EMEA Morning Briefing: Stocks to Open Higher After S&P 500 Snaps Losing Streak

MARKET WRAPS

Watch For:

Ifo Joint Economic Forecast of German economic research institutes; ECB's Elderson speaks; updates from Galp Energia, Vinci, easyJet.

Opening Call:

Stocks should open higher after U.S. stocks rose in a choppy session. Dollar weakened against major currencies. Oil rose, gold edges lower, and zinc advanced.

Equities:

European stocks are set tp rise in early trade Thursday after the S&P 500 rose in choppy trading to snap a three- session losing streak.

In the U.S., traders seemed to shrug off a hotter-than-expected inflation reading and confirmation of the Federal Reserve's plans to begin reducing its bond-buying stimulus program.

Monetary stimulus, government spending and effective Covid-19 vaccines have helped power the economy and send the S&P 500 up 95% from its March 2020 low. But lately concerns over supply-chain problems, rising government bond yields and rallying oil prices have dented the mood, leaving the U.S. stock benchmark off 3.8% from its early-September record.

"We're moving into this middle part of the market cycle where fundamentals become a lot more important than macro factors," said Emily Roland, co-chief investment strategist at John Hancock Investment Management. "The markets are going through some growing pains."

Investors worry that rising inflation will eat into corporate profit margins and potentially spur the Federal Reserve to accelerate its plans to lift interest rates. "I think the Fed might be forced to raise rates quicker than they want to," said Carter Henderson, portfolio manager at Fort Pitt Capital Group. "Inflation, in my eyes, is not transitory."

Stocks to Watch: Zurich Insurance is expected to show momentum in its third-quarter underwriting results, Morgan Stanley said. The bank ticked up its earnings-per-share forecast by 0.3% ahead of Zurich's nine-month update on slightly adjusted revenue.

The Swiss insurer's business model should be resilient if economic conditions worsen, but it is also a stock that can perform well if the macroeconomic backdrop improves, MS added.

The bank raises its target price to CHF450 from CHF440 as a result of movements in the CHF/USD exchange rate. Zurich is due release its 9-month update on Nov. 11.

Changes to Salvatore Ferragamo's executive team should enhance management at the Italian luxury-goods company ahead of the arrival of a new CEO, Stifel said.

Ferragamo said Tuesday that it was appointing Daniella Vitale and Vincenzo Equestre to lead its North America and EMEA businesses, respectively. The pair's track records at brands including Gucci, Tiffany, L'Oreal and LVMH will strengthen the company and smooth the integration of Marco Gobbetti, who is due to take the reins after leaving U.K. fashion firm Burberry, Stifel said.

A new creative director to fill the current vacancy would be a fresh positive for Ferragamo, the financial-services firm adds; some observers have pointed to Gobbetti's colleague at Burberry, Riccardo Tisci, as a strong candidate.

Forex:

The dollar was weaker against major currencies, including 0.4% against the euro and 0.1% against the yen. The dollar has softened since release of inflation data that Cambridge Global Payments' Karl Schamotta said has outpaced forecasts and is at its highest since 2008. "Market-implied odds on a rate hike by the end of 2022--near 90 percent--remain essentially unmoved."

While many central bankers remain convinced inflation will subside as supply-chain issues are resolved, Schamotta said, doubts are clearly creeping in--notably from Atlanta Fed President Raphael Bostic, who's discontinuing use of " transitory" to describe the current run of inflation. Schamotta added:

"It is becoming increasingly clear that the feature of this episode that has animated price pressures--mainly the intense and widespread supply-chain disruptions--will not be brief."

Cryptocurrency regulation needs to be treated as a matter of urgency as the sector continues to expand at a rapid pace, Bank of England Deputy Governor Jon Cunliffe said.

"Financial stability risks currently are relatively limited but they could grow very rapidly if, as I expect, this area continues to develop and expand at pace," he said in a speech to the to the SIBOS conference.

