MARKET WRAPS

Stocks:

European equities fell on Monday, at the start of a week that will include interest rate decisions from the U.S. and central banks in Europe, with investors also nervously awaiting key U.S. inflation data.

"The fragility of recent rebounds was highlighted as fresh risk-off sentiment emerged ahead of an inflation print this week, followed by the latest Fed decision on interest rates," Interactive Investor said.

"The two announcements are intertwined, with any prolonged heat on the inflation number providing the Fed with more ammunition to maintain its hawkish view."

Stocks to Watch

Accor will face challenging times if a recession materializes and the hotel group doesn't change its focus to organic growth, Jefferies said, as it downgraded the stock to underperform from hold.

"While there have been some clear successes, much focus has been placed on value-realization of deal-making activities. Until we see a focus on organic growth, we believe shares will remain under pressure."

Economic Outlook

The eurozone economy is expected to contract by 0.6% in 2023, less than the 1.2% contraction previously expected, Deutsche Bank said.

Inflation is expected to fall to an average of 7.1%, but core inflation--which excludes the more-volatile categories of food and energy--isn't likely to peak before the end of the summer. "The risks to inflation are to the upside and the market and consensus views on inflation remain too benign."

Recession is underway in the eurozone, and there is a risk of a double-dip recession due to the significant headwinds in 2023 from a U.S. recession, lingering high energy costs and substantial monetary tightening, Deutsche Bank said.

U.S. Markets:

Stock futures were barely changed as traders eyed inflation data and a Fed decision that could set the tone for the rest of the year.

Yields on the 10-year Treasury note fell to 3.546% from 3.567% on Friday. Slowing inflation and expectations the Fed will ease the size of its interest-rate rises have seen yields on government bonds pull back in recent weeks from the 14-year high they hit in October.

Economic updates set for release on Monday include the New York Fed 1 and 5-year inflation expectations for November and the federal budget for November.

Forex:

This week's Fed decision and CPI print could be decisive for the dollar's outlook, ING said, with the currency likely to perform well if the central bank's forecasts suggest rates will stay high as inflation remains "sticky."

Market consensus "underappreciates the risk of inflation staying higher longer" and is "dangerously second-guessing the Fed" in predicting rate cuts in the second half of 2023, ING said.

On the other hand the dollar will fall if 2023 starts with "a focus on the inflation battle being won and the prospect of stimulative, reflationary policy coming through."

Separetly, ING said the euro may rise if the ECB raises interest rates by a further 75 basis points on Thursday, although any gains are likely to be limited, with the currency's moves also dependent on the outcome of the Fed's meeting and the U.S. inflation data.

"Given the 10% EUR/USD correction off the late September lows, our preference would be that EUR/USD struggles to hold any gains over 1.06 this week and could end the week lower should U.S. events oblige."

Read EUR/USD Implied Volatility Looks Likely to Fall Next Year

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Sterling could fall as the U.K. economic outlook looks weak, Commerzbank said.

Lower temperatures are having a "pretty dramatic effect" on the energy market, which adds to the "dire overall situation the U.K. is currently in," Commerzbank said.

"In addition, there are the strikes of nurses, train staff, mail workers and border officials and that is unlikely to improve the situation." The accumulation of bad news from the U.K. justifies a weak sterling, Commerzbank said.

Central Banks

Pictet Wealth Management said major central banks meeting this week face different macroeconomic conditions but a similar challenge.

"They will need to balance the need for a more gradual approach, following one of the fastest monetary tightening cycles in history, with lingering inflation risks, including concerns over wage growth and second-round effects."

Pictet expects the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank to raise their policy rates by 50 basis points, with their communication remaining hawkish, consistent with higher terminal rates and no early rate cuts.

Bonds:

LBBW said an easy and uneventful year-end rally for the major bond markets is far from certain, as this week poses potential stumbling blocks, with multiple interest rate decisions by central banks and U.S. inflation data.

"This could even set the tone for the entire trading week on the financial markets," LBBW said, adding that in three out of the last four months U.S. inflation data proved to be a significant driver of the subsequent yield trend on the U.S. Treasury market.

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The rally in German Bunds has lost steam with 1.75% remaining a strong resistance level for 10-year yields, Morgan Stanley said.

