MARKET WRAPS

Watch For:

Eurozone Flash PMI; Flash UK PMI; BOE's Haskel speaks; ECB's de Guindos speaks; updates from Compass Group, Severn Trent, CRH.

Opening Call:

Stocks could open lower as investors digest Fed nomination news. Asia trading volumes reduced with Japan on holiday. Dollar holds firm after Powell nomination rally. Oil falls and gold gains.

Equities:

European stocks were set to extend losses after closing lower for three consecutive days as investors continue to monitor virus measures in Europe and digest news that President Biden will tap Jerome Powell for a second term as chairman of the Federal Reserve.

The decision ended a guessing game over who would lead the Fed during a period in which the central bank is expected to unwind coronavirus-era stimulus measures.

"The economy has recovered, and interest rates should start to normalize, and policy from the Fed should normalize," said Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors. "As they do that, you don't really want to own high-multiple stocks." The selloffs toward the end of the day could be a result of large institutions unloading more technology stocks, Ms. Link added. "It was just more of an intensified reaction to the changes of normalized monetary policy," she said.

Mr. Powell's nomination "keeps monetary policy relatively stable and takes one of the potential catalysts for disruption off the table," said Jason Pride, chief investment officer of private wealth at Glenmede.

Investors will also be eyeing European and U.K. PMIs, expected later Tuesday.

"I expect the UK to continue to surprise to the upside, in line with recent data releases," said Jeffrey Halley at OANDA. "Given Europe's already vulnerable outlook, thanks to virus restrictions and riots, low readings from heavyweights Germany and France are likely to see another wave of investor's head for the exit door in European stocks and the Euro," he said.

Forex:

Asian currencies were mixed against a firm dollar in morning trade. However, the greenback's latest rally spurred by the renomination of Jerome Powell as Fed Chair could be short-lived, DBS said. The Fed's favorite inflation gauge, the PCE deflator, might disappoint when the October data are released on Wednesday given that it hasn't risen as fast as CPI since May, the bank said.

Also, DBS remains wary of potential profit-taking by market participants on long USD positions ahead of the upcoming U.S. holiday weekend.

The dollar should remain resilient into 2022 against low-yielding currencies such as JPY, EUR and CHF amid growth and monetary-policy divergences, Bank of Singapore said. Stronger growth and higher inflation in the U.S. compared with the eurozone or Japan are expected to increase pressure on the Fed to take a gradual but divergent path toward eventual rate increases, it said.

Powell's renomination for Fed Chair and nomination of Brainard for Vice Chair signal continuity in Fed leadership and represent a likely more hawkish Fed than if Powell had been replaced, the bank added.

Bonds:

Worsening fundamentals, worsening technicals and stretched valuations suggest 2022 will be more volatile and bearish for European corporate bond markets than this year, said Societe Generale.

"We expect corporate bond spreads to start widening in 2Q22 and then widen more sharply in 3Q before dipping into the end of the year," credit strategists at the bank said, adding that spreads could peak to the wides of the 2018 cycle.

Most of the move is set to be led by rising government bond yields curtailing demand for company debt and a lower risk-adjusted carry advantage potentially prompting outflows from the asset class, they said.

They expect U.S. investment-grade and high-yield debt to underperform euro investment-grade paper as the Federal Reserve looks set to rein in stimulus sooner.

Keeping Jerome Powell as Fed Chairman provides continuity for the FOMC and Fed policy, which should help mitigate financial market volatility, Nomura said.

President Biden's nomination of Powell to serve another four-year term as Fed Chair was in line with the Japanese investment bank's expectations, as "replacing the Fed Chair with someone perceived as being more dovish was simply too much of a risk for the administration," given the current macroeconomic and political backdrop. Nomura doesn't expect Powell will have difficulty being confirmed in the Senate as he has widespread bipartisan support.

Energy:

Oil was lower in the early Asian session, ahead of a possible announcement by the U.S. to release the country's strategic petroleum reserve. An official announcement by the U.S. could come as soon as today, Oanda said.

Energy traders will look to see whether such an announcement could signal the bottom of oil's recent pullback, Oanda added.

Late last week, White House Press Secretary Jen Psaki said members of the U.S. national security team had discussed the need to meet supply demands with a range of countries, including China.

