MARKET WRAPS
Watch For:
Eurozone, Germany, France, U.K., Flash PMI; Eurozone New
Passenger Car Registrations; U.K. Monthly Retail Sales; G7 Trade
Ministers Meeting; updates from Air Liquide, Sika, Aeroports de
Paris, Pernod Ricard, Renault, Safran, Siemens Energy, Saab,
Autoliv, InterContinental Hotels, London Stock Exchange
Opening Call:
A surprise interest payment by China Evergrande helped spur
gains in Asia and should support European stocks early Friday.
Elsewhere, the dollar and oil were lower, gold gained and Treasury
yields were unchanged.
Equities:
European stock markets will likely track Asian gains Friday,
with sentiment lifted by news that China Evergrande has made an
overdue interest payment to international bondholders.
The Chinese real-estate developer on Thursday sent $83.5 million
to the trustee for the dollar bonds, and that financial institution
will in turn pay bondholders, the Securities Times reported. The
financial paper is run by the Communist Party's flagship People's
Daily newspaper. It was an unexpected move that allows Evergrande
to stave off a default.
Gains for tech and property developers in Asia helped lift most
of the region's major stock benchmarks, with the mood also buoyed
by a late wave of buying on Wall Street that pushed the S&P 500
to a new record high on Thursday.
Forex:
The dollar was slightly softer in Asia, along with the yen, as
gains in regional equity markets spurred a risk-on mood.
However, some concerns over higher consumer prices may begin to
re-emerge, as the five-year U.S. break-even inflation rate surged
Thursday, suggesting inflation could be more persistent than
expected, said IG, adding that this may drive some volatility going
into the Fed's next meeting on Nov. 2-3.
The Turkish lira could slump even further over the next year as
President Erdogan continues to pressure the central bank for
further monetary policy easing, said Capital Economics. It expects
USD/TRY to hit 10.5 by the end of next year from 9.4180 at
present.
"The risks are clearly skewed to more disorderly falls," said
emerging markets economist Liam Peach, adding that this could force
policymakers to introduce capital controls and increases the threat
of another balance of payments crisis like that seen in 2018.
Bonds:
Treasury yields were little changed in Asia, having moved higher
Thursday as U.S. weekly jobless benefit claims fell to a pandemic
low of 290,000 and traders began factoring in a higher annual pace
of consumer-price gains for the rest of the year, just ahead of the
Federal Reserve's blackout period next week.
The rise in yields included the 5-year rate, which climbed above
1.2% and reflects expectations for a forthcoming cycle of rate
hikes from the Fed that may start next year. The two-year yield hit
another 52-week high, while the 10-year rate climbed to a level not
seen since May.
"The market is trying to figure out where we shake out on
inflation," said Rob Daly, director of fixed-income at Glenmede
Investment Management. "There are a lot more questions than answers
on what inflation is going to do for the rest of the year into
2022, and how it can affect risk assets. I think we can have more
durable inflation, but I'm not sure it's going to be punitive."
Capital Economics expects Treasury yields will likely rise to
2.5% by late 2023 despite China's slowdown.
Among other things, it said that Chinese troubles are unlikely
to "hold back the U.S. economy enough to move the needle on U.S.
monetary policy, " as they are concentrated in the property sector,
"to which the U.S. economy is not particularly exposed." Beijing is
expected to shield the financial system and avoid a hard
landing.
The firm expects the renminbi to weaken, likely keeping China's
central bank from accumulating reserves, "which would probably mean
purchasing Treasuries," and instead sell them, said Capital
Economics.
Energy:
Oil prices edged lower in Asia, extending Thursday's losses,
with analysts citing profit-taking for the pullback from multiyear
highs.
"While some projections are as bullish as $100, current price
levels already start feeling high for traders, who always have an
itch to reap profits from the rising prices," said Louise Dickson,
senior oil markets analyst at Rystad Energy, in a note.
Oanda said that until energy traders know how cold this winter
will be, most dips will likely be bought into. Despite all of the
moving parts of the demand outlook, underinvestment in the oil
industry means the market could be stuck in deficit for at least
the next few quarters, it added.
Metals:
Gold futures were higher again after Thursday's modest retreat,
helped by a slightly softer dollar.
Phillip Securities Research said the precious metal was holding
near the higher end of this week's range of $1,759-$1,788. Recent
buying has been supported by concerns over a rise in inflation.
"The inflation bug has been spreading with the growing problems
with shortages and some big moves in commodities and energy
prices," Peter Spina, president and chief executive officer at
GoldSeek.com, told MarketWatch. "The cost of free money is
inflation and the market is now growingly fearful of inflation and
less so of a taper."
Aluminum was also higher, snapping a four-day losing streak, as
China's electricity crunch hampers production, said ING. It said
falling coal prices in China earlier spilled over into metal
markets, leading to some speculative liquidation, but added that
the selloff now seems to be over.
"While speculative activity fuelled by the power crunch may cool
down for a bit now, there are little signs of easing restrictions
for Chinese metals output." ING noted that fresh power-rationing
measures are in place in China's Jiangxi province.
TODAY'S TOP HEADLINES
China Evergrande Makes Overdue Interest Payment on Dollar Bonds,
State Media Says
China Evergrande Group made an overdue interest payment to
international bondholders, the state-owned Securities Times
reported Friday, an unexpected move that allows the property
company to stave off a default.
The Chinese real-estate developer on Thursday sent $83.5 million
to the trustee for the dollar bonds, and that financial institution
will in turn pay bondholders, the Securities Times reported. The
financial paper is run by the Communist Party's flagship People's
Daily newspaper.
