MARKET WRAPS

Stocks:

A bounce in oil and mining shares lifted European stock markets higher on Tuesday, although gains were muted, as investors remained concerned about a rise in Covid-19 infections in China.

"While China reopening risks are top of mind for markets, we expect the oil market to tighten in the coming months and Brent to climb to $110/bbl in 2023," UBS Global Wealth Management said.

Stocks to Watch

European chip makers' inventory built-up is the highest since 2001 and there is no sign of a turn yet, JPMorgan said.

"While counterintuitive, we believe that high inventory levels can be helpful for the cycle as it focuses companies' attention on taking steps to reduce it."

Recent commentary from STMicroelectronics and Infineon underscored the resilience of chips in the automotive and industrial sectors as well as foreign exchange tailwinds, but "we remain of the view that it is too early to be more constructive on these names," JPMorgan said.

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Verbund's core earnings are expected to double next year based on current wholesale prices and hedging levels, even after Austria's implementation of a price cap, Stifel said.

The price cap will be set at EUR180/MWh for companies investing into renewables like Verbund, with a 40% levy applied to profits above that cap.

"Conditions of the Austrian price cap announced on Friday are much better than we anticipated."

Stifel estimates a post-price cap group Ebitda of EUR6 billion for 2023, 44% above consensus and twice its estimate for the current year. It has upgraded the stock to buy from hold at a price target of EUR109.

Economic Insight

Price pressures are becoming even more broad-based in the eurozone, Capital Economics said, forecasting the core inflation rate will remain above 2% for the next couple of years. .

Nearly 90% of the items in the inflation basket now have an inflation rate above 2%, and more than a quarter have one above 10%.

Furthermore, unlike in the U.S. and U.K., core goods inflation doesn't seem to have topped out yet, Capital Economics said.

It said the easing of global supply-chain problems seems likely to bring goods inflation down next year,. However, Capital Economics suspects that wage growth will accelerate, preventing core inflation from falling sharply.

U.S. Markets:

Stock futures edged higher premarket, suggesting Wall Street could be in for another subdued session after modest losses on Monday.

Traders seemed reluctant to place bold bets as they weighed concerns about fresh Covid-19 restrictions in China and the prospects for tighter Federal Reserve policy.

Adding to the caution was a holiday-shortened week for Wall Street, where volumes traditionally tend to thin notably in the run up to Thanksgiving on Thursday and Black Friday.

Treasurys rallied, with the 10-year yield down 0.029 percentage point to 3.804%.

There are no U.S. economic updates of note set for release, however, Kansas City Fed President Esther George is due to speak after the European close.

Forex:

The dollar's recent downward correction is likely to be limited as the Fed remains one of the driving forces among central banks in raising interest rates, Commerzbank said.

Even if the Fed slows the pace of rate rises, the European Central Bank and other central banks are likely to follow suit, Commerzbank added.

"Sentiment towards the dollar is only likely to shift on a sustainable basis if we see clearer signs of a recession of the U.S. economy. At that point Fed rate cuts will be back on the agenda very quickly."

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Liberum said sterling could return to stability in 2023 as the U.K.'s economic fundamentals improve, which will include boosting controls on inflation, cutting public debt and the development of commercial long-term trade relationships.

If sterling does stabilize, companies that will benefit include domestic earners with a high degree of operating leverage such as housebuilder Taylor Wimpey, kitchen supplier Howden Joinery Group and retailer Next, Liberum said.

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News on the Hungarian government's negotiations with the European Commission over the release of EU funding to Hungary may overshadow the National Bank of Hungary's policy decision later Tuesday for the forint, ING said.

"From last week's hints, it is likely that we will hear more bad news before any good news comes, which may cause further volatility in the FX market. However, a happy ending to this saga should see the forint below 400 EUR/HUF."

Meanwhile, the NBH's rate decision at 1300 GMT is unlikely to offer any fireworks, ING said.

Bonds:

Fixed-income assets will prove more attractive as monetary-policy tightening likely to slow in 2023, according to Credit Suisse's latest investment outlook.

