Trade Now

Capital at risk Advertisement
Name Symbol Market Type
FTSE 100 Index FTSE:UKX FTSE Indices Index
  Price Change % Change Price High Price Low Price Open Price Traded Last Trade
  14.95 0.22% 6,908.76 6,923.75 6,797.37 6,893.81 0 16:35:30

EMEA Morning Briefing: Mood Still Grim as Powell Reinforces Need to Tame Inflation

23/06/2022 5:45am

Dow Jones News


FTSE 100
Index Chart


From Apr 2022 to Oct 2022

Click Here for more FTSE 100 Charts.

MARKET WRAPS

Watch For:

Eurozone, Germany, France, UK Flash PMI; ECB Economic Bulletin; France Business Sentiment Index; UK Public Sector Finances, CBI Distributive Trades Survey; EU New Commercial Vehicle Registrations; updates from Wacker Chemie, Siemens, Bunzl, Serco, Fresnillo

Opening Call:

Europe faces another negative opening session as investors continue to consider the likelihood of a recession following Powell's latest comments. In Asia, shares were broadly higher; the dollar, Treasury yields and gold edged lower; while oil and base metals extended their recent slide.

Equities:

European shares face further losses on Thursday after Jerome Powell acknowledged that the Federal Reserve's rate-raising campaign could cause an economic downturn.

On Wall Street, stocks couldn't hold on to gains, as investors weighed Powell's renewed vow on inflation and even after he told lawmakers that a slower pace of interest rate hikes is possible.

Whatever positives came out of Powell's testimony, "it likely won't bring enough buyers into the market to push us significantly higher," wrote Shawn Cruz, head trading strategist at TD Ameritrade.

Across his comments Wednesday, Powell said repeatedly the Fed is not trying to cause a recession but one can't be ruled out as officials confront a very challenging landscape. He noted "I don't see the likelihood of a recession as particularly elevated right now," while adding "you should know that no one is very good at forecasting recession very far out."

Meanwhile, the market consensus remains around another steep rate hike next month.

Powell's "continued emphasis on the need for 'compelling' evidence that inflation is falling suggests officials will repeat last week's larger 75bp hike at the next FOMC meeting," said Capital Economics' Michael Pearce.

Read: Fed's Harker Says Some Economic Contraction Possible

Stocks to Watch:

Smurfit Kappa's earnings strength could boost its shares, said Jefferies, upgrading its recommendation on the paper and packaging company to buy from hold.

While investors are wary about how macro uncertainty might affect short-term demand and pricing, Jefferies said Smurfit has attractions for longer-term investors looking for exposure to companies aiming to benefit from e-commerce and increased environmental sustainability.

"We expect Smurfit to demonstrate earnings resilience this cycle, justifying a re-rating versus history."

Still, Jefferies cut its price target on Smurfit's London-listed stock to 3700p from 3900p, citing wider macro-economic and geopolitical uncertainty.

Market Insight:

Russia's attack on at least two grain storage facilities in Ukraine has traders doubting that Black Sea ports will reopen for shipments anytime soon.

"Bunge and Viterra report extensive damage to terminals in Mykolayiv along the Black Sea Coast, which provides further evidence that Ukrainian grain will not be shipped via the Black Sea indefinitely," said AgResource.

"War in Ukraine rages on, particularly in the east, and odds remain near zero that any humanitarian export corridor will be created this summer."

In an interview with the WSJ this week, MHP SE executive chairman Dr. John Rich said that depleted grain storage capacity in Ukraine may further hamper crop growth there next year.

Forex:

The dollar remained under pressure in Asia in further reaction to Powell's comments about fighting inflation.

Evercore ISI analysts said Powell was a bit less hawkish than expected.

"There is no new language here and the most powerful phrase that he has used recently, including in the Monetary Policy Report submitted to Congress--the Fed's "unconditional" commitment to restoring price stability--was left out of the prepared remarks."

Capital Economics said falling inflation won't stop central banks tightening the screws. It thinks inflation still seems set to fall, albeit from a higher level than envisaged before the war in Ukraine.

"The global economy is on course for weaker growth, high inflation, and tighter monetary conditions. The world's largest economies will all suffer for different reasons...higher interest rates will weigh on interest-rate-sensitive spending in the U.S."

CapEcon expects higher bond yields, a strong dollar and some further drop in equities, with the "worsening risk environment as well as aggressive tightening by the Fed to result in further dollar appreciation."

Bonds:

Treasurys steadied in Asia after the yield on the 10-year note saw its biggest fall in 7 months on Wednesday following Powell's testimony.

"Bond market volatility remains intense, with inflation worries and growth fears driving confusion among investors," said Mark Hackett, chief of investment research at Nationwide.

"There is similar confusion in inflation expectations, with the 5-year break-even inflation rate dropping from 3.6% in March to 2.8% currently, as growth concerns begin to outweigh inflation."

