European Morning Briefing: Stocks Likely to Struggle Again

Features Dow Jones Newswires

Snapshot:

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Stocks seen flat; EUR/USD 1.1770-73; bund yield 0.367%; Brent crude $58.31; gold $1287.25

-Trump Narrows Fed Leader Search to Five Final Candidates

-Philadelphia Fed's Harker Projects One More Rate Increase This Year

-BHP Sells Some Shale Acreage in Mixed Output Quarter

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-SEC Sues Rio Tinto, Two Former Executives

Watch For: Eurozone construction output; U.K. unemployment; earnings from Akzo Nobel, Atlas Copco; trading updates from Carrefour, Reckitt Benckiser; U.S. earnings from Alcoa, American Express, eBay

Headline News:

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President Donald Trump said Tuesday he soon will choose a Federal Reserve chairman, having narrowed his search to five finalists.

"Honestly, I like them all, I do," the president said at a news conference in the Rose Garden. "I have a great respect for all of them."

A White House official said earlier Tuesday that Mr. Trump is expected to make a decision before his trip to Asia, which begins Nov. 3. Mr. Trump said he would make the decision over the next "fairly short period of time."

The finalists are current Fed Chairwoman Janet Yellen, who will meet with the president Thursday; Fed governor Jerome Powell; former Fed governor Kevin Warsh; National Economic Council Director Gary Cohn; and Stanford University economist John Taylor, the White House official confirmed.

Stocks:

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European stocks are seen little changed Wednesday, with futures for the DAX and FTSE 100 just a few points higher.

Equity markets in the Asia-Pacific region were slightly higher, building on Wall Street's bullish performance, though gains were being capped as a key meeting of China's political elite kicked off.

Regional investors were trading cautiously as the latest Communist Party congress got under way, where China's President Xi Jinping is expected to secure a second five-year term. The twice-a-decade meetings typically trigger uncertainty about political and economic shifts in the country.

"Leads for Asia today are fairly lackluster," said Chris Weston, chief market strategist at IG Markets. "China is key today and for the remainder of this week."

The Shanghai and Shenzhen benchmark indexes were both up 0.1% in early trade after posting declines earlier in the week. Expecting no drastic changes from the conclave, asset manager Pimco said it saw risk control and overall economic stability as top priorities for Chinese leaders.

In Japan, the Nikkei Stock Average was up 0.2%, as was Australia's S&P/ASX 200. Hong Kong's Hang Seng was nearly unchanged.

The Dow Jones Industrial Average briefly crept above 23000 for the first time, buoyed by gains in shares of health-care companies.

The blue-chip index crossed the milestone in intraday trading, reaching as high as 23002.20, before paring gains. The index closed up 40.48 points, or 0.2%, at 22997.44, its 50th record finish of 2017.

The S&P 500 rose 0.1%, a fresh record, while the Nasdaq Composite slipped less than 0.1%. Corporate earnings have helped boost major stock indexes to fresh highs in 2017, and the third quarter is on track to provide more fuel to the market's rise, analysts say.

Corporate News:

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BHP Billiton said work is underway to exit its U.S. onshore oil-and-gas assets, after it sold a small portion of its Hawkville shale acreage in Texas in the recent quarter.

As expected, the Australian resources company increased the number of drill rigs operating in the U.S. in a quarter where onshore volumes continued to decline and overall petroleum production weakened on a year earlier.

It was a mixed quarter across BHP's suite of commodities, though it stuck with production and cost guidance for the full year and said it remained on track to deliver 7% volume growth. Copper output in the three months through September increased, metallurgical coal production was steady, but output of iron ore and energy coal were lower year-over-year.

U.S. regulators on Tuesday sued Rio Tinto and two former top executives over claims they misled investors about the value of Mozambique coal assets obtained in a disastrous acquisition that caused huge losses for the global mining giant.

