European stocks made a positive start to the week despite
escalating tensions in Ukraine.
However, rising inflation remains the key concern. Central banks
have been raising interest rates to counter inflation, and
investors are trying to gauge if the moves could lead economies
Factories around the world are reporting weakening demand for
products. The development suggests that fervent demand for consumer
goods during the pandemic boom could turn into a bust as surging
prices and higher rates erode spending power.
Volvo Car said car sales fell 26.9% on year in June as Covid-19
lockdowns in China caused component shortages, which primarily hit
production of its fully electric and plug-in hybrid cars.
The rise in European equities follows mixed trading in Asia
overnight while the U.S. stock market is closed for the Fourth of
July holiday, which may reduce trading volumes.
Stocks to Watch:
Sika has underperformed the market recently, with the stock
dropping more than 40% in the year to date, but there is now an
attractive entry point for investors, said Baader Helvea.
The building-products company's shares have been hampered by a
correction of growth stocks and the fear of a worsening
construction environment, which makes up around 80% of Sika's end
However, the issues with its construction exposure is
overestimated and Sika's high exposure to the refurbishment and
infrastructure business is underestimated, they said. Baader sees
potential full-year consensus upgrades, raising its rating on the
stock to buy from add.
Eurozone inflation came in higher than expected in July, but the
European Central Bank is likely to go for an interest-rate increase
of 25 basis points as previously guided, Pantheon Macroeconomics
There has been a fall in market expectations of rate increases,
relieving the pressures on the central bank, and there is the
chance that the ECB tightens policy just as the region's economy
falls into a recession, they said.
"We think [the ECB] will stick to the script and do 25 basis
points. We still see a 50 basis-point hike in September, followed
by three 25 basis-point rate hikes in October, December and
February," Pantheon said.
In the construction of the ECB's planned anti-fragmentation
tool, the market will be looking for "as much as needed" or
"unlimited" commitments from the ECB, Barclays' said.
Such a pledge was one of the key strengths of the ECB's Outright
Monetary Transactions program, and the lack of such a commitment a
weakness of the Securities Markets Programme during the eurozone
debt crisis from 2010 to 2012. .
"We think anything short of an as-much-as-needed pledge is
likely to be met with a negative market reaction," Aksu said.
U.S. stock futures retreated to start the week, while global
indexes were mixed, as investors assessed downbeat signals about
the health of the global economy.
The pullback in futures suggested the U.S. stock market, which
is closed Monday for the Fourth of July holiday, could come under
renewed pressure Tuesday.
The S&P 500 last week closed out its worst first half since
The dollar could rise this week, supported by safe-haven flows
and potentially strong U.S. jobs data, Unicredit Research said.
Risk aversion should continue over the coming days, reinforcing the
dollar's safe-haven role, Unicredit said.
Data on Friday could show that U.S. nonfarm payrolls rose
300,000 in June, moderating from May's 390,000 increase but still a
robust pace, which should keep the dollar firm.
"It will thus continue to be crucial for EUR/USD to remain close
to 1.04 to avoid a retest of the year-to-date low of 1.0348 and
The euro could fall below parity versus the dollar in the event
of a European gas supply crisis due to the fallout from the
Russia-Ukraine conflict, Commerzbank said.
A gas supply crisis would be a Europe-specific problem,
If things turn out as badly as that, it would only affect
Europe, would only affect the European Central Bank's monetary
policy and would therefore constitute a reason for idiosyncratic
Sterling hasn't benefited much from the Bank of England raising
interest rates due to the poor U.K. economic growth outlook,
This was demonstrated in May when the BOE's 25 basis-point rate
rise failed to prevent the pound falling as the market instead
focused on the central bank's downward revision to growth, Rabobank
"There is a risk that aggressive rate rises now could accentuate
downside growth risks in the medium-term and that this could
further worry GBP investors." .
Rates markets could take a breather on Monday with the U.S.
holiday and a light domestic data calendar, said Commerzbank.
"Recession trading continues to rule but the knock-on effects
into Fed/ECB expectations are supporting risk assets," he said in a
Eurozone 10-year government bonds were lower, but Commerzbank
said recession trading continued to rule.
The eurozone's 11 largest government bond issuers have completed
around 58% of their annual needs year to date, according to
calculations by Landesbank Baden-Wuerttemberg, which forecast 2022
full-year bond issuance of EUR1.095 trillion.
