European equities mostly drifted lower Wednesday as investors
continued to weigh the Federal Reserve's commitment to fight
inflation after the latest hawkish comments from Jerome Powell.
Mining shares retreated on weaker base metals while the oil
sector gained as crude futures rose.
On the economic front, U.K. annual inflation reached a
four-decade high of 9% in April as higher energy prices fed through
households' utility bills, exacerbating a cost-of-living crisis
that is squeezing consumers' real incomes.
The consumer price index--which measures what consumers pay for
some goods and services--increased at its fastest pace since 1982,
a sharp pickup from the 7% inflation rate registered in March.
Track the latest reactions to the data here.
Citi's rates strategists expect the market to likely gravitate
toward a 50% chance of a 50 basis point interest rate rise by the
European Central Bank at the July monetary policy meeting.
They consider a 25bp rate hike in July "as close to a 'done
deal' as it can be," adding that there appears to be little
opposition across the ECB's Governing Council to ending negative
rates. The strategists expect the "hawks" to become worried about
recession closing the window for raising rates.
Stock futures traded modestly lower on Powell's hawkish
Jim Reid, an analyst at Deutsche Bank, said that while Powell's
sentiment was not "necessarily new, his explicit comment that
neutral rates are 'not a stopping point' garnered focus" on Wall
The yield on the benchmark 10-year Treasury note ticked down to
2.964% from 2.969% Tuesday.
Shares on the move premarket:
Lowe's was up slightly ahead of the company's first-quarter
earnings report. Home-improvement rival Home Depot finished with a
gain of 1.7% Tuesday after earnings topped analysts' expectations
and it raised guidance for 2022.
Target gained 0.4%. It reports earnings Wednesday. Shares of the
retailer fell 1.4% Tuesday after Walmart missed first-quarter
earnings expectations and forecast a decline in full-year per-share
The scope for the euro to rise against the dollar looks limited
as the market's expectations for interest-rate rises from the ECB
seem too aggressive, said ING.
Markets are pricing in too much tightening for the ECB but not
for the Fed, while the U.S.-eurozone growth divergence will become
more relevant into the summer, exacerbated by the EU-Russia
standoff on commodities, said ING.
"With this in mind, we suspect that any further rally in EUR/USD
may start to lose steam around the 1.0650-1.0700 area, with risks
of a return below 1.0500 in the near term being quite
Sterling fell after data showed U.K. inflation accelerated
further in April, hitting 9%, and adding pressure on already
strained household incomes. Economists polled by the WSJ expected
inflation to reach 9.1%.
"Inflation in the U.K. is completely out of control, and there
is no doubt that soaring inflation is having a negative influence
on disposable incomes," said AvaTrade analyst Naeem Aslam.
The Bank of England is under pressure to do more to control
inflation but it is walking a fine line and can only do so much, he
Eurozone government bonds steadied in early European trading
following a selloff Tuesday triggered by a risk-on mood in global
Citi estimates the fair value of France's new 0.75% February
2028 government bond 8 basis points above the yield of the 0%
February 2027 OAT.
The French Treasury Agency will launch the new bond as part of a
EUR10 billion-EUR11.5 billion auction Thursday where it will also
reopen the 0% February 2025 OAT and the 0% February 2026 OAT. Citi
said they see relative value in the February 2025 and February 2026
OAT on the French bond curve.
The green premium on Denmark's 0% November 2031 green bond,
which will be reopened at auction on Wednesday, has narrowed to 1
basis point versus its conventional twin bond from around 5 bps at
the launching auction in January, said Danske Bank. However, the
green premium rarely goes below 1 bp and thus the 10-year Danish
green bond looks cheap relative to EU peers such as Germany and the
The green premium, or "greenium", on the Danish green government
bond is exactly measurable because the Danish debt management
office issues green bonds in a twin-bond structure, first applied
by Germany, with conventional and green bonds having identical
maturity and coupons.
Oil futures were more than 1% higher on easing Covid curbs in
China and expectations for new sanctions on Russia, with DNB
Markets forecasting prices will rise as high as $130 by the end of
the year before easing to $115 next year.
A combination of increased demand as China eases its Covid-19
lockdowns and declining Russian oil production is likely to
completely exhaust global capacity by the end of the year, said DNB
Macquarie said that while the near-term outlook for oil is
strong, it 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.
