MARKET WRAPS
Watch For:
U.K. PPI, CPI, BOE Gov. appears before Treasury Committee; trading updates from Alstom, Vinci, Zurich Insurance, Tullow Oil, Smiths Group, Assa Abloy, Mediclinic International, Flutter Entertainment
Opening Call:
Shares may be headed lower at Wednesday's open. Asian stock benchmarks fell; U.S. bond yields broadly rose; the dollar strengthened; oil and gold fell.
Equities:
Stock futures may open lower in Europe on Wednesday amid fresh geopolitical tensions following a missile attack on a Polish village near the Ukrainian border.
U.S. stocks rallied Tuesday after slowing increases in supplier prices offered more evidence that inflationary pressures could be easing.
"Geopolitical concerns obviously are never positive for the market," said Peter Cardillo, chief market economist at Spartan Capital Securities.
However, some analysts increasingly expect stocks to enjoy a positive end to the year.
"The near-term picture still looks positive for U.S. benchmark indices and while momentum has reached intra-day overbought levels, this doesn't imply a selloff has to happen right away," said Mark Newton, head of technical strategy at Fundstrat.
Forex:
The U.S. dollar gained early Wednesday, on fresh geopolitical tensions triggered by a missile attack on Polish territory.
Sean Callow, senior currency strategist at Westpac, said the situation was mostly seen as something to keep an eye on rather than regarded as a massive change in the Russia-Ukraine situation.
"There's a high likelihood that it was Russian incompetence rather than attack on a NATO member," he said.
It suggests many stern warnings and pledges of solidarity were likely in the next day or so but no major change in NATO force deployment, Callow added.
Bonds:
U.S. bond yields rose broadly early Wednesday.
Bond yields fell Tuesday, sending 10- and 30-year rates to their lowest levels in at least a month, after October's producer-prices report pointed to softening inflation and fresh geopolitical risks flared overseas.
Tuesday's PPI data was "another downside surprise that reinforces the peak inflation narrative and offers evidence that the Fed's efforts to combat inflation are increasingly effective," said Ian Lyngen of BMO Capital Markets.
Rob Daly, director of fixed income for Glenmede Investment Management in Philadelphia, said the 60%/40% mix of stocks and bonds "was dead before and is coming back, and having the safety valve of fixed income is something we haven't seen in a while, especially when yields are so much better."
Still, "it's premature to think this one encouraging month of data means everything is on a downswing" with inflation, Daly said.
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The U.K. 10-year gilt yields are projected to fall to 2.5% by the end of 2023 as economic growth and inflation slow due to cuts in government spending and monetary tightening by the Bank of England, UBS said.
"We expect 10y gilts to trade in a 3-3.5% range through the first half of 2023 and then rally to 2.5% by the end of 2023," UBS said.
Energy:
Oil futures fell early Wednesday on the fresh geopolitical tensions.
A key pipeline bringing Russian oil to Eastern Europe was also halted after power was cut, affecting flows to Hungary, Czech Republic and Slovakia, ANZ analysts said.
This comes ahead of European sanctions on Russian crude oil imports on Dec. 5, they added.
Phil Flynn, senior market analyst at The Price Futures Group said the oil market remains tight.
OPEC has warned that the oil market faces considerable uncertainties, "and while that is a bold statement, the reality is that based on their own data, the oil market is tighter than it has been in over a decade," he said.
Metals:
Gold prices fell in Asia after closing flat on Tuesday.
Geopolitical angst was back in force after the missile attack on Polish territory, sparking a rush back into haven assets by investors.
"This is what the market is focusing on right now," Oanda said.
"You are seeing that the war in Ukraine just took a turn for the worst. This is triggering a flight to safety. The dollar is rallying, and in addition, so is gold."
"This is raising many concerns that you are now going to see, possibly these geopolitical tensions weigh on the market," it said.
However, it cautioned that though the precious metal's major resistance was at around $1,800, it "might prove to be difficult to reach unless we see a major move lower with the dollar."
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Base metals broadly lower in Asia amid the fresh geopolitical concerns.
The latest development will make markets nervous, ING strategists said.
Uncertainty over how Poland and NATO would react may result in a larger risk premium priced into commodity markets, the strategists added.
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Chinese iron-ore futures rose, extending recent gains amid a brightening macro outlook both in China and overseas.
