Stocks in Europe struggled for momentum once again on mounting recession fears, as investors continued to worry that stronger-than-expected economic data will prompt central banks to hold interest rates higher for longer.

"[U.S.] stocks fell for a fifth day, but sovereign bonds gained, a hint that the market catalyst shifted from the hawkish Fed pricing--where stocks and bonds fall at the same time--to recession fears, where stocks remain under pressure, while investors seek refuge in safer sovereign assets," Swissquote Bank said.

Stocks to Watch

Swiss Re has an increasingly attractive risk-reward profile into 2023, especially as the stock has lagged the European insurance sector overall, JPMorgan said.

The reinsurer is better geared to pricing momentum, given its portfolio mix, and the company has been making positive noise around pricing and structure changes as well. While concerns continue around reserving trends, Swiss Re has reduced the issues at its problematic U.S. liability book in recent years.

JPM has upgraded Swiss Re stock to overweight from neutral, and lifted the target price to CHF100 from CHF85.

European Central Bank

The ECB is expected to raise interest rates by 50 basis points next week and start quantitative tightening of the Asset Purchase Programme in March 2023, Morgan Stanley said.

Its base case is a 2.5% terminal rate--where the ECB stops raising rates--but stronger economic growth and a later inflation peak would lead to a higher terminal rate.

Eurozone HICP has peaked in October at 10.6% and should fall, but policy-induced volatility near term and sticky core inflation should nonetheless keep the pressure on the ECB, Morgan Stanley said.

U.S. Markets:

Stock futures were little changed, putting the S&P 500 at risk of extending its recent losing streak, as recession fears remain top of mind for many investors.

In bonds, the yield on the benchmark 10-year Treasury note rose to 3.458%, from 3.407% Wednesday. The yield on the two-year Treasury note, which reflects short-term interest-rate expectations, rose to 4.283%.

"A sharp decline in Treasury yields and a deepening inversion across the yield curve suggest that recession risks have started to overshadow inflation in the eyes of investors, something corroborated by a range of leading economic indicators and the latest breakdown in oil prices," XM said.


The euro rose after ECB chief economist Philip Lane said interest rates will need to rise several more times to tame inflation, but any gains should prove limited due to renewed energy concerns, ING said.

Overnight index swap pricing for the ECB's December 15 meeting increased to a 67 basis points rate rise on Wednesday from 54bp on Tuesday, ING said. However, a likely rise in gas prices due to northern Europe's current cold snap could cause EUR/USD's rally to stall around 1.05-1.06 this month.

"Higher gas prices are one of the key reasons we are not more bullish on EUR/USD next year," ING said.


December is normally a weak month for the dollar but it's likely to recover in the new year, ING said.

Preventing a larger correction is the fact the market's Fed interest-rate rise expectations haven't crumbled yet with the peak rate priced above 4.9% for next spring, keeping two-year Treasury yields above 4.25%.

"Short-end yields holding up here and the ongoing inversion of the U.S. curve is key to our call that the dollar can hold gains/bounce back into the first quarter of 2023."


Spread-widener positions in eurozone government bonds are increasingly attractive but year-end dynamics suggest holding off until the first quarter of 2023, Mizuho said.

Thursday's trading could be dominated by several ECB speakers, albeit possibly without fresh market-moving information, and by U.S. jobless claims.


The year-end rally in eurozone rates has come to an end, and heavy government bond supply at the start of 2023 should drive 10-year Bund yields back above 2%, Morgan Stanley said.

"As we approach January's heavy issuance we foresee a retracement on the 10y Bund [yield] to the 2.10-2.15% region."


Metzler said the recent performance of the U.S. and eurozone government bond markets is somewhat exaggerated by now.

"In particular, 10-year Treasury yields below 3.5% no longer really fit the picture, in our view. While we don't know exactly where the bottom of this move is, we foresee ably expect a counter-reaction that should bring the overall U.S. curve back up at least around 20bp."

Prior to that, however, the market has to wait for next week's central bank meetings where once again it is not so much the decision per se, but the accompanying wording that is likely to be the deciding factor, Metzler said.


