MARKET WRAPS
Stocks:
European stocks were back in negative territory on Tuesday, but losses were limited, reflecting tentative hopes the Israel-Hamas conflict wouldn't have a major impact on the global economy.
While conditions remained tense in the Middle East, investors expressed some relief that the conflict had yet to escalate into an even worse geopolitical crisis.
"The recent risk-off sentiment that had cast a shadow over the markets seems to be easing, partly due to extensive shuttle diplomacy by the White House and other regional actors," SPI Asset Management said.
"Nevertheless, this optimism comes before Israel launches its ground offensive in Gaza, and this development could swiftly sour sentiment once more."
U.S. Markets:
Stock futures wavered and Treasury yields ground higher, as earnings season revs up again with results due from Bank of America, Goldman Sachs, J&J and Lockheed Martin. Retail-sales data for September are also due before the opening bell.
Forex:
Most key U.S. economic indicators have exceeded expectations thus far in October, underscoring the continuing strength of the U.S. economy and supporting demand for the dollar, Danske Bank Research said.
However, there was a risk the dollar could start to weaken "due to fewer positive economic surprises from the U.S. in the near-term," Danske added.
"While we maintain our strategic case for a lower EUR/USD, we still see potential for USD weakness."
U.S. retail sales data at 1230 GMT could turn out to be the most significant data release this week, Danske said.
Sterling fell after data showed U.K. wage growth edged lower in August , albeit from high levels, enough to further dent prospects of the Bank of England raising rates any further, ING said.
IG added that sterling ticked lower given the market was still pricing in further monetary tightening from the BOE.
The focus now turns to Wednesday's U.K. CPI inflation data where a softer reading could see EUR/GBP rise to 0.8700, ING said.
Bonds:
Eurozone government bond yields edged higher ahead of heavy issuance from Germany, Finland, the Netherlands and Spain as well as the German ZEW economic sentiment index.
"The [issuance] menu is very heterogeneous and includes short and long-dated bonds, nominal and inflation-linked bonds and conventional and green securities," UniCredit Research said.
As for the ZEW index, the growth-expectations component is expected to rise slightly. "The major trigger is likely to be survey participants' anticipation of a bottoming out in the German economy at the turn of the year, followed by a slight recovery," UniCredit said.
Separately, UniCredit said the average green premium on eurozone green government bonds has increased slightly in the past few months and now stands at 3 basis points.
Energy:
Brent crude futures held steady in early trading, with investors nervously watching events unfold in the Middle East.
"Markets seem to be taking the geopolitical risk session by session at the moment, rather than having any strategic sense of where things are heading," Deutsche Bank said.
"It feels like we're in a very dangerous and delicate holding pattern for now, but with no major developments since the Israeli evacuation notice to Gaza residents on Friday, markets have taken off their weekend hedges over the last 24 hours or so."
European natural-gas prices fell more than 2% despite worries over supply problems in the Middle East, with Goldman Sachs saying Israeli gas disruption was not impacting LNG supplies yet.
Metals:
Gold prices could move to an all-time high in 2024, supported by the possibility of a weaker dollar combined with rate cuts from the Federal Reserve, according to the World Gold Council.
"When the Fed starts cutting, gold will do well. If the dollar is weak, gold will do very well."
It added that gold prices are currently high and any rise would be coming from a high base helping to support the precious metal.
Chinese stimulus hopes are giving iron-ore prices another boost , Commonwealth Bank of Australia said, after a 1.7% rise in the spot price on Monday to $120.15/metric ton.
CBA said a liquidity injection by China's central bank has fueled expectations that China will boost infrastructure spending this year. Iron ore is the main ingredient needed for steelmaking.
DOW JONES NEWSPLUS
EMEA HEADLINES
Ericsson Cautions on Networks Business Recovery, Removes Margin Guidance
Ericsson removed key margin guidance after warning that current uncertainty in its mobile networks business will persist into 2024.
The Swedish telecommunications-equipment company said on Tuesday that it expects macroeconomic uncertainty to persist into 2024, impacting its customers' investment ability. As a result it removed previous messaging that it expects to reach the low end of its targeted 15%-18% earnings before interest, tax, and amortization margin range by 2024.
