MARKET WRAPS
Stocks:
European stocks were slightly weaker on Monday on concerns about the possibility of renewed Covid-related lockdowns in China.
"The week begins with markets in a cautious frame of mind following the news that Covid outbreaks in China had resulted in several areas imposing curfews to control outbreaks," IG said, with traders also reluctant to take on risk ahead of the Thanksgiving holiday this week.
Falling crude oil prices weighed on oil-linked stocks and miners.
Stocks to Watch
Rheinmetall's near term looks sound, with good detail on financial targets and protection against macro challenges, Deutsche Bank said, raising its rating on the stock to buy from hold and lifting its target price to EUR220 from EUR200.
Rheinmetall management's midterm targets are in line with previous comments, but there is now more detail on reaching them, with double-digit top-line growth likely for the coming few years, Deutsche Bank said.
The company meanwhile looks protected against mounting macro headwinds, with energy prices hedged and inflation costs being passed on.
Economic Insight
Producer prices in Germany fell in October for the first time in almost one and a half years, with the on-year rate declining significantly to 34.5% in October from 45.8% in September.
While this was largely due to much lower energy prices, Monday's figures give cause for hope the inflation rate for consumer prices will also soon reach its peak, Commerzbank said.
Inflation could still rise until the beginning of 2023, as some of the higher energy prices will reach households with a significant delay. However, the decline in energy prices at the producer level suggests this effect should be over in a few months, Commerzbank said.
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The Riksbank is expected to raise interest rates by 75 basis points this week, lifting the policy rate to 2.5%, ING said.
The central bank hiked rates by a full percentage point in September but signalled that it expected to pivot back to a 50 basis points rate hike in November. Since then, however, core inflation has exceeded forecasts while the jobs market has remained relatively tight, ING said.
"We'd expect the new interest rate projection...to pencil in at least another 25 basis points worth of tightening early next year, but ultimately there are limits to how far it can go given the fragile housing market."
Read: Riksbank to Raise Rates Further to Curb Inflation, Could Stall in 2023
U.S. Markets:
Stock futures edged lower and the yield on the benchmark 10-year Treasury note ticked up to 3.823% from 3.817% on Friday.
Stock futures edged lower and the yield on the benchmark 10-year Treasury note ticked up to 3.823% from 3.817% on Friday.
Helping support Treasuries and possibly ameliorating declines in stocks, were comments from Atlanta Fed President Raphael Bostic, who on Saturday said he was minded to slow the pace of interest rate increases and saw a possible top, or terminal rate, of 5% for this cycle.
San Francisco Fed President Mary Daly is due to speak about inflation later on Monday, while the Fed will release on Wednesday the minutes of its most recent rate-setting meeting.
It's a thin week for U.S. economic data, with much of it shoehorned into Wednesday, ahead of Thanksgiving.
Disney shares were a feature in premarket action, gaining 8% after Bob Iger returned as chief executive.
Forex:
The dollar rose to its highest since Nov. 11 against a basket of currencies, as Covid cases rise in China and reports emerge of renewed lockdowns and mass testing exercises in some cities, boosting demand for safe-haven assets.
"The weakness in Asian currencies and rebound for the dollar has been driven by renewed fears over further Covid disruption in China over the weekend," MUFG said.
The dollar could rise further if recent optimism about a possible easing of China's Covid restrictions continues to reverse, it added.
Bonds:
The 10-year German Bund yield could continue to tread water above 2% this week, ING said, leaning to sell Bunds at yield levels below that.
ING believes the cheapening of repo rates when repayments under the European Central Bank's Targeted Longer-Term Refinancing Operations settle on Wednesday should be modest. However, "they account for another upside risks to rates," ING said.
Morgan Stanley said 10-year Bund yields are likely to have peaked at 2.5% in October and look to stay rangebound until early in the first quarter of 2023.
Once investors have seen evidence that inflation has peaked and eurozone government bond supply--which is seasonally heavy in the first quarter--is digested, yields are expected to decline to 1.60% by the second quarter.
Thereafter the two- to 10-year bond curve is also expected to gradually steepen, Morgan Stanley said.
Italy's Rating
Italian 10-year government bonds underperformed eurozone peers in early European trade with investors unimpressed by Fitch's affirmation on Friday of Italy's 'BBB' rating with stable outlook.
