European Midday Briefing

MARKET WRAPS

Stocks:

European stocks added to recent gains on Friday, although moves were modest, as investors awaited the key U.S. jobs report.

Easing hiring and wage growth could be a sign that the U.S. economy is starting to slow after a red-hot summer. On Wednesday, Jerome Powell pointed to the cooling labor market as one reason the Federal Reserve might not need to raise rates further.

European corporate news was mixed, once agan, with Maersk shares falling around 11% after it said it would cut more than 10,000 jobs to save costs and shield its profitability.

U.S. Markets:

Stock futures were narrowly mixed and benchmark Treasury yields held below 4.7%.

The jobs report for October is due, with investors hoping for a decline in nonfarm payrolls, as a sign that the economy is slowing and the Fed can stop tightening financial conditions.

Economists estimate that employers added 170,000 jobs last month and that the unemployment rate held steady at 3.8%.

The S&P 500 is up 4.9% this week, on track for its best weekly performance since November 2022. Government bonds have also rallied, with the yield on the 10-year Treasury note declining for the past three sessions. Bonds have also gotten a boost from the Treasury Department's plan to slow the pace of debt issuance.

Stocks to Watch

Apple shares fell nearly 3% in premarket trading after it warned that sales in the current quarter would be similar to last year.

Block shares rose 18% premarket after it raised its full-year guidance and beat expectations for the third quarter.

Expedia shares rose more than 10% premarket after its board approved up to $5 billion in share buybacks and reported higher quarterly revenue.

Paramount shares rose more than 3% premarket after the company said its streaming business lost less money in the third quarter.

Forex:

Diverging policy rate expectations between the Fed and the ECB have been a major contributor to the increase in long Treasury yields and to a weakening of the euro relative to the dollar, SEB Research said.

"Without clearer signals of the softening of the U.S. economy, ECB rate cut expectations priced by forwards may remain more aggressive than those of the Fed or even widen further in the coming weeks," SEB said.

However, SEB said if it's right in expecting the Fed to reduce policy rates clearly more than the ECB in 2024, U.S.-eurozone yield spreads should tighten and the EUR/USD should rise.

Overall, the dollar remained under pressure as the risk-on mood continued in global markets after the Fed left interest rates unchanged earlier this week.

"The dovish Fed [or at least the market interpretation of it], improved risk sentiment, and small signs of U.S. data starting to disappoint have broadly weighed on the USD over the past couple of days," Danske Bank Research said.

ING said the dollar could continue to weaken if the non-farm payrolls data are not significantly strong, and the DXY dollar index possibly declining to "the 105.50/55 area."

"Assuming no upside surprises today, we favour the dollar handing back a little further of its gains, especially against the high yielders [e.g., Mexico and Hungary] given the renewed interest in the carry trade," ING said.

Bonds:

With Treasury yields already moving lower, markets are likely to be more sensitive to stronger-than-expected payrolls data than to a lower-than-expected reading, UniCredit Research said.

"This is especially the case considering that markets are pricing in a very modest probability of another Fed hike, while around 80 basis points in rate cuts are priced in by the end of 2024," UniCredit Research said.

Furthermore, the 10-year Treasury yield is trading almost 85 basis points through [below] the Fed funds, which incorporates already a decent amount of easing by the Fed, UniCredit said.

Societe Generale said Fitch's review of Italy on Nov. 10 will test appetite for Italian government bonds after the recent spread narrowing. "Country spreads have narrowed, but risks remain," it said, pointing to Italy's fiscal risks.

BTP-Bund spreads have narrowed across the curve as volatility in the rates markets fell and risk assets outperformed.

Energy:

Oil futures moved higher, with BMI saying prices were being torn between rising, conflict-related risks on the supply side and a slowing global economy, increasing the downside pressures on demand.

BMI's baseline case remains for the conflict to be limited to the Levant; however there is still worry Iranian oil output could be sanctioned, cutting supply in an already tight market.

Metals:

Base metals inched higher and gold was flat ahead of the key U.S. jobs data, with investors gauging likely Fed policy.

Key data releases like nonfarm payrolls are likely to inform the Fed as it goes forward, according to analysts. Additionally, potential oil-price-fueled inflation is keeping open the possibility of another rate rise in December, ANZ said.

