EMEA Morning Briefing : Oil's Gains After Drop in Inventories May Weigh on Sentiment

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EU Business & Consumer Surveys, ECB Economic Bulletin; Germany Ifo Joint Economic Forecast of German economic research institutes, CPI data for Germany, North Rhine Westphalia, Bavaria, Brandenburg, Hesse, Baden-Wuerttemberg, Saxony; France housing starts; Italy PPI, consumer confidence survey, business confidence survey; trading update from Diageo

Opening Call:

Oil's gains following a drop in U.S. inventories may weigh on sentiment. In Asia, stock benchmarks were mostly lower; the dollar and Treasury yields steadied; while oil and gold futures rose.

Equities:

Risk-off sentiment may weigh on European stocks, as investors mulled factors including the impact of rising oil prices on inflation, sapping risk sentiment.

Jeffrey J. Roach, chief economist at LPL Financial, said investors should expect a choppy market from the trifecta of a spike in energy prices, the restart of student loan payments in the U.S., and a looming U.S. government shutdown due impasse over the budget deficit in Congress.

Melissa Brown, head of applied research at Axioma, said there's nervousness in the financial markets that the Federal Reserve will still raise interest rates despite cooling inflation, so investors are afraid that policymakers will "mess it up by going too far."

"We've already seen for the past couple of weeks the investor sentiment, particularly in the U.S., has become more negative," Brown said. "...our view is if sentiment is negative, bad news is going to be punished a lot. [If] good news is not [so] good, it's certainly not going to be highly rewarded."

Forex:

The dollar steadied in Asia amid holiday-thinned trading in parts of the region. Rising Treasury yields and oil prices have further damped sentiment, said Matt Simpson, market analyst at City Index and https://urldefense.com/v3/__http://Forex.com__;!!F0Stn7g!Hasedy6sSpeOSjbn2DUU2V5TdEmC5YvzQ2ltoGH7Bdufvaa5eGa1QLG_q8h_P6CEd82kseL5IfEUfNzjwLcefbrHfRHl1l-p4DuAbNErskc$ .

Worries about a possible U.S. government shutdown continue to mount after Republicans rebuffed a short-term funding bill from the Senate, adding to the downbeat mood for risk-taking, Simpson said.

Bonds:

Treasury yields are rising to more historically normal-looking levels, but the speed of these moves is also giving way to concern about the possibility that more cracks in financial markets will emerge, similar to the crisis at regional banks seen earlier this year.

"The recent bear steepening in rates is likely being driven by a number of factors including markets repricing for 'higher for longer' Fed funds, worries about the impact of increased Treasury supply, fears of persistently high oil prices, and technical weakness," said TD Securities.

"A persistent selloff in rates also increases the risk of 'breaks' similar to the UK LDI episode or the SVB collapse," TD said, referring to California's Silicon Valley Bank and the U.K.'s liability-driven investment crisis.

Energy:

Oil futures advanced in Asia, buoyed by a sharp drop in U.S. inventories. The weekly EIA report showed crude oil inventories at Cushing, a major storage hub, dropped below minimum operating levels, said Edward Moya, senior market analyst at Oanda.

Brent crude is just a few dollars away from the $100/bbl level, which could prompt further momentum buying if global leaders don't do anything to attempt to "jawbone" prices lower, Moya added.

Read: Oil Trading is Going Haywire as Storage Tanks Run Dry

Metals:

Gold edged higher early Thursday. USD likely holds the key to the direction of gold prices for the foreseeable future, said CBA analyst Vivek Dhar. The inverse relationship between gold futures and USD has strengthened considerably over the past year, Dhar said.

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Lead rose slightly, supported by supply issues. Global inventories of the industrial metal have stayed low, in terms of both tons and weeks of demand, BofA Global Research said. Also, the primary production of lead has been disrupted in Europe and the Americas, BofA added.

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Iron ore futures advanced, supported by China's strong industrial profit data, ANZ said. Despite China's property market crisis, infrastructure work is getting underway in 4Q, ANZ added.

Meanwhile, Huatai Futures said macroeconomic policies and possible replenishment of raw materials in the coming winter may provide some positive sentiment.

TODAY'S TOP HEADLINES

Saudi Arabia and Russia Win Big in Gamble on Oil Cuts

Saudi Arabia and Russia have raked in billions of dollars in extra oil revenues in recent months, despite pumping fewer barrels, after their production cuts sent crude prices soaring.

