MARKET WRAPS
Watch For:
Flash PMIs for Eurozone, Germany, France, UK; trading updates from Philips, Pearson, Galp Energia
Opening Call:
European shares may open slightly higher at the start of the week. In Asia, China and Hong Kong stocks slid after mixed Chinese economic data, though other regional benchmarks rose; Treasury yields fell; the dollar strengthened; while oil fell and gold rose slightly.
Equities:
Stock futures point to slight gains at the open for Europe on Monday, as Treasury yields extended their declines on hopes that the Federal Reserve are poised to debate shifting to a smaller increase in December.
Worries about the pace of interest-rate increases-and whether they will help drive the U.S. into a recession-have driven a sharp selloff throughout the year.
“I think we’re in the final innings of peak Fed hawkishness,” said Christian Hoffmann, a portfolio manager at Thornburg Investment Management overseeing bonds.
“We are starting to hear some rumblings that the Fed might be at least easing the aggressive nature of the magnitude of the rate hikes,” said Mona Mahajan, senior investment strategist at Edward Jones. Markets had been “very firmly” pricing in a 75-basis point hike in December, as well as next month, she said
While the U.S. central bank appears set to again lift its benchmark rate by three-quarters of a percentage point at its policy meeting in early November, there may be some debate among Fed officials over whether to hike rates by 50 basis points in December.
“That is the first step in what we call the beginning of the end,” said Mahajan. “Over time we’d expect the pace of rate hikes to slow,” followed by a pause at some point, and then an assessment of where inflation and the economy are heading, she said.
Meanwhile, U.K. political developments remain in the spotlight. Former Chancellor Rishi Sunak took a major step toward becoming Britain’s next prime minister after his main rival for the job, Boris Johnson, pulled out of the race late Sunday, averting a contest between the two men that threatened to split the ruling Conservative Party and further roil financial markets.
The contest could be over by Monday afternoon, when candidates need to secure at least 100 nominations from fellow Tory lawmakers to stand as leader of the party.
Forex:
The yen rose sharply early Monday after falling to a new 32-year low against the dollar on Friday, though the greenback then clawed back some gains.
Nikkei Quick News reported Monday morning that Masato Kanda, Japan’s vice finance minister for international affairs, reiterated that the government will take appropriate steps against the yen’s excessive moves.
The report said Kanda declined to comment on whether the Ministry of Finance intervened in the market on Monday to support the yen.
The yen’s drops against the dollar have been driven by expectations that the Fed will keep raising rates in a bid to rein in high inflation while the Bank of Japan continues its monetary easing.
Bonds:
Treasury yields fell in Asia, extending declines notched on Friday in the U.S. session, which had helped to take some of the pressure off stocks.
Ten-year and two-year yields had “gone up dramatically over the last couple days,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. He worries that the stock market’s strong rally Friday may be an overreaction to “the assumption that the Fed might pause” its rate hikes.
Read: ‘Fragile’ Treasury market is at risk of ‘large scale forced selling’ or surprise that leads to breakdown, BofA says
Energy:
Crude oil futures fell early Monday amid a period of uncertainty, as the market braces for European sanctions on Russian oil to kick in while the OPEC+ alliance reduces output, ANZ said.
President Joe Biden’s announcement of a drawdown of 15 million barrels of oil from U.S. strategic reserves could help mitigate the supply disruptions, ANZ added.
Metals:
Gold prices rose in Asia. The price of the precious metal may get its groove back amid growing expectations that the Fed is getting closer to a downshift in tightening, said Oanda’s Edward Moya.
Gold had “snapped back quickly and sharply” early Friday after speculation a 75-basis-point interest-rate increase in November by the Fed might be followed by only a 50-basis-point rate increase in December, said Jeff Wright, chief investment officer at Wolfpack Capital.
“The gold market took this speculative info… as sign of a Fed pivot towards data dependency into 2023.”
Read: Here’s why gold has been a disaster this year despite geopolitical instability and stock market volatility
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Copper prices were a tad higher in Asia. Trading in the metal could remain mixed amid the backdrop of weaker economic growth in China and supply-side issues, ANZ said.
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Chinese iron-ore futures strengthened as the launch of key infrastructure projects continued to accelerate, backed by supportive economic policy in China.
