MARKET WRAPS
Stocks:
European stocks were mostly in positive territory on Wednesday, but gains were capped, as traders balanced hopes the Federal Reserve might soften its rate hike plans against some disappointing big tech earnings.
Developed market rates are signaling that central banks might not be as aggressive in their monetary policy tightening as expected before, Mizuho said.
"The theme remains the same: central banks possibly not tightening policy quite as much as previously thought, real rates dropping, risk assets performing."
ECB Meeting:
European Central Bank speakers haven't reinforced the hawkish commentary in recent weeks they put forward in August and September, Algebris Investments said. "As such, there should be limited room for a surprise on the rates side."
Algebris expects the ECB to raise the deposit rate by 75 basis points to 1.50% at Thursday's meeting and to maintain guidance for another 75bps interest-rate rise in December.
The market is currently pricing a terminal rate--where the ECB stops raising interest rates--close to 3%, and Algebris believes the ECB will do little to surprise this forecast to the upside.
U.S. Markets:
Stock futures fell after disappointing earnings from Microsoft and Alphabet pointed to challenges faced by major technology firms as the economy slows.
The combined warnings dragged down other technology stocks. Meta Platforms was down 3.4% ahead of its own earnings update on Wednesday, while Amazon.com was 3.4% lower in premarket trading.
Texas Instruments added to concerns about the tech industry when it forecast lower-than-expected revenue for the December quarter on Tuesday, citing demand weakness in nearly all sectors of the economy. Its shares fell 4% premarket.
Forex:
The dollar hit a three-week low as investors appeared to increasingly expect the Fed to slow the pace of interest rate rises soon, UniCredit Research said.
"Weaker data...such as the S&P CoreLogic index and the Conference Board's consumer confidence survey are just reinforcing this view amid lower U.S. long-term yields and the dollar index slipping back below 111," UniCredit said.
GBP/USD is near 1.15 and EUR/USD is near parity, key levels that can attract more buying interest if broken, UniCredit said.
ING said sterling could extend its recovery against the dollar after rising above the key 1.15 level, led by investors shifting away from safe-haven assets. A break above this level could see the correction extend to GBP/USD 1.1750, ING said.
"Such a correction would more likely be driven by a global re-assessment of risk [dollar negative] than a further re-rating of U.K. prospects."
For EUR/GBP, 0.8650-0.8750 looks to be the near-term trading range, ING said.
Other Insight:
EUR/USD has likely started a corrective rebound, based on technical charts, according to UOB Global Economics & Market Research.
EUR/USD rose on Tuesday to close clearly above both the top of a descending channel and the 55-day exponential moving average for the first time since February, UOB said. However, the currency pair must break clearly above the top of the daily Ichimoku cloud, which is currently at 1.0090, before a sustained and significant recovery is likely.
Bonds:
The U.K. Debt Management Office's planned sale of GBP3.5 billion in the 0.5% January 2029 gilt should go relatively well, RBC said.
The gilt is currently trading at a significant discount compared with neighboring gilts on the curve and is expected to outperform at the auction, RBC said.
With the Bank of England's gilt sale program scheduled to start on November 1, "the supply/demand outlook looks to be structurally supportive of some outperformance of the January 2029 gilt from currently cheap levels," RBC added.
Energy:
Oil futures extended their retreat, falling more than 1%, after API data showed a large build in U.S. inventories added to worries about global demand.
"The prospect of a global economic slowdown and tighter monetary policy has been outweighing the specter of supply reductions in recent weeks," ANZ said.
Metals:
Metals carried gains from Asia into the European open, with more positive sentiment from China helping traders pivot to risk assets.
Marex said there was rising aluminum buying in China, with worries over a possible LME ban on Russian metal. It added that onshore equities in China were "risk on" with multiple government departments speaking out in an attempt to shore up the economy.
"The PBOC and the Foreign Exchange Bureau have said they will strengthen departmental collaboration to maintain the healthy development of the stock, bond, and property markets."
Other Insight:
The aluminum market is expected to move into a greater surplus in 2023 as poor construction demand in China offsets production cuts in Europe, according to BMO Capital Markets.
BMO was projecting a 890,000 metric ton surplus in 2023, up from 410,000 tons in 2022. It noted that demand from China's construction sector was particularly weak, and cuts to output from Yunnan province were possible.
BMO also saw small market surpluses for nickel and copper but the market was likely to remain tight. Zinc though will remain in deficit at 66,000 tons in 2023 from 288,000 tons in 2022.
