UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European stocks made modest gains on Tuesday, buoyed by a sharp rebound in Hong Kong and Chinese shares, as China moved to reiterate its commitment to targeted pandemic curbs and avoid long-term restrictions.

The upturn came as Chinese top officials said they will hold a media briefing on Tuesday on the country's pandemic-control policies, days after protests broke out across China over growing outbreaks and partial lockdowns. During the briefing, authorities said "long-term restrictions must be rectified and avoided."

The comments likely eased market concerns and confusion over Beijing's Covid-19 strategy.

"Once again, the easing of Covid-19 measures, at least the expectation for it, is the market focus," said KGI Asia.

It maintained its expectation for a postpandemic reopening in China in the first half of 2023.

Stocks to Watch

European airlines' capacity in long-haul flights should remain below the level of 2019 for at least another year, Bernstein said.

Norwegian Air Shuttle ceased long-haul operations, while the rest of the sector shrunk the fleet, Bernstein said. During the summer of 2022, Europe was open but several important Asian markets weren't, Bernstein added. As a consequence, airlines allocated a greater fraction of capacity to Europe than the historic norm.

"As we move from 2022 into 2023, we will likely also see [an] international inbound capacity pivot. As Asia reopens, expect international carriers to target capture pent-up demand here, limiting European growth."

U.S. Markets:

Stock futures gained, following a pull back on Wall Street on Monday as widespread protests in China against the zero-Covid policy there sparked worries among investors about global growth.

U.S. economic updates set for release on Tuesday include the S&P Case-Shiller U.S. home price index and the FHFA home price index, both covering September. The consumer confidence index for November will also be published.

Forex:

The dollar could rise this week as a speech by Jerome Powell and the jobs report are likely to dent any speculation about interest rates peaking soon, ING said.

Powell is expected to sound hawkish and job data to stay strong, which "may cause the Fed's communicated and perceived narrative to drift away from dovish pivot expectations," ING said.

The dollar could rise in anticipation of these events and the DXY dollar index could reach 107.00-107.50 ahead of Powell's speech, ING said.

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Sterling could move in response to Bank of England Governor Andrew Bailey's testimony before the Lords Economic Affairs Committee at 1500 GMT on Tuesday, ING said.

"A significant shift in Bailey's policy rhetoric two weeks before the BOE meeting appears unlikely, but the proximity to the meeting also means that markets tend to over-interpret Monetary Policy Committee members' comments," ING said.

The BOE is likely to raise interest rates 50 basis points at the Dec. 15 meeting while markets are pricing in 57bp. GBP/USD could fall into the end of 2022 as the dollar rises and the pound suffers from a bleak U.K. economic outlook, ING said.

Bonds:

Eurozone government bond yields extended their drop as November flash estimate Spanish inflation data came in significantly below expectations.

Together with German figures due later today and eurozone numbers due on Wednesday, the data are closely watched as they give key input to the European Central Bank's decision on interest rates in December.

Spain's flash estimate EU-harmonized index of consumer prices came in at 6.6% in November, down from 7.3% in October.

Citi said the inflation data and speeches by ECB policymakers could be meaningful for Italian government bonds, "as the market shapes its views for the next ECB rate hike and quantitative tightening decision in December."

Cleaner short positioning and risk sentiment turning on China may have hit the 10-year BTP-Bund spread, while Italian bond issuance in the day may have also contributed to the spread widening "but this might be temporary with only one more BTP auction likely over the rest of the year," Citi said.

Read Eurozone Government-Bond Spreads Look to Bottom Out

Read UK Will Need Foreign Investors to Absorb Gilt Supply in 2023

Energy:

Crude oil prices made gains of close to 2% on increased speculation that China will rollback on Covid-19 regulations following protests in the country.

That said, oil markets are likely to be driven by the OPEC+ meeting on Sunday, according to Peak Trading Research.

"OPEC+ wants higher prices and a crude oil rally would be a bullish macro tailwind for the whole commodity complex."

Further volatility could come from EU discussions over the Russian oil price cap, Peak said.

Thermal Coal

Expect a bumpy ride in the thermal-coal market over the year ahead, Goldman Sachs said.

