MARKET WRAPS
Watch For:
Services PMI data for EU, UK, Germany, France, Italy; Germany
trade; France industrial production; trading updates from Tesco,
Bang & Olufsen, Finnair
Opening Call:
European shares may open lower Wednesday after rallying for two
straight sessions. Asian equities gained while China markets remain
closed for the National Day holiday. The dollar strengthened
slightly; Treasury yields broadly lower; oil and gold declined.
Equities:
Markets in Europe could decline at the open, reversing course as
focus turns to OPEC+'s first in-person meeting in years.
U.S. stocks jumped for a second day on Tuesday, buoyed by the
Reserve Bank of Australia's surprise decision to raise interest
rates less than expected and data showing that U.S. job openings
fell in August.
"If that trend continues, then the Fed will maybe start to pull
off a little bit, in terms of the last few hikes that are priced
into the market between now and early next year," said Jack
Janasiewicz, a portfolio manager at Natixis Investment Managers
Solutions.
Many analysts said the move higher in stocks was likely the
result of stocks falling to oversold levels late last week.
"It mainly looked to me like short-covering once again. We seem
to see these types of moves pretty often, and maybe it turns into
something, but I doubt it," said Michael Kramer, founder of Mott
Capital Management.
Sharing a similar cautious tone, Hani Redha, a portfolio manager
at PineBridge Investments, said, "bear markets don't go in straight
lines and we are not done yet on the way down."
Read: The stock market is surging as the U.S. dollar retreats.
It's all about bonds
Forex:
The U.S. dollar was slightly higher in Asia amid losses in U.S.
stock futures, which undermined risk appetite.
Market participants should be wary of expecting too much
follow-through on risk and currency markets ahead of the upcoming
U.S. nonfarm payrolls report, said Stephen Innes, managing partner
of SPI Asset Management.
Bad data are being perceived as good for risk sentiment as this
could temper the Fed's rate-increase trajectory, hence a strong
nonfarm payrolls reading could be a rally crusher, Innes said.
"While the greenback looks due a period of consolidation, we
think the underlying drivers of its appreciation remain intact,"
Capital Economics said.
"With the dollar already at its strongest level in 20 years on a
real trade-weighted basis, we think further dollar strength will
increasingly be driven by worsening risk appetite and tightening
financial conditions, " CE said.
Bonds:
Treasury yields broadly maintained their downward trend early
Wednesday.
On Tuesday, fed-funds futures traders initially pulled back on
their expectations of how high rates could go in the first half of
2023, and then reversed course by nudging their expectations back
up again.
Traders are pricing in more than 60% odds of a 75-basis-point
hike, according to the CME's FedWatch tool.
Société Générale said it was skeptical Treasury prices have much
room to continue their bounce.
"My bias is to think that this bond market rally has gone about
as far as it can, and when yields turn higher again, equities will
struggle, and the dollar will get its mojo back," Kit Juckes,
global macro strategist at Société Générale, said.
"At which point, the FX market, having exhausted itself trading
sterling in recent weeks, may revert to selling the euro."
Energy:
Oil prices fell early Wednesday, but the losses could be limited
ahead of the OPEC+ meeting later today, where the group is expected
to consider a production cut of up to 1.5 million barrels a
day.
Russian Deputy Prime Minister Novak is due to attend, which
signals that the group is preparing for a significant output cut
and showing unity, SPI Asset Management said.
"An empirical approach to the present fundamentals leads us to
believe benchmark WTI should be trading in the $75-$80 range,
although the current unpredictability within the market brings a
warranted volatility premium," StoneX Group said.
"It therefore stands to reason that OPEC+, while analysing the
market ahead of the decision, will see an output cut as being
justified within current market conditions," it said.
Metals:
Gold prices fell in Asia. The key focus for the precious metal
would be the U.S. nonfarm payrolls report, Oanda said.
As long as there isn't an extremely strong reading, gold should
remain supported around the $1,700/oz level and test the $1,750/oz
region, Oanda said.
Sevens Report Research said that if U.S. Treasury yields have
"peaked near term along with the dollar, gold and silver can both
extend gains and claw back some of the recent losses."
"However, the current trends in both remain bearish," Sevens
said.
--
Copper futures declined in Asia, reversing course after solid
gains overnight.
Citi said it remained bearish on copper and maintains its March
2023 copper put option position.
Citi has been bearish since May and foresees a further 15%-20%
downside over the next six months to $6,200 per ton in its
base-case scenario, reflecting the weak European demand outlook,
and to a lesser extent strong mine supply growth in 2023.
TODAY'S TOP HEADLINES
OPEC+ Girds for Contentious Meeting Over Oil-Production Cuts
VIENNA-The Organization of the Petroleum Exporting Countries and
its Russia-led allies are preparing for a potentially contentious
meeting on Wednesday, when they gather in-person for the first time
in years to discuss a production cut of up to 1.5 million barrels a
day that not all players support, OPEC officials said.
Russia and Saudi Arabia, the two biggest producers in the group
collectively known as OPEC+, are pushing for a production cut meant
to stop oil prices from falling further, OPEC delegates said. Saudi
officials have told other countries they want to cut 1.5 million
barrels a day, the biggest reduction deal since 2020, delegates
said, and deeper than initially discussed.
