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Eurozone, Germany, France, U.K., Flash PMI; France Business Sentiment; ECB Economic Bulletin; U.K., Switzerland, Norway, South Africa, Turkey Interest Rate Decisions; U.K. BOE Meeting Minutes, Consumer Confidence; updates from Merck KGaA, Air France-KLM, Royal Mail, Fuller Smith & Turner, Investec

Opening Call:

Europe is set for a firmer open as investors digest the latest Fed policy update. In Asia, most stocks climbed, the dollar and Treasury yields eased back slightly, oil edged higher but gold extended its retreat.


Shares in Europe should extend gains on Thursday, following a higher finish on Wall Street and despite the prospect of the Federal Reserve reversing its stimulus as early as November.

All three major U.S. indexes finished higher on Wednesday, marking the first day of gains for the S&P 500 and Dow Jones Industrial Average after a punishing four-session losing streak. Both indexes finished the day up 1% to record their largest one-day gain since July.

Some of the recent fears spurred by Evergrande started to subside, and investors turned their attention to the Fed following the conclusion of its two-day September meeting.

In a statement issued after its meeting, the Fed said that if economic progress continues broadly as expected, "a moderation in the pace of asset purchases may soon be warranted." Jerome Powell added later that officials generally agreed that "a gradual tapering process that concludes around the middle of next year is likely to be appropriate."

The central bank left interest rates unchanged, though new projections released showed half of 18 officials expect to raise interest rates by the end of next year, up from seven officials in June.

The Fed's decision sent stocks rocketing, with the Dow gaining as much as 521 points. But as Mr. Powell spoke at a news conference in the afternoon, indexes bounced around before eventually paring their gains for the day.

"Markets are keenly aware of the effect of interest-rate increases on cash flow, earnings and all kinds of things," said Jamie Cox, managing partner for Harris Financial Group, of the market's reaction to the Fed statement. "Chairman Powell has said the test for [an interest rate increase] is quite a bit higher than it is for tapering."


The dollar eased back slightly in Asia, having gained after some back and forth trading on Wednesday following Jerome Powell's hawkish remarks.

The euro remained generally elevated and ING said a recent unwinding of carry trades funded in euros may be helping the currency to outperform, particularly against sterling. EUR/GBP, which hit a two-week high of 0.8615 on Wednesday, having risen steadily since late last week, was recently at 0.8586.

Ahead the Bank of England rate decision, the pound was steady having fallen recently, as some market participants question whether the central bank may be too optimistic over its rate-rise prospects given a shaky U.K. economic outlook.

"Some people in the FX market may be getting worried that the BOE's view is overly aggressive," Marshall Gittler, head of investment research at BDSwiss said.

The BOE said at its last meeting that "some modest tightening of monetary policy over the forecast period is likely to be necessary" and the market is therefore pricing a full interest-rate rise by June, Gittler said.

The Norges Bank is widely expected to raise interest rates from zero to 0.25% on Thursday, but it may need to signal another rate rise in December to give a significant boost to the Norwegian krone, Niels Christensen, currency strategist at Nordea said.

A rate increase is "a done deal," which will leave focus on the central bank's accompanying message and the rate path. "The message needs to support a rate hike at the December meeting for the Norwegian krone to rise," he said.

EUR/NOK last traded at 10.1272 but could fall toward 10.00 after the Norges Bank announcement, although it is unlikely to drop below that level, Christensen said.


Treasury yields weakened slightly, after those on all but the longest-term U.S. bonds climbed following the Fed meeting, reflecting greater clarity on tapering and rate hike timing.

"The Fed is looking past the Covid Delta wave, while acknowledging that it has 'slowed' the recovery in the most Covid-sensitive sectors in recent months," Pantheon said. "But with inflation 'elevated' and policymakers seemingly confident that growth will rebound post-Delta, the Fed no longer needs to pump $120 billion per month into the markets."

In the U.K., the BOE is expected to keep monetary policy unchanged and offer muted signals regarding when it could start scaling back pandemic-era stimulus at Thursday's rate decision, Brown Advisory said.

Rate-setters will "be very firmly on hold," Ryan Myerberg, portfolio manager in Brown Advisory's Global Sustainable Fixed Income team said. The event is likely "to be one of those meetings where they try to say and signal as little as possible and move on to November."

In Myerberg's view, there's more than "enough uncertainty" to the economic picture to allow the Monetary Policy Committee to remain in assessment mode without having to signal any specifics to the market with regards to the timing for quantitative tightening.


Oil prices edged higher in Asia after they closed up over 2% on Wednesday, as the EIA reported a seventh straight weekly decline in U.S. crude inventories.

However, S&P Global Platts said signs of excess supply of Middle Eastern crude in the Asian market, could cap future gains for oil. "Unsold supplies of Middle East crude could weigh on sentiment for the last few days of the November-loading cycle," Platts said.

