European Midday Briefing: Stocks Struggle As Investors Wait for U.S. Data, Middle East News

MARKET WRAPS

European stocks were mostly lower on Thursday as investors continued to look to the Middle East for news and awaited vital U.S. jobs data on Friday.

The FTSE was alone in edging into the green, as oil prices remained buoyed amid concerns of supply disruptions.

The CAC 40 in particular slipped on news of a government plan to raise taxes on large companies, share buybacks and individuals on high incomes.

Traders have also been considering how long the U.S. East Coast ports strike could go on before it cascades into wider supply-chain pain.

Citi reckons the effect on freight rates is likely to be minimal under its base case of up to a month of shutdown.

"Our analysis shows up to a month of strike would be manageable without any major disruption to the supply chain."

Stocks to watch

National Grid still has good growth and earnings potential compared with others in the sector, but this looks already reflected in the shares, given the 20% share hike over the last four months, Citi said as it cut its rating on the stock from neutral to buy.

"We have no hesitation to step back into the shares should there be any unjustified sell-off given the strong fundamentals," it added.

U.S. Markets

Stock futures were lower and Treasury yields rose slightly as investors jostled for position ahead of U.S. data, with jobless claims expected at 1230 GMT ahead of Friday's big labor market readout.

The ISM non-manufacturing purchasing managers index, due at 1400 GMT, is seen holding roughly steady.

Constellation Brands is set to report before the open.

Forex:

The dollar rose to a one-month high, boosted by safe-haven flows and Wednesday's stronger-than-expected ADP U.S. private payrolls data, and is likely to remain well supported, ING said.

"We sense that the bar for a dollar-negative reaction to U.S. data today and tomorrow is probably higher after Federal Reserve Chair Jerome Powell's recent pushback against 50 basis-point [interest-rate] reductions."

Unless market nerves over the Middle East ease and oil prices correct lower, the currency might retain decent momentum into Friday's nonfarm payrolls report, it added.

The USD Index's downtrend seems to be ending and the probability of a recovery is increasing, based on the charts , UOB said.

The index closed sharply higher for a third straight session on Wednesday, and given steadily rising momentum on the daily chart, a break of key resistance around 102.00 wouldn't be surprising and the next level to watch would be the 21-week exponential moving average, at 102.70, it added.

Sterling fell to a two-week low against the dollar and a 10-day low versus the euro after the BOE's Bailey signalled the prospect of more aggressive interest-rate cuts if inflation continues to ease.

Bailey's remarks undermined sterling's yield differential with the U.S. and Europe, XTB said.

"The market has used Bailey's comments as a green light to price in more monetary loosening."

The yen weakened against the dollar during the Asian session, weighed by recent remarks from Japanese policymakers.

Bonds:

Eurozone government bond yields edged higher, pressured by incoming supply and higher oil prices.

However Commerzbank said bond prices could soon recover once the bond supply is absorbed.

"ECB easing euphoria remains the overriding theme and another rate cut in October is baked in the cake," it added.

Energy:

Oil prices rose with fears of a widening conflict in the Middle East as markets await Israel's response to Iran's missiles.

"A more limited response would be hitting launch sites used for the recent missile attack, while a significant escalation would be if Israel decided to target Iranian nuclear facilities," ING said.

Prices could move significantly higher also if Iranian oil facilities are targeted, as Iran exports roughly 1.7 million barrels a day, it added.

However gains are capped by a stronger supply outlook, with the latest EIA data showing U.S. crude inventories unexpectedly rose 3.9 million barrels last week and ANZ said the U.S. inventories added evidence that the market is well supplied and can withstand any disruptions.

Metals:

Gold futures were broadly flat, but tailwinds are likely to keep driving prices going forward, according to MUFG.

"We hold conviction in our above-consensus call for [spot] gold and forecast prices to rise to $2,750/oz by year-end and to breach the $3,000/oz threshold in 2025."

Bullion's structural strength continues to be buoyed by its role as the geopolitical hedge of first resort in an uncertain operating environment, amid Middle Eastern conflicts, Fed rate cuts, unprecedented central bank demand, the risk of inflationary policies post-U.S election and rising debt apprehensions, MUFG added.

Angel One agreed that gold was likely to trade higher on increasing risks of the Israel-Iran conflict turning into a wider regional war.

Copper

Jefferies said a projected recovery in copper demand, thanks to stimulus in China and a rate cut by the Fed, is unlikely to be met by a corresponding recovery in supply.

