MARKET WRAPS
Stocks:
Stocks in Europe were little changed on Wednesday in a cautious opening session ahead of commentary from Jerome Powell and a host of other Federal Reserve officials that investors hope will offer clues as to the future path of U.S. interest rates.
U.S. Markets:
Equity futures edged lower as traders took stock following the longest winning run in two years.
Treasury yields crept up, with the 10-year yield trading around 4.6%, up from 4.570% on Tuesday.
Up ahead: Earnings from companies including Disney, Lyft and the meme stock AMC Entertainment report after the closing bell.
Forex:
A credit-driven widening in yield spreads between Italian and German government bonds could be negative for the euro, Barclays Research said.
It has calculated that if the 10-year Italian BTP-German Bund yield spread is above 200 basis points then the impact on the euro is statistically significant.
This would mean EUR/USD could fall by 1.5%-2% from a spike in this spread to 250bp, all else equal, taking it through 1.05 and "adding to geopolitical and U.S. exceptionalism-led pressure."
The dollar has turned higher as recent comments by Federal Reserve officials stressing the fight against inflation isn't yet over has countered the currency's recent weakness, Commerzbank said. This includes Michelle Bowman who on Tuesday said interest rates may need to rise further.
The dollar fell to its lowest in more than six weeks against a basket of currencies earlier this week following Friday's weaker-than-expected U.S. jobs data, but one data point following a string of strong U.S. data "should not constitute a trend reversal," Commerzbank said.
Fed speakers on Wednesday could debate again about possible further rate hikes, it added.
Bonds:
The direction for both German and U.K. government bond yields is south as both the European Central Bank and the Bank of England are expected to keep policy rates for now, Mizuho said.
"We see 10Y Bund yields moving towards 2.50% and 10Y Gilt yields falling towards 4.0% in coming months," Mizuho said.
It expects that both the ECB and the BOE will stay on hold and will start to think more seriously about interest-rate cuts when the economies show more signs of cooling down, with Mizuho expecting the first cut in the second quarter of 2024.
UniCredit Research said swift fluctuations in eurozone government-bond markets these days are probably exacerbated by the fact that liquidity is starting to decline as the end of the year is approaching.
Barclays Research said upcoming rating reviews pose tail risks for Italian government bonds as the public debt-to-GDP ratio is set to increase in 2024 before stabilizing thereafter. Fitch and Moody's are scheduled to review Italy on Nov. 10 and Nov. 17, respectively; S&P Global Ratings affirmed Italy's 'BBB' rating and stable outlook in October.
Energy:
Oil wavered, having fallen sharply on Tuesday as demand concerns weighed on prices, with the weakness likely to continue amid growing crude inventories in the U.S., ING said.
"The market is clearly less concerned about the potential for Middle Eastern supply disruptions and is instead focused on an easing in the balance," ING said.
Supply is also rising, with Russian exports picking up, adding further pressure. "The weakness seen yesterday is likely to continue today" amid growing crude inventories in the U.S..
Metals:
Base metals were mixed, with a strong dollar adding pressure to commodities backed by the greenback.
A seasonal soft patch for many mined commodities could put downward pressure on prices over the coming weeks, especially if concerns about the Fed's rates outlook and a weaker Chinese economy intensify, Jefferies said.
"We expect commodity prices to drift lower for the very near-term, but we believe the outlook for a 3-plus month horizon in most cases is positive."
Jefferies also said strength in metallurgical coal prices this year can be in big part attributed to demand from India, which now accounts for about 23% of imports globally.
While the urbanization and industrialization of India is likely to be an important demand driver for mined commodities over the decade ahead, "India is still too small of an end market to really matter for now in most cases," with the exception of metallurgical coal, Jefferies said.
EMEA HEADLINES
Bayer Weighs Structural Changes But Rules Out Three-Way Split
Bayer Chief Executive Bill Anderson said he is looking at options to overhaul the company's structure and remove multiple layers of management in a move that will result in significant job cuts, but ruled out splitting the group into three businesses.
Anderson, who took the helm of the German pharmaceutical and agricultural conglomerate from Werner Baumann in June, said he had engaged a team of advisors to look at various structural options, including the separation of either its crop science or consumer health divisions.
