MARKET WRAPS
Stocks:
European stocks struggled for momentum on Friday, as concerns
remained about consumer sentiment and economic growth, with
investors clinging to hopes that central banks will turn towards
less aggressive rate hikes.
Trading volumes were lighter again, with a shortened session on
Wall Street as Black Friday shopping swings into focus.
Stocks to Watch
Lloyds Banking's better cost control and asset quality compared
with peers is expected to be rewarded by the market, RBC Capital
Markets said.
As deposit betas--the rates that banks have to pass onto their
customers--are likely to start increasing, LLoyds should be able to
keep betas lower for longer given its better digital banking and
branch offering, RBC add.
"We prefer banks like Lloyds Banking that have prioritized
absolute cost control over jaws progression," RBC said.
It has upgraded its rating on the stock to outperform from
underperform and raised the price target to 57 pence from 44
pence.
---
The U.K. retail sector is braced for a challenging Christmas
period as consumer confidence is at record lows and budget pressure
is unlikely to ease, CMC Markets said.
"There will be many consumers forgoing high ticket food items
and prioritizing basic food items over turkeys, stuffing, Christmas
puddings and all of the other trimmings", CMC said.
Another important factor will be where they buy from, which
could potentially benefit seasonal sales at Tesco and Sainsbury's,
given that consumers of premium supermarkets such as Marks &
Spencer may switch to budget retailers and discounters.
Economic Insight
A core eurozone HICP reading of 0.4% month-on-month and 5.4%
year-on-year in November would be high enough for the European
Central Bank's "hawks" to make a strong case for another 75 basis
point interest rate rise in December, SEB said.
However, a m/m 0.1% or below print "would be an indication that
the pace of price changes has slowed down and would probably be too
low for hawks to make a serious attempt for 75bps," SEB said.
"Given our November core HICP forecast of 0.1% [m/m], 5.1% y/y,
we think that the current market pricing with a 60% probability for
50bps vs. 40% for 75bps correctly reflects the slightly higher odds
for a smaller rate hike."
U.S. Markets:
Stock futures were indicating a slightly higher start with
attention expected to focus on the start of the holiday shopping
season and whether consumer resilience is holding up.
There is no data planned for Friday, which will mark a shortened
session for Wall Street, but investors are facing a busy week
ahead, with a large batch of data including third-quarter gross
domestic product, the Fed's favored inflation gauge, the PCE price
index, home prices, manufacturing updates and November payrolls
data.
The post-Thanksgiving trading day also kicks off the start of
annual holiday shopping, which could put shares of Amazon.com,
Walmart and Target, among others, in focus.
Forex:
The dollar "remains sluggish" though moves are likely to be
limited as trade remains quiet with a long weekend in the U.S.,
UniCredit Research said.
"Range-bound activity is...likely to prevail again today given
the very light daily agenda."
Investors could be "taking a breather" following the rally in
the euro against the dollar in recent days while the U.S. holiday
"might also be calling for some position paring."
---
Commerzbank said monetary policy has turned into a supportive
factor for the euro but that doesn't mean the currency will
appreciate considerably.
With recent data suggesting a eurozone recession won't be as bad
as previously feared, concerns that the ECB might not raise
interest rates sufficiently in view of economic risks are likely to
ease, Commerzbank said.
"However, we urge caution against excessive EUR euphoria as the
risk of an energy crisis has not yet been overcome. As a result, a
limited risk premium seems justified."
---
Investor position adjustments have played a key role in
sterling's recent recovery but further gains may be limited, ING
said, adding that GBP/USD could see some further temporary
appreciation to 1.22-1.23 but these would be the best levels before
year-end.
"Equally, EUR/GBP has good support in the 0.8550/0.8600 area,
and given our view of a difficult risk environment into year-end
and early 2023 as central banks raise rates into recessions,
sterling should remain vulnerable."
