MARKET WRAPS
Watch For:
France manufacturing sentiment and consumer confidence; Germany business sentiment; trading updates from H&M, Halma, Vistry
Opening Call:
European stock futures traded lower early Thursday. Asian stock benchmarks were mixed; the dollar rose; Treasury yields were up; while oil futures weakened and gold inched higher.
Equities:
Stock futures point to a lower open in Europe, after U.S. stocks lost ground as investors weighed inflation concerns and the lack of diplomatic progress in the Middle East.
"Inflation is above our 2% target and not clearly trending toward target in a timely way," Federal Reserve governor Michael Barr said. He noted that risks that could prevent the Fed from achieving its inflation target have risen.
The concern among investors is that "the Fed is willing to hike to constrain inflation despite a lot of the pressures coming from supply shocks, which could mean unrelenting hawkishness," said Dhiraj Narula, U.S. rates strategist at HSBC.
Forex:
The U.S. dollar rose to its highest level since late July against a basket of currencies, as markets bet on the Fed raising interest rates further.
"With Fed credibility on an upswing, we believe the FX market will increasingly look to other currency vulnerabilities beyond the U.S.," HSBC strategist Daragh Maher said in a note.
HSBC favors a stronger dollar against sterling given U.K. fiscal risks ahead of October's U.K. budget and the Bank of England's cautious stance on raising rates, he said.
Bonds:
The yield on the 10-year Treasury note hit 5.113%, its highest level since July 2007.
The selloff comes despite efforts by the Treasury Department to cool down long-term yields by increasing its buying of long-term bonds. The department said Wednesday it will buy back as much as $6 billion in 20-year and 30-year bonds on Thursday.
From an intractable conflict in Iran to a seemingly indestructible U.S. economy, it just "doesn't make sense to a lot of people to own bonds here," said Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union.
Energy:
Brent is hovering above $100 a barrel, as hopes of a near-term reopening of the Strait of Hormuz faded.
Separately, a surprise build in U.S. crude oil inventories capped gains, ANZ Research analysts said. U.S. weekly inventory data showed that crude stocks rose by 3 million barrels, putting inventories 2% above the five-year average.
Metals:
Gold hovered below $4,300 a troy ounce, pressured by a rebound in oil prices and Treasury yields overnight.
While rising U.S. fiscal risks, the declining haven appeal of Treasurys and sustained demand from China offer structural tailwinds, a hawkish Fed and Bank of Japan cloud the near-term outlook, Elara Capital's Garima Kapoor said. For the next two to three quarters, hawkish policy, a firm dollar and elevated U.S. real rates could constrain the metal's gains. Copper prices retreated, as a firmer U.S. dollar and expectations for further interest-rate increases weigh on sentiment across the metals complex.
According to the CME's FedWatch tool, traders price in a 55% probability that the Fed will hike interest rates next month. Higher rates typically strengthen the U.S. dollar and increase the cost of holding raw materials, hurting copper. Iron ore weakened in early Asian trading. Prices are under pressure due to relatively weak fundamentals, Baocheng Futures analysts said in a research note.
"Steel mills are facing poor profitability...demand for iron ore is expected to remain weak, continuing to weigh on ore prices," the analysts said. Active supply outside China also adds pressure on the metal's price, they said.
TODAY'S TOP HEADLINES
A Perfect Storm Is Raging in the Bond Market
The selloff in the U.S. bond market has been mostly orderly in recent weeks. Then came Wednesday.
In the morning, a normally unremarkable survey on business activity gave the market a jolt, pointing to surprisingly resilient growth and ongoing inflationary pressures in the economy. Then the selling compounded with each development during the day-fighting words from an Iranian official at the U.N., hawkish comments from a Federal Reserve governor and a weak auction of government bonds.
The AI Build-Out Is Becoming the Biggest Economic Bet in U.S. History
The AI build-out is on track to become the biggest economic bet in U.S. history, dwarfing the investments made to fund other huge U.S. infrastructure projects such as the railroads, the highway system and the plumbing for the internet.
Total investment in data centers and related artificial-intelligence infrastructure is projected to total $10.3 trillion from 2025 to 2032, according to new estimates by economist Stijn van Nieuwerburgh published by the Brookings Institution. That is a staggering 3.6% of gross domestic product a year, on average. Never before has the U.S. economy been so dependent on the build-out of a single industry.
Behind the Oil-and-Gas Industry's Blitz to Try to Defeat a Diesel Export Ban
When the oil-and-gas industry heard President Trump back the idea of a ban on diesel exports, it pulled out the bazooka.
Shortly after Trump made his suggestion Tuesday, Mike Sommers, chief executive of the American Petroleum Institute, the industry's top lobby, issued a statement condemning the move. He said restricting U.S. exports "would only compound the problem" of rising diesel costs. API also issued a press release on the dangers of an export ban.
Iran Has a Secret Weapon in Its War With America: Help From China
This summer, when the U.S. and Iran signed a temporary truce, China touted its role in easing tensions in the Middle East. It said its foreign ministry made dozens of calls to nudge peace along, and that President Xi Jinping himself had intervened with suggestions to end the fighting.
That same day, a plane from China landed in Tehran. It carried a shipment for Iran's Ministry of Defense that included electronics components that can be used to make parts for drones and missile guidance systems, according to Iranian customs data analyzed by The Wall Street Journal.
Mark Zuckerberg Showcases Muse AI Agent Fused With Smartglasses
Meta Chief Executive Mark Zuckerberg took the stage Wednesday at the company's annual developer conference surfing a wave of hype for Muse, its new AI agent, and hoping to keep the momentum rolling by showcasing how its new technology merges with its existing suite of products.
The conference, where Meta releases and lets developers test out its latest hardware, made clear how the company sees its once disparate bets finally coming together. Zuckerberg has said consumers deserve "personal superintelligence" and Muse is the linchpin in that vision.
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Expected Major Events for Thursday 05:00/FIN: Aug PPI
06:00/EU: Jul New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)
06:00/EU: Aug New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)
06:00/NOR: Aug Credit Indicator C2
06:45/FRA: Sep Monthly business survey (goods-producing industries)
06:45/FRA: Sep Consumer confidence survey
07:00/CZE: Sep Business cycle survey (consumer/business confidence)
07:00/SPN: Aug PPI
07:30/SWE: Swedish repo rate announcement
07:30/SWI: Swiss National Bank monetary policy assessment
08:00/NOR: Norges Bank monetary policy decision and publication of Monetary Policy Report
08:00/GER: Sep ifo Business Climate Index
08:00/GER: ifo Joint Economic Forecast of German economic research institutes
09:00/MLT: Aug RPI
10:00/UK: Sep CBI Distributive Trades Survey
13:00/BEL: Sep Business Confidence Survey
15:59/UKR: Aug PPI
15:59/UKR: 2Q POSTPONED: Unemployment
17:59/POR: Jul ICSG Copper Report
23:01/UK: Sep UK Consumer Confidence Survey
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