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European Midday Briefing: Stocks on Hold Despite Brighter Mood

11/15/2022 | 05:45am EST

MARKET WRAPS

Stocks:

Stocks were little changed on Tuesday despite improved global sentiment that has been buoyed by hopes of a more stabilized relationship between the U.S. and China, as well as renewed optimism the Federal Reserve will begin slowing the pace of interest-rate increases.

On Monday, the Fed's Vice Chair Lael Brainard signaled the central bank is likely to increase rates by 0.5 percentage point at its Dec. 13-14 gathering, following four consecutive increases of 0.75 percentage point.

"It probably will be appropriate soon to move to a slower pace of increases," Brainard said during a moderated discussion hosted by Bloomberg News.

"Perhaps the experience of the last year and the huge declines in equity markets have left investors seeing substantial value and they've become excited at even the prospect of a bull run," said OANDA.

"Perhaps there's some FOMO at play after a long time of such opportunities being few and far between."

Economic Outlook

After the major upside surprise in Swedish October core inflation, the chance of a 100 basis points rate hike in November has risen sharply, SEB said.

Headline inflation was well below the Riksbank's forecast in October, which is fully explained by a large decline in electricity prices, but core inflation rose to 7.9% versus the 7.4% expected by the Riksbank.

"We stick to our forecast for a 75 basis points hike in November for now but the probability for a 100 basis points hike has increased significantly, while the chance for a 50 basis points hike in line with the Riksbank's September forecast has become very small."

Read: Swedish Krona May See Limited Benefit From Potential Rate Rise

U.S. Markets:

Stock futures edged higher and government bond yields fell as traders looked ahead to producer-price data that will offer another view of inflation pressures in October.

"In recent months PPI has tended to act as a leading indicator, although there was a spike in June, the general trend has been a gradual decline in prices since the end of 1Q," said CMC Markets UK.

"Final demand PPI is expected to slip back to 8.3% from 8.5%, while core PPI excluding food and energy is expected to remain steady at 7.2%."

Fed speakers on Tuesday include Philadelphia Fed President Patrick Harker talking about the economic outlook and Fed Vice Chair Michael Barr testifying on regulation at the Senate Banking Committee.

Forex:

The dollar fell to a three-month low of 106.0940 against a basket of currencies on improved global sentiment and after Lael Brainard said on Monday the Fed was likely to slow the pace of raising interest rates next month.

Last week's weaker-than-forecast inflation data look "enough to slow the pace of tightening," MUFG said.

Monday's meeting between Joe Biden and Xi Jinping also favored dollar weakness by lifting sentiment and reinforcing optimism over China's growth.

Bonds:

DZ Bank said that "falling sentiment indicators resulting from the sharp recession should limit the rise in Bund yields that has been seen in recent months," forecasting the 10-year yield at 2.10% on a three-month horizon.

DZ Bank expects economic sentiment indicators to improve from the spring and the economy to start a gradual recovery, allowing Bund yields to edge higher. It has forecast the 10-year yield at 2.30% on a six-month horizon and at 2.50% in 12 months time.

---

RBC said the 5-year and 30-year gilt yield curve could steepen by around 50 basis points over the coming 12 months.

It expects a record net issuance of long-end gilts in the fiscal year 2023/24 will likely push 30-year gilt yields higher. At the same time there is "limited scope for a further re-pricing higher of terminal rate expectations in the U.K." and this should keep 5-year gilt yields "anchored."

RBC has forecast the 5-year gilt yield to fall to 3.10% in the third quarter 2023 and the 30-year gilt yield to rise to 3.75%.

Energy:

Oil prices extended losses as China's Covid-19 cases continue to rise, undermining hopes that Beijing was considering easing its lockdown measures.

Chinese officials reported a rise in Covid-19 cases on Tuesday to their highest level since April. The spike has prompted fresh lockdowns in major Chinese cities.

Oil markets are "hyper-sensitive" to the restrictions, SPI Asset Management said. "Rolling lockdowns across heavily populated areas in China penalize mobility and oil demand even more than economic activity."

IEA Update

More than 1 million barrels a day of Russian oil exports are set to be obstructed by Western sanctions that are expected to come into force within weeks, the IEA said, and Moscow will struggle to redirect shipments elsewhere, threatening to further tighten global energy markets.

Read more here.

Metals:

Base metals and gold prices rose as a future relaxation of Covid-19 restrictions helped boost sentiment in China.

"Sentiment has remained strong despite the initial weak open and poor Chinese macro releases," Marex said, pointing to reports of reopening in China around air travel to Johannesburg, Seoul, Dubai as well as other internal routes.

Flight searches in China have surged with consumers hopeful of a reopening soon, Marex said.

DOW JONES NEWSPLUS


EMEA HEADLINES

Russian Oil Exports Hold Up Despite Impending EU Ban

More than 1 million barrels a day of Russian oil exports are set to be obstructed by Western sanctions that are expected to come into force within weeks, the International Energy Agency said Tuesday, and Moscow will struggle to redirect shipments elsewhere, threatening to further tighten global energy markets.

Russian crude oil exports, including to the European Union, were largely unchanged last month, despite the prospect of an imminent EU ban on Russian crude oil imports and a separate plan to cap prices for Russian crude oil sales, the Paris-based agency said in a monthly report.


