MARKET WRAPS
Stocks:
Most major stock benchmarks were higher Wednesday ahead of the
release of minutes from the Federal Reserve's most recent policy
meeting, which will be combed for details on the path of coming
interest-rate rises.
Heavyweight oil and mining stocks rose thanks to higher crude
prices but gains generally were tentative, with caution dominating
sentiment.
The Fed minutes, due after the European markets close, are
expected to provide more signals for investors about the outlooks
of policy makers on the economy and inflation.
"The market is pricing the slowdown that will eventually come
from the Fed tightening. It also forecasts that inflation in 2023
will slow to much more reasonable levels," said Antonio Cavarero,
head of investments at Generali Insurance Asset Management.
Stocks to Watch:
Siemens Gamesa's shares currently trade close to the price
offered by Siemens Energy for the planned buyout, said Deutsche
Bank, as it downgraded the stock to hold from buy.
The offer price of EUR18.05 a share represents a premium of
around 28% to the last unaffected closing share price on May 17 and
is seen as fair given the Spanish wind-turbine maker's various
profit warnings and struggles with supply-chain issues and balance
sheet, Deutsche Bank said.
Economic Insight:
The extremely high inflation expectations are a warning signal
for central bankers and investors this year, said Ewout van
Schaick, head of multi asset at NN Investment Partners.
Rising prices are the result of supply-chain tensions related to
Covid and the conflict in Ukraine, he said. While de-globalization
and a shortage of young workers in the developed world might
support future price increases, the consumption patterns of older
generations and low productivity underscore the potential for an
opposite scenario.
"It appears that we are at the beginning of a new business
cycle, but it is still too early to tell whether inflation will be
structurally high in the years to come."
U.S. Markets:
Stock futures were little changed ahead of the release of the
Fed minutes.
Shares have had a volatile start to the week, buffeted by
concerns about the Fed tightening monetary policy to combat the
bout of high inflation and how sharp of a slowdown in growth it
could cause. The S&P 500 is down nearly 18% from its last
record high in January and briefly fell into a bear market last
Friday before paring losses.
In premarket trading, Snap shares rose 0.6% after plunging 43%
Tuesday after the company issued a profit warning.
"Clearly there's been a revaluation of tech valuations. It's
impossible to know how far it goes, but some of these are quality
businesses and significantly cheaper than they have been trading
recently," said Fahad Kamal, chief investment officer at Kleinwort
Hambros.
"If you're a long-term investor, that's going to be something of
interest."
Nordstrom jumped more than 10% premarket after raising its
guidance for full-year revenue growth, while Toll Brothers rose
nearly 7% after reporting revenue and profit that beat analysts'
expectations.
Nvidia and Williams-Sonoma and Express are scheduled to report
earnings on Wednesday.
Forex:
The dollar edged higher in Europe after the DXY Dollar Index
fell to a four-week low Tuesday, and ING said the potential for
further falls is shrinking due to prospects of aggressive Fed rate
rises.
"The dollar has found some stabilization after a negative start
to the week and should--for now--continue to trade primarily in
line with swings in global risk sentiment," said ING. It said focus
centers on the Fed minutes for indications on the level of support
for multiple 50 basis-point rate rises.
Bonds:
The 15-year maturity sector of the German yield curve is cheap
relative to the 10-year and 30-year sectors, said JPMorgan, ahead
of an auction of a 1% May 2038 Bund Wednesday.
"Within the sector, the recently issued 15Y German benchmark is
currently trading with a discount of around 5bp relative to
surrounding high-coupon Bunds, quite excessive in our view."
JPMorgan's analysts have a medium-term high conviction
overweight stance on German duration but their conviction on
outright duration exposure remains low in the short term.
The short-term low conviction is due to heightened volatility,
and risks that bearish momentum continues on the back of the
frontloading of the tightening cycle in the eurozone and also
across developed market rates, the analysts said.
They prefer to play their medium-term strategic overweight
German duration view cross-market via long five-year Germany versus
U.S. peers.
---
Some investment-grade nonfinancial companies in North America
and Europe, Middle East, and Africa could be downgraded to junk
status if the economy slows and inflation remains elevated, said
Fitch.
It estimates that around 2.5% of such companies in these regions
could lose their investment-grade rating, which is however largely
consistent with the annual average since 1990.
Also, the amount of debt falling into junk territory would be
around 1.2% on a debt-weighted basis, well below the roughly 9% and
11% observed during the pandemic and the global financial crisis of
2008 respectively.
Energy:
Oil and especially gas prices were higher, as the prospect of
tighter supply from Russia continued to dominate sentiment in the
energy markets.
The possibility of European sanctions on Russian oil still
remains, although whether this occurs in the near term is likely to
be debated.
Meantime, Saudi Arabia's foreign minister on Tuesday indicated
it was unlikely to step up oil production in the near term.
Speaking at the World Economic Forum he said: "As far as we are
aware, there is no shortfall of oil."
Metals:
Metals were lower with demand for industrial metals still weak,
especially in Asia with a new wave of Covid-19 in Wuxi--one of
China's steel hubs--further dampening consumption, while the
bleaker economic outlook hit gold, as investors moved back into the
dollar and Treasurys.
