European Midday Briefing : Stocks Buoyed by Easing Eurozone Inflation

MARKET WRAPS

Stocks:

European stocks traded higher on Tuesday, cautiously continuing the previous day's gains.

Consumer prices in the eurozone slowed more than expected in October , driven in part by falling energy prices but also by lower food and services inflation.

"Most members of the ECB's governing council are likely to be pleased with the data... the ECB is unlikely to raise interest rates further," Commerzbank said.

This is all the more the case after eurozone output unexpectedly contracted in the third quarter, it said. "Economic growth in the euro area has come to a standstill."

London's FTSE 100 rose 0.6%, supported by gains for consumer and banking sector stocks, though a sharp fall in BP following an earnings announcement limited gains.

U.S. Markets:

Stock futures were slightly higher, ahead of a bevy of big names publishing earnings today, while the clock counted down to Wednesday's Federal Reserve rate decision.

Economic updates set for release include the third-quarter employment cost index, the August S&P Case-Shiller home price index, and consumer confidence for October.

Stocks to Watch

Arista Networks reported higher quarterly profits and revenue and signaled demand for its cloud and artificial-intelligence offerings remains strong. Shares rose 9% premarket.

Pinterest swung to a profit and posted double-digit revenue growth in the third quarter, topping Wall Street's expectations. Shares rose 15% premarket.

Forex:

The Fed's upcoming meeting on Wednesday could cause volatility in the dollar, which has stayed fairly steady throughout this month, https://urldefense.com/v3/__http://Capex.com__;!!F0Stn7g!E1J9oNp2c_mNpFC32oUuJEqpTIw79I4kUVvbyTVbF1Q8SAGwjY5dIJkumCYKMwURe5eEG4XJNYYBULjE6aPybunD7kWtnxkuqkw9DQXVR04$ Middle East said.

The Fed is expected to keep interest rates unchanged, but comments by Jerome Powell accompanying the decision "could fuel volatility and could affect traders' expectations about the direction of monetary policy."

Economic data are likely to continue to broadly support the currency, https://urldefense.com/v3/__http://Capex.com__;!!F0Stn7g!E1J9oNp2c_mNpFC32oUuJEqpTIw79I4kUVvbyTVbF1Q8SAGwjY5dIJkumCYKMwURe5eEG4XJNYYBULjE6aPybunD7kWtnxkuqkw9DQXVR04$ added.

EUR/USD's current trend is likely part of a consolidation phase, based on technical charts, UOB said.

The currency pair's recent rebound that breached both falling trendline resistance and the 55-day exponential moving average suggests that EUR/USD's weakness has stabilized, though it is too early to expect a sustained recovery, it added.

For the next two months, EUR/USD is likely to trade between 1.0450 and 1.0730.

Bonds:

Eurozone government bond yields dropped with the drop partly prompted by a temporary fall in U.S. bond yields on lower Treasury borrowing.

Also, the Bank of Japan's tweak to its yield-curve control, defining the 1% yield level in 10-year Japanese government bonds as a "reference" rather than a ceiling, "probably surprised more on the dovish side," Commerzbank Research said.

Energy:

Oil prices started to recover, having fallen sharply on Monday, with markets taking stock of the current situation in Gaza.

The fall came despite the clear upside risks still facing the market in the current geopolitical environment, ING said.

"Disruptions to Iranian oil flows remain the most obvious risk to the market," it said, but notes that for now the conflict remains limited to Gaza and Israel.

"In the absence of supply disruptions from the region, it is difficult to see a significant and sustained upside in prices."

According to UBS, fundamentals will be key in driving oil prices , with the effect of the Israel-Hamas war on crude starting to wane.

The bank says it expects oil to trade in a band of $90-100 a barrel over the next 12 months, but this will be driven by fundamentals rather than sentiment.

Metals:

Base metals wavered, while gold edged higher, as investors looked ahead to the Fed's interest policy decision.

"Investors are nervous about new geopolitical risks, soft corporate earnings, and elevated interest rates ahead of tomorrow's Federal Reserve policy decision and U.S. government funding plans," Peak Trading Research said.

Peak said that it is likely the Fed will hold rates steady, but added that Powell's comments and how forward-looking Fed expectations shift the U.S. dollar will be more important for commodities.

