LIVE MARKETS-European futures little changed

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EUROPEAN FUTURES LITTLE CHANGED (0617 GMT)

European shares were set steady near 7-month lows on Monday as high tensions in the Middle East and elevated bond yields kept investors sidelined, only a few days before the next policy decision at the European Central Bank.

EuroSTOXX50 and FTSE futures were trading up 0.2% and flat respectively, while S&P 500 contracts added 0.2%, following losses in Asia that sent a key regional benchmark down to its lowest level in a year.

In European corporate news, Volkswagen VOWG_p.DE cut its profit margin outlook for the current year, blaming negative effects from raw materials hedges at the end of the third quarter.

On a more upbeat note, Philips PHG.AS raised its full-year outlook as the Dutch health technology company beat analyst expectations for third-quarter core profit and comparable sales.

Eyes are also on Roche ROG.S after the Swiss drugmaker agreed to buy Telavant, a developer of a new treatment for inflammatory bowel diseases, for an initial $7.1 billion.

In the same sector, Indivior INDV.L said it will pay $385 million to settle a lawsuit brought by direct purchasers on claims it illegally suppressed generic competition for its opioid addiction treatment Suboxone.

(Danilo Masoni)

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STOCKS STRUGGLE AS YIELDS RISE, TECH EARNINGS LOOM (0549 GMT)

It’s been a cautious start to the week in Asia as markets wait to see when, or whether, Israel will launch a ground invasion of Gaza, and bonds continue their vicious sell-off.

Israel’s military continued to bomb Gaza on Sunday and clashed with Iran-backed Hezbollah on the border with Lebanon.

The leaders of the United States, Canada, France, Germany, Italy and Britain on Sunday underscored their support for Israel and its right to defend itself, but also urged it to adhere to international humanitarian law and protect civilians.

Still, some aid trucks did get through, which was enough progress to prompt a pullback in oil prices.

It failed to impress bond markets, however, as U.S. 10-year yields crept back up to 4.967% having surged almost 30 basis points last week alone.

The market has notably failed to garner any safe-haven bid as investors demand a higher real yield and term premia, stirring speculation the market is pricing in a new normal for rates that is above the Federal Reserve’s pick of 2.5%.

The scale of U.S. borrowing is also likely a concern given Washington last week reported a $1.695 trillion budget deficit for fiscal 2023, fully 23% higher than the prior year and above all pre-pandemic shortfalls.

Yields in Japan were also on the rise after the Nikkei newspaper reported the Bank of Japan as discussing a further tweak to its yield curve control policy, which might be announced at its policy meeting on Oct. 31.

The global rise in borrowing costs has seen the market price out almost any risk of the Fed hiking rates next week, and a near 70% chance it is done tightening altogether.

Markets, likewise, see scant risk the European Central Bank will hike when it meets this week, and is flirting with the chance of rate cuts from April next year.

Higher bond yields are also testing valuations for equities and promise pain for any company that misses the market’s earnings expectations this week.

Mega cap darlings Microsoft MSFT.O, Alphabet GOOGL.O, Amazon AMZN.O and Meta META.O all report this week, along with Intel INTC.O, IBM IBM.N, General Motors GM.N and General Electric GE.N, among many others.

Key developments that could influence markets on Monday:

– No major data scheduled

(Wayne Cole)

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