MARKET WRAPS

Watch For:

Germany GfK consumer climate survey; U.K. monthly automotive manufacturing figures, Zoopla house price index; France consumer confidence survey, housing starts; Italy consumer and business confidence survey, industrial turnover; trading updates from Frasers Group, ASML Holding

Opening Call:

Shares in Europe may open lower Wednesday, extending losses from Tuesday. Asian stock benchmarks were lower; Treasury yields rose; the dollar rose; while oil and gold declined.

Equities:

European stock could tumble at the open on Wednesday as sentiment may be weighed by overnight declines on Wall Street and persisting concerns about a deteriorating economic outlook.

U.S. stocks closed lower Tuesday, with both the Dow industrials and the S&P 500 falling as investors parsed a spate of economic data and comments from Federal Reserve officials.

Market analysts attributed stocks' woes to higher Treasury yields and the stronger dollar, which have become major bugbears for the market. They also blamed a batch of unexpectedly strong economic data, which helped reinforce the notion that "good news" for the U.S. economy is once again "bad news" for the market.

A sharp rise in interest rates has been weighing on stocks, said Mimi Duff, managing director at GenTrust. "I think we need to start seeing the rates stabilize before we can bottom out in equities," she said.

Joe Saluzzi, co-head of equity trading at Themis Trading, said he expected stocks to remain under pressure for some time.

"There's just no conviction in this market," Saluzzi said.

Forex:

The dollar strengthened in Asia amid higher Treasury yields, which enhance the appeal of USD-denominated fixed-income assets.

Soaring yields sent USD higher and have continued to put pressure on equities, CMC Markets said.

A slew of Fed officials continued to back "higher for longer" rates to curb inflation, while U.S. economic data such as new home sales were stronger than expected, CMC said.

--

Sterling remains exposed despite a modest recovery from heavy losses following Friday's controversial UK government budget statement, Rabobank said.

The currency's gains on Tuesday suggest the extreme cheapening of UK assets in the past couple of sessions is attracting some interest, the Dutch bank said.

"That said, the causes of the sell-off in both gilts and in GBP haven't been addressed and this suggests the pound remains an extremely vulnerable currency,"

Rabobank said, adding that rising interest rates and prices threaten to offset any benefits from new UK prime minister Liz Truss's tax breaks.

"Already speculation is emerging [Truss] may not be able to hold onto office for very long," said Rabobank. "Political uncertainty in itself is a negative currency factor."

Bonds:

Bond yields were higher early Wednesday.

"Bond yields continue to push higher on expectations of further central bank tightening," according to UBS Global Wealth Management.

"Rising yields in part reflect the unwinding over the last month of expectations for an early pivot in central bank, and particularly Federal Reserve, policy. But we think the rise in longer-term yields may not accurately reflect the risks facing the economy."

Read: Why a rising 10-year Treasury yield is rattling financial markets as it nears 4%

Energy:

Oil futures fell in Asia amid USD strength, though losses may be limited by Hurricane Ian's approach in the U.S. The hurricane is causing disruptions to offshore oil and gas production in the U.S. Gulf of Mexico.

The recent oil selloff could prompt OPEC+ to curb output when they hold their monthly meeting on Oct. 5.

"The group will likely be getting uneasy with the degree of weakness that we have seen in the market and so there is the very real possibility that we see OPEC+ announce supply cuts in order to support the market," ING said.

"Clearly though, if we are to see cuts, they will need to be quite a bit larger than the 100,000 barrels a day agreed at the last meeting in order to have a meaningful impact on the market," ING said.

Still, overall, "oil remains a sellers' market with worries about a global recession and high interest rates intensifying," said Fawad Razaqzada, market analyst at City Index and Forex.com.

Metals:

Gold prices edged lower in choppy trade.

"Gold won't bottom out until Wall Street feels they have a firm handle on how rates will go and right now it seems rates will need to quickly get above current CPI levels," Oanda said.

Gold "remains under the mercy of a broadly stronger dollar and rising Treasury yields amid [Federal Reserve interest] rate hikes," FXTM said.

"We may see high levels of volatility for gold over the next few days as the markets digest the flurry of speeches by numerous Fed officials."

--

Aluminum prices declined in Asia, extending a broad downturn marked over recent weeks as high interest rates weighed on commodities markets.

Haitong Futures expect the base metal's prices to continue fluctuating in the near term, given a mixed bag of positive and negative drivers.

While global macroeconomic conditions could curb traders' appetite for risk assets like commodities, Haitong said China is experiencing an aluminum supply shortage due to producers' output cuts, which could help support the metal.

