Europe’s STOXX 600 ekes out gains in a start to data-heavy week; Roche slides

Nov 14 (Reuters) – European shares closed higher on Monday driven by positive updates from companies including Germany’s Infineon and Britain’s Informa, while investors positioned themselves for a slew of data including inflation and flash GDP due this week.

The pan-European STOXX 600 index rose 0.1%, hovering near 11-week highs.

Informa Plc (INF) jumped 5.8% after the events organiser raised its full-year earnings outlook, helping London’s blue-chip FTSE 100 index outperform its regional peers with a 0.9% rise.

Germany’s DAX gained 0.6%. Shares of Infineon IFXGn.DE climbed 7.8% to top the index after the chipmaker raised its long-term financial targets and said it is planning a new 5 billion-euro (USD 5.16 billion) factory in Dresden to expand its 300-millimeter production capacities.

The broader technology sector rose 1.2%, the most among the STOXX 600 sectors.

Meanwhile, data showed Eurozone industrial output increased more than expected in September, while August production was also revised higher.

“Strong euro zone industrial output data eased concerns about the growing threat of recession,” said Victoria Scholar, head of investment at Interactive Investor.

Although caution prevailed in markets after Federal Reserve policymaker Christopher Waller warned that the US central bank would not “soften” its fight against inflation.

“The Fed is trying to communicate to markets that it isn’t going to pivot and is going to continue with this two-way sort of communication of slowing the pace of rate hikes but that doesn’t necessarily mean it will get to a lower endpoint,” said Giles Coghlan, chief market analyst at HYCM in London.

European shares recorded their biggest weekly gain in nearly eight months on Friday largely driven by bets of smaller rate hikes by the Fed and easing COVID-19 curbs in China.

Still, the STOXX 600 is down 11.3% so far this year amid worries about a gloomy economic picture.

UK employment, inflation and retail sales data are on tap later this week, while the Eurozone flash third-quarter GDP estimate and October HICP inflation data among others are also scheduled.

Among other stocks, Roche Holding AG ROG.S slid 4% to weigh the most on the STOXX 600 after its Alzheimer’s drug candidate could not be shown to markedly slow dementia progression in two drug trials.

Rheinmetall (RHMG) climbed 6.7% after the military equipment manufacturer agreed to buy Spanish explosives and ammunition maker Expal Systems for an enterprise value of 1.2 billion euros (USD 1.24 billion).

Teleperformance (TEPRF) added 6.7% after the French office support technology company said it would meet with the Colombian government after Colombia opened a probe into the firm regarding its work practices in the country.

(Reporting by Shreyashi Sanyal and Devik Jain in Bengaluru; Editing by Subhranshu Sahu and Richard Chang)

China seen leaving medium-term policy rate unchanged

SHANGHAI, Nov 14 (Reuters) – China’s central bank is likely to fully roll over maturing medium-term policy loans while keeping the borrowing cost unchanged for the third straight month this week, a Reuters survey showed.

Worsening COVID-19 outbreaks across the country in recent weeks and weak demand from both home and abroad have weighed on the world’s second largest economy, with a slew of recent economic data pointing to a further loss of momentum.

Meanwhile, global tightening was yet to see a clear sign of pivot, limiting Beijing’s room to manoeuvre its monetary easing.

In a poll of 31 market watchers this week, all participants predicted that the People’s Bank of China (PBOC) would keep the interest rate on the one-year medium-term lending facility (MLF) unchanged at 2.75% on Tuesday.

Among them, 22 respondents anticipated the PBOC to fully roll over 1 trillion yuan (USD 142 billion) worth of such loans due to expire on the same day.

In the remaining nine traders and analysts, five expected a partial rollover, while the other four believed that the central bank would inject additional fresh funds to support the slowing economy.

“We expect a full or near-full rollover to support liquidity while the chance for a reduction in the reserve requirement ratio (RRR) to replace part of the facility appears slim as policy measures are targeted,” said Frances Cheung, rates strategist at OCBC Bank.

