MARKET WRAPS

Stocks:

European equities edged up Thursday with oil majors lifted by higher crude prices and sentiment helped after the FOMC minutes confirmed the Federal Reserve will be raising interest rates but no more aggressively than it already had signaled.

Bill Adams, chief economist for Comerica Bank, said the Fed was "on track to raise interest rates to a level that is at least neutral and potentially restrictive to economic growth."

Comerica forecast two more half-percentage point rate hikes from the Fed, after which the bank expects the Fed probably will switch to quarter-percentage point hikes.

Stocks to Watch:

Galp's current valuation doesn't fully reflect a number of attractive factors in the investment case, including a high quality upstream portfolio and growing renewable business, said RBC Capital Markets.

The energy company should benefit from strong commodity prices and refining margins, while its transition to lower carbon emissions is expected to happen faster compared to peers given the company's size, according to RBC. Plus, it said conditions at Galp's Brazil operations are now easing following the Covid-19 hit, helping to build a stronger case for investors.

RBC has upgraded the stock to outperform from sector perform with a target price of EUR16.

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Haleon, the consumer-healthcare business which is about to be spun off from GlaxoSmithKine, is viewed as an attractive asset within the sector and that should ultimately be seen in its valuation, said Jefferies analysts.

This is reflected in the fact that other companies have been eyeing Haleon. For example, Bloomberg reported that Nestle had considered making a bid for the company together with Reckitt Benckiser around the time that Unilever made a similar move, said Jefferies.

Though GSK still hasn't commented on the facts, and remains committed to the July spinoff, these approaches underscore that Haleon is viewed as an attractive asset within the sector, the analysts said.

Economic Insight:

Consumer uncertainty in the eurozone has been on a rising trend since last summer, reflecting the impact of high inflation, said BNP Paribas chief economist William De Vijlder.

Following Russia's invasion of Ukraine, uncertainty jumped in March but hardly changed in April, he said. Uncertainty matters greatly for household and business decision making, and could trigger a wait-and-see attitude which could postpone spending and investment decisions, weighing on growth.

De Vijlder said it will be important to monitor the development of uncertainty in the coming months at consumer, business and country level. "In the absence of a decline, one should expect that the impact shows up in spending and activity data."

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Volatility in inventories and net exports has thrown near-term German GDP forecasts into disarray, said Pantheon Macroeconomics' chief eurozone economist Claus Vistesen. Vistesen assumes a big inventory drag through the rest of the year, partially offset by a rebound in net exports.

Pantheon is sticking to its forecast of 1.5% GDP growth in 2022, which includes a technical recession in the second half of the year. Vistesen sees GDP rising by between 0.5% and 0.6% on quarter in the second quarter, as pent-up demand in services will support growth, before buckling under rising inflation in the third and fourth quarters.

Pantheon forecasts GDP will post declines of 0.4% and 0.2% in the third and fourth quarters respectively.

U.S. Markets:

Stock futures wavered ahead of the opening bell, and tech stocks could come under some pressure following a softer-than-expected outlook from chip maker Nvidia and after software company Snowflake issued a forecast for the current quarter below analysts' expectations.

The yield on the benchmark 10-year Treasury note edged down to 2.727% from 2.746% on Wednesday, declining for a third consecutive day.

Investors are awaiting a second reading of gross domestic product in the first quarter and weekly jobless claims. The first GDP release showed a 1.4% contraction, shrinking for the first time since early in the pandemic.

"Economic data has come in weaker than expected lately, we do see this tightening in the economy. How severe the growth slowdown is what markets are thinking about now," said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management.

Forex:

The dollar should recover after recent falls as expectations for Fed interest rates are re-priced higher, said ING analysts.

Wednesday's minutes showed policy makers had nothing but confidence in the recovery and were "laser-focused on getting the policy rate to neutral as quickly as possible." Markets have reduced their pricing of Fed rate-rise expectations by 25-35 basis points since early May, but higher levels could easily be put back, supporting the dollar, ING said.

"We prefer to see the recent 3% DXY % dip as a bull market correction and favor a near-term recovery to the 103.30 area."

Other News:

Russia's central bank cut its key interest rate for a third time since early April as it sought to steady a strengthening ruble and support a faltering economy.

The Bank of Russia Thursday lowered its key interest rate to 11% from 14%. Following two rate cuts in April, that largely reverses a doubling of the key rate in the immediate aftermath of Russia's invasion of Ukraine and the Western sanctions that it provoked.

USD/RUB rose to 61.000 after the rate cut.

Read more here.

Energy:

Crude futures held modest gains in Europe, with the outlook remaining uncertain over a potential EU ban on Russian oil.

