MARKET WRAPS
Watch For:
ECB's Lane speaks; ECB accounts of its last monetary policy discussions; U.K. Halifax House Price Index
Opening Call:
European stocks should rise at the open. Stocks in Asia gain. Dollar and U.S. Treasury yields steady. Oil and gas prices fall and gold was little changed.
Equities:
European stocks are set to rise at the open Thursday, as Wall Street closes higher after selloff.
An intensification of risks has been averted, Mizuho Bank says, noting the Republicans' proposal to extend the U.S. debt ceiling into December, and assurances from Russia and the U.S. that they can provide energy supply to assuage the power crunch threatening to hamper the global economy.
Stock trading has been bumpy lately as investors have grappled with soaring energy prices and a general shift higher in government bond yields.
It isn't unusual to see stocks oscillate between gains and losses. In fact, most of the stock market's big advances this year have come on the heels of significant losses, according to an analysis by Frank Cappelleri, a desk strategist at Instinet. Stocks tumbled to start the week, only for major indexes to surge the following day, giving the S&P 500 its 25th gain of at least 1% for the year.
Mr. Cappelleri added that he wouldn't be surprised to see more choppy trading action in the final quarter of the year.
Investors are currently weighing multiple issues. Oil and gas prices have jumped, which some analysts worry may further fuel inflation. Meanwhile, investors have been contending with rising bond yields, which can knock down technology stocks, whose future profits are generally worth less in today's currency when discount rates climb.
Tech stocks have been among the biggest drivers of the overall market's gains in the past several years. Their slump at the end of the third quarter contributed to the sense of unease among some investors and analysts, adding to questions about how well markets can maintain their footing in the final months of 2021.
"At what point do central banks have to say, hang on, two years, maybe that does need some degree of policy adjustment?" said Jane Foley, head of foreign-exchange strategy at Rabobank. She pointed to the Bank of England, which has said it could raise rates in coming months as energy price inflation surges.
In corporate news, Rio Tinto should report mostly higher third-quarter output versus the quarter immediately prior, with the exception of titanium dioxide production, which was hindered by a suspension of its South African Richards Bay Minerals operations, said Macquarie.
The miner, which is scheduled to release its quarterly operational Oct. 15, is tipped by the bank to report a 37% quarter-on-quarter fall in titanium dioxide output.
However, production and shipments of iron ore--its main product--from its Australian mines are expected to both be 11% higher on-quarter, Macquarie said. The bank also forecasts a 1% lift in aluminum output and a 7% increase in mined copper production.
BHP is likely to report lower production across its portfolio when it releases first-quarter operational results Oct. 19, said Macquarie. The bank estimates petroleum volumes for the three months through September were 4% weaker quarter-on-quarter, at 25.8 million barrels of oil equivalent, because of disruptions linked to Hurricane Ida.
Macquarie expects metallurgical coal output down 16% on-quarter, due to seasonal maintenance work, and energy coal production down by 43% mainly because of the sale of its interest in the Cerrejon mine.
Copper output should meantime be roughly 3% weaker, while iron-ore shipments will likely be down only 1% despite higher planned maintenance work, Macquarie said.
Forex:
ADP's payrolls data showing a increase of 568,000 private-sector jobs had a muted effect on currency markets, Cambridge Global Payments' Adam Corbett said. The dollar strengthened against the euro and weakened against the yen, and the WSJ Dollar Index was trading close to levels from shortly before payrolls data was released.
Poland's central bank unexpectedly raised interest rates on Wednesday but the move is unlikely to result in sustained zloty strength, Danske Bank said.
The bank indicated that it sees more persistent inflation, warranting its decision to raise its key rate by 40 basis points to 0.50%, but kept its "dovish language" on foreign exchange interventions that have been used to keep the zloty weak and support economic growth, Danske analyst Jakob Ekholdt Christensen said.
"Hence, we are sceptical that the move will initiate a permanent move lower in EUR/PLN also as external headwinds from a slowing global manufacturing sector and stronger USD will weigh on the currency."
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The Norwegian krone should appreciate in the coming months on the prospect of the Norges Bank raising interest rates further and on higher oil prices, Citi said.
The central bank is expected to lift rates four more times over the next 12 months after September's rate hike, analysts at the bank said. The krone should also benefit from a further rebound in oil prices over the next three months, they said.
