EMEA Morning Briefing : Stock Futures Rise as Focus Turns to U.S. CPI

MARKET WRAPS

Watch For:

EU long-term interest-rates statistics; UK trade, monthly GDP estimates, index of production, index of services, NIESR Monthly GDP Tracker; trading updates from Publicis, Givaudan, Vinci, easyJet, Dechra Pharmaceuticals, RS Group, Darktrace

Opening Call:

Stock futures rose early Thursday. In Asia, stock benchmarks advanced; the dollar fell; Treasury yields steadied; while oil futures fell and gold rose.

Equities:

European stock futures rose ahead of the closely watched U.S. CPI data due later today.

A hot inflation report could prompt markets to reassess bets that the Federal Reserve is done hiking, Vantage's Jamie Dutta said.

"Crucial for policymakers will be the core month-on-month data," Dutta said. "This has averaged 0.2% over the last three months and has offered strong encouragement to markets that the disinflation process is in full swing."

Fed Chair Jerome Powell stressed after the September decision to hold rates steady that officials would base their monetary policy on new data, with Thursday's CPI report providing figures for judging the effects of the central bank's inflation-fighting campaign.

"The Fed can for sure claim progress on inflation," said Lara Rhame, chief U.S. economist at FS Investments. "But they definitely can't claim victory."

Forex:

The dollar fell slightly ahead of U.S. CPI data. A downside surprise to the CPI reading will likely back the case for the FOMC to have ended its tightening cycle, which would likely pull down U.S. yields and USD, CBA said.

On the other hand, an upside surprise could spur markets to reprice higher the probability that the FOMC will follow through on a projected 25bp rate increase, CBA added.

Bonds:

Treasury yields traded in split directions overnight, as traders weighed the Fed's most likely trajectory in interest rates against concerns about war in the Middle East.

"After enjoying a rally underpinned by lower oil prices and Treasury yields edging lower, and bolstered by comments from Fed speakers that the Fed may be poised to complete its interest rate hiking campaign, financial markets may not be so certain that the Fed is unanimously wedded to the so-called 'pivot,'" said Quincy Krosby, chief global strategist for LPL Financial.

With U.S. PPI indicating that prices are inching higher, markets are "concerned that if 'sticky' core inflation doesn't untangle at [a] faster pace, the Fed may need another rate hike, after all," Krosby said.

Energy:

Oil futures fell in Asia, after the American Petroleum Institute reported that U.S. commercial inventories of crude oil increased by a huge 12.9 million barrels last week, according to a source citing the data.

The data come ahead of official Energy Information Administration data due later today. However, downward pressure on oil prices may be limited, given existing geopolitical risks, said Edward Moya, senior market analyst at Oanda.

Metals:

Gold edged higher early Thursday amid falling Treasury yields. Some encouraging signs have emerged for gold and silver, such as the recent sharp reversal in long-dated U.S. bond yields and a weaker USD, said Ole Hansen, head of commodity strategy at Saxo Bank.

Saxo Bank maintains a bullish view on gold as well as on silver and platinum, underpinned by the view that the Fed is unlikely to raise rates further as the economy starts to soften, Hansen added.

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Copper edged lower as the market weighs potential stimulus in China to support growth. Chinese policymakers are considering the issuance of at least CNY1 trillion of additional sovereign debt to spending on infrastructure, according to a Bloomberg report.

However, the relatively small scale of funds is unlikely to have a material impact on economic growth, ANZ said.

Meanwhile, as the metals industry gathers in London for its annual week of discussions, the mood has been slightly bearish after months of weak performance across base metals, ANZ added.

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Iron ore futures rose on demand hopes. BHP, one of the world's largest iron-ore producers, is reportedly optimistic that China's recent housing policy could support robust demand for the ferrous metal, ANZ said.

Vandita Pant, BHP's chief commercial officer, told The Australian Financial Review that iron-ore demand is strong in China, with little inventory in the system, ANZ noted.

TODAY'S TOP HEADLINES

What to Watch in the CPI Report: A Mild Inflation Reading Could Keep Fed on Hold

A tame inflation report on Thursday would likely kill the prospect of an interest-rate increase by the Federal Reserve at its next meeting, despite signs of continued strength in the labor market.

