Rate-path and China Worries Keep Global Markets On Edge

Major averages on Wall Street closed lower and investors reviewed comments from the Federal Reserve officials. 

San Francisco Fed President Mary Daly said it is premature to rule large-sized rate hike at the next policy meeting in December. 

Investors are divided over the size of the rate between those favoring smaller rate hike of 50 basis points, after four back-to-back 75 basis point increases, and those preferring 75 basis points increase to cool 4-decade high inflation near 8%. 

European Markets Trend Lower, German Wholesale Inflation Eases

Major averages in Europe traded lower after commodities-linked stocks led the decliners on rising coronavirus infections in China.

Geopolitical tensions were also on the rise int the region after Russia escalated bombing around the Zaporizhzhya nuclear power plant.

European markets generally looked beyond an urgent call from the International Atomic Energy Agency "to help prevent nuclear accident" in the Russia-held power plant in Ukraine. 

The agency said several parts of the power plant facilities appeared to be damaged but showed no signs of a radiation leak.  

The DAX index declined 0.4% to 14,379.93, the CAC-40 index fell 0.2% to 6,634.45  and the FTSE 100 index edged lower 0.1% to 7,376.85.

Markets were also on the defensive after coronavirus infections surged in China, prompting authorities in several cities to impose stricter lockdowns. 

In economic news,  German producer price inflation in October eased to 34.5% form 45.8% in September, the lowest level in four months, Destatis data showed.

The euro edged slightly lower to $1.02 and the British pound declined to $1.18. 

On a monthly basis, the producer prices declined 4.2% in October, reversing the gain of 2.3% in September. 

The yield on 10-year German Bunds held steady at 2.024%, French bonds eased to 2.46%, the UK Gilts inched lower to 3.179% and Italian bonds edged up to 3.97%. 

Resource stocks were among the leading decliners after commodities prices eased on China demand worries. 

Brent crude oil fell as much as $82.11 before recovering to $87.31 a barrel and TTF natural gas futures  gained 0.5% to 116.13 per MWh. 

BHP Group, Antofagasta and Glencore fell between 1.5% and 2.0% in London trading. 

Virgin Money soared 13.5% to 165.15 pence after the British-lender reported better-than-expected full-year results. 

The company also announced a stock repurchase program of  

Asian Markets Ease, Berkshire Hathaway Hikes Trading House Stakes In Japan

Asian markets closed lower and inflation worries partly fueled by the rising U.S. dollar coupled with the rising tensions between Russia and NATO nations over the weekend.  

The Nikkei index in Tokyo traded sideways and Japanese stocks were in focus after Warren Buffett controlled Berkshire Hathaway increased stakes in five largest trading houses. 

Marubeni gained 1.2%, Mitsubishi Corp jumped 4.4%, Mitsui & Co increased 0.2%, Sumitomo Corp advanced 1.2% and Itochu Corp advanced 0.9%. 

The Nikkei 225 index edged up 0.2% to 27,944.79, the Shanghai Composite index decreased 0.4% to 3,085.04, the Hang Seng Index dropped 1.9% to 17,655.91 and the Sensex index edged down 0.9% to 61,144.84. 

Stocks in India traded lower on general weakness in international markets and rising worries that foreign investors are likely to accelerate funds withdrawal and repatriate on rising U.S. rates. 

Archean Chemical advanced 12% to 458.15 rupees after the company raised about $180 million and priced its initial public offering for 407 rupees or $5.0 a share. 

German producer price inflation in October eased to 34.5% form 45.8% in September, the lowest level in four months, Destatis data showed.

Coinbase Global plunged 10% on the growing skepticism about the cryptocurrency market after FTX filed bankruptcy protection.

Oil and natural gas sector stocks led the decliners after crude oil prices dropped to the lowest level since early January.

Disney stock jumped 6% after the company announced Bob Iger will return as CEO, 11-months after he left the entertainment company.

Treasury bond yields rose after investors digested the latest comments from the Federal Reserve officials.

