MARKET WRAPS
Watch For:
OECD harmonized unemployment rates; UK trade, industrial production, index of services, monthly GDP estimates; trading updates from Siemens Energy, RWE
Opening Call:
Shares may open weaker in Europe on Monday, tracking Friday's downturn on Wall Street. In Asia, stock benchmarks fell; Treasury yields largely rose; the dollar and oil strengthened; while gold prices slipped.
Equities:
European stocks could retreat Monday, following Friday's losses on Wall Street, as investors ponder the latest wholesale inflation data ahead of a number of interest-rate decisions this week, including from the Federal Reserve, the ECB and the BOE.
The Fed's next interest-rate decision, and the PPI data-combined with consumer-price data Tuesday-are expected to factor heavily into the trajectory of interest rates over the coming months.
"The markets are so sensitive to this right now," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
"Although supersized rate hikes are probably in the rearview mirror, it's about how long more gradual rate increases will continue for, and that's why you've got these twin evils looming: recession and high inflation. That's the real concern-that we'll get a stagflation scenario."
Apollon Wealth Management expects markets could retest their recent lows in the first and second quarter of next year. "We're stuck in this rut right now waiting for inflation to normalize and it may take all of next year for that to happen."
Forex:
The dollar rose in Asia, as the FOMC meeting dominates this week's agenda.
The Fed is expected to take a hawkish stance, with a 50-basis-point hike and a much higher terminal rate forecast. "Our chief concern is what this might do to the USD, which has come under pressure as the trendy 'pivot' narrative has taken hold, despite clear signs of sticky U.S. inflation," ANZ said.
Trading this week could prove more volatile, "given the 10 major central bank meetings - notably the Fed and the ECB - and release of key inflation and activity data," Capital Economics said.
Even if the Fed steps down to a 50bp hike following the latest U.S. CPI release as expected, "we suspect Chair Powell will again push back against the prevailing 'pivot' narrative," Capital Economics added.
Bonds:
Treasury yields mostly rose early Monday, following Friday's gains on data showing wholesale price inflation picked up in November more than expected.
However, the increase in producer prices over the past 12 months slowed to 7.4% from 8.1% in the prior month.
"Easing producer prices foreshadow an improving inflation environment," said LPL Financial.
"The Fed will likely downshift the pace of rate hikes next week and should continue to downshift in 2023. However, the monthly increase in producer prices illustrates the need for continued tightening, albeit at a slower pace. The inflation pipeline is clearing and consumer prices will slowly move closer to the Fed's long run target."
Energy:
Crude oil prices rose early Monday after Russia threatened to slash production.
Despite the release of higher-than-expected U.S. PPI data, prices may continue to remain supported, in no small part due to Russian President Vladimir Putin threatening to cut Russian oil production in retaliation for the G-7's proposed price caps, said SPI Asset Management.
However, several other factors could keep the price of crude from gaining too sharply, such as worries about a global recession and lower crude demand from China.
"Weak U.S. gasoline and diesel demand is helping rebuild product inventories, bringing fuel prices lower and therefore limiting expectations for crude demand at refiners in the coming months," DTN said.
Still, the market is focused on the U.S. CPI due Tuesday, the day before the Fed's decision's on interest rates. There have been concerns that if the Fed raises rates too quickly, that could lead the economy into a recession, and lower demand for crude.
Metals:
Gold prices slipped in Asia. Upcoming U.S. CPI data is expected to give more clues on whether the Fed will continue its monetary tightening moves beyond February.
"Gold might struggle for meaningful moves until we get the last key piece of inflation data before the Fed meets," said Oanda.
Capital Economics expects the Fed to slow the pace of its tightening cycle with a 50-basis-point hike. "We think U.S. inflation is set to fall sharply in the coming months and that the Fed will start easing policy in late 2023, giving a boost to all precious metals prices."
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Copper prices fell, retreating from a rally last week, as China effectively relaxed most of its Covid-Zero restrictions.
The move has triggered investor hopes over a demand rebound in China, one of the world's largest copper consuming countries, ANZ said.
A stabilizing property sector and stronger policy support for the market would offer an extra boost to the metal's demand outlook, ANZ said, adding that buying interest is likely to remain high and support prices in the near term.
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Chinese iron ore prices advanced, extending recent sharp gains.
Yongan Futures said buying interest is likely to remain supported by upbeat sentiment for a mid-term rebound in demand, as China's economic activities recover amid the country's reopening and a stabilizing property sector.
However, investors should monitor near-term port transactions in the physical market as a sign of how fast steel-making demand is picking up on the ground after the policy changes, Yongan Futures said.
TODAY'S TOP HEADLINES
Private-Equity Investors Remain Optimistic, Coller Capital Says
The return expectations of investors in private-equity funds have climbed to their most optimistic level in a decade, despite challenges from the global economic downturn and turmoil in securities markets, according to secondary market buyer Coller Capital.
Beyond the corrosive effects of inflation and slumping economies, one of the most widely shared concerns among institutional investors is market-derived imbalances in their holdings.
Interest-Rate Paths for U.S., Europe Set to Diverge
FRANKFURT-The Federal Reserve's aggressive campaign against high inflation dominated global financial markets this year. Starting this week, the action shifts to Europe, where inflation could prove stickier and harder to tame. That shift is likely to reverse some of the key market dynamics of 2022, most significantly a superstrong dollar.
At monetary-policy meetings this week, the Federal Reserve's key rate is expected to rise by 0.5 percentage point, the European Central Bank's by 0.5 to 0.75 point, and the Bank of England's by 0.5 point.
How Washington Persuaded Europe to Put a Price Cap on Russian Oil
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With support from Ukrainian President Volodymyr Zelensky, Poland had pushed for setting the cap as low as $30 a barrel, an attempt to deeply cut the Kremlin's oil revenues. But the U.S. and other Group of Seven advanced democracies sought a deal at $60 a barrel to hedge against the risk of sending global crude prices soaring.
WTO Rules Against U.S. Tariffs on Imported Steel, Aluminum
WASHINGTON-The World Trade Organization said Friday its dispute-settlement panels found the U.S. violated international trade rules with its tariffs on imported steel and aluminum, in a case that pit Washington against China as well as several friendly nations.
The ruling covers the import duties that former President Donald Trump imposed in 2018 on national-security grounds, citing the need to protect domestic manufacturers from global overproduction of the metals.
Ukraine Hits Hotel Hosting Russian Military
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Ukrainian President Volodymyr Zelensky said 1.5 million people in Ukraine's southern Odessa region were left without power after strikes late Saturday. Only critical infrastructure was connected to the power grid, he said, adding that restoring service could take longer than after previous attacks.
Ukraine Can Win the War. But the Cost May Be Too High for the West.
BUCHAREST-Ukrainian leaders have vowed to retake all territory occupied by Russia, prompting a debate over what would be necessary for Ukraine to win and evict Moscow's forces.
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Europe Is Hit by Shortages of Antibiotics
Countries across Europe are reporting shortages of antibiotics as demand for the medicines rises and manufacturers grapple with supply-chain snags.
Amoxicillin, cephalosporins and other widely used antibiotics are in short supply, data from various countries show, raising concerns among doctors and officials about the availability of drugs that are relied on to treat conditions ranging from ear infections to pneumonia.
Amgen in Advanced Talks to Buy Horizon Therapeutics
Amgen Inc. is in advanced talks to buy drug company Horizon Therapeutics PLC, according to people familiar with the matter, in a takeover likely to be valued at well over $20 billion and mark the largest healthcare merger of the year.
(MORE TO FOLLOW) Dow Jones Newswires
12-12-22 0016ET
