MARKET WRAPS
Stocks:
European stocks retreated on Wednesday as the results from the midterm elections continued to trickle in and as investors looked ahead to the U.S. consumer prices index report on Thursday, hoping for a benign outcome.
"October CPI will be very important and consensus is looking for another 'hot print' with some seeing year-on-year surging to 9%," said Fundstrat.
Economic Insight:
The latest activity indicators show the eurozone economy contracted in October, and forward-looking measures of new orders and expectations suggest the downturn will get worse, Capital Economics said.
It has forecast a GDP contraction of 0.5% on quarter in the fourth quarter which, aside from during the Covid-19 pandemic, would be the biggest decline since the first quarter of 2009.
Nevertheless, inflation accelerated to 10.7% in October and business surveys suggest price pressures remain extremely strong. The European Central Bank seems unconvinced a recession will be enough to bring down inflation and Capital Economics expects the ECB to continue raising interest rates, taking the deposit rate to a peak of 3%.
U.S. Markets:
Stock futures were little changed as early results from midterm elections showed Republicans making gains in the House while Senate control still remained in the balance.
Cryptocurrency investors were digesting the tumult that led to crypto exchange FTX being acquired by Binance. Bitcoin prices extended a recent slide.
Yields on Treasury bonds were little changed. The yield on the benchmark 10-year note edged up to 4.134%, from 4.125%. The yield on the 3-month Treasury bill traded higher than the 10-year at 4.239%. Federal Reserve researchers have said this metric has the best record of predicting a downturn.
Forex:
The dollar's steep falls on Tuesday, an otherwise quiet trading session, suggest sellers are emerging, as investors ponder whether interest-rate expectations have gone as high as they can go, with the same potentially true of the currency, MUFG said.
As evidence grows that core goods inflation could "head notably lower," the dollar may be undermined by the view that "we have in fact finally reached a terminal rate [for U.S. interest rates]," MUFG said.
Investors would then have "much less reason to believe that rates can propel the dollar further higher from here."
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Sterling looks set to underperform heading into year-end, even as a fall in sterling implied volatility--an indicator of expected price swings in the currency--suggests some calm has returned to the market, ING said.
A potentially tight U.K. fiscal budget on November 17 could wipe much more off the expected Bank of England interest rate-rise cycle than the ECB's cycle, ING said.
"And our call for a difficult, not benign external environment should see sterling soften again."
GBP/USD three-month implied volatility is around 12.6%, compared with the high around 19.8% in late September after the government's mini-budget sparked market turmoil.
Bonds:
The 2-10-year German bond curve inverted for the first time in almost 15 years on Tuesday, measured between the 2.20% December 2024 Schatz and the 1.70% December 2032 Bund.
The inversion has been driven by increasing two-year yields, and monetary policy tightening is likely to make the inversion even more pronounced, DZ Bank said.
An inverse yield curve is believed to herald a recession, but the fact that the inversion has been driven by a rise of two-year yields signals concerns over a significant economic slump have eased, DZ Bank said.
Earlier on Wednesday the December 2024 Schatz traded at a yield of 2.20%, while the December 2032 Bund was at a yield of 2.23%.
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Citi has left its forecasts for Germany's government bond supply in 2023 unchanged after a Bloomberg report Tuesday said Germany could increase net borrowing to EUR45 billion in 2023 from the draft budget plan of EUR17.2 billion.
The increase seems relatively small given energy support measures from the EUR200 billion package alone could cost EUR69 billion in 2023, Citi said.
While this poses upside risk to Citi's gross supply forecast of EUR220 billion for 2023, the increase in primary-market borrowing will likely be smaller than the EUR28 billion increase in deficit as some of it will likely be absorbed by the secondary market selling of the bonds for which Germany's own holdings were increased by EUR54 billion last month.
Energy:
Oil futures fell after China's CPI print came in weaker than expected, a positive headline for the global battle with inflation, but negative for oil demand as it suggests Beijing's Covid-19 lockdowns are weighing more on the economy than expected.
With China reopening hopes fading "coupled with a considerable build on U.S. inventory data, implying dimming U.S. demand, the recessionary crews are back out in full force," SPI Asset Management said.
Metals:
Base metals edged higher, with the market looking for direction, although positive inflation figures in China helped to lift Chinese metal indexes, Marex said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Europe Doubles Down on Big Government
FRANKFURT-Europe's answer to its latest economic crisis: even bigger government.
