EMEA Morning Briefing : Stocks Could Shake off Israel-Gaza War Fears

MARKET WRAPS

Watch For:

Italy industrial production; U.K. Bank of England systemic risk survey results, financial policy summary and record publication, KPMG and REC report on jobs; trading updates from BMW, LVMH

Opening Call:

Shares could rebound from overnight losses in Europe on Tuesday. In Asia, stock benchmarks advanced; Treasury yields fell; the dollar slightly weakened; oil lost some ground; while gold rose.

Equities:

European stocks are poised to retrace overnight losses that followed the weekend attack by Hamas on Israel, as investors focus on remarks by U.S. Federal Reserve officials.

Remarks by Dallas Fed President Lorie Logan were seen as indicating a surge in long-term Treasury yields may mean the central bank has less need to further raise interest rates. Remarks by Fed Vice Chair Philip Jefferson also highlighted a rise in long-term yields.

"Global risks have clearly risen but in the short term, the U.S. remains the global safe haven, given the weakness in the economies of China and Europe, and should result in funds flows in our direction, though it may make things more vulnerable to earnings disappointments and subdue the rally on positive earnings surprises," said Navellier & Associates.

Forex:

The dollar posted a mild decline in Asia amid falling Treasury yields, which undermine the appeal of U.S. fixed-income assets and demand for the greenback.

Dovish Fed officials' comments overnight have led to markets largely pricing out the possibility of a Fed rate increase in November, RBC Capital Markets said.

U.S. producer and consumer prices data for September will be published on Wednesday and Thursday, respectively, with further evidence of easing price pressure required to cement no more rate increases by the Federal Reserve this year.

Bonds:

Treasury yields dropped in Asia ahead of the reopening of U.S. bond markets after the Columbus Day holiday, with traders trying to assess the impact of the war in Israel and Gaza.

"There's a huge amount of uncertainty about exactly how things will play out," said Capital Economics.

The conflict is pushing oil prices higher, which could stoke inflation, supporting Treasury yields, it said.

It added that the recent yield rally was supported by higher risk premium, but that force could be countered by risk-aversion spurred by the Israeli war.

Energy:

Oil edged lower in Asia in a likely technical correction after prices settled more than 4% higher on Monday.

However, oil prices will probably be underpinned by continued Middle East tensions. The Palestine-Israel conflict increases the risk of Brent oil futures trading at $100/bbl and above, CBA said.

The recent rise in oil futures reflects prospects of reduced oil exports from Iran, it added.

Metals:

Gold ticked higher, supported by possible safe-haven demand spurred by geopolitical tensions.

The Israel-Hamas war has stunned markets and risks are high that this could spread further across the Middle East, said Oanda.

A resumption of the bond-market selloff had gold "on the ropes," but geopolitical tensions have given it a "lifeline," it added.

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Copper rose as Chinese buyers returned from a weeklong holiday.

Sentiment was also boosted as the industry gathered for the annual London Metal Exchange week, ANZ said.

Global metals trader Trafigura has warned that macro factors rather than supply-and-demand fundamentals are driving copper prices, ANZ said.

Further, analysts think concerns over weak Chinese copper demand linger as the country's property sales during the Golden Week holiday were weaker on year despite a slew of stimulus measures.

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Iron ore was lower after lackluster property sales during China's Golden Week holidays, signaling potentially softer demand for the construction material.

Sentiment remained downbeat amid broad weakness in construction activity in China, ANZ said.

Unfavorable margins at steel mills have also raised the prospect of steel-production cuts during winter, it said, which also bodes poorly for the steelmaking ore.

Focus is on steel demand during the peak season and any industry policy moves, Huatai Futures said.

TODAY'S TOP HEADLINES

Threat to Israel From Hezbollah and Iran Raises Risk of Wider Conflict

As Israel combats the Palestinian Islamist movement Hamas in the Gaza Strip, it faces the strategic question of whether Iran will direct its other protégé, the Lebanese Hezbollah, to open a second front in the north.

