MARKET WRAPS
Stocks:
European shares extended their run of losses on Friday, as
worries over persistently high inflation and central banks' moves
to tighten financial conditions in response have spurred fears of a
possible global recession.
"A week dominated by further aggressive monetary tightening
around the world has left equity markets bruised on a deteriorating
outlook," Richard Hunter, Head of Markets at Interactive Investor,
said.
Read: UK Government Outlines Tax Cuts in Bid to Spark Growth --
WSJ
Stocks to Watch:
Volkswagen is reviewing options such as shifting production from
countries most reliant on Russian gas, like Germany, if gas
shortages continue beyond winter, Bloomberg reported.
The car maker's sites in southern Europe which source energy
from elsewhere could be beneficiaries of a production shift,
according to Bloomberg.
Still, Volkswagen would face significant labor hurdles with any
shift away from Germany and such a move would likely be limited to
a number of vehicles rather than entire factories, Bloomberg
reported.
U.S. Markets:
Stock futures fell as investors digested a week jam-packed with
central-bank decisions. The three major U.S. indexes are on track
for their fourth consecutive day of declines.
Meantime, a run-up in Treasury yields paused. The 10-year
Treasury yield fell to 3.685% from 3.705% a day earlier, which
marked its highest close since February 2011.
Forex:
EUR/USD fell to its lowest since 2002 early in the European
session and Danske Bank expects it to drop to 0.95 in 12 months due
to a weak eurozone economy and broad dollar strength.
It said the forecast reflects "a combination of a substantial
negative terms-of-trade shock to Europe vs U.S., the coordinated
tightening of global financial conditions, broadening dollar
strength and downside risk to euro area economic growth."
---
The pound weakened to its lowest level since 1985 and is
vulnerable to further falls, with any bounce from the announcement
of a large fiscal stimulus package--including caps on U.K. energy
bills and tax cuts--due on Friday unlikely to be sustained, MUFG
Bank said.
"A combination of fiscal expansion and tighter monetary policy
is currency positive. However, for the pound, that fiscal expansion
does not look sustainable while the BOE's tightening lags behind
half of the G10 central banks despite the U.K. having the highest
inflation across G10."
Bonds:
Investors' positioning in eurozone peripheral bonds look to be
broadly balanced ahead of Sunday's Italian elections, without
notable long or short positions, thus a surprise outcome could
potentially stoke meaningful spread moves, Barclays said.
"We see potential for modest Italian spread widening if the
centre-right coalition secures a supermajority, or if a new
right-wing government is formed without the comparatively centrist
Forza Italia party," Barclays said.
The unlikely scenario of a centre-left government being formed
would catalyse a notable BTP-Bund spread tightening. Similarly, a
centre-right government with a more "neutral" leader than Giorgia
Meloni could also encourage spread tightening.
---
The 2-year/10-year segment of the German yield curve is on track
to invert with upward pressure on short-end yields and downward
pressure on long-end yields, DZ Bank said.
While the European Central Bank appears determined to tighten
the monetary policy and raise interest rates sooner than later by
frontloading its moves, the economic outlook for the eurozone
continues to deteriorate, DZ Bank added.
"Against this backdrop, interest rate expectations at the short
end are soaring, while recession fears are weighing on the long end
of the curve." DZ expects the 2-year/10-year Bund curve spread to
tighten to minus 80 basis points over the coming three months. The
spread is currently below 14bps.
---
Societe Generale said higher yields will start attracting
investors to bonds, "as economies are slowing down, geopolitics
remain tense and risky assets are shaky."
As the ECB is determined to tame inflation and front-load
interest-rate rises, Societe Generale expects it to continue to
raise interest rates in the first half of 2023. This implies that
Bund yields shouldn't peak yet and have room to overshoot above
2%
---
The good news for bond investors is that the bear market has
banished negative yielding debt, put income back into fixed income
and created pockets of value in credit but the bad news is that
inflation hasn't been tamed and central banks aren't done with
raising rates, BlueBay Asset Management said.
The challenge for investors is to exploit opportunities from
divergence and dispersion across global fixed income as well as the
pockets of outright value in credit, it said.
Energy:
Oil prices extended losses and were on course for their fourth
consecutive weekly decline.
Oil has continued its steady retreat, confounding analysts'
forecasts that prices would rise. For now, concerns about demand
are outweighing expectations of possible additional supply cuts
from OPEC and a European Union ban on Russian oil imports which
could constrain global supplies.
"The outlook is highly uncertain," Fitch said, "bearish
demand-side drivers overtaking bullish supply-side ones."
Metals:
Base metals suffered broad losses as risk appetite continued to
wane after a wave of central banks lifted interest rates this
week.
"The slew of central banks tightening monetary policy raises the
risk of weaker economic growth," ANZ said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Credit Suisse Shares Drop After Report of Fresh Capital
Raise
Credit Suisse Group AG shares fell sharply in early Friday
trading after a media report said that the Swiss bank is
considering another capital raise as it looks to move on from
recent scandals and financial losses.
At 0815 GMT, shares traded down 7.1% to CHF4.31.
Airbus Shares Rise After Management Backs Production, Dividend
Goals
Shares in Airbus SE traded higher Friday after the plane maker
backed its delivery targets despite the challenges it faces in its
supply chain, and said it was committed to growing shareholder
returns.
