MARKET WRAPS
Stocks:
Stocks in Europe were lower again on Wednesday, extending their
retreat and following a fourth straight day of losses for the
S&P 500 that came as economic data raised fears the Federal
Reserve will keep interest rates higher for longer.
The S&P 500 has fallen 17.3% in 2022 as the Fed has driven
borrowing costs sharply higher in an effort to tame inflation that
until recently was running at the fastest pace in 40 years.
"The recent run of macro data points in the U.S. continues to
underscore relatively solid economic trends. And combined with the
recent easing in financial conditions, it may trigger a need for
the Fed to push back in December. Put another way, the dove camp is
feeling some pain," SPI Asset Management said.
In London, the FTSE 100 gave up early gains to edged lower
despite GSK rallying after a U.S. judge dismissed thousands of
lawsuits claiming that heartburn drug Zantac can cause cancer.
Read GSK, Sanofi Shares Jump After U.S. Judge Dismisses Zantac
Lawsuit
Stocks to Watch
Brunello Cucinelli's upbeat outlook is evidence of a strong
business model, Jefferies said.
The Italian company expects sales to grow around 28% for the
year, pointing to continued strong current trading, and aims to
reach EUR1 billion in sales next year amid good orders for the
spring/summer collection.
Cucinelli has above-average visibility for the coming quarters,
and its targets--which don't look cavalier--offer further evidence
that a positioning at the top end of luxury is helping insulate the
firm from consumer slowdown, Jefferies said.
"Further outperformance would be no surprise," it said, noting
that momentum and resilience are of more interest than valuation.
Jefferies has a buy rating and a EUR62 target on the stock.
U.S. Markets:
Stock futures were struggling to recover ground after a four-day
losing streak for the S&P 500.
The index has lost 3.4%, in that time as investors continued to
fret about the economic damage eventually inflicted by high
inflation and the Fed's campaign to damp it.
However, Fundstrat reckons equities will benefit in coming weeks
as investors start to get greater clarity on when the Fed may stop
tightening policy.
"We don't think the end of the inflation war in 2022 is the Fed
cutting rates. It is when Fed and markets see sufficient progress
in inflation to remove the upside risks to higher rates. We think
this could happen as early as the November CPI report. This will be
released on 12/13."
In U.S. bonds, the yield on the benchmark 10-year Treasury note
ticked up to 3.518% from 3.512% on Tuesday.
U.S. economic updates set for release on Wednesday include
third-quarter productivity and unit labor costs and consumer credit
for October.
Forex:
The dollar should remain supported, as growing fears of a global
recession and as the Fed continues to fight inflation, have driven
investors to safe haven assets, ING said.
"After the broad-based risk rally seen over the last six weeks,
financial markets now seem to be settling into the view of a 2023
recession," ING said, adding the dollar should perform well as long
as the Fed stays "hawkish."
ING said the DXY dollar index could rise to 107.000 ahead of the
Fed's policy decision on Dec. 14, when it will be too early for the
central bank signal the "all-clear" on inflation with its
interest-rate guidance.
ING also said sterling could underperform and equity markets
could come under renewed pressure if Fed signals further
interest-rate rises despite a recession.
"Typically, this is a negative environment for sterling, where
the U.K.'s large current account deficit is penalized. GBP/USD has
turned from a strong resistance level at 1.23 and our bias into
next week would be for a return to the 1.19 area."
Bonds:
Eurozone government bond yields dropped with the focus remaining
on recession risks despite some relative resilience, with German
industrial output better than expected in October.
"Final Q3 GDP data from the euro area is also out [Wednesday]
and expected to confirm that the euro area economy kept its head
above water in Q3," Danske Bank said.
Separately, Danske Bank said the Treasury yield curve inversion
has intensified and is now at "a level only exceeded by the
inversion of 1978 and 1982, when Fed Chairman Volcker hiked policy
rates aggressively to counter double-digit inflation."
At the time, Volcker succeeded in bringing inflation under
control but at the price of two deep and long-lasting recessions,
Danske Bank said.
---
The 10-year German Bund yield is expected to revisit the highs
of around 2.5% in the first quarter of 2023, TD Securities
said.
"This is also when we expect the peak impact of inflation to
start fading more noticeably in both the U.S. and the euro
area,"
Thereafter, the market focus may shift from inflation dynamics
to growth dynamics, with TD expecting 10-year Bund yields to end
2023 at 2.2%, almost in line with current forward pricing for
Bunds.
Energy:
Oil prices edged lower, with Brent remaining below $80 on
concerns about Chinese demand and expectations of little impact
from Western sanctions on Russian supplies.
Expectations that a price cap on Russian crude would crimp
global supplies have fizzled while hopes that China's reopening
would boost oil demand are likely premature, SPI Asset Management
said.
China's tentative steps to reopen could prompt a surge of
Covid-19 cases delaying a broad easing of restrictions, it
added.
Metals:
Base metals were weaker, hurt by the stronger dollar, as
investors weighed how long the Fed will keep hiking interest
rates.
DOW JONES NEWSPLUS
EMEA HEADLINES
Investors See Shift in Europe's Fortunes
Investors are turning somewhat more positive on Europe, spurring
a recovery in the region's beaten-down stocks.
As of Tuesday's close, the benchmark Euro Stoxx 50 index had
gained 18.6% this quarter, putting it on track for the best
quarterly performance since 2009. The rise for the index, which
includes eurozone blue chips like L'Oréal SA and LVMH Moët Hennessy
Louis Vuitton SE, compares with a 9.9% gain for the S&P
500.