DOW JONES NEWSPLUS
EMEA HEADLINES
German Consumer Sentiment Expected to Improve Slightly in June,
But at Low Level
Consumer confidence in Germany is set for a small rise in June,
although remaining depressed after falling to a historic low in the
previous month, as inflation and Russia's war in Ukraine weigh
heavily on households' sentiment.
Market research group GfK's forward-looking consumer sentiment
index forecasts confidence rising to minus 26.0 in June from minus
26.6 in May. This figure is in line with the forecast of economists
polled by The Wall Street Journal.
Marks & Spencer Swung to FY 2022 Profit But Warns on Hit
From Russia Exit, Cost-of-Living Crisis
Marks & Spencer Group PLC reported Wednesday a swing to
fiscal 2022 pretax profit but said profit growth will be harmed
this year by its Russia exit and rising cost pressures on
consumers.
The British retailer posted a pretax profit of 391.7 million
pounds ($490.9 million) for the year ended April 2, compared with a
loss of GBP201.2 million for the same period a year earlier.
SSE Raises Medium-Term Earnings Growth Guidance; Shares Jump
Shares in SSE PLC climbed Wednesday in early trading after it
raised earnings growth guidance for the five years to March 2026,
reported higher profits for fiscal 2022 and said that they will
grow further this year.
The U.K. energy group now expects to deliver an adjusted
earnings per share compound annual growth rate of between 7% and
10% in that five-year period, up from previous forecasts of 5%-7%.
SSE said that this is based on its strong performance in fiscal
2022, higher inflation forecasts, higher and volatile energy
commodity prices and increased value creation potential for its
thermal, hydro and gas storage assets.
Taylor Wimpey Says 2022 Performance Remains In Line; Confirms
Financial Targets
Taylor Wimpey PLC said Wednesday that its performance for 2022
remains in line and that it is confirming its financial targets for
the year.
The U.K. home builder said it continues to target an operating
profit margin of 21%-22% and a return on net operating assets of
30%.
Sodexo Shares Fall After Turning Away From Investor for Benefits
Business
Shares in Sodexo SA fell on Wednesday after it said it wouldn't
open up the capital of its benefits business to an external
investor.
At 0730 GMT, shares were down 4.2% at EUR68.76.
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.
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.
Stellantis, Samsung SDI Plan New EV Battery Plant in Indiana
Auto maker Stellantis NV and Samsung SDI Co. Ltd. said Tuesday
that they would build a new battery plant in Indiana to support the
Jeep and Ram manufacturer's electric-vehicle production plans.
The $2.5 billion plant is expected to break ground later this
year and open in the first quarter of 2025, they said.
Oatly Lines Up a Successor to CEO Toni Petersson
Oatly Group AB is lining up a successor to Toni Petersson, the
chief executive who helped turn its oat milk into a global
phenomenon and took the company public last year, according to
people familiar with the matter.
Last month, the Swedish company said it had hired as president
Jean-Christophe Flatin, a food-industry veteran and former senior
executive at candy giant Mars Inc. Mr. Flatin is seen as a likely
eventual replacement for Mr. Petersson, the people said, adding
that no change is imminent.
GLOBAL NEWS
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.
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.
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.
Tech Stocks Continue to Fall After Snap's Profit Warning
Technology stocks fell Tuesday, with investors ditching shares
of companies that rallied during the pandemic.
Social-media company Snap Inc.'s shares lost $9.68, or 43%, to
$12.79, its largest percentage decline on record. The company
issued a profit warning Monday and said it planned to slow hiring
and spending. The stock price has tumbled 85% from its September
2021 all-time high.
North Korea Fires Three Missiles After Biden Ends Asia Trip
TOKYO-North Korea fired a suspected intercontinental ballistic
missile early Wednesday that flew only briefly before landing in
the sea east of the Korean Peninsula, South Korea's military
said.
The missile was one of three fired by North Korea hours after
President Biden flew home from Asia following talks with the
leaders of Japan and South Korea on deterring Pyongyang's missile
and nuclear threat.
Gov. Brian Kemp Defeats Trump-Backed David Perdue in Georgia
Primary
ATLANTA-Incumbent Brian Kemp won Georgia's Republican primary
for governor by a wide margin Tuesday, easily dispatching a
challenge by former Sen. David Perdue.
Texas Shooter Kills at Least 19 Children and Two Adults in
Elementary School
UVALDE, Texas-An 18-year old man opened fire in an elementary
school here Tuesday, killing at least 19 students and two adults,
including a teacher, before he was killed by law enforcement,
according to the Texas Department of Public Safety.
Police identified the gunman as Salvador Ramos, a resident of
Uvalde, where the school is located. Uvalde, a city of around
16,000, is about 80 miles west of San Antonio.
Pfizer to Sell Vaccines, Drugs at Low Prices to Poorer
Countries
Pfizer Inc. will sell nearly two dozen of its patent-protected
drugs and vaccines at not-for-profit prices to some of the world's
poorest countries.
Under the program, Pfizer will begin shipping the medicines
first to Ghana, Malawi, Rwanda, Senegal and Uganda before the end
of this year, Chief Executive Albert Bourla said in an
interview.
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(END) Dow Jones Newswires
May 25, 2022 05:31 ET (09:31 GMT)
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