MARKET WRAPS
Stocks:
European equities were around 1% lower on Wednesday, faltering after a three-day winning streak.
While the "Fed pivot" narrative received a lot of attention on Tuesday, many analysts said the move higher in equities was more likely the result shares had fallen to oversold levels, since nothing has fundamentally changed to warrant a major pivot from the Federal Reserve.
"It mainly looked to me like short-covering once again. We seem to see these types of moves pretty often, and maybe it turns into something, but I doubt it," said Mott Capital Management.
Read: Barrons.com: Europe Should Brace for Surprises. A New Debt Crisis Probably Isn't One of Them.
Stocks to Watch:
The head of Infineon's automotive division confirmed that demand for microcontrollers and power semiconductors remains well ahead of the chip maker's capacity to supply, with no order cancellations, meaning it's in a position to provide guidance for the 2023 fiscal year above current consensus, Citi said.
"We expect Infineon to sound consistently bullish on demand in both automotive and industrial end markets, to provide FY23 guidance above current consensus, and to raise its through-cycle revenue growth and margin targets."
Infineon's guidance should exceed current consensus of 6% revenue growth and 22% margins.
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LVMH's core soft-luxury division could help the group beat expectations when it sets out results next week, RBC Capital Markets said, maintaining its outperform rating on the stock and nudging up the target price to EUR715.
The division, which houses Louis Vuitton and Dior, should post some 20% sales growth at constant currency, ahead of consensus expectations, RBC said. While the division has a high bar to clear, regional trends in the segment have remained broadly favorable. On the other hand, the wines & spirits and hard-luxury business could miss expectations, RBC added.
U.S. Markets:
Stock futures edged lower, as investors paused for breath after major indexes marked a second consecutive day of strong increases to open the fourth quarter.
Stocks extended their gains on Tuesday as economic data showed U.S. job openings fell sharply in August, touching the lowest level since last fall.
The data suggested that the red-hot labor market might be cooling off a bit as interest rates rise and the economy slows, marking the latest example of the "bad news is good news" dynamic that has occasionally manifested in recent weeks.
Investors will hear more about the labor market on Friday, when the nonfarm payrolls data for September is released. Between now and then, investors will also receive updates from ADP's private payrolls report as well as the weekly update on the number of Americans claiming unemployment benefits.
Forex:
The euro touched parity against the dollar late on Tuesday, but ING said there's not enough "bullish push" to keep EUR/USD above parity on a sustainable basis, as it maintains its forecast of a drop to the low 0.90 area into year-end.
"It's hard to point to any material change in the eurozone's outlook that would warrant a significant return of market appetite for the euro just yet," ING said.
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Sterling looks vulnerable given the U.K.'s tarnished fiscal reputation and after Treasury Chief, Kwasi Kwarteng, pushed back against reports he would bring forward his debt-cutting plan, ING said.
"We suspect that the sterling rebound and the dollar correction may have come far enough and could easily see cable [GBP/USD] reversing to the 1.1200 area," ING said.
Bonds:
JPMorgan said bonds are oversold, expecting peaking inflation and inflation expectations, as well as activity weakness to likely cap yields.
It expects activity momentum to stay weak near term, while market pricing of a Federal Reserve terminal rate of 4.6% might not be delivered.
"As activity softens towards contraction, the Fed is likely to become more data dependent," JPMorgan said.
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The fact the Bank of England didn't buy gilts on Tuesday is "underlining this is a backstop facility only," Citi said.
"The rise in long-end [gilt] yields looks fair and not disorderly, and not a reason for the BOE to step in, but of course it will stand ready," Citi said, referring to the fact that long-dated gilt yields bucked the wider rates rally on Tuesday, with a re-steepeing of the 10-30-year gilt curve.
Energy:
Oil prices were little changed, with investors pausing ahead of an OPEC+ meeting which might see the cartel undertake its biggest supply cut since the pandemic.
Despite Wednesday's muted moves, oil has jumped this week as the market has priced in a large cut in OPEC+ oil quotas. Analysts are girding for a cut of between 500,000 and 1.5 million barrels a day as the group seeks to halt a slide in crude prices.
"OPEC+ has to convincingly demonstrate its desire to restore prices to market fundamentals in order to offer meaningful support for oil benchmarks, amid the wave of demand-destroying policy tightening by central banks around the world," Exinity Group said.
