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North American Morning Briefing: Stock Futures Mixed as Fed Tightening Angst Lingers

MARKET WRAPS

Watch For:

Construction Spending for August; ISM Report on Business Manufacturing PMI for September

Opening Call:

Stocks were looking to start October and fourth quarter trading on a bearish note, as worries lingered that the higher borrowing costs needed to crush multi-decade high inflation will damage the economy and hit corporate profits.

Richard Hunter, head of markets at Interactive Investor, said that recent comments from Federal Reserve officials had reiterated they intended to keep interest rates higher for longer in order to push inflation back to the Fed's 2% target. But the latest data showed price pressures were stubborn.

"The personal consumption index reading release on Friday underlined that this milestone [peak inflation] has not yet been reached, with prices excluding food and energy rising by 0.6% in August after a flat July. On a yearly basis the core number rose by 4.9%, ahead of the expected 4.7%. as such, the Fed is likely to keep a firm hand on the hiking tiller for the time being," said Hunter.

Adding to tension on Monday was concern about the health of the financial sector in Europe as shares in Credit Suisse plunged to fresh lows, noted Peter Ganry, head of equity strategy at Saxo Bank.

"S&P 500 futures pushed below the 3,600 level this morning, which is obviously a major level to watch and indicates that the equity market is still facing headwinds. The latest risk sources adding to the negative sentiment are talks about Credit Suisse and their financial strength," Ganry said.

There was some potentially calming news from the U.K. however, where a government U-turn on tax policy, that had so roiled equity and fixed income markets last week, helped push sovereign bond yields lower. The benchmark 10-year Treasury dipped 2.8 basis points to 3.803% as the equivalent duration U.K. bond eased 15 basis points to 3.996%.

Economic updates set for release on Monday include the S&P U.S. manufacturing PMI report for September, due at 9:45 a.m. Eastern. The ISM manufacturing index for September and the construction spending report will be published at 10 a.m.

Forex:

The dollar edged lower against a basket of currencies but its declines are likely to be short-lived given the prospect of another strong nonfarm payrolls report on Friday, ING said.

"Our team looks for a solid 200,000 increase in jobs and the unemployment rate staying low at 3.7% [in September]-- both pointing to another 75 basis points [interest rate] hike from the Federal Reserve on November 2," ING said.

Foreign exchange interventions by Asian authorities along with the Bank of England's bond market intervention are potentially behind the dollar's correction lower but this move will be limited, ING added.

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The British pound climbed early Monday as U.K. Prime Minister Liz Truss scrapped plans to cut taxes for the country's highest earners.

The policy was part of a package of tax cuts and spending plans, which sent U.K. financial markets into meltdown at the end of last month. The pound hit a record low of $1.0349 against the dollar a week ago.

After the reversal, confirmed by Chancellor Kwasi Kwarteng Monday, the pound rose above $1.12, close to where it was trading before the mini budget on Sept. 23.

Kwarteng said the policy of abolishing the 45% tax rate "has become a distraction." "We get it, and we have listened," he said in a statement.

MUFG said the boost to sterling is likely to be limited.

The U-turn is "another small step to help restore investor confidence in the U.K.'s public finances although it is unlikely to be sufficient on its own," MUFG said.

The measure is only a relatively small element of the recent mini-budget--costing GBP2 billion versus the total cost of the tax-cutting package at GBP45 billion--that sent the pound sliding, MUFG added.

Energy:

Oil prices rose more than 3% in early European trade ahead of this week's OPEC+ meeting at which the cartel is expected to debate a one million barrel a day production cut.

If the group goes ahead with the cut it will be the second in as many meetings, though a one million barrel a day reduction in output would be ten times as large as its most recent cut. Members of the group are split, however.

DNB Markets said the cartel is currently missing its output targets by 3.5 million barrels a day due to tight spare capacity and poor infrastructure. A one million barrels a day reduction would likely translate into only a 400,000 barrels a day decline in actual output.

With most members of the cartel underproducing "the majority of the group will feel no pain by supporting a production cut," DNB said.

Read: OPEC+ to Weigh Production Cut to Bolster Oil Prices

Metals:

Metals edged lower in London as growth jitters lingered and with analysts still mulling what impact an LME ban on Russian metals would have on European markets.

Goldman Sachs said a ban would make it harder, but not impossible, for Western buyers to obtain Russian metals, with aluminum likely to be the most affected by any restrictions.

Trading volumes were muted, with Chinese markets closed for a weeklong holiday.

Read: LME Ban on Russian Metal Wouldn't Halt Imports

   
 
 
   
 
 

TODAY'S TOP HEADLINES

 
 

Credit Suisse Seeks to Calm Market Jitters

Credit Suisse Group AG tried to assuage fears about its health in a memo to employees and in a round of phone calls to investors and clients over the weekend, according to people familiar with the matter.

Credit Suisse shares tumbled 9% early Monday and are down nearly 30% over the past month. Spreads on its credit-default swaps, a type of insurance against default, rose to their highest level of the year on Friday. The deteriorated market condition indicates that Credit Suisse could struggle to raise new shares to pay for a planned restructuring and that its funding costs could rise sharply.

   
 
 

ConEd Agrees to Sell Clean Energy Business for $6.8 Billion to RWE

Consolidated Edison Inc. has agreed to sell its renewable energy business to German energy company RWE AG for $6.8 billion, the companies said Saturday.

The deal nearly doubles RWE's renewable energy portfolio in the U.S. and will make it the second-largest solar operator in the country, the company said in a statement. ConEd's portfolio includes more than 10 gigawatts of renewable projects in operation or under development.

   
 
 

Nike's Inventory Woes Stretch to China as Covid Recovery Remains a Challenge for Brands

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The announcement came as the company posted weaker quarterly profit and soaring inventory levels, two developments that helped send its shares down about 13% Friday.

   
 
 

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Tesla on Sunday said it had delivered 343,830 vehicles to customers in the three-month period ended in September, up from about 255,000 in the prior quarter that was dented by a temporary shutdown of its factory in China.

   
 
 

Disney Reaches Deal to Restore Its Channels on Dish Network

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L3Harris would pay nearly $2 billion in a deal set to be unveiled Monday, the people said.

   
 
 

Walgreens Turns to Prescription-Filling Robots to Free Up Pharmacists

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Producer Bets Streamers Want the Next 'Judge Judy,' Not 'Game of Thrones'

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Enter Scott Koondel, a former CBS executive who now runs the production and distribution firm Sox Entertainment. Mr. Koondel negotiated a two-year deal on behalf of Ms. Sheindlin with Amazon.com Inc.'s ad-supported streaming platform Freevee.

   
 
 

FTC Probes Market Power of One of Country's Biggest Anesthesia Providers

WASHINGTON-The Federal Trade Commission is investigating one of the country's largest anesthesiology providers, U.S. Anesthesia Partners, over whether it has amassed too much power in some regional markets through acquisitions, according to people familiar with the matter.

USAP has 4,500 anesthesia providers in nine states, including Texas, Colorado and Florida. The company, founded in 2012 by private-equity firm Welsh, Carson, Anderson & Stowe, has grown by acquiring smaller anesthesiology groups and rolling them up into a consolidated entity that manages hospital contracts, billing, insurance agreements and other functions.

   
 
 

Dish, Sling Subscribers Lose Access to Disney Networks in Contract Dispute

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October 03, 2022 05:29 ET (09:29 GMT)

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