MARKET WRAPS

Opening Call:

Stock futures rose Monday, putting the S&P 500 on track to edge away from bear-market territory.

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

Stocks have slid in recent weeks as investors debated how aggressively the Federal Reserve will raise interest rates to tame elevated inflation. Price pressures have eroded some corporate earnings, but money managers also worry that tightening financial conditions too much risks weighing on economic growth.

Inflation concerns were exacerbated in recent months as China implemented lockdowns to contain the spread of Covid-19, adding strain to supply chains. Russia's war against Ukraine has also caused European countries to shift away from Moscow's oil and gas, adding to prices.

"This year, we're dealing with several issues, which in and of themselves would ordinarily be the top story in any given year," said Hugh Gimber, a global markets strategist at J.P. Morgan Asset Management. "Yet markets are having to deal with them all at the same time." This has lent to heightened volatility, he said.

Overseas, the pan-continental Stoxx Europe 600 rose 0.9%, while in Asia, major indexes closed with mixed performances.

Investors this week will be monitoring the minutes from the latest Fed 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.

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.

Energy:

Oil prices held modest gains in Europe 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.

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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 in Europe, 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.

TODAY'S TOP HEADLINES

Broadcom in Advanced Talks to Buy VMware

Broadcom Inc. is in advanced talks to buy VMware Inc., according to people familiar with the matter, setting the stage for what would be one of the year's biggest deals.

The technology companies are discussing a cash-and-stock deal that could come soon, assuming the talks don't fall apart, the people said. VMware has a market value of $40 billion, while Broadcom's is around $222 billion.

Abbott CEO Apologizes for Company's Role in Baby Formula Shortage

Abbott Laboratories Chief Executive Robert Ford apologized Saturday for his company's role in the nationwide shortage of baby formula and promised production will ramp up again in June.

"We're sorry to every family we've let down," Mr. Ford wrote in a Washington Post op-ed.

Macy's, Dollar General and Costco May Offer Clues on Strength of Consumer Spending

Investors are looking for more signs that inflation and lingering effects from the Covid-19 pandemic are wearing on American consumers.

This week, Macy's Inc., Dollar General Corp., Costco Wholesale Corp. and other retailers are slated to release quarterly reports showing sales without the lift from government stimulus that helped consumer spending last year. In addition, rising costs for fuel, freight and labor as well as changing purchasing habits are expected to weigh on profits.

Apple Looks to Boost Production Outside China

TOKYO-Apple Inc. has told some of its contract manufacturers that it wants to boost production outside China, citing Beijing's strict anti-Covid policy among other reasons, people involved in the discussions said.

India and Vietnam, already sites for a small portion of Apple's global production, are among the countries getting a closer look from the company as alternatives to China, the people said.

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.

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.

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.

Small Businesses Lose Confidence in U.S. Economy

Small businesses are flashing warning signs on the U.S. economy as inflation, supply-chain snarls, a shortage of workers and rising interest rates darken the outlook for entrepreneurs.

Fifty-seven percent of small-business owners expect economic conditions in the U.S. to worsen in the next year, up from 42% in April and equal to the all-time low recorded in April 2020, according to a survey of more than 600 small businesses conducted in May for The Wall Street Journal by Vistage Worldwide Inc., a business-coaching and peer-advisory firm.

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.

NFTs Are Put to New Use in China, Countering Censorship During Pandemic

In most of the world, the market for NFTs is plummeting. In China, nonfungible tokens are on the rise, not as digital-art investments but as a way to strike back at censorship.

As Chinese internet censors have stepped up efforts to scrub content from social media during the pandemic, web users have increasingly turned to NFTs as a way to secure images, videos, audio and social-media posts on a blockchain to prevent their deletion.

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.

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.

Georgia Governor Race Is a Test for Trump. It Isn't Going Well.

DAWSONVILLE, Ga.-Georgia Republican Gov. Brian Kemp seemed to face a bleak political future in the contentious aftermath of the 2020 election.

