European Midday Briefing : Weak Earnings Drag on Stocks

MARKET WRAPS

Stocks:

Most major stock indexes in Europe were slightly lower as investors digested some disappointing earnings reports.

Remy Cointreau said it expects sales to continue to plunge in fiscal 2025 due to uncertainty about a recovery in the U.S. and worsening market conditions in China, while Mercedes-Benz's net profit halved in the third quarter, as a tough economic backdrop and fierce competition in China hit earnings.

Electrolux's stock slide after it reported below-forecast third-quarter earnings is its worst since the third quarter of last year, when the stock dived 18%.

U.S. Markets:

Stock futures edged higher, while benchmark Treasury yields declined, having settled at 4.2% on Thursday.

Tesla moved lower after its shares rose 22% on Thursday on the back of a surprisingly strong earnings report.

More earnings are due early Friday, including from HCA Healthcare, Centene and Colgate-Palmolive, while economic data includes durable-goods orders.

Forex:

The dollar should continue to rise over the coming days and any falls are likely to be temporary, ING said.

The S&P Global composite purchasing managers' index of U.S. services and manufacturing activity showed a surprise acceleration and contrasted with weak eurozone data.

"The growth divergence with a struggling eurozone remains a key underlying dollar-positive theme."

The dollar is also rising due to the possibility of a Trump election win, according to ING.

"The loss of momentum in the dollar rally we saw yesterday doesn't seem to be the beginning of a broader trend."

Citi said that now could be a good time to take profit on bets on the dollar gaining versus the euro.

Strong U.S. economic data, higher U.S. bond yields and the possibility of a Trump victory have lifted the dollar recently.

However, the dollar has risen a long way, hitting its highest against the euro in 3.5 months earlier this week.

Speculators' long positions in the dollar "have picked up significantly" and Citi said it was now "prudent to take profits."

Charts suggested that the USD Index's current rally faces increasing risk of pausing due to overbought conditions and slowing momentum, UOB Global Economics & Markets Research said.

Bonds:

Ten-year Bund yields will remain in the 2.10%-2.30% range for most of the remainder of the year, with a sustainable uptrend in long-dated eurozone bond yields unlikely to begin this year as markets will likely move to price even deeper European Central Bank rate cuts, SEB said.

It added that higher U.S. yields in case of a Republican sweep in the election could temporarily push Bund yields higher.

Societe Generale said that investors in eurozone government bonds have shifted their focus to public finances.

"The two negative outlooks assigned by Moody's on Belgium and by Fitch on France were a wake-up call for European public finance."

This shift in focus has helped Italian and Spanish government bonds outperform German Bunds recently, in contrast with France, Societe Generale said, adding it sees room for further negative rating actions in the near term by Moody's on France and S&P on Belgium.

S&P is set to review Belgium and Moody's is set to review France on Friday, while S&P will review France on Nov. 29.

Energy:

Oil prices are headed for weekly gains as markets closely monitor developments in the Middle East.

U.S. and Israeli negotiators are set to meet again in the coming days to resume ceasefire talks, but Israel's intensifying strikes on multiple fronts and uncertainties over the scope of the country's response to Iran are leaving the oil market on edge.

Still, analysts say the geopolitical risk premium to oil will likely remain limited given the lack of material supply disruptions and broadly bearish sentiment amid fears of sluggish demand in China and a global supply surplus next year.

OPEC and its allies aren't expected to start raising oil output until the third quarter of 2025 due to continued market weakness, BNP Paribas said.

"We consider restoring some supply to a weak market would be the worst possible scenario for OPEC+ as it would not only lose revenue but also not gain market share."

Metals:

Gold futures edged down and Pepperstone said the recent dip is likely to be a temporary price-consolidation phase and partially reflects rising bond yields, with the pullback in prices proving the metal's ability to attract fresh investment demand.

The upcoming U.S. election continues to loom over markets, stoking fresh uncertainties, and the geopolitical tensions are also bubbling, keeping the longer-term outlook for safe-haven assets like gold positive, Pepperstone added.

Copper prices are likely to rise less than expected for the remainder of this year, CCB International said, cutting its forecast for 2024 to 2026 by 16%, 14% and 13% respectively.

Meantime, Oxford Economics Africa said that expansions at copper mines across the Democratic Republic of Congo support higher output in Africa, although the country's weakening currency risks curbing gains despite improved global prices.

EMEA HEADLINES

German Business Confidence Tentatively Improves

German business confidence grew a little more optimistic this month, as the manufacturing sector's decline halted, according to a closely watched monthly survey.

The Ifo Institute's business-climate index climbed to 86.5 in October from 85.4 a month earlier, its first increase after four months of falls. It also beat economists' expectations of 85.6, according to a poll compiled by The Wall Street Journal.

NatWest Raises Guidance Again After Quarterly Beat

NatWest Group raised revenue and profitability guidance for the second time this year after its third-quarter results topped market expectations.

The U.K. high-street bank said operating pretax profit rose 26% on year to 1.67 billion pounds ($2.17 billion) for the three months ended Sept. 30. Analysts had expected 1.46 billion pounds, according to a company-compiled consensus.

Eni Cuts Guidance on Weak Oil Prices

Italian energy major Eni lowered its guidance for the year due to a decline in oil prices that also hit net profit in the third quarter.

The integrated oil-and-gas company said Friday that it lowered its target for adjusted operating profit for the year by around 1 billion euros ($1.08 billion) to 14 billion euros. It also cut guidance for cash flow from operations before working capital by 500 million euros to 13.5 billion euros.

U.K. Consumers Spooked as Budget Looms, Survey Shows

U.K. consumers are increasingly worried about the future as the new government prepares to hike taxes and cut spending, according to a survey set out Friday.

Research group GfK's measure of consumer confidence slipped again this month to minus 21 from minus 20, having tumbled sharply in September. Economists had expected confidence to regain a little ground in October, according to a poll compiled by The Wall Street Journal.

GLOBAL NEWS

Where Will Rates End Up? Inside the Fed's Chase for the Magic Number.

The Federal Reserve's fate is written in the stars-the R-star, that is. The concept of the neutral rate of interest, often stylized as R*, has become the guiding theory for Federal Reserve officials working on nailing a soft landing for the U.S. economy in 2024 and 2025.

A key sticking point with the neutral rate: It isn't measurable in real time. It's theoretical, and only somewhat observable in hindsight. R* refers to the interest-rate level that perfectly balances an economy: Supply of savings and demand for investment are in equilibrium, the labor market is at full employment, and inflation is stable. It's economic nirvana.

China's Central Bank Holds Key Policy Rate Steady

China's central bank kept a key policy rate steady in October, a widely expected move after officials made a flurry of rate cuts last month to support the ailing economy.

The People's Bank of China on Friday injected 700 billion yuan of liquidity into the country's banking system via its one-year medium-term lending facility at an unchanged rate of 2.0%.

Harris Struggles to Distinguish Candidacy From Biden

WASHINGTON-Vice President Kamala Harris has presented herself as the candidate who will help the nation "turn the page" and chart a "new way forward" after a tumultuous period marked by polarization under former President Donald Trump.

But three months after she replaced President Biden atop the Democratic ticket, Harris has struggled to explain how she would differ from him and their unpopular administration-and voters have noticed.

Elon Musk's Secret Conversations With Vladimir Putin

Elon Musk, the world's richest man and a linchpin of U.S. space efforts, has been in regular contact with Russian President Vladimir Putin since late 2022.

The discussions, confirmed by several current and former U.S., European and Russian officials, touch on personal topics, business and geopolitical tensions.

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

(END) Dow Jones Newswires

10-25-24 0542ET