"How large those risks could grow will depend in no small part on the nature and on the speed of the response by regulatory and supervisory authorities." Bitcoin fell 3.6% to $54,925 and Ethereum dropped 2.6% to $3,438, according to CoinDesk on Wednesday.

Bonds:

The gap between yields on shorter- and longer-term Treasurys narrowed Wednesday after data showed inflation accelerated slightly in September, fueled by investors' bets that the Federal Reserve may need to tighten monetary policy sooner than expected.

Yields on longer-term Treasurys retraced an initial climb and headed lower after Labor Department data showed the U.S. consumer-price index rose 0.4% on a seasonally adjusted basis in September, up from 0.3% in August. Economists surveyed by The Wall Street Journal had expected 0.3%.

The narrowing gap between shorter- and longer-term yields suggests investors expect that the Fed might increase rates faster than they previously anticipated, which could slow growth further out in the future. Central-bank officials have said that much of the recent pickup in inflation is temporary and expect it to moderate in the years ahead, particularly as supply-chain bottlenecks ease.

"There's a lot more sensitivity to inflation data now," said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. "The market is becoming more and more concerned that we are getting an inflationary shock."

Energy:

Oil rose after American Petroleum Institute data showed Cushing crude oil inventories fell 2.3 million barrels in the latest week. The market appears more focused on the fairly large draws seen in Cushing as well as on the product side, ING said.

Metals:

Gold was slightly lower on a likely technical correction in the early Asian session after gold futures surged 2% on Wednesday. Gold has tentative resistance at $1,800/oz, but that might not prove to be too difficult to break if risk aversion runs wild, Oanda said.

Safe-haven flows are beginning to come gold's way, whether it's speculation of a tariff announcement from the Biden administration or rising interest rates that will destabilize the recovery of many emerging markets, Oanda added.

Zinc advanced in the Asian morning session amid supply woes. Nyrstar, one of the world's largest zinc producers, said Wednesday it will curtail output further at its three European smelters in response to surging energy prices, cutting production by up to 50%.

This follows Nyrstar's announcement last week that it cut production at its smelter in the Netherlands, ING said, estimating there could be around 40,000 to 50,000 tons of losses of zinc metal per month. Three-month LME zinc futures were up 1.0% at $3,434.00 a ton.

TODAY'S TOP HEADLINES

China's September Producer Prices Rose at Fastest Pace in Over 20 Years

BEIJING-China's factory-gate prices in September rose at their fastest pace in more than two decades.

The producer-price index rose 10.7% from a year earlier in September, accelerating from the 9.5% increase in August, boosted by soaring prices of raw materials, the National Bureau of Statistics said Thursday. The reading beat the expectation of economists polled by The Wall Street Journal, who had forecast PPI to rise 10.4%.

Fed Official Sees Risks of More Persistent Inflation

A Federal Reserve official warned in a speech Wednesday night of growing risks that supply-chain disruptions could keep inflation elevated for longer than forecasters have anticipated.

While monthly inflation readings should decline from high rates observed in the spring, "I still see a material risk that supply-related pricing pressures could last longer than expected," said Fed governor Michelle Bowman in remarks prepared for delivery at South Dakota State University in Brookings, S.D.

Fed Worried About Inflation Risk as It Firmed Up Tapering Plan

Federal Reserve officials last month worried that disrupted supply chains were raising the risks of more persistent inflation as they firmed up plans to reduce their bond-buying stimulus program next month and conclude it by the middle of next year.

Minutes of their Sept. 21-22 Fed meeting, released Wednesday, revealed a stronger consensus over scaling back the $120 billion in monthly purchases of Treasury and mortgage securities amid signs that higher inflation and strong demand could call for tighter monetary policy next year. The bond purchases have been a key piece of the Fed's effort to stimulate growth since the coronavirus pandemic disrupted the U.S. economy last year.

