MARKET WRAPS

Watch For:

Durable Goods for August; S&P CoreLogic Case-Shiller Home-Price Index for July; New Home Sales for August; Conference Board -- Consumer Confidence for September

Opening Call:

Stock futures rose around 1% on Tuesday, although recent volatility is likely to persist, as concerns about the world economy push financial markets into disarray.

The likelihood of sharply higher interest rates has tilted the odds toward another recession within a year, economists say. Yet some still hold out hope the U.S. can muddle through with a period of slow growth instead of outright decline.

The risk of a recession over the next year "has now climbed above 50%," said chief economist Douglas Porter of BMO Capital Markets. "This more aggressive series of rate hikes will weigh more heavily on the U.S. economy."

Market Insight:

The global inflation trajectory is becoming even more central for tactical asset allocation, and it could keep volatility elevated until the next set of CPI releases, JPMorgan said.

"A core belief behind our tactical asset allocation approach is that the most consistent factors moving asset prices are business-cycle momentum and monetary-policy decisions."

In this elevated-inflation environment, the direction of inflation becomes crucial because it becomes a de facto driver of both those factors, JPM said. Elevated inflation directly hurts disposable income and indirectly slows future aggregate demand via the central banks' reaction function.

Forex:

The dollar rally paused early Tuesday but the currency remains just below the fresh 20-year highs it notched on Monday.

The currency's recent rise creates an "untenable situation" for risk assets that has historically ended in a financial or economic crisis, according to Morgan Stanley.

Read more here.

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The dollar-value of cryptocurrencies rose on Tuesday, buoyed by optimism in global stock and bond markets.

Bitcoin added 5.6% from its late-afternoon ET level Monday to trade at $20,200.63 apiece. Ether, the second-largest cryptocurrency by market value, gained 4.5% over the same period.

Cryptocurrencies have largely risen and fallen alongside broader market sentiment in recent weeks, with little other news pushing values.

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Sterling looks vulnerable after the Bank of England said it would assess the impact of new fiscal policy at its next meeting instead of delivering an emergency interest rate rise as some market participants expected, ING said.

GBP/USD hit a record low of 1.0349 on Monday following last week's U.K. mini-budget statement, prompting the BOE to signal it could take action at its next scheduled meeting in November.

"But six-to-nine weeks is a long time in FX markets," ING said. "We had felt that the BOE would prefer to avoid getting sucked into defending the pound with rate hikes."

Pantheon Macroeconomics said the BOE is expected to accelerate its interest-rate hiking cycle as financial markets have lost confidence in the U.K.'s macro policy regime.

Raising interest rates to near 6%--the level markets are currently pricing in--would crush inflation but lead to a sharp increase in mortgage defaults, Pantheon said.

Hiking more slowly would weigh on sterling and boost imported inflation, allowing it to stay above target for longer, Pantheon said.

This option is one that the BOE is likely to see as the lesser of two evils, though a recession is unavoidable as many households and businesses will cut spending immediately knowing that higher interest rates and further price increases are in the pipeline.

Bonds:

Bond yields worldwide stabilized after extending the biggest gains in seven decades.

The 10-year Treasury yield, along with German and Japanese bonds, were all little changed. The U.K. 10-year yield, which has skyrocketed since Friday when the new British government announced a series of big tax cuts, pulled back to 4.052%, down from as high as 4.282% on Monday.

The pause comes as bonds cope with their first bear market in more than 70 years, as defined by prices falling 20% from their recent peak. More than a decade of global bond returns have been erased for the first time since the 1950s, according to Deutsche Bank analyst Jim Reid.

Read more here.

Energy:

Oil futures posted gains of close to 2% in Europe as supply concerns keep prices supported, although Goldman Sachs said the strong dollar and falling demand expectations "will remain powerful headwinds."

It added, however, that the market's supply tightness should support prices and help Brent climb higher before the end of the year.

"The structural bullish supply set-up--due to the lack of investment, low spare capacity and inventories--has only grown stronger, inevitably requiring much higher prices."