For now, the market remains tight due to supply constraints in Australia, while Europe's ban on Russian coal could deepen the shortfall during the northern hemisphere winter when demand is high.

However, in 2023, increased Indonesian and Chinese coal production and demand destruction, combined with a potential increase in gas supply, are likely to offset benefits from coal-plant restarts in Western Europe, Goldman Sachs said.

"Bottom-line though, we see high price volatility as likely" over the next 12 months, and the thermal-coal price is likely to be lower than today in a year's time.

Metals:

Base metals and gold made solid gains, boosted by improved sentiment over spending in China.

In Asia, the market had been "risk on," with the offshore yuan strengthening, alongside Chinese equities for white goods also rising, Marex said.

It added that demand for white goods has been driven by real-estate strength amid new support for developers--one of the biggest drivers for base metals.

"All this highlights that China is definitely not bearish, and there have been continued expectations to support the economy," Marex said.

Market Insight

Commonwealth Bank of Australia said commodity markets are likely to remain volatile until there is a clearer view on how China will handle its Covid-19 policy going forward.

"It's too soon to rule out the risk of a return to China's strict Covid-zero policy, especially in light of the protests across China in recent days."

But that scenario is "the worst case" for China's economy and commodity demand, and could create longer-run challenges for policymakers to transition away from that zero-Covid approach, CBA said.

DOW JONES NEWSPLUS

EMEA HEADLINES

Ukraine War's Economic Ripples Sow Discord Between Washington, Allies

WASHINGTON-Trans-Atlantic ties are starting to fray as French President Emmanuel Macron and other European leaders chafe at new U.S. policies they say compound economic woes fueled by the war in Ukraine and the resulting energy crisis.

Russia's war in Ukraine has reinvigorated the North Atlantic Treaty Organization and ignited a boom in trade and investment between the U.S. and Europe. But after nearly a year of unity as the U.S. and its allies confronted the fallout from Russian President Vladimir Putin's invasion of Ukraine, European officials are starting to express frustration at their increasing reliance on Washington for security and economic stability.

Nestle Lifts 2022 Organic Sales Outlook; Sets Out 2025 Targets

Nestle SA has lifted its full-year organic sales-growth guidance and outlined targets for 2025 ahead of its investor seminar on Tuesday.

The Swiss packaged-foods giant said it now expects sales to grow organically between 8% and 8.5% from previous expectations of around 8%. The underlying trading operating profit margin is still seen at around 17%.

easyJet FY 2022 Pretax Loss Narrowed, Revenue Rose on Pandemic Recovery

easyJet PLC said Tuesday that its fiscal 2022 pretax loss narrowed and revenue rose as passenger numbers and revenue per seat recovered following the easing of Covid-19-related restrictions.

The U.K. budget airline said that for the year ended Sept. 30, its pretax loss was 208 million pounds ($248.8 million) compared with a loss of GBP1.04 billion for fiscal 2021, and consensus of a loss of GBP183.0 million based on the forecasts of seven analysts taken from FactSet.

Shell to Buy Biogas Producer in $2 Billion Deal

Shell PLC has agreed to buy a European producer of biogas for nearly $2 billion, the latest move by a major oil and gas company to push into renewable fuels.

The London-based company said Monday it would buy Denmark's Nature Energy Biogas A/S, which produces a renewable fuel called biomethane that can replace conventional natural gas in heavy road and marine transport, industry and heating. Nature Energy is Europe's biggest producer of biomethane from organic waste.

Bridgepoint Weighs Acquisition of Energy Capital Partners

Bridgepoint Group PLC in London said it is evaluating a possible bid for Energy Capital Partners LLC, commenting after a report that the private-equity firm was negotiating a $1 billion purchase with the energy-transition investor.

In a statement citing media speculation on potential mergers and acquisitions, Bridgepoint confirmed that it is evaluating a number of possible strategic opportunities. The discussions, including those with Energy Capital Partners, remain at an early stage and may not result in a deal, Bridgepoint said.