The People's Bank of China held its 1-year and 5-year loan rates for the third month in a row on the weakness in renminbi.

China coronavirus infections rise above 24,000 for the second day in a row and several cities imposed stricter lockdowns.

Stocks On Wall Street Look Down, More Cities Face Lockdowns In China

Rate jitters dominated market trading on the first day of new week and benchmark indexes eased on Wall Street. 

Investors are looking ahead to the release of the latest FOMC minutes on Wednesday and comments from the Fed officials later this week. 

Durable goods orders and new home sales data are on tap this week. 

The S&P 500 index dropped 0.8% to 3,934.69 and the Nasdaq Composite index 

Crude Oil Extend Losses On China Demand Worries 

Crude oil prices dropped after China placed more restrictions in Beijing and nationwide more than 24,000 coronavirus infections were reported for the second day in a row. 

China also reported its first Covid-related death in six months - a Beijing resident of 87-year old. 

This was the first documented death since the coronavirus outbreak in Shanghai in spring this year. 

The People's Bank of China also left its ley lending rate for medium and long terms unchanged. The rates have been unrevised for the third month in a row, following the weakening of the yen.  

The central bank left its one-year loan prime rate to 3.65% and five-year loan prime rate to 4.3%, the central bank said in an announcement today. 

The five-year rate, the reference rate for mortgage lending, was lowered by 15 basis points in May and August and by 5 basis points in January. 

The People's Bank of China reviews its lending rates on a monthly schedule. 

Crude oil declined $3.99 to $75.04 a barrel and natural gas jumped 39 cents to $6.69 a thermal unit. 

The yield on 2-year Treasury notes rose to 4.53%, 10-year Treasury notes eased to 3.80% and 30-year bonds to 3.89%. 

European Markets Trend Lower On Rising Tensions with Russia

Major averages in Europe also traded lower after commodities-linked stocks led the decliners on rising coronavirus infections in China. 

Geopolitical tensions were also on the rise int the region after Russia escalated bombing around the Zaporizhzhya nuclear power plant.

The DAX index declined 0.4% to 14,379.93, the CAC-40 index fell 0.2% to 6,634.45  and the FTSE 100 index edged lower 0.1% to 7,376.85. 

Asian Markets Fall, Berkshire Hikes Trading House Stakes In Japan 

Asian markets closed lower and inflation worries partly fueled by the rising U.S. dollar coupled with the rising tensions between Russia and NATO nations over the weekend.  

The Nikkei index in Tokyo traded sideways and Japanese stocks were in focus after Warren Buffett controlled Berkshire Hathaway increased stakes in five largest trading houses. 

Marubeni gained 1.2%, Mitsubishi Corp jumped 4.4%, Mitsui & Co increased 0.2%, Sumitomo Corp advanced 1.2% and Itochu Corp advanced 0.9%. 

The Nikkei 225 index edged up 0.2% to 27,944.79, the Shanghai Composite index decreased 0.4% to 3,085.04, the Hang Seng Index dropped 1.9% to 17,655.91 and the Sensex index edged down 0.9% to 61,144.84. 

Stocks in India traded lower on general weakness in international markets and rising worries that foreign investors are likely to accelerate funds withdrawal and repatriate on rising U.S. rates. 

Archean Chemical advanced 12% to 458.15 rupees after the company raised about $180 million and priced its initial public offering for 407 rupees or $5.0 a share. 

Central Banks Across Atlantic Fight High inflation and Low Credibility

Benchmark indexes rebounded in the final hour of trading after crude oil traded higher from the 4% loss in the morning. 

The latest comments from the Fed officials suggested that rapid rate hikes are likely to continue and interest rates are likely to stay elevated longer than previously estimated.  

However, the ongoing debate continued about the size of the next rate hike at the December meeting of Fed's policymakers. 

Market participants are divided about the future rate path after the release of the CPI index a week ago. 

