European Midday Briefing : Mounting Geopolitical Turmoil Continues to Hit Sentiment

MARKET WRAPS

Stocks:

European stocks struggled for direction on Wednesday following mixed corporate news and as geopolitical tensions rose after the bombing of a hospital in Gaza killed more than 500 people.

The hospital bombing has complicated matters of diplomatic efforts with the hope of preventing further escalation of the crisis.

A number of political leaders have canceled their meetings with President Biden "amidst claim and counterclaim as to whose responsibility the blast was, sending oil prices sharply higher," CMC Markets said.

Economic Insight

The European Central Bank's interest-rate hike in September, which brought the deposit rate to 4.00%, was most likely the last in this cycle, SEB Research said.

Accordingly, it expects the ECB to maintain policy rates unchanged at the Oct. 26 meeting and any changes to balance sheet policies or minimum reserves will also be saved for later.

Given risks of stalling momentum in inflation decline in 2024, "the first rate cut may be delayed beyond June, which is our current forecast and that also discounted by forwards," SEB said.

U.S. Markets:

Stock futures dipped as tensions rose in the Middle East. Corporate earnings remained in focus, with highlights being reports from Tesla and Netflix after the closing bell.

Stocks to Watch

Interactive Brokers Group declined 3.3% in premarket trading. It posted third-quarter adjusted earnings and revenue that beat estimates and said customer accounts rose 21% to 2.43 million.

United Airlines reported third-quarter earnings that beat expectations but shares were down 4.8% in premarket trading after the carrier issued a gloomier fourth-quarter outlook, citing higher fuel costs and interruptions in service to Israel that will hit its results.

Forex:

Sterling rose slightly after data showed annual U.K. CPI inflation was higher than expected .

This could raise concerns among Bank of England policymakers but won't necessarily boost the case for another rate hike, St. James's Place said.

"Today's inflation numbers were slightly stronger than expected thanks to services inflation."

After Tuesday's data showing further wage moderation, this "isn't the significant upside surprise that might make the BOE reconsider staying on hold at its next meeting in November," it added.

The dollar fell, shrugging off higher Treasury yields and stronger-than-expected retail sales, and it could continue to drop as this weaker trend gains momentum, MUFG said.

A lower dollar is difficult to explain but could be due to position liquidation in anticipation of stronger Chinese data on Wednesday or to concerns about U.S. "political gridlock" and risks of government shutdown next month, it said.

"Whatever the reasons for the failure of the dollar to strengthen, it could well encourage further dollar selling as momentum traders liquidate long positions."

Bonds:

Eurozone government bond yields rose, extending Tuesday's moves in the absence of a renewed safety bid, analysts said.

"Selling pressure kicked in for real after upbeat U.S. retail sales with the curves back in bear-steepening mode and ultra-long Treasury yields in striking distance of their recent highs," Commerzbank Research said.

"While for Treasuries the upbeat macro indications have kept the upward pressure on yields intact, EGBs [eurozone government bonds] also had to cope with considerable supply yesterday."

Energy:

Oil prices moved close to 2% higher, with worries over the conflict in Gaza intensifying late on Tuesday.

Metals:

Base-metal prices pushed higher in early trading, as data from China showed the country's economy fared better than expected in the third quarter of this year.

Meanwhile, safe-haven demand kept gold prices elevated, with ANZ saying the precious metal "is benefiting from haven flows triggered by the geopolitical tension," adding that central bank buying is also providing support.

DOW JONES NEWSPLUS

EMEA HEADLINES

ABB's Rise in 3Q Earnings Falls Short of Expectations

ABB reported a jump in third-quarter profit and revenue, helped by pricing and backlog conversion, but missed analyst expectations.

The Switzerland-based technology company said on Wednesday that it made $882 million in quarterly net profit, compared with $360 million a year prior after having booked a nonoperational provision related to its legacy Kusile power-station project in South Africa.

ASML Holding Sees Flat 2024 Revenue on Demand Uncertainty

ASML Holding said it expects revenue next year to be similar to 2023 given uncertainty around demand recovery in the semiconductor industry but posted better-than-expected net income for the third quarter.

"The semiconductor industry is currently working through the bottom of the cycle and our customers expect the inflection point to be visible by the end of this year," Chief Executive Officer Peter Wennink said, adding that 2024 is seen as a transition year.

Volvo 3Q Earnings Beat Expectations, Truck Markets Seen Lower Next Year

Volvo posted forecast-beating third-quarter earnings but said demand is beginning to normalize, with truck markets seen weakening next year.