The heavy MLF loan maturity of 1 trillion yuan, the biggest this year, prompted some market debates whether the PBOC would cut the amount of cash banks must set aside as reserves to make up the liquidity shortfall, but some traders said a RRR reduction would be too strong a policy easing signal.

China, along with Japan, has been a major outlier in the global tightening spree with Beijing focused on stimulating its COVID-hit economy. But investors have been worried that the widening monetary divergence could trigger capital outflows and yuan depreciation.

China’s decision to lower the MLF rate in August widened the yield differentials against the United States and accelerated yuan’s declines.

China’s central bank “is walking a fine line between stimulus and financial instability as too much credit-fueled activity was the ultimate source of the current property market slump,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.

Official data showed that new bank lending in China tumbled more than expected in October from the previous month while broad credit growth slowed, as COVID-19 outbreaks and a property sector downturn weighed on credit demand.

(USD 1 = 7.0414 Chinese yuan)

(Reporting by Li Hongwei and Brenda Goh, Writing by Winni Zhou and Angus MacSwan)

Oil settles USD 3 lower on China COVID surge and firmer dollar

Nov 14 (Reuters) – Oil prices settled around USD 3 lower on Monday, dragged down by a firmer US dollar while surging coronavirus cases in China dashed hopes of a swift reopening of the economy for the world’s biggest crude importer.

Brent crude futures settled down USD 2.85, or 3%, at USD 93.14 a barrel after gaining 1.1% on Friday. WTI crude futures settled down USD 3.09, or 3.47%, to USD 85.87 after advancing 2.9% on Friday.

On Friday, commodities prices rallied after China’s National Health Commission adjusted its COVID prevention and control measures to shorten quarantine times for close contacts of cases and inbound travellers.

But COVID-19 cases climbed in China over the weekend, with Beijing and other big cities on Monday reporting record infections.

“The surge in COVID cases will only lead to more lockdowns in the near term…for now China is not a source of bullish support for the petroleum complex,” said John Kilduff, partner at Again Capital LLC in New York.

The US dollar also rose against the euro and yen, as investors braced for potential US Federal Reserve interest rates hikes after a policymaker said too much was being made of last week’s cooler US inflation data.

A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.

The Organization of the Petroleum Exporting Countries (OPEC), meanwhile, cut its forecast for global oil demand growth this year and next, citing economic headwinds.

US domestic supply also continues to rise. Oil output in the Permian in Texas and New Mexico, the biggest US shale oil basin, is due to rise by about 39,000 barrels per day (bpd) to a record 5.499 million bpd in December, the US Energy Information Administration (EIA) said in its productivity report on Monday.

Separately, US Treasury Secretary Janet Yellen on Friday said India can continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap mechanism, if it steers clear of Western insurance, finance and maritime services bound by the cap.

(Reporting by Laura Sanicola; Additional reporting by Noah Browning, Florence Tan and Emily Chow; Editing by David Goodman, Andrea Ricci and David Gregorio)

Gold eases off 3-month peak as Fed warning buoys dollar, yields

Nov 14 (Reuters) – Gold prices retreated on Monday from a three-month peak hit in the previous session, as the dollar and Treasury yields edged higher after a top US central banker warned that the Federal Reserve was not softening its fight against inflation.

Spot gold fell 0.6% to USD 1,760.72 per ounce by 0712 GMT, after hitting its highest since Aug. 18 on Friday. US gold futures eased 0.3% to USD 1,763.80.

Gold prices posted their biggest weekly gain since March 2020 last week, after signs of cooling U.S. inflation lifted hopes that the Fed could be less hawkish on rate hikes.

“Gold is lower in reaction to Fed’s Waller pushing back on market reaction to the weakness in CPI as just one data point does not suggest inflation has been tamed,” said Stephen Innes, managing partner, SPI Asset Management.

“Volatility is here to stay as make no mistake inflation remains at the fulcrum.”

Fed Governor Christopher Waller said on Sunday the Fed might consider slowing the pace of rate increases at its next meeting but that should not be seen as a “softening” of its battle against inflation.