The sharp market rally last week suggested that investors are estimating  a smaller rate hike of 0.50% but elevated inflation seeping in the housing market and services sector of the economy also suggest that higher rates for longer may be needed to dislodge the sky-high inflation. 

The S&P 500 index increased 0.5% to 3,965.34 and the Nasdaq Composite index was nearly unchanged to close at 11,146.06. 

For the week, the S&P 500 index declined 0.7% and the Nasdaq Composite index fell 1.6%. 

Crude oil declined as much as 4% for the second day in a row and extended 2-day decline to 10% after focus shifted from supply worries to demand concerns. 

Resurgent coronavirus infections in China dashed hopes of the rebound in economic activities and weakened the outlook for an increase in oil imports.     

Crude oil declined $1.82 to $80.27 a barrel and natural gas was unchanged at $6.37 a thermal unit. 

Treasury yields rose on the back of hawkish comments from Federal Reserve officials for three days in a row, but cryptic messages and mixed-signals have kept investors on the edge.   

Investors are increasingly factoring that higher rates may not succeed in lowering inflation to the target range of 2%, without significantly impacting the economy and labor markets. 

The yield on 2-year Treasury notes rose to 4.53%, 10-year Treasury notes inched up to 3.83% and 30-year bonds edged up to 3.93%. 

Home Sales Lowest In Eleven Years 

Existing home sales fell 5.9% to a seasonally adjusted rate of 4.43 million from September, the ninth monthly sales decline in a row. 

Home sales  fell to the lowest level since December 2011, excluding a brief decline during the onset of the pandemic, on elevated home prices and surge in mortgage rates. 

"More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher. 

The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years", said NAR chief economist Lawrence Yun.

U.S. Stock Movers 

Gap Inc jumped 2.9% to $13.10 after the struggling retailer reported unexpected quarterly profit and higher-than-expected sales. 

Third quarter net sales increased 2% to $4.04 billion and comparable sales increased 1% from a year ago. 

Online sales increased 5% from a year ago and represented 35% of total sales. 

Third quarter income swung to $282 million compared to a loss of $252 million and diluted earnings per share was 77 cents compared to a loss of 40 cents a year ago. 

Foot Locker, Inc jumped 7.4% to  $35.51 after the retailer reported higher-than-expected sales and earnings and comparable store sales rose faster-than-expected. 

The retailer also lifted its annual outlook. 

Williams Sonoma, Inc declined 6.80% to  $121.61 after the housewares retailer reported better-than-expected quarterly sales and results. 

The retailer reiterated " mid-to-high single digit annual net revenue growth and operating margins relatively in-line with our fiscal year 2021 operating margin."

The stock has been on the slide after hitting the record high above $215 on November 19, 2021. 

Ross Stores, Inc jumped 11.4% to $109.31 after the discount retailer lifted its fourth quarter guidance. 

European Markets Extend Six-week Rally, 7th Quarterly Increase In Swiss Production

European markets closed higher for the sixth week in a row and investors digested comments from the ECB president and a batch of corporate earnings. 

The European Central Bank may have to lift rates high enough to be restrictive for the economy in order to bring down inflation to its target rate, said president Christine Lagarde at a speech. 

The ECB lifted interest rates by 200 basis points since July, including back-to-back 75 basis point increases, but the current rates are not restrictive enough to have an impact on inflation. 

More rate hikes and the reduction of its 5 trillion euro debt holdings are on the way, said Lagarde. 

The central bank is largely reliant on interest rates as its main tool in bringing down 4-decade high inflation but the bank is also struggling with a pile of government holdings that are losing value with the rapid hikes in rates. 

"Interest rates are, and will remain, the main tool for adjusting our policy stance," stressed Lagarde. 

"We expect to raise rates further

ECB Plans to Go Beyond Rate Hikes and Bond Sale to Combat High Inflation

The European Central is likely to continue its campaign of rapid rate hikes in future and plans to begin withdrawing bank stimulus provided during the pandemic era. 

With inflation at 4-decade high driven by high energy prices and supply chain issues, the central bank is struggling to tame inflation using the blunt tool of interest rate control. 