"The EU agreement is a distraction, given individual member states and vital corporate buyers in Europe are already phasing out purchases of Russian oil," said Stephen Innes, managing partner at SPI Asset Management.

He said the overall stock level is likely to fall because of the individual cuts.

Metals:

Gold prices were flat following the Fed minutes.

"Members' 'strong commitment and determination' to bring inflation back under control as well as their willingness to take monetary policy to a restrictive stance suggest the [FOMC] may fail to deliver a 'soft landing' for the U.S. economy," said Kristina Clifton, analyst at Commonwealth Bank of Australia.

Prices for base metals were lower, with recession worries and China's lockdowns continuing to hurt sentiment, according to analysts.

"Base metals prices remain in the doldrums," said SPI's Stephen Innes. He said the decline in prices since the start of March indicated "pessimism around the global economy and a retreat of inflation hedges."

DOW JONES NEWSPLUS

EMEA HEADLINES

Russia Central Bank Cuts Key Rate for Third Time on Stronger Ruble

Russia's central bank cut its key interest rate for a third time since early April as it sought to steady a strengthening ruble and support a faltering economy.

The Bank of Russia Thursday lowered its key interest rate to 11% from 14%. Following two rate cuts in April, that largely reverses a doubling of the key rate in the immediate aftermath of Russia's invasion of Ukraine and the Western sanctions that it provoked.

Aramco Approached Valvoline About Potential Takeover of One of Its Units

Saudi Aramco approached Valvoline Inc. about a potential takeover of its lubricants business, according to people familiar with the matter, as the state oil giant looks to diversify.

No deal is imminent, and there are no guarantees there will be one, the people said. Valvoline has a market value of around $6 billion after its shares closed up more than 12% Wednesday following The Wall Street Journal's report on the talks.

United Utilities FY 2022 Profit Falls as Inflation Pushes Up Finance Expenses

United Utilities Group PLC on Thursday reported a lower pretax profit for the year ended March 31, reflecting higher finance charges.

The provider of water and wastewater services in the North West of England made a pretax profit of 439.9 million pounds ($553.2 million) in fiscal 2022, down from GBP551.0 million a year earlier. This was as finance expenses jumped 75% to GBP187.8 million, reflecting the impact of higher inflation on UU's index-linked debt.

Johnson Matthey Sees FY 2023 At Lower Half of Range; FY 2022 Hurt by Impairments, Charges

Johnson Matthey PLC on Thursday said it expects fiscal 2023 underlying operating performance to be at the lower half of the market consensus range as it reported a 13% fall in fiscal 2022 pretax profit due to a large impairment and restructuring charge.

The U.K. sustainable-technologies company has reported a pretax profit from continuing operations for the year ended March 31 was 195 million pounds ($245.2 million) compared with GBP224 million for the same period a year earlier. The company booked impairment and restructuring charges of GBP440 million compared with GBP154 million.

Serco Group Upgrades 2022 Profit, Revenue Guidance on Strong 4-Month Performance

Serco Group PLC said Thursday that it is upgrading its guidance for 2022 as it had a stronger-than-expected performance for the first four months of the year, and noted that its full-year results will now approach levels achieved in 2021.

The U.K. outsourcing company said that it now expects to post a reported underlying trading profit of around 225 million pounds ($283 million), which represents a rise in guidance of GBP30 million. The company's underlying trading profit--its preferred metric, which excludes exceptional costs--stood at GBP228.9 million in 2021.

U.K. to Probe Chinese-Led Takeover of Chip Maker

LONDON-The U.K. government on Wednesday began a national-security probe into a Chinese-controlled company's purchase of a British computer-chip factory, a move that could lead it to unwind the deal almost a year after it was completed.

The scrutiny is the latest sign that countries are becoming increasingly protective of their semiconductor industries amid a global chip shortage.

Russia Bondholders Say Debt Default Could Already Be Here

Russia could already be in default on some of its foreign currency debts, according to bondholders that claim they are still owed a small interest payment that Moscow didn't send to them earlier this spring.

A change in U.S. sanctions on Wednesday is expected to cut off Russia's ability to stay current on its dollar-denominated sovereign debt, which it has managed to continue servicing since the invasion of Ukraine began. Some investors, though, allege that Moscow has defaulted already by failing to pay about $1.9 million in interest and they have submitted notices of the possible default to bond custodian Euroclear earlier this month, according to records viewed by The Wall Street Journal.

Ukraine War Threatens Transition to Cleaner Energy, Leaders Warn at Davos

DAVOS, Switzerland-The worst energy crisis in a half-century is disrupting the West's transition to cleaner sources of energy by providing new momentum to invest in fossil fuels, business and government leaders said at this week's World Economic Forum.