Energy:

Oil prices continued to slide in Asia, last down almost 3%, on heightened demand worries as recession expectations rise.

While commodity indexes have been "super weak for a while," oil has been a bit of an outlier on the lower supply and higher demand outlook, said SPI Asset Management's Stephen Innes.

"But I think it's a fallacy to think oil could stay this elevated given the amount of central bank-induced slowdown likely to be seen later in the year."

The Fed and other inflation-fighting central banks want lower commodities, which is what they are explicitly trying to engineer, he added.

Other News:

The API reported inventories of crude oil in the U.S. unexpectedly rose by 5.6 million barrels in the latest week, a source citing the data said, while gasoline supplies rose by 1.2 million.

The results, bearish for crude, were released ahead of official inventory data from the EIA originally set for release Thursday, but delayed indefinitely due to "systems" problems at the EIA.

Average forecasts in a WSJ survey indicate the EIA report will show crude inventories fell by 1.2 million barrels from the previous week and that gasoline supplies decreased by 800,000 barrels.

Metals:

Gold futures were lower for a fourth straight session, although safe haven buying as recession fears grow may offer bullion some support.

"The threat of an economic downturn is likely to provide a floor to gold prices, despite central banks aggressively hiking rates to tame inflation," said ANZ analysts.

OANDA puts resistance at $1860 and support at $1805, with senior market analyst Jeffrey Halley saying: "I would need to see a couple of daily closes above $1900 to get excited about a reinvigorated rally."

---

Copper prices continued to fall after hitting a 16-month low on Wednesday, unable to escape the broader risk-off move across markets. The three-month contract fell 2% in Asia, taking one-month losses to 10%.

However, ING's Warren Patterson said that "while the macro picture is a concern for metals, micro developments for some metals continue to point towards a tight market," which could limit losses.

---

Chinese iron ore futures dropped almost 5% as the country's steel production slows and inventories build.

"The lack of growth in economic activity has seen steel demand suffer. The market has lost confidence that Beijing will be able to support the economy," said ANZ analysts.

Also, several blast furnaces globally have begun planned maintenance, causing molten iron ore production, and hence iron ore demand, to decline, said ING's Patterson.

   
 
 

TODAY'S TOP HEADLINES

Fed Chair Jerome Powell Says Higher Interest Rates Could Cause a Recession

Federal Reserve Chairman Jerome Powell said the central bank's battle against inflation could lead it to raise interest rates high enough to cause a recession, offering his most explicit warning this year.

"It's not our intended outcome at all, but it's certainly a possibility, " Mr. Powell said Wednesday during the first of two days of congressional hearings. "We are not trying to provoke and do not think we will need to provoke a recession, but we do think it's absolutely essential" to bring down inflation, which is running at a 40-year high.

   
 
 

Congress Unlikely to Heed Biden's Call for Three-Month Suspension of Gas Tax

President Biden called for a three-month suspension of federal gasoline and diesel taxes-a move that is unlikely to have the support needed to pass in Congress and one economists and business leaders say would do little to address record-high gas prices.

"I fully understand that the gas tax holiday alone is not going to fix the problem, but it will provide families some immediate relief," Mr. Biden said at the White House on Wednesday. "Just a little bit of breathing room."

   
 
 

China Approves Plan to Develop Fintech Sector Regulations

Chinese President Xi Jinping approved a plan to standardize and develop regulations for the payments and financial technology sector in a high-level meeting, signaling that a regulatory crackdown on the sector might be easing.

The core function of fintech platform companies should serve the real economy and authorities will enhance the supervision of payment firms and their financial activities, according to a Wednesday meeting of the Central Commission for Comprehensively Deepening Reform chaired by Mr. Xi, state media Xinhua reported.

   
 
 

Crypto Broker Voyager Digital Says Three Arrows Capital Hasn't Repaid $666 Million in Loans

Crypto broker Voyager Digital Ltd. said it may issue a notice of default to Three Arrows Capital Ltd. if the crypto hedge fund fails to make a loan repayment by June 27.

Voyager Digital said it lent 15,250 bitcoin and $350 million in USD Coin to Three Arrows Capital. The company initially asked for a repayment of $25 million USD Coin by June 24 and then asked for the entire balance to be paid by June 27. These loans amount to $666 million based on bitcoin's current price. Neither of these loans has been repaid, it said.

   
 
 

Russia Hits Grain Terminals in Latest Attack on Ukraine's Food Infrastructure

   
 
 

Rolls-Royce Offers $2,500 Payment to Workers as Inflation Bites

LONDON-Rolls-Royce Holdings PLC is offering U.K. staff a one-time payment of GBP2,000, equivalent to about $2,450, hoping the bonus will help ease pressure from union officials and employees over rising inflation while keeping a lid on the jet-engine maker's costs ahead of an uncertain economic future.