Crude oil futures held solid gains on China reopening hopes, while higher stockpiles continued to keep prices below $80 a barrel.

"OPEC's unchanged production targets and larger-than-expected U.S. fuel stock builds have weighed on energy markets this week," Peak Trading Research said.

Brent is down 9% so far this week on the higher stock levels, but some impetus is coming from the fact that "China is officially relaxing its Covid policies, and the Chinese yuan is gaining versus the dollar, which helps U.S. export prospects."

Coal Outlook

Read Coal's Rally May Soon Burn Out. This Is What Could End It.


Prices for base metals and gold wavered, with China's reopening likely to provide a boost for demand, though rising Covid-19 cases remain a concern, while U.S. PPI data could move bullion.

Meanwhile, nickel surged 3.2% to $31,630, the highest level since May 2 as low liquidity remains a key concern driving volatile in LME-nickel. Traders are looking at other methods of pricing outside of the LME for battery grades because of the issues around pricing, according to an analysis from Fastmarkets.

Gold Outlook

Gold is on track to post a loss for the year--and the precious metal's performance in 2023 will greatly hinge on where the global economy is headed, according to a report from the World Gold Council.

Gold's performance in the new year will be "shaped by the intertwining effects of economic growth, inflation and monetary policy, with additional support from geopolitics and a likely softening U.S. dollar."

Read more here .




EU Officials Pursue Additional Sanctions Against Russia Over Ukraine War

European Union officials proposed a new round of sanctions on Russia on Wednesday over its invasion of Ukraine, including a ban on exports of drone engines to Russia and other potential suppliers of the machines to its military, a prohibition on investing in Russia's mining sector and new financial restrictions.

The sanctions, the ninth package of restrictions on Russia since its February invasion of Ukraine, come days after the EU and the Group of Seven advanced democracies placed a price cap on Russian oil and after European countries began their embargo on imports of Russian crude.


High Oil Prices Lift Saudi Arabia, Bolster Prince's Economic Plans

RIYADH, Saudi Arabia-The Saudi government posted a $27 billion budget surplus Wednesday, as this year's high oil prices accelerate Crown Prince Mohammed bin Salman's ambitious plans and boost resource-rich economies across the Persian Gulf.

Buoyant crude prices helped the kingdom's economy expand at one of the fastest rates globally, with the government spending $47 billion more than planned. In a year when global growth is pegged at 3.2%, the International Monetary Fund predicts growth of 7.6% this year in Saudi Arabia. The kingdom's output is expected to reach $1 trillion for the first time, cementing its place among the world's biggest economies.


Haywire Commodity Markets Send Trader Trafigura to Record Profit

Extreme volatility in commodity markets fueled by the war in Ukraine has helped the trading house Trafigura Group notch up a record annual profit.

The conflict, sanctions on Russia and pandemic rebound sparked dramatic moves in commodity prices over the past 18 months, while also redrawing trade routes in raw materials. Trafigura, one of the world's largest independent commodity traders, emerged as a big winner.


British American Tobacco Backs 2022 Views Supported by New Category Products


BAT's US Volumes Pressure, Increasing Costs to Limit Earnings Momentum


Alleged Russian Agent Tied to U.S. Election Interference Charged With Bank Fraud

An accused Russian agent was charged with federal bank fraud and money laundering for trying to evade U.S. sanctions imposed on him over his alleged interference in the 2020 presidential race.

An indictment unsealed Wednesday in a New York federal court accuses Andriy Derkach, a Ukrainian lawmaker, of using an intermediary to hide his ownership of real estate in Beverly Hills, Calif., and conspiring to obscure his identity in banking transactions.


Sister of Iran's Supreme Leader Calls for Overthrow of His 'Despotic Caliphate'

A sister of Iranian Supreme Leader Ali Khamenei said she had cut ties with her brother, calling him a despotic caliph who ignored the voice of Iranians, a sign that people near the top echelons of the system are growing bolder in expressing opposition to the clerical leadership.

