MARKET WRAPS
Watch For:
Manufacturing PMI data for Eurozone, U.K., Germany, France, Italy; ECB General Council meeting, European Systemic Risk Board general board meeting; unemployment data for EU and Italy; U.K. House Price Index, Bank of England Decision Maker Panel data; trading updates from ThyssenKrupp, Ryanair Holdings, Ferguson
Opening Call:
Shares may gain at Thursday's open, tracking Wall Street's rise after Fed Chair Powell signaled that the central bank was prepared to slow its pace of raising rates in December. Asian stock benchmarks gained; Treasury yields were mixed; the dollar weakened; oil fell and gold rose.
Equities:
European shares may open higher Thursday, ahead of crucial U.S. inflation data due later in the day.
U.S. stocks finished sharply higher Wednesday, with the Dow Jones Industrial Average rising over 700 points to technically exit a bear market, after Fed Chair Powell said the central bank's pace of interest-rate increases can slow as soon as its December meeting.
"We remain skeptical that the recent rally marks the start of a new market regime. The priority of the Fed is likely to remain the fight against inflation, pending a more consistent stream of softer prices and employment data. Against this backdrop, we favor adding to defensive assets in both equity and fixed-income markets," UBS Global Wealth Management said.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, cautioned that whatever the upcoming raft of data showed it may be difficult for equities to gain much in the short term.
"Strong economic data, like strong growth and strong jobs means that the Fed will continue its aggressive tightening and could aim for relatively higher terminal rates. That's bad for stock valuations. And soft inflation figures and softening spending are good for the Fed expectations, but they will boost recession odds, which is obviously not good for the stock valuations either," she said.
Read: Fed 'pivot' to lower interest rates will be bullish for stocks. But timing is everything.
Forex:
The dollar was weaker ahead of key U.S. inflation numbers.
"Risk-sensitive currencies are moving higher and the dollar is under pressure as traders position for a more stable - and less divergent - Federal Reserve in 2023," Corpay's chief market strategist Karl Schamotta said.
"With growth gaps narrowing and the US tightening cycle reaching its logical conclusion as other central banks catch up, bets against American exceptionalism are growing in scale in the run-up to year end," he said.
Bonds:
Treasury yields were mixed after slipping on Wednesday following Powell's comments.
"There's a lot of cash on the sidelines so buying yield in fixed income is what investors are doing. Buyers are coming back in the belly and long end as a protection mechanism for their portfolios," resulting in relatively lower yields on 5-, 7-, 10-, and 30-year maturities, said Robert Daly, director of fixed income for Glenmede Investment Management in Philadelphia.
"You could see the 2-year rate going above 5%" with each leg higher showing up as "nervousness in the markets," as well as a deeper inversion of the Treasury curve that points to more fear of the U.S. falling into a recession, Daly added.
Read: Most deeply inverted Treasury curve in more than 4 decades has one upbeat takeaway for investors
Energy:
Oil prices fell in Asia, as investors continued to digest data showing another large weekly drop in U.S. crude inventories.
Focus remained on the OPEC+ meeting on Dec. 4, where members will decide on oil-production levels.
"The market remains uncertain about OPEC's decision, with some expecting a cut while others suggest a rollover of the current deal is more likely, " ANZ analysts said.
Also, Chinese demand "remains a top source of downside risk, as Covid containment efforts and related protests have created a challenging climate for near-term product demand," said Robbie Fraser, manager, global research and analytics, at Schneider Electric.
"The state of Chinese product demand stands alongside ongoing interest rate increases as the two most prominent downside risks to crude prices, " he said.
"If China's Covid rules are slowly eased and OPEC stays the course, crude prices could rally," Oanda said.
Metals:
Gold gained early Thursday, supported by overall weakness in USD and Treasury yields following Powell's speech.
Investors' focus would also likely remain on China's Covid-19 measures.
"Increased concerns surrounding the Russia-Ukraine war..., weak Chinese economic activity powered by China's zero-Covid policy, as well as recent protests by Chinese citizens, also have contributed to gold's rise in price," Jeff Klearman, portfolio manager at GraniteShares, said.
"If China lifts more lockdowns, a risk rally should help keep gold prices supported," Oanda said.
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Chinese iron-ore futures fell, extending Wednesday's drop, after a recent rally driven by supportive property-related measures and hopes of pandemic policy easing lost steam.
