European Midday Briefing: Stocks Steady as World Watches Middle East

MARKET WRAPS

European stocks edged mostly higher on Wednesday as investors monitored developments in the Middle East.

European airlines , in particular, lost ground on news of the escalating conflict.

Traders will be watching OPEC+'s meeting later, an online gathering that comes after the Saudi oil minister made comments which have been seen as threat of a price war if group members didn't stick to agreed production limits .

Stocks to Watch:

Rio Tinto 's exposure to China will drive shares after the country's government showed it will step to support its economy, Berenberg said, adding that the stimulus measures also keep iron ore prices stable, one of Rio's key commodities.

"With a lower medium-term capital bill than BHP, and significantly less execution risk than Anglo American, we move Rio up to [a] buy [rating], and think that the shares will be the medium-term diversified winner versus peers,"

Vestas 's third-quarter order intake and revenues seem to be tracking slightly below consensus and there could be headwinds to margin expansion and a lower contribution from offshore, Deutsche Bank said as it lowered its target price on the stock to 165 Danish kroner from 175 kroner, but kept its hold rating.

Assa Abloy stock looks to be pricing in upgrades to 2025 growth which are unlikely, according to Citi.

Assa Abloy is a relative underweight compared to other high-quality names in the sector, such as Legrand, it added.

U.S. Markets

Stock futures were lower early as investors wait and see Israel's response to Iran's attack.

The ADP employment report is due at 1215 GMT ahead of Friday's nonfarm payrolls.

An update from Tesla on quarterly vehicle deliveries is expected, as well as earnings from Conagra Brands before the open.

Stocks to watch

Nike slid premarket after the sportswear company posted a drop in quarterly revenue and sales.

Forex:

The euro might benefit if the French-German government bond spread remains contained next week when full details of the French budget are unveiled, MUFG Bank said.

French Prime Minister Michel Barnier on Tuesday provided initial details of plans to reduce the budget deficit, including spending cuts, which might be opposed by left parties but be more palatable for the right and the National Rally, the largest party in parliament.

The prospect of getting a plan approved have improved, as reflected by the modest narrowing of the French-German bond spread, it added.

"If the spread does remain contained through the budget process next week it will remove one near-term downside risk for the euro."

The USD rebound is underway, boosted by tensions in the Middle East, OCBC said.

"Gold, bonds, and oil have reacted more while the equity, FX responses appear milder."

"It is probably prudent to monitor further if there is excessive complacency in markets," it said, cautioning that a widespread conflict involving more parties could fuel risk-aversion flows that would benefit the likes of the dollar, the Swiss franc, the yen and gold.

ING said geopolitical events should remain the main driver for the currency and U.S. domestic developments, including the vice-presidential candidate debate data, have been overshadowed.

Bonds:

Credit spreads are expected to widen slightly according to UniCredit, "The escalation of geopolitical tensions in the Middle East will weigh on market sentiment today as investors finally started to react to rising tensions, while waiting for Israel's response."

Most economic data this week are unlikely to have much impact it added, saying it didn't expect strong market conviction towards wider spreads as long as the U.S.-soft-landing narrative remained intact.

The 10-year German Bund yield could test the 2% level, Commerzbank Research said.

The 10-year OAT-Bund yield spread is still elevated and in line with expectations of rating downgrades by at least one notch, ING said.

The spread "reflects market concerns about the stability of the government and by extension the longer-term commitments to fiscal consolidation."

Energy:

Oil gained further on growing fears of a full-scale regional war in the Middle East.

"Significant escalation would likely involve targeting Iranian nuclear facilities and energy infrastructure, which would likely boost the risk premium priced into the oil market."

Meanwhile, traders will be closely watching OPEC+'s meeting later on Wednesday for more cues on the group's next policy move.

European natural-gas prices rose early, boosted by Middle East tensions that could hit key supply routes.

Meanwhile in Ukraine, fears of supply disruptions are still high after President Volodymyr Zelensky said that an intelligence report indicates Russia is planning strikes on nuclear facilities.

Metals:

Gold edged lower early, with some profit-taking, after rising in the previous session as fears of an all-out war in the Middle East drove safe-haven demand.

"Haven assets were in demand amid the rising tensions in the Middle East, " ANZ Research said.