Europe's scramble to wean itself off Russian energy following the country's attack on Ukraine will lead to new short-term investments in coal, oil and natural gas, energy and government officials said.

Russia Weighs Easing Ukraine Grain Blockade in Return for Sanctions Relief

Russia is open to easing its blockade of Ukraine's ports along the Black Sea if sanctions on Moscow are lifted, a Russian official said Wednesday, a move that, if it went ahead, could increase grain exports and help relieve rising food inflation and shortages.

Andrey Rudenko, Russia's deputy foreign minister, said Moscow is willing to establish a humanitarian corridor that would provide safe passage for ships carrying food from the ports. In return, countries would have to lift sanctions on Russia.

U.K. Car Manufacturing Hurt by Continued Chip Shortages, Supply-Chain Issues

U.K. car manufacturing fell 11% in April, an industry body said Thursday, blaming a number of issues including continued chip shortages and the effect of Ukraine war on supply chains.

The Society of Motor Manufacturers and Traders said a total of 60,554 cars drove off production lines in April compared with 68,306 in April 2021. This takes the number of cars produced for the first four months of the year to 267,901 down from 374,864 for the same period in 2021.

U.S. Sanctions Russian Companies Accused of Helping Iran's Revolutionary Guard

WASHINGTON-The Biden administration accused the Russian government of helping Iran's blacklisted military unit sell hundreds of millions of dollars of oil around the globe, as Washington levied a barrage of sanctions against companies and individuals allegedly involved in the smuggling operation.

The action on Wednesday marks a double-barreled financial and diplomatic salvo against the U.S.'s top two foes, linking Russia's state oil company to the Islamic Revolutionary Guard Corps's Quds Force, the Iranian military unit designated a terrorist group by the U.S. and other Western nations.

Russia's Absence at Davos Marks Unraveling of Globalization

DAVOS, Switzerland-The country that dominated discussions at this year's annual meeting of the World Economic Forum isn't even here.

Organizers of the forum withheld invitations to Russians after President Vladimir Putinordered the invasion of Ukraine on Feb. 24, and the country's absence from the meeting in Davos is freighted with symbolism.

Iranian Officer Killed in Tehran Was Involved in Plot to Kill Israeli Diplomat, U.S. General

An Iranian Islamic Revolutionary Guard Corps officer shot and killed outside his Tehran home led the group's efforts to assassinate opponents of Iran around the world, including recent failed plots to kill an Israeli diplomat, an American general and a French intellectual, according to people familiar with the matter.

The officer, Col. Hassan Sayyad Khodaei, planned kidnappings and killings for an arm of the IRCG known as Quds Force Unit 840, the people said. They said he recruited agents to carry out operations globally, including in Colombia and Cyprus, mostly against Israeli targets but also aimed at people from other countries viewed as hostile by Iran.

GLOBAL NEWS

Fed Minutes Show Urgency for Raising Rates to Tame High Inflation

Federal Reserve officials thought they would need to raise interest rates by a half-percentage point at each of their next two meetings when they approved an increase at their gathering earlier this month.

Minutes from the Fed's May 3-4 meeting, released Wednesday, show that officials discussed the possibility that they would raise interest rates to levels high enough to slow economic growth deliberately as the central bank races to combat high inflation.

Bank of Korea Raises Benchmark Rate, Signals More Tightening

South Korea's central bank raised its benchmark interest rate Thursday and signaled it would tighten policy further as it keeps up its fight against high inflation.

The Bank of Korea raised its benchmark seven-day repurchase rate by 25 basis points to 1.75% after an increase of the same size at the previous meeting in April.

CBO Projects Inflation, Economic Growth to Cool This Year and Next

WASHINGTON-U. S. inflation and economic growth are forecast to cool later this year and in 2023, the Congressional Budget Office said Wednesday, reflecting an economy in a moment of transition.

The nonpartisan agency's budget and economic projections came as the Federal Reserve has begun raising interest rates in an effort to combat inflation, actions that some economists and market observers think are likely to bring an economic slowdown in the U.S.-and possibly a recession.

Iran Used Secret U.N. Records to Evade Nuclear Probes

Iran secured access to secret United Nations atomic agency reports almost two decades ago and circulated the documents among top officials who prepared cover stories and falsified a record to conceal suspected past work on nuclear weapons, according to Middle East intelligence officials and documents reviewed by The Wall Street Journal.

The International Atomic Energy Agency documents and accompanying Persian-language Iranian records reveal some of the tactics Tehran used with the agency, which is tasked with monitoring compliance with nuclear nonproliferation treaties and the later 2015 nuclear deal.

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(END) Dow Jones Newswires

May 26, 2022 05:39 ET (09:39 GMT)