MARKET WRAPS
Watch For:
Flash PMIs for Eurozone, U.K. Germany, France; Germany Bundesbank monthly report; U.K. chancellor appears before the Treasury Committee; trading updates from Prosus, Naspers, United Utilities, Johnson Matthey, Evraz, Darktrace, Renishaw
Opening Call:
Shares could advance slightly in Europe on Wednesday. Stock benchmarks mixed in Asia; Treasury yields slipped, the dollar weakened; oil inched up and gold declined.
Equities:
European stocks could extend gains on Wednesday after advancing overnight, with rising oil prices helping investors shrug off U.K. economic concerns.
"The Organisation for Economic Co-operation & Development warning that the UK faces years of stagnant growth has done little to dampen sentiment for the FTSE 100, with energy stocks leading the push higher," IG said. "While the Covid pandemic has largely masked the effects of Brexit, the outlook remains bleak over [the UK's] ability to grow its way out of this crisis."
A raft of U.S. data is due Wednesday, including minutes of the Fed's November policy meeting, with many traders away from their desks ahead of the Thanksgiving holiday.
The implications of thin trading are important to remember from here out this week, said Art Hogan, chief market strategist at B. Riley Wealth Management.
It's been a "predominantly constructive market" so far, he said.
But it's "a week that will have ultra light volume." Those conditions "tend to accentuate the moves in either direction," he said.
Forex:
The dollar weakened in Asia ahead of the FOMC meeting's minutes due later today.
These minutes are a potential key mover for market sentiment, IG said.
Any deepening signs of worries about the U.S. economy from FOMC members will likely be looked upon as a basis for moderating rate increases, which might further support risk sentiment for now, IG added.
"We're back to a risk-on, risk-off paradigm," Silicon Valley Bank said.
Markets are looking at the narrowing of policy-rate spreads and the advantage the U.S. has had is diminishing, it said.
"The terminal rate will be crucial in determining if there's a leg higher in the dollar, especially because we know other central banks have decelerated and the Fed has not," it said.
Meanwhile, the euro could recover further as the eurozone looks likely to avoid a severe energy crisis this winter, but levels above $1.20 look unlikely for years to come, Kit Juckes, chief global FX strategist at Societe Generale said.
"I'm not sure we'll get through $1.20 again for years and years and years unless we can find a solution to the energy problem," he said. The Ukraine war and energy risks are the euro's Achilles heel, Juckes said.
Bonds:
Bond yields fell, as additional Covid-19 lockdowns in China seemed to increase the chances of a global economic slowdown.
Market sentiment was described by analysts as fragile, given the uncertainty over whether China would make a U-turn on its reopening plans.
On the flip side, however, higher Fed rates also mean investors finally can earn a return by serving as creditors again, with bonds now kicking off some of the highest yields since the wake of the 2007-2008 global financial crisis.
"One way to think about it is that we've been in a pitch black, dark room for years, and now someone switched the light back on," said Steve Foresti, chief investment officer of global asset allocation and research at Wilshire, about the move away from ultralow rates and negative bond yields.
"It's disorientating, but the path forward does become clearer. Investors are right in the middle of that adjustment," he said. "There also are some returns priced in now that fixed-income investors can work with."
Read: Bond-market recession gauge hits 41-year milestone as global growth fears mount [http:// https://newsplus.wsj.com/article/realtime/MWCO20221122000410]
Energy:
Oil nudged higher in Asia, boosted by data released overnight by the American Petroleum Institute that showed a decline in U.S. commercial inventories of crude oil, analysts said.
The API data showed that U.S. crude oil inventories fell by 4.8 million barrels, which was more than the roughly 2.6-million-barrels draw that the market was expecting, ING said.
"Traders are trying to balance the 2-million-barrels-per-day output cuts announced in October, an imminent EU embargo on Russian oil shipments, and G-7 plans to set a price cap on Russian oil versus their 'where there is smoke, there is fire' [mentality] after reports that OPEC was considering increasing output," SPI Asset Management said.
"After another quarter in which supply and demand are likely to be more or less equal, the oil market risks being undersupplied from the second quarter of 2023 -- a deficit that could even turn out to be sizable in the second half of 2023," Commerzbank said.
"As global central banks continue to raise interest rates, the slowing global economy -- and possibility of recession -- has also been a consistent concern that [oil] demand will substantially wane," LPL Financial said.
