European Midday Briefing : All Eyes on Key U.S. Jobs Report

MARKET WRAPS

Stocks:

European shares traded higher on Friday in a cautious session ahead of the U.S. monthly jobs data, the last jobs report before the Federal Reserve's next interest rate decision.

Strong data could mean that U.S. interest rates stay high for a prolonged period, perhaps with a risk of more hikes and potentially causing bond yields to rise further, while weaker data would likely be a relief to markets.

Read US Jobs Data Unlikely to Dent Higher-For-Longer Rates View

U.S. Markets:

Stock futures wavered and Treasury notes edged lower as investors held fire ahead of the jobs report.

Signs of economic resilience could fuel further losses for bond prices. For now, futures markets suggest traders think the Fed is likely to hold rates steady in early November.

Stocks to Watch

Exxon Mobil is close to acquiring Pioneer Natural Resources in a takeover that could be worth roughly $60 billion, WSJ reported . Pioneer shares rose 12%, while Exxon fell 2.1%.

Tesla cut prices of its Model 3 and Model Y vehicles in the U.S., according to its website. Shares declined 1.3%.

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Forex:

The euro and sterling edged lower and are vulnerable to further falls if the U.S. monthly jobs data sparks a dollar rebound back toward this week's multimonth highs, ING said.

The euro could drop back below $1.05 even if the U.S. payrolls match consensus, while a drop in sterling to $1.20 "remains a real possibility."

The euro lacks any strong domestic impetus, while ING estimates that the Bank of England will hold rates again in November.

Read EUR/USD Seen Lower Near Term

Read US Jobs Data Could Spark Renewed Dollar Gains

Bonds:

Eurozone government bond yields are near the cyclical peak, but long-end yields have limited room for significant falls in the near-term, according to SEB Research's baseline scenario.

SEB Research expects bull steepening of the eurozone bond curves in 2024--whereby short-end yields fall by more than long-term yields.

"The downside in long EUR rates will be small due to their already depressed levels, modest ECB policy rate cuts and a limited decline in global bond yields," it said.

SEB Research said markets should discount an around 25%-30% probability of another interest-rate hike by the ECB by year-end.

Societe Generale's rates strategists raise their targets for 10-year German Bund yields, expecting yields to break above 3% before end-2023 or in early 2024, likely rising to around 3.25%.

"Bund 10y ended September almost 50 basis points above our 2.50% target, for reasons other than those we considered plausible drivers of an overshoot sell-off."

"We therefore update our targets," it said. Its basecase for the fourth quarter is 3.0%-3.3%, while for 1Q 2024 they expect the 10-year Bund yield in a 2.9%-3.2% range.

Energy:

Oil prices ticked higher in early trading, but were on course for a massive weekly loss, after rising gasoline inventories in the U.S. triggered a sell-off for both Brent and WTI.

"The recent correction in oil prices has been too rapid and was largely unwarranted in our view," Barclays said.

The U.K. bank said that too much attention had been paid to weekly demand estimates, adding that other U.S. economic data shows the U.S. economy to be strong.

It maintains its $92 a barrel estimate for Brent this quarter.

Read Brent Crude Oil May Extend Declines, Charts Show

Metals:

Base metals were mixed, while gold edged up in early trading, with weak demand in China continuing to pressure prices.

BMI said that "copper LME inventories have ticked upward in recent weeks, reaching a new year-to-date high of 167,600 tons on October 4 which has fueled the recent price decline."

It added that it only expects slight improvement to industrial metal prices in the fourth quarter, with prices generally averaging lower in 2023 than in 2022.

DOW JONES NEWSPLUS

EMEA HEADLINES

German Manufacturing Orders Rose Above Expectations in August

New orders at German factories rose more than expected in August, albeit far from fully recovering after plummeting in July, indicating a still-fragile environment in the country's manufacturing sector.

Manufacturing orders rose 3.9% on month in August, after diving 11.3% in the previous month, according to seasonally and calendar adjusted-data released Friday by the German statistics office Destatis.

