European Midday Briefing: Investors Consider ECB Inflation Data, Fed and ECB Remarks

MARKET WRAPS

European stocks traded mostly higher on Tuesday as investors digested eurozone inflation data , as well as remarks from Christine Lagarde and Jerome Powell.

With price pressures cooling and recent purchasing managers' surveys pointing to a sharp loss of economic momentum in September, the "stars are all aligned" for another ECB rate cut in October, Pepperstone said.

Meanwhile, Powell said officials would continue to reduce interest rates , but they didn't currently see a reason to lower rates as aggressively as they did at their most recent meeting.

Jefferies said the environment remains positive for risky assets as the global growth picture is "doing fine" and the Fed, ECB and Bank of England are in rate cutting mode.

"From a market perspective, this environment supports our positive view on equities and credit."

Stocks to Watch:

Kering could face further profit warnings amid a worsening trading environment, AlphaValue said as it cut the stock to reduce from buy.

U.S. Markets

Sock futures were mixed while Treasury yields edged lower at the start of the new quarter.

While traders will be waiting for labor data on Friday, Nike is due to report earnings after the bell Tuesday and the U.S. vice-presidential candidates' debate will be televised later.

Forex:

The euro stayed weaker against the dollar after the eurozone inflation data.

ING said the euro could fall further against the dollar after Lagarde hinted at an October interest-rate cut and Powell pushed back against aggressive policy easing expectations.

"The notion that an inflation-concerned ECB would move more carefully than the Fed on easing is crumbling."

The euro could fall below $1.1100 in the coming days if eurozone inflation eased while some fresh political risk premium could be built into the euro amid French budget concerns, it added.

The dollar continued to rise after Powell indicated on Monday that further interest-rate cuts would be gradual.

His remarks indicated that further evidence of U.S. labor market weakness would be required to encourage the Fed to deliver further 50 basis-point rate cuts, MUFG Bank said.

"The comments will place even more focus on the release of the latest nonfarm payrolls report on Friday."

Bonds:

Morgan Stanley expects a faster pace of ECB interest-rate cuts should entail a faster re-convergence of the 10-year German Bund yield towards 2%, potentially in the 1.8-1.9% area by year-end.

"The current market assessment on European macro calls for a sub-2% 10-year Bund [yield] being reached in 2025, with a potential consolidation around the 1.60% area by the first quarter of 2025."

Morgan Stanley expects a 25 basis-point ECB rate cut in October, followed by back-to-back cuts until March 2025.

Energy:

Oil prices edged lower in early trading as prospects of increased supply from OPEC+ offset risks of supply disruptions in the Middle East.

OPEC and its allies are set to gradually unwind some of its production cuts from December, raising concerns about an oversupplied market next year.

Meanwhile, the latest Chinese data showed factory activity contracted for a fifth consecutive month in September, fueling persistent fears of sluggish demand in the world's second-largest economy.

According to analysts, the market has become increasingly numb to Middle East tensions given that oil production hasn't been materially affected yet.

But supply disruption risks would increase dramatically if Iran became more directly involved.

Metals:

Metals edged higher in early trading, but the stronger dollar weighed on investor appetite.

The market reacted positively to stimulus measures after top Chinese cities rushed to ease home buying curbs, ANZ said, while the latest Chinese data showed factory activity contracted less than expected in September even though it shrank for a fifth straight month.

Gold futures were broadly stable after Powell's speech signaled a moderate pace in the easing cycle.

Legal & General said co mm odity markets were likely to enjoy plenty of new inflows from investors waking up to their crucial role in the energy transition over the next few years, adding that focus is currently on equities like miners and fixed income rather than the necessary raw materials like copper, zinc or nickel.

"The opportunity upside in metals is enormous."

Citi said prices for nickel, platinum group metals and uranium could spike should Russia restrict exports of the commodities.

