MARKET WRAPS

Stocks:

European stocks weakened on Friday in a cautious session ahead of a jobs report that will be scrutinized for signals about the U.S. economy and central bank policy.

"Everybody's waiting to see what happens with the non-farm payrolls. Basically everything is hinging on what the Fed may or may not do. And this is the next big piece in that puzzle," Kleinwort Hambros said.

Stocks to Watch

The chairman of Credit Suisse said in a Bloomberg Television interview aired on Friday that "the outflows have basically stopped." However, he said share-price volatility will continue until the bank completes its capital increase.

Credit Suisse shares rose 4% in Zurich, but the stock has lost two-thirds of its value this year, and skidded 39% in just the last three months.

Read more here .

Economic Insight

U.S. employers are expected to have created 200,000 jobs in November, down from 261,000 in October as job demand cools, UniCredit said.

"Job openings, quits and surveys of hiring intentions are down from their peaks, but the softening is only gradual, and the labor market remains very tight."

Pay growth is expected to have increased 4.6% in November compared with a year earlier, easing from the 4.7% gain registered in October but still too high for the Fed's liking, UniCredit said.

The employment report is due at 1330 GMT.

U.S. Markets:

Stock futures were little changed ahead of the jobs report, while Treasury yields continued to fall.

NatWest said the move into bonds has been too strong, noting the Fed is still hiking, there could be a reacceleration in core CPI, and the easing in financial conditions is approaching the easy levels seen in August before the Fed started pushing back.

"So in this light, we favor higher 10-year yields from here, targeting 3.90%-4% over the next couple of weeks," NatWest said.

"Not a massive move, but it also fits with our view that U.S. rates markets will be choppy within a volatile range for the next month or two, so tactical positioning and flexibility around that will be the approach to take."

Forex:

The dollar hit its lowest in more than five months against a basket of currencies and the euro, as the pace of Fed interest-rate rises looks likely to slow, but the greenback's fall may not be as smooth as its rise was previously, Swissquote Bank said.

It noted the market's pricing of the peak in U.S. rates fell to 4.9% this week, but the Fed has indicated rates will probably go beyond 5%.

"Any piece of news or data that would rectify the Fed pricing could reverse the dollar's latest losses."

The euro rose to a five-month high against the dollar as markets seem to be ignoring the risks surrounding the energy crisis, ING said.

"The recovery in business sentiment in the eurozone has undoubtedly been the result of lower gas prices, which have benefitted from mild weather in Europe," ING said.

TTF natural gas contracts are trading at one-month highs and could see further upside volatility in the near-term as temperatures in northern Europe are expected to fall, ING said.

While EUR/USD could rise to 1.0600 in the near-term, a significant recovery in gas prices would make the pair's rally unsustainable.

ING also said sterling could rise further against the dollar if the nonfarm payrolls report fails to reverse the U.S. currency's downward trend, but the pound's gains will be limited, ING said.

The data may indicate the jobs market remained extremely tight, which may halt the dollar's fall but fail to invert it with the balance of risks "titled to the downside," ING said.

GBP/USD could rise to around 1.2300-1.2350 after the data, ING said. However, it isn't factoring in the implications of rebounding gas prices and weak economic fundamentals so a "return to 1.1500 around the turn of the year seems appropriate."

Bonds:

German 10-year Bund yields have room to rise from current levels to peak at 2.5% in the first quarter of 2023, before easing gradually, Societe Generale said, with the peak "coinciding with the highest point in core inflation and helped by large supply and the start of [the ECB's]."

SocGen has forecast the yield to ease to 2.4% by the end of second quarter, 2.3% by the third quarter end and 2.2% by the final quarter end 2023.

Separately, SocGen said the sharp rally in Treasurys would suggest a turn is underway but it might not be the case just yet.

Jerome Powell is hopeful that inflation will moderate, "but it is too early to call the turn," SocGen said. "With expectations for 75-100 bps in rate hikes at upcoming [Fed] meetings, the rally in bonds seems a bit premature."

SocGen expects the 10-year UST yield at 3.65% at the end of the first quarter of 2023, before a gradual easing to 3.5% by end of the second quarter, 3.4% by the end of the third quarter and 3.25% by the final quarter end.

SocGen also said the 10-year Treasury-German Bund yield spread--currently 172 bps--could narrow close to 100 basis points in 2023.

It said expectations that U.S. core inflation has likely peaked while this isn't the case for eurozone core HICP is one of the reasons for its view, with another being the ECB is likely to deliver more interest-rate rises into the spring, while the Fed is already "ahead of the game."

SocGen said the EUR real curve is consistent with a much more accommodative policy stance.

Read Bond Yields Fall as Inflation Fears Ease

Energy:

Oil prices held minor gains as investors awaited the outcome of Sunday's OPEC+ meeting, with expectations the cartel is unlikely to reverse policy course and keep production flat.

This "despite expectations for a drop in Russian production following the imposition of the E.U.'s ban on seaborne imports of Russian crude and the G-7 price cap," Fitch said.

Traders will also keep a close watch on the upcoming U.S. jobs report for further clues about the health of the U.S. economy.

Read OPEC+ Likely Shy of Spotlight Ahead of Russian Price Cap, EU Ban

Metals:

Base metals edged higher in early trade, with gold futures little changed.

