GLOBAL CAPITAL MARKETS OVERVIEW:  

The Dow rebounded from a 300-point loss in Thursday afternoon trading to trade near a flat line as a slew of upbeat corporate reports helped offset fears of a Fed-induced recession. Bath & Body Works surged more than 20% after beating Wall Street revenue estimates, while Macy's jumped more than 10% after beating estimates and raising its full-year profit forecast. Cisco rose nearly 4 percent after winning earnings and revenue estimates. The S&P 500 and Nasdaq also pared losses but underperformed, still down about 0.5% each, as surging U.S. Treasury yields spooked investors in high-growth and technology stocks. St. Louis Fed President James Bullard was one of the latest policymakers to stress that the central bank has a lot of work to do before it can hit its target and warned that tightening conditions would have little impact on inflation. European stock markets fell broadly on Thursday, with the Stoxx 600 down 0.5% to a one-week low of 428, while mining stocks fell nearly 2%. Tech stocks bucked the trend and edged higher after Nvidia topped quarterly revenue. Domestically, Germany's DAX outperformed its European peers, rising 0.2 percent, boosted by a 7 percent gain after Siemens beat profit estimates and forecasted strong demand for hardware and software. Investors are mainly focused on the UK's autumn budget. Among other measures, Chancellor of the Exchequer Jeremy Hunt announced that the government would reduce the 45% threshold for the top income tax rate to £125,000 and reduce the income tax, National Insurance, and inheritance tax exemptions and thresholds Freeze for another two years. On Thursday, the CAC 40 index fell about 0.5% to close at 6,576, its second straight day of losses, as investors digested more economic data from the eurozone and the United States and another batch of corporate earnings. Meanwhile, chancellor Jeremy Hunt unveiled an austerity budget with £55bn in tax increases and spending cuts, despite confirming the economy is in recession. Construction giant Bouygues was the biggest loser among individual stocks, falling 6.5 percent, after announcing a 33 percent fall in net profit to 537 million euros at the end of September. On the other hand, Renault shares rose 2.3 percent, the most on the index, after a report that the group may transfer more than half of its Nissan Motor stake to a trust to bring it to the Japanese automaker. Shares held by a manufacturer in its capital. The FTSE MIB fell 0.8% to close at 24,340 on Thursday, extending yesterday's retreat from a five-month high hit this week, as hawkish signals from Fed officials continued to weigh on global stocks. Utilities and energy stocks led losses, with Saipem extending its choppy momentum and plunging 6%. Meanwhile, Enel shares fell nearly 3 percent as investors continued to assess how different EU gas price correction mechanisms would affect the utility provider's profitability. Meanwhile, the Milan-heavy banking sector was down less than the broader index, with BPER Banca up 0.5%. London shares were largely flat in choppy trade on Thursday, with the FTSE 100 bottoming out around 7,350, as losses in heavyweight materials stocks offset gains in financials. Treasurer Jeremy Hunt proposes around £30bn in spending cuts and £25bn in tax increases, including freezing the income tax threshold for six years and reducing the top income tax rate to £125,000. Meanwhile, Hunt was pessimistic about the growth outlook, saying the economy would shrink by 1.4% in 2023, compared with the 1.8% growth forecast published in March. On the corporate front, Ocado Group and Hargreaves Lansdown were down 7.5 percent and 4 percent, respectively, the biggest laggards on the FTSE 100. On the other hand, Centrica rose nearly 5%, leading the index. The ruble-based MOEX Russia index fell 0.6% to close at 2,211 on Thursday, retreating from a two-month high this week under pressure from miners and metallurgists. Metals and minerals-related stocks fell more than 1.5 percent on the day, with base metals producers Mechel and Rusal down nearly 3 percent, further paring last week's gains. The former is also under pressure from the Russian government, which plans to raise taxes on coking and thermal coal in the first quarter of 2023. Elsewhere, Norilsk Nickel tracked further losses in the LME benchmark and fell 2%. Among oil stocks, Tatneft fell 2% as investors further digested the company's board's dividend announcement, while Transneft rebounded 0.2% from yesterday's plunge as oil flows to Europe via the Druzhba pipeline restarted. Meanwhile, geopolitical tensions continued to have a limited impact on Russian stocks after NATO officials blamed a Ukrainian missile that hit Polish territory. Canada S&P/TSX Composite fell 0.8% to close below 19,800 on Thursday, extending losses from the previous session as hawkish signals from Fed officials and concerns over Chinese demand weighed on Toronto-heavy commodities-related industry. Mining stocks led the decline, down an average of 1.5 percent, as gold prices fell. Meanwhile, energy producers lost more than 1% as crude prices extended losses for the week. Meanwhile, shares of TC Energy outperformed other oil stocks after the company announced that deliveries via the Keystone pipeline had resumed due to weather-related issues. HongkongHang Seng Index fell 210.82 points, or 1.15%, to close at 18,045.66 on Thursday, marking the second day of losses while paring earlier steep losses. It follows news that Chinese government advisers will recommend a modest economic growth target for 2023, ranging from 4.5% to 5.5%, at an annual meeting of policymakers. Meanwhile, the People's Bank of China has warned that inflation in the country could pick up as demand recovers. Elsewhere, fears of a deepening COVID-19 outbreak lingered after Beijing eased some strict anti-virus rules. More than 20,000 new cases have been reported in mainland China in recent days, according to Reuters. U.S. stocks ended lower on Wednesday as investors recalculated the outlook for Federal Reserve policy after upbeat retail sales data. All major sectors fell, with JD Health International (-3.9%), Wuxi Biologics (-3.2%), and Xiaomi (-2.5%) falling sharply. Meanwhile, Meituan shares fell 5.7 percent, and Tencent shares fell 0.8 percent as the latter will return capital to shareholders through a dividend distribution on its Meituan stake. New Zealand ANZ 50 index rose 63.97 points, or 0.57%, to close at a two-week high of 11294.52 points, supported by gains in industrial, medical technology, energy mining, and communication stocks. The sentiment was also lifted by gains in U.S. stock futures, with investors awaiting several Federal Reserve speakers later in the day and weekly jobless claims on Friday. In Australia, the employment rate hit a record high in October, while the unemployment rate unexpectedly fell. Locally, the Reserve Bank of New Zealand holds a monetary policy meeting next week where it is widely expected to raise the cash rate by 75 basis points after announcing a half-percentage-point hike in October. According to the latest data, New Zealand's third-quarter PPI input growth was the slowest in seven quarters, reflecting lower natural gas prices. Fisher & Paykel (3.3%) and Skellerup Holdings lead the way. (2.8%). On Thursday, the Nikkei 225 fell 0.1% to close around 28,000 points. In comparison, the composite index Topix rose 0.24% to close at 1,968 points, mixed, U.S. retail sales data stronger than expected, Fed officials hawkish The comments fueled concerns that the U.S. central bank could tighten policy next year. Investors also reacted to data showing Japan's trade deficit widened more than expected in October as soaring import costs outpaced export growth. Tech stocks were mostly down, with Tokyo Electron (-2.9%), Lasertec (-8.2%), and Advantest (-3.6%) falling sharply. Rohm Co also fell 4.6 percent after it announced it had joined a consortium led by private equity fund Japan Industrial Partners to buy Toshiba Corp. Meanwhile, select index heavyweights such as Nintendo (0.9%), Sumitomo Mitsui (1.1%) and Toyota Motor (0.5%) rose sharply. 

