MARKET WRAPS
Stocks:
European stocks were sharply lower on Thursday after the Federal Reserve signaled plans to lift interest rates through the spring, dashing some investors' hopes that easing inflation figures might slow rate rises.
"2023 is the year when you will start to see the impact of all these rate increases," Principal Asset Management said. "You can see strains are certainly building up, but the actual economic numbers are pretty resilient. We don't think that will last."
Ahead, the European Central Bank and Bank of England are expected to match the Fed by raising interest rates 50 basis points. All are doing so to battle inflation that has at various times this year hit multi-decade highs. But the scenarios they face are all slightly different.
Read why here
Stocks to Watch
Inditex's growth implies market-share gains against an increasingly difficult apparel backdrop, with a notably strong exit rate, Deutsche Bank said.
There is some weight on earnings, with a gross-margin decline possibly due to rising input costs or the group's exit from Russia, but the cash position is very good.
Deutsche upped its target price to EUR 23 a share, but kept a sell rating since the implied valuation remained.
U.S. Markets:
Futures were down ahead of a flurry of economic data including U.S. retail sales and more central bank policy decisions, while the yield on the benchmark 10-year Treasury note ticked down to 3.492% from 3.503% on Wednesday.
Forex:
The Fed's rate increase and decision to pencil in plans to raise rates above 5% next year--higher than previously expected--has caused the dollar to halt its downtrend, ING said.
However, it didn't prompt a significant rebound, likely due to Jerome Powell's "reluctance to explicitly protest easing financial conditions."
ING said "the modest bearish flattening of the U.S. yield curve after the announcement should now create a less unfavourable environment for the dollar."
UniCredit Research said the Fed's decision to make clear that "its work is not over yet" was widely expected and failed to notably boost the dollar.
It said markets would remain cautious ahead of the European Central Bank decision, with a 50 basis-point rate rise widely expected.
UniCredit said the impact on EUR/USD is dependent on comments about how much further tightening is needed and on plans for quantitative tightening.
---
Sterling was lower ahead of a BOE policy decision, with the key interest rate widely expected to be raised by 50 basis points to 3.5%, a slower pace than in November.
"The swap market is fully pricing in a 50 basis points hike today, and we doubt the reaction in sterling will be meaningful," ING said.
EUR/GBP may see more impact from potential surprises from the ECB's decision, while some stabilisation or modest recovery by the dollar may cap GBP/USD and prevent 1.2500 from being tested before year-end.
Read Sterling Could Fall Versus Euro After BOE, ECB Decisions
---
The Swiss franc weakened slightly but stayed higher on the day after the Swiss National Bank raised interest rates by 50 basis points, slowing the pace of rate rises after delivering a 75bp increase in September.
The SNB also said it remained willing to be active in the foreign exchange market. The rate rise was in line with expectations but "more importantly" the SNB raised its medium-term inflation forecast slightly, hinting that policymakers believe future increases may be needed, Capital Economics said.
"We now think a further 25bp rate hike is likely next year."
---
The Norwegian krone stayed lower against the euro after the Norges Bank raised interest rates by a largely expected 25 basis points to 2.75%.
Norway's central bank said rates will most likely be raised further in the first quarter of 2023. "If the economy evolves as anticipated, the policy rate will be around 3% next year," it said.
However, rates could rise less than expected if inflation falls faster or unemployment rises more than projected. If pressures in the economy persist or there are signs of persistent inflation, rates could rise more than expected, the central bank said.
Bonds:
J.P. Morgan Asset Management's "best idea" in fixed income is to use every backup in yields to add high quality duration to portfolios.
"The evidence is clear that, historically, yields peak somewhere at or before the last rate hike," JPM said, adding that bond yields then tend to fall very quickly, especially at the front end of the curve.
JPM said that there is "tremendous interest" among clients in adding broad market bonds to their portfolios. Investment-grade corporate bonds top JPM AM's list, while government bonds now offer the highest real yield since the financial crisis.
---
U.K. gilt yields traded lower before the BOE decision, with UBS forecasting the central bank will reduce the hiking pace to 50 bps "amid some easing in inflation and signs of a slowdown in the labor market."