This compares with a 59% funding progress at the same point of
2021, he said in a note. LBBW's analysts currently regard the
forecast risks as almost balanced, he said.
"While the unexpectedly significant slowdown of primary market
activity in Q2 tends to suggest downside risks, the consequences of
the Ukraine war continue to result in upside risks."
LBBW said capital-market issuance of eurozone states in the
first half of 2022 fell 10% compared to the first half of 2021 to
EUR636 billion. This volume doesn't include bond issuance by
smaller issuers such as Slovenia, Slovakia, Cyprus, Malta,
Luxembourg or the Baltic states.
Debt-management offices might have responded to the massive
increase in bond yields by deliberately making less use of their
usual strategy of frontloading issuance, LBBW said, offering a
possible explanation for the lower issuance volume.
Another reason might be that government revenue might have
developed better than expected to date despite the growing economic
risks due to the Ukraine war and thus reduced the overall financing
Rates markets could take a breather on Monday amid the U.S.
holiday and a light domestic data calendar, Commerzbank's rates
strategist Rainer Guntermann said.
"Recession trading continues to rule but the knock-on effects
into Fed/ECB expectations are supporting risk assets," he said in a
Eurozone 10-year government bonds fall after opening, causing
yields to rise, but Guntermann said that recession trading
continues to rule.
Oil futures were flat ias concerns about slowing fuel demand
growth counterbalanced global supply issues.
"The domestic refining sector [in China] is coming under growing
pressure from concerns about slowing fuel demand growth and a
deepening fuel glut at home," Fitch said, adding that refiners may
be looking to export excess capacity.
That said, global supply issues remain a concern according to
"OPEC production looks constrained amid output losses in Libya
and Ecuador. Demand is strong despite high prices. Oil inventories
should continue to diminish as European sanctions bite."
Metals markets opened on a mixed tone, with economic growth
worries hitting copper, while lifting gold. The copper-gold ratio
has broken down, according to SPI Asset Management.
"The market has begun to worry more about economic growth than
just liquidity withdrawal and inflation,. For the U.S., an acute
decline in the ISM [PMI Index] new orders relative to inventories
is the quintessential macro signal of weakness across the
DOW JONES NEWSPLUS
Germany Posts Trade Deficit For May as Costs of Imports Jump
Germany swung to a trade deficit in May as exports fell and
imports grew amid high energy costs.
Germany's trade deficit--the balance of exports and imports of
goods--stood at 1 billion euros ($1.04 billion) in calendar and
seasonally adjusted terms in May after recording a EUR3.1 billion
surplus the previous month, data from German statistics office
Destatis showed Monday.
Banks Get Burned by Risky Debt, Imperiling Buyout Activity
Investment banks are facing big losses on leveraged buyouts they
agreed to finance before markets soured, further chilling the
outlook for deal activity.
Bank of America Corp., Credit Suisse Group AG and Goldman Sachs
Group Inc. are among the banks that could collectively lose
billions of dollars on buyout loans they agreed to provide when
demand for the debt was running high.
Russia Claims Control of Luhansk as Ukrainian Forces Retreat
Russian forces have captured Lysychansk, the last major
Ukrainian stronghold in Luhansk, effectively placing under Russian
control the eastern region at the center of the war in recent
Russia's defense minister, Sergei Shoigu, told President
Vladimir Putin on Sunday that Russian forces, together with militia
from the self-proclaimed Luhansk People's Republic, had established
full control over Luhansk, Russia's Ministry of Defense
Strife Rises in Tunisia as Democracy Erodes, Economic Hardship
TUNIS, Tunisia-A new constitution that would consolidate the
power of Tunisian President Kais Saied is generating dissent among
Tunisians who are angry at what they describe as his increasingly
autocratic rule and who are grappling with rising food prices and
On Thursday, Mr. Saied presented a draft version of a new
constitution that would grant him the ability to extend his tenure
beyond the current limit of two presidential terms. It would also
increase the powers of the presidency and curtail those of the
parliament, which, under the existing constitution, check the
Several People Killed in Shooting at Copenhagen Mall
Several people were killed in a shooting at a Copenhagen
shopping mall on Sunday evening, according to local police, who
said that one person had been arrested.
Police said three people were killed and three others were
critically wounded, the Associated Press reported.
