EMEA Morning Briefing: Stock Futures Rise Ahead of EU Inflation Data

MARKET WRAPS

Watch For:

Manufacturing PMI data for EU, U.K., France, Germany, Italy; EU inflation data; no major corporate trading updates expected

Opening Call:

European stock futures were tracking higher early Tuesday. Asian stock benchmarks were mixed in holiday-thinned trade with China, Hong Kong and South Korea markets closed for a holiday; the dollar was steady; Treasury yields were mostly lower; while oil futures rose and gold declined.

Equities:

Stock futures in Europe were slightly higher as traders parse Fed Powell's comments and await the eurozone inflation data.

U.S. stocks ended Monday on a positive note, rising for the month and quarter. The rally came despite Fed Chair Jerome Powell signaling smaller interest rate cuts which dashed market expectations for a supersized half-point cut.

"Factors that may continue to propel this market [in the fourth quarter] include China's recent stimulus program, the ongoing easing in U.S. inflation readings as the personal-consumption expenditures [index] for August recorded another downtick in growth, and the likelihood of two more Federal Reserve interest-rate cuts totaling 50 to 75 basis points," said Sam Stovall, chief investment officer at CFRA Research.

Focus today is on the provisional eurozone inflation data for September as analysts and investors speculate about the prospect of the European Central Bank opting for back-to-back interest-rate cuts.

"September's inflation data from France and Spain all but confirm that the headline rate in the eurozone as a whole will show a sharp decline to below the 2% target," Capital Economics senior economist Franziska Palmas said, adding that this makes a rate cut in October likelier than before.

Also on tap, final purchasing managers' surveys for manufacturing for France, Germany and the eurozone.

Forex:

The euro was unlikely to rise much further against the dollar in the near term as expectations for Federal Reserve and European Central Bank interest-rate cuts are fully priced for this year, Bank of America said.

However, EUR/USD should see further strength next year due to a weaker dollar, BofA forex strategist Athanasios Vamvakidis said.

"Our thesis remains that Fed policy easing in a U.S. soft landing will weaken the dollar from an overvalued level."

BofA maintains its long EUR/USD trade, expecting to rise to a target of 1.15 by the second quarter of 2025, but increases its stop loss to 1.10 from 1.04 previously as the exchange rate is trading near its year-end 1.12 forecast.

Bonds:

U.S. Treasury yields were mostly lower early Tuesday. The September payrolls report on Friday is the biggest headliner for the week that can move yields in either direction. A stronger-than-expected report could reignite concerns on inflation, taking yields higher as investors demand more returns to hold the 10-year.

U.S. government debt finished September with a fifth straight month of gains, putting in its best performance in up to 14 years, even after an extended selloff on Monday when Fed Chairman Jerome Powell implied officials are in no hurry to further cut interest rates.

Energy:

Oil prices gained in Asian trade amid rising Middle East tensions. "The risk of a broader conflict in the Middle East is raising concerns about interruptions in oil supply," said Milad Azar, market analyst at XTB MENA.

Traders could remain cautious and monitor new developments as supply disruptions may drive oil prices higher, Azar added.

Metals:

Gold edged lower. The precious metal remains near last week's record highs, noted Tito Iakopa, commercial director at FlowCommunity.

The precious metal's rally has been supported by safe-haven demand, Iakopa said. "Geopolitical tensions in the Middle East continue to drive demand for safe-haven assets like gold, as investors seek protection from risks, providing additional support to the precious metal prices," Iakopa added.

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Copper rose with prices supported by positive sentiment over Beijing's stimulus measures, ANZ research analysts said.

More targeted support for the property sector and for the economy in general signal stronger demand for construction materials like copper, they said.

TODAY'S TOP HEADLINES

Fed's Powell Says Rate Cuts Can Sustain Soft Landing, but Sees No Need to Rush

NASHVILLE, Tenn.-Federal Reserve Chair Jerome Powell said officials would continue to reduce interest rates from a two-decade high to maintain solid economic growth, but they didn't currently see a reason to lower rates as aggressively as they did at their most recent meeting.

"Overall, the economy is in solid shape; we intend to use our tools to keep it there," Powell said Monday afternoon at a conference in Nashville, Tenn. Because officials have a relatively favorable economic outlook, "this is not a committee that feels like it's in a hurry to cut rates quickly," he added.

The stock market is entering the most volatile month of an election year - but the rally may be here to stay

Wall Street is about to flip its calendar to the most volatile month of a presidential election year, but the record-setting rally seen in the third quarter has investors pondering whether the big gains have staying power.

History shows that a positive stock-market performance in September during election years since 1945 has led to a gain in the following October nearly 80% of the time, compared with the typical frequency of just 61% across all years, according to Sam Stovall, chief investment officer at CFRA Research.

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.

Israeli said Tuesday morning that it launched a limited operation in a number of 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.

UAE's Adnoc Nears $13 Billion Deal to Buy Germany's Covestro

An oil producer from the United Arab Emirates is finally set to clinch 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.

Qatar Airways Plans to Acquire 25% Stake in Virgin Australia

SYDNEY-Australia's second-largest airline, Virgin Australia, said Middle Eastern carrier Qatar Airways plans to acquire a 25% stake in Virgin Australia, a key investment as the Bain Capital-owned carrier eyes an IPO.

The deal is still subject to regulatory approval, including from Australia's Foreign Investment Review Board. Virgin Australia said it planned to launch flights from key Australian cities to Doha, which would require authorization from Australia's competition regulator.

Sony Pictures, Studio Behind 'The Crown' and 'Jeopardy,' Gets a New Boss

The head of Sony's movie and television studio is stepping down early next year, passing the baton after helping the company sidestep costly investments in streaming that challenged many of its rivals.

Sony Pictures Entertainment Chief Executive Tony Vinciquerra is expected to take on an advisory role in January, while President and Chief Operating Officer Ravi Ahuja will become CEO, the company said Monday.

PepsiCo Nears Deal for Tortilla-Chip Maker Siete Foods

PepsiCo is in advanced talks to acquire tortilla-chip maker Siete Foods for more than $1 billion, according to people familiar with the matter.

A deal for the closely held business could be announced soon, provided the talks don't fall apart, the people said.

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Expected Major Events for Tuesday

00:01/IRL: Sep Ireland Manufacturing PMI

04:30/NED: Aug Retail turnover

04:30/NED: Sep Flash Estimate CPI

05:00/NED: Sep Netherlands Manufacturing PMI

06:30/SWI: Aug Retail Sales

07:00/TUR: Sep Turkey Manufacturing PMI

07:00/POL: Sep Poland Manufacturing PMI

07:15/SPN: Sep Spain Manufacturing PMI

07:30/CZE: Sep Czech Republic Manufacturing PMI

07:45/ITA: Sep Italy Manufacturing PMI

07:50/FRA: Sep France Manufacturing PMI

07:55/GER: Sep Germany Manufacturing PMI

08:00/GRE: Sep Greece Manufacturing PMI

08:00/EU: Sep Eurozone Manufacturing PMI

08:30/UK: Sep S&P Global UK Manufacturing PMI

09:00/EU: Sep Flash Estimate euro area inflation

09:00/GRE: Aug Labour Force Survey

16:59/AUT: Sep Unemployment figures

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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 00:15 ET (04:15 GMT)

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