UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European stocks were mixed Wednesday as global inflation concerns remain.

The FTSE 100 fell in London, underperforming other European indexes after U.K. consumer-price index data showed year-over-year inflation at 4.2%-above both expectations and the Bank of England's target.

The high inflation print raised the prospect of an interest-rate increase soon, strengthening the pound and hitting shares in U.K. multinationals that do business in foreign currencies.

Inflation concerns remain front and center, though better-than-expected U.S. retail sales figures Thursday provided a break from inflationary fears as investors cheered signs of a strong economy and the resilience of the U.S. consumer.

"Central banks are heavily in focus on Wednesday as we get a bunch of inflation data from across the globe and hear from a number of policy makers whose views on the trend will set the tone for the markets," said Craig Erlam, an analyst at broker Oanda.

"Stock markets have been struggling to build on a strong earnings season recently as inflation and interest rates have topped the list of investors concerns over the coming months. Given how long that list has become and the other risks on it, that's saying something," Erlam added.

Shares on the move: South European banks stand to benefit from a potential loosening of fiscal policy next year, Jefferies analysts said. Although the European Central Bank should keep a dovish policy stance at its meeting next month, the debate around inflation and interest rates will likely persist into 2022, the U.S. bank said.

The market is focused on the downside for banks if the ECB doesn't extend its targeted longer-term refinancing operations program, Jefferies said, noting that the measure contributes about 10% to South European banks' domestic profit.

However, Jefferies thinks such a move toward policy normalization would improve sentiment, and calculates that a 25 basis-point increase to the Euribor rate could boost banks' domestic profits by about 15%. Jefferies likes BBVA and UniCredit best among southern Europe's bank stocks.

U.K. enterprise software group Sage jumped in London despite posting a 10% drop in operating profit as its cloud business squeezed margins. But the company said its cloud business had grown 19% so far this year.

Siemens Healthineers surged 5.6% in Frankfurt, after the health-technology company set upbeat revenue and earnings targets for fiscal years 2023 to 2025. The company expects revenue growth of 6% to 8% annually.

Data in focus: The big upside surprise in October's U.K. consumer prices data highlights the uncertainties as well as significant upside risks to the inflation outlook, Berenberg's senior economist Kallum Pickering said.

Increasing producer prices due to supply-chain bottlenecks and rising energy costs haven't yet fully passed through into consumer prices, while surveys and high-frequency data suggest that global supply pressures won't abate soon, he said.

"Following persistent upside surprises in inflation data over the course of 2021 so far, the peak and length of the current inflation spike remains highly uncertain," Pickering said.

Berenberg expects U.K. annual inflation rates to peak above 5% early next year before easing at around 2.5%-3.0% by the end of the year and through 2023.

The Bank of England is unlikely to ignore the rise in U.K.'s inflation rate to 4.2% on year in October from 3.1% in September, Capital Economics' chief U.K. economist Paul Dales said.

"When coupled with yesterday's [Tuesday] decent labor-market release, the bigger-than-expected leap in CPI inflation in October makes an interest-rate hike in December even more likely," he said.

The BoE is likely to raise rates to 0.25% from 0.1% in December, and then to 0.5% perhaps in February, Dales said. CPI inflation is expected to fall back sharply to around 2.2% by the end of 2022, so it is unlikely that rates are raised above 0.5% next year, he said.

U.S. Markets:

Stock futures were muted ahead of earnings from retailers Lowe's, Target and TJX ahead of the opening bell.

A strong earnings season has propelled stocks to fresh highs in recent weeks, offsetting investors' concerns that supply-chain issues and higher-than-anticipated inflation would weigh on profits. Cisco Systems, Bath & Body Works and Nvidia are slated to release earnings after the market closes. Low returns on government bonds have also driven investors to buy stocks.

"Equities are incrementally earning significantly more than bonds," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. "There is still a fear of missing out in markets at the moment driven by that relative valuation."

Shares of Tesla rose 1.4% in premarket trading. Chief executive Elon Musk sold another 934,000 shares Tuesday for roughly $973 million, continuing a recent selling spree, forms filed with the Securities and Exchange Commission showed.

La-Z-Boy shares gained 3.9% premarket after the furniture maker said its fiscal second-quarter sales hit a record high, with the company able to increase its capacity to meet heightened demand.