EMEA HEADLINES

UAE's Adnoc Buys Germany's Covestro for $13 Billion

An oil producer from the United Arab Emirates has clinched a $13 billion-plus deal for Germany's Covestro-a big bet on chemicals as part of its effort to transform into a fully integrated energy company akin to Exxon Mobil and other U.S. majors.

Stellantis Recalls More Than 150,000 Hybrid Jeeps Over Fire Risk

Stellantis is recalling over 150,000 of its U.S. market plug-in hybrid Jeeps over a potential fire risk.

The news comes a day after the company saw its shares plunge nearly 15% as it cut its full-year earnings guidance, saying it will accelerate plans to trim bloated U.S. inventories and faced weaker demand across many of its markets.

Maersk Cautions on Costs And Delays From U.S. Dockworkers Strike

A.P. Moller-Maersk said the U.S. dockworkers strike will affect supply chains, leading to delays in cargo movement, increased costs, and logistical challenges for businesses relying on U.S. East Coast and Gulf ports.

"Longer labor dispute durations may exacerbate disruptions, affecting import and export activities, container availability, and overall operational efficiency," it wrote in a customer advisory.

Partners Group to Sell Metering Company Techem to TPG, GIC in $7.5 Billion Deal

Partners Group said it is selling Techem in a deal that values the German metering company at around 6.7 billion euros ($7.46 billion).

The Swiss private-equity firm said Tuesday that it agreed to sell its majority stake in Techem to U.S. asset manager TPG and Singapore sovereign wealth fund GIC.

LVMH Sells Off-White Label

LVMH sold luxury-streetwear brand Off-White to New York-based brand management company Bluestar Alliance for an undisclosed sum, three years after its first investment in the label founded by American designer Virgil Abloh.

The move marks a rare divestment for the French luxury giant, which has assembled a conglomerate spanning fashion, jewelry, cosmetics and hotels through deal making. On Friday, LVMH said it acquired an indirect stake in Moncler, after it reached an agreement with the holding company controlled by the Remo Ruffini, the chief executive of the Italian premium fashion brand.

Mulberry Rejects Bid From Frasers, Won't Withdraw Fundraising Plan

Mulberry Group rejected Frasers Group's 83 million pound ($111 million) takeover approach and said it would go ahead with a plan to shore up its finances.

The British luxury brand said Tuesday that the offer doesn't recognize the company's potential. It also noted that its majority shareholder, Challice-which has a 56.1% share of Mulberry-supports its strategy and has no interest in the bid.

GLOBAL NEWS

Dockworkers Launch Strike at Ports From Maine to Texas

Dockworkers walked off their jobs at dozens of ports from Maine to Texas at midnight, launching a strike that threatens to rattle the American economy five weeks ahead of the presidential election.

Members of the International Longshoremen's Association, which represents 45,000 dockworkers at East Coast and Gulf Coast ports, began picketing early Tuesday at cargo terminals that handle more than half of American import and export volumes as the contract with port employers expired.

Israel Sends Troops Into Lebanon, Escalating Fight Against Hezbollah

BEIRUT-Israel launched a ground operation in Lebanon, sharply escalating its offensive against the militant group Hezbollah days after killing its top leader in an airstrike in Beirut and heightening concerns of a wider war.

Israel said Tuesday morning that it launched a limited operation in villages in southern Lebanon near the border to attack Hezbollah targets and infrastructure. Those targets "pose an immediate and real threat to Israeli settlements on the northern border," the military said.

U.S. Positions Military Forces in Middle East to Deter Iranian Attack

WASHINGTON-The Biden administration is moving military forces to deter an Iranian response following Israel's stepped-up air campaign against Hezbollah and the start of a ground operation in southern Lebanon, U.S. and Israeli officials said.

Those moves come after the U.S. warned Iran and the militant groups it supports against targeting American personnel or escalating the conflict. U.S. officials are specifically worried that Iran might mount a new attack on Israel as retaliation for the killing of Hezbollah leader Hassan Nasrallah and its escalating military campaign in Lebanon.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

October 01, 2024 05:51 ET (09:51 GMT)

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