MARKET WRAPS

Stocks:

European stocks were in the red Friday as investors continued to react to the hawkish comments from Christine Lagarde.

Stocks to Watch

Munich Re's finance chief is confident the reinsurer will hit its 2022 profit target.

At an event on Thursday evening, CFO Christoph Jurecka said the company will reach a net profit of around EUR3.3 billion, and operational improvements should raise it to EUR4 billion in 2023. Munich Re confirmed its profit target for this year in October, but said it would be more difficult to achieve due to Hurricane Ian in the U.S.

However, with new accounting requirements next year, known as IFRS 17, there is little comparison between 2022 and 2023. The EUR3.3 billion figure is with the current IFRS 4, and the company can't say what the amount under IFRS 17 would be, Jurecka said.

U.S. Markets:

Stock futures pointed to further losses for U.S. markets, after a steep selloff Thursday.

Yields on the 10-year Treasury notes got pushed up to 3.480% from 3.449% Thursday.

Economic data expected today are the Flash Manufacturing PMI for December and Flash Services PMI for December

Forex:

The dollar could extend its recent downside correction in the run up to Christmas on potential mounting recession fears after weaker data, Swissquote Bank said.

Thursday's U.S. data were "not brilliant," hinting at "slowing economic growth in the U.S., which should normally boost recession fears and keep the Fed at bay," Swissquote Bank added.

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The euro pared gains against the dollar but rose further versus sterling after data showed manufacturing and service activity improved but continued to contract in December.

The S&P eurozone composite PMI rose to 48.8 in December which "signals a strong possibility of recession" but also hints that any downturn will be milder than previously thought, S&P said.

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Sterling stayed weaker after a key measure of U.K. manufacturing and services activity rose by more than expected in December but still signaled a contraction.

The data "add to the likelihood that the U.K. is in recession," S&P said.

Read BOE Likely to Extend Rate Rises if Labor Market Tightness Persists

Bonds:

Post-ECB Reactions

Neuberger Berman said the outlook is bearish for all types of euro bonds after Christine Lagarde announced a period of steady interest rate rises ahead and explained how the ECB has to do more than the Fed.

"This means that we could conclude the ECB key rate to reach at least 3%, " which is bearish for all types of Euro bonds, NB added.

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The ECB seems to be extremely concerned about inflation expectations running out of control, MFS Investment Management said, seeing risks of spread widening into the new year.

MFS IM said it finds the ECB's projections of a shallow recession as too optimistic, also considering the energy crisis is far from being over. "Until next summer, it will be hard to assess whether gas issues will be better or worse than now."

MFS added that "coupled with a growth slowdown and shifts in bond supply, it looks like the path of least resistance is for a further drift wider in spreads going into the new year."

Read Expecting ECB Interest-Rate Cuts in 2023 Will Prove to Be a Mistake

Read ECB's Concrete Details on Quantitative Tightening Surprised

Bonds Outlook

Brandywine Global said a number of factors signal that bonds will perform well in 2023, "the big rate hikes are behind us; the Fed will switch to 25 bps rate hikes next year to give them more flexibility."

In reality, the Fed will be much less important than economic data, which points toward further slowing from the lagged impact of tightening, Brandywine added, also expecting inflation to decline.

"We already have goods deflation, and housing service inflation will be the next area to see a drop," adding that labor weakness is the missing element to bring sticky service inflation lower. "All these trends point toward bonds doing well in 2023."

Energy:

Oil prices were down but on course for their biggest weekly gain since October.

Anticipation of renewed Chinese demand as Beijing eases its Covid-19 lockdown measures has helped drive oil prices higher this week, while the closure of the Keystone pipeline because of a leak has added supply concerns to the mix.

Metals:

Copper prices were unchanged as risk appetite faded after a week of hawkish statements from major central banks.

"The market sentiment was weak," Marex said, pointing to "the hawkish speech from ECB and BOE, and the recession worries triggered by poor U.S. retail sales data."

Gold

Tighter monetary policy and high inflation are likely to lead to slower global economic growth in 2023, which is good news for gold demand, ANZ said.

Any depreciation in the U.S. dollar could also boost the demand for the precious metal, they added.