Macro factors have been a heavy influence in metals pricing this year, and a weaker dollar on top of a change in the Fed's rate stance has helped copper rally 5% this week, while gold is up 3.5%.

Covid-19 controls in China are also easing in China, further helping metals demand, Marex said.

DOW JONES NEWSPLUS

EMEA HEADLINES

Ukraine Hunts the World for Parts to Fix Crippled Energy Grid

As Russia targets Ukraine's energy grid with missiles and drones, Kyiv is running out of vital parts needed to repair a network that provides electricity for homes, businesses and hospitals.

Moscow has deliberately attacked Ukraine's ability to generate and transport power in a bid to sap the country's morale, leaving millions without heat and light as temperatures fall below freezing.

Germany Trade Surplus Increased by More Than Expected in October

Germany posted a larger-than-expected trade surplus in October, as imports declined more than exports.

Germany's trade surplus--the country's balance of exports and imports of goods--was 6.9 billion euros ($7.3 billion) in calendar and seasonally-adjusted terms in October, rising from a EUR2.8 billion surplus in September, according to data from German statistics office Destatis released Friday.

Biden Is Open to 'Tweaks' to Subsidies That Angered U.S. Allies

WASHINGTON-President Biden said he was open to making concessions to American allies who have objected to new U.S. subsidies for North American manufacturers, but he didn't commit to specifics after a meeting with French President Emmanuel Macron, as the two leaders sought to project unity following months of tensions.

Mr. Biden said he makes no apology for the Inflation Reduction Act, which provides subsidies to U.S. manufacturers and tax incentives for electric vehicles and other products that are assembled in North America. But he said changes might be needed to ensure that the law doesn't have unintended consequences.

Russia Says Strikes on Ukraine's Infrastructure Aimed at Slowing Delivery of Foreign Arms

Russia's foreign minister said that waves of Russian strikes on Ukraine's civilian infrastructure that have left six million people without power were intended to slow the delivery of foreign weapons to Ukraine.

"The infrastructure that is now under attack is the infrastructure that provides the combat potential of the Ukrainian armed forces, the nationalist battalions," Russian Foreign Minister Sergei Lavrov said on Thursday, according to Russian state media.

EU Asks Members to Set Russia Oil-Price Cap at $60

The executive body of the European Union has asked its 27 member countries to cap the price of Russian oil at $60, officials and diplomats involved in the discussions said.

The plan, using the clout of the EU's insurance and shipping industries, is part of the West's effort to crimp Moscow's ability to wage war in Ukraine while keeping global crude prices steady. But whether that plan can go forward hinges on a response from Poland.

GLOBAL NEWS

November Employment Report Will Update on Tightness of U.S. Labor Market

Friday's employment report will reveal how the labor market fared in November amid rising interest rates and high inflation.

The job market has remained resilient this year, with employers still seeking to hire despite an uncertain economic outlook and elevated recession fears. Low unemployment and wage gains have helped fuel consumer spending, the economy's main engine.

Cash-Hungry Companies Get Creative Raising Capital

The end of the era of easy money is forcing companies that need cash to get creative.

Dozens of companies have recently raised money through so-called structured private funding rounds, and bankers and lawyers say there are many more in the works.

Chinese Solar Manufacturers Dodged U.S. Tariffs, Probe Finds

WASHINGTON-Four leading Chinese solar-cell manufacturers circumvented U.S. tariffs by routing some of their operations through Southeast Asia, a Commerce Department investigation found, according to people familiar with it.

The preliminary findings from the closely watched probe-expected to be unveiled Friday-are likely to accelerate importers' race to find alternative sources either domestically or from other places abroad to meet soaring demand for solar panels.

DOJ Watchdog Calls for Independent FTX Probe in Bankruptcy

A U.S. Justice Department bankruptcy watchdog called for an independent investigation into FTX's collapse, comparing the cryptocurrency platform's sudden failure to the fall of Lehman Brothers.

U.S. Trustee Andrew Vara, an official at the Justice Department unit monitoring bankruptcy courts, asked the judge overseeing FTX's chapter 11 case to appoint an independent examiner to provide a transparent account of FTX's failure because of the wider implications the exchange's collapse has on the crypto industry.

Biden EPA Proposes to Bump Share of Renewable Fuels in Blended Gasoline

The Environmental Protection Agency on Thursday issued a draft proposal that would force oil refiners to use more biofuel to blend with their products.

The proposal sets the volumes of renewable fuel that refiners are required to blend with transportation fuel under federal standards to 20.82 billion gallons in 2023 up from 20.63 billion gallons in 2022, an amount that would gradually rise to reach 22.68 billion gallons in 2025.

Fed's Top Banking Regulator Signals Tougher Bank-Capital Rules

WASHINGTON-The Federal Reserve's new regulatory chief on Thursday signaled plans to beef up big-bank capital requirements, potentially revisiting financial rules that were eased during the Trump administration.

Michael Barr, the Fed's vice chairman for banking supervision, said that the central bank is still conducting a broad review of its capital requirements but suggested the overall requirements appeared to be lower than they ought to be.

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(END) Dow Jones Newswires

December 02, 2022 06:12 ET (11:12 GMT)

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