MARKET WRAPS
Watch For:
U.K. Chancellor Jeremy Hunt addresses Conservative Party Annual Conference; France OECD CPI; trading updates from DS Smith, Croda International, Cohort, Porvair, RXLMedia, S&U, Apax Global Alpha, Boohoo Group, CLS Holdings, Greggs
Opening Call:
Shares may edge lower in Europe on Tuesday on a weak lead from U.S. stock futures. In Asia, stock benchmarks were mostly lower; Treasury yields were broadly higher; the dollar strengthened; while oil and gold declined.
Equities:
European stock futures are indicated lower early Tuesday as investors watch Fed officials' comments indicating higher for longer rates and coming U.S. economic data.
U.S. stocks ended mostly higher on Monday as Treasury yields hit more multi-year highs and lawmakers averted a shutdown of the federal government over the weekend.
Phil Orlando, chief equity market strategist at investment manager Federated Hermes, said he is counting on another month of choppy trading leading up to the Federal Reserve's November meeting.
He expects the Fed to raise interest rates another quarter of a percentage point and then hold them steady for a year or so.
Stocks should rally in between as investors anticipate cuts to borrowing costs, Orlando said.
"We think that higher rates is really the tail wagging the dog in markets, and is the big story that's causing the majority of the market moves we're seeing right now," Keith Buchanan, a senior portfolio manager at GLOBALT Investments in Atlanta said.
The president of the Cleveland Federal Reserve Loretta Mester said Monday she suspects the central bank "may well need to raise" interest rates once more this year and then keep rates high "for some time" to get inflation fully under control.
Investors will be watching for U.S. job openings and a labor turnover survey on Tuesday.
Forex:
The dollar nudged higher in Asia amid higher Treasury yields.
"Inexorably" rising bond yields are unsettling markets and boosting the USD, RBC Capital Markets said.
The dollar is likely to continue to strengthen in the fourth quarter and shouldn't repeat last year's final-quarter slide, Saxo strategist Charu Chanana said.
Factors supporting the dollar include a higher-for-longer expectation for U.S. interest rates; surging oil prices making more rate increases possible; and signs of a strong U.S. economy, especially relative to Europe, she said.
Risk aversion, especially given China's property-market concerns, should also support safe-haven demand for the dollar, she added.
This Friday's keenly-awaited U.S. jobs data should be solid "and will not reverse the Federal Reserve's hawkish stance, nor the strong dollar, " ING said.
Bonds:
Treasury yields were broadly higher early Tuesday, a day after 10- and 30-year Treasury yields moved toward multiyear highs amid a broad-based selloff of most U.S. government debt.
Markets are pricing in a 25.7% probability that the Fed will hike interest rates by 25 basis points to a range of 5.5% to 5.75% on Nov. 1, and a 38.2% chance of that happening by December, according to the CME FedWatch Tool.
Analysts are also cautioning that the respite from Washington averting a shutdown could be temporary.
While Congress has passed the 45-day stopgap funding bill it still needs to figure out how to pass the various appropriations bills to fund the government to avoid a shutdown in 45 days (Nov. 17), as well as find some common ground on both Ukraine funding and border funding, said Libby Cantrill, managing director and head of U.S. public policy at PIMCO.
"In other words, this is a respite from a shutdown, not a complete reprieve from one."
Read: 'Eventually something will break': JPMorgan strategist warns rising bond yields could unleash a 'financial accident'
Energy:
Oil futures were lower early Tuesday as rising U.S. yields and a stronger dollar dominate market sentiment.
While supply remains tight, higher interest rates mean expensive storage of inventories, ANZ analysts said, adding that this could lead to further destocking of oil inventories while increasing spot availability.
Also, the key oil pipeline between Iraq and Turkey looks ready for operation this week which could result in additional oil flows and ease global supply tightness, they added. The pipeline has been offline since March this year.
Traders this week will be paying attention to an OPEC+ meeting of the Joint Ministerial Monitoring Committee on Wednesday.
"The market will be eager to see if there are any signs of a change in the group's output policy, given the recent strength in the market. We do not believe that the group will change its output policy," ING said.
Metals:
Gold edged down amid elevated U.S. bond yields and a strong dollar.
