MARKET WRAPS

Watch For:

Eurozone retail trade, meeting of eurozone finance ministers; services PMI data for eurozone, Germany, UK, France, Italy; UK monthly car registration figures, official reserves; trading update from Ryanair

Opening Call:

Shares appear poised for slight gains at the start of the week after China took steps to ease its Covid restrictions. Stock benchmarks and commodities rose in Asia, while the dollar softened and Treasury yields gained.

Equities:

Stock futures point to a slightly higher open on Monday amid improved sentiment, after local authorities across China pared back some of their strictest Covid-19 control measures.

European shares closed mixed last Friday following an unexpectedly strong U.S. jobs report for November.

The resilience of the jobs data prompted investors to price out the prospect of an imminent sharp slowdown in the Federal Reserve's interest-rate rise cycle, CMC Markets said.

"Friday's stronger-than-expected jobs report gives the Federal Reserve more reasons to continue raising interest rates and maintain tighter monetary policy for longer, at least until the labor market begins to weaken, which is a signal that the market does not want to hear right now," said Robert Schein, chief investment officer at Blanke Schein Wealth Management.

But some market strategists see a silver lining.

"The report is a positive development for the economy and helps support the case that the Fed may be able to achieve a soft landing in the economy, an outcome that's contrary to predictions made by some of the nation's largest banks in recent months," said Peter Essele, head of portfolio management at Commonwealth Financial Network.

"The labor market remaining hot continues to justify what the Fed is doing," said Nicole Webb, financial advisor at Wealth Enhancement Group. "I don't think it changes course from the 50 basis-point expectation in December," she said, "but we've really started to question how high the terminal rate has to get to, to have the demand destruction that brings inflation down to 2%."

Forex:

The dollar weakened on a return of risk appetite amid the easing of Covid restrictions in China.

However, ANZ has one eye on next week's FOMC meeting, noting the Fed may lift its terminal rate projection above 5% even if it opts for a smaller 50bp rise in the fed-funds rate.

"If that occurs, the question we're pondering is: how will the USD fare?" said ANZ.

"We may be shaping up for an epic battle between the 'recessionists' and the 'rate-watchers', all of which portends USD volatility."

Bonds:

Treasury yields rose in Asia, after the policy-sensitive 2-year Treasury yield advanced Friday but finished the week lower. A hotter-than-expected U.S. jobs report for November prompted traders to push up the likelihood of a 5% or higher fed-funds rate by March.

"While the Fed may slow down its rate increases from the 0.75% per meeting pace to 0.50% per meeting pace, it may also place pressure on them to extend those rate increases further into 2023," said Jason Pride, chief investment officer of private wealth at Glenmede.

"Such a path to higher rates for longer should put a damper on both fixed income and equity markets."

Read: Robust U.S. jobs market adds to worry over how much higher interest rates need to go

Energy:

Crude oil futures rose early Monday after China loosened some of its Covid curbs.

However, traders could remain on edge after the European Union and Group of Seven nations imposed a price cap of $60/bbl on Russian oil, which is set to take effect this week, ANZ said.

European sanctions on Russian oil also kick in this week, while OPEC+ has made the decision to keep its output steady, which raises uncertainty on oil supply and demand in coming months, ANZ added.

Metals:

Gold prices rose in Asia, reversing a previous pullback after a "shockingly hot" nonfarm payroll report, said Oanda.

The unexpectedly strong jobs report spurred the dollar to rise, and traders began to raise expectations of future hikes from the Fed, added Oanda. The pullback in gold prices was unwarranted, as inflation is steadily declining, which should mean the Fed will slow the pace of its rate hikes.

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Copper prices advanced, extending a recent rally amid rising hopes for the easing of pandemic curbs in China.

ANZ said many investors are betting on expectations of sharply higher copper demand from the world's second-largest economy.

But ANZ warned of "signs of weakness in the physical market," and "ample supply" that has pushed down prices for some copper contracts and port inventories.

-

Iron-ore prices should be buoyed by seasonal supply challenges over the next few months, Jefferies said following recent gains in the steelmaking commodity.

The benchmark price of iron ore is up by 35% since the start of November, underpinned by Beijing's plans to stabilize China's property market and ease some Covid restrictions.

"Seasonal supply constraints should also help over the next 2-3 months," Jefferies said, referring to the severe storms that can occur in Australia and Brazil around the turn of the year.