Metals:

Gold and base metals made steady gains in Europe, having sold-off sharply on Monday, but Peak Trading Research said investors "are nervously watching interest rates rise and the dollar rip higher."

It added that there is a very bearish macro environment, which is a big headwind for all commodity markets especially in a light data week.

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Liberum said six months ago, "most of the sell-side was bullish" on commodities. "Most are short-term bears now."

Concerns about the impact of inflation and rising rates on demand are prompting the shift in forecasts, the Liberum said. It is among those that holds bearish forecasts for the asset class.

Although, it highlights that "any shift in the status of three drivers--Fed policy, China's growth story and Russia's war--can deliver different demand/price outcomes."

Read: Copper Prices to Remain Weak for Rest of 2022, Says Fitch

TODAY'S TOP HEADLINES

Elon Musk and Twitter Set to Argue Over Unresolved Pretrial Information Requests

Lawyers for Elon Musk and Twitter Inc. are set to debate several pending requests for information in their continuing legal fight, with less than three weeks to go before a scheduled trial over Mr. Musk's soured $44 billion takeover.

Among the issues set to be discussed are whether Mr. Musk's team should have access to certain documents that Twitter has claimed are protected by attorney-client privilege and the proposed terms around allowing Mr. Musk to incorporate details about a Twitter whistleblower's severance payment into his argument for terminating the deal.

FTX Wins Auction for Bankrupt Crypto Broker Voyager Digital's Assets

Sam Bankman-Fried's crypto exchange FTX won an auction for the assets of Voyager Digital Ltd. with a bid valued at $1.42 billion, the bankrupt cryptocurrency broker and lender said.

The deal follows a competitive process that lasted two weeks, Voyager said in a statement on Monday. FTX and competing crypto exchange Binance had both made bids near $50 million, The Wall Street Journal reported earlier this month.

Crédit Agricole Subsidiaries to Settle Alleged Violations of U.S. Sanctions

Two subsidiaries of French bank Crédit Agricole Group's corporate and investment banking arm have agreed to pay more than $1.12 million in civil penalties to settle alleged violations of U.S. sanctions, the Treasury Department said on Monday.

CA Indosuez Switzerland SA, a Switzerland-based indirect subsidiary of Crédit Agricole Corporate and Investment Bank, has agreed to pay $720,258 for allegedly violating sanctions against Cuba, Iran, Sudan and Syria as well sanctions related to the annexation of Ukraine's Crimea region, according to the Treasury's Office of Foreign Assets Control.

Bowflex Maker Nautilus Mulls Possible Sale

Bowflex maker Nautilus Inc. said Monday that a potential sale of the company is being considered, part of a broader review of strategic alternatives launched by its board.

The fitness-products maker, which also makes Nautilus machines and Schwinn indoor cycling bikes for gyms and home use, said it hasn't set a timetable for the conclusion of its review and there is no guarantee it will result in any transaction or strategic change.

Ford Seeks New Trial After $1.7 Billion Jury Verdict in Truck Rollover Lawsuit

Ford Motor Co. is asking a Georgia court for a new trial, after a jury reached a $1.7 billion verdict against the auto maker last month involving a truck rollover accident that left two people dead.

In new court filings Monday, Ford said it was unfairly precluded from providing evidence that would have demonstrated the truck involved in the fatal incident was safe and the roof structure was stronger than many of its peers.

Santos Gets $1.4B Offer for PNG LNG Stake From Papua New Guinea State Oil Company

ADELAIDE, Australia-Santos Ltd. has received a $1.4 billion offer from Papua New Guinea's state-owned oil-and-gas company to buy a 5% interest in PNG LNG, a large liquefied natural gas development, from the Australian company.

The proposed deal reflects the Papua New Guinean government's desire to get a greater share of the profits from the country's natural resources.

FBI Working With Australian Authorities on Optus Cyberattack

SYDNEY-- The FBI is working with Australian authorities to investigate a data breach at Optus, one of the country's largest telecoms companies.

Australia's Attorney-General Mark Dreyfus said Tuesday that the government, the Australian Federal Police and other government agencies, were working closely to investigate the breach.

