MARKET WRAPS
Watch For:
EU Harmonised CPI, New Passenger Car Registrations; UK Producer
Prices, Monthly Inflation, House Price Index, Card Spending; G7
Finance Ministers/Central Bank Governors Meeting; updates from SAP,
Zalando, Deutsche Boerse, Traton, Atos, Erste, Leonardo
Finmeccanica, TCS, Burberry, Experian, British Land, ABN AMRO,
abrdn, Deliveroo, Euronext
Opening Call:
Caution will likely dominate European markets early Wednesday
after Jerome Powell noted challenges ahead to avoid a U.S.
recession. Stocks were mixed in Asia; the dollar, Treasury yields
and oil gained; and gold weakened.
Equities:
European shares may struggle for momentum Wednesday following
another hawkish message from Jerome Powell and despite a tech-led
rally on Wall Street.
U.S. stocks briefly pared gains as Powell voiced resolve in
fighting inflation, before indexes climbed back toward new session
highs.
"There could be some pain involved" in restoring price
stability, Powell said in remarks at The Wall Street Journal's
Future of Everything Festival.
Powell said he wasn't at odds with those who believe the Fed
faces a difficult path toward achieving what is known as a "soft
landing," in which growth slows enough to bring down inflation
without triggering a recession.
"I would say there is no disagreement really. It is a
challenging task, made more challenging the last couple months
because of global events," he said. "It is challenging because
unemployment is very low already and because inflation is very
high."
Wells Fargo CEO Charlie Scharf, speaking at the same event, said
it would be difficult to avoid a recession but noted that consumers
and businesses remain financially solid.
"The fact that everyone is so strong going into this should
hopefully provide a cushion such that whatever recession there is,
if there is one, is short and not all that deep," he said.
Read more from Powell here.
Economic Insight:
European and U.S. consumers look set to tighten their belts in
response to the rising cost of living, but prices may increase more
than they think, according to a survey.
A JPMorgan poll of 5,000 French, German, Spanish, British and
U.S. consumers found they expect to reduce non-essential spending
by more than 6% this year, though most appear to be
under-estimating inflation, JPM said.
Consumers plan fewer do-it-yourself projects than before the
pandemic, potentially hitting home-improvement retailers, the
survey found. Consumers also look set to prioritize leisure
spending over buying jewellery/premium accessories and sports and
beauty products. Still, online grocers and food-delivery firms
could benefit as only 20% of respondents plan to visit supermarkets
more, the report showed.
Forex:
The dollar edged higher following Tuesday's pullback, as
emerging risk aversion driven by losses in some Asian equity
markets and U.S. stock futures boosted the currency's haven
appeal.
Westpac said it was still far too early to call a long-term peak
in the dollar and retracements should be shallow.
Jerome Powell reinforced the Fed's resolutely hawkish stance,
although the European Central Bank was beginning to coalesce around
a more hawkish posture, Westpac said.
---
The Fed's Charles Evans said Tuesday that aggressive central
bank rate rises are needed to get inflation back under control.
"Inflation is clearly much too high and monetary policy must be
repositioned to address this," Mr. Evans said in a speech in New
York.
Read more here.
Bonds:
Treasury yields extended their gains in Asia after they rose to
their highest levels in at least a week Tuesday.
U.S. data that included in-line retail sales and industrial
activity that surprised on the upside helped lift yields Tuesday,
and they remained elevated after Powell reinforced the Fed's
commitment to stabilize price increases.
"Powell was open to moving rates past neutral if necessary and
added that the landing could be a bit bumpy with an emphasis on
balancing the labor market and restoring price stability," said BMO
Capital Markets.
"Powell's comments only served to reinforce the Fed's current
mantra of combating inflation at all costs," with the costs being
economic performance.
Energy:
Oil futures pushed higher in Asia on optimism over China fuel
demand after Shanghai on Tuesday had a third straight day of no new
Covid-19 infections outside quarantine zones.
The "less awful news on China offers a nip in the tail in the
form of much higher oil demand and prices," said SPI Asset
Management.
However, the lack of an EU ban on Russian oil could limit the
topside until the special summit on May 30-31, which is the next
opportunity to agree on such an embargo, SPI added.
---
While the near-term outlook for oil is strong, Macquarie expects
prices to fade in the second half.
Brent crude has averaged $107 in the second quarter so far but a
likely increase in supply from OPEC and other countries,
potentially including Iran, should weigh on prices in the second
half, Macquarie said.
"We maintain our long-term assumption of $65 but defer this to
the first quarter of 2024 [from 1Q of 2023]," Macquarie said.
Metals:
Gold futures weakened as contrary influences in the market
continued to cause volatility.
Interest-rate differentials between the U.S. and some countries
have narrowed, which has put downward pressure on the dollar and
given the "green light" for gold investors to buy the dip, said
OANDA.
However, bullion has pared recent gains partly because the U.S.
retail sales data suggested the consumer remains strong, which is
spurring expectations that the Fed won't ease up on its policy
tightening.
---
Base metals were marginally lower on worries about China's
economic slowdown.
Recent data suggested that China's stalling economy requires
aggressive stimulus and a swift easing of Covid-19 restrictions,
which don't appear likely soon, said TD Securities. In this
context, base metals are expected to remain under selling
pressure.
---
Iron-ore futures were down more than 2% on concerns over steel
demand in China.
According to a media report, China Steel Corp. said this week
that it will lower domestic steel prices by 2.1% on average for
June delivery, partly due to a brief slowdown in steel demand.