Industrial metals weakened on gloomy signs for the global
economy following Powell's comments Tuesday. And weak Chinese data
in recent days caused by lockdowns have raised concerns about
DOW JONES NEWSPLUS
UK Inflation Accelerated to 40-Year High of 9% in April
U.K. annual inflation reached a four-decade high of 9% in April
as higher energy prices fed through households' utility bills,
exacerbating a cost-of-living crisis that is squeezing consumers'
The consumer price index--which measures what consumers pay for
some goods and services--increased at its fastest pace since 1982,
a sharp pickup from the 7% inflation rate registered in March,
according to data from the U.K.'s Office for National Statistics
Siemens Energy Is Considering Tender Offer for Siemens
Siemens Energy AG on Wednesday said it is considering a cash
tender offer for all outstanding shares of Siemens Gamesa Renewable
Energy SA with the aim of delisting.
"The outcome of this consideration is open," the German energy
company said following media reports earlier this week. "No
decision has been made and there is no certainty that a transaction
Finland, Sweden Apply for NATO Membership, Breaking Decades of
Finland and Sweden formally applied for NATO membership on
Wednesday, a move that, if approved, would fundamentally transform
the security landscape of Northern Europe and give the alliance a
valuable edge against Russia following Moscow's invasion of
The two Nordic countries' bid to join the North Atlantic Treaty
Organization breaks with a decadeslong defense doctrine that has
seen them balance political and security partnerships with other
Western nations while staying out of formal military alliances.
Burberry FY 2022 Profit Rose Despite 4Q Hit From China
Burberry Group PLC on Wednesday reported an improved profit for
the year ended April 2, although coronavirus restrictions in China
severely affected the business in the fourth quarter.
The U.K. luxury brand made a pretax profit of 511 million pounds
($638.5 million) in fiscal 2022, up from GBP490 million a year
ABN AMRO Swung to 1Q Net Profit; Sees War in Ukraine Affecting
ABN AMRO Bank NV said Wednesday that it swung to net profit for
the first quarter, and that it expects the war in Ukraine to affect
The Dutch lender reported a net profit of 295 million euros
($311.3 million), compared with a net loss of EUR54 million a year
EU New Car Sales Slumped in April as Supply Squeezes Drag On
Continued supply chain pressures led to a big decline in new car
registrations in the European Union in April, according to data
from European Automobile Manufacturers Association, or ACEA.
Total new car registrations in the bloc fell 21% on year to
684,506 units sold. This was the lowest volume for the month of
April since records began, barring the Covid-19 pandemic-hit April
2020, ACEA said. "[S]upply chain issues continued to weigh heavily
on car production," the association said.
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.
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.
U.S. Floats Tariff on Russian Oil as EU Oil-Sanction Talks Drag
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 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
Mariupol's Last Defenders Yield, Ending Long Russian Siege
KYIV, Ukraine-Soldiers defending the Ukrainian city of Mariupol
laid down their arms at the sprawling steel plant that served for
weeks as their final redoubt, ending months of bloody battle for
the industrial port that has become a symbol of Russia's invasion
and Ukraine's resistance.
More than 260 soldiers were taken to Russian-controlled
territory on Tuesday morning after Ukraine announced the end of
combat operations in Mariupol. Video footage released by Russia's
Defense Ministry appeared to show the men being patted down and
escorted to waiting buses. Some were on stretchers, some wrapped in
bloodied bandages, and many were gaunt after weeks of surviving on
How Germany Is Racing to Sever Dependence on Russian Energy
WILHELMSHAVEN, Germany-Days after taking office as Germany's
vice chancellor and economy minister in December, Robert Habeck
asked his most senior officials for a detailed assessment of his
country's dependence on Russian energy. The result shocked him.
The country heavily relied on Russian hydrocarbons to power
vehicles and factories and heat homes, and there was no contingency
plan to secure other supplies, Mr. Habeck said. The government had
no viable alternative to Russian imports.
Powell Says Fed Has Resolve to Bring U.S. Inflation Down
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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
China's New Home Prices Fall for the First Time in More Than Six
BEIJING-A monthly measure of new home prices in China fell for
the first time in more than six years, offering further evidence of
the pain that Beijing's regulatory campaign is inflicting