European Midday Briefing: Stocks Slammed on China Stimulus Disappointment, Tariff News

MARKET WRAPS

Stocks:

European stocks fell sharply Tuesday, with luxury goods and drinks companies among the biggest decliners, as investors expressed disappointment at the lack of detail on China's stimulus plans and weighed news that the country will impose provisional antidumping tariffs on European brandy.

However, Goildman Sachs said China is still likely to roll out new fiscal stimulus.

"Some investors appeared to have high expectations for concrete stimulus measures ahead of the NDRC press conference, so the lack of specifics today may be disappointing."

Goldman Sachs said it continues to expect officials will approve an additional CNY1 trillion-CNY 2 trillion in ultra-long-term central government special bond quotas by year's end, tap unspent local government bond quotas to facilitate debt swaps, and maintain a fiscal easing stance in 2025 and potentially beyond.

Stocks to Watch

Airbus could lower its annual aircraft delivery target once again when it reports third-quarter earnings on Oct. 30, UBS said, which now forecasts 750 deliveries this year.

Banco Comercial Portugues has three areas of upside, which underpin its continued outperformance, UBS said separately.

The lender's new strategic targets are likely to revolve around Portugal's earning sustainability, the pace of profit normalization in Poland and a top-up in shareholder remuneration

Credit Agricole's insurance, asset-management and wealth unit performance should lead to results ahead of consensus and a return on tangible equity sustainably above the sector, Jefferies said.

U.S. Markets

Stock futures held broadly steady as investors confronted concerns ranging from rising oil prices and war in the Middle East to Hurricane Milton and the approaching elections.

PepsiCo is due to report earnings before the opening bell.

It is the first big name as third-quarter earnings start to roll in, and the good news is that results are likely to surpass estimates, but they're unlikely to spark a major market rally.

Forex:

The euro risks weakening as money markets are nearly fully pricing in an interest-rate cut in October, even as the decision could be a closer call than markets suggest, ING said.

Data continues to show sticky services inflation and higher oil prices mean the ECB could raise its inflation forecasts, it said, however, markets are unlikely to give up bets for an October cut easily and the wide USD-EUR rate gap "still points to some pressure on EUR/USD in the near term."

The dollar eased, albeit only marginally, after earlier gains driven by a scaling back of Fed rate-cut expectations following Friday's stronger-than-expected U.S. nonfarm payrolls report.

The market has ruled out the prospect of another 50 basis-point rate cut by the Fed following the jobs data while the probability of no rate cut in November has risen, Swissquote Bank said.

If U.S. inflation data on Thursday aren't soft enough, expectations for unchanged rates in November could rise further, boosting yields and the dollar, it added.

Bonds:

Prospects of a soft landing for the U.S. economy and further U.S. rate cuts suggest it's a good time to buy fixed income, UBS said, suggesting investors to position for lower rates and favors 1-10-year bonds and an average 5-year portfolio duration.

"The U.S. data is not so strong that the Federal Reserve's contribution to the global rate-cutting cycle looks set to end."

UniCredit Research said bond markets are likely to tread water on a light data agenda before the U.S. CPI release, with the 2-10-year Treasury yield curve steepening modestly, having inverted briefly on Monday.

Citi said German Bund yields are trading near levels that look attractive after rises in the past few sessions.

"In our minds, the selloff is unlikely to stretch too far beyond 2.25% making it the start of the 'buy-the-dip' zone."

"That is because we still see a pull to lower yields over a three-six-month horizon, forecasting 10-year Bunds to 1.85% in 1Q25.

The outperformance of Portuguese government bonds continues, although spreads of bonds with intermediate maturity could face some resistance after yields have fallen below those of Dutch government bonds at the start of the week, Commerzbank said.

The latest headlines suggest that a budget compromise is in sight, the macro and fiscal dynamics are positive, while there is a structural scarcity in Portuguese government bonds, it said.

Betting on the steepening of the 10-30-year Dutch government bond yield curve is an opportunity provided by the Netherlands' auction of the July 2034-dated bond, Rabobank said.

Energy:

Oil prices eased in early trade after rallying in the previous session, as traders await new developments in the Middle East.

