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EMEA Morning Briefing: Stocks Seen Mixed as Investors Weigh Recession Risk

11/17/2022 | 12:17am EST

MARKET WRAPS

Watch For:

EU harmonised CPI; U.K. consumer confidence survey, Chancellor delivers his Autumn Statement; France OECD Corporate Tax Statistics release; trading updates from Siemens, ThyssenKrupp, Burberry Group, Bouygues, Investec, Royal Mail, Halma, Fuller Smith & Turner, Pershing Square Holdings, Harmony Gold Mining, Spirax-Sarco Engineering, Currys, Intermediate Capital Group, Micro Focus International, ConvaTec Group

Opening Call:

Shares may be mixed at Thursday's open. Asian stock benchmarks fell; U.S. bond yields broadly higher; the dollar strengthened; oil and gold fell.

Equities:

Stock futures are seen opening mixed in Europe, after the overnight decline in U.S. equities and as political tensions eased.

U.S. stocks finished lower Wednesday, following a big profit miss at Target heading into the holiday season and as strong October retail sales revived concerns about the Federal Reserve's likely pace of interest rate increases.

Katie Stockton, a market analyst at Fairlead Strategies, said stocks were ripe for a brief pullback, although technical factors suggested the major U.S. indexes would resume their uptrend as the holiday season in the U.S. gets under way.

"Clearly there are these hopes for a true peak in inflation and hawkishness from central banks," said Thomas McGarrity, head of equities at RBC Wealth Management.

But he cautioned that stocks were likely to remain volatile as investors face the rising risks of a global recession in 2023.

"We're not completely out of the woods yet," he said.

Forex:

The U.S. dollar gained early Thursday.

"Stellar US retail sales did little to help the dollar, and in fact US bond yields are lower as markets fret about what might be in store for 2023," ANZ said.

The dollar could see further modest falls in the short-term on position adjustments but a major trend lower is unlikely, ING said.

The dollar could "bounce around near the highs rather than embark on a clean bear trend in 2023," it said.

A turn in the dollar requires the Federal Reserve to take a backseat in raising interest rates and that seems unlikely.

Another condition for a softer dollar is a global economic environment attractive enough to draw funds out of the safe-haven currency but global growth forecasts were still being cut, it added.

Bonds:

U.S. bond yields rose broadly early Thursday.

The benchmark 10-year Treasury yield dropped to another one-month low on Wednesday, driving a popular bond-market gauge that is an indicator of a potential recession to its most negative level in more than 40 years.

The spread between 2- and 10-year rates shrank to 67 basis points, a level not seen since Feb. 18, 1982, when it went to minus 70.5 basis points.

Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets said he expected the Fed to raise interest rates by 0.5 percentage point at the December meeting, then slow the pace from there.

Once they reach the federal funds rate's ultimate peak, "they will hold rates there, risking a more significant recession."

That demand destruction is putting pressure on the long-term yield, he said, which is sensitive to growth and inflation expectations.

The Treasury market's liquidity problems have the potential to interfere with the Federal Reserve's ability to transmit monetary policy to the economy, John Williams, president of the Federal Reserve Bank of New York said.

He said that price stability is a "must-have" for the central bank and that the Treasury market "is at the center of it all," so the "time is now" to find ways to strengthen core parts of the financial system.

"If the Treasury market isn't functioning well, it can impede the transmission of monetary policy to the economy," he said.

Read: More trouble is brewing in the $24 trillion Treasury market: This time, it's about central clearing

--

Energy:

Oil futures continued their downward trend, as the potential risk to crude supplies posed by tensions over a missile strike in Poland eased somewhat.

Now, demand concerns were likely to be back at the forefront, as China's Covid-19 cases continue to rise and the flu season approaches, SPI Asset Management said.

"Traders are left with little option to recalibrate positions reflecting the possibility of more lockdowns in heavily populated centers that hurt oil demand exponentially more than other areas of the economy," it added.

"With the severe shortage of heating oil here on the east coast and the situation continuing to evolve in Poland/Ukraine, we feel energy markets will be driven by headlines with volatility to remain quite elevated," said Tyche Capital Advisors.

"We do feel the risk is to the upside in the short to medium term."

Metals:

Gold prices retreated in Asia, after settling lower overnight as investors continued to look for hints on the Federal Reserve's interest-rate path following stronger-than-expected retail sales data.

Now, gold seems to be "simply digesting its recent price rebound, awaiting the next catalyst," said Brien Lundin, editor of Gold Newsletter.

As for what is likely to spark gold's next move, he said the metal, as well as every other asset class, is "hanging on every uttered breath from any [Federal Reserve] official."

"With inflation having peaked and another recession looming, they're likely to sit on their hands for a while," he said.

"This will be bullish for not only gold but all other assets, at least initially. Longer term, I believe the current levels for gold and silver will prove to have been bargains."

--

Copper prices fell in Asia.

The recent rally in prices of base metals including copper offers a near-term selling opportunity, Citi Research analysts said.

China is unlikely to re-open its economy until 2Q 2023 at the earliest and the Fed will probably stay hawkish until bad economic news becomes bad news for 'risk assets,' they said.

Factors such as the currently high price of copper are expected to attract copper shorts over next 2-3 months, they added.

