Rates and recession: European shares face rocky start to 2023: Reuters Poll

By Danilo Masoni

MILAN (Reuters) – Tightening financial conditions and the prospect of an economic recession are going to be a toxic brew for European shares going into 2023 with a key regional benchmark seen sliding towards October lows, a Reuters poll has found.

The poll of fund managers and strategists surveyed over the past two weeks forecasts the STOXX 600 equity benchmark to reach 408 points by mid of next year, a near 8% drop from Friday’s close.

Even as Europe has joined a recent global stock market recovery, fuelled by hopes of a pause in U.S. interest rate hikes, the STOXX 600 remains on course for its biggest one-year drop since 2018, down around 10% year-to-date.

“The impact of aggressive rate hikes will be felt on the real economy and hence earnings growths in the next few quarters. Based on our economists, we expect a shallow recession in Europe which leads to forecast an earnings decline of 12%” next year, said Barclays strategist Emmanuel Cau in London.

Graphic: STOXX 600 poll https://fingfx.thomsonreuters.com/gfx/mkt/lbpggnmmrpq/STOXX%20Nov%202022%20poll.PNG

The index could recover in the second half, aided by expectations of peaking rates and reach 434 points by end-2023, down 1.5% from Friday’s close and over 12% away from the lifetime high hit in January, according to the poll.

“The rise in risk premiums across asset classes will eventually reach a tipping point where a shift to more return-oriented investments will be warranted,” said Tomas Hildebrandt, Senior Portfolio Manager at Evli in Helsinki.

“Things could change, for example, if the inflation outlook were to start improving significantly or if at least a ceasefire is achieved in Ukraine.”

For the coming months, though, investors fear euro zone equities could lag other markets. The region’s economy is seen as particularly vulnerable due to an energy crisis exacerbated by the Ukraine war and as the European Central Bank is steadily raising interest rates to fight price pressures in the bloc.

“The economic outlook looks challenging as our economists forecast a recession in the euro zone,” said Marc Haefliger, Head of Global Equity Strategy at Credit Suisse in Zurich.

“We expect earnings to deteriorate and see the region underperforming on our tactical horizon. The economic slowdown will hit the cyclical euro zone market disproportionately,” he added.

The STOXX index of the euro zone’s top 50 blue chip stocks is seen falling another 7.9% from Friday’s close to 3,650 points by mid-2023. It should stay anchored around that level throughout next year before picking up in early 2024.

Money markets are pricing in more than 150 basis points of ECB interest rate hikes by the end of June.

Among country benchmarks, Germany’s DAX is seen ending the first half of 2023 at 13,209, down 9.2% from Friday’s close. France’s CAC 40 and Italy’s FTSE MIB are both seen falling over 15% and Spain’s IBEX by 17%.

Britain’s FTSE 100 is seen at 6,700 points by mid-2023, down 10.5% from last week’s close, but by end-2023 it should climb back to 7,373 points.

(Other stories from the Reuters global stock markets poll package:)

(Reporting by Danilo Masoni; additional reporting by Samuel Indyk; polling by Susobhan Sarkar and Sarupya Ganguly, Editing by William Maclean)

ADA Price Prediction: Bears Target Sub-$0.300 on Risk Aversion

Key Insights:

  • On Sunday, ADA fell by 0.32% to end the week up 0.32% to $0.313
  • ADA was range-bound until a final-hour reversal, fueled by the NASDAQ mini that responded to news of social unrest in China.
  • The technical indicators remain bearish, with ADA sitting at the 50-day EMA, to leave sub-$0.300 in view.

On Sunday, ADA ended the day with a 0.32% loss. After a flat Saturday session, ADA ended the week up 0.32% to $0.313.

A bullish morning saw ADA rise to a mid-morning high of $0.319. Falling short of the First Major Resistance Level (R1) at $0.320, ADA succumbed to broader market forces in the final hour, sliding to a low of $0.311. Steering clear of the First Major Support Level (S1) at $0.309, ADA wrapped up the day at $0.313.

It was another quiet session, with the US Thanksgiving Holidays leaving trading volumes on the lighter side.

ADA trading volumes remain depressed.
CMC ADA Trading Volumes 281122

Overnight, a lack of network news left ADA in the hands of the broader crypto market.

Charles Hoskinson Fails to Distract Investors from China News

In the final hour of the Sunday session (UTC), the NASDAQ mini kicked off the post-Thanksgiving holidays with a fall into negative territory.

Crude oil prices, the Hang Seng, the CSI300, and the DAX were also in the red. With little else for crypto investors to consider, the ADA and the crypto market tracked riskier assets into negative territory.

News of protests across China over the Chinese government’s zero-COVID policy and lockdown measures raised red flags. With new COVID-19 cases on the rise on Monday, stringent lockdown measures could disrupt supply chains and create uncertainty over inflation and economic growth.

Weekend updates from Input Output HK (IOHK) were not impressive enough to distract investors. Charles Hoskinson was also unable to distract investors from the news wires.

On Sunday, IOHK republished the weekly development report that showed a modest increase in projects on the Cardano network. Investors continue to hold out for an influx of projects following the Vasil hard fork.

Media outlets also continued to cover Charles Hoskinson’s response to the announcements of Aradana and Orbis halting projects on the Cardano network. Hoskinson failed to provide comfort, with the collapse of FTX shattering investor trust.

ADA Price Action

This morning, ADA was down 2.56% to $0.305. A bearish morning saw ADA slide from an early high of $0.314 to a low of $0.300.

ADA fell through the First Major Support Level (S1) at $0.310 and the Second Major Support Level (S2) at $0.306.

ADA under pressure.
ADAUSD 281122 Daily Chart

Technical Indicators

ADA has to move through the Major Support Levels and the $0.314 pivot to target the First Major Resistance Level (R1) at $0.318. Avoiding sub-$0.300 and a return to $0.315 would signal a breakout afternoon session. The NASDAQ Composite Index and FTX news updates will likely be focal points beyond Cardano network updates.

In case of an extended rally, the Second Major Resistance Level (R2) at $0.322 and $0.325 would come into play. The Third Major Resistance Level (R3) sits at $0.330.

Failure to move through the Major Support Levels and the pivot would leave the Third Major Support Level (S3) at $0.298 in play. However, barring an extended broad-based crypto sell-off, ADA should avoid the current-year low of $0.295.

Negative FTX-linked news would test support at $0.295.

ADA support levels in play.
ADAUSD 281122 Hourly Chart

This morning, the EMAs and the 4-hourly candlestick chart (below) sent a bearish signal.

ADA sat below the 50-day, currently at $0.316. The 50-day EMA slid back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

An ADA move through the Major Support Levels would bring the 50-day EMA ($0.316) and R1 ($0.318) into play. However, failure to break out from the 50-day EMA would leave ADA under pressure and sub-$0.300 in view.

EMAs bearish.
ADAUSD 281122 4-Hourly Chart

China Protests Send Riskier Assets Tumbling amid Economic Uncertainty

China COVID-19 news updates have grabbed the headlines in recent weeks. Government responses to the surge in new cases had varied from easing containment measures to reintroducing stringent lockdown measures.

