MARKET WRAPS
Stocks:
Major European stock indexes were mostly lower on Thursday, although strong earnings from Siemens helped lift the DAX into positive territory.
In the U.K., losses for industrial stocks dragged the FTSE 100 lower as investors awaited the U.K. Autumn budget statement.
Austerity is expected to make a return in the U.K. as finance minister Jeremy Hunt has already vowed the budget announcement will ask "everyone for sacrifices," with GBP35 billion in tax rises and public spending cuts amounting to around GBP25 billion, according to published reports.
Read more here.
U.S. Markets:
Stock futures swung between small gains and losses, pointing to a steady open on Wall Street after major indexes retreated in recent days.
Up ahead Thursday, investors will parse weekly data on filings for unemployment benefits for clues about the strength of the labor market.
The yield on 10-year Treasury notes climbed to 3.735% from 3.693% Wednesday. Two-year yields rose to 4.370% from 4.363%.
Fed officials have pushed back at the suggestion the central bank could soon stop pushing up borrowing costs. Those comments, combined with strong retail-sales data, have tamed some of the enthusiasm that gripped stock, bond and currency markets last week.
Forex:
The slide in the dollar has likely come to an end, Commerzbank said, with the dollar index trading sideways since the start of the week and levels for EUR/USD around 1.04 are "the new comfort level."
It has become generally accepted that the Federal Reserve and the European Central Bank should both reduce the pace of interest-rate increases, which should be roughly neutral for EUR/USD. The dollar may weaken at a later stage once inflation turns lower and a rapid return towards inflation targets seems likely, Commerzbank said.
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Thursday's U.K. budget could prompt investors to unwind their remaining hefty short positions in sterling, which were "one of the most popular buy-side trades going into October," ING said.
It described this as an "outside risk," but said position adjustment could lift GBP/USD to 1.23. Such gains wouldn't last, however.
A "credible" budget will deliver substantial fiscal tightening and "cement views of a multi-quarter U.K. recession" where the Bank of England continues to hike rates, ING said. This "cannot be a good environment for sterling."
Read: Pound Could Recover as Fiscal Policy Tightens, Risk Appetite Improves
Read: Euro Could Track Sterling as Traders Eye UK Fiscal Statement
Bonds:
Eurozone government bond yields dropped in early trading, with the 10-year German Bund yield drifting further below 2%, as markets currently price in lower peak policy rate by the ECB.
"The bullish momentum in eurozone government bonds is stronger than we had assumed," Commerzbank said.
Instead of questioning valuations close to 2% in 10-year Bund yields, the dips were quickly bought, it said, adding that speculation about a policy pivot by the ECB is gaining traction.
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Fiscal changes in the U.K. will likely allow the Debt Management Office to revise the remit lower, with a GBP15 billion-GBP20 billion decrease to the current gilt issuance target of GBP193.9 billion being reasonable, Mizuho said.
The forecasts and the view of the Office for Budget Responsibility for 2023 will be key for the 2023-24 gilt remit, Mizuho said.
"Expectations point towards GBP235 billion, but the range of estimates is wide given the unknowns on future energy prices."
Mizuho thinks that a more restrictive budget will discourage the BOE from tightening aggressively.
Energy:
Crude oil futures were slightly lower but pared heavier losses in Asia, as demand worries in China continued to weigh on sentiment.
Russian Sanctions
The European Union's ban on seaborne imports of Russian oil, along with the G-7's plan to cap prices of oil from Russia early next month won't guarantee that prices for the commodity will see a lasting rally, or that supplies will tighten further in the days ahead.
"In isolation, the sanctions on Russia should be bullish for prices," Kpler said. However, they may have a limited effect, as Russian barrels get "rerouted and not taken off the market," while a price cap still has so much uncertainty surrounding it that its impact may be "muted due to workarounds or may simply be ineffective."
Read more here.
Metals:
Metals were mixed in early LME trading with no major macro driver currently pulling prices and with the focus remaining on nickel, which has fallen by over $3,000 a ton since Tuesday.
"Nickel had a meteoric rise over the past 10 days, but given the lack of any predominant upside drivers, the rally looked somewhat suspect, especially since nickel is also being closely watched by the LME, which actually issued a statement to that effect on Wednesday after volatility picked up," Commodity Research Group said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Russia Agrees to Renew Ukraine Grain Deal, U.N. Says
Moscow agreed to renew an arrangement with Ukraine, Turkey and the United Nations that allows for the export of Ukrainian agricultural products through the war-torn Black Sea region, U.N. Secretary-General António Guterres said.