Meanwhile, Yongan Futures thinks the upbeat sentiment will remain strong for some time, as traders seek to position for an expected demand rebound into the spring of 2023.

But Yongan cautioned that investors should monitor the momentum for steel production, which has been under pressure due to weak profitability.

   
 
 

TODAY'S TOP HEADLINES

OPEC+ Keeps Oil Curbs Despite Russia Price Cap

OPEC+ said Sunday it would lock in current production levels, a pause that suggests the word's leading oil producers are uncertain about the direction of crude prices with a price cap on Russia's petroleum exports set to take effect.

The decision on Sunday allows the Organization of the Petroleum Exporting Countries and a group of producers led by Russia-collectively known as OPEC+-to take more time to assess the market impact of an EU and Group of Seven price cap, which is intended to crimp Russia's revenue for the Ukraine war. It locks in a 2 million-barrels-a-day production cut decided in October.

   
 
 

Dow Shines as Higher Rates Squeeze Nasdaq's Tech Stocks

The Dow is beating the broader market to a degree not seen in nearly a century.

The Dow Jones Industrial Average is down 5.3% this year, which isn't normally a cause for celebration. But that performance looks downright golden compared with the broad S&P 500, which is off 15%, and the tech-heavy Nasdaq Composite, which has dropped 27%.

   
 
 

China Loosens Covid Restrictions as Public Anger Simmers

HONG KONG-Local authorities across China are paring back some of their strictest Covid-19 control measures, just days after public anger spilled over into rare protests against a zero-tolerance approach that has kept the country largely isolated for three years.

In recent days, officials in major cities-including Beijing and other areas where protests broke out a week ago-said they were lifting some curbs on residents' movements, such as by ending mandatory Covid testing for people who want to use public transport or enter parks and other public spaces.

   
 
 

Business-Software Companies Say Customers Are Pulling Back Amid Economic Concerns

Business-software companies say customers are being more cautious with their spending in response to a challenging economy, adding to the tech industry's list of concerns.

Customers for companies such as Salesforce Inc., Okta Inc. and CrowdStrike Holdings Inc. are taking longer to sign deals, and in some cases slowing their hiring plans as they try to protect their bottom lines, the software providers reported this past week. That trend has created a cloudy outlook for many in the once-booming business-software sector, which benefited from years of demand as customers looked to use the products to trim costs and maintain their businesses during the pandemic.

   
 
 

Economists Think They Can See Recession Coming-for a Change

If the economy shrinks next year, no one should be surprised. We're facing the most widely forecast recession in history-and investors don't seem to care.

Recession in Europe and the U.K. is already the average of economic predictions, while the U.S. average forecast for next year is growth of a miserly 0.2%, according to Consensus Economics, the third lowest since 1989.

   
 
 

Must Inflation Be Brought Down All the Way to 2%?

"Why must inflation be around 2%?" is a question that obsessed central bankers back when inflation was stubbornly below their favorite target. It makes more sense to ask it now.

This past week, a string of data has suggested that inflation is finally on a downward trend. The U.S. personal-consumption expenditures price index excluding food and energy-the Federal Reserve's preferred measure of inflation-recorded its second-smallest monthly increase for the year, even as consumer spending jumped and job growth continued. Meanwhile, eurozone inflation receded to 10% in November, suggesting that October's 10.6% was the peak.

   
 
 

Why You Can't Find Wegovy, the Weight-Loss Drug

Novo Nordisk A/S flubbed the launch of its buzzy new weight-loss drug Wegovy, missing out on hundreds of millions of dollars in sales and squandering a head start before a rival could begin selling a competing product.

Wegovy is among a new class of drugs that health regulators have approved to cut the weight of people who are obese, a goal long sought by doctors and patients. Their weight-dropping potential became a viral sensation on social media. Elon Musk tweeted about Wegovy in October. And a related drug for diabetes, Ozempic, is a hot topic in Hollywood among celebrities seeking to stay thin, according to doctors.

   
 
 

Iran Disbands Morality Police, Considers Changing Hijab Laws, Official Says

Iran's attorney general said the country had disbanded its so-called morality police and is considering altering the requirement that women cover their heads in public, a move that analysts said was aimed at peeling away support for antigovernment protests.

Mohammad-Jafar Montazeri outlined the steps Saturday, saying the law requiring veils, known as hijabs, was under review by Iran's Parliament and judiciary, and that the morality police had been abolished, according to government-run news agencies.