The European Central Bank may have to lift rates high enough to be restrictive for the economy in order to bring down inflation to its target rate, said president Christine Lagarde at a speech. 

The ECB lifted interest rates by 200 basis points since July, including back-to-back 75 basis point increases, but the current rates are not restrictive enough to have an impact on inflation. 

More rate hikes and the reduction of its 5 trillion euro debt holdings are on the way, said Lagarde. 

The central bank is largely reliant on interest rates as its main tool in bringing down 4-decade high inflation but the bank is also struggling with a pile of government holdings that are losing value with the rapid hikes in rates. 

Moreover, the European Central Bank is asking banks to return

Movers: Applied Materials, Farfetch, Foot Locker, Gap, Palo Alto Networks, Ross Stores, Williams Sonoma

Applied Materials, Inc increased 0.5% to $105.02 after the semiconductor equipment manufacturing company reported better-than-expected quarterly results and estimated 

Revenue in the fiscal fourth quarter ending in October increased 10% to $6.75 billion from $6.1 billion a year ago. 

Gross margin decreased to 45.9% from 48.1% a year ago.   

In the quarter, net income declined to $1.59 billion from $1.71 billion and diluted earnings per share decreased to $1.85 from $1.89 a year ago. 

The equipment maker said fiscal first quarter revenue is expected around $6.7 billion with a band of $400 million, including the impact of recently announced export regulations and ongoing supply chain challenges. 

Farfetch Ltd fell 17.7% to $7.52 after the online luxury apparel and accessories platform reported weaker-than-expected sales and wider-than-expected losses. 

Third quarter sales declined 1% to  $593.4 million from gross merchandise value decreased 4.9% to $967.4 million from a year ago. 

In the third quarter, the company swung to a loss of $274.9 million from a profit of $769.1 million a year ago. 

The loss in the third quarter was driven by a drop in value of equity holdings in other businesses. 

In the period, diluted loss per share increased to 71 cents from 25 cents loss a year ago. The earnings per share doesn't take into account the changes linked to equity holdings. 

Foot Locker, Inc jumped 7.4% to  $35.51 after the retailer reported higher-than-expected sales and earnings and comparable store sales rose faster-than-expected.

Third quarter sales declined 0.7% to $2.17 billion from $2.18 billion a year ago. 

Net income plunged to $96 million from $158 million and diluted earnings per share dropped to $1.01 from $1.52 a year ago. 

The retailer also lifted its annual outlook and said full-year 2022 sales are estimated to drop in the range of 4% to 5% from the previous estimated range of 6% to 7%. 

Comparable store sales are estimated to decline between 4% and 5% from the previous estimated range of 8% to 9%. 

Gap Inc jumped 2.9% to $13.10 after the struggling retailer reported unexpected quarterly profit and higher-than-expected sales.

Third quarter net sales increased 2% to $4.04 billion and comparable sales increased 1% from a year ago.

Online sales increased 5% from a year ago and represented 35% of total sales.

Third quarter income swung to $282 million compared to a loss of $252 million and diluted earnings per share was 77 cents compared to a loss of 40 cents a year ago.

Palo Alto Networks Inc increased 6.8% to $167.34 after the cybersecurity company marginally lifted its annual outlook and reported quarterly results ahead of expectations. 

Revenue in the fiscal first quarter increased 25% to $1.6 billion and first quarter billings rose 27% to $1.7 billion. 

In the quarter, net income was $20.0 million or 6 cents a diluted share, compared to a net loss of $103.6 million or 35 cents.   

For the fiscal second quarter, the company guided revenue between $1.63 billion and $1.66 billion, an increase between 24% and 26% from a year ago. 

For fiscal 2023, the company guided revenue between $6.85 billion and $6.91 billion, an increase between 25% and 26% from a year ago. 

Ross Stores, Inc jumped 11.4% to $109.31 after the discount retailer lifted its fourth quarter guidance.