MARKET WRAPS

Watch For:

EU PPI, services PMI, retail trade; Germany services PMI; France services PMI; Italy revised GDP, services PMI, general govt quarterly accounts; UK services PMI, official reserves, CBI Financial Services Survey; trading updates from Tesco, SSE, Land Securities Group

Opening Call:

European stocks may track Asian peers lower as a bond selloff intensifies. In Asia, the dollar strengthened; long-dated Treasurys pushed higher; while oil and gold futures fell.

Equities:

European shares look set to extend declines after upbeat U.S. jobs data drove up Treasury yields and rate-hike speculation overnight.

The newest jobs numbers "underpinned the narrative that the labor market remained solid," said Quincy Krosby, chief global strategist at LPL Financial. Job seekers able to negotiate higher wages are a challenge for the Federal Reserve trying to address inflation with its benchmark rate, she noted.

What's "hovering over the market is the uncertainty as to how high we can expect rates to go," Krosby said. The other question is how high Treasury yields go, she noted. "It is the speed at which these rates have risen that have jolted the market."

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Meanwhile, there are three clear drivers for global mining stocks heading into year-end, said Jefferies, who expect iron ore and coal miners to outperform metals producers.

First is whether China rolls out more substantial stimulus that stabilizes or lifts its housing market. That is not something that's expected by Jefferies, nor does it appear priced in by the broader market.

"The second key fundamental factor is whether the U.S. economy begins to meaningfully slow," Jefferies said. "Our analysis indicates that mining equities are discounting a weakening U.S. economy."

The third driver will be seasonal supply risks that typically ramp up from December, the bank said, adding: "Watch out for M&A as well."

Forex:

The dollar edged higher early Wednesday. Sentiment is becoming increasingly shaky amid the jump in long-end Treasury yields, said DBS.

The combination of high yields and strong USD is driving U.S. equity markets lower while putting considerable pressure on emerging-market assets, DBS added.

Bonds:

Long-dated Treasury yields established new multiyear highs overnight. Investors continued to sell off Treasurys largely because of continued resilience in the U.S. economy and investors' demand for greater compensation to hold government debt to maturity.

"As many investors remain sidelined in anticipation of an inflection point that reveals financial markets and the real economy won't easily absorb the current magnitude of the backup in rates, there is little incentive to step in front of the selloff," said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.

"We'll be the first to acknowledge how tiresome it's become waiting for the proverbial next shoe to drop. So much so that we've grown sympathetic to investors' increasing willingness to buy into the no-landing narrative; after all, nothing has gone awry... yet," they said.

Energy:

Oil futures edged lower in Asia. Although prospects of tighter monetary policy from the Fed raise concerns for oil demand, supply cuts by OPEC+ are still the key driving factor for oil prices, ANZ said.

The recent retreat in oil prices could be a reason for the cartel to keep their supply cuts unchanged at a meeting on Wednesday, ANZ said.

Read: Oil rally shows 'OPEC+ plan has been working' as investors await next Saudi move

Metals:

Gold futures fell slightly early Wednesday. Gold came under renewed pressure after U.S. job openings unexpectedly increased in August, ANZ said.

"Strong US economic data, along with rising energy prices, raised expectations of a tighter monetary policy to sustain for longer," ANZ added.

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Copper declined amid demand concerns. A market-led tightening is weighing on commodities demand, said TD Securities.

Prices are approaching capitulation levels, now likely nearing levels that could prompt more large-scale selling by commodity trading advisors, TD added.

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Lithium prices might have another 20% to fall in the near term, although price weakness over the next 12-18 months could set the market up for a strong rebound over the longer run by potentially delaying supply growth, Citi said.

For now, lithium is likely to be weighed by soft demand, high inventories and improved supply, said Citi.


TODAY'S TOP HEADLINES

Bond Selloff Threatens Hopes for Economy's Soft Landing

A sudden surge in long-term interest rates to 16-year highs is threatening hopes for an economic soft landing, all the more because the exact triggers for the move are unclear.

The Federal Reserve has been raising short-term rates for 1 1/2 years. Those increases are designed to push up longer-term bond yields, combating inflation by slowing the economy. But the speed of the latest jump might be a case of "be careful what you wish for." It comes as inflation has eased and the Fed has signaled it is nearly done lifting rates.


