EMEA Morning Briefing: Focus on U.S. Inflation as Market Worries Mount

MARKET WRAPS

Watch For:

Germany CPI; UK Index of Production, Trade, Index of Services, Monthly GDP Estimates. BOE/Kantar Inflation Attitudes Survey, NIESR Monthly GDP Tracker; Italy Industrial Production; G7 Foreign and Development Ministers' Summit; updates from Associated British Foods, Anglo American

Opening Call:

Europe is seen following the U.S. and Asia lower as the recent rally cools, with caution ahead of the latest U.S. inflation print likely to keep risk assets in check. In Asia, the dollar and oil followed stocks lower, with Treasury yields and gold managing minor gains.

Equities:

European shares are likely to extend losses on Friday, tracking the retreat on global markets, as investors look ahead to the latest U.S. inflation data that might influence a Federal Reserve decision on tightening economic policy.

"Europe will likely open lower as the street takes risk off the table into the U.S. inflation data and the weekend, which will now contain plenty of headline risk, be it Omicron, China or the Ukraine etc," wrote Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

"The price action shows that equity markets continue to tie themselves up in knots on headline-driven price action."

U.S. stocks continued to trade fitfully, with major indexes falling Thursday as investors assessed weekly jobless claims data and the latest global restrictions targeting the spread of Omicron. Nasdaq suffered the worst losses, with its dip accelerating during the afternoon.

Forex:

The dollar eased back slightly in Asia against other major currencies, having regained some strength on Thursday.

However, no major moves are expected ahead of the latest U.S. CPI data, due later in the day. Strong inflation figures will likely boost expectations for a faster Fed shift to policy tightening. That could boost the dollar in advance of the central bank's policy decision next week.

"You're definitely seeing an oscillation between risk-on and risk-off over the last couple weeks and I see that continuing to Christmas," said Silicon Valley Bank's Minh Trang.

The Fed could take markets by surprise at next week's meeting as it speeds up monetary tightening, said deVere's Nigel Green. "The central bank will give several months' notice to the markets for a major policy shift. As such, if it is to maximize flexibility to raise rates, they will begin sooner rather than later, even as soon as next week."

Green expects turbulence to ensue, but he advises investors to "embrace the volatility" as a buying opportunity.

Sterling would rally initially if the Bank of England raises interest rates at its Dec. 16 meeting given low market expectations for such a move, but any gains may be brief, said Nomura.

Markets may treat a rate rise as a "policy mistake" in view of the rise in Omicron cases and could "fade" sterling's potential appreciation by taking positions against the move, Nomura added. It remains short GBP/USD, expecting the pair to weaken and has targeted a level of 1.30 with a stop loss of 1.3850.

China's central bank may introduce more tools to intervene in the foreign-exchange market and rein in one-way movement of the yuan's exchange rate, said CICC. It anticipates the PBOC will reintroduce a counter-cyclical factor in setting the yuan's daily reference rate and curb capital inflows.

The central bank on Thursday said it will raise banks' foreign-currency reserves requirement by two percentage points, which is expect to curb speculation of a stronger yuan. CICC expects the yuan's value to retreat after the government's intervention in the short run.

Bonds:

Long-dated Treasury yields edged back up in Asia after they posted their biggest one-day drop in almost a week on Thursday, with the U.S. consumer price report in focus.

AmeriVet's Gregory Faranello said "financial conditions remain accommodative despite the Fed's hawkish pivot." He added that a Fed that's willing to fight inflation is a good thing, but it isn't clear whether the central bank will be able "to thread the needle between growth, inflation and maximum employment."

The European Central Bank may not be ready to make all the decisions it originally planned at its December meeting, said Nordea.

However, the fact that "many decisions simply cannot be postponed further" and that forecasts for 2024 will be released for the first time, will likely render the Dec. 16 meeting as "probably the most interesting" ECB meeting of the year, said chief analyst Jan von Gerich and senior analyst Tuuli Koivu.

Differing opinions within the ECB will mean that a compromise will have to be found next week, with Nordea expecting the "doves"--those central banks who prefer looser monetary policy--to retain the upper hand for now. However, Nordea's economists expect a general resistance to pre-commit to longer periods of time.

Energy:

Oil prices continued to ease lower in Asia, extending Thursday's decline, as worries that Covid-19 related restrictions imposed in some parts of the world to combat Omicron may put some pressure on energy demand.

OANDA expects that a potential Russia/Ukraine supply crunch may help to support oil, even if Europe heads back into deeper Covid-19 restrictions through the winter.

Metals:

Gold futures inched higher as the dollar weakened, after they settled lower on Thursday for the first time in three sessions.

Friday's U.S. inflation data will be a near-term focus for investors, as it will provide clues on the Fed's next policy move, said Phillip Securities.

Copper was lower and Fitch said base metal prices, generally, are likely to weaken in 2022 due to a possible weakening macroeconomic environment.

It has cited slowing global economic growth, tightening monetary policy and China's property-sector woes as reasons for the bearishness.

