MARKET WRAPS
Stocks:
European stocks were trading in positive territory on Friday,
with investor sentiment helped by some better news from China,
where a report showed manufacturers trimming prices by 1.3%.
Gains were capped, however, as traders waited to see if fresh
U.S. data on Friday would confirm inflationary pressures are
easing.
The U.S. producer prices index for November is due for release
at 1330 GMT. The year-over-year level is expected by economists to
fall from 8% in October to 7.2%.
A slower pace of factory gate price rises should help reduce
consumer goods inflation and allow the Federal Reserve to be less
aggressive in raising interest rates. The November U.S.
consumer-price index will be published on Tuesday.
European Central Bank
The current market pricing of the ECB's terminal rate a little
below 3%, isn't especially aggressive, given that inflation will
likely remain far above its 2% target through much of next year,
Barclays said.
However, inflation risks are clearly starting to turn more
balanced given recent downside surprises on both sides of the
Atlantic, Barclays added.
A 50-basis-point interest-rate rise by the ECB on Dec. 15 is
likely, "but attempts to counterbalance this with tilts to the
hawkish side elsewhere" is a risk for markets.
Economic Insight
November's slight year-on-year decline in Norwegian core
inflation should be comforting for Norges Bank and--combined with
the bearish Regional Network Report--it suggests the central bank
will stick to its cautious approach, SEB said.
November year-on-year core inflation dropped to 5.7% from 5.9%,
while the market and WSJ consensus had been for a reading of 6%,
though Norges Bank had forecast 5%.
"Inflation is thus running 0.7 percentage points above the
bank's trajectory despite today's downside surprise, implying that
the bank will be forced to lift the short-term inflation forecast
in its December monetary policy report."
SEB expects the Norges Bank to raise rates by 25 basis points
next Thursday and sees downside risks to its rate path.
U.S. Markets:
Stock futures edged higher ahead of supplier-price data.
"Markets remain in absolute inflation data dependence
mode...even the typically nonmarket reactive PPI gauge still
warrants significant attention, especially with market-based
inflation gauges falling primarily due to sinking oil prices," SPI
Asset Management said.
The yield on the benchmark 10-year Treasury note fell to 3.480%,
from 3.492%. The yield on the two-year note, which is more
sensitive to near-term interest-rate expectations, fell to
4.284%.
Forex:
U.S. data scheduled for later could further pressure the dollar,
UniCredit Research said.
The PPI may show a further easing in price pressures in
November, which could fuel expectations for the Fed to slow the
pace of interest rate rises on Dec. 14 and prompt "another EUR/USD
assault above this month's high of 1.0594 and then on June highs
above 1.06," UniCredit said.
"A relatively flat University of Michigan sentiment reading is
not expected to inspire the USD either."
With the dollar battling seasonal weakness, the euro has managed
to edge higher, although its gains are likely to be limited, ING
said.
"Our base case is still that EUR/USD will struggle to trade
sustainably above 1.0600, and is mostly facing downside risks into
year-end as the dollar could regain some ground on global risk
uncertainty and rebounding energy prices," ING said, noting the
dollar's safe haven status.
---
Sterling faces a hit from the Bank of England's latest inflation
attitude survey on Friday as it could show inflation expectations
remain high and confirm the public's dissatisfaction with the
central bank's passive approach to raising interest rates,
Commerzbank said.
Inflation expectations remain well above the BOE's 2% target
over a two-year horizon, which makes it difficult for the central
bank in taming inflation and GBPunderlines the risk of increased
volatility in sterling," Commerzbank said.
The "depressed" economic outlook, cautious monetary policy and
continued high inflation continue to "principally put pressure on
sterling."
Read Pound May be Little Moved by BOE Decision, Struggle to Rise
in 2023
Rates Market
The recent rally in rates markets looks exaggerated for Societe
Generale, which sees no fundamental factors driving it.
"Inflation remains sticky, labor markets and growth are
resilient, and central banks still have a ways to go before they
end their tightening cycle."
It expected both the Fed and the European Central Bank to raise
interest rates by 50 basis points next week, adding that more rate
rises will be needed.
Bonds:
The room for further declines in eurozone government bond yields
looks limited in the coming months, SEB said, which expects the
10-year German Bund yield to climb back above 2% in the first
quarter of 2023.
"With the net supply adjusted for the ECB's purchases increasing
substantially in 2023, we think the case for a continued decline in
euro area long yields in the coming two to three months is not
particularly strong, especially given the already depressed yield
levels."
---
Societe Generale said it favors Portuguese government bonds
versus Spanish peers, as markets refocus on fundamentals and
relative performance.
