European shares struggled for momentum on Thursday in a largely
cautious session, with traders eyeing a subdued open on Wall
A profit warning from Shell and more disappointing economic data
out of Germany added to the caution.
Stocks to Watch:
European car makers are expected to report third-quarter revenue
and earnings that surprise positively due to strong pricing and
volumes, Bernstein said.
However, the results for the July-September period could turn
out to be the peak for auto makers, which are now facing stalling
pricing in Europe and China among other challenges.
"Into results, we prefer US$ and China exposure, but worry that
investors will look through 2022 earnings and continue to worry
about 2023--as do we," Bernstein said.
Next year, car makers in Europe will face significant earnings
headwinds, Bernstein added.
Sales of luxury goods are likely to have held up well in the
third quarter and current uncertainties look priced into the
sector's share performance, Citi said, which has buy ratings on
LVMH, Kering, Richemont, Moncler and Pandora.
Growth in Europe and in Asia, excluding China, should support
luxury's third quarter, and investors are likely to focus on
normalization in the U.S., the sustainability of European
performance, and the shape of recovery in China, Citi said. With
the sector having derated significantly this year, these variables
look factored in, it added.
The assumption that European inflation would be transitory--most
forecasters' central case at the start of the year--is looking
increasingly like a mistake, HSBC said.
Eurozone and U.K. inflation rates are in the double digits and
there is more pass-through from wholesale energy prices to come,
despite governments intervening more forcefully, according to
Weaker exchange rates, rising input prices and real wage
resistance--workers resisting cuts to real-term pay by demanding
pay raises--could all add to core inflationary pressure, too, HSBC
said. It added that more monetary tightening and a real-terms
income squeeze means Europe's major economies will enter
"A challenging period lies ahead where slow growth rates may
coexist with higher inflation rates."
Futures pointed to a mildly mixed start ahead of an update on
the number of Americans applying for unemployment benefits, as
traders eschewed fresh chunky bets after several volatile
Government bond yields rose. The yield on the benchmark 10-year
Treasury note rose to 3.785%, from 3.757%. The two-year yield,
which is more sensitive to interest-rate expectations, rose to
Later Thursday, investors will parse the latest initial jobless
claims data, which serve as a proxy for layoffs. Economists
surveyed by The Wall Street Journal expect claims to rise to
203,000, from 193,000 the previous week.
A number of Fed officials are due to speak and are likely to
affirm the need for more rate hikes.
The dollar has recovered some ground after recent falls and is
likely to continue to do so ahead of the weekend, potentially
around Friday's U.S. jobs report in particular, ING said.
"As we had expected, the dollar downtrend has started to prove
unsustainable," ING said, adding that markets probably aren't yet
ready to bet heavily on the Federal Reserve slowing the pace of
The jobs data has the potential to lift the DXY to around
112-113, ING said.
Sterling should resume a weakening trend following its recent
rebound after U.K. Prime Minister Liz Truss dampened hopes for
further changes to the government's fiscal policy, MUFG Bank
Truss on Wednesday confirmed a U-turn on plans to scrap the
highest rate of income tax but said the government would press
ahead with other planned tax cuts. Without further fiscal
tightening, the U.K. faces even higher government bond yields which
undermines the already weak economic growth outlook, MUFG said.
"Now the dust is beginning to settle after the pound's recent
volatile price action, we expect the bearish trend to resume."
Gilt yields rose after Fitch cut its outlook on the U.K. to
negative from stable, following on from S&P's recent decision
to reduce the country's outlook to negative.
Fitch said the reduction in the outlook reflected the "large and
unfunded fiscal package announced as part of the new government's
growth plan," which could "lead to a significant increase in fiscal
deficits over the medium term."
Fitch affirmed the U.K. credit rating at AA-.
The widening potential for the 10-year Italian BTP-German Bund
yield spread is diminishing beyond 240 basis points, but some risks
are still there, Mizuho said.