Hezbollah and Israel have already engaged in limited artillery exchanges that, according to the militant group, Monday killed three of its fighters. Hezbollah said it struck two Israeli military bases near the border using guided missiles and mortars, while the Pentagon warned the group to "think twice" before opening a second front and said the U.S. was prepared to come to Israel's defense.

Fed cop Michael Barr defends higher capital requirements as bankers bristle

Federal Reserve Vice Chair for Supervision Michael Barr said Monday that a complex government plan to boost capital requirements for large U.S. banks would help strengthen the financial system, even as the bank industry fired back that the new rules would discourage growth.

Speaking at the American Bankers Association's annual convention, Barr encouraged lenders to participate during the Fed's comment period, which ends on Nov. 30, for 1,100 pages of new capital-requirement regulations.

Israel Goes on Offensive Against Hamas as U.S. Warns Hezbollah Not to Engage

ALONG THE ISRAEL-GAZA BORDER-Israel prepared for what could be an extended ground assault in the Gaza Strip, and the Pentagon warned Iran and the Lebanese militant group Hezbollah to "think twice" before joining the conflict and said it was prepared to come to Israel's defense.

Dozens of tanks and hundreds of Israeli soldiers fanned out along the Gaza Strip border Monday, while Hamas threatened to execute Israeli hostages it seized some 48 hours earlier during a devastating invasion.

Israel Orders Chevron to Shut Down Gas Platform Near Gaza

Israel has ordered Chevron to shut down natural-gas production at one of the two major offshore platforms it operates in the Eastern Mediterranean Sea, the oil company said Monday, a safety precaution amid the continuing conflict that has left hundreds dead in Israel and Gaza.

The shutdown of the Tamar platform is expected to make only a small dent in Chevron's profits, offset by a surge in oil prices since the fighting began over the weekend. But it highlights the risks for the American oil major that has been striving to make further inroads in the gas-rich region, which has long been troubled by conflicts that have delayed energy investments.

U.S. Prepares Crackdown on Russian Oil Sanctions Evasion

The U.S. is preparing to crack down on evasion of its marquee sanction on the Russian oil industry, an attempt to shore up a novel price-cap regime that has seen its effectiveness wane.

Treasury Secretary Janet Yellen said in an interview that the U.S. would "very likely" take steps to enforce the $60-a-barrel price limit that the U.S. and its partners imposed on Russian oil sales.

China's Country Garden Succumbs to Debt Crisis After Sales Drop

HONG KONG-Chinese property giant Country Garden failed to make an international debt payment after its apartment sales dropped in September, succumbing to a liquidity crisis that worsened over the past few months.

The 31-year-old developer said it wasn't able to repay a $60 million loan denominated in Hong Kong dollars that was due. Country Garden said it also doesn't expect to meet all its U.S. dollar bond and other offshore debt obligations when they come due, or within grace periods-effectively saying that it expects to default. The company has hired financial advisers and plans to hold talks with its offshore creditors.

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Expected Major Events for Tuesday

04:30/NED: Sep CPI

04:30/NED: Aug Manufacturing output

04:30/NED: Aug Consumer Spending

05:00/FIN: Aug Industrial Production

06:00/SWE: Aug New orders & deliveries in industry

06:00/SWE: Aug Industrial Production Index

06:00/NOR: Sep CPI

06:00/NOR: Sep PPI

06:00/ROM: Aug International trade

06:00/DEN: Sep CPI

06:30/HUN: Sep CPI

07:00/AUT: Aug Production Index

07:00/SVK: Aug Industrial production

07:00/TUR: Aug Employment / Unemployment

07:00/CZE: Sep CPI

07:00/CZE: Aug Import & export price indices

07:00/TUR: Aug Industrial Production Index

08:00/BUL: Aug Industrial Production

08:00/ITA: Aug Industrial Production

09:00/GRE: Sep CPI

09:00/GRE: Aug Industrial Production Index

09:00/LUX: Aug Industrial Production

09:00/CYP: Aug Foreign Trade (provisional)

09:00/MLT: Aug International Trade

10:00/POR: Aug International trade statistics

15:59/UKR: Sep CPI

23:01/UK: Sep KPMG and REC UK Report on Jobs

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

10-10-23 0015ET