MARKET WRAPS
Watch For:
Italy PPI, industrial turnover, foreign trade non-EU; UK balance of payments, business investment revised results, quarterly national accounts; no major corporate updates expected
Opening Call:
Shares look set to advance in Europe on Thursday after U.S. stocks logged their biggest jump in almost two weeks on strong earnings and consumer sentiment. In Asia, stock benchmarks climbed; Treasury yields declined; the dollar weakened; while oil and gold gained.
Equities:
European stocks are likely to extend gains on Thursday, tracking Wall Street's overnight rise on better-than-expected earnings reports and data showing a rise in U.S. consumer confidence.
Interactive Brokers thinks the stock-market rally indicates that investors have finally digested the Federal Reserve's message from last week. The "triple-whammy" of better-than-expected earnings from FedEx and Nike and the positive consumer sentiment offer "substantive reasons" to be hopeful.
But Advisors Asset Management, expressed caution over the stock market's sharp move higher Wednesday.
"These moves that you see today are just head fakes," it said. "There's less volume" in trading heading into the end of the year, leading to exaggerated moves in the market.
"The problem is the economy really is fundamentally much weaker," and earnings may have to drop "a lot more," Advisors Asset Management said, adding that it expects a recession in 2023.
"The number one question is at what point can we stop worrying about inflation," said Allianz Investment Management. "The Fed doesn't want to be in an environment where inflation is ping-ponging back-and-forth. They want it to be on a clear downward trajectory."
Forex:
The dollar weakened after its earlier strength against the euro and the yen, following the huge move higher by the yen on the heels of the Bank of Japan's policy change.
Goldman Sachs sees USD/JPY moving back higher in the coming months under its baseline view that markets are overpricing U.S. recession odds and underpricing the Fed cycle.
"Indeed, the yen is no longer even an outlier, or the worst performing G9 currency year-to-date, suggesting that there is limited sign of a special 'YCC discount' anymore. However, in the near term we expect markets to raise the odds of a more material BoJ shift, which remains a real possibility."
Meanwhile, sterling looks vulnerable and is likely to weaken against the euro next year as U.K. fundamentals remain sour, Rabobank said.
"The U.K. fundamental backdrop is still characterized by weak investment growth, low productivity levels and now a recession," Rabobank said.
Moreover, the U.K.-EU relationship remains a "deeply challenging issue" even if a workable solution is reached over the Northern Ireland protocol of the Brexit deal, it said. It forecasts EUR/GBP could rise to 0.90 in the next six to nine months.
Bonds:
Treasury yields lost ground after healthy yield gains the last two days.
Traders digested the Conference Board's December consumer-confidence index, which surprised to the upside, and housing data that showed November existing home sales fell for the 10th straight month and home prices fell for the fifth month in a row.
"Our pressing concern isn't the impact of overseas yields in 10s and 30s from tighter monetary policy, instead it's the fallout on the global real economy from the hurried move to restrictive territory and the heretofore unrealized impact of the uniformly hawkish policy bias," BMO Capital Markets said.
Energy:
Oil edged higher in Asia after the Energy Information Administration reported a 5.9-million-barrel drop in U.S. crude-oil inventories in the week ended Dec. 16, while the Conference Board's consumer confidence survey jumped to an eight-month high in December.
"Bullish momentum continues to take oil markets by storm," as Northern Hemisphere winter-related energy demand reality sets in, SPI Asset Management said.
Investors continue to weigh the demand implications of China's relaxation of Covid curbs, analysts said. A surge in infections is seen curtailing activity in the short run.
"Specifically, despite skyrocketing cases and reports of stressed hospitals, Chinese authorities are not locking down cities and that implies continued increases in energy demand as the world's second largest economy comes back online," Sevens Report Research said.
"However, it remains to be seen how much that increased energy demand will be offset by what's likely to be a slowing global economy and that's why the China reopening hasn't spurred a bigger rally in oil."