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: In November 2022, the Kansas City Fed's manufacturing production index came in at -10, the second-lowest number since May 2020, down only from -22 the previous month. The slowdown in factory growth in the period was due to lower activity in primary metals, plastic and rubber products, chemicals, furniture, and metal manufacturing. Most month-on-month indices fell, with the delivery time index now at its lowest level on record. Meanwhile, the index grew at its slowest pace since March 2021, hit by a drop in new orders and a backlog of orders. On the other hand, the future composite index fell to 0 from -1 in the previous month, as expectations for production rebounded (6 vs. -1 in October).

- US: The number of Americans filing for unemployment benefits rose for the fifth straight month to 1.507 million in the week ended Nov. 5, beating market forecasts for 1.5 million. It was the largest amount of continuing unemployment benefits recorded since March, widening the gap between initial unemployment benefits and long-term jobseekers. In addition, the results show that unemployed Americans are staying out of work for longer, consistent with an economic slowdown brought on by the Federal Reserve's aggressive interest rate hikes.

- US: The number of Americans filing for unemployment benefits fell by 4,000 to 222,000 in the week ended Nov. 12, below expectations for 225,000, pointing to continued tightness in the job market despite a surge in layoffs at big tech companies. The Fed still has room to tighten policy. On a not-seasonally adjusted basis, initial filings fell by 6,101 to 199,603, with first-time filings in Kentucky (-3,322), Georgia (-1,902), and Texas (-1,498). The number of applicants has dropped significantly. The four-week moving average, which smooths out week-to-week volatility, rose 2,000 points to 221,000.

- US: In November 2022, the Philadelphia Fed manufacturing index fell to -19.4 from -8.7 last month, the lowest value since May 2020, far below market expectations of -6.2. The general activity index fell further, the new orders index remained negative, and the shipments index remained positive but low. The employment index fell but still showed overall employment, and the price index continued to show overall growth. While the survey's future indices rose slightly, they continued to indicate that companies expect activity and new orders to decline across the board in six months.

- US: In October 2022, U.S. housing starts fell 4.2% month-on-month to a seasonally adjusted annualized rate of 1.425 million units, following a 1.1% decline in September and a market forecast of 1.41 million units. Single-family housing starts fell 6.1% to a rate of 855,000 units, while openings in buildings with five or more units fell 0.5% to 556,000 units. Starts fell in the Northeast (-347% to 96,000), the Midwest (-11.1% to 185,000), the West (-10.6% to 336,000), and the South (6.7% to 808,000). The operating rate has increased. Housing starts are down 8.8% compared to October 2021. The U.S. housing market, hit by surging materials prices and rising mortgage rates, recently hit its highest level since 2001.

- JP: Japan's 10-year government bond yield held around 0.24% in mid-November amid expectations that the Bank of Japan will maintain its ultra-loose stance on monetary policy. At the same time, the U.S. Federal Reserve (Fed) will slow down rate hikes in the coming month's pace. Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank needs to continue its monetary easing program to support the fragile economy, suggesting the central bank will remain an outlier among advanced economies globally regarding monetary policy normalization.

- HK: Hong Kong's seasonally adjusted unemployment rate fell to 3.8% in the three months to October 2022 from 3.9% in the previous July-September period. This is the lowest unemployment rate since the three months in February 2020, reflecting the continued recovery of domestic economic activity supported by the generally stable local epidemic situation and the consumer voucher scheme. The number of unemployed fell by 7,900 to 147,400, while the number of employed rose by 19,700 to 3,648,600. Unemployment fell in most sectors, notably building decoration, repair and maintenance; retail trade; and food and beverage service activities.

- CN: In the first ten months of this year, foreign direct investment in China rose 14.4 percent year-on-year to 1.09 trillion yuan ($152.96 billion), data from China's Ministry of Commerce showed. Meanwhile, non-financial outward direct investment (ODI) rose by 10.1 percent to 627.4 billion yuan.

