EMEA Morning Briefing : Stocks Seen Higher as Middle East Developments, Earnings Remain in Focus

MARKET WRAPS

Watch For:

EU New Commercial Vehicle Registrations in Europe statistics, ECB Survey of Professional Forecasters, EU Summit concludes; U.K. Bank of England Chief Economist Huw Pill speaks at Monetary Policy Report National Agency Briefing; France housing starts; Consumer confidence surveys for Italy and France; Italy Business confidence survey, industrial turnover; trading updates from Sanofi, Holcim, Eni SpA, Safran, NatWest Group, Caixabank, Air France-KLM, Signify, Sberbank, Danske Bank, SKF, Remy Cointreau, Equinor, International Consolidated Airlines Group, MTU Aero Engines

Opening Call:

European stock futures are higher tracking gains in Asian benchmarks and U.S. stock futures. The dollar weakened slightly; Treasurys broadly gained; while oil futures and gold also advanced.

Equities:

European stocks are seen opening higher as the focus remains on corporate earnings and developments in the Middle East.

U.S. stocks fell Thursday, with the S&P 500 index ending at the lowest level since May, and the Nasdaq Composite sliding further into correction territory as third-quarter results from tech giants this week have mostly failed to impress investors, injecting volatility into the stock market.

"A lot of these big tech and tech-like names have been priced for perfection," said John Lynch, chief investment officer for Comerica Wealth Management.

"We're seeing imperfect performance."

A better-than-expected U.S. GDP data and retreating Treasury yields also failed to bolster market sentiment.

While the backward-looking GDP report came in stronger than expected, it remains to be seen whether the consumer can maintain resiliency in the coming quarters, economists said.

"Investors should not be surprised that the consumer was spending in the final months of the summer - the real question is if the trend can continue in the coming quarters, and we think not," said Jeffrey Roach, chief economist at LPL Financial.

Investors' focus Friday will also be on the so-called core PCE price gauge, the Federal Reserve's inflation tracker which is expected to show a 0.3% increase in September.

The core rate, which omits food and energy, is seen as a better predictor of future inflation than the headline PCE index.

The headline PCE index that includes food and energy is also forecast to rise 0.3%, according to Wall Street DJIA analysts.

Forex:

The dollar weakened slightly early Friday as risk appetite picked up, driven by gains in U.S. stock-index futures.

Solid earnings from Amazon and Intel were providing a boost to equity-index futures, said Alvin T. Tan, head of Asia FX Strategy at RBC Capital Markets.

While Middle East tensions were still simmering, the lack of significant escalation of the Israel-Hamas conflict has led to a reduced impact on markets lately, Tan added.

Bonds:

Treasury yields were broadly higher early Friday as investors parse a solid third-quarter U.S. GDP report.

Some investors and analysts said debt market traders may be making a mistake in brushing off the signs of economic strength.

"There are already economists dismissive of Q3 growth as a fluke about to fade in the fourth quarter. It is too early to take slower growth for granted, however, especially after three-quarters of consistently stronger-than-expected economic activity," said Chris Low, chief economist for FHN Financial.

"Growth this strong does not force a rate hike next week, but it means the Fed will indicate it is still contemplating higher rates. The Fed cannot declare tightening over with growth this strong and inflation still above target," Low said.

Markets are pricing in a 96.1% probability that the Fed will leave interest rates unchanged between 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool.

Energy:

Oil futures edged higher as traders continue to track the latest developments in the Middle East for any signs of growing risks to the market in the oil-rich region.

"Fundamentals for oil are taking a back seat to the shifting winds of war," said Phil Flynn, senior market analyst at The Price Futures Group, in a daily note.

"It's war premium in, then war premium out, then war premium back in again."

"On one hand you have an uncertain economic background which means weak demand compared to the supply available. On the other, you have fears that supply could easily be interrupted should there be an escalation in hostilities across the Middle East. While oil appears to be trading in a minor downtrend, any downside 'overshoots' are being jumped on by bullish speculators," said David Morrison, senior market analyst at Trade Nation.

Metals:

Gold ticked higher in Asia as U.S. Treasury yields fell, following a slew of U.S. economic data and ahead of the Fed's November meeting next week.

