MARKET WRAPS
Stocks:
Europe’s major stock markets mostly edged higher on Friday, with gains for commodity-linked shares counterbalancing some more underwhelming corporate earnings.
U.K.-listed banks fell after NatWest cut its full-year net interest-margin guidance. Competition for savings and mortgage products, coupled with some regulatory pressure, mean banks are no longer seeing such a big gap between what they charge on borrowings compared with what they pay out for deposits, AJ Bell said.
“While bad debts remain under control for now, the market is clearly wary of a deterioration here as the pressures on households and businesses continue to mount,” AJ Bell said.
NatWest was the FTSE 100’s biggest faller on the day, down 9%, while Lloyds Banking Group and Barclays–which itself cut full-year net interest-margin guidance for its U.K. division earlier this week–also retreated.
U.S. Markets:
Tech stocks are on track to close out a volatile week on a high note, after upbeat earnings reports from Amazon and Intel.
Up ahead: Chevron and Exxon Mobil are set to report results before the opening bell. The Federal Reserve’s preferred inflation gauge, the core personal-consumption expenditures price index, is also scheduled.
In recent trading: Stock futures gained and bond yields edged higher, with the 10-year Treasury yield just below 4.9%, having topped 5% earlier in the week for the first time in 16 years.
Forex:
The dollar’s reaction to the stronger-than-expected U.S. GDP data was “quite muted” and it could, along with other currencies, start to react more to data outside of the U.S., such as the eurozone and China, than it has in recent weeks, ING said.
There is “a building trend for the dollar to find less and less upward momentum after some strong [U.S. data] releases,” ING said.
“That is consistent with the overbought condition of the greenback and the notion that we might be close to the peak in U.S. activity data optimism.”
Bonds:
Eurozone government bonds were little changed and Abrdn said recessionary economic data would suggest lower yields, but selloffs in Treasurys have added upside pressure.
“Eurozone activity data is pointing to recession-like conditions in the bloc, while the U.S.-led selloff in bond yields will further tighten European financial conditions, weighing on growth,” Abrdn said.
The end of monetary policy tightening cycles is normally positive for bonds and Columbia Threadneedle Investments said it aims to benefit from that.
“As such, our funds are positioned long of duration in line with our view that policy rates are likely at a peak, albeit in modest size given the uncertainties around what has been a unique economic cycle,” it said.
Columbia Threadneedle has greater confidence in that the yield curve should continue to steepen, either through the weight of government bond supply or the onset of a policy loosening cycle at some point next year.
The 10-year Italian BTP-German Bund yield spread-currently at 198 basis points-looks fairly priced but will likely widen, Societe Generale Research said.
The spread has been oscillating around 200bps since early October and “based on the level of credit spreads, short rates and political stress, we see the fair value only 5bp tighter,” SocGen said.
It expects the spread to remain under pressure as three further credit rating reviews are due before year-end, the Italian government will be discussing its budgetary plan with the European Commission, and the treasury will publish its funding targets for 2024.
Energy:
Oil gained more than 1% as tensions in the Middle East continued to worry investors.
The U.S. late on Thursday said it launched strikes on two bases in eastern Syria, which it believed were used by Iranian groups, adding to worries for investors of the conflict broadening beyond Israel and Gaza.
“The risk of the conflict spreading and causing oil supply disruption will likely continue contributing to risk premia for oil for the time being,” BMI said.
“In our core view, we anticipate that oil prices will trade between $80 a barrel to $95 a barrel over the remainder of 2023 and in early 2024.”
Metals:
Base metal prices are set to finish the week higher, despite mixed demand signals from Asia and a strong dollar acting as headwinds.
However, ING highlighted that some of the major copper producers in the Americas have downgraded their production targets for this year and next due to operational issues.
“Lower supply along with optimism around a revival in Chinese demand could support copper prices although broader economic concerns persist.”
DOW JONES NEWSPLUS
EMEA HEADLINES
Sanofi Plans to Spin Off Consumer-Healthcare, Pharma Businesses
Sanofi said it plans to spin off its consumer-healthcare business, making it the latest major drugmaker to sharpen its focus on prescription medicines.
The French pharmaceutical company outlined the plan on Friday as part of a strategic update that also detailed plans to increase investment in its drug-development pipeline and cut costs.