- AU: Australia's seasonally adjusted unemployment rate unexpectedly fell to 3.4% in October 2022 from 3.5% in September, while the market expected a modest rise of 3.6%. The number of unemployed declined by 20,600 to 477,600, the number of people looking for full-time work fell by 15,200 to 320,300, while those in part-time jobs fell by 5,300 to 1,573,000 and full-time employment increased by 47,100 to 9,525,900 people, while part-time employment fell by 14,900 to 4,092,100. The participation rate was 66.5%, compared with the consensus of 66.6%, just below the all-time high of 66.7%. The underemployment rate fell to 5.9% from 6.0%, while the underemployment rate remained at 9.4%. Monthly hours worked for all jobs increased by 43 million, or 2.3 percent, to 1.897 billion hours.

- JP: In October 2022, imports to Japan increased by 53.5% year-on-year, reaching a new high of 11,164.8 billion yen, exceeding market forecasts by 49.7%. It rose 45.7% in September. It was also the 18th month of double-digit growth in inbound freight amid strong domestic demand, high commodity prices, and a plunging yen.

- JP: In October 2022, Japan's trade deficit soared to 2,162.3 billion yen from 90.7 billion yen in the same month a year ago, while the market generally believed the gap was 1,610 billion yen. It was the 15th straight month of deficits and the longest run since 2015, fueling concerns about the strength of the country's economic recovery. Imports increased by 53.5% year-on-year to reach a new peak of 11,164.8 billion yen, and exports increased by 25.3% to 9,001.5 billion yen

- NZ: Producer input prices in New Zealand fell from 3.10% in the second quarter of 2022 to 0.80% in the third quarter of 2022. Increases in prices paid by manufacturers of meat and meat products (up 6.2 percent), construction (up 2.3 percent), and construction services (up 2.8 percent) accounted for the largest increase in prices paid by producers. Offsetting this was a 23.2 percent drop in prices paid by producers in the electricity and gas supply sector.

- RU: According to preliminary estimates, in the third quarter of 2022, Russia's gross domestic product (GDP) will fall by 4% year-on-year, in line with the forecast of the Bank of Russia. The result extended a 4.1 percent contraction in the second quarter as Russia's economy continued under pressure from Western sanctions in retaliation for its February invasion of Ukraine. Looking ahead, Russia's central bank expects the Russian economy to shrink by 7.1% year-on-year in the fourth quarter, as gas exports to major European consumers all but halt and seaborne oil shipments are set to be severely sanctioned in December. As a result, the central bank expects Russia's full-year GDP to contract by 3%-3.5% in 2022, while the Ministry of Economic Development expects GDP to fall by 2.9%.

 

LOOKING AHEAD:   

Today, investors will receive the following:

- GBP: GfK Consumer Confidence, Retail Sales m/m, MPC Member Mann Speaks, and MPC Member Haskel Speaks.

- EUR: ECB President Lagarde Speaks and German Buba President Nagel Speaks.

- CAD: Foreign Securities Purchases, IPPI m/m, and RMPI m/m.

- USD: Existing Home Sales, and CB Leading Index m/m.

- JPY: National Core CPI y/y.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CN: China's 10-year government bond yield was around 2.82%, just below a near five-month high of 2.85% hit earlier this month, following disappointing economic data that included a decline in retail sales in October and a slowdown in industrial production, plus China's A flood of cash injections from the central bank has helped keep yields from rising further.

- US: U.S. 10-year Treasury yields rebounded sharply to 3.8% from a more than one-month low of 3.7% hit in the previous session, as uncertainty over the Fed's rate path spooked bond investors. St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly are among the latest policymakers to call for an earlier-than-expected pause in the central bank's tightening cycle pour cold water. The U.S. economy was mixed, with retail sales data suggesting U.S. consumers were surprisingly resilient despite macro headwinds, adding to uncertainty about the Federal Reserve's next move.

- US: U.S. stock futures, which track the broader market, fell about 1% on Thursday as investors reassessed the outlook for monetary policy amid concerns about the economy's health. Signs for the U.S. economy were mixed, with inflation showing some signs of weakening, but retail sales data pointing to a surprising resilience of the U.S. consumer, adding to uncertainty about the Fed's next move. While policymakers signaled that the rate hikes should be slowed soon, there is still much to be decided on the final level. On the corporate front, Bath & Body Works surged nearly 20% in premarket trading after the retailer's revenue topped Wall Street estimates. Likewise, Cisco rose more than 4 percent after beating earnings and revenue forecasts.

- UK: Britain's 10-year government bond yield held at 3.2% on Thursday, near its lowest level since Sept. 20, as Chancellor of the Exchequer Jeremy Hunt unveiled plans to repair the country's public finances and restore Autumn Budget statement on its economic credibility. The announced tax changes are in line with market expectations. The main measures include reducing the income tax threshold of the highest tax rate of 45% to 125,000 pounds and freezing the exemptions and thresholds of income tax, national insurance, and inheritance tax for another two years. In addition, the budget aims to cut the dividend allowance from £2,000 to £1,000 next year before falling to £500 in April 2024.

- AU: Australia's 10-year government bond yield fell to 3.6%, not far from a more than one-month low of 3.551% hit on Nov. Cut rates again in 2024, becoming one of the first banks in advanced economies to slow the pace of tightening amid a deteriorating growth outlook, with policymakers noting that rates have already risen sharply. Nonetheless, policymakers mentioned that the tightening cycle is still ongoing, as inflation in Australia remains well above the RBA's 2-3% target range. Elsewhere, the U.S. Federal Reserve is seen slowing its aggressive tightening measures later this year as recent data suggested inflationary pressures in the world's largest economy were beginning to ease.

