MARKET WRAPS
Watch For:
EU flash consumer confidence indicator; Germany Bundesbank monthly report; trading updates from Koninklijke Philips, Sasol
Opening Call:
Shares could falter in Europe on Monday, with investors fretting over rising bond yields and geopolitical tensions. In Asia, stock benchmarks were in negative territory; Treasury yields rose; the dollar strengthened; while oil and gold declined.
Equities:
European stocks are set for a shaky start on Monday amid worries over the recent rise in Treasury yields and potential escalation of Middle East hostilities.
Stocks are seeing continued "selling pressure" from rising yields after bearish traders worried that Federal Reserve Chair Jerome Powell's remarks on Thursday meant that another interest rate hike could be coming and the Fed might not cut rates until late next year, said Interactive Brokers.
Investors are also anxious that geopolitical tensions in the volatile Middle East threaten oil supplies, with rising crude prices potentially adding to inflationary pressures, Interactive Brokers added.
The market is looking ahead to this week's wave of earnings, with Google parent Alphabet, Microsoft and https://urldefense.com/v3/__http://Amazon.com__;!!F0Stn7g!GfC0ooV6J-RChAbxQyKAmGL3wHwLp2gKsSzx-qxxBE3kXhqZM5JSnM4zZuhUiKXoauK0n82cX_XHCWCWhoYIG59SqcJLoq1b06TkbH6C-Vc$ scheduled to report quarterly results.
Forex:
The dollar gained some ground in Asia, as higher Treasury yields increased the appeal of U.S. fixed-income assets and demand for the greenback.
Expectations on future U.S. monetary policy bias may continue to drive the dollar slightly stronger, as the Fed maintains a slightly more hawkish bias versus other major central banks, said Sumitomo Mitsui Banking Corp.
Traders in interest-rate derivatives are pricing in a 96.2% chance that the Fed leaves its policy rate unchanged at its November meeting, according to CME Group's FedWatch tool.
Bonds:
Treasury yields climbed after finishing broadly lower on Friday, as buyers of U.S. government debt re-emerged amid growing concern that Israel's war on Hamas will turn into a wider conflict.
Before Friday, investors had been selling long-dated U.S. government debt on the view that a resilient U.S. economy means interest rates will stay higher for longer under Fed policy.
The "biggest drag on Wall Street at the moment is the Fed's 'higher for longer' stance, which pushed the 10-year Treasury yield just shy of 5%," said Cyprus-based multi-asset brokerage XM.
"Those investors betting that the Fed would come to the markets' rescue have been left disappointed and Chair Powell's remarks reinforced the view that policy makers are not about to start wavering," it said.
Energy:
Oil prices declined amid diplomatic efforts over the weekend to prevent the Gaza conflict from spreading.
Hamas released two hostages held in Gaza, leading to hopes that the conflict could de-escalate without spreading to the rest of the Middle East region, OCBC said.
However, ANZ said that any broadening of the Israel-Hamas conflict could see up to 20 million barrels per day of oil at risk of disruption directly, after Iran called for an oil embargo against Israel last week.
Metals:
Gold was lower, pulling back after climbing above $2,000 an ounce last Friday for the first time since early August.
While the war in the Middle East will continue to drive haven flows towards gold, further price gains also hinge on the Fed rate cycle nearing an end, ANZ said.
Demand from the physical market--including both central banks and consumers--is also strong, it added.
Nanhua Futures suggests investors keep an eye on key U.S. data including 3Q GDP and the personal-consumption expenditures price index for September.
---
Copper prices were treading water, as inventories in London Metal Exchange-registered warehouses jumped to their highest level since October 2021, ANZ said.
The market is waiting for the U.S. Fed's decision on interest rates at its meeting in November, Nanhua Futures said.
Investors should also keep an eye on key U.S. data, including 3Q GDP and the personal-consumption expenditures price index for September, it added.
---
Iron ore futures slid amid worries over China's property sector. Country Garden missed an interest payment on a dollar bond last week, ANZ Research said.