One of its recent trade recommendations has been to buy 10-year
Portuguese bonds versus 10-year Spanish peers, and Portuguese bonds
have been performing strongly, it said.
"But the main reason to favour it is the outlook for fiscal
metrics in coming quarters, as well as improved relative liquidity
and higher flexibility from smaller issuers in what promises to be
a heavy issuance year without the European Central Bank," Societe
Generale said.
Energy:
Oil futures wavered, with prices having suffered sharp falls
this week, as higher inventories pressured demand.
"The demand side remains broadly bearish, amid a global economic
slowdown, heightened recession risks in the EU and the U.S. and
lingering concerns over growth in China," Fitch said.
It has forecast Brent to average $95 a barrel in 2023, "spurred
by strong, albeit slowing, consumption growth and constraints on
the supply side," but said the "balance of risk to the forecast is
now skewed squarely to the downside."
Metals:
Base metals made solid gains while gold edged higher, with
positive sentiment around China providing support.
"Metals have broadly edged higher since November with optimism
toward mainland Chinese growth and the likely peaking of the
dollar," Fitch said.
Further optimism has come from investment within China's
property sector and also an easing of Covid-19 measures, Fitch
added. However, it said the slowdown in construction activity in
mainland China, weakening housing markets across developed markets
and worsening financial conditions has kept prices in check.
More Metals Insight
Morgan Stanley has highlighted aluminum, iron ore and
metallurgical coal as their top commodities picks in the China
reopening trade, and said it remained positive on gold, too.
It cited tight supply, hydropower shortage and a demand pickup
in China as reasons to bet on aluminum. For iron ore, it expected
seasonally tight first-half supply and a backlog of infrastructure
projects.
---
Lithium spot-market availability is very tight, and even some
contracted volumes are failing to be delivered, Benchmark Mineral
Intelligence said.
"Looking ahead, a lot of the supply set to [come to] market has
already been signed off under offtake agreement, so it looks like
spot-market availability will remain quite limited. However, high
prices will incentivize producers to keep some material back to
sell on a spot basis...so this could allow for some more
spot-market liquidity when any new projects come to market."
DOW JONES NEWSPLUS
EMEA HEADLINES
TotalEnergies to Book $3.7 Bln Impairment on Novatek Stake,
Withdraws Directors
TotalEnergies SE will book an impairment of around $3.7 billion
in the fourth quarter as it will no longer equity account for its
stake in Russian natural gas producer Novatek.
The French major said on Friday that it has also decided to
withdraw its representatives from Novatek's board with immediate
effect as they were no longer in a position to fully carry out
their duties.
Thales's Transport-Systems Sale to Hitachi Likely Delayed Amid
UK Antitrust Concerns
A sale of Thales SA's transportation-systems business to Japan's
Hitachi Ltd. is likely to be delayed by months until the second
half of next year amid antitrust concerns in the U.K, the French
aerospace-and-defense group said Friday.
U.K. regulator the Competition & Markets Authority said the
tie-up would remove a credible competitor for signaling business in
the country, lessening competition and driving up fares for
passengers. The CMA said it will open a phase 2 probe into the deal
unless its concerns are addressed by Hitachi Rail, a subsidiary of
the Tokyo-based conglomerate.
Anglo American Sees 2022 Production Down 3%
Anglo American PLC said Friday that 2022 production was down by
around 3% as the Quellaveco copper ramp-up and strong diamond
production was offset by ore grades in Chile and lower production
from Kumba and platinum group metals.
Unit costs for the year were up around 16% and it sees capex of
around $5.7 billion after supply chain disruptions and foreign
exchange.
Associated British Foods Backs FY 2023 View Despite Cost
Inflation
Associated British Foods PLC said Friday that it backed its
full-year outlook, but that it was mindful of further significant
input cost inflation.
The British conglomerate said its clothes store Primark has been
performing encouragingly and that it is on track to open 27 new
stores in the year.
Berkeley Group 1H Profit Fell; Backs FY 2023 Guidance
Berkeley Group Holdings PLC said Friday that pretax profit and
revenue fell for the first half of fiscal 2023, and backed its
full-year expectations.
The U.K. house builder posted a pretax profit of 284.8 million
pounds ($348.5 million) for the six months ended Oct. 31, down from
GBP290.7 million a year earlier on the back of a tough comparator,
a slip in revenue and increased overheads.
