European Morning Briefing: Investors Await U.S. Jobs Data

Features Dow Jones Newswires

Snapshot:

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Stocks to gain; EUR/USD 1.1662-65; bund yield 0.376%; Brent crude $60.83; gold $1277.60

-China Services Sector Activity Picks Up Pace in October

-President Trump Picks Jerome Powell to Lead Federal Reserve

-French Government is Selling Part of Its Stake in Renault

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-Altice's U.S. Business Drives 3Q Adjusted Ebitda Rise

Watch For: U.K. services PMI; U.S. employment report; earnings from Air France-KLM, Repsol, Societe Generale

Headline News:

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Activity in China's service sector expanded at a faster pace in October, a private gauge showed Friday, in contrast with official data showing a slower pace of growth.

The Caixin China services purchasing managers index rose to 51.2 in October from 50.6 in September. The index picked up from September's 21-month low, but was modest overall and remained weaker than the historical average. A reading above 50 indicates an expansion in activity from the previous month while a level below that points to a contraction.

President Donald Trump formally announced Thursday that he would nominate Federal Reserve governor Jerome Powell to be the next chairman of the central bank, saying he has the "wisdom and leadership" to guide the economy through any turbulence that arises.

In five years at the Fed, Mr. Powell has been a Yellen ally and he is expected to continue the Fed's approach of reversing the central bank's stimulus policies as the economy expands.

Mr. Trump's pick is the first time in nearly 40 years that a new president hasn't asked the incumbent Fed leader to stay on for another term.

Stocks:

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European stocks should post opening gains Friday, with DAX futures up 34 points and FTSE 100 futures 13 points higher.

Asia-Pacific equities struggled for direction, following a lack of movement in most U.S. stocks, as investors seek new drivers.

Australian stocks stood out, hitting fresh 2017 highs on gains in commodity prices. The S&P/ASX 200 was recently up 0.5% at 5964 and moving closer to 2015's peak of 5996.9. Above that, the index will be at 10-year highs.

BHP Billiton rose 1.3%, putting the week's increase at 4.2%, while Rio Tinto added 1% to hit a six-year high. Japanese markets were closed for a holiday.

"This is normal consolidation," said CMC market analyst Margaret Yang Yan. But she added that selling is pretty light "and we don't see a systematic risk. It's just the market needs some time to digest and consolidate a bit."

Some investors have paused ahead of today's U.S. jobs report. After the first monthly drop in seven years in September's--skewed by hurricanes--"expectations are quite high for the data," OM Financial client adviser Stuart Ive said. Weekly jobless claims are at 44-year lows.

Chinese tech giant Tencent rose 1.4%, hitting record highs again. That came after Alibaba reported positive quarterly results helping Hong Kong's Hang Seng Index--of which it is the largest component--gain 0.5%.

The Dow Jones Industrial Average recovered from early losses to close at a fresh high, as investors assessed House Republicans' proposal for the biggest tax code overhaul in decades.

The Dow industrials fell more than 80 points after a detailed summary of the tax plan was reported, but the blue-chip index rallied later in the session, closing up 0.3%. The S&P 500 rose less than 0.1% and Nasdaq shed less than 0.1%.

Corporate News:

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The French government said Thursday it is selling part of its stake in Renault, after buying shares two years ago to block the auto maker's efforts to change its shareholding rules.

The French Ministry for the Economy and Finance said it is selling 14 million shares, or 4.73% of Renault's total capital, in a placement with financial institutions. After the sale, the government will still be the largest shareholder in Renault, with 15% of its shares.

Netherlands-listed telecommunications company Altice reported Thursday an increase in third-quarter group earnings, citing a strong performance at its U.S. business.

The company's adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, rose slightly to 2.36 billion euros ($2.74 billion) from EUR2.33 billion a year earlier, while the group's closely watched Ebitda margin rose to 41.0%. Reported revenue fell to EUR5.75 billion from EUR5.89 billion in the year-earlier period, though on a constant currency basis revenue increased 0.3%, the company said.

Forex:

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The dollar barely moved in Asia after edging lower Thursday as investors reacted to details of the Republican plan to overhaul taxes.

The Wall Street Journal Dollar Index was recently unchanged at 87.74.

Some investors believe Republicans will find it difficult to pass the legislation in a Congress that is contending with many competing interests.

"What the bill says is one thing, getting it into legislation is a whole other animal," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Investors are awaiting Friday's employment report from the Labor Department, which many view as a gauge of how the U.S. economy is performing.

The pound steadied against the dollar after tumbling Thursday following the Bank of England signaled that further increases weren't imminent.

At 0450 GMT, USD/JPY was 113.98-99, EUR/USD was 1.1662-65 and GBP/USD was 1.3074-76.

Bonds:

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U.S. government bonds gained Thursday with the yield on the benchmark 10-year Treasury at 2.347%, the lowest close in two weeks, from 2.378% Wednesday.

Bond yields had risen last week as investors speculated that Republicans would propose measures that were stimulative to the economy, and which would lead to significantly larger budget deficits. The plan, as detailed Thursday, would slice the top corporate tax rate to 20% from 35%.

Many investors, however, were surprised that the plan left the top bracket for individuals at 39.6%, as they had expected a lower top rate to provide more economic stimulus. The proposal also included curbs on some popular individual deductions, including on mortgage interest, which may restrain growth of the budget deficit.

"The tax package is a lot weaker than people expected," said Andrew Brenner, head of global fixed income at National Alliance Capital Markets. "They're trying to get the out-year deficits down, and the Treasury market is responding positively."

Energy:

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Oil prices extended their rally in Asia after they hit a two year high Thursday amid growing optimism that the oil glut is shrinking.

Analysts said oil remained underpinned by falling U.S. stocks, which is helping to drain the buildup of global inventory, accumulated over several years of surplus supply.

"On a global basis, better than expected oil demand is likely developing off of strong world economies," Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a research note. "This demand strength is crisscrossing against continued downsized OPEC production where compliance to this year's agreement remains much stronger than generally expected."

Still, the rally may be slowing as market participants wait to see whether OPEC will extend its cuts when it meets Nov. 30.

"The market is taking a breath here," said Andy Lipow, president of Lipow Oil Associates. Mr. Lipow said he is sticking with his calls for Brent to hit $60 and for West Texas Intermediate, the U.S. Benchmark, to reach $55 a barrel for now.

At 0259 GMT, Nymex December futures were up 0.5% at $54.79/barrel while January Brent gained 0.4% to $60.83.

Metals:

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London spot-gold prices were up 0.1% at $1,277.60/troy ounce in Asia after scant moves Thursday.

Base metals rose too amid ongoing optimism thanks to metal-capacity cuts in China, a positive global economy and potential demand from electric vehicles. But analysts warn some of the price moves may be premature given that EVs still command a tiny share of the market and metal-capacity cuts are largely an extension of what has been unfolding in recent months.

At 0334 GMT, 3-month copper prices on the LME gained 0.4%, hot-performing nickel climbed 0.9% and aluminum added 0.1%.

Write to paul.larkins@wsj.com

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November 03, 2017 01:17 ET (05:17 GMT)