"Even so, the outlook for real interest rates is what will drive gold prices over the longer term."

Steel inventories held by Chinese distributors are at a six-year low entering China's Golden Week holiday, a potentially bullish driver for prices, Citi said.

Distributor inventories were drawn down by 27% in 3Q versus a typical 3Q reduction of around 5% following cuts to China's daily steel output in recent months.

EMEA HEADLINES

JD Sports Fashion Revenue, Profit Rise; Strengthens U.S. Presence

JD Sports Fashion reported an increase in revenue and profit for its fiscal first half and said it was continuing to bolster its presence in the U.S.

The U.K. sneaker and fashion retailer said Wednesday that it booked revenue of 5.03 billion pounds ($6.68 billion) for the period ended Aug. 3, up 6.8% on year at constant currency.

TotalEnergies to Invest $10.5 Billion in Suriname Oil Project

French energy major TotalEnergies said it would invest $10.5 billion in a large offshore oil-and-gas field in Suriname, in line with its push to expand its project portfolio outside of the restrictive legal environments of North America and Europe.

Europe's second-largest integrated oil company by market value said Tuesday that it signed a final investment decision for the Gran Morgu field, which has estimated recoverable resources of more than 750 million barrels.

GLOBAL NEWS

Iran Attacks Israel. The Israeli Response Will Drive the Market.

Iran fired a barrage of missiles at Israel on Tuesday, prompting the price of oil to rise and stocks to fall. The attack did minimal damage, but employed roughly twice the number of ballistic missiles as a similar Iranian strike on Israel in April, according to the Pentagon.

Israeli Response to Iran's Attack to Set Course of Widening War

As Israel weighs how to respond to Tehran's latest missile barrage, it could take a page from its previous playbook when, after days of deliberation, its military targeted a single Iranian military site.

Few expect Israel's response to be as narrow this time, posing a fresh test as the Biden administration seeks to avoid a new spiral of escalation.

AI Could Help Solve Inflation, Federal Reserve Gov. Cook Says

Could advances in artificial intelligence be the key to help reduce U.S. inflation rates and keep them low? Federal Reserve Gov. Lisa Cook said Tuesday that she is onboard with the possibility that the latest technological advances could have long-term disinflationary benefits.

Speaking at the Technology-Enabled Disruption Conference organized by the Federal Reserve Banks of Atlanta, Boston, and Richmond, Cook said that she is closely monitoring recent developments in AI because the technology could begin to play a much larger role in improving labor productivity.

Vance Seeks to Temper Trump's Policies, Walz Casts Former President as Dangerous

JD Vance sought to temper Donald Trump's more controversial rhetoric on issues like abortion, immigration and guns during a vice presidential debate Tuesday night, as an occasionally tense Tim Walz offered a defense of Kamala Harris's record and argued that Trump poses a danger to democracy.

On the campaign trail, the Republican senator from Ohio has developed a reputation as a partisan attack dog. But throughout the debate, he gave a more polished performance, playing down Trump's plans for mass deportations and saying the GOP needs to earn back the trust of Americans on abortion, tacitly acknowledging a massive gender gap Trump suffers. And he reminded viewers of his modest roots and that he was raised by "two lifelong blue-collar Democrats."

Spy Mania Sows Fear Among Russia's Scientists

Think of Russia's most dangerous jobs and the role of research scientist doesn't immediately spring to mind. Coal miner, maybe. Or a deep sea diver on the Barents Sea oil rigs. The same kinds of jobs that are dangerous anywhere.

But over the past six years, at least a dozen scientists, many of whom conducted research in the field of high-speed aerodynamics or hypersonics, have been arrested. Some of the arrests were on suspicion of handing over scientific data to Moscow's rivals. The latest was sentenced to 15 years in prison.

North Carolina in Crisis Mode as Helene Rescues Continue

As the death toll from Helene continued to rise, the city of Asheville in western North Carolina's Blue Ridge Mountains was picking up the pieces from the devastating storm.

Water systems were down Tuesday and would likely take weeks to repair, many roads in the city were washed away, and there was no word from some rural communities cut off by the floods.

Write to clare.kinloch@dowjones.com

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

(MORE TO FOLLOW) Dow Jones Newswires

October 02, 2024 05:34 ET (09:34 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.