Italian election winner Giorgia Meloni's failure to bring in
European Central Bank Executive Board member Fabio Panetta as the
next finance minister doesn't bode well, Mizuho said.
"The risk is that this development spirals into a more ominous
narrative for the incoming government, in terms of failing to
attract a market-friendly character to take charge of Italy's
Government bond yields face opposing pressures from hawkish
central banks and weak economic growth, Amundi said, maintaining an
active and tactical approach.
Amundi is slightly cautious on duration--a measure of the
sensitivity of bonds to changes in interest rates--mainly through
Treasurys and core Europe, but it is positive on China and neutral
on the U.K. amid the recent sharp movements, it said.
Amundi keeps a slightly constructive stance on Italian
government bonds versus German Bunds, supported by the availability
of the European Central Bank's Transmission Protection Instrument.
It also believes Italy's next government "should not deviate too
much from the fiscal and reform path."
While Amundi is following developments in Italy, it finds that
eurozone peripheral spreads have stabilized, even as it is
monitoring fragmentation and political risks.
Oil prices held modest gains post-OPEC, with SPI Asset
Management saying the market is already tight and is expected to
tighten further when an EU embargo on Russian oil comes into force
later this year.
Other News: Shell warned that a steep fall in refining margins
will have a negative impact of between $1 billion and $1.4 billion
on its third-quarter adjusted earnings, while it also expects lower
results from its Integrated Gas business.
Read more here.
Metals prices rose across the board as traders once again pivot
to risk assets on tepid signs of a macroeconomic recovery.
"The macro environment is on the bullish side of the ledger for
the first time in four weeks," Peak Trading Research said.
DOW JONES NEWSPLUS
Shell Braces for Profit Hit From Volatile Natural-Gas Prices,
Shell PLC said it expects its third-quarter earnings to be hit
by "significantly lower" profit from trading gas because of market
volatility as well as higher costs for delivering fuel amid a
global scramble for energy supplies.
The London-based company said Thursday that the pricing and cost
swings from shortfalls of liquefied natural gas will likely cut
into profit from its huge gas business, typically its biggest cash
generator. But Shell said its overall marketing profits from
trading oil and other products were higher in the third quarter
compared with the previous quarter. The comments came in a preview
of Shell's full third-quarter earnings, scheduled for later this
Credit Suisse's Woes Don't Make for a Lehman Moment --
European banks aren't at risk of facing a Lehman-style
That's according to multiple analysts reacting to the stream of
negative stories and market turmoil hitting Swiss banking giant
Credit Suisse Group AG.
German Factory Orders Fell Sharply in August
New orders in Germany's manufacturing sector fell sharply in
August, more than forecast, reflecting weakening demand for goods
in a context of rising input costs and high energy prices.
Factory orders decreased 2.4% on month, data from the German
statistics office Destatis showed Thursday. The decrease is much
larger than forecast by economists polled by The Wall Street
Journal, who expected orders to fall by 0.5%.
Top European Union Official Backs Calls for Gas Price Cap
BRUSSELS-European governments should consider temporary measures
to curb prices in the continent's natural-gas market, European
Commission President Ursula von der Leyen said, marking her
clearest comments in support of a possible bloc-wide limit on gas
Ms. von der Leyen's remarks, in a letter to European Union
leaders on Wednesday, are part of an apparent shift by the
commission, which until last week had seemed to sideline the option
of a gas-price cap within the bloc. More than a dozen EU member
states have called for a broad ceiling on gas prices, but such a
move is opposed by Germany, the bloc's largest economy, and several
Saudi Sovereign-Wealth Fund Joins 100-Year Bond Club
Saudi Arabia braved turbulent markets to join the small club of
issuers that have borrowed for 100 years from investors, with its
sovereign-wealth fund selling the ultralong debt as part of a $3
billion bond-market debut.
The three-part sale of green bonds tapped global investors for
funds that will help support projects at the heart of Crown Prince
Mohammed bin Salman's national economic transformation.
