MARKET WRAPS
Watch For:
UK house price index, S&P Global/CIPS manufacturing PMI; trading updates from BP, Compass Group, Infineon Technologies, Rentokil Initial, Yandex, Koninklijke DSM, Fresenius
Opening Call:
European shares may open higher Tuesday after closing mostly higher on Monday. Asian markets gained; Treasury yields fell; the dollar weakened; while oil and gold advanced.
Equities:
Stock futures point to a higher open in Europe on Tuesday, as investors await policy decisions from the Federal Reserve and Bank of England later in the week.
U.S. stocks slipped Monday, though they locked in gains for the month of October.
Monday's moves in the stock market amounted to a "mild profit-taking pullback and wait-and-see mode" by investors, said Art Hogan, chief market strategist at B. Riley Wealth.
Some investors were thinking wishfully when bidding up stock prices in October, said Chris Senyek, chief investment strategist at Wolfe Research.
"I think it was largely a hope trade," he said. "I don't think it was built upon fundamentals."
With more rate rises on the horizon, it is difficult to take much comfort in the stock market's October rally, said Paul Eitelman, chief investment strategist for North America at Russell Investments.
"I think there's still critical issues that we need to get through as global equities investors in the months ahead," Eitelman said.
"Until the labor market slows down, U.S. monetary policy is going to be a headwind for markets going forward."
Forex:
The U.S. dollar weakened in Asia early Tuesday. Investors are looking past an expected fourth 75bp rate increase this week from the Fed, DBS Group Research said.
They hope the Fed will signal smaller rate increases from December and prepare the ground for rates to peak and pause at 4.5%-5.0% in 1Q.
The dollar had climbed Monday, "helping to set market positioning into year end," Corpay's chief market strategist Karl Schamotta said.
Markets will focus on what the Fed says about upcoming meetings, he said.
"Central bankers know they can't continue to lift rates in 75-basis point increments without breaking something, but are also aware that any hint of a 'pivot' in policy could trigger the sort of financial easing they are seeking to avoid."
Powell will telegraph a slower hiking pace while trying to guide terminal rate expectations toward 5%, "perhaps by hinting at a tightening cycle that stretches into the middle of next year," he added.
Bonds:
U.S. Treasury yields declined early Tuesday.
"We expect Chair Powell to open the door to a downshift in December by mentioning the debate took place," Barclays said.
Markets are already pricing a smaller increase in December, but the Fed is likely to keep its options open.
"With two employment reports and one CPI report [before the December decision] we think the Fed will be reluctant to pre-commit to a smaller rate hike this far in advance," Barclays said.
Gibson Smith, founder and chief investment officer of Smith Capital Investors, said the recent inflation data has been "more resilient and stickier and is not turning over as fast as people would like."
"The bond market is stuck in this gray area, trying to figure out if the forecasts about inflation declining over the next 12 months are real or are they pushed out 24 months," he added.
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The Bank of England is likely to start selling gilts with maturities of more than 20 years in January 2023, RBC said.
The sale of gilts maturing in 20 years or under begins on Nov. 1.
RBC said the recent drop in gilt yields following the U.K.'s fiscal U-turn and change in prime minister have lowered the risk of the gilt market malfunctioning.
"We therefore expect the BOE to begin selling long gilts in some form starting in January 2023 - obviously barring any further market disruption."
Energy:
Crude-oil futures gained in Asia amid USD weakness, reversing overnight losses.
The announced OPEC+ crude-oil supply reductions have stabilized the oil market to a certain extent, ING said.
However, how stabilizing this action will be in the medium to long term will likely depend on the full impact of the EU's ban on Russian oil, which goes into effect Dec. 5 for crude oil and Feb. 5 for refined products, ING added.
Read: OPEC's Vision for Oil Looks Bullish for Energy, Bleak for the Climate
Metals:
Gold prices edged higher in Asia in choppy trade, after booking a seventh straight monthly loss in October.
"Gold remains a prisoner of the dollar ahead of Wednesday's Fed decision, and then the non-farm jobs data on Friday," BullionVault said.
If the central bank hikes by 75 basis points, that will "disappoint those who were looking for a smaller increase, and thus may cause a bit of a downward move in stock and gold prices," said Fawad Razaqzada, market analyst at City Index and Forex.com.
"A 50 bps hike should have the opposite impact."
