MARKET WRAPS
Watch For:
Germany Bundesbank monthly report; Italy CPI; trading update from Rio Tinto
Opening Call:
Stocks may fall slightly at Monday's open, as U.K. market turbulence could persist. In Asia, stock benchmarks declined; the dollar and Treasury yields fell; while oil and gold prices rose.
Equities:
European shares look poised to push lower at the start of the week, as U.K. market turbulence appears likely to continue.
The U.K.'s new chancellor, Jeremy Hunt, effectively scrapped Prime Minister Liz Truss's signature tax-cutting plan, saying on Saturday that some levies would have to rise and public-spending cuts would need to be made to restore market confidence in the British economy.
"We believe further market instability likely lies ahead. Truss may struggle to remain in post, but more broadly the U.K. now faces a period of heightened market uncertainty without a clear policy strategy, in our view," Citi said.
"What's causing the volatility is the lack of details... The rollback is what the market was looking for. But we need much more details around how the fiscal plan will evolve," said Pictet Asset Management.
Forex:
The dollar weakened early Monday.
However, a tight labor market, high inflation and a hawkish fed are still USD positive, Bank of America said.
"The historic USD strength and the pace of its development pose concerns to most central banks," BofA said.
"Foreign official-held UST outflows accelerated in recent weeks, and several countries in Asia EM have been intervening."
Dollar-index level has correlated consistently with changes in foreign exchange-adjusted reserves, BofA said. "But the reality is likely less clear-cut."
Bonds:
Treasury yields declined in Asia after the two-, 10- and 30-year yields climbed to the highest levels of the past 11 to 15 years on Friday.
The CPI print last week "did nothing to change the stance by the Fed in the short term. A 75bps hike in November is all but a sure thing, and anyone wishing for something short of that is sure to be disappointed," said Johan Grahn, vice president and head of ETF strategy at AllianzIM.
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The Bank of England is hoping a safety net in the form of short-term cash infusions will stabilize markets after it wound down its emergency bond-buying program on Friday. Bankers and investors are skeptical it will work.
The Bank of England launched what it called a temporary repo facility on Monday when volatility rocked the U.K.'s government debt markets.
Bankers and investors say interest in the repo facility could be limited. That is because it requires banks to act as intermediaries, which some may be unwilling to do, bankers say.
Read more here.
Energy:
Oil futures rebounded early Monday after WTI and Brent oil futures posted their lowest close in almost two weeks last Friday.
Asian oil traders are focusing on China's party congress, the outcome of which matters for China's political and economic outlook, said SPI Asset Management.
The PBOC may cut rates given low inflation, but fiscal policy is key, SPI added.
Metals:
Gold prices rose in Asia. However, Wall Street is nowhere near feeling confident they have a handle on how high the Fed will raise rates and that is bad news for the precious metal, said Oanda's Edward Moya.
If gold breaks below the $1,620/oz level, bearish momentum could pave the way toward the psychological $1,600/oz level, Moya added.
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Chinese President Xi Jinping's Sunday speech opening the Communist Party congress dented hopes that policy makers will relax their zero-Covid approach soon, but his comments about economic development as a top priority suggest that policy may be eased if the economy continues to weaken, which would be positive for commodities, Commonwealth Bank of Australia said.
"An economic recovery in China looms as a potential salvation for mining and energy commodity prices next year if policymakers relax their stance on China's Covid-zero policy," CBA said.
The bank flagged industrial metals and iron ore as the commodities most likely to benefit from a meaningful reversal in the zero-Covid strategy, given that China accounts for such a substantial proportion of demand in those markets.
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Copper rose on hopes that China will announce economic stimulus measures at this week's 20th party congress.
These hopes, as well as potential LME sanctions on Russian metal, have supported prices, said TD Securities.
However, TD doesn't expect the party congress to be a platform for further significant policy announcements, but instead to focus on President Xi Jinping's reappointment for an unprecedented third term.
TODAY'S TOP HEADLINES
Whiplash in Stock Market Shows Investors Are Still on Edge
Stocks slumped most of last week. Then they unexpectedly surged Thursday, only to tumble again Friday.
What is driving the wild swings?
High Inflation Darkens Global Economic Outlook
WASHINGTON-Policy makers around the world see rising risks that the global economic slowdown could turn into a steeper slump due to strong inflation, high energy costs and climbing interest rates.
