MARKET WRAPS

Stocks:

European shares suffered steep falls on Wednesday, tracking global losses.

In the U.K., the FTSE 100 shed 1.5% as concerns remain about last week's debt-funded budget. Investors are wary of potential aggressive interest-rate rises by the Bank of England to counteract the impact of the spending proposals.

"The U.K. situation continues to provide concern, as the IMF waded in last night with a fairly blunt warning about the country's financial situation," IG said.

European steelmakers were sharply lower, squeezed by lower prices, falling volumes due to weak demand and materially higher costs, especially for energy, UBS said.

"It is a really challenging environment at the moment," UBS said.

Other Stocks to Watch:

Shares of Apple suppliers STMicroelectronics, Infineon and AMS fell on a report that said the tech giant was scrapping plans to increase production of its latest iPhones this year due to weaker-than-expected demand.

STMicro led the decliners, falling more than 5% in early European trading. Apple accounted for around 20% of the company's total revenue in 2021.

Read more here.

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Renault's overhaul of its operations is progressing well and shows in the car maker's strong first-half results, Berenberg said, as it upgraded the company to buy from hold.

"[W]e believe the shares should now further benefit from better sequential production volumes and resilient mix benefits," Berenberg said, raising its price target to EUR34 from EUR27.

Renault's strategic plan called Renaulution includes deep fixed-cost cuts--more than EUR2 billion since 2019--and strict pricing discipline, and the auto maker is one to two years ahead on the most important metrics.

Market Insight:

Danske Bank said U.K. gilt markets and sterling are currently reacting in a way that is normally preserved for emerging market economies.

A recent rise in gilt yields has accelerated significantly since Prime Minister Liz Truss's government presented its new mini budget on Friday.

"The market is now speculating that the BOE may hike policy rates by 100bp at its next rate meeting, or even deliver an emergency rate hike," Danske said.

Read: BOE Could Raise Rates by 150Bps in November as it Seeks to Restore Confidence

Economic Insight:

The fall in Germany's forward-looking consumer confidence indicator took it to its fourth record low in a row, Pantheon Macroeconomics said.

The GfK index dropped to minus 42.5 for October from a revised minus 36.8 for September. With the squeeze on consumers' real incomes set to intensify, as the energy levy comes into force this month, Pantheon doesn't expect a rebound in consumer confidence anytime soon.

Consumers are saving more and foregoing spending, Pantheon noted. This supports its view that household consumption will have fallen in the third quarter in Germany, dragging GDP down.

U.S. Markets:

Stock futures slid and bond yields rose as investors focused on signs of slowing economic growth, including a Bloomberg report that Apple had dropped plans to boost iPhone production.

The drop in U.S. futures suggested the S&P 500 could be on course to fall for a seventh straight session.

Elsewhere, the yield on the benchmark 10-year Treasury note edged up to 3.992% from 3.963% on Tuesday, climbing for a third consecutive trading session. It briefly traded above 4% earlier in the morning.

Forex:

As the dollar rises to another 20-year high against a basket of currencies and against the euro, MUFG said it may be reaching extreme levels and risks destabilizing markets further.

"If the current speed of dollar strength persists, the contagion effect destabilizing markets globally will only intensify further and heighten risks of a deeper global recession," MUFG said.

Coordinated intervention to tame dollar strength looks unlikely for now, but "we should never rule anything out."

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Sterling could visit new lows ahead of speeches by some "dovish" members of the Bank of England, Mizuho said.

Huw Pill, chief economist of the BOE, has advocated "significant monetary policy response," thus speaking a "hawkish" language, but upcoming speeches by Jon Cunliffe and Swati Dhingra could tilt the tone in the "dovish" direction, Mizuho said.

"We wouldn't be surprised to see cable testing lows in anticipation of Dhingra's remarks," Mizuho said.

Bonds:

A selloff in German Bunds accelerated after the German Finance Agency increased its debt issuance target in the fourth quarter to accommodate the financing of the government's energy measures.

The rise in Bund yields also impacted yields of eurozone peer issuers' bonds, too, according to Tradeweb data.

Read: Germany Raises Debt Issuance in 4Q

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Long-dated government bond yields are expected to continue rising over the next three months as high inflation figures keep ticking in, central banks tighten monetary policies further and concern about growing supply increases, Danske Bank said.

On a three-month horizon, the 10-year German Bund yield is expected to rise to 2.35%, while the 10-year Treasury yield should increase to 4.05%, Danske Bank said, adding that risks to these forecasts skew to the upside.

Danske expects bond yields to peak in 2022 and decline slightly in 2023.

Energy:

Oil prices reversed Tuesday's gains in early trade, as the dollar scaled a fresh high and risk assets sold off further.

