MARKET WRAPS
Watch For:
EU money supply in Euro area; UK business finance review; Italy non-EU foreign trade; trading updates from TotalEnergies, Vonovia
Opening Call:
Market volatility may persist in European markets on Tuesday. Asian stock benchmarks were mixed; Treasury yields and the dollar pulled back slightly; while oil and gold advanced.
Equities:
European stock futures were slightly firmer, though market volatility is likely to continue amid a deteriorating economic outlook and tumult in the currencies and fixed-income markets.
U.S. stocks extended their decline Monday and the Dow Jones Industrial Average slid into a bear market, reflecting investor concern about the pace of global growth and the price of central-bank efforts to slow inflation.
Turbocharged volatility has rattled everything from stocks to currencies to commodities in recent weeks.
“This is a very dangerous period of time for markets across the board,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities in New York.
“Financial conditions are tightening extremely rapidly — whether it’s dollar strength, credit spreads, or equities. Real interest rates in the last couple of weeks are moving extremely aggressively higher, which will ultimately have economic repercussions.”
“Liquidity is drying up very rapidly here, too,” Faranello said.
Read: First Thing Fed Breaks With Higher Rates May Be the Financial Markets
Forex:
The dollar weakened slightly in Asia, though a further rise in financial-market volatility could lead to more U.S. dollar strength due to its safe-haven status, CBA said.
Meanwhile, the U.S. dollar’s unrelenting surge is raising worries over corporate earnings, warned Morgan Stanley chief equity strategist Michael Wilson, who noted that similar performances by the currency have historically led to some kind of financial or economic crisis.
“The recent move in the U.S. dollar creates an untenable situation for risk assets that historically has ended in a financial or economic crisis, or both,” wrote strategists led by Wilson.
“While hard to predict such events, the conditions are in place for one, which would help accelerate the end to this bear market.”
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Sterling could face further turbulence without any immediate action by the Bank of England to steady market nerves following Friday’s controversial UK budget statement, Monex Europe said.
In a statement responding to sterling’s heavy losses after the budget announcement, BOE Gov. Andrew Bailey said the bank would fully assess at its next policy-making meeting the budget statement’s demand and inflation impact.
“By categorically ruling out an inter-meeting rate hike, the Bank of England is playing a dangerous game with markets,” Monex Europe said.
“Although it has shored up some confidence in the pound for the time being, we think the verbal measures taken are piecemeal. In the absence of any tangible inter-meeting intervention, we expect volatility to remain high.”
Bonds:
Treasury yields largely pulled back early Tuesday after surging Monday.
Global bond yields had continued to move higher as the prospect of tighter monetary policy to combat inflation, along with fears in the U.K. about increased issuance to fund fiscal splurges, damped investor appetite for fixed-income assets.
This year “has been defined by global inflation pressures and the measures being taken by authorities to counteract that inflation pressure. For months, that story has been dominated by the Fed, with the rest of the world struggling to keep up,” said Nat West Markets.
“But one has to wonder if these past few days mark a bit of a turning point away from the specifics of the Fed as the dominant market driver and towards the global response to the Fed’s torrent pace of easing,” Nat West said, with particular focus currently on the U.K.
Read: Global Bonds Are in First Bear Market in 76 Years
Energy:
Oil futures edged higher in Asia, after prices fell overnight to their lowest since January.
CBA thinks a synchronized economic slowdown is expected across major commodity consumers globally.
“Most of that can be attributed to the forecast of weaker economic growth from higher interest rates to contain inflation,” CBA added.
“Global macro risks and energy policy risk across Europe continue to support the U.S. dollar, making oil even more expensive in European markets already struggling with inflation and leading to further deterioration in oil demand outlooks,” DTN said.
Metals:
Gold prices advanced early Tuesday, though a stronger USD could continue to weigh on the precious metal.
“The move in the dollar is not over and that should keep the pressure on bullion,” Oanda senior market analyst Edward Moya says in a note.
Meanwhile, ANZ said investors are the most bearish on gold in almost four years as central banks increase interest rates to tame inflation.
“Its status as a haven asset in times of economic distress has failed to stem the flow of selling,” said ANZ.
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Fitch Solutions downgraded its 2022 average copper-price estimate to $8,800 a metric ton from $9,470 a ton previously, citing weakening investor sentiment and falling demand as global growth slows.