"We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests gold prices may continue to fall," DailyFX said.
The World Gold Council said Tuesday that demand for gold rose during the third quarter driven by increased buying from central banks and consumers purchasing more jewelry.
Demand was 28% higher year-on-year at 1,181 metric tons, with demand to September up 18% compared with the first nine months of 2021 and back to prepandemic levels.
The WGC said that much of the negative sentiment toward gold might now have been "flushed out of investment," suggesting that the impact of further rate hikes and dollar strength could be fading.
"On the three previous occasions when combined selling of futures and ETFs exceeded 400 tons, gold rallied during the following three to six months," the council added.
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Chinese iron-ore futures rose, reversing a losing streak.
Still, traders expect a further drop in the coming days, weighed in part by a sluggish Chinese property sector and investors' negative sentiment, Guosen Futures said.
"The steel mills are pessimistic about future demand and are therefore reducing their iron-ore stocks," Guosen said.
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Copper prices rose amid USD weakness and a likely technical rebound following its recent decline.
Copper markets were unlikely to see substantial downside flows from systematic trend followers, TD Securities said.
Also, the margin of safety against a short squeeze remained low as short-term momentum signals were vulnerable to a rally above the $7,700/ton range, it added.
TODAY'S TOP HEADLINES
China's Private Manufacturing Improves but Still Contracting
A private gauge of activity in China's manufacturing sector remained in contraction territory for a third straight month in October, as Covid-19 containment measures weighed on both output and demand.
The China Caixin manufacturing purchasing managers index rose to 49.2 from 48.1 in September, according to data released Tuesday by Caixin Media Co. and S&P Global.
U.S. Treasury Issues New Guidance on Russian Oil-Price Cap in Bid to Calm Markets
WASHINGTON-The Treasury Department said that ships loaded with Russian oil before Dec. 5 won't be subjected to U.S.-led price cap on Russian oil, as Washington attempts to reassure anxious oil markets about its plan for new sanctions.
Beginning on Dec. 5, the U.S. and its allies will ban companies in their countries from providing maritime services to shipments of Russian oil unless the oil is sold below a set price.
RBA Raises Rates by a Further 25 Bps; Maintains Hawkish Guidance
SYDNEY-The Reserve Bank of Australia continued to raise interest rates at a cautious pace this month despite data showing inflation ran at its fastest pace in 32 years in the third quarter, with more dire numbers likely in coming months.
The RBA on Tuesday raised the official cash rate by 25 basis points to 2.85%, while indicating a willingness to continue moving rates higher in coming months.
Gold Demand Rises on More Central Bank Purchases and Jewelry Buying
Demand for gold rose during the third quarter, driven by increased buying from central banks as well as consumers purchasing more jewelry, according to a new report.
The World Gold Council said Tuesday that demand for gold was 28% higher year-over-year at 1,181 metric tons, with demand to September up 18% compared with the first nine months of 2021 and back to prepandemic levels.
Biden Calls for Penalties on Oil-and-Gas Companies' 'Windfall' Profits
WASHINGTON-President Biden called on Congress to penalize oil-and-gas companies if they don't use their profits to help lower energy costs for consumers, ratcheting up his criticism of the fossil-fuel industry ahead of next week's midterm elections.
"Their profits are a windfall of war," Mr. Biden said Monday at the White House. "At a time of war, any company receiving historic windfall profits like this has a responsibility to act beyond the narrow self-interest of its executives and shareholders." World energy prices have risen in the aftermath of Russia's invasion of Ukraine.
Tesla Talked to Glencore About Buying Stake in the Miner
Tesla Inc. held early-stage talks with Glencore PLC last year about buying a stake in the commodities giant, according to a person familiar with the matter.
The electric vehicle maker's interest came as manufacturers across the West look to secure supplies of so-called future-facing metals that are used in batteries and the renewable energy industry.
Elon Musk Is Forming Circle of Advisers as He Reimagines Twitter
Elon Musk is quickly setting to work a group of advisers, investors and employees from elsewhere in his business empire to help him reimagine Twitter Inc. in his first days as its new owner.
The group is working on a range of initiatives to try to bolster the platform's user experience and revenue, according to people involved in the effort, while Mr. Musk continued to publicly float potential changes in a series of tweets.
(MORE TO FOLLOW) Dow Jones Newswires
11-01-22 0115ET
