October trading has begun on a challenging note, with escalating tensions in the Middle East dampening market enthusiasm. These growing concerns have also pushed oil prices higher, with U.S. crude futures rising by over 1.5%, contributing to a week-to-date gain of 4.6%. On Wall Street, investors are anticipating new labor market data, including the release of weekly initial jobless claims on Thursday and September’s payrolls report, which is due on Friday morning.

European stocks declined on Thursday, influenced by the ongoing conflict in the Middle East, which dampened regional investor sentiment. Auto stocks were particularly affected, falling by 1.87% amid reports that the European Union might impose tariffs of up to 45% on Chinese electric vehicle (EV) manufacturers as early as Friday. Investors also evaluated new unemployment data from the euro zone, which revealed that the unemployment rate remained steady at a record low 6.4% in August.

On Thursday, Hong Kong stocks experienced a significant drop, ending a six-day winning streak as the momentum from China’s stimulus measures began to wane. Concurrently, the Japanese yen weakened against the U.S. dollar, marking its largest single-day decline since June 2022. Meanwhile, markets in mainland China will remain closed until October 8th due to a week-long holiday, and South Korea’s markets are also closed for National Foundation Day. Additionally, Taiwan’s markets were shut for a second consecutive day as Typhoon Krathon brought heavy rainfall to the island.

Economic Calendar

Earnings Calendar

Notable reports for Thursday before the bell include ANGO & STZ. After the bell reports include TLRY.

News & Technicals’

Levi Strauss reported mixed quarterly results, announcing plans to sell its Dockers business. While the company experienced robust growth in its namesake brand and Beyond Yoga, sales at Dockers fell by 15% during the quarter. Despite this, Levi’s focus on direct selling and lower cotton costs contributed to a 4.4 percentage point increase in its gross margin.

Europe’s leading car manufacturers are growing increasingly anxious about the potential for substantial fines, especially as demand for electric vehicles (EVs) weakens ahead of stricter carbon regulations. Starting next year, European carmakers will face more stringent emission targets, with the EU cap on average emissions from new vehicle sales dropping to 93.6 grams of CO2 per kilometer. Renault CEO Luca de Meo recently indicated that if EV sales do not improve, the European auto industry could face financial penalties amounting to 15 billion euros ($16.5 billion).

Atlanta is expected to experience haze and a chlorine odor on Thursday as authorities work to manage the aftermath of a chemical lab fire that started on Sunday. Air quality monitoring around the BioLab facility in Conyers detected elevated chlorine levels overnight, according to a news release from the Georgia Emergency Management and Homeland Security Agency on Wednesday. The presence of chemical gas has led to a shelter-in-place recommendation for the entire county, which has a population of 93,570, and mandatory evacuation orders for residents in the vicinity of the plant.

The British pound dropped by over 1% against the U.S. dollar on Thursday following comments from Bank of England Governor Andrew Bailey. In an interview with the Guardian, Bailey suggested that further positive news on inflation could enable the central bank to adopt a more proactive stance on rate cuts. The Bank of England maintained interest rates at 5% in September after a 25-basis point cut in August, citing concerns about high services inflation. Bailey also expressed optimism that cost of living pressures had not been as persistent as previously anticipated.

Israel’s response early Thursday put geopolitics front and center in the minds of investors as the escalating tensions weigh on sentiment. The DIA, SPY and QQQ remain in choppy yet bullish patterns while market breadth continues to wane. I would expect more of the same today unless we can find some substantial inspiration in the weekly claims data.  However, the pending employment situation report Friday could also inspire a break of this 2 week long consolidation.

Trade Wisely,

Doug