MARKET WRAPS

Watch For:

Germany PPI; Euro area balance of payments; Italy balance of payments; UK aluminum production report; trading updates from TotalEnergies, ABB, Kering, Hermes International, Pernod Ricard, Vivendi, L'Oreal, Volvo, Nokia, Sasol

Opening Call:

European shares may decline Thursday, tracking U.S. stock indexes and Asian stocks lower. In Asia, the dollar strengthened; Treasury yields largely rose; oil futures were mixed; while gold prices fell.

Equities:

Stock futures point to declines at Thursday's open, extending losses after U.S. stock indexes snapped a streak of two days' of gains as investors weighed a batch of solid corporate earnings against concerns that continued interest-rate increases will cause a recession.

"I think the broader issue in this earnings season is really not just how companies are doing, but the macro issues with interest rates and Fed policy," said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.

U.S. equities were initially buoyed Wednesday by a well-received update from Netflix late Tuesday that cemented the impression that the third-quarter earnings season would support the market.

"What will really be the story going into next year, is that a lot of strategists have thought that we're going to be having an earnings recession that's down potentially 20% from the current earnings, and if the companies can prove that's not going to be the case and that they can continue to grow, that can have a big impact on the market," said Christian Ledoux, director of investments at CAPTRUST. "We could have a pretty good rally off that news."

Forex:

The greenback strengthened in Asia amid risk-off sentiment prompted by losses in regional equity markets and U.S. stock futures.

Market focus has returned to the inflation backdrop worldwide and aggressive rate increases that will be needed to contain inflation, ANZ said.

Read: The U.S. dollar continues to soar: What that means for the stock market and investors

-

Sterling is likely to keep falling amid UK economic concerns, HSBC said. The pound's losses Wednesday, despite news of slightly higher-than-expected UK inflation data, highlight concerns about the country's widening structural imbalances, HSBC said.

Sterling is likely to face underlying downward pressure until the UK government has made more effort to rein in the domestic budget deficit, or inflation has more clearly peaked, potentially helping to stabilize the bond market and the currency.

"Even when we return to cyclical forces, the weak growth, high inflation environment the UK faces will likely see GBP struggle," said HSBC's head of European foreign-exchange research, Dominic Bunning. "We see GBP/USD falling to 1.08 in the months ahead."

Bonds:

Treasury yields mostly pushed higher early Thursday, after two-, 10- and 30-year U.S. bond yields jumped to their highest levels in 11 to 15 years on Wednesday.

Yields on U.S. Treasurys tracked the rate on U.K. gilts after data released Wednesday showed Britain's inflation moving back up to a 40-year high of 10.1%. The faster-than-expected U.K. consumer-price increase reminded investors that central banks in most major economies will continue to battle inflation by hiking borrowing costs.

Energy:

Oil futures were mixed in Asia, after U.S. government data showed declines in domestic crude and gasoline supplies while monetary tightening darkens the global growth outlook.

Tighter supply due to OPEC+ output cuts and the limited room for the U.S. to keep releasing crude from the Strategic Petroleum Reserve are supportive of oil prices, Citic Futures said.

But the commodity is also under pressure from rising interest rates and a strong USD environment, Citic added.

Metals:

Gold edged lower early Thursday, after futures declined overnight amid dollar strength and as Treasury yields rose further above the 4% mark.

With Treasury yields "making a strong move higher, non-interest bearing gold is in trouble," Oanda senior market analyst Edward Moya said.

It "could get even uglier" for the precious metal if it breaks below the $1,620 level, Moya added.

"The psychological $1,600 level might not prove too strong of a support level for gold, which could lead to a plunge to the $1,550 level."

-

Copper prices slid amid fears about China's economic growth.

The risk of renewed lockdowns in the country due to rising Covid-19 cases is denting the demand outlook for base metals, ANZ said. Copper prices could struggle amid higher inventories of the metal, the bank added.

The International Copper Study Group estimated that copper could reach a surplus of 155,000 metric tons in 2023, from this year's deficit of 325,000 tons.

--

Chinese iron-ore futures declined as market sentiment weakened due to the number of Covid-19 infections in Beijing swelling to their highest level in four months.

Citic Futures expects weaker demand in the short term, given the Covid-19 flare-ups and sluggish property sales in the country's lower-tier cities.

