MARKET WRAPS
Stocks:
European equities made modest gains on Tuesday after the U.K.
Treasury and Bank of England attempted to calm the market turmoil
following last week's U.K. budget statement.
Berenberg said the negative market reaction over the
government's economic growth plan looks overdone.
It said higher deficits justify higher yields and a lower
exchange rate, but the U.K. remains a solid advanced economy,
doesn't have large external liabilities in a foreign currency and
will almost certainly be able repay its debt.
However, the U.K. has damaged its once strong credibility with a
poorly managed Brexit and threats of a U.K.-EU trade war, Berenberg
added.
"Once upon a time, markets may have been excited by the prospect
of the U.K. cutting taxes and deregulating. Today, markets just see
a government...pursuing a last-ditch attempt to try and rescue its
election chances."
Stocks to Watch:
Shares in Porsche are expected to trade higher following its
stock-market listing Thursday thanks to "the appetite for Europe's
largest IPO this year, Porsche-driving retail investors, as well as
Porsche's potential fast-track entry into indices," Bernstein
said.
Parent company Volkswagen set a placement price range for
Porsche's preferred shares of EUR76.50-EUR82.50. While the price
could exceed EUR82.50 if the book-building process is stronger than
expected and the companies agree, "we have to note that the
Porsche-Piech family is paying a 7.5% premium on top of the offer
price and is taking on a significant amount of long-term debt to
pay the bill," Bernstein said.
Economic Insight:
Eurozone inflation will continue its upward trend in September,
partly due to Germany's decision to end cheap public transport
tickets as of Aug. 31, ING said.
"The key will be to see how much [prices in] other categories
have continued to rise."
ING expects eurozone inflation to rise to 9.6% from 9.1% in
August, while economists polled by The Wall Street Journal see
inflation accelerating to 9.7%.
Regarding unemployment data, ING expects the labor market to
have remained very tight with the unemployment rate stable at a
historic low of 6.6% in August. Economists polled by The Wall
Street Journal also see the unemployment rate unchanged. Eurozone
inflation and unemployment data will be published on Friday.
U.S. Markets:
Stock futures were firmer following a five-day losing streak on
Wall Street that saw the Dow tumble into a bear market on Monday
and the S&P 500 hit a new 2022 low.
Following Monday's retreat, investors and analysts said
sentiment continued to be negative as traders worry about the
outlook for interest rates and the possibility that stress from the
second extended period of declines this year will spill over into
unexpected areas.
Forex:
Sterling looks vulnerable after the BOE said it would assess the
impact of new fiscal policy at its next meeting instead of
delivering an emergency interest rate rise as some market
participants expected, ING said.
GBP/USD hit a record low of 1.0349 on Monday following last
week's U.K. mini-budget statement, prompting the BOE to signal it
could take action at its next scheduled meeting in November.
"But six-to-nine weeks is a long time in FX markets," ING said.
"We had felt that the BOE would prefer to avoid getting sucked into
defending the pound with rate hikes."
Pantheon Macroeconomics said the BOE is expected to accelerate
its interest-rate hiking cycle as financial markets have lost
confidence in the U.K.'s macro policy regime.
Raising interest rates to near 6%--the level markets are
currently pricing in--would crush inflation but lead to a sharp
increase in mortgage defaults, Pantheon said.
Hiking more slowly would weigh on sterling and boost imported
inflation, allowing it to stay above target for longer, Pantheon
said. This option is one that the BOE is likely to see as the
lesser of two evils, though a recession is unavoidable as many
households and businesses will cut spending immediately knowing
that higher interest rates and further price increases are in the
pipeline.
---
The Hungarian forint rose ahead of another expected interest
rate rise by the National Bank of Hungary in a policy decision due
at 1200 GMT on Tuesday.
The NBH is likely to raise its benchmark interest rate 75 basis
points to 12.50%, ING said.
NBH officials have recently signalled that the rate-rise cycle
is coming to an end, which could make a 75bp move look aggressive,
ING added.