Despite Economic Risks, Companies Are Hanging On to the Workers They Have

Everybody knows the U.S. economy faces significant headwinds in the fourth quarter. That includes employers, though they are still showing little inclination to batten down the hatches.

On Tuesday, the Labor Department reported that there were a seasonally adjusted 9.6 million job openings at the end of August, up from July's 8.9 million. With that, the number of job openings per person counted as unemployed remained around 1.5. That compares with an average of about 1.2 in the prepandemic year of 2019.


Congressional U.S.-China Commissioner Warns of Global Tech Supply Chain Risk

Companies must prepare for the possible escalation of hostilities between the U.S. and China, partly by building more resilient global technology supply chains, said Jacob Helberg, a member of the U.S.-China Economic and Security Review Commission.

"National security people in Washington actually see a probably more than 50% chance of a hot conflict with China break out, potentially, in the next five years," Helberg said Monday during an interview at The Wall Street Journal's CIO Network Summit in New York.


When Will the Fed Stop Raising Rates? That's the Trillion-Dollar Question for Bond Investors

Asset managers have been counting on what BlackRock calls a "generational opportunity" in the bond market, now that yields are at decade-plus highs.

Investors ranging from pension funds to retirement savers should be buying longer-term bonds to lock in higher rates, their thinking goes, spurring a flood of inflows to bond funds. BlackRock, for one, has projected assets under management at its bond exchange-traded funds to triple to $2.5 trillion by 2030.


Some Americans Jailed in Russia Fear Being Left Behind

When Marc Fogel, a teacher at the Anglo-American School of Moscow, was sentenced to 14 years in prison after being convicted of marijuana smuggling last year, he joined a growing number of Americans held in Russia.

Fogel had transported roughly 17 grams of marijuana on a flight into Russia. He said he intended to use the drug for medical purposes to treat chronic pain. Fogel's Russian lawyer, Dmitry Ovsyannikov, said in an interview with The Wall Street Journal that the sentence was significantly longer than those given for similar offenses, which Ovsyannikov said suggested a political motive. U.S. Embassy staffers have for decades sent their children to the school where Fogel taught.


European Telecoms, Big Tech Clash as EU Weighs Network Cost-Sharing Plan

A fight is brewing in Europe over who should pay for telecommunications networks as the European Union considers making big tech companies help shoulder the costs.

Executives of 20 European telecom companies urged the EU to revise the regulatory framework of the industry to ensure big tech contributes to funding network infrastructure, in an open letter published Monday. The letter counted among its signatories Deutsche Telekom's Timotheus Hoettges, Orange's Christel Heydemann, Vodafone Group's Margherita Della Valle, and Telefonica's Jose Maria Alvarez-Pallete.


Intel to Split Off Specialized Chip Business as CEO Pursues Turnaround

Intel intends to sell a stake in a division that makes programmable chips widely used in the defense and telecommunications industries as Chief Executive Pat Gelsinger pushes forward with the company's far-reaching and expensive turnaround bid.

The semiconductor giant said the unit, which makes chips that can be reprogrammed after they are manufactured, would begin to operate as an independent entity on Jan. 1, with a plan to sell shares in an IPO within two to three years.


Amazon Used Secret 'Project Nessie' Algorithm to Raise Prices

https://urldefense.com/v3/__http://Amazon.com__;!!F0Stn7g!ATGrg31p-ceJ-ExTeabO7ZbH_UOh6CZX0af-OGn0ftk-8L96XbtUOnPbNyD09z2IZN4esNNtk48QqWGfBFHp6dqwu8vuR09C8lOftK1WExo$ used an algorithm code-named "Project Nessie" to test how much it could raise prices in a way that competitors would follow, according to redacted portions of the Federal Trade Commission's monopoly lawsuit against the company.

The algorithm helped Amazon improve its profit on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more, according to people familiar with the allegations in the complaint. In instances where competitors didn't raise their prices to Amazon's level, the algorithm-which is no longer in use-automatically returned the item to its normal price point.


Senators Probe TikTok's Executive Transfers From ByteDance

Sens. Marsha Blackburn and Richard Blumenthal are seeking information about TikTok's executive transfers from ByteDance, its China-based parent company.

(MORE TO FOLLOW) Dow Jones Newswires

10-04-23 0016ET