointing to continued fatigue in the world's second-largest economy, data released Monday by the National Bureau of Statistics showed.

Will China's Surprise Stimulus Work?

The best week in 16 years for China's stock market was built on hope. Worse, it was built on hope for more state intervention, one of the reasons its economy is in such trouble to start with.

Start with the hope. China went for a triple boost last week: cuts to interest rates and other easing, loans to investors and to companies to buy back their stock, and a promise of something "fiscal" in yet-to-be-defined size.

Israeli Special Forces Launch Raids Into Lebanon Ahead of Possible Ground Incursion

Israeli special forces have been carrying out small, targeted raids into southern Lebanon, gathering intelligence and probing ahead of a possible broader ground incursion that could come as soon as this week, people familiar with the matter said.

The raids, which have included entering Hezbollah's tunnels located along the border, have occurred recently as well as over the past months, part of the broader effort by Israel to degrade Hezbollah's capabilities along the border dividing Israel and Lebanon, the people said.

Zelensky Visited U.S. to Seek War Boost. His Most-Important Ally Shrugged.

NEW YORK-The tepid reception of Ukrainian President Volodymyr Zelensky in the U.S. this week exposed the narrowing options he faces after 2 1/2 years of war.

Zelensky touted his so-called "victory plan," an effort to win more weapons and security guarantees from the U.S. and its allies to gain some leverage over Russia, in a flurry of meetings as he shuttled between New York and Washington.

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September 30, 2024 05:36 ET (09:36 GMT)

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