"Our call for today's NBH decision should mean positive support
for the forint."
Bonds:
Bond yields worldwide stabilized after extending the biggest
gains in seven decades.
The 10-year Treasury yield, along with German and Japanese
bonds, were all little changed. The 10-year gilt yield, which has
skyrocketed since Friday when the new British government announced
a series of big tax cuts, pulled back to 4.052%, down from as high
as 4.282% on Monday.
The pause comes as bonds cope with their first bear market in
more than 70 years, as defined by prices falling 20% from their
recent peak. More than a decade of global bond returns have been
erased for the first time since the 1950s, according to Deutsche
Bank analyst Jim Reid.
Read more here.
Read: Any Pause in Gilt Selling May Be Short-lived
Energy:
Oil futures posted gains of close to 2% as supply concerns keep
prices supported, although Goldman Sachs said the strong dollar and
falling demand expectations "will remain powerful headwinds."
It added, however, that the market's supply tightness should
support prices and help Brent climb higher before the end of the
year.
"The structural bullish supply set-up--due to the lack of
investment, low spare capacity and inventories--has only grown
stronger, inevitably requiring much higher prices."
Metals:
Gold and base metals made steady gains, having sold-off sharply
on Monday, but Peak Trading Research said investors "are nervously
watching interest rates rise and the dollar rip higher."
It added that there is a very bearish macro environment, which
is a big headwind for all commodity markets especially in a light
data week.
---
Liberum said six months ago, "most of the sell-side was bullish"
on commodities. "Most are short-term bears now."
Concerns about the impact of inflation and rising rates on
demand are prompting the shift in forecasts, the Liberum said. It
is among those that holds bearish forecasts for the asset
class.
Although, it highlights that "any shift in the status of three
drivers--Fed policy, China's growth story and Russia's war--can
deliver different demand/price outcomes."
Read: Copper Prices to Remain Weak for Rest of 2022, Says
Fitch
DOW JONES NEWSPLUS
EMEA HEADLINES
Sweden reports leaks on Nord Stream 1, shortly after damage
found on Nord Stream 2
Swedish maritime authorities have warned of two leaks on
Russia's Nord Stream 1 natural gas pipeline in Swedish and Danish
territories, Reuters reports.
The leaks, located northeast of Danish island Bornholm, were
reported shortly after another report of an overnight gas leak from
the non-operational Nord Stream 2 pipeline.
Crédit Agricole Subsidiaries to Settle Alleged Violations of
U.S. Sanctions
Two subsidiaries of French bank Crédit Agricole Group's
corporate and investment banking arm have agreed to pay more than
$1.12 million in civil penalties to settle alleged violations of
U.S. sanctions, the Treasury Department said on Monday.
CA Indosuez Switzerland SA, a Switzerland-based indirect
subsidiary of Crédit Agricole Corporate and Investment Bank, has
agreed to pay $720,258 for allegedly violating sanctions against
Cuba, Iran, Sudan and Syria as well sanctions related to the
annexation of Ukraine's Crimea region, according to the Treasury's
Office of Foreign Assets Control.
United Utilities Sees Lower 1H Revenue Amid Inflation, Higher
Power Prices
United Utilities Group PLC said Tuesday that revenue for both
the first half and the full fiscal year ending March 31 are
expected to be lower on year amid the inflationary environment and
higher power prices.
The company, which provides water and wastewater services in
northwest England, said first-half revenue is expected to be around
1% lower on year due to moderately lower than forecast
consumption.
Biffa Agrees to GBP1.3 Bln Offer by ECP, Lower than Previously
Indicated
Biffa PLC said Tuesday that it has agreed to a 1.3 billion-pound
($1.39 billion) takeover by Bears Bidco Ltd., a new company formed
and controlled by ECP V, LLC, slightly lower than the price
indicated on June 7.
Under the deal, accepting shareholders of the FTSE 250 waste
management group will get 410 pence in cash for each share held.