However, Fitch said prices shouldn't slump too much and still average higher than pre-Covid levels, as the market for most metals continues to be tight and stock levels remain at historic lows.

TODAY'S TOP HEADLINES

U.S. to Bar Investment in Chinese AI Giant, Considers Banning Key Exports to Top Chip Maker

U.S. officials plan to ban American investment in Chinese artificial intelligence giant SenseTime Group Inc. and are looking to block China's largest chip maker from buying U.S. manufacturing tools, in a broadening Biden administration effort against Chinese technology firms.

SenseTime, a leading developer of facial recognition technology, on Friday will be placed on a Treasury Department blacklist of Chinese companies that support China's military, people familiar with the matter said.

Senate Clears Key Hurdle for Debt-Ceiling Increase to Avert Default

WASHINGTON-The Senate overcame the biggest hurdle to raising the debt ceiling Thursday, with more than a dozen Republicans joining Democrats to help clear legislation crafted to avert a government default.

The Senate advanced the bill 64-36 in the critical procedural vote early in the afternoon, drawing the support of 14 Republicans to top the required 60-vote threshold. Hours later, the Senate voted 59-35 on final passage, which required just a simple majority.

Elon Musk, Other Leaders Sell Stock at Historic Levels as Market Soars, Tax Changes Loom

Company founders and leaders are unloading their stock at historic levels, with some selling shares in their businesses for the first time in years, amid soaring market valuations and ahead of possible changes in U.S. and some state tax laws.

So far this year, 48 top executives have collected more than $200 million each from stock sales, nearly four times the average number of insiders from 2016 through 2020, according to a Wall Street Journal analysis of data from the research firm InsiderScore.

VW's CEO Survives Labor Dispute but With Diminished Role

BERLIN-Volkswagen AG's besieged chief executive has survived a monthslong battle with labor leaders but he will now lead Europe's biggest auto maker on a shorter leash, raising questions about how fast and how far he can push through the electric transformation he started at the company.

VW's supervisory board Thursday approved a compromise to end the conflict between Herbert Diess and powerful labor leaders at the company who had sought his ouster.

Pfizer-BioNTech Covid-19 Booster Authorized for 16- and 17-Year-Olds

U.S. health regulators cleared the Covid-19 booster from Pfizer Inc. and partner BioNTech SE for use in 16- and 17-year-olds, widening eligibility as the worrisome Omicron variant spreads around the world.

The Food and Drug Administration decision permits the teenagers to receive a third dose of the shot at least six months after their primary vaccination series.

U.A.E. Shut Down China Facility Under U.S. Pressure, Emirates Says

WASHINGTON-The United Arab Emirates recently ordered work halted on a Chinese facility in the country after American officials argued that Beijing intended to use the site for military purposes, a top U.A.E. official said Thursday.

Anwar Gargash, a diplomatic adviser to the U.A.E.'s leadership, said the Emirates ordered work stopped at the site at Washington's behest. The U.A.E., he said, didn't believe the facility was intended for military or security uses.

Biden Preps Allies for Talks With Kremlin on Russian Troop Buildup

WASHINGTON-President Biden laid the groundwork Thursday for talks with Moscow to de-escalate the crisis over the massing of Russian forces near the Ukrainian border.

The negotiations, which Mr. Biden said a day earlier could include some North Atlantic Treaty Organization members and Russia, promise to be difficult for the Biden administration. Russian President Vladimir Putin is demanding not only U.S. concessions on Ukraine but also revisions in the post-Cold War order in Europe.

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Expected Major Events for Friday

05:30/NED: Oct Manufacturing output

06:00/FIN: Oct Industrial Production

07:00/UK: Oct Index of production

07:00/UK: Oct UK trade

07:00/ROM: Oct International trade

07:00/DEN: Nov CPI

07:00/NOR: Nov PPI

07:00/NOR: Nov CPI

07:00/UK: Oct Index of services

07:00/TUR: Oct Employment / Unemployment

07:00/UK: Oct Monthly GDP estimates

07:00/GER: Nov CPI

08:00/SPN: Oct Industrial Production

08:00/SPN: 3Q Housing Price Index

08:00/CZE: Nov CPI

08:00/SVK: Oct Industrial production

08:00/SVK: Oct Construction production

08:00/CZE: Oct Import & export price indices

08:00/AUT: Oct Production Index

09:00/BUL: Oct Industrial Production

09:00/ITA: Oct Industrial Production

09:30/UK: Nov Bank of England/Kantar Inflation Attitudes Survey

10:00/GRE: Nov CPI

10:00/CYP: Oct Foreign Trade (provisional)

10:00/GRE: Oct Industrial Production Index

10:00/MLT: Oct International Trade

10:00/LUX: Oct Industrial Production

11:00/POR: Oct International trade statistics

12:30/UK: Nov NIESR Monthly GDP Tracker

15:59/UKR: Nov CPI

15:59/UKR: Nov PPI

All times in GMT. Powered by Kantar Media and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

December 10, 2021 00:39 ET (05:39 GMT)

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