MARKET WRAPS

Stocks:

Most European stocks markets drifted into negative territory on Tuesday, tracking losses for U.S. futures, in increasingly cautious trading ahead of this week's Federal Reserve interest-rate decision.

Futures markets late on Monday showed that traders estimate an 82% chance the Fed will raise interest rates by 0.75 percentage point, and a 18% chance the central bank will lift rates by a full percentage point.

"More rate rises are coming over the next few days," wrote Michael Hewson of CMC Markets UK.

"The main factor spooking markets right now is how much higher will rates have to go, and will there be any more profit warnings of the kind we got from FedEx last week?"

Stocks to Watch:

Shares of Bavarian Nordic jumped as the Danish drugmaker announced new contracts worth up to $434 million with Canada to supply doses of its Imvamune smallpox vaccine.

Read more here.

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European car makers are facing challenges in 2023 that are weighing on their valuations, and their share prices probably will continue to fall until investors have more clarity on the energy crisis in Europe, company expectations and plans for next year, Bernstein said.

While car demand will be squeezed by inflation and energy worries, and the car makers' positive pricing cycle should end next year, profits could still be shielded at least in the first half thanks to the car backlog, Bernstein said.

"While we expect tactical news flow plus energy worries in Europe to continue to weigh on autos stocks, we are approaching an interesting entry point in European autos."

U.S. Markets:

Stock futures were slipping, handing back earlier gains, while Treasury yields notched fresh multiyear highs, in anticipation of tighter Fed policy.

Stocks to Watch:

Ford shares dropped 4.5% in premarket trading after the company issued a profit warning for its third-quarter results.

It said vehicle parts supply shortages would weigh on earnings, as it expects inflationary pressures to add about $1 billion to previously expected supplier costs.

Forex:

The dollar, recently down 0.2%, should remain very strong this week ahead of an expected 75bp rate hike from the Fed. with ING seeing no reason for the central bank to soften its post-Jackson Hole hawkishness.

Central banks in the U.K., Switzerland and Norway are expected to raise rates this week and tighter monetary policy around the world will also "increase the headwinds for risk assets" and increase haven demand for the dollar, ING added.

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The Swedish krona briefly rose after the Riksbank raised its key policy rate by a larger-than-expected 100 basis points to 1.75% and said it would need to act more than previously expected to curb inflation.

Economists polled by the WSJ expected a 75bp rate rise.

Sweden's central bank now expects the rate to be raised to around 1.9% by the fourth quarter of 2022, compared to its previous forecast of about 1.4%, and sees it reaching about 2.5% by the third quarter of 2023, up from 1.9% previously.

However, Riksbank said market expectations according to forward contracts see rates reaching 2.5% by year-end.

Read more reactions to the surprise 1% rate rise here.

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Sterling is unlikely to benefit from looser fiscal policy and tighter monetary policy in the U.K., ING said.

The Bank of England is likely to raise interest rates by a further 50 basis points on Thursday, while the U.K.'s Treasury chief should provide details of an energy support package and tax cuts on Friday.

Normally loose fiscal and tight monetary policy would support sterling, ING said.

"However, it seems that foreign investors are concerned as to how government support will be financed--with the fear that this will largely come through an additional supply of U.K. gilts."

Bonds:

Investors sold off Swedish government bonds at an accelerating pace after the Riksbank rate hike. However, the rise in bond yields was in line with the yield moves of other European bond, according to Tradeweb data.

The Riksbank, the first of a series of major central banks that are expected to raise interest rates this week in order to fight inflation.

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Bond markets remain under pressure as terminal rate expectations test new highs, Commerzbank said, which has pushed 10-year Bund yields higher, eroding the 1.80% resistance level.

Energy:

Crude futures edged higher, as a slight weakening in the dollar outweighed demand concerns ahead of what's expected to be another aggressive interest-rate increase from the Fed.

BNP Paribas said the Fed is likely to have a big impact on risk assets like oil while also potentially presenting a driver for the dollar, indirectly influencing oil prices.

Metals:

Base metals ticked higher after China eased lockdown measures in the megacity of Chengdu over the weekend, allowing millions of people to return to normal activities.

Hong Kong officials also agreed to end mandatory quarantines for arrivals, according to the South China Morning Post. Lockdowns in China have threatened to slow China's economy and undermine demand for raw materials like metals, weighing on prices.

