MARKET WRAPS
Stocks:
Most European stock markets were modestly higher on Tuesday, extending recent gains, after another strong finish on Wall Street.
Investors continued to focus on some encouraging signs from U.S. corporate earnings and hopes that the Federal Reserve will slow the pace of interest-rate increases.
"Our thesis is that the Fed is going to have to back off" or risk causing a global recession, Jay Hatfield, chief executive of Infrastructure Capital Advisors said. He noted that Monday's stock rally was accompanied by a periodic rally in bonds on "expectations for a more dovish Fed."
ECB Meeting:
BNY Mellon Investment Management expects the European Central Bank to frontload tightening, with another 75 basis-point interest-rate rise this week, taking the deposit rate to 1.5%.
"By bringing forward hikes at this week's meeting and again in December, the ECB are allowing room to pause early next year, when we will be able to see the longer-term impacts of the Russian oil and gas supply crisis more clearly."
This is true especially if a bad winter hits the continent, with poorly implemented retail price caps that fuel more electricity demand, and messy fiscal interventions which fail to anchor investor confidence in the eurozone's peripheral countries, BNY Mellon said.
Read: ECB Soon to Reach Neutral Policy Range: Generali Investments
U.S. Markets:
Stock futures were mostly flat, putting a market rally that propelled the Dow Jones Industrial Average to a six-week high on pause.
Investors were awaiting a packed docket of corporate reports from the likes of Alphabet, Microsoft, Visa and Coca-Cola.
The yield on the 10-year Treasurys edged down to 4.183% from 4.231% on Monday, which was its highest closing level since 2008.
Forex:
Sterling gained slightly, and Rishi Sunak's appointment as prime minister "may help GBP/USD continue to hold the line at around 1.13," UniCredit Research said.
UniCredit said, however, "investors will probably want to see details of the new fiscal plan before a concrete assault on 1.14-1.15 can emerge."
The U.K. government is expected to set out its medium-term fiscal plan on Oct. 31.
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Hungary's central bank could leave interest rates unchanged Tuesday after an emergency rate hike in mid-October as the forint has recovered recently, ING said.
"Although the National Bank of Hungary does not need to hike rates again at the moment, we expect the central bank to confirm its readiness to act if the forint decides to weaken again," ING said.
The forint should remain supported in the near-term after the central bank's recent rate rises and improved global conditions, with ING saying EUR/HUF could return to a 405-410 range.
EUR/HUF was last down 0.4% at 412.467. The rate decision is expected at 1200 GMT.
Bonds:
Gilts are showing relief and markets assume the BOE will have to be less aggressive on its interest-rate policy, as the "fiscal giveaway suitcase" has had its lid firmly shut again, GAM Investments said.
GAM said Sunak will likely restore a sense of union and relative calm within the beleaguered Conservative Party.
However, "with an economy sharply deteriorating and expected to be in recession for quite a while--there is little he can do in the next two years to galvanize the party's chances at the next general election ," GAM said.
Read: Sunak's Appointment as PM to Help Erase Some Risk Premium in UK Gilts: MFS Investment Management
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Commerzbank has turned more constructive on German Bunds and suggested buying them on dips, after 10-year yields were rejected above 2.5% last week, which is the bank's year-end forecast.
Energy:
Oil prices weakened slightly as fears continued to linger about Chinese demand.
President Xi Jinping broke with tradition and secured a third term as the nation's leader and stacked the Chinese Communist Party's standing committee with loyal figures, including those who oversaw the nation's strict Covid-19 lockdowns.
"The line-up has fuelled speculation that tackling COVID and maintaining national security are being prioritised above economic considerations, which is depressing the oil demand outlook in the world's second highest consuming nation," StoneX said.
Other News:
Energy ministers gathered in Luxembourg on Tuesday for a meeting where they are talking about proposals related to the EU's climate plans. Europe is facing an energy crunch after Russia-once its biggest natural gas supplier-invaded Ukraine earlier this year and sharply constrained supplies of gas to the bloc.
Read more here.
Metals:
Copper prices edged down, with the yuan at its lowest level in 14 years, giving China less buying power for dollar denominated goods like LME-copper.
Peak Trading Research also pointed to a similar story for agricultural futures, saying that Chinese markets were "cratering."
Other Insight:
Narrowed spreads between the prices of lower and higher grades of iron ore should widen again as early as the first half of 2023, Morgan Stanley said.