Home builders have been caught between strong demand for housing, and rising material costs and supply and labor shortages. That has left new-home construction data choppy in recent months, though economists surveyed by The Wall Street Journal are forecasting a slight pickup in housing starts for October when figures are released at 8:30 a.m. ET.

Forex:

The euro's brief drop below the key $1.13 level earlier was driven by a strong dollar but a surge in European gas prices didn't help either, ING said.

"Negative terms of trade effects from higher energy prices are depressing the fair value of the EUR," ING analysts say. European gas prices jumped after a German court delayed the certification of the Nord Stream 2 gas pipeline on Tuesday.

The dollar extended its rise against the low-yielding euro after stronger-than-expected U.S. retail sales data Tuesday, which pushed EUR/USD to a 16-month low of 1.1264 overnight, according to FactSet, while the DXY dollar index hit a 16-month high of 96.2410.

MUFG global markets analyst Derek Halpenny said the data "will inevitably reinforce the positive momentum for the U.S. dollar over the short term." MUFG sees scope for the market to fully price in three U.S. interest-rate increases in 2022, allowing the dollar to advance further.

However, the speed of EUR/USD declines in recent days suggests some consolidation "may be imminent," Halpenny said.

The pound rose to its strongest against the euro since February 2020 after data showed U.K. annual CPI inflation accelerated to 4.2% in October, from 3.1% in September and above the consensus forecast in a WSJ poll of 4.0%.

The data points to persistent inflationary pressures and supports the case for the Bank of England to raise interest rates in December, said Sam Cooper, vice president of market risk solutions at Silicon Valley Bank.

"Sterling has welcomed the release," he said, but notes "a degree of caution" after the BOE unexpectedly left rates unchanged in November.

Bitcoin's dollar value edged down 1.9% from its 5 p.m. ET level Tuesday to $59,435.94 Wednesday. The move adds to a recent decline as the cryptocurrency has come off record highs.

The Turkish lira hit a fresh record low against the dollar on worries about higher energy prices and expectations for another interest rate cut by Turkey's central bank on Thursday, ING said.

The Central Bank of Turkey (CBT) could deliver a 100 basis points rate cut on Thursday as it focuses on economic growth over inflation, ING analysts said.

"The CBT's move is at odds with the rest of the central bank community who are trying to rein in negative real rates to prevent current high inflation from becoming embedded in inflation expectations."

Bitcoin's dollar value edged down 1.9% from its 5 p.m. ET level Tuesday to $59,435.94 Wednesday. The move adds to a recent decline as the cryptocurrency has come off record highs.

Bonds:

BNP Paribas Asset Management closed its short position in eurozone sovereign debt because yields rose near to their target, it said. The asset manager, however, remains short in U.S. government debt which it sees as a funding leg for their equity exposure, it said.

Being underweight duration is a strategic position in government bonds given the favourable economic outlook, the current low level of yields and the prospects of a normalization of monetary policies, "even if only gradually and cautiously," it said. Duration is a measure of the sensitivity of a bond to changes in interest rates.

Ten-year German Bund yields could trend upward in the next three months, boosted by the gradual reduction of the pandemic-related support programs, DZ Bank analyst Birgit Henseler said.

"The gradual slowing of the European Central Bank's pandemic asset purchases will in our view drive up longer-term yields moderately in the spring," she said.

DZ Bank forecasts the 10-year Bund yield to rise to -0.10% on a three-month time horizon and 0% on a 12-month horizon.

Commodities:

Oil prices weakened following reports that the U.S. asked China to release oil stockpiles and API data showed a rise in inventories.

Prices were edging lower after reports that President Biden asked China to release oil from inventories to help stabilize the oil market. President Biden is reported to have made the request at a virtual meeting with China's President Xi Jinping on Tuesday.

The U.S. itself has been considering whether to tap supplies from its Strategic Petroleum Reserve. Meanwhile, the American Petroleum Institute said Tuesday that U.S. oil inventories rose by 700,000 barrels.

Gold prices rose as investors look to the precious metal as an inflation hedge. Gold is rising in spite of a higher dollar. But the prospect of central banks raising interest rates is a risk for the metal, said TD Securities.

"The yellow metal remains an ideal hedge against rising stagflationary winds, but the tug-of-war between high inflation prints and market pricing for central bank hikes hasn't definitively concluded," the bank said.

EMEA HEADLINES

UK Inflation Hits Highest Level in a Decade at 4.2%

Annual inflation in the U.K. accelerated in October, reaching the highest level since December 2011, fueled by higher energy prices and mounting supply-chain disruptions.