Read UK Seeking Swiss-Style Ties With EU Wouldn't Necessarily
Support Pound
Bonds:
Commerzbank has forecast 10-year German Bund yields to reach
levels close to 2.5% again in the first quarter of 2023 which
should be used to scale into long-duration positions. Thereafter,
yields should ease to 1.70% by the end of next year.
The 10-year German Bund yield hit 2.5% in October, now it trades
at 1.873%, up about 3 basis points, according to Tradeweb.
Commerzbank expects Treasurys to outperform throughout next
year, with the 10-year UST-Bund spread falling to 130 basis points.
The 10-year UST-Bund spread was last at 180bps, according to
Tradeweb.
---
Amundi Asset Management said the revival of portfolio allocation
of 60% in stocks and 40% in bonds is expected in 2023.
"As bonds regain diversification qualities after the surge in
yields in 2022 and looming recession risks next year, a revival of
the 60-40 portfolio allocation is in sight," it said.
The asset manager sees the outlook for Treasurys as well as
European core and peripheral government bonds as "improving" in the
first half of 2023. Amundi also sees "improving" outlook for U.S.
and euro investment-grade and high-yield corporate bonds.
Read There Is Value Investing in Short End of Bond Curves
Read Investors to Face Heavy Gross and Net Government Bond
Issuance in Eurozone in 2023
Energy:
Crude futures moved higher as traders waited for an EU price cap
signal on Russian oil.
If the cap is set too high then Russian revenues and oil flows
are unlikely to be affected, SPI Asset Management said, but a low
price cap could create conditions for retaliation.
"In the meantime, an assumed cap of $65-70 a barrel continues to
ease fears around Russian supply disruption, while rising Covid
cases in China remain the interday rally capper," SPI said.
Coal
An improvement in Chinese steel profitability is helping demand
for coking coal, according to Macquarie.
"Steel margins in China improved last week, driven by an
increase in steel prices and continued steel-mill production cuts.
Chinese steel mills also lifted their coke and coking coal
inventory levels for winter, " Macquarie said.
The daily average price paid for Chinese imports of hard coking
coal rose to $266/metric ton on Thursday, from $261/ton the day
prior and $255/ton at the end of last week, according to S&P
Global Commodity Insights.
Metals:
Base metals and gold were firmer in early London trading
following a positive Asian session, with Marex highlighting news
that six Chinese banks had issued fresh funding for developers
within the property sector--something that generally boosts metals
demand.
DOW JONES NEWSPLUS
EMEA HEADLINES
German Consumer Sentiment Set to Continue Its Recovery in
December
Consumer confidence in Germany is set to continue to stabilize
in December, although remaining at a very low level.
Market research group GfK's forward-looking consumer-sentiment
index forecasts confidence rising to minus 40.2 in December from
minus 41.9 in November. Economists polled by The Wall Street
Journal forecast a reading of minus 40.0.
SSE PLC to Sell 25% Stake in SSEN Transmission for GBP1.47
Bln
SSE PLC said Friday that it will sell a 25% stake in its
electricity transmission network business SSEN Transmission to
Ontario Teachers' Pension Plan Board for 1.47 billion pounds ($1.78
billion).
The London-listed energy company said the sale of the
stake--which operates under its licensed entity, Scottish Hydro
Electric Transmission PLC--will help unlock significant growth in
both the transmission business and across the wider group, and is
expected to complete shortly.
Gucci's Next Revamp Needs a More Classic Look
Parting ways with Gucci's designer was an inevitable decision
for Kering, the luxury group that owns the brand. Finding a
suitable successor will be much harder.
The Italian brand's creative director, Alessandro Michele, is
stepping down immediately, Kering said this week, and no one is
lined up yet for his job. From his first runway show in early 2015,
Mr. Michele more than doubled Gucci's sales and tripled operating
profit in what is considered one of the most successful
luxury-brand makeovers in decades. However, the brand has looked
wobbly since 2020 as his designs became less popular.
