European Shares Likely To Open On Firm Note

European stocks are poised for a firm open, though Middle East tensions and forthcoming U.S. CPI data (expected +0.1% MoM, +2.3% YoY) introduce volatility, with the latter influencing Fed rate cut expectations, currently at a 70% probability for a 25bp November cut. This follows overnight gains in U.S. and European equities driven by Fed minutes suggesting past aggressive cuts, while Asian markets surged today on China stimulus hopes and improved home sales data. Oil prices are up amid geopolitical concerns and a major storm, while the ECB's monetary policy account is also due.

Analysis

(RTTNews) - European stocks may open on a firm note Thursday, though volatility cannot be ruled out due to lingering Middle East tensions. Media reports suggest that U.S. President Biden and Israeli Prime Minister Benjamin Netanyahu discussed Israel's expected military retaliation against Iran in their first call in over a month Wednesday. Meanwhile, investors eagerly await September's U.S. consumer price inflation data later in the day, with economists anticipating a 0.1 percent increase on a monthly basis, and a 2.3 percent advance over the prior 12 months. The CPI print along with weekly jobless claims figures due later in the day and producer price inflation data due on Friday might influence the size of the next rate cut by the U.S. central bank. Currently, Fed funds futures trading data suggests a roughly 70 percent likelihood of a quarter-point cut at the Fed's November policy meeting. On the earnings front, Delta Air Lines will unveil its quarterly earnings before the U.S. opening bell. The account of monetary policy meeting of the European Central Bank is due, headlining a light day for the European economic news. Closer home, Destatis is scheduled to issue Germany's retail sales data for May later in the day. Sales had declined 1.2 percent on month in April. The European Central Bank will publish the account of the monetary policy meeting of the governing council held on September 11 and 12. At the meeting, the bank had lowered its key interest rates by 25 basis point. Asian stocks followed Wall Street higher, with benchmark indexes in China and Hong Kong surging 3-4 percent after data showed home sales ticked up in some cities during the Golden Week holiday. Market participants are also looking for additional measures to stimulate the world's second-largest economy. The dollar steadied near a seven-week peak, and gold nudged higher while oil prices were up around 1 percent on concerns over potential Israeli attack on Iran and a spike in fuel demand as a major storm barreled into Florida. U.S. stocks climbed overnight as minutes from the Fed's September meeting showed a "substantial majority" of Fed officials at the meeting favored the larger half-point rate cut, but were divided over the economic outlook, and are in no rush for another half-point cut. The Dow and S&P 500 rose 1 percent and 0.7 percent, respectively to close at record levels while the tech-heavy Nasdaq Composite gained 0.6 percent. European stocks closed higher on Wednesday ahead of the release of Fed meeting minutes and amid hopes that the Chinese government will announce more fiscal stimulus at a Saturday briefing on fiscal policy. The pan European STOXX 600 climbed 0.7 percent. The German DAX rallied 1 percent, France's CAC 40 added half a percent and the U.K.'s FTSE 100 advanced 0.7 percent. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Global equity markets are exhibiting positive momentum, but face significant near-term catalysts and geopolitical risks that could induce volatility. U.S. indices, including the Dow and S&P 500, closed at record highs, while Asian markets saw a substantial rally, with Chinese and Hong Kong benchmarks surging 3-4% on encouraging Golden Week home sales data and anticipation of further fiscal stimulus. This bullish sentiment is underpinned by dovish central bank expectations; Fed funds futures imply a 70% probability of a 25 basis point rate cut in November, following September meeting minutes that revealed a majority favored a larger half-point cut at that time. However, the market's primary focus is now on the upcoming U.S. CPI data, with economists forecasting a tame 0.1% monthly increase, which will be critical in shaping the Fed's next move. Counterbalancing this optimism are escalating Middle East tensions, which have driven oil prices up approximately 1% on concerns of a potential Israeli military retaliation against Iran. In Europe, markets are poised for a firm open following the positive global lead, but will also digest the European Central Bank's latest monetary policy account and German retail sales data, which previously showed a 1.2% monthly decline.

Key Decisions for Investors

• Investors should closely monitor the upcoming U.S. CPI data, as any deviation from the expected 0.1% monthly increase could significantly reprice the 70% probability of a November Fed rate cut and impact market sentiment.
• Given the rise in oil prices driven by Middle East tensions, it is prudent to assess portfolio exposure to geopolitical risk and consider hedging strategies against further energy price shocks.
• The 3-4% surge in Chinese and Hong Kong equities on stimulus hopes may present a tactical opportunity, but investors should be mindful that this rally is highly dependent on forthcoming government policy announcements.
• Despite record highs in U.S. markets, the combination of key economic data releases and geopolitical friction suggests maintaining a cautious stance and preparing for increased market volatility in the coming sessions.