MARKET WRAPS

Watch For:

EU flash PMI, new commercial vehicle registrations in Europe; flash PMIs for Germany, France, UK; no major corporate updates expected

Opening Call:

Shares may inch higher in Europe after losses the previous day. In Asia, stock benchmarks declined; the dollar steadied; Treasury yields mostly gained; while oil and gold declined.

Equities:

European shares could open slightly higher Friday after closing lower Thursday, as investors reacted to interest-rate hikes by several European central banks.

U.S. stocks dropped overnight, extending losses after the Fed decision on Wednesday.

Rhys Williams, chief strategist at Spouting Rock Asset Management, said markets are going to drift lower in the short term as "most of the correction is behind us."

"Especially in a time of quantitative tightening, where you've lost the biggest buyer of assets in the U.S. government, so you have illiquidity working against you. Williams said.

"But I think the higher the bond rates go, the faster we get into a recession era, and the quicker the 10 (year Treasury) will pivot. So maybe we need more pain in the short term, which will be better for the long term."

Forex:

The dollar steadied in Asia. There could be calmer foreign-exchange markets today after all of the central-bank moves and updates, MUFG Bank said.

However, USD strength may be difficult to avoid in the near term, MUFG Bank added.

Fed Chair Powell saying rates have to go a lot higher boosted the dollar, said Scott Colyer, CEO of Advisors Asset Management.

"Powell is a hard liner and he only cares about bringing down inflation, he said.

"There's a war in Europe driving wealth to safety. The euro isn't a place people want to keep wealth if war breaks out on the continent," he added.

"It's almost the stars aligning" for the dollar, Colyer said.

--

Japan's forex intervention, if sustained, may be able to keep USD/JPY from rising above 145, as the headwind for the yen as a result of U.S.-Japan interest-rate differentials will likely abate eventually, Capital Economics said.

In the near term, divergent monetary stances seem set to keep piling downward pressure on the yen, it said.

Yet, with inflationary pressures starting to ease in the U.S., Capital Economics expects the Fed to be cutting rates by the end of next year, and for U.S. yields to begin falling ahead of that as the Fed turns less hawkish.

Bonds:

Treasury yields mostly advanced in Asia, extending an overnight surge after foreign governments and central banks rushed to raise interest rates or otherwise support local currencies pressured by the dollar's strongest rally in a generation.

While analysts said they couldn't definitively pin Thursday's move on one particular event, many said it could be broadly explained by how the Fed's aggressive interest-rate increases are strengthening the U.S. dollar and putting pressure on other countries to defend their currencies as they also contend with inflation.

--

The supply of gilts is expected to be much higher than previously thought due to the government's plan on fiscal expansion, Capital Economics said following the BOE's rate announcement.

The result is likely to be higher gilt yields, higher government debt and a weakening pound.

"More borrowing comes with more risk in an environment where interest rates and inflation are rising," Capital Economics said, adding that "a commitment to fiscal discipline in the medium term [in the minibudget] will probably be a good start."

The London-based consultancy expects gilt yields to end lower in 2023 than they are now.

Energy:

Oil futures declined in Asia amid demand concerns and a gloomy global economic outlook.

"There have also been signs of the physical crude market weakening over recent months, with activity in the prompt market slowing alongside sagging futures prices," Fitch Solutions said.

"In the near term, the outlook is highly uncertain," Fitch added.

Economic uncertainty is likely to cap any rallies for oil in the mid $90-to-$100 a barrel range "leaving oil in a sideways trading pattern near-to-medium term," said Sevens Report Research.

Still, "the geopolitical influences from the war in Ukraine will remain a tailwind as will OPEC+ badly undershooting their production targets," Sevens said.

Metals:

Gold prices edged lower early Friday, after rising overnight as Russia racheted up the Ukraine war.

The precious metal is clearly going to become a safe-haven as the global outlook deteriorates and as Wall Street grows confident that the peak in Treasury yields is approaching, said Oanda's Edward Moya.

