European Midday Briefing : Stocks Rebound as Dovish Fed Lifts Mood

MARKET WRAPS

Stocks:

European stocks rebounded on Tuesday as analysts said they saw signs of recovered risk appetite.

Technology shares led the gains, while comments from Federal Reserve policymakers that were perceived as dovish helped lift Wall Street's mood on Monday, with the positive sentiment prevailing in Asian markets.

"Sentiment rebounded from the weekend's shocking events, with the conflict remaining relatively contained for the time being," IG said.

Stocks to Watch

Kering is set to post slower revenue growth than its best-in-class competitors for the third quarter, though investors are likely to focus on the potential for a turnaround at its core Gucci brand, RBC Capital Markets said. RBC expects Kering to report revenue of EUR4.56 billion, down 11% in reported terms and down 6% organically, dragged by wholesale declines and brand-specific challenges.

Read Kering Expected to Lag Behind Strongest Peers in 3Q

Economic Insight

The eurozone is set for lower growth than previously expected, according to new forecasts from the IMF.

The bloc should grow by just 0.7% this year, before picking up a little pace to expand by 1.2% in 2024; both estimates are lower than those set out in the Fund's previous forecasts in July.

Read Eurozone Economy Set for More Sluggish Growth in 2023 and 2024, IMF Says

Read UK Set to Lag Advanced Economies in Growth Next Year

U.S. Markets:

Stock futures gained and Treasury yields retreated from multi-year highs as the bond market reopened after the Columbus Day holiday.

Benchmark 10-year notes were down around 14 basis points. This followed comments on Monday from Dallas Fed Lorie Logan, who said that rising bond yields could do "some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening."

PepsiCo will post quarterly earnings before the market opens

Follow WSJ markets coverage here .

Forex:

Upcoming speeches by Fed officials on Tuesday could influence the dollar "in one way or the other," Swissquote Bank said.

Comments by Dallas Fed President Lorie Logan that the recent rise in long-term Treasury yields could mean less need for the Fed to raise interest rates further, helped temper the dollar's rise on Monday.

Read Swedish Krona's Weakness Isn't Justified, SocGen Says

Bonds:

Eurozone government bond yields were little changed and the risk sentiment picture should become clearer as U.S. markets resume activity after the Columbus Day holiday, UniCredit Research said.

"In the very short term, higher geopolitical uncertainty is supporting safe-haven demand," it said.

Energy:

Oil futures were lower in a likely technical correction after settling more than 4% higher on Monday on worries over the situation in Israel and Palestine.

Oil, in particular, rose amid worries of possible sanction tightening on Iran-something which could limit supply.

"The issue for the U.S. government is that they are clearly worried about rising energy prices and one would expect that strictly enforcing these sanctions would provide more support to oil prices," ING said.

Read Natural Gas Continues Rise Over Israel Supply Worries

Metals:

Base metals pulled back as weak demand and dollar strength pressure industrial goods, while gold remained in demand for its safe-haven appeal.

Talks at the London Metals Week were dominated by trading losses this year, as well as weak demand signals in the near term from the Chinese property sector.

"We expect copper will go down over 6-12 months, reading toward $7,000 to $7,500 mark," Citi said.

Wood Mackenzie said the outlook for iron ore hinges on how China navigates its objectives for limiting steel production this year and the magnitude of stimulus measures implemented by the government there,

It recently upgraded its iron-ore price forecasts, including lifting its 2024 forecast to $108/metric ton from $100.

Read Iron-Ore Outlook Hinges on China Steel Curbs, Stimulus

DOW JONES NEWSPLUS

EMEA HEADLINES

UK Retail Sales Slow in September as Consumers Avoid Big Ticket Purchases, BRC Says

Retail sales growth in the U.K. slowed in September despite a fall in inflation as the high cost of living continues to put households' budget under pressure, according to the latest sales-monitor report from the British Retail Consortium published on Tuesday.

Total retail sales for the five weeks to Sept. 30 increased by 2.7% compared with the prior month, when it saw growth of 4.1%, and was at the same level as the three-month average growth, the report said. In September last year, retail sales were up 2.2%.

