MARKET WRAPS

Stocks:

European shares eased lower on Friday ahead of the monthly U.S. employment report that's likely to offer important guidance to the Federal Reserve at its next policy meeting in early November.

Lindsey Bell, chief markets and money strategist at Ally, thinks the data may offer a glimpse of the short-term direction for equities.

The report is expected to show the economy added 275,000 jobs for the month, compared with 315,000 new positions added in August, according to a survey polled by Dow Jones.

"The expectation is that the report will be goldilocks in nature--not too hot and not too cold," Bell said, adding the data will need to be in line with, or short of expectations, in order for the stock market to continue higher.

Stocks to Watch:

Jefferies said Remy Cointreau should book good momentum when it sets out its second-quarter sales update later this month, with performance in reopening China driving group growth.

The company should report sales around 15% higher on year, with the cognac division's strong growth in China offset by an unfavorable shipment effect in the U.S., according to Jefferies's estimates.

The liqueurs & spirits division should be boosted by a strong summer season in Europe and by a good performance by orange liqueur Cointreau in the U.S., Jefferies said. It has kept a buy rating on the stock and a EUR220 target price.

Market Insight:

Italy's next scheduled ratings review is due on Oct. 21 from S&P but Citi considers Fitch's review on Nov. 18 to be a bigger risk.

"Fitch has tended to show the greatest sensitivity in the past towards a high debt burden and yet rates Italy one notch higher than Moody's does, " Coto said.

Moody's rates Italy at Baa3, the lowest investment-grade rating, with a negative outlook. Citi said Fitch has so far not acted on Italy's rating since the departure of Mario Draghi's government, while S&P lowered its outlook to stable from positive and Moody's changed its outlook to negative from stable.

U.S. Markets:

Stock futures were stuck in tight ranges with investors looking ahead to the jobs report.

Brian Mulberry, client portfolio manager at Zacks Investment Management, sees equity prices being volatile if we get a "really strong jobs report, " which may have a negative impact on stock prices.

"Too many people making too much money, [means they] keep spending money. That keeps prices high, and that means, ultimately, interest rates will be higher for longer," said Mulberry.

He said investors would want to see a monthly decline, with more jobs lost in the economy each month, but "we're not seeing that materialize yet."

As a result, the economy is getting to the target Fed fund rate quicker than previously thought because "we're not having a job erosion that we want to see."

Forex:

A weaker jobs report could cause the dollar to fall, as investors speculate the Fed might soon pause raising rates, but any dollar weakness is unlikely to last, MUFG said.

"Any dollar weakness on a weak NFP [non-farm payrolls] print that fuels easing expectations next year is in our view unlikely to last," MUFG said.

As of now there is "certainly no evidence" of Fed officials shifting their rhetoric and plenty of data have suggested the labor market "remains resilient."

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Current levels in sterling above $1.10 look "unsustainable" given fragility in the bond market and the U.K.'s deteriorated fiscal and current account position, ING said.

"A return to sub-1.10 levels in cable [GBP/USD] is a question of when rather than if, in our view," ING said, adding that solid jobs data may favor "a more rapid descent" in the pound.

Bonds:

Societe Generale has raised its forecast for the 10-year Bund yield, suggesting it will test 2.8% in early 2023, due to high inflation. "Sticky inflation suggests 'higher for longer' ECB rates," SocGen said.

Given the typical market overshoot on terminal rate expectations and Societe Generale's analysis on timing the peak in long maturity rates, it now foresee the 10-year Bund yield ending 2022 at around 2.50% before gradually increasing to 2.80% in the first quarter of 2023.

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Gilts continue to face a bearish outlook, Citi said.

Among the factors pointing to this case are the coming fiscal plan that is meant to reassure, though it may just unnerve, Citi said. Another factor is that issuance in the coming months is likely to be hard to absorb given uncertainty around the Bank of England's bank rate.

Citi's strategists target 4.5% for 10-year gilt yield; on Thursday it closed at 4.194%, up two basis points, according to Tradeweb. Citi also said the 10-year gilt-German Bund yield spread could widen to 230-250bps; it is currently around 205bps, according to Tradeweb.

Mizuho said as the BOE has bought a "pitiful" GBP4 billion of gilts, "the strategy is clearly to send the message that the outlined amount is only for extreme circumstances."

Mizuho is of the view, however, that this policy "makes extreme circumstances more likely" and said it sees gilt yields moving upward.

"Alongside LDI [liquidity-driven investment] deleveraging, factors implying that UK rates will remain high, if not higher include: more gilt supply, active QT approaching, and rising underlying inflation pressures," Mizuho said.

