EMEA Morning Briefing : Mild Gains Ahead for Stocks; Investors Digest UK Fiscal Plans, Hawkish Fed Comments

MARKET WRAPS

Watch For:

UK retail sales, consumer confidence survey; trading update from Sasol

Opening Call:

Shares may open slightly higher in Europe. Asian stock benchmarks and Treasury yields were mixed; the dollar slightly weakened; oil and gold gained.

Equities:

European stocks seem set for mild gains on Friday, following losses overnight in reaction to the UK government's new fiscal plans and remarks from Federal Reserve official James Bullard.

It is possible Bullard may have gone "overboard" by suggesting in a slide-show presentation that the Fed funds rate target may need to rise as high as 7%, Bleakley Financial Group said. However, investors may be overreacting to his comments since Bullard won't have a vote on the Fed's policy-setting committee next year, it said.

Fed funds futures traders are presently anticipating that the key benchmark rate will peak somewhere between 4.75% and 5.5% next spring, according to the CME FedWatch Tool

If there is anything to be gleaned from the public commentary unleashed by Bullard and other Fed officials this week, it's that "a rate-hike pause may not be coming soon, and cuts definitely aren't coming soon unless something breaks," said eToro.

Forex:

The dollar was slightly weaker in Asia on risk appetite driven by gains in regional equity markets.

However, the dollar's weakness may be curbed by hawkish comments from Fed officials, analysts said.

Fedspeak is taking a bite out of a seasonal rally, Navellier & Associates said, and that is helping the dollar.

Also, the dollar has been the main beneficiary this year from the deleveraging that has taken place in financial markets including the cryptocurrency sector, MUFG Bank said.

"Fears over a hard landing for the global economy alongside the sharp tightening of global financing conditions triggered by aggressive rate hikes and balance sheet shrinkage at major central banks such as the Federal Reserve have boosted the value of the USD and weighed heavily on financial asset values particularly more speculative assets such as the cryptocurrencies," MUFG said.

Bonds:

U.S. Treasury yields were mixed Friday after the Fed's Bullard released estimates of how high he thinks interest rates might need to go.

Some traders took Bullard's estimates with a grain of salt, considering his reputation as something of an outlier on the rate-setting Federal Open Market Committee.

However, hours after Bullard's presentation, his colleague Neel Kashkari of the Minneapolis Fed said the central bank needs to keep raising rates until it is sure inflation has hit a ceiling.

Traders also moved up their expectations for how high the fed-funds rate target might go next year, to further above 5%, but they don't yet see a significant chance of a 6% policy rate.

Energy:

Oil prices climbed in Asia, recovering from overnight losses.

However, worries over China's zero-Covid policy will likely continue to dim the outlook for energy demand.

"China's Covid concerns are on everyone's mind, and with local surges giving rise to protracted lockdowns, oil prices are moving tangentially lower to that increasing probability," SPI Asset Management said.

There are also signs that oil markets are softening, ANZ said. "Demand for winter delivery of barrels has been slipping despite the looming deadline for European sanctions on Russia's crude."

Metals:

Gold prices inched up after declining overnight on a stronger dollar and Treasury yields, following hawkish comments from the Fed's Bullard.

"A deeper retracement cannot be ruled out for gold as it remains at the mercy of the U.S. dollar and broader sentiment," DailyFX said, adding that the precious metal remains vulnerable below the key $1,800 level.

Bullard's comment that the policy rate isn't yet sufficiently restrictive is a "big reminder that we need to see the labor market weaken significantly before we can price in the end of their tightening cycle," said Oanda.

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Copper edged higher as the dollar weakened slightly.

However, the base metal's gains may be capped by ongoing demand worries in China, analysts said.

Daily Covid--19 cases in China have surged to the highest level in several months, raising concerns that authorities may have to implement stricter restrictions and lockdowns to contain the virus, CBA said.

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Chinese iron ore futures rose, as the raw material continued a recent uptrend that has been supported by stronger macro expectations.

Concerns about steel mills reducing production have eased as profitability improves, while a large decline in crude steel output last month suggests there is potential for a rebound, Citic Futures said.

A weaker U.S. dollar could also offer "strong support" to prices of ferrous metals, Fitch Solutions said.

But it said fundamentals are bearish, as "demand-side weakness is overrunning any supply-side constraints."

TODAY'S TOP HEADLINES

Japan's Overall CPI Rose 3.7% in October

TOKYO--Japan's overall consumer inflation rose 3.7% from a year earlier in October, exceeding the Bank of Japan's 2% target for the seventh consecutive months, government data showed Friday.

The pace of price rises accelerated from a 3% annual increase in September.

U.K. Government Seeks Further Easing of Data Protection Rules

BRUSSELS-The U.K. government is considering revisions to a data-protection bill it proposed in July that would relax rules businesses must follow on collecting and using customers' personal data.

Amazon CEO Andy Jassy Says Layoffs Will Extend Into Next Year

Amazon.com Inc. chief executive Andy Jassy said that layoffs under way at the tech company, which will extend into next year, are the most difficult decision he has made since taking over from Jeff Bezos last year.

Mr. Jassy, in a note to employees made public, said positions are being eliminated across Amazon's devices and books businesses. The company is cutting jobs across its corporate ranks that could affect 10,000 employees, or 3% of corporate staff, The Wall Street Journal has reported.

BHP, World's Top Miner, Nears Biggest Acquisition in a Decade

ADELAIDE, Australia-BHP Group Ltd. raised its offer for OZ Minerals Ltd. to value the Australian miner at $6.34 billion, as it seeks to produce more copper and nickel needed for electric vehicles, wind turbines and solar farms.

OZ Minerals said it intends to recommend shareholders vote in favor of BHP's revised offer of 28.25 Australian dollars, the equivalent of about $18.90, a share. A completed deal would represent BHP's largest acquisition since 2011 when it bought Petrohawk Energy Corp. for more than $12 billion.

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Expected Major Events for Friday

00:01/UK: Nov UK Consumer Confidence Survey

07:00/SWE: 3Q Industrial inventories

07:00/SWE: Oct Labour Force Survey

07:00/NOR: Sep Monthly GDP

07:00/UK: Oct UK monthly retail sales figures

07:30/SWI: 3Q Industrial production

17:59/POR: Sep Balance of Payments

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

11-18-22 0016ET