EMEA Morning Briefing : Investors Weigh Powell's Comments, Geopolitical Risks

MARKET WRAPS

Watch For:

Germany PPI; UK public sector finances, retail sales; trading updates from Autoliv, InterContinental Hotels Group, Wickes

Opening Call:

Shares could retreat in opening trade in Europe on Friday, as investors mull remarks from U.S. Federal Reserve Chair Jerome Powell and the continuing conflict between Israel and Hamas; In Asia, stock benchmarks were in the red; Treasury yields weakened; the dollar edged up; while oil and gold advanced.

Equities:

European shares look set to track Wall Street's overnight decline, as investors weigh comments from Fed Chair Powell and worries over Middle East tensions, while the 10-year Treasury yield nears 5%.

Powell initially suggested that the central bank is unlikely to raise interest rates again in November. He then spooked investors once his speech resumed, shortly after an interruption by climate activists. Traders struggled to discern a clear sense of direction from his comments.

"The fact is the yields are doing some of the work for them, and I think what he's acknowledging is that he's keeping his eye on that, but his message really is 'If the market doesn't do it for us, we'll do it ourselves,'" said JJ Kinahan, chief executive of IG North America.

Forex:

The dollar inched higher in Asia on poor risk appetite.

Sentiment appeared downbeat, owing to heightened geopolitical risks stemming from the Middle East and prevailing economic uncertainties, said Fawad Razaqzada, market analyst at City Index and https://urldefense.com/v3/__http://FOREX.com__;!!F0Stn7g!GvgvMUHqzq31bX6Kui3Fs8YXBSPAxkllHi7rWzqc4irOb2vH2rcnhMCbFjlj5fu_g-qkIsX1PNN5lF-SCmiv8m3uzlb_LzXBbdC2M-dFadk$ .

Recent foreign exchange correlations with equity markets suggest that a stock-market selloff could lead to the dollar sustaining its strength versus commodity currencies, the analyst added.

Bonds:

Treasury yields mostly declined in Asia after the 10-year yield neared a key threshold, following remarks by Fed's Powell.

The 10-year Treasury yield traded within a whisker of 5% as investors continued to sell long-dated U.S. government debt on fears that robust economic data could encourage the Fed to keep interest rates higher for longer as it battles inflation.

Meanwhile, there are concerns that some important buyers of Washington's debt are pulling back. Chinese investors sold U.S. assets at the fastest pace in four years in August, according to official Treasury Department data released Wednesday evening.

Energy:

Oil prices rose in Asia amid concerns the Hamas-Israel conflict could escalate further and continue to push oil prices higher.

Israeli Defense Minister Yoav Gallant told troops that they would soon see Gaza "from within," during a tour of the country's border with the Palestinian enclave on Thursday, fueling expectations of an imminent ground invasion, Commonwealth Bank of Australia said.

There is even a risk that Iran may get drawn into the conflict, which would probably send Brent futures above $100/bbl, CBA said.

Metals:

Gold edged higher amid ongoing geopolitical tensions, which support safe-haven demand for the precious metal.

Volatility in the Middle East region is likely to stay elevated, which should sustain the precious metal's trajectory heading toward the $2,000/oz level, Oanda said.

"Beyond the geopolitical risks, there are fundamental developments that are now coming to the fore," Gold Newsletter said. Fundamentally, the issue is the surge in interest rates and Treasury yields because of oversupply, it said.

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Copper inched lower, as recent weakness in prices raises concerns in the mining industry, ANZ said, pointing to a more than 14% drop for the red metal since a January peak.

Major copper producer Freeport-McMoRan warned that prices are too low to justify major investments in new projects, ANZ said.

Freeport President Kathleen Quirk has said the company doesn't want to commit to major multibillion-dollar projects in the current environment, ANZ added.

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Iron ore prices were lower in Asia.

Home prices in major Chinese cities fell at a faster pace in September, signaling continued weak demand from China, ANZ said.

On the other hand, Huatai Futures believes that recent Chinese economic data was better than expected and could lift the iron ore market slightly.

Investors should focus on whether steel factories reduce their production when the supply of scrap steel increases, Huatai added.

