European Midday Briefing : Higher U.S. Bond Yields Hit Stocks

MARKET WRAPS

Stocks:

European stocks were mostly lower on Tuesday, as higher Treasury yields weighed on sentiment.

"The theme of higher yields is likely to continue to keep pressuring stocks, resulting in more losses in what is often a difficult period of the year for equities anyway," IG said.

Concerns of a shutdown of the U.S. government also lingered, as well as China's property-driven downturn despite stimulus policies.

Stocks to Watch

ABB is expected to report largely flat order growth in the third quarter as momentum from the first half of the year slows down, Deutsche Bank said. Read more .

Assa Abloy will release its 3Q results on October 25 and Deutsche Bank expects to see an uninspiring picture with flat organic growth and a margin of 15.2%, down 40% year-on-year, lifting its price target to SEK255 from SEK250 and reiterated its hold rating. Read more .

SAS will soon announce who its new owners are, so reality could soon catch up with current shareholders who are likely to be completely wiped out, Sydbank said, warning of a possible total dilution that could render the shares worthless. Read more .

U.S. Markets:

Stock futures were lower, as the prospect of borrowing costs staying higher for longer continued to pressure equities.

Fresh economic data could offer clues about how higher rates are affecting economic activity, with consumer confidence and home sales data due today.

The Fed's Michelle Bowman is due to speak

Stocks to Watch

Costco Wholesale is scheduled to report fiscal fourth-quarter earnings after the closing bell. Shares were down 0.3% premarket.

Ford said it was pausing a $3.5 billion electric-vehicle battery plant. Shares fell 0.2%. Read more .

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Forex:

The euro fell to its weakest in six months against the dollar as rising Treasury yields boosted the U.S. currency, but its losses may be limited as a weak eurozone economy should be priced in to the euro, MUFG said.

The recent flash eurozone composite PMI and German Ifo figures were weak but better than expected, suggesting that "the weak growth outlook for the eurozone and Germany in particular should be better priced in now in financial markets."

This should make it harder for the euro to keep weakening against the dollar "as it approaches more undervalued levels closer to parity," MUFG said.

Read Offsetting Factors Could Keep EUR/USD in Relatively Tight Range Until Year-End, LBBW Says

Read Rising US Bond Yields Lift Dollar to Multi-Month Highs

Bonds:

Eurozone government bond yields rose as markets continued to come to terms with central banks' intention to keep interest rates high for long, Natixis said.

"The potential end of monetary tightening cycles has not had a favourable impact on the bond market, which remained under the cosh, with the yield for the 10Y Bund now trading at a year-high of 2.80%," it said.

Read Germany's 4Q Funding Review Could See Cut in Bubill Issuance

Energy:

Oil prices slipped, with Brent on course for its sixth consecutive loss, as a strong dollar and concerns about the global economy weighed on prices.

The dollar has climbed to its highest level since November 2022 in recent days and is dragging on dollar-denominated crude prices.

Meanwhile, investors are fretting about the implications of the Fed's higher-for-longer message on interest rates, which could crimp economic growth and with it oil demand.

"Crude trades lower for a second day with macroeconomic concerns, a stronger dollar and a stretched speculative long and easing refinery margin weighing on prices," Saxo said.

Metals:

Base metals and gold prices fell in early trading, as weak demand in China, and an uncertain macroeconomic environment pressured industrial goods.

Data from Worldsteel showed that crude steel output fell to 152.6 million tons in August from 158.5 million tons in July - the lowest level since February, ING said.

The bank also said that gold remained under pressure from the Fed's "higher for longer" stance on interest rates.

"U.S. 10Y treasury yields have increased to a fresh five-year high and broken above 4.5%, which continues to weigh on gold prices."

DOW JONES NEWSPLUS

EMEA HEADLINES

SEC Fines Deutsche Bank Fund Unit for ESG Claims, Money Laundering Allegations

Deutsche Bank's investment arm agreed to pay $25 million for overstating how it used environmental, social and governance factors in its funds, one of the first cases that questioned ESG claims by money managers.

The investment arm, DWS, also settled allegations from the Securities and Exchange Commission that it failed to comply with anti-money-laundering rules for its mutual funds.

The corporate bond markets of the U.S. and Europe are telling wildly different stories

Usually, the corporate bond markets of the U.S. and Europe move in tandem.

That's logical. The U.S. is a major market for most European companies, and the reverse is true to an extent as well. While the U.S. economy has been consistently stronger than its eurozone counterparts, bond investors are less concerned about the magnitude of economic growth than whether economies are strong enough for their companies to meet debt obligations at all.

Intel's Big Chip-Making Push in Germany Hits Bottleneck

MAGDEBURG, Germany-Intel says it needs 3,000 people to staff the semiconductor factory it plans to build in eastern Germany by the end of the decade. This year, the local apprentice program for chip-making technicians is training two.

The German government trumpeted Intel's planned development as a game changer, backed by federal subsidies totaling 10 billion euros-equivalent to $10.59 billion-that would help the economy pivot toward new industry. The outlay is part of a European Union effort unveiled this summer to double the Continent's share of global chip production to compete with established producers in Asia.

GLOBAL NEWS

Americans Finally Start to Feel the Sting From the Fed's Rate Hikes

Rising interest rates are hitting Americans' finances.

Consumers in the market for loans to buy homes and cars are discovering that, because of the Federal Reserve's rate increases, their money gets them a lot less than it would have a few years ago. Meanwhile, those with credit cards and other loans that carry rates pegged to broader benchmarks are finding they have gotten much more expensive.

Why a surging U.S. dollar is about to become a problem for stock-market bulls

Analysts are ringing alarm bells over a surge by the U.S. dollar, warning it may be set to serve as another "headwind" for U.S. stocks as they struggle through a losing September.

"Since early August, the USD (U.S. dollar) has climbed above its average [second-quarter] level. That means that for corporates, the USD switched back from tailwind to headwind...and an increasing one" as investors close out the third quarter this week, said Andrew Greenebaum of Jefferies, in a Saturday note.

Bob Menendez Says He Won't Quit Senate, Creating Headaches for Democrats

WASHINGTON-Sen. Bob Menendez (D., N.J.) said he wouldn't resign from Congress and offered an explanation for the large amounts of cash found in his home, in his first public remarks since he was indicted by federal prosecutors in a sweeping bribery scheme.

"I understand how deeply concerning this can be, however the allegations leveled against me are just that: allegations," he said. "I firmly believe when all the facts are presented not only will I be exonerated but I still will be the New Jersey senior senator."

Kevin McCarthy Takes Final Shot at Avoiding Government Shutdown

WASHINGTON-Congress heads into a make-or-break week for avoiding a government shutdown, with leaders of the Republican-controlled House hoping they can persuade GOP holdouts to get on board with four full-year bills and a short-term funding patch.

With a shutdown set for Oct. 1 unless Congress acts, the plan marks a last-ditch effort by Republicans to find a way forward. If no deal is reached, hundreds of thousands of federal workers are set to be furloughed.

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

(END) Dow Jones Newswires

09-26-23 0537ET