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STOXX 600 down 1.1%
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Autos, real estate sink but banks trade up
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Market awaits Boe decision
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Earnings season continues
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WITH TIGHTER PURSE STRINGS, IS PARITY LESS PROBABLE FOR THE POUND? (1052 GMT)
With two weeks to go before a statement from finance minister Jeremy Hunt on November 17, the story emerging is one of more fiscal discipline in the UK- with tax rises and spending cuts likely on the horizon.
Having rallied until yesterday, the pound is now little changed from the day Rishi Sunak was appointed as Prime Minister on October 25, currently trading around $1.12440 versus the dollar just before the Bank of England delivers its most recent decision on rates.
According to Citi's head of European FX strategy Vasileios Gkionakis, parity with the dollar is still a possibility, it's now less likely than before "given a more disciplined fiscal outlook", he wrote in a note.
Citi has now closed the short GBPUSD position with strikes at 1.00 and 0.95 that it initiated on September 28 - and initiated a new put spread spread at 1.09/1.05. So it's still short, but it's less bearish.
Despite the slightly improved outlook on increased fiscal disicpline, Gkionakis notes downsides including the UK's weak economic outlook, an "overpriced" BoE terminal rate of 4.74% and the hawkish Fed outcome yesterday which cleared the way for US yields to rise higher - a bearish factor for the pound.
"At current levels of US 2Y yields (4.72% at the time of writing), we estimate that GBPUSD should be trading closer to 1.10; if US 2Y yields were to rise to 5% (which is what we expect before year-end), cable should fall towards 1.07," he wrote.
Along with a change to its pound trade, a hawkish tone from the Fed has prompted Citi to reinitiate a bullish USDNOK trade, which is it buying spot at 10.5890, with a target of 11.00 and a stop-loss on a close below 10.35.
BANKS, INSURANCE DODGE CARNAGE AS REAL ESTATE STOCKS SINK (0818 GMT)
Europe's STOXX 600 is flashing red as signalled by earlier futures trading, last down 0.9% after U.S. markets took a battering on Wednesday.
Only two sectors are spared from the carnage; banks are up 0.3%, and insurance is up 0.2%.
The former is helped out by the Netherlands' largest bank ING Groep which has rallied 5.5% after reporting Q3 results and rolling out a share buyback plan worth 1.5 billion euros ($1.46 billion).
A 2.7% lift for BNP Paribas after Q3 profits topped forecasts can't hurt either.
The two banks are also helping to stem losses on the STOXX 600 and are the two biggest positive weights in the index. Meanwhile, insurer AXA is up 1.7%.
But the share price outperformer is Denmark-based IT consultancy company Netcompany , with shares rising 20.5% after some upbeat Q3 financials.
The UK's Hikma Pharmaceuticals, up 5.5%, is also helping lift the index after reiterating 2022 guidance in a trading statement.
Real estate stocks are down 2.5%, and in what is a familiar story in recent months. They're also the worst performing sector , followed closely by autos travel and tech, all down about 2%.
Dutch semiconductor maker ASML is providing the biggest drag on the broader STOXX 600, down 3.3%, as are Danish healthcare company Novo Nordisk and France's LVMH , down 1.6% and 1.7% respectively.
Thyssenkrupp shares are down 8.9% after Deutsche Bank cut the German submarine-to-steel group to "hold" from "buy", citing macroeconomic difficulties and an overly complex group structure.
ONE CENTRAL BANK DRAMA AFTER ANOTHER (0745 GMT)
So, Jerome Powell found a way to quiet the endless market chatter of a pivot even as he opened the door to smaller hikes.
Clearly the Fed chief doesn't want the bond market to rally so much that it eases U.S. financial conditions while inflation is still running hot. Ironically, the more bonds price in a pivot, the less inclined the Fed will be to give them one.
As a result, May Fed funds have shifted to 5.08% from 4.90% at end of last week, and there's less chance of a cut priced in by late next year. The yield curve bear-flattened and has not been this inverted since the turn of the century.
Now it's time for the Old Lady of Threadneedle Street to enter stage right and do her routine for the cameras. The Monetary Policy Report is out at noon (1200 GMT), followed by a news conference half an hour later streamed live on the Bank of England's website.
Markets are priced for a hike of 75 bps to 3.0%, which amazingly would be the highest since 2008. What happened to the goode olde days of 10%-plus?
Some are tipping 50 bps, but that would risk markets concluding the BoE isn't serious about taming inflation and spooking gilts again. Equally, 100 bps would just fan fears of a much deeper recession and an even bigger budget black hole.
In any event, the BoE is going to have to revise up its CPI forecasts and slash those for GDP, which will make for gloomy viewing compared to the comedy show that is government policy right now.
Other key developments that could influence markets on Thursday:
U.S. initial jobless claims seen at 220K
ISM service sector PMI is forecast at 55.5
Earnings include ConocoPhillips, Kellogg, Starbucks
STOXX POISED TO FALL AS MARKET DIGESTS FED, TURNS TO BOE (0739 GMT)
European stocks are set for a fall of 1.1% at the open, as the market continues to digest the "double-sided message" delivered by the Fed on Wednesday which saw U.S stocks shed 2.5% into the close after initially rising following an expected 75-bps rate hike.
Attention turns to the Bank of England's midday rate announcement. Market expectations centre on a similar hike of 75 bps - which would be the central bank's largest since 1989 as it battles the highest inflation in 40 years.
Earnings season continues, with euro zone's biggest lender BNP Paribas posting a higher-than-expected net profit in the third quarter.
German premium carmaker BMW has reported better than expected quarterly net profit - thanks to high car prices - but warned that rising inflation and interest rates would start to weigh on sales in the coming months.
Higher costs for energy and raw materials, as well as a weakening building materials market are behind a potential 10% drop in 2022 operating profit for the world's No. 2 cement maker Heidelberg Materials.
Meanwhile one of the biggest net losses in German corporate history of 40 billion euro ($39.3 billion has been unveiled by soon-to-be-nationalised gas importer Uniper.
