MARKET WRAPS

Stocks:

Stocks in Europe were lower again on Wednesday, extending their retreat and following a fourth straight day of losses for the S&P 500 that came as economic data raised fears the Federal Reserve will keep interest rates higher for longer.

The S&P 500 has fallen 17.3% in 2022 as the Fed has driven borrowing costs sharply higher in an effort to tame inflation that until recently was running at the fastest pace in 40 years.

"The recent run of macro data points in the U.S. continues to underscore relatively solid economic trends. And combined with the recent easing in financial conditions, it may trigger a need for the Fed to push back in December. Put another way, the dove camp is feeling some pain," SPI Asset Management said.

In London, the FTSE 100 gave up early gains to edged lower despite GSK rallying after a U.S. judge dismissed thousands of lawsuits claiming that heartburn drug Zantac can cause cancer.

Read GSK, Sanofi Shares Jump After U.S. Judge Dismisses Zantac Lawsuit

Stocks to Watch

Brunello Cucinelli's upbeat outlook is evidence of a strong business model, Jefferies said.

The Italian company expects sales to grow around 28% for the year, pointing to continued strong current trading, and aims to reach EUR1 billion in sales next year amid good orders for the spring/summer collection.

Cucinelli has above-average visibility for the coming quarters, and its targets--which don't look cavalier--offer further evidence that a positioning at the top end of luxury is helping insulate the firm from consumer slowdown, Jefferies said.

"Further outperformance would be no surprise," it said, noting that momentum and resilience are of more interest than valuation. Jefferies has a buy rating and a EUR62 target on the stock.

U.S. Markets:

Stock futures were struggling to recover ground after a four-day losing streak for the S&P 500.

The index has lost 3.4%, in that time as investors continued to fret about the economic damage eventually inflicted by high inflation and the Fed's campaign to damp it.

However, Fundstrat reckons equities will benefit in coming weeks as investors start to get greater clarity on when the Fed may stop tightening policy.

"We don't think the end of the inflation war in 2022 is the Fed cutting rates. It is when Fed and markets see sufficient progress in inflation to remove the upside risks to higher rates. We think this could happen as early as the November CPI report. This will be released on 12/13."

In U.S. bonds, the yield on the benchmark 10-year Treasury note ticked up to 3.518% from 3.512% on Tuesday.

U.S. economic updates set for release on Wednesday include third-quarter productivity and unit labor costs and consumer credit for October.

Forex:

The dollar should remain supported, as growing fears of a global recession and as the Fed continues to fight inflation, have driven investors to safe haven assets, ING said.

"After the broad-based risk rally seen over the last six weeks, financial markets now seem to be settling into the view of a 2023 recession," ING said, adding the dollar should perform well as long as the Fed stays "hawkish."

ING said the DXY dollar index could rise to 107.000 ahead of the Fed's policy decision on Dec. 14, when it will be too early for the central bank signal the "all-clear" on inflation with its interest-rate guidance.

ING also said sterling could underperform and equity markets could come under renewed pressure if Fed signals further interest-rate rises despite a recession.

"Typically, this is a negative environment for sterling, where the U.K.'s large current account deficit is penalized. GBP/USD has turned from a strong resistance level at 1.23 and our bias into next week would be for a return to the 1.19 area."

Bonds:

Eurozone government bond yields dropped with the focus remaining on recession risks despite some relative resilience, with German industrial output better than expected in October.

"Final Q3 GDP data from the euro area is also out [Wednesday] and expected to confirm that the euro area economy kept its head above water in Q3," Danske Bank said.

Separately, Danske Bank said the Treasury yield curve inversion has intensified and is now at "a level only exceeded by the inversion of 1978 and 1982, when Fed Chairman Volcker hiked policy rates aggressively to counter double-digit inflation."

At the time, Volcker succeeded in bringing inflation under control but at the price of two deep and long-lasting recessions, Danske Bank said.

---

The 10-year German Bund yield is expected to revisit the highs of around 2.5% in the first quarter of 2023, TD Securities said.

"This is also when we expect the peak impact of inflation to start fading more noticeably in both the U.S. and the euro area,"

Thereafter, the market focus may shift from inflation dynamics to growth dynamics, with TD expecting 10-year Bund yields to end 2023 at 2.2%, almost in line with current forward pricing for Bunds.

Energy:

Oil prices edged lower, with Brent remaining below $80 on concerns about Chinese demand and expectations of little impact from Western sanctions on Russian supplies.

Expectations that a price cap on Russian crude would crimp global supplies have fizzled while hopes that China's reopening would boost oil demand are likely premature, SPI Asset Management said.

China's tentative steps to reopen could prompt a surge of Covid-19 cases delaying a broad easing of restrictions, it added.

Metals:

Base metals were weaker, hurt by the stronger dollar, as investors weighed how long the Fed will keep hiking interest rates.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Investors See Shift in Europe's Fortunes

Investors are turning somewhat more positive on Europe, spurring a recovery in the region's beaten-down stocks.

As of Tuesday's close, the benchmark Euro Stoxx 50 index had gained 18.6% this quarter, putting it on track for the best quarterly performance since 2009. The rise for the index, which includes eurozone blue chips like L'Oréal SA and LVMH Moët Hennessy Louis Vuitton SE, compares with a 9.9% gain for the S&P 500.