Earlier this month, news hit the wires of factory workers escaping as factories introduced on-sight lockdown measures, allowing production facilities. Workers were less enamored by the willingness of the government to permit production to continue under strict controls, opting instead to flee.

However, over the weekend, factory worker resistance escalated to countrywide protests.

What Happened in China Over the Weekend?

On Sunday, Reuters reported demonstrators clashing with police in Shanghai. According to the report, police arrested a ‘busload of protesters.’

There have also been reports of gatherings across universities, and protests in other cities, including Wuhan and Lanzhou. Protesters are challenging Xi Jinping’s zero-COVID policy.

A fire in an apartment block in the region of Xinjiang was the likely catalyst for the uprisings. Reportedly, ten people died in the fire, leading to protests in the provincial capital Urumqi before spreading.

Protesters are calling for Xi Jinping to step down in unprecedented scenes.

The FIFA World Cup has also caused unrest. Scenes of maskless supporters in stadiums forced the government to reportedly censor crowd scenes from the world cup to ease tensions.

The latest surge in new COVID-19 cases and protests across the country have raised uncertainty. How the government responds to the protests will likely be pivotal. Measures to end protests and introduce more stringent lockdown measures could lead to more widespread protests.

However, the government could ease lockdown measures that should ease market tensions.

With the war in Ukraine showing no signs of ending, the introduction of strict lockdown measures in China would not bode well for the global economy. Supply chain disruptions had eased midway through the final quarter.

For central banks, extended lockdown measures could remove hopes of easing inflationary pressure and force more hawkish policy moves. Such an eventuality could drive greater risk aversion, with economies teetering on the brink of recession.

How Protests Could Affect the Global Financial Markets?

Bearish sentiment swept across the financial markets through the Asia session. This morning, the Hang Seng Index and the CSI 300 were down 1.98% and 1.58%, respectively.

The futures markets point to bearish European and US sessions. This morning, the NASDAQ mini and the DAX 30 were down 94.5 and 84 points, respectively.

Crude pile prices showed greater sensitivity to the news of unrest, with WTI and Brent down 2.91% and 2.82%, respectively.

The market risk aversion drove demand for the dollar, with the Dollar Spot Index (DXY) up 0.38% to 106.362.

Things were no better for the crypto market. The crypto market slid by $18.1 billion in the final hour of the Sunday session and by a further $14.2 billion (-1.80%) this morning.

Chart, waterfall chart Description automatically generated

Movement over the remainder of the day will hinge on the Chinese government’s response measures. News of plans to ease lockdown measures to placate protesters would be positive for riskier assets.

 

Germany’s largest firms to seek more energy crisis aid at Scholz meeting

BERLIN (Reuters) – The heads of Germany’s largest companies plan to ask Chancellor Olaf Scholz for more support to get through an energy crisis at a meeting next Friday, industry representatives told Reuters.

Gas and electricity price laws would be the focus of the meeting between Scholz and representatives of the 40 firms on the premier DAX index in Berlin, the representatives said on Friday.

Finance Minister Christian Lindner and Economy Minister Robert Habeck are also expected to take part in the meeting.

The companies are particularly unhappy that aid is initially limited to 150 million euros ($155.46 million), as the European Union does not want to give blanket approval to higher amounts out of concerns about state aid law; anything above that threshold requires approval on a case-by-case basis.

($1 = 0.9649 euros)

(Reporting by Markus Wacket and Andreas Rinke; Writing by Miranda Murray; Editing by Rachel More)

Dollar nears 3-mth low, shares climb after Fed tests the brakes

By Marc Jones

LONDON (Reuters) – Shares hit a two-month high and the dollar swooped towards a three-month low on Thursday, after Federal Reserve signals of smaller interest rate rises from next month were followed by the message from Frankfurt that the ECB will plough on.

With Wall Street shut for Thanksgiving, it was up to Europe to continue the rebound in market confidence that has been building for more than a month.

It seemed a bit of a struggle early on when London’s FTSE refused to budge, but there were just enough gains in the rest of Europe [.EU] and in Asia [.SS][.T] overnight to ensure things kept shuffling forward.

By lunch MSCI’s 47-country index of world stocks was at its highest since mid-September, while German and British government bond yields, which drive Europe’s borrowing costs, had fallen to their lowest levels since October and September respectively. [.EU]

“The Federal Reserve minutes signalled that some sensible voices are trying to drown out Fed Chair Powell’s relentless ‘hike, hike, hike’ chant,” said UBS Chief Economist Paul Donovan.

A “substantial majority” of Fed policymakers had agreed it would “likely soon be appropriate” to slow the pace of interest rate rises, the minutes released on Wednesday showed, although Donovan pointed out that there was no signal of an actual halt yet and various Fed members thought rates might need to go “somewhat higher” than expected.

Futures markets show investors now see U.S. rates peaking just above 5% by May and are pricing in a roughly 75% chance that the Fed now switches to 50 basis point rises rather than the 75 bps it has been using recently.

The ECB’s equivalent minutes out on Thursday showed its rate setters fear that inflation may now be getting entrenched in the euro zone.

“Incoming data so far suggest that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the ‘neutral’ rate,” one of its most influential Executive Board members Isabel Schnabel said separately.

For the currency markets, it meant the 7-week sell-off in the dollar continued. [/FRX]

The euro rose as high as $1.0447, edging it closer to its recent four-month top of $1.0481, while the dollar weakened 0.6% against the Japanese yen to 138.70 yen and past $1.20 against sterling.

“The dollar could stay pressured for a bit longer, but it’s probably embedding a good deal of Fed-related negatives now,” analysts at ING wrote.

TURKEY ON THANKSGIVING

The Fed wasn’t the only focus. Sweden’s crown nudged higher as its central bank increased its rates by three-quarters of a percentage point to 2.5% and signalled more next year.

Germany’s closely followed Ifo business climate index also rose more than expected, following on from some upbeat data from France too, while Turkey surprised no one as its slashed another 150 bps off its interest rates despite eyewateringly-high inflation of over 85%.

The Turkish central bank said that it marked the end of its cuts, however with presidential elections next year creating doubts about that the lira carved down to new record low.

Overnight, Asian markets had seen Japan’s Nikkei and South Korean shares both rose around 1%.

The Bank of Korea had reduced its pace of rate increases to 25 basis points. In Japan, data showed manufacturing activity had contracted at its fastest in two years.

Chinese property stocks also stormed nearly 7% higher, after banks there pledged at least $38 billion in fresh credit lines to cash-strapped developers, although the Shanghai Composite Index lost 0.25% as the country’s COVID cases continued to surge.

In the oil market, prices were slipping toward a major support level established in September. If they breach it, oil could tumble to levels not seen since before late 2021.

Brent crude futures fell 0.3% to $85.13. U.S. crude oil futures eased 0.2% to $77.74 per barrel. They had tumbled more than 3% on Wednesday as the Group of Seven (G7) nations considered a price cap on Russian oil above the current market level. [O/R]

Recession fears remain intense. Wednesday’s post-Fed U.S. bond market moves had seen yields on 10-year notes drop to a huge 79-basis-point deficit relative to two-year yields.

Such a curve inversion has not been seen since the dot-com bust of 2000 and, on the face of it, is a signal that investors expect a deep economic downturn in coming months.

