MARKET WRAPS

Stocks:

European stocks were weaker on Wednesday with sentiment weighed by geopolitical worries, although defense companies made gains following news of a missile strike in Polish territory.

The missile, which killed two people, was from a Ukrainian air-defense system, according to two senior Western officials briefed on preliminary U.S. assessments, but Poland is continuing its own investigation of the explosion, The Wall Street Journal reported.

Read more here.

The fragile investor mood took a further hit on news that an Israeli-owned oil tanker was struck by a suspected Iranian drone in the Gulf of Oman. The strike made a hole in the back of the ship, but the vessel wasn't disabled, according to people familiar with the incident.

Read more here.

U.S. Markets:

Stock futures were little changed heading into Wednesday's action, as investors continued to focus on evidence that U.S. inflation pressures are easing, with retail sales data and a series of earnings updates from major retailers scheduled for release.

Government bond yields were marginally higher, with the yield on the two-year Treasury, which is more sensitive to near-term interest rate expectations, at 4.372%.

Forex:

Sterling showed limited reaction to data revealing a jump in U.K. annual CPI to 11.1%, its highest since October 1981, and investors will wait to see how Bank of England policymakers react during testimony to parliamentarians later, ING said.

The likely message will be a reiteration of its recent policy statement: "do not expect 75bp hikes to become common and that the market pricing of the tightening cycle is too aggressive," ING said.

The big "event risk" for sterling is Thursday's autumn budget, which "on paper should be sterling negative."

Ebury said rising inflation is a double-edged sword for the pound as economic concerns offset prospects of higher interest rates.

"On one hand, it increases the chances of aggressive rate hikes from the BOE, though on the other, it suggests that a deeper and more prolonged downturn in the U.K. economy may be on the horizon," Ebury said.

Read: Sterling Could Underperform Amid High Inflation, Weak Growth

Read: Pound's Muted Reaction to High Inflation Highlights Economic Fears

Bonds:

German 10-year Bund yields could decline gradually in the first half of 2023 after a peak of 2.50% posted in October, Morgan Stanley said.

The decline in eurozone HICP inflation below 5% next summer and significantly lower-than-expected 2023 eurozone GDP growth would warrant a lower European Central Bank terminal rate than market expectations, it said.

"The lower path of short-term rates and the decline in inflation would more than offset the negative impact of ECB quantitative tightening, pushing our Bund model fair value close to 1.50% by late 2023," Morgan Stanley said.

In the second quarter of 2023, Morgan Stanley sees the 10-year Bund yield at 1.60%.

---

Morgan Stanley said the U.K. gilt market will face continuing challenges from high redemptions in the coming three years at a time when the BOE will struggle to reinvest holdings from quantitative easing back into government debt.

Morgan Stanley estimate gilt redemptions amounting to at least GBP100 billion annually over this time horizon.

"In fact, QT [quantitative tightening] means that maturing gilts will definitely not be reinvested while the market will have to react to active sales."

Energy:

Oil prices were broadly steady as worries over Chinese demand outweighed supply concerns around the globe.

"Concerns around oil demand are still weighing on oil prices. OPEC has cut its 2022 and 2023 demand growth forecasts by 100,000 barrels a day in its monthly OMR, primarily on lower Chinese demand," SPI Asset Management said.

This is despite the possibility of China soon easing Covid-19 restrictions, something which has led other commodities higher.

Metals:

Metals prices were mixed, with nickel--recently down 1%--continuing to be volatile due to a lack of liquidity.

Edward Meir, president of Commodity Research Group, said that 3,100 lots of LME nickel were traded on Tuesday compared with 17,000 lots of copper, with copper prices hardly moving despite the heavier volumes.

DOW JONES NEWSPLUS


EMEA HEADLINES

Missile That Hit Poland Likely Launched by Ukraine in Air Defense, Western Officials Say

BRUSSELS-The missile that crashed in Poland on Tuesday, killing two people, was from a Ukrainian air-defense system, according to two senior Western officials briefed on preliminary U.S. assessments, but Poland is continuing its own investigation of the explosion.

The initial findings will be discussed Wednesday at an emergency meeting at the North Atlantic Treaty Organization, where ambassadors from the alliance's 30 members are set to review intelligence and consider their options.


