MARKET WRAPS

Watch For:

Germany Ifo Business Climate Index; no major corporate updates expected

Opening Call:

Shares may open mixed in Europe after heavy losses on Friday. In Asia, stocks were lower; Treasury yields extended gains; the dollar strengthened; while oil fell and gold was little changed.

Equities:

European shares could trade mixed at Monday's open after slumping Friday amid a sharp rise in the region's government bond yields.

U.S. stocks posted steep declines Friday, but were off session lows, as government bond yields soared following the Fed's rate increase and tightening by other central banks, and as the U.S. dollar soared versus major rivals.

A bond market rout has "upended sentiment," said CMC Markets analyst Michael Hewson.

"While it would be tempting to blame some weak flash purchasing mangers' index data, the tipping point appears to have been the announcement of the latest U.K. fiscal stimulus plan, which appears to be being treated as a high-risk leap of faith, prompting sharp spikes in yields over concern about surging inflation and recession risk."

The projected victory of a right-wing coalition in Italy's elections on Sunday has added to worries about rising interest rates and recession fears.

Italy's high government debt of roughly 150% of gross domestic product, combined with its weak long-term growth record, makes it vulnerable to bond-market selloffs if investors lose confidence in the soundness of Rome's fiscal policies, and dependent on the European Central Bank to keep its bond yields stable. ECB support has typically been conditional on Rome following cautious budget policies and enacting economic overhauls aimed at improving growth.

Forex:

The dollar made strong gains in Asia amid rising fears of a global recession.

If a sense of crisis about the world economy were to emerge, the dollar could climb substantially, CBA said.

The U.K.'s poor situation has exacerbated support for the dollar, while the pickup in financial-market volatility has aided the dollar and Swiss franc due to their safe-haven status, CBA added.

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The British pound fell to a record low, as selling continued after the U.K. government on Friday unveiled the country's biggest tax cuts since the early 1970s.

The new government measures are aimed at kick-starting growth at a time of global economic turmoil, but they raised concerns among investors about the impact on inflation and the longer-term sustainability of U.K. finances.

Bonds:

Treasury yields continued gains from last week, when the policy-sensitive two-year rate set an almost 15-year high on Friday and markets adjusted to the likelihood of more interest-rate increases from the Fed.

Last Wednesday's interest rate increase by the Fed and hawkish comments by Fed Chairman Jerome Powell have led to an aggressive readjustment of expectations in markets, which pushed the 2-, 10- and 30-year yields to multiyear highs last week.

Market participants remain concerned that the U.S. economy may slip into recession as the Fed could go too far in its monetary tightening cycle.

"In the week ahead, the third quarter will end as investors continue to digest the far-reaching ramifications from the dizzying array of central bank actions that have recently defined trading in US rates," said BMO Capital Markets.

"Friday's selloff which brought 10-year yields above 3.75% was partially in sympathy to the sharp moves in gilts," BMO Capital added.

Energy:

Oil prices fell early Monday amid concerns about a gloomy global economic outlook.

"The increasing likelihood of a global recession is weighing heavily on oil prices," CBA said.

Metals:

Gold prices declined in Asia. Developments relating to interest rates moves by the Fed will be closely watched, with FOMC members believing that interest rates will continue to climb further next year, Commerzbank said.

"For as long as the Fed remains on this interest rate path, the gold price is likely to have a hard time making any lasting gains," Commerzbank added.

But the World Gold Council said the gold outlook could be brightening.

"We believe gold's headwinds may start to subside while supportive factors will likely remain, encouraging demand for gold as a long-term investment hedge," said WGC.

Rate hikes may slow given how much policy makers have tightened already. Also, central banks' demand for gold remains strong and futures positioning has turned net short, which "historically hasn't lasted long--often mean reverting in subsequent weeks," WGC added.

Rising recession and geopolitical risks could spur investors to be more defensive, and seek high-quality liquid assets like gold to cut portfolio losses.

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Copper fell amid rising demand concerns.

Tighter monetary policy globally, weaker economic activity in China and Europe's energy crisis have weighed on sentiment, ANZ said.

Problems in Europe have been highlighted by the eurozone's composite PMI for September, which slumped to its lowest level since 2013, excluding pandemic shocks.

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Iron ore prices fell in China, extending a broad downturn in recent weeks amid interest-rate increases and rising worries over a global recession.

Galaxy Futures said it thinks the commodity's downside will likely be limited in the near term, thanks to Chinese steel makers' restocking demand for the ore ahead of the peak production season in the coming months.

But the brokerage is cautious on iron ore's longer-term demand outlook, given continued weakness in China's real-estate market, a major steel-consuming sector.

TODAY'S TOP HEADLINES

Pound Hits Record Low as Selling Continues After U.K. Tax-Cut Plan

The British pound fell to a record low against the dollar in early Asian trade on Monday as selling continued after the U.K. government on Friday unveiled the country's biggest tax cuts since the early 1970s.

The pound briefly fell below $1.04, hitting a record low, according to data on CQG. Its previous all-time low was around $1.05 marked in 1985.

China PBOC Raises Forex Risk Reserve Ratio for Forward Trading

China's central bank said Monday that it would increase the risk reserve requirement ratio for financial institutions when conducting foreign-exchange forward trading, as the yuan faces increasing depreciation pressure.

The People's Bank of China said the risk reserve requirement for forward foreign-exchange sales will be raised to 20% from currently zero. The move, which the central bank said is aimed at stabilizing expectations in the foreign-exchange market, will take effect Wednesday.

Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway.

