European Midday Briefing : Fed Decision, Powell Comments Awaited

MARKET WRAPS

Stocks:

European stocks traded mixed on Wednesday as investors awaited the Federal Reserve interest rate decision.

The Fed is expected to keep interest rates unchanged and could also signal that the interest rate will remain at the same level in December, SEB Research said.

"Although the economy has continued to show strength in terms of growth, rising long-term interest rates are doing some tightening work for the Fed."

Hargreaves Lansdown said "Jerome Powell's comments will be closely scrutinized for indications of just how long rates are set to stay higher, given the resilience of the U.S. economy."

Stocks to Watch

Though Stellantis is expected to face sector headwinds in 2024, the company appears well positioned to deliver more than EUR10 billion in underlying annual free cash flow next year and in 2025, Bernstein said, upgrading its rating on the company to outperform from market-perform.

Despite Bernstein lowering its 2024 and 2025 earnings forecast for Stellantis on a slowing macro and pricing environment in U.S. and Europe, and due to EUR2 billion in additional labor costs over three years, the company is capable to sustainably generate more than EUR22 billion in cash from operations annually, it said.

U.S. Markets:

Stock futures were lower ahead of the Fed decision.

Treasury yields advanced, as the 10-year benchmark note edged above 4.9%.

Economic updates set for release include the ADP private sector employment report for October, the October S&P manufacturing PMI survey, the JOLTS report for September, the ISM manufacturing report for October and September construction spending.

Stocks to Watch

Advanced Micro Devices reported third-quarter adjusted earnings of 70 cents a share, beating analysts' estimates by 2 cents, but its revenue forecast for the fourth quarter was shy of expectations. Shares fell 2.5% premarket.

Yum China's U.S.-listed shares tumbled in premarket trading after the company warned of softening consumer demand. Its Hong Kong-listed shares fell to their lowest close in a year.

Forex:

The dollar could extend gains ahead of the Fed decision, where the central bank is fully expected to leave interest rates on hold but is likely to reiterate that it could raise rates further in the future, MUFG said.

"Powell needs more hard evidence of slowdown before discounting the chance of more rate hikes," it said.

"With dollar momentum more positive again after yesterday's rebound, we could see this extend further from here."

Powell could stress risks of rising inflation and labor market strength, though he could point to rising bond yields tightening financial conditions, MUFG added.

The Swedish krona is likely to stay weak but it could avoid further falls, Danske Bank Research said.

EUR/SEK is likely to stay stuck above 11.80 but upside momentum has abated. The krona could also gain if the Fed suggests that chances of further rate increases are low in a decision later.

This could spur risk appetite and help EUR/SEK edge towards Danske's short-term target of 11.60.

Bonds:

Commerzbank Research said bond investors are hoping for a year-end recovery.

"As sentiment remains shaky, hopes among bond investors are running high that a dreadful September/October will give way to a positive year-end performance, similar to last year."

The backdrop seems conducive to core inflation coming down and central banks weary of external and real-yield driven tightening of financial conditions, while elevated supply and deficits are well documented, Commerzbank said.

Energy:

Oil prices steadied, having lost further ground on Tuesday, as the war in Gaza for now looked to be confined to the region.

ANZ said that sentiment was weakening on poor Chinese manufacturing data and lower retail margins for refiners.

Metals:

Base metals and gold prices were falling, with all eyes on the Fed meeting.

Gold prices are likely to slip further according to MKS Pamp, who said that "without significant escalation in the Middle East, fatigue sets in and haven prices are at risk of a pullback."

It added that along with the Fed meeting, investors will need to watch for U.S. Treasury funding announcements and higher rates.

EMEA HEADLINES

Orsted Books $4 Bln Impairments, Walks Away From Two US Offshore Projects

Orsted booked a 28.4 billion Danish kroner ($4.02 billion) impairment charge in the third quarter related to its U.S. offshore wind portfolio and said it will stop development of two wind farm projects off the coast of New Jersey amid spiraling costs and supplier delays.