Metals:
Gold inched up in Asia, with lower U.S. Treasury yields increasing the allure of the non-interest-bearing precious metal.
"Gold got a modest boost after falling inflation bolstered consumer confidence and pushed risky assets higher," Oanda said.
"It looks like gold might struggle to get anywhere close to the $1,850 level unless we see a fresh major catalyst."
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Copper prices rose, further recovering from a slight downturn earlier this week.
The metal may remain range-bound in the near term, Galaxy Futures said, pointing to both demand weakness and supply concerns.
On the one hand, demand concerns are rising, as many copper-consuming sectors slow production due to rapidly-spreading Covid infections among their staff, Galaxy said, adding that it expects this to pressure copper prices.
But substantial downside will likely be prevented by similar issues on the supply side, as copper output from importers and refineries also weaken amid the infection resurgence. "What is being hit is not just demand. Supply conditions are also tight."
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Chinese iron ore prices gained, extending a broad upturn so far this month amid the country's faster-than-expected reopening.
But, Galaxy Futures pointed out that buying interest has been waning after the steelmaking raw material hit recent peak prices, which have likely factored in most of the reopening demand optimism.
The brokerage reckons downstream demand in the physical market will likely become the key price driver.
This may lead to near-term volatility in iron ore prices, Galaxy Futures said, given seasonally weaker steel production and China's Covid-19 resurgence, both of which could weigh on physical-market demand for now.
TODAY'S TOP HEADLINES
Caroline Ellison, Associate of FTX Founder Sam Bankman-Fried, Pleads Guilty to Criminal Charges
Two associates of FTX founder Sam Bankman-Fried have pleaded guilty for their roles in fraud that contributed to the cryptocurrency exchange's collapse and are cooperating with federal investigators.
Caroline Ellison, the former chief executive of Alameda Research, a trading firm tied to FTX, and Gary Wang, FTX's former chief technology officer, both pleaded guilty to criminal offenses similar to those Mr. Bankman-Fried was charged with last week.
Sam Bankman-Fried Transferred to U.S. Custody
NASSAU, Bahamas-FTX founder Sam Bankman-Fried was transferred to U.S. custody Wednesday to face criminal charges connected to the collapse of the crypto exchange, after a judge here approved his extradition.
He was flown to New York, accompanied by federal law-enforcement officials and could make an initial appearance in federal district court as soon as Thursday. When he is arraigned, he will be asked to enter a plea.
Metro AG to Sell India Cash & Carry Business for Over $300 Million
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Zelensky Says Ukraine Will Never Surrender, Asks Biden and Congress for More Aid
WASHINGTON-Ukrainian President Volodymyr Zelensky said his country would never surrender in its fight against Russia and urged Washington to ramp up military aid in an impassioned speech before Congress that unfolded as the war enters its 11th month.
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Ukraine Defends Bakhmut Against Russian Assaults as Zelensky Visits U.S.
LVIV, Ukraine-The Ukrainian military said it had repelled a fresh wave of Russian assaults around the eastern city of Bakhmut following a visit there on Tuesday by President Volodymyr Zelensky, who is visiting the U.S. on Wednesday.
The General Staff of the Armed Forces of Ukraine said in its regular morning report that Russian troops had assaulted Bakhmut and other towns and villages in the eastern Donetsk province, including with artillery and tanks, but without success. The Russian Defense Ministry said its military had seized some territory in Donetsk, without giving details, Russian state-run news agency TASS reported.
Putin to Boost Russian Military, Signaling Protracted War in Ukraine
MOSCOW-President Vladimir Putin approved an increase in Russia's military manpower while ordering the enhancement of its potential and capability, suggesting that the Kremlin is digging in for a protracted war effort.
Mr. Putin pledged to give unlimited funding to the armed forces for equipment and hardware to fulfill Moscow's military campaign in Ukraine and ordered his commanders to supply more improved weaponry to troops, upgrade communications and modernize military draft offices.
France's Macron Calls on Europe to Reduce Reliance on U.S. for Security
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12-22-22 0016ET
