EMEA Morning Briefing : Shares May Track Lower on Risk-off Sentiment

MARKET WRAPS

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French President Emmanuel Macron meets Swiss President Alain Berset; trading updates from Siemens, Zurich Insurance Group, VK Co, Investec, International Distributions Services, Pershing Square Holdings, Halma, Burberry Group, United Utilities Group, Aegon, Melrose Industries, Aviva, Gold Fields, Smiths Group, Spirax-Sarco Engineering, Harmony Gold Mining

Opening Call:

Stock futures were lower amid a risk-off sentiment weighing on Asian equities markets; Treasury yields were mostly lower; the dollar gained; while oil futures fell and gold advanced.

Equities:

European stock futures were lower early Thursday as investors parsed growing evidence of a gradually cooling economy.

"With inflation waning, the backdrop is favorable for equities to trend higher," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.

Still, some investors said the Fed might not be in a hurry to cut short-term rates, even if additional hikes are off the table.

"We would caution investors to not be overly optimistic on the timing of any Fed rate cut," said Greg Bassuk, chief executive officer of AXS Investments.

Forex:

The U.S. dollar advanced amid risk-off sentiment prompted by broad declines in Asian equity markets.

Despite U.S. economic figures fueling the soft-landing narrative, the data will likely continue to weaken and soon indicate that the Fed has overtightened policy, CBA said.

History typically shows that a U.S. recession is a recipe for a stronger USD, it added.

Bonds:

Treasury yields were broadly lower early Thursday.

"Inflation crosswinds over the next couple of months could contribute to market turbulence in the near term, but our view remains that by spring or summer, inflation will have fallen far enough for the Fed to consider a first rate cut - a supportive move for both bonds and stocks," said UBS Global Wealth Management.

"This supports our expectations for positive returns for both quality fixed income and equities over the next six to 12 months, making it a good time to add to diversified balanced portfolios."

Energy:

Oil prices were lower early Thursday amid rising U.S. inventories.

The EIA announced that crude inventories in the U.S. rose by 3.6 million barrels last week, OCBC analysts said.

The data also showed the U.S. continued to produce crude at a record pace of 13.2 million barrels per day.

Meanwhile, the downward pressure on oil prices is compounded by China's oil refinery throughput in October easing 3% to 15.1 million barrels a day, as domestic demand for industrial fuel weakened and refining margins narrowed, the analysts added.

Metals:

Gold prices gained in Asia amid mixed cues.

On the back of promising CPI data earlier this week, the U.S. October producer prices also showed the biggest decline in over three years, further consolidating the expectation that the Fed is done with interest rate hikes, Nanhua Futures analysts said.

However, higher U.S. Treasury yields and a strong dollar, together with still robust U.S. retail sales data released on Wednesday, were capping gains of the precious metal.

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Copper edged lower on continuing worries about China's property sector, a source of demand for the base metal.

Recently released economic data showed the country's home sales and property investment were still in contraction, ANZ Research analysts said.

They are a sign that China's real-estate sector is struggling, the analysts said.

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Iron-ore futures fell in the Asian morning session amid concerns over China demand.

Recent data from the National Bureau of Statistics of China showed that monthly crude steel production fell 1.8% on year to reach year-to-date lows in October, ING commodities strategists said.

This likely stemmed from domestic mills cutting production amid an uncertain demand outlook, declining profit margins, and rising raw material costs, the strategists said.

TODAY'S TOP HEADLINES

Fed's Barkin Says More Needs to Be Done to Make Housing Affordable

Housing is becoming "increasingly unattainable for too many workers," the president of the Federal Reserve Bank of Richmond said Wednesday.

Regions and municipalities should look to incentives and novel plans to make owning a home and renting more affordable, the Richmond Fed's Tom Barkin said at a housing conference in Virginia.

Senate Approves Short-Term Spending Bill as Lawmakers Eschew Shutdown Politics

WASHINGTON-Congressional shutdown brinkmanship is taking a break, but it could be back with a vengeance soon.