At 0833 GMT, shares traded 3.3% higher at EUR95.39.
Eurozone Flash PMIs Point to GDP Contraction in 3Q
The Eurozone economic downturn deepened in September with
business activity contracting for a third consecutive month,
S&P Global said.
The eurozone composite purchasing managers index fell to 48.2 in
September from 48.9 in August, according to the preliminary
reading. This is in line with the forecast of economists polled by
The Wall Street Journal.
U.K. Leader Liz Truss's Plan for Tax Cuts and New Spending Takes
a Page From Reaganomics
LONDON-Four decades after Ronald Reagan, new U.K. Prime Minister
Liz Truss is betting that a dose of tax cuts, new spending and
deregulation will do for the British economy what a similar recipe
did in the early 1980s for the U.S.: lead to an economic
revival.
On Friday, Ms. Truss' government is expected to announce a
series of tax cuts, including cutting taxes for new home purchases
as well as reversing planned hikes in the corporate tax and cutting
a recent increase in payroll taxes. It will also abolish limits on
bonuses for bankers and allow fracking for shale gas across the
U.K.
U.K. Consumer Confidence Hit Record Low in September
U.K. consumers turned more pessimistic in September as high
inflation and rising interest rates outweighed any effect from
recent government measures to freeze households' rising energy
bills.
The consumer-confidence barometer compiled by research firm GfK
decreased to minus 49 in September from minus 44 in August, the
lowest level since the survey began in 1974 and missing economists
expectations of a slight improvement.
Investec Expects to Post Higher 1H Adjusted Operating Profit on
Diversified Revenue Streams
Investec PLC said Friday that it expects to post a rise in
adjusted operating profit for the first half of its fiscal 2023 as
a result of diversified revenue streams.
The international banking and wealth-management group said
adjusted operating profit for the six months ending Sept. 30 is
expected to be between 372.6 million and 406.2 million pounds
($419.3 million-$457.1 million). This compares with GBP325.7
million for the prior year.
Facing Russian Mobilization, Ukraine Holds Steady to Maintain
Momentum
After seven months of war, Ukraine now faces Russian President
Vladimir Putin's plans to mobilize more than a quarter of a million
men for his invasion, in what the Kremlin hopes will be a display
of the massive human resources available to it.
Kyiv's response: Keep calm and continue tactics that have proven
to work.
Sweden Tests Cyber Defenses as War and NATO Bid Raise Security
Risks
Cyber exercises this week in Sweden simulating attacks on
internet infrastructure are key to enhancing defenses as the
country prepares to join NATO amid the war in Ukraine, organizers
said.
The Swedish Defense Research Agency, which is connected to
Sweden's Defense Ministry, is targeted with cyberattacks whenever
Sweden says it will provide equipment to Ukraine, or when tensions
otherwise rise during the war, said Lena Nyberg, the agency's
deputy director general.
Ukraine Prisoner Exchange Sparks Backlash in Russia
A prisoner exchange between Russia and Ukraine that included
senior Ukrainian commanders was hailed as a victory by Kyiv but
provoked criticism among nationalists in Russia who questioned the
decision to release them.
Alleged Russian War Crimes in Ukraine Are Focus of U.S., Allies
at U.N.
WASHINGTON-Facing Europe's biggest humanitarian crisis in
decades, the U.S. and its allies used Thursday's United Nations
Security Council special session to condemn Russia for its invasion
of Ukraine and call for an investigation into Moscow's alleged war
crimes, in the latest step to push back against President Vladmir
Putin and Russian aggression.
"We support a range of national and international efforts to
collect and examine mounting evidence of war crimes in Ukraine,"
U.S. Secretary of State Antony Blinken said at the meeting. "We
must hold these perpetrators to account."
GLOBAL NEWS
Hong Kong Ends Hotel Quarantine Requirement for Travelers
Hong Kong is ending its controversial hotel quarantine policy
for travelers, as pressure builds on the city to ease Covid-19
restrictions to shore up its economy and defend its longtime
position as a global business capital.
John Lee, Hong Kong's chief executive, said arrivals starting
Sept. 26 will no longer need to isolate in a hotel, dropping a
previous requirement for a three-day quarantine. Travelers' ability
to move around the city will be restricted during a self-monitoring
period of three days, down from four currently. A requirement for a
preflight PCR test will be dropped in favor of a preflight rapid
test.
Russians Fear a Wider Call-Up After Putin Orders Reservists to
Mobilize
MOSCOW-Russians began reporting to military collection points in
the thousands while others tried to flee the country as it emerged
that the call-up for troops to fight in President Vladimir Putin's
war in Ukraine could be wider than initially thought.
Road traffic surged at border points leading out of Russia on
Thursday, according to local media reports, and airline tickets are
now sold out for days after Mr. Putin announced the call-up on
Wednesday. At least four Russian regions announced that they had
barred exit for men without the approval of their local military
recruitment offices.
Covid-19 Unemployment Fraud May Have Topped $45 Billion,
Watchdog Estimates
Criminals potentially stole an estimated $45.6 billion by making
fraudulent unemployment insurance claims meant for people laid off
during the Covid-19 pandemic, a government watchdog said.
The new tally is nearly three times last summer's estimate of
over $16 billion in fraudulent payments.
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(END) Dow Jones Newswires
September 23, 2022 05:50 ET (09:50 GMT)
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