European shares struggled for momentum on Thursday in a largely cautious session, with traders eyeing a subdued open on Wall Street.
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 HSBC’s economists.
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 recession.
"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 sessions.
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 4.160%.
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 interest-rate rises.
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 said.
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 finances."
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, Rising Costs
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 month.
Credit Suisse’s Woes Don’t Make for a Lehman Moment — Analysis
European banks aren’t at risk of facing a Lehman-style crash.
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 prices.
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 others.
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 Backdrop
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 challenging.
(MORE TO FOLLOW) Dow Jones Newswires
October 06, 2022 05:51 ET (09:51 GMT)
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.
© Copyright 2022 Morningstar, Inc. All rights reserved. Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time.