Energy:
Oil prices were close to 1% lower in reaction to the Fed's latest predictions on the course for interest rates, with the declines in crude futures threatening to halt three days of gains for Brent.
The Fed's outlook came despite softening inflation data, which investors had hoped would make officials less hawkish on rates.
"Talk to any trader, and they will tell you they are at odds with the Fed inflation outlook," SPI Asset Management said.
Metals:
Gold futures fell post-Fed, reversing most of its gains from recent days, with the strong dollar further weighing on the bullion.
Oanda said the recent gains in the precious metal were mainly driven by hopes that the U.S. central bank could wrap up its rate increases in February next year, but this no longer seems to be the case after Wednesday's FOMC decision.
DOW JONES NEWSPLUS
EMEA HEADLINES
After the Fed, the ECB and the Bank of England are set to lift interest rates. Here's what to expect.
The European Central Bank and Bank of England are expected on Thursday to match the Federal Reserve by raising interest rates 50 basis points. All are doing so to battle inflation that has at various times this year hit multi-decade highs. But the scenarios they face are all slightly different.
Here's what to expect, and why, from the European monetary guardians.
Swiss Central Bank Follows Fed With 0.5-Point Rate Rise
The Swiss National Bank said it would increase interest rates by 0.5 percentage point to 1%, following the Federal Reserve in slowing the pace of increases as inflation edges lower.
The SNB's decision kicks off a busy day for Europe's most influential central banks. Investors expect the Bank of England and European Central Bank to announce 0.5-point rate increases later Thursday. Both have been battling all year with inflation that has spiraled to multidecade highs, partly fueled by Russia's invasion of Ukraine.
Ericsson to Stay Under U.S. Compliance Monitor an Extra Year
Ericsson AB will face an additional year's scrutiny from a U.S.-mandated monitor appointed in connection with a bribery settlement the company reached in late 2019.
The Stockholm-based telecommunications company said Wednesday it had agreed with the U.S. Justice Department and Securities and Exchange Commission to extend the term of its independent compliance monitor until June 2024.
H&M 4Q Sales Increased 10% on Year, Beating Forecasts
Sweden's Hennes & Mauritz AB on Thursday reported fiscal fourth quarter sales that were above expectations.
The fashion retailer said sales for the quarter ended Nov. 30 increased by 10% on year to 62.45 billion Swedish kronor ($6.14 billion), while net sales in local currencies were flat.
GLOBAL NEWS
China's Economy Struggled in Zero Covid's Final Month
China's economy took a big hit from Covid-19 restrictions in November, in what economists hope will be the last big squeeze on growth from a zero-tolerance strategy toward Covid-19 that Beijing has since abandoned.
Retail sales tumbled as locked-down consumers cut back on spending, while industrial production lost momentum as factories grappled with tight Covid restrictions and slowing overseas demand for their products. Unemployment rose and investment into buildings, machinery and other fixed assets slowed.
China's Central Bank Keeps Key Policy Rates Unchanged
China's central bank kept its key policy interest rates unchanged on Thursday, which may suggest a hold on the nation's benchmark loan rates as the world's second-largest economy faces mounting pressure from Covid-19 flare-ups.
The People's Bank of China kept the interest rate of the one-year medium-term lending facility at 2.75% while injecting 650 billion yuan ($93.52 billion) of liquidity into the financial market via MLF, according to a statement published on its website.
Jerome Powell's Grim Inflation Outlook Is at Odds With Markets
Falling prices of energy, automobiles and houses and soft readings on consumer prices have made investors borderline euphoric over the outlook for inflation.
The Federal Reserve is having none of it.
House Passes One-Week Spending Bill Over Objections of Some Republicans
WASHINGTON-The House on Wednesday passed a one-week government funding measure to give congressional negotiators time to complete and pass a full-year omnibus spending bill, overcoming opposition from Republicans who urged postponing any deal until next year, when the GOP will take control of the chamber.
The measure passed 224-201. All Democrats voted in favor of the extension. Most Republicans voted no, including Rep. Kevin McCarthy (R., Calif.), whose bid to serve as House speaker next year hinges on his ability to demonstrate he is committed to waging tough fights against Democrats.
Senate Passes Bill Banning TikTok From Government Devices
(MORE TO FOLLOW) Dow Jones Newswires
12-15-22 0605ET
