MARKET WRAPS

Watch For:

Weekly Jobless Claims; 2nd Estimate 1Q GDP; earnings from Alibaba, Baidu, Macy's, Dollar General, Dollar Tree, Medtronic, VMware, Costco, Ulta Beauty, Dell, Gap, Royal Bank of Canada, Toronto-Dominion Bank

Opening Call:

Stock futures wobbled ahead of earnings from large technology companies and economic data including jobless claims and an updated reading of first-quarter gross domestic product.

Stocks have swung this week, fluctuating between daily gains and losses as investors considered the Federal Reserve's next monetary tightening moves to combat inflation and how much they could weigh on growth and markets.

"To some extent, markets have been reassured that the Fed isn't going to tighten more aggressively than what is expected. But sentiment in the market remains rather stressed," said Luc Filip, head of investments at SYZ Private Banking. "There is still a lot of uncertainty about what will happen if inflation stays high."

Investors are awaiting a second reading of gross domestic product in the first quarter and weekly jobless claims, which are both set to go out at 8:30 a.m. ET. 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.

"We are focusing on earnings and profitability. A lot of stable companies are reporting lower guidance," Ramjee said. "Even the tech sector is not immune to margin pressure, especially from input costs like wages."

In premarket trading, Nvidia declined 6% despite posting record revenues as its sales outlook for the current quarter came in below Wall Street's estimates. Williams-Sonoma jumped 10% after posting profit that beat analysts' expectations.

Overseas, the pan-continental Stoxx Europe 600 ticked up 0.2% and in Asia, major benchmarks were mixed.

Economic Insight:

The probability of a recession in the U.S. over the next year remains close to zero, according to Capital Economics' own composite model.

The only indicator which signals recession levels is consumer confidence, while most leading indicators such as ISM new orders index and building permits are showing resilience, said Capital's senior U.S. economist Michael Pearce. Recession risks have also declined as the bond yield curve has un-inverted, he added.

"The recent un-inversion of the 10y-2y curve still leaves it consistent with elevated recession risks, but below the 30% threshold which has been reached ahead of every recession since the 1960s."

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."

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The yuan weakened against the dollar in onshore and offshore markets over fears of a slowdown in China's economic growth.

Chinese leaders have continued to warn about significant growth risks and have called for implementation of more stimulus measures, said Ken Cheung, chief Asian FX strategist at Mizuho Bank, noting Premier Li Keqiang's recent comments.

The leader's message to support growth should reinforce the PBOC's easing bias, and the widening monetary policy divergence between PBOC and other major central banks will probably leave yuan on the back foot, the strategist said.

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The Hong Kong dollar's peg to the dollar is likely to remain "highly credible" given that the city's de facto central bank has ample resources to defend it, said Bank of Singapore's currency strategist Sim Moh Siong. The HKD's fundamentals are sound, given massive external surpluses, a stable banking system and low inflation, he added.

Although capital outflow pressures caused by a faster Fed tightening and China's sluggish growth have driven recent HKD weakness, investors "should avoid being overly alarmist" even as USD/HKD tests the top side of the 7.75-7.85 band repeatedly.

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.

Read more here.

Bonds:

The deeply discounted dollar bonds of some private Chinese developers that haven't defaulted are now offering "exceptional value" as Beijing has rolled out easing measures to aid the beleaguered property sector, said Michael Kelly, global head of multi-asset at PineBridge Investments.

Kelly said he expects state-owned developers to gain market share as the industry consolidates, but their bonds are reasonably priced for the current stage of the downturn.

In contrast, he said bonds of some "high-quality" private developers are starting to look attractive. An ICE BofA index of high-yield Chinese corporate bonds yielded 23.4% as of Wednesday.

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."

TODAY'S TOP HEADLINES

Apple Boosting Pay Budget for Workers Amid Tight Labor Market

Apple Inc. is boosting pay for workers amid rising inflation, a tight labor market and unionization pushes among hourly store employees.

The iPhone maker on Wednesday told employees in an email that the company is increasing its overall compensation budget. Starting pay for hourly workers in the U.S. will rise to $22 an hour, or higher based upon the market, a 45% increase from 2018. Starting salaries in the U.S. are also expected to increase.

Nvidia Posts Record Sales, Warns of Russia, China Hit

Graphics-chip maker Nvidia Corp. gave a muted sales outlook, citing supply-chain disruptions in China and reduced business in Russia, as it posted record sales for the most recent quarter.

Nvidia said sales in the current quarter are likely to come in at $8.1 billion, missing Wall Street forecasts. The company said it anticipated a roughly $500 million hit to sales relating to Russia and Covid-19 lockdowns in China.

