MARKET WRAPS

Stocks:

European shares extended their run of losses on Friday, as worries over persistently high inflation and central banks' moves to tighten financial conditions in response have spurred fears of a possible global recession.

"A week dominated by further aggressive monetary tightening around the world has left equity markets bruised on a deteriorating outlook," Richard Hunter, Head of Markets at Interactive Investor, said.

Read: UK Government Outlines Tax Cuts in Bid to Spark Growth -- WSJ

Stocks to Watch:

Volkswagen is reviewing options such as shifting production from countries most reliant on Russian gas, like Germany, if gas shortages continue beyond winter, Bloomberg reported.

The car maker's sites in southern Europe which source energy from elsewhere could be beneficiaries of a production shift, according to Bloomberg.

Still, Volkswagen would face significant labor hurdles with any shift away from Germany and such a move would likely be limited to a number of vehicles rather than entire factories, Bloomberg reported.

U.S. Markets:

Stock futures fell as investors digested a week jam-packed with central-bank decisions. The three major U.S. indexes are on track for their fourth consecutive day of declines.

Meantime, a run-up in Treasury yields paused. The 10-year Treasury yield fell to 3.685% from 3.705% a day earlier, which marked its highest close since February 2011.

Forex:

EUR/USD fell to its lowest since 2002 early in the European session and Danske Bank expects it to drop to 0.95 in 12 months due to a weak eurozone economy and broad dollar strength.

It said the forecast reflects "a combination of a substantial negative terms-of-trade shock to Europe vs U.S., the coordinated tightening of global financial conditions, broadening dollar strength and downside risk to euro area economic growth."

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The pound weakened to its lowest level since 1985 and is vulnerable to further falls, with any bounce from the announcement of a large fiscal stimulus package--including caps on U.K. energy bills and tax cuts--due on Friday unlikely to be sustained, MUFG Bank said.

"A combination of fiscal expansion and tighter monetary policy is currency positive. However, for the pound, that fiscal expansion does not look sustainable while the BOE's tightening lags behind half of the G10 central banks despite the U.K. having the highest inflation across G10."

Bonds:

Investors' positioning in eurozone peripheral bonds look to be broadly balanced ahead of Sunday's Italian elections, without notable long or short positions, thus a surprise outcome could potentially stoke meaningful spread moves, Barclays said.

"We see potential for modest Italian spread widening if the centre-right coalition secures a supermajority, or if a new right-wing government is formed without the comparatively centrist Forza Italia party," Barclays said.

The unlikely scenario of a centre-left government being formed would catalyse a notable BTP-Bund spread tightening. Similarly, a centre-right government with a more "neutral" leader than Giorgia Meloni could also encourage spread tightening.

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The 2-year/10-year segment of the German yield curve is on track to invert with upward pressure on short-end yields and downward pressure on long-end yields, DZ Bank said.

While the European Central Bank appears determined to tighten the monetary policy and raise interest rates sooner than later by frontloading its moves, the economic outlook for the eurozone continues to deteriorate, DZ Bank added.

"Against this backdrop, interest rate expectations at the short end are soaring, while recession fears are weighing on the long end of the curve." DZ expects the 2-year/10-year Bund curve spread to tighten to minus 80 basis points over the coming three months. The spread is currently below 14bps.

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Societe Generale said higher yields will start attracting investors to bonds, "as economies are slowing down, geopolitics remain tense and risky assets are shaky."

As the ECB is determined to tame inflation and front-load interest-rate rises, Societe Generale expects it to continue to raise interest rates in the first half of 2023. This implies that Bund yields shouldn't peak yet and have room to overshoot above 2%

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The good news for bond investors is that the bear market has banished negative yielding debt, put income back into fixed income and created pockets of value in credit but the bad news is that inflation hasn't been tamed and central banks aren't done with raising rates, BlueBay Asset Management said.

The challenge for investors is to exploit opportunities from divergence and dispersion across global fixed income as well as the pockets of outright value in credit, it said.

Energy:

Oil prices extended losses and were on course for their fourth consecutive weekly decline.

Oil has continued its steady retreat, confounding analysts' forecasts that prices would rise. For now, concerns about demand are outweighing expectations of possible additional supply cuts from OPEC and a European Union ban on Russian oil imports which could constrain global supplies.

"The outlook is highly uncertain," Fitch said, "bearish demand-side drivers overtaking bullish supply-side ones."

Metals:

Base metals suffered broad losses as risk appetite continued to wane after a wave of central banks lifted interest rates this week.

