MARKET WRAPS
Stocks:
European shares struggled for direction on Monday after data showed the eurozone inflation rate surged to 10.7% in October, reaching a fresh record high and highlighting the challenges facing the European Central Bank after it signaled an upcoming slowdown in the pace of its rate increases.
The surprise jump in inflation underlines the challenges facing ECB policy makers as they confront a likely recession in the eurozone. The central bank raised its key interest rate to 1.5% from 0.75% last Thursday, but signaled mounting concerns about economic growth
Investors, watching closely for signs that central banks such as the Federal Reserve will pivot away from large interest-rate increases, took those comments to mean that the ECB could soon ease back on rate rises. The surge in inflation raises doubts about that expectation.
"This raises the question of whether the talk of an ECB 'pivot' that followed Thursday's meeting is premature," said Paul Hollingsworth, an economist at BNP Paribas.
Read more here.
Economic Insight:
The European Central Bank is broadly expected to end the interest-rate rise cycle in early 2023, according to market pricing, but it remains to be seen whether the last rise will be taken in February or March, Danske Bank said.
It sticks to the 50 bps rise in December, and 50 bps in February, "which will be the final hike," Danske Bank said.
"However, February is more uncertain and there could also be a 25 bps rate hike in both February and March instead."
Bank of England:
Landesbank Baden-Wuerttemberg has reduced its forecast for the peak rate of the BOE after political stabilization in the U.K.
LBBW now forecasts the peak BOE rate at 4.25% in the first quarter of 2023, down from its previous forecast of 5.25%. At the Nov. 3 meeting, LBBW expects the BOE to raise interest rates by 75 basis points to 3%, in line with market pricing.
"For a time, even bigger interest rate hikes were feared during the financial market panic ushered by the Truss government. But now that the situation at No. 10 Downing Street seems to be stabilizing, this seems less probable," LBBW said.
Read: BOE's Key Rate to Rise by 75Bps This Week, Peak at 4.50% in March, Nomura Says
Read: U.K. Political Turmoil Hasn't Eased BOE's Job
U.S. Markets:
Stock futures posted muted declines at the start of a week that will include a policy update from the Federal Reserve, data on the state of the job market and a wave of corporate earnings reports.
Stocks to Watch:
Emerson Electric, Blackstone: The industrial company plans to sell a 55% stake in its climate-technologies business to the investment firm, in a deal expected to be announced Monday.
TuSimple: Government authorities are investigating whether the U.S. self-driving trucking company defrauded investors by financing and transferring technology to China-backed Hydron.
Meta Platforms, Apple, Amazon, Alphabet, Netflix: The once-mighty FAANG cohort of stocks was extending its recent weakness in premarket trading, with losses of 0.9% or more each.
Forex:
The dollar was higher ahead of an expected Fed rate increase this week, though it could stall if the Fed signals that rate increases could be less aggressive, UniCredit Research said.
"The FOMC is expected to hike rates by another 75bp on Wednesday, but prospects of less aggressive tightening are likely to prove negative for the dollar."
The DXY has risen back above 111, last trading up 0.4% at 111.46, while EUR/USD is back below parity at 0.9920. However, if the Fed backs expectations for a slower pace of tightening, DXY should slip back to 110 and EUR/USD should exceed recent peaks around 1.090, UniCredit said.
Bonds:
The Bund bear market is coming to an end and could be replaced by a prolonged trading range of 2% to 2.5% for the 10-year yield until the middle of the first quarter of 2023, followed by a rally toward 1.50%-1.60% next summer, Morgan Stanley said.
That said, phases of rally to around 1.8% might occur already in late November or early December, Morgan Stanley said, remaining bullish on duration given tailwinds, which include a lower-than-the-currently-priced 2.80% terminal ECB rate and a falling fair value for the Bund yield in the first half of 2023, among others.
---
Portuguese government bonds traded in line with the market, with yields rising, failing to capitalize from Fitch's decision on Friday to upgrade Portugal to 'BBB+' from 'BBB' with stable outlook.
Fitch said that underpinned by a strong commitment to prudent fiscal policy, and despite external shocks, Portugal's fiscal outturns have persistently outperformed both the 'BBB' rating category and European peers.
Fitch also said it forecasts Portugal's debt ratio to decline by 10.5 percentage points this year to 115.0% of GDP with further falls thereafter.