DOW JONES NEWSPLUS
EMEA HEADLINES
Deutsche Bank Posts Jump in Profit on Back of Rising Rates
Deutsche Bank AG's net profit rose sharply in the third quarter as it charged higher interest on loans and traded more currencies and bonds for clients in a volatile market.
But in a sign of challenges ahead, Germany's biggest bank set aside more money to cover possible defaults from borrowers amid a looming recession in its home market and farther afield.
Barclays Profit Jumps on Market Volatility
British bank Barclays PLC said Wednesday that its third-quarter profit rose 10% from a year earlier, reflecting increased use of consumer credit cards and market volatility that boosted trading revenue.
Net profit rose to GBP1.5 billion, equivalent to $1.7 billion, in the three months through September. Analysts had expected it to report a profit of about GBP1.2 billion, according to estimates compiled by the London-based bank.
Heineken Shares Fall After Missing Organic Beer Volume Expectations
Heineken NV shares fell Wednesday after it said organic beer volumes rose in the third quarter by 8.9%, missing market consensus expectations of 12% as taken from its website, and that its outlook was cautious.
Shares at 0730 GMT were down 9% at EUR80.24.
UniCredit 3Q Earnings Beat Expectations; Lifts 2022 Guidance
UniCredit SpA said Wednesday that earnings rose in the third quarter supported by lower loan loss provisions and lifted its full-year guidance on the back of a favorable interest rate environment and cost discipline.
The Italian bank's net profit came in at 1.71 billion euros ($1.69 billion), up from EUR1.06 billion a year earlier and ahead of analysts' estimates of EUR1 billion based on a company-compiled consensus.
U.K. government may miss date for announcing new fiscal plan.
The U.K. government may miss its own deadline for publishing its much-anticipated statement on how it intends to reduce its fiscal deficit.
Speaking to Sky News on Wednesday, U.K. foreign secretary James Cleverly would not confirm the budget outline - expected on October 31 - would be presented "exactly on that day".
Standard Chartered Third-Quarter Profit Rises 32% on Higher Rates
Standard Chartered PLC on Wednesday reported a 32% rise in third-quarter profit as its income was lifted by rising interest rates, though that was partially offset by a higher credit impairment.
The London-based lender said that underlying pretax profit came to $1.42 billion, compared with $1.08 billion in the year-earlier period. The result beat an analysts' estimate of $1.13 billion compiled by the bank.
Banco Santander 3Q Profit Beat Views as Rising Rates Helped Revenue Offset Costs
Banco Santander SA third-quarter earnings beat expectations as an increase in revenue due to rapidly rising interest rates outweighed higher provisions and inflation-related costs.
The Spanish bank, one of eurozone's largest, posted a net profit of 2.42 billion euros ($2.41 billion) from July to September, up 11% from the same period a year earlier. The figure tops analysts' expectations of a EUR2.15 billion profit for the period, according to a consensus provided by FactSet.
Mercedes-Benz Lifts 2022 Margin Target for Cars After Higher 3Q Profit
Mercedes-Benz Group AG on Wednesday raised its full-year profit margin target for the cars business after demand and pricing helped lift third-quarter profit.
The German luxury-car maker said quarterly net profit was 3.92 billion euros ($3.91 billion), compared with EUR1.87 billion year earlier. Adjusted earnings before interest and taxes jumped to EUR5.34 billion from EUR3.11 billion and revenue rose 19% to EUR37.72 billion.
BASF Backs 2022 View on Weaker 3Q Earnings
BASF SE said Wednesday that it is sticking to its 2022 outlook as it moves ahead with a cost-saving plan to counteract significantly weaker earnings in Germany and the rest of Europe.
The German chemical company continues to expect full-year sales of between 86 billion euros and 89 billion euros ($85.72 billion-$88.71 billion), and earnings before interest and taxes before special items between EUR6.8 billion and EUR7.2 billion.
WPP 3Q Revenue Rose; Updates 2022 Guidance
WPP PLC said Wednesday that its third-quarter revenue rose on year and it updated its guidance for the year.
Total revenue for the quarter was 3.57 billion pounds ($4.10 billion), up 10% on a reported basis and 2.7% on a like-for-like basis.
Ukraine Presses West for Billions in Economic, Military Aid After Russian Attacks on Infrastructure
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10-26-22 0538ET
