MARKET WRAPS
Watch For:
Eurozone GDP, employment; Germany industrial production index;
France trade, balance of payments; Italy retail sales; UK Halifax
house price index, narrow money; trading updates from Siemens, IAG,
Finnair, SAS
Opening Call:
Shares look poised for a mixed open, as Fed rate fears persist.
In Asia, stock benchmarks largely fell; Treasury yields and oil
futures were mixed; while the dollar and gold eked out slight
gains.
Equities:
Stock futures point to a mixed open for European indexes at
Wednesday's open, as investors continue to weigh fears about the
outlook for interest rates against optimism surrounding China's
reopening.
U.S. economic data has tended to beat expectations, a strength
that could exacerbate inflation and, in turn, prompt Federal
Reserve officials to raise interest rates to higher-than-expected
levels and keep them there for longer.
"The economy continues to show a degree of strength that I think
was not expected," said David Donabedian, chief investment officer
at CIBC Private Wealth US.
"The consumer is hanging in there quite well, jobs continue to
be added, wage growth is significant and consumers are still
spending."
Some investors still stress patience regarding when the Fed's
aggressive rate increases are going to start affecting closely
watched jobs data.
"When you look at what the Fed's trying to do, everyone talks
about the lag," said Stephanie Lang, chief investment officer at
Homrich Berg. "Even though they've been hiking for a while, we are
just getting to the point where it's going to really impact the
broader economy."
Adding to worries that the Fed will keep lifting interest rates
to control price increases and eventually trigger a recession,
investors also heard some downbeat economic warnings from top
executives at some of the Wall Street's largest banks.
JPMorgan Chase CEO Jamie Dimon on Tuesday warned that stubbornly
high inflation could trigger an economic recession next year as
steep prices cause consumer spending to dry up.
"Rates are now on their way to 5%. When you're looking forward,
those things very well might derail the economy and cause this mild
to hard recession people are talking about ... so that may erode
the economy," Dimon said in a CNBC interview.
Goldman Sachs's David Solomon also said Tuesday that he expects
a recession in the coming months, while the markets will have some
bumpy times ahead and smaller bonuses and even potential job cuts
should come as no surprise.
Read: Jamie Dimon Sounds Alarm About a Recession Again. This
Metric Confirms His Fears.
Forex:
The dollar strengthened slightly in Asia. Foreign-exchange
markets have been a bit muted since the start of December, Silicon
Valley Bank said.
"A lot of traders are waiting for news out of the FOMC next
week. Everyone is sitting on their hands."
Silicon Valley Bank said the dollar's recent decline makes sense
- "the dollar has had a nice run this year, the Fed has been
aggressive about rate hikes and the expectation is that the FOMC
may slow down from here."
Bonds:
Treasury yields were mixed early Wednesday, after falling
overnight as the likelihood of further interest-rate increases by
the Fed collided with fears of a U.S. slowdown.
Tuesday's drop in yields was a "textbook" example of "slowdown
fear repricing as the Fed prepares to push policy rates up and
terminal estimates higher, even as the headwinds facing the economy
build," said BMO Capital Markets.
"The market is realizing that the labor market's strength is the
biggest hurdle to a Fed pause or pivot because employment is a
barrier to lower inflation," said Ryan Belanger, founder and
managing principal of Claro Advisors.
Investors appear to be "repricing November's optimism, which was
fueled by hopes that the Fed would be willing to pause its pace of
rate hikes." The fed-funds rate "is likely to reach close to 6%
over the next year and it may be decades before we see 0% interest
rates again," Belanger said.
"The Fed has been crystal clear on its intentions to slow the
economy in order to cool inflation and it's unwise to fight the Fed
at this point."
Energy:
Crude-oil futures were mixed early Wednesday amid an uncertain
outlook.
While there has been recent optimism over China further easing
its Covid restrictions, refiners have been cutting output this
month due to fears that demand is dwindling, ANZ said.
Fears of weaker global economic growth could also weigh, ANZ
added.
Metals:
Gold prices rose slightly in Asia. Prices for the precious metal
are holding up despite the risk-off mood on Wall Street on
recession fears, which is driving a move back to safe havens, said
Oanda.
"The direction of yields and the U.S. dollar is likely to remain
the key driver for gold prices, with next week's [Federal Reserve]
meeting the key catalyst when it comes to the next move in prices,"
said CMC Markets UK.
-
Copper prices fell slightly, pulling back from a strong rally in
recent days, amid a broad downturn in global commodities.
Investors are likely taking time to "re-evaluate the
macroeconomic backdrop following recent strong gains across the
commodities complex," ANZ said.
"The specter of tighter monetary policy" has likely further
weighed on risk-taking sentiment.
While copper has gained substantial ground on the back of demand
optimism from an expected China reopening, ANZ pointed to a slowing
global economy and signs of excessive supply in the physical market
for the metal.
-
Chinese iron ore futures rose, extending a strong upturn seen in
recent weeks. Gains are likely driven by increasing investor
confidence in China's real-estate sector, a main source of demand
for steel and iron ore, Galaxy Futures said.
Buying interest is likely to remain high on Chinese officials'
continued rescue measures for the property market, Galaxy Futures
said. Supply-side dynamics also look favorable, with low iron ore
inventories and expectations of tight supply supporting prices.
TODAY'S TOP HEADLINES
China November Exports Fall; Trade Surplus Narrows
BEIJING-China's exports fell for a second consecutive month in
November, weighed down by weakening global demand, official data
showed Wednesday.