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Read: Syndicated Issues Could Boost Eurozone Government Bond Issuance Volume Next Week

Energy:

Oil futures rose, with Brent crude on course to end the week with its biggest weekly gain since February, buoyed by OPEC+'s large cut to production quotas.

With OPEC+ having largely exhausted its spare capacity, the cut had to happen at some point, JPMorgan said.

"The outcome of the October 5th OPEC+ meeting was already largely embedded into our baseline supply forecast," the bank added.

Metals:

Metals wavered, with prices swayed recently by macroeconomic sentiment, so Friday's U.S. jobs report is likely to impact how investors react to risk assets.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

EU Leaders Set to Clash Over Energy Prices at Prague Gathering

PRAGUE-European leaders who have been compromising on their response to Russia's war in Ukraine all year now face a growing rift over how to offset the rising damage of high energy prices to their domestic economies.

Italy and several other countries will square off against Germany at a summit in Prague on Friday, in a spat that mirrors clashes from past crises. Heavily indebted countries fear that their wealthier neighbors will gain an unfair edge by supporting their businesses and consumers.

   
 
 

Credit Suisse Launches $3 Billion Bond Buyback

Credit Suisse said it will spend around $3 billion to buy back senior bonds to save on interest payments as it prepares to reshape itself as a smaller and safer bank.

Credit Suisse stock and bond prices fell in recent weeks as investors anticipate it could raise new shares to fund its restructuring. An online frenzy also sparked concerns about the bank's financial health.

   
 
 

Telenor Sells Stake in Norwegian Fiber Business For $1 Bln

Telenor ASA said Friday it has agreed to sell 30% of Telenor Fiber AS in Norway to a consortium led by KKR & Co. Inc. and Oslo Pensjonsforsikring for around 10.8 billion Norwegian kroner ($1.01 billion).

Telenor Fiber is a newly established subsidiary that will own the company's fibre infrastructure assets in Norway, including 130,000 kilometers of cables that connect more than 560,000 homes, with Telenor maintaining control of both the operations and processes in the company.

   
 
 

German Industry Contracted in August, Energy Intensive Branches Particularly Hurt

Germany's industrial production fell in August as demand for goods moderated and factories grappled with high energy prices and supply bottlenecks.

Total industrial output--comprising production in manufacturing, energy and construction--decreased 0.8% on month in August, data from the German statistics office Destatis showed Friday. Economists polled by The Wall Street Journal had expected a 0.5% decline.

   
 
 

U.K. Bond Markets Come Under Pressure Again

The Bank of England stopped buying long-dated bonds as part of its rescue plan over the past two days, helping fuel a fresh selloff in U.K. debt markets.

Yields on U.K. government bonds have climbed this week, with the 30-year yield rebounding to 4.4% from 3.8% last Friday. It hit a peak of 5.1% last week. Yields rise when prices fall.

   
 
 

Shell's Slip Shows Oil and Gas Prices Aren't Everything

A weaker quarter for Shell is a timely reminder that high oil and gas prices don't always mean bumper supermajor results.

Liquefied-natural-gas prices were stratospheric in the third quarter, while crude benchmarks oscillated between $80 and $100 a barrel. Shell's third-quarter update Thursday nonetheless warned of "significantly lower" gas-trading results and reduced refining and chemicals margins that together could pack an earnings hit of much as $2 billion. Marketing profits and oil production improved, but the overall picture clearly surprised some investors: The company's shares were down almost 5% in European trading, though pared back some of that fall later in the day.

   
 
 

European Leaders Hold Summit to Test Out a Larger Political Community

PRAGUE-Months after French President Emmanuel Macron's long-floated pan-European political project was being dismissed as either a gabfest or a divisive distraction by some regional officials, 44 leaders gathered in the Czech capital on Thursday for security, energy and other discussions.

Propelled by the grave challenge of Russia's invasion of Ukraine and its continent-wide economic costs, the European Union's 27 leaders met with their counterparts in 17 European countries outside the bloc-the new European Political Community-billing it primarily as a show of support for Ukraine.

   
 
 

IMF to Lower Global 2023 Growth Forecast Amid Shocks to Economy

WASHINGTON-The head of the International Monetary Fund said that the institution expects slower global economic growth next year and that policy makers must do more to reduce inflation to prevent long-lasting harm.

The IMF will lower its 2023 growth forecast from its earlier estimate of 2.9% in a report to be released next week, said the fund's Managing Director Kristalina Georgieva in a speech Thursday. She didn't specify the new estimate, but said it would reflect a darkening outlook as soaring inflation cuts into people's ability to spend.

   
 
 

U.N. Nuclear Agency Warns of Increased Risk at Ukraine's Largest Nuclear Plant

KYIV, Ukraine-The head of the United Nations' nuclear agency warned on Thursday that staff at Europe's largest nuclear-power plant are under increasing pressure after Russian authorities attempted this week to deepen their control over the plant, posing a heightened safety risk.