The premium for ore with 65% iron content--versus the 62% benchmark--is roughly $11/metric ton, or 13%, while the discount for 58% iron ore is also $11/ton, or 11%.
"A potential steel margin recovery from improving demand from March/April onwards under a 1H23 China-reopening scenario--while China's NDRC continues to manage production capacity--could be the catalyst for a normalization in spreads," Morgan Stanley said.
"But even in the absence of such a steel-margin boost, we expect the premium for high-grade fines to bounce on seasonally tighter supply."
It has tipped a first half 2023 65% iron ore premium of $18/ton and 58% iron ore discount of $28/ton.
DOW JONES NEWSPLUS
EMEA HEADLINES
EU Energy Ministers Wrangle Over Emergency Price Cap for Gas
BRUSSELS-European Union energy ministers will debate details of a possible emergency limit on natural-gas prices and other proposals meant to tackle the painfully high energy bills resulting from Russia's economic war with the West.
Energy ministers gathered in Luxembourg on Tuesday for a meeting where they are talking about proposals related to the EU's climate plans. Europe is facing an energy crunch after Russia-once its biggest natural gas supplier-invaded Ukraine earlier this year and sharply constrained supplies of gas to the bloc.
German Business Sentiment Remains Depressed in October
Business confidence in Germany fell slightly in October, remaining at a very low level, as companies expect a challenging winter due to the energy crisis.
The Ifo business-climate index fell to 84.3 points in October from a revised reading of 84.4 points in September, data from the Ifo Institute showed Tuesday. This is its lowest value since May 2020. Economists polled by The Wall Street Journal had expected the index to come in at 83.6.
HSBC Promotes Veteran Banker to CFO; Profit Falls on Higher Credit Losses
HSBC Holdings PLC reported a 46% drop in third-quarter profit and named a veteran banker as its new chief financial officer, putting him in the mix as a possible successor to the top job at the global banking giant.
The bank has appointed Georges Elhedery, 48 years old, as its new finance chief. He is replacing Ewen Stevenson, who is stepping down from the job at the end of the year and leaving the bank in April. HSBC Chief Executive Noel Quinn called Mr. Elhedery "an exceptional leader" in a statement.
UBS Weathers a Bumpy Quarter With New Client Inflows
UBS Group AG reported a 24% decline in third-quarter net profit as corporate deal making slowed and its wealthy clients pulled back on investments.
Revenue was down 19% at UBS's investment bank and by 4% in its wealth management arm, with some of the reduced activity offset by gains from selling two businesses. Net profit was $1.73 billion for the quarter, more than the $1.5 billion analysts had expected.
SAP Backs FY Outlook After 3Q Revenue Jumped on Cloud Business
SAP SE, the German business software company, confirmed its profit and sales outlook for the year after posting higher third-quarter revenue led by growth at its cloud business.
Reporting on a non-IFRS basis, the Walldorf, Germany-based company said Tuesday that revenue jumped to 7.84 billion euros ($7.74 billion) from EUR6.85 billion, with cloud revenue up to EUR3.29 billion from EUR2.39 billion. Software-licenses revenue fell to EUR406 million from EUR657 million, it said.
Universal Music Shares Surge on Rising Apple Music Subscription Costs
Shares of Universal Music Group NV--the music major behind The Weeknd, Billie Eilish and Taylor Swift--jumped Tuesday after Apple Inc. raised the price of its Apple Music streaming service, a move that is expected to bring in additional revenue for the world's largest music company.
At 0730 GMT, Universal shares were 9% higher at EUR20.60.
Air Liquide Shares Climb on Better-Than-Expected 3Q Sales
Air Liquide SA shares rose on Tuesday after the French industrial gases company's third-quarter sales slightly exceeded analyst expectations.
At 0736 GMT, shares climbed 4.2% to EUR129.40 after sales for the quarter rose 41% to 8.25 billion euros ($8.15 billion), slightly ahead of analysts' expectations of EUR8.11 billion according to estimates provided by the company.
Novartis 3Q Sales, Earnings Miss Expectations, but Backs 2022 Guidance
Novartis AG on Tuesday posted declining earnings and sales for the third quarter that missed analysts' expectations, though it still backed a previously given 2022 guidance.
The Swiss pharma major reported net profit of $1.58 billion, down from $2.53 billion in the third quarter of the previous year, on sales which declined to $12.54 billion from $13.03 billion in 2021. Analysts had expected net profit of $3.41 billion and sales of $12.89 billion.
Credit Suisse Nears Sale of Securitized-Products Group
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10-25-22 0529ET
