MARKET WRAPS
Watch For:
ECB Financial Stability Review; Germany GfK survey, GDP detailed
breakdown; France Consumer Confidence Index; FOMC meeting minutes;
updates from Lanxess, Hapag Lloyd, Renault, Valeo, Bollore,
Legrand, Publicis, Safran, Severn Trent, Mediclinic, Marks &
Spencer, SSE, Intertek, M&G, Norwegian Air Shuttle, Tullow Oil,
X5 Retail
Opening Call:
European stock-index futures suggest markets should recover most
of Tuesday's losses when trading resumes later this morning and
despite another volatile session on Wall Street. In Asia, shares
were mostly higher, along with the dollar, Treasury yields and oil,
while gold wavered.
Equities:
European shares will likely rebound early Wednesday, as the
market volatility continues.
U.S. stock indexes ended mostly lower Tuesday and a selloff in
technology stocks deepened as concerns about economic growth and
rising interest rates continued to weigh on markets.
All three of the major indexes had fallen more deeply into the
red on Tuesday morning as downbeat reports about home sales and
corporate outlooks deepened investors' gloom. Stocks recovered
somewhat later in the day, but investors said that finding good
reasons to jump into the market remained an uphill battle as
negative signs about the economy's health mount.
"What's changed in the last few weeks is that the range of
concerns has broadened so dramatically," said Eric Leve, chief
investment officer at investment-management firm Bailard. "It was
inflation that was front and center for everyone for so long. Now,
it's far beyond that."
Read: Dow, S&P 500 Head for Worst Start to a Year Since
1970
Read: 'Markets are imploding' Because Fed Isn't Doing its Job,
Says Bill Ackman
Forex:
The dollar made some gains in a generally-cautious Asian session
as investors looked ahead to the FOMC's May meeting minutes.
MUFG Bank's London team thinks the minutes could deliver a
hawkish surprise if there are serious discussions for even more
aggressive rate increases to curb inflationary pressures and this
could push the USD Index back toward the middle of the Bollinger
band, currently around 102.76.
Navellier & Co. Chairman Louis Navellier said a strong
dollar is helping moderate inflation.
"It's widely viewed that inflation has peaked in America. This
is because energy and commodity companies are largely paid in
dollars since all commodities are priced in dollars. On the other
hand, inflation is still running amuck in countries with weak
currencies. Our Federal Reserve continues to raise rates and
strengthens the dollar versus Japan and Europe."
Bonds:
Treasury yields edged higher early Wednesday after an aggressive
rally in bonds, sparked by persistent concerns about U.S. growth,
pushed two- and 10-year yields to their lowest levels in more than
a month Tuesday.
Investors remain focused on inflation and the Fed's response
following some weak economic data.
"The flash PMIs for May suggest that activity slowed in most DMs
[developed markets] compared to April, and weaker growth in new
orders points to a further slowdown to come," said Capital
Economics.
Despite "positive developments on the supply front, firms' costs
rose at their fastest rate on record, suggesting that price
pressures will continue to weigh on economic activity."
Other News:
The Treasury Department moved to cut off Russia's ability to
make payments on its dollar-denominated sovereign debt, putting
Russia on a path toward defaulting on its foreign debts this summer
and deepening the country's economic isolation after its invasion
of Ukraine.
Read more here.
Energy:
Oil futures pushed higher in Asia after U.S. Energy Secretary
Jennifer Granholm was reported saying the Biden administration
hadn't ruled out a ban on petroleum exports to tame fuel
prices.
Focus remained on the timeline for an EU oil embargo on Russia
after a further setback following Hungary's declaration of a state
of emergency at home over the Ukraine war.
Hungarian Prime Minister Viktor Orban, who is the main hurdle to
an embargo, wrote to Charles Michel, who organizes EU summits,
warning him he won't discuss the oil embargo at a summit Monday and
Tuesday, where many EU diplomats had hoped the issue would be
settled after weeks of tense negotiations. Hungary has refused to
back the oil ban.
Read more here.
"The likelihood of an agreement on European sanctions on Russia
oil in the near term continues to decline," said ANZ.
European Commission President Ursula von der Leyen has
reportedly said she doesn't expect EU leaders to reach an agreement
on the matter next week, ANZ added.
Other News:
George Soros said Europe has a much stronger position than it
recognizes regarding its reliance on Russian gas, and Vladimir
Putin is "bluffing" about threats to shutdown gas to the region.
"Putin has been very clever but his case is much less strong than
he pretends," Soros said.
Russia's natural gas storage is full and failure to sell it to
Europe would require a shutdown of energy fields in Siberia.
Antiquated equipment means shutting down the fields would lead to
output falling by half when production is restarted.
"This is facing Putin in July," Soros said, adding that he
detailed his analysis in a letter to Italian Prime Minister Mario
Draghi Monday. "I sent it to Draghi because he is the most keen to
champion this."
---
The American Petroleum Institute reported inventories of crude
oil in the U.S. rose by 600,000 barrels in the latest week,
according to a source citing the data, while gasoline supplies
dropped by 4.2 million barrels.
The somewhat bearish results were released ahead of official
inventory data from the DOE Wednesday. Average forecasts in a WSJ
survey indicate the report will be a bit more bullish for crude
prices and show that inventories fell by 600,000 barrels and that
gasoline supplies decreased by 1.2 million barrels.
Metals:
Gold futures eased lower in Asian trade after they scored a
fourth straight daily gain Tuesday, as U.S. economic data pointed
to economic headwinds being produced by high inflation.
Expectations of higher yields and a stronger dollar, as the Fed
undertakes an aggressive tightening cycle, will likely mean the
market remains cautious, said ANZ.