(Additional reporting by Stella Qiu in Sydney; Editing by Robert Birsel, William Maclean)

Miners drag Europe’s STOXX 600 lower; German shares rise after Siemens’ profit beat

By Shreyashi Sanyal and Devik Jain

(Reuters) -Europe’s STOXX 600 index closed lower on Thursday as declines in miners and healthcare stocks offset gains in shares of engineering and technology group Siemens that helped Germany’s DAX outperform regional peers.

The continent-wide STOXX 600 dipped 0.4%, but was still up 3.9% this month and on pace for its second straight month of gains on several factors including better-than-feared earnings despite worries of a recession in the euro zone.

Data showed Euro zone inflation in October was marginally lower than previously reported in year-on-year terms but still at a record high because of surging energy prices.

“Part of the reason why markets rallied so much in the last month or so is because consumer confidence is so low that it became hard to see it get much worse, so when the macro data is so weak, markets assume that you are getting to the troughs in the data,” said Mike Bell, global market strategist at J.P. Morgan Asset Management in London.

Germany’s DAX index ended 0.2% higher driven by a 7% jump in shares of Siemens after it posted upbeat fourth quarter results and gave a confident outlook about future industrial demand.

London-listed power generators Drax and Centrica were other big gainers among the region, up 5.4% each, after British finance minister Jeremy Hunt said the average household energy bill would rise and kept a price cap until 2024.

Hunt announced a string of tax increases and tighter public spending in a budget plan that he said was needed after the blow dealt to the country’s fiscal reputation by former prime minister Liz Truss. UK’s blue-chip FTSE 100 index ended 0.1% lower. [.L]

“Overall it reads quite comfortable. We needed somebody with a steady hand and steady view to deliver a budget that does actually show an explanation as to why things are being done and what the impact will be,” said John Woolfitt, director of trading at Atlantic Capital Markets.

“It’s a budget that really sets out in the best way they can to defend maybe the lower earners or the more vulnerable in our population.”

The European basic resources index slid 1.7% to lead sectoral falls after prices of base metals slumped against a firmer U.S. dollar. The index is still among the few that have stayed above water so far this year. [MET/L]

NN Group dropped 4.1% after the Dutch insurer’s 2025 targets came in below estimates. The AEX dipped 0.1%.

(Reporting by Shreyashi Sanyal and Devik Jain in Bengaluru; Editing by Savio D’Souza, Sherry Jacob-Phillips, William Maclean)

Central Banks Were Front and Centre in Early November

The first four days of November witnessed an energetic start, welcoming a series of rate increases as major central banks continue to wrestle with elevated inflation rates.

European Central Bank

The final week in October watched the European Central Bank (ECB) raise the Main Refinancing Rate by 75 basis points to 2.00%, its second successive 75 basis-point increase. This was followed by a rise in annual inflation on, of all days, 31st October. Euro area annual inflation rose 10.7% in October on a year-over-year basis, up from 9.9% in September, refreshing record-high levels. Core inflation (excludes energy, food, alcohol and tobacco) also advanced by 5.0% yearly.

The euro remains in a troubled position this year, down 14.0% against the greenback, 5.0% against the CHF and 7.0% against the CAD.

For the EUR/USD, the weekly timeframe has exhibited a dominant downside bias since 2021 and support at $0.9606, albeit welcoming buyers in late September, echoes a vulnerable tone. Weekly support from $0.9241 calls for attention should current support give way.

Supporting the bearish vibe is the daily timeframe recently denying the underside of resistance at $1.0090, aided by the relative strength index (RSI) rejecting long-term indicator resistance between 60.00 and 50.00. Familiar resistance-turned-support on the daily consequently remains on the radar in November at $0.9573.

Reserve Bank of Australia

Tuesday (1st November) saw the Reserve Bank of Australia (RBA) increase the Cash Rate Target by 25 basis points to 2.85%, its highest since 2013. As we closed out October, the annual inflation rate in Australia climbed to 7.3% in Q3 of 2022 from 6.1% in Q2, according to the Australian Bureau of Statistics. This is the highest quarterly inflation reading since 1990.

The Australian dollar witnessed a rebound into October’s end versus the US dollar, consequently printing a monthly doji indecision candle, a whisker north of a weekly demand area at $0.5975-0.6166. However, the AUD/USD has been entrenched within a bear trend since 2011 and, since early 2021, has also been dominantly lower. Therefore, further weakness is likely on the table for the currency pair, targeting daily support of around $0.5990, sat just within the lower boundary of the noted weekly demand zone.

FOMC

The FOMC took the lead on Wednesday (2nd November) and, in what was a unanimous decision, delivered another super-sized 75 basis-point hike, pulling the Federal Funds Target Range to 3.75%-4.00%. This means that since March, the FOMC have raised rates by 375 basis points.

Initially, the FOMC statement echoed a dovish tone, which markets seemed to have overreacted to, underpinning major US equity indices, and guiding the US dollar and bond yields lower. However, shortly after, a swift reversal unfolded in response to a hawkish presser from Fed chair Powell. He noted:

‘Rates need to move beyond the September Dot Plot forecasted (median 4.6%)’.

‘It is very premature to be thinking about pausing rates’.

Futures markets are currently pricing in a 61.5% probability of a 50 basis-point hike in the December meeting and a 38.5% chance of another 75 basis-point increase.

The US Dollar, or Dollar Index, finished October lower, snapping a four-month bullish phase. The overall trend, however, remains decisively higher—YTD, the index is higher by 17.6%—with scope to continue pushing northbound in November (and probably into the year’s end) until resistance around 115.00 and 119.07.

Bank of England

Thursday (3rd November) shifted the attention to the Bank of England’s (BoE) Bank Rate decision. Raising its Bank Rate by the most since 1989, the central bank hiked by 75 basis points to 3.0% as expected, the highest since 2008. However, this was considered a ‘dovish hike’.

A dovish repricing of interest rate expectations and the BoE stating that it predicts a 24-month recession should rates follow the future rate path that’s implied by the markets right now sent sterling 2.0% south against the US dollar, and 1.3% versus the euro.

Against the US dollar, sterling collapsed to a record low of $1.0327 on 23rd September, pressured following the UK government’s mini budget. GBP/USD fell 3.6% and the FTSE 100 tumbled 2.0% on the day. Yet despite this, GBP/USD staged an impressive rebound in October, adding 3.0% (its largest one-month advance since May 2021) after the BoE stepped in to stem the market turmoil. Year to date, GBP/USD has plummeted around 17.0%,

Overall, the pound is poised for lower levels this year, potentially targeting the record lows mentioned above at $1.0327. Note also that the weekly timeframe’s decision point (supply) embraced price action last week at $1.1751-1.1413, a key zone to keep an eye on as the month progresses.

US Employment Situation Report

Finally. Friday (4th November).

Despite the Fed’s aggressive tightening policy, Friday’s US employment situation report revealed non-farm payrolls increased by 261,000 in the month of October, according to the US Bureau of Labour Statistics. This significantly beat the market consensus of 205,000, meaning we still have a resilient labour market, which understandably presents a problem for the Fed.

The unemployment rate ticked higher to 3.7%, and the average hourly earnings for the month also printed higher at 0.4%.

