European Midday Briefing : Mood Continues to Sour as U.S. Yields Near 5%

MARKET WRAPS

Stocks:

European stocks suffered losses on Thursday as fears lingered that the Hamas-Israel war might escalate, and as sentiment continued to reel from higher U.S. Treasury yields.

The Treasury yield edged closer to 5% for the first time since 2007.

"It is the ongoing war in the Middle East and fears of its spread, along with rising bond yields and Fed comments about 'higher for longer' that have really prompted the losses in stocks," IG said.

U.S. Markets:

Stock futures were lower as Treasurys moved higher.

Traders will be keen to hear whether Jerome Powell addresses the latest sharp rise in yields when he delivers comments at the Economic Club of New York.

Stocks to Watch

Netflix rose 12% premarket after it reported a strong rise in subscriptions.

Tesla fell another 4% premarket after falling a similar amount in regular trading hours Wednesday. Elon Musk said significant cash generation from its Cybertruck could take a year to 18 months.

Forex:

The dollar was steady but could get another boost from a speech later by Jerome Powell on the economic outlook, DZ Bank Research said.

Powell "should not only keep the door open for a final Fed rate hike in this hike cycle with a hawkish tenor, but also provide support for the greenback."

DZ Bank also said the Swiss franc is a strong beneficiary of safe-haven flows, trading close to its highest level since September last year against the euro, on fears the conflict in the Middle East could spread.

Bonds:

Eurozone government bond yields rose and Commerzbank Research said markets "remained heavy with long-end yields leading the way higher, 10-year Treasurys reaching the 2007 yield-highs and EGB spreads widening across the board."

The widening gap between Italian government-bond yields over German and other core eurozone yields could come into focus at next week's ECB meeting, ING said.

"While some officials are reluctant to admit that Italy's bond spreads will have a bearing on any future decision, Ireland's Gabriel Makhlouf stated they could very well be a focus."

The ECB could initiate a more formal discussion on ending reinvestments under the Pandemic Emergency Purchase Programme, ING added.

"There is good reason to tread carefully as flexible PEPP reinvestments currently form the ECB's first line of defence against bond spread turmoil."

Meanwhile, Sweden's National Debt Office is expected to keep its government bond issuance target for 2024 unchanged despite higher-than-forecast budget surplus when it makes a borrowing review next week, SEB Research said.

Energy:

Crude oil prices pulled back slightly, having risen sharply a day earlier.

The recent explosion at a hospital in Gaza would only add to instability in the region, ING said, noting that "Iran has already called on Islamic oil producers to impose an oil embargo against Israel amid the wider conflict."

However, Israel isn't a large importer of oil and would likely be able to find alternative sources quickly, ING added.

Metals:

Base metals prices were largely rangebound, while gold prices fell back after having risen sharply as demand for safe-haven assets got boosted by the conflict in Israel.

DOW JONES NEWSPLUS

EMEA HEADLINES

Nokia to Cut Thousands of Jobs as Telecom Operators Pare Back Spending

Nokia plans to cut thousands of jobs as it seeks to save up to 1.2 billion euros ($1.26 billion) amid a sharp downturn in spending by telecom operators.

The Finnish telecommunications company said it could cut as much as 16% of its workforce, with demand weakening in its network-infrastructure and mobile-networks businesses as customers face a tough macroeconomic environment beset by high inflation and rising interest rates. Operators are also working through stockpiles of inventory that were ordered during previous periods of tight-supply.

SAP Shares Surge After Cloud Business Fuels Revenue Growth

SAP shares jumped in Thursday morning trading after the German business-software company posted higher revenue and operating profit for the third quarter, led by growth at its core cloud business.

At 0720 GMT, SAP shares traded 6.4% higher at EUR128.84.

Renault Shares Fall as Revenue Slightly Misses Expectations

Shares in Renault dropped on Thursday after the French carmaker's third-quarter revenue slightly missed consensus due to volume effects, according to analysts.

At 0753 GMT, the stock was down 7.5% at EUR33.37.

GLOBAL NEWS

Don't Rule Out a Financial Crisis in China

The world's second largest economy has a deflating property bubble, local governments struggling to pay their debts and a banking system heavily exposed to both.

Anywhere else these factors would be seen as precursors of a financial crisis. But not in China, conventional wisdom goes, because its debts are owed to domestic rather than foreign investors, the government already stands behind much of the financial system and capable technocrats are on top of things.

Bank of Japan Raises Economic Assessment for Six of Nine Regions

TOKYO-The Bank of Japan on Thursday raised its economic assessment for six of the nation's nine regions, including the Tokyo area.

The Japanese central bank maintained its view for the other regions, according to its quarterly regional economic report released at the bank's branch managers meeting held Thursday.

Indonesia's Central Bank Surprises With Rate Hike

Indonesia's central bank unexpectedly raised its benchmark rate after months of standing pat, as it looks to support the stability of the rupiah and guard against inflation.

Bank Indonesia on Thursday raised its benchmark seven-day reverse repo rate by 25 basis points to 6.0%, marking the second time this year that it has tightened policy settings. All six economists polled by The Wall Street Journal had expected the central bank to keep rates steady.

Pressure Campaign by Jim Jordan Supporters Backfires in House Speaker Race

WASHINGTON-Rep. Jim Jordan's passionate Republican supporters were supposed to help his campaign for House speaker. Instead, they may be sinking his chances, with lawmakers opposing his run complaining of bullying calls and even death threats.

For days, outside allies, including party activists and media personalities, have turned up the heat on recalcitrant Republican lawmakers, pressing them to back Jordan. But their campaign may have backfired, hardening the opposition of holdout Republicans who would prefer to look elsewhere for a new leader.

Biden Backs Israel Over Gaza Hospital Blast

TEL AVIV-President Biden, reaffirming U.S. support for its longtime ally in the war with Hamas, said he believed Israel wasn't responsible for a deadly blast at a hospital compound in Gaza that has demonstrated the volatility of the conflict and heightened fears of escalation.

"I was deeply saddened and outraged by the explosion of the hospital in Gaza yesterday, and based on what I've seen, it appears as though it was done by the other team-not you," Biden told Israeli Prime Minister Benjamin Netanyahu before departing Israel on Wednesday evening.

U.S., Experts Say Evidence Suggests Palestinian Militants' Rocket Hit Gaza Hospital

Israel, the U.S. government and independent security experts said Wednesday the preliminary evidence for a deadly explosion at a Gaza hospital compound pointed to a local militant group, casting doubt on Palestinian claims that an Israeli airstrike was responsible.

Independent analysts poring over publicly available images of Tuesday's explosion at Al-Ahli Arab Hospital in Gaza and its aftermath say the blast site doesn't bear the hallmarks of a strike with a bomb or missile of the types usually used by Israel.

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

(END) Dow Jones Newswires

10-19-23 0543ET