“Nevertheless, persistent supply issues in Latin America will prevent prices falling much further, and we expect copper to remain elevated by historical standards, averaging around $7,500/ton over Q422,” Fitch Solutions said.
It projected a slight market surplus in 2022, but tipped a return to deficit in 2023 on a demand recovery.
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Iron-ore futures rose in China, extending gains amid signs of improving demand.
More steel mills have increased production this week, while port inventories of the raw material have fallen by a relatively large extent given restocking demand ahead of China’s National Day holiday in October, Citic Futures said.
With the Chinese economy expected to gradually stabilize for the rest of the year, demand for ferrous metals could recover, Citic Futures added.
TODAY’S TOP HEADLINES
World Bank Cuts China Growth Forecast as Covid-19, Real-Estate Crunch Take Toll
SINGAPORE-The World Bank said it expects developing economies in East Asia to grow faster than China this year for the first time since 1990, as the world’s second-largest economy struggles with a real-estate crunch and the government’s zero-tolerance approach to Covid-19.
The Washington, D.C.-based lender cut its forecast for Chinese growth this year but said it expects growth among 22 neighboring economies to more than double in 2022 compared with the pace they notched last year, as countries benefit from dismantling most Covid-19 restrictions and a revival in tourism.
China’s Industrial Profits Drop Further
China’s industrial profits fell 2.1% in January-August, widening from the 1.1% drop recorded in the first seven months of the year, data from the National Bureau of Statistics bureau showed.
The bigger year-over-year decline comes after China reported improved factory production, which rose 4.2% on year in August compared with July’s 3.8% growth.
Kurds in Iran Face Establishment Fury as Unrest Spreads
Iran’s nationwide crackdown on antigovernment protests has been especially severe against its Kurdish minority, with drone and artillery strikes against separatist groups and deadly clashes in Kurdish-dominated cities and towns where the unrest first arose, residents say.
Iranian authorities have blamed Kurdish activists and separatists based in neighboring countries for fomenting protests that erupted in Iran’s Kurdish region following the death in police custody of Mahsa Amini, a 22-year-old Kurd arrested in Tehran for allegedly violating the country’s strict Islamic dress code.
Vladimir Putin Grants Edward Snowden Russian Citizenship
Edward Snowden, the former U.S. intelligence contractor who leaked files regarding U.S. surveillance programs, was granted Russian citizenship by President Vladimir Putin, according to the Russian government.
Mr. Putin signed the order granting Russian citizenship to Mr. Snowden, along with 71 other individuals, on Monday. Mr. Snowden said in October 2020 that he and his wife were applying for dual Russian citizenship to remain close to their son.
Ukraine’s Zelensky Urges Russians to Keep Protesting Mobilization Orders
Kyiv reiterated calls for Russian men summoned to fight in Ukraine to lay down their arms as soon as they arrive in the country, as protests against mobilization continued in Russia and authorities there sought to curb an exodus of fighting-age males.
In a video address late Sunday, Ukrainian President Volodymyr Zelensky called on Russians to continue protesting against the draft and urged them to desert or give themselves up to Ukrainian troops as prisoners of war. Ukraine has pledged to treat Russian POWs fairly.
Crédit Agricole Subsidiaries to Settle Alleged Violations of U.S. Sanctions
Two subsidiaries of French bank Crédit Agricole Group’s corporate and investment banking arm have agreed to pay more than $1.12 million in civil penalties to settle alleged violations of U.S. sanctions, the Treasury Department said on Monday.
CA Indosuez Switzerland SA, a Switzerland-based indirect subsidiary of Crédit Agricole Corporate and Investment Bank, has agreed to pay $720,258 for allegedly violating sanctions against Cuba, Iran, Sudan and Syria as well sanctions related to the annexation of Ukraine’s Crimea region, according to the Treasury’s Office of Foreign Assets Control.
Write to hoishan.chan@dowjones.com
Expected Major Events for Tuesday
06:00/SWE: Aug PPI
06:00/SWE: Aug Foreign trade
08:00/ITA: Aug Foreign Trade non-EU
08:00/EU: Aug Monetary developments in the euro area (M3)
08:30/UK: 2Q Business Finance Review
12:00/HUN: Sep Hungarian interest rate decision
23:01/UK: Sep Shop Price Index
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September 27, 2022 00:17 ET (04:17 GMT)
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