Elon Musk Plans to Rely More Heavily on Equity for Twitter Deal

Elon Musk is committing more of his wealth to finance his $44 billion deal for Twitter Inc. and seeking additional financial backers amid a sharp decline in Tesla Inc. stock in recent weeks.

Mr. Musk's funding plan now includes $33.5 billion in equity, up from $27.25 billion, according to a Wednesday regulatory filing. The billionaire Tesla chief executive no longer plans to rely on a margin loan backed by shares of his electric-vehicle company, which are down by about a third since Twitter accepted his bid in late April.

Corruption Probe in Anaheim, Calif., Grows, Drawing in Disney

The Walt Disney Co. has become entangled in a corruption scandal unfolding in Anaheim, the southern California city where its Disneyland Resort is based, that this week prompted its mayor to resign.

In an affidavit filed in a California federal court, federal investigators describe a "cabal" of business leaders and elected officials in Anaheim who allegedly meet privately to influence public policy decisions.

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.

Lenovo's Fourth-Quarter Profit Jumped 48%

Lenovo Group Ltd. said its fourth-quarter profit rose 48%, driven by higher revenue and disposal gains.

The world's largest personal-computer maker on Thursday posted net profit of US$421 million for the three months ended March.

Toshiba Nominates Representatives of Elliott, Farallon to Board

Toshiba Corp. said Thursday that it is nominating seven new director candidates, including representatives of major shareholders Elliott Management Corp. and Farallon Capital Management LLC.

The Japanese industrial company said it is proposing that shareholders elect Nabeel Bhanji, senior portfolio manager of Elliott Investment Management, and Eijiro Imai, managing director at Farallon Capital Japan, to the board.

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.

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.

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.

Texas Gov. Abbott Dismisses Calls for Stronger Gun Laws, Points to Chicago Violence

Texas Gov. Greg Abbott dismissed calls for more gun regulation following Tuesday's deadly school attack in Uvalde, stating that cities with stronger gun laws aren't safer.

The Republican pointed to the number of shootings in Chicago, Los Angeles and New York during a press conference Wednesday about the mass shooting at Robb Elementary School in which a gunman killed 19 children and two adults. The shooter used two assault-style rifles purchased at a local gun store within a week of his 18th birthday, officials said.

Big U.S. Cities Lost More Residents as Covid-19 Pandemic Stretched On

Big-city population declines deepened across the U.S. last year as the pandemic continued sending Americans in search of more space, according to census figures released Thursday.

The largest cities lost a greater share of residents than small- and midsize cities during the year that ended July 1, 2021, new estimates show. Collectively, in the nine cities with more than one million people, the population fell 1.7%, a loss of 419,000 residents. Only two cities in that group grew: Phoenix and San Antonio.

Oklahoma Governor Signs Abortion Ban

Oklahoma's governor on Wednesday signed into the law the toughest abortion ban in effect in the U.S., outlawing the procedure at any stage of pregnancy and delegating enforcement to private citizens.

The law, signed by Republican Gov. Kevin Stitt, takes effect immediately.

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

Earnings:

Canadian Imperial Bank of Commerce 2Q

Royal Bank of Canada 2Q

Silvercorp Metals 4Q

Toronto-Dominion Bank 2Q

Economic Indicators (ET):

0830 Mar Retail Sales

0830 Mar Payroll employment, earnings & hours

Stocks to Watch:

ASX-listed Appen received an unsolicited takeover proposal from Telus International that values the Australian data annotation firm's equity at $830.7 million.

Appen on Thursday said it has considered the A$9.50-a-share proposal and is seeking improved terms from the Canadian tech firm. The stock last traded at A$6.40, down 85% since August 2020.

Appen's board has offered additional business and financial information subject to Telus agreeing to a confidentiality agreement. Appen said the proposal is subject to conditions including completion of due diligence and Telus finalizing its funding.

Expected Major Events for Thursday

08:00/ITA: May Consumer Confidence Survey

08:00/ITA: May Business Confidence Survey

09:00/ITA: Mar Industrial turnover & orders

12:30/CAN: Mar Retail trade

12:30/US: 05/21 Unemployment Insurance Weekly Claims Report - Initial Claims

12:30/US: 1Q Preliminary Corporate Profits

12:30/CAN: Mar Payroll employment, earnings & hours

12:30/US: U.S. Weekly Export Sales

12:30/US: 1Q 2nd estimate GDP

13:00/RUS: Weekly International Reserves

14:00/US: Apr Pending Home Sales Index

14:30/US: 05/20 EIA Weekly Natural Gas Storage Report

15:00/US: May Federal Reserve Bank of Kansas City Survey of Tenth District Manufacturing

20:30/US: Federal Discount Window Borrowings

20:30/US: Foreign Central Bank Holdings

23:30/JPN: May CPI (Tokyo), CPI ex-Food (Tokyo)

23:50/JPN: May Provisional Trade Statistics for 1st 10 days of Month

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

Expected Earnings for Thursday

American Eagle Outfitters (AEO) is expected to report $0.26 for 1Q.

