MARKET WRAPS

Stocks:

European stock indexes opened lower on Thursday as banks and software stocks slid.

A rally in artificial-intelligence stocks was tempered by the intensifying rout in government bonds in early European trade, as investors balanced AI enthusiasm with an increasingly gloomy macroeconomic picture.

Ten-year Treasury yields rose, extending highs not seen since 2002, while sovereign debt sold off in Europe too with 30-year U.K. government bond yields hitting their highest levels since 1998.

Oil prices edged higher as Middle East crude exports continued to recover toward prewar levels.

Economic Insight

Swiss inflation rose to its strongest level in more than two years last month, as imported energy prices accelerated on intensifying tensions in the Middle East.

U.S. Markets:

Stock futures were mixed.

Traders are pricing in a 39% chance of an October hike after the latest PCE inflation data came in softer than expected, according to the CME's FedWatch tool.

"Softer inflation provides some support for gold, but elevated yields and lingering tightening risks remain key headwinds, with Friday's U.S. payrolls report the next major catalyst for the Fed outlook," MUFG said.

Economic data expected later today include weekly jobless claims and the ISM Report on Business Manufacturing PMI for September.

Forex:

The euro fell to a 16-month low against the dollar, extending its recent slide as U.S. interest-rate rise expectations remain elevated.

Sterling rose to a two-month high against the euro possibly reflecting some independent euro weakness along with the prospect of improved U.K.-EU ties under U.K. Prime Minister Andy Burnham, ING said.

The dollar rose after briefly pulling back in the previous session following lower-than-expected U.S. PCE inflation data.

Bonds:

The 10-year OAT-Bund yield spread rose to its widest level since 2012, as markets remained wary ahead of the presentation of next year's budget in France.

U.K. government bond yields climbed to multiyear highs while sterling also rose due to increased expectations of the BOE increasing interest rates in the coming months.

Treasury yields fell, having briefly touched new highs despite some relief on inflation.

Energy:

Oil prices rose as Middle East tensions remained elevated despite recovering crude exports from the Gulf.

Metals:

Gold

Gold ticked higher.

Silver

Silver prices rose, but remained caught between supportive fundamentals and challenging macroeconomic conditions.

EMEA HEADLINES

Arla Foods to Invest Millions to Tap Protein-Rich Dairy Demand, CEO Says

Arla Foods plans to spend tens of millions of dollars to ramp up its production of skyr and cottage cheese in Europe, an investment the Danish company's chief executive said was aimed at tapping a booming consumer demand for protein-rich dairy items.

"The reason why this is an interesting investment, skyr and cottage cheese, is that it really is so embedded in a health trend that has turned out to be very global," Chief Executive Office Peder Tuborgh said in an interview.

Sanofi, Regeneron to Expand Alliance in Deal Valued at Up to $8 Billion

Drugmakers Sanofi and Regeneron Pharmaceuticals said they reached an agreement to expand their alliance to jointly develop and commercialize new immunology drugs, in a deal that could net Regeneron up to $8 billion.

France's Sanofi and Tarrytown, N.Y.-based Regeneron said Thursday that the U.S. company will receive $1 billion upfront from its European partner, and be eligible to get up to $7 billion subject to development, regulatory and commercial targets. The companies will equally share development and commercialization costs as well as potential future profits from the new drugs, they said.

Europe's Luxury Carmakers Are Supersizing Their SUVs for Americans

BMW, Audi and other European carmakers are trying to revive their sales with a new generation of supersized luxury SUVs in America.

BMW is looking to make a supersized sport-utility vehicle specifically for the U.S., it told investors in Munich this week. Volvo Cars has said it would introduce a larger SUV in the U.S. as part of a major portfolio revamp. And Audi recently launched the Q9, its first full-size SUV, on the roof of a New York hotel.

GLOBAL NEWS

A Tech-Fueled Stock Market Powers Through, but Limps Into the Fourth Quarter

The biggest tech companies are keeping the stock market humming despite spiraling oil prices and interest rates. The rally will be tested.

Stocks followed up a torrid spring with more-muted gains in the third quarter. Rates are poised to rise further as the year draws to a close, challenging the market's resolve and its chances at an unusual feat: a fourth-straight year of double-digit gains.

Dollar Hits 3-Month High on Prospect of Higher U.S. Rates

The dollar rose to a three-month high against a basket of currencies on Thursday as it continued to derive support from the prospect of the Federal Reserve raising interest rates further.

Minneapolis Federal Reserve President Neel Kashkari said Wednesday that price pressures remained elevated even after the Fed's preferred inflation measure, the personal consumption expenditures price index, came in lower than expected on Wednesday.

Pilot-on-Pilot Stabbing Forces Emergency Landing of Israel-Bound Plane

TEL AVIV-A FlyDubai plane headed for Israel made a harrowing emergency landing after the co-pilot stabbed the captain in the cockpit-an attack Israeli Prime Minister Benjamin Netanyahu called an attempt to crash the aircraft.

Netanyahu described a dramatic series of events that had been relayed to him by one of the passengers on the plane, saying the flight had gone into a spin and began to dive during the attack. The injured captain managed to unlock the cockpit door, allowing a passenger and member of the crew to push inside and subdue the attacker. Two pilots onboard for the return flight then took control and were able to stabilize the plane, before landing in Saudi Arabia.

Trump Sending $500 Checks With Letter Touting Healthcare Record

WASHINGTON-President Trump began sending $500 checks to nearly one million people and enclosed a letter touting his record on cutting healthcare costs, just a month before voters go to the polls for the midterm elections.

The administration first announced the checks earlier this month, saying the payments would go to people who paid what it called excessive fees under the Affordable Care Act, drawing on a surplus pool of funds. On Wednesday, the president posted a video from the Oval Office saying "our Administration is doing the right thing and giving the money back to the people who were wrongly ripped off."

Hegseth Unveils New Command to Oversee Military-Drone Tech

Defense Secretary Pete Hegseth is creating a four-star combatant command for autonomous warfare, overhauling the way the Pentagon buys, tests and deploys drones and other cutting-edge technologies.

The Autonomous Warfare Command, or "AutoWarCom," will be directed to buy new drones and robotics "in the fastest peacetime shift in modern military history," Hegseth said in a speech Wednesday at U.S. Marine Corps Base Quantico, Va. The command is set to be functional in October of 2027.

Mexico Tightens Money-Laundering Rules After U.S. Pressure

Mexican authorities are stepping up their fight against cartel money laundering following pressure from the U.S. and other international authorities.

The country's legislature recently expanded anti-money-laundering laws to impose stricter due diligence requirements and push companies to collect more information on their controlling ownership, among other measures. President Claudia Sheinbaum also installed a new head of Mexico's financial intelligence unit, which gathers information on suspicious transactions and reports them to law enforcement.

Write to nina.kienle@wsj.com