EMEA Morning Briefing : Hopes Rise for End to Fed Hikes as U.S. Inflation Data Awaited -October 11, 2023 at 12:19 am EDT

MARKET WRAPS

Watch For:

EU consumer expectations survey; Germany CPI; UK RICS residential market survey; trading updates from Bang & Olufsen, Impala Platinum

Opening Call:

European shares may open slightly lower Wednesday. In Asia, stock benchmarks tracked Wall Street higher; the dollar fell slightly; Treasury yields largely fell; while oil futures rose and gold steadied.

Equities:

Stock futures point to mild declines at Wednesday’s open as traders await fresh economic data that could further raise the chances of the Federal Reserve standing pat. U.S. PPI data for September is scheduled for today, while the U.S. CPI reading is expected Thursday.

Markets rallied despite fighting in the Middle East. “I think that markets and the actors in them are still somewhat unsure about how to deal with geopolitics and how much weight to give it,” said Cameron Brandt, director of research at market-data firm EPFR.

“Even with the evolving situation in the Middle East, investors remained focused on the Fed’s current thinking on interest rates and the need to contain inflation,” said Richard Hunter, head of markets at Interactive Investor.

Forex:

The dollar weakened slightly early Wednesday amid largely lower Treasury yields. USD seems weaker across the board amid the pullback in Treasury yields, National Australia Bank said.

The decline in yields since late last week likely stems from comments by some Fed officials highlighting the tightening of U.S. financial conditions as doing the additional tightening for the Fed, NAB added.

Bonds:

Treasury yields largely fell as fed funds futures traders priced in a high likelihood that the Fed won’t raise interest rates again. On Tuesday, Atlanta Fed President Raphael Bostic said he doesn’t think there needs to be anymore rate hikes to get inflation back to 2%.

“Considerable uncertainty remains over several underlying forces guiding the Treasury market, including the outlook for government bond issuance, the economically neutral level of fed funds rates, and the term premium – the rate of compensation demanded by investors for holding longer-term over shorter-term bonds. But, in our view, the recent upward momentum in yields has been spurred largely by technical factors and should be reversed,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

Energy:

Oil futures were higher in Asia. Oil still looks very bullish on possible supply risks stemming from the Hamas-Israel conflict, said Edward Moya, senior market analyst at Oanda.

Another bullish factor is optimism that China may do whatever it takes to meet economic growth targets, Moya added, citing a media report that China is mulling more support for the economy.

Metals:

Gold was steady early Wednesday, underpinned by likely safe-haven demand.

The precious metal could easily garner renewed strength as the Middle East situation remains intense, said Fawad Razaqzada, market analyst at City Index and https://urldefense.com/v3/__http://Forex.com__;!!F0Stn7g!BXaMWddO_pMtOMk_D7Nrm8X7huDI15zaismMNmuexYs1ho7muX7qudSiYrMKEAjWZGrePDH5Ddg64xfTbp3KJxhh2iAymMl8s-Et0T68r2Y$ .

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ANZ warned that base metals could come under pressure amid renewed concerns about China’s property market. Major developer Country Garden warned Tuesday that it might not be able to meet all its offshore debt payment obligations.

Meanwhile, the IMF lifted its forecast for global inflation and trimmed 2024 growth estimates. The weak economic backdrop is weighing on sentiment, ANZ said.

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Iron ore futures advanced in Asia after a media report that China could issue additional sovereign debt for spending on infrastructure to meet economic growth targets.

Despite the stimulus hopes, iron ore futures are still under pressure amid fears of production cuts from Chinese steel mills, ANZ said. Several mills are proposing additional maintenance programs amid weak demand.

TODAY’S TOP HEADLINES

Higher Bond Yields Likely to Extend Fed Rate Pause

A sustained rise in long-term Treasury yields could be bringing the Federal Reserve’s historic rate hiking cycle to an anticlimactic end.

Top central bank officials have signaled in recent days that they could be done raising short-term interest rates if long-term rates remain near their recent highs and inflation continues to cool.

President Biden Calls Attack on Israel ‘Sheer Evil’

President Biden condemned Hamas’s attack on Israel as an “an act of sheer evil” that left more than 1,000 civilians dead, including at least 14 U.S. citizens, as his administration weighs how to support America’s closest ally in the Middle East without being pulled into another regional conflict.

