European Midday Briefing : Mood Brighter Post Fed Rate Decision; BOE Up Next

MARKET WRAPS

Stocks:

European stocks traded higher on Thursday, tracking gains on Wall Street and in Asia after the Federal Reserve decision to keep interest rates unchanged, and ahead of the Bank of England rate decision.

The Bank of England is likely to follow in the footsteps of other major central banks and keep rates on hold, Barclays Private Bank said.

"Although the BOE is likely to revise its short-term growth and inflation forecasts lower, just like its peers, the [policy committee] will want to prevent financial conditions from easing prematurely," Barclays said.

"As such, we expect a hawkish narrative to remain in place, with the door still open for future hikes should they be required."

U.S. Markets:

Stock futures rose after the Fed left interest rates unchanged and Jerome Powell said tight monetary policy has been putting downward pressure on economic activity.

Benchmark 10-year Treasury yields inched down, after slipping 20 basis points on Wednesday.

Stocks to Watch

Airbnb forecast fourth-quarter revenue of between $2.13 billion and $2.17 billion, below expectations of $2.18 billion. Shares fell 2.1%.

PayPal beat Wall Street's expectations and the payments company raised its full-year earnings forecast. The stock was rising 6.1% in premarket trading.

Forex:

Danske Bank Research said it expects the BOE to leave the bank rate unchanged at 5.25%, in line with the market pricing, and such a decision is likely to induce only limited moves in EUR/GBP.

"In our base case of an unchanged decision, we expect a muted reaction in EUR/GBP but on balance see risks as tilted to the topside."

Danske Research, however, continues to forecast EUR/GBP to move modestly higher in the coming year to 0.89 on the U.K. economy performing relatively worse than the euro area.

The window for dollar strength remains open but the lack of its appreciation in October as U.S. bond yields surged increases the risks of the scale of dollar gains being more modest than expected by MUFG.

"As the U.S. economy slows, more Fed cuts will be priced and with that dollar weakness will unfold in 1H 2024," MUFG added.

Bonds:

Eurozone government bond yields fell, tracking the decline in Treasury yields, which was induced by multiple factors, Standard Chartered Bank said.

Unexpectedly moderate Treasury quarterly refunding projections, weaker-than-expected manufacturing ISM and Jerome Powell's more-dovish-than-expected tilt at the FOMC press conference drove the drop in 10-year Treasury yields, it said.

"Our takeaway is that markets may react strongly to signs of slowing activity."

Energy:

Oil prices pushed higher despite inventories for crude oil rising in the U.S. and the Federal Reserve keeping the door open for further rate hikes down the line.

The risk of further fallout from the Israel-Hamas war was keeping prices higher.

BMI raised its 2023 average price forecast by $1 a barrel to $84 a barrel late Wednesday, saying geopolitical risks would support Brent crude in the near term.

Metals:

Base metals and gold prices rose as an improving macro environment and weakening dollar helped ease pressure on commodities backed by the greenback.

EMEA HEADLINES

Norway Central Bank Keeps Key Rate in Place, But Another Hike Looms

The Norwegian central bank maintained its key policy rate at its current level on Thursday, but confirmed an increase is likely later this year.

The decision by Norges Bank to keep the rate at 4.25% follows a series of increases up until September, and the full effects of tighter monetary policy have yet to be felt on the Norwegian economy, the bank said.

Wegovy Maker Novo Nordisk's Profit Surges on Weight-Loss-Drug Demand

Wegovy maker Novo Nordisk reported soaring profit, boosted by blockbuster weight-loss drugs that have quickly made the Danish drugmaker Europe's most valuable company.

Surging demand for the drugs has supercharged the company's stock price, tilted the scales of its home economy in Denmark and triggered a frenzy on Wall Street over how the treatments and others like it might affect other industries, including snack foods and airlines.

Shell Launches $3.5 Bln Buyback After Earnings Rose on Higher Energy Prices

Shell launched a $3.5 billion share buyback program after third-quarter earnings rose on higher refining margins, oil prices and sales, but slightly missed market expectations.

The London-based company on Thursday reported adjusted earnings of $6.22 billion for the quarter, up from $5.07 billion in the preceding quarter, but slightly missing market expectations of $6.25 billion provided by Vara Research.

Sainsbury's Raises FY 2024 Guidance

J Sainsbury lifted its guidance for fiscal 2024 on volume strength as it posted sales growth driven by groceries for the first half of the year.

The British grocer posted a pretax profit of 275 million pounds ($334.1 million) for the 26 weeks ended Sept. 16, against the GBP376 million reported in the comparable period the previous year.

GLOBAL NEWS

How Higher Rates for Longer Can Be Good News for the Economy

Federal Reserve policy makers appear disinclined to raise interest rates again. But neither do they expect to be cutting rates soon, and when they eventually do, they don't think they are going to be cutting them by all that much.

This higher-for-longer prospect has been unsettling for investors, and is part of why long-term interest rates have risen so much over the past several months. But if Fed policy makers are right about their ability to keep rates high-and it is a big if-then the economy could be in a very good place.

Fed Takes Heart in a Supply-Side Boom

When spending and employment grow as quickly as they have lately, it normally means inflation pressure is building and the Federal Reserve might have to raise interest rates.

But on Wednesday Fed Chair Jerome Powell suggested otherwise. Demand, he said, has indeed grown rapidly, but so has supply. A supply-side boom generates the best of all worlds: brisk growth and falling inflation.

Japan Cabinet Approves $113 Billion Stimulus to Ease Impact of Inflation

TOKYO-Japan's cabinet on Thursday approved an economic stimulus package worth more than $110 billion, including income tax cuts, part of Prime Minister Fumio Kishida's program to lessen the impact of inflation as his approval rate falls.

Under the package totaling 17 trillion yen ($112.61 billion), the government plans to cut income and resident taxes in June 2024.

China, U.S. to Meet for Rare Nuclear Arms-Control Talks

The Biden administration is preparing to hold a rare discussion with China on nuclear-arms control as the U.S. seeks to head off a destabilizing three-way arms race with Beijing and Moscow.

The meeting scheduled for Monday is the first such talks with Beijing since the Obama administration and will focus on ways to reduce the risk of miscalculation, U.S. officials said.

Foreign Nationals Start to Leave Gaza at Egyptian Border

Foreign nationals and wounded Palestinians crossed into Egypt from Gaza on Wednesday, Egyptian and U.S. officials said, with more than 400 people-including some Americans-allowed to leave in a major diplomatic breakthrough.

President Biden said he expected that more American citizens would be allowed to leave the embattled enclave over the coming days. The State Department said U.S. officials were in contact with about 400 Americans who want to leave. Egyptian officials said later Wednesday there were about 45 injured among those who crossed via Rafah.

Russia Detains Two of Its Soldiers in Killing of Ukrainian Family

Russian authorities are investigating the killing of nine people, including two children, in Ukrainian territory controlled by Moscow, in a case that has led to the detention of two Russian soldiers in connection with the crime and has sparked anger in both Ukraine and Russia.

Russian occupation authorities said Saturday they had launched a criminal investigation following the killing Friday of nine residents of the city of Volnovakha, where their bodies were found in a private residence with gunshot wounds.

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

(END) Dow Jones Newswires

11-02-23 0652ET