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North American Morning Briefing: Caution to Dominate Ahead of Fed; Putin Dials Up Nuclear Threat

09/21/2022 | 05:43am EST

MARKET WRAPS

Watch For:

Existing Home Sales for August; EIA Weekly Petroleum Status Report; Federal Reserve interest-rate decision, economic projections

Opening Call:

Stock futures flicked between small gains and losses as investors awaited a meeting of the Federal Reserve.

Officials are expected to approve their third consecutive three-quarter point jump in interest rates, though markets are still pricing about a 15% chance of a full percentage point increase.

Metzler said the discussion about a possible 100-basis-point rise isn't doing market sentiment any good, as such a move would further fuel worries about a U.S. recession.

It said in general "there are definitely signs of heightened nervousness in the runup to the Fed meeting."

Metzler's analysts expect a 75bp rise.

St. Galler Kantonalbank Deutschland said the prospect of a possible 100bp hike is coming to the fore and explains the increasing market nervousness.

"The central banks' policies and their focus on combating inflationary dynamics are the main reasons why the capital markets are likely to remain stormy," it said.

Read: Will the Dow drop below 30K? Investors focus on Fed as stock market threatens test of June lows.

Market sentiment in Europe took a hit after Vladimir Putin signaled his willingness to use nuclear weapons following major setbacks for his armed forces in Ukraine.

Putin said he would use "all the means at our disposal" against "nuclear blackmail" as he partially mobilized reserve troops to fight in Ukraine. The comments follow Ukraine advances in the past few days that retook large areas of captured territories.

Read: Putin Orders Draft of Reservists for War in Ukraine

Oil prices spiked and assets considered traditional safe havens rose following Putin's comments.

Economic Insight:

Fitch said global economic growth will likely slow sharply in 2023 as elevated energy prices and monetary tightening weigh on output.

As a result, it now expects global GDP growth of 2.2% next year, compared with its previous forecast of 2.8%.

"Increasingly large interest rate hikes across major central banks in recent months in response to sticky inflation will predominantly be felt in 2023 as consumers and corporates take a more cautious approach."

However, Fitch raised its forecast for 2022 global GDP growth to 3.1% from 2.8%. It has become "less pessimistic" about the year after recent data showed that many economies were more resilient than expected.

Read: Global Economy Expected to Grow 2.1% in 2023, Inflation to Average 5.5%: Citi

Forex:

The dollar rose to its highest since 2002 against a basket of currencies and should stay supported after a likely 75-basis-point Fed rate increase, coupled with new 'dot plot' forecasts for future rises, ING said.

The dot plot forecasts should see the terminal rate, or interest-rate peak, in the 4.25-4.50% area in 2023, ING said.

"A hawkish hike today by the Fed will keep front-end rates supported and a very inverted yield curve should continue to endorse the dollar's good momentum for now, largely to the detriment of pro-cyclical currencies."

---

The pound slid to its lowest against the dollar since March 1985 on prospects of a large interest-rate rise from the Fed and concerns about upcoming U.K. fiscal spending announcements, ING said. This is despite the prospect of the Bank of England raising interest rates on Thursday.

"The pound may remain volatile today," he says.

Reports that Prime Minister Liz Truss may push for tax cuts "may ease some concerns about the clouded U.K. economic outlook, but also fuel doubts about the sustainability of expansionary fiscal policy."

Bonds:

European government bonds rose sharply after Putin's speech, with yields dropping by up to 11 basis points across the board, according to Tradeweb data.

In relation to the imminent Fed decision, Insight Investment said increasingly aggressive monetary policy conducted by central banks is adding to upward pressure on bond yields.

"Monetary policy around the world is being aggressively tightened, with nearly twenty central banks reviewing policy over the next week or so."

Energy:

Oil prices jumped close to 3% in Europe after Putin escalated his drive to add parts of Ukraine to Russia, raising new concerns about oil supply from the country.

Oil is on track for its first quarterly decline in more than two years at the end of the month.

Producers are already warning that supplies may tighten quickly when the world economy recovers. The head of Saudi Aramco said Tuesday that spare production capacity will quickly be used up if demand increases.

OPEC already is struggling to meet its own targets for output.

Metals:

Base metals were mixed on the LME as traders awaited the Fed and what is expected to be another sizable interest rate hike.

Exinity said a 0.75-percentage point increase is largely priced in but a smaller than expected hike would likely drag on the dollar while a large one could accelerate the greenback's rally and weigh on metals and gold.


TODAY'S TOP HEADLINES


Boeing to Cut About 150 Finance Jobs in the U.S.

Boeing Co. said it plans to eliminate about 150 finance jobs in the U.S. as part of a push to simplify its corporate structure.

The expected reduction follows what the company said were earlier corporate staffing cuts in areas such as information technology, aimed at reducing complexity so Boeing can focus more resources on engineering, manufacturing and product development.


Binance and FTX Make Top Bids for Bankrupt Lender Voyager

Crypto exchanges FTX and Binance have made the leading bids for the assets of bankrupt crypto-lender Voyager Digital Ltd., according to people familiar with the matter, but neither bid has been accepted yet.

The current bid from Binance is about $50 million, slightly higher than the competing bid from FTX, according to the people.


FDA Baby Formula Oversight Is Criticized in Internal Review

An internal Food and Drug Administration review found that numerous shortcomings hampered the agency's response to problems with the U.S. infant formula supply this year.