The rise in yields should occur post the ECB's meeting this week with Bund yields correcting their current expensiveness, Morgan Stanley said. It sees a return of the long-term model fair value of 2.15% likely in the first half of January.

Energy:

Oil prices gave up earlier gains to trade lower as weak economies in the West and concerns about China's reopening weighed on demand hopes.

While China's reopening was hoped to boost demand for crude, concerns have built that it could send Covid-19 cases sharply higher, which could be negative for oil demand.

"An expected bumpy China reopening coupled with the scenario of a mild recession in Europe and the U.S. could lead to a harsher economic climate for oil markets," SPI Asset Management said.

Metals:

Copper prices edged lower but remained close to a six-month high as expectations of China's reopening have lifted prices, although analysts have cautioned that the process could be bumpy.

China's metal demand might actually underwhelm, JPMorgan said. "Reopening is going to likely be a process of starts and stops."

DOW JONES NEWSPLUS


EMEA HEADLINES

Microsoft Buys Stake in London Stock Exchange

Microsoft on Monday said it was investing in the London Stock Exchange in a deal that will see the stock exchange use the software giant's data and cloud infrastructure.

Microsoft MSFT, -0.80% is going to buy a 4% stake in the London Stock Exchange LSEG, 4.00% - valued at GBP1.5 billion ($1.8 billion) using Friday's closing price - from Blackstone BX, -0.72% and Thomson Reuters TRI, -0.14%, which hold a stake from the Refinitiv deal. In addition, Scott Guthrie, who is an executive vice president of cloud and artificial intelligence, will join the LSE as a board member.


Rivian Pauses Talks With Mercedes on Joint Van Factory in Europe

Electric-vehicle startup Rivian Automotive Inc. said it has paused negotiations with Mercedes-Benz Group over a planned tie-up to produce electric vans in Europe, as part of a wider effort at the SUV and truck maker to conserve cash.

In September, both companies said they were starting negotiations on a potential joint venture at a Mercedes plant in Poland, which would have produced commercial vans for both auto makers. At the same time, Rivian executives have been cautious about overextending operations in the wake of tightening capital markets and concerns over the economy.


UK Economy Rebounded More Than Expected in October But Recession Looms

The U.K. economy swung to expansion in October as services activity was boosted by an additional working day after September's bank holiday, but activity is set to take a downturn in the months ahead.

The U.K.'s gross domestic product grew by 0.5% in October on month after a 0.6% contraction in September, according to data from the Office for National Statistics released Monday.


Novozymes and Chr. Hansen agree deal to merge

Danish biotechnology companies Novozymes AS DK:NZYM.B and Chr. Hansen Holding AS DK:CHR said Monday they have agreed to merge, creating a biological solutions provider with combined annual revenue of around 3.5 billion euros ($3.69 billion).

The companies, which produce products such as enzymes, probiotics and biopharmaceutical ingredients, said the combination between two strategically complementary businesses will drive efficiencies while unlocking potential within biosolutions and providing additional growth opportunities.


Clariant to Book $241 Mln Impairment From Romania Plant

Clariant AG will take a hit of roughly 225 million Swiss francs ($240.8 million) that will show in its full-year results, as the sunliquid plant in Podari, Romania, hasn't yet delivered its targeted yields.

The Swiss chemicals company said Monday that it would book the impairment this month, reflecting the charge in its 2022 results to be presented in March.


A.P. Moeller-Maersk Appoints Vincent Clerc New CEO From January

A.P. Moeller-Maersk AS said Monday that it has appointed Vincent Clerc as the company's new Chief Executive from Jan. 1, 2023.

Mr. Clerc currently serves as Chief Executive of Maersk's Ocean & Logistics business and has been with the group for 25 years.


How Washington Persuaded Europe to Put a Price Cap on Russian Oil

Seventy-two hours before they hoped to launch an unprecedented new plan to set a cap on the price of Russian oil, Biden administration officials faced a problem: Poland hadn't yet signed off on the final design.

With support from Ukrainian President Volodymyr Zelensky, Poland had pushed for setting the cap as low as $30 a barrel, an attempt to deeply cut the Kremlin's oil revenues. But the U.S. and other Group of Seven advanced democracies sought a deal at $60 a barrel to hedge against the risk of sending global crude prices soaring.


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12-12-22 0617ET