MARKET WRAPS

Stocks:

European equities extended their advance Monday as sentiment improved somewhat after the S&P 500 managed to avoid closing in a bear market.

Heavyweight mining and oil stocks were among the main risers as crude futures and metals prices forged early gains.

Comments from Joe Biden that he was considering reducing tariffs on China also lifted market sentiment. The tariffs were imposed by the Trump administration.

Investors this week will be monitoring the minutes from the latest Federal Reserve meeting to gauge the central bank's next move on interest rates. It has been pushing rates higher in an effort to cool historically high inflation. Some economists have expressed concerns the Fed could move too aggressively and push the U.S. into a recession.

Biden said Monday following a meeting with Japanese Prime Minister Fumio Kishida that it wasn't inevitable the U.S. economy will enter a recession.

The European Union on Monday called for a loosening of its budget rules to be extended into a fourth year in response to the economic impact of Russia's war on Ukraine. Read more here.

Economic Insight:

U.K. consumer spending seems to be holding up despite high inflation and low confidence, wrote Pantheon Macroeconomics.

Households could be using savings or increasing borrowing to keep their consumption levels, and worries over inflation could be partially offset by a strong labor market. People might expect to be worse off due to increasing prices, but they are still more likely to maintain their spending than if they were worried about losing their job.

Pantheon expects the U.K. economy to fall by 0.5% on quarter in the second quarter but to rise in both the third and fourth quarters, avoiding a recession.

U.S. Markets:

Stock futures were in positive territory Monday "as some investors see opportunity in the actual market dip. But the trading conditions will likely remain choppy, and gains may remain short lived," wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank.

"In the medium run, there is a stronger case building for a further retreat in the S&P500. Investors now eye a return to the 3500/3600 range, according to the latest Bloomberg survey," Ozkardeskaya wrote.

Forex:

The dollar hit a two-week low against a basket of currencies, as stock markets recovered some poise after their recent falls.

EUR/USD rose to its highest level in just over two weeks, with RBC pointing to a weekend interview with Christine Lagarde, where she indicated interest rates will likely rise in July, although she played down prospects of a 50 basis-point increase.

The euro extended its rise after the German Ifo survey unexpectedly showed business confidence improved in May.

The Ifo business-climate index rose to 93.0 points from a revised figure of 91.9 points in April, beating the consensus in a WSJ poll for a fall to 91.2.

"The German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine," said Ifo President Clemens Fuest.

Breaking WSJ Headlines:

Lagarde Signals Likely Interest-Rate Hike at July Meeting

Lagarde: We Are Likely to Be in a Position to Exit Negative Rates by End of 3Q

Lagarde: Premature to Discuss ECB's Balance Sheet Policies

Bonds:

Fragile risk and macro sentiment combined with a favorable flow pattern should keep Bunds underpinned, said Commerzbank.

German Ifo business climate data due later Monday and flash purchasing managers data Tuesday could take further steam out of fears over European Central Bank interest rate rises and bring market expectations closer to ECB officials' current signals, Commerzbank said.

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Austria is expected to debut on the green government bond market possibly as early as this week, said Danske Bank, which expects the debut green bond to have 15- or 20-year maturity, with up to EUR4 billion to be raised.

Societe Generale also expects maturity in the 10- to 20-year range. "The 10-year maturity is a standard format that could attract a large array of investors, and a 20 year could be useful for ascertaining the level of demand for long-end GB [green bonds]."

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The prospect of weaker economic growth in the eurozone is already priced in euro corporate bonds, according to UniCredit.

"We expect this week's slew of early indicators - starting with the German Ifo index today - to reaffirm our view of slowing economic momentum in the eurozone, though we see it as being broadly priced into European corporate credit."

Higher energy costs, the war in Ukraine, China's Covid-19 lockdowns are some of factors dragging down growth.

Energy:

Oil prices held modest gains on hopes for a demand recovery, after Shanghai began easing its monthslong lockdown Sunday and as the peak driving season in the U.S. approaches with the Memorial Day holiday.

Read: EU Must Step Up Efforts to Impose Oil Sanctions on Russia, Says Germany

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UBS said coal pries are likely to stay elevated this year, albeit with risks to the downside should global tensions resolve unexpectedly quickly and Chinese demand slows more.

The Ukraine war, Indonesian export restrictions imposed in early January, and wet weather in Australia have led to seaborne coal shipments falling 2.7% so far this year, but supply is already showing some signs of recovery now that the Australian wet season has concluded. Global shipments rose by 6% last week.