Vodafone Sets New EUR1 Bln Costs-Saving Target as Macroeconomic Environment Worsens

Vodafone Group PLC on Tuesday reported a rise in pretax profit and revenue for the first half of fiscal 2023, but updated its guidance for the full year amid the challenging macroeconomic environment and set a new costs-savings target of more than 1 billion euros ($1.03 billion).

Chief Executive Nick Read said the company is taking a number of steps to mitigate the economic backdrop of high energy costs and rising inflation, including pricing action in Europe.


UK Labor Market Cooled Slightly in 3Q

The U.K.'s unemployment rate edged up slightly from its lowest level in almost five decades, in a sign the country's tight labor market is gradually cooling as the economy weakens.

The U.K. unemployment rate came in at 3.6% in the three months to September, up from the 3.5% registered from June to August, data from the Office for National Statistics showed Tuesday.


BAE Systems Says 2H Performance Good So Far; Backs Guidance

BAE Systems PLC said Tuesday that its operational performance in the second half to date has been good despite challenging conditions, and backed its guidance for the year.

The London-listed defense-and-aerospace group said that strong order intake continued and that it has secured a further 10 billion pounds ($11.76 billion) in the period.


Imperial Brands FY 2022 Pretax Profit Fell Amid Higher Costs; Raises Dividend

Imperial Brands PLC said Tuesday that pretax profit for fiscal 2022 fell as it booked increased costs and revenue declined, and raised its dividend payout.

The FTSE 100 tobacco group--which houses Davidoff, Gauloises and JPS among its brands--reported a pretax profit of 2.55 billion pounds ($3 billion) for the year ended Sept. 30, down from GBP3.24 billion in fiscal 2021.


What to expect from the U.K. Autumn Budget statement

The new Chancellor of the Exchequer Jeremy Hunt will address U.K. Parliament this Thursday with an Autumn Budget announcement comprising an austerity-filled expected GBP35 billion ($41 billion) in tax rises and public spending cuts amounting to around GBP25 billion, according to published reports.

When his predecessor Kwasi Kwarteng left office - after the fallout from his disastrous mini-budget led to his dismissal - Hunt reversed almost all of the mini-budget promises, retreating from the GBP45 billion of unfunded tax cuts, which had rocked the markets to its core in September.


Estée Lauder Nears Deal to Buy Tom Ford, Edging Out Kering

Estée Lauder Cos. is nearing a deal to buy Tom Ford for roughly $2.8 billion, building on a longstanding licensing deal and marking the cosmetics giant's largest-ever acquisition, according to people familiar with the matter.

Estée Lauder prevailed in an auction for the high-end fashion label that drew competition from big names in luxury including Kering SA. The French company was poised to win the auction earlier this month, The Wall Street Journal reported.


Ukraine's Zelensky Visits Newly Recaptured Kherson

Ukrainian President Volodymyr Zelensky visited Kherson on Monday, days after his country's forces recaptured the city from Russian control, as Moscow insisted the regional capital remained part of its territory.

Images posted to Mr. Zelensky's official Telegram channel showed him handing awards to Ukrainian soldiers beneath a colonnaded arch marking the entrance to the city.


Israel's Right-Wing Lawmakers Aim to Remake Supreme Court

TEL AVIV-Benjamin Netanyahu's right-wing political allies aim to make sweeping changes to Israel's judicial system, which could allow lawmakers to pass laws previously struck down as unconstitutional, including bills aimed at expanding settlements in the occupied West Bank.

For decades, Israel's right wing has accused the country's Supreme Court of abusing its power and having a left-wing bias because it disproportionately struck down laws connected to the right wing's legislative agenda.


GLOBAL NEWS

China's Economy Takes a Deeper Hit as Retail Sales Turn Negative

(MORE TO FOLLOW) Dow Jones Newswires

11-15-22 0544ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.32% 0.71231 Delayed Quote.3.48%
BAE SYSTEMS PLC -2.11% 836.2 Delayed Quote.-0.23%
BRENT OIL -0.22% 82.78 Delayed Quote.-0.55%
BRITISH POUND / US DOLLAR (GBP/USD) -0.48% 1.23234 Delayed Quote.1.76%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.10% 0.75243 Delayed Quote.1.80%
ESTEE LAUDER 1.34% 280.8 Delayed Quote.13.18%
EURO / US DOLLAR (EUR/USD) -0.22% 1.09877 Delayed Quote.1.48%
FTSE 100 0.60% 7809.1 Delayed Quote.4.15%
GOLD 0.14% 1954.87 Delayed Quote.5.69%
IMPERIAL BRANDS PLC -0.78% 2034 Delayed Quote.-1.01%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.51% 0.012176 Delayed Quote.1.10%
KERING 3.18% 581 Real-time Quote.18.49%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.03% 0.65115 Delayed Quote.1.40%
S&P GSCI CRUDE OIL INDEX -0.71% 419.1054 Real-time Quote.-2.93%
UK 10Y CASH -0.31% 3.1981 Delayed Quote.-9.31%
VODAFONE GROUP PLC 2.09% 93.12 Delayed Quote.8.24%
WTI -0.04% 76.485 Delayed Quote.-1.72%
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