EMEA HEADLINES

French Economy Slows Nearly to a Halt as Exports Slump

The French economy grew more sluggishly over the summer as production and exports slowed, suggesting tight monetary policy is squeezing industry in the country.

The eurozone's second-largest economy grew 0.1% between July and September compared with the previous quarter, after a more dynamic 0.6% increase booked in the prior three-month period, according to data set out Tuesday by national statistics agency Insee.

Anheuser-Busch InBev Backs Guidance Despite 3Q Miss on Lower Volumes

Anheuser-Busch InBev backed its full-year guidance after third-quarter earnings missed market forecasts as volumes fell, with drops in North America offsetting rises in other areas.

The world's largest brewer-which houses Stella Artois and Budweiser among its portfolio-said Tuesday that overall volumes fell 3.4% on an organic basis, missing expectations of a 2.7% fall. Within this, North America volumes fell 17.1% compared with a fall of 14.5% in the second quarter

Jeep Maker Stellantis Says It Lost $3 Billion of Revenue Due to UAW Strike

Chrysler parent Stellantis said the strike by U.S. auto workers had cost it more than $3 billion in lost revenue as it reported a rise in quarterly sales.

The update from Stellantis, which also makes the Jeep and Dodge brands, is the latest indication of the financial fallout from a six-week strike that put 45,000 workers on the picket lines.

Vodafone to Sell Spanish Unit to Zegona Communications for Around $5.3 Bln

Vodafone Group has agreed to sell its Spanish unit to European telecommunications investment company Zegona Communications for an enterprise value of around 5 billion euros ($5.31 billion).

The U.K.-based telecommunications group on Tuesday said the deal is for 100% of Vodafone Spain.

GLOBAL NEWS

Bank of Japan Backs Away From Rate Cap Amid Persistent Inflation

TOKYO-The Bank of Japan said on Tuesday that it would consider its cap on government bond yields as a reference point rather than a hard boundary, backing away from a seven-year-old policy amid persistent inflation.

Since 2016, the Bank of Japan has prevented the yield on 10-year Japanese government bonds from rising above a certain level, part of a policy known as yield-curve control. In July, it raised the hard cap to 1% from 0.5%.

Workers Keep Getting Big Raises. That's a Problem for the Fed.

American workers are still commanding beefy pay raises. That is good news for workers but something that could complicate the Federal Reserve's inflation fight.

Fed officials are likely to hold interest rates steady at this week's policy meeting Tuesday and Wednesday, but signs of stalled progress in slowing wage and price increases could open the door to another rate increase in the coming months.

U.S. and China Are Smoothing Ties-but Military Frictions Still Chafe

SINGAPORE-Tensions between the U.S. and Chinese militaries continue to simmer even as their leaders prepare for a likely summit in the coming weeks, a sign of the difficulties the two global powers face in managing one of the most sensitive aspects of their relationship.

The discord occupied center stage this week at a security conference in Beijing, where a top Chinese general took veiled swipes at Washington's foreign policy and military posture, characterizing them as grave threats to peace and stability around the world as wars rage in Ukraine and Gaza.

Democrats Risk Long-Lasting Rift Over Israel-Hamas War

To many on the left, the Israel-Hamas war is spurring what feels like a permanent rupture, when previously sublimated differences become impossible to ignore and everyone must choose sides.

The weeks since the Hamas attacks have riven the liberal coalition, pitting erstwhile allies against each other as ugly accusations fly in both directions. From the halls of power in Washington to street protests and social media, progressives find themselves at odds with those they once saw as kindred spirits.

Israeli Forces Make Major Advance Toward Gaza City

TEL AVIV-Israeli tanks and infantry temporarily seized control of a strategic road linking the Gaza Strip's north and south, a major advance that appeared aimed at encircling the enclave's biggest population center, Gaza City.

The thrust through the center of Gaza marked the deepest push into Palestinian territory since Israeli ground troops entered the strip late last week, starting a new phase in its war to eradicate Islamist militant group Hamas following the surprise Oct. 7 attacks. The Israeli military and Hamas said there were clashes between troops and militants Monday, and Israel said its forces had freed a soldier taken prisoner on Oct. 7 in what appeared to be the first such rescue of a hostage in Gaza.

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

(END) Dow Jones Newswires

10-31-23 0724ET