E.ON Raises Investment Target But Expects Price Reductions to Hit Earnings
E.ON raised its investment target for the full year but said it expects fourth-quarter earnings to suffer the impact of price reductions for electricity and gas customers.
The German energy company said Wednesday that it plans to invest a total of 6.1 billion euros ($6.53 billion) from previously EUR5.8 billion. From 2023 to 2027, investments in energy networks and customer solutions are expected to amount to EUR33 billion.
Warning on U.S. commercial real estate drags German bank shares lower
Shares of a German lender fell as much as 14% after a profit warning due to the struggling commercial real estate market in the U.S.
Deutsche Pfandbriefbank shares XE:PBB slumped as the German lender late on Tuesday said it would increase its risk provisions due to "persistent weakness in the commercial real estate market." It now sees pretax profits for the year between EUR90 million ($96 million) and EUR110 million, versus its guidance at the beginning of the year for a pretax profit between EUR170 million and EUR200 million. The bank, informally called PBB, also cancelled its special dividend.
Marks & Spencer Pretax Profit Rises; Resumes Dividend Despite Uncertain Outlook
Marks & Spencer Group said pretax profit for the first half of fiscal 2024 rose on the back of a resilient consumer demand but warned that outlook remains uncertain.
The U.K. retailer on Wednesday said pretax profit for the half year ended Oct. 1 was 325.6 million pounds ($400.5 million) compared with GBP208.5 million for the same period a year earlier.
Credit Agricole Posts Increase in 3Q Earnings on Higher Revenue
Credit Agricole reported a rise in third-quarter earnings after revenues increased across all business lines.
The French lender said on Wednesday that it made 1.75 billion euros ($1.87 billion) in third-quarter net profit, compared with EUR1.32 billion a year prior, on revenue that grew 19% on year to EUR6.34 billion.
ABN Amro Trims Full-Year Cost Guidance; Net Profit Beats Expectations
ABN Amro Bank trimmed its cost guidance for 2023 and posted better-than-expected net profit for the third quarter, helped by higher other income and an impairment release.
The Dutch lender made a net profit of 759 million euros ($812.2 million) for the three months to Sept. 30, it said Wednesday. This compares with the EUR583 million expected by a company-complied consensus and with EUR743 million a year earlier.
Enel Raises Guidance After Surge in Profit
Enel upgraded its guidance for the year after profit more than doubled in the first nine months.
The Rome-based energy company on Tuesday reported a net profit of EUR4.25 billion ($4.56 billion), up from EUR1.76 billion in the first nine months of last year. On an adjusted basis, net profit-or net ordinary income-climbed 65% to EUR5.03 billion.
Adidas Reports Lower Net Profit; Continues to Destock
Adidas on Wednesday posted a decline in net profit and sales for the third quarter while it continued to reduce high inventory levels.
The German athletic apparel and footwear company confirmed its third-quarter preliminary figures and said that net profit fell 25% on year to 259 million euros ($277.1 million).
DHL Owner Deutsche Post Sees Earnings at Lower End of Guidance
DHL owner Deutsche Post narrowed its 2023 guidance toward the lower end of its previous outlook, after its expectations of an economic recovery didn't materialize, and reported lower third-quarter revenue and earnings.
The German logistics group, also known as DHL Group, said it now expects earnings before interest and taxes to be between 6.2 billion euros and 6.6 billion euros ($6.63 billion-$7.06 billion), against its previous target of EUR6.2 billion to EUR7.0 billion.
German Inflation Dipped to 3.8% in October, Confirming Prior Estimates
German inflation fell in October to its lowest rate since August 2021, confirming prior estimates, dragged down by falling energy prices, another indication that the European Central Bank might have reached the peak in its current rate-hiking cycle.
Consumer prices were 3.8% higher in October than the same month a year earlier, compared with 4.5% in September, measured by national standards, data from the German statistics office Destatis showed Wednesday.
Ukraine Corruption Worries Cloud Its Push to Join EU
The European Union will recommend on Wednesday that the bloc begins membership talks with Ukraine soon, boosting President Volodymyr Zelensky, who has made EU accession a central goal.
Even though membership talks would take years to complete, a positive EU recommendation would offer Zelensky and Ukraine rare good news at a tense time.
GLOBAL NEWS
China Is Becoming a Problem for Investors
China has long been a source of stock-market optimism. Now it is turning into a reason for worry.
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11-08-23 0522ET