Gold has huge support at the $1,660/oz level, and if it can stabilize above there, gold prices could eventually rise above the $1,700/oz level, Moya added.

--

Zinc prices edged lower in early Asian trading amid concerns about weaker demand.

However, continuing supply disruptions will likely be closely watched as they continue to push inventories lower, ANZ said.

Zinc stockpiles in LME warehouses have slid to their lowest levels since February 2020, ANZ added.

Data from China's statistics bureau also showed output of refined zinc fell in August, said ANZ.

--

Chinese iron-ore futures rose, extending a recent uptrend amid restocking demand ahead of China's National Day holiday in October.

There could also be supply-side constraints on the raw material in the near term, Fitch Solutions said.

While that may help "counterbalance the weakness in demand, we do not expect to see any major revival in prices over the coming quarters," Fitch said.

   
 
 

TODAY'S TOP HEADLINES

World's Central Banks Race to Raise Rates After Fed Increase

LONDON-Central banks around the world moved Thursday to combat the effects of a soaring dollar and rising inflation, joining the Federal Reserve in risking a recession to rein in climbing prices.

In a flurry of central-bank meetings from Norway to South Africa, many raised rates by larger-than-expected margins in a day that analysts at ING billed as "Super Thursday."

   
 
 

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.

   
 
 

Audits of Chinese Companies Start to Face U.S. Inspections

U.S. regulators have started inspecting China-based audits, kicking off a monthslong process that will determine whether companies from Alibaba Group Holding Ltd. to Yum China Holdings Inc. can remain listed on American stock exchanges.

The inspection, which is set to last eight to 10 weeks in Hong Kong, would allow the U.S. audit watchdog to decide by the end of this year whether China is honoring a landmark agreement to give U.S. accounting inspectors full access to audit working papers of New York-listed Chinese companies.

   
 
 

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.

   
 
 

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.

   
 
 

Iran Restricts Internet Access as Women's Rights Protests Spread

Iran restricted access to the Internet in large parts of the country on Thursday as authorities try to curb a women's rights protest movement that has relied on social media to express dissent and rally support, while the U.S. imposed sanctions on Iran's morality police.

The death of 22-year-old Mahsa Amini late last week in police custody for allegedly violating Iran's strict Islamic dress code has sparked demonstrations across the country. Protesters have clashed violently with security forces who used tear gas and fired live ammunition.

   
 
 

Tesla Countersues California Agency That Filed Racial Discrimination Lawsuit

Tesla Inc. has countersued the California agency that filed a racial discrimination lawsuit against the company, alleging that the government organization violated state law in bringing about the suit.

The electric-vehicle maker, in the suit filed Thursday in Alameda County Superior Court, said the California Civil Rights Department-previously known as the California Department of Fair Employment and Housing-violated state rules by filing the lawsuit without seeking public comment or holding a public hearing.

   
 
 

Write to hoishan.chan@dowjones.com

   
 
 

Expected Major Events for Friday

04:30/NED: 2Q GDP - 2nd estimate

06:00/EU: Aug New Commercial Vehicle Registrations in Europe statistics (EU27 + EFTA3)

06:00/NOR: Aug Credit Indicator C2

07:00/SWI: 2Q Balance of Payments

07:00/SPN: 2Q Final GDP

07:15/FRA: Sep France Flash PMI

07:30/GER: Sep Germany Flash PMI

08:00/EU: Sep Eurozone Flash PMI

08:00/POL: Aug Unemployment

08:30/UK: Sep Flash UK PMI

09:00/MLT: Aug Registered Unemployed

09:00/LUX: Jul Trade

10:00/UK: Sep CBI Distributive Trades Survey

10:00/IRL: Aug WPI

15:59/UKR: 2Q Unemployment

16:59/SPN: 2Q Quarterly Balance of Payments

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

 

(END) Dow Jones Newswires

September 23, 2022 00:16 ET (04:16 GMT)

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