It is the worst year for buying the stock-market dip since the 1930s.

Instead of rebounding after a tumble, stocks have continued to fall, burning investors who stepped in to buy shares on sale. The S&P 500 has dropped 1.2% on average this year in the week after a one-day loss of at least 1%, according to Dow Jones Market Data. That is the biggest such decline since 1931.

Central Banks May Stoke Risks by Raising Interest Rates Together

Central banks around the world are raising their key interest rates in the most widespread tightening of monetary policy on record. Some economists fear they may go too far if they don't take into account their collective impact on global demand.

According to the World Bank, the number of rate increases announced by central banks around the world was the highest in July since records began in the early 1970s. On Wednesday, the Federal Reserve delivered its third 0.75 percentage-point increase in as many meetings. This past week its counterparts in Indonesia, Norway, the Philippines, South Africa, Sweden, Switzerland, Taiwan and the U.K. also upped rates.

Slide in Transportation Stocks Flashes Warning About Economy

Shares of transportation companies are falling twice as fast as the hard-hit U.S. stock market, reflecting investors' expectations that a recession is likely ahead.

The Dow Jones Transportation Average, which tracks 20 large U.S. companies ranging from airlines to railroads to truckers, has declined 12% this month. The S&P 500 and the Dow Jones Industrial Average are down about half that much.

Iran's Hard-Line Government Faces Growing Unrest Over Women's Rights

Antigovernment protests in Iran gathered strength Sunday with new demonstrations in scores of cities and indications that unrest was growing, posing one of the biggest challenges the country's conservative Islamic rulers have faced in years.

A movement initially led by young people that focused on the country's strict Islamic dress code for women appeared to be broadening into a mass outpouring of pent-up dissatisfaction among middle-class workers and even religious Iranians at the regime's treatment of its own citizens.

Pushing East of Kupyansk, Ukrainian Forces Expand Offensive

KUPYANSK, Ukraine-The grain elevator towering over the eastern edge of Kupyansk, the former seat of Russian power in Ukraine's Kharkiv region, was supposed to be defended by soldiers from an elite Russian unit.

But when troops from Ukraine's International Legion moved to seize the compound on Thursday, part of the developing Ukrainian military offensive east of the Oskil River, the expected firefight never happened.

Climate Change Forces French Vineyards to Alter the Way They Make Wine

BORDEAUX, France-The wildfire began on an usually dry summer day in a forest bordering the Liber Pater vineyard. Winemaker Loïc Pasquet saw the flames rise and spread toward his precious vines, which produce Bordeaux that sells for $30,000 a bottle.

Hours before evacuating Mr. Pasquet and his staff destroyed the grass around the vineyard to prevent it from catching fire and dug trenches to block the blaze's path. He also sprayed local trees with water drawn from the vineyard's ponds. The vineyard was spared.

Italian Right Is On Course to Win Elections

ROME-Italians elected a right-wing coalition to lead the country, according to projected results, choosing an untested leader who will confront Europe's gathering economic downturn and energy crisis resulting from Russia's invasion of Ukraine.

Giorgia Meloni is favored to become Italy's new prime minister after her Brothers of Italy party won the biggest share of the vote in Sunday's parliamentary elections, according to projections based on counting nearly half of the votes for Italy's Senate. She would require approval from junior partners in her coalition to assume the role.

In Brexit's Wake, U.K. Still Lacks a U.S. Trade Deal

One of the big dividends of Brexit was supposed to be a U.K. trade deal with the U.S., helping offset the economic pain of putting up trade barriers with the European Union, Britain's largest trading partner.

That isn't happening soon, further adding to the woes of a U.K. economy beset by slow growth, a plummeting pound and high inflation.

Amazon, Berkshire Hathaway Could Be Among Top Payers of New Minimum Tax

WASHINGTON-A handful of large companies, such as Berkshire Hathaway Inc. and Amazon.com Inc., could bear most of the burden from a 15% corporate minimum tax President Biden signed into law last month.

Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six-including Amazon and Warren Buffett's conglomerate-would have paid half of the estimated $32 billion in revenue the levy would have generated.

Gucci, Burberry Join Booming Secondhand Luxury Trade

LONDON-The booming market for secondhand luxury goods is creating a dilemma for makers of high-end handbags, fashion and jewelry: Join the trend, or ignore it.

Secondhand luxury isn't new, but its popularity is surging. Steep price hikes by prestigious brands like Chanel SA are driving some luxury buyers to look for less expensive used items. Others are seizing on secondhand goods' sustainability bona fides: A used pair of designer jeans doesn't cost any more of the planet's resources to make.

Glencore Wins Judge's Approval of Market Manipulation Settlement

A federal judge has accepted part of a $1.2 billion settlement that commodities giant Glencore PLC entered to resolve criminal probes over its involvement in foreign corruption and market manipulation.

A plea deal that Glencore's U.S. arm entered with Connecticut federal prosecutors received approval from U.S. District Judge Sarala V. Nagala at a sentencing hearing Friday in New Haven federal court, according to a spokesman for the prosecutors. Friday's proceeding focused solely on the market manipulation component of the resolution.

Write to gen.soledad@dowjones.com

Expected Major Events for Monday

05:00/FIN: Aug PPI

07:00/CZE: Sep Business cycle survey (consumer/business confidence)

07:00/SPN: Aug PPI

08:00/GER: Sep Ifo Business Climate Index

08:30/UK: Jun Card Spending statistics

13:00/BEL: Sep Business Confidence Survey

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

(END) Dow Jones Newswires

September 26, 2022 00:20 ET (04:20 GMT)