Rio Tinto continued to value the mining assets in Mozambique at more than $3 billion despite an internal assessment that they were worth negative $680 million, according to a lawsuit filed in Manhattan federal court. The SEC's lawsuit alleges that former Chief Executive Thomas Albanese and former Chief Financial Officer Guy Elliott knew about the project's rapidly declining value but didn't disclose it to investors and misled their board of directors about the scope of the problems, the SEC said.

Rio Tinto said Tuesday that the SEC's claims of fraud are "unwarranted" and would be proven wrong in court. Mr. Albanese said he is innocent of any wrongdoing and that the SEC's claims "will be proved baseless." A spokeswoman for Mr. Elliott said he also disputes the SEC's charges and will fight them.

Separately, Rio Tinto agreed to pay GBP27 million to settle claims by the U.K. Financial Conduct Authority that the company didn't write down the value of the Mozambique mine in a timely manner. The U.K. regulator's action didn't find that Rio Tinto committed fraud, the company said in a press release.

Forex:

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The dollar edged lower in Asia having gained Tuesday as investors bet that signs U.S. industry remained healthy despite severe hurricanes last month would bolster arguments for the Fed to raise interest rates later this year.

The WSJ Dollar Index fell less than 0.1% to 86.58 early in Asian trade. The greenback got an extra boost Tuesday by reports that Donald Trump may nominate Stanford economist John Taylor, who is seen by most as more hawkish than Janet Yellen, to head the Fed. The ICE Dollar Index was up for a fourth day with a gain of 0.2% to 93.51

At 0350 GMT, USD/JPY was 112.23-24, EUR/USD was 1.1770-73 and GBP/USD was 1.3187-89.

Bonds:

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UniCredit has revised its expectation for the future of European Central Bank quantitative easing.

It now sees the ECB buying EUR30 billion per month for 12 months next year. Previously it had forecast EUR40 billion per month in the first half of the year followed by EUR20 billion in the second half. This would be in line with comments from ECB chief economist Peter Praet that suggested that under normal market conditions purchases could be spread out over a longer period.

"Given that the last two purchase windows have been of six and nine months, the next step could well be of twelve months -- if not, it should be at least nine months," said UniCredit economist Marco Valli in a note Tuesday. He said that regardless of the purchase changes, the program will remain open ended.

The yield on the two-year U.S. Treasury note breached its highest level in almost a decade on Tuesday, reflecting investors' confidence that the Fed will maintain a steady course of interest-rate increases.

The yield on the two-year note rose for a second consecutive day to 1.550%, the highest since October 2008, from 1.542% one day prior. The yield on the 10-year note settled at 2.300%, compared with 2.309% Monday.

Investors sold short-dated U.S. government bonds and scooped up longer-term Treasurys, narrowing the gap between the yields on five-year and 30-year Treasurys to the smallest since 2007, according to The Wall Street Journal's Market Data Group.

"It's rare to see this pattern," wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note Tuesday, adding that it reflects investors' differing expectations for short- and long-term government bonds as they anticipate a hawkish Fed and limited inflation.

Energy:

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Crude oil prices rose further in Asian, after paring losses late in the U.S. session as geopolitical concerns in Iraq and Iran persist.

Still, signs point to a more stable outlook, and could cap further gains in oil prices. Iraq's oil minister said the Kirkuk oil fields, seized by Baghdad from Kurdish forces Sunday, were running as normal. Meanwhile, Iran said it didn't expect to see any impact on oil exports from Donald Trump's refusal to certify the nuclear deal.

At 0226 GMT, Brent was up 0.7% at $58.31 a barrel, while Nymex futures rose 0.5% to $52.14 a barrel.

Metals:

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London spot gold regained some bounce in Asia after falling Tuesday on stronger dollar.

Meanwhile, physical gold demand in India has picked up during the ongoing festival season. "A good monsoon and stable gold prices are definitely encouraging consumers to make token purchases for the auspicious festival," said Somasundaram PR of the World Gold Council.

At 0219 GMT, spot gold was up 0.2% at $1,287.25/ounce, above the support level seen at $1,281.

Write to paul.larkins@wsj.com

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October 18, 2017 00:13 ET (04:13 GMT)