Faced with a government-funding deadline this weekend, House lawmakers of both parties agreed Tuesday to back a short-term Republican plan that extends the status quo until early next year, rather than stage another bare-knuckle fight now over spending and policy priorities. The far-less-pugnacious Senate followed Wednesday, approving the proposal 87 to 11. The bill now goes to President Biden for his signature.

Covid's Biggest Economic Winner Is Running Out of Steam

It was one of very few economies to get a boost from the Covid-19 pandemic. That unusual dividend is now unraveling, in a fresh blow to Europe's already weakened growth outlook.

Home to large U.S. technology and pharmaceutical companies that saw their sales boom during the pandemic, tiny Ireland recorded annual growth of 10.5% on average between 2020 and 2022 while other economies contracted under the effect of lockdowns.

The Global Fight Against Inflation Has Turned a Corner

Inflation is falling faster than expected across advanced economies, marking a turning point in central banks' two-year battle against surging prices.

Declines in consumer price growth, to below 5% in the U.K. last month and around 3% in the U.S. and eurozone, are fueling expectations that central banks could take their feet off the brakes and pivot to cutting interest rates next year.

Biden, Xi Jinping Dial Back Rancor in Summit to Stabilize Ties

WOODSIDE, Calif.-President Biden and Chinese leader Xi Jinping struck a less contentious tone at their summit Wednesday, a reset that will be quickly tested by deep U.S.-China disagreements.

With relations between the two countries near a low point, Biden and Xi agreed to resume communications between their militaries, cooperate on choking off fentanyl production and begin a dialogue on the risks of artificial intelligence. Their four hours of talks at a secluded estate outside San Francisco included a walk in the wooded grounds.

Iran Maintains Steady Expansion of Nuclear Program

Iran continued to expand its nuclear program, including its stockpile of near-weapons-grade enriched uranium in recent months, although it hasn't accelerated the pace of its production of nuclear fuel amid the current turmoil in the Middle East.

In its confidential quarterly report circulated to member states, the United Nations nuclear agency also said Tehran has largely refused to cooperate on several outstanding disputes, including the country's withdrawal of permission for several European inspectors to continue working there.

As Putin Girds for a Long War, Europe Seeks to Harden Sanctions on Russia

The European Union has proposed new measures aimed at tightening sanctions against Russia, which has largely succeeded in resisting Western efforts to undermine the Kremlin's ability to fund its war in Ukraine.

The EU's executive body sent a 12th package of Russia sanctions to member states late Tuesday, officials said. Diplomats say it could take several weeks for all 27 member states to adopt the measures, which include restrictions against foreign companies doing business with Russia and a ban on Russian diamond and other imports.

UBS Spared $2 Billion in Penalties After French Supreme Court Calls for New Trial in Tax Case

UBS Group won't have to pay around $2 billion after the French Supreme Court partly overturned a decision from a lower court that had fined the bank in a long-running tax-fraud case, but confirmed a ruling that the bank had helped wealthy clients in France evade taxes.

The latest ruling, announced Wednesday by the Supreme Court, effectively rescinds the financial penalties imposed on UBS in December 2021.

UAW Workers at GM's Largest Plant Back Labor Pact, Boosting Deal's Chances

A majority of workers at General Motors' largest U.S. factory voted in favor of a tentative contract with the United Auto Workers, bolstering the deal's chances for approval as a tight vote enters its final hours.

Workers at GM's factory in Arlington, Texas, which makes large SUVs including the Cadillac Escalade and Chevrolet Tahoe, voted yes by more than 60%, according to Wednesday results from the local union chapter.

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Expected Major Events for Thursday

05:30/NED: Oct Unemployment

08:00/SVK: Sep New orders in industry

08:00/CZE: Oct PPI

08:00/SVK: Oct Harmonized CPI

09:00/ITA: Sep Foreign Trade EU

09:30/UK: Aug Card Spending statistics

10:00/CRO: Oct CPI

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

(END) Dow Jones Newswires

11-16-23 0015ET