Another bad U.S. inflation report last week is likely to keep the Federal Reserve lifting interest rates at a rapid clip. That could help spur the U.S. dollar higher, further elevating the cost of imports and debt service for many countries. Key energy producers are crimping supply, feeding price pressures and slowing economic activity, particularly in Europe. New data from China showed consumer spending falling sharply, another sign of cooling economic growth.
China PBOC Holds Key Policy Rates; Likely Signals Same for Benchmark Rates
China's central bank held its key policy rates steady on Monday, which may mean the same holding pattern for benchmark lending rates later this month.
The People's Bank of China injected 500 billion yuan ($69.6 billion) of liquidity via its medium-term lending facility, according to an official statement on its website. The MLF carries an interest rate of 2.75%, unchanged from the last operation, and a tenure of one year.
Winter's Approach Raises Stakes in European Energy Crisis
Europe is as ready as it can be for a winter without Russian natural gas, but there is no margin for error.
Storage facilities of gas for heating and power generation are almost full, consumption is down and liquefied natural gas tankers are steaming in. Europe is in a stronger position than feared in recent months, after Moscow slashed gas deliveries in retaliation for Western sanctions over the invasion of Ukraine.
U.K. Prime Minister Liz Truss Battles to Hang On After Budget U-Turn
LONDON-Having fired her chancellor of the exchequer days ago, U.K. Prime Minister Liz Truss must now battle to save her own job after what many political analysts and members of her own party regard as the worst start to a British premiership in modern times.
Ms. Truss's popularity rating is the lowest of any British prime minister since the early 1990s, according to polls, after a turbulent few weeks that saw her plan to boost growth through the biggest tax cuts in a generation cause turmoil on U.K. financial markets, forcing the new leader to retreat from her signature economic program-the pillar of her campaign to replace ousted former Prime Minister Boris Johnson just six weeks ago.
Britain's New Chancellor Says Some Taxes Will Rise
LONDON-The U.K.'s new chancellor, Jeremy Hunt, effectively scrapped Prime Minister Liz Truss's signature tax-cutting plan, saying on Saturday that some levies would have to rise and public-spending cuts would need to be made to restore market confidence in the British economy.
Mr. Hunt said that Ms. Truss had made mistakes with her plan to boost growth by borrowing money to fund the biggest tax cuts since the 1970s, measures that spooked the markets and sent the Conservative Party crashing in the polls.
Elon Musk Says SpaceX Will Continue to Cover Starlink Costs in Ukraine
KYIV, Ukraine-Elon Musk backtracked on his complaints over the cost of funding Starlink internet terminals in Ukraine and said his company would continue to pay for them, as explosions rocked the Russian-held city of Donetsk in eastern Ukraine on Sunday.
Mr. Musk, the billionaire chief executive of SpaceX and Tesla, pledged to continue funding the Starlink service for Ukraine just a day after he said SpaceX couldn't finance the service indefinitely on its own.
What Happens Now That the Bank of England Has Stopped Buying Bonds
The Bank of England is hoping a safety net in the form of short-term cash infusions will stabilize markets after it wound down its emergency bond-buying program on Friday. Bankers and investors are skeptical it will work.
The Bank of England launched what it called a temporary repo facility on Monday when volatility rocked the U.K.'s government debt markets. Investors worry about a so-called cliff edge for government bonds after the BOE stopped buying them on Friday, ending a program it introduced in late September after a whirlwind selloff that threatened the U.K.'s financial stability. The repo facility is scheduled to run until Nov. 10, helping to cushion the transition.
Elon Musk Jumps Into Geopolitics Ahead of Planned Twitter Takeover
Elon Musk has said on Twitter that he prefers to stay out of politics. But at the same time that the billionaire is waging his on-again, off-again effort to buy the social media platform, he has been wading into sensitive political issues in the U.S. and beyond.
In recent weeks he has weighed in on Russia's war against Ukraine and China's standoff with Taiwan.
Company Documents Show Meta's Flagship Metaverse Falling Short
Nearly a year after Mark Zuckerberg rebranded Facebook as Meta Platforms Inc. in a bet-the-company move on the metaverse, internal documents show the transition grappling with glitchy technology, uninterested users and a lack of clarity about what it will take to succeed.
(MORE TO FOLLOW) Dow Jones Newswires
10-17-22 0033ET