The raw material's near-term fundamentals still appear bearish, with falling hot-metal output, rebounding port inventories and subdued profitability for steelmakers, Donghai Futures said.
TODAY'S TOP HEADLINES
Jerome Powell Signals Fed Prepared to Slow Rate-Rise Pace in December
WASHINGTON-Federal Reserve Chair Jerome Powell provided a clear signal that the central bank is on track to raise interest rates by a half percentage point at its next meeting, stepping down from an unprecedented series of four 0.75-point rate rises aimed at combating high inflation.
Mr. Powell, in a speech Wednesday, said an overheated labor market needed to cool more for the Fed to be confident that inflation would decline toward its 2% goal.
China Caixin Manufacturing PMI Marks Fourth Straight Month of Contraction
A private gauge of activity in China's manufacturing sector remained in contractionary territory for a fourth straight month in November, as the government's stringent Covid restrictions continued to weigh on both output and demand.
The China Caixin manufacturing purchasing managers index slightly improved to 49.4 in November from 49.2 in October, according to data released Thursday by Caixin Media Co. and S&P Global.
U.S. Economic Growth Slowed This Fall, Fed's Beige Book Says
U.S. economic growth eased this fall with business activity in some parts of the country stalling or declining, the Federal Reserve said in a Wednesday report.
Businesses also expressed greater uncertainty and increased pessimism for the U.S. economy as prices and interest rates continue to rise, according to the central bank's latest compilation of economic anecdotes from around the country, known as the Beige Book.
EU Says It Can't Seize Frozen Russian Central-Bank Assets for Ukraine
BERLIN-European Union officials said the bloc can't confiscate tens of billions of euros worth of frozen Russian central-bank funds to pay for Ukraine's reconstruction, while its executive body sent proposals to member states on setting up an international court to prosecute Russian officials for this year's invasion.
Pressure had been building up for months from some member states for Brussels to come up with ways to seize Russian assets and hold top Russian leaders accountable for the war.
EU Official Warns Elon Musk That Changes Are Needed at Twitter
BRUSSELS-A top European official warned Elon Musk that Twitter Inc. would need to make significant changes to comply with a new European Union law governing social-media platforms and content moderation.
Thierry Breton, the EU's commissioner for the internal market, held a video call with Mr. Musk on Wednesday to discuss the new legislation, called the Digital Services Act. He said Mr. Musk-who completed his purchase of Twitter in October-stated he planned to get the service ready for the new rules, but Mr. Breton added that more work would be needed.
France Prepares for Targeted Blackouts If Energy Crisis, Cold Winter Strain Grid
PARIS-France has prepared a contingency plan to conduct rolling blackouts this winter if its electrical grid comes under severe stress, officials said, as the country struggles to ramp up its fleet of nuclear reactors after a rash of outages.
Corrosion discovered on pipes near the cores of several reactors led France to take more than half of them offline earlier this year, causing a sharp drop in nuclear generation. The outages have compounded Western Europe's energy woes as the region grapples with a sharp cut in natural-gas deliveries from Russia amid the conflict over Ukraine. Twenty-two of France's 56 nuclear reactors are currently offline, according to government data.
Sam Bankman-Fried Denies Knowing Scale of Bad Alameda Bets
Sam Bankman-Fried said that he didn't intend to commit any fraud or use customer funds to back leveraged bets that went wrong at Alameda Research, a cryptocurrency hedge fund attached to FTX that pushed the exchange to bankruptcy.
Mr. Bankman-Fried, speaking at the New York Times DealBook Summit in New York, denied knowingly commingling customer funds to back his crypto trading operation and tried to deflect some of the blame for FTX's collapse away from himself, saying he was surprised at the size of Alameda's bets that went wrong.
Elon Musk Says Apple and Twitter Have 'Resolved' Differences After Meeting
A potential battle between Apple Inc. and Twitter Inc. appears to have been averted after a meeting between Elon Musk and Tim Cook.
Mr. Musk, the new owner of Twitter, said in a set of tweets Wednesday that he had met with the Apple chief executive.
Mark Zuckerberg Says Apple Holds Too Much Control Over App Ecosystem
Meta Platforms Inc. CEO Mark Zuckerberg said Apple Inc. holds too much sway over the mobile-app ecosystem and that he is still optimistic about his company's metaverse ambitions, even if they might not come to fruition for many years.
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12-01-22 0026ET
