MARKET WRAPS
Stocks:
European shares were mostly lower on Friday, though losses were capped, as energy and mining stocks were boosted by firmer oil prices.
Market sentiment remained gloomy, however, weighed by the continued tensions in the Middle East, weak Chinese economic data and worries over higher-for-longer Federal Reserve interest rates.
U.S. Markets:
Stock futures ticked up alongside government bond prices, ahead of a string of results from America's big banks.
JPMorgan Chase, Wells Fargo and Citigroup will report third-quarter results before markets open, which will be scrutinized for signs of how consumers and businesses are navigating higher interest rates. BlackRock is also set to post results, along with UnitedHealth.
Also coming up is consumer-sentiment data for October.
Major indexes are on pace to end the week with gains, despite falling on Thursday after data showed the fight against inflation stalled in September-raising the likelihood that rates stay higher for longer.
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Forex:
The dollar eased back after Thursday's U.S. inflation data failed to give a lasting boost.
"Although the USD strengthened and the dollar index regained and exceeded the 106 handle, the greenback did not receive a significant boost," UniCredit Research said.
The rise in U.S. long-term yields helped the currency too and investors recalibrated expectations for a final interest-rate increase by the Federal Reserve this year, UniCredit said.
"However, the likelihood remains below 50% and this might pose an obstacle to a further strong USD rally that might lift the DXY back to the YTD peak of 107.34 that it hit early this month."
Bonds:
Eurozone government bond yield spreads continued to widen driven by central banks' hawkish stances, the selloff in bonds, the widening in credit spreads and weaker equities, Societe Generale Research said.
"But, as we start to have the first details on 2024 budget plans and funding outlooks, markets are now also concerned by fragile fundamentals and high net supply to absorb next year."
SocGen sees the 10-year BTP-Bund spread trading around 190-215 basis points until year-end--the current level is 198bps, according to Tradeweb. Higher risk of an economic crisis and sharp market sell-off could hurt short-dated BTPs, SocGen said.
Commerzbank Research said it turned neutral on 10-year Italian BTPs after the 10-year BTP-Bund spread reached the upper end of its 150-200 bps target.
"A more constructive stance on BTPs requires positive budget news, EU progress on budget rules and/or prospects that the European Central Bank will maintain a flexible intervention tool ," Commerzbank Research said.
Limited progress on all fronts by year-end would increase rating risks, opening room for spreads to last year's high of 250 basis points, it added.
Read S&P Review of Italy Awaited Next Week, Cut in Outlook Could Add to Risk
Read Eurozone Syndicated Issues in January Likely to Focus on 10-Year Bonds
Energy:
Oil furfures rose close to 2% as worries mount that the conflict in Israel and Gaza could spill over into the wider region.
"The risk to oil markets is if the conflict broadens," ANZ said.
If Iran becomes involved with the conflict up to 20 million barrels of oil a day could be affected by either direct disruption or through obscured logistics, ANZ said, adding that if tensions rise, Saudi Arabia may look to end its voluntary production cut early.
"However, we expect they will remain in place for what is left of this year, which would push the market into a deficit of 2mb/d in the final quarter."
Metals:
Base metals were mixed, with gold higher and as Metals Week draws to a close, analysts said the market outlook remained uncertain.
"A weak macroeconomic environment, geopolitical risks and a growing sense of uncertainty have dominated discussions this year," ING said.
"China's economic slowdown, fears of a higher-for-longer interest rates environment, weak global manufacturing and looming supply surpluses amid rising LME inventories remain the key risks ahead."
HSBC said gold prices are set to struggle well into 2024, while some supportive factors will cushion the decline.
Higher U.S. yields, interest rates and a stronger dollar have recently weighed on gold, while monetary policies from the U.S and other countries will likely remain tight in 2024, keeping the pressure on gold prices.
"Without a fresh catalyst, gold might stay on the defensive well into 2024, though recent events could encourage further safe-haven buying on rising geopolitical tensions," HSBC said, adding that other aiding factors are the steady jewelry demand and the generally firm coin and bar demand.
HSBC keeps its gold price forecast for 2023 at $1,905 an ounce, while lowering its 2024 forecast to $1,825 and ounce from $1,850 and ounce.