Israeli Startup Community, at Home and Abroad, Prepares to Fight

Members of Israel's technology sector are reeling from the war unfolding in their country, while trying to keep their businesses going as executives and employees join the fight.

The Israeli military has called up hundreds of thousands of reservists, including many who are employed by startups at home and abroad, as the nation responds to a sudden attack by Palestinian militants over the weekend. More than 900 Israelis have been confirmed dead, according to Israeli authorities. According to the Health Ministry in Gaza, 687 Palestinians have been killed as Israel strikes back.

Israel Companies Look to Keep Operations Running After Hamas Attack

Companies in Israel are working to keep their businesses open after Hamas launched a surprise attack on the country over the weekend. Some have closed offices or reduced capacity at specific locations, but others have said their activities remain unaffected by the fighting.

Here is a list of reactions from Israeli companies:

GLOBAL NEWS

Why the Israel-Hamas War Matters for Investors

Markets on Monday morning reacted perfectly logically to the most serious attack on Israel in 50 years and the deaths of more than 1,000 Israelis and Palestinians. Oil prices initially rose 3% or so, stock futures fell a bit, gold was up about 1% and Treasury futures rose, lowering yields.

When it comes to the bottom line, even disaster for millions of people doesn't much matter, and moves in both stocks and Treasurys were smaller than after Friday's jobs report. It is a brutal truth: The carnage turned out to be less important for markets than a single set of data from the Bureau of Labor Statistics.

An Israel-Hamas war could change what the Fed does about interest rates

The unfolding conflict between Israel and Hamas has financial markets weighing how a war in the Middle East may impact the Federal Reserve's next policy steps.

For now, fed funds futures traders see a higher chance of no further action by the Federal Reserve this year. They boosted the likelihood of a pause in November to 88.5% from 72.9% a day ago, and of no action by December to 74% from 57.6%, according to the CME FedWatch Tool. That would leave the Fed's main interest-rate target at a 22-year high of between 5.25%-5.5%.

Israel Goes on Offensive Against Hamas as U.S. Warns Hezbollah Not to Engage

ALONG THE ISRAEL-GAZA BORDER-Israel prepared for what could be an extended ground assault in the Gaza Strip, and the Pentagon warned Iran and the Lebanese militant group Hezbollah to "think twice" before joining the conflict and said it was prepared to come to Israel's defense.

Dozens of tanks and hundreds of Israeli soldiers fanned out along the Gaza Strip border Monday, while Hamas threatened to execute Israeli hostages it seized some 48 hours earlier during a devastating invasion.

Biden Interviewed by Special Counsel Regarding Classified Documents

WASHINGTON-President Biden has been interviewed by the special counsel probing why classified documents ended up at his home and an office he once used, the White House said Monday, a sign the investigation is entering its late stages as the 2024 presidential campaign heats up.

"The voluntary interview was conducted at the White House over two days, Sunday and Monday, and concluded Monday," White House spokesman Ian Sams said in a statement.

House Republicans Air Grievances Headed Into Speaker Vote

WASHINGTON-House Republicans struggled to find unity on a path to electing a new speaker, as members vented their frustrations over the party's disarray ahead of a planned conference vote later this week.

Roughly 150 lawmakers met behind closed doors on Monday night, kicking off what they hope will be a quick process to find a successor to Kevin McCarthy (R., Calif.), ousted last week by eight rebel Republicans who voted with Democrats.

Threat to Israel From Hezbollah and Iran Raises Risk of Wider Conflict

As Israel combats the Palestinian Islamist movement Hamas in the Gaza Strip, it faces the strategic question of whether Iran will direct its other protégé, the Lebanese Hezbollah, to open a second front in the north.

Hezbollah and Israel have already engaged in limited artillery exchanges that, according to the militant group, Monday killed three of its fighters. Hezbollah said it struck two Israeli military bases near the border using guided missiles and mortars, while the Pentagon warned the group to "think twice" before opening a second front and said the U.S. was prepared to come to Israel's defense.

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

(END) Dow Jones Newswires

10-10-23 0539ET