The Swedish truck maker said Wednesday that truck deliveries rose 4% in the third quarter, but that order intake fell 27%, reflecting a gradual normalization of demand and the company's continued gradual opening of order books.

Just Eat https://urldefense.com/v3/__http://Takeaway.com__;!!F0Stn7g!FwSRP9A-JQ684P7NyKB7-xAJKplt_1uaFIwOQQnsTw_RiYV3v9IJynHNj43DDKkGRUvq2NTw4cdQofoZsciexeJlOuYB1xH3czcQtnoyP8E$ Raises Guidance, Launches EUR150 Mln Share Buyback

Just Eat https://urldefense.com/v3/__http://Takeaway.com__;!!F0Stn7g!FwSRP9A-JQ684P7NyKB7-xAJKplt_1uaFIwOQQnsTw_RiYV3v9IJynHNj43DDKkGRUvq2NTw4cdQofoZsciexeJlOuYB1xH3czcQtnoyP8E$ has raised its full-year adjusted Ebitda guidance and launched a 150 million euro ($158.6 million) share buyback program as it reported gross transaction value growth in most of its business.

The Amsterdam-based food-delivery group said on Wednesday that it expects adjusted earnings before interest, taxes, depreciation and amortization for the year to be about EUR310 million, compared with previous guidance of EUR275 million.

GLOBAL NEWS

China's Economy Gets Boost From Stimulus, but Headwinds Grow

SINGAPORE-China's economy slowed in the third quarter as the drag from a shrinking property sector weighed on growth, but strengthening retail sales suggest it is emerging from a soft patch as stimulus measures start to kick in.

Still, China's economy is likely to struggle for a while yet, economists say. Real estate remains a major risk, with home sales crumbling and developers China Evergrande Group and Country Garden struggling with heavy debts. Consumer confidence is fragile and the global backdrop is darkening because of war between Israel and Hamas.

China Stabilizes, in the Shadow of Country Garden and Evergrande

China's economy no longer resembles a newly paved parking lot: Things are moving again and green shoots are creeping up through the cracks. But sustaining that could be tough if major property developers keep cracking apart too.

Official data released Wednesday showed the Chinese economy grew 4.9% year-over-year in the third quarter and 1.3% quarter-over-quarter. The latter figure was nearly twice as fast as the second quarter's 0.8% increase.

Wall Street's Latest Obsession Is an Unknowable Number

Investors and Federal Reserve officials scrambling to make sense of surging U.S. Treasury yields have a new obsession: a number that exists only in theory.

Known as the term premium, the number is typically defined as the component of Treasury yields that reflects everything other than investors' baseline expectations for short-term interest rates set by the Federal Reserve. That could include anything from an increase in the supply of bonds to harder-to-pin down variables such as uncertainty about the long-term inflation outlook.

China's Xi Doubles Down on Belt and Road as Path to New World Order

BEIJING-With one war raging in Ukraine and another unfolding in the Middle East, Chinese leader Xi Jinping is promoting his signature foreign-policy project as a force for unity, cooperation and prosperity around the globe.

At a summit convened here to celebrate the Belt and Road Initiative, the picture looked more fractured.

Biden Lands in Tel Aviv to Meet Israeli Leaders Amid Hamas War

WASHINGTON-President Biden landed in Israel on Wednesday to reaffirm U.S. support for its longtime ally in the war with Hamas, one day after a deadly blast at a hospital in Gaza demonstrated the volatility of the conflict and heightened fears of escalation.

The U.S. president arrived in Tel Aviv for a high-stakes visit that had begun to splinter before he even left Washington. Arab leaders pulled out of a planned summit with Biden in Jordan due to the explosion at Al-Ahli Arab Hospital, and Israeli and Palestinian authorities were at odds over who was responsible.

Biden's Trip to Israel Carries Risks for U.S. Policy-and His Own Legacy

WASHINGTON-President Biden arrived in Israel on Wednesday to show his support for the beleaguered country, hours after an explosion at a hospital in Gaza killed hundreds, further inflaming the region and prompting cancellation of a summit with Arab leaders.

Hamas blamed the explosion at the Al-Ahli Arab Hospital on an Israeli airstrike. The Israeli military said it was caused by a rocket fired by Palestinian Islamic Jihad, another militant group based in Gaza, which the group denied.

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

(END) Dow Jones Newswires

10-18-23 0558ET