DOW JONES NEWSPLUS


EMEA HEADLINES

Eurozone Economic Contraction Softened in December, PMIs Suggest

The eurozone economy extended its contraction into December but activity showed further signs of holding up better than expected at year-end, according to data from a purchasing managers survey released Friday.

The S&P Global Flash Eurozone PMI Composite Output Index, which gauges activity in the manufacturing and services sectors, rose to 48.8 in December from 47.8 in November, a four-month high. Economists polled by The Wall Street Journal expected a reading of 48.0.

The composite PMI has come in below 50 for six consecutive months, signaling a persistent contraction in economic activity.


UK Retail Sales Fell in November, Missing Expectations of an Increase

U.K. retail sales decreased in November, adding to evidence of weak consumer spending midway through the fourth quarter as high inflation and rising interest rates hit households' incomes.

Retail sales volumes declined 0.4% in November on month after increasing 0.9% in October, the Office for National Statistics said Friday. Economists polled by The Wall Street Journal expected sales to increase 0.4%.


U.K. Consumer Confidence Rose to Five-Month High in December

Consumer confidence in the U.K. recovered in December to its highest level since July, but remained at very subdued levels as high inflation and dim economic prospects weighed.

Research firm GfK said its consumer-confidence barometer increased to minus 42 in December, up from minus 44 in November, posting a third-consecutive monthly rise. Economists polled by The Wall Street Journal expected confidence to improve to minus 43.


Aker BP Submits Field Development Plans With Investments of Over $20 Bln

Aker BP ASA said Friday that with its partners it is submitting a total of 10 plans for development and operation and one plan for installation and operation to the Norway's Ministry of Petroleum and Energy, with the projects representing total investments of over 200 billion Norwegian kroner ($20.25 billion).

Total recoverable resources in these development projects amount to 730 million net barrels of oil equivalent for Aker BP and the company's share of the investments is around 70%, it said.


BT Group to Combine Enterprise and Global Units

BT Group PLC said Friday that it plans to merge its global and enterprise units into a single B2B unit--BT Business--in a move that is expected to deliver annualized cost savings of at least 100 million pounds ($121.8 million) by the end of fiscal 2025.

The U.K. telecommunications company said the new unit will be lead by Bas Burger who is the current chief executive of BT's global unit.


Russia Targets Infrastructure Across Ukraine in Latest Barrage

Russia fired a barrage of missiles at Kyiv and other Ukrainian cities on Friday, in the latest attack targeting the country's critical infrastructure.

The mayor of Kyiv, Vitali Klitschko, said explosions hit three districts of the capital, urging residents to remain in shelters.


GLOBAL NEWS

Stocks could face another explosion of volatility Friday as $4 trillion of options expire in 'quadruple witching'

Stocks have been on a wild ride this week, and conditions could still get weirder as traders brace for "quadruple witching" on Friday, when a flurry of equity options and futures contracts expire.

In particular, options contracts tied to $4 trillion in stocks, stock-index futures and exchange-traded funds are set to expire, making Friday potentially the busiest day for options traders this year, according to data compiled by Rocky Fishman, the head of index volatility research at Goldman Sachs.


Chinese Property Bonds Are Suddenly a Huge Winner

After being mired in distress and defaults for more than a year, Asia's U.S. dollar junk-bond market has staged one of its biggest-ever rallies following an about-face by authorities in China on Covid-19 and housing policies.

The jury is still out on when-and whether-the market can recover to a point where most junk-rated companies can raise money again.


North Korea Tests New Rocket Engine to Enable Long-Range Missile Strikes

SEOUL-North Korea tested a solid-fuel rocket engine that is central to quicker deployment of its long-range missiles, delivering on a key weapons goal for leader Kim Jong Un.

Missiles typically use either liquid or solid fuels. With liquid fuels, the process to launch a long-range missile can take hours, making any potential strike more easily detectable. But with solid fuel, the propellants can be stored inside a missile, allowing the weapon to be stashed in a more covert place and launched with more surprise.


Japan to Build a More Powerful Military, Citing China as Its No. 1 Menace

TOKYO-Japan called China its biggest security challenge and said it would sharply raise military spending including for missiles that can hit other countries, marking one of Tokyo's biggest post-World War II shifts away from pacifism.

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12-16-22 0624ET