MARKET WRAPS

Stocks:

European stocks struggled for momentum on Friday, as concerns remained about consumer sentiment and economic growth, with investors clinging to hopes that central banks will turn towards less aggressive rate hikes.

Trading volumes were lighter again, with a shortened session on Wall Street as Black Friday shopping swings into focus.

Stocks to Watch

Lloyds Banking's better cost control and asset quality compared with peers is expected to be rewarded by the market, RBC Capital Markets said.

As deposit betas--the rates that banks have to pass onto their customers--are likely to start increasing, LLoyds should be able to keep betas lower for longer given its better digital banking and branch offering, RBC add.

"We prefer banks like Lloyds Banking that have prioritized absolute cost control over jaws progression," RBC said.

It has upgraded its rating on the stock to outperform from underperform and raised the price target to 57 pence from 44 pence.

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The U.K. retail sector is braced for a challenging Christmas period as consumer confidence is at record lows and budget pressure is unlikely to ease, CMC Markets said.

"There will be many consumers forgoing high ticket food items and prioritizing basic food items over turkeys, stuffing, Christmas puddings and all of the other trimmings", CMC said.

Another important factor will be where they buy from, which could potentially benefit seasonal sales at Tesco and Sainsbury's, given that consumers of premium supermarkets such as Marks & Spencer may switch to budget retailers and discounters.

Economic Insight

A core eurozone HICP reading of 0.4% month-on-month and 5.4% year-on-year in November would be high enough for the European Central Bank's "hawks" to make a strong case for another 75 basis point interest rate rise in December, SEB said.

However, a m/m 0.1% or below print "would be an indication that the pace of price changes has slowed down and would probably be too low for hawks to make a serious attempt for 75bps," SEB said.

"Given our November core HICP forecast of 0.1% [m/m], 5.1% y/y, we think that the current market pricing with a 60% probability for 50bps vs. 40% for 75bps correctly reflects the slightly higher odds for a smaller rate hike."

U.S. Markets:

Stock futures were indicating a slightly higher start with attention expected to focus on the start of the holiday shopping season and whether consumer resilience is holding up.

There is no data planned for Friday, which will mark a shortened session for Wall Street, but investors are facing a busy week ahead, with a large batch of data including third-quarter gross domestic product, the Fed's favored inflation gauge, the PCE price index, home prices, manufacturing updates and November payrolls data.

The post-Thanksgiving trading day also kicks off the start of annual holiday shopping, which could put shares of Amazon.com, Walmart and Target, among others, in focus.

Forex:

The dollar "remains sluggish" though moves are likely to be limited as trade remains quiet with a long weekend in the U.S., UniCredit Research said.

"Range-bound activity is...likely to prevail again today given the very light daily agenda."

Investors could be "taking a breather" following the rally in the euro against the dollar in recent days while the U.S. holiday "might also be calling for some position paring."

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Commerzbank said monetary policy has turned into a supportive factor for the euro but that doesn't mean the currency will appreciate considerably.

With recent data suggesting a eurozone recession won't be as bad as previously feared, concerns that the ECB might not raise interest rates sufficiently in view of economic risks are likely to ease, Commerzbank said.

"However, we urge caution against excessive EUR euphoria as the risk of an energy crisis has not yet been overcome. As a result, a limited risk premium seems justified."

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Investor position adjustments have played a key role in sterling's recent recovery but further gains may be limited, ING said, adding that GBP/USD could see some further temporary appreciation to 1.22-1.23 but these would be the best levels before year-end.

"Equally, EUR/GBP has good support in the 0.8550/0.8600 area, and given our view of a difficult risk environment into year-end and early 2023 as central banks raise rates into recessions, sterling should remain vulnerable."

Read UK Seeking Swiss-Style Ties With EU Wouldn't Necessarily Support Pound

Bonds:

Commerzbank has forecast 10-year German Bund yields to reach levels close to 2.5% again in the first quarter of 2023 which should be used to scale into long-duration positions. Thereafter, yields should ease to 1.70% by the end of next year.

The 10-year German Bund yield hit 2.5% in October, now it trades at 1.873%, up about 3 basis points, according to Tradeweb.

Commerzbank expects Treasurys to outperform throughout next year, with the 10-year UST-Bund spread falling to 130 basis points. The 10-year UST-Bund spread was last at 180bps, according to Tradeweb.

