MARKET WRAPS

Stocks:

Stocks in Europe held solid gains on Wednesday with sentiment buoyed by hopes that China could backtrack on its zero Covid-19 policy and after data showed the annual rate of inflation in the eurozone fell in November for the first time since mid-2021.

Commerzbank said the latest CPI print came in at a lower-than-expected 10%, increasing the likelihood the European Central Bank will opt for raising interest rates by 50 basis points at its December meeting.

This would mark a slowdown from the 75bp increases implemented in the last two meetings. However, it still isn't safe to say that inflation has passed its peak as high volatility of energy prices prevent a reliable forecast, Commerzbank said.

Moreover, the core inflation rate--which excludes the more volatile categories of food and energy--is unlikely to peak until mid-2023.

"The ECB's goal of pushing the inflation rate back to just under 2% on a sustainable basis seems a long way off."

Stocks to Watch

Air Liquide's medium-term growth potential is underpinned by opportunities in energy transition including its focus on hydrogen, carbon capture and storage and energy upgrading, Deutsche Bank said, adding that green growth aims to boost the company's share price.

Air Liquide is expected to modestly increase its capital expenditure in the coming years, focusing on investments that are presold to customers, ensuring its growth remains low-risk, Deutsche Bank said.

It said Air Liquide has the potential of achieving an estimated 5% compound annual growth rate in sales with earnings per share of 11% between 2023 and 2025.

BASF may continue to face consensus downside risk in 2023, but its shares shouldn't be too negatively affected, Deutsche Bank said.

It believes the large majority of downgrades have already been made and that crucially, most, if not all investors are already aware of future cuts.

Deutshe Bank's data over the past 30 years show that BASF's stock inflection point is often during the fastest consensus downgrades.

"Overall, we see enough upside potential in the name in the coming 12 months and reiterate our buy recommendation."

Economic Insight

Slowing inflation in Spain and Germany is supportive of a downshift in the pace of the European Central Bank's interest-rate rise in December, BNP Paribas Markets 360 said.

"While far from being a done deal," the data support BNP's view that the ECB will slow the pace of the rate rise to 50 basis points at the December meeting from 75 bps.

"With underlying price pressures remaining elevated, however, we continue to expect the ECB to keep hiking until policy rates are well into restrictive territory," BNP said, forecasting the deposit rate--currently at 1.50%--peaking at 3% by the end of the first quarter of 2023.

Read ECB's Terminal Rate Could Be Above 3%, Higher Than Market Pricing

Read Eurozone Inflation Expected to Fall in November

U.S. Markets:

Stock futures were a touch firmer as traders looked ahead to Jerome Powell's speech and awaited a big batch of important economic data during the rest of the week.

The data docket on Wednesday for the Fed's perusal includes the November ADP employment report, real GDP data, the November Chicago PMI report, pending home sales for October and the Fed's Beige Book.

One of the Fed's most closely watched inflation gauges, the personal consumption expenditures index, will be published on Thursday, followed on Friday by the nonfarm payrolls report.

Forex:

Eurozone inflation data for November are expected to show an easing in price pressures but this is unlikely to materially move the euro, ING said.

"The impact of the inflation story on the EUR/USD has been, predictably, limited. External factors and dollar dynamics continue to drive the pair's performance, and we see downside risks today given that Jerome Powell is scheduled to speak later [1800 GMT]."

A fall in EUR/USD below 1.0300 could fuel more downside momentum, taking the pair to the 1.0200-1.0250 levels seen earlier this week, ING said.

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The dollar has been under less selling pressure lately, but U.S. ADP jobs data and a speech by Jerome Powell could leave it vulnerable to further weakness, UniCredit Research said.

Investors "could return to selling the U.S. unit" if ADP data show an additional deceleration in U.S. net job creation.

More critically, when Powell discusses the economic outlook and the U.S. labor market later, any hints of the Fed slowing the pace of rate rises might prove negative for the dollar, although month-end position adjustments could help offset this, UniCredit said.

Read Dollar Heads For Biggest Monthly Loss Since 2010

Bonds:

German 10-year Bund yields are expected to trade range-bound in the first quarter of 2023 before falling to 1.70% in the second to third quarter, Mizuho said, maintaining its end-2022 target of 2%.