US consumer sentiment fell in November, pulled down by persistent worries about inflation and higher borrowing costs, a survey showed on Friday.

Fed fund futures are now pricing in an 91% chance of a 50-basis point rate hike at the Fed’s December meeting.

Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion.

The dollar index rose 0.5% after falling to its lowest in nearly three months on Friday, making gold more expensive for other currency holders. Benchmark US 10-year Treasury yields edged up from a one-month low.

Elsewhere, spot silver dropped 1.3% to USD 21.40 per ounce, platinum fell 1% to USD 1,018.50, and palladium slipped 1.3% to USD 2,013.76.

(Reporting by Brijesh Patel in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu)

Hong Kong rises on COVID pivot signs, property support; China mixed

HONG KONG, Nov 14 (Reuters) – Hong Kong shares closed higher for a second day on Monday as China optimised COVID-19 control measures, while regulators outlined a plan to shore up liquidity in the struggling real estate sector, which analysts see as a major turning point.

China A-shares ended lower amid rising domestic COVID-19 cases in the country.

Hong Kong’s Hang Seng Index .HSI gained 1.7%, following a 7.7% surge Friday, and the Hang Seng China Enterprises Index jumped 1.9%.

Mainland China’s blue-chip CSI 300 Index was up 0.2%, while the Shanghai Composite Index was slightly down 0.1%.

Hong Kong-listed mainland property stocks were the stars, soaring 14%.

Top property developers Country Garden and Longfor Group rebounded as much as 46% and 16%, respectively,.

Two sources told Reuters a notice to financial institutions from the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) outlined 16 steps to support the industry, including loan repayment extensions.

Inflows through the Northbound trading of Shanghai-Hong Kong Stock Connect, reached over 16 billion yuan (USD 2.27 billion) on Monday.

On Friday, China announced 20 measures to relax some of COVID-19 control policies, while quarantine times for inbound travelers were shortened.

Analysts said the easing of the curbs and the move to help real estate financing marked a “major turning point” in China’s economic policies.

“These policies help to reduce policy uncertainty in the market,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

Citi analysts described the measures to support the property sector as “soaking rain after a long drought.”

“We view the PBoC & CBIRC policy could be a game-changer for being the first comprehensive supportive policy from central authorities, unlike previous piecemeal steps,” they said.

Geopolitical risks also showed signs of a marginal improvement. Chinese leader Xi Jinping and US President Joe Biden are set to meet face to face at Indonesian island of Bali on Monday ahead of the G20 summit.

In Hong Kong, the Hang Seng Tech Index climbed 1.8%. AIA 1299HK jumped 3.6% as it is seen as a potential China reopening beneficiary.

Jefferies lifted the weighting of Hong Kong to “bullish” following China’s subtle COVID-19 pivot.

The latest measures “suggest that a healthy sense of pragmatism has gripped the authorities post the 20th Communist Party Congress,” Sean Darby, chief global equity strategist at Jefferies wrote in a note.

Among China A-shares, real estate .CSI000952, healthcare and financial stocks led gains, rising 3.5%, 3.1% and 1.9%, respectively.

Consumer staples remained subdued, while shares in tourism and transport fell 4.2% and 2.2% respectively, as domestic COVID cases surged, and some investors booked profits on previous COVID easing bets.

(USD 1 = 7.0452 Chinese yuan)

(Reporting by Summer Zhen; Editing by Christian Schmollinger, Ana Nicolaci da Costa, Lincoln Feast and Uttaresh.V)

Democrats’ big midterm gains threaten Wall Street’s split-government hopes

Nov 13 (Reuters) – A stronger-than-expected showing by Democrats in the US midterm elections may force investors to rethink the split government scenario many had expected.

Democrats held onto control of the US Senate, extinguishing hopes of the “red wave” that Republicans had expected leading into the midterm elections. Republicans remain close to seizing control of the House of Representatives as officials continued counting ballots, with results expected to become apparent over the next several days.