Credit Suisse Completes $2.4 Billion Capital Raise as It
Advances Cost Cuts
Credit Suisse Group AG said Thursday that it completed its
latest rights offering and had put into action around 80% of the
cost cuts it planned for 2023, as the bank maintains course through
its painful strategic review.
The Swiss lender said that 98.2% of rights offered had been
exercised, or around 873 million new shares, until the end of the
rights period at midday Zurich time on Thursday.
Japan, U.K., Italy to Build Stealth Jet Fighter by 2035
Japan, the U.K. and Italy said they would jointly develop a
next-generation stealth jet fighter by 2035 that they hope will
surpass the U.S.-made F-35 in some capabilities.
The three U.S. allies described the project as complementary to
American military programs, but if the new fighter is successful
they could look to market it to other countries amid growing global
demand for jet fighters.
NATO Membership for Sweden and Finland on Track, Officials
Say
WASHINGTON-Finland and Sweden are on track to join the North
Atlantic Treaty Organization in the near future despite friction
with Turkey, U.S. and Nordic officials said.
The Northern European nations' foreign ministers met in
Washington Thursday with Secretary of State Antony Blinken, and all
three voiced optimism that Turkey and Hungary, the final two NATO
members that haven't ratified the new members, would do so
soon.
GLOBAL NEWS
Inflation Slowed in China as Lockdowns Spread
SINGAPORE-Inflation in China slowed sharply in November as
widespread Covid-19 lockdowns battered spending, emphasizing the
economic cost of a stringent Covid strategy that the government has
now begun to relax.
Economists expect China's move away from using lockdowns and
mass testing to snuff out even tiny outbreaks will be a gradual and
possibly bumpy process, likely meaning growth and inflation will
remain subdued well into 2023.
Banks Should Be Wary of Crypto, Top U.S. Regulator Says
Banks should take a cautious approach to digital asset markets,
including discussing any new plans with regulators, a top U.S.
banking authority said, pointing to ongoing turmoil among crypto
firms.
Crypto industry risk management lacks maturity, and some
industry practices mean trouble in one firm could spill over to
others, the Office of the Comptroller of the Currency said
Thursday.
5 things to watch when the Fed makes its interest-rate
decision
During the Federal Reserve's last battle with high inflation in
the 1970s and 1980s, Fed officials didn't talk much at all
publicly. When pressed for information on Capitol Hill about the
outlook for the economy and interest rates, former Fed Chairman
Paul Volcker would disappear behind a thickening cloud of cigar
smoke. (Smoking was allowed at hearings in those days.)
Forty years later, there will be no ashtrays in sight when Fed
Chairman Jerome Powell holds a post-meeting news conference. And
investors and economists are going to get a slew of information,
not just smoke, from the central bank.
SEC Asks Public Companies for More Information About Crypto
Exposure
WASHINGTON-The Securities and Exchange Commission is asking
public companies to detail their exposure to distressed crypto
entities following the collapse of trading platform FTX and its
affiliates.
In a notice posted to its website Thursday, the SEC said
companies may have disclosure obligations related to the direct or
indirect impact that recent crypto bankruptcies may have had on
their businesses. It provided a list of sample questions that
agency staff may pose to certain issuers based on their
circumstances.
U.S. to Levy Human-Rights Sanctions on Russia, China
WASHINGTON-The U.S. is set to levy fresh sanctions against
Russia and China on Friday, actions that include targeting Russia's
deployment of Iranian drones in Ukraine, alleged human-rights abuse
by both nations and Beijing's support of alleged illegal fishing in
the Pacific, according to officials familiar with the matter.
The bulk of the expected sanctions are to be imposed under the
Global Magnitsky Act, named after a whistleblower who died in a
Moscow jail after accusing officials of corruption. The U.S., by
using those powers to sanction high-profile government, military
and business officials accused of human-rights abuses and
corruption, says it aims to hold them accountable and deter
others.
China's Xi Jinping to Meet Arab Leaders in Milestone for Middle
East Ties
RIYADH, Saudi Arabia-Chinese leader Xi Jinping on Friday will
attend a summit of Arab leaders billed as a milestone for relations
with the Middle East, an energy-rich region riven by conflict that
is witnessing growing competition between Beijing and
Washington-long the region's dominant security force.
After meeting Saudi leaders on Thursday and elevating bilateral
relations to the highest level, Mr. Xi will now gather with the six
Gulf Cooperation Council countries and the broader 22-member League
of Arab States. The meetings are expected to produce broad
agreements but few big policy shifts. A free-trade agreement with
the Gulf, talked about for years, could make progress.
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(END) Dow Jones Newswires
December 09, 2022 05:57 ET (10:57 GMT)
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