MARKET WRAPS

Stocks:

European shares jumped early Tuesday, helped by the positive sentiment in global markets.

Financial stocks gained, as investors factored in the possibility the Federal Reserve might be forced to back away from aggressively tighter monetary policy.

"Risk-on sentiment has lifted global markets, with Asia rallying and momentum carrying forward to the European session," Interactive Investor said.

Growing warnings about a potential U.S. recession have been accompanied by renewed chatter about the possibility of a Fed pivot, suggesting a risk that investors are "again underestimating the Fed's resolve as it seeks to tackle inflation," said Deutsche Bank.

Stocks to Watch:

Unhelpful read across from Nike's first-quarter results last week couldn't come at a worse time for Adidas, Hauck & Aufhaeuser said.

Nike booked decent sales growth for the first quarter of its fiscal year but operating profit declined on year and inventory leapt amid supply-chain volatility.

Excess stock will mean intensified promotional activity ahead, weighing on Adidas's own margins, H&A said, noting that the timing couldn't be worse as the sector faces a depressed consumer environment in the coming months and into next year.

H&A has cut estimates for Adidas, kept its sell rating but trimmed the target price to EUR95 from EUR120.

Economic Insight:

S&P said in its latest forecast that U.K. GDP is expected to contract by 0.5% next year.

"As inflation rises further over the winter, consumer spending is set to contract, leading the broader U.K. economy into a moderate technical recession."

S&P said GDP is expected to grow by 1.4% in 2024 and 1.6% in 2025.

"Growth in the latter years will, albeit to a limited extent, benefit from the recently announced medium and longer-term fiscal policies aimed at boosting the U.K. economy's growth potential."

U.S. Markets:

Stock futures rose sharply, suggesting the major indexes could extend Monday's strong rally.

Treasury bonds also gained, pushing the yield on the benchmark 10-year note down to 3.595% from 3.650%

Read: 10-Year Treasury Yield Likely Peaked, Charts Show

Stocks to Watch: Tesla's stock climbed 3% premarket, clawing back some of Monday's losses that came after its disappointing data on deliveries.

Cathie Wood's ARK funds said it had snapped up Tesla stock after the EV maker's shares tumbled.

Read more here.

Forex:

The dollar extended its recent correction lower as Treasury yields declined due to growing expectations that the end may be in sight for U.S. rate increases.

"The pullback for U.S. yields and dollar appears to reflect in part that market participants have become more comfortable that the Federal Reserve is moving closer to the end of their rate hike cycle," MUFG Bank said.

Market expectations for the Fed's peak rate in 2023 have fallen to around 4.39% from 4.75%, MUFG said.

---

Sterling extended its advance after the U.K. government reversed plans to scrap the top rate of income tax, but ING said the currency remains vulnerable due to a lack of political credibility and a still-elevated risk of a rating downgrade.

"The pound continues to face very significant downside risks as the large twin deficit, low market confidence in the new government and a grim outlook for Europe heading into winter all point to the unsustainability of 1.10+ levels in GBP/USD," ING said.

Bonds:

The small amount of gilts bought by the Bank of England under the program it initiated last week to address instability in the bond market may be a sign that the central bank senses the market stress easing, KBC Bank said.

Over the four days since the start of the program, the BOE bought GBP3.66 billion of a potential maximum GBP20 billion, KBC added.

The BOE probably also avoids too much interference of current buying with its overall policy stance, KBC said. The BOE is set to buy long-dated gilts until Oct. 14.

---

Citi said that following the recent sell-off, 10-year gilts offer a 96-basis-point pickup over Treasurys for U.S. investors when FX-hedged for three months, adding that this is the largest pickup in at least seven years and the best return for U.S. investors within major developed markets except for eurozone government bonds.

The yield pickup in the 30-year maturity segment is around 70bps, still relatively attractive, Citi said. However, for investors over a one-year horizon, the FX-hedging cost associated with gilts becomes highly punitive for dollar-denominated investors.

Energy:

Oil prices extended their modest gains as investors awaited Wednesday's OPEC meeting and likely output cut.

"Emboldened by the thought of a convincing OPEC backstop, a soggy dollar and a softer rate profile helping growth recover, oil prices continued to march higher...ahead of tomorrow's anticipated OPEC production cut," SPI Asset Management said.

Metals:

Base metals pushed higher on improving macroeconomic sentiment across risk assets.

"The macro mood feels better this morning and a few market indicators are now flashing green," Peak Trading Research said.