Following last week’s midterm vote, investors had largely expected a split government, with Republicans gaining control of the House, Senate or both while Democrat Joe Biden remained in the White House. While a Democratic sweep is still seen as unlikely at this point, perceptions that such a result is within the realm of possibility could ignite worries over spending and legislation that many investors had put to rest.

Quincy Krosby, chief global strategist at LPL Financial, believes more power in Congress for Democrats may pit fiscal and monetary policy against each other, potentially delaying the Federal Reserve’s efforts to fight inflation.

“If the goal is to curtail demand, we could now have policies that underpin demand,” she said.

Returns are still flowing in for several House races, including many in liberal-leaning California. As of early Sunday, Republicans had won 211 seats and the Democrats 205, with 218 needed for a majority.

Spending is a worry for some investors because they believe it could buoy inflation and potentially force the Fed to ramp up their market-punishing monetary tightening policies. Softer-than-expected inflation data last week spurred hopes the Fed could temper its rate hikes, sparking a sharp rally in stocks and bonds.

Wall Street tends to view split government favorably, in part because some investors believe it makes major policy changes more difficult to achieve.

A split government could stymie Democrats from pushing through several large fiscal packages, including $369 billion in spending on climate and energy policies, and enacting a windfall tax on oil and gas companies, analysts at UBS Global Wealth Management wrote earlier this month.

Still, “Federal Reserve policy, rather than fiscal policy, will remain the main driver of markets in our view,” they said.

In the same vein, analysts at Morgan Stanley wrote before last week’s election that Democrats expanding their majorities in Congress could lead markets to “assign a higher probability to further fiscal expansion, with Congress and the Fed effectively pulling in opposite directions on inflation.”

“The short-term implications for markets could be higher Treasury yields and stronger dollar, reflecting the potential for higher peak federal funds rate.”

Historically, stocks have done better under a split government when a Democrat is in the White House: average annual S&P 500 returns have been 14% in a split Congress under a Democratic president, according to data since 1932 analyzed by RBC Capital Markets. That compares with 10% when Democrats controlled the presidency and Congress.

Of course, either configuration is far better than the market’s performance this year. Even after rebounding in the past week, the S&P 500 is still down 16.2% for the year.

(Reporting by Rodrigo Campos and Ira Iosebashvili; Additional reporting by Lewis Krauskopf; editing by Diane Craft)

Dollar extends fall after inflation data knock

NEW YORK, Nov 11 (Reuters) – The dollar fell across the board for a second straight day on Friday, as investors favored riskier currencies following signs U.S. inflation is cooling that boosted the case for the Federal Reserve to ease off its hefty interest rate hikes.

Friday’s dollar weakness was an extension of the move set off after Thursday’s data showed U.S. consumer inflation rose 7.7% year-on-year in October, its slowest rate since January and below forecasts for 8%.

Against a basket of currencies .DXY, the dollar was down about 3.8% over two sessions, on pace for its largest two-day percentage loss since March 2009.

The U.S. currency’s long rally over the last two years had drawn a host of dollar bulls leading to crowded positioning and Thursday’s data left a lot of them looking for a quick exit, strategists said.

“It’s not just short term trend-followers, momentum players having to get out of positions, but some long-term structural long dollar positions have to be unwound,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The dollar was 1.7% lower against the Japanese yen at 138.55 yen while the euro advanced 1.46% against the U.S. unit to $1.036.

“The dollar is one of those markets that is extreme in its overvaluation – there is a strong chance we have seen the peak,” Jim Cielinski, global head of fixed income at Janus Henderson Investors told the Reuters Global Markets Forum on Friday.

Still, some strategists warned that dollar bears remain vulnerable to a possible near-term rebound.

“Yes, more people have become convinced the dollar has peaked but the move has been so sharp that I caution people against chasing it,” Bannockburn’s Chandler said.

The dollar found little support from survey data on Friday that showed U.S. consumer sentiment fell in November, pulled down by persistent worries about inflation and higher borrowing costs.

