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Major US indices fell on Monday as hawkish comments from US Federal Reserve officials tempered investors' hopes that the central bank would ease its aggressive monetary policy. As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 0.63%, and the S&P 500 Index (US500) fell by 0.89%. The Nasdaq Technology Index (US100) lost 1.12% on Monday.

The US Fed spokeswoman Brainard echoed recent statements from other bank officials that it may be appropriate to move to a slower rate of increase. The market expects the Fed to continue its hawkish rhetoric on rates through March 2023. Traders now expect the Fed to raise interest rates by 0.5% in December and expect the final rate to be in the 4.75%-5.0% range. Then according to bank analysts, rates will be at this level until the end of 2023, after which rates will begin to decline in early 2024. Bank analysts believe that it is during the "pause" period that the stock market will show strong growth.

The midterm elections in the US indicate that the Democrats retain control of the Senate. They now have 50 seats against 49 for Republicans. Democratic leaders in Congress on Sunday promised to tackle the national debt ceiling in the coming weeks, saying their party's election victory gives them leverage. The US House Speaker Nancy Pelosi and US Senate Majority Leader Chuck Schumer said they would act as long as Democrats control both houses.

Along with raising rates, the Fed continues to reduce the number of bonds on its balance sheet to $95 billion monthly. Since that process (quantitative tightening) began in June, the Fed's balance sheet has shrunk by more than $235 billion but remains at $8.73 trillion.

Morgan Stanley's experts forecast the SPY price to fall to 3000-3300 in the coming weeks, and they see the end of the year around 3900, which is where the price is now.

Goldman Sachs predicts a significant decline in inflation in the US next year. Analysts at the bank expect the core PCE to fall to 2.9% by December 2023 from the current 5.1%.

Equity markets in Europe traded higher yesterday. Germany's DAX (DE30) gained 0.62%, France's CAC 40 (FR40) gained 0.22%, Spain's IBEX 35 (ES35) jumped by 0.52%, and the British FTSE 100 (UK100) closed up to 0.92% on Monday.

ECB member De Guindos made a speech yesterday and left some important comments:

• Monetary policy should focus on reducing demand support;
• Inflation expectations are unchanged at the moment;
• The ECB will continue to raise interest rates;
• Fiscal support measures should be targeted and temporary.

The Eurozone saw surprisingly strong production in the third quarter as easing supply problems contributed to growth. Industrial production rose by 0.9% in September, leading to a quarterly increase of 0.5% in Q3. This was a surprise as businesses reported lower new orders due to lower demand. Thus, analysts still expect a dip in the winter months, as the catch-up effect of production growth is unlikely to last.

The European Commission permitted Berlin to nationalize the former unit of Russian gas monopoly Gazprom, supporting the efforts of Europe's largest economy to restore order to the energy market.

According to experts, Britain will have dark days at least until mid-2024 as British Chancellor Jeremy Hunt warns that tax hikes will affect everyone and cuts in public spending are inevitable.

Due to China's worries about COVID and OPEC's reduced demand forecast, oil prices are down. While investors welcomed China's announcement last week that it would reduce the impact of a strict zero COVID policy to stimulate economic activity and energy demand, analysts said blockages and rising incidence of the disease remain a key downside risk.

Asian markets traded flat yesterday. Japan's Nikkei 225 (JP225) decreased by 1.06%, Hong Kong's Hang Seng (HK50) ended the day up by 1.70%, and Australia's S&P/AS 200 (AU200) ended the day down by 0.16%.

The Chinese authorities are doing their best to put an end to the crisis in the country's huge real estate sector, which has hit the economy hard in the past year. Key measures include allowing banks to make payday loans to developers, supporting real estate sales by reducing down payments, lowering mortgage rates, and encouraging other financing channels such as bond issues and ensuring pre-sold homes are delivered to buyers. In essence, policymakers have told banks to do whatever they can to support the real estate sector. Shares of Chinese developers rose substantially on Monday, boosting the market as a whole.

Japan's GDP unexpectedly contracted in the third quarter due to soaring inflation and slowing global economic growth. This was the first quarterly decline in over a year. Official data showed that the gross domestic product fell by 1.2% year-over-year.

• S&P 500 (F) (US500) 3,957.25 −35.68 (−0.89%)
• Dow Jones (US30) 33,536.70 −211.16 (−0.63%)
• DAX (DE40) 14,313.30 +88.44 (+0.62%)
• FTSE 100 (UK100) 7,385.17 +67.13 (+0.92%)
• USD Index 106.86 +0.57 (+1.53%)
   

Important events for today:

• Japan GDP (q/q) at 01:50 (GMT+2);
• Australia RBA Monetary Policy Meeting Minutes at 02:30 (GMT+2);
• China Industrial Production (m/m) at 04:00 (GMT+2);
• China Retail Sales (m/m) at 04:00 (GMT+2);
• China Unemployment Rate (m/m) at 04:00 (GMT+2);
• Japan Industrial Production (m/m) at 06:30 (GMT+2);
• UK Average Earnings Index (m/m) at 09:00 (GMT+2);
• UK Claimant Count Change (m/m) at 09:00 (GMT+2);
• UK Unemployment Rate (m/m) at 09:00 (GMT+2);
• Eurozone French Consumer Price Index (m/m) at 09:45 (GMT+2);
• Eurozone Spanish Consumer Price Index (m/m) at 10:00 (GMT+2);
• Eurozone German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• Eurozone GDP (q/q) at 12:00 (GMT+2);
• US Empire State Manufacturing Index (m/m) at 15:30 (GMT+2);
• US Producer Price Index (m/m) at 15:30 (GMT+2);
• G20 Meetings (Day 1).

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