As headline GDP shows a robust economy, the weekly jobless claims highlight cracks in the labor market and signs that inflation could be ready to cool again, Oanda analyst Edward Moya said.

Gold made another run toward the key $2,000/oz level overnight before paring gains once again, as investors look out for further bond market volatility, he added.

--

Copper prices were higher.

The metal was being supported by peak-season tailwinds and China's macroeconomic policy measures, Baocheng Futures analysts said.

The analysts were upbeat about copper's outlook near term, noting a broader recovery in base metals amid positive sentiment about China's policy support, as well as a weaker dollar.

A softer dollar is typically good for USD-denominated assets like copper.

--

Iron ore futures were mixed as traders digested news on steel production curbs in China.

Tangshan, China's top steel production hub, plans to launch a level-2 emergency response from today amid projections of heavy air pollution, according to the city's WeChat account.

Meanwhile, Handan, another steel production hub, will reportedly follow suit.

TODAY'S TOP HEADLINES

Yellen says she doesn't see signs of recession after GDP report

Recession? Not in the U.S., says Treasury Secretary Janet Yellen.

"You don't really see any sign of recession here," Yellen said at a Bloomberg event in Washington on Thursday, following a strong report on economic growth in the U.S. released earlier in the day.

U.S. Economy Grew a Strong 4.9%, Driven by Consumer Spree That May Not Last

U.S. economic growth surged this summer at the fastest pace since 2021, as consumers spent at a blockbuster rate that will be difficult to sustain.

Gross domestic product expanded at a 4.9% seasonally- and inflation-adjusted annual rate in the third quarter-more than double the second quarter pace-the Commerce Department reported Thursday. The acceleration won't change the Federal Reserve's plans to hold rates steady at their meeting next week.

Ukraine Hangover Makes European Banks Look Rougher than They Are

European investment banks don't tend to fare well when compared with their more profitable U.S. peers. But the war in Ukraine makes some comparisons unfair.

Investors have been disappointed with the third-quarter results published by top European banks so far, with the stocks collectively down more than 3% this week. This is despite the fact that most of the companies have actually beaten analysts' profit forecasts by a decent margin.

Western Allies Urge Caution as Israel Moves Closer to Ground Invasion

WASHINGTON-As Israel signals that it is closer to launching its anticipated ground offensive, U.S. and European officials are urging caution in an effort to minimize a prolonged urban war that could result in even more casualties and a turbulent future for Gaza, U.S. and foreign officials said.

Israel's Western allies have worked to support the government of Benjamin Netanyahu in its preparations to storm northern Gaza and root out Hamas fighters who are believed to be holding hostages in a maze of underground tunnels, but growing concerns over the humanitarian catastrophe in the tiny territory have prompted pleas for taking time to develop an attack and post-attack strategy.

U.S. Launches Strikes on Suspected Iranian-Supported Bases in Syria

WASHINGTON-The U.S. said it launched strikes Thursday night on two bases in eastern Syria it believed were used by Iranian groups, the first U.S. offensive military response to a wave of drone and rocket attacks on troops based in Iraq and Syria, the Pentagon said.

The strikes against the Islamic Revolutionary Guard Corps and affiliated groups were authorized by President Biden, Defense Secretary Lloyd Austin said in a statement.

Apple Faces Potential Watch Import Ban After Federal Trade Ruling

A U.S. federal trade agency on Thursday found that Apple violated the patent of a rival tech company, a ruling that could lead to an import ban for certain models of the company's smartwatch.

The case revolves around medical-technology company Masimo, which alleged in a 2021 complaint to the U.S. International Trade Commission that Apple violated its patents related to measuring blood-oxygen levels. Apple has included a sensor, called a pulse oximeter, in most new models of the Apple Watch since 2020.

Intel Sees Budding PC Recovery, AI Boost Despite Dropping Sales

Intel's revenue and profits fell in its latest quarter as weak personal-computer and server sales damped the market for its chips.

Still, shares of the chip maker rose about 6% in after-hours trading as the company's results and outlook topped analyst expectations amid signs that a PC recovery is starting to take hold and interest in artificial-intelligence computation is growing.

Amazon's Profit Triples as Sales Show Resilience Leading Into Holidays

(MORE TO FOLLOW) Dow Jones Newswires

10-27-23 0015ET