EMEA Morning Briefing : Stocks to Post Mild Gains; Eyes on China's Covid Struggles, Fed Minutes

MARKET WRAPS

Watch For:

EU consumer confidence indicator; Euro area, Italy balance of payments; Deutsche Bundesbank president speaks at German Chamber of Industry and Commerce committee meeting; UK public sector finances; trading updates from E.ON, Enel, Severn Trent, Babcock International, CRH

Opening Call:

Shares may open slightly higher in Europe on Tuesday. In Asia, stocks were mixed; Treasury yields were also mixed; the dollar slipped; while oil and gold gained.

Equities:

European stocks may notch mild gains at Tuesday's open, following overnight weakness amid concerns over fresh Chinese coronavirus restrictions and interest-rate rises, as well as speculation that OPEC could boost oil supplies.

"All eyes are on China," said PineBridge Investments. "Any attempt to reopen is going to be tricky because we know the pattern with these things: you get a spike in cases. We haven't even really got going and there are already a lot of cases."

On top of the China news, investors are looking at an assortment of concerning developments in the U.S. ahead of the holiday season. A looming railroad-worker strike could disrupt some supply chains as soon as early December, hampering commerce. Investors will also be watching the shopping season to see the degree to which inflation is biting into consumers' purchasing power.

Traders and investors are also looking ahead to Wednesday's release of minutes from the last Federal Reserve meeting.

Investors will be looking for clues to Fed officials' opinion on the pace of inflation, and whether it will prompt the central bank to ratchet down the pace of interest-rate increases.

Forex:

The dollar was weaker in Asia on mild risk appetite prompted by gains in U.S. stock futures.

However, there still appear to be some downside risks for regional currencies owing to worries over global and regional economic outlooks, MUFG Bank said, noting China's recent Covid-19-related lockdowns.

"China's Covid struggles are driving strong safe-haven flows into the dollar," Oanda said, after China acknowledged three deaths related to Covid over the weekend, its first reported deaths in about six months.

Bonds:

Treasury yields were mixed, as investors weighed worries about a Covid-19 lockdown in China against fears the Federal Reserve will remain determined to tighten policy aggressively.

Corpay warned that minutes from the Federal Reserve's November meeting could deliver a market shock Wednesday afternoon, especially if policymakers express a lack of confidence in the peak inflation narrative.

"We expect officials will broadly agree that tightening should slow from the three-quarter-point-per-meeting pace hit in recent months, but terminal rate expectations could move higher -- potentially past the 5% mark -- if the committee remains convinced that the risk of doing too much is outweighed by the risk of doing too little."

Energy:

Oil edged higher in Asia on reports of a possible Russian reduction of output.

Russia's Deputy Prime Minister Novak has said that Russia won't supply crude oil or refined products to countries that follow the G-7 price cap, ING noted, pointing to the media reports.

Instead, oil will either be redirected to the nations who choose to ignore the price cap or Russian output will be cut, ING added.

Metals:

Gold rose in a possible technical rebound following recent losses, but gains may be capped, analysts said.

The precious metal will only be a safe-haven trade if the dollar is in defensive mode and this doesn't appear to be happening, Oanda said.

"Gold needs China's Covid situation to improve before it can start to look attractive again for investors. If the dollar rally turns excessive, gold could be vulnerable to a plunge towards the $1,700 level," Oanda added. .

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Copper was up in Asia amid a stronger outlook for the metal.

Recent efforts by China to support its housing market will likely lead to increased demand for copper in 2023, ANZ said.

Copper should also face lower risks of supply disruptions after BHP averted a strike at its Escondida copper mine in Chile, ANZ added.

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Chinese iron-ore futures declined in early trade, giving up earlier gains after the government's latest sign of support for the ailing property sector.

Financial regulators and the industrial-sector regulator on Monday signaled support for the real-estate and manufacturing sectors, Guotai Junan Futures said.