Russia's capture of the Zaporizhzhia nuclear-power plant in southeastern Ukraine in March and a resulting struggle with Ukraine, along with shelling near the occupied facility, have raised global concern about the risk of an atomic catastrophe. The Ukrainian engineers staffing the plant have continued to operate it since Russia's military took control of it.

   
 
 

Iran Student Protests Pose Challenge to Raisi Government

Protests in Iran have spread to universities and high schools as the new academic year begins, infusing fresh energy into a weekslong, nationwide movement demanding more rights and prompting a brutal crackdown from authorities.

The involvement of young students seeking more liberties adds a new dimension to the rights movement that erupted in Iran after the death of 22-year-old Mahsa Amini on Sept. 16 in police custody for allegedly violating Iran's strict Islamic dress code. Protesters initially called for more freedom for women, but those demands have since morphed into broader calls to overthrow the Islamic Republic, posing one of the toughest challenges yet to the country's ultraconservative clerical leadership.

   
 
 
   
 
 

GLOBAL NEWS

The S&P 500 Still Looks Expensive. The Average Stock Doesn't.

Even after all of the S&P 500's declines this year, the market benchmark still looks expensive. But the average stock is more reasonably valued, leaving opportunity for those who look beneath the surface.

The S&P 500 has dropped more than 20% from the record high it hit in January. And the index now trades for about 16 times the aggregate per-share earnings its component companies are supposed to produce over the next year, down from about 21.5 times to start 2022.

   
 
 

Fed Officials Say Stubborn Inflation Justifies Continued Rate Increases

High inflation is proving to be more persistent than anticipated and has created a strong case for the Federal Reserve to lift and then hold interest rates at levels that will slow economic activity, a central bank official said Thursday.

The Fed will need to keep rates at restrictive levels "until we are confident that inflation is firmly on the path toward our 2% goal," said Fed governor Lisa Cook in remarks at the Peterson Institute for International Economics, where she made her first speech since joining the central bank's board this May.

   
 
 

U.S. Takes Aim at OPEC for Oil Production Cuts

WASHINGTON-OPEC's decision to slash oil production has the U.S. considering responses that could include measures aimed at breaking the cartel's hold on markets or limiting U.S. oil exports should shortages emerge.

The cutback by the Organization of the Petroleum Exporting Countries and its Russia-led allies is the latest dilemma for President Biden, who has sought to transition the U.S. away from fossil fuels while at the same time keeping consumer prices in check.

   
 
 

Elon Musk's Revived Twitter Deal Could Saddle Banks With Big Losses

Banks that agreed to fund Elon Musk's takeover of Twitter Inc. are facing the possibility of big losses now that the billionaire has shifted course and indicated a willingness to follow through with the deal, in the latest sign of trouble for debt markets that are crucial for funding takeovers.

The $44 billion deal, which Mr. Musk had been trying to walk away from, would be paid for in part with some $13 billion of debt seven banks including Morgan Stanley, Bank of America Corp. and Barclays PLC agreed to provide when the takeover was sealed in April.

   
 
 

Donald Trump PAC Jumps Into Ohio, Pennsylvania Senate Races

Donald Trump is jumping into the midterm-election ad wars with a pair of spots in the hotly contested Pennsylvania and Ohio Senate races, the first wave in what is expected to be millions of dollars in spending from the former president's new political-action committee.

Mr. Trump, who has faced pressure to use his fundraising resources to help Republican candidates, had before this week spent modestly-and not on TV ads for candidates. He preferred instead to stage boisterous rallies in battleground states.

   
 
 

Appeals Court Allows Florida to Prohibit Businesses From Requiring Proof of Covid-19 Vaccination

A federal appeals court ruled Thursday that Florida can bar businesses from requiring proof of Covid-19 vaccination of their customers.

The 2-1 ruling from the 11th U.S. Circuit Court of Appeals tossed out a lower-court ruling that had found the state's prohibition on proof of vaccination violated the speech rights of Norwegian Cruise Line Holdings Ltd., which challenged it in court.

   
 
 

Prosecutors Hold Off Final Hunter Biden Case Decision Amid Talks With Defense Lawyers

Prosecutors are holding off on a final decision on whether to bring a case against President Biden's son, Hunter, while they review defense evidence in the long-running investigation, people familiar with the matter said.

Investigators for months have believed there is enough evidence to charge the younger Mr. Biden with tax crimes and a false statement related to a gun he purchased, and had expected a case to be brought by the end of the summer, the people said.

   
 
 

Write to paul.larkins@dowjones.com

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(END) Dow Jones Newswires

October 07, 2022 05:19 ET (09:19 GMT)

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