Singapore Central Bank Surprises With Policy Tightening

Singapore's central bank unexpectedly tightened its currency policy to cushion against inflationary pressures arising from strengthening global demand amid a global supply-chain crunch.

The Monetary Authority of Singapore said Thursday that it will "slightly" increase the slope of the Singapore dollar nominal effective exchange rate policy band from the current slope of zero.

Australia Faces Rising Divestment Risk Without Action on Climate, Says RBA

SYDNEY--Failure by Australia to fully recognize shifting appetite in global markets for government and corporate action on climate increasingly risks divestment by foreign firms and rising costs of capital in the future, the Reserve Bank of Australia said Thursday.

Guy Debelle, deputy governor of the Reserve Bank of Australia, said issues of climate and the cost of capital now regularly feature in conversations he has with foreign investors.

Post-Covid Global Economy Falters Due to Inflation and Supply-Chain Woes

The outlook for the global economy darkened as a stream of data from Europe and Asia suggested growth faltered in the third quarter, hobbled by world-wide supply-chain snarls, sharply accelerating inflation and the impact of the highly contagious Delta variant.

From Sweden and the U.K. to Germany and Japan, jammed-up ports and bottlenecks in the global flow of raw materials and components have rocked manufacturers, causing factories to halt production and executives to warn customers they will have to wait for urgently needed goods.

Gas Crisis Prompts Fresh Proposals From EU

The European Union is considering new measures, including joint purchases of gas to build up the bloc's strategic reserves, to help alleviate future energy crises like one the continent now faces.

The European Commission, the EU's executive arm, laid out various actions on Wednesday that could be taken at EU or national level to prevent energy price shocks, as political pressure builds on member governments to stem the higher costs.

Bow and Arrows Attack in Norway Leaves at Least Five Dead, Two Injured

At least five people have been killed and two injured in Norway by a man wielding a bow and arrows, police said Wednesday evening.

The attack began after 6 p.m. local time at a supermarket in the town of Kongsberg near the capital Oslo, where the suspect shot arrows at shoppers and passersby, a police spokesman said.

Gas Crisis Prompts Fresh Proposals From EU

The European Union is considering new measures, including joint purchases of gas to build up the bloc's strategic reserves, to help alleviate future energy crises like one the continent now faces.

The European Commission, the EU's executive arm, laid out various actions on Wednesday that could be taken at EU or national level to prevent energy price shocks, as political pressure builds on member governments to stem the higher costs.

Going Green Is Europe's Shale Revolution

The shale revolution gave the U.S. energy independence. Europe wants the same thing from green energy-all the more so as natural-gas prices skyrocket.

Europe is in the midst of an energy crisis, with concerns about gas shortages if the winter is cold. On Wednesday, Russian President Vladimir Putinrejected assertions that Moscow is weaponizing energy, blaming the current shortage partly on the diversion of U.S. liquefied natural gas to Asia, where prices are higher. Speaking at a conference in Moscow, he said Russia had increased gas supplies to Europe this year and could provide more, adding that quick approval of the controversial Nord Stream 2 pipeline could help rebalance the market.

Rio Tinto Developing Process to Use Biomass for Making Steel

Rio Tinto PLC said it is developing a way for biomass to replace coking coal in steelmaking as the mining giant seeks to safeguard demand for iron ore, its most lucrative business.

The world's second largest mining company by market value is testing a process at a small-scale pilot plant in Germany, which uses raw biomass with microwave technology to convert iron ore to metallic iron without the need for coal.

Alitalia, Once a Carrier of the Jet Set, Nears Its Last Flight

MILAN-Alitalia, the airline that for years symbolized Italy's postwar boom and la dolce vita, is slated to fly its last flight Thursday, after the Covid-19 pandemic delivered a final blow to a company propped up by the country's governments for years.