The news sent shares lower. At 0852 GMT shares traded down 21% at DKK268.

BHP CEO Says China Commodity Demand Robust Despite Economic Struggles

ADELAIDE, Australia-China's demand for commodities including iron ore and copper remains robust, the chief executive of mining giant BHP Group said, even as the country's economic recovery disappoints and its property sector struggles.

Mike Henry said China's appetite for copper-used widely in manufacturing and construction-is even stronger than the world's largest miner by market value was anticipating six to 12 months ago and that economic headwinds haven't translated into reduced commodity demand more broadly.

Prada Posts Higher Revenue With Growth in All Products, Most Regions

Prada reported an increase in revenue for the first nine months of the year, boosted by growth across all product categories and most of its markets.

Net revenue came in at 3.34 billion euros ($3.55 billion), up 17% at constant exchange rates, the Italian luxury-fashion house said on Tuesday.

GLOBAL NEWS

Fed Officials Debate Whether They Have Raised Rates Enough

The Federal Reserve is likely to leave its benchmark interest rate unchanged this week at a 22-year high while keeping open the possibility of another rate hike to fight inflation.

Officials, whose two-day policy meeting concludes Wednesday, could raise rates again in December or next year if the economy doesn't cool as they expect and inflation picks up again after slowing since June.

Beware a Chinese Fall Stall

In July, when worries about China's economic recovery were first beginning to percolate more widely, analysts fixated on a curious bit of language from the Politburo: the recovery was developing in a winding, "wave-like" manner.

Nearly half a year later, that characterization is looking more and more apt.

The 'Ozempic Effect' on Wall Street Has Gone Overboard

America leads developed nations when it comes to obesity. Those paying close attention to the stock market and recent corporate earnings calls might be forgiven for thinking the problem has been solved.

Call it the Ozempic effect. A new generation of highly effective weight-loss and diabetes drugs known as GLP-1s has led to fanciful assumptions on Wall Street that spell doom for companies that have profited from America's obesity problem. It has also led to speculation that gigantic opportunities await those that would benefit from the aggregate weight loss.

Trump Disqualification Challenges Face Tests in Two States

A pair of cases unfolding this week will provide an early test of novel legal arguments that Donald Trump should be disqualified from the 2024 presidential race because of his actions surrounding the Jan. 6, 2021 riot at the Capitol.

Courts in Colorado and Minnesota are considering claims that a little-invoked constitutional provision prevents Trump from holding office again. Section 3 of the 14th Amendment, enacted after the Civil War, disqualifies from public office those who swore to defend the Constitution and then "engaged in insurrection or rebellion" against the U.S.

Why a 2023 Virginia Election Is a Proving Ground for 2024

THE PLAINS, Va.-For clues about the strength of both parties' messages heading into 2024, look no further than this suburban Northern Virginia enclave, where Democrats and Republicans are betting big on a hotly contested state Senate race.

Typically, such local elections don't have a major impact outside their direct communities. But this one could decide control of the Virginia legislature and Republican Gov. Glenn Youngkin's ability to enact conservative policies on abortion, taxes and education-making it closely watched in the run up to next year's presidential race.

U.S. All but Stopped Spying on Hamas in Years After 9/11

WASHINGTON-U.S. intelligence agencies all but stopped spying on Hamas and other violent Palestinian groups in the years after the Sept. 11, 2001, terrorist attacks on the U.S., instead directing resources to the hunt for the leaders of al Qaeda and, later, Islamic State, according to U.S. officials familiar with the shift.

Calculating that Hamas had never directly threatened the U.S. and burdened with other spying priorities, Washington ceded the responsibility to Israel, confident that its aggressive security services would detect any threat, the U.S. officials said. It should have been "a well-placed bet," said one senior counterterrorism official.

Write to [e-mail]

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

11-01-23 0643ET