EMEA Morning Briefing: Stock Futures Lower Amid Risk-Off Mood

MARKET WRAPS

Watch For:

EU PPI; services PMI data for EU, Germany, France, Italy, UK; trading update from Tesco

Opening Call:

European stock futures fell as risk-off sentiment prevailed. Asian stock benchmarks were largely lower; the dollar edged higher; Treasury yields were steady; while oil and gold futures advanced.

Equities:

Stock futures fell early Thursday as an increasingly volatile conflict in the Middle East remains in focus. Markets also await economic data, including services PMI in Europe later today and the U.S. jobs report due Friday.

Ongoing tensions in the Middle East may continue to dampen sentiment, with investors likely steering clear of riskier assets, Apex Securities said.

Forex:

U.S. President Biden on Wednesday said the G-7 countries are coordinating a response to Iran's assault against Israel, which would include fresh sanctions on Tehran. The flight to safety in the U.S. dollar continues, Maybank said, noting the potential sanctions. The greenback has also been boosted by better-than-expected U.S. ADP data, Maybank added.

Bonds:

Citi takes profit on a short 10-year U.S. Treasury-long Bund trade and switches to a short U.S. Treasury-long U.K. gilt trade as gilts continue to look cheap, its rates strategists said.

The 10-year German Bund-U.S. Treasury yield spread has moved closer to fair value, prompting the profit-taking, Citi said. The main risk to the long gilt-short U.S. Treasury trade is that gilts have a higher sensitivity to supply, it said. "The sharp recent underperformance of gilts cross-market (both versus U.S. Treasurys and Bunds) likely reflects fiscal concerns into the risk event of the Budget on Oct. 30," Citi said.

Energy:

Oil futures advanced early Thursday amid rising Middle East tensions. Earlier this week, Iran launched a missile attack on Israel, and Israeli Prime Minister Netanyahu said his country would respond to Iran's attack.

ANZ said there are fears of oil supply disruptions following a news report that Israel is considering a missile attack within days that may target oil production facilities in Iran and other strategic sites.

Metals:

Gold edged higher in Asia in a likely technical recovery. Prices were recently lower as safe-haven demand buying for the precious metal was depleted, ANZ said. Although geopolitical risks usually trigger gold buying, that can reverse quickly if those risks fade, ANZ noted.

Investors now turn their focus to the U.S. jobs report due Friday. "Any sign of weakness could increase expectations that the Fed will continue aggressive rate cuts," ANZ said.

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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, Jefferies said.

While copper production growth surprised in 1Q--due to limited mine disruptions--it slowed significantly in 2Q, Jefferies said, citing an analysis of production reports from companies that account for roughly 70% of global mine supply. It said 2Q copper 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 Jefferies reckons "risk to overall supply remains to the downside" and expect sizable deficits over this decade.

TODAY'S TOP HEADLINES

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.

SEC Enforcement Director Who Pushed for Big Fines Steps Down

Gurbir Grewal, who oversaw a stepped-up period of enforcement against Wall Street and the fast-growing cryptocurrency industry, is departing the U.S. Securities and Exchange Commission, the agency said Wednesday.

Grewal, a former New Jersey attorney general, was little-known on Wall Street when he was appointed in 2021 to serve as director of the agency's enforcement division. There, he became known for advocating for bigger fines against securities law violators and for taking a tough stance on cryptocurrency, which he cast as a new form of the same activity the SEC had regulated for decades.

Oil shock? How OPEC+ could soften the blow if the Middle East conflict hits supply.

Oil prices have climbed so far this week, with traders worried that Israel may decide to hit Iran's oil infrastructure in retaliation to Tehran's missile attack - but the market has a not-so-secret cushion that could help offset any loss of output.

"OPEC+ has 5.8 million bpd [barrels per day] spare capacity to compensate for Iran's 1.7 million bpd of discount sanction barrels," said Robert Yawger, director of energy futures at Mizuho Securities USA.

If stocks struggle in early 2025, you can blame the new U.S. president

No matter who wins the U.S. presidential election, the U.S. stock market most likely will struggle for a time after Inauguration Day in January.

Since the Dow Jones Industrial Average DJIA was created in 1896, one of its worst quarterly performances has been the first three months of a president's term in office, producing an average return of just 0.2%. That compares to an average gain of 1.9% in the other quarters of the presidential term. This overall pattern held up regardless of whether the incumbent political party won or lost.

LGT Capital Collects $7 Billion for Private-Markets Secondary Deals

Investment manager LGT Capital Partners has raised its largest pool yet to acquire stakes in private funds, a strategy benefiting from the chill that sharply higher interest rates cast on deals involving private equity and venture capital.

The Swiss firm has collected more than $7 billion from investors for its Crown Global Secondaries VI fund, exceeding a $6 billion target. The pool is roughly 55% bigger than its predecessor, which closed on $4.5 billion in 2021.

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.

OpenAI Nearly Doubles Valuation to $157 Billion in Funding Round

OpenAI has raised $6.6 billion in new funding, capping a complex fundraising process that involved negotiations with multiple tech giants and large private investors at the same time it has been experiencing disruptive internal turmoil.

Investors are valuing the startup behind ChatGPT at $157 billion, a total that puts it on par with the market capitalizations of publicly traded household names such as Goldman Sachs Group, Uber Technologies and AT&T.

Tesla Reports First Rise in Quarterly Deliveries This Year

Tesla's global deliveries rebounded in the third quarter, reversing earlier declines this year that had stoked concerns on Wall Street about the company's ability to grow its car business.

The world's most valuable automaker delivered a total of 462,890 vehicles during the July-to-September period, roughly in line with analysts' expectations. The result was a 6.4% increase over the third quarter last year, when its sales were affected by factory upgrades, which paused production.

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Expected Major Events for Thursday

00:01/IRL: Sep Ireland Services PMI

06:30/SWI: Sep CPI

07:00/TUR: Sep PPI

07:00/TUR: Sep CPI

07:15/SPN: Sep Spain Services PMI

07:45/ITA: Sep Italy Services PMI

07:50/FRA: Sep France Services PMI

07:55/GER: Sep Germany Services PMI

08:00/EU: Sep Eurozone Services PMI

08:30/UK: Sep UK Official Reserves

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

09:00/EU: Aug PPI

09:00/CYP: Sep CPI

10:00/FRA: Aug OECD CPI

23:01/UK: Sep BRC-Sensormatic IQ Footfall Monitor

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(END) Dow Jones Newswires

October 03, 2024 00:17 ET (04:17 GMT)

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