Outbound shipments declined 8.7% on year in November, compared
with a 0.3% year-over-year decline recorded in October, according
to the General Administration of Customs. The decline was much
steeper than the 2% fall expected by economists polled by The Wall
Street Journal.
Goldman CEO David Solomon Prepares for a Possible Recession
Goldman Sachs Group Inc. Chief Executive David Solomon signaled
Tuesday that the firm will likely have to trim its operations as it
deals with a slowing economy.
Mr. Solomon, speaking at The Wall Street Journal's CEO Council
Summit, said the idea shouldn't come as a surprise given how
closely the firm's growth is correlated to the global economy. He
also noted that the banking industry hired aggressively during the
pandemic deal making boom of 2020 and 2021.
U.S. Watchdog Sanctions KPMG Firms, Audit Professionals
The U.S. audit watchdog sanctioned three firms and four audit
professionals from KPMG's global network for alleged misconduct
such as failing to cooperate with an inspection and cheating on
training exams.
The Public Company Accounting Oversight Board on Tuesday said it
reached settlements on seven disciplinary orders sanctioning the
firms and individuals for violations of professional auditing
standards, quality control standards and PCAOB rules. Along with
the fines totaling $7.7 million, the sanctions include barring or
suspending the four named auditors from auditing public companies
and requiring the three member firms-KPMG U.K., KPMG Colombia and
KPMG India-to review quality control policies and procedures and
improve them as necessary, the PCAOB said.
Oil Prices and Energy Stocks Are Headed in Different Directions.
What Gives?
Oil is sitting out Wall Street's year-end rally.
While recent hopes that inflation has peaked sparked sharp gains
in stocks and bonds, oil prices have floundered amid worries about
slowing global growth eating into demand for fuel. The prospect
that tightening by the Federal Reserve could ripple across
commodity markets helped pull U.S. crude futures Tuesday to their
lowest price of the year.
Airbus Warns It Will Miss Full-Year Delivery Target
LONDON-Airbus SE, the world's biggest plane maker, said it would
likely miss its key delivery target this year after the company's
chief executive warned that supply-chain woes were still at least
six months away from normalizing.
The European manufacturer said on Tuesday that due to a "complex
operating environment," Airbus's previously forecast goal of
achieving around 700 deliveries this year is now "out of
reach."
Exiled Russian TV Channel Loses License in Latvia
The Latvian government suspended the license Tuesday of a
Russian opposition television channel operating from its soil,
calling it a security risk after one of its presenters made a
clumsy show of support for Russian servicemen who had been
mobilized to fight in Ukraine.
The chief editor of the channel, TV Rain, called the Latvian
government's decision "absurd and having nothing to do with common
sense." The presenter, who was fired from the channel, offered an
apology and said his words were taken out of context. The channel,
staffed by journalists who fled Russia, is now looking for a new
country to base its operations.
Elon Musk's Release of Documents Triggers Twitter Lawyer Jim
Baker's Exit
Elon Musk said one of Twitter Inc.'s top lawyers "was exited,"
part of the fallout from the billionaire's unusual efforts to
release internal communications to criticize prior practices at the
company he bought almost six weeks ago.
Mr. Musk announced in a tweet Tuesday the departure of Deputy
General Counsel Jim Baker, who had been with the company since
2020. Since completing the $44 billion acquisition, Mr. Musk has
fired several company leaders, including Mr. Baker's immediate
boss.
TikTok National-Security Deal Faces More Delays as Worry Grows
Over Risks
WASHINGTON-A potential deal between the Biden administration and
TikTok-once expected around year-end-has run into more delays,
according to people familiar with the situation, as worry grows
over national-security concerns that U.S. officials say the popular
app poses.
The review has dragged on amid a range of concerns, including
how TikTok might share information related to the algorithm it uses
to determine what videos to show users, and the level of trust
Washington would need to place in the company, these people said.
U.S. officials haven't returned to TikTok with additional demands
to address the recent concerns, some of the people said, leaving
the path forward unclear.
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Expected Major Events for Wednesday
06:45/SWI: Nov Unemployment
07:00/NOR: 3Q Balance of Payments
07:00/SWE: Oct New orders & deliveries in industry
07:00/SWE: Oct Industrial Production Index
07:00/GER: Oct Industrial Production Index
07:00/NOR: Oct Industrial Production Index
07:00/ROM: 3Q GDP
07:00/UK: Nov Halifax House Price Index
07:00/FIN: Oct Foreign trade
07:45/FRA: Oct Foreign trade
07:45/FRA: Oct Balance of Payments
08:00/HUN: Oct Preliminary Industrial Production
08:00/SWI: Nov SNB foreign currency reserves
08:00/CZE: Oct Industry, Construction
08:00/CZE: Oct External trade
08:00/AUT: Sep Foreign Trade
09:00/ITA: Oct Retail Sales
09:00/BUL: 3Q GDP - preliminary data
09:00/ICE: Nov External trade, preliminary figures
09:30/UK: Nov Narrow money (Notes & Coin) and reserve
balances
10:00/GRE: 3Q Provisional GDP
10:00/EU: 3Q GDP and Main Aggregates Estimate
10:00/EU: 3Q Employment
10:00/LUX: Nov CPI
10:00/CRO: Nov PPI
10:00/LUX: 3Q GDP
11:00/IRL: Oct Industrial Production and Turnover
16:59/POL: Polish interest rate decision
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(END) Dow Jones Newswires
December 07, 2022 00:15 ET (05:15 GMT)
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