TODAY'S TOP HEADLINES

Jerome Powell Signals Fed Will Extend Interest-Rate Pause

Federal Reserve Chair Jerome Powell suggested the run-up in long-term Treasury yields could allow the central bank to suspend a historic run of interest-rate increases so long as recent progress on inflation continues.

Powell's remarks at a Thursday lunchtime address in New York closely tracked those of colleagues who indicated in recent days that they would hold short-term interest rates steady at their next meeting on Oct. 31-Nov. 1.

U.K. Consumer Confidence Sinks in October as Cost-of-Living Pressures Bite

Consumer confidence in the U.K. dipped in October as the high cost of living meant respondents shied away from big purchases ahead of the key Christmas season, according to a survey published Friday.

Confidence among British consumers dropped nine points on month to minus 30 this month, according to an index compiled by consumer-research firm GfK.

China Holds Benchmark Lending Rates Steady

China held its benchmark lending rates steady Friday, as expected after the central bank kept its policy rates unchanged earlier this month.

The one-year loan prime rate was maintained at 3.45% and the five-year rate at 4.2%, the People's Bank of China said on its website.

U.S. Forces in Syria, Iraq, Red Sea Come Under Militant Attack

U.S. forces in the Middle East came under attack several times this week, a potential sign of heightened aggression toward the U.S. following Hamas's terrorist attack on southern Israel earlier this month.

Such attacks are typically carried out by Iranian-aligned militia groups, but U.S. military officials didn't confirm the perpetrators of this week's attacks.

Vivendi 3Q Revenue Grew Driven by Canal+, Havas

Vivendi's revenue for the third quarter rose, helped by organic growth at its Canal+ Group and Havas businesses.

The French media group said Thursday that revenue for the third quarter was 2.43 billion euros ($2.56 billion) compared with EUR2.37 billion for the same period last year.

L'Oreal Sales Grew in Third Quarter, Overcoming Sluggish China Recovery

L'Oreal said Thursday that sales in the third quarter climbed on year, as its growing cosmetics and consumer-products businesses shrugged off slower-than-expected recovery in China.

The French beauty company posted sales of EUR10.00 billion ($10.54 billion) in the three months to Sept. 30, up from EUR9.58 billion in the same period of 2022.

EssilorLuxottica Upbeat on Mid-Term Targets Despite Slowing Growth

EssilorLuxottica's revenue growth slowed in the third quarter amid sluggish sales of sunglasses, but the company backed its longer-term financial targets.

The Franco-Italian eyewear giant made total revenue of EUR6.29 billion ($6.63 billion) in the July-September period, 5.2% higher than in the same period last year, adjusted for currency effects. This was in line with analysts' expectations, according to a poll of estimates compiled by FactSet, but slightly slower than in the first half of the year.

Salvatore Ferragamo Posts Lower Sales

Salvatore Ferragamo reported a decline in sales for the first nine months of the year, but has maintained its mid-term targets.

The Italian luxury-goods maker posted on Thursday revenue of 844 million euros ($889.4 million) for the first nine months of 2023, down 8.3% at current exchange rates, compared with EUR920.7 million in the year-earlier period.

Russia Detains American Journalist

Russian authorities have detained an editor for Radio Free Europe/Radio Liberty for failing to register as a foreign agent, marking the second detention of an American journalist in Russia this year.

Alsu Kurmasheva, who holds dual U.S.-Russian citizenship and lives in Prague, where the RFE/RL is based, was detained Wednesday in Kazan, a city in southwest Russia, according to a statement published the same day by the company. She was charged with failing to register as a foreign agent, the company said.

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Expected Major Events for Friday

06:00/EU: Sep New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

06:00/GER: Sep PPI

06:00/SWE: Sep Labour Force Survey

06:00/UK: Sep Public sector finances

06:00/UK: Sep UK monthly retail sales figures

08:00/POL: Sep Agricultural prices

08:00/ICE: Sep Harmonized CPI

08:00/POL: Sep Retail Sales

09:00/LUX: Sep Unemployment

09:00/BEL: Oct Consumer Confidence Survey

10:00/UK: Sep Aluminium Production report

10:00/IRL: Sep WPI

15:59/GRE: Aug Balance of Payments

17:59/POR: Jul ICSG Copper Report

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

(END) Dow Jones Newswires

10-20-23 0016ET