Faced with soaring inflation and an energy crisis caused by Russia's attack on Ukraine, European politicians are adding hundreds of thousands of public-sector jobs, guaranteeing business loans, subsidizing energy bills and splurging on infrastructure, defense and key industries.
Ukrainian Forces Move Into Key Town North of Kherson
KYIV, Ukraine-Ukraine's troops pushed into the town Snihurivka as they advanced their efforts to retake territory in the south of the country, while intense fighting rages in the eastern Donetsk region.
The Ukrainians "managed to gain a foothold on the northern outskirts of Snihurivka along the railway lines," Kirill Stremousov, deputy head of the Moscow-installed administration in the Kherson region, wrote on Telegram late Tuesday. "The settlement is now in the combat zone," he said.
Adidas Slashes Profit Outlook Again Following Break With Kanye West
Adidas AG again cut revenue and earnings guidance for the year to account for the end of its Yeezy label partnership with musician and designer Kanye West.
The German sporting-goods giant now expects 2022 revenue to increase by a low-single-digit percentage at constant currency, from previous guidance in the mid single digits, it said Wednesday. Net profit from continuing operations should come in at around 250 million euros, equivalent to $251.9 million, half what it previously expected, with a gross margin of 47% and an operating margin of just 2.5%, Adidas said.
Commerzbank 3Q Beat Expectations Despite High Costs in Poland
Commerzbank AG said Wednesday that rising rates and strong customer business helped it to expectations-beating profit and revenue for the third quarter, despite high one-off costs in Poland.
Germany's second-largest lender said net profit in the three months to the end of September was 195 million euros ($196.5 million), down from EUR403 million a year earlier, as previously announced Polish burdens took their toll.
Vodafone Enters New JV Agreement for Vantage Towers Stake
Vodafone Group PLC said Wednesday that it has agreed to form a new jointly-owned company with Global Infrastructure Partners LLC and KKR & Co. that will own its 81.7% stake in Vantage Towers AG.
Under the deal GIP and KKR will take a 50% shareholding in the new joint venture company through the acquisition of shares for a cash sum. As part of the deal the partners will make a takeover proposal to the outstanding shareholders of Vantage.
E.ON 3Q Profit Rose; Backs 2022 Guidance
E.ON SE on Wednesday said that profit rose in the third quarter with a solid operating performance despite a challenging environment, and backed its full-year guidance at group level.
The German energy company posted quarterly net profit of 1.56 billion euros ($1.56 billion) from EUR1.24 billion in the year earlier. On an adjusted basis, net profit came in at EUR713 million.
Royal Ahold Delhaize Raises Guidance After 3Q Profit, Sales Rise
Royal Ahold Delhaize NV on Wednesday raised its full-year adjusted EPS guidance and announced a new 1 billion euro ($1.01 billion) share buyback as it reported a 13% rise in third-quarter net profit.
The Dutch grocer attributed its performance to positive contributions from comparable sales growth excluding gasoline, foreign currency translation benefits, and higher gasoline sales.
ABN AMRO 3Q Profit Rose Above Views on Robust Recovery in Deposit Margins
ABN AMRO Bank NV reported on Wednesday a better-than-expected profit for the third quarter, boosted by a recovery in deposit margins, as well as disposals and lower impairments.
The Dutch lender made a net profit of 743 million euros ($748.5 million) for the quarter, up from EUR343 million the same period a year earlier. This compares with a forecast of EUR301 million, according to a company-provided consensus.
Flutter Entertainment Raises US Guidance After 3Q Revenue Growth
Flutter Entertainment PLC said Wednesday that it is upgrading its 2022 guidance for U.S. revenue after strong growth there, and that group revenue for the third quarter rose 22%.
The Dublin-based gambling group said quarterly group revenue came to 1.89 billion pounds ($2.18 billion), compared with GBP1.44 billion a year earlier, after U.S. growth of 82% and the Sisal acquisition. Sports revenue rose 17% to GBP1.14 billion, while gambling revenue increased 30% to GBP748 million.
German Authorities Search UBS Offices in Russian Oligarch Probe
German authorities searched the offices of UBS AG in Frankfurt and Munich on Tuesday, part of a money-laundering investigation into sanctioned Russian billionaire Alisher Usmanov, according to a person familiar with the case.
(MORE TO FOLLOW) Dow Jones Newswires
11-09-22 0621ET