NatWest Shares Drop After Guidance Cut, 3Q Miss; Says Review Found Farage Account Closure Lawful
NatWest Group shares tumbled 16% at market open after the bank said an investigation into the handling of the accounts of Brexit campaigner Nigel Farage found that their closure was lawful; and cut its full-year net interest margin guidance, following peer Barclays earlier this week.
At 0709 GMT, shares were down 33.3 pence to 172.5 pence, their lowest price since early 2021.
Remy Cointreau Slashes Guidance After Sales Slump
Remy Cointreau cut its sales forecasts for fiscal 2024 after sales plunged in its second quarter as Americans drink less cognac.
The Paris-based owner of Remy Martin cognac posted sales of 379.2 million euros ($400.6 million) for the three months to the end of September, down 17% in reported terms and 11% organically. Cognac sales fell to EUR261 million, down 24.5% on a reported basis and 18% organically.
IAG Beats 3Q Views Driven by Strong Leisure Demand, Rising Capacity
International Consolidated Airlines Group said it beat market expectations in the third quarter, driven by strong leisure demand across all airlines, and that it expects a solid recovery in 2023 with capacity nearing prepandemic levels.
The airline group-which houses carriers British Airways, Iberia and Vueling, among others-reported adjusted operating profit of 1.745 billion euros ($2.12 billion), compared with EUR1.22 billion a year prior. This beat an analyst consensus of EUR1.51 billion, taken from FactSet.
Air France-KLM’s Revenue, Profit Miss Forecasts Despite Strong Summer Demand
Air France-KLM said strong demand for air travel during the summer pushed revenue and profit higher in the third quarter, but not enough to meet analysts’ expectations as the group grapples with lingering inflation and high fuel prices.
The Franco-Dutch carrier group on Friday posted revenue of 8.66 billion euros ($9.15 billion) for the three months to the end of September, up 6.8% on year. The group handled 26.9 million passengers in the quarter, 7.6% more than last year.
Eni Raises Guidance After 3Q Beat Expectations Despite Weaker Prices
Eni raised its full-year operating profit guidance after third-quarter results beat analysts’ expectations, boosted by the exploration and production division.
The Italian oil major posted a quarterly profit of 1.92 billion euros ($2.03 billion) from EUR5.86 billion for the previous-year period, when energy prices soared following Russia’s invasion of Ukraine.
Covestro Sees Guidance at Lower End of Ranges
Covestro said it expects earnings for 2023 to be at the lower end of its previously indicated guidance range, citing a challenging environment that weighed on its third-quarter results.
The German chemicals company said it now expects earnings before interest, taxes, depreciation and amortization for the full year to be around 1.1 billion euros ($1.16 billion). It had previously guided for Ebitda of between EUR1.1 billion and EUR1.6 billion, but indicated that a result toward the lower end of that range was more likely.
CaixaBank’s Profit Boosted by Higher Lending Income
CaixaBank reported a rise in third-quarter profit on higher lending income despite a decline in its loans portfolio.
The Spanish bank on Friday said that net profit was 1.52 billion euros ($1.61 billion) in the three months ended in September, up 19% compared with the same period a year earlier.
GLOBAL NEWS
China’s Industrial Profit Growth Slowed in September
China’s industrial profits grew at a slower rate in September, but showed signs of improvement over the first nine months of the year as Beijing pushes to shore up the economic recovery.
Industrial profits rose 11.9% from a year earlier in September, down from the 17.2% increase recorded in August, the National Bureau of Statistics said Friday.
U.S. Launches Strikes on Suspected Iranian-Supported Bases in Syria
WASHINGTON-The U.S. said it launched strikes Thursday night on two bases in eastern Syria it believed were used by Iranian groups, the first U.S. offensive military response to a wave of drone and rocket attacks on troops based in Iraq and Syria, the Pentagon said.
The strikes against the Islamic Revolutionary Guard Corps and affiliated groups were authorized by President Biden, Defense Secretary Lloyd Austin said in a statement.
Western Allies Urge Caution as Israel Moves Closer to Ground Invasion
WASHINGTON-As Israel signals that it is closer to launching its anticipated ground offensive, U.S. and European officials are urging caution in an effort to minimize a prolonged urban war that could result in even more casualties and a turbulent future for Gaza, U.S. and foreign officials said.
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10-27-23 0555ET