Israeli-Owned Oil Tanker Hit by Suspected Iranian Drone

An Israeli-owned oil tanker was hit by a suspected Iranian drone Tuesday night in the Gulf of Oman, according to people familiar with the incident, which created a hole in the ship but caused no injuries or deaths.

The 600-foot Pacific Zircon was traveling through the Gulf of Oman when it was hit by a single drone, the people said. The strike created a hole in the back of the ship, but the vessel wasn't disabled, they added.

The Pacific Zircon is owned by Idan Ofer, an Israeli billionaire who founded Eastern Pacific Shipping, the people said.


U.K. Inflation Hits 41-Year High as Recession Looms

LONDON-The U.K.'s annual rate of inflation rose to a fresh 41-year high in October on surging energy prices, but a government price cap on energy and a looming recession means any further increases to inflation in coming months are likely to be more modest.

Consumer prices were 11.1% higher than a year earlier, a faster rate of inflation than the 10.1% recorded in September and the highest since October 1981, the Office for National Statistics said Wednesday.


Russian President Putin Open to Extending Ukraine Grain Deal, Turkey Says

NUSA DUA, Indonesia-Russian President Vladimir Putin has signaled he is open to an extension of an initiative allowing grain exports from Ukraine through the Black Sea that is due to expire this week, Turkish President Recep Tayyip Erdogan said.

The Black Sea grain initiative is aimed at easing food shortages in the developing world by ensuring grain from war-torn Ukraine can be shipped safely out of the country's ports to world markets. The deal, agreed by Turkey, the United Nations, Russia and Ukraine, is also aimed at facilitating Russian exports of food and fertilizer after the country's economy faced sanctions following the invasion of Ukraine.


Alstom's First-Half Sales, Adjusted Earnings Rose

Alstom SA said that its sales and adjusted earnings increased and exceeded analysts' expectations as it reported Wednesday its fiscal 2023 first-half results.

The French train maker's adjusted earnings before interest and taxes, its key indicator, rose to 397 million euros ($410.9 million) compared with EUR335 million for the prior fiscal-year period, on sales that grew 8% to EUR8.05 billion.


Siemens Energy Expects Net Loss Reduction in FY 2023; Won't Propose Dividend Due to Challenges

Siemens Energy AG said Wednesday that it swung to a profit in the fourth quarter of its fiscal year and that it expects net loss to reduce in fiscal 2023, but won't propose a dividend due to current and future challenges.

The German energy company reported an after-tax profit of 378 million euros ($391.7 million) compared with a loss of EUR383 million for the same period a year ago.


Zurich Insurance Sets New Financial Targets

Zurich Insurance Group AG on Wednesday set new financial targets for the next three years and said it is on track to achieve the targets it set three years ago.

The Swiss insurer said it is targeting compound organic growth in earnings per share of 8% a year over the 2023 to 2025 period. This will allow it to achieve a business operating profit after tax return on equity in excess of 20% by 2025, it said.


Russia Strikes Ukrainian Cities With Missiles After Its Retreat From Kherson

KHERSON, Ukraine-Russian forces unleashed a volley of missiles across Ukraine on Tuesday, striking the country's already beleaguered energy infrastructure and residential buildings in Kyiv days after Moscow suffered a major battlefield setback, government officials said.

"There's an attack on the capital," Kyiv Mayor Vitali Klitschko said on Telegram, adding that at least one person had been killed. "Medics and rescue workers are at the scene of the strikes."


Israel's OurCrowd to Launch AI Business in U.A.E.

TEL AVIV-Israeli venture-capital firm OurCrowd is investing tens of millions of dollars to start an artificial-intelligence business in the United Arab Emirates, in the latest sign of deepening commercial ties between the two neighbors after they established diplomatic relations two years ago.

OurCrowd said it is partnering with Abu Dhabi Investment Office, a government entity responsible for facilitating investment in the U.A.E. capital, to expand its operations in the country, which will see its team grow to 60 employees from four over the next four years.


GLOBAL NEWS

Yellen Meets China's Central Bank Governor as U.S. Seeks to Repair Ties With Beijing

NUSA DUA, Indonesia-Treasury Secretary Janet Yellen held her first meeting with a top Chinese economic official since House Speaker Nancy Pelosi's visit to Taiwan, as the Biden administration works to restore communication lines and prevent a spiraling economic conflict with the world's second-largest economy.

(MORE TO FOLLOW) Dow Jones Newswires

11-16-22 0521ET