The flattening of the bond curve is more likely to be sustained in Germany than in the U.S., Mizuho said, as it sees a high likelihood of a recession.

"In the near-term, even on a downside inflation miss, we don't sense that this would necessarily be the trigger for a large re-steepening."

Energy:

Oil prices held minor gains in early European trading, helped by a drawdown in U.S. crude stockpiles, but any rise for now has been tapered by the expectation OPEC+ will keep production flat at its meeting on Sunday.

Metals:

Base metals were under pressure, while gold gained, as investors continued to weigh China's Covid-19 rules and any possible shifts in U.S. monetary policy.

Investors in Asia were weighing "Covid-zero evolutions in China ahead of a much-anticipated speech from Jerome Powell," according to SPI Asset Management.

Gold, which is up 7% this month, "looks headed for its biggest monthly gain since May 2021 after the latest U.S. CPI reading sent dollar bulls cowering for cover," SPI added.

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Inflation Eased in November, but Further Rate Rises Likely

The annual rate of inflation in the eurozone fell in November for the first time since mid-2021 as energy prices dropped.

However, the slowdown isn't likely to stop the European Central Bank from increasing interest rates further, economists warned. Consumer-price inflation across the 19 countries that share the euro has increased since Russia's invasion of Ukraine, and the Kremlin's decision to weaponize the country's vast stores of energy to undermine European support for Kyiv.

OPEC+ Leans Toward Maintaining Flat Production, Delegates Say

OPEC and other big oil producers are likely to decide to keep output levels flat at their meeting Sunday, the group's delegates said, amid mounting concerns over returning Covid-related lockdowns in China and lingering uncertainty over Russia's ability to pump.

The 13-member Organization of the Petroleum Exporting Countries and a separate group of producers led by Russia-collectively as OPEC+-are leaning toward approving the same production levels agreed to in October, when they greenlighted a 2 million barrels a day output cut, the delegates said. Sunday's meeting was planned to take place in person at OPEC's headquarters in Vienna, but it will now be held remotely to avoid negative media scrutiny, the delegates said.

Rio Tinto Expects Steady Iron-Ore Shipments in 2023

Rio Tinto PLC said it expects iron-ore shipments from its Australian mines to be steady year over year in 2023, and for aluminum output to rise.

The world's largest iron-ore producer on Wednesday said it expects to ship between 320 million metric tons and 335 million metric tons of the steelmaking ingredient next year. It reiterated guidance for exports at the low end of the same range in 2022.

SAS 4Q Net Loss Widened on Jet Fuel Costs, Currency Effects

SAS AB on Wednesday reported a widened net loss in its fiscal fourth quarter as jet-fuel prices and foreign-exchange effects weighed, and said it is cautious about the winter season due to prevailing global uncertainty.

The Scandinavian airline reported a net loss of 1.24 billion Swedish kronor ($117.2 million) in the fiscal fourth quarter to Oct. 31 compared with a loss of SEK744 million a year earlier as revenue rose to SEK10.65 billion from SEK5.76 billion.

Hennes & Mauritz to Book 4Q Restructuring Charge of Around $76 Mln

Sweden's Hennes & Mauritz AB said Wednesday that it expects to book a restructuring charge of just over 800 million Swedish kronor ($75.6 million) in the fourth quarter related to its cost-cutting program.

The fashion retailer has previously outlined plans to reduce annual administrative and overhead costs by around SEK2 billion in a move that will see the loss of 1,500 jobs.

Ukraine's Power Shortages Force Millions of Refugees Into Lengthier Exile

Russia's attacks on Ukraine's civilian infrastructure are forcing millions of Ukrainian refugees who intended to return home to stay put, prolonging their ordeal and straining Europe's ability to absorb one of the biggest flows of migrants in decades.

Moscow's repeated strikes on power stations and heating equipment have caused rolling blackouts in Ukraine and deprived millions across the country of power, heating and running water amid subzero temperature. As it struggles to keep the lights on, Kyiv is now urging Ukrainian refugees to stay where they are for now.

Ukraine War's Economic Ripples Sow Discord Between Washington, Allies

WASHINGTON-Trans-Atlantic ties are starting to fray as French President Emmanuel Macron and other European leaders chafe at new U.S. policies they say compound economic woes fueled by the war in Ukraine and the resulting energy crisis.