DOW JONES NEWSPLUS


EMEA HEADLINES

Riksbank Lifts Policy Rate to 1.75% from 0.75% as Inflation Continues to Surge

Sweden's central bank on Tuesday lifted its key policy rate to 1.75% from 0.75%, raised its rate path and signalled an end to asset purchases at the end of the year as it fights a continued surge in inflation.

Economists polled by The Wall Street Journal before the decision had all expected a 75 basis points hike to 1.50%.


German Producer Prices in August Posted Highest Increase on Record

Germany's producer prices rose strongly in August from a year earlier, driven by higher energy prices, posting the biggest increase ever recorded, the German statistics office Destatis said.

Producer prices rose 45.8% on year last month, Destatis said Tuesday. This followed a 37.2% increase in July and a 32.7% rise in June.


Haleon 1H Pretax Profit Rose on Strong Brand Performance; Rejects Zantac Claims

Haleon PLC on Tuesday reported an increase in pretax profit for the first half of 2022, driven by a robust brand performance, and said that it isn't a party to any claims related to the heartburn drug Zantac.

The consumer-healthcare business, which was spun out of GSK PLC and is partly owned by Pfizer Inc., reported pretax profit of 864 million pounds ($988 million) for the six months compared with GBP737 million for the same period a year ago.


TUI Says Flight Disruption Costs Improved in 4Q But Still High; Backs Guidance

TUI AG said Tuesday that although flight-disruption costs remained high, they had continued to improve through the fourth quarter of fiscal 2022, and backed its guidance.

The London-listed German travel operator said that its average selling price, or ASP, was 18% higher than the level seen in summer 2019, and that this will help soften the effect of the current high inflationary environment. The company said this was a reflection of a higher mix of package products and the popularity of its summer holidays.


Kingfisher 1H Pretax Profit, Sales Fell on Persistent Inflationary Pressures

Kingfisher PLC on Tuesday reported a significant decline in pretax profit for the first half of fiscal 2023, and said sales fell amid inflationary pressures, which are expected to persist in the second half.

The home-improvement retailer posted a pretax profit for the six months ended July 31 of 474 million pounds ($542 million), compared with GBP677 million a year earlier. Analysts polled by FactSet had forecast a pretax profit of GBP475.0 million.


Henkel Raises 2022 Sales Target

Henkel AG & Co. KGaA on Tuesday raised its sales guidance for the current year thanks to the performance at its adhesive-technologies unit.

The German consumer-goods company is targeting organic sales growth on a group level of 5.5% to 7.5% in 2022, compared with a previous outlook of 4.5% to 6.5%. It also raised this year's organic sales target for the adhesive-technologies unit to 10.0%-12.0% from 8.0%-10.0%, as the business continued to show a strong sales performance in the third quarter.


Telenor Cautions on Guidance Amid Spike in Energy Prices

Telenor ASA on Tuesday cautioned that the energy price development over the last couple of months makes it increasingly difficult to reach its guidance for flat earnings before interest, tax, depreciation and amortisation in 2022.

The Norwegian telecommunications provider also presented new mid-term financial targets. It said that between 2023 and 2025 it is targeting low to mid-single digit growth in Nordic service revenues, mid-single digit growth in Nordic Ebitda and year-on-year growth in dividend per share.


Lack of Global Collaboration Risks COP26 Goals, IEA Report Says

A lack of global collaboration in rolling out sustainable technologies is hampering efforts to meet key targets set at last year's COP26 climate conference, according to an independent report commissioned by nations that attended the landmark conference hailed as a critical turning point in tackling climate change.


GLOBAL NEWS

China Keeps One-Year Loan Prime Rate Unchanged at 3.65%

China's central bank on Tuesday kept its benchmark lending rates unchanged, in line with market expectations as Beijing held off on monetary easing to avoid increasing downside pressure on its currency.

The People's Bank of China said it held the one-year loan prime rate steady at 3.65% and the five-year rate at 4.30%, according to a statement published on its website.


Rising Bond Yields Change the Calculus for Stocks

Bond yields are trading at their highest levels in more than a decade.

That poses yet another threat to a stock market that has struggled to find its footing this year.


Protests Spread Across Iran Over Woman's Death in Police Detention

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09-20-22 0557ET