--

Chinese iron-ore futures rose slightly, continuing the trend of rangebound trading in recent sessions.

Although prices have been supported by restocking demand ahead of China's National Day holiday in October, iron-ore imports could pick up in the coming months and put pressure on the raw material, Donghai Futures said.

   
 
 

TODAY'S TOP HEADLINES

Kashkari Says Fed Needs to Keep Tightening Until There's Compelling Evidence of Declining Inflation

Federal Reserve Bank of Minneapolis President Neel Kashkari said the U.S. central bank needs to tighten monetary policy until underlying inflation is declining, and then wait to see whether it has done enough.

"The one mistake that I'm acutely aware of-that I want to avoid repeating from the 1970s-is when policy makers saw the economy weakening, saw inflation start to tick down, and then they cut rates, thinking they had done the job. And then inflation flared back up again-that, I believe, is a mistake we cannot make and will not make," Mr. Kashkari said Tuesday during an online event hosted by The Wall Street Journal.

   
 
 

China's Offshore Currency Hits Record Low Against Dollar

China's currency hit its weakest ever offshore trading level against the U.S. dollar, with the yuan falling below 7.2 to the dollar for the first time since a separate system for trading the currency outside mainland China was launched more than a decade ago.

The move caps a fall of about 12% for the offshore yuan against the dollar this year and comes despite repeated attempts by China's central bank to support its currency. The U.S. dollar has gained against currencies around the world amid a campaign of aggressive interest rate increases by the Federal Reserve.

   
 
 

U.K. Seeks to Calm Investors Over Clash Between Inflation Fight and Truss Tax Cuts

The U.K. government, after a punishing week for the pound and bond market in London, tried Tuesday to reassure investors that it is working to better coordinate with the Bank of England as Prime Minister Liz Truss's tax cuts and energy subsidies complicate efforts to control spiraling inflation.

U.K. Chancellor of the Exchequer Kwasi Kwarteng said he was meeting Bank of England Governor Andrew Bailey daily.

   
 
 

U.K. Market Turmoil Ripples Into Home Loans

LONDON-Some British banks paused new mortgage lending Tuesday, the latest fallout from market turbulence fueled by the new government's plans for sweeping tax cuts and energy subsidies.

At least six mortgage lenders stopped offering some loans, or briefly halted lending to home buyers altogether, according to UK Finance, an industry trade group.

   
 
 

U.S., Europe Prepare New Sanctions on Russia After Kremlin's Nuclear Threats

The U.S. and European Union are poised to adopt new sanctions on Russia, though some EU members are questioning existing restrictions and the economic pain in Europe is growing.

The European Commission, the EU's executive body, is likely to propose new import and export controls on Russia as soon as Wednesday, according to officials involved in the talks, including an import ban on some Russian diamonds. It will also propose placing additional Russian officials and pro-Kremlin separatists on its sanctions list in the coming days, in a modest new package of measures to increase pressure on the Kremlin.

   
 
 

Meta Shuts Down Influence Operations Started in China, Russia

Meta Platforms Inc. said Tuesday that it has removed separate networks in China and Russia that were running covert influence campaigns related to U.S. politics and the war in Ukraine.

In a post on its blog, the Facebook parent company said it has taken down a small network that originated in China and operated across multiple social media platforms, targeting U.S. voters on both sides of the political spectrum ahead of the 2022 midterm election.

   
 
 

Write to monica.gupta@dowjones.com

   
 
 

Expected Major Events for Wednesday

06:00/DEN: Aug Retail Sales Index

06:00/GER: Oct GfK consumer climate survey

06:00/SWE: Aug Retail sales

06:00/NOR: Aug Retail Sales

06:45/FRA: Sep Consumer confidence survey

06:45/FRA: Aug Housing starts

07:00/SVK: Aug PPI

07:00/SWE: Sep Monthly Business Tendency Survey

07:00/SWE: Sep Consumer Tendency Survey

08:00/ITA: Sep Consumer Confidence Survey

08:00/ITA: Sep Business Confidence Survey

08:00/ICE: Aug PPI

08:00/AUT: Sep Austria Manufacturing PMI

08:00/ICE: Sep CPI

08:30/UK: Aug Capital issuance

09:00/ITA: Jul Industrial turnover & orders

10:00/IRL: Aug Retail Sales Index

23:01/UK: Aug Zoopla House Price Index

23:01/UK: Aug UK monthly automotive manufacturing figures

All times in GMT. Powered by Onclusive and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

September 28, 2022 00:18 ET (04:18 GMT)

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