Still, Citic said the drop in prices is likely to be limited given that the government's supportive economic policies should take effect in the fourth quarter.


TODAY'S TOP HEADLINES

CFPB Funding Method Found Unconstitutional by Federal Appeals Court

WASHINGTON-A federal appeals court found the U.S. Consumer Financial Protection Bureau is funded through an unconstitutional method, a ruling that threw out the agency's regulation on payday lenders and struck a blow against how the agency operates.

The decision, by a three-judge panel of the Fifth U.S. Circuit Court of Appeals in New Orleans, found the CFPB's funding structure violated the Constitution's doctrine of separation of powers, which sets the authority of the three branches of government. Congress has the sole power of the federal purse, and the bureau's funding structure undercuts that authority, the court said.


China Central Bank Keeps Benchmark Lending Rates Unchanged

China's central bank on Thursday held the benchmark lending rates unchanged as expected, as the yuan continues to face increasing downward pressure.

The People's Bank of China kept the one-year loan prime rate at 3.65% and the five-year rate at 4.3%, both unchanged from last month, according to a statement published on its website.


Fed's Bullard thinks inflation can come down without throwing a wrench in strong labor market

The Federal Reserve can get inflation back down to its 2% target without throwing a wrench in the strong labor market, said St. Louis Fed President James Bullard on Wednesday.

In an interview on Bloomberg Television, Bullard said that disinflation will come when companies stop raising prices.


Japan Exports Rise 28.9% in September on Auto, Mineral Fuels Demand

Japan's exports rose for the 19th month in a row in September, driven by strong demand for autos and mineral fuels, Ministry of Finance data showed Thursday.

Exports rose 28.9% in September from a year earlier, which was stronger than the 27.1% increase expected by economists surveyed by FactSet. Exports had expanded 22.1% in August.


Businesses Expect Economy to Weaken, Fed's Beige Book Says

U.S. businesses are becoming more pessimistic about economic conditions in the face of high inflation and rising interest rates, the Federal Reserve said in a Wednesday report.

The Fed's 12 regional reserve-bank districts said business contacts noted "growing concerns about weakening demand," according to the central bank's latest compilation of economic anecdotes from around the country, known as the Beige Book.


Biden Says He Will Keep Tapping Oil Reserves

WASHINGTON-President Biden said Wednesday he will continue tapping emergency oil reserves to blunt new shocks to global oil markets, as oil industry groups contended that Mr. Biden's policies will only worsen shortages.

In a speech from the White House, Mr. Biden confirmed he has already decided to have the Energy Department go ahead with sales of the last roughly 15 million of 180 million barrels from the U.S. Strategic Petroleum Reserve he had authorized for sale back in March. The sales will happen in December, Mr. Biden said.


Russian Nationals Arrested Over Alleged Scheme to Evade U.S. Sanctions

Two Russian nationals were arrested for allegedly using their Germany-based company as a front to move black market oil and sensitive equipment with military uses in defiance of U.S. sanctions.

Yury Orekhov and Artem Uss, both associated with the Hamburg-based industrial equipment and commodity trading business Nord-Deutsche Industrieanlagenbau GmbH, have been apprehended, federal prosecutors said Wednesday.


Macron Government Overrides France's National Assembly to Pass Budget

French President Emmanuel Macron's government invoked rarely used powers Wednesday to override the National Assembly on a crucial budget vote, placing its pro-business agenda on a collision course with parliament.

The Macron government's decision to invoke Article 49 of France's constitution allowed it to bypass parliament and pass a budget bill for 2023. The move, howevever, collided with Mr. Macron's pledge to govern as a consensus builder after losing his majority in June in the National Assembly, the lower house of parliament.


EU to Impose New Sanctions on Iran for Supplying Drones to Russia

The European Union agreed to impose sanctions on three top Iranian military officials and an Iranian drone-maker, as the bloc's leaders prepare to hit out at Tehran for supporting Russia's war efforts and cracking down on protesters at home, diplomats said.

EU diplomats said the sanctions, which are in response to Iranian drone deliveries to Russia, were backed by member states Wednesday and would be formalized Thursday morning.


Tesla Cuts 2022 Vehicle-Delivery Target Though Says Demand Remains Strong

(MORE TO FOLLOW) Dow Jones Newswires

10-20-22 0015ET