- EU: EU passenger car registrations rose 12.2% year-on-year to 745,855 in October 2022, the third consecutive month of growth, mainly due to a low base compared to last year, when semiconductor shortages hampered car production. Looking at the four major EU markets, three of them achieved double-digit growth: Germany (16.8%), Italy (14.6%), and Spain (11.7%). Meanwhile, the French market performed moderately but remained solid (5.5%). Nevertheless, ten months into 2022, new car registrations in the EU remained negative, down 8.1%, as recent improvements were not enough to offset losses accumulated from January to July this year.

 

STOCK MARKET SECTORS:

- High: none

- Low: Communication Services, Materials, Utilities, Consumer Discretionary, Energy.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- USD: On Thursday, the U.S. dollar index rose to 107 points, and investors' expectations for a pause in interest rate hikes began to weaken under the influence of several hawkish speeches from the Federal Reserve. Louis Fed President James Bullard stressed that the central bank had a lot of work to do before it could hit its target and warned that tightening conditions would have little impact on inflation. San Francisco Fed President Mary Daly took a similar view, saying she thinks the central bank will raise at least another percentage point. The market is now pricing in a 50 basis point hike in December, followed by a 25 basis point hike next year. The most pronounced buying activity has been in risk-sensitive currencies such as the Australian and New Zealand dollars. The dollar also rose sharply against the pound after Britain announced tax hikes and spending cuts to help tackle inflation.

- GBP: Sterling fell half a percent to $1.185 on Thursday from a near three-month high of $1.20 hit on Nov. 15 as Finance Minister Jeremy Hunt unveiled the government's fiscal plan. The UK government has announced plans to freeze income tax allowances and lower the threshold at which people can start paying top income tax to stabilize public finances. British money market futures point to the Bank of England raising interest rates to a peak of 4.53% next August from 4.59% before Hunt's remarks. The latest data showed that UK inflation jumped to 11.1% last month, beating forecasts for 10.7% and hitting a 41-year high.

- EUR: The euro traded around $1.04 in the second half of November, near its highest level since early July, as the dollar's gains paused as investors priced in the outlook for monetary policy. The European Central Bank may slow the pace of rate hikes next month, raising rates by 50 basis points instead of another 75 basis points due to recession risks. Investors are also betting that a half-percentage-point hike in the deposit rate to 2% will be closer to neutral. Inflation in the eurozone continued to break record levels. At the same time, the economy avoided contraction in the third quarter but is expected to slip into recession in the last quarter of this year and the first three months of 2023, according to the European Commission. Growth resumes in spring.

- CNY: The offshore yuan fell below 7.10 against the dollar, retreating further from a six-week high, as a resurgence of the coronavirus in China stoked fears of a possible new round of lockdowns. That overshadowed near-term optimism from major policy shifts in China's real estate sector and its COVID-19 strategy, two of the biggest drags on the Chinese economy. The yuan fell even after the People's Bank of China warned that inflation could accelerate in anticipation of higher demand, leaving less room for further monetary easing. Earlier this week, the People's Bank of China left its medium-term policy lending rate unchanged for the third month, signaling policymakers' concern that further easing could trigger new yuan depreciation.

- JPY: The yen was steady at around 139.5 against the dollar, as markets were slow to react to data that Japan's trade deficit widened more than expected in October as soaring import costs outpaced export growth. Data released earlier this week also showed the country's economy unexpectedly contracted in the third quarter as global inflationary pressures and a weak currency pushed up import costs. Separately, Bank of Japan Governor Haruhiko Kuroda said the central bank would stick to monetary easing to support the economy, citing the desire to achieve sustainable inflation alongside wage growth. Investors, meanwhile, remained cautious as solid U.S. retail sales data and hawkish Fed comments countered talk of an imminent U.S. central bank pivot.

- NZD: The New Zealand dollar consolidated above $0.61, holding near its highest level in nearly three months, as stubbornly high inflation expectations strengthened the case for more aggressive rate hikes. The latest central bank survey showed inflation expectations moving up the curve, as upward price pressures proved to be more persistent even when interest rates rose rapidly. As a result, markets are now betting the Reserve Bank of New Zealand will hike rates by 75 basis points next week, following a half-percentage-point increase in October. The Reserve Bank of New Zealand official also said the country's high inflation and tight labor market called for cooling demand. However, that pointed to downside risks to the global economy. Investors, meanwhile, remained cautious as solid U.S. retail sales data and hawkish Fed comments countered talk of an imminent U.S. central bank pivot.

- AUD: The Australian dollar fell below $0.675, retreating further from a two-month high, as better-than-expected U.S. retail sales data and hawkish Fed comments countered talk of an imminent U.S. central bank pivot. The Australian dollar also fell, despite a surprise drop in Australia's unemployment rate, supporting bets on further tightening monetary policy. Meanwhile, minutes from the latest Reserve Bank of Australia policy meeting showed officials were willing to pause the tightening cycle or resume rate hikes depending on incoming data. The RBA announced a smaller-than-expected 25 basis point hike earlier this month, increasing the cash rate by 275 basis points since May.

 

CHART OF THE DAY:

On Thursday, the CAC 40 index fell about 0.5% to close at 6,576, its second straight day of losses, as investors digested more economic data from the eurozone and the United States and another batch of corporate earnings. Meanwhile, chancellor Jeremy Hunt unveiled an austerity budget with £55bn in tax increases and spending cuts, despite confirming the economy is in recession. Construction giant Bouygues was the biggest loser among individual stocks, falling 6.5 percent, after announcing a 33 percent fall in net profit to 537 million euros at the end of September. On the other hand, Renault shares rose 2.3 percent, the most on the index, after a report that the group may transfer more than half of its Nissan Motor stake to a trust to bring it to the Japanese automaker. As a result, shares are held by a manufacturer in its capital.

 

 

- France CAC 40 index - D1, Resistance around ~ 6830, Support around  ~ 6419.