EU Likely to Approve G-7 Cap on Russian Oil Price in Two
Steps
BERLIN-The European Union has advanced work on a price cap for
Russian oil under an approach that keeps the U.S.-led effort on
track, but holds off on final approval.
EU member states are set to agree on a two-stage approach to the
international price cap on Russian oil, which is being developed
within the Group of Seven industrial economies. EU officials are
preparing legislation needed to implement the measure, but will
hold off approving it until the rest of the G-7 is ready, diplomats
and officials said.
Fed Official Says Inflation Fight Will Take Time, Despite Signs
of Progress
Bringing inflation down from 40-year highs is likely to take
time and will require a slowdown in economic growth and reduced
demand for workers by employers, a Federal Reserve official said
Tuesday.
Container Line Hapag-Lloyd to Buy South American Terminal,
Logistics Operator
German container shipping line Hapag-Lloyd AG is stepping up its
push into inland logistics with the acquisition of the shipping
terminal and logistics businesses of Chile's Sociedad Matriz SAAM
SA for around $1 billion.
Under the agreement unveiled Tuesday, the German shipping
company will acquire SAAM Ports SA and SAAM Logistics SA, as well
as a real-estate portfolio from Sociedad Matriz. The ports business
comprises terminals in Chile, as well as other countries in South
and Central America and in Florida.
U.K. Regulator Pushed Pensions to Load Up on LDIs
The derivatives-based investment strategy that tipped the U.K.'s
pension sector into crisis started with good intentions: Help
companies fulfill promises they made to employees to pay a steady
income through retirement.
Behind the push into that strategy, say pension trustees and
their advisers, was the Pensions Regulator, the U.K.'s powerful
watchdog, charged with safeguarding the savings of millions of
private-sector workers. The regulator steered private pension funds
to adopt liability-driven investments, known as LDIs, linked to
returns on U.K. government bonds, according to pension trustees and
consultants.
U.K. Leader Liz Truss Faces Political Backlash After Sparking
Market Turmoil
LONDON-Less than a month into her tenure as U.K. prime minister,
Liz Truss is seeing her political authority rapidly erode as her
bold experiment in British Reaganomics spins out of her
control.
After presenting the biggest tax cuts in a generation to try to
jolt the U.K. economy into higher growth, Ms. Truss is locked in a
battle on three fronts as she tries to win over skeptical
investors, the British people and her own lawmakers. Some in her
party are already privately describing her as a lame duck leader,
with up to two years before the next general election.
Amazon Freezes Hiring in Retail Division
Amazon.com Inc. is halting hiring in its core retail division
through the end of the year, making it the latest big tech company
to pull back on hiring as it contends with economic headwinds.
The company is pausing hiring for corporate roles that include
tech positions in its retail business, a person familiar with the
matter said. The company has posted thousands of openings in the
segment in recent months. The New York Times earlier reported on
the freeze.
Elon Musk Proposes Closing Twitter Deal on Original Terms
Elon Musk has offered to close his acquisition of Twitter Inc.
on the terms he originally agreed to, a sudden and unexpected
comedown for the billionaire entrepreneur that could end a
monthslong battle he waged to get out of the $44 billion deal.
A lawyer for Mr. Musk communicated the proposal to Twitter's
lawyers Monday, according to a copy of a two-sentence letter that
was filed with the Securities and Exchange Commission Tuesday
afternoon.
Facebook Parent Meta to Shrink Some Offices as It Adapts to
Hybrid Work
Meta Platforms Inc. plans to shrink some of its offices as many
of its employees continue to do their jobs from home, the latest
big company to reassess its real estate in the hybrid-work era.
The social-media giant will rearrange some office layouts,
clustering desks and teams together to effectively put employees in
closer proximity, the company's top real-estate executive said in
an interview. The goal, he said, is to make the spaces more
dynamic.
Write to monica.gupta@dowjones.com
Expected Major Events for Wednesday
00:01/IRL: Sep Ireland Services PMI
06:00/GER: Aug Foreign Trade
06:45/FRA: Aug Industrial Production Index
07:15/SPN: Sep Spain Services PMI
07:45/ITA: Sep Italy Services PMI
07:50/FRA: Sep France Services PMI
07:55/GER: Sep Germany Services PMI
08:00/ITA: 2Q General Govt Quarterly Accounts
08:00/EU: Sep Eurozone Services PMI
08:00/UK: Sep UK monthly car registrations figures
08:30/UK: Sep UK Official Reserves
08:30/UK: Sep S&P Global / CIPS UK Services PMI
08:30/UK: Sep Narrow money (Notes & Coin) and reserve
balances
09:00/EU: 2Q Quarterly sectoral accounts
09:00/EU: 2Q Quarterly Balance of Payments
09:00/ITA: 2Q GDP revised
09:00/CYP: Sep Registered Unemployed
09:00/CRO: Sep PPI
09:00/LUX: Sep CPI
10:00/IRL: Sep Monthly Unemployment
16:59/POL: Polish interest rate decision
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(END) Dow Jones Newswires
October 05, 2022 00:13 ET (04:13 GMT)
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