EMEA Morning Briefing : Stocks Set to Rise as Yield Rally Pauses

MARKET WRAPS

Watch For:

EU quarterly sectoral accounts, balance of payments; Germany foreign trade; France industrial production index; UK Bank of England decision maker panel data, construction PMI; trading updates from Norwegian Air Shuttle, Imperial Brands

Opening Call:

Shares look set to rise in Europe on Thursday as the rally in Treasury yields paused ahead of labor data later this week. In Asia, stock benchmarks rose; Treasury yields weakened; the dollar lost ground; oil advanced; while gold gained after hitting its lowest level since March.

Equities:

European stocks are poised to open in positive territory on Thursday, as yields on long government bonds retreated from 16-year highs.

Treasury yields fell after payroll processor ADP said U.S. private-sector employment rose by a tepid 89,000 in September. That was the smallest increase in two and a half years. Economists polled by the Wall Street Journal had forecast a gain of 150,000.

LPL Financial said investors should treat the ADP report with caution as it doesn't include government workers and is not a "consistent indicator" of the official employment report that is set to publish on Friday morning.

"That said, momentum within the labor market is slowing across the board in both goods-producing and services-producing businesses," LPL Financial said.

Forex:

The dollar lost strength in Asia amid falling Treasury yields, which decreased the appeal of U.S. fixed-income assets and demand for the greenback.

Markets have begun to question U.S. economic strength following a very weak ADP national employment report, said DBS Group Research.

With market participants pricing in a 24% chance of a Fed rate increase in November, a stronger-than-expected U.S. nonfarm payrolls report on Friday could push this to even odds and boost the dollar, it added.

Bonds:

Treasury yields gave back some of their recent gains amid signs of easing U.S. labor markets.

Yields broadly fell after the ADP national employment report, which suggested the U.S. labor market is softening, but isn't an accurate predictor of the official September jobs report being released on Friday.

Friday's payrolls data are also forecast to show slowing job creation.

Energy:

Oil prices rose in Asia after earlier sharp falls.

"The current state of the oil market is that global economic pain is coming courtesy of surging bond yields," said Oanda.

Given the risks of further shocks to supplies and a re-acceleration of the U.S. economy, any pullback in oil prices will be limited despite potential demand destruction this quarter, it added.

Metals:

Gold prices were higher after the front-month futures contract retreated to $1,818.50/oz, its lowest settlement since March.

"Gold prices are stabilizing after an overnight plunge made a key bottom after 30-year Treasury yield tentatively broke above the 5.00% [level]," Oanda said.

Oanda said gold is about to return to its pre-nonfarm payrolls range, which should support prices trading between $1,830 and $1,850.

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Copper prices were flat after falling overnight.

The base metal remains under pressure amid rising inventories and improved supply, ANZ said.

The global copper market is expected to see a deficit of 27,000 tons this year and a surplus of 467,000 tons in 2024, the International Copper Study Group said.

Meanwhile, intensifying macro headwinds could also weigh on copper as investors are concerned about Fed rates staying higher for longer, ANZ added.

TODAY'S TOP HEADLINES

Rising Interest Rates Mean Deficits Finally Matter

The U.S. has long been the lender of last resort to the world. During the emerging-market panics of the 1990s, the global financial crisis of 2007-09 and the pandemic shutdown of 2020, it was the Treasury's unmatched capacity to borrow that came to the rescue.

Now, the Treasury itself is a source of risk. No, the U.S. isn't about to default or fail to sell enough bonds at its next auction. But the scale and upward trajectory of U.S. borrowing and absence of any political corrective now threaten markets and the economy in ways they haven't for at least a generation.

Prada to Help Design Spacesuits for NASA Moon Mission

High fashion is going higher.

Prada, the maker of pricey leather bags and chunky boots, is helping make spacesuits astronauts will wear on the moon.

Russia Withdraws Black Sea Fleet Vessels From Crimea Base After Ukrainian Attacks

Russia has withdrawn the bulk of its Black Sea Fleet from its main base in occupied Crimea, a potent acknowledgment of how Ukrainian missile and drone strikes are challenging Moscow's hold on the peninsula.

Russia has moved powerful vessels including three attack submarines and two frigates from Sevastopol to other ports in Russia and Crimea that offer better protection, according to Western officials and satellite images verified by naval experts. The Russian Defense Ministry didn't respond to a request for comment.

U.S. Sends Seized Iranian Ammunition to Ukraine

The U.S. sent Ukraine more than a million rounds of seized small-arms ammunition that Iran had sought to ship to fighters it supports in Yemen, the U.S. Central Command said on Wednesday.

The shipment of the 1.1 million 7.62mm rounds took place on Monday and comes as doubts have grown about the U.S.'s ability to continue long-term security assistance for Kyiv.

Russian Journalist Who Protested Ukraine War on Live TV Given 8 1/2 -Year Sentence

A Russian court sentenced a television journalist who staged an audacious protest against the Kremlin's war in Ukraine and later fled the country to 8 1/2 years in prison, a fresh signal of how little Moscow is willing to tolerate criticism of its war effort.

Marina Ovsyannikova was found guilty in absentia of "disseminating knowingly false information about the use of the Russian Armed Forces," according to a statement posted Wednesday by the Basmanny District Court of Moscow on its Telegram channel.

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Expected Major Events for Thursday

06:00/GER: Aug Foreign Trade

06:45/FRA: Aug Industrial Production Index

07:00/SPN: Aug Industrial Production

08:00/UK: Sep UK monthly car registrations figures

08:30/UK: Sep S&P Global / CIPS UK Construction PMI

09:00/EU: 2Q Quarterly sectoral accounts

09:00/EU: 2Q Quarterly Balance of Payments

09:00/CYP: Sep CPI

23:01/UK: Sep BRC-Sensormatic IQ Footfall Monitor

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

10-05-23 0016ET