"The slew of central banks tightening monetary policy raises the risk of weaker economic growth," ANZ said.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Credit Suisse Shares Drop After Report of Fresh Capital Raise

Credit Suisse Group AG shares fell sharply in early Friday trading after a media report said that the Swiss bank is considering another capital raise as it looks to move on from recent scandals and financial losses.

At 0815 GMT, shares traded down 7.1% to CHF4.31.

   
 
 

Airbus Shares Rise After Management Backs Production, Dividend Goals

Shares in Airbus SE traded higher Friday after the plane maker backed its delivery targets despite the challenges it faces in its supply chain, and said it was committed to growing shareholder returns.

At 0833 GMT, shares traded 3.3% higher at EUR95.39.

   
 
 

Eurozone Flash PMIs Point to GDP Contraction in 3Q

The Eurozone economic downturn deepened in September with business activity contracting for a third consecutive month, S&P Global said.

The eurozone composite purchasing managers index fell to 48.2 in September from 48.9 in August, according to the preliminary reading. This is in line with the forecast of economists polled by The Wall Street Journal.

   
 
 

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.

   
 
 

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.

   
 
 

Investec Expects to Post Higher 1H Adjusted Operating Profit on Diversified Revenue Streams

Investec PLC said Friday that it expects to post a rise in adjusted operating profit for the first half of its fiscal 2023 as a result of diversified revenue streams.

The international banking and wealth-management group said adjusted operating profit for the six months ending Sept. 30 is expected to be between 372.6 million and 406.2 million pounds ($419.3 million-$457.1 million). This compares with GBP325.7 million for the prior year.

   
 
 

Facing Russian Mobilization, Ukraine Holds Steady to Maintain Momentum

After seven months of war, Ukraine now faces Russian President Vladimir Putin's plans to mobilize more than a quarter of a million men for his invasion, in what the Kremlin hopes will be a display of the massive human resources available to it.

Kyiv's response: Keep calm and continue tactics that have proven to work.

   
 
 

Sweden Tests Cyber Defenses as War and NATO Bid Raise Security Risks

Cyber exercises this week in Sweden simulating attacks on internet infrastructure are key to enhancing defenses as the country prepares to join NATO amid the war in Ukraine, organizers said.

The Swedish Defense Research Agency, which is connected to Sweden's Defense Ministry, is targeted with cyberattacks whenever Sweden says it will provide equipment to Ukraine, or when tensions otherwise rise during the war, said Lena Nyberg, the agency's deputy director general.

   
 
 

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.

   
 
 

Alleged Russian War Crimes in Ukraine Are Focus of U.S., Allies at U.N.

WASHINGTON-Facing Europe's biggest humanitarian crisis in decades, the U.S. and its allies used Thursday's United Nations Security Council special session to condemn Russia for its invasion of Ukraine and call for an investigation into Moscow's alleged war crimes, in the latest step to push back against President Vladmir Putin and Russian aggression.

"We support a range of national and international efforts to collect and examine mounting evidence of war crimes in Ukraine," U.S. Secretary of State Antony Blinken said at the meeting. "We must hold these perpetrators to account."

   
 
 
   
 
 

GLOBAL NEWS

Hong Kong Ends Hotel Quarantine Requirement for Travelers

Hong Kong is ending its controversial hotel quarantine policy for travelers, as pressure builds on the city to ease Covid-19 restrictions to shore up its economy and defend its longtime position as a global business capital.

John Lee, Hong Kong's chief executive, said arrivals starting Sept. 26 will no longer need to isolate in a hotel, dropping a previous requirement for a three-day quarantine. Travelers' ability to move around the city will be restricted during a self-monitoring period of three days, down from four currently. A requirement for a preflight PCR test will be dropped in favor of a preflight rapid test.

   
 
 

Russians Fear a Wider Call-Up After Putin Orders Reservists to Mobilize

MOSCOW-Russians began reporting to military collection points in the thousands while others tried to flee the country as it emerged that the call-up for troops to fight in President Vladimir Putin's war in Ukraine could be wider than initially thought.

Road traffic surged at border points leading out of Russia on Thursday, according to local media reports, and airline tickets are now sold out for days after Mr. Putin announced the call-up on Wednesday. At least four Russian regions announced that they had barred exit for men without the approval of their local military recruitment offices.

   
 
 

Covid-19 Unemployment Fraud May Have Topped $45 Billion, Watchdog Estimates

Criminals potentially stole an estimated $45.6 billion by making fraudulent unemployment insurance claims meant for people laid off during the Covid-19 pandemic, a government watchdog said.

The new tally is nearly three times last summer's estimate of over $16 billion in fraudulent payments.

   
 
 

Write to paul.larkins@dowjones.com

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(END) Dow Jones Newswires

September 23, 2022 05:50 ET (09:50 GMT)

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