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[November 23, 2022] A
look at the day ahead in U.S. and global markets from Mike Dolan.
As bond markets furiously flag a looming recession, stock markets
suddenly seem fearless.
Wall St's so-called 'fear index' of implied equity volatility fell on
Tuesday to its lowest level since August. At just 21, the index is below
the median of the past 12 months and is almost half the peaks hit
earlier in the year.
Put against the deepening inversion of the U.S. 2-10 year Treasury yield
curve to its most negative in 22 years, typically a harbinger of
recession ahead, the apparent stock market calm is puzzling. And it's
not just the United States, Germany's equivalent yield curve inversion
hit its deepest since 2008.
Some analysts reckon stock market positioning is already so low and
portfolios so underweight equity that demand for downside protection in
the options market has waned too.
Others feel the oncoming recession will just ease energy and inflation
pressures, hasten an end to central bank tightening and see a retreat in
long-term borrrowing costs that have dogged stock markets all year.
A readout from the Federal Reserve's last policy meeting later on
Wednesday will be watched for clues on that.
Flash readings of European business sentiment in November showed at
least some of the gloom lifting, however, with activity shrinking less
rapidly than forecast. Surveyed German firms indicated that the deep
contraction there had eased as price pressures fell back.
U.S. business surveys are due later.
Oil prices inched higher as data showing a larger-than-expected U.S.
crude drawdown last week outweighed concerns about lower fuel demand
from China amid tightening COVID-19 curbs.
China stocks perked up after China's Bank of Communications agreed to
provide a 100-billion-yuan credit line to developer Vanke - the latest
sign of support for the embattled property sector.
But the COVID outbreak and its fallout only got worse.
Chinese authorities imposed more restrictions, adding to worries about
the economy just amid fresh unrest at the world's largest iPhone
factory. Hundreds of workers joined protests at Foxconn's flagship Apple
iPhone plant, with some smashing surveillance cameras and windows,
footage uploaded on social media showed.
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Traders work on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., November 22,
2022. REUTERS/Brendan McDermid
Any hoping for an end to the jump in interest rate rate rises around
the world were also disappointed.
New Zealand's central bank hiked rates by a record 75 basis points
and warned the economy might have to spend an entire year in
recession to bring sky-high inflation under control.
Sterling was firmer as the top UK court ruled that Scotland's
government cannot hold a second referendum on independence without
approval from Britain's parliament, dealing a hammer blow to
nationalists' hopes of a vote next year.
Banking stress returned to the headlines.
Credit Suisse fell 4% after the embattled Swiss bank said it expects
to make a pre tax loss of up to 1.5 billion Swiss francs ($1.58
billion) during its fourth quarter as it prepares to ask
shareholders to clear a $4 billion equity hike.
The world of sports finance was brighter. Manchester United shares
jumped almost 15% on Tuesday after it said it was seeking new
investment or a potential sale 17 years after the American Glazer
family bought the English Premier League soccer club.
Key developments that may provide direction to U.S. markets later on
* Flash Nov business surveys in U.S. and around the world, weekly
jobless claims, University of Michigan Nov consumer sentiment and
inflation expectations, U.S. Oct new home sales and Oct durable
* Federal Open Market Committee issues minutes from its meeting of
* UK finance minister Jeremy Hunt answers budget questions from
House of Commons' Treasury Committee
* US corporate earnings: Deere
(By Mike Dolan, editing by Alexandra Hudson email@example.com.
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