The likely default increases concerns that weak demand in China's housing market is still a headwind for both iron ore and steel, it added.
TODAY'S TOP HEADLINES
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.
Israel Intensifies Bombing on Multiple Fronts, Prepares for Gaza Ground Operation
Israel ramped up its bombing of targets on three fronts, including a rare airstrike in the West Bank, as humanitarian aid trickled into the Gaza Strip in an international effort to ease the hardship the conflict has wrought on the two million civilians trapped there.
An Israeli soldier died during an operation in Gaza, and the Israeli military struck a mosque compound in the West Bank's city of Jenin that it said was being used by militants to plan attacks. It also struck a target in southern Lebanon, where it said militants were attempting to launch antitank missiles at the Israeli side of the border.
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.
This is in contrast to a decade ago, when deficits in the wake of the global financial crisis pushed some members of the euro area to the brink of default. The lessons of that episode, coupled with eurozone rules, have served to impose discipline on European governments that for now is entirely absent in the U.S.
China Detains Current, Former GroupM Employees as Part of Commercial Bribery Case
Shanghai police detained one current and two former employees of GroupM, a unit of London-based advertising giant WPP, citing suspicions that they accepted bribes.
Late Saturday, the Shanghai police's economic crimes investigation division said that three suspects at an unnamed advertising company had been detained on criminal charges of accepting bribes as non-public officials. That statement referred to GroupM, according to a person familiar with the matter.
Intrepid Investors Look for Bargains in Ukraine-Bomb Shelter Required
John Mazarakis got rich lending money to cannabis companies and running a chain of pizzerias along the Eastern Seaboard. His next big bet: houses and industrial parks in war-torn Ukraine.
Mazarakis and the $2 billion asset manager he co-founded, Chicago Atlantic, are preparing to invest as much as $250 million in the country. He isn't alone. Steel-nerved investors are trickling back into Ukraine, lured by the chance to help the country in its fight against Russia-and to score assets on the cheap.
Northern Israel Prepares for Possible War With Hezbollah
KIRYAT SHMONA, Israel-The streets of this northern Israeli town 2 miles from the Lebanese border were deserted. Shopping centers, falafel shops and convenience stores were all closed. Explosions boomed from the hills to the west, followed by plumes of smoke.
Israeli authorities on Friday announced the evacuation of Kiryat Shmona, home to some 22,000 people, as the country prepares for the possibility of a two-front war: battling Hamas in the Gaza Strip to the south as well as its Islamist ally Hezbollah in Lebanon to the north. On Sunday, 14 more northern Israeli villages were evacuated.
U.S. Deploys Missile Defenses to Middle East Following Recent Attacks
WASHINGTON-The U.S. has deployed an antiballistic missile defense system and several Patriot missile battalions to the Middle East, the Pentagon said, days after U.S. bases and a U.S. warship came under drone attack.
The attacks on a base in Syria and at least three in Iraq, plus the interception of missiles and drones by a U.S. missile-guided destroyer in the Red Sea over the past week raised fears that the fighting between Israel and Gaza-based Hamas militants could expand into a regional conflict.
U.S. and Europe Struggle to Put Trump-Era Tariffs Behind Them
WASHINGTON-The U.S. and Europe failed to agree on a path for eliminating steel and aluminum tariffs ahead of a summit in Washington on Friday, leaving unresolved a trade dispute that risks becoming a growing irritant between the allied economies ahead of next year's U.S. election.
Officials are seeking to move beyond a spat over metal tariffs that were imposed in 2018 by President Trump on national-security grounds. President Biden paused the tariffs for most European steel and aluminum two years ago as part of a bid to reset relations between the two economies, and the U.S. and EU said they would seek a new arrangement to replace the levies and tackle concerns about an oversupply of steel on global markets.
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%.
Tim Cook Can't Make iPhones Without This Chinese Company and Its CEO
(MORE TO FOLLOW) Dow Jones Newswires
10-23-23 0015ET