The move is one of many approaches companies are taking to address soaring inflation that has unions and workers in many parts of the world demanding higher pay. For months, private companies have been boosting salaries and wages and offering signing or retention bonuses, amid exploding post-lockdown demand and super-tight labor markets. More recently, surging prices for items from food to fuel have weighed on workers' buying power, pressuring employers to boost pay to make up the shortfall.

   
 
 

Farmers Stick With Bayer's Roundup, Undeterred by Supreme Court Decision

The U.S. Supreme Court this week denied an effort by Bayer AG to stem thousands of lawsuits alleging its Roundup weedkiller caused cancer among landscapers and residential gardeners. On Alan Meadows's Tennessee farm, it was business as usual.

As the top U.S. court declined Tuesday to hear Bayer's appeal of a 2018 jury verdict linking the company's herbicide to non-Hodgkin lymphoma in a California plaintiff, Mr. Meadows said he was spraying the chemical on his own 4,000-acre farm, which he said he has done since the 1990s.

   
 
 

U.K. Regulator Fines JLT Specialty $9.7 Million for Bribery

The U.K.'s Financial Conduct Authority said Wednesday that it fined insurance broker JLT Specialty Ltd. about GBP7.9 million, equivalent to about $9.7 million, for alleged financial crimes including bribery.

U.K.-based JLT Specialty is now part of New York-based professional-services firm Marsh & McLennan Cos., which acquired its parent company, Jardine Lloyd Thompson Group PLC, in 2019.

   
 
 

U.S. Gains in Push for Exception to EU Sanctions on Russian Oil

A U.S. push to pare back one of the European Union's sanctions on Russian oil has tentatively started to gain traction within the 27-member bloc, with officials weighing whether to allow insurers to cover shipments of Russian oil if the price the oil will sell for falls under a cap.

After weeks of infighting, the EU in early June approved a ban on insuring shipments of Russian oil alongside a ban on imports of Russian oil that is set to go into effect this later year. Because many shipments of Russian oil are insured in the EU and U.K., Treasury Secretary Janet Yellen has repeatedly said she is concerned that the EU's plans could take Russian oil off the global market and further drive up prices.

   
 
 

France's Emmanuel Macron Calls for Compromise After Losing Majority in Parliament

PARIS-French President Emmanuel Macron said Wednesday he was ready to work with other parties to form a new coalition, after losing his majority in the French Parliament in elections this week.

The French leader said he was open to building an alliance with other political parties to form a new parliamentary majority. His party could also strike agreements with other political parties on individual bills.

   
 
 

Polio Virus Found in London Sewage Puts U.K. on High Alert

Polio has been detected in London's wastewater system, U.K. health authorities said, putting clinics on high alert for an infectious disease that hasn't been recorded in Britain for nearly four decades.

The U.K. Health Security Agency raised the alarm on Wednesday after it found several closely related polioviruses in sewage samples taken from a treatment facility in east London between February and May. That pattern of detection suggests that a form of the virus has been spreading locally, the agency said.

   
 
 

European Parliament Backs Broader Carbon Border Tax

The European Parliament approved legislation to tax imports based on the greenhouse gases emitted to make them, a plan that is sending shudders through the global trading system.

The legislation backed by the parliament on Wednesday broadens a previous proposal for the tariff to include some chemical makers. It also sets a faster timeline for implementation than the earlier proposal, which was drafted by the European Commission, the European Union's executive arm.

   
 
 

Write to paul.larkins@dowjones.com

   
 
 

Expected Major Events for Thursday

06:00/UK: May Public sector finances

06:00/NOR: Apr Labour force survey SA, incl unemployment

06:00/EU: May New Commercial Vehicle Registrations in Europe statistics (EU27 + EFTA3)

06:00/SWE: May PPI

06:45/FRA: Jun Monthly business survey (goods-producing industries)

07:00/HUN: May Employment & unemployment

07:15/FRA: Jun France Flash PMI

07:30/GER: Jun Germany Flash PMI

08:00/NOR: Norges Bank monetary policy decision and presentation of Monetary Policy Report

08:00/EU: Jun Eurozone Flash PMI

08:00/ICE: May Labour Force Survey

08:30/UK: Jun Flash UK PMI

10:00/UK: Jun CBI Distributive Trades Survey

11:00/TUR: Turkish interest rate decision

12:00/POL: May Broad money M3

14:00/DEN: May Central Government Finance & Debt

23:01/UK: Jun UK Consumer Confidence Survey

All times in GMT. Powered by Kantar Media and Dow Jones.

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

 

(END) Dow Jones Newswires

June 23, 2022 00:30 ET (04:30 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.

1 Year FTSE 100 Chart

1 Year FTSE 100 Chart

1 Month FTSE 100 Chart

1 Month FTSE 100 Chart
ADVFN Advertorial
Your Recent History
FTSE
UKX
FTSE 100
Register now to watch these stocks streaming on the ADVFN Monitor.

Monitor lets you view up to 110 of your favourite stocks at once and is completely free to use.

Log in to ADVFN
Register Now

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V:gb D:20221004 00:53:34