MARKET WRAPS
Watch For:
Consumer Price Index for October; Weekly Jobless Claims; Federal's Patrick Harker speaks at Risk Management Association Philadelphia Chapter event; Fed's Loretta Mester delivers Markus' Academy lecture via Zoom
Opening Call:
Today's Headlines:
-Binance Walks Away From Deal to Rescue FTX
-FTX Will Try to Raise Funds, Sam Bankman-Fried Tells Employees
-Elon Musk Tries to Convince Wary Advertisers to Stay on Twitter
-Apple Supplier Foxconn Profit Misses Forecasts
Follow WSJ markets coverage here.
Stock futures steadied on Thursday but sentiment was fragile as investors warily eyed looming inflation data that may determine the future pace of Federal Reserve interest rate hikes.
"This is one of the most important variables for the Fed as they consider whether to slow down their pace of rate hikes next month, although it's worth bearing in mind that there's still another CPI report after this one before their next meeting," Deutsche Bank said.
The prospect of either a benign or harmful inflation report causing large market moves is expected by many traders.
Adding to trader angst were concerns that the latest crypto crisis--where the rescue of FTX by Binance fell through--could further reduce market liquidity and harm broader market sentiment.
Read: Investors fear potential FTX bankruptcy spilling over to reeling crypto, stock markets
CPI Previews-Europe's Perspective:
Mizuho said inflation data so far indicates the Federal Reserve needs to tighten policy further, with the debate now focusing on whether this means a continuing front-loading or rather a "slower-higher-longer" theme.
Markets and Mizuho are both inclined toward the latter, implying a slower pace of interest-rate increases with a higher terminal rate.
"But the latest rally in rates indicates that at current levels markets are viewing central bank risks as increasingly two-sided," Mizuho said.
It awaits the October CPI print to look for better levels to enter tactical steepeners in either USD and EUR rates.
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UniCredit Research said the monthly core CPI is the key element in the October inflation data.
"If the inflation data miss expectations, it will be the miss of the core rate that is more likely to determine the market reaction. We think the market reaction itself will largely be reflected in two key elements of the further path of the expected rate-hike cycle, the size of the next rate hike and the anticipated peak rate."
The month-on-month headline CPI is expected to rise to 0.6% in October from 0.4% in September, while the core CPI is set to slow to 0.5% from 0.6%, according to the Wall Street Journal's poll.
Read: CPI Data Awaited to Assess Results of Fed's Aggressive Interest-Rate Hikes
Read: Inflation Expected to Moderate But Markets Likely to Focus on Core Data
Forex:
October inflation data are expected to remain elevated and this should still lift the dollar, UniCredit Research said, as evidence of continued price pressures will question the room the Fed has to start slowing the pace of interest rate rises as soon as December.
"EUR/USD is set to weaken in this case, but we doubt that the market reaction will be heavy enough to drag the pair below the 0.99 handle."
If inflation undershoots expectations, the DXY dollar index could fall below 110, offering EUR/USD the chance to break above 1.01, UniCredit Research said.
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MUFG Bank said recent eurozone inflation and wage growth data should protect the euro from the prospect of the European Central Bank shifting away from its resolve to raise interest rates.
"The euro-zone rate market is still looking for the ECB to keep raising the deposit rate up towards 3% next year which has been backed up by the release of the latest inflation and wage data from the euro-zone," MUFG said.
Since the ECB's last meeting, eurozone inflation data for October hit a fresh high of 10.7% year-on-year and wage growth has accelerated this year, it said.
Energy:
Oil prices edged lower still in Europe ahead of the U.S. inflation data, with rising Covid-19 cases in China undoing any optimism that Beijing might ease its lockdown measures sooner than expected.
Fears about a selloff in cryptocurrencies were further dragging on risk assets.
SPI Asset Management said: "Adding to the oil spill, broad-based risk de-grossing, and a sturdy dollar ahead of the hotly anticipated U.S. CPI data is not helping matters for many oil investors."
Metals:
Base metals were slightly firmer.
Goldman Sachs said that stronger activity in China would be a diversifier for commodities demand "at a time when western demand is slowing but inventories remain critically tight."
Marex added that nickel demand was rising in China on short covering, after a white paper presented at the China International Lithium Battery Industry Conference in Suining showed that global battery demand will reach 490 gigawatt hours this year and 1,406 Gwh by 2025.