DOW JONES NEWSPLUS
EMEA HEADLINES
Eurozone Industrial Output Climbed More Than Expected in August
Industrial output in the eurozone rose more than expected in August, a sign of green shoots in the longstanding weak spot in the bloc's economy, despite still-sluggish demand for goods.
Total production rose 0.6% on month in August, according to figures published Friday by European Union statistics agency Eurostat, recovering partly from the 1.3% decline recorded in July. It also was an improvement on expectations of economists polled by The Wall Street Journal, who predicted output to be flat on month.
Sartorius's Shares Drop on Outlook Cut, Preliminary 3Q Declines
Shares in Sartorius tumbled Friday after the company downgraded its full-year targets and posted lower preliminary sales and earnings for the first nine months of 2023.
At 0754 GMT, Sartorius's shares were down 12% to EUR282.20, while shares in its Sartorius Stedim Biotech subsidiary also traded lower at 13%.
Microsoft's Activision Deal Gets Green Light From U.K. Regulator
Microsoft's acquisition of videogame company Activision Blizzard won approval from U.K. competition authorities, clearing a path for the companies to close the $75 billion deal after a lengthy struggle with regulators.
The U.K.'s Competition and Markets Authority said Friday that the proposed deal no longer poses a major threat to competition in cloud gaming. The shift comes after Microsoft offered to restructure the deal by forfeiting cloud-streaming rights for "Call of Duty" and other popular Activision franchises in much of the world.
GLOBAL NEWS
China's Economy Remains Shaky After Challenging Summer
HONG KONG-Lackluster inflation and declining trade numbers in China have stoked concerns that the world's second-largest economy is still on shaky footing, despite recent signs of stabilization.
Consumer prices unexpectedly flatlined in September after rebounding in August, pointing to weak demand and suggesting only a limited effect from Beijing's recent efforts to put a floor under the economy. Outbound shipments also continued to contract last month, though at a less steep pace than August, according to official data released Friday.
Chinese Banks' Loan Issuance Rises Amid Efforts to Boost Economy
Chinese banks issued more loans in September, heeding Beijing's call to provide more support for the country's cooling economy, official data showed.
New yuan loans extended by banks in China stood at 2.31 trillion yuan ($316.31 billion) in September, up from CNY1.36 trillion in August, the People's Bank of China said. But the result was lower than the CNY2.63 trillion expected by economists in a Wall Street Journal survey.
Hydrogen Subsidy Spree Kicks Off With $7 Billion in Federal Grants
WASHINGTON-The White House is gearing up to inject a gusher of cash into hydrogen production, an undeveloped sector that it is betting will play a pivotal role in the country's shift away from fossil fuels.
The Biden administration on Friday plans to announce $7 billion in grants for seven regional hubs to produce clean hydrogen, a potential substitute for oil and gas in shipping, steelmaking and chemical production, senior administration officials said.
The Fed Is Putting Too Much Faith in Markets
The Federal Reserve has a new theory: The bond market is doing its job for it, so it can sit back and watch rather than raise rates again this year.
It's a nice theory, and was well set out this week by Dallas Fed President Lorie Logan. She argued that the recent increase in the gap between Treasury yields and the future path of interest rates-known as the term premium-tightens monetary conditions, slowing the economy much the same way that a rate bump would. Because she was one of the more hawkish interest-rate setters, traders took it as a sign the Fed might be at peak rates. This view was backed up by similar noises from other policy makers, including Fed Vice Chair Philip Jefferson.
Israel Tells 1.1 Million Civilians to Evacuate Northern Gaza
TEL AVIV-Israel's military asked civilians in Gaza to move to the southern part of the enclave, signaling a widening offensive and prompting the United Nations to warn of devastating humanitarian consequences.
Israel's military, just before midnight local time, told the U.N. that its staff and approximately 1.1 million civilians should leave the northern part of the Gaza Strip in the next 24 hours, according to spokesmen for the U.N. and Israel's military. The U.N. called for Israel to rescind the order, saying it could transform an already tragic situation into a catastrophe.
Hamas Attack on Israel Defies Efforts to Neutralize Iran
The assassination of Iranian military commander Qassem Soleimani nearly four years ago was a gamble by the Trump administration aimed at weakening the power that Tehran wields across the Middle East through a network of armed groups.
Instead, the shock invasion last weekend of southern Israel by Hamas, which the U.S. designates as a terrorist group, has revealed Tehran's resurgent regional influence.
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10-13-23 0533ET