Adidas to Probe Misconduct Allegations Against Kanye West
Adidas AG has launched an investigation into allegedly
inappropriate behavior by Kanye West while the sportswear giant was
working with the musician to develop and sell their Yeezy sneaker
line.
The company said Thursday that it would start the probe after
receiving an anonymous letter. The letter alleged years of
misconduct in the workplace by Mr. West, who goes by Ye, and that
Adidas management turned a blind eye to his conduct.
Russia Expands Shelling of Kherson, as Power Shortages Drag On
in Kyiv
KHERSON, Ukraine-Russian forces stepped up their shelling of the
southern city of Kherson, killing seven people and injuring at
least 21 others in the latest round of strikes, according to local
officials.
Two weeks have passed since Russian troops retreated from
Kherson, and residents-though still joyous at their liberation from
Russian occupation-are confronting a new set of challenges. The
city, like much of Ukraine, remains without electricity, heat or
running water. Cell signal is weak. Tents offering heat, water and
internet access have been set up around the city.
French McKinsey Probe Widens to Include Campaign Financing
PARIS-French prosecutors have opened probes into the role played
by consulting firms in France's 2017 and 2022 presidential
elections, widening an existing investigation into consulting firm
McKinsey & Co.
Earlier this year, French financial prosecutors opened a
tax-fraud and money-laundering investigation into McKinsey.
GLOBAL NEWS
China Cuts Banks' Reserve Requirement Ratio
BEIJING--China's central bank said Friday that it will lower the
amount of deposits banks have to set aside, releasing 500 billion
yuan ($69.91 billion) of liquidity into an economy struggling with
its worst Covid-19 outbreak since 2020.
The People's Bank of China said it will cut banks' reserve
requirement ratio by 0.25 percentage point, which will bring the
weighted average RRR level for the whole banking system to
7.8%.
Black Friday Crowds Are Back but This Year They Face
Inflation
Black Friday is back-even if many of the door-buster deals
aren't.
Millions of Americans are expected to visit bricks-and-mortar
stores on the Friday after Thanksgiving as the Covid-19 pandemic
recedes and people return to prepandemic habits. That is a reversal
of the past two years, when they were largely stuck at home and did
more shopping online. This year, however, many household budgets
are pinched by high gas and grocery prices.
Mega-Companies Messed Up America's Job Market. They're Doing it
Again.
Part of what has made America's job market so tight is that big,
publicly traded companies hired like crazy after the pandemic
struck. Now that many are slamming into reverse, it seems like
there is a wave of unemployment under way.
Amazon.com, Disney and Facebook parent Meta Platforms are all
suddenly recognizing that they overhired and are firing workers.
For the people affected, job losses are horrible. But when it comes
to the job market, rather than thinking of these layoffs as a sign
things are falling apart, they might be an indication that it could
come into better balance.
China's Xinjiang Region Has Been Locked Down for Months, Casting
Shadow Over Zero-Covid Easing
As Covid-19 cases trigger a fresh wave of lockdowns in China's
major cities, those living in towns across the country's remote
western region of Xinjiang say they have been enduring a lockdown
that has lasted months and local officials have largely kept
quiet.
Local authorities started ordering residents to stay home after
Covid clusters began spreading around Xinjiang in early August. The
region's main cities shut down transportation, trapping some summer
tourists until the start of winter. The restrictions remain in many
parts of the region as officials struggle to implement orders from
Beijing to be more precise in applying Covid controls.
Chinese Banks' $178 Billion 'Medicine' for Developers Won't Cure
All Ills
HONG KONG-China's state-owned banks are showering the country's
real-estate developers with loans and other promises of financial
support, moves that will prevent the beleaguered industry from
spiraling into a full-blown crisis following a wave of debt
defaults.
The generous aid, however, is unlikely to quickly solve a
fundamental problem afflicting many Chinese developers: A deep
slump in new home sales.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
November 25, 2022 06:12 ET (11:12 GMT)
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