MARKET WRAPS
Watch For:
Germany GfK Survey; France Consumer Confidence; OPEC World Oil
Outlook launch; Powell, Yellen testify to Senate Banking Committee;
updates from Air France-KLM, TUI, Covestro, Aggreko, Smiths Group,
Ferguson, Petrofac, United Utilities, Pennon, Adyen, Rentokil
Initial
Opening Call:
Worries about inflation, as oil prices continue to rise, will
likely drag on European shares early Tuesday. In Asia, stocks
struggled for direction; the dollar, Treasury yields and oil all
extended gains, while gold edged lower.
Equities:
European shares may struggle for momentum on Tuesday, following
a mixed finish on Wall Street and as concerns about China dragged
on investor optimism in Asia.
Rising Treasury yields and surging energy prices have stoked
inflation worries and Jerome Powell is set to tell Congress at a
hearing on Tuesday, that inflation is likely to stay high in the
coming months before moderating.
In testimony released by the central bank on Monday, Mr. Powell
largely repeated remarks he made at a news conference last week
after the central bank indicated it was likely to begin reversing
its easy-money policies at its next meeting, Nov. 2-3.
A surge in inflation because of supply-chain bottlenecks and
other challenges related to the reopening of the economy has been
larger and longer-lasting than anticipated, Mr. Powell said in his
prepared remarks. "But they will abate, and as they do, inflation
is expected to drop back toward" the Fed's 2% goal, Mr. Powell
said.
Mr. Powell acknowledged that there are risks that price
pressures are higher than anticipated or more enduring. The Fed
would raise interest rates "if sustained higher inflation were to
become a serious concern," he said.
Forex:
Supported by rising Treasury yields, the dollar remained firm
against other major currencies in Asian trade.
"We remain pretty confident that the direction of travel for the
dollar remains upward: there is plenty of headroom for a continued
grind higher in U.S. yields to widen out rate differentials against
low-yielders including the euro," JPMorgan said.
"Meanwhile, given the ongoing growth downgrades, the dollar is
now cheap and under positioned against cyclical models and further
downgrades should more meaningfully drag the dollar higher."
EUR/USD edged lower still in Asia after it dropped 22 pips to
around 1.1698 on Monday, as the dust settles after Germany's
election.
CBA said Germany now heads for many weeks, if not months, of
coalition talks to form a government. Overall, the high likelihood
of a political shift to the left suggests Germany's fiscal stance
could become less of a drag on the economy over the next few years
than is currently projected. This would ultimately benefit the
euro, CBA said.
The pound remained in demand, reflecting some expectations the
Bank of England could raise interest rates as soon as February but
such a move is unlikely until 2023 and the currency's gains may
fizzle out, Rabobank said.
"The U.K. economy will be too fragile for the Bank to hike rates
before 2023," Rabobank forex strategist Jane Foley said, which
means sterling faces headwinds in coming months. Rabobank has a
long-standing year-end forecast of 0.84 for EUR/GBP but this could
prove overly optimistic, Foley said.
The Swedish krona is set to weaken further after the Riksbank
indicated that it is in no rush to tighten monetary policy, Danske
Bank said.
Sweden's central bank last week made it clear that it will err
on the side of caution while the Norges Bank raised interest rates
and the Federal Reserve signalled that it could start unwinding
stimulus soon, analysts at the Danske said.
The export-exposed and risk-sensitive krona also faces a hit
from the global industrial recovery reaching its peak and fading
support from equities. Danske Bank raised its 12-month forecast for
EUR/SEK to 10.50 from 10.40.
Bonds:
The yield on the benchmark 10-year Treasury note topped 1.5% in
Asia, lifted by optimism about the economic outlook and the
prospects of tighter monetary policy.
The 10-year yield "is breaking out to the upside...on rising oil
prices and respectable macro-economic data," Spartan's Peter
Cardillo said. He sees increasing signs of "inflation becoming a
serious threat to the Fed's plans." Cardillo added: "[The Fed] may
be forced to change monetary policy sooner than anticipated."
Adam Crisafulli, founder of market-intelligence firm Vital
Knowledge, said rising yields indicate investors' improving
optimism about global growth, with central banks planning to reduce
the pandemic monetary stimulus. "Bond yields are rising further,
not just in the U.S. but globally, too," Mr. Crisafulli said.
Energy:
Oil continued to climb in Asia, with Brent topping $80, as a
shortage of natural gas in some countries helped push crude prices
higher, said CBA.
"Oil demand could pick up by an additional 0.5 million b/d [0.5%
of global oil supply] as high gas prices force a switch from gas to
oil consumption," CBA said.
ANZ Research said upward pressure on oil prices remains amid
widening fuel shortages, as inventory withdrawals have been strong
across the U.S. and other OECD countries. U.S. oil production has
yet to be fully restored after Hurricane Ida, while another storm
is threatening to hit the country's east coast.
Goldman Sachs has boosted its Brent oil price year-end target to
$90 a barrel, citing the lingering impact of Hurricane Ida on
supply while demand ramps up, particularly in Covid-averse
Asia.