He had angered former President Donald Trump by not going along with Mr. Trump's false claim that Democrats used election fraud to carry the state for President Biden. Being on the wrong side of Mr. Trump and his supporters has doomed the careers of many GOP politicians.

Write to paul.larkins@dowjones.com TODAY IN CANADA

Earnings:

None scheduled

Economic Indicators:

None scheduled: Victoria Day (except Quebec), financial markets closed

Stocks to Watch:

GetSwift Announces Letter of Intent With Stage Equity Partners for Sale of GetSwift Assets

Resolute Forest Products Announces Ratification of Collective Agreement at Seven Canadian Pulp and Paper Mills; Four-Year Agreement Ratified; Agreements Cover Approximately 700 Hourly Employees Represented by Unifor

Expected Major Events for Monday

05:00/JPN: Apr Steel Production

08:00/GER: May Ifo Business Climate Index

10:00/FRA: 1Q OECD Quarterly National Accounts: GDP growth

12:30/US: Apr CFNAI Chicago Fed National Activity Index

All times in GMT. Powered by Kantar Media and Dow Jones.

Expected Earnings for Monday

Advance Auto Parts Inc (AAP) is expected to report $3.64 for 1Q.

America's Car-Mart (CRMT) is expected to report $3.10 for 4Q.

Beam Global (BEEM) is expected to report for 1Q.

BitNile Holdings Inc (NILE) is expected to report for 1Q.

Brooklyn ImmunoTherapeutics Inc (BTX) is expected to report for 1Q.

Capital Southwest Corp (CSWC) is expected to report $0.48 for 4Q.

Digital Ally Inc (DGLY) is expected to report $-0.06 for 1Q.

Flanigan's Enterprises Inc (BDL) is expected to report for 2Q.

Hallador Energy Co (HNRG) is expected to report $-0.06 for 1Q.

Heico Corp - A Share (HEI,HEIA) is expected to report $0.61 for 2Q.

Heliogen Inc (HLGN) is expected to report for 1Q.

InnSuites Hospitality Trust (IHT) is expected to report for 4Q.

Nautilus (NLS) is expected to report $-0.43 for 4Q.

Nordson Corporation (NDSN) is expected to report $2.30 for 2Q.

Oncotelic Therapeutics Inc (OTLC) is expected to report for 1Q.

ReShape Lifesciences Inc (RSLS) is expected to report for 1Q.

RespireRx Pharmaceuticals Inc (RSPI) is expected to report for 1Q.

Siebert Financial Corp (SIEB) is expected to report for 1Q.

Skyline Champion Corp (SKY) is expected to report for 4Q.

Sonida Senior Living Corp (SNDA) is expected to report for 1Q.

Star Equity Holdings Inc (STRR) is expected to report for 1Q.

Transcat (TRNS) is expected to report $0.44 for 4Q.

VirnetX Holding Corp (VHC) is expected to report for 1Q.

Zoom Video Communications Inc (ZM) is expected to report for 1Q.

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ANALYST RATINGS ACTIONS

Allstate Cut to Hold From Buy by Argus Research

Citi Trends Cut to Hold From Buy by Craig-Hallum

Comerica Raised to Outperform From Neutral by Baird

Dollar General Cut to Hold From Buy by Gordon Haskett

Freshpet Cut to Neutral From Overweight by Atlantic Equities

Hewlett Packard Ent Cut to Neutral From Buy by B of A Securities

Mirati Therapeutics Raised to Buy From Neutral by Guggenheim

Ollie's Bargain Outlet Raised to Buy From Underperform by B of A Securities

PPG Industries Cut to Hold From Buy by Berenberg

Pure Storage Cut to Neutral From Buy by B of A Securities

Ross Stores Cut to Market Perform From Outperform by Telsey Advisory Group

Spero Therapeutics Cut to Hold From Buy by Berenberg

Trex Co Raised to Neutral From Underperform by Exane BNP Paribas

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

(END) Dow Jones Newswires

May 23, 2022 05:41 ET (09:41 GMT)

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