Markets Are Cautiously Optimistic | Daily Market Analysis

Key events:

• UK – Retail Sales (MoM) (Oct)  
• Eurozone – ECB President Lagarde Speaks     
• USA – Existing Home Sales (Oct)

The sentimental background on Friday morning can be called moderately positive. Oil prices are rising after falling the day before, and the mood on global stock exchanges has slightly improved. The markets can look forward to a fairly calm end to the week after the volatility of the previous sessions.

The trading on the U.S. stock exchanges the previous day finished with a decrease of three main indices by 0,1-0,3%, which, however, won back almost all intraday losses, and retreated from the area of short-term supports.

On the one hand, fears of a tightening of the Fed's monetary policy persisted in the market and were supported by comments from some of its representatives, who did not rule out a rate hike above 5%, up to 7%. The spread between the yields of 2-year and 10-year government bonds, meanwhile, continued to widen, becoming the highest since 1981, warning of the risks of a recession.

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Nevertheless, U.S. investors are still not ready to finally give up on the idea of developing medium-term growth.

Futures on the S&P 500 Index are losing about 0.1% in the morning. Friday will be marked by the release of the next data from the housing market of the country for October, which is likely to confirm its weakening and decline in home sales on the secondary market.

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The trading in Europe the day before ended with the Euro Stoxx 50 index falling 0.1%, which also recouped almost all of its intraday losses. The end of the week could bring a portion of negative statistics on retail sales in the UK, whose economy is deteriorating rapidly. The day before the authorities of the United Kingdom also announced a large-scale tax increase.

At the trading in Asia in the morning, there were no uniform dynamics. The Japanese Nikkei 225 lost 0.1%. Consumer inflation in Japan is accelerating along with the rest of the world and amounted to 3.7% y/y in October against 3% a month earlier.

Near-term futures for Brent and WTI crude oil are adding about 0.5% in the morning after falling 3-4.5% the day before amid continued uncertainty about the outlook for global demand. Quotes reached local minimums since October, fixing below supports of $90.50 and $83.50, respectively. Now we can talk about downside risks, including September lows of $83.71 and $76.28.

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At the same time, pessimistic data interrupted the wave of optimism in the debt market. At the end of yesterday's trading session, German ten-year yields were up 2.5%, Spain was up 1.7%, and Greece was up 1.3%.

All in all, it was no big deal, even the euro was able to recoup most of its losses in the second half of the day. As in the case of the UK, continued inflationary pressures will force the ECB to continue its cycle of rate hikes. While this is not bad news for the bloc's currency, further tightening of monetary policy threatens local companies with big losses, if not bankruptcy.

According to Eurostat, the number of bankruptcy petitions has been growing for the fifth quarter in a row. According to the results of Q3 2022, this figure increased by 16.3% (q/q). Companies in the sectors of accommodation and food services (+24.0%), financial and insurance activities (+17.8%), and industry (+16.2%) had the hardest time.

On the whole, the picture is far from rosy. The "hawkish" speeches of the Fed members also add fuel to the fire. Thus, the head of the St. Louis Fed, James Bullard, said that even with a "generous" analysis of monetary policy the regulator should continue to raise rates.

The hope of buyers, however, remains the easing of restrictive measures in China and the acceleration of the world's second-largest economy, along with the imminent introduction of the oil embargo against Russia.