Employment data on Friday will further help determine how risk assets move, Peak added.

Other Comment:

UBS said commodity demand could slow over the coming six months as consumers in developed markets are squeezed by high energy costs and rising rates while in China, pandemic-related restrictions are likely to stifle growth and the property market should remain weak.

The outlook for commodity supply is more mixed, it said, and tipped rising production of copper, iron ore and platinum group metals but expected aluminum, zinc, gas and coal markets to continue facing disruptions.

For investors, thermal coal and gas should be top picks because supply disruptions are likely to support prices for two-to-three years, UBS said.

"We also remain constructive on lithium."

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Concerns About Credit Suisse Mount After Debt Slide

Credit Suisse Group AG came under renewed pressure over its financial health after the value of its riskiest bonds sank and the cost to insure against default rose sharply.

Investors and analysts called on the Swiss banking giant, which combines a Wall Street presence with a global specialty in managing rich people's money, to move faster with cost savings and fresh investor capital to reassure markets.

   
 
 

Atlantia $12.5B Buy-Out Bid Launched After Getting Final Green Light

U.S. fund Blackstone Inc. and Italy's Benetton family have officially launched their takeover offer for Atlantia SpA after receiving the go-ahead from the Italian market watchdog, they said late Monday.

The offer for the operator of toll roads and airports is for a maximum 552.4 million shares, or 66.9% of the company's share capital, at 23 euros a share, according to Schema SpA, Blackstone and the Benettons' investment vehicle. This implies a maximum offer value of up to around EUR12.7 billion ($12.5 billion) giving Atlantia an equity value of around EUR19 billion.

   
 
 

Sika Raises 2022 Sales Guidance

Sika AG on Tuesday raised its guidance for sales for 2022 and confirmed the strategic fit of its planned acquisition of MBCC Group ahead of its Capital Markets Day.

The Swiss building-products company said it expects sales in local currencies to rise by over 15% for 2022, with an over-proportional increase in earnings before interest and taxes.

   
 
 

Legal & General Backs 2022 Operating Profit; Capital Generation Despite Volatility

Legal & General Group PLC said Tuesday that it continues to benefit from positive momentum in the second half, despite the increased market volatility, and backed its guidance for the full-year operating profit and capital generation.

The FTSE 100-listed insurance company said that it expects to deliver 2022 operating profit growth in line with the 8% growth delivered in the first half, while capital generation is forecast to come in at 1.8 billion pounds ($2.04 billion).

   
 
 

ProSiebenSat.1 Media CEO Rainer Beaujean to Step Down, Bert Habets to Take Over

ProSiebenSat.1 Media SE said that the current Group Chief Executive Officer Rainer Beaujean has resigned and that he will be succeeded as CEO by Bert Habets.

The German broadcaster said Mr. Beaujean has resigned by mutual agreement with the Supervisory Board. Mr. Habets, who will take over in November, has been involved as a member of the Supervisory Board since May 2022, the company said on Monday.

   
 
 

French Prosecutors Open Corruption Probe Into Top Macron Aide

PARIS-A top aide to French President Emmanuel Macron was placed under formal investigation for allegedly violating conflict-of-interest laws involving his family ties to a Swiss-Italian shipping company that fell under his purview while he was a senior finance official.

Prosecutors say they opened the probe after anticorruption group Anticor filed a complaint targeting Alexis Kohler, Mr. Macron's chief of staff. Anticor alleges that Mr. Kohler failed to disclose his relationship with Mediterranean Shipping Co., which is owned by a relative, and helped defend the company's interests when he worked for the APE state holding agency between 2010 and 2012, a spokeswoman for the group said.

   
 
 

Ukraine Pushes South Into Strategic Kherson Region

KHARKIV, Ukraine-Ukrainian forces broke through Russian lines and made new advances in the southern Kherson region, while expanding their rapid offensive in the eastern part of the country, retaking areas that Moscow now claims to be part of Russia.

Pushing some 20 miles south in Kherson, the new Ukrainian advance secured a corner of the only Russian foothold on the western bank of the Dnipro River, which bisects the country. Ukraine has in recent months destroyed all the bridges to that enclave, which includes the regional capital, Kherson, making it increasingly difficult for the large Russian military contingent there to be resupplied with fuel, ammunition and food.

