U.S. consumers face epic battle

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-U.S. consumers face epic battle</title></head><body>

STOXX Europe 600 up 0.3%

Eyes on ECB rate decision

Autos drop on China warning

S&P 500 futures rise

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American consumers have been battling challenges over the last year or so, from inflation, high borrowing costs, labor market instability and a regional banking crisis. Will they eventually bend and break?

RBC says consumers have been more resilient than expected, but the brokerage's real time travel and mobility indicators show "signs of consumers bending but not breaking (yet)" relative to service sector spending.

For the context, the U.S. services sector unexpectedly gained steam in August, with new orders picking up and businesses paying higher input prices -- potential signs of still-elevated inflation pressures.

The brokerage says the early warning signs are reflected in growing credit card debt, as card delinquencies are increasing to levels last seen in the years subsequent to the financial crisis.

There are more warning signs. Consumers are trading down from luxury to mid-tier hotels, even as record numbers of Americans travel abroad, adds RBC.

Also, gas station visits remain robust showing that Americans are still hitting the road despite record high seasonal prices at the pump.

U.S. consumer prices also increased by the most in 14 months in August as gasoline prices surged, but the annual rise in underlying inflation was the smallest in nearly two years.

So is the consumer bending, or breaking right now?

"If travel is a measure of discretionary health, given that our metrics of business travel are largely flat, year-on-year, and still well off pre-COVID norms, the consumer remains relatively resilient, for now," adds RBC.

(Siddarth S)



Most traders look to be positioned for a 25 basis point interest rate hike at the European Central Bank meeting later on Thursday but potential surprises in the details cannot be ruled out altogether.

ING expects the central bank to hike for the tenth straight meeting but says "markets are torn" and believes it's going to be very hard to convince investors that this is not the peak.

"... dovish dissenters may get in the way. The upside for EUR rates and the euro may not be that big and above all, quite short-lived," write strategists at the Dutch bank.

That being said, ING sees the single currency rising to $1.09 under a very hawkish outcome vs $1.07 currently and slipping to $1.05 under a dovish outcome. Likewise, German 10-year Bund yields could swing between 2.75% and 2.50% vs 2.64% at the moment.

Have a look at ING's cheat sheet below.

For more reading, check out also: GRAPHIC-Stop or go? Five questions for the ECB

(Danilo Masoni)



The recent surge in oil prices has rekindled inflation concerns among macro investors but for oil companies and energy stocks bulls it's good news.

Bernstein not only are upbeat about the sector's long-term prospects given its cheap valuations but also believe there's a more immediate opportunity for investors to jump on.

European energy has returned less than 10% since the end of June but over the same period crude prices have risen more than twice as much, a gap which suggests there is potential upside.

"There is scope to close the performance gap with the oil price," say strategists at the U.S. investment house, pointing to potential for earnings upgrades and that investor sentiment is starting to improve from extreme negative levels," .

"We also reiterate our fundamental strategic case for owning the sector with relative valuations at 35-year lows along with generous dividend, net buyback and free cashflow yields on offer in the sector," they add.

LSEG data shows profit revisions for the STOXX Oil & Gas .SXEP turned positive to hit a near 11-month high in September. Earnings are now seen growing by 3.5% in 2024 after a 30% drop this year.

(Danilo Masoni)



Shares in Europe kicked off the day broadly unchanged with auto stocks dragged lower on concerns over a potential trade spat between Europe and China.

The STOXX Europe Auto index .SXAP was the biggest faller, down 1.5% at one point, after Beijing warned the European Commission that its probe into China's electric vehicle subsidies could hurt trade relations.

Strength in miners and oil stocks however helped the region-wide STOXX Europe 600 .STOXX steady just above parity.

Exor was the biggest gainer, up 5.5% boosted by its 1 billion euro new share buyback. Euro zone banks .SX7P were another weak spot, down as much as 0.8%, as traders wondered whether the ECB would introduce any new change to reserve requirements.

Here is your opening snapshot:

(Danilo Masoni)



European shares were set to rise slightly at the open on Thursday ahead of another likely rate hike by the European Central Bank later in the day that could possibly be the last of this tightening cycle.

EuroSTOXX50 and FTSE futures gained 0.1% and 0.2%, respectively, following gains in Asia overnight, while contracts on the S&P 500 added 0.3%.

On the corporate front, automakers will stay in focus a day after the EU Commission launched an investigation into whether to impose tariffs to protect producers against cheaper Chinese electric vehicles.

In response, China warned the probe would negatively impact economic and trade relations.

Elsewhere, Exor could find support after the holding company of Italy's Agnelli family approved a new share buyback program for up to 1 billion euros.

(Danilo Masoni)



The European Central Bank sets interest rates later today and traders figure we are at or near the peak.

An increase of 25 basis points would take the rate on bank deposits to 4%, the highest since the euro launched in 1999.

Yet enough is priced in that any immediate risk to the currency EUR=EBS is probably skewed to the downside. If there isn't a hike, the euro may fall, and if there is, markets will likely assume it is the last and on that basis be sellers.

The euro steadied at $1.0742 during a quiet Asian session.

Notwithstanding inflation sticking around twice policymakers' 2% target, Europe's economy is slowing. Lending growth is crawling and PMI surveys show the downturn in business activity deepening far more than had generally been expected.

Germany is slipping toward recession. Energy is a potential wild card, with tight supply driving oil prices to 10-month highs and gas prices spiking as workers began striking at Chevron facilities in Australia that account for 5% of global LNG.

Later in the day Arm Holdings ARM.O begins trading in New York after its $51-a-share float gave a $54.5 billion valuation.

Then U.S. retail sales figures are due which, if they fall in with expectations for a slowdown, would reinforce market wagers on the Fed keeping rates on hold this year.

In Asia, bonds and stocks both rallied a little bit, and U.S. ESc1 and European futures STXEc1 nudged higher. Shares in Chinese electric vehicle makers fell after the European Commission launched an investigation of Chinese subsidies.

Key developments that could influence markets on Thursday:

ECB policy decision

Arm Holdings begins trading

U.S. retail sales

(Tom Westbrook)


What’s next for the ECB’s balance sheet wind-down? https://tmsnrt.rs/4826i9C

Eu open https://tmsnrt.rs/3ZgusZW

Mind the gap: energy vs oil https://tmsnrt.rs/3PiqVFV

ECB scenarios by ING https://tmsnrt.rs/44QX2Cy


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