Russia's war in Ukraine has reinvigorated the North Atlantic Treaty Organization and ignited a boom in trade and investment between the U.S. and Europe. But after nearly a year of unity as the U.S. and its allies confronted the fallout from Russian President Vladimir Putin's invasion of Ukraine, European officials are starting to express frustration at their increasing reliance on Washington for security and economic stability.

GLOBAL NEWS

Powell Will Offer a New Mantra: Slow and Steady

Federal Reserve Chairman Jerome Powell will have an opportunity on Wednesday to lay the groundwork for where the central bank is headed when policy makers meet next month-and he'll likely use it to make the case for slower but steady interest rate hikes.

In a speech Wednesday afternoon at the Brookings Institution, Powell is expected to reinforce the dual message central bank officials have been making for weeks: that the Fed is on track to ease up slightly on its pace of monetary policy tightening, likely slowing to a 50 basis point increase next month after four straight 75 basis point hikes.

U.S. Not Seeking Decoupling From China, Commerce Chief Says

WASHINGTON-The U.S. isn't seeking to decouple from China, U.S. Commerce Secretary Gina Raimondo will assert Wednesday, even as she emphasizes steps the U.S. is taking to safeguard its technology to ensure its economic competitiveness.

Ms. Raimondo is scheduled to speak Wednesday on U.S. competition with China at the Massachusetts Institute of Technology. At a briefing with reporters in advance, Ms. Raimondo highlighted the importance of promoting trade and investment in areas outside of core economic and national security interests.

Junk Bonds Rally as Investors Speculate Inflation Has Peaked

Investors are driving a modest end-of-year rally in junk bonds, erasing some of 2022's biting losses in a bet that the economic outlook for next year has stabilized.

Yields on below-investment-grade corporate bonds tracked by Intercontinental Exchange's index have declined to 8.76% through Monday's trading, down from a recent high of 9.61% on Oct. 13. Investors say they are growing more confident that interest rates might peak without putting many lower-rated companies' ability to repay debt in serious jeopardy.

Biden Administration Pressed by Allied Nations to Revise EV Subsidy Program

WASHINGTON-The Biden administration finds itself caught between its domestic-policy goals and some of its closest allies as it races against the clock to set the ground rules for new electric-vehicle subsidies.

The Treasury Department's Internal Revenue Service faces a year-end deadline to propose a guideline for how to qualify for EV tax incentives of up to $7,500 per vehicle under the tax and climate spending legislation known as the Inflation Reduction Act that President Biden signed in August.

Covid Controls Hit Chinese Factories, Adding Risks to Global Growth

SINGAPORE-Economic activity in China contracted further in November, adding pressure to a global economy already losing momentum as the war in Ukraine drags on and central banks raise interest rates to combat high inflation.

Gauges of activity in Chinese manufacturing, services and construction deteriorated by more than expected this month, a sign of weakening economic output as authorities persist in using widespread curbs on business and daily life to respond to Covid-19 outbreaks.

China Officials Soften Tone on Covid Curbs Amid Protests

Chinese health officials softened their messaging on the risks of Covid-19, urging local governments to avoid unnecessary and lengthy lockdowns, after protesters across the country denounced the strict controls.

The Omicron variant has caused fewer deaths and less severe sickness than previous Covid variants, a health official said at a press conference Tuesday.

India's Central Bank to Launch Retail Pilot of Digital Rupee

India's central bank will launch its first pilot of a digital rupee for individual users on Thursday, putting it ahead of many major economies in the journey toward a sovereign virtual currency.

The Reserve Bank of India has said a digital rupee could provide Indians a safe alternative to risky private digital currencies.

Elon Musk's Neuralink Set to 'Show and Tell' Latest Brain-Computer Advances at Event

Elon Musk's neuroscience startup Neuralink Corp. is expected to give a progress report on its brain-implant technology in a highly anticipated streamed event Wednesday night.

In a tweet last week, the company teased a demo for the event, which begins at 9 p.m. New York time, with a short video that slowly spelled out the message "please join us for a show and tell." Some outside researchers said the video may indicate that a Neuralink device has been used to decode brain signals to type words on a screen, although they speculated that it would most likely be through a monkey or a wearable device.

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(END) Dow Jones Newswires

November 30, 2022 06:18 ET (11:18 GMT)

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