"We have noted a diminishing in the impact of geopolitical events on oil supply," ANZ said, as any impact loss of supply can be covered by OPEC's 7 million barrels a day of spare capacity.

Gains are also capped by persistent concerns over the global demand outlook, despite disruption risks to U.S. supplies due to Hurricane Milton.

Metals:

Gold futures slipped, seeing some slight pullback but otherwise trading in a narrow range, hovering close to the $2,708.70 record set on Sept. 26.

Traders appear to be sitting on their hands and waiting for a clear steer before pushing the precious metal's price out of the consolidation mode seen since September, Pepperstone said.

Gold's daily consolidation since late September is increasing the potential for an explosive price change in either direction, and that powerful move should shape the trading bias--with the subsequent trend well worth chasing, it added.

Base Metals Outlook

The period just before the U.S. election could prove a soft patch for base-metal prices , according to Citi.

"We expect to see risk taken off the table ahead of a very finely balanced U.S. election in early November."

Iron Ore Prospects

A rebound in iron-ore prices likely has further to run, according to Morgan Stanley as it trades at its highest since July, benefiting from China stimulus plans.

"While the impacts on physical demand are less clear, we think the shift in policy, particularly towards property, added to seasonality, suggests further upside is in store."

EMEA HEADLINES

German Industry Rebounded in August on Car Production

German industrial production rose at its fastest pace this year in August, largely a result of a rebound in the country's key car industry, though output only offset the fall in the prior month as the manufacturing sector continues to be a drag on the economy.

Industrial output rose 2.9% on month in August, on a seasonally and calendar-adjusted basis, offsetting the equivalent 2.9% dip in July, German statistics agency Destatis said Tuesday.

Vodafone, Google Expand Partnership With Billion-Plus Dollar Deal

Vodafone Group and Google expanded an existing partnership to add artificial-intelligence features across a range of products and services in a 10-year, billion-plus dollar deal.

The partnership between the U.S. tech giant and the U.K. telecommunications group aims to extend the use of devices powered by generative AI, through Google's Gemini models, to Vodafone's customers in Europe and Africa, the companies said.

Imperial Brands Lifts Shareholder Returns

Imperial Brands said it would raise its dividend and launch an increased buyback after performing in line with expectations in its fiscal year, helped by strong revenue growth from its vaping, heated tobacco and oral-nicotine products.

The tobacco group-which houses Davidoff, Gauloises and JPS among its brands-said Tuesday that its performance for the year ended Sept. 30 was in line with expectations with further growth in both tobacco and next-generation products.

OMV's Earnings to Take Hit From Lower Production on Libya Unrest

OMV said growing security concerns in Libya hampered third-quarter earnings, along with weaker oil prices and refining margins through the period.

The Austrian energy company said Tuesday that its oil production has been hurt since August due to growing security concerns in Libya.

GLOBAL NEWS

Fed's Musalem Sees Gradual Interest Rate Cuts Ahead

Federal Reserve Bank of St. Louis President Alberto Musalem sees a soft landing ahead, aided by the central bank easing off high interest rates and strong productivity growth from the U.S. economy. Cooling inflation should clear the way for continued interest rate cuts ahead.

"I believe it will likely be appropriate to further reduce the target range for the federal-funds rate over time toward a neutral posture," Musalem said in prepared remarks for an event hosted by the Money Marketeers of New York University on Monday evening. He was referring to the theoretical interest rate which neither stimulates nor restricts economic growth.

Israel Is Targeted by Militants in Gaza, Yemen and Lebanon on Oct. 7 Anniversary

Militants in Gaza, Yemen and Lebanon targeted Tel Aviv with rockets and missiles on the anniversary of the Hamas attack on Israel that sparked an expanding multifront war in the Middle East.

Most of the strikes, which were preceded by sirens that sent Israelis into bomb shelters, were intercepted or fell harmlessly into open areas. Israeli officials said two people were lightly injured by shrapnel.

Kamala Harris Struggling to Break Through With Working Class, Democrats Fear

GRAND RAPIDS, Mich.-Democrats have privately grown worried about Kamala Harris's standing among working-class voters in the crucial "blue wall" states-particularly in Michigan.

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October 08, 2024 06:11 ET (10:11 GMT)

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