"Weak macroeconomic and fiscal fundamentals, in particular very high government debt, comparatively loose fiscal stance since the pandemic, subdued economic growth potential and more recently, the higher yield environment weigh on Italy's rating," Fitch said.
It said the rating is supported by a diversified, high value-added economy, eurozone membership, strong institutions relative to the 'BBB' median and GDP per capita that is more than twice the peer group median.
Energy:
Crude futures were trading around their lowest levels since the end of September, as demand worries continued to weaken prices, with rising Covid-19 cases in China spurring further worries about uptake.
"Fears of a U.S. hard landing are fusing with China's uncompromising lockdown policy, which continues to downgrade demand expectations," SPI Asset Management said.
"Concerns about global demand could extend if 'flash' PMIs released across the major economies signal ongoing weakness in orders," SPI added, referring to the data releases due on Wednesday.
Read Race to Secure Gas for Europe's Future Winters Has Already Begun
Metals:
Base metals and gold were weaker as concerns continued to mount over China's potential reopening following a rise in Covid-19 cases in the country.
Marex said sentiment had weakened in Asia with China reporting its first Covid death in months on Saturday and another two more on Sunday.
DOW JONES NEWSPLUS
EMEA HEADLINES
Race to Secure Gas for Europe's Future Winters Has Already Begun
Though Europe has filled its reserves of natural gas for this winter, the clock is already ticking to secure energy for the coming years, which are expected to remain dogged by threats of severe shortages,
The European Union's gas storage is around 95% full, and many analysts say the continent might avoid an energy calamity this winter. But procuring gas for coming winters is widely anticipated to become more difficult for European countries now that they are mostly cut off from Russian supplies and global competition is growing for finite cargoes of liquefied natural gas.
U.S.-Europe Trade Booms as Old Allies Draw Closer
FRANKFURT-The global economic map is rapidly transforming, with trade and investment between the U.S. and Europe booming as Russia's war in Ukraine and fraying ties between the West and China draw the trans-Atlantic allies closer.
The U.S. has imported more goods from Europe than from China this year, a big shift from the 2010s when China emerged as America's dominant trade partner. From Swiss watches to German machinery and Italian luxury items, money and products are flooding across the Atlantic as never before. This is helping Europe's embattled manufacturers, which are wrestling with skyrocketing energy prices. And it is pushing East Coast ports ahead of their West Coast counterparts in container volumes after years of a U.S. pivot to Asia.
Julius Baer Upbeat on 2022 Targets After Interest Rates Boosted 10-Month Margin
Julius Baer Gruppe AG is confident of meeting full-year profitability targets after the gross margin grew in the first 10 months of the year, boosted by higher interest rates.
The margin for the 10-month period rose 3 basis points to 85 bp from 82 bp for 2021 as a whole, aided by a strong contribution in the four months from July, the Swiss private-banking group said Monday.
Ukraine's Kherson Win Shifts Dynamics Across Whole Front With Russia
Ukraine's retaking of Kherson is rippling across battle fronts far afield, as Moscow redeploys troops to regain the initiative and Kyiv seeks to expand its recent advantage over invading Russian forces.
Russia's retreat from Kherson, the only regional capital it gained in almost nine months of fighting, was an embarrassing setback, but Moscow appears to have safely withdrawn many of its best troops, enabling them to shift elsewhere, say military analysts.
Ukraine Urges Evacuations as Pressure on Electricity Grid Intensifies
ODESSA, Ukraine-Ukrainian officials encouraged people from recently recaptured territories to evacuate, as the country tries to ease the strain on its damaged electric grid ahead of the winter.
Deputy Prime Minister Iryna Vereshchuk said Saturday that evacuations from recently reclaimed territory in the southern Kherson region would be voluntary, and that the state would pay the cost of transportation.
Turkey Strikes Kurdish Targets in Iraq, Syria After Istanbul Bombing
ISTANBUL-Turkey said it carried out a broad series of airstrikes in northern Syria and Iraq early on Sunday, intensifying a military campaign against Kurdish militants, whom the Turkish government blames for a deadly bombing in Istanbul a week ago.
(MORE TO FOLLOW) Dow Jones Newswires
11-21-22 0547ET