While copper production growth surprised in 1Q--due to limited mine disruptions--it slowed significantly in 2Q it said, citing an analysis of production reports from companies that account for roughly 70% of global mine supply.

Second-quarter output was 0.5% higher year-over-year.

"The impact of mine supply growth on the copper market balance is a key point of debate" and "some believe that there will be a supply overhang over the next year," although it reckons "risk to overall supply remains to the downside" and expect sizable deficits over this decade.

EMEA HEADLINES

Tesco Lifts Guidance on Robust Volume Growth

Tesco raised its profit guidance for fiscal 2025 after price cuts boosted sales volumes in the first half.

The U.K.'s biggest grocer has been cutting prices across a range of products in a bid to lure shoppers to its stores. The company said volume growth exceeded its expectations, paving the way for an increase to its profit outlook for the year ending in February 2025.

U.K. Home Sales Soar as Mortgage Rates Ease

The number of U.K home sales soared on year in September as average mortgage rates fell to their lowest point in 15 months, a report from real-estate agency Zoopla said.

Lower rates have supported double-digit growth in all key measures of sales activity, although house-price inflation remains below 1% in the U.K., it said.

KLM Targets Savings, Explores Asset Sales to Counter High Costs

Dutch airline KLM said it plans to cut costs, push back some investments and consider asset sales as part of a plan to counter rising expenses and lift profitability.

The Netherlands' flagship carrier-part of airline group Air France-KLM-said the measures aim to improve its operating result by 450 million euros ($497 million) in the short term.

Microsoft to Invest $4.8 billion on AI, Cloud Infrastructure in Italy

Microsoft plans to spend about $4.75 billion over the next two years in cloud and artificial-intelligence infrastructure in Italy, the latest pledge from U.S. tech giants to bolster their presence overseas amid booming demand for AI services.

The U.S. tech giant said in a statement Wednesday that it would pour 4.3 billion euros ($4.75 billion) to grow its hyperscale cloud and AI data center infrastructure in the country and provide digital skills training to more than 1 million people by the end of next year.

GLOBAL NEWS

Fed's Barkin Sees More Work to Do on Inflation

Progress on slowing price growth-after two years of 20-year high interest rates and easing supply-chain snags-justifies Federal Reserve rate decreases, but the inflation beast isn't slain yet, according to Thomas Barkin. The central bank's September jumbo rate cut was about adjusting to today's economic backdrop-not a signal of panic about a faltering economy, the Federal Reserve Bank of Richmond President said Wednesday.

"This dial-back in restraint just takes a little bit of the edge off," Barkin said in prepared remarks at the 2024 University of North Carolina Wilmington Economic Outlook Conference in Wilmington, N.C. on Wednesday.

BOJ Board Member Urges Caution on Rate Hikes, Echoing Prime Minister's Dovish Tone

By Megumi Fujikawa

Bank of Japan board member Asahi Noguchi sees a need for the central bank to maintain an accommodative monetary policy stance given Japan's long history of deflation, he said Thursday, echoing remarks from the country's new prime minister.

Israel Reports First Deaths in Lebanon and Bolsters Forces Fighting Hezbollah

BEIRUT-Eight soldiers were killed in the first casualties of Israel's ground campaign in Lebanon, the Israeli military said Wednesday, as it sent additional troops to bolster forces engaged in close fighting with the militant group Hezbollah.

Hezbollah said for the first time Wednesday that it was fighting Israeli forces inside Lebanon. Standing in front of a building in Beirut's southern suburbs that had been destroyed earlier this week in an Israeli airstrike, Hezbollah spokesman Mohammed Afif said the group's fighters were resisting the Israeli offensive.

Iran Exposed to Israeli Counterattack After Blows Against Its Allies

DUBAI-With two of Iran's most powerful proxies-Hezbollah and Hamas-fighting for their lives, Tehran has lost a central pillar of its deterrence strategy, giving Israel an opening to strike what it sees as its most dangerous foe.

On Tuesday, Iran unleashed one of the biggest ballistic-missile barrages in the history of warfare, aimed at targets across Israel. It said it was retaliating for Israel's killing of the two militant groups' leaders, Hassan Nasrallah of Hezbollah and Ismail Haniyeh of Hamas.

Special Counsel Says Trump Committed 'Private Crimes' in Bid to Stay in Power

(MORE TO FOLLOW) Dow Jones Newswires

October 03, 2024 05:41 ET (09:41 GMT)

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