The sister, Badri Hosseini Khamenei, also called on security forces to lay down arms and join the protesters demanding an ouster of the country's Islamic leadership.



China Economy Back in Force From Mid-2023, Morgan Stanley Predicts

China is in for a bumpy ride this winter amid continued pandemic uncertainties, but the world's second-largest economy will likely stage a comeback from mid-2023 as officials refocus on growth after a leadership shuffle, according to Morgan Stanley.

"Some regions may remain prudent on reopening" in the coming months, with local officials possibly tightening restrictions to prevent a surge in infections during China's cold season, Morgan Stanley's chief China economist Robin Xing said in an interview. "I have much higher conviction that they will have a proper opening by probably April."


SEC Faces Calls to Boost Crypto-Exchange Enforcement After FTX Collapse

WASHINGTON-Pressure is mounting on the Securities and Exchange Commission to step up enforcement of key hubs of the crypto industry after the collapse of FTX last month.

FTX's bankruptcy put the focus on crypto exchanges, the primary hubs for individual investors that offer such services as digital-coin sales, lending and the safekeeping of assets. Despite investigating parts of the industry for over six years, the SEC has yet to sue a major crypto exchange.


Hong Kong Stocks Advance on China's Relaxed Covid-19 Rules. Macau Casinos Surge.

Hong Kong-listed shares gained on Thursday after government authorities announced a 10-point plan to ease Covid-19 restrictions.

The Hang Seng Index rose 3.4%. Sands China (ticker: 1928.HK), the developer of casinos in Macau and a subsidiary of Las Vegas Sands (LVS), jumped 10%. Galaxy Entertainment Group (27.HK) rose 5.6%.


Almost everyone is expecting a recession next year, but the market is forecasting earnings growth, this model finds

Outlooks for next year are coming in fast and furious, and if there's one commonality it's the belief the U.S. will fall into a recession at some point next year, hurt by the lagged impact of Federal Reserve rate hikes.

That's what the bond market, as shown by the deepest inversion of 2- BX:TMUBMUSD02Y and 10-year BX:TMUBMUSD10YTreasurys since the 1980s, is suggesting as well. But, surprisingly, the stock market is expecting earnings per share to rise next year.


World Gold Council outlines what's in store for gold with the global economy at a 'crossroads'

Gold is so far on track to post a loss for the year - and the precious metal's performance in 2023 will greatly hinge on where the global economy is headed, according to a report from the World Gold Council released on Thursday.

Gold futures on Comex GC00 GCG23 have seen a wild ride. Based on the most active contracts, they climbed to a high of $2,078.80 an ounce in March, following Russia's invasion of Ukraine, to trade near the all-time intraday high of $2,089.20 from August 2020, according to Dow Jones Market Data. Then they hit a roughly two-and-a-half year low in October at $1,621.10.


Canada Proposes New Powers in Foreign-Investment Reviews

OTTAWA-Canada on Wednesday unveiled a series of changes to the country's foreign-investment laws that officials said updates tools the cabinet has at its disposal to deal with transactions that pose a national-security risk.

Among the changes Canada is proposing: allowing cabinet to impose conditions on a tentative transaction while it undergoes a government-led security review, and compelling investors eyeing investments in certain sensitive sectors - such as in quantum science, critical minerals and other sensitive technologies such as artificial intelligence-to file early notification with Ottawa about their intentions.


China's Xi Jinping to Meet Saudi Crown Prince in Pivotal Visit

RIYADH, Saudi Arabia-Chinese President Xi Jinping will meet Saudi leaders Thursday and sign agreements worth more than $29 billion as this desert kingdom deepens ties with global partners, including U.S. rivals, amid doubts about Washington's commitment to the Middle East.

No details about the deals were made available, but progress in talks about pricing some Saudi oil sales in yuan, which The Wall Street Journal reported accelerated this year, would draw intense U.S. scrutiny as would any new weapons deals or further cooperation on 5G and 6G telecommunications networks.


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


(END) Dow Jones Newswires

December 08, 2022 06:01 ET (11:01 GMT)

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