   
 
 

Russia's Lower House Approves Absorbing Ukrainian Territories

MOSCOW-Russian lawmakers moved forward with formalizing the absorption into Russia of occupied Ukrainian territories on Monday despite mounting battlefield setbacks and a lack of control over the regions they voted to incorporate.

Deputies in the State Duma, Russia's lower house of parliament, unanimously approved bringing Russian-controlled Luhansk and areas of Donetsk, Kherson and Zaporizhzhia under Moscow's control, increasing to 89 the number of Russian constituent territories.

   
 
 

London Heathrow to Drop Daily Passenger Cap After Chaotic Summer

LONDON-London Heathrow Airport has told airlines it will lift a cap on passenger numbers at its terminals later this month, according to people familiar with the decision, ending one of the most extraordinary measures the aviation industry put in place this summer to deal with a surge in travel and a shortage of workers.

The cap, which limits daily departing passengers from its terminals to 100,000 a day, won't continue beyond Oct. 29 when the official summer flying season ends, people briefed on the matter said.

   
 
 
   
 
 

GLOBAL NEWS

U.S. Seeks to Further Restrict Cutting-Edge Chip Exports to China

The Biden administration is preparing new export controls on semiconductors and the machines to make them, the latest push in its effort to deny China the ability to make the fastest, most cutting-edge circuitry possible, according to people familiar with the situation.

The administration in recent weeks has already placed new restrictions on some U.S. exports of chips used for artificial-intelligence calculations and manufacturing equipment used to make some of the most powerful number-crunching chips.

   
 
 

Crypto Could Threaten Financial System, Federal Risk Panel Warns

WASHINGTON-Risks tied to cryptocurrencies could grow rapidly and eventually threaten the broader financial system, a panel of senior U.S. officials warned Monday, calling for tougher oversight of digital assets.

The Financial Stability Oversight Council, chaired by Treasury Secretary Janet Yellen, said the crypto industry remains small compared with the overall financial system, but that could change quickly and exacerbate potential systemic risks.

   
 
 

RBA Slows Pace of Rate Increases as Household Budgets Tighten

SYDNEY-The Reserve Bank of Australia slowed the pace of recent interest-rate increases at a policy meeting Tuesday, citing a deterioration in the global economic outlook and growing concern about tightening household budgets.

The RBA raised the official cash rate by 25 basis points to 2.60%, surprising most economists who expected a further 50-basis-point increase.

   
 
 

Top Fed Official Warns of More Persistent Price Pressures

Despite some signs of easing inflation, underlying price pressures have too much momentum and will likely require a period of higher interest rates, a top Federal Reserve official said Monday.

The economy is already seeing some of the effects of the Fed's efforts to slow demand, including higher borrowing costs and mortgage rates and falling stock prices, which "have become significantly less supportive of spending," said New York Fed President John Williams in remarks prepared for delivery Monday.

   
 
 

U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases

The Federal Reserve and other central banks risk pushing the global economy into recession followed by prolonged stagnation if they keep raising interest rates, a United Nations agency said Monday.

The warning comes amid growing unease about the haste with which the Fed and its counterparts are raising borrowing costs to contain surging inflation. India's central bank Friday said that the global economy was facing a third major shock after the Covid-19 pandemic and Russia's invasion of Ukraine, in the form of aggressive rate increases by central banks in rich countries.

   
 
 

North Korea Launches Missile Over Japan

SEOUL-North Korea flew a missile over Japan for the first time since 2017, Seoul and Tokyo officials said, a significant escalation that led to Japan issuing warnings for citizens to take shelter.

A single intermediate-range missile was launched at 7:23 a.m. local time from the North's Chagang Province, bordering China, South Korea's military said. The missile flew about 2,800 miles, hitting an altitude of roughly 603 miles, according to Japanese and South Korean assessments.

   
 
 

Trump Files Defamation Lawsuit Against CNN, Seeking $475 Million

Former President Donald Trump filed a defamation lawsuit Monday against CNN, accusing the network of engaging in a smear campaign against him in the lead-up to the 2024 presidential race.

Mr. Trump's suit, filed in a federal court in southern Florida, alleged CNN has sought to use its influence with viewers to spread false claims about him for the purpose of defeating him politically. He accused CNN of associating him with Adolf Hitler and portraying him as a Russian lackey and a racist. The network, he alleged, has been escalating these efforts recently in the expectation that he may run for president again in 2024.

   
 
 

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(END) Dow Jones Newswires

October 04, 2022 05:31 ET (09:31 GMT)

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