GSK, Sanofi Shares Jump After U.S. Judge Dismisses Zantac
Lawsuit
Shares in pharmaceutical companies GSK PLC and Sanofi SA traded
higher after a U.S. judge dismissed a series of lawsuits around a
heartburn treatment that both companies had marketed.
The lawsuits, which numbered in the tens of thousands, alleged
that the drug, called Zantac, could cause cancer. The judge
concluded on Tuesday that there was no scientific evidence to
support the claim that Zantac's active substance, called
ranitidine, was carcinogenic.
EU Sues China in WTO Over Trade Retaliation on Lithuania
BRUSSELS-The European Union sued China in the World Trade
Organization over punitive trade restrictions that Beijing imposed
on Lithuania last year, harming the small Baltic state and the
27-country bloc.
China's near-total curtailment of exports from Lithuania last
December followed moves by leaders in Vilnius to support Taiwan,
which Beijing considers a breakaway province.
Airbus Warns It Will Miss Full-Year Delivery Target
LONDON-Airbus SE, the world's biggest plane maker, said it would
likely miss its key delivery target this year after the company's
chief executive warned that supply-chain woes were still at least
six months away from normalizing.
The European manufacturer said on Tuesday that due to a "complex
operating environment," Airbus's previously forecast goal of
achieving around 700 deliveries this year is now "out of
reach."
Germany Industrial Production Declined Slightly in October as
High Energy Prices Take Toll
Germany industrial production fell in October as high energy
prices weighed on manufacturing output, adding to evidence of a
slowdown in Europe's industrial powerhouse at the beginning of the
fourth quarter.
Industrial output--comprising production in manufacturing,
energy and construction--fell by a marginal 0.1% in October after
increasing by an upwardly revised 1.1% in September, according to
data from the German statistics office Destatis published
Wednesday.
Germany Dismantles Suspected QAnon-Inspired Terrorist Group
German authorities on Wednesday said they had dismantled a
domestic terrorist cell inspired by the QAnon conspiracy on
suspicion of planning to overthrow the government.
Of the 25 people arrested in the early hours of the day, 22 are
suspected of conspiring to foment a coup, the country's federal
prosecutor said. Their plans included an armed storming of the
federal parliament. The other three, including a Russian citizen
living in Germany, are suspected of supporting the group, the
prosecutor said.
Russian Oil-Price Cap Adds to Fiscal Pressure on Moscow
Fresh Western curbs on Russian crude sales might not affect
Moscow's public coffers immediately, but they add financial
pressure that threatens the country's sanctions-stricken oil
industry and long-term ability to fund the war in Ukraine.
Western countries on Monday imposed a price cap on international
sales of Russian crude. The measures, aiming to strike at the
Kremlin's war chest, include a ban on seaborne shipments of Russian
crude by the European Union and the U.K. The Group of Seven
nations, meanwhile, imposed a ceiling on other sales by barring
Western companies from insuring, financing or shipping Russian
crude at above $60 a barrel.
GLOBAL NEWS
Investors See Shift in Europe's Fortunes
Investors are turning somewhat more positive on Europe, spurring
a recovery in the region's beaten-down stocks.
As of Tuesday's close, the benchmark Euro Stoxx 50 index had
gained 18.6% this quarter, putting it on track for the best
quarterly performance since 2009. The rise for the index, which
includes eurozone blue chips like L'Oréal SA and LVMH Moët Hennessy
Louis Vuitton SE, compares with a 9.9% gain for the S&P
500.
China Scraps Most Testing, Quarantine Requirements in Covid-19
Policy Pivot
HONG KONG-China dropped many of its quarantine and testing
requirements and curtailed the power of local officials to shut
down entire city blocks, as the country's leaders accelerate plans
to dismantle zero-Covid controls in the wake of nationwide
protests.
Though widely predicted, Beijing's retreat from its costly and
increasingly unpopular pandemic regime has been faster than
expected. After being told for years that Covid represented a
deadly threat, China's population hasn't been prepared for a sudden
shift in policy, especially as infections have surged to a record
high with outbreaks across the nation.
China November Exports Fall; Trade Surplus Narrows
BEIJING-China's exports fell for a second consecutive month in
November, weighed down by weakening global demand, official data
showed Wednesday.
Outbound shipments declined 8.7% on year in November, compared
with a 0.3% year-over-year decline recorded in October, according
to the General Administration of Customs. The decline was much
steeper than the 2% fall expected by economists polled by The Wall
Street Journal.
Accounting Red Flags Are Common Among Public Crypto
Companies
Investors bemoan the lack of disclosure in the crypto industry.
But many crypto companies disclose a lot of information, and some
of it is worrisome, a review of financial statements shows.
The blowups of FTX and Celsius Network LLC exposed hidden risks
that might have raised red flags for investors, including
related-party transactions, commingled customer funds, sketchy
record-keeping and questionable accounting. Some of these problems
often appear in disclosures by public crypto companies, including
weak systems used to keep numbers accurate.
India's Central Bank Raises Rate to Rein In Inflation
India's central bank increased its policy rate in a bid to
contain high inflation.
Reserve Bank of India Gov. Shaktikanta Das said Wednesday that
the monetary-policy committee decided to raise its policy repo rate
by 35 basis points to 6.25%.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
December 07, 2022 06:31 ET (11:31 GMT)
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