Philips Shares Tumble After FDA Asks for More Tests on Sleep-Apnea Device

Shares of Royal Philips fell sharply after the U.S. Food and Drug Administration said it is unsatisfied with the status of the company's recall of devices to treat sleep apnea and asked for additional testing.

At 0841 GMT on Friday, shares in the Dutch health-technology group traded 9.3% lower at EUR16.84.

Shell Sees 3Q Earnings Boost from Stronger Gas, Chemicals Trading

Shell said it expects its third-quarter earnings to be boosted by stronger gas and chemical trading, while its production volumes are on track to meet targets.

The British energy giant said Friday that it expects to report production of 880,000-920,000 oil-equivalent barrels a day of integrated gas for the third quarter, which would be in line with its guided range of 870,000-930,000 BOE a day, but down from 924,000 BOE a day in the same quarter of 2022.

Volvo, Renault and CMA CGM Collaborate to Produce Electric Vans

Volvo, Renault and CMA CGM are joining forces to produce a new generation of electric vans, pooling their efforts to decarbonize the transport and logistics sector and address booming e-commerce and rental businesses.

Swedish truck maker Volvo and French auto group Renault will launch a new company, with each investing 300 million euros ($316.5 million) over the next three years for an equal 50% share, they said Friday.

GLOBAL NEWS

Is The Economy Cooling or Revving Up? The September Jobs Report Will Offer Clues

Friday's jobs report is likely to show employers hired at a steady pace last month, the latest sign of a resilient U.S. economy that has contributed to the recent bond-market rout, according to analysts' forecasts.

Monetarism Is Back. It May Not Last.

Disciples of Milton Friedman are delighted: Monetarism seems to be working again, three decades after the economic theory was ditched as the guiding light of central bank policy.

Their happiness is tempered by concern, however, that the supply of money-the core variable at the heart of monetarism-is shrinking. This suggests the Federal Reserve, Bank of England and European Central Bank have gone too far and bad times are ahead.

Temporary Speaker Patrick McHenry Steers House on the Fly

WASHINGTON-Just moments after the stunning ouster of Kevin McCarthy as speaker, a clerk revealed the name of the new, temporary leader: Rep. Patrick McHenry of North Carolina. He now faces the hardest job on Capitol Hill.

The bow-tied House Republican veteran, the top entry on a secret list prepared by McCarthy as part of post-9/11 protocols, is charged with running the chamber until a new leader is elected. That contest could be resolved next week but could also stretch longer, given the deep fractures within his party. Both of the candidates so far-House Majority Leader Steve Scalise (R., La.) and Judiciary Committee Chairman Jim Jordan (R., Ohio)- have broad bases of support, and neither had a clear lead as of Thursday.

Who Will Be the Next House Speaker? A Look at the Race So Far

Several Republican lawmakers are looking to be the next speaker, after the House ousted Rep. Kevin McCarthy. A vote is expected as soon as next week. Just after midnight Friday, former President Donald Trump weighed in with a key endorsement, backing Rep. Jim Jordan (R., Ohio).

To win support, the speaker candidates will rely on personal connections as well as staking out positions on GOP priorities such as tightening border security, stepping up the impeachment investigation into the Biden family's finances and cutting government spending. They will also have to balance competing party positions on Ukraine aid.

Putin Says Grenade Fragments Found in Wreckage of Prigozhin's Plane

Russian President Vladimir Putin said fragments of hand grenades were found in the victims of a plane crash that killed the Wagner Group's founder, Yevgeny Prigozhin, and suggested that the flight was brought down by an explosion from within.

Prigozhin was killed when the Embraer jet carrying him and other Wagner paramilitary officials crashed after takeoff from Moscow in August. Putin's assertion Thursday is in line with a Kremlin-controlled media campaign that has suggested different theories about Prigozhin's death. The campaign has ignored indications that Prigozhin was killed by the Kremlin over his abortive mutiny this summer.

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

(END) Dow Jones Newswires

10-06-23 0545ET