MARKET WRAPS
Watch For:
Eurozone Balance of Payments, Harmonised CPI; Germany PPI; U.K.
Producer Prices, Monthly Inflation; Italy Balance of Payments;
updates from TechnipFMC, Flughafen Wien, Danone, Vinci, Akzo Nobel,
ASML, EQT, SEB, SEGRO, ASML, Antofagasta, Avast
Opening Call:
Europe faces a cautious open following some hawkish comments
from a Fed official and despite solid gains in the U.S. and Asia.
Elsewhere, the dollar remained under pressure, Treasury yields
continued to rise, oil was lower on profit-taking and gold was
firmer.
Equities:
European equities are likely to struggle for momentum at
Wednesday's open, after a Fed official cautioned that a more
aggressive monetary policy might be needed next year if inflation
readings stay high.
Federal Reserve Gov. Christopher Waller said the central bank
could move forward the timeline for raising short-term interest
rates to restore price stability if high levels of inflation don't
start cooling soon, adding that he supports the Fed slowing its
asset buying stimulus effort starting next month.
"The next several months are critical for assessing whether the
high inflation numbers we have seen are transitory," Waller said.
"If monthly prints of inflation continue to run high through the
remainder of this year, a more aggressive policy response than just
tapering may well be warranted in 2022.".
Despite the hawkish direction of the remarks, U.S. stocks closed
higher, as corporate earnings largely overshadowed worries about
inflation and supply-chain disruptions. And Asian markets tracked
Wall Street's advance, with most major benchmarks posting solid
gains early Wednesday.
A handful of strong earnings reports have helped calm fears of
how badly those headwinds would affect corporate results, said
Lamar Villere, portfolio manager at investment firm Villere &
Co. "I wouldn't say the fog has been lifted or the fear is gone,
but at least you've got some reasonably positive data points," he
said.
Forex:
The dollar was little changed in Asia amid a generally risk-on
mood.
Healthier risk conditions and the repricing of expectations for
central banks' monetary policies worldwide could send the dollar
lower in coming days, although any losses might ultimately prove
modest, said Westpac.
The European Central Bank is likely to underscore its dovish
guidance next week, while the Federal Reserve is expected to
announce QE tapering at its Nov. 2-3 meeting, a backdrop that
should underpin the dollar, Westpac added.
Rabobank said the dollar's current declines could reflect a
trimming of speculative bets on the currency strengthening but the
weakness won't last given the prospect of the Fed raising interest
rates in 2022.
"We are viewing the current pullbacks in the dollar as
corrective and continue to expect it to push higher over the
medium-term," said Rabobank forex strategist Jane Foley.
Following a build-up of long dollar positions, some
consolidation is to be expected and should allow investors to
"catch their breath and take stock of the current batch of
fundamental factors."
Positioning in sterling options suggests the market sees the
risk of the Bank of England making a policy mistake by raising
interest rates too soon, said TD Securities.
Risk reversals show a rising premium for sterling call options,
which bet on a stronger currency, in the short-term but expect a
"notable erosion" next year, said TD Securities forex strategist
Mazen Issa. "This may be the clearest indication that markets are
explicitly pricing in a policy mistake if the BOE hikes [interest
rates] near-term."
The BOE is likely to lift rates in November, which is largely
because of Governor Andrew Bailey's urgency to act to contain
inflation as opposed to economic growth reasons, which would
suggest more caution, Issa said.
Bonds:
U.S. Treasury yields continued to climb in Asia, extending
Tuesday's gains which pushed the yield on the 10-year note back to
its highest level since around May.
Investors continued to a respond to a hawkish shift in Fed
monetary policy following Christopher Waller's speech.
Tim Duy, chief U.S. economist at SGH Macro Advisors, said
comments from the Fed are moving in an overall hawkish direction.
He said it will be important to see if Jerome Powell pushes back on
such talk at his upcoming speech on Friday.