"From a futures market standpoint, bullish energy calls from big
banks including Goldman Sachs and major oil traders like Trafigura
are helping invite speculative bids into the market as well," said
Tyler Richey, co-editor at Sevens Report Research.
Metals:
Gold edged lower in Asia, as rising bond yields continued to
take the shine from the precious metal, said Phillip Futures senior
commodities manager Avtar Sandu.
Nonetheless, downside is capped by the Evergrande debt crisis,
which had been supportive of bullion as a safe-haven asset, Sandu
said.
Prices of industrial base metals were also lower, as deepening
power shortages in China further added to concerns about slowing
economic growth, ANZ said. It noted that several provinces were
dealing with blackouts and manufacturing hubs were being told to
reduce power consumption.
TODAY'S TOP HEADLINES
Fed Chief Jerome Powell Says Inflation Is Elevated but Likely to
Moderate
Inflation is likely to stay high in the coming months before
moderating, Federal Reserve Chairman Jerome Powell is set to tell
Congress at a hearing on Tuesday morning.
In testimony released by the central bank on Monday, Mr. Powell
largely repeated remarks he made at a news conference last week
after the central bank indicated it was likely to begin reversing
its easy-money policies at its next meeting, Nov. 2-3.
GOP Senators Block Democratic Bill to Fund Government and
Suspend Debt Ceiling
WASHINGTON-Senate Republicans blocked a Democratic bill that
would both fund the government and raise the country's borrowing
limit, escalating a political showdown over the government's
finances just days before it runs out of money.
Senate Democrats sought to pass a House-approved stopgap measure
that funds the government through Dec. 3, 2021, and suspends the
debt limit through Dec. 16, 2022. They are racing to send the
legislation to President Biden's desk before the government's
current funding expires at 12:01 a.m. Oct. 1.
China Power Outages Pose New Threat to Supplies of Chips and
Other Goods
Government efforts to curb energy consumption and reduce carbon
emissions, along with surging coal prices, are leading to power
outages across many of China's manufacturing hubs, threatening to
further disrupt strained global supply chains for semiconductors
and other vital goods.
Over the past week, local officials have forced factories in
China's Guangdong and Jiangsu provinces to curtail operation hours
or shut down temporarily as officials try to rein in energy use,
according to company filings and interviews with company officials
by The Wall Street Journal.
Fed's Williams: Tapering Bond Buying 'May Soon Be Warranted'
Federal Reserve Bank of New York President John Williams said
Monday the time for the central bank to pull back on asset buying
is coming up, but he indicated rate rises still lie well off.
"It's clear that we have made substantial further progress on
achieving our inflation goal" and "there has also been very good
progress toward maximum employment," Mr. Williams said in a virtual
appearance. "Assuming the economy continues to improve as I
anticipate, a moderation in the pace of asset purchases may soon be
warranted."
Fed Leaders Eric Rosengren, Robert Kaplan to Resign Following
Trading Controversy
The Federal Reserve banks of Boston and Dallas said their
presidents were resigning, following reports of the two leaders'
investment trading that prompted calls for their departures and a
central-bank review of its ethics rules.
The two banks gave different reasons for the exits. Dallas Fed
President Robert Kaplan, a 64-year-old who is resigning effective
Oct. 8., acknowledged in a statement released by the bank that his
stock trading distracted from the Federal Reserve's work.
Maersk to Sell Refrigeration Businesses to China's CIMC for
$1.08 Billion
Denmark's A.P. Moeller-Maersk AS plans to sell its refrigerated
containers manufacturing and refrigeration businesses to China
International Marine Containers (Group) Co. for $1.08 billion.
CIMC is buying the China and Denmark units of the Nasdaq-listed
company which operates the two companies under Maersk Container
Industry Qingdao Ltd. and Maersk Container Industry A/S
respectively, CIMC said Tuesday.
West Virginia Gov. Jim Justice Offers $300 Million Settlement
Payment to Credit Suisse
West Virginia Gov. Jim Justice has offered a $300 million
payment and half the value of his family coal businesses to settle
loans from the now-defunct Greensill Capital, according to people
familiar with the deliberations.
The proposal is part of talks between the governor's family
business, Bluestone Resources Inc., and Credit Suisse Group AG,
which manages investment funds that were Greensill's main source of
cash for its lending business.
Write to paul.larkins@dowjones.com
Expected Major Events for Tuesday
04:30/NED: Sep Producer confidence survey
06:00/GER: Oct GfK consumer climate survey
06:00/NOR: Aug Retail Sales
06:45/FRA: Sep Consumer confidence survey
07:00/SVK: Aug PPI
07:00/HUN: Aug Employment & unemployment
07:30/SWE: Aug Foreign trade
07:30/SWE: Aug Retail sales
08:00/ICE: Aug PPI
08:00/AUT: Sep Austria Manufacturing PMI
08:00/ICE: Sep CPI
09:00/MLT: Aug PPI
10:00/IRL: Aug Retail Sales Index
23:01/UK: Sep REC JobsOutlook survey
23:01/UK: Sep Shop Price Index
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(END) Dow Jones Newswires
September 28, 2021 00:45 ET (04:45 GMT)
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