UK Wage Growth Cooled in Three Months to August, Easing Pressure on Bank of England
Wage growth in the U.K. moderated slightly in the three months to August, easing the pressure on the Bank of England to hold interest rates at their current level.
Annual growth in average weekly earnings excluding bonuses was 7.8% in June to August, according to data from the Office for National Statistics published Tuesday, matching a consensus of economists polled by The Wall Street Journal.
Lonza Warns on 2024 Profitability Hit From Lost Moderna Revenue
Lonza Group warned that its profitability will take a hit next year from losing revenue from an agreement with Moderna and the risk of a smaller business with Kodiak Sciences.
The Swiss life-sciences company said Tuesday that it expects a profit margin "in the high twenties" percentage range for 2024. The company expects its core earnings before interest, taxes, depreciation and amortization margin for 2023 will be above the 28% to 29% range it had previously indicated.
Rolls-Royce to Cut 2,000-2,500 Jobs Globally in Strategic Overhaul
Rolls-Royce Holdings is set to cut 2,000-2,500 jobs worldwide as part of a transformation program and strategy review.
The U.K.-based aircraft engine manufacturer, which outlined the review plan in January, said Tuesday that the new structure will create a more agile business better able to serve customers, deliver cost efficiencies, and help it improve its capabilities in areas such as procurement and supply-chain management.
Umicore to Supply EV Battery Materials to AESC's US Sites
Umicore signed a ten-year agreement to supply materials for the production of electric-vehicle batteries at manufacturer AESC's U.S. sites.
The Belgian chemical company said late Monday that the contract for the supply of battery materials with a high content of nickel diversifies its EV exposure, and supports AESC's growth plans in the region.
GLOBAL NEWS
Bond Yields Are Rising Quickly. Why the Fed Is Getting Worried.
Call it the mystery of the rising 10-year yield-and it's led investors straight to the so-called 'Treasury Term Premium.'
What's the term premium? It's a theoretical representation of the amount of extra yield investors are demanding to compensate for the risks associated with buying a 10-year long-term government bond rather than simply rolling over their bills for a decade. In other words, it's not based on the expected level of inflation, but on the risk that comes with holding a longer-dated Treasury note or bond.
China Property Bonds Looked Cheap at 20 Cents on the Dollar. They Weren't.
China's property market meltdown created a multibillion-dollar opportunity for distressed-debt investors. It hasn't paid off.
The country's real-estate sector is reeling from a yearslong slowdown that has put strains on the economy, sparked widespread protests and triggered defaults on around $81 billion of Chinese developers' international bonds between 2021 and 2022, according to figures from S&P Global Ratings.
Biden to Visit Israel as U.S. Push for Border Opening Stalls
President Biden will visit Israel on Wednesday to reinforce his support for America's closest ally in the Middle East, as Israel's leadership gears up for a ground offensive in the Gaza Strip that has raised the risks of a regional war against Iran-backed militant groups.
A presidential trip ahead of Israel's looming ground offensive into the Gaza Strip comes with an array of political and security challenges. It also comes amid mounting concerns over a broader Middle East conflict and a worsening humanitarian crisis in Gaza, which has been under siege by the Israeli government following an Oct. 7 terrorist attack by Hamas on southern Israel.
War in the Middle East Challenges Biden's Defense Strategy
TEL AVIV-The war between Hamas and Israel is forcing the Biden administration to send more forces and military capabilities back into the region, once again refocusing American policy on the Middle East at a time when it has been hoping to concentrate on potential threats from China and Russia.
Fearing that the conflict set off by Hamas's Oct. 7 attack on Israel could widen, including by drawing in Hezbollah in Lebanon, the Biden administration in the past week has re-established some of its military footprint in the region.
U.S. Efforts to Divide Russia and China Falter as Vladimir Putin Arrives in Beijing
BEIJING-Inside the Great Hall of the People here last week, Senate Majority Leader Chuck Schumer (D., N.Y.) implored leader Xi Jinping to distance himself from Russian President Vladimir Putin, arguing that Putin, a pariah in the West, was holding back China's ambitions.
Instead of heeding that advice, China on Tuesday welcomed Putin to Beijing with open arms, in the Russian leader's first major visit abroad since the International Criminal Court accused him of committing war crimes in Ukraine.
Russia Goes on the Offense in Ukraine-and Suffers Heavy Losses
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10-17-23 0528ET