J.P.Morgan has forecast eurozone gross government bond issuance
to drop to around EUR1.05 trillion in 2022 versus record
EUR1.2-EUR1.3 trillion in 2020 and 2021, while net issuance should
drop by almost EUR250 billion to around EUR350 billion because of
lower budget deficits.
JPM still expects the balance of eurozone's net bond issuance
versus net purchase by the ECB to remain "quite favorable" in 2022.
JPM's base case is an average of EUR40 billion-EUR50 billion of net
purchases after the end of the Pandemic Emergency Purchase
Programme in March 2022. The ECB is set to decide in December on
how to increase or supplement the regular Asset Purchase
Programme.
Energy:
Oil prices were lower in the Asian session on possible
profit-taking. Given their relentless winning streak, they're ripe
for significant rounds of profit-taking, said Oanda.
While WTI crude oil seems ripe for a pullback, any declines may
be limited as the short-term outlook remains very bullish, Oanda
added.
Analysts said relatively low global production of crude oil,
along with Europe's energy crisis and rising Chinese demand for
fossil fuels are fueling the price gains. "An energy crunch [is]
bringing energy security back onto the global agenda," said Robin
Winkle at Glenloch Energy. "European nations [are] bringing coal
and oil-fired power back on line ... just before the start of the
UN Climate Change Conference in Glasgow."
Late Tuesday, the American Petroleum Institute reported
inventories of crude oil in the U.S. rose by 3.3 million barrels in
the latest week, a source citing the data said, while gasoline
supplies fell by 3.5 million barrels.
The results, bearish for crude but bullish for refined fuels,
were released ahead of official inventories data from the
Department of Energy set to be published Wednesday. Average
forecasts in a WSJ survey indicate the DOE report will show crude
supplies rose by 700,000 barrels from the previous week and that
gasoline supplies decreased by 1.1 million barrels.
Metals:
Gold edged higher, extending Tuesday's gains, helped by a weaker
dollar.
Oanda said trading in the precious metal could stay choppy as
investor expectations on the Fed rate-increase timing will be
dictated over the next few inflation reports. Complicating gold's
short-term outlook is the inability of U.S. lawmakers to get
President Biden's infrastructure deal and economic package done,
Oanda added.
Copper prices were 1.5% lower as the focus returned to the
impact of power and other energy shortages in countries such as
China, on global economic growth.
"Rising commodity prices could accelerate inflation, worsen
supply chain bottlenecks and subsequently be a drag on global
growth," said ANZ. However, a tight physical market should limit
any downside, ANZ added, noting copper inventories on the LME have
fallen 30% since the start of September.
TODAY'S TOP HEADLINES
Waller: If Inflation Doesn't Cool by Year-End, Fed Could Bring
Rate Increases Forward
Federal Reserve Gov. Christopher Waller said the central bank
could move forward the timeline for raising short-term interest
rates to restore price stability if high levels of inflation don't
start cooling soon, adding that he supports the Fed slowing its
asset buying stimulus effort starting next month.
Mr. Waller said in a virtual appearance Tuesday that when it
comes to moving up what is now a near zero federal-funds rate
target range, "the pace of continued improvement in the labor
market will be gradual, and I expect inflation will moderate, which
means liftoff is still some time off." But he also said there is
some amount of flux in the path forward for interest rate policy
amid unexpectedly high inflation readings.
First Bitcoin Futures ETF Rises in Trading Debut
The first bitcoin-focused exchange-traded fund rose in its
trading debut Tuesday after getting a warm reception from
investors.
The ProShares Bitcoin Strategy ETF climbed most of the day,
gaining nearly 5% to settle at $41.94. About $981 million of shares
changed hands over the session, making it the second-most
highly-traded ETF debut ever, according to Elisabeth Kashner,
director of ETF research at FactSet.