"I welcome the agreement by all parties to continue the Black Sea Grain Initiative," Mr. Guterres said in a statement.
Siemens Shares Climb After 4Q Earnings Beat Views, Dividend Raise
Siemens AG shares climbed Thursday after the company raised its dividend on fourth-quarter earnings that beat analysts' expectations, driven by profit increases at all of its industrial businesses.
At 0913 GMT shares traded 7% higher at EUR129.66.
Thyssenkrupp 4Q Profit Rose; Proposes FY 2022 Dividend
Thyssenkrupp AG on Thursday said profit and sales rose in the fourth quarter of its fiscal year, supported by strong price increases for steel and materials, and that it will propose a dividend for fiscal 2022.
The German industrial conglomerate reported quarterly net profit of 389 million euros ($404 million) compared with EUR116 million in the same period a year earlier.
Bouygues Nine-Month Sales Rose, Backs 2022 Outlook
Bouygues SA said Thursday that sales rose in the first nine months of the year, and confirmed its forecasts for sales and profitability in 2022.
The French construction-and-media conglomerate said net profit fell to 537 million euros ($558.2 million) from EUR807 million a year earlier. The result included net noncurrent charges of EUR106 million, mainly comprising costs related to merger and acquisition projects, it said.
What to expect from the U.K. Autumn Budget statement
The new Chancellor of the Exchequer Jeremy Hunt will address U.K. Parliament this Thursday with an Autumn Budget announcement comprising an austerity-filled expected GBP35 billion ($41 billion) in tax rises and public spending cuts amounting to around GBP25 billion, according to published reports.
When his predecessor Kwasi Kwarteng left office - after the fallout from his disastrous mini-budget led to his dismissal - Hunt reversed almost all of the mini-budget promises, retreating from the GBP45 billion of unfunded tax cuts, which had rocked the markets to its core in September.
Oil Prices Could Rise After Latest EU Sanctions on Russia. Why a Rally May Not Last.
The European Union's ban on seaborne imports of Russian oil, along with the Group of Seven's plan to cap prices of oil from Russia early next month won't guarantee that prices for the commodity will see a lasting rally, or that supplies will tighten further in the days ahead.
"In isolation, the sanctions on Russia should be bullish for prices," says Matt Smith, lead oil analyst, Americas, at Kpler. However, they may have a limited effect, as Russian barrels get "rerouted and not taken off the market," while a price cap still has so much uncertainty surrounding it that its impact may be "muted due to workarounds or may simply be ineffective."
Poland's Exposure to Ukraine War in Spotlight After Missile Blast
PRZEWODÓW, Poland-Since the start of the war in Ukraine, Poland has been at the leading edge of NATO's efforts to arm its neighbor against Russian forces-without letting the war spill onto the alliance's own territory.
Now, the stray missile that killed two Polish nationals and prompted high-level discussions within the North Atlantic Treaty Organization, puts the spotlight back on a country that has been Ukraine's biggest champion in Europe and is at the greatest risk should the conflict spill over into a wider war.
GLOBAL NEWS
Fed Official Warns Against Prematurely Concluding Inflation Has Peaked
The U.S. economy and the pace of wage growth need to slow down in order for the Federal Reserve to be confident that its interest-rate increases will bring inflation down, a central bank official said Wednesday.
Fed governor Christopher Waller said recent data, including signs of deceleration in inflation and slightly looser hiring conditions, have made him more comfortable about the central bank stepping down to a 0.5 percentage point rate increase at its Dec. 13-14 policy meeting.
Republicans Win Control of House
WASHINGTON-Republicans won a majority of seats in the House of Representatives, the Associated Press said, bolstering their ability to steer the agenda on Capitol Hill after two years of Democratic control of both chambers of Congress and the White House.
More than a week after Election Day, the AP said GOP Rep. Mike Garcia won re-election in California's 27th District, putting the total seats at 218 for Republicans and 211 for Democrats in the 435-seat chamber late Wednesday. Republicans had been stuck at 217 since Monday, with several races still uncalled, mostly in California.
North Korea Fires Ballistic Missile After U.S. Summit With South Korea, Japan
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11-17-22 0607ET