Israel Shoots Down Hezbollah Drones Headed for Mediterranean Gas
TEL AVIV-Israel on Saturday shot down three drones that it said
Iran-allied militant group Hezbollah launched toward an Israeli gas
rig located in a disputed drilling area of the Mediterranean Sea,
marking an escalation between two of the Middle East's fiercest
Israeli Defense Minister Benny Gantz said Hezbollah, based in
Lebanon, was trying to stymie U.S. efforts to broker a deal for
maritime borders between Israel and Lebanon. At the heart of those
talks are potentially lucrative new gas fields that Israel is
moving to develop over the objections of Lebanon.
China's Slowdown Could Tamp Down Global Inflation
China's slowdown may have a silver lining for the rest of the
world: weaker inflation.
Growth in the world's second-largest economy has tumbled this
year as Covid-19 outbreaks triggered mass lockdowns and business
closures. The government has announced a range of stimulus
policies, but many economists say Beijing's 2022 growth target of
around 5.5% is unlikely to be achieved as long as the threat of new
lockdowns hangs over the economy.
Bond ETFs Attract New Investors With Narrower Offerings
This wouldn't seem to be the best of times for exchange-traded
funds that focus on fixed income. A resurgence of inflation not
seen in 40 years has put upward pressure on interest rates, which,
in turn, has sent prices of bonds and bond funds tumbling.
Yet new investment in fixed-income ETFs continues apace.
Crypto's Domino Effect Is Widening, Threatening More Pain
Turmoil in the digital-assets ecosystem has grown in recent
weeks, with losses in cryptocurrencies blowing holes in balance
sheets and pushing firms near bankruptcy.
After a pair of cryptocurrencies crashed, wiping out billions of
dollars in value in May, a British Virgin Islands court this past
week ordered a hedge fund that had survived several crypto
downturns to liquidate. Another platform that counts the hedge fund
as an investor capped withdrawals while evaluating how the hedge
fund's woes would affect its liquidity.
Markets Had a Terrible First Half of 2022. It Can Get Worse.
We're halfway through the year, but markets are beginning to
fear we're not even halfway through the bad news 2022 has in
The first six months were full of surprises: Inflation. The
biggest selloff in bonds in four decades. A plunge in tech stocks
rarely matched in history. And the implosion of crypto.
Americans Have Had It With Inflation
James Duffy used to frequent the coffee shop on weekends to
enjoy an Americano and read a book. Then, rising inflation started
Mr. Duffy, 25 years old, began cutting back on coffee outings
earlier this year. Now, he brews a big pot of coffee at home, part
of a broader attempt to save money as prices rise for gas and
groceries. The Greenwich, Conn., resident said he is becoming more
of a homebody, limiting his outings to walks and get-togethers with
Biden Faces Fresh Domestic Challenges After Europe Summits
President Biden returned from Europe with a deal to expand the
NATO alliance and plans for the biggest U.S. military footprint in
the continent since the Cold War. But awaiting him back home was a
host of domestic challenges, including intraparty frustration with
his response to the Supreme Court's ruling overturning abortion
rights, continuing economic worries and questions about the fate of
his legislative agenda.
With some fellow Democrats calling for him to be more forceful
on abortion, Mr. Biden endorsed making an exception to filibuster
rules to pass legislation codifying Roe v. Wade into law, as he
wrapped up his trip. And on his first day back, he met virtually
with Democratic governors, some of whom continued to push Mr. Biden
to make more use of federal resources to protect access to
Jeff Bezos Criticizes Biden's Call for Gas Stations to Cut
Amazon.com Inc. founder Jeff Bezos criticized President Biden
for pressing gas-station companies to immediately lower their
prices at the pump, accusing the president of "misdirection" or "a
deep misunderstanding" of market forces that have driven up
Mr. Biden wrote in a tweet on Saturday: "My message to the
companies running gas stations and setting prices at the pump is
simple: this is a time of war and global peril."
More Than Two Dozen Sailors Missing After Ship Breaks in Half
During Typhoon off Hong Kong
Authorities in Hong Kong said they are conducting a search and
rescue operation for more than two dozen seamen in the South China
Sea after a ship broke in half during a typhoon.
The engineering vessel suffered heavy damage after being caught
near the center of Typhoon Chaba, around 186 miles southwest of the
city, the Hong Kong Government Flying Service said in a
social-media post Saturday.
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(END) Dow Jones Newswires
July 04, 2022 05:09 ET (09:09 GMT)
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