While this would mainly impact prices of Middle Eastern benchmarks like Dubai or Oman crude, signs of faltering Asian demand could also put downward pressure on other international oil benchmarks.


Gold futures were lower, extending Wednesday's losses, following the Fed's hawkish policy statement.

"With a taper now almost nailed on this year and rates potentially rising from next, it seems gold's appeal is beginning to wane," Oanda said, adding that the precious metal could fall to as low as $1,740 an ounce.

However, Oanda thinks much of the risk looks priced in, so "just because the Fed is moving to a tightening path, it doesn't mean gold is in freefall."

Aluminum was modestly higher, as power shortages in China contributed to a slowdown in industrial metals production, ING said.

The bank said that grid companies in China have issued warnings on power shortages amid growing electricity demand in the country. This has led to disruptions to multiple industries including metals smelting and downstream semi-fabricating. Rising thermal coal prices were also exacerbating the problem, ING added.

Iron-ore prices were back above $100/ton, but the risk is that the upward move is only temporary.

Commonwealth Bank of Australia said the rebound could reflect restocking demand in China ahead of the National Day holidays in October, and market participants returning after the Mid--Autumn Festival holiday this week. Prices also gained after China's Evergrande onshore property unit said it reached an agreement with yuan bondholders on an interest payment.

Still, CBA said that property construction looks set to weaken in China as default risks rise for Evergrande as more bond payments become due. "If a default were to occur, it would lead to an even more aggressive fall in China's property construction activity," CBA said.

With Chinese property markets weakening and the risks to the Chinese economy rising, Jefferies has cut its iron-ore price forecasts. It now expects iron-ore fines to average $150/ton this year, down 11% from a prior projection of $169/ton. It also expects prices to average $90/ton next year, compared with $130/ton before.

"We estimate that the Chinese property markets account for about 25% of the country's demand for steel," Jefferies said. That implies Chinese property accounts for about 15% of global steel demand.



Fed Tees Up Taper and Signals Rate Rises Possible Next Year

The Federal Reserve signaled it was ready to start reversing its pandemic stimulus programs in November and could raise interest rates next year amid risks of a lengthier-than-anticipated jump in inflation.

The Fed's rate-setting committee, at the end of a two-day gathering, indicated in its postmeeting statement Wednesday that it could start to reduce, or taper, its $120 billion in monthly asset purchases as soon as its next scheduled meeting, Nov. 2-3.


Major Evergrande Shareholder Looks to Exit Company

One of China Evergrande Group's largest shareholders has pared its stake in the debt-laden conglomerate and said it could exit the company amid concerns about the developer's financial condition.

Chinese Estates (Holdings) Ltd., the property investment company of Hong Kong tycoon Joseph Lau, said Thursday that it would seek to sell some or all of its 751.1 million shares in Evergrande within the next 12 months. Based on the stock's previous closing price, it said it could book a loss of 9.49 billion Hong Kong dollars (US$1.22 billion) if it exits its position.


Biden Pushes Democrats to Find Consensus on Budget Package

WASHINGTON-President Biden pressed lawmakers to reach a consensus on his sweeping $3.5 trillion spending proposal during a series of meetings at the White House on Wednesday, aiming to settle sharp intraparty differences that threaten to derail his legislative agenda.

During his sit-down with moderate Democrats, lawmakers discussed reducing the size of the package, which would expand access to healthcare, offer universal prekindergarten and reduce carbon emissions, among other measures, to below $3 trillion, according to two people familiar with the meeting. Progressives, meanwhile, continued to threaten to block passage of a separate, roughly $1 trillion infrastructure bill next week if it comes to the House floor before the larger package.


Elizabeth Warren, Other Top Democrats Raise Concerns About SPAC Incentives

Elizabeth Warren and three other Democratic senators sent open letters to several creators of special-purpose acquisition companies Wednesday questioning how SPAC executives are compensated and requesting more details about their potential conflicts of interest.

The letters are the latest sign that regulators and lawmakers are increasing their scrutiny of so-called blank-check companies, which were rarely used as a way for startups to go public before 2020 but have exploded in popularity recently. Some skeptics argue that SPACs disproportionately benefit insiders through lucrative incentives even if companies they take public struggle and stick individual investors with losses.


Europe Is Pumping Less Gas as Demand Rebounds, Leaving a Gap Russia Is Filling

A giant Dutch natural-gas field once pumped enough fuel to cover the current needs of Germany, Europe's largest economy. Next year the field is shutting down over environmental concerns.

Natural-gas supply shortfalls have led to record prices for the fuel and electricity, stoking fears of a shortage and spotlighting European efforts to cut greenhouse-gas emissions. The conflict is one economies world-wide face as they try to adopt cleaner energy sources.