Worries about higher rates leading to further deterioration in the economic environment, which would lead to a decline in earnings growth prospects

GLOBAL CAPITAL MARKETS OVERVIEW:  

The Dow rebounded from a 300-point loss in Thursday afternoon trading to trade near a flat line as a slew of upbeat corporate reports helped offset fears of a Fed-induced recession. Bath & Body Works surged more than 20% after beating Wall Street revenue estimates, while Macy's jumped more than 10% after beating estimates and raising its full-year profit forecast. Cisco rose nearly 4 percent after winning earnings and revenue estimates. The S&P 500 and Nasdaq also pared losses but underperformed, still down about 0.5% each, as surging U.S. Treasury yields spooked investors in high-growth and technology stocks. St. Louis Fed President James Bullard was one of the latest policymakers to stress that the central bank has a lot of work to do before it can hit its target and warned that tightening conditions would have little impact on inflation. European stock markets fell broadly on Thursday, with the Stoxx 600 down 0.5% to a one-week low of 428, while mining stocks fell nearly 2%. Tech stocks bucked the trend and edged higher after Nvidia topped quarterly revenue. Domestically, Germany's DAX outperformed its European peers, rising 0.2 percent, boosted by a 7 percent gain after Siemens beat profit estimates and forecasted strong demand for hardware and software. Investors are mainly focused on the UK's autumn budget. Among other measures, Chancellor of the Exchequer Jeremy Hunt announced that the government would reduce the 45% threshold for the top income tax rate to £125,000 and reduce the income tax, National Insurance, and inheritance tax exemptions and thresholds Freeze for another two years. On Thursday, the CAC 40 index fell about 0.5% to close at 6,576, its second straight day of losses, as investors digested more economic data from the eurozone and the United States and another batch of corporate earnings. Meanwhile, chancellor Jeremy Hunt unveiled an austerity budget with £55bn in tax increases and spending cuts, despite confirming the economy is in recession. Construction giant Bouygues was the biggest loser among individual stocks, falling 6.5 percent, after announcing a 33 percent fall in net profit to 537 million euros at the end of September. On the other hand, Renault shares rose 2.3 percent, the most on the index, after a report that the group may transfer more than half of its Nissan Motor stake to a trust to bring it to the Japanese automaker. Shares held by a manufacturer in its capital. The FTSE MIB fell 0.8% to close at 24,340 on Thursday, extending yesterday's retreat from a five-month high hit this week, as hawkish signals from Fed officials continued to weigh on global stocks. Utilities and energy stocks led losses, with Saipem extending its choppy momentum and plunging 6%. Meanwhile, Enel shares fell nearly 3 percent as investors continued to assess how different EU gas price correction mechanisms would affect the utility provider's profitability. Meanwhile, the Milan-heavy banking sector was down less than the broader index, with BPER Banca up 0.5%. London shares were largely flat in choppy trade on Thursday, with the FTSE 100 bottoming out around 7,350, as losses in heavyweight materials stocks offset gains in financials. Treasurer Jeremy Hunt proposes around £30bn in spending cuts and £25bn in tax increases, including freezing the income tax threshold for six years and reducing the top income tax rate to £125,000. Meanwhile, Hunt was pessimistic about the growth outlook, saying the economy would shrink by 1.4% in 2023, compared with the 1.8% growth forecast published in March. On the corporate front, Ocado Group and Hargreaves Lansdown were down 7.5 percent and 4 percent, respectively, the biggest laggards on the FTSE 100. On the other hand, Centrica rose nearly 5%, leading the index. The ruble-based MOEX Russia index fell 0.6% to close at 2,211 on Thursday, retreating from a two-month high this week under pressure from miners and metallurgists. Metals and minerals-related stocks fell more than 1.5 percent on the day, with base metals producers Mechel and Rusal down nearly 3 percent, further paring last week's gains. The former is also under pressure from the Russian government, which plans to raise taxes on coking and thermal coal in the first quarter of 2023. Elsewhere, Norilsk Nickel tracked further losses in the LME benchmark and fell 2%. Among oil stocks, Tatneft fell 2% as investors further digested the company's board's dividend announcement, while Transneft rebounded 0.2% from yesterday's plunge as oil flows to Europe via the Druzhba pipeline restarted. Meanwhile, geopolitical tensions continued to have a limited impact on Russian stocks after NATO officials blamed a Ukrainian missile that hit Polish territory. Canada S&P/TSX Composite fell 0.8% to close below 19,800 on Thursday, extending losses from the previous session as hawkish signals from Fed officials and concerns over Chinese demand weighed on Toronto-heavy commodities-related industry. Mining stocks led the decline, down an average of 1.5 percent, as gold prices fell. Meanwhile, energy producers lost more than 1% as crude prices extended losses for the week. Meanwhile, shares of TC Energy outperformed other oil stocks after the company announced that deliveries via the Keystone pipeline had resumed due to weather-related issues. HongkongHang Seng Index fell 210.82 points, or 1.15%, to close at 18,045.66 on Thursday, marking the second day of losses while paring earlier steep losses. It follows news that Chinese government advisers will recommend a modest economic growth target for 2023, ranging from 4.5% to 5.5%, at an annual meeting of policymakers. Meanwhile, the People's Bank of China has warned that inflation in the country could pick up as demand recovers. Elsewhere, fears of a deepening COVID-19 outbreak lingered after Beijing eased some strict anti-virus rules. More than 20,000 new cases have been reported in mainland China in recent days, according to Reuters. U.S. stocks ended lower on Wednesday as investors recalculated the outlook for Federal Reserve policy after upbeat retail sales data. All major sectors fell, with JD Health International (-3.9%), Wuxi Biologics (-3.2%), and Xiaomi (-2.5%) falling sharply. Meanwhile, Meituan shares fell 5.7 percent, and Tencent shares fell 0.8 percent as the latter will return capital to shareholders through a dividend distribution on its Meituan stake. New Zealand ANZ 50 index rose 63.97 points, or 0.57%, to close at a two-week high of 11294.52 points, supported by gains in industrial, medical technology, energy mining, and communication stocks. The sentiment was also lifted by gains in U.S. stock futures, with investors awaiting several Federal Reserve speakers later in the day and weekly jobless claims on Friday. In Australia, the employment rate hit a record high in October, while the unemployment rate unexpectedly fell. Locally, the Reserve Bank of New Zealand holds a monetary policy meeting next week where it is widely expected to raise the cash rate by 75 basis points after announcing a half-percentage-point hike in October. According to the latest data, New Zealand's third-quarter PPI input growth was the slowest in seven quarters, reflecting lower natural gas prices. Fisher & Paykel (3.3%) and Skellerup Holdings lead the way. (2.8%). On Thursday, the Nikkei 225 fell 0.1% to close around 28,000 points. In comparison, the composite index Topix rose 0.24% to close at 1,968 points, mixed, U.S. retail sales data stronger than expected, Fed officials hawkish The comments fueled concerns that the U.S. central bank could tighten policy next year. Investors also reacted to data showing Japan's trade deficit widened more than expected in October as soaring import costs outpaced export growth. Tech stocks were mostly down, with Tokyo Electron (-2.9%), Lasertec (-8.2%), and Advantest (-3.6%) falling sharply. Rohm Co also fell 4.6 percent after it announced it had joined a consortium led by private equity fund Japan Industrial Partners to buy Toshiba Corp. Meanwhile, select index heavyweights such as Nintendo (0.9%), Sumitomo Mitsui (1.1%) and Toyota Motor (0.5%) rose sharply. 

