North American Morning Briefing: Stocks to Steady After Hawkish Fed

09/22/2022 | 08:52am
Larry Page

MARKET WRAPS

Watch For:

Weekly Jobless Claims; FedEx earnings

Opening Call:

Stock futures rose in the aftermath of the Federal Reserve's latest interest-rate rise.

"It's a stabilization after some wild swings we saw yesterday. There was a lot of selling ahead of the Fed, so a little recovery the next day isn't surprising," said Esty Dwek, chief investment officer at FlowBank.

Read what economists in Europe are saying about the Fed's continued aggressive fight against Inflation.

Overseas, most major markets in Europe and Asia were weaker with the Hang Seng hitting its lowest in more than a decade.

Forex:

The dollar hit multi-year highs against a basket of currencies in European trading after the Fed's rate rise, but more importantly, policymakers projected further significant rises, with nearly all of them forecasting rates to rise to 4%-4.5% by the end of this year.

"Expect the dollar to remain bid on dips as confidence grows that deposit rates for the world's most liquid currency will push above 4% over the coming months," ING said.

MUFG said the dollar is on course to rise further.

"This is frontloading like we have never seen before and gave a very strong signal of the Fed's determination to get to a restrictive level of monetary policy as soon as possible."

Momentum remains "clearly in favour of the dollar" while the S&P 500 stock index is likely to break below the June low "over the coming days or weeks," MUFG said.

The yen jumped after Japan's finance ministry said it had intervened to support the currency. The yen was recently at about 142.2 yen a dollar.

Read more on the intervention here.

The move came after the Bank of Japan on Thursday kept its ultralow interest rates in place, staying away from a global wave of monetary tightening despite rising inflation.

Read more on the BOJ policy decision here.

Bonds:

With recession risks in the U.S. edging higher, Insight Investment has forecast the 10-year Treasury yield at 3.6% in a year's time and expects the yield curve to remain inverted.

The more hawkish the Fed gets, the more market volatility is likely to be elevated, and the risk of a recession ticks higher, it said.

Insight Investment expects the Fed to slow down its pace of interest rate rises into 2023, as rates are now above the Fed's estimate of "neutral," implying that smaller rises will have a bigger impact.

Energy:

Oil futures rose more than 1% in Europe after settling at their lowest level in two weeks on Wednesday, although prices are likely to remain under pressure on fears of even tighter supply ahead of the winter.

TD Securities said there's also been a repricing of Russian risk.

The energy market's narrative is turning back toward structural tightness as the market reprices war risks with the Northern Hemisphere winter looming on the horizon, TD said.

Metals:

Higher recycling rates of copper scrap and secondary material are going to be needed to fulfill demand, according to Inka Guixa, chief executive of Spanish copper company La Farga.

"The challenge for the copper sector is that the amount of copper is increasing and there will be a lot of demand," Guixa said during the Fastmarkets' Copper Conference in Barcelona.

"We need to fulfill that demand, so we have increased capacity. Increasing recovery from end of life will be beneficial for the whole sector, [the question] is just how we do this across the value chain."

Guixa called for further technological developments in recovery rates from copper products at the end of their lives so that more secondary material reenters the market.


TODAY'S TOP HEADLINES


FTC Says Jeff Bezos, Others at Amazon Must Testify in Agency's Probe

WASHINGTON-Amazon.com Inc. founder Jeff Bezos and Chief Executive Andy Jassy can't avoid testifying in an investigation related to the company's Prime membership program, the Federal Trade Commission said late Wednesday.

Amazon last month asked the FTC to cancel subpoenas issued to Messrs. Bezos and Jassy, arguing that they aren't steeped in the details of Prime's sign-up and cancellation processes, which is the investigation's focus. The FTC's staff began the probe in March 2021, examining whether the company deceived customers into signing up for Prime and didn't provide a simple way to cancel the program's recurring charges, according to the order issued Wednesday.


Meta Quietly Reduces Staff in Cost-Cutting Push

Meta Platforms Inc. is planning to cut expenses by at least 10% in the coming months, in part through staff reductions, as the social-media giant confronts stalling growth and increased competition, according to people familiar with the company's plans.

The Menlo Park, Calif., company has begun quietly nudging out a significant number of staffers by reorganizing departments and giving affected employees a limited window to apply for other roles within the company, according to current and former managers familiar with the matter, in a move that achieves staffing cuts while forestalling the mass issuance of pink slips.