Equities

Major global equity indices outperformed in October. Japan’s Nikkei 225 climbed 6.4%, the S&P 500 rose 8.0% and Germany’s DAX rallied 10.5%. Chart pattern enthusiasts may acknowledge the potential for several monthly bullish flag patterns. Prominent examples to be mindful of over the coming months are found on the Dow Jones Industrial Average between 36,952 and 32,272 and on the Nikkei 225 between 30,795 and 27,385.

The S&P 500, after rebounding from its 200-week simple moving average (current: 3,618) in October has seen the majority of the gains erased. Key weekly support to be aware of this month resides at 3,551, with weekly resistance stationed at 4,172.

Overall, the trend on the S&P 500 is lower, following the lower low printed in October at 3,491; therefore sell-on-rally scenarios may unfold this month to take aim at fresh lower lows in line with the current downtrend. This, however, would entail breaching the current weekly support mentioned above at 3,551.

Risk Events This Month

  • 08/11/22: US Midterm Elections
  • 10/11/22: US Annual Inflation Rate
  • 10/11/22: US Weekly Unemployment Claims
  • 11/11/22: UK (Preliminary) GDP Date for Q3
  • 11/11/22: US Preliminary UoM Consumer Sentiment for November
  • 15/11/22: Reserve Bank of Australia (RBA) Policy Meeting Minutes
  • 16/11/22: UK Annual Inflation Rate
  • 16/11/22: Canada Annual Inflation Rate
  • 16/11/22: US Retail Sales
  • 17/11/22: Australia Employment Change and Unemployment Rate
  • 21/11/22: Eurozone and UK Flash Manufacturing and Services PMIs
  • 23/11/22: Reserve Bank of New Zealand (RBNZ) Official Cash Rate Decision
  • 23/11/22: US Flash Manufacturing and Services PMIs
  • 23/11/22: FOMC Meeting Minutes

Wintershall Dea reports Q3 income jump, seeks looser ties with Russia

(This Oct. 25 story has been corrected to clarify in paragraph 10 that available cash is 4.2 billion, with another 2 billion trapped in Russia, not included)

By Vera Eckert

FRANKFURT (Reuters) – Oil and gas producer Wintershall Dea said on Tuesday that its most closely watched measure of earnings more than doubled in the third quarter of 2022 and that it would seek to strengthen business in locations outside Russia.

Wintershall Dea was looking into whether the international business it is pursuing could be legally separated from its Russian activities, said Chief Executive Mario Mehren.

“Russia’s war and its consequences are destroying the foundations of economic relations, as Russia has become unpredictable in every respect,” he said.

He said the company brought the Norwegian Nova project successfully on stream in July and was expanding business in Mexico and Argentina.

Wintershall Dea, a long-term partner to Russian gas giant Gazprom, reported earnings before interest, tax, depreciation, amortisation and exploration expenses (EBITDAX) – a standard oil industry measure – jumped 162% to 2.6 billion euros ($2.57 billion) in the three months to end September from a year earlier.

The company cited strong oil prices [O/R] and robust operational performance.

News arrived overnight of a deal that the company has bought a 37% participation in the Hokchi block offshore the coast of Mexico, as a forerunner of long-term growth there.

Mehren also referred to a recent $700 million investment in the Argentinian Fenix gas development.

The company, owned jointly by BASF and investor group LetterOne, will put recommendations for a delayed 2021 dividend to shareholders next month and distribute the money by year-end, CFO Paul Smith told analysts.

There were 4.2 billion euros available on the balance sheet for the purpose, with another 2 billion euros of cash trapped in Russia from income related to Wintershall Dea’s three joint ventures there, he said.

A dividend decision for 2022 would be processed at the end of the first quarter.

Asked about what the company intended to do about the inaccessible money in Russia, Mehren said it was determined to recover it. “The money belongs to us contractually and therefore, we’ll go after it,” he said.

BASF shares were down 2% at 1320 GMT.

($1 = 1.0129 euros)

(Reporting by Vera Eckert, editing by Miranda Murray and Tomasz Janowski)

Daily Gold Update: Friday, October 21 – Gold Bounces From New Medium-Term Low

Gold Price Recap

The gold futures contract gained 0.16% on Thursday, October 20, as it fluctuated following its recent declines. On Wednesday the market broke below the $1,650 level on strong U.S. dollar, stock markets’ uncertainty. On September 28 gold bounced from the new medium-term low. It was the lowest since the Spring. Then gold price has been driven higher by the U.S. dollar reversal, stock markets’ advances. On October 4 the daily high was at $1,738.70. This morning gold is bouncing from the new medium-term low along the $1,620 level, as we can see on the daily chart (the chart includes today’s intraday data):

Precious Metals Price Action

Today, gold is 0.1% lower, as it is trading closer to the $1,620 price level. What about the other precious metals? Silver is 1.4% lower, platinum is 0.6% lower and palladium is 1.8% lower. So the main precious metals’ prices are mixed this morning.

Fundamentals and Economic News Schedule

Yesterday’s Philly Fed Manufacturing Index release has been worse than expected at -8.7. Today we won’t get any new important economic data releases.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days.

Friday, October 21

  • 8:30 a.m. Canada – Retail Sales m/m, Core Retail Sales m/m
  • 9:10 a.m. U.S. – FOMC Member Williams Speech

Monday, October 24

  • 3:15 a.m. Eurozone – French Flash Services PMI, French Flash Manufacturing PMI
  • 3:30 a.m. Eurozone – German Flash Manufacturing PMI, German Flash Services PMI
  • 4:30 a.m. U.K. – Flash Manufacturing PMI, Flash Services PMI
  • 9:45 a.m. U.S. – Flash Services PMI, Flash Manufacturing PMI
  • 11:00 a.m. U.S. – Treasury Secretary Yellen Speech

Paul Rejczak
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Bayer to challenge $275 million U.S. jury verdict over PCB injury claims

FRANKFURT (Reuters) – Germany’s Bayer said on Friday it plans to legally challenge a jury verdict awarding $275 million to a group of people claiming they suffered from exposure to PCB, a chemical that Bayer’s Monsanto business produced until 1977.

Bloomberg and other media outlets on Thursday reported the verdict before the King County Superior Court in the U.S. state of Washington in favour of 13 plaintiffs who blame their illnesses on exposure to polychlorinated biphenyls, or PCBs, at the Sky Valley School in Monroe County.

“We respectfully disagree with the divided jury verdict reached in this 13-plaintiff case and plan to pursue post-trial motions and appeals based on multiple errors and the lack of proof at trial,” Germany’s Bayer said in a statement.

“The undisputed evidence in this case does not support the conclusions that plaintiffs were exposed to unsafe levels of PCBs at the Sky Valley Education Center or that these exposures are responsible for their alleged health issues” it added.

Bayer shares were down 0.9% at 0738 GMT while Germany’s blue chip index DAX was up 0.7%.

While Monsanto’s weedkiller Roundup has been a far larger litigation burden for Bayer, the diversified healthcare and agriculture company has also been trying to resolve lawsuits related to PCBs. The chemical was used in commercial products until Monsanto voluntarily ended production in 1977.