UBS said the premium low volatility coking coal price has risen 48% to $530/ton so far this year, while thermal coal from the port of Newcastle has more than doubled in price to $412/ton.

Metals:

Gold and platinum prices climbed, helped by the weaker dollar.

Base metals were also higher, with expectations of a bump in demand from China increasing after the country started its package of economic stimulus.

"China is loosening fiscal and monetary policies with a CNY4 trillion infrastructure campaign. However, labor shortages and high energy costs will continue to weigh on growth in copper, aluminum, and nickel supply, " said ANZ.

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Citi said the degree of weakness in Chinese metals demand can't be fully explained by Covid lockdowns and believes China's economy has been deteriorating in the absence of sufficient government easing.

"We continue to recommend selling rallies until China gets ahead of the curve and/or until the Fed starts to deliver 'dovish' hikes."

Citi expects LME copper prices will fall to $8,500/ton over the next three months, and projects aluminum dropping to $2,700/ton, nickel to $25,000/ton, and zinc to $3,300/ton over the same period.

DOW JONES NEWSPLUS

EMEA HEADLINES

German Business Confidence Unexpectedly Rose in May, Ifo Says

Business confidence in Germany rose in May as German companies saw their current business situation with less pessimism.

The Ifo business-climate index rose to 93.0 points in May from a revised figure of 91.9 points in April, according to data from the Ifo Institute released Monday. Economists polled by The Wall Street Journal expected the index to decrease to 91.2.

Siemens Energy Offers to Buy Siemens Gamesa for $4.29 Bln

Siemens Energy AG said late Saturday that it has made an offer to buy all outstanding shares in Siemens Gamesa Renewable Energy SA for 4.06 billion euros ($4.29 billion), or EUR18.05 a share.

Siemens Energy already holds 67% of Siemens Gamesa, and said it intends to fully integrate the Spain-based wind turbine maker. Full integration would lead to cost synergies of about EUR300 million a year within three years, and to mid-triple-digit million euros in revenue synergies by the end of the decade, Siemens Energy said.

Kingfisher Backs FY 2023 Profit View; To Buy Back Shares

Kingfisher PLC said Monday that sales fell in the first quarter of fiscal 2023 due to strong comparatives the prior year but were above prepandemic levels, and backed its full-year guidance and outlined a share-buyback program.

The European home-improvement retailer backed its fiscal 2023 profit performance and expects adjusted pretax profit of around 770 million pounds ($962 million).

AstraZeneca's Covid-19 Vaccine Gets EU Approval for Third Doses

AstraZeneca PLC said Monday that its Covid-19 vaccine has been granted approval in the European Union as a third dose booster for adults.

The pharmaceutical company said that its Vaxzevria vaccine can now be used as a third dose booster in patients previously given a vaccine schedule of either Vaxzevria or other EU-approved vaccines.

Swedes Ask if NATO Membership and Peacemaking Can Coexist

For two centuries, Sweden has shunned military alliances. Its decision last week to seek NATO membership ends that, fundamentally altering the Scandinavian country's security posture.

It also challenges the notion of neutrality, for many years a pillar of Swedish national identity, and poses a quandary for many Swedes: How can the country seek to lead global efforts in peace and nuclear disarmament as a member of a military alliance whose power largely rests on nuclear weapons?

NATO Bids From Finland and Sweden Now Depend on Turkey's President

ISTANBUL-NATO membership for Finland and Sweden, potentially among the most dramatic shifts in European security policy in decades, now depends largely on the decision of one man: Turkey's President Recep Tayyip Erdogan.

Mr. Erdogan's decision to block a speedy entrance for the two countries into the North Atlantic Treaty Organization has opened the door to complex negotiations between Western allies and the Turkish government over its stated concerns about the presence of alleged Kurdish militants in Sweden and restrictions on arms sales to Turkey.

Germany Warns Falling Euro Could Push Inflation Even Higher

Germany's Finance Minister Christian Lindner warned that a weak euro might be driving up inflation in Europe and encouraged the European Central Bank to increase interest rates, an unusual step that underlines the growing concerns in Europe's largest economy about the rapid pace of price increases.

The euro has fallen close to parity against the dollar in recent weeks and is currently trading at around $1.05, down from about $1.22 a year ago. That partly reflects the relative weakness of the eurozone economy, which has been squeezed by surging energy prices, as well as the anticipation of further interest-rate increases by the Federal Reserve.