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: In November 2022, the Kansas City Fed's manufacturing production index came in at -10, the second-lowest number since May 2020, down only from -22 the previous month. The slowdown in factory growth in the period was due to lower activity in primary metals, plastic and rubber products, chemicals, furniture, and metal manufacturing. Most month-on-month indices fell, with the delivery time index now at its lowest level on record. Meanwhile, the index grew at its slowest pace since March 2021, hit by a drop in new orders and a backlog of orders. On the other hand, the future composite index fell to 0 from -1 in the previous month, as expectations for production rebounded (6 vs. -1 in October).

- US: The number of Americans filing for unemployment benefits rose for the fifth straight month to 1.507 million in the week ended Nov. 5, beating market forecasts for 1.5 million. It was the largest amount of continuing unemployment benefits recorded since March, widening the gap between initial unemployment benefits and long-term jobseekers. In addition, the results show that unemployed Americans are staying out of work for longer, consistent with an economic slowdown brought on by the Federal Reserve's aggressive interest rate hikes.

- US: The number of Americans filing for unemployment benefits fell by 4,000 to 222,000 in the week ended Nov. 12, below expectations for 225,000, pointing to continued tightness in the job market despite a surge in layoffs at big tech companies. The Fed still has room to tighten policy. On a not-seasonally adjusted basis, initial filings fell by 6,101 to 199,603, with first-time filings in Kentucky (-3,322), Georgia (-1,902), and Texas (-1,498). The number of applicants has dropped significantly. The four-week moving average, which smooths out week-to-week volatility, rose 2,000 points to 221,000.

- US: In November 2022, the Philadelphia Fed manufacturing index fell to -19.4 from -8.7 last month, the lowest value since May 2020, far below market expectations of -6.2. The general activity index fell further, the new orders index remained negative, and the shipments index remained positive but low. The employment index fell but still showed overall employment, and the price index continued to show overall growth. While the survey's future indices rose slightly, they continued to indicate that companies expect activity and new orders to decline across the board in six months.

- US: In October 2022, U.S. housing starts fell 4.2% month-on-month to a seasonally adjusted annualized rate of 1.425 million units, following a 1.1% decline in September and a market forecast of 1.41 million units. Single-family housing starts fell 6.1% to a rate of 855,000 units, while openings in buildings with five or more units fell 0.5% to 556,000 units. Starts fell in the Northeast (-347% to 96,000), the Midwest (-11.1% to 185,000), the West (-10.6% to 336,000), and the South (6.7% to 808,000). The operating rate has increased. Housing starts are down 8.8% compared to October 2021. The U.S. housing market, hit by surging materials prices and rising mortgage rates, recently hit its highest level since 2001.

- JP: Japan's 10-year government bond yield held around 0.24% in mid-November amid expectations that the Bank of Japan will maintain its ultra-loose stance on monetary policy. At the same time, the U.S. Federal Reserve (Fed) will slow down rate hikes in the coming month's pace. Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank needs to continue its monetary easing program to support the fragile economy, suggesting the central bank will remain an outlier among advanced economies globally regarding monetary policy normalization.

- HK: Hong Kong's seasonally adjusted unemployment rate fell to 3.8% in the three months to October 2022 from 3.9% in the previous July-September period. This is the lowest unemployment rate since the three months in February 2020, reflecting the continued recovery of domestic economic activity supported by the generally stable local epidemic situation and the consumer voucher scheme. The number of unemployed fell by 7,900 to 147,400, while the number of employed rose by 19,700 to 3,648,600. Unemployment fell in most sectors, notably building decoration, repair and maintenance; retail trade; and food and beverage service activities.

- CN: In the first ten months of this year, foreign direct investment in China rose 14.4 percent year-on-year to 1.09 trillion yuan ($152.96 billion), data from China's Ministry of Commerce showed. Meanwhile, non-financial outward direct investment (ODI) rose by 10.1 percent to 627.4 billion yuan.

