European stocks struggled for traction again on Tuesday, in
another cautious trading session, as investors faced up to the risk
that the Federal Reserve will continue to raise interest rates
throughout the next year.
Monday's hotter-than-expected U.S. services-sector reading
fueled concerns that the Fed may need to be even more aggressive in
its inflation battle.
"If nothing else, the ISM services report is being interpreted
as very strong, and thus the economy is overheating and that means
more Fed tightening," FHN Financial said.
Europe faces recession in 2023, though this is unlikely to be
deep, thanks to government support that has been put in place,
Natixis said. "Governments are intervening in a very meaningful and
There is some uncertainty about whether money will reach
everyone in time and exactly those who need it the most, Natixis
But the numbers put on the table are big enough to shelter the
economy from a larger recession that could have been anticipated
given the energy shock.
Stock futures edged higher, putting indexes on course to ease
some of the prior day's sharp losses, as investors awaited a fresh
look at the economy from trade data.
The yield on the 10-year Treasury note eased lower to 3.583%,
from 3.598% on Monday. The benchmark note's yield has largely
trended lower over the last month.
Later in the day, investors will eye trade-deficit data that is
expected to show the trade gap in goods and services widened
further in October. The deficit grew for the first time in six
months in September.
The dollar continued to edge higher after the
stronger-than-expected U.S. ISM non-manufacturing report dampened
expectations the Fed could pivot on its aggressive interest rate
"The longer U.S. data surprises on the upside and the longer the
U.S. economy is robust the more doubts are probably going to
increase as to whether the U.S. will actually face a recession next
year and whether the U.S. central bank will actually cut its key
rate at that stage," Commerzbank said.
It said the dollar may stabilize over coming weeks following the
pronounced depreciation over past weeks.
The euro looks vulnerable to a potential renewed rise in energy
prices as the eurozone's supply issues persist, ING said.
"The freshly imposed EU embargo on Russian seaborne crude and
the $60 per barrel price cap may start to show their effects on the
energy market soon. When adding an expected drop in temperatures in
Europe from this week, the risks of a new rally in energy prices
are non-negligible, and the euro is highly exposed to such
EUR/USD is "mostly facing downside risks," ING said.
Trading below 190 basis points, the 10-year Italian BTP-German
Bund yield spread "is probably below where most would have put [it]
just one week before the ECB takes decisive steps toward unwinding
its bond portfolio," ING said.
This tool has been instrumental in compressing spreads and "most
would expect that going into reverse would put widening pressure to
spreads, even if the effect might not be felt immediately," ING
Besides an expected interest-rate rise, the focus at next week's
ECB meeting has been on the timing and size of quantitative
tightening, with little noticeable market impact so far.
Read Italian-German 10-Year Spread Expected to Widen in 1H 2023
on ECB's QT
Linker gilts attracted stronger demand than nominal gilts in the
first week of the Bank of England's sale of emergency gilt
acquisitions, Bank of America said,
BofA said the maturity of the U.K. November 22, 2022
index-linked gilt and the exit of a linker from the over 5-year
inflation linked index caused huge demand for longer-dated
"For portfolios benchmarked against affected indices, this will
likely have prompted to rebalance their portfolios-- shifting
longer--creating demand for longer dated issues."
The BOE sold GBP2 billion linkers and GBP1.3 billion nominal
gilts in the first week of the operation.
Crude futures held solid gains after Beijing relaxed rules on
Covid-19 testing, helping sentiment in the oil market.
"China's reopening sentiment should provide a plank for the
crude price to springboard off," said SPI Asset Management.
Base metals were mixed, with gold little changed, as traders
remained uncertain on whether the Fed will keep hiking rates into
Positive economic data on Monday "lifted interest rate
expectations and helped propped the dollar higher," weighing on
metals, Marex said.
Elsewhere, Bloomberg reported that the EU and U.S. are
considering tariffs on Chinese aluminum and steel, citing unnamed
DOW JONES NEWSPLUS
German Factory Orders Rebounded More Than Expected in
Manufacturing orders in Germany increased in October after
falling the previous two months, a sign demand for goods could be
Factory orders rose 0.8% in October compared with the previous
month, according to price-adjusted data from the German statistics
office Destatis released Tuesday.
UK Retail Sales Rose in November on Year But Inflation
Retail sales in the U.K. rose in November compared with the year
before, according to the latest report by KPMG and the British
Retail Consortium--though given high inflation rates, the rise
masked a much larger drop in volumes.