--

Chinese iron-ore futures slipped, pausing a recent uptrend which has been supported by expectations of Beijing's policy support for the property sector and slower monetary tightening globally.

Demand for the raw material still appears weak and more provinces have announced policies to limit steel production for environmental reasons, Donghai Futures said.


TODAY'S TOP HEADLINES

Fed Official Warns Against Prematurely Concluding Inflation Has Peaked

The U.S. economy and the pace of wage growth need to slow down in order for the Federal Reserve to be confident that its interest-rate increases will bring inflation down, a central bank official said Wednesday.

Fed governor Christopher Waller said recent data, including signs of deceleration in inflation and slightly looser hiring conditions, have made him more comfortable about the central bank stepping down to a 0.5 percentage point rate increase at its Dec. 13-14 policy meeting.


Republicans Win Control of House

WASHINGTON-Republicans won a majority of seats in the House of Representatives, the Associated Press said, bolstering their ability to steer the agenda on Capitol Hill after two years of Democratic control of both chambers of Congress and the White House.

More than a week after Election Day, the AP said GOP Rep. Mike Garcia won re-election in California's 27th District, putting the total seats at 218 for Republicans and 211 for Democrats in the 435-seat chamber late Wednesday. Republicans had been stuck at 217 since Monday, with several races still uncalled, mostly in California.


What to expect from the U.K. Autumn Budget statement

The new Chancellor of the Exchequer Jeremy Hunt will address U.K. Parliament this Thursday with an Autumn Budget announcement comprising an austerity-filled expected GBP35 billion ($41 billion) in tax rises and public spending cuts amounting to around GBP25 billion, according to published reports.

When his predecessor Kwasi Kwarteng left office - after the fallout from his disastrous mini-budget led to his dismissal - Hunt reversed almost all of the mini-budget promises, retreating from the GBP45 billion of unfunded tax cuts, which had rocked the markets to its core in September.


Chip Maker Nvidia Issues Tepid Earnings Forecast as Videogaming Business Slows

Graphics chip maker Nvidia Corp. issued a muted outlook and reported a sharp decline in quarterly sales, driven by waning consumer demand for its videogaming chips after a pandemic-fueled boom and the onset of the cryptowinter.

America's largest chip company by value on Wednesday said revenue fell 17% to $5.93 billion after gaming-segment sales more than halved in its fiscal third quarter. Net profit was $680 million. The sales were above expectations in a survey of analysts by FactSet, but net profit fell short.


FTX Management, Bahamas Gear Up for Fight Over Control of Bankruptcy

Securities regulators in the Bahamas are seeking to control FTX bankruptcy proceedings through the crypto exchange's locally based subsidiary, challenging the company's chapter 11 filing in Delaware and setting the stage for a possible venue dispute with its new U.S. management.

FTX Digital Markets Ltd., the crypto company's subsidiary based in the Bahamas, filed for chapter 15 in New York bankruptcy court on Tuesday to seek U.S. recognition of Bahamian liquidation proceedings. The action, if successful, could move at least a portion of the legal proceedings over the collapse of FTX from the U.S. bankruptcy courts to local courts in the Bahamas.


Amazon Confirms Corporate Staff Cuts That Could Hit 10,000 Employees

Amazon.com Inc. is trimming its corporate ranks, in a rare round of cuts for a tech giant that has mostly seen consistent growth throughout its history.

(MORE TO FOLLOW) Dow Jones Newswires

11-17-22 0016ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.01% 0.71095 Delayed Quote.4.30%
BOUYGUES SA -0.10% 30.15 Real-time Quote.7.63%
BRENT OIL 1.33% 88.49 Delayed Quote.0.27%
BRITISH POUND / US DOLLAR (GBP/USD) -0.33% 1.23691 Delayed Quote.2.60%
BURBERRY GROUP PLC 2.01% 2441 Delayed Quote.17.93%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.09% 0.75018 Delayed Quote.1.24%
CONVATEC GROUP PLC 0.17% 233.6 Delayed Quote.0.26%
EURO / US DOLLAR (EUR/USD) -0.23% 1.0862 Delayed Quote.2.04%
GOLD 0.02% 1930.69 Delayed Quote.6.84%
HARMONY GOLD MINING COMPANY LIMITED 0.61% 65.61 End-of-day quote.11.58%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.19% 0.012262 Delayed Quote.1.50%
INTERMEDIATE CAPITAL GROUP PLC 1.30% 1403.5 Delayed Quote.20.64%
MICRO FOCUS INTERNATIONAL PLC -0.04% 531.6 Delayed Quote.0.45%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.02% 0.64855 Delayed Quote.2.06%
NVIDIA CORPORATION 2.48% 198.02 Delayed Quote.35.50%
PERSHING SQUARE HOLDINGS, LTD. -0.14% 35.8 Real-time Quote.3.61%
S&P GSCI HEATING OIL INDEX 0.33% 400.8259 Real-time Quote.-1.09%
SIEMENS AG -0.31% 143.6 Delayed Quote.11.12%
SILVER -1.32% 23.548 Delayed Quote.0.00%
THYSSENKRUPP AG 1.10% 7.56 Delayed Quote.31.21%
WTI 1.75% 82.395 Delayed Quote.0.09%
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