Biden Identifies Cuts to Social Policy and Climate Bill
WASHINGTON-Democrats accelerated efforts to strike a deal on
their social-policy and climate legislation, as President Biden
identified programs that party lawmakers could eliminate or slim
down during a flurry of meetings at the White House Tuesday.
Mr. Biden said that two years of tuition-free community college
likely won't be in the bill, according to several attendees and
people familiar with the meetings. He also acknowledged that
opposition from Sen. Joe Manchin (D., W.Va.) to a clean electricity
program would require Democrats to abandon it, according to
lawmakers at the meetings.
China's New Home Prices Edged Down in September Amid Speculation
Curbs
BEIJING-China's September new home prices declined for the first
time since March 2015, amid tighter measures to curb housing
speculation and cool the property sector.
Average new home prices in China's 70 major cities edged down
0.08% in September from the previous month, compared with a 0.16%
increase in August.
U.S. Lawmakers Turn Spotlight on Private Equity
U.S. lawmakers this week will subject the private-equity
industry to fresh scrutiny over its practices, and some members of
Congress plan to revive a bill to increase federal regulation of
buyout firms.
A group of lawmakers led by Sen. Elizabeth Warren (D., Mass.)
plans this week to reintroduce a modified version of the Stop Wall
Street Looting Act, a two-year-old proposal to rein in the
private-equity industry, according to people familiar with the
matter.
China Sells $4 Billion of Dollar Bonds, Borrowing Cheaply Once
Again
China raised $4 billion from a sale of U.S. dollar bonds,
borrowing cheaply again from international investors that flocked
to its offering despite the country's slowing economic growth.
The four-part deal comprised bonds that mature in three, five,
10 and 30 years, similar to China's previous international bond
sale a year ago.
China PBOC Keeps Loan Prime Rate Unchanged
China's central bank kept its benchmark loan prime rate
unchanged on Wednesday.
The one-year LPR remained at 3.85% and five-year LPR at 4.65%,
the bank said.
Credit Suisse to Pay $475 Million, Admits Defrauding Investors
to Settle Mozambique Charges
Credit Suisse Group AG agreed to pay $475 million and forgive
$200 million Mozambique owes to investors in coordinated
settlements with U.S. and European authorities over loans the bank
made in the country.
A subsidiary of the Swiss bank pleaded guilty to wire fraud
conspiracy charges in New York federal court Tuesday. Credit
Suisse, which previously had maintained it was a victim of rogue
employees, admitted to defrauding investors who bought some of the
debt and agreed to pay $275 million to resolve both a criminal
probe by the Justice Department and a civil investigation by the
Securities and Exchange Commission.
Credit Suisse Spied on Seven Executives, Broke Swiss Rules,
Regulator Says
Credit Suisse Group AG's efforts to spy on top executives were
broader than previously known and broke Swiss supervisory law, that
country's financial regulator said Tuesday.
The regulator, Finma, said that senior management knew about at
least some of the seven surveillance campaigns it documented,
pushing back on the bank's claims that rogue employees were to
blame.
Write to paul.larkins@dowjones.com
Expected Major Events for Wednesday
06:00/GER: Sep PPI
06:00/UK: Sep UK producer prices
06:00/UK: Sep UK monthly inflation figures
07:00/SVK: Sep Harmonized CPI
07:00/AUT: Sep CPI
08:00/POL: Sep PPI
08:00/POL: Sep Industrial Production Index
08:00/EU: Aug Euro area balance of payments
08:00/POL: Sep Agricultural prices
08:30/UK: Aug UK House Price Index
09:00/CYP: Sep Harmonised CPI
09:00/EU: Sep Harmonised CPI
09:00/ITA: Aug Balance of Payments
09:00/LUX: Sep Unemployment
10:00/UK: Sep Aluminium Production report
17:59/POR: Aug Balance of Payments
17:59/POR: Jul ICSG Copper Report
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(END) Dow Jones Newswires
October 20, 2021 00:20 ET (04:20 GMT)
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