Metals:
Gold and base metals were higher, with prices supported by a weaker dollar on hopes the Fed will adopt a looser monetary stance.
"Tighter monetary policy has been a strong headwind for base metals, with concerns demand will falter amid higher borrowing costs," ANZ Research said.
DOW JONES NEWSPLUS
EMEA HEADLINES
EU Likely to Approve G-7 Cap on Russian Oil Price in Two Steps
BERLIN-The European Union has advanced work on a price cap for Russian oil under an approach that keeps the U.S.-led effort on track, but holds off on final approval.
EU member states are set to agree on a two-stage approach to the international price cap on Russian oil, which is being developed within the Group of Seven industrial economies. EU officials are preparing legislation needed to implement the measure, but will hold off approving it until the rest of the G-7 is ready, diplomats and officials said.
Tesco 1H Pretax Profit Fell on Increased Costs; Sees FY 2023 at Lower End of Guidance Range
Tesco PLC said Wednesday that its pretax profit fell in the first half of fiscal 2023 on increased costs, and said guidance will be on the lower end of its forecast range for the full year.
The U.K.'s biggest grocer by market share made a pretax profit of 413 million pounds($473.9 million) in the six months ended Aug. 27, down from GBP1.14 billion a year earlier, on increased finance costs and higher cost of sales.
Germany Trade Surplus Narrowed Sharply in August as Export Growth Slowed
Germany's trade surplus narrowed more than expected in August as exports rose at a slower pace than imports.
The country's balance of exports and imports of goods--was 1.2 billion euros ($1.19 billion) in calendar and seasonally-adjusted terms in August, narrowing from a EUR3.4 billion surplus in July, according to data from German statistics office Destatis released Wednesday.
Bang & Olufsen Swung to 1Q Net Loss, Warns of High Uncertainty Ahead
Bang & Olufsen AS on Wednesday backed full-year guidance despite swinging to a fiscal first-quarter net loss and cautioning that the outlook for the year ahead is subject to unusually high uncertainty due to high inflation, rising interest rates and the war in Ukraine.
The Danish consumer-electronics company posted a net loss of 100 million Danish kroner ($13.3 million) for the three months to August 31. Analysts had expected a net loss of DKK56 million, according to a FactSet poll.
EU Commission to Support STMicroelectronics New Italy Plant With $292 Mln
The European Commission said Wednesday that it has approved a tranche of Italy's post-pandemic aid which would support STMicroelectronics NV in the construction of a semiconductor plant in Italy with 292.5 million euros ($292.1 million)
The grant will support the company's EUR730 million investment for the construction of the plant, which is located in Catania, the Commission said. The establishment will focus on silicon carbide wafers, which serve as a base for microchips used in electric vehicles, fast-charging stations and the like.
Container Line Hapag-Lloyd to Buy South American Terminal, Logistics Operator
German container shipping line Hapag-Lloyd AG is stepping up its push into inland logistics with the acquisition of the shipping terminal and logistics businesses of Chile's Sociedad Matriz SAAM SA for around $1 billion.
Under the agreement unveiled Tuesday, the German shipping company will acquire SAAM Ports SA and SAAM Logistics SA, as well as a real-estate portfolio from Sociedad Matriz. The ports business comprises terminals in Chile, as well as other countries in South and Central America and in Florida.
U.K. Regulator Pushed Pensions to Load Up on LDIs
The derivatives-based investment strategy that tipped the U.K.'s pension sector into crisis started with good intentions: Help companies fulfill promises they made to employees to pay a steady income through retirement.
Behind the push into that strategy, say pension trustees and their advisers, was the Pensions Regulator, the U.K.'s powerful watchdog, charged with safeguarding the savings of millions of private-sector workers. The regulator steered private pension funds to adopt liability-driven investments, known as LDIs, linked to returns on U.K. government bonds, according to pension trustees and consultants.
As Ukrainian Forces Advance, West Plays Down Threat From Russian Nuclear Weapons
Ukrainian forces accelerated their advance into Russian-held areas of the southern Kherson region as Western officials played down the likelihood of Russia using nuclear weapons in retaliation for its military defeats.
(MORE TO FOLLOW) Dow Jones Newswires
10-05-22 0518ET