Biden Could Use National Guard to Help With Supply Chain
Bottlenecks
WASHINGTON-President Biden said he would consider deploying the
National Guard to assist with supply-chain bottlenecks that have
led to shortages and higher consumer costs, if his administration
is unable to ease the problem.
"The answer is yes, if we can't move-increase the number of
truckers, which we're in the process of doing," Mr. Biden said
during a CNN town hall on Thursday when asked about deploying the
National Guard.
U.S. Issues $100 Billion in Export Licenses to Suppliers of
Huawei, SMIC
The U.S. Commerce Department issued more than $100 billion worth
of export licenses for semiconductors and other products to
suppliers of Huawei Technologies Co. and another blacklisted
Chinese tech company, as a global chip shortage started to
bite.
The Commerce data, released Thursday by a Republican member of
Congress, shows the department granted 113 export licenses worth
about $61 billion for suppliers of telecom giant Huawei and 188
licenses valued at $42 billion for suppliers of Semiconductor
Manufacturing International Corp., China's largest chip maker, from
Nov. 9, 2020, through April 20 this year.
Democrats Weigh Tax Alternatives to Fund $2 Trillion Package
WASHINGTON-Democrats worked to quickly find new sources of
revenue to pay for their roughly $2 trillion social-policy and
climate package, seeking to target businesses and wealthy
individuals in novel ways after proposed rate increases ran aground
in talks.
The continued opposition by Sen. Kyrsten Sinema (D., Ariz.) to
any increases in top marginal rates on corporations, individuals or
capital gains has emerged as a major hurdle in the party's quest to
reach a new framework on the legislation. A person familiar with
Ms. Sinema's thinking said she has agreed to enough alternative
revenue provisions with the White House to cover the full cost of
the spending, creating a potential new path for Democrats to try to
finance the cost of the package.
Fed Imposes New Restrictions on Officials' Investment
Activities
Federal Reserve Chairman Jerome Powell imposed sweeping
personal-investing restrictions on senior officials in a bid to
address a stock-trading controversy that prompted the resignation
of two reserve bank presidents and hurt his prospects of being
reappointed to lead the central bank next year.
The Fed on Thursday said the new rules will restrict senior
officials' trading to broad-based investment vehicles such as
mutual funds. They also will require any trades to be preapproved
and pre-scheduled, removing the potential for any appearance that
officials were benefiting from inside information to bolster their
personal investments.
Global Finance Watchdog Censures Turkey Over Money Laundering,
Terrorist Financing
WASHINGTON-A global watchdog on Thursday added Turkey to its
list of countries requiring special regulatory oversight for
failing to stop money laundering and terrorist financing, a
designation analysts say will rattle Ankara's already shaky
economy.
The action means Turkey joins a group of 23 countries-including
Zimbabwe, Haiti and Syria-that the Financial Action Task Force
determined "have strategic deficiencies in their regimes to counter
money laundering, terrorist financing, and proliferation
financing."
Deutsche Bank Whistleblower Gets $200 Million Bounty for Tip on
Libor Misconduct
A whistleblower whose information helped U.S. and U.K.
regulators investigate manipulation of global interest-rate
benchmarks by Deutsche Bank AG was awarded nearly $200 million for
assisting the probe, according to people familiar with the
matter.
The payout is the largest ever by the Commodity Futures Trading
Commission, which along with the Justice Department and U.K.
Financial Conduct Authority settled enforcement actions against
Deutsche Bank in 2015.
U.K. Consumer Confidence Fell in October to Eight-Month Low on
Worsening Economic Outlook
Consumer confidence in the U.K. declined in October for the
third straight month as expectations for the economy over the
coming year deteriorated sharply.
GfK's consumer-confidence barometer decreased to minus 17 in
October from minus 13 in September, missing economists'
expectations and falling to the lowest level since February.
Economists had expected the barometer to fall to minus 15.
European Leaders Urge Caution in EU Clash With Poland
European Union leaders urged Brussels to act cautiously in an
escalating fight with Poland's nationalist government over its
judiciary as the bloc's heads of government gathered Thursday for a
summit.
The latest fight centers on a ruling by Poland's constitutional
tribunal two weeks ago that EU treaty law has become incompatible
with Polish law-an unprecedented ruling from a national court. The
ruling was delivered in response to a legal question posed by
Polish Prime Minister Mateusz Morawiecki.
Moderna and J&J Covid-19 Boosters, Mixing and Matching
Backed by CDC
Centers for Disease Control and Prevention Director Rochelle
Walensky recommended Covid-19 booster shots from Moderna Inc. and
Johnson & Johnson and backed mixing vaccines with a different
booster dose.
With Dr. Walensky's greenlight Thursday, the vaccine doses can
now become available at doctor's offices, pharmacies and
vaccination sites on Friday, a CDC spokeswoman said. It follows
unanimous recommendations from a panel of experts advising the
CDC.
Write to paul.larkins@dowjones.com
Expected Major Events for Friday
06:00/NOR: 3Q Business tendency survey
06:00/UK: Sep UK monthly retail sales figures
06:00/EU: 3Q New passenger car registrations in Europe by fuel
type
07:15/FRA: Oct France Flash PMI
07:30/GER: Oct Germany Flash PMI
08:00/EU: Oct Eurozone Flash PMI
08:30/UK: Oct Flash UK PMI
10:00/IRL: Sep WPI
12:00/POL: Sep Broad money M3
14:00/DEN: Sep Central Government Finance & Debt
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(END) Dow Jones Newswires
October 22, 2021 00:30 ET (04:30 GMT)
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