Diageo Backs Medium-Term Guidance Amid Challenging Operating
Diageo PLC said Thursday that it has had a good start to fiscal
2023 and that it remains well-positioned to deliver its medium-term
guidance despite expecting the operating environment to remain
The liquor maker--which owns Johnnie Walker whisky and Tanqueray
gin--said it is in a good position to achieve its guidance of
organic net sales growth in the range of 5% to 7% and organic
operating profit growth in the range of 6% to 9% for fiscal 2023 to
Imperial Brands Launches Buyback of Up to GBP1 Bln; FY 2022
Performance in Line With Views
Imperial Brands PLC said Thursday that it is launching a
share-buyback program of up to one billion pounds ($1.13 billion),
and that its performance for the year ended Sept. 30 was in line
The FTSE 100 tobacco group--which houses Davidoff, Gauloises and
JPS among its brands--said that including dividends and buybacks,
total capital returns in fiscal 2023 are expected to be above
GBP2.3 billion, and that this represented around 13% of its current
Merck KGaA Backs Mid-Term Targets; Plans Acquisitions as of
Merck KGaA on Thursday backed its medium-term targets at group
level and for its business units, and said that it plans further
in-licensing deals and acquisitions as of next year.
The German pharmaceuticals-and-chemicals company said it remains
on track to reach its growth target of 25 billion euros ($24.71
billion) in sales by 2025. Sales growth is expected at an average
of 6% a year, which equates to an increase of more than EUR1
billion annually, the company said.
Europe Has the Strength to Sail Through a Recession
Europe has had a punishing year. The fallout from the war in
Ukraine has caused food and fuel costs to spike, forcing central
bankers to move aggressively to curb inflation. Yet, tighter
monetary policy is colliding with looser fiscal policy, as
governments seek to mitigate the impact of rising costs on
The result is a macroeconomic mess, which has pressured stock
markets from London and Paris to Berlin and Rome. The FTSE 100, in
Britain, is down 4% year to date and down 6% since mid-August; the
Stoxx Europe 600, a pan-European index, is off 18%, versus the 21%
loss in the S&P 500.
U.K. Home-Builder Stocks May Be a Buying Opportunity as the
They say an Englishman's home is his castle. It's also a
disproportionate amount of his net worth, which should make buying
shares of companies that build new homes a relatively safe bet.
U.K. house prices have quintupled since 1992. That's
significantly more than in the U.S., where prices have quadrupled
over the past 30 years. The strong growth shows the power of demand
for homes in Britain, especially when so much of the country's
housing stock consists of small, damp Victorian dwellings.
After Rocky Start, U.K. Leader Truss Tries to Unite Party
BIRMINGHAM, England-U.K. Prime Minister Liz Truss, after a
turbulent first month in power, tried to recover the confidence of
both the public and her own party on Wednesday by defending her
controversial plans for tax cuts as the best path to stir a
slumbering British economy.
Speaking to her restive Conservative Party at the close of its
annual conference, Ms. Truss called on party members to unite to
attack "antigrowth" political opponents and back her agenda of
lower taxes and deregulation.
Russian Missiles Hit Civilian Targets in Southeastern
KYIV, Ukraine-Russian missiles struck the city center of the
southeastern Ukrainian city of Zaporizhzhia, killing at least two
people early on Thursday while Ukraine's forces reclaimed more
territory from Moscow, according to senior Ukrainian officials.
At least seven missiles struck the city in an attack that hit a
series of apartment buildings, according to Kirill Timoshenko, a
Ukrainian presidential adviser. At least six people were also
wounded in the strike, he said. Zaporizhzhia and the surrounding
area have been a focal point of Russian attacks in recent months
after Russia seized control of the nearby nuclear power plant with
the same name.
U.S. Believes Ukraine Was Behind Assassination of Putin Ally's
WASHINGTON-U.S. intelligence agencies have concluded that
Ukraine was responsible for the August assassination outside Moscow
of the daughter of a prominent far-right wing Russian ideologue, a
U.S. official said.