DNB Markets said the declines in global equity markets are weighing on investor sentiment, which is undermining oil prices.

The stronger dollar makes oil crude contracts more expensive for foreign buyers, pushing down on prices. Other factors weighing on the market include reports that inventories rose last week and Goldman Sachs lowering its forecast for prices next year on prospects for weaker demand.

Read: European Natural Gas Prices Jump on Fears for Ukrainian Flows

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Other News:

Russian backing for an OPEC+ production cut would boost the chances that one will follow at the cartel's meeting next week.

Moscow has thrown its weight behind a 1 million barrel a day cut, Reuters reported. With an EU embargo on Russian oil set to come into force later this year, and Russia already significantly under producing its quota, Moscow "has every incentive...to try to orchestra a significant output cut," DNB Markets said.

With Brent prices continuing to tumble, defying OPEC's insistence that demand remains robust, the motives for a sizable cut from the group are growing.

"Given the decline in oil prices and the deteriorating macroeconomic outlook [Russia] might succeed in its effort."

Metals:

Base metals were lower, with copper retreating for a fourth session, but losses were contained on hopes for a pickup in Chinese demand.

Norway's Norsk Hydro said it would cut aluminum production at two of its plants due in part to weaker European demand.

"The market remains concerned about the impact of rising interest rates on economic activity and thus demand," ANZ said. Still, an easing of Covid-19 restrictions in China is boosting hopes of a pickup in demands, it added.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

U.K. Seeks to Calm Investors Over Clash Between Inflation Fight and Truss Tax Cuts

The U.K. government, after a punishing week for the pound and bond market in London, tried Tuesday to reassure investors that it is working to better coordinate with the Bank of England as Prime Minister Liz Truss's tax cuts and energy subsidies complicate efforts to control spiraling inflation.

U.K. Chancellor of the Exchequer Kwasi Kwarteng said he was meeting Bank of England Governor Andrew Bailey daily.

   
 
 

U.K. Market Turmoil Ripples Into Home Loans

LONDON-Some British banks paused new mortgage lending Tuesday, the latest fallout from market turbulence fueled by the new government's plans for sweeping tax cuts and energy subsidies.

At least six mortgage lenders stopped offering some loans, or briefly halted lending to home buyers altogether, according to UK Finance, an industry trade group.

   
 
 

German Consumer Sentiment Expected to Hit Record Low in October

Consumer confidence in Germany is set to fall in October to an all-time low as income expectations plunge due to high inflation.

Market research group GfK's forward-looking consumer-sentiment index forecasts confidence declining to minus 42.5 in October from a revised figure of minus 36.8 in September. October's figure is worse than a forecast from economists polled by The Wall Street Journal of minus 38.5.

   
 
 

Chip Stocks Fall on Report Apple Is Scrapping Boost to iPhone Production

Shares of Apple suppliers STMicroelectronics and Taiwan Semiconductor fell Wednesday on a report that said the tech giant was scrapping plans to increase production of its latest iPhones this year due to weaker-than-expected demand.

Dutch-Swiss chipmaker STMicro (ticker: STM) led the decliners, falling more than 5% in early European trading. Apple (AAPL) accounted for around 20% of the company's total revenue in 2021. In Asian trading, Taiwan Semiconductor (TSM) slipped 2.2%, while iPhone assembler Hon Hai Precision Industry, also known as Foxconn, was close to 3% lower.

   
 
 

Wall Street to Pay $1.8 Billion in Fines Over Traders' Use of Banned Messaging Apps

WASHINGTON-Eleven of the world's largest banks and brokerages will collectively pay $1.8 billion in fines to resolve regulatory investigations over their employees' use of messaging applications that broke record-keeping rules, regulators said Tuesday.

The firms include brokerage units of Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, UBS Group AG and Nomura Holdings Inc. Brokerage firms Jefferies LLC and Cantor Fitzgerald & Co. also settled the claims with the Securities and Exchange Commission and the Commodity Futures Trading Commission.

   
 
 

Hertz, BP Partner to Bring EV Charging Stations Across North America

Car-rental company Hertz Global Holdings Inc. and energy firm BP PLC said they signed a deal to develop and manage a network of electric-vehicle charging stations across North America.

BP Pulse, which is BP's EV charging business, would power and manage Hertz's charging infrastructure under the memorandum of understanding, the companies said. The charging infrastructure will be open to taxi and ride-sharing drivers, as well as the general public, the companies said.

   
 
 

U.S., Europe Prepare New Sanctions on Russia After Kremlin's Nuclear Threats

The U.S. and European Union are poised to adopt new sanctions on Russia, though some EU members are questioning existing restrictions and the economic pain in Europe is growing.