   
 
 

Ukraine Says Oil-Price Cap Won't Dent Russia's Ability to Fund War

KYIV, Ukraine-Ukraine denounced a price cap on Russian oil agreed to by the U.S. and its allies as a weak measure that would fail to deprive Russia's military machine of funds, as Moscow said it could stop supplying consumers in response.

The Group of Seven agreed Friday to cap the price of Russian oil at $60 a barrel, moving forward with an unprecedented sanction against one of the world's largest producers following its invasion of Ukraine.

   
 
 

Russia Will Rely on 'Shadow' Tanker Fleet to Keep Oil Flowing

Shipping companies have snapped up dozens of secondhand oil tankers this year, paying record prices for ice-class ships that can navigate frozen seas around Russia's Baltic ports in winter.

A driving force behind the purchases, say people familiar with the deals: To get Russian oil to market after the harshest sanctions to date strike Russia's energy industry next week.

   
 
 

British Police Raid London Home of Russian Oligarch, Seizing Cash and Devices

British police arrested a wealthy Russian businessman at his upscale London home, officials said Saturday, amid stepped-up pressure by the U.K. on Russian émigrés who are suspected of aiding the rule of President Vladimir Putin.

The U.K.'s National Crime Agency said more than 50 of its officers took part in the raid, seizing cash and digital devices. Police also arrested a man employed at the residence after he was seen leaving the building with a bag containing thousands of pounds in cash.

   
 
 

Credit Suisse's Investment Bank Spinoff Attracts Saudi Crown Prince

Saudi Arabia's crown prince and a U.S. private-equity firm run by Barclays PLC's former chief executive are among investors preparing to invest $1 billion or more into Credit Suisse's new investment bank, people familiar with the matter said.

Crown Prince Mohammed bin Salman is considering an investment of around $500 million to back the new unit, CS First Boston, and its CEO-designate, Michael Klein, some of the people said. Additional financial backing could come from U.S. investors including veteran banker Bob Diamond's Atlas Merchant Capital, people familiar with that potential investment said. Credit Suisse previously said it had $500 million committed from an additional investor it hasn't named.

   
 
 

New Zealand plans law to force Google, Meta to pay news publishers for content

New Zealand intends to require large tech companies like Google and Meta to compensate local media companies for content they use and share on their platforms.

Willie Jackson, New Zealand's minister of broadcasting, announced Sunday that legislation is being drawn up that will be based on a similar law in Australia, as well as pending legislation in Canada and measures in the U.K. and the EU.

   
 
 

Apple Makes Plans to Move Production Out of China

In recent weeks, Apple Inc. has accelerated plans to shift some of its production outside China, long the dominant country in the supply chain that built the world's most valuable company, say people involved in the discussions. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn Technology Group.

Turmoil at a place called iPhone City helped propel Apple's shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones, according to market-research firm Counterpoint Research.

   
 
 

Write to singaporeeditors@dowjones.com

   
 
 

Expected Major Events for Monday

00:01/UK: CBI Economic Forecast

01:01/IRL: Nov Ireland Services PMI

07:00/TUR: Nov PPI

07:00/TUR: Nov CPI

07:00/SWE: 3Q Balance of Payments

08:00/AUT: 3Q GDP

08:00/HUN: Oct Retail Sales

08:00/SVK: Oct Internal trade, incl Wholesale & Retail

08:00/CZE: 3Q Wages

08:15/SPN: Nov Spain Services PMI

08:45/ITA: Nov Italy Services PMI

08:50/FRA: Nov France Services PMI

08:55/GER: Nov Germany Services PMI

09:00/EU: Nov Eurozone Services PMI

09:00/UK: Nov UK monthly car registrations figures

09:30/UK: Nov S&P Global / CIPS UK Services PMI

09:30/UK: Nov UK Official Reserves

10:00/CYP: Nov Registered Unemployed

10:00/EU: Oct Retail trade

16:59/SWI: 2Q Locational & Consolidated banking statistics

16:59/SWI: 3Q International debt securities statistics

16:59/SWI: 2Q Domestic debt securities statistics

16:59/SWI: 3Q Exchange-traded derivatives statistics

17:59/UK: 3Q Household Finance Review expected around now

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

December 05, 2022 00:22 ET (05:22 GMT)

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