The Israeli military massed forces on Tuesday for a ground invasion of Gaza, and Israeli officials warned of a lengthy and destructive war. Biden said that the U.S. was providing further military assistance to the country, and the Pentagon is deploying a second aircraft carrier strike group near the region to deter Hezbollah and other militant groups from joining the fight.

Finland and Estonia See Likely Sabotage in Damage to Pipeline and Telecoms Cable

Finland and Estonia said damage to a natural-gas pipeline and communications cable linking the two North Atlantic Treaty Organization members likely resulted from sabotage, rekindling concerns about the safety of Europe’s critical infrastructure.

The damage was discovered days after the first anniversary of the destruction of the Nord Stream pipelines linking Germany and Russia, an attack that accelerated a reshaping of Europe’s energy map and greatly limited Russia’s ability to supply energy to the region. Authorities in the region have since said the destruction of those pipelines by powerful explosions was deliberate but haven’t officially identified a suspect. U.S. suspicions have increasingly centered on a group of Ukrainians.

U.S. Says Niger Uprising Was a Coup, Limiting Aid to Counterterrorism Ally

The U.S. on Tuesday formally designated this summer’s military uprising in Niger a coup d’état, a decision it had delayed for months in the hopes of avoiding another blow to its military strategy to combat al Qaeda and Islamic State in western Africa.

The designation triggers U.S. laws restricting assistance to militaries that oust elected leaders. In July, Nigerien officers seized power from civilian President Mohamed Bazoum, a staunch U.S. ally who remains imprisoned in his official residence in Niamey, the country’s capital.

Threat to Israel From Hezbollah and Iran Raises Risk of Wider Conflict

As Israel combats the Palestinian Islamist movement Hamas in the Gaza Strip, it faces the strategic question of whether Iran will direct its other protégé, the Lebanese Hezbollah, to open a second front in the north.

Hezbollah and Israel have already engaged in limited artillery exchanges that, according to the militant group, on Monday killed three of its fighters. Hezbollah said it struck two Israeli military bases near the border using guided missiles and mortars, while the Pentagon warned the group to “think twice” before opening a second front and said the U.S. was prepared to come to Israel’s defense.

Pharmacy Giant Walgreens Names Tim Wentworth as New CEO

Walgreens Boots Alliance named Tim Wentworth as its new chief executive, picking a healthcare veteran to steer the pharmacy chain as it faces a profit squeeze and labor pressures.

The company made the announcement late Tuesday, after The Wall Street Journal reported the selection. The company’s earnings are due Thursday.

Birkenstock Prices IPO at $46 a Share

German shoemaker Birkenstock priced its initial public offering at $46 a share, setting up the next big test of the new-issue market when the stock begins trading Wednesday.

Birkenstock and its underwriters chose a price near the middle of the targeted range, choosing to play it safe given choppy markets, people familiar with the matter said.

Amazon Wants You to ‘Buy Again’

https://urldefense.com/v3/__http://Amazon.com__;!!F0Stn7g!BXaMWddO_pMtOMk_D7Nrm8X7huDI15zaismMNmuexYs1ho7muX7qudSiYrMKEAjWZGrePDH5Ddg64xfTbp3KJxhh2iAymMl8s-Et97v2Nls$ has tested a new feature on its app meant to coax users into more repeat purchases, one of several steps the tech giant is taking to squeeze more revenue out of its existing customers.

The company has tested a “Buy Again” feed and featured it in a tab on the most prized real estate on the home page of its app. The tab uses a customer’s order history to make recommendations, including in categories such as groceries or electronics.

Sales Slow at Louis Vuitton’s Owner as China Sputters

LVMH Moët Hennessy Louis Vuitton reported a sharp slowdown in sales growth as the world’s biggest luxury-goods company struggled to lure big-spending Chinese consumers back to its boutiques after the end of China’s pandemic restrictions.

The owner of Louis Vuitton and Dior said sales in its Asia market-which is dominated by China and excludes Japan-rose 11% over a three-month period ending on Sept. 30, stripping out the effects of currency fluctuations. That is down from a 23% rise in the first half of the year.

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Expected Major Events for Wednesday

06:00/GER: Sep CPI

07:00/SVK: Aug Construction production

07:00/TUR: Aug Balance of Payments

23:01/UK: Sep RICS Residential Market Survey

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

10-11-23 0018ET