The risk-sensitive Australian AUD=D3 and New Zealand dollars NZD=D3 advanced 1.4% and 1.6%, respectively, against the greenback.

Investor risk appetite got an additional boost from Chinese health authorities easing some of the country’s strict COVID-19 restrictions, including shortening quarantine times for close contacts of cases and inbound travellers.

Sterling, meanwhile, GBP=D3 rose 1.22% against the dollar to $1.1853 after UK data showed the economy did not contract as much as expected in the three months to September, although it is still entering what is likely to be a lengthy recession.

The dollar was 2.4% lower against the Swiss franc at 0.94025 francs after Swiss National Bank Chairman Thomas Jordan said on Friday the bank was prepared to take “all measures necessary” to bring inflation back down to its 0-2% target range.

Cryptocurrencies remained under pressure from ongoing turmoil in the crypto world after exchange FTX’s fall. FTX’s native token, FTT FTT=CCCL, was last down 26.7% at $2.731, taking its month-to-date losses to nearly 90%.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Anisha Sircar in Bengaluru; Editing by Richard Chang and Emelia Sithole-Matarise)

Gold races for best week since March 2020 on Fed slowdown hopes

Nov 11 (Reuters) – Gold prices extended gains to a near three-month high on Friday and were heading for their best week in over 2-1/2 years, as signs of cooling U.S. inflation bolstered bets that the Federal Reserve would be less hawkish on rate hikes going forward.

Spot gold XAU= gained 0.7% to $1,766.39 per ounce by 14:28 p.m. ET (1928 GMT), after hitting its highest since Aug. 18 earlier in the session. Bullion is up over 5% so far this week.

U.S. gold futures GCv1 settled up 0.9% at $1,769.4.

“We are seeing a follow-through in gold prices on yesterday’s CPI data, a weaker dollar and the likelihood that the Fed is going to do a half-point rate hike versus the 75-basis point hike,” said Bob Haberkorn, senior market strategist at RJO Futures.

U.S. consumer prices rose less than expected in October and data showed annual inflation below 8% for the first time in eight months.

The inflation data triggered a sharp fall in the U.S. dollar, which was headed for its biggest two-day drop in almost 14 years, making gold more appealing for other currency holders. USD/

Markets are now pricing in a 71.5% chance of a 50-basis point rate hike at the Fed’s December meeting, up from around 50/50 a week ago. FEDWATCH

“The precious metals bulls are charged up late this week as their near-term technical postures have turned bullish at the same time the U.S. dollar index and U.S. Treasury yields are dropping,” Jim Wyckoff, senior analyst at Kitco Metals, said. US/

Gold is trading above its 50-day and 100-day moving averages, which is considered a bullish signal by traders.

Elsewhere, spot silver XAG= slipped 0.3% to $21.6 per ounce, but was poised for its second straight weekly rise having hit its highest since June.

Platinum XPT= fell 0.4% to $1,027.62 and was headed for its fourth consecutive weekly gain as it touched a high since March earlier. Palladium XPD= climbed 2.8% to $2,019 and was on course for a weekly rise.

(Reporting by Brijesh Patel and Kavya Guduru in Bengaluru; additional reporting by Swati Verma; Editing by Shounak Dasgupta, Andrea Ricci and Shailesh Kuber)

Emerging stocks head for biggest one-day gain since March

LONDON, Nov 11 (Reuters) – Emerging market stocks headed for their largest one-day gain since March on Friday, after US inflation data softened expectations for more big rate hikes from the Federal Reserve and China eased some COVID restrictions.

The MSCI emerging market equity index was last up 4.7%, having hit its highest since September 21.

The benchmark has a heavy weighting towards China, where mainland stocks rose 2.8% and Hong Kong’s main index was up more than 7.6% – its largest daily gain since March 16. Chinese authorities eased COVID-19 rules, including shortening quarantines and removing a penalty for airlines for bringing in too many cases.

The index is up almost 10% this month and is headed for the first quarterly gain since the second quarter of 2021. The MSCI EM index has fallen 24.5% since the beginning of the year.