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Amundi Asset Management said the revival of portfolio allocation of 60% in stocks and 40% in bonds is expected in 2023.

"As bonds regain diversification qualities after the surge in yields in 2022 and looming recession risks next year, a revival of the 60-40 portfolio allocation is in sight," it said.

The asset manager sees the outlook for Treasurys as well as European core and peripheral government bonds as "improving" in the first half of 2023. Amundi also sees "improving" outlook for U.S. and euro investment-grade and high-yield corporate bonds.

Read There Is Value Investing in Short End of Bond Curves

Read Investors to Face Heavy Gross and Net Government Bond Issuance in Eurozone in 2023

Energy:

Crude futures moved higher as traders waited for an EU price cap signal on Russian oil.

If the cap is set too high then Russian revenues and oil flows are unlikely to be affected, SPI Asset Management said, but a low price cap could create conditions for retaliation.

"In the meantime, an assumed cap of $65-70 a barrel continues to ease fears around Russian supply disruption, while rising Covid cases in China remain the interday rally capper," SPI said.

Coal

An improvement in Chinese steel profitability is helping demand for coking coal, according to Macquarie.

"Steel margins in China improved last week, driven by an increase in steel prices and continued steel-mill production cuts. Chinese steel mills also lifted their coke and coking coal inventory levels for winter, " Macquarie said.

The daily average price paid for Chinese imports of hard coking coal rose to $266/metric ton on Thursday, from $261/ton the day prior and $255/ton at the end of last week, according to S&P Global Commodity Insights.

Metals:

Base metals and gold were firmer in early London trading following a positive Asian session, with Marex highlighting news that six Chinese banks had issued fresh funding for developers within the property sector--something that generally boosts metals demand.

DOW JONES NEWSPLUS


EMEA HEADLINES

German Consumer Sentiment Set to Continue Its Recovery in December

Consumer confidence in Germany is set to continue to stabilize in December, although remaining at a very low level.

Market research group GfK's forward-looking consumer-sentiment index forecasts confidence rising to minus 40.2 in December from minus 41.9 in November. Economists polled by The Wall Street Journal forecast a reading of minus 40.0.


SSE PLC to Sell 25% Stake in SSEN Transmission for GBP1.47 Bln

SSE PLC said Friday that it will sell a 25% stake in its electricity transmission network business SSEN Transmission to Ontario Teachers' Pension Plan Board for 1.47 billion pounds ($1.78 billion).

The London-listed energy company said the sale of the stake--which operates under its licensed entity, Scottish Hydro Electric Transmission PLC--will help unlock significant growth in both the transmission business and across the wider group, and is expected to complete shortly.


Gucci's Next Revamp Needs a More Classic Look

Parting ways with Gucci's designer was an inevitable decision for Kering, the luxury group that owns the brand. Finding a suitable successor will be much harder.

The Italian brand's creative director, Alessandro Michele, is stepping down immediately, Kering said this week, and no one is lined up yet for his job. From his first runway show in early 2015, Mr. Michele more than doubled Gucci's sales and tripled operating profit in what is considered one of the most successful luxury-brand makeovers in decades. However, the brand has looked wobbly since 2020 as his designs became less popular.


Adidas to Probe Misconduct Allegations Against Kanye West

Adidas AG has launched an investigation into allegedly inappropriate behavior by Kanye West while the sportswear giant was working with the musician to develop and sell their Yeezy sneaker line.

The company said Thursday that it would start the probe after receiving an anonymous letter. The letter alleged years of misconduct in the workplace by Mr. West, who goes by Ye, and that Adidas management turned a blind eye to his conduct.


Russia Expands Shelling of Kherson, as Power Shortages Drag On in Kyiv

KHERSON, Ukraine-Russian forces stepped up their shelling of the southern city of Kherson, killing seven people and injuring at least 21 others in the latest round of strikes, according to local officials.

Two weeks have passed since Russian troops retreated from Kherson, and residents-though still joyous at their liberation from Russian occupation-are confronting a new set of challenges. The city, like much of Ukraine, remains without electricity, heat or running water. Cell signal is weak. Tents offering heat, water and internet access have been set up around the city.


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11-25-22 0612ET