Read Barrons.com: Copper Is Down on Falling Demand. But a Shortage Looms
Iron Ore:
Macquarie has closed an August bearish call on iron ore, but with a caveat: "We stress that real signs of improving activity on the ground in China are needed for a sustained rally in ferrous markets to take place."
Macquarie said the balance of risks for iron-ore prices is starting to shift as some miners cut output. Still, it's watching for a clear improvement in property sales, construction activity and steelmaking margins.
"We are skeptical on China's ability to ease its Covid-19 policies ahead of Chinese New Year and remain cautious on any rally until we see substantiated signs of improving steel demand," Macquarie said.
Aluminum:
Fitch said aluminum prices are likely to be held down through to the first quarter of 2023 amid Covid-19 lockdowns in China and weak Western demand.
Fitch expects prices to average $2,725 a metric ton in the final quarter of this year, from its previous expectation of $2,800 a ton, "in light of weaker than expected growth and demand led by the slowdown in Mainland China, an emerging recession in the eurozone, and evidence of market oversupply based on stocks data."
A strong dollar and rising interest rates have acted as further downside risks for aluminum, Fitch said, as it lowered its 2023 forecast to $2,600 a ton from $2,700 a ton.
TODAY'S TOP HEADLINES
Binance Walks Away From Deal to Rescue FTX
Crypto exchange Binance reversed course on a rescue offer for FTX Wednesday, leaving the prominent digital firm with an uncertain future as it faces a shortfall of up to $8 billion, according to people familiar with the matter.
Binance chose not to go ahead with the nonbinding offer following a review of the company's finances, the exchange said. "In the beginning, our hope was to be able to support FTX's customers to provide liquidity, but the issues are beyond our control or ability to help," Binance said in a statement.
Elon Musk Tries to Convince Wary Advertisers to Stay on Twitter
Elon Musk tried to convince advertisers to continue buying ads on Twitter Inc. during a nearly hourlong question-and-answer event hosted on the company's live-audio Spaces platform, providing perhaps his most extensive public commentary to date on the future of Twitter as an ad-powered business.
Marketers including General Mills Inc., Pfizer Inc., Mondelez International Inc. and General Motors Co. have said they are pausing their advertising with Twitter since Mr. Musk's takeover late last month, largely either out of concern that Mr. Musk might weaken content moderation, potentially leading to more hate speech on the social-media platform, or because of the uncertainty surrounding the company's direction. That prompted Mr. Musk to say there has been a "massive drop in revenue" in a tweet last Friday.
Carvana's Earnings Crash Spurs Bond Selloff
Carvana Co.'s bonds are touching all-time lows, spotlighting investors' concerns about the used-car seller's long-term trajectory as it burns cash and faces rising borrowing costs.
Carvana's long-term bonds have declined to distressed levels, with some now trading as low as 33 cents on the dollar on Wednesday, a sign that investors don't believe they will be paid back in full. The yield on their 10.25% notes was over 30% as of Tuesday, according to MarketAxess, a sign that Carvana would struggle to borrow from bond markets presently.
Rivian's Losses Mount as It Continues to Burn Through Cash
LOS ANGELES-Electric-vehicle startup Rivian Automotive Inc. said Wednesday it lost $1.74 billion in the third quarter-about the same as it did for the April-to-June period-as it continued to struggle with higher material costs and underused assembly lines.
The Irvine, Calif.-based company also said it was pushing back the launch of a more affordable model, dubbed the R2, by a year to 2026. Rivian Chief Executive RJ Scaringe said the date change was to ensure there was sufficient time to prepare for production in the new plant.
Beyond Meat Reports Weak Sales and Mounting Losses
Beyond Meat Inc. reported tumbling sales and growing losses in its most recent quarter, as executives said inflation added to challenges facing the plant-based food company.
The California-based company reported a $102 million net loss for the three months ended Oct. 1, while revenue fell to $83 million, down 23% from the year-ago period.
Australia's Origin Energy Gets $10 Billion Takeover Bid from Brookfield-Led Consortium
SYDNEY-Australia's Origin Energy Ltd. said it has received a takeover proposal worth around $10 billion from a consortium led by Brookfield Asset Management Inc., underscoring the interest in global assets that can support the energy transition.
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11-10-22 0522ET