Commodity-grade steel prices remain under pressure as
international supply-side constraints continue to ease for basic
steel products, said Rystad Energy.
TODAY'S TOP HEADLINES
Powell Says Fed Has Resolve to Bring U.S. Inflation Down
The Future of Everything Festival is happening right now. Click
here to register and watch for free as a member.
Federal Reserve Chairman Jerome Powell said the central bank's
resolve in combating the highest inflation in 40 years shouldn't be
questioned, even if it requires pushing up unemployment.
Fed's Evans: Inflation Is Much Too High and Fed Must Act
Federal Reserve Bank of Chicago President Charles Evans said
Tuesday that aggressive central bank rate rises are needed to get
inflation back under control.
"Inflation is clearly much too high and monetary policy must be
repositioned to address this," Mr. Evans said in a speech in New
York.
U.S. Floats Tariff on Russian Oil as EU Oil-Sanction Talks Drag
On
BRUSSELS-The U.S. is talking with the European Union about ways
to limit global energy price increases that could be caused by an
EU-proposed embargo on Russian oil, looking at additional options
like setting a tariff on imports of Russian oil, according to U.S.
Treasury officials.
Treasury Secretary Janet Yellen, who is in Brussels Tuesday
ahead of a meeting of finance ministers of the Group of Seven major
economies in Germany this week, has previously said that the
proposed EU embargo on Russian oil could significantly raise oil
prices globally.
Spain, Australia, U.K. Most Exposed to Financial Shock as Rates
Rise, Says Fitch
SYDNEY-As central banks raise interest rates to combat the
biggest inflation spike in decades, Fitch Ratings says Australia,
Spain and the U.K. are the most exposed to a financial shock.
Australia and Spain's vulnerability stems from a high proportion
of variable-rate mortgage lending, while borrowers in the U.K.
already have relatively high debt-to-income ratios.
China's New-Home Prices Continued to Fall in April
BEIJING-New-home prices in China fell for the first time since
late 2015 on a yearly basis as authorities' efforts to ease
property-purchasing curbs and reverse the property market slump
were yet to take effect.
Average new-home prices in 70 major cities edged 0.11% lower in
April from a year earlier, reversing from March's 0.66% increase,
according to Wall Street Journal calculations based on data
released Wednesday by China's National Bureau of Statistics.
U.S. Economy Is Headed for a Downturn, Wells Fargo CEO Says
Wells Fargo & Co. CEO Charlie Scharf said Tuesday there was
"no question" that the U.S. is headed for an economic downturn.
The Federal Reserve has raised rates twice this year and plans
to keep doing so, part of its bid to cool the economy and curb
red-hot inflation. Higher rates have pushed up borrowing costs for
mortgages, credit cards and other loans. The Fed's moves have
raised the question of whether the U.S. is headed toward a
recession, which some investors fear could happen if the Fed raises
rates too quickly.
U.K. Threatens to Tear Up Key Part of Brexit Deal Due to
Northern Irish Tensions
LONDON-The British government Tuesday threatened to tear up an
important part of its Brexit divorce deal with the European Union,
saying it was causing political paralysis in Northern Ireland.
In a move that risks stoking a trade war with the EU, U.K.
Foreign Secretary Liz Truss said Tuesday the government plans in
the coming weeks to present a law allowing it to unilaterally alter
the terms of a deal agreed in 2019 with its European counterparts
that governs the movement of goods between Northern Ireland, which
is part of the U.K., and the rest of the U.K.
Sweden, Finland to Lodge NATO Bid
Sweden and Finland plan to apply for NATO membership on
Wednesday, according to their leaders, a move that would break with
decades of nonalignment by the two Nordic countries and represent a
major geopolitical shift in Europe in response to Russia's invasion
of Ukraine.
At a joint press conference Tuesday, Swedish Prime Minister
Magdalena Andersson and Finnish President Sauli Niinistö in
Stockholm said the countries plan to jointly present their
applications for membership in the U.S.-led alliance.
Write to paul.larkins@dowjones.com
Expected Major Events for Wednesday
06:00/SWE: 1Q Industrial inventories
06:00/EU: Apr New Passenger Car Registrations in Europe
statistics (EU27 + EFTA3)
06:00/UK: Apr UK producer prices
06:00/UK: Apr UK monthly inflation figures
07:00/SVK: Apr Harmonized CPI
07:00/AUT: Apr CPI
08:30/UK: Feb Card Spending statistics
08:30/UK: Mar UK House Price Index
09:00/CYP: Apr Harmonised CPI
09:00/MLT: Apr Harmonised CPI
09:00/EU: Apr Harmonised CPI
09:00/GRE: Mar Labour Force Survey
10:00/POR: Apr PPI
17:59/POR: Mar Balance of Payments
23:01/UK: 3Q Manpower UK Employment Outlook Survey
All times in GMT. Powered by Kantar Media and Dow Jones.
Write to us at newsletters@dowjones.com
We offer an enhanced version of this briefing that is optimized
for viewing on mobile devices and sent directly to your email
inbox. If you would like to sign up, please go to
https://newsplus.wsj.com/subscriptions.
This article is a text version of a Wall Street Journal
newsletter published earlier today.
(END) Dow Jones Newswires
May 18, 2022 00:25 ET (04:25 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
FTSE 100
Index Chart
From Mar 2024 to Apr 2024
FTSE 100
Index Chart
From Apr 2023 to Apr 2024