- AU: Australia's seasonally adjusted unemployment rate unexpectedly fell to 3.4% in October 2022 from 3.5% in September, while the market expected a modest rise of 3.6%. The number of unemployed declined by 20,600 to 477,600, the number of people looking for full-time work fell by 15,200 to 320,300, while those in part-time jobs fell by 5,300 to 1,573,000 and full-time employment increased by 47,100 to 9,525,900 people, while part-time employment fell by 14,900 to 4,092,100. The participation rate was 66.5%, compared with the consensus of 66.6%, just below the all-time high of 66.7%. The underemployment rate fell to 5.9% from 6.0%, while the underemployment rate remained at 9.4%. Monthly hours worked for all jobs increased by 43 million, or 2.3 percent, to 1.897 billion hours.

- JP: In October 2022, imports to Japan increased by 53.5% year-on-year, reaching a new high of 11,164.8 billion yen, exceeding market forecasts by 49.7%. It rose 45.7% in September. It was also the 18th month of double-digit growth in inbound freight amid strong domestic demand, high commodity prices, and a plunging yen.

- JP: In October 2022, Japan's trade deficit soared to 2,162.3 billion yen from 90.7 billion yen in the same month a year ago, while the market generally believed the gap was 1,610 billion yen. It was the 15th straight month of deficits and the longest run since 2015, fueling concerns about the strength of the country's economic recovery. Imports increased by 53.5% year-on-year to reach a new peak of 11,164.8 billion yen, and exports increased by 25.3% to 9,001.5 billion yen

- NZ: Producer input prices in New Zealand fell from 3.10% in the second quarter of 2022 to 0.80% in the third quarter of 2022. Increases in prices paid by manufacturers of meat and meat products (up 6.2 percent), construction (up 2.3 percent), and construction services (up 2.8 percent) accounted for the largest increase in prices paid by producers. Offsetting this was a 23.2 percent drop in prices paid by producers in the electricity and gas supply sector.

- RU: According to preliminary estimates, in the third quarter of 2022, Russia's gross domestic product (GDP) will fall by 4% year-on-year, in line with the forecast of the Bank of Russia. The result extended a 4.1 percent contraction in the second quarter as Russia's economy continued under pressure from Western sanctions in retaliation for its February invasion of Ukraine. Looking ahead, Russia's central bank expects the Russian economy to shrink by 7.1% year-on-year in the fourth quarter, as gas exports to major European consumers all but halt and seaborne oil shipments are set to be severely sanctioned in December. As a result, the central bank expects Russia's full-year GDP to contract by 3%-3.5% in 2022, while the Ministry of Economic Development expects GDP to fall by 2.9%.

 

LOOKING AHEAD:   

Today, investors will receive the following:

- GBP: GfK Consumer Confidence, Retail Sales m/m, MPC Member Mann Speaks, and MPC Member Haskel Speaks.

- EUR: ECB President Lagarde Speaks and German Buba President Nagel Speaks.

- CAD: Foreign Securities Purchases, IPPI m/m, and RMPI m/m.

- USD: Existing Home Sales, and CB Leading Index m/m.

- JPY: National Core CPI y/y.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CN: China's 10-year government bond yield was around 2.82%, just below a near five-month high of 2.85% hit earlier this month, following disappointing economic data that included a decline in retail sales in October and a slowdown in industrial production, plus China's A flood of cash injections from the central bank has helped keep yields from rising further.

- US: U.S. 10-year Treasury yields rebounded sharply to 3.8% from a more than one-month low of 3.7% hit in the previous session, as uncertainty over the Fed's rate path spooked bond investors. St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly are among the latest policymakers to call for an earlier-than-expected pause in the central bank's tightening cycle pour cold water. The U.S. economy was mixed, with retail sales data suggesting U.S. consumers were surprisingly resilient despite macro headwinds, adding to uncertainty about the Federal Reserve's next move.

- US: U.S. stock futures, which track the broader market, fell about 1% on Thursday as investors reassessed the outlook for monetary policy amid concerns about the economy's health. Signs for the U.S. economy were mixed, with inflation showing some signs of weakening, but retail sales data pointing to a surprising resilience of the U.S. consumer, adding to uncertainty about the Fed's next move. While policymakers signaled that the rate hikes should be slowed soon, there is still much to be decided on the final level. On the corporate front, Bath & Body Works surged nearly 20% in premarket trading after the retailer's revenue topped Wall Street estimates. Likewise, Cisco rose more than 4 percent after beating earnings and revenue forecasts.

- UK: Britain's 10-year government bond yield held at 3.2% on Thursday, near its lowest level since Sept. 20, as Chancellor of the Exchequer Jeremy Hunt unveiled plans to repair the country's public finances and restore Autumn Budget statement on its economic credibility. The announced tax changes are in line with market expectations. The main measures include reducing the income tax threshold of the highest tax rate of 45% to 125,000 pounds and freezing the exemptions and thresholds of income tax, national insurance, and inheritance tax for another two years. In addition, the budget aims to cut the dividend allowance from £2,000 to £1,000 next year before falling to £500 in April 2024.

- AU: Australia's 10-year government bond yield fell to 3.6%, not far from a more than one-month low of 3.551% hit on Nov. Cut rates again in 2024, becoming one of the first banks in advanced economies to slow the pace of tightening amid a deteriorating growth outlook, with policymakers noting that rates have already risen sharply. Nonetheless, policymakers mentioned that the tightening cycle is still ongoing, as inflation in Australia remains well above the RBA's 2-3% target range. Elsewhere, the U.S. Federal Reserve is seen slowing its aggressive tightening measures later this year as recent data suggested inflationary pressures in the world's largest economy were beginning to ease.

