European Morning Briefing: Wall Street Weakness to Dent Stocks
Snapshot:
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Stocks seen lower; EUR/USD 1.1770-73; bund yield 0.449%; Brent crude $55.88; gold $1287.00
-ECB's Lautenschläger Says Should Start Cutting Bond Purchases Next Year
-On North Korea, Mattis Stresses Diplomacy, But Advises Army to Be Ready
-Turkey's Erdogan Calls U.S. Curb on Visas 'Very Saddening'
-LVMH Sales Rise 14% in Third Quarter
Watch For: Germany foreign trade; France industrial production; U.K. index of production, trade data; IMF World Economic Outlook; Angela Merkel meets Emmanuel Macron in Frankfurt; BAE Systems, Givaudan trading updates
Headline News:
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The European Central Bank should start cutting its bond purchases at the beginning of next year, a member of the central bank's Executive Board said Monday.
Sabine Lautenschläger defended the central bank's aggressive policy of stimulating the economy by unusual means, which has faced steady criticism in Europe's largest economy.
"We need to discuss how to exit from our unconventional monetary policy, and then we need to do it. My opinion is clear: we should begin to scale back our bond purchases at the beginning of next year," she said according to a speech text published on the ECB's website.
Ms. Lautenschläger expressed support for a gradual reduction in bond purchases, noting monetary policy would remain supportive of the economy, even when new purchases are phased out.
"Even if we phased out our net purchases of bonds entirely, some monetary accommodation would remain in place. This is because we reinvest all the money from maturing bonds," she said.
Defense Secretary Jim Mattis said the U.S. is using diplomacy and economic pressure to turn back North Korea's nuclear weapons program, but cautioned a gathering of Army officers and troops that they need to be ready in case negotiations fail.
Mr. Mattis said the State Department and United Nations are leading the way in diplomacy and sanctions, in a speech in which he pointed to the horrors that would result from all-out war on the Korean Peninsula.
"It is right now a diplomatically-led, economic sanction-buttressed effort to try to turn North Korea off this path," Mr. Mattis told the annual gathering of the Association of the U.S. Army, a conference attended by active-duty troops, liaison officers from allied armies and defense contractors.
The Turkish foreign ministry on Monday urged the U.S. to reverse its decision to suspend most visa services for Turkish citizens.
Ministry officials summoned the embassy's undersecretary and told him the U.S. decision has led to an "unnecessary escalation" of tensions, the state-run Anadolu news agency reported, citing diplomatic sources. The Turkish foreign ministry undersecretary also spoke by phone with the U.S. ambassador, Anadolu said.
The U.S. embassy didn't immediately respond to a request for comment.
Stocks:
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European stocks face early losses Tuesday, with DAX futures down 27 points and FTSE 100 futures 7 points lower.
South Korean equities led broad gains across Asia-Pacific, as investors there returned following a long holiday.
The benchmark Kospi was up 2% in early trade and approaching the index's record high, after local markets were shut for all of last week and Monday. Driving gains was a 4.4% surge in heavyweight Samsung Electronics, as traders rush to buy the stock ahead of the company's third-quarter earnings report due on Friday.
If the stock maintains those gains through Tuesday's close, it would be Samsung's best daily percentage gain in about a year.
In Japan, the Nikkei Stock Average gained 0.3% following Monday's market holiday. The index is closing in on a 21-year high: A move above the 20,952.71 level touched in late June 2015 would mark its highest since 1996. Elsewhere, Australia's S&P ASX/200 was flat along with Hong Kong's Hang Seng.
The U.S. stock market closed lower on Monday, as a selloff in health-care, industrials and financials weighed on the main indexes. Modest losses on Wall Street came amid low trading volumes, as the U.S. bond market was closed in observance of Columbus Day.
The S&P 500 closed 0.2% lower and Nasdaq declined 0.2%, snapping a nine-day winning streak. The Dow Jones Industrial Average hit an intraday record in early trade, but finished the session 12.60 points lower at 22,761.07.
Corporate News:
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LVMH said Monday that third-quarter revenue rose 14%, boosted by organic growth in all its business.
Revenue for the quarter was 10.38 billion euros ($12.18 billion), beating analyst expectations of EUR10.2 billion. Organic sales adjusted for currency effects increased 12% compared with the same period last year.
Forex:
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The dollar extended losses against some developed market currencies in Asia, with the ICE Dollar Index, which measures the U.S. currency against a basket of six others, recently down 0.2% at 93.48.
The greenback lost ground against the euro and pound but edged higher against the yen.
Investors will be keeping a close watch on U.S. consumer price data, due out Friday.
Some have worried in recent months that tepid inflation would prevent the Federal Reserve from raising rates. But central bank officials have recently brushed off the weak inflation data and signaled they continue to expect another U.S. rate-increase this year, citing strength in another parts of the economy such as the labor market.
At 0350 GMT, USD/JPY was 112.65-66, EUR/USD was 1.1770-73 and GBP/USD was 1.3158-60.
Futures positioning in the dollar moved to a new high in net shorts on Oct. 3, despite the rebound in the greenback over the last month. It seems the market is skeptical that the recent rise in the dollar will last, and has been in a "sell-the-rally" frame of mind, said Greg Gibbs, currency strategist at Amp GFX.
However, U.S. economic reports, including Friday's labor data, support the notion that the buck can rise further, he added. The dollar has rallied in part due to a rejuvenated push for tax reform. However, it appears that the market retains a significant risk premium to account for U.S. political uncertainty, Mr. Gibbs said.
Bonds:
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German 10-year bunds look attractive around the 0.50% yield level, according to Mizuho rates strategists.
They expect this week to be lighter than last week in event risks for eurozone assets "thanks to the relatively small duration of the core bonds on offer and thanks to redemptions offsetting them."
This week's issuers from the core of the eurozone include Germany, Finland and the Netherlands, with their supply concentrating on five- and seven-year maturities. Germany is scheduled to redeem a five-year bond on Friday and Italy pays back an old floating-rate note on Sunday. The yield on the 10-year bund was 0.449% early Tuesday.
The U.S. bond market was closed Monday.
Energy:
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Oil futures were just in the green in early Asian trading after settling modestly higher in the U.S., reversing some of Friday's slide.
Still, WTI remains below the $50/barrel psychological threshold. At 0156 GMT, Nymex November WTI was up 11 cents at $49.69, while December Brent was up 9 cents at $55.88.
Metals:
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London spot-gold prices added to Monday's gains in Asia, hitting their best level of the month following declines in the dollar.
Helping, some say, has been fresh rhetoric over the weekend between the U.S. and North Korea. And the prospect of the U.S. imposing sanctions again on Iran has further fueled concerns.
At 0153 GMT, spot gold was up 0.3% at $1,287.00/troy ounce.
Base metals aren't in lock step, with aluminum prices falling in Asia despite a weaker dollar.
Some expect the market to trade in a narrow range ahead of the start next week of China's twice-a-decade Communist Party gathering. On watch, among other things, will be efforts to lower excess manufacturing capacity and curtail pollution, noted Gnanasekar Thiagarajan of Commtrendz Risk Management. Markets are also awaiting Chinese trade data due Friday.
At 0305 GMT, three-month copper and zinc prices were up 0.4% and 0.3%, respectively on the LME, while aluminum was down 0.7%.
Write to paul.larkins@wsj.com
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October 10, 2017 00:10 ET (04:10 GMT)