EMEA Morning Briefing: Shares Set to Rise at Start of Week

MARKET WRAPS

Watch For:

EU retail sales; Germany manufacturing orders; trading update from Repsol

Opening Call:

European stock futures were mostly higher at the start of the week. Asian stock benchmarks rose after stronger-than-expected U.S. jobs data last week; the dollar and Treasury yields were little changed; oil and gold futures fell.

Equities:

Stock indexes seem poised to extend gains from Friday, tracking advances by Asian peers amid hopes for a soft landing for the U.S. economy.

Friday's U.S. jobs report looks close to a "Goldilocks" report-warm enough to reassure investors that the U.S. economy is chugging along, but not so hot that it dissuades the Federal Reserve from continuing to cut rates at a gradual pace. Futures markets are pricing in a 99% chance of a quarter-point rate cut at the Fed's next meeting in November, according to the CME Group's FedWatch tool.

Investors are looking ahead to the release of the September consumer price index on Thursday to reinforce their view about where the economy is headed after the Fed's bigger-than-expected half-point interest rate cut last month.

Forex:

Focus this week is on U.S. CPI data for September, which is expected to soften further, as well as a number of speeches by Fed officials, Maybank said.

"For now, it is pretty much two-way risk [for the dollar] depending on how US data fares and to some extent how European data too," Maybank said.

Bonds:

Treasury yields recorded their biggest weekly advances in up to two years on Friday after September's nonfarm-payrolls report produced far more new jobs than expected, erasing the likelihood of another big Fed interest-rate cut next month.

"The U.S. labor market goes supernova, leaving economists' forecasts in the dust and potentially throwing a spanner in the works of the Fed's policy plans," said Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments. "This humdinger of a jobs report comes at a crucial juncture, as markets have eagerly anticipated signs of moderation that justify the Fed's recent dovish pivot."

Energy:

Traders have been making a record number of bullish options bets on Brent crude oil, according to JP Morgan, with many of them wagering it will soar above $100, more than 25% above current prices.

For most of the past year, the war in the Middle East has had a minimal impact on oil prices. While Iran-backed Houthi militants slowed some oil shipments through the Red Sea, neither side attacked oil production and refinery operations. Now, those operations appear to be under threat. "This time, it feels different," JP Morgan strategist Natasha Kaneva said.

Metals:

Strong U.S. jobs data has lowered the pressure for bigger Fed rate cuts, and reduces the chance of another 50bp cut in November, ANZ said. This capped safe-haven buying, as markets also digest Middle East geopolitical tensions, ANZ added.

-

The recent economic stimulus package out of China has increased prospects of a sustained boost to demand for base metals, ANZ said. However, any sustained pickup in gains for prices of base metals will probably hinge on more details of China's fiscal-stimulus measures, the bank said.

TODAY'S TOP HEADLINES

How Long Can the U.S. Economy's 'Goldilocks' Moment Last?

Investors were breathing two big sighs of relief on Friday. Thursday evening brought news that a port workers strike from Maine to Texas, which threatened to paralyze the economy, would end after just a few days. Then came Friday's ebullient jobs report.

The U.S. economy added 254,000 jobs in September, well above estimates for 150,000. Job totals for July and August were revised up. The three-month moving average of job gains, a helpful gauge to smooth out monthly volatility, stood at 186,000 in September, up from 140,000 in August.

A Tried-and-True Investing Pattern Has Lost Its Shape

One of the biggest simplifications in markets is to buy cyclical sectors when the economy's booming, and defensives in a slowdown. It's obvious-until you try to decide what's cyclical and what's defensive.

The recent prospect of Federal Reserve rate cuts, inflation-free growth and Chinese stimulus prompted a strong cyclical rally. Or they did on some measures. On others, the picture is confused.

What Trading Volume Is Telling Investors About the Stock Market

Wall Street veterans have a saying: "Only price pays." Yet volume shouldn't be ignored.

A keen understanding of volume, or the level of trading activity, can give investors a clearer idea of a stock's or market's strength. And unusual changes in volume help point investors to potential changes in price direction.

Stock market's soft-landing rally faces CPI inflation test. Here's what investors should do.

The U.S. stock market celebrated the start of the Halloween season with treats.

A blockbuster September jobs report may have paved the way for the economy to score a soft landing as inflation has fallen, but it also forced investors to dial back bets on the Federal Reserve's future interest-rate cuts while pondering whether the central bank made a policy mistake by lowering interest rates by a half-percentage-point last month.