The cutbacks were a risky strategy, both financially and politically. But they appear to be paying off for the two most important members of the Organization of the Petroleum Exporting Countries and its Russia-led allies, or the OPEC+ cartel. Price increases are more than making up for the reduction in sales volume, according to calculations by consulting firm Energy Aspects.

Standoff in Congress Brings Government to Brink of Shutdown

WASHINGTON-House Speaker Kevin McCarthy (R., Calif.) rebuffed a bipartisan short-term funding bill from the Senate in favor of a House Republican plan driven by conservatives, as dim prospects for a deal raised the likelihood of a partial government shutdown starting this weekend.

Many lawmakers now anticipate that Congress will fail to fund the government past Sept. 30, a lapse that will partially close federal agencies and temporarily withhold pay for federal workers and active duty-military personnel.

More CFOs Pull Back Spending Plans Due to Higher Interest Rates

More finance chiefs are cutting spending plans as higher interest rates squeeze their bottom lines, according to a survey published Wednesday by Duke University's Fuqua School of Business and the Federal Reserve Banks of Atlanta and Richmond.

The Federal Reserve last week left interest rates unchanged at a 22-year high. The Fed most recently increased its benchmark federal-funds rate in July to a range of between 5.25% and 5.5%, in a continuing effort to combat inflation.

U.S. Crude-Oil Inventories Fall to Lowest Level of 2023

U.S. inventories of crude oil fell by more than expected last week, hitting their lowest level of the year, according to data released Wednesday by the Energy Information Administration.

Benchmark U.S. oil prices that were higher before the report extended those gains afterward. The Nymex front-month crude contract for November delivery was recently up 2.9% at $92.97 a barrel.

Billions of Dollars in Loans to Board Members Draw Spotlight to Gulf Banks

Two of Abu Dhabi's biggest banks have reported billions of dollars in loans in recent years tied to their boards of directors that include prominent royal-family members, a practice widely discouraged in the U.S. but still common in the Gulf even as its financial institutions extend their global reach.

The bank issuing the most board-member debt was First Abu Dhabi Bank, where the chairman is Sheikh Tahnoun bin Zayed Al Nahyan, the country's national-security adviser and the brother of Sheikh Mohamed bin Zayed Al Nahyan, the president of the United Arab Emirates and head of Abu Dhabi's royal family. FAB, as the bank is known, emerged as a potential global deal maker this year when it made an unsuccessful run at buying U.K. lender Standard Chartered.

UBS shares drop after report U.S. DOJ probing Credit Suisse over Russian sanctions evasion

Shares of UBS Group AG came under pressure on Wednesday after a report that the U.S. Justice Department suspects Credit Suisse helped Russian clients evade sanctions and may be looking at compliance failures at its new parent company.

Citing sources, Bloomberg News said subpoenas at one point sent to multiple banks were now focused on the Swiss bank, Credit Suisse which was taken over by UBS earlier this year. Those sources said the Justice Department was in the early stages of its investigation and that the outcome may be neither charges or a settlement, but that UBS UBS CH:UBSG lawyers in the U.S. had been briefed on Credit Suisse's potential exposure to violations.

Evergrande Share Trading Suspended in Hong Kong-Update

Shares of debt-laden China Evergrande have been suspended from trading on the Hong Kong exchange, a month after they resumed trading following a 17-month trading halt.

China Evergrande New Energy Vehicle Group and Evergrande Property Services also called for a trading halt on Thursday.

X CEO Linda Yaccarino Says Platform Should Turn Profit in 2024

X Corp. Chief Executive Linda Yaccarino said on Wednesday the company is "just about break even" in terms of operating cash-flow and should turn a profit early next year.Yaccarino, NBCUniversal's former ad-sales czar who joined the company, formerly called Twitter, in June, has faced questions about how much she can rebuild X's ad business after tumult under company owner Elon Musk, who acquired the platform late last year and swiftly cut thousands of jobs, upended features like verification and loosened content-moderation policies.

Yaccarino spoke at the Code Conference in Orange County, Calif., in an interview with CNBC reporter Julia Boorstin that became awkward at times, including when the CEO was pressed about the company's user and engagement numbers.

iPhone 15 Pro Owners Complain About Overheating Problems

The new iPhone 15 Pro may be too hot for some to handle. Literally.

Apple's priciest new iPhones are heating up in some scenarios, reaching high temperatures that make them difficult to touch at certain times, according to reviews, tests by The Wall Street Journal and social-media posts from buyers in China, the U.S. and Canada. Some iPhone 14 Pro owners have noticed similar hot temperatures over the past year.

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09-28-23 0033ET