MARKET WRAPS

Watch For:

ECB interest rate announcement, EU Summit; trading updates from Standard Chartered, Volkswagen, BNP Paribas, Schneider Electric, Danone, TotalEnergies, Universal Music Group, STMicroelectronics, Swedbank, Saab, WPP, Unilever, Renishaw, Mercedes-Benz, Repsol, Sodexo, EDP, Unicredit, Atos, Vinci, Saint-Gobain, Iberdrola

Opening Call:

Stock futures are lower in tandem with declines in Asian benchmarks. The dollar gains; Treasurys are mixed; while gold advances and oil futures decline.

Equities:

European stock futures are tracking lower ahead of the European Central Bank's rate decision and U.S. advance estimate 3Q GDP data.

The ECB is likely to stay pat on rates, OCBC analysts said, adding that the market will focus on Lagarde's press conference, especially her assessment of inflation risks including the Israel-Hamas war.

U.S. stock indexes ended sharply lower Wednesday led by a slide in technology shares after behemoths Alphabet and Microsoft delivered a mixed picture of earnings.

Longer-dated Treasury yields also resumed their march higher ahead of inflation data on Friday and interest-rate decisions by the Federal Reserve next week.

Tim Urbanowicz, head of research and investment strategy at Innovator ETFs, said despite good news so far in the third-quarter earnings season, investors need to back up and remember they are in a macro driven market.

"A lot of the earnings news will take a backseat to the economic data," he said.

"With bond yields coming back up, people are uncertain about whether bond yields are going to take a pause here or go higher," said Phillip Colmar, managing partner and global strategist at MRB Partners.

That's why investors are taking some profits off of tech stocks, which went up the most this year, Colmar said.

Some investors said the market was due for a turbulent stretch after the S&P 500 and Nasdaq climbed for much of the year.

"This volatility that we're seeing in the market is nothing unusual," said Larry Adam, chief investment officer at Raymond James.

Still, Adam said he expected bond yields to moderate and for the economy to slow in coming months.

Forex:

The dollar gained early Thursday amid mostly higher Treasury yields, which increased the allure of U.S. fixed-income denominated assets and demand for the greenback.

Focus is on U.S. advance estimate 3Q GDP data due later today, analysts said.

There is a risk that if the figures surprise to the upside, that will send U.S. bond yields and USD even higher, said Carol Kong, economist and currency strategist at CBA.

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USD/JPY could trade in a new 150-152 range, without a BOJ policy change, and with USD remaining firm amid strong economic data, said Chang Wei Liang, FX & credit strategist at DBS Group Research.

Although media reports suggest the BOJ might raise its FY 2023 inflation forecast and consider a policy tweak at next week's meeting, potential policy adjustments are less likely at this stage, given the yield-curve-control policy tweak that was just done in July, the strategist added.

USD/JPY touched 150.48 early Thursday, the highest intraday level since October 2022, according to FactSet.

Bonds:

Treasury yields were mixed in Asia as investors await U.S. economic growth and inflation data.

A reading on third-quarter GDP is due Thursday, followed by the Fed's preferred inflation gauge, the PCE index, on Friday.

The U.S. economy likely grew 5% in the third quarter - defying widespread expectations for a slowdown.

Economists polled by The Wall Street Journal expect core PCE readings to come in at 0.3% for September and 3.7% on a year-over-year basis.

"The volatile nature of market conditions has left a number of question marks regarding monetary policy as the Fed rapidly approaches its next policy decision on Nov. 1. At this point, market participants are convinced the Fed will remain on the sideline, but Chair Powell was clear that further rate hikes remain a possibility if inflation concerns remain, increasing the focus on this week's PCE report released on Friday," said economists Lindsey Piegza and Lauren Henderson of Stifel, Nicolaus & Co.

Markets have priced in a 97.1% probability that the Fed will leave interest rates unchanged between 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool.

Energy:

Oil futures were lower on easing geopolitical tensions.

"Geopolitical risks will simmer but for now the easing of war escalation fears have kept oil prices under pressure," Oanda analyst Edward Moya said, after reports that Israel has agreed to delay its invasion of Gaza.

Oil is vulnerable to further selling pressure, especially if a strong dollar trade returns, he adds.

Meanwhile, a weekly report by the Energy Information Administration on Wednesday showed that U.S. oil stockpiles rose unexpectedly, with the headline stockpile build at 1.37 million barrels versus the consensus estimate for a 477,000 barrel decline.

"Trading is being driven more by global factors like political developments in the Middle East more than weekly inventory data," said Colin Cieszynski, chief market strategist at SIA Wealth Management.

At this point, oil continues to attract significant support above the $75 to $80 level, and "unless something significant happens on the supply, demand or political side, this upward trend remains intact," he said.

Metals:

Gold ticked higher in Asia after declining overnight.

Easing concerns that the Israel-Hamas conflict will escalate has triggered the unwinding of safe-haven bets lately, Oanda said.

However, gold should remain volatile over the next week, potentially reaching the $1,950 level on the downside, with major resistance residing at the psychological $2,000 level, it said.

Despite the recent softness in gold prices, there are plenty of market risks on the table, with two wars and sticky global inflation, it added.

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Copper prices were lower in Asia amid disappointment with China's recent stimulus measures, ANZ analysts said.

Chinese authorities on Tuesday issued additional sovereign debt and raised the budget deficit ratio.

Weak European economic data was also weighing on sentiment, with the eurozone composite purchasing managers index hitting its lowest point in nearly three years, the analysts added.

BHP chief economist Huw McKay has also said that the global copper market is currently in surplus but warned of a supply squeeze later this decade as demand expands to meet the needs of the energy transition.

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Iron ore futures were mostly lower.

Steel demand has somewhat been challenged, owing to headwinds from China's property sector, BofA's global commodity research team said.

Although activity in the property sector should normalize on recent government measures, housing demand in square meters will likely contract by 3% a year until the end of the decade, the team said.


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10-26-23 0014ET