MARKET WRAPS
Watch For:
France IMF Article IV Annual Economic Review; Germany PPI; trading updates from Julius Baer Group, Compass Group
Opening Call:
Shares may be lower at Monday's open. Asian stock benchmarks declined; U.S. bond yields slipped; the dollar strengthened; oil and gold fell.
Equities:
Stock futures are seen opening lower in Europe, as worries over recession risk and rising Covid cases in China persist.
U.S. stocks rose Friday, capping a tumultuous week with investors assessing the outlook for interest rates.
With the housing market in a steepening slowdown and goods spending "contracting a bit," Jim Baird, chief investment officer of Plante Moran Financial Advisors, said that he'll be watching for signs of weakening in the services sector.
"That's where the rubber will meet the road next year, if we see continued deterioration there," he said. That's when the economy would probably tip into a recession, "if we get there."
Meanwhile, high inflation remains a "challenge" and risks of a recession in 2023 have risen, said Baird. "It's hard to paint an overly optimistic picture for equities in the near term."
Forex:
The U.S. dollar gained in Asia.
The dollar recouped some ground on Friday as Treasury yields stabilized and the rally in risky assets stalled, Capital Economics said.
"Fed officials have pushed back against renewed hopes of an imminent policy pivot," it said.
November FOMC minutes Wednesday will provide the next test for the pivot narrative, it said, and recently lower Treasury yields and U.S. dollar could rebound if the minutes are in line with recent hawkish language from FOMC members.
Bonds:
U.S. bond yields declined early Monday.
Treasury yields jumped on Friday, sending the 2-year rate to a one-week high, after Boston Fed President Susan Collins put another aggressive 75-basis-point rate hike on the table for December's policy meeting.
The 2-year yield also finished the week higher, while the 10- and 30-year rates had weekly declines.
"The Fed is united in sticking to the hawkish script. Fed's Collins noted that a 75 basis-point rate increase is still on the table as there is no clear evidence that inflation is coming down.
Despite this week's steady hawkish tones from policy makers, Wall Street remains convinced that they will pivot and probably cut rates at some point around the end of next year," Oanda said.
Read: Outlook for junk bonds gets cloudier as U.S. recession risks loom
Energy:
Crude oil futures fell amid China's demand concerns.
The near-term outlook for oil seems to have worsened, NAB said, noting uncertainty around China's demand given surging Covid-19 cases.
Analysts continue to cite low vaccination rates among the elderly as being a big hurdle to China's reopening, it added.
"The market will no doubt be focusing its attention on OPEC+ supply in the next few weeks, as it remains to be seen how much daily output will actually decline after the official announcement of a 2-million-barrel reduction," said Commerzbank commodities research.
"It is still unclear what impact the upcoming European Union embargo and the price cap that is to be set in the next few days will have on Russian supply," it said.
"We continue to think selling volatility in crude oil is an appealing strategy, and recommend risk-taking investors to add long positions in longer-dated Brent oil contracts, which we think have underpriced the potential for energy prices to stay higher for longer," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
"We think the oil market will tighten further as OPEC+ is scaling back its production and the EU's ban on Russian crude will weigh on Russian oil production," he added.
Metals:
Gold prices fell in Asia, and could be weighed by fears over the hawkish Fed monetary-policy stance, analysts said.
Several Fed officials continue to push back on the notion that they may soon be ready to pause the U.S. central bank's tightening cycle, Oanda said.
The path of least resistance for gold appears to be lower, Oanda added.
"Gold glittered slightly (on Friday morning) as the dollar weakened, clawing back some the previous sessions losses amid hawkish comments on rates from Fed officials," FXTM said.
"Nevertheless, gold bulls remain in a position of power as signs of easing inflationary pressures in the United States reduce the pressure for the Fed to raise rates aggressively. In the week ahead, gold is likely to draw fresh strength from a weaker dollar and subdued Treasury yields, in addition to numerous speeches from Fed members," it said.
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Base metals prices weakened in Asia, as hopes for a pivot from China's zero-Covid strategy faded amid a rising number of cases, ANZ analysts said.