The precious metal is being pressured by U.S. Treasury yields at multi-year highs amid increasingly hawkish signals from Fed officials, ANZ analysts said.
Gold prices are headed toward a so-called "death cross" that could lead to further declines for the precious metal.
"Wall Street is having a major reset on where flows are going and that is clearly not gold's way," Oanda said adding that fixed income is all of sudden attractive, and that has killed the short-term outlook for gold.
Gold prices are likely to become more vulnerable and drop below $1,800/oz if investors start to anticipate that the 10-year Treasury yield is ready to test the 5% region, Oanda said.
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Copper fell amid the strength of the dollar, which typically has an inverse relationship with the industrial metal.
Market focus is shifting to the stronger dollar and rising U.S. bond yields, ANZ Research analysts said.
Although China's official manufacturing PMI entered expansionary territory in September, this has failed to reverse the downbeat market sentiment, the analysts added.
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Iron-ore prices could soften a little in 4Q if China's steel output falls on production controls or due to weak margins, Morgan Stanley analysts said.
But prices for the steel ingredient would likely then rebound into 1Q 2024, "as China's steel output returns and El Nino brings supply risks to Australia and Brazil," the analysts said.
"Restocking ahead of the new year may even begin earlier, supporting prices on pullbacks," they added.
The analysts say prices have found support recently from robust China steel output, strong blast furnace utilization, falling port inventories and weaker Chinese iron-ore output.
They have a $105/metric ton price estimated for 4Q, followed by $120/ton in 1Q 2024.
TODAY'S TOP HEADLINES
Japan Ready to Take Measures Against Sharp Yen Falls, Finance Minister Says
TOKYO-The Japanese government stands ready to take action if the yen weakens too sharply, Finance Minister Shunichi Suzuki said Tuesday.
"We are watching [the foreign exchange market] with a strong sense of urgency," Suzuki said at a news conference on Tuesday. "We will take every possible measures" against excessive moves in the yen.
Fed may have to raise interest rates once more this year, Mester says
The president of the Cleveland Federal Reserve said Monday she suspects the central bank "may well need to raise" interest rates once more this year and then keep rates high "for some time" to get inflation fully under control.
Loretta Mester, in a speech in Cleveland, said "inflation remains too high" despite a sharp slowdown in price increases since last year.
Fed's biggest question is how long to keep interest rates high, Barr says
Federal Reserve Gov. Michael Barr says the biggest challenge for the central bank is to decide how long to keep interest rates high to make sure inflation is tamed.
"In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals," Barr said in a Monday speech in New York.
Oil Producers Push for Bigger Voice in Climate Talks Ahead of COP28 Summit
ABU DHABI-Less than two months before it hosts the United Nations' climate summit, the United Arab Emirates on Monday gathered the world's fossil-fuel producers together for one of the world's biggest annual oil-and-gas conferences, calling on the industry to be central to the world's efforts to reduce emissions.
"This is your opportunity to show the world that, in fact, you are central to the solution," the Emirati official leading COP28, Sultan al-Jaber, told the Abu Dhabi International Petroleum Exhibition and Conference.
Meta Floats Charging $14 a Month for Ad-Free Instagram or Facebook
Would people pay nearly $14 a month to use Instagram on their phones without ads? How about nearly $17 a month for Instagram plus Facebook-but on desktop?
That is what Meta Platforms wants to charge Europeans for monthly subscriptions if they don't agree to let the company use their digital activity to target ads, according to a proposal the social-media giant has made in recent weeks to regulators.
Gucci, Chanel and Other Luxury Retailers Splurge on American Real Estate
Luxury retailers are spending big on their U.S. real estate, more evidence of the staying power of in-person shopping.
French jeweler Van Cleef & Arpels is opening a new Manhattan location on Madison Avenue. Chanel recently reopened its Beverly Hills flagship after more than doubling its footprint to 30,000 square feet. Gucci is expanding throughout the U.S., and now counts eight Texas locations and a boutique in downtown Detroit.
Inside Ukraine's Fight to Retake Bakhmut: 'The Ground Was Covered in Bodies'
KOSTYANTYNIVKA, Ukraine-As the squad of Ukrainian soldiers crept along the tree line toward the Russian bunker, artillery fire sent their enemies scrambling for cover. This was the chance they had been waiting for.
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10-03-23 0015ET