Energy:
Oil futures dropped 1% after weaker-than-expected Chinese manufacturing data added to concerns about the nation's strict Covid-19 policies.
China's official gauge of manufacturing activity slumped to 49.2 in October, weaker than had been forecast and indicated contracting activity.
China's strict Covid-19 lockdowns are feared to be further weakening the economy and reducing the nation's appetite for crude oil.
Metals:
Base metals were more than 1% lower in early trading as weak demand in China and a strong dollar continued to weigh on prices.
"Onshore sentiment continues to be weak under a mix of poor economic data, a strong dollar and even a preference to be risk-off given all the various central-bank meetings and FOMC this week," Marex said.
It noted that Covid-19 cases were rising in the Chinese city of Guangzhou.
Other Insight:
A rising dollar will remain a key threat to commodity prices in the short term, Commonwealth Bank of Australia said.
CBA expects the greenback to peak in the first quarter of 2023, aligning with a bottom in dollar-denominated base metals and iron-ore prices.
"A softer dollar and a relaxation of China's Covid-zero policy should support commodity prices from 2Q 2023," CBA said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Jeep Owner Stellantis's China Joint Venture to File for Bankruptcy
HONG KONG-Stellantis NV said its unprofitable joint venture that made and distributed the Jeep brand in China will file for bankruptcy, a move that follows the European auto giant's failure to reverse its dwindling sales in the country.
Stellantis said it would continue to provide services to existing and future Jeep brand customers in China. It had impaired the value of its investment in the joint venture and other related assets in its first-half financial results, the company said.
Philip Morris Needs to Keep Swedish Match Deal Alight
Friday was eventful for the $16 billion deal poised to reshape the U.S. tobacco industry.
Poor results from the takeover target Swedish Match and maneuvering by activist investor Elliott Management probably still aren't enough to deter Philip Morris International from chasing its smokeless future.
Fresenius Cuts 2022 Views on Worse Outlook for FMC; 3Q Earnings Fell Sharply
Fresenius SE & Co. KGaA has again cut its guidance for the year, foreseeing a sharper fall in earnings as macroeconomic pressures and a struggling North America business at subsidiary Fresenius Medical Care & Co. KGaA weighed on third-quarter performance.
The German healthcare company now expects a fall of around 10% in group net profit in 2022 at constant currency, from previous guidance of a single-digit decline. Sales growth is still expected in the low- to mid-single digits, Fresenius said Sunday.
EU Looks to Follow Tough U.S. Action on Forced Labor
European Union officials have proposed a far-reaching ban on the sale of goods made with forced labor, a move that follows tough U.S. action that could spur companies of all sizes to increase scrutiny of their supply chains.
The proposal from the European Commission, the EU's executive arm, would block goods made with forced labor from being imported into the EU, or stop them from being sold if they are found inside the bloc. The European Commission, which released its proposed regulation in September, is soliciting feedback on its proposal through November.
U.N., Turkey Race to Save Ukraine Grain Deal
ISTANBUL-The United Nations and Turkey on Sunday scrambled to rescue an agreement that allowed Ukraine to ship grain via the Black Sea, a day after Russia suspended the deal in a move that threatens global food prices and puts pressure on Ukraine's allies.
U.N. Secretary-General António Guterres was working Sunday to end the Russian suspension, a U.N. spokesman said, and the Turkish defense ministry said it was in talks with Russia to rescue the agreement. No ships left Ukraine on Sunday, but officials from Turkey, Ukraine and the U.N. agreed on a plan for 14 vessels to transit the Black Sea on Monday, the U.N. said.
Israel's Benjamin Netanyahu Aims for Comeback in November Elections
JERUSALEM-As Israel heads to its fifth election in four years, Benjamin Netanyahu has been relentlessly campaigning across the country from the back of a delivery truck outfitted as a mobile campaign stage, imploring voters to come out on election day. Some call it the Bibi-bus, using Mr. Netanyahu's famous nickname.
"Come and vote," he told supporters in the central Israeli city of Rehovot this month. "Convince your friends, family and neighbors."
Russia Launches Barrage of Strikes Across Ukraine, Targeting Infrastructure
Russian forces launched a barrage of strikes in Kyiv and across Ukraine on Monday that knocked out electricity and water supplies in parts of the country, as the Kremlin intensified its attacks on the country's civilian infrastructure.
(MORE TO FOLLOW) Dow Jones Newswires
10-31-22 0627ET