Metals:

Gold was higher in early Asian trade after declining overnight, weighed by a stronger greenback and a rally in U.S. treasury yields, as well as Fed Chair Powell's nomination for a second term. "Powell is considered more hawkish than Lael Brainard, the other contender for Fed Chair," CBA noted.

Investor interest in gold is likely to remain strong, amid uncertainties over a surge in Covid cases in Europe that has prompted governments in the region to reimpose measures to combat the virus, Commerzbank said.

Aluminum prices were little changed although likely to remain underpinned by supportive supply-demand dynamics, Commonwealth Bank of Australia said.

"China's aluminum supply remains in focus due to the recent pull back in production to reduce power consumption," it said. China's daily primary aluminum output peaked in April this year and has steadily declined to October, with CBA expecting November and December to record further drops.

Combined with expected demand growth from electric-grid expansion and plastic-to-aluminum switching in packaging, aluminum prices could remain elevated over the long term, CBA said.

TODAY'S TOP HEADLINES

Biden to Nominate Jerome Powell for Second Term as Federal Reserve Chairman

President Biden said he would nominate Federal Reserve Chairman Jerome Powell to a second term leading the central bank, opting for continuity in U.S. economic policy despite pushback from some Democrats who wanted someone tougher on bank regulations and climate change.

Mr. Biden said he would also nominate Fed governor Lael Brainard as vice chairwoman of the central bank's board of governors. Prominent liberals like Sen. Elizabeth Warren (D., Mass.) had warned the president against picking Mr. Powell, and progressive groups mounted a last-ditch campaign to pressure the president to tap Ms. Brainard for the top job.

Why Do Prices Keep Going Up and What's the Cause of Inflation?

U.S. inflation is at its highest rate in 31 years, with consumers seeing prices rise sharply for a variety of goods and services because of persistent supply and labor shortages and strong demand.

Stoked by imbalances in the economy created by the Covid-19 pandemic, inflation is one of the most vexing problems facing economists and government policy makers-from Federal Reserve officials, who set interest rates, to the Biden administration and Congress. The causes are myriad, and the tools that are usually deployed can, in some scenarios, push the economy into a recession as a way of taming price pressures.

U.S. Home Sales on Track for Biggest Year in 15 Years

U.S. home sales rose in October as buyers continued to compete for a limited number of homes for sale.

Existing-home sales increased 0.8% in October from the prior month to a seasonally adjusted annual rate of 6.34 million, the highest pace since January, the National Association of Realtors said Monday. Still, October sales fell 5.8% from a year earlier, when the market was at its peak for this cycle.

Chinese Stimulus Goes Green

Over the past decade or so, Chinese stimulus efforts have tended to feature housing and steel as the main course, with green infrastructure as a side. This time Beijing appears to be eyeing greens for the main.

On Nov. 8, the People's Bank of China announced a new "carbon emission reduction lending facility," which would provide low-cost funds for banks to relend to clean power, energy efficiency and other similar projects. The scale isn't yet clear, but HSBC reckons it could reach one trillion yuan ($157 billion) over the next couple of years. Banks will have a strong incentive to use the facility because it's extremely low-cost-an interest rate of 1.75%, against around 2.1% for a seven-day interbank loan and nearly 3% for the PBOC's key one-year lending facility. Separately, state media last week announced an additional 200 billion yuan relending program for clean coal.

El Salvador to Issue 'Bitcoin Bond' in 2022

El Salvador is planning to issue next year $1 billion in bonds backed by bitcoin, the latest effort by the economically stressed Central American nation to attract crypto capital.

The country this year became the first to adopt bitcoin as a national currency. It plans to sell $1 billion in U.S. dollar-denominated 10-year bonds with a coupon of 6.5%. Half of that money would be used to buy bitcoin to hold for five years and the rest would fund construction projects related to bitcoin.

Today's Shortages Could Soon Become Tomorrow's Gluts

In the throes of the sticker shock many Americans have been experiencing lately, it is hard to remember an oft-repeated lesson: Shortages can suddenly turn into gluts.

(MORE TO FOLLOW) Dow Jones Newswires

11-23-21 0034ET