A 10-page report released Tuesday said that a "confluence of systemic vulnerabilities" helped explain the events surrounding a recall of formula produced by Abbott Laboratories, which exacerbated an existing supply shortage.


Germany to Nationalize Ailing Uniper After Russian Gas Cuts

BERLIN-Germany will nationalize Uniper, seeking to save the country's largest gas importer that was hit hard by Russian natural-gas cuts to Europe.

The German government said Wednesday it would take a 99% stake in the energy giant and inject in 8 billion euros, equivalent to around $8 billion. Berlin will acquire the stake of Uniper's parent company, Finnish utility Fortum Oyj.


Tencent Music Entertainment Has Muted Debut in Hong Kong

Tencent Music Entertainment Group made a muted debut in Hong Kong as the music-streaming platform became the latest U.S.-listed Chinese company to have its shares traded closer to home.

The stock moved little in early trading Wednesday and was recently 1.2% higher at 18.22 Hong Kong dollars (US$2.32).


Judge Rules Charter Must Pay $1.15 Billion in Damages to Murder Victim's Family

A Texas judge ordered Charter Communications Inc. to pay $1.15 billion in damages for the murder of one of its customers, sharply lowering an earlier jury award.

In July, a jury held that Charter was responsible for the 2019 robbery and murder by a Charter employee and awarded punitive damages of $7 billion to the victim's family.


Bank CEOs to Go Before Congress, With Economy and High Inflation in Focus

WASHINGTON-The heads of seven of the largest U.S. banks are set to face questions from Congress on hot-button issues including money-transfer scams, the state of the U.S. economy and a credit- and debit-card code that identifies when purchases are made at firearms stores.

Bank chief executives, including JPMorgan Chase & Co.'s Jamie Dimon, Citigroup Inc.'s Jane Fraser and Wells Fargo & Co.'s Charles Scharf, plan to offer a favorable picture of an industry they say helped the economy recover from a pandemic-induced recession, according to prepared remarks. Two days of hearings start Wednesday.


RBA Suffers Huge Accounting Losses From Bond-Buying Program

SYDNEY-The Reserve Bank of Australia has suffered huge accounting losses as a result of the government bond-buying program it undertook through the pandemic, leaving it temporarily in a position of negative equity.

RBA Deputy Gov. Michele Bullock said in a speech Wednesday that in the year to June 30, the central bank recorded an accounting loss of 36.7 billion Australian dollars (US$24.55 billion). Underlying earnings were A$8.2 billion, but valuation losses were A$44.9 billion, she added.


ADB Cuts Asia Growth Outlook Again as Global Risks Rise

The Asian Development Bank has again lowered its growth forecasts for the region, as global monetary tightening, the protracted war in Ukraine and the slowdown in China keep challenging the economic recovery.

The Manila-based multilateral bank on Wednesday cut its 2022 and 2023 economic growth forecasts for developing Asia, a region comprising 46 of its members, including China, South Korea and India. It now expects growth of 4.3% this year, down from the 5.2% it projected in April, and lowered next year's view to 4.9% from 5.3%.


Putin Orders Draft of Reservists for War in Ukraine, Threatens Nuclear Response

MOSCOW-In a major escalation of the war in Ukraine, Russian President Vladimir Putin raised the threat of a nuclear response in the conflict in Ukraine and ordered reservists to mobilize, as Moscow seeks to buttress his army's flagging manpower and regain the offensive following stinging losses on the battlefield.

(MORE TO FOLLOW) Dow Jones Newswires

09-21-22 0542ET

Stocks mentioned in the article
ChangeLast1st jan.
ABBOTT LABORATORIES 2.46% 107.58 Delayed Quote.-25.12%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 1.55% 0.67853 Delayed Quote.-8.40%
BOEING 2.03% 178.88 Delayed Quote.-14.65%
BRENT OIL 2.18% 86.74 Delayed Quote.6.82%
BRITISH POUND / US DOLLAR (GBP/USD) 0.87% 1.20481 Delayed Quote.-11.61%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 1.05% 0.74357 Delayed Quote.-6.29%
CHARTER COMMUNICATIONS, INC. 1.56% 391.29 Delayed Quote.-40.91%
CITIGROUP INC. 1.77% 48.41 Delayed Quote.-21.23%
EURO / US DOLLAR (EUR/USD) 0.79% 1.04039 Delayed Quote.-9.04%
FORTUM OYJ 1.30% 15.215 Delayed Quote.-44.35%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.33% 0.012292 Delayed Quote.-8.79%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 1.69% 0.62995 Delayed Quote.-9.85%
S&P GSCI NATURAL GAS INDEX -4.22% 324.4686 Real-time Quote.93.97%
SAUDI ARABIAN OIL COMPANY 0.90% 33.5 End-of-day quote.2.93%
ST. GALLER KANTONALBANK AG 0.52% 481 Delayed Quote.10.00%
TENCENT HOLDINGS LIMITED 0.49% 287.2 Delayed Quote.-37.43%
TENCENT MUSIC ENTERTAINMENT GROUP 6.21% 7.01 Delayed Quote.-3.65%
UNIPER SE -8.90% 4.362 Delayed Quote.-88.55%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.16% 60.925 Delayed Quote.-19.99%
WELLS FARGO & COMPANY 0.80% 47.95 Delayed Quote.-0.85%
WTI 2.25% 80.478 Delayed Quote.1.55%
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