   
 
 

GSK, Sanofi Shares Jump After U.S. Judge Dismisses Zantac Lawsuit

Shares in pharmaceutical companies GSK PLC and Sanofi SA traded higher after a U.S. judge dismissed a series of lawsuits around a heartburn treatment that both companies had marketed.

The lawsuits, which numbered in the tens of thousands, alleged that the drug, called Zantac, could cause cancer. The judge concluded on Tuesday that there was no scientific evidence to support the claim that Zantac's active substance, called ranitidine, was carcinogenic.

   
 
 

EU Sues China in WTO Over Trade Retaliation on Lithuania

BRUSSELS-The European Union sued China in the World Trade Organization over punitive trade restrictions that Beijing imposed on Lithuania last year, harming the small Baltic state and the 27-country bloc.

China's near-total curtailment of exports from Lithuania last December followed moves by leaders in Vilnius to support Taiwan, which Beijing considers a breakaway province.

   
 
 

Airbus Warns It Will Miss Full-Year Delivery Target

LONDON-Airbus SE, the world's biggest plane maker, said it would likely miss its key delivery target this year after the company's chief executive warned that supply-chain woes were still at least six months away from normalizing.

The European manufacturer said on Tuesday that due to a "complex operating environment," Airbus's previously forecast goal of achieving around 700 deliveries this year is now "out of reach."

   
 
 

Germany Industrial Production Declined Slightly in October as High Energy Prices Take Toll

Germany industrial production fell in October as high energy prices weighed on manufacturing output, adding to evidence of a slowdown in Europe's industrial powerhouse at the beginning of the fourth quarter.

Industrial output--comprising production in manufacturing, energy and construction--fell by a marginal 0.1% in October after increasing by an upwardly revised 1.1% in September, according to data from the German statistics office Destatis published Wednesday.

   
 
 

Germany Dismantles Suspected QAnon-Inspired Terrorist Group

German authorities on Wednesday said they had dismantled a domestic terrorist cell inspired by the QAnon conspiracy on suspicion of planning to overthrow the government.

Of the 25 people arrested in the early hours of the day, 22 are suspected of conspiring to foment a coup, the country's federal prosecutor said. Their plans included an armed storming of the federal parliament. The other three, including a Russian citizen living in Germany, are suspected of supporting the group, the prosecutor said.

   
 
 

Russian Oil-Price Cap Adds to Fiscal Pressure on Moscow

Fresh Western curbs on Russian crude sales might not affect Moscow's public coffers immediately, but they add financial pressure that threatens the country's sanctions-stricken oil industry and long-term ability to fund the war in Ukraine.

Western countries on Monday imposed a price cap on international sales of Russian crude. The measures, aiming to strike at the Kremlin's war chest, include a ban on seaborne shipments of Russian crude by the European Union and the U.K. The Group of Seven nations, meanwhile, imposed a ceiling on other sales by barring Western companies from insuring, financing or shipping Russian crude at above $60 a barrel.

   
 
 
   
 
 

GLOBAL NEWS

Investors See Shift in Europe's Fortunes

Investors are turning somewhat more positive on Europe, spurring a recovery in the region's beaten-down stocks.

As of Tuesday's close, the benchmark Euro Stoxx 50 index had gained 18.6% this quarter, putting it on track for the best quarterly performance since 2009. The rise for the index, which includes eurozone blue chips like L'Oréal SA and LVMH Moët Hennessy Louis Vuitton SE, compares with a 9.9% gain for the S&P 500.

   
 
 

China Scraps Most Testing, Quarantine Requirements in Covid-19 Policy Pivot

HONG KONG-China dropped many of its quarantine and testing requirements and curtailed the power of local officials to shut down entire city blocks, as the country's leaders accelerate plans to dismantle zero-Covid controls in the wake of nationwide protests.

Though widely predicted, Beijing's retreat from its costly and increasingly unpopular pandemic regime has been faster than expected. After being told for years that Covid represented a deadly threat, China's population hasn't been prepared for a sudden shift in policy, especially as infections have surged to a record high with outbreaks across the nation.

   
 
 

China November Exports Fall; Trade Surplus Narrows

BEIJING-China's exports fell for a second consecutive month in November, weighed down by weakening global demand, official data showed Wednesday.

Outbound shipments declined 8.7% on year in November, compared with a 0.3% year-over-year decline recorded in October, according to the General Administration of Customs. The decline was much steeper than the 2% fall expected by economists polled by The Wall Street Journal.

   
 
 

Accounting Red Flags Are Common Among Public Crypto Companies

Investors bemoan the lack of disclosure in the crypto industry. But many crypto companies disclose a lot of information, and some of it is worrisome, a review of financial statements shows.

The blowups of FTX and Celsius Network LLC exposed hidden risks that might have raised red flags for investors, including related-party transactions, commingled customer funds, sketchy record-keeping and questionable accounting. Some of these problems often appear in disclosures by public crypto companies, including weak systems used to keep numbers accurate.

   
 
 

India's Central Bank Raises Rate to Rein In Inflation

India's central bank increased its policy rate in a bid to contain high inflation.

Reserve Bank of India Gov. Shaktikanta Das said Wednesday that the monetary-policy committee decided to raise its policy repo rate by 35 basis points to 6.25%.

   
 
 

Write to paul.larkins@dowjones.com

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

 

(END) Dow Jones Newswires

December 07, 2022 06:31 ET (11:31 GMT)

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