Despite persistent Covid-19 outbreaks across the country, improving macro expectations were providing solid support to prices of the steel making material, Guotai Junan Futures said.
Lower-than-expected U.S. inflation data raised hopes of slower tightening by the Fed, while Beijing has signaled more policy stimulus recently, it added.
TODAY'S TOP HEADLINES
Missile Hits Polish Territory Near Ukrainian Border
PRZEWODÓW, Poland-A missile struck this Polish village near the country's border with Ukraine on Tuesday and Warsaw said it was considering whether to summon other members of the North Atlantic Treaty Organization for an emergency summit as Russia's fight with Kyiv threatened to spill over.
The missile, which Poland's government said was manufactured in Russia, slammed into a granary 3 miles from the frontier and killed two farmworkers, Polish officials said. In response, Poland summoned the Russian ambassador and put military units for air defense on high alert.
China Home Prices Drop Despite Govt Steps to Shore Up Market
China's new-home prices fell at its fastest pace in more than seven years last month, despite government measures to shore up the real-estate market.
Average new-home prices in 70 major cities in October fell 0.37% compared with a 0.28% month-on-month fall recorded in September, according to Wall Street Journal calculations based on data released by China's National Bureau of Statistics.
Bonus Outlook Dims for Private Equity, Wall Street
Wall Street compensation consulting firm Johnson Associates is flashing a caution signal to fund managers, bankers and brokers not to expect anything like last year's bonus when the time arrives for those annual checks.
Payouts for private-equity fund managers could drop as much as 15% this year compared with 2021 while public equities investment managers could endure cuts of as much as 25%, the firm said Tuesday. Investment bankers at the largest institutions stand to absorb the sharpest cuts of as much as 40%.
U.S. Imposes New Sanctions Over Iran Drone Sales to Russia
The U.S. has imposed sanctions on an Iranian drone maker that officials said supplied Russia with weapons used in Ukraine.
The Treasury Department's Office of Foreign Assets Control on Tuesday announced the sanctions against Shahed Aviation Industries Research Center, also called SAIRC, a company linked to Iran's Islamic Revolutionary Guard Corps that designs and produces drones.
Microsoft Announces New Harassment Policies in Response to Internal Review
Microsoft Corp. announced enhanced policies it said are meant to prevent sexual harassment and gender discrimination, in response to an independent review that outlined areas where the software giant should improve.
The new policies, made public Tuesday along with a 50-page report by the law firm that conducted the review, followed an unexpected victory by activist shareholders last year when the company's annual investor meeting passed a proposal demanding greater disclosure around sexual-harassment issues.
Elon Musk Delays Introduction of Twitter's Blue Verification to Nov. 29
Elon Musk has pushed the rollout date for Twitter Inc.'s upgraded subscription service to the end of the month after a fumbled deployment in the early days of the billionaire's takeover of the social-media platform.
"Punting relaunch of Blue Verified to November 29th to make sure that it is rock solid," Mr. Musk said in a post on Twitter Tuesday in reference to Twitter's subscription service.
Estée Lauder to Buy Tom Ford in $2.8 Billion Deal
Estée Lauder Cos. will acquire Tom Ford in a deal valued at roughly $2.8 billion, building on a longstanding licensing agreement and marking the cosmetics giant's largest-ever acquisition, executives said Tuesday.
Estée Lauder prevailed in an auction for the high-end fashion label that drew competition from big names in luxury including Kering SA. The French company was poised to win the auction earlier this month, The Wall Street Journal reported.
BlockFi Prepares for Potential Bankruptcy as Crypto Contagion Spreads
Cryptocurrency lender BlockFi Inc. is preparing a potential bankruptcy filing after halting withdrawals of customer deposits and acknowledging it has "significant exposure" to bankrupt exchange FTX, people familiar with the matter said.
BlockFi paused withdrawals and limited activity on its platform last week, saying it couldn't operate business as usual given the uncertainty about FTX. BlockFi is now planning to lay off some of its workers while the troubled firm prepares for a possible chapter 11 itself, people familiar with the matter said.
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Expected Major Events for Wednesday
00:01/UK: Oct Scottish Retail Sales Monitor
07:00/UK: Oct UK producer prices
07:00/UK: Oct UK monthly inflation figures
08:00/SVK: Sep New orders in industry
08:00/CZE: Oct PPI
08:00/SVK: Oct Harmonized CPI
09:30/UK: Sep UK House Price Index
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11-16-22 0016ET