Bayer has since 2020 resolved a majority of cases in litigation with municipalities over waste water contaminated with PCB for $650 million but several other claims remained pending.

In August, it set aside 694 million euros for an expected settlement with the State of Oregon over PCB in waste water.

The group of substances was once used in electrical equipment, carbonless copy paper, caulking, floor finish and paint. It was outlawed by the U.S. government in 1979 after being linked to cancer.

(Reporting by Ludwig Burger; Editing by Raju Gopalakrishnan)

Stocks fall, dollar rises with economic data, rates in focus

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON (Reuters) – The MSCI global index of stocks lost ground in a volatile session on Monday while the dollar gained slightly as investors braced for high inflation data and the start of corporate earnings season.

Oil futures sold off and Wall Street’s stock indexes were volatile, while U.S. bond markets were closed for a federal holiday.

Weighing on investors was also a Russian missile attack on Ukraine that killed civilians and knocked out power and heat in cites across the country. President Vladimir Putin said he had ordered “massive” long range strikes after an attack on the bridge linking Russia to the annexed Crimean peninsula over the weekend, and threatened more strikes in future if Ukraine hits Russian territory.

U.S. investors, anxious about rising interest rates and signs of economic weakness, were also cautious ahead of inflation data due out Thursday and the start of the third-quarter earnings season on Friday.

JPMorgan Chase & Co Chief Executive Jamie Dimon told CNBC the United States and the global economy could tip into a recession by mid-2023.

Then Fed Vice Chair Lael Brainard said tighter U.S. monetary policy had begun to be felt in an economy that may be slowing faster than expected, but that the full interest rate increases would not be apparent for months.

“There’s nothing specific in Brainard’s comments that makes you say the Fed is changing its policy but there’s at least some signs that the Fed is not proceeding blindly on a rate hiking restrictive path,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Connecticut.

“Dimon’s comments definitely didn’t help. A lackluster downward market didn’t need those comments. They’ve been balanced out somewhat by Brainard.”

The Dow Jones Industrial Average fell 93.91 points, or 0.32%, to 29,202.88; the S&P 500 lost 27.27 points, or 0.75%, at 3,612.39; and the Nasdaq Composite dropped 110.30 points, or 1.04%, to 10,542.10. [.N]

Nasdaq led the declines and registered its lowest closing level since July 2020 as chip stocks sold off sharply on the Biden administration’s sweeping set of export controls published on Friday, including a measure to cut off China from certain semiconductors made with U.S. equipment.

Wall Street had already declined on Friday after an upbeat September jobs report cemented expectations for another large rate hike.

Four of the biggest U.S. banks are due to report earnings on Friday, with large lenders expected to post lower profits as the economy slowed and volatile markets stifled dealmaking.

The MSCI All-World index ended down 1.0% in its fourth straight day of losses. The pan-European STOXX 600 had closed down 0.4% after skimming one-week lows. Emerging market stocks lost 1.4%.

Chicago Fed President Charles Evans also said on Monday that U.S. Fed officials were closely aligned on the need to raise the target policy rate to around 4.5% by early next year, unless data upends current projections.

Minutes of the Fed’s last policy meeting will be published this week and could offer clues on rate-setters’ thinking about future monetary policy.

The dollar index, which measures the greenback against a basket of currencies, rose 0.3% while the euro was down 0.37% at $0.9705. [FRX/]

The Japanese yen weakened 0.25% versus the greenback at 145.70 per dollar, while sterling traded at $1.1057, down 0.24% on the day.

The Bank of England sought to ease concerns about this week’s expiry of its program designed to calm turmoil in the government bond market, announcing new safety-net measures including a doubling of the maximum size of its debt buybacks.

Even though U.S. bond markets were closed on Monday, Matthew Miskin, co-chief investment strategist of John Hancock investment management based in Boston, said the UK news was not helping the U.S. stock market.

“It looks like an ongoing spillover from the bond market into the equity market continues this week,” said Miskin, adding to expectations for a high inflation reading later this week.

Investors are betting “the Fed’s not going to be able to back down until inflation comes down,” he said.

Oil prices sank by nearly 2%, after five straight sessions of gains, as investors feared economic storm clouds could foreshadow a global recession and erode fuel demand.

U.S. crude fell $1.51 to $91.13 per barrel while Brent settled at $96.19, down $1.73. [O/R]

Gold prices fell as an elevated dollar and solidifying bets for an aggressive Fed interest rate hike pushed the non-yielding bullion to its lowest level in a week.

Spot gold dropped 1.5% to $1,669.28 an ounce. U.S. gold futures fell 1.89% to $1,668.40 an ounce.

 

(Reporting by Sinead Carew in New York and Amanda Cooper in London; Additional reporting by Wayne Cole in Sydney; Editing by Matthew Lewis, Alistair Bell and Richard Chang)

European shares log best day since mid-March as interest rate angst eases

By Devik Jain and Amruta Khandekar

(Reuters) -European shares rose sharply on Tuesday, in line with global peers, boosted by growing hopes that central banks may ease the pace of future interest rate hikes as they attempt to bring down high inflation.

The region-wide STOXX 600 index climbed 3.1%, extending gains for a third straight day and logging its best session since mid-March. Stocks had fallen sharply in September, driven by jitters around rising rates, with the UK government’s fiscal plans further rattling investors in the last week of the month.

“We’re seeing a bit of an unwind in circumstances that had everybody in a panic last week. Today, the psychology is that we’ve seen the worst of the rate hikes behind us,” said Steve Sosnick, chief strategist at Interactive Brokers.

Globally, equities received a shot in the arm after manufacturing data from the United States on Monday sparked hopes that rising rates were starting to dampen demand and central banks may start to tone down their hawkish approach. [MKTS/GLOB]

Adding to the optimism was a surprise decision by Australia to raise rates by a smaller-than-expected 25 basis points.

Meanwhile, euro zone producer prices jumped slightly more than expected in August, data showed on Tuesday, driven mainly by continuously rising energy costs, but price increases excluding that most volatile component decelerated.

“Any improvement in core inflation should be taken as pretty good news by markets because that is one of the things that would cause central banks to be less aggressive in their hiking,” said Sosnick.

London’s blue-chip FTSE 100 index rose 2.6%, building on gains from the previous session after the UK government reversed parts of its controversial tax cut plans.

The STOXX 600 index has fallen 17.4% so far this year as the region grapples with an energy crisis exacerbated by the Russia-Ukraine conflict and growing concerns about a recession with aggressive policy moves by the U.S. Federal Reserve and other central banks to quell inflation.

All of the STOXX 600’s sectoral indexes gained, led by a 6.2% jump in travel and leisure stocks.

Tech stocks rose 5.1%, helped by gains in chipmakers, including ASML, STMicroelectronics and Infineon after the European Parliament approved rules to introduce a single charging port for mobile phones, tablets and cameras.

Sika gained 6% after the chemicals maker raised its full-year sales forecast.

(Reporting by Devik Jain and Amruta Khandekar in Bengaluru; Editing by Savio D’Souza, Uttaresh.V and Jonathan Oatis)

Investors expect no peace in U.S. stocks until bond gyrations subside

By David Randall

NEW YORK (Reuters) – Investors believe the feedback loop between U.S. stocks and bonds will likely be a key factor in determining whether the gyrations that have rocked markets this year continue into the last months of 2022.