Russia Pays Bond Coupons Ahead of Likely U.S. Payment Block

Russian finance officials said Friday that they had pushed through around $100 million in interest payments due under some of the country's foreign-currency debts, ahead of a likely change in U.S. sanctions next week that is expected to curtail Moscow's ability to keep paying its sovereign debt.

Russia's Finance Ministry said it had submitted roughly $71.3 million due under a dollar-denominated bond due 2026 and 26.5 million euros, equivalent to about $28 million, under a euro-denominated bond due 2036, according to Russian state media agency TASS.

U.K. Home Prices Rise in May to New High But Pace of Growth Seen to Slow

U.K. house prices rose in May to a new high for the fourth consecutive month, though there are signs the frenetic pace is starting to ease, according to new data from property portal Rightmove PLC.

The average price of property coming to the market rose by 7,400 pounds ($9,230) in May, an increase of 2.1% and hitting a record of GBP367,501.

Russia Says It Has Taken Complete Control of Mariupol After Surrender of Last Defenders

KYIV, Ukraine-Russia said it had taken complete control of the southeastern port city of Mariupol on Saturday after the surrender of the last remaining Ukrainian forces there, while Moscow's troops pressed an offensive in the country's east.

Ukrainian President Volodymyr Zelensky described the soldiers and marines who had defended Mariupol through a monthslong siege as national heroes. He said the military had told them to get out and save their lives.

Israeli Prime Minister Naftali Bennett Avoids Government Collapse

TEL AVIV-An Israeli lawmaker who quit the government this past week decided to rejoin the ruling, yet shaky, coalition helping Prime Minister Naftali Bennett to stay in power and avoid new elections for the time being.

The sudden resignation on Thursday of Ghaida Rinawie Zoabi, an Arab lawmaker from the left-wing Meretz party, brought Mr. Bennett's coalition down to 59 seats out of 120 seats in the Knesset, Israel's parliament. With Ms. Rinawie Zoabi's return, Mr. Bennett's coalition now counts 60 seats, split evenly with the opposition. The opposition needs 61 lawmakers to vote to dissolve the parliament and send Israel to its fifth election in a little over three years.

Dior Lands in Venice With Tony Hawk, Luxury 'Skate Shoes' and a Buzzy Collaboration

In many ways, the fashion show Thursday near the Venice boardwalk by French luxury house Dior delivered coastal California conventions.

There was a sweatshirt with an impossibly perfect wave stitched along the front, marshmallowy skate shoes (albeit in satin) and a front row cameo from Mr. 900 himself, Tony Hawk.

Saudi Sovereign-Wealth Fund Buys Stake in Royal's Investment Firm

Saudi Arabia's sovereign-wealth fund bought a stake Sunday in a firm owned by billionaire Prince al-Waleed bin Talal, further intertwining the government with a high-profile investor who was once detained by the state over corruption allegations.

The Public Investment Fund agreed to pay Prince al-Waleed $1.51 billion for 16.9% of Kingdom Holding Co., a figure based on the closing price on the last trading day before the transaction was announced, according to a filing with the Saudi stock exchange.

GLOBAL NEWS

Stock Market Bottom Remains Elusive Despite Deepening Decline

U.S. stocks are in the midst of their longest selloff in decades.

Whether they are close to bottoming is anyone's guess.

Conditions Are Ripe for a Deep Bear Market

With the S&P 500 briefly on Friday down 20% from its January peak, it is very tempting to start trying to call the end of the selloff. The problem is that only one of the conditions for a rally is in place, that everyone's scared. That worked beautifully for timing the start of the 2020 rebound, but this time around may not be enough.

The other requirements are that investors start to see a way through the challenges, and that policy makers start to help. Without those, the risk is a series of bear-market rallies that don't last, hurting dip buyers and further damaging investor confidence.

Higher Rates Raise Risk of Future Fed Losses

The Federal Reserve's plans to raise interest rates aggressively to combat high inflation could have an overlooked and uncomfortable side effect for the central bank: capital losses.

The potential for losses hinges on obscure monetary plumbing. The Fed's $9 trillion portfolio, sometimes called a balance sheet, is full of mostly interest-bearing assets-Treasury and mortgage-backed securities-with an average yield of 2.3%. On the other side of the ledger-the liability side of the Fed's balance sheet-are bank deposits held at the Fed known as reserves, which are also interest bearing, as well as currency in circulation.

Biden Kicks Off Economic Group Linking U.S., Asia

President Biden and leaders from a dozen countries in the Indo-Pacific region on Monday endorsed a new economic platform meant to counter China's influence through cooperation on global issues such as supply chains, clean energy and digital rules.

