MARKET WRAPS
Watch For:
UK monthly unemployment figures; Italy industrial production; OECD composite leading indicators; trading updates from LVMH, Givaudan
Opening Call:
Shares face further losses Tuesday as concerns persist over rising interest rates and an escalation in the Ukraine war. Major Asian stock benchmarks broadly declined; the dollar and Treasury yields were higher; oil and gold fell.
Equities:
European shares look poised to extend losses at Tuesday's open after declining Monday following fresh Russian missile strikes on Ukraine and continued concerns over the Fed's tightening path.
"[T]he fresh outrages in Kyiv are another reminder that European markets face an even tougher winter than those in the U.S.," IG said.
Traders are looking toward more data later in the week for further guidance on Fed thinking and equity valuations. The U.S. producer price numbers will be released Wednesday and the consumer prices report on Thursday, the last of their kind before the Fed's policy decision on Nov. 2.
"We expect a lot more volatility in markets for the remainder of the year as the inevitability of higher rates sinks in and the economic consequences become more pronounced," said Arthur Laffer Jr., president of Laffer Tengler Investments.
Fed Chairman Jerome Powell "will not be a very popular person but it seems his legacy is focused on fighting any resurgence of 1970s inflation in the U.S. at all costs."
Forex:
The dollar strengthened in Asia. Worries over more aggressive Fed rate increases remain a focus, said CBA. Also, the IMF and World Bank have warned of an increasing risk of a global recession amid rising rates, which is CBA's base case for 2023.
Once markets begin to price in a global recession, demand for safe-haven assets will probably further benefit USD, added CBA.
Bonds:
Treasury yields rose early Tuesday, after U.S. bond markets were closed Monday for Columbus Day.
U.K. bond yields had surged Monday, on worries the pension fund market isn't ready for the end of a temporary debt purchase program this week.
The Bank of England said Monday it would increase the size of its daily gilt purchases and implement additional measures "to support an orderly end" to its emergency bond-buying plans announced last month. That buying is still scheduled to end Friday.
"Taking off the emergency QE band-aid--and replacing it with indirect liquidity support--opens the door to renewed repricing of UK assets while (hopefully) preserving BoE credibility and preventing a return of disorderly conditions," said Evercore ISI.
Energy:
Oil futures slipped in Asia, as China imposes fresh Covid lockdowns in major Chinese cities after a surge in cases over the weeklong National Day holiday.
The restrictions are stoking demand concerns, while profit-taking is adding further pressure on oil, said CMC Markets.
Recession fears are again dominating market sentiment amid the strengthening USD and the Fed's rate increases, CMC added.
Metals:
Gold prices edged slightly lower early Tuesday.
"The broader outlook for gold remains one where central banks across the world look set on a course of a series of interest rate hikes to try and bring stubbornly high inflation back down towards their target figures," said Kinesis Metals.
"The impact of these ever increasing rates has been to make gold a less desirable commodity to hold with its lack of yield making other interest-paying assets such as bonds more attractive in its place."
--
Iron ore futures declined in Chinese trading amid a strengthening dollar and rising expectations of another sharp interest-rate increase by the Fed.
But the steelmaking ore's downside may be limited, Yongan Futures said, noting that a recent miner strike in South Africa is likely to raise worries over supply and support traders' buying interest.
Chinese producers' restocking demand after the weeklong National Day holiday is another support for prices, Yongan added.
--
Copper prices fell slightly, in line with broad weakness in the global commodities market.
However, Galaxy Futures thinks the metal's losses may be limited in the near term, as South Africa port strikes and China's maintenance seasonality could constrain supply and support prices.
Galaxy Futures also note an improving demand outlook from China's infrastructure construction sector, as Beijing continues to launch stimulus measures.
TODAY'S TOP HEADLINES
Two Fed Officials Make Case for Caution With Future Interest Rate Raises
Two Federal Reserve officials began laying out a case for exercising caution in raising interest rates after policy makers last month telegraphed plans to continue lifting rates at their fastest pace in decades to reduce inflation that has reached 40-year highs.
Fed Vice Chairwoman Lael Brainard noted how previous rate increases, together with anticipated further rate increases, will slow the economy in ways that can't be observed yet during a speech Monday at a conference of business economists in Chicago.
Iraq Can't Afford OPEC-Mandated Oil Production Cut, Senior Leader Says
Iraq can't afford to reduce its oil production as part of a move by OPEC+ to slash output, according to the top candidate for the Iraqi prime minister's post, who said the country needs the money to bolster its floundering economy.
The Saudi-led Organization of the Petroleum Exporting Countries and its Russia-led allies agreed to cut output by 2 million barrels of oil a day last week. Critics, including the U.S., said the cut was meant to push up already-high global energy prices and help Russia pay for its war in Ukraine. Riyadh and Moscow, OPEC+'s biggest producers, have grown closer in recent years as they benefit from the alliance.
Japan Finance Minister to Explain Yen Intervention at G-20 Meeting
Japanese Finance Minister Shunichi Suzuki said he plans to explain the nation's recent yen-buying intervention to the Group of 20 nations at the coming meeting.
Mr. Suzuki said Tuesday that he has made efforts to gain the understanding of other nations on Japan's currency intervention and believes that Japan has gained a certain level of understanding from the U.S.
PC Shipments Plunge Nearly 20%, Steepest Drop in More Than 20 Years
Demand for personal computers is sliding at the fastest pace in decades after elevated pandemic-related sales were followed by a slowdown in consumer spending on electronics.
Worldwide shipments in the third quarter dropped 19.5% from a year ago, marking the steepest decline in more than two decades, according to data from research firm Gartner Inc. Computer makers shipped 68 million PCs in the recent quarter, down from 84.5 million units the year prior.
Russia's Putin Seeks to Escalate With Ukraine Strikes as Pressure Builds at Home
President Vladimir Putin's missile strikes on cities throughout Ukraine Monday drew condemnation from the West but praise from a growing chorus in Russia-critics who say that Moscow, despite the brutality of its invasion, hasn't shown enough toughness.
Speaking hours after one of the broadest and most intense barrages of the war, Mr. Putin said Russia responded to a weekend attack on a key bridge that links Crimea, the Ukrainian peninsula that Moscow illegally seized in 2014, to Russia. Mr. Putin warned of a harsh response if Kyiv were to conduct further "terrorist attacks."
Billionaire Investor Yuri Milner Renounces Russian Citizenship Amid War
Russian-born billionaire Yuri Milner announced Monday that he has officially renounced his Russian citizenship, completing the process in August.
"My family and I left Russia for good in 2014, after the Russian annexation of Crimea," tweeted Mr. Milner, who founded technology investment firm DST Global in 2009. On his website, Mr. Milner said he has been an Israeli citizen since 1999 and his family has lived in California since 2014.
Bio-Rad Laboratories in Talks to Combine With Qiagen
Bio-Rad Laboratories Inc. is in talks to combine with fellow life-sciences company Qiagen NV in a deal that would be worth more than $10 billion, according to people familiar with the matter.
The talks have been going on for a while but any agreement isn't likely for another few weeks or more-and there may not be one.
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Expected Major Events for Tuesday
06:00/UK: Sep UK monthly unemployment figures
07:00/HUN: Sep CPI
07:00/SVK: Aug Construction production
07:00/CZE: Sep CPI
07:00/CZE: Aug Import & export price indices
07:00/TUR: Aug Balance of Payments
08:00/ITA: Aug Industrial Production
10:00/FRA: Aug OECD Composite Leading Indicators
15:59/UKR: Sep CPI
15:59/UKR: Sep PPI
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This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
10-11-22 0016ET
