European Midday Briefing : Stocks Struggle, 2023 Looks Set to Be Tough

MARKET WRAPS

Stocks:

European stocks were down on Friday. The year 2022 hasn't been an easy one for equity traders, and the prospect of further rises in interest rates alongside slowing growth and high inflation continued to loom large.

"The most important take of the year is: the era of easy money ended, and ended for good," Swissquote said.

"This is the beginning of a new era, when central banks will be playing a more subdued role in the markets, with less liquidity available to fix problems - a more than necessary move that came perhaps too late, and too painfully," Swissquote added.

"Recession, inflation, stagflation will likely dominate headlines next year."

U.S. Markets:

Stock futures fell in the final trading session of 2022 which put major indexes on pace to close out a punishing year with further losses.

As of Thursday's close, percentage declines this year for all three major indexes were at their largest since 2008.

Government bond prices ticked higher, pushing the yield on the 10-year Treasury note down slightly to 3.831%, from 3.833% Thursday.

Forex:

The dollar was steady on the final trading day of 2022.

"The greenback staged strong gains in 2022 and is on track to log its best year since 2015, underpinned by the Fed's aggressive rate hiking path," Interactive Investor said.

Interest rate differentials boosted the dollar but punished other currencies, Interactive Investors added.

The DXY index peaked at 114.778 in late September, before dropping back on speculation that the Fed would start slowing the pace of interest-rate increases. Safe-haven flows due to Russia's invasion of Ukraine also lifted the dollar.

Energy:

Oil prices edged higher as low liquidity made for choppy markets.

2023 will start with traders looking for any clues on the shape of China's reopening while supply-side questions will focus on the health of Russia's energy exports.

Metals:

Base metals wavered amid low trading volumes as the year drew to a close.

With the exception of nickel, all base metals were set to end the year lower.

Copper was set for its first annual loss in four years, down almost 14% year to date as a stronger dollar and worries about recession risks have weighed on the metal.

Analysts expect China's reopening will likely be the key story for metals markets in 2023 as Beijing seeks to reopen the economy of the world's biggest consumer of raw materials without prompting a dramatic spike in Covid-19 cases.

DOW JONES NEWSPLUS

EMEA HEADLINES

American Avoids Extradition to Egypt After Release From Dubai Detention

An American citizen who was detained in Dubai for seven weeks and faced possible extradition to his native Egypt over criticizing the government there and calling on Egyptians to protest is back home after he was freed.

Sherif Osman, an Egyptian-American dual national, landed in Boston on Wednesday afternoon in what he called "a miracle" he believes was linked to high-level intervention. He was released soon after three unidentified Emirati officials visited him in Dubai's central prison on Dec. 22, he said Thursday.

Israel's Benjamin Netanyahu Returns to Power in Sixth Term as Prime Minister

JERUSALEM-Benjamin Netanyahu was sworn in for the sixth time as prime minister of Israel on Thursday, having been propelled back to the premiership by a coalition of ultranationalist and religious parties that will wield unprecedented power.

Mr. Netanyahu's coalition aims to expand Israeli settlements in the occupied West Bank, give lawmakers greater control over the top court and make changes to matters of religion and state. His coalition will include six right-wing parties, five of which are religiously conservative, and will control 64 of 120 seats in the Israeli parliament, or Knesset. The new government is set to be the most right wing in Israel's history, according to political analysts, and caps a decadeslong rightward shift among the electorate.

GLOBAL NEWS

Japan's Banks Get a Shot in the Arm

A 0.25 percentage point tweak to Japan's "yield curve control" interest-rate policy has lit a fire under the country's financial stocks. A sustained shift in monetary policy could add further fuel to the rally.

Shares of Japanese banks and insurers have surged since the Bank of Japan unexpectedly raised its effective cap on 10-year government bond yields to 0.5% from 0.25% about two weeks ago. The BOJ has long intervened in the bond market to keep yields of that tenor within a specific trading range around zero.

Biden Signs $1.65 Trillion Spending Bill Including Aid to Ukraine

CHRISTIANSTED, St. Croix-President Biden signed into law a $1.65 trillion spending bill that funds the federal government for the 2023 fiscal year and provides emergency aid for Ukraine.

Mr. Biden signed the bill, which passed Congress last week, while on vacation on the Caribbean island of St. Croix.

Talking Markets: China's Likely 2023 GDP Rebound Points to Opportunities in Consumer Sectors

China's economic growth in 2023 is likely to beat earlier expectations as several global investment banks raise their GDP forecasts, pointing to Beijing's aggressive push to reopen the country, and expect consumption-related sectors to offer opportunities in the hard-hit equities market.

Banks including Goldman Sachs, Morgan Stanley and J.P. Morgan have raised their estimates for China's GDP in recent weeks. They recommend clients look at the hospitality, consumer and banking sectors, which are expected to benefit from an economic rebound.

Talking Markets: Asian Currencies Set to Get a Boost From China's Reopening in 2023

A handful of Asian currencies stand to strengthen against the U.S. dollar on the back of continued reopening in China, which should lead to a recovery of the world's second-largest economy in 2023, analysts said.

China is exiting its zero-Covid-19 policy quicker than expected, and initial signs of disinflation in the U.S. emerged earlier than anticipated, Barclays foreign exchange analysts said in a recent research report. Just this week, China's National Health Commission said the country will remove all quarantine measures for Covid-19, including requirements for inbound visitors, from Jan. 8.

Cambodia Casino Fire Death Toll Rises to 25 as Search for Bodies Continues

POIPET, Cambodia-As the flames closed in, Ing Bunleng rushed to the closest window carrying a colleague's 6-year-old daughter in his arms. A fire was tearing through the casino hotel where he was employed as a bar manager. They needed to find a way down from the workers' dormitory on the third floor.

Looking out from the window, Mr. Ing saw a ladder rescuers had put up. He and the child scrambled down. The child's mother, who was working on a higher floor, is still missing.

American Spy Plane Has Uncomfortably Close Encounter with Chinese Jet Fighter

HONG KONG-The U.S. military said a Chinese jet fighter conducted an unsafe maneuver while intercepting an American spy plane in international airspace over the South China Sea last week.

During the Dec. 21 encounter, a J-11 fighter operated by a Chinese navy pilot flew "in front of and within 20 feet of the nose" of a U.S. Air Force RC-135, forcing the reconnaissance plane to "take evasive maneuvers to avoid a collision," the U.S. Indo-Pacific Command said Thursday.

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

(END) Dow Jones Newswires

12-30-22 0609ET