Kittyhawk, Google Co-Founder Larry Page's Air Taxi Startup, Is Winding Down

Kittyhawk, a startup backed by Google co-founder Larry Page that was working on developing air taxis, said it is winding down its business.

"We're still working on the details of what's next," the company said Wednesday in a two-sentence post on LinkedIn.


Proton CEO Is Shutting Down India VPN Servers to Protest Cybersecurity Rules

The Swiss company behind well-known virtual-private-network service Proton VPN is pulling its servers from India, the latest provider to do so in response to new government rules that companies and rights groups say threaten users' privacy.

India's agency overseeing computer security will effective Sunday require VPN operators in the country to collect information such as customers' names, email addresses and the IP addresses they use to connect to the internet. The companies must maintain the data for at least five years and furnish it to authorities when asked.


Airbus Backs 2025 Production Target Despite Supply-Chain Snarls

Airbus SE still aims to increase its production rate of narrow-body planes to 75 a month in 2025 despite the difficulties it faces in securing enough engines and other components from its suppliers.

The European plane maker's target for its A320 family of aircraft remains unchanged, and takes into account its assessment of the readiness of its supply chain, a company spokesman said Thursday.


Japan Intervenes in Currency Markets to Support Yen

TOKYO-Japan said Thursday it intervened in currency markets to sell dollars and buy yen, the first such intervention in 24 years, in a bid to stem the recent sharp fall of the currency.

The vice minister of finance, Masato Kanda, confirmed the intervention in brief comments to reporters. He said Tokyo took decisive measures to stem what it earlier described as an unwelcome fall in the yen.


Bank of Japan Maintains Ultralow Interest Rates

TOKYO-The Bank of Japan on Thursday kept its ultralow interest rates in place, staying away from a global wave of monetary tightening despite growing inflation.

The decision confirms a further policy divergence between the U.S. and Japan, adding downward pressure on the yen. The yen fell briefly to a fresh 24-year low of more than 145 against the dollar after the BOJ's announcement. On Wednesday, the Federal Reserve raised interest rates by 0.75 percentage point and signaled additional large increases.


Swiss National Bank Raises Interest Rates by 75 Basis Points

Switzerland's National Bank on Thursday raised interest rates for the second time in as many meetings, catching up with other central banks as the country faces the highest inflation rate in three decades.

The Swiss central bank increased its policy rate by 75 basis points to 0.5%. The move is larger than the one in June, when the bank rose rates by half a percentage point.


Hong Kong's Hang Seng Index on Track for Lowest Close in More Than a Decade

Hong Kong's Hang Seng Index is on course to close at its lowest level in more than a decade, with stocks selling off after the Federal Reserve approved its third consecutive interest-rate rise of 0.75 percentage point and signaled additional large increases were likely.

The index opened 2% lower at 18,080.93, putting it on track to close at its lowest point since late 2011. Rising rates, high inflation, Russia's invasion of Ukraine and various fears around China-including a regulatory crackdown, a property downturn and the country's strict Covid-19 policies-have all caused jitters in the market this year.


South Korean Won Weakens to 13-Year Level After Fed Rate Increase

South Korea's currency weakened to a 13-year low against the U.S. dollar after the Federal Reserve's interest-rate increase and projections spurred a risk-off mood in Asia.

The dollar rose to as high as 1,410.05 against the won during morning Asian trading, the highest intraday level since March 2009, according to FactSet. The dollar was recently 0.7% higher at KRW1,407.98, while the Kospi stock index was down 1.0% at 2323.70. The ICE U.S. Dollar Index was up 0.9% at 111.60.


Europe's Move to Shore Up Its Gas Supply Helped Ease Prices. That Could Provide an Opportunity for Investors.

Natural-gas prices have seen a steep decline from their peak last month, likely providing an opportunity for investors ahead of the winter heating season.

"The market has greater confidence that Europe will have sufficient gas supplies to get through winter without running out of gas," says Rodney Clayton, portfolio manager for the Virtus Duff & Phelps Select MLP and Energy fund (VLPIX).


North Korea Says It Isn't Supplying Russia With Weapons

SEOUL-North Korea denied that it is supplying Russia with weapons or ammunition, a rebuttal of an earlier U.S. claim that the Kim Jong Un regime could provide military supplies to Moscow.

(MORE TO FOLLOW) Dow Jones Newswires

09-22-22 0539ET

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