The European Commission, the EU's executive body, is likely to propose new import and export controls on Russia as soon as Wednesday, according to officials involved in the talks, including an import ban on some Russian diamonds. It will also propose placing additional Russian officials and pro-Kremlin separatists on its sanctions list in the coming days, in a modest new package of measures to increase pressure on the Kremlin.

   
 
 

Russia Prepares to Annex Parts of Ukraine as Staged Votes End

MYKOLAIV, Ukraine-Russia is set to formally annex occupied territories in Ukraine after staging referendums that involved coercion, threats and, in some places, soldiers going door to door and forcing people to vote at gunpoint.

Kyiv and Western governments have described the votes as a sham designed to confer a veneer of legitimacy to Moscow's seizure of Ukrainian land seven months on from its invasion. They could also enable Moscow to claim that any effort by Ukrainian forces to recapture the territories, in the south and east of the country, amounts to an attack on Russia itself.

   
 
 

Iran Targets Celebrity Supporters of Protests as Movement Spreads

As protests in Iran over the rights of women expand, the Islamic establishment is now attempting to suppress the voices of the most visible supporters of a movement that so far has been leaderless: celebrities.

Many prominent Iranian actors, directors, artists, poets and sports professionals have publicly backed those protesting the Islamic Republic's morality laws, after the death of 22-year-old Mahsa Amini in police custody for allegedly violating the country's strict dress code.

   
 
 
   
 
 

GLOBAL NEWS

10-Year Treasury Yield Hits 4%

The yield on 10-year U.S. government bonds hit 4% for the first time in more than a decade Wednesday, the latest leg of a historically steep rise that has jolted financial markets this year.

Yields, which rise when bond prices fall, have been climbing at their fastest pace in four decades because of escalating expectations for how high the Federal Reserve will raise short-term interest rates to tamp down the worst inflation since the 1980s.

   
 
 

China's Offshore Currency Hits Record Low Against Dollar

China's currency hit its weakest ever offshore trading level against the U.S. dollar, with the yuan falling below 7.2 to the dollar for the first time since a separate system for trading the currency outside mainland China was launched more than a decade ago.

The move caps a fall of about 12% for the offshore yuan against the dollar this year and comes despite repeated attempts by China's central bank to support its currency. The U.S. dollar has gained against currencies around the world amid a campaign of aggressive interest rate increases by the Federal Reserve.

   
 
 

Senate Advances Stopgap Funding Bill After Removing Joe Manchin's Permitting Overhaul

WASHINGTON-Sen. Joe Manchin (D., W.Va.) on Tuesday threw in the towel on including his contentious proposal to speed up permitting of energy projects in a must-pass funding bill, clearing the way for the Senate to advance the legislation needed to keep the government open.

With the permitting language out, the Senate voted 72 to 23 to advance the stopgap bill, which would extend current government funding levels until Dec. 16 and prevent a partial shutdown this weekend, when the fiscal year ends. The bill now moves to final passage in the Senate and will also need approval in the House, which returns Wednesday, before heading to President Biden's desk.

   
 
 

Kashkari Says Fed Needs to Keep Tightening Until There's Compelling Evidence of Declining Inflation

Federal Reserve Bank of Minneapolis President Neel Kashkari said the U.S. central bank needs to tighten monetary policy until underlying inflation is declining, and then wait to see whether it has done enough.

"The one mistake that I'm acutely aware of-that I want to avoid repeating from the 1970s-is when policy makers saw the economy weakening, saw inflation start to tick down, and then they cut rates, thinking they had done the job. And then inflation flared back up again-that, I believe, is a mistake we cannot make and will not make," Mr. Kashkari said Tuesday during an online event hosted by The Wall Street Journal.

   
 
 

Stopgap Funding Bill Includes $12.3 Billion in New Ukraine Aid

WASHINGTON-Senate Democrats have included another $12.3 billion in economic and military aid for Ukraine in a must-pass government funding bill, a proposal that would bring U.S. spending on Kyiv's efforts to repel Russia's invasion to more than $65 billion this year.

Congress has until Friday, the end of the fiscal year, to pass the bill and keep the government funded through Dec. 16.

   
 
 

China's Xi Jinping Re-Emerges in Public After Quarantine

BEIJING-Chinese leader Xi Jinping got out of quarantine and made his first public appearance since visiting Central Asia, trumpeting his governance record over the past decade as he prepares to extend his rule for a third term.

Until Tuesday, Mr. Xi hadn't appeared in public since his trip earlier this month to Central Asia, where he met with Russian President Vladimir Putin, because he was abiding by quarantine protocols that China imposes on people returning from overseas travel, according to people familiar with the matter.

   
 
 

Write to paul.larkins@dowjones.com

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

September 28, 2022 05:30 ET (09:30 GMT)

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