With the third quarter over, both assets have seen painful sell-offs – the S&P 500 is down nearly 25% year-to-date and the ICE BofA Treasury Index has fallen by around 13%. The twin declines are the worst since 1938, according to BoFA Global Research.

Yet many investors say bonds have led the dance, with soaring yields slamming stock valuations as market participants recalibrated their portfolios to account for stronger-than-expected monetary tightening from the Fed.

The S&P 500’s forward price-to-earnings ratio fell from 20 in April to its current level of 16.1, a move that came alongside a 140 basis point surge in the yield on the benchmark U.S. 10-year Treasury, which moves inversely to prices.

“Interest rates are at the core of every asset in the universe, and we won’t have a positive repricing in equities until the uncertainty of where the terminal rate will settle is clear,” said Charlie McElligott, managing director of cross-asset strategy at Nomura.

Volatility in U.S. bonds has erupted in 2022, with this week’s Treasury yield gyrations taking the ICE BofAML U.S. Bond Market Option Volatility Estimate Index to its highest level since March 2020. By contrast, the Cboe Volatility Index – the so-called Wall Street “fear gauge” – has failed to scale its peak from earlier this year.

“We have emphasized … that interest rate volatility has been (and continues to be) the main driver of cross-asset volatility. Nevertheless, even we continue to watch the rates volatility complex with incredulity,” analysts at Soc Gen wrote.

GRAPHIC: Bonds break down – https://fingfx.thomsonreuters.com/gfx/mkt/akpezdaxjvr/Pasted%20image%201664460769205.png

Many investors believe the wild moves will continue until there is evidence that the Fed is winning its battle against inflation, allowing policymakers to eventually end monetary tightening. For now, more hawkishness is on the menu.

Investors on Friday afternoon were pricing in a 57% chance that the U.S. central bank hikes rates by 75 basis point rates at its Nov. 2 meeting, up from a 0% chance one month ago, according to CME’s FedWatch tool. Markets see rates hitting a peak of 4.5% in July 2023, up from 4% a month ago.

Next week’s U.S. employment data will give investors a snapshot of whether the Fed’s rate hikes are starting to dent growth. Investors are also looking to earnings season, which starts in October, as they gauge to what degree a strong dollar and supply chain snafus will affect companies’ profits.

For now, investor sentiment is largely negative, with cash levels among fund managers near historic highs as many increasingly choose to sit out the market swings. Retail investors sold a net $2.9 billion of equities in the past week, the second largest outflow since March 2020, data from JPMorgan showed on Wednesday.

Still, some investors believe a turnaround in stocks and bonds may soon come into view.

The deep declines in both asset classes make either an attractive investment given the likelihood of longer-term returns, said Adam Hetts, global head of portfolio construction and strategy at Janus Henderson Investors.

“We’ve been in a world where nothing was working. Most of that agony is over, we think,” he said.

JPMorgan’s analysts, meanwhile, said high cash allocations may provide a backstop for both equities and bonds, likely limiting future downside.

At the same time, the fourth quarter is historically the best period for returns for major U.S. stock indexes, with the S&P 500 averaging a 4.2% gain since 1949, according to the Stock Trader’s Almanac.

Of course, dip buying has fared poorly this year. The S&P 500 has mounted four rallies of 6% or more this year, with each rebound sputtering out to be followed by fresh bear market lows.

Wei Li, Chief Investment Strategist at BlackRock Investment Institute, believes more jumbo rate hikes from the Fed may dent growth, while a slower pace of tightening could hurt bonds by making inflation more entrenched.

She is underweight developed market equities and fixed income, believing that “difficult choices” faced by central banks will spur more market ructions.

Equities may have further to fall than bonds given the high likelihood of a recession in 2023, said Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services.

“We think the upside for equities will be capped because there will be more earnings pain and more central bank tightening,” he said.

(Reporting by David Randall; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Jonathan Oatis and David Gregorio)

European shares tumble on recession angst, grim German inflation data

By Devik Jain and Amruta Khandekar

(Reuters) – European shares tumbled on Thursday as relief from the Bank of England’s bond buy-back plan to soothe distressed markets fizzled out, while grim inflation data from Germany fed fears about soaring prices and aggressive central bank moves.

The continent-wide STOXX 600 index fell 1.7%, after ending higher on Wednesday, as investors fretted about the prospects of a global economic downturn, with a slew of retailers in the region warning about the impact of a cost-of-living crisis on their business.

Nearly all STOXX sectors were in the red, with retailers sliding 4.4% as the world’s second-biggest fashion chain, H&M, fell 5.9% after weaker-than-expected profits, while Next fell 12.2% after cutting its sales and profit forecasts.

The disappointing corporate updates magnified investor worries about a hit to earnings growth at a time when Europe is grappling with an energy crisis and central banks are tightening financial conditions to quell runaway inflation.

“I think the market is giving up some of the gains that happened yesterday that were just unwarranted,” said Patrick Armstrong, chief investment officer at Plurimi Wealth in London.

“I don’t think there’s going to be a big change on the macro picture. But as valuations get cheaper and cheaper, that will attract value and bargain hunters.”

The STOXX 600 index has declined in 11 of the last 13 sessions, shaving more than 10% of its value in that time.

Germany’s DAX index was down 1.7% as data showed inflation in Europe’s largest economy jumped by more than expected in September to a 10.9% rise on the year – its highest level in more than 25 years, driven by higher energy prices.

The data strengthened the case for another 75 basis point hike from the European Central Bank.

Meanwhile, UK gilt yields resumed their rise after British Minister Liz Truss defended her controversial economic growth plan including unfunded tax cuts that unleashed havoc on financial markets after it was introduced last week. [GB/]

London’s FTSE 100 fell 1.8%, while the mid-caps index plunged 3.1%. [.L]

Separate data on Thursday showed euro zone economic sentiment fell sharply and by more than expected in September, with companies and consumers expecting higher inflation and a deteriorating financial situation.

“Consumer confidence is plummeting, while prices are rising. High energy prices are going to be a big impact for discretionary spending,” Armstrong said.

Luxury stocks on the STOXX 600 were in the red with LVMH down 0.9%.

Volkswagen and Porsche SE slumped as investors switched to Porsche AG shares, which made a strong debut, peaking at 86.76 euros.

(Reporting by Devik Jain, Amruta Khandekar and Susan Mathew in Bengaluru; Editing by Savio D’Souza and Ken Ferris)

The GBP/USD Is Back in the Red After the BoE Fueled Wednesday Rally

On Wednesday, the Bank of England stepped in to calm the markets and restore confidence in the Pound.

Tagged the ‘Gilt Market Operations,’ the BoE released details of the Bank’s purchases of longer-dated UK government bonds.

According to the announcement,

“The Bank will carry out purchases of long-dated gilts in a temporary and targeted way. The purpose of these purchases is to restore orderly market conditions.”

The Bank added,

“Given current market conditions, the Bank stands ready to purchase conventional gilts with a residual maturity of more than 20 years in the secondary market, initially at a rate of up to £5 billion per auction. These parameters will be kept under review in light of prevailing market conditions.”