CS sees recessions in the eurozone and U.K. and a slump in growth in the U.S. and China in 2023 after a 2022 that saw aggressive rate hikes from central banks and slowing economic growth. But with inflation likely to normalize in 2023, and interest-rate cuts unlikely, fixed-income assets should become more attractive to hold and offer renewed diversification benefits in portfolios.

Long U.S. vs eurozone duration government bonds, emerging-market currency debt and investment-grade credit should offer interesting opportunities in 2023, CS said.

Energy:

Crude oil prices pushed higher after a volatile session on Monday and Peak Trading Research said that further volatility on low volumes would be likely ahead of Thanksgiving.

"The next few trading sessions are a Thanksgiving countdown. It's an exceptionally light data week. Traders are watching price action in crude oil, China's rising Covid cases," Peak said.

Metals:

Base metals were mixed and gold higher, with a lack of macro data points this week set to drive prices.

"It is looking increasingly likely the [Fed] will increase the funds rate by 50 basis points next month, compared with the 75 basis-point increases delivered in the past four meetings," Commonwealth Bank of Australia said.

A slower rate of hikes would be bullish for risk assets such as metals, as investors steer clear of the dollar.

Gold Outlook

The appetite for gold should improve as interest rates rise, with equities becoming less attractive to investors, Credit Suisse said.

In early 2023, demand for cyclical commodities whose prices change based on the wider economy may be soft, but as central banks leave rates at a higher level, the backdrop for gold should improve, CS said.

DOW JONES NEWSPLUS


EMEA HEADLINES

ECB Must Narrow Interest-Rate Gap With Fed, OECD Says

The European Central Bank will have to raise its key interest rate much further if it is to bring down persistently high inflation, the Organization for Economic Cooperation and Development warned Tuesday.

Inflation rates have surged since Russia's invasion of Ukraine pushed energy and food prices sharply higher. While there have been some recent signs that these rates are at or close to their peaks, the Paris-based research group said inflation is unlikely to fall back quickly to the 2% level targeted by many central banks.


Russian Pulp Business Is Still Delivering for International Paper

Russia has been a big cause of corporate losses since it invaded Ukraine, prompting companies to cut ties. At International Paper Co., however, Russia remains a major source of cash and an important contributor to the dividend that draws investors to its shares.

Companies were filing out of Russia in March when IP said it would explore options, including a sale, for its 50% stake in Ilim Group, a pulp and paper giant with government license to log swaths of Siberia and the western taiga that add up to about the size of South Carolina.


Societe Generale, AllianceBernstein Form Equities Joint Venture

Societe Generale SA said Tuesday that it agreed to combine its cash-equities and equity-research businesses with that of U.S. asset manager AllianceBernstein Holding LP.

The French bank said the joint venture with Bernstein Research Services would provide investment advice into the U.S., European and Asia-Pacific equity markets, alongside liquidity access and global-trading technology.


Bertelsmann Won't Appeal U.S. Ruling Against Simon & Schuster Takeover

Bertelsmann SE said late Monday that it wouldn't appeal against the court ruling that blocked the planned takeover of Simon & Schuster by its book-publishing subsidiary Penguin Random House.

Simon & Schuster's parent Paramount Global on Monday said it had terminated the $2.18 billion deal to sell the unit to its rival, which was blocked on Oct. 31 by a U.S. judge on competition grounds.


Old Mutual Ltd. Nine-Month Sales Rose on Robust Recovery, New Business Sales

Old Mutual Ltd. said Tuesday that performance for the nine months of 2022 has improved despite the challenging macroeconomic backdrop, driven by continued sales recovery across its life businesses.

The pan-African financial-services group said that life annualized-premium-equivalent sales for the nine-months period rose 17% to 9.50 billion South African rands ($547.5 million), compared with the same period a year ago. The increase was boosted by robust strong issued sales across all channels and improved credit life sales in mass and foundation cluster, it added.


Russia's Munitions Shortages Raise Questions Over How Long It Can Continue Ukraine War

Russia has been burning through equipment, ammunition and weaponry at rates that have raised questions about how effectively and for how long it can continue to prosecute its war against Ukraine.

The challenge of sustaining the military effort isn't unique to Russia, which after making significant territorial gains early in the war has been yielding territory back to Ukraine in phases.


Germany Debates Naming Businesses With Large China Exposure

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11-22-22 0612ET