Nonetheless, winter restocking demand for the raw material is yet to be seen, and India's recent move to lower iron-ore export tax may increase supply, it added.

TODAY'S TOP HEADLINES

Fed's Daly says financial markets are acting like interest rates are much higher than they actually are

Financial market conditions seem much tighter than suggested by the actual level of the Federal Reserve's benchmark interest rate, said San Francisco Fed President Mary Daly.

Citing new research from the her regional bank, Daly said Monday that tightness in markets is more akin to having a benchmark rate of around 6%. That is well above the actual level of 3.75%-4% that Daly said should only be "modestly" slowing the economy down.

What to Expect as FTX Debuts Biggest Crypto Chapter 11 in Court

FTX is expected to make its debut appearance Tuesday in Delaware bankruptcy court, where its new management is expected to recount events leading up to the cryptocurrency platform's sudden collapse and explain the steps it has since taken to secure customer funds and other assets.

FTX's lawyers are advancing an unprecedented chapter 11 case marked already by allegations of major failures against its former leadership and a budding jurisdictional dispute with the government of the Bahamas, where the firm's inner circle ran its doomed crypto operation.

U.S. Economic Growth Weakened in October, Chicago Fed Says

Economic growth in the U.S. slowed in October, data from the Federal Reserve Bank of Chicago showed Monday, adding to signs of weakening activity amid high inflation and rising interest rates.

The Chicago Fed National Activity Index decreased to minus 0.05 in October from 0.17 in September. The reading suggests U.S. economic activity grew slightly below its average historical trend over the month.

Germany Debates Naming Businesses With Large China Exposure

Germany is considering new rules that could require companies with large exposure to China to disclose their reliance to reduce the potential economic fallout from a deterioration in the relationship between the West and the Asian giant.

Berlin nationalized part of the German energy sector after Russia first throttled and then stopped natural-gas deliveries to the country. Moscow's move threatened to bankrupt some of Germany's largest utilities that were reliant on imported Russian fuel.

Walt Disney CFO, Others Brought Concerns to Board Over Bob Chapek

Behind the surprise change in leadership at Walt Disney Co. on Sunday was festering discontent among investors and top executives including Chief Financial Officer Christine McCarthy, who in recent weeks had expressed to directors her lack of confidence in Chief Executive Bob Chapek, according to people familiar with the matter.

Disney executives and investors had been complaining for months to the prior CEO, Robert Iger, about the direction of the company under Mr. Chapek, according to people familiar with the matter. Mr. Iger advised some of these executives to take their concerns to the company's board, some people familiar with the matter said.

Twitter Lays Off Some Sales Employees After They Committed to Twitter 2.0

Elon Musk extended his job-cutting at Twitter Inc., laying off some employees in sales after they had signed on to the billionaire's vision for the social-media platform, people familiar with the matter said.

The exact scope of the latest cuts couldn't be immediately learned. One employee said he found out early Monday that he had been laid off and was told in an email that his role was no longer necessary.

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Expected Major Events for Tuesday

06:00/FIN: Oct Labour force survey, incl unemployment

07:00/UK: Oct Public sector finances

07:00/DEN: Nov Consumer expectations

07:00/DEN: Oct Central Government Finance & Debt

08:00/SPN: Sep Industrial Orders & Turnover

09:00/ICE: Oct Harmonized CPI

09:00/EU: Sep Euro area balance of payments

09:00/POL: Oct Average gross wages

09:00/POL: Oct PPI

09:00/POL: Oct Industrial Production Index

09:00/POL: Oct Agricultural prices

10:00/ITA: Sep Balance of Payments

10:00/BEL: Nov Consumer Confidence Survey

10:00/MLT: Oct RPI

11:00/IRL: Oct WPI

11:00/FRA: 3Q OECD trade statistics release

13:00/HUN: Nov Hungarian interest rate decision

15:00/EU: Nov FCCI Flash Consumer Confidence Indicator

All times in GMT. Powered by Onclusive and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

11-22-22 0016ET