The consumer price index--which measures what consumers pay for goods and services--increased 4.2% on the year in October following a 3.1% rise in September, the Office for National Statistics said Wednesday.

Siemens Healthineers Sets Medium-Term Earnings, Revenue Growth Targets

Siemens Healthineers AG on Wednesday set revenue and earnings-per-share growth targets for fiscal years 2023 to 2025 as it launched the third phase of its strategy through 2025.

The German medical-equipment maker said it expects revenue growth of 6% to 8% annually for fiscal years 2023 to 2025, while adjusted earnings-per-share growth is expected at 12% to 15% a year based on broad-based margin expansion.

SSE 1H Profit Rose; FY Performance Seen at Least in Line With Views

SSE PLC on Wednesday reported higher profit for the first half of the financial year, and said full-year earnings would be at least in line with market consensus.

The Scotland-based energy company made a pretax profit of 1.69 billion pounds ($2.27 billion) for the six months ended Sept. 30, up from GBP779.4 million a year earlier. The result included mark-to-market revaluation gains on derivatives of GBP1.2 billion, as a result of recent market volatility, it said.

Intesa Sanpaolo to Cut Further 2,000 Jobs by 2025

Intesa Sanpaolo SpA has struck an agreement with trade unions related to plans to shed a further 2,000 jobs through voluntary exits and hire up to 1,100 new workers by 2025.

The Italian bank said late Tuesday that its target of 2,000 people voluntarily leaving would affect the entire group, including managers.

British Land Swung to 1H Pretax Profit; Raises Dividend

British Land Co. on Wednesday reported a swing to pretax profit for the first half of fiscal 2022, boosted by the strong performance of its retail-park portfolio, and raised its dividend.

The real-estate company posted a pretax profit of 373 million pounds ($500.9 million) for the period ended Sept. 30 compared with a loss of GBP757 million for the first half of fiscal 2021. Underlying earnings per share--the company's preferred metric, which excludes exceptional costs--rose 23% to 12.9 pence, driven by a significant reduction in provisions.

Credit Suisse Appoints New Asia-Pacific Wealth Management Head

Credit Suisse Group has appointed Benjamin Cavalli as the head of wealth management for Asia-Pacific and as the chief executive of its Hong Kong branch.

The current Hong Kong branch chief executive, François Monnet, retires at the end of the year, Credit Suisse said on Wednesday.

Belarus Migrant Crisis Exposes Tensions Within European Union

A standoff between Belarus and the European Union over refugees stuck at the border between them is exposing cracks within the bloc, with eastern countries on the front line saying Germany is sidelining them in the confrontation.

On Monday, Poland was given just an hour's notice that departing German Chancellor Angela Merkel would be holding what ended up being a nearly hourlong phone call with Belarus leader Alexander Lukashenko, Polish officials said.

Iran Resumes Production of Advanced Nuclear-Program Parts, Diplomats Say

Iran has resumed production of equipment for advanced centrifuges at a site the United Nations' atomic-energy agency has been unable to monitor or gain access to for months, diplomats familiar with the activities said, presenting a new challenge for the Biden administration as it prepares for nuclear talks.

The renewed work has raised concerns among Western diplomats who say it could allow Iran to start secretly diverting centrifuge parts if Tehran chose to build a covert nuclear-weapons program, although they say there is no evidence at this point that it has done so.

Hungary's OTP Bank Invests in AI Supercomputer

OTP Bank, one of the largest financial services firms in Eastern and Central Europe, is making a multiyear investment in developing an artificial-intelligence supercomputer.

The bank, based in Budapest, said supercharged computing power will enable it to leverage advanced AI-powered language models, which can be trained to automate more banking services for Hungarian speakers while boosting internal data analytics tied to every aspect of the bank's operations. The amount of the investment was not disclosed.

GLOBAL NEWS

Treasurys Edge Toward Stability After Inflation-Driven Selloff

U.S. government bond yields are showing signs of stabilizing near the top of their 2021 range after a bout of selling precipitated by last week's surprisingly high inflation data.

The yield on the benchmark 10-year U.S. Treasury note settled Tuesday at 1.632%, according to Tradeweb, up slightly from 1.621% Monday after logging larger gains in the previous three sessions.