Evergrande Is In Crisis, But a Risky China Still Beckons to Investors

Some big U.S. investors are looking past the potential failure of a massive Chinese property developer whose debt woes shook global markets this week, giving a vote of confidence to China as an investment destination despite the rising regulatory and political risks foreign investors increasingly face there.

As China Evergrande Group, one of the country's biggest property developers, grappled with looming debt payments this week, its troubles prompted investors to take stock of their exposure to China. Economic growth once looked unstoppable in China, but now faces a range of challenges, including lofty levels of corporate debt and a regulatory clampdown that has clipped the wings of some of its most prominent private business tycoons.


London Stock Exchange to Close Unprofitable Interest-Rate Derivatives Venture

London Stock Exchange Group PLC is shutting its venture in interest-rate derivatives, CurveGlobal Ltd., after it failed to gain traction with traders over the past five years.

CurveGlobal will close in January, and some of its futures markets with zero activity are being suspended immediately, LSEG said in a notice to traders posted on its website Tuesday. A spokesperson for the U.K.-based exchange operator confirmed the move Wednesday.


Biden Expected to Nominate Wall Street Critic as Top Banking Regulator

WASHINGTON-President Biden plans to nominate a law professor who has criticized Wall Street banks to oversee some of the largest U.S. lenders, people familiar with the matter said.

Mr. Biden is expected to tap Saule Omarova, a Cornell University law professor, to become the Comptroller of the Currency, which oversees national banks including JPMorgan Chase & Co. and Bank of America.


Western Investors Bargain Hunt in China Bond Rout

Property developer China Evergrande Group's financial crisis is ripping through the roughly $750 billion market for "offshore" Chinese corporate bonds issued primarily to international investors in dollars and euros.

Foreign investors who own much of the debt are scrambling to analyze their potential losses if Evergrande defaults on its $18 billion of foreign-currency bonds and whether to start buying as bond prices throughout the market take a dive.


Supplier Contracts Get Revamped After Covid-19 Disruptions

Pandemic-driven strains in supply chains are triggering changes in contract terms between suppliers and their manufacturing and retail customers as companies try to address the risks and added costs brought on by persistent delays and disruptions.

Procurement experts say that when drafting new contracts and renewing existing ones, companies increasingly are seeking to add provisions that cover the impact of pandemics or epidemics and accelerating inflation. The moves come as commodity costs and shipping prices have soared far faster during the past two years than considered in traditional contract terms.


Biden, Macron Vow to Work to Ease Diplomatic Spat

President Biden and France's President Emmanuel Macron, speaking for the first time since a diplomatic spat arose over a deal by the U.S. and United Kingdom to supply Australia with nuclear-powered submarines, vowed to seek ways to patch up an alliance that is part of American efforts to counter China's influence in the Pacific.

In a joint statement from the U.S. and France, both sides acknowledged the situation would have benefited from better communication. Mr. Biden also reaffirmed a commitment to discuss matters of strategic interest to France and European partners, it said. Mr. Macron said his ambassador, Philippe Etienne, would return to Washington next week after having been recalled for consultations, the joint statement said.


FDA Clears Covid-19 Booster Shots From Pfizer for High-Risk People

U.S. health authorities cleared Covid-19 vaccine booster shots for people 65 and older and certain other adults at high risk of severe illness, a bid to help curb the pandemic and the dangerous Delta variant.

The Food and Drug Administration on Wednesday said it permitted a third dose of the shot from Pfizer Inc. and BioNTech SE for people who got two doses of the Pfizer-BioNTech messenger RNA vaccine and are 65 years and older or are at risk of severe disease and death, including because of their jobs or where they live.


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Expected Major Events for Thursday

04:30/NED: 2Q GDP - 2nd estimate

06:00/NOR: Jul Labour force survey SA, incl unemployment

06:45/FRA: Sep Monthly business survey (goods-producing industries)

07:00/SPN: 2Q Final GDP

07:15/FRA: Sep France Flash PMI

07:30/SWE: 2Q Financial accounts

07:30/GER: Sep Germany Flash PMI

07:30/SWI: Swiss National Bank monetary policy assessment

08:00/EU: Sep Eurozone Flash PMI

08:00/POL: Aug Unemployment

08:00/NOR: Norges Bank monetary policy decision and presentation of Monetary Policy Report

08:00/ICE: Aug Labour Force Survey

08:30/UK: Sep Flash UK PMI

09:00/MLT: Aug Registered Unemployed

11:00/UK: 3Q Agents' Summary of Business Conditions

11:00/UK: UK interest rate decision

11:00/TUR: Turkish interest rate decision

16:59/SPN: 2Q Quarterly Balance of Payments

23:01/UK: Sep UK Consumer Confidence Survey

All times in GMT. Powered by Kantar Media and Dow Jones.

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


(END) Dow Jones Newswires

September 23, 2021 00:46 ET (04:46 GMT)

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