Although demand for the steelmaking material will likely still be weak in the short term, a pick-up in September credit data released earlier this month is likely to boost future fixed asset investment, especially for infrastructure, Donghai Futures said.
TODAY’S TOP HEADLINES
China’s Economy Grew 3.9% in the Third Quarter
SINGAPORE-China’s economy grew more strongly than expected in the third quarter as the country bounced back modestly from crippling Covid lockdowns in the spring, though challenges remain as leader Xi Jinping consolidates control of the political apparatus for another five years.
China’s gross domestic product grew by 3.9% for the three months ended Sept. 30 from a year earlier, China’s National Bureau of Statistics said Monday in a data release that was unexpectedly delayed as Communist Party leaders gathered for a key meeting in Beijing.
China’s New Slate of Top Leaders Stirs Concern Over Economy
SINGAPORE-The new slate of China’s top leaders, packed with allies of Xi Jinping, has some economists fearing a further erosion of checks on the power of a Chinese leader who has overseen the biggest expansion of state control over the economy in decades.
On Sunday, China unveiled the leaders who will sit on the country’s most powerful decision-making body, the Politburo Standing Committee. All six men who took the stage with Xi Jinping are seen as loyalists of the Chinese leader.
Biden Pitches Plan to Refill Oil Reserves, but Producers Are Skeptical
After releasing the most oil ever from the U.S. emergency petroleum reserve, the Biden administration is signaling it will refill soon, a multibillion-dollar undertaking that it hopes will rouse sluggish domestic drilling activity.
Early Earnings Reports Worry Investors Already Battered by Stock Selloff
Early results from the third-quarter earnings season haven’t provided much comfort to jittery investors.
While some corporate leaders noted glimmers of hope for consumers and the economy, many have reported a host of challenges to profits, including persistent inflation, rising interest rates and a generational surge in the dollar that has pressured revenue generated overseas.
Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes
Federal Reserve officials are barreling toward another interest-rate rise of 0.75 percentage point at their meeting Nov. 1-2 and are likely to debate then whether and how to signal plans to approve a smaller increase in December.
“We will have a very thoughtful discussion about the pace of tightening at our next meeting,” Fed governor Christopher Waller said in a speech earlier this month.
Boris Johnson Drops Out of Race for U.K. Prime Minister, Giving Rishi Sunak the Edge
LONDON-Former U.K. Chancellor of the Exchequer Rishi Sunak took a major step toward becoming Britain’s next prime minister after his main rival for the job, Boris Johnson, pulled out of the race late Sunday, averting a contest between the two men that threatened to split the ruling Conservative Party and further roil financial markets.
The decision by Mr. Johnson-forced to step down as prime minister and party leader over the summer after a series of scandals-leaves Mr. Sunak as the heavy favorite to replace Liz Truss in the top job. Ms. Truss, who took office Sept. 6, said last week she was quitting after her economic program imploded, making her the shortest serving prime minister in British history. The only other remaining candidate is Penny Mordaunt, the leader of the House of Commons.
France’s Nuclear Reactors Malfunction as Energy Crisis Bites
PARIS-France is falling behind in its plans to return the country’s fleet of nuclear reactors to full power this winter after a rash of outages, raising fears that one of Europe’s key sources of electricity won’t be ramped up to counter Russia’s squeeze on the continent’s energy supplies.
The nuclear fleet was designed to act as the front line of France’s energy security. Since Moscow cut the flow of natural gas to Europe-plunging the continent into its biggest energy crisis since the 1970s oil shock-France’s vaunted nuclear fleet has been about as effective as the Maginot Line, the French fortifications that did little to stop the German invasion during World War II.
Vladimir Putin Plays for Time as Russian Forces Fall Back in Ukraine
Russia’s Vladimir Putin is aggressively trying to prevent further losses in Ukraine by bombarding critical infrastructure and to avert disquiet at home by tightening social controls.
The goal: hold on until the winter can give him enough pause to reboot his bogged-down invasion.
Giorgia Meloni, Taking Power in Italy, Promises a Pro-Western Course
ROME-Giorgia Meloni was sworn in as Italy’s prime minister on Saturday, assuming power at the helm of a right-wing coalition beset by internal squabbles over Rome’s position toward Moscow.
(MORE TO FOLLOW) Dow Jones Newswires
October 24, 2022 00:16 ET (04:16 GMT)
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