British retail sales between Oct. 30 and Nov. 26 rose 4.2%
compared with the same period a year before, the report found. This
was below the 5.0% noted in November 2021, but exceeds the
three-month average growth rate of 2.6%.
Fresenius Medical Care CEO to Leave; Appoints CFO as New
Fresenius Medical Care AG's chief executive is to leave
following repeated guidance cuts this year, with finance chief
Helen Giza set to take the reins of the dialysis-care company.
CEO Carla Kriwet will leave the company at her own request and
by mutual agreement amid strategic differences, FMC said late
Monday. The company has twice this year slashed financial guidance
for the full year, pointing to a worsening macro backdrop that has
resulted in rising supply-chain costs. The company also withdrew
its mid-term targets given the continued pressures.
U.S., EU Agree to Coordinate Semiconductor Subsidy Programs
COLLEGE PARK, Md.-Top U.S. and European Union officials agreed
to work closely to strengthen semiconductor supply chains,
including sharing information about their respective programs to
provide massive subsidies to promote domestic chip production.
At a Monday gathering to discuss trade and technology issues,
however, the two sides failed to make progress on a dispute over
the U.S.'s new electric-vehicle program that has strained bilateral
ties, an issue that was raised by French President Emmanuel Macron
during his meeting with President Biden last week.
Iran Considers Easing Some Restrictions on Women as Protests
Iranian officials said they were finalizing plans to overhaul
the enforcement of laws around women's dress, as hundreds of
businesses in Tehran and other Iranian cities closed their doors
Monday at the start of a three-day strike called by antigovernment
But the prospect of government concessions appeared unlikely to
satisfy many protesters who have called for a mass rally in Tehran
Investors Yank Money From Commercial-Property Funds, Pressuring
Big and small investors are queuing up to pull money out of
real-estate funds, the latest sign that the surge in interest rates
is threatening to upend the commercial-property sector.
Blackstone Inc. last week said it would limit the amount of
money investors could withdraw from its $69 billion flagship
real-estate fund following a surge in redemption requests. Starwood
Capital Group shortly after notified investors that it was also
restricting withdrawals in a $14.6 billion fund, according to a
person familiar with the matter.
Oil Prices and Energy Stocks Are Headed in Different Directions.
Oil is sitting out Wall Street's year-end rally.
While recent hopes that inflation has peaked sparked sharp gains
in stocks and bonds, oil prices just bounced off their 2022 lows,
hit by worries about slowing global growth eating into demand for
fuel. Early gains for crude Monday, triggered by easing Covid
restrictions in China and a price cap on Russian oil, quickly
China's Covid Easing Fuels Stock-Market Hopes-and Fans Fears
Chinese stocks have recently been whipsawed by the country's
attempts-and its numerous struggles-to move past the Covid-19
Investors say it is only the beginning of what is likely to be a
long and tumultuous period, as Beijing tries to pivot from a
zero-tolerance Covid policy characterized by lockdowns and numerous
restrictions to living with the virus and limiting its damage to
the economy. Economists and strategists say China's path to
reopening in the coming year is littered with hurdles that make it
difficult for investors to predict the impact on domestic spending,
corporate earnings and the country's stock market.
RBA Raises Rates; Says Path to Soft Landing Is Narrow
SYDNEY-The Reserve Bank of Australia continued to raise interest
rates cautiously at its final board meeting for the year,
maintaining the pace of increases despite early signs that
inflation may be peaking.
The RBA on Tuesday raised the official cash rate by 25 basis
points to 3.10%. It was the third straight month that the RBA,
which said it still expects to raise rates further, increased
borrowing costs by that amount.
Why Monday's stock-market rout should be a wake up call for
Monday's punishing selloff could be the beginning of the next
leg lower for stocks as a sense of complacency has taken hold in
markets following a stellar October and November, several
strategists told MarketWatch.
In a note to clients on Monday, Jonathan Krinsky, chief
technical strategist at BTIG, said that U.S. stocks were primed to
tumble after the S&P 500 SPX bounced off its latest resistance
level, which coincided with the index's 200-day moving average, a
key technical level for assets. Krinsky illustrated the pattern in
a chart included below.
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(END) Dow Jones Newswires
December 06, 2022 06:02 ET (11:02 GMT)
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