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European shares may open lower Wednesday after rallying for two straight sessions. Asian equities gained while China markets remain closed for the National Day holiday. The dollar strengthened slightly; Treasury yields broadly lower; oil and gold declined.
Markets in Europe could decline at the open, reversing course as focus turns to OPEC+'s first in-person meeting in years.
U.S. stocks jumped for a second day on Tuesday, buoyed by the Reserve Bank of Australia's surprise decision to raise interest rates less than expected and data showing that U.S. job openings fell in August.
"If that trend continues, then the Fed will maybe start to pull off a little bit, in terms of the last few hikes that are priced into the market between now and early next year," said Jack Janasiewicz, a portfolio manager at Natixis Investment Managers Solutions.
Many analysts said the move higher in stocks was likely the result of stocks falling to oversold levels late last week.
"It mainly looked to me like short-covering once again. We seem to see these types of moves pretty often, and maybe it turns into something, but I doubt it," said Michael Kramer, founder of Mott Capital Management.
Sharing a similar cautious tone, Hani Redha, a portfolio manager at PineBridge Investments, said, "bear markets don't go in straight lines and we are not done yet on the way down."
Read: The stock market is surging as the U.S. dollar retreats. It's all about bonds
The U.S. dollar was slightly higher in Asia amid losses in U.S. stock futures, which undermined risk appetite.
Market participants should be wary of expecting too much follow-through on risk and currency markets ahead of the upcoming U.S. nonfarm payrolls report, said Stephen Innes, managing partner of SPI Asset Management.
Bad data are being perceived as good for risk sentiment as this could temper the Fed's rate-increase trajectory, hence a strong nonfarm payrolls reading could be a rally crusher, Innes said.
"While the greenback looks due a period of consolidation, we think the underlying drivers of its appreciation remain intact," Capital Economics said.
"With the dollar already at its strongest level in 20 years on a real trade-weighted basis, we think further dollar strength will increasingly be driven by worsening risk appetite and tightening financial conditions, " CE said.
Treasury yields broadly maintained their downward trend early Wednesday.
On Tuesday, fed-funds futures traders initially pulled back on their expectations of how high rates could go in the first half of 2023, and then reversed course by nudging their expectations back up again.
Traders are pricing in more than 60% odds of a 75-basis-point hike, according to the CME's FedWatch tool.
Société Générale said it was skeptical Treasury prices have much room to continue their bounce.
"My bias is to think that this bond market rally has gone about as far as it can, and when yields turn higher again, equities will struggle, and the dollar will get its mojo back," Kit Juckes, global macro strategist at Société Générale, said.
"At which point, the FX market, having exhausted itself trading sterling in recent weeks, may revert to selling the euro."
Oil prices fell early Wednesday, but the losses could be limited ahead of the OPEC+ meeting later today, where the group is expected to consider a production cut of up to 1.5 million barrels a day.
Russian Deputy Prime Minister Novak is due to attend, which signals that the group is preparing for a significant output cut and showing unity, SPI Asset Management said.
"An empirical approach to the present fundamentals leads us to believe benchmark WTI should be trading in the $75-$80 range, although the current unpredictability within the market brings a warranted volatility premium," StoneX Group said.
"It therefore stands to reason that OPEC+, while analysing the market ahead of the decision, will see an output cut as being justified within current market conditions," it said.
Gold prices fell in Asia. The key focus for the precious metal would be the U.S. nonfarm payrolls report, Oanda said.
As long as there isn't an extremely strong reading, gold should remain supported around the $1,700/oz level and test the $1,750/oz region, Oanda said.
Sevens Report Research said that if U.S. Treasury yields have "peaked near term along with the dollar, gold and silver can both extend gains and claw back some of the recent losses."
"However, the current trends in both remain bearish," Sevens said.
Copper futures declined in Asia, reversing course after solid gains overnight.
Citi said it remained bearish on copper and maintains its March 2023 copper put option position.
Citi has been bearish since May and foresees a further 15%-20% downside over the next six months to $6,200 per ton in its base-case scenario, reflecting the weak European demand outlook, and to a lesser extent strong mine supply growth in 2023.
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OPEC+ Girds for Contentious Meeting Over Oil-Production Cuts
VIENNA-The Organization of the Petroleum Exporting Countries and its Russia-led allies are preparing for a potentially contentious meeting on Wednesday, when they gather in-person for the first time in years to discuss a production cut of up to 1.5 million barrels a day that not all players support, OPEC officials said.
Russia and Saudi Arabia, the two biggest producers in the group collectively known as OPEC+, are pushing for a production cut meant to stop oil prices from falling further, OPEC delegates said. Saudi officials have told other countries they want to cut 1.5 million barrels a day, the biggest reduction deal since 2020, delegates said, and deeper than initially discussed.
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Amazon Freezes Hiring in Retail Division
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October 05, 2022 00:13 ET (04:13 GMT)
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