The first auction took place on Wednesday, and subsequent auctions will happen daily until October 14, 2022.

Market Reaction to the BoE Intervention Was Ultimately Bullish

On Wednesday, the GBP/USD pair rallied by 1.45% to end the session at $1.08879. The Pound had tumbled to a low of $1.05381 before surging to a day high of $1.09160. However, this morning, the GBP/USD pair was on the back foot early in the Asian session, falling by 0.33% to $1.08520.

GBP/USD under pressure after Wednesday relief rally.
290922 GBPUSD Daily Chart

While the purchase of longer-dated gilts delivered order, market concerns over the UK Government’s mini-budget and the implications to inflation and monetary policy remain. On Tuesday, BoE Chief Economist Huw Pill said that the BoE would wait until the November MPC meeting to deliver a policy response to the mini-budget.

However, market disorder forced the Bank into action.

Beyond the Pound, market reaction to the Bank of England intervention was evident across the asset classes.

On Wednesday, the NASDAQ 100 rallied by 2.05%, with the Dow and the S&P500 ending the day with gains of 1.88% and 1.97%, respectively. The US futures had been in negative territory through the European session before the market response to the BoE move.

The European markets also bounced back from heavy losses, with the DAX30 rising by 0.36% and the FTSE100 ending the day up 0.30%. However, the gains were modest, with recession jitters and hawkish Fed chatter pegging the majors back on the day.

Elsewhere, the crypto market recoupled with the US equity markets. The crypto market had briefly decoupled in response to the Fed’s rate hike and FOMC projections.

Crypto - NASDAQ correlation
Total Market Cap – NASDAQ – 290922 5 Minute Chart

Recovering from an early morning slide to a Wednesday low of $865.4 billion, the crypto market cap is currently up $14.1 billion to $910.0 billion.

Early in the Wednesday session, news of Apple Inc. (AAPL) pulling plans to ramp up production of the new iPhone 14 product suite had sent riskier assets into the deep red.

Looking at the Asian markets this morning, the risk-on sentiment from the US session has failed to provide support. At the time of writing, the ASX200 was down 0.53%, with the NASDAQ 100 Mini down 16 points.

The Bank of England will need to do more to restore confidence in the Pound. Hawkish central bank chatter will also remain a headwind for riskier assets. Warnings from the likes of Apple Inc of weakening demand will continue to add to the market angst.

Wall Street bounces off lows as UK steps in to calm bonds

By Lawrence Delevingne

(Reuters) -Global equities staged a partial comeback on Wednesday — with Wall Street stocks surging around 2% — as the Bank of England said it would step in to the bond market in an attempt to dampen investors’ fears of contagion across the financial system.

The BoE said it would temporarily buy long-dated bonds – linked most closely to workers’ pensions and home loans – in light of a surge in UK bond yields and related borrowing costs.

Sterling, which hit record lows against the dollar on Monday, was last up about 1.4% in volatile trading, while gilt prices roared higher. European government bonds also got a lift from the surge in gilts.

Investors have been rattled in the last week in particular by soaring bond yields, as central bankers have raced to raise interest rates to contain red-hot inflation before it tips the global economy into recession.

The dollar, the ultimate safe-haven in times of market turmoil, was down about 1.2%, easing from two-decade highs spurred on by yields on the benchmark 10-year Treasury approaching 4.0% for the first time since 2008. Yields on other U.S. government bonds also declined on Wednesday.

The MSCI All-World index was last up about 1.3%, having pulled off a session trough that marked its lowest level since November 2020. It is still heading for a more than 7% drop in September – its biggest monthly decline since March 2020’s fall of 13%.

In Europe, the STOXX 600 and FTSE 100 both pared losses to finish up about 0.3%.

Wall Street’s rebound gained momentum over the day, with the S&P 500 Index up about 2% after it fell to a two year low on Tuesday. The Dow Jones Industrial Average also gained 1.9% and the Nasdaq Composite was up about 2%.

Weighing on growth stocks was Apple Inc, which was down about 1.3% on a report the tech company was dropping its plans to boost production of the latest model of its flagship iPhone.

Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors LLC in Minneapolis, said the UK intervention had helped calm U.S. markets, but that the “temporary stability is something of an illusion.”

Doty cited the widening gap between 10-year treasury yields and 30-year mortgage rates, which he attributed to the Fed reducing its mortgage securities and the sharp inversion of the yield curve resulting from the Fed’s “aggressive determination to damage economic activity.”

UK MARKETS STORM

At the heart of earlier sell-off across global markets was the British government’s so-called mini-budget last week which announced a raft of tax cuts and little in the way of detail as to how those would be funded.

The International Monetary Fund and ratings agency Moody’s criticised Britain’s new economic strategy announced on Friday, which has sparked a collapse in the value of British assets.

Strategists at Amundi, Europe’s largest asset manager, said earlier on Wednesday they believed UK assets were in for more losses, as the UK’s fiscal credibility remained on the line.

“We believe risks remain tilted to the downside – given how much is already priced-in, less aggressive signalling from the BoE will accelerate the move to below parity (for sterling/dollar), in our view,” strategists led by Laurent Crosnier, global head of FX, wrote, recommending investors avoid pounds.

Oil prices jumped higher on Wednesday for a second day, rebounding from recent losses as the U.S. dollar eased off recent gains and U.S. fuel inventory figures showed larger-than-expected drawdowns and a rebound in consumer demand. U.S. crude rose 4.5% to $82.06 per barrel and Brent was at $89.22, up 3.4% on the day.

Spot gold added 2.0% to $1,660.79 an ounce. U.S. gold futures gained 2.04% to $1,659.70 an ounce.

Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said markets may already be pricing in future pain.

“Should the economy slow and eventually fall into recession and inflation stays higher for longer, we believe financial asset prices have adjusted to reflect this likely reality,” Wren wrote in a client note released on Wednesday. “Eventually, brighter skies will be on the horizon.”

(Reporting by Lawrence Delevingne in Boston and Amanada Cooper in London; Additional reporting by Wayne Cole in Sydney; Editing by Matthew Lewis and Alistair Bell)

European shares reverse losses as BoE intervenes to cool bond markets

By Devik Jain and Amruta Khandekar

(Reuters) – European shares gained on Wednesday, with the UK’s blue-chip index reversing losses after the Bank of England said it would purchase bonds to cool a turmoil in markets stemming from the British government’s fiscal plans.

The continent-wide STOXX 600 index was up 0.3% after falling nearly 2% earlier in the session as an intensifying energy crisis in the region and the relentless surge in global bond yields fuelled worries about a recession.

The BoE said it would buy as many long-dated government bonds as needed between now and Oct. 14 to stabilise financial markets, adding that it would postpone next week’s start of its gilt sale programme.[.L]

The pound rose and UK gilt prices rocketed. London’s FTSE 100 closed up 0.3% after falling as much as 2%.[.L]

“I don’t think the markets view this as an all clear. They view this as very necessary first aid,” said Steve Sosnick, chief strategist at Interactive Brokers.

The BoE move came after the International Monetary Fund and ratings agency Moody’s ramped up pressure on Britain to reverse a new economic strategy revealed last week which proposed unfunded tax cuts, prompting a surge in bond yields and a searing drop in the pound.