"The huge terms of trade boost from natural gas and oil will keep NOK as G10 outperformer." But the analysts say the impetus from oil prices will likely wane over the medium term, potentially limiting the krone's gains. Citi expects EUR/NOK to fall to 9.90 in six to 12 months, from its current level at 9.9246.
Bonds:
The 10-year U.S. Treasury yield was little changed on Wednesday after briefly touching the highest level since June, with its early advance attributed to intensifying inflation fears.
The inflation worries were centered on supply-chain problems that are amplifying pricing pressures in everything from energy to goods and services.
Read what asset managers are saying about inflation risks and rate-rise prospects here.
Energy:
Oil was lower in early Asian trade, taking a cue from natural gas prices which fell overnight, following comments by Russia and the U.S. that they would ease the ongoing energy crunch.
Russian President Vladimir Putin said the country was willing to boost gas supplies to Europe, while U.S. Energy Secretary Jennifer Granholm raised the possibility of a release of oil from the government's Strategic Petroleum Reserve.
Rising U.S. oil inventories, according to EIA data, also pressured prices.
Weekly EIA data out this morning reinforces the view that, for all intents and purposes, gasoline demand in the U.S. has now fully returned to normal, pre-pandemic levels.
The report showed a four-week-average demand of 9.2M barrels a day, identical to the 9.2M bpd in the same four-week period two years ago. That the total demand numbers are the same, however, doesn't mean consumption is normal everywhere.
Many states in the West, along with Florida and some southern states are reporting fuel consumption that's even higher than pre-pandemic, while New York, New Jersey and other East Coast states are still well below pre-pandemic in terms of gasoline consumption
Metals:
Gold was little changed in early Asian trade, after rising as U.S. Treasury yields slipped. Investor demand for the precious metal is likely to be driven by growing concerns of higher inflation, ANZ said.
The U.S. debt-ceiling debate could support some safe haven buying in the near term, it added. Oanda puts support for gold at $1,750/oz and resistance at $1,785/oz.
Copper rose after a better-than-expected U.S. jobs report, snapping a brief two-day losing streak, although the metal could still be weighed by investor fears over China's troubled property industry and higher inflation, Commonwealth Bank of Australia said.
Meanwhile, ANZ Research said that weak economic data from elsewhere could also pressure prices of the industrial metal. The three-month LME copper contract is 1.3% higher at $9161.0 a ton.
TODAY'S TOP HEADLINES
White House Plans Biden-Xi Call in Coming Weeks
WASHINGTON-White House officials are planning to schedule a virtual meeting between President Biden and Chinese President Xi Jinping in coming weeks, a senior administration official said.
National security adviser Jake Sullivan met in Zurich with Chinese Communist Party Politburo member and Director of the Office of the Foreign Affairs Commission Yang Jiechi, where the two discussed a range of issues. Mr. Xi isn't expected to attend the coming G-20 meeting, so Messrs. Sullivan and Yang discussed the two leaders having a virtual engagement by the end of the year.
Democrats Weigh GOP Offer for Short-Term Debt-Limit Extension
WASHINGTON-Senate Democrats were poised to accept a GOP proposal to defer the showdown over the debt ceiling until later this year, lawmakers said, as administration officials and corporate executives issued dire warnings about the dangers of a possible government default.
The proposal would extend the debt ceiling into December, provided that Democrats affix a dollar amount to the debt level. A deal could pave the way for a procedural vote in the Senate soon, to be followed by final passage sometime later this week. The House will still have to pass the legislation, which is expected to be signed into law by President Biden.
Justice Department Sets Up National Cryptocurrency Enforcement Team
The U.S. Justice Department is creating a national cryptocurrency enforcement team to tackle investigations and prosecutions of criminal misuses of cryptocurrency and to recover the illicit proceeds from these crimes, Deputy Attorney General Lisa Monaco said Wednesday.
The creation of the National Cryptocurrency Enforcement Team, which would be under the supervision of Assistant Attorney General Kenneth Polite Jr., will focus on crimes committed by virtual currency exchanges and mixing and tumbling services, the DOJ said in a statement. The team also would help trace and recover assets lost to fraud and extortion, the DOJ said.
Natural Gas Prices Take Wild Ride After Putin Comments
(MORE TO FOLLOW) Dow Jones Newswires
10-07-21 0019ET
