MARKET WRAPS
Stocks:
European stocks were weaker again on Monday following some disappointing corporate news and as Israel ramped up its bombing of targets in Gaza.
Philips said it expected adjusted earnings to rise 10%-11% for the year, after it reported above-forecast third-quarter results, but order intake fell for the fifth quarter in a row , analysts said, causing shares to fall more than 3%.
Shares in Volkswagen fell almost 3% after it adjusted its full-year guidance for operating profit after its third-quarter performance was hit by production losses from flooding in Slovenia and higher costs.
Stocks to Watch
Readacross from U.S. banks' third-quarter investment banking performance implies consensus expectations for its European peers are undemanding, Berenberg said.
Alongside results, management teams spoke confidently of maintaining trading revenues--which continued to soften toward pre-coronavirus levels--and an anticipated uptick in dealmaking as investment banking fees remain subdued.
"U.S. banks'...performance implies that expectations for Barclays are too low--consensus includes a 20% [on-year] fall," Berenberg said. It said Barclays could also gain support from greater recognition of its returns.
"BNP, Deutsche Bank and Societe Generale are expected to experience 5-10% [on year] decreases in their own franchises, versus readacross from U.S. actuals implying a small increase should be expected."
Economic Insight
Interest-rate cuts by the European Central Bank could come as soon as March and will be more significant than markets currently price in, NatWest Markets said. It expects 100 basis points of cuts in 2024, more than the close to 60 basis points priced in by the market.
"Even if a March cut does not materialise, we do think that we could see more priced in relative to current market pricing and perhaps in quicker succession."
For the ECB's upcoming meeting on Thursday, NatWest Markets expects the central bank to keep rates unchanged, which is in line with the consensus view.
Barclays said U.K. preliminary manufacturing and services PMI data due on Tuesday are unlikely to change market expectations that the Bank of England will continue to hold interest rates at the November 2 meeting.
The PMIs are expected to remain in contractionary territory and even stronger-than-expected readings would come "against the backdrop of a broad set of soft indicators," it said.
U.S. Markets:
Stock futures ticked down, while the yield on the benchmark 10-year Treasury note surged past 5%, crossing a key threshold for the first time since 2007.
Earnings season is revving up this week, but Monday is set to be a quiet day for results. On Tuesday, earnings are due from Microsoft and Alphabet, among others.
According to FactSet, 73% of S&P 500 companies have reported better-than-expected profits so far. That is below the five-year average of 77%.
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Forex:
The dollar was relatively steady against major currencies as investors' fears about Middle East tensions ebb for now, and Monday's light agenda could keep the U.S. currency hugging tight ranges, UniCredit Research said.
The rest of the week is busy, with a raft of U.S. data scheduled. The data are likely to be "broadly firm but not sufficient to boost expectations of [Fed] tightening even more," UniCredit said.
Bonds:
Bunds and Treasurys still appear vulnerable ahead of the European Central Bank's policy meeting on Thursday and the Federal Reserve's meeting next week, as the pre-weekend safety bid wanes, Commerzbank Research said.
"Friday's stabilization in bond markets proved to be another pre-weekend insurance against geopolitical risks," it said.
The ECB meeting is this week's main risk event, Commerzbank Research said, adding the reaffirmation of last month's guidance is likely to cement expectations of no change for some time to come.
Italian government bonds were outperforming eurozone peers after S&P affirmed Italy's "BBB" rating with a stable outlook.
"The stable outlook balances our view of a slower budgetary consolidation than we previously expected, including due to increasing interest payments on large government debt, against the significant economic stimulus EU funds should provide," S&P said.
Greek government bonds showed a muted reaction to S&P's lifting to investment grade for Greece in a widely expected decision, with yield moves broadly in line with peers.
S&P upgraded Greece to "BBB-" from "BB+" with a stable outlook. It praised Greece's improving public finances thanks to the budgetary consolidation efforts.
Energy:
Oil prices pulled back, with investors keeping a close eye on the conflict in Israel and Gaza, as humanitarian aid starts to filter into the Palestinian territory.
"Risk sentiment is improved compared to Friday as tensions in the Middle East didn't escalate as much as feared during the weekend," Swissquote Bank said.
However, it said upside risks persisted for oil as "tensions remain extremely high and the risk of serious escalation prevails as Israel stepped up air raids in Gaza and Hezbollah could drag Lebanon into war, and spread tensions through the region."