“We’re still going to have to see over the coming days and weeks whether this was a temporary measure. We’re going to have to see if the UK government backs off its fiscal plans after the disastrous response that they received in the marketplace,” Sosnick said.

Euro zone borrowing costs fell, reversing an earlier rise to multi-year highs.

Heightening jitters about rising interest rates hitting economic growth, the European Central Bank may need to hike rates by another 75 basis points at its October meeting and move again in December to a level that no longer stimulates the economy, policymakers said on Wednesday.

The ECB lifted interest rates by a combined 125 basis points at its past two meetings.

On the STOXX 600, energy, healthcare and miners rose between 0.4% and 2% but were countered by a sharp fall in bank stocks and consumer staples.

Meanwhile, geopolitical tensions intensified as Europe investigated what Germany, Denmark and Sweden said were attacks on two Nord Stream pipelines at the centre of an energy standoff.

Shares of fish farmers such as Mowi, Leroy Seafood and SalMar dropped between 18% and 30% after the Norwegian government proposed a resource tax on salmon and trout farming of 40% from the tax year 2023.

(Reporting by Devik Jain, Amruta Khandekar and Susan Mathew in Bengaluru and Dhara Ranasinghe in London; Editing by Subhranshu Sahu, Savio D’Souza, Vinay Dwivedi and Jonathan Oatis)

Apple Inc. Joins Growing List Responding to Economic Conditions

Overnight, US tech giant and multinational Apple Inc. (AAPL) announced that it would drop plans to increase the production of its new iPhone 14 product suite.

Bloomberg reported that an expected surge in demand failed to materialize, forcing the company to notify suppliers to curtail efforts to increase assembly line output. Apple planned to increase production of the new iPhone 14 product suite by as much as 6 million units in the second half of this year.

Today’s news followed reports of Apple Inc. shifting some iPhone 14 production from China to India. According to Reuters, the shift from China was in response to rising geopolitical tensions and COVID-19 lockdown measures in China that continue to impact output.

The market reaction to the news was bearish. Ahead of the Bloomberg report, the NASDAQ 100 Mini was in positive territory. However, at the time of writing, the NASDAQ 100 Mini was down 142.25 points, with the Dow Jones Mini down 190 points. For the S&P 500, another bearish session would extend the losing streak to seven sessions.

Pre-market, Apple Inc was down 3.70%.

The European markets also responded adversely to the news. Early in the European session, the DAX30 was down 1.60%, with the CAC40 and the EuroStoxx600 down 1.24% and 1.43%, respectively.

Beyond the global equity markets, the crypto market reacted negatively to the news. This morning the crypto market cap was down $17 billion to $878.4 billion. Before the Apple news hit the wires, the crypto market cap had struck an early high of $902.2 billion.

Crypto market reacts to Apple Inc news.
Crypto Market Cap 280922 Daily Chart

Apple Joins Growing List of Multinationals to Sound the Alarm Bells

This morning’s news was one of several as US multinational companies respond to a marked shift in the economic environment. Economic indicators continue to flash red as central banks attempt to tame inflation.

Rising interest rates and persistent inflation amidst a weakening economic outlook have weighed on demand expectations.

In July, Walmart (WMT) spooked the global financial markets with a grim outlook for the quarter and the fullyear. However, shortly after the WMT warning, Apple Inc. and Amazon.com (AMZN) released earnings results and delivered positive outlooks, which were in stark contrast to that of Walmart.

Conditions have deteriorated rapidly since July, with Gap Inc. (GPS) pulling its full-year outlook in August, citing macroeconomic uncertainty as the company searched for a new CEO.

Earlier this month, FedEx (FDX) withdrew its earnings forecasts, citing deteriorating market conditions. FedEx shares tumbled by 21.44% in response to the announcement.

As the list grows longer, market angst will likely build as investors prepare for the earnings season, which kicks off next month.

Continental finds hose testing lapses, halts relevant sales

BERLIN (Reuters) – German tyre and automotive parts maker Continental on Monday reported shortcomings in the testing of industrial hoses at its ContiTech site in Korbach in the state of Hesse.

There were no indications of any irregularities in hoses in use by customers at present, Continental said, but added it had suspended sales and deliveries of the affected hoses until full compliance with the testing processes is ensured.

All relevant customers and the responsible authorities had been informed, Continental said.

“We have not met the requirements in our ContiTech division in the production of hoses and lines,” CEO Nikolai Setzer said on Monday.

Continental has been reviewing its quality standards for all hose types in the ContiTech division since February 2022, when irregularities in air conditioning lines for cars were identified internally.

The DAX-listed company has pledged to hire an independent auditor to examine the issue.

“Our customers’ trust in us and our products is the indispensable basis of our business,” Setzer said, adding that the goal now was to win back trust.

Last year, hose production in Korbach, where the shortcomings were discovered, contributed a mid-double-digit million euro amount to group sales.

On Friday, Continental said it had revamped its compliance team, including making personnel and technical changes, after discovering some parts for car air conditioning systems had fallen below expected quality standards.

Previously, Spiegel magazine had reported that the company had allegedly supplied dirty parts for air conditioning systems to its customers over 15 years and that quality control tests had been manipulated to conceal the issue.

A spokesperson for the company did not directly respond to the alleged manipulation of tests but said the issue had posed no risk to vehicle occupants.

(Reporting by Kirsti Knolle, Matthias Inverardi and Jan C Schwartz; writing by Rachel More; editing by Miranda Murray and Jason Neely)

Marketmind: Keep on going

A look at the day ahead in U.S. and global markets from Alun John.

U.S. investors deserve some calm on Friday after a wild week for markets, though if their European counterparts’ experience is anything to go by, they might not have much luck.

The U.S. data calendar for the day is quiet, a relief at the end of a week in which the Federal Reserve hiked rates by 75 basis points, as expected, but jolted markets with a sobering outlook, and Japanese authorities made their first intervention in the foreign exchange market since 1998 to prop up the battered yen.

A public holiday in Japan on Friday, and radio silence so far, means traders hope there should be no more news on that front today.

But market participants waking up in the United States still have plenty to digest over breakfast from across the Atlantic.

British government bond yields surged by the most in a day in 13 years, the pound slid to a fresh 37-year trough against the dollar, and stocks hit two-month lows after UK finance minister Kwasi Kwarteng laid out a series of tax cuts in a bid to boost growth.

Meanwhile, across the channel, the euro fell to a fresh 20-year low and Germany’s DAX stocks index slid to its lowest since November 2020 after data showed a downturn in business activity across the euro zone deepened in September. [.EU]

Sharp interest rate rises this week in the United States, Britain, Sweden, Switzerland and Norway – among other places – are still underpinning the overall risk-off mood, but the survey showing the bloc’s economy is likely entering a recession didn’t help.

Looking to the United States, S&P and Nasdaq futures are both down over 1%, while the two-year U.S. Treasury yield rose as high as 4.2570%, levels last seen in 2007.

Best buckle up, it doesn’t feel like today is going to offer that long-needed rest.

It is quiet on the U.S. data release front today.

(Reporting by Alun John, Editing by Catherine Evans)