Lumber Prices Fall Back to Around Their Pre-Covid Levels

Lumber prices have fallen to their lowest level in more than two years, bringing two-by-fours back to what they cost before the pandemic building boom and pointing to a sharp slowdown in construction.

Lumber futures ended Monday at $410.80 per thousand board feet, down about one-third from a year ago and more than 70% from their peak in March, when the Federal Reserve began raising interest rates to fight inflation.

Global Bonds Take a Breather Amid Biggest Rout in 70 Years

Bond yields worldwide stabilized Tuesday after extending the biggest gains in seven decades.

The U.K. 10-year yield, which has skyrocketed since Friday when the new British government announced a series of big tax cuts, pulled back to 4.052%, down from as high as 4.282% on Monday. The U.S. 10-year Treasury yield was little changed at 3.838%. German and Japanese 10-year bonds also were little changed.

'Financial markets are throwing in the towel': Recession fears escalate as Fed slams brakes on the economy

The likelihood of sharply higher interest rates has tilted the odds toward another recession within a year, economists say. Yet some still hold out hope the U.S. can muddle through with a period of slow growth instead of outright decline.

In a move widely expected by financial markets, the Federal Reserve orchestrated another jumbo-size hike in U.S. interest rates last week. What was unexpected was the central's bank aggressive forecast for even higher rates in the year ahead.

Senate Democrats Release Text of Proposal to Avert Government Shutdown

Senate Democrats on Monday night released the text of the proposal that lawmakers could pass to avoid a government shutdown after federal funding runs out on Friday.

The 237-page continuing resolution, which was made public minutes before midnight by the Senate Committee on Appropriations, would extend current funding levels until Dec. 16.

World Bank Cuts China Growth Forecast as Covid-19, Real-Estate Crunch Take Toll

SINGAPORE-The World Bank said it expects developing economies in East Asia to grow faster than China this year for the first time since 1990, as the world's second-largest economy struggles with a real-estate crunch and the government's zero-tolerance approach to Covid-19.

The Washington, D.C.-based lender cut its forecast for Chinese growth this year but said it expects growth among 22 neighboring economies to more than double in 2022 compared with the pace they notched last year, as countries benefit from dismantling most Covid-19 restrictions and a revival in tourism.

China's Industrial Profits Drop Further

China's industrial profits fell 2.1% in January-August, widening from the 1.1% drop recorded in the first seven months of the year, data from the National Bureau of Statistics bureau showed.

The bigger year-over-year decline comes after China reported improved factory production, which rose 4.2% on year in August compared with July's 3.8% growth.

Sweden reports leaks on Nord Stream 1, shortly after damage found on Nord Stream 2

Swedish maritime authorities have warned of two leaks on Russia's Nord Stream 1 natural gas pipeline in Swedish and Danish territories, Reuters reports.

The leaks, located northeast of Danish island Bornholm, were reported shortly after another report of an overnight gas leak from the non-operational Nord Stream 2 pipeline.

Ukraine's Zelensky Urges Russians to Keep Protesting Mobilization Orders

Kyiv reiterated calls for Russian men summoned to fight in Ukraine to lay down their arms as soon as they arrive in the country, as protests against mobilization continued in Russia and authorities there sought to curb an exodus of fighting-age males.

In a video address late Sunday, Ukrainian President Volodymyr Zelensky called on Russians to continue protesting against the draft and urged them to desert or give themselves up to Ukrainian troops as prisoners of war. Ukraine has pledged to treat Russian POWs fairly.

Jan. 6 Committee Hearings Enter Final Phase Wednesday

The House select committee investigating the Jan. 6, 2021, riot at the Capitol is set to reconvene its next live hearing Wednesday, putting the finishing touches on its case that former President Donald Trump was at the center of a plan to overturn the 2020 presidential election.

Since its last hearing in late July, the panel has continued to interview witnesses, collect documents and seek out new evidence about the months-long effort to overturn the election. Committee members said that as the eight summer hearings were wrapping up, new witnesses were coming forward to provide information.

