MARKET WRAPS
Watch For:
France PPI; Italy consumer confidence, business confidence surveys; UK financial markets close early for Christmas; no major corporate updates expected
Opening Call:
Shares could open with mild gains in Europe on Friday. In Asia, stock benchmarks fell; Treasury yields advanced; the dollar slipped; while oil and gold gained.
Equities:
European stocks may post a mild recovery on Friday, following losses the previous day amid continued concerns about policy tightening by central banks.
U.S. stocks fell overnight after economic data pointed to a strong labor market and faster economic growth than previously thought, reinforcing expectations for the Federal Reserve to continue tightening monetary policy aggressively into 2023.
"The Fed has repeatedly stated their desire to raise rates to a level that they deem sufficient to fight inflation, even if it risks employment and economic output. In other words, a recession," said Interactive Brokers. "It appears that investors have finally digested that message, at least for now."
"Once central banks hit pause, as they will do at some point next year as inflation falls back, that will put some more vigor back into markets, " said Susannah Streeter, senior investment and markets analyst at U.K. brokerage Hargreaves Lansdown. Until then, she added, "that merry-go-round is going to be spinning."
Meanwhile, inflation remains a "very real and present" economic danger for the UK, Principal Asset Management said.
"With the economy contracting, interest rates rising and fiscal policy tightening, it's hard to see the bright side for the UK economy in 2023," Principal said.
Forex:
The dollar lost ground in Asia, but could gain strength as sentiment shifts.
The risk-on mood from a bullish reading of U.S. consumer confidence data has flipped to a risk-off mood on Fed rate-increase validation narrative, said Mizuho Bank.
Concerns of strong U.S. data spurring a more hawkish Fed response are partly to blame, it added.
"Global coordinated central bank tightening has yet to fully impact most of the economic readings for the major economies and that should have investors nervous over earnings downgrades and credit risks," Oanda said.
The dollar should fall in 2023 as it is still substantially overvalued despite recent declines, but the depreciation won't be in a straight line, Bank of America said.
The consensus seems to expect a "simplistic scenario" where inflation falls, the Federal Reserve starts cutting interest rates and the dollar weakens, but it will be "much more complicated than that," BofA said.
The Fed may stop raising rates, but it is unlikely to cut rates as inflation will be "sticky on the way down," it said. "For the dollar to really weaken, we need inflation to come substantially down."
Bonds:
Treasury yields advanced after revised data showed the U.S. economy grew in the third quarter by more than previously estimated.
The third-quarter GDP revision underscored investors' expectations that Federal Reserve policy makers will stand by their efforts to quash inflation.
Fed-funds futures traders boosted the chances of a 50-basis-point hike in February to 31% on Thursday, up from 27.9% the previous day, and nudged up their expectations for a 5% or higher fed-funds rate next year.
"As we look into 2023, we think there are a number of headwinds that will conspire to push consumption in the aggregate into negative territory as the year progresses. And we think that slowing will likely be enough for the NBER (National Bureau of Economic Research) to call this a recession. We would hasten to add, it's going to be a close call, " said RBC Capital Markets.
Energy:
Oil rose in Asia in a possible technical rebound after U.S. crude oil prices finished 1% lower overnight.
However, oil prices may get weighed by a stronger dollar, with cross-asset markets held "hostage" by risk aversion likely more closely related to Fed-induced recession fears, said SPI Asset Management.
Meanwhile, investors continue to assess the implications of China's relaxation of its Covid curbs.
"After hitting a nearly one-year low on Dec. 9, oil prices entered a recovery mode, printing a higher low this week, perhaps helped by hopes that China would ease its Covid-related restrictions. Nonetheless, a discussion of a full-scale bullish reversal appears premature for now as it may take some time for China's economic engines to restart and revive crude demand," said Charalampos Pissouros, senior investment analyst at XM.
Metals:
Gold futures inched up, as risks of more Fed rate increases remain on the table, with the U.S. economy slightly stronger in the third quarter and the U.S. labor market still very tight.
Gold prices had tumbled on Thursday, settling at levels under $1,800, as the dollar gained ground after the raft of strong U.S. economic data exacerbated concerns the Fed would stick to its aggressive tightening path.
The precious metal is vulnerable to further downward pressure, although the $1,780/oz level should offer some support, Oanda said.
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Copper futures were flat, extending a range-bound trading pattern so far this week.
The metal may continue oscillating around current levels in the short term, given "double tightness" in both supply and demand, Galaxy Futures said.
Downstream users aren't indicating strong restocking demand given spreading Covid infections among staffers, it said.
But supply shortages due to Covid-related port delays would also prevent substantial price cuts, Galaxy added.
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Chinese iron ore prices were slightly lower.
While the commodity has enjoyed a bullish run so far this month amid optimism over China's reopening, profit-taking pressure could be fast mounting, Galaxy Futures said.
It added that demand in the physical market may not rebound as quickly as previously expected, especially given China's current surge in Covid infections.
TODAY'S TOP HEADLINES
Japan Consumer Inflation Reaches Nearly 41-Year High
TOKYO-Japan's consumer prices excluding fresh food rose 3.7% from a year earlier in November, reaching a nearly 41-year high, government data showed Friday.
That was slightly faster than a 3.6% increase in October and marked the highest level since December 1981. It was the eighth consecutive month that inflation exceeded the Bank of Japan's 2% target.
Microsoft Fined $64 Million in France Over Advertising Cookies
PARIS-France's privacy watchdog fined Microsoft Corp. for not making it easy enough for users of its Bing search engine to reject cookies used for online ads, as part of a broader increase of enforcing Europe's privacy laws.
France's data-protection regulator, the CNIL, said Thursday that it fined a Microsoft subsidiary in Ireland 60 million euros, equivalent to almost $64 million. The company hadn't-until earlier this year-offered users the option to reject so-called cookies alongside the button to accept them, the regulator said. Cookies are a type of digital identifier that websites can leave in web browsers, and which are often used to help target advertising.
Sam Bankman-Fried Released on $250 Million Bond
FTX founder Sam Bankman-Fried was released on a $250 million bond Thursday and ordered to stay in his parents' Palo Alto, Calif., home, after the former executive's first appearance in a New York federal court following his extradition from the Bahamas.
Mr. Bankman-Fried, charged with engaging in criminal conduct that contributed to the cryptocurrency exchange's collapse, came to court shackled by the ankles and wearing a charcoal gray suit. He sat quietly at the defense table, flanked by his lawyers.
Write to singaporeeditors@dowjones.com
Expected Major Events for Friday
00:01/UK: Nov UK monthly automotive manufacturing figures
05:30/NED: 3Q GDP - 2nd estimate
06:00/FIN: Nov PPI
07:00/DEN: Nov Retail sales index
07:00/DEN: 3Q Revised GDP
07:00/NOR: Nov Credit Indicator C2
07:45/FRA: Nov PPI
08:00/SPN: Nov PPI
08:00/SPN: 3Q Final GDP
09:00/ITA: Dec Consumer Confidence Survey
09:00/ITA: Dec Business Confidence Survey
09:00/POL: Nov Unemployment
10:00/LUX: Oct Trade
10:30/BEL: Dec CPI
14:00/BEL: Dec Business Confidence Survey
15:59/UKR: 3Q Unemployment
16:59/SPN: Nov Budget deficit
16:59/SPN: 3Q Quarterly Balance of Payments
16:59/BEL: Nov PPI
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(END) Dow Jones Newswires
12-23-22 0016ET