Foreign investors added USD 9.2 billion to emerging market portfolios last month, with fixed income attracting USD 7.6 billion in the strongest monthly inflows so far this year, according to the Institute of International Finance (IIF) data released this week.

(Reporting by Jorgelina do Rosario; Editing by Amanda Cooper and Alex Richardson)

European companies’ robust Q3 makes timing the end of the bear market even harder

LONDON, Nov 11 (Reuters) – European companies have delivered positive surprises this earnings season but profit growth could dry up in a matter of months as high inflation and recession rattle the economy, potentially dragging the bear market out for even longer.

Over a third of the 600 companies on the pan-European STOXX 600 .STOXX index have reported earnings so far and of those, 60% have beaten expectations, according to data from Refinitiv I/B/E/S, which noted that in a typical quarter, 53% would top forecasts.

Refinitiv data also shows analysts expect STOXX constituents to post quarterly earnings growth of 32.2% year on year, compared to just 4.3% for the benchmark S&P 500 index .SPX in the United States.

While many economists expect Europe to tip into recession next year and earnings growth to eventually dry up, the STOXX is already heading for its biggest annual loss since 2008 – down 14% – raising the question of just how much is already priced in.

“Historically it’s pretty much unprecedented for the market to trough before we’ve even seen the start of the downward cycle, but it doesn’t mean it can’t happen,” said Graham Secker, chief European equity strategist at Morgan Stanley.

“It’s all about how much of the earnings decline is already in the price and can the market effectively bottom here, even if we’ve got a couple of quarters of earnings downgrades to come.”

Refinitiv data shows annual earnings growth is expected to shrink to 20.5% in the fourth quarter of 2022 and to just 4.1% in the first quarter of 2023 before turning negative later in the year.

REVENUE BEATS FAIL TO TRICKLE THROUGH TO EARNINGS

Europe’s booming energy sector is one factor propping up earnings along with a weaker euro, according to analysts, who also note how revenue in particular has exceeded expectations this earnings season.

Inflation has seen prices soar on the continent, but so far companies are showing they have been able to pass on rising costs.

Of the 243 that have reported revenue, 80.7% beat analyst estimates, compared with 58% in an average quarter, according to Refinitiv.

But Bernie Ahkong, co-chief Investment Officer at O’Connor Global Multi-Strategy Alpha, part of UBS Asset Management, said that while top line revenue beats have been strong, this has not translated into the same magnitude of earnings beats.

“Companies were able to pass through higher pricing than analysts expected, normally that would translate to better earnings and profits, but because of the stickiness and lag effect of costs, that is not coming through,” Ahkong said.

“As we move into 2023, the concern is we are going to see a lot of that pricing and top line benefit fade away while costs remain sticky.”

STOCKS: HOW LOW CAN THEY GO?

The STOXX technically entered a bear market in late September when it accumulated losses of more 20% from a January peak.

But the relatively few negative surprises in this earnings round may suggest there isn’t much room left for further sharp falls, according to Morgan Stanley’s Secker.

“Our thesis at the moment is that we’re not ready to say the bear market has finished. But a bit like we saw in 2008/2009 you could end up with a sort of a six-month bottoming process which is quite choppy,” he said.

According to UBS economists, European and UK stocks are already pricing in an 80% and a 68% probability of recession, respectively, compared with just 41% for U.S. stocks.

They expect the bottom for an index of eurozone stocks .STOXXE to occur in the second quarter of 2023, before it rises again towards the end of the year.

“Earnings have been quite benign, there is quite a lot already priced in,” said Suzanne Keane, senior portfolio manager at Amundi, Europe’s largest asset manager.

“We have to keep an eye on what’s going on at a macro level and whether headwinds from inflation for example are going to be felt more keenly on some sectors,” Keane said, adding that considering country-specific elements for European stocks “has been more important than ever”.

(Reporting by Lucy Raitano; Editing by Amanda Cooper, Kirsten Donovan)

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