Biden's Student-Loan Forgiveness Plan Could Cost $400 Billion, CBO Says

President Biden's plan to cancel student debt for some borrowers will cost the federal government an additional $400 billion, according to the nonpartisan Congressional Budget Office.

The estimates released Monday are the latest to put a price tag on the administration's student-loan-modification plans, in the absence of a detailed accounting from the White House. A range of analyst estimates reflects the considerable complexity of projecting the performance of the federal government's student-loan portfolio, and raises questions about how the moves will ultimately affect the federal budget.

Write to paul.larkins@dowjones.com TODAY IN CANADA

Earnings:

BlackBerry 2Q

Economic Indicators:

None scheduled

Expected Major Events for Tuesday

06:00/JPN: Aug Revised Machine Tool Orders

08:00/ITA: Aug Foreign Trade non-EU

08:30/UK: 2Q Business Finance Review

08:59/JPN: Jul Final Labour Survey - Earnings, Employment & Hours Worked

12:30/US: Aug Advance Report on Durable Goods

12:55/US: 09/24 Johnson Redbook Retail Sales Index

13:00/US: Jul U.S. Monthly House Price Index

13:00/US: Jul S&P CoreLogic Case-Shiller Indices

14:00/US: Aug New Residential Sales

14:00/US: Sep Richmond Fed Business Activity Survey

14:00/US: Sep Consumer Confidence Index

17:00/US: Aug Money Stock Measures

20:30/US: 09/23 API Weekly Statistical Bulletin

23:01/UK: Sep Shop Price Index

All times in GMT. Powered by Onclusive and Dow Jones.

Expected Earnings for Tuesday

Allied Healthcare (AHPI) is expected to report for 4Q.

Aytu BioPharma Inc (AYTU) is expected to report for 4Q.

BlackBerry (BB,BB.T) is expected to report $-0.20 for 2Q.

Boku Inc (BOKU.LN) is expected to report for Interim.

Cal-Maine Foods Inc (CALM) is expected to report $2.55 for 1Q.

Cracker Barrel Old Country Store Inc (CBRL) is expected to report $1.33 for 4Q.

FTI Consulting (FCN) is expected to report $2.00 for 4Q.

Fonar Corp (FONR) is expected to report for 4Q.

Jabil Inc (JBL) is expected to report $1.93 for 4Q.

Matrix Service (MTRX) is expected to report $-0.14 for 4Q.

Neogen Corp (NEOG) is expected to report $0.11 for 1Q.

NetSol Technologies Inc (NTWK) is expected to report for 4Q.

Progress Software Corp (PRGS) is expected to report $0.44 for 3Q.

Schmitt Industries (SMIT) is expected to report for 4Q.

TD SYNNEX Corp (SNX) is expected to report $2.07 for 3Q.

Unico American (UNAM) is expected to report for 2Q.

United Natural Foods Inc (UNFI) is expected to report $1.20 for 4Q.

tinyBuild Inc (TBLD.LN) is expected to report for Interim.

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ANALYST RATINGS ACTIONS

Adtran Raised to Buy From Hold by Loop Capital

Ameresco Raised to Buy From Neutral by B of A Securities

Chegg Raised to Buy From Hold by Needham

Helmerich & Payne Raised to Equal-Weight From Underweight by Morgan Stanley

Immunovant Cut to Neutral From Buy by UBS

Las Vegas Sands Raised to Buy From Hold by Jefferies

Lyft Cut to Neutral From Buy by UBS

NexTier Oilfield Soltns Cut to Equal-Weight From Overweight by Morgan Stanley

Paymentus Holdings Cut to Neutral From Outperform by SMBC Nikko

Perella Weinberg Partners Cut to Market Perform From Outperform by Keefe, Bruyette & Woods

Planet Fitness Raised to Strong Buy From Market Perform by Raymond James

Sotera Health Cut to Sector Weight From Overweight by Keybanc

Wynn Resorts Raised to Buy From Hold by Jefferies

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

September 27, 2022 05:58 ET (09:58 GMT)

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