They will also be able to keep the final dividend of 4.69 pence a
share.
SSE PLC Sees 1H Adjusted Earnings Per Share Rising; Backs
Guidance
SSE PLC said Tuesday that it expects higher adjusted earnings
per share for the first half of the fiscal year, and backed its
full-year guidance.
The Scotland-based energy company expects to report adjusted
earnings per share of at least 40 pence (42.75 U.S. cents) for the
six months ending Sept. 30, significantly up from 10.5 pence a year
earlier.
Ukraine's Zelensky Urges Russians to Keep Protesting
Mobilization Orders
Kyiv reiterated calls for Russian men summoned to fight in
Ukraine to lay down their arms as soon as they arrive in the
country, as protests against mobilization continued in Russia and
authorities there sought to curb an exodus of fighting-age
males.
In a video address late Sunday, Ukrainian President Volodymyr
Zelensky called on Russians to continue protesting against the
draft and urged them to desert or give themselves up to Ukrainian
troops as prisoners of war. Ukraine has pledged to treat Russian
POWs fairly.
Kurds in Iran Face Establishment Fury as Unrest Spreads
Iran's nationwide crackdown on antigovernment protests has been
especially severe against its Kurdish minority, with drone and
artillery strikes against separatist groups and deadly clashes in
Kurdish-dominated cities and towns where the unrest first arose,
residents say.
Iranian authorities have blamed Kurdish activists and
separatists based in neighboring countries for fomenting protests
that erupted in Iran's Kurdish region following the death in police
custody of Mahsa Amini, a 22-year-old Kurd arrested in Tehran for
allegedly violating the country's strict Islamic dress code.
GLOBAL NEWS
Global Bonds Take a Breather Amid Biggest Rout in 70 Years
Bond yields worldwide stabilized Tuesday after extending the
biggest gains in seven decades.
The U.K. 10-year yield, which has skyrocketed since Friday when
the new British government announced a series of big tax cuts,
pulled back to 4.052%, down from as high as 4.282% on Monday. The
U.S. 10-year Treasury yield was little changed at 3.838%. German
and Japanese 10-year bonds also were little changed.
'Financial markets are throwing in the towel': Recession fears
escalate as Fed slams brakes on the economy
The likelihood of sharply higher interest rates has tilted the
odds toward another recession within a year, economists say. Yet
some still hold out hope the U.S. can muddle through with a period
of slow growth instead of outright decline.
In a move widely expected by financial markets, the Federal
Reserve orchestrated another jumbo-size hike in U.S. interest rates
last week. What was unexpected was the central's bank aggressive
forecast for even higher rates in the year ahead.
Senate Democrats Release Text of Proposal to Avert Government
Shutdown
Senate Democrats on Monday night released the text of the
proposal that lawmakers could pass to avoid a government shutdown
after federal funding runs out on Friday.
The 237-page continuing resolution, which was made public
minutes before midnight by the Senate Committee on Appropriations,
would extend current funding levels until Dec. 16.
World Bank Cuts China Growth Forecast as Covid-19, Real-Estate
Crunch Take Toll
SINGAPORE-The World Bank said it expects developing economies in
East Asia to grow faster than China this year for the first time
since 1990, as the world's second-largest economy struggles with a
real-estate crunch and the government's zero-tolerance approach to
Covid-19.
The Washington, D.C.-based lender cut its forecast for Chinese
growth this year but said it expects growth among 22 neighboring
economies to more than double in 2022 compared with the pace they
notched last year, as countries benefit from dismantling most
Covid-19 restrictions and a revival in tourism.
China's Industrial Profits Drop Further
China's industrial profits fell 2.1% in January-August, widening
from the 1.1% drop recorded in the first seven months of the year,
data from the National Bureau of Statistics bureau showed.
The bigger year-over-year decline comes after China reported
improved factory production, which rose 4.2% on year in August
compared with July's 3.8% growth.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
September 27, 2022 05:53 ET (09:53 GMT)
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