"Gold should remain supported as inflationary pressures weigh
further, China's Covid situation remains a big unknown, and
corporate America continues to slash outlooks," said OANDA.
---
Aluminum prices weakened on concerns over Beijing's latest plans
for economic stimulus.
In the context of continued Covid-19 lockdowns in China, the
measures are lacking in terms of relief for the consumer, said TD
Securities strategists.
Going forward, base metals remain in a precarious position, as
global recession fears gain steam on top of an already weakening
demand profile from China's lockdowns, the strategists said.
---
Iron ore future were higher on the Dalian Commodity Exchange,
buoyed by steel-demand hopes.
China's daily crude steel output rate picked up noticeably last
month, indicating that infrastructure investment is having a
positive effect on steel demand, despite the country's
Covid-19-related lockdowns and restrictions, said CBA.
It noted that steel production is the main demand driver for
iron ore and coking coal.
TODAY'S TOP HEADLINES
Treasury to Block U.S. Investors From Receiving Russian Debt
Payments
WASHINGTON-The Treasury Department moved to cut off Russia's
ability to make payments on its dollar-denominated sovereign debt,
putting Russia on a path toward defaulting on its foreign debts
this summer and deepening the country's economic isolation after
its invasion of Ukraine.
Since imposing a raft of sanctions on Russia this year, the U.S.
had maintained an exemption allowing U.S. banks and investors to
process and receive payments on existing Russian bonds. The
Treasury said Tuesday it would allow the exemption to expire on
Wednesday.
Timeline for EU Oil Embargo on Russia Appears Further Set
Back
BRUSSELS-European Union officials on Tuesday suggested the bloc
might not decide whether to impose an oil embargo on Russia for
weeks, as Hungarian Prime Minister Viktor Orban, who is the main
hurdle, declared a state of emergency at home over the Ukraine
war.
Mr. Orban wrote to Charles Michel, who organizes EU summits,
warning him he won't discuss the oil embargo at a summit on Monday
and Tuesday, where many EU diplomats had hoped the issue would be
settled after weeks of tense negotiations. Hungary has refused to
back the oil ban.
Fed's Bostic Believes Rate Hikes Won't Cause Recession
Federal Reserve Bank of Atlanta President Raphael Bostic said
Tuesday he believes the central bank can raise rates to deal with
overly high inflation without sending the economy into
recession.
"The Federal Open Market Committee's overarching goal is to
return inflation to our target range without triggering significant
economic dislocation," Mr. Bostic said in an essay posted on the
Atlanta Fed's website. "While that will be a delicate undertaking,
I believe economic conditions-importantly including the labor
market-are strong enough to allow us to achieve that outcome," he
said.
RBNZ Raises Cash Rate, Forecasts Higher Peak
WELLINGTON, New Zealand-The Reserve Bank of New Zealand raised
its benchmark interest rate by 50 basis points for a second
consecutive meeting and forecast a higher peak for interest rates
as central banks globally try to stifle inflation.
The RBNZ's rate increase Wednesday lifted the cash rate to 2.0%
from 1.5% and followed an increase of the same size in April.
Swamped U.S. Seaports Are Bracing for an Earlier Peak Shipping
Season
America's seaports are stretched to their limit just as
retailers and manufacturers are set to begin their seasonal rush of
importing ahead of the fall and end-of-year holidays.
With shippers seeking to avoid the risk of delays, this year's
peak shipping season is expected to start weeks earlier than usual,
at the end of June, just as back-to-school and other seasonal
products flood in. That will create high stakes for importers and
for the White House as goods arrive against the backdrop of a
fragile economy, racing inflation and fresh memories of last year's
massive container-ship backups.
New York Fed Flags Scenarios Where Central Bank Could See
Losses
The Federal Reserve could reach a point where it no longer has
profits to hand over to the U.S. Treasury, should the central bank
raise interest rates beyond what markets expected as of this
spring, the New York Fed said in a report Tuesday.
The Fed could see paper losses on its bondholdings-and likely
did at the start of this year, the report said.
Snap's Gloomy Forecast Prompts Debate Over Trouble for Broader
Advertising Market
Snap Inc.'s surprise disclosure that its second-quarter revenue
and profit will be lower than expected sent its shares plunging and
sparked debate over whether the social-media company's woes signal
a broader slowdown in the online-ad market.
During a presentation at an investment conference, Snap Chief
Executive Evan Spiegel said "the macroeconomic environment has
definitely deteriorated further and faster than we expected." In a
filing, Snap said it would miss the low end of its target for 20%
to 25% year-over-year revenue growth, and would fail to reach its
target for adjusted operating earnings. Snap shares fell 43% on
Tuesday, closing at $12.79.
Write to paul.larkins@dowjones.com
Expected Major Events for Wednesday
06:00/GER: 1Q GDP - Detailed breakdown
06:00/SWE: Apr PPI
06:00/SWE: Apr Labour Force Survey
06:00/EU: Apr New Commercial Vehicle Registrations in Europe
statistics (EU27 + EFTA3)
06:00/NOR: Mar Labour force survey SA, incl unemployment
06:00/GER: Jun GfK consumer climate survey
06:00/DEN: 1Q Labour force survey
06:45/FRA: May Consumer confidence survey
07:00/SPN: Apr PPI
07:00/SWE: May Monthly Business Tendency Survey
07:00/SWE: May Consumer Tendency Survey
08:00/POL: Apr Unemployment
08:00/ICE: Apr Labour Force Survey
08:00/ICE: Apr PPI
09:00/MLT: Apr Registered Unemployed
09:00/LUX: Mar Trade
23:01/UK: CBI Service Sector Survey
23:01/UK: Apr UK monthly automotive manufacturing figures
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(END) Dow Jones Newswires
May 25, 2022 00:24 ET (04:24 GMT)
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