France's EDF Gets EUR2.2 Bln of Additional Loan Facilities

Electricite de France SA has agreed to 2.2 billion euros ($2.29 billion) of additional bank loan facilities that are set to contribute to increasing the company's financial flexibility in the coming years.

The French nuclear-power giant on Tuesday said the facilities have a maturity of three years and don't include breakup cost in case of early repayment. They were concluded with a group of six banks and will be drawn in December.

European Differences Over a Russian Oil Price Cap Persist

European Union officials once again failed to agree to the terms of a price cap on Russian oil sales, with negotiations over the details of the unprecedented sanctions program continuing with a week left to implement it.

The European Commission, the EU's executive arm, proposed setting the price cap at $65 per barrel during talks on Monday, according to diplomats, three of whom said EU officials suggested the figure could be cut to $62 per barrel.

GLOBAL NEWS

Hong Kong consumer stocks extend rally

Hong Kong consumer-goods and services stocks advanced further as China moved to reiterate its commitment to targeted pandemic curbs and avoid long-term restrictions.

Consumer-goods makers and services providers jumped in Tuesday afternoon trading. Restaurant operator Haidilao International Holding Ltd. HK:6862 rose as much as 15%, food-delivery company Meituan was recently 11% higher and sportswear maker Anta Sports Products Ltd. HK:2020 advanced 7.6%. The benchmark Hang Seng Index HK:HSI also extended gains, rising 5.0% to 18160.82.

Yield Curve Inversion Reaches New Extremes

Yields on longer-term U.S. Treasurys have fallen further below those on short-term bonds than at any time in decades, a sign that investors think the Federal Reserve is close to winning its inflation battle regardless of the cost to economic activity.

A scenario in which short-term yields exceed long-term yields is known on Wall Street as an inverted yield curve and is often seen as a red flag that a recession is looming.

Tech Selloff Catches Up With Private Startups

Tech startups are plunging in value in private trades, mirroring the big markdowns of their publicly listed brethren over the past year.

Before companies go public, their shares are often traded by employees, founders and institutions in secondary deals. The trades allow existing holders to cash out before a startup goes public, and buyers to make new investments or add to existing holdings.

Chinese Startups Try to Make It Big in the U.S.-but Without the Backlash

As U.S.-China ties fray and decoupling trends rise, dozens of Chinese startups are going against the tide, seeking ways to expand into the U.S. and other international markets.

Many are driven in part by China's slowing economy and toughened regulatory environment as well as the uncertainty of the zero-Covid policy, which in recent days sparked one of the largest nationwide protests that China has seen in decades. Others are inspired by the enormous global success of companies like TikTok owner ByteDance Ltd. and fast-fashion retailer Shein.

Fed's Williams Says Inflation Fight Could Last Into 2024

A senior Federal Reserve official said he expects inflation pressures to recede over the next year but cautioned the central bank will continue to have its work cut out because prices may decelerate to levels still above the Fed's 2% target.

New York Fed President John Williams also said the risks of a recession were elevated because the central bank has had to raise rates rapidly to combat high inflation.

U.S., Iran Face Off in World Cup Amid Growing Political Hostility

As the U.S. and Iran prepare to face off in a must-win match at the soccer World Cup in Qatar on Tuesday, tensions off the field have raised the stakes in what is turning out to be one of the most politically charged games in the tournament's recent history.

Iran has already called foul after the U.S. Soccer Federation posted a small graphic of the World Cup standings on its Instagram account in which the emblem in the center of the Islamic Republic's flag had been removed. The federation said the move was to show solidarity with a monthslong human-rights movement sweeping across Iran, but it later deleted the post. A State Department spokesperson said that the agency wasn't involved in either decision.

Russia Cancels Arms-Control Talks, U.S. Says

WASHINGTON-Russia has postponed arms-control talks scheduled for this week, U.S. officials said, a fresh setback to efforts to shore up the last major nuclear-weapons treaty between Washington and Moscow.

U.S. officials had hoped that the meeting, which had been scheduled for Tuesday in Cairo, would lead to the resumption of inspections under the New START treaty, which cuts long-range U.S. and Russian nuclear arms.

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

(END) Dow Jones Newswires

November 29, 2022 06:09 ET (11:09 GMT)

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