The 75-year-old national flag carrier-which in the late 1960s was Europe's third largest, behind British Airways and Air France-has been in an Italian version of bankruptcy protection since 2017. It hasn't turned an annual profit in two decades, long struggling with competition from low-cost airlines and its own high-cost, and strike-prone, workforce. Those troubles have continued almost to the very end: A strike this week led to the cancellation of more than 100 flights.

Russia Shows Its Growing Sway Over Global Energy Markets

MOSCOW-The natural gas shortage that drove prices to records in Europe has exposed Russia's rising leverage over global energy markets, with Moscow now playing a key role in everything from OPEC negotiations to coal exports to China.

Russia, the world's largest exporter of gas and the source of more than a third of Europe's gas, has emerged as a critical supplier with the power to quickly alleviate the continent's gas deficit.

LVMH Sends Mixed Signals on Chinese Luxury Spending

Aspirational consumers across the world continue to snap up Louis Vuitton handbags in record numbers. But the latest results from the brand's owner, LVMH, didn't give investors all the answers they wanted.

After the market closed in Paris on Tuesday, LVMH Moët Hennessy Louis Vuitton said sales in the three months through September increased 20% on the year. More impressively, sales were 11% higher than in the comparable period of pre-pandemic 2019. Business did slow in some regions after a bumper second quarter, but overall demand is still strong- LVMH's U.S. sales even increased 22% versus the comparable period of 2019. The stock rose just under 2% in early European trading Wednesday.

France Says Companies Colluded to Not Disclose Chemical in Food Packaging

France has accused more than 100 companies, including units of Nestlé SA, of colluding not to disclose information to consumers about the presence of a chemical in food packaging that some scientists say could be harmful.

The French competition authority late Tuesday said it had sent a statement of objections, a kind of indictment, to 101 companies and 14 trade associations alleging that they had "agreed not to communicate on the presence or on the composition of certain materials in contact with food, to the detriment of consumers."

Facebook Limits Employee Access to Some Internal Discussion Groups

Facebook Inc. has told employees it is tightening controls over some internal discussion groups, a move that comes after Frances Haugen, a former employee, gathered documents that formed the foundation of The Wall Street Journal's Facebook Files series showing the company's platforms are riddled with flaws that can cause harm.

Facebook provides staff online discussion groups on an internal message system called Workplace, where staff can cooperate or exchange ideas. In a memo to employees Tuesday, the social-media giant said it would restrict who can view group discussions on topics such as platform safety and election integrity, the company confirmed. The move to restrict internal data access was reported earlier Wednesday by the New York Times.

JPMorgan Shows Why Bank Stocks Are Stuck in Neutral

If the U.S.'s biggest bank is any indication, lenders are still hunkering down and waiting for economic liftoff.

The good news from JPMorgan Chase's earnings report is that the emergence of the Delta variant of Covid-19 and the crunch of supply chains seen in the third quarter didn't hit the bank's strong core. The bank continued to release loan- loss reserves and even further lowered its outlook for net charge-offs of credit-card debt in 2021, to around 2% from around 2.5% earlier in the year.

Write to sarka.halas@wsj.com

Expected Major Events for Thursday

05:00/FIN: Aug Retail sales

05:00/FIN: Sep CPI

06:30/SWI: Sep Import Price Index

06:30/SWI: Sep PPI

07:00/SPN: Sep CPI

07:00/SVK: Sep CPI

07:00/SVK: Sep Core & net inflation development

07:00/HUN: Aug Construction

07:30/SWE: Sep CPI

08:00/GER: Ifo Joint Economic Forecast of German economic research institutes

08:00/FRA: Oct IEA Oil Market Report

08:00/CZE: Aug Monthly Balance of Payments

08:30/UK: 3Q Bank of England Credit Conditions Survey

08:30/UK: 3Q Bank of England's Bank Liabilities Survey

10:00/IRL: Sep CPI

12:00/POL: Aug Balance of payments

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


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  10-14-21 0018ET
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