EMEA HEADLINES

Maersk to Cut More Than 10,000 Jobs as Industry Faces New Normal

A.P. Moller-Maersk said it will cut more than 10,000 jobs as it steps up cost savings, with the industry facing a new normal of subdued demand, lower freight rates and inflationary pressure.

The company now expects to report earnings for the full year at the lower end of its targeted ranges, it said.

Societe Generale's Third-Quarter Earnings Fell on Lower Revenues

Societe Generale reported a decline in earnings after net interest revenues fell, costs increased and exceptional items cut into the bank's third-quarter result.

The French lender on Friday said that its net profit was 295 million euros ($313.3 million) compared with EUR1.45 billion in the year-ago period, as revenue declined 6.2% to EUR6.2 billion.

Germany's Trade Surplus Fell in September as Exports, Imports Dipped

Germany's trade surplus declined in September, as exports and imports fell more than expected, a signal of the fragile economic climate for German businesses both at home and abroad.

The country's adjusted trade surplus-representing the difference between exports and imports of goods-dipped to 16.5 billion euros ($17.53 billion) in September, compared with EUR17.7 billion in August, data from the country's statistics office Destatis showed Friday.

BMW Confirms Guidance After Revenue Rose, After-Tax Profit Slipped

BMW confirmed its full-year guidance after revenue rose and aftertax profit fell in the third quarter.

The German car maker said Friday that revenue rose to 38.46 billion euros ($40.85 billion) from EUR37.18 billion in the third quarter of last year. Analysts had expected revenue to come in at EUR37.42 billion, according to FactSet estimates.

Solvay Misses Expectations After Weak Demand, Falling Volume

Solvay said third-quarter profit and sales slumped, missing analysts' expectations, as it was hurt by weak demand, declining volumes and prices.

The Belgian chemical company said net profit fell to 220 million euros ($233.7 million) from EUR451 million in the prior year on net sales that fell 24% to EUR2.75 billion.

Swiss Re Swings to Net Profit on Property-And-Casualty Strength

Swiss Re swung to a net profit for the third quarter after property-and-casualty reinsurance benefited from a lower level of large natural-catastrophe claims.

The Zurich-based reinsurer said Friday that it made a net profit of $1 billion for the third quarter. For the third quarter of last year, Swiss Re reported a net loss of $442 million mainly due to claims related to hurricane Ian.

GLOBAL NEWS

What to Watch in Friday's Jobs Report: How Long Can Labor Market Keep Booming?

Employers pulled back on hiring in October while handing out smaller annual raises, analysts said, which would be indications the labor market is slowly losing momentum.

China Caixin Services PMI Rose for October

A private gauge of China's services activities edged up in October, remaining in expansionary territory for 10 months in a row as Beijing ramped up efforts to shore up economic growth.

The Caixin services purchasing managers index climbed to 50.4 in October from September's 50.2 which was the lowest of the year, Caixin Media Co. and S&P Global said Friday.

In the Long Run, Investing Is All About the Economy*

Wednesday provided a perfect demonstration of the three most important issues facing markets: the economy, government spending and the Federal Reserve.

Ten-year Treasury yields posted their third-biggest daily drop since March, when Silicon Valley Bank failed. Investors put equal weight on the three issues-knocking 0.05 percentage point off the yield after each of three events-as their worries eased about the pace of growth, the scale of government bond issuance and how long the Fed will keep rates high.

Russia's Wagner Group Plans to Send Air Defenses to Hezbollah, U.S. Says

Wagner Group, the Russian paramilitary organization, plans to provide an air-defense system to Hezbollah, the Lebanese militia, U.S. officials say, citing intelligence.

The Russian SA-22 system they plan to send uses antiaircraft missiles and air-defense guns to intercept aircraft.

War in Ukraine Loosens Russia's Grip on Its Own Backyard

When domestic turmoil engulfed Kazakhstan in January last year, Russian airborne troops quickly swooped in to help restore order. Moscow's sway in much of the former Soviet Union-areas that Russians refer to as "near-abroad"-seemed to be at its peak.

The invasion of Ukraine, launched the following month, bared the stark limits of Russian power in what Moscow considered its own backyard. Spooked by the bloodshed in Ukraine and by the international sanctions imposed on Russia, its neighbors and allies now are busy diversifying their relationships, hedging against Moscow by deepening ties with China and the West.

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11-03-23 0628ET