One Small-Stock Fund Crashes the Big-Tech Party

U.S. large-cap growth funds continue to dominate the mutual-fund landscape, thanks to surging holdings from the "Magnificent Seven" technology stocks like Nvidia and Meta Platforms.

The latest edition of The Wall Street Journal Winners' Circle-a ranking of the top-performing stock-fund managers over the past 12 months-illustrates that trend.

Stock Funds Gained 16.1% Through Third Quarter

It hasn't always been easy, but stock-fund investors might be on their way to a solid 2024.

The average U.S.-stock fund rose 6.6% in the third quarter, to push the year-to-date return to 16.1%, according to data from LSEG, formerly Refinitiv Lipper. (See funds-data tables including Mutual-Fund Yardsticks.)

Corporate Insiders Are Sitting Out the 2024 Stock-Market Rally

Stock investors could hardly be more enthusiastic: The S&P 500 has raced higher, notching its best first nine months of a year since 1997.Yet some of the best-informed investors don't seem to share the optimism.

Corporate insiders have been reluctant to snap up shares of their companies. Of all U.S. companies with a transaction by an officer or director in July, only 15.7% reported net buying of company shares, according to InsiderSentiment.com. That was the lowest level in the past 10 years. The figure ticked up to 25.7% in August before falling to 21.9% in September, well below the 10-year average of 26.3%.

Tech Stocks Usually Rise in October. This Month, Not So Much.

Technology stocks usually do well in October, but this year's start to the spooky month has been rougher than usual.

October is historically the second-best month for the information-technology sector in the S&P 500. The sector rises an average of 2.7% in October, according to Dow Jones Market Data, just behind the 3.1% historic gain in November, its best month. Just like the rest of the stock market, this comes off of what is usually its worst month-September.

Traders Bet Big on $100 Oil as Israel Launches New Attacks

The oil market is on edge at the tail-end of a violent week in the Middle East. Traders have been making a record number of bullish options bets on Brent crude oil, according to JP Morgan, with many of them wagering it will soar above $100, more than 25% above current prices.

Israel fired missiles aimed at Hezbollah leaders in Beirut on Friday, the latest on targets in Lebanon after Israel killed Hassan Nasrallah last month. Hezbollah is backed by Iran, a major energy producer, which retaliated by bombing Israel earlier this week. President Joe Biden on Thursday told reporters he was discussing possible Israeli strikes on Iranian oil facilities in response.

Rio Tinto in Talks to Acquire Arcadium Lithium

Mining giant Rio Tinto is in talks to buy New York-listed lithium producer Arcadium Lithium, its latest attempt to establish a foothold in the fast-growing market for a critical mineral used to power electric cars.

Rio Tinto wants to reshape its business to produce more of the metals it expects will be in demand amid huge growth in clean-energy technologies globally. Today, the world's second-biggest miner by market value relies on steel ingredient iron ore for the bulk of its profits.

Putin's 'Merchant of Death' Is Back in the Arms Business. This Time Selling to the Houthis.

Viktor Bout, the Russian arms dealer known as the "Merchant of Death," walked out of a U.S. jail almost two years ago in a trade with Moscow for U.S. basketball star Brittney Griner. Now he is back in business, trying to broker the sale of small arms to Yemen's Iran-backed Houthi militants.

The 57-year-old, whose life reportedly inspired the 2005 Hollywood movie, "Lord of War," starring Nicolas Cage, spent decades selling Soviet-made weapons in Africa, South America and the Middle East before being arrested in 2008 in a U.S. law enforcement sting operation.

Microsoft's AI Story Is Getting Complicated

Big tech's AI champ is looking a little battered these days.

Microsoft was an early mover on generative artificial intelligence, and investors benefited handsomely. The software company's stock surged nearly 57% last year in its best annual performance since 1999, according to FactSet data. But the cold splash of reality that AI stocks have received over the past few months has been particularly chilling for the company that helped introduce the world to ChatGPT. Microsoft's year-to-date performance of less than 11% lags behind all other megacap techs and the S&P 500. It is also the only one in that crew to trail the Dow Jones Industrial Average for the year.

Google's Grip on Search Slips as TikTok and AI Startup Mount Challenge

Google's grip on the nearly $300 billion search advertising business is loosening.

(MORE TO FOLLOW) Dow Jones Newswires

October 07, 2024 01:46 ET (05:46 GMT)

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