American Woodmark Corp (AMWD) is expected to report $0.81 for 4Q.

Anaplan Inc (PLAN) is expected to report $-0.36 for 1Q.

Armstrong Flooring Inc (AFIIQ) is expected to report $-0.26 for 1Q.

Biomea Fusion Inc (BMEA) is expected to report for 1Q.

Bit Digital Inc (BTBT) is expected to report for 1Q.

Brady Corp (BRC) is expected to report $0.76 for 3Q.

Build-A-Bear Workshop (BBW) is expected to report $0.66 for 1Q.

Burlington Stores Inc (BURL) is expected to report $0.61 for 1Q.

Canadian Imperial Bank of Commerce (CM,CM.T) is expected to report $1.75 for 2Q.

Cavco Industries Inc (CVCO) is expected to report $4.77 for 4Q.

Corvel (CRVL) is expected to report for 4Q.

Costco Wholesale Corp (COST) is expected to report $3.06 for 3Q.

Destination XL Group Inc (DXLG) is expected to report $0.10 for 1Q.

Dollar General (DG) is expected to report $2.36 for 1Q.

Dollar Tree Inc (DLTR) is expected to report $2.04 for 1Q.

Dorian LPG Ltd (LPG) is expected to report $0.59 for 4Q.

Eargo Inc (EAR) is expected to report for 1Q.

Farfetch Ltd (FTCH) is expected to report $-0.36 for 1Q.

Gap Inc (GPS) is expected to report $-0.16 for 1Q.

Genesco Inc (GCO) is expected to report for 1Q.

Hamilton Lane Inc (HLNE) is expected to report $0.74 for 4Q.

Kayne Anderson Energy Infrastructure Fund Inc (KYN) is expected to report for Full year.

Macy's Inc (M) is expected to report $0.82 for 1Q.

Medtronic plc (MDT) is expected to report $1.28 for 4Q.

Movado Group Inc (MOV) is expected to report for 1Q.

National Energy Services Reunited Corp (NESR) is expected to report $0.11 for 1Q.

Plantronics Inc (POLY) is expected to report $-0.05 for 4Q.

RBC Bearings Inc (ROLL) is expected to report $1.15 for 4Q.

Red Robin Gourmet Burgers Inc (RRGB) is expected to report $-0.77 for 1Q.

Republic First Bancorp (FRBK) is expected to report $0.09 for 1Q.

Royal Bank of Canada (RY,RY.T) is expected to report $2.67 for 2Q.

Sanderson Farms (SAFM) is expected to report $7.08 for 2Q.

Silvercorp Metals (SVM,SVM.T) is expected to report $0.04 for 4Q.

Thermon Group Holdings Inc (THR) is expected to report $0.24 for 4Q.

Titan Machinery (TITN) is expected to report $0.54 for 1Q.

Toronto-Dominion Bank (TD,TD.T) is expected to report $1.86 for 2Q.

Waterloo Brewing Ltd (WBR.T) is expected to report for 1Q.

Workday Inc (WDAY) is expected to report $-0.42 for 1Q.

Zscaler Inc (ZS) is expected to report $-0.66 for 3Q.

Powered by Kantar Media and Dow Jones.

ANALYST RATINGS ACTIONS

2U Cut to Underweight From Neutral by Piper Sandler

Air Products & Chemicals Raised to Overweight From Neutral by Atlantic Equities

ASGN Cut to Underperform From Neutral by Credit Suisse

Best Buy Cut to Equal-Weight From Overweight by Barclays

CME Group Raised to Outperform From Perform by Oppenheimer

Covetrus Cut to Market Perform From Outperform by William Blair

Devon Energy Cut to Equal-Weight From Overweight by Barclays

Diamondback Energy Raised to Overweight From Equal-Weight by Barclays

Equitable Raised to Overweight From Neutral by JP Morgan

Essential Props Realty Cut to Neutral From Buy by Goldman Sachs

Fisker Cut to Hold From Buy by Tudor Pickering

Kilroy Realty Raised to Buy From Neutral by Goldman Sachs

Magellan Midstream Raised to Overweight From Neutral by JP Morgan

Sabra Healthcare REIT Raised to Buy From Neutral by Mizuho

Univar Solutions Raised to Overweight From Equal-Weight by Wells Fargo

Verrica Pharmaceuticals Cut to Sector Perform From Outperform by RBC Capital

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

(END) Dow Jones Newswires

May 26, 2022 05:42 ET (09:42 GMT)

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