Metals:
Gold prices declined in Asia despite the dollar's mild weakness.
The precious metal has received a slight boost from a weaker dollar, but this seems to be fading, Oanda said.
Gold could have a hard time rallying as the dollar appears poised to find some support, Oanda added, noting that the Fed is expected to adhere to its hawkish stance for a while.
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Copper edged lower on mixed demand signals.
The rising number of Covid cases and further lockdowns in China could place pressure on demand, ANZ analysts said.
Meanwhile, the call from the People's Bank of China to stabilize lending to real-estate developers could help to boost the number of construction projects and may mean a brighter outlook for the base metal, they said.
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Chinese iron ore futures fell early Wednesday, extending declines this week, as a Covid-19 resurgence in the country weighed on sentiment.
Ferrous metals have weakened amid intensifying virus outbreaks, while poor October economic data show actual demand is under pressure, Citic Futures said.
But expectations of iron ore demand are propped up by government policy to support the property industry, it added.
TODAY'S TOP HEADLINES
Looming Oil-Supply Shock Launches Debate in OPEC
The specter of an oil-supply shock this winter has created a dilemma for OPEC and its wider circle of crude producers about whether to reverse course on the production cuts it set last month.
Beginning in early December, the oil market will face a series of looming problems that some members of the Organization of the Petroleum Exporting Countries see as a potential opportunity to pump more oil and others view as a reason to stay the course with their production cuts.
Western Allies Aim to Agree on Russian Oil Price Cap Wednesday
The U.S. and its allies are seeking to agree as soon as Wednesday on a level for a price cap on Russian oil, with officials discussing setting it at around $60 a barrel as the group rushes to complete the plan, according to people familiar with the talks.
The price cap, which the people said could still be set as high as $70, is at the center of the West's efforts to sanction Russia for its invasion of Ukraine. The Group of Seven advanced democracies and Australia plan to begin enforcing the price cap on Dec. 5 after struggling to craft its details this fall.
EU Unveils Proposal to Cap Natural-Gas Prices
BRUSSELS-The European Union set out the details of a long-debated proposal to cap natural-gas prices on the bloc's main trading hub, part of an effort to shield consumers from the effects of higher energy costs linked to Russia's invasion of Ukraine.
The European Commission, the bloc's executive arm, said Tuesday that its proposal was designed to deal with exceptional circumstances where the benchmark price for natural gas in Europe exceeds 275 euros, equivalent to about $282, per megawatt hour for two weeks. Prices would also need to be above reference levels by a set margin for 10 consecutive days within those two weeks.
Rio Tinto Plans Larger Pilot Plant for Biomass-Fueled Iron-Making
Rio Tinto PLC said it plans to develop a larger-scale pilot plant for low-carbon iron-making after a small facility in Germany proved a process to use raw biomass instead of metallurgical coal was effective.
Rio Tinto, the world's largest iron-ore miner, has been testing the process in Germany over the past 18 months with Finland-based sustainable technology company Metso Outotec and the University of Nottingham.
Ukraine Strikes at Sevastopol and Pushes to Reclaim Key Black Sea Peninsula
Ukraine's military stepped up efforts to reclaim parts of the country's south, attempting to strike Sevastopol on Tuesday and saying it was launching an operation to push Russian forces from a strategic peninsula on the Black Sea coast.
The operations come as Kyiv looks to open up its besieged ports and build on significant gains in the region.
Goldman Sachs to Pay $4 Million to Settle Investigation Over ESG Funds
WASHINGTON-Goldman Sachs Group Inc.'s asset-management arm agreed Tuesday to pay $4 million to settle a regulatory investigation into how it managed mutual funds and other products that pick stocks based on environmental, social and governance criteria.
The Securities and Exchange Commission said Goldman marketed the ESG funds and a similar investment strategy without always following a consistent framework spelled out in its compliance plans. That meant Goldman violated an SEC compliance rule that requires investment advisers to implement plans designed to prevent potential regulatory violations. Goldman neither admitted nor denied the SEC's allegations.
HP Plans Layoffs With PC Demand Slump Stretching Into Next Year
HP Inc. said it would slash up to nearly 10% of its workforce with a sharp slump in demand for personal computers expected to stretch into next year.
(MORE TO FOLLOW) Dow Jones Newswires
11-23-22 0016ET