One of the World's Strongest Stock Markets Is Starting to Fizzle

Challenges are piling up for South Korea's once highflying shares.

Seoul has been one of the world's best-performing big stock markets, with its value topping $1.6 trillion in August, according to data from the World Federation of Exchanges. But it has since been hit by rising interest rates, slowing global growth, a clampdown on household borrowing and concern that memory-chip prices may have peaked. A day-trading boom among individual investors is also fizzling out, reducing a key source of support.

UK Inflation Hits Highest Level in a Decade at 4.2%

Annual inflation in the U.K. accelerated in October, reaching the highest level since December 2011, fueled by higher energy prices and mounting supply-chain disruptions.

The consumer price index--which measures what consumers pay for goods and services--increased 4.2% on the year in October following a 3.1% rise in September, the Office for National Statistics said Wednesday.

Japan's Exports Notch Eighth Month of Growth in October

Japan's exports increased in October for the eighth consecutive month, driven by demand for mineral fuels, steel and semiconductor related products in key overseas markets, Ministry of Finance data showed Wednesday.

Exports rose 9.4% compared with the same period a year earlier, easing from September's 13% increase. The result was weaker than the 11.5% increase tipped by a FactSet survey of economists.

Biden Says Fed Chair Pick Could Be Unveiled This Week

President Biden hinted to reporters Tuesday he could reveal his choice for Federal Reserve chief around the end of the week.

Mr. Biden is considering whether to reappoint Fed Chairman Jerome Powell when his four-year term expires in February or to pick Fed governor Lael Brainard for the position. Mr. Biden interviewed both candidates on Nov. 4, and he isn't considering other individuals, according to a person familiar with the matter.

Federal Government Could Be Unable to Pay Bills as Soon as Dec. 15, Yellen Says

The U.S. government could run out of resources to meet the nation's obligations as soon as Dec. 15, Treasury Secretary Janet Yellen said Tuesday, reviving questions about how Congress will resolve a standoff about raising or suspending the federal borrowing limit.

Ms. Yellen provided the new estimate of when the federal government might no longer be able to pay all of its bills in a letter to Congressional leaders. She had previously said that a debt-limit increase passed by Congress in October provided confidence that the federal government would be able to pay its bills at least through Dec. 3.

Senate Confirms Jonathan Kanter as Justice Department Antitrust Chief

WASHINGTON-The Senate confirmed Jonathan Kanter on Tuesday as the Justice Department's top antitrust official, adding a pro-enforcement lawyer to a Biden-administration team that has already been aggressive in addressing what it sees as threats to competition.

Mr. Kanter, 48, was confirmed on a bipartisan 68-29 vote, as Democrats and some Republicans believe antitrust enforcers should be doing more to protect competition in the marketplace, including in technology sector, agriculture and healthcare.

Biden's New Deal Ambitions Run Into Political, Economic Constraints

President Biden and his aides invoke liberal icons Franklin D. Roosevelt and Lyndon B. Johnson as role models for the historical impression he hopes to leave. His chief of staff, Ron Klain, late last month boasted that Mr. Biden's spending plan is "twice as big, in real dollars, as the New Deal."

In dollars alone, Mr. Biden's program is indeed big. But there are big differences between the political and economic landscape those earlier presidents faced and the present day that have already circumscribed Mr. Biden's plans and raise questions about their durability.

Biden, Xi Open to Nuclear-Arms Talks, White House Says

President Biden and President Xi Jinping of China have agreed to explore talks on arms control, a top White House official said, a day after the two used a virtual meeting to emphasize the need to avoid conflict on regional security and economic matters.

"The two leaders agreed that we would look to begin to carry forward discussions on strategic stability," White House national security adviser Jake Sullivan said Tuesday.

Australia to Beef Up High-Tech Prowess After Security Pact With U.S.

SYDNEY-Australia will strengthen its capabilities in quantum science and other technologies that could be used to counter threats from China, providing more detail on the type of innovations Australia might develop alongside the U.S. under a new security partnership.

Australia will invest the equivalent of about $81 million (111 million Australian dollars) in quantum technology, including for a hub that will foster strategic partnerships with like-minded countries to commercialize Australia's quantum research, officials said. It's just one of many critical technologies-including ultra-advanced 6G communications, genetic engineering and alternative fuels-that Australia plans to focus on in the coming years.

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(END) Dow Jones Newswires

November 17, 2021 06:27 ET (11:27 GMT)

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