Metals:
Gold prices pulled back slightly n early London trading, but upside remains strong due to the conflict in Gaza.
Oanda said gold faced risks of a minor pullback before a likely new uptrend, based on technical charts.
It said gold's uptrend since Oct. 6 has become "overstretched" and price movements have been negative at its ascending channel's upper boundary, which is just below pivotal resistance at $2,006/oz.
There has also been a bearish divergence in the hourly relative strength index at the overbought area last Friday, Oanda said. As such, uptrend's bullish momentum has abated and the metal may undergo a corrective retracement before a possible new uptrend, it said, pegging near-term support at $1,947/oz.
DOW JONES NEWSPLUS
EMEA HEADLINES
Roche to Buy Telavant From Roivant Sciences and Pfizer in $7.25 Bln Deal
Roche Holding has agreed to buy Telavant Holdings from Roivant Sciences and Pfizer in a deal worth up to $7.25 billion as the Swiss pharmaceutical giant seeks to bolster its immunology pipeline.
The acquisition will give Roche rights over Telavant's drug candidate that has shown promise for inflammatory bowel disease and could have potential in other indications, it said. Roche will have rights to commercialize the drug in the U.S. and Japan, pending clinical-trial data and regulatory approval.
Royal Philips Raises Guidance After Swinging to 3Q Profit
Royal Philips raised its full-year guidance after swinging to net profit for the third quarter of the year on higher sales, with growth in all segments and geographies.
The Dutch health-technology company said Monday that it now expects to report a 6% to 7% rise in comparable sales this year compared with previous guidance for mid-single-digit comparable growth.
Volkswagen Tightens Guidance After 3Q Revenue Rose
Volkswagen AG tightened its guidance for the year after it said revenue rose in the third quarter and the first nine months of 2023.
The German car maker now expects an operating result before special items at a similar level to last year's 22.5 billion euros ($23.82 billion), which VW said at the time was a return on sales of 8.1%. Earlier this year, the company had said it expected an operating return on sales for 2023 of between 7.5% and 8.5%.
Telecom Italia Board to Evaluate KKR Bids for Network Assets Next Month
Telecom Italia's board of directors will meet next month to examine a binding offer for its fixed-network business and a nonbinding bid for its stake in Sparkle submarine-cable unit made by private-equity group KKR.
The Italian telecommunications said Sunday that its board will meet on Nov. 3 to evaluate the bids, hold an informal meeting the following day to continue discussions with management and advisors and meet again formally on Nov. 5 to deliberate.
GLOBAL NEWS
Meta, Amazon Earnings Put Stock Market to the Test
Investors are about to see whether the stock market has more fuel in the tank.
A group of tech stocks known as the Magnificent Seven has powered the S&P 500's 2023 rally. Most of those companies will open their books in the coming days, allowing investors to gauge whether big tech and the broader market have room to run.
Stock-market investors face reality of 5% Treasury yields. Here's what's next.
The rising yields on U.S. government debt, which sent the 10-year Treasury rate near 5%, a level not seen in 16 years, has posed a challenging environment for stock market investors.
The 10-year Treasury BX:TMUBMUSD10Y yield ended Thursday at the highest level since 2007 just shy of 5%, before drifting back down on Friday. The 30-year TreasuryBX:TMUBMUSD30Y rate also posted its highest close since 2007 on Thursday before pulling back.
Fed Rate Moves Squeeze a Key U.S. Ally
South Korea's alliance with the U.S. has strengthened during the Biden presidency. But the country's economy has fallen victim to the rapid rise in U.S. interest rates, showing how Federal Reserve decisions-and the uncertainty around them-can send ripples around the world.
The Fed has embarked on a historic spree of interest-rate rises since early 2022, an attempt to rein in inflation that peaked at 9.1% in the middle of last year. Central banks across the globe have followed these moves, partly out of a desire to protect their currencies, which can suffer as rising Treasury yields encourage international investors to dump overseas assets and buy U.S. bonds.
As U.S. Debt Surges, Europe Brings Its Own Under Control
Throughout the Covid-19 pandemic and then Russia's invasion of Ukraine, both the U.S. and Europe borrowed heavily. Now with those emergencies in the rearview mirror, a divergence has emerged: Even as the U.S. continues to let deficits rip, Europe's are on track to narrow significantly.
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10-23-23 0559ET