Fed officials are watching the consumer-price index, and other data, as they mull whether another rate hike this year will be necessary to keep inflation declining.

Fed Minutes Show Officials Divided on Future Rate Rise

Federal Reserve officials were split over whether they would need to raise interest rates again this year when they decided last month to hold their benchmark policy rate steady.

"A majority of participants judged that one more increase in the target federal-funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted, " said the minutes from the Fed's Sept. 19-20 policy meeting released Wednesday.

Iran Knew Hamas Was Planning Attacks, but Not Timing or Scale, U.S. Says

WASHINGTON-Tehran likely knew Hamas was planning operations against Israel but didn't know the precise timing or scope of the surprise attack the group mounted last week, according to a preliminary unclassified assessment by U.S. intelligence agencies.

The judgment by the American intelligence community represents an initial effort to determine what role Iran might have played in an attack that has sent shock waves through the region.

Israel's Netanyahu Forms Unity Government to Direct War

TEL AVIV-Israeli Prime Minister Benjamin Netanyahu agreed to form a national unity government that includes members of the opposition and former military leaders, a move aimed at reassuring a country still reeling from the deadly attack by Hamas militants that killed 1,200 Israelis.

Netanyahu agreed on Wednesday to form a government with Benny Gantz, head of the National Unity party. Gantz, a former defense minister, served as the chief of staff in a Netanyahu-led government during the previous war between Israel and Hamas in 2014.

U.S. Considers Dropping Sanctions Against Israeli Billionaire in Push for EV Metals

As part of its quest to gain access to minerals critical to the energy transition, the U.S. has recently considered a plan to drop sanctions against an Israeli mining magnate accused of corruption, according to people familiar with the matter.

The plan involves the U.S. lifting sanctions on businessman Dan Gertler, whom it accused nearly six years ago of corruption, to allow him to take part in mining deals with Saudi Arabia, the people said.

Belgium Plans $1.8 Billion Ukraine Fund Using Taxes on Frozen Russian Assets

Belgium is creating a $1.8 billion fund for Ukraine using tax revenue from profit generated by seized Russian central bank assets, its prime minister said on Wednesday.

The decision is the first significant step in helping Ukraine by making use of roughly $280 billion in Russian assets that were frozen under Western sanctions in the first days of the war.

Microsoft Gets $28.9 Billion Tax-Payment Notice From IRS

Microsoft has received a tax notice from the U.S. Internal Revenue Service requesting the added payment of $28.9 billion in relation to its 2004 to 2013 tax years.

The tech company said it disagrees with the proposed adjustments and "will vigorously contest the notices of proposed adjustments" through appeals office and even judicial proceedings if necessary.

Birkenstock Shares Fall in Stock-Market Debut

Birkenstock shares declined in their stock-market debut Wednesday, a potentially brutal blow to an IPO market that was just showing signs of recovery.

Stock in the German shoe maker closed at $40.20, down 13% from its offering price of $46. The S&P 500 index rose 0.4%.

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Expected Major Events for Thursday

04:30/NED: Aug International trade

05:00/FIN: Aug Balance of Payments

06:00/ROM: Sep CPI

06:00/UK: Aug Index of production

06:00/UK: Aug UK trade

06:00/UK: Aug Index of services

06:00/UK: Aug Monthly GDP estimates

06:00/ROM: Aug Industrial production

07:00/SVK: Aug Employment and average monthly wage in selected branches

07:00/SVK: Aug Turnover in selected branches of economy, incl Industry & Construction

08:00/BUL: Jul Trade with EU Member States - preliminary data

08:00/BUL: Aug Trade with third countries - preliminary data

08:00/EU: Sep Long term interest rates statistics

08:00/FRA: Oct IEA Oil Market Report

08:30/UK: 3Q Bank of England Credit Conditions Survey

08:30/UK: 3Q Bank of England's Bank Liabilities Survey

10:00/FRA: Aug OECD Harmonised Unemployment Rates

10:00/FRA: 2Q OECD Quarterly Labour Market Situation

10:00/POR: Sep CPI

10:00/IRL: Sep CPI

11:30/UK: Sep NIESR Monthly GDP Tracker

16:59/AUT: Oct OPEC Monthly Oil Market Report

16:59/GER: Aug Balance of Payments

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

(END) Dow Jones Newswires

10-12-23 0017ET