European Midday Briefing : Traders Await U.S. Inflation Data

MARKET WRAPS

Stocks:

European stocks hovered on Tuesday ahead of the release of the U.S. consumer price index, which is expected to show that inflation likely eased in September because of a drop in gasoline prices.

A sufficient fall in inflation would cement expectations that the U.S. rate-hiking cycle is over while a higher-than-expected reading could make another rate increase likely.

"We are getting to a point where it's more difficult to keep chipping away at inflation and seeing a swift slowdown," Wells Fargo said.

It said earlier factors that helped push inflation down from its peak, such as supply-chain improvements after pandemic-era disruptions, were "low-hanging fruit."

U.S. Markets:

Stock futures nudged higher ahead of the inflation report.

The yield on the 10-year note held steady after rising for two of the past three trading days.

Stocks to Watch

Fisker was falling 14% premarket after it reported a wider-than-expected third-quarter loss and sales of $71.8 million that missed estimates of $143.1 million.

Teck Resources was rising 3.9% after Glencore bought a 77% stake in the Canadian miner's steelmaking coal business for $6.93 billion.

Forex:

The latest U.K. labor market report revealed stronger-than-expected employment growth to 33,000 in October from 32,000 in September , providing modest support to sterling, MUFG said.

"While labor demand is stronger in this report, there remain signs of a trend of softening labour demand in the vacancy data and the moderating wage growth."

The jobs report lacks sufficient market-moving data to cause big moves in sterling or gilt yields, MUFG said.

"Sterling is likely to remain in a narrow trading range, albeit to the firmer side, ahead of the U.S. CPI this afternoon and the U.K. CPI data tomorrow," it added.

Commerzbank said the U.S. inflation data may need to be surprisingly strong to spark speculation that the Federal Reserve could raise interest rates again and "provide significant positive momentum" for the dollar.

The threshold for a further rate hike is likely to be quite high, particularly after October's weak jobs data.

However, the threshold for rate cuts is also quite high, which means stubborn inflation could add to the view that rates will stay higher for longer and at least prevent the dollar from weakening further, it added.

Bonds:

Eurozone 10-year government bond yields were slightly lower ahead of the German ZEW economic sentiment index for November and U.S. CPI data for October.

The ZEW index is subject to upside surprises, but "much more market relevant should be the U.S. CPI in the afternoon, and here in particular the core rate," Commerzbank Research said.

Energy:

Oil prices inched higher, with market fundamentals remaining tight despite worries over global growth.

ING said that the recent sell off in oil prices has been extreme and that the market is much tighter than appears.

"While fundamentals may not be as bullish as initially thought, they are still supportive, with the market likely to be in deficit for the remainder of this year. The surplus we see early next year could even be erased if the Saudis roll over their additional voluntary supply cuts."

Metals:

Base metals and gold prices were lower in early trading in London, with the market looking ahead to U.S. inflation data.

"For today's CPI inflation print, investors are expecting a core headline number of 3.3% year on year, down from 3.7% last month," Peak Trading Research said.

Peak said a weaker inflation print, "something closer to 3.0%, would help keep Fed expectations dovish, push the dollar lower, keep this risk-on rally alive, and boost our dollar-denominated futures markets."

EMEA HEADLINES

Glencore-Led Group to Buy Teck's Coal Business

Canadian miner Teck Resources said it is selling its coal assets to a group led by mining and trading giant Glencore in a deal that would cap a lengthy saga and be one of the biggest in mining this year.

The transaction would value the business at around $9 billion. Under the terms of the deal, Switzerland-based Glencore will pay $6.93 billion for a 77% stake. Japan-based steelmaker Nippon will hold a 20% stake after converting existing holdings in some of Teck's coal operations and paying cash, while South Korean steelmaker Posco will hold a 3% position after converting its holdings.

Vodafone Posts Lower Pretax Profit on Previous Business Disposals

Vodafone Group has reiterated its full-year guidance as it reported a much lower pretax profit for the first half of fiscal 2024, reflecting adverse foreign-exchange rate movements and business disposals in the prior year.

The U.K. telecommunications company said Tuesday that it expects to report underlying earnings before interest, taxes, depreciation, amortization and lease expenses of 13.3 billion euros ($14.23 billion) for the year ending March 31 compared with EUR14.7 billion in fiscal 2023. Adjusted free cash is seen at around EUR3.3 billion, from EUR4.84 billion.

RWE Renewable-Electricity Generation Helps Drive Earnings Growth

RWE's net profit rose in the first nine months, driven by renewable-energy generation and growth in its supply and trading division.

The German energy company said Tuesday that net profit rose to 3.81 billion euros ($4.08 billion) from EUR2.10 billion in the first nine months of 2022.

GLOBAL NEWS

What to Watch in the CPI Report: Did Inflation Heat Up or Cool Down Last Month?

Americans paid less for gasoline last month, helping keep inflation in check, but underlying price pressures remained steady in October, analysts estimate. Such an outcome would leave inflation elevated and reflect why the Federal Reserve isn't declaring an end to its historic campaign of interest-rate increases.

Climate Change's $150 Billion Hit to the U.S. Economy

The U.S. now experiences an extreme weather event in which damages and costs top $1 billion every three weeks.

That compares with every four months in the 1980s, when adjusted for inflation, according to the latest installment of the U.S. National Climate Assessment released Tuesday.

China's Economy Is Sending Mixed Signals. What to Watch.

China is juggling a lot with its weaker-than-expected economic recovery: Softening demand both abroad and at home, high unemployment among young people, property developers struggling with debt, and flared-up tensions with the U.S.

Despite all this, China's GDP posted a 4.9% annual growth in the third quarter, following 6.3% and 4.5% in the previous quarters. While not the double-digit growth in the past decades, the numbers are on track to meet Beijing's target of a 5% growth this year.

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

(END) Dow Jones Newswires

11-14-23 0540ET