However, there could be a brighter outlook for base metals next year as property-support measures announced by Beijing start to take effect and construction projects resume, ANZ said.
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Chinese iron-ore futures fell, as a rally since the start of this month lost steam amid elevated Covid-19 cases in the country.
Prices of the raw material were boosted by stronger demand expectations driven by policy support, but analysts said current demand still appeared sluggish.
Steel production was showing signs of weakness, and steel mills' profitability has limited upside ahead of the off-season, China Futures said.
TODAY'S TOP HEADLINES
China's Central Bank Keeps Benchmark Lending Rates Unchanged
China's central bank kept benchmark loan rates unchanged this month, amid continued downward pressure on the yuan and slowing economic growth.
The one-year loan prime rate stood at 3.65% while the five-year rate was 4.3%, both unchanged from last month, the People's Bank of China said in the statement Monday.
China Consumer Spending Slumps Under Covid and Property Restrictions
HONG KONG-Chinese consumer spending is buckling under the country's dual campaigns against rising property prices and Covid-19 outbreaks, flashing a warning for global companies that have pinned their hopes on a more free-spending Chinese customer.
Retail sales unexpectedly dropped last month and are expected to continue to struggle as Chinese authorities launch wide-ranging lockdowns to contain the latest fastest-spreading Covid outbreaks, and as easing measures do little to reverse a worsening property market meltdown.
Race to Secure Gas for Europe's Future Winters Has Already Begun
Though Europe has filled its reserves of natural gas for this winter, the clock is already ticking to secure energy for the coming years, which are expected to remain dogged by threats of severe shortages,
The European Union's gas storage is around 95% full, and many analysts say the continent might avoid an energy calamity this winter. But procuring gas for coming winters is widely anticipated to become more difficult for European countries now that they are mostly cut off from Russian supplies and global competition is growing for finite cargoes of liquefied natural gas.
U.S.-Europe Trade Booms as Old Allies Draw Closer
FRANKFURT-The global economic map is rapidly transforming, with trade and investment between the U.S. and Europe booming as Russia's war in Ukraine and fraying ties between the West and China draw the trans-Atlantic allies closer.
The U.S. has imported more goods from Europe than from China this year, a big shift from the 2010s when China emerged as America's dominant trade partner. From Swiss watches to German machinery and Italian luxury items, money and products are flooding across the Atlantic as never before. This is helping Europe's embattled manufacturers, which are wrestling with skyrocketing energy prices. And it is pushing East Coast ports ahead of their West Coast counterparts in container volumes after years of a U.S. pivot to Asia.
Ukraine's Kherson Win Shifts Dynamics Across Whole Front With Russia
Ukraine's retaking of Kherson is rippling across battle fronts far afield, as Moscow redeploys troops to regain the initiative and Kyiv seeks to expand its recent advantage over invading Russian forces.
Russia's retreat from Kherson, the only regional capital it gained in almost nine months of fighting, was an embarrassing setback, but Moscow appears to have safely withdrawn many of its best troops, enabling them to shift elsewhere, say military analysts.
Walt Disney Names Robert Iger CEO, Replacing Bob Chapek
Walt Disney Co.'s board of directors on Sunday night replaced Chief Executive Bob Chapek with Robert Iger, the company's former chairman and CEO who left the company at the end of last year, according to a company announcement.
"The board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period," said Susan Arnold, chairman of Disney's board, in a statement.
Paramount Won't Support Appeal of Ruling That Blocked Simon & Schuster's Sale to Penguin
Paramount Global has decided not to support an appeal of a recent ruling that blocked the planned $2.18 billion sale of its Simon & Schuster book-publishing unit to rival Penguin Random House, according to people familiar with the situation.
Paramount is expected to announce a decision early this week, the people said.
Celsius Failed to Set Up Controls to Track Customer Funds in Some Accounts, Examiner Says
Bankrupt cryptocurrency firm Celsius Network LLC failed to set up proper accounting and operational controls to ensure that customer funds in certain deposit accounts were set aside from the rest of its crypto holdings, according to an independent examiner appointed in the company's chapter 11 case.
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11-21-22 0016ET