The Indo-Pacific Economic Framework marks the Biden administration's most ambitious attempt to build economic ties with Asian nations after the U.S. under then-President Donald Trump pulled out of the Trans-Pacific Partnership in 2017. U.S. officials said the framework represented a new approach to cooperation that moves beyond a traditional trade agreement.

China's Markets Are Tested by Foreign Outflows and a Falling Currency

HONG KONG-A withdrawal of foreign capital from China and a weaker yuan have prompted comparisons with 2015, when Beijing faced a vicious cycle of outflows and currency depreciation.

China has plugged many of the holes that once allowed its citizens and companies to move money out of the country, making a destabilizing exodus of homegrown funds less likely this time around.

China Spends Far More Than Others to Help Favored Industries, Report Finds

China spends much more in helping favored industries with state-directed funds, cheap loans and other government incentives than other major economies, according to a new study expected to intensify the debate in Washington and elsewhere over Beijing's use of industrial policy.

The study, to be published by the Center for Strategic and International Studies on Monday, finds that China's backing of its companies amounted to at least 1.73% of its gross domestic product in 2019-the most recent year for which comprehensive data is available-and the trend is continuing.

Rising Risk of Recession Creates New Headache for Biden

The Federal Reserve's efforts to slow inflation are raising the possibility of higher unemployment, a slower-growing economy and a recession, prospects that could create new headaches for the Biden administration.

As the country heads into midterm-election season, much of the political discussion has centered around solid economic growth and robust employment versus the damaging impact of inflation. More recently, warnings about the prospect of an economic downturn-which could come in 2023 according to some estimates-have complicated the economic picture in a new way.

Crypto Might Have an Insider Trading Problem

Public data suggests that several anonymous crypto investors profited from inside knowledge of when tokens would be listed on exchanges.

Over six days last August, one crypto wallet amassed a stake of $360,000 worth of Gnosis coins, a token tied to an effort to build blockchain-based prediction markets. On the seventh day, Binance-the world's largest cryptocurrency exchange by volume-said in a blog post that it would list Gnosis, allowing it to be traded among its users.

Biden Says U.S. Would Intervene Militarily if China Invaded Taiwan

TOKYO-President Biden said the U.S. would get involved militarily to defend Taiwan if China tries to take it by force, issuing a stark warning to Beijing and appearing to break with the longstanding American policy of strategic ambiguity.

"Yes. That's the commitment we made," Mr. Biden said Monday at a news conference in Tokyo during his first trip to Asia as commander-in-chief. He was responding to a question about whether the U.S. would get involved militarily in response to a Chinese invasion of Taiwan after declining to send American troops to Ukraine to fight Russia's invasion.

Biden Says U.S. Is Prepared if North Korea Conducts Missile Test

SEOUL-President Biden said Sunday the U.S. is prepared for the possibility that North Korea will conduct a missile test soon.

"We are prepared for anything North Korea does. We've thought through how we would respond to whatever they do," Mr. Biden told reporters here. "I am not concerned, if that's what you're suggesting."

Biden Keeps Eye on Domestic Politics as He Travels Through Asia

TOKYO-President Biden is roughly 7,000 miles from the White House, but domestic affairs have taken a prominent role as he travels through South Korea and Japan in his first trip to Asia as commander in chief.

With his Democratic Party facing steep challenges ahead of November's midterm elections, Mr. Biden has used the trip to make the case that he is leveraging global alliances to boost the American economy and promote union jobs. His overseas travel, which includes the rollout Monday of a new economic framework with Asian countries, has coincided with polls showing a majority of Americans disapprove of his handling of the economy. U.S. inflation is at its highest level in 40 years.

Pentagon Weighs Deploying Special Forces to Guard Kyiv Embassy

WASHINGTON-U.S. military and diplomatic officials are weighing plans to send special forces troops to Kyiv to guard the newly reopened embassy there, proposals that would force the Biden administration to balance a desire to avoid escalating the U.S. military presence in the war zone against fears for the safety of American diplomats, U.S. officials said.

President Biden has yet to be presented with the proposal. But if he approves it, troops would be deployed only for the defense and security of the embassy, which lies within range of Russian missiles, U.S. officials said. Their presence inside Ukraine would mark an escalation from Mr. Biden's initial pledge that no American troops will be sent into the country.

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

(END) Dow Jones Newswires

May 23, 2022 05:44 ET (09:44 GMT)

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