The U.S. wasn't aware beforehand of the operation that killed
Daria Dugina, the official said, and Washington has formally
complained about it to Ukraine's government.
Iran Protests Erupt Anew After Teenage Demonstrator's Death
Iranian women and girls held fresh antigovernment protests on
Wednesday, activists said, as demonstrations stretched into a third
week, given new impetus as word spread on social media that a
16-year-old student had died after taking part in a women's rights
The student's aunt, Atash Shahkarami, told BBC Persian that Nika
Shahkarami called a friend to say she was being chased by security
forces on Sept. 20. Her family found her body at a Tehran morgue 10
days later, Ms. Shahkarami said. The BBC said Ms. Shahkarami was
arrested after being interviewed.
Talking Markets: China Likely Needs More Than October Meetings
to Exit Zero-Covid
Some China watchers are hoping that political meetings this
month will signal an end to strict anti-Covid-19 policies that have
cast a gloomy spell on the world's second-largest economy. They are
likely to be disappointed and left waiting well into next year,
Chinese businesses have slowed investments and consumers have
cut spending amid citywide lockdowns, mass testing and years of
border closures stemming from Beijing's pandemic controls. These
factors played a role in slower-than-expected GDP growth in the
second quarter, as well as in several equity market selloffs. Both
the CSI 300 and the Shanghai Composite Index have fallen to
multimonth lows, while the MSCI China Index has hit a six-year
Bank of Japan Maintains View on Most of Japan's Regional
The Bank of Japan on Thursday maintained its view that most of
Japan's local economies were growing moderately, citing
improvements in supply shortages
The bank's assessment for eight of the nine local economies was
unchanged, and it raised its assessment for one region in the
western part of the nation's main island.
Fed's Bostic wants to pause after December rate hike
The Federal Reserve should get its benchmark rate to between 4%
and 4.5% by December and then pause, Atlanta Fed President Raphael
Bostic said Wednesday.
"Ideally, I would like to reach a point where policy is
moderately restrictive - between 4% and 4.5% by the end of this
year - and then hold at that level and see how the economy and
prices react," Bostic said in a speech at Northwestern
Fed's Daly says more rate hikes needed, dismisses 'pivot'
The Federal Reserve needs to keep raising its benchmark interest
rate in order to cool inflation that hit a 40-year high earlier
this year and has shown little signs of cooling, Mary Daly,
president of the Federal Reserve Bank of San Francisco said
"I do see more rate increases as necessary," Daly said, in an
interview on Bloomberg Television.
North Korea Test-Fires Two Short-Range Ballistic Missiles Off
Its East Coast
SEOUL-North Korea test-fired two short-range ballistic missiles
off its east coast on Thursday, shortly after the U.S. said at the
United Nations that Pyongyang is feeling emboldened.
The Thursday test marked the Kim Jong Un regime's sixth weapons
launch in 12 days, adding to what is already a historic year of
U.S. Looks to Ease Venezuela Sanctions, Enabling Chevron to Pump
The Biden administration is preparing to scale down sanctions on
Venezuela's authoritarian regime to allow Chevron Corp. to resume
pumping oil there, paving the way for a potential reopening of U.S.
and European markets to oil exports from Venezuela, according to
people familiar with the proposal.
In exchange for the significant sanctions relief, the government
of Venezuelan President Nicolás Maduro would resume long-suspended
talks with the country's opposition to discuss conditions needed to
hold free and fair presidential elections in 2024, the people said.
The U.S., Venezuela's government and some Venezuelan opposition
figures have also worked out a deal that would free up hundreds of
millions of dollars in Venezuelan state funds frozen in American
banks to pay for imports of food, medicine and equipment for the
country's battered electricity grid and municipal water
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(END) Dow Jones Newswires
October 06, 2022 05:51 ET (09:51 GMT)
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