- EU: EU passenger car registrations rose 12.2% year-on-year to 745,855 in October 2022, the third consecutive month of growth, mainly due to a low base compared to last year, when semiconductor shortages hampered car production. Looking at the four major EU markets, three of them achieved double-digit growth: Germany (16.8%), Italy (14.6%), and Spain (11.7%). Meanwhile, the French market performed moderately but remained solid (5.5%). Nevertheless, ten months into 2022, new car registrations in the EU remained negative, down 8.1%, as recent improvements were not enough to offset losses accumulated from January to July this year.

 

STOCK MARKET SECTORS:

- High: none

- Low: Communication Services, Materials, Utilities, Consumer Discretionary, Energy.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- USD: On Thursday, the U.S. dollar index rose to 107 points, and investors' expectations for a pause in interest rate hikes began to weaken under the influence of several hawkish speeches from the Federal Reserve. Louis Fed President James Bullard stressed that the central bank had a lot of work to do before it could hit its target and warned that tightening conditions would have little impact on inflation. San Francisco Fed President Mary Daly took a similar view, saying she thinks the central bank will raise at least another percentage point. The market is now pricing in a 50 basis point hike in December, followed by a 25 basis point hike next year. The most pronounced buying activity has been in risk-sensitive currencies such as the Australian and New Zealand dollars. The dollar also rose sharply against the pound after Britain announced tax hikes and spending cuts to help tackle inflation.

- GBP: Sterling fell half a percent to $1.185 on Thursday from a near three-month high of $1.20 hit on Nov. 15 as Finance Minister Jeremy Hunt unveiled the government's fiscal plan. The UK government has announced plans to freeze income tax allowances and lower the threshold at which people can start paying top income tax to stabilize public finances. British money market futures point to the Bank of England raising interest rates to a peak of 4.53% next August from 4.59% before Hunt's remarks. The latest data showed that UK inflation jumped to 11.1% last month, beating forecasts for 10.7% and hitting a 41-year high.

- EUR: The euro traded around $1.04 in the second half of November, near its highest level since early July, as the dollar's gains paused as investors priced in the outlook for monetary policy. The European Central Bank may slow the pace of rate hikes next month, raising rates by 50 basis points instead of another 75 basis points due to recession risks. Investors are also betting that a half-percentage-point hike in the deposit rate to 2% will be closer to neutral. Inflation in the eurozone continued to break record levels. At the same time, the economy avoided contraction in the third quarter but is expected to slip into recession in the last quarter of this year and the first three months of 2023, according to the European Commission. Growth resumes in spring.

- CNY: The offshore yuan fell below 7.10 against the dollar, retreating further from a six-week high, as a resurgence of the coronavirus in China stoked fears of a possible new round of lockdowns. That overshadowed near-term optimism from major policy shifts in China's real estate sector and its COVID-19 strategy, two of the biggest drags on the Chinese economy. The yuan fell even after the People's Bank of China warned that inflation could accelerate in anticipation of higher demand, leaving less room for further monetary easing. Earlier this week, the People's Bank of China left its medium-term policy lending rate unchanged for the third month, signaling policymakers' concern that further easing could trigger new yuan depreciation.

- JPY: The yen was steady at around 139.5 against the dollar, as markets were slow to react to data that Japan's trade deficit widened more than expected in October as soaring import costs outpaced export growth. Data released earlier this week also showed the country's economy unexpectedly contracted in the third quarter as global inflationary pressures and a weak currency pushed up import costs. Separately, Bank of Japan Governor Haruhiko Kuroda said the central bank would stick to monetary easing to support the economy, citing the desire to achieve sustainable inflation alongside wage growth. Investors, meanwhile, remained cautious as solid U.S. retail sales data and hawkish Fed comments countered talk of an imminent U.S. central bank pivot.

- NZD: The New Zealand dollar consolidated above $0.61, holding near its highest level in nearly three months, as stubbornly high inflation expectations strengthened the case for more aggressive rate hikes. The latest central bank survey showed inflation expectations moving up the curve, as upward price pressures proved to be more persistent even when interest rates rose rapidly. As a result, markets are now betting the Reserve Bank of New Zealand will hike rates by 75 basis points next week, following a half-percentage-point increase in October. The Reserve Bank of New Zealand official also said the country's high inflation and tight labor market called for cooling demand. However, that pointed to downside risks to the global economy. Investors, meanwhile, remained cautious as solid U.S. retail sales data and hawkish Fed comments countered talk of an imminent U.S. central bank pivot.

- AUD: The Australian dollar fell below $0.675, retreating further from a two-month high, as better-than-expected U.S. retail sales data and hawkish Fed comments countered talk of an imminent U.S. central bank pivot. The Australian dollar also fell, despite a surprise drop in Australia's unemployment rate, supporting bets on further tightening monetary policy. Meanwhile, minutes from the latest Reserve Bank of Australia policy meeting showed officials were willing to pause the tightening cycle or resume rate hikes depending on incoming data. The RBA announced a smaller-than-expected 25 basis point hike earlier this month, increasing the cash rate by 275 basis points since May.

 

CHART OF THE DAY:

On Thursday, the CAC 40 index fell about 0.5% to close at 6,576, its second straight day of losses, as investors digested more economic data from the eurozone and the United States and another batch of corporate earnings. Meanwhile, chancellor Jeremy Hunt unveiled an austerity budget with £55bn in tax increases and spending cuts, despite confirming the economy is in recession. Construction giant Bouygues was the biggest loser among individual stocks, falling 6.5 percent, after announcing a 33 percent fall in net profit to 537 million euros at the end of September. On the other hand, Renault shares rose 2.3 percent, the most on the index, after a report that the group may transfer more than half of its Nissan Motor stake to a trust to bring it to the Japanese automaker. As a result, shares are held by a manufacturer in its capital.

 

 

- France CAC 40 index - D1, Resistance around ~ 6830, Support around  ~ 6419.

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