EMEA Morning Briefing : Shares to Extend Losses as All Eyes on Fed

MARKET WRAPS

Watch For:

UK public sector finances, CBI industrial trends survey; no major corporate updates expected

Opening Call:

Shares could open lower Wednesday ahead of an expected sharp hike by the Fed later today. Asian stock benchmarks declined; Treasury yields eased from multiyear highs; the dollar, oil and gold steadied.

Equities:

European shares may extend losses at the open on Wednesday, as all eyes remain on the conclusion of the Fed meeting later today.

The U.S. central bank is expected to raise its interest-rate target by three-quarters of a percentage point to a range of 3% to 3.25%. Traders in fed-fund futures put a roughly 1-in-6 chance on a full-percentage-point increase.

Callie Cox, U.S. investment analyst at eToro, said rising bond yields and a paucity of positive news have left U.S. equity benchmarks "wandering in no-man's-land" below their moving averages.

"There isn't much to hang on to and when selling starts, it tends to pile up," Cox said.

The Fed isn't the only major central bank hiking interest rates to fight stubbornly high inflation. Sweden's Riksbank on Tuesday opted for a 100-basis-point hike, and analysts expect at least a half-point rise when the Bank of England meets Thursday.

Forex:

The dollar steadied early Wednesday, though MUFG Bank sees scope for further USD strength as the FOMC is poised to increase its policy rate by 75 basis points and raise its dot plot.

Asia ex-Japan currencies are poised to be under pressure, which could prompt a few USD/Asia ex-Japan currency pairs to break above some key levels, MUFG Bank added.

Bonds:

Treasury yields eased in Asia after marching higher overnight ahead of an expected rate hike by the Fed.

The FOMC policy decision looms over the market, as investors grapple with not just whether the central bank will deliver a 75- or 100-basis-point hike, but how high policy makers will signal rates will go in the future.

In addition to a 75-basis-point hike on Wednesday, "I expect a somewhat hawkish SEP," or summary of economic projections, said Omair Sharif of Inflation Insights. Additional rate increases in 2023 could bring the terminal rate, or level at which Fed policy makers stop hiking rates, to 4.625%, he said. "This might be a touch aggressive," but inflation remains elevated and most components of the gauge which excludes food and energy are "still rising strongly," he wrote in a note.

Energy:

Oil futures steadied in Asia ahead of a slate of central bank decisions to come this week.

These decisions may trigger mid-cycle economic slowdowns that could cripple the short-term crude oil demand outlook, said Oanda's Edward Moya.

Commodities are broadly weaker as this week is all about aggressive monetary policy tightening to combat inflation, Moya added.

Metals:

Gold steadied early Wednesday, but may face pressure ahead of the FOMC decision today.

"It has been a rough month for the precious metal due to a stronger dollar and rising Treasury yields," said Lukman Otunuga, manager, market analysis, at FXTM."After tumbling below the $1,700 psychological level last week, it feels like bears have won the battle in September."

However, "the war still rages on with various fundamental forces influencing gold prices," he wrote in a market update.

For now, "gold remains trapped within a short-term range, below key resistance," said Otunuga. "Sustained weakness below $1,680 could open the doors toward levels below $1,659," which is a level not seen since early April 2020.

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Chinese iron-ore futures fell, extending losses from the previous session.

Steelmaking profitability, which is a key driver of the raw material's prices, appears to be low in the near term, Galaxy Futures said.

The pace of iron-ore restocking by steel mills ahead of China's National Day holiday and the Fed's decision will be monitored, Galaxy Futures added.

TODAY'S TOP HEADLINES

World Leaders Seek to Address Barriers to Food

NEW YORK-World leaders called for donating more money to fight hunger and lifting barriers to food and fertilizer trade to address what they fear will be a prolonged period of food insecurity linked to Russia's war in Ukraine.

At a special food meeting on the sidelines of the United Nations General Assembly, representatives from the European Union, Africa, and the Americas sought to draw attention to signs that the world's food supply may face even bigger challenges in the future. They cited climate change, rising prices for energy and fertilizer and poor harvests linked to conflicts, including the one in Ukraine.

Eataly Near Deal to Sell Majority Stake

A European private-equity firm is close to a deal to buy a controlling stake in Eataly SpA, with the aim of helping the Italian-marketplace chain continue to expand globally, according to people familiar with the matter.

Investindustrial is in talks to take a 52% stake in Eataly in a deal that involves an investment of around EUR200 million, equivalent to $199 million, as well as the purchase of additional shares, the people said. A deal could come together Wednesday, assuming talks don't fall apart.

Russia Moves to Annex Occupied Lands in Bid to Halt Ukrainian Advance

MOSCOW-Officials in Russian-occupied parts of Ukraine announced plans for Russia to annex four regions in the country's east and south, while Moscow moved to clear the way for a broader mobilization as an increasingly pressured Kremlin seeks a firm response to counter Kyiv's offensive.

Russian-controlled parts of the Donetsk, Luhansk, Kherson and Zaporizhzhia regions of Ukraine said they would hold three-day votes on joining Russia starting this Friday, Moscow's latest effort to consolidate its hold on territory it took months to capture but now risks losing to Ukraine's forces. A Kyiv offensive in the annexed areas would allow Russia to claim an attack against its own territory, raising the threat of an escalation in the conflict.

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Expected Major Events for Wednesday

04:30/NED: Sep Consumer confidence survey

04:30/NED: Jul Consumer Spending

06:00/SWE: Aug Labour Force Survey

06:00/UK: Aug Public sector finances

08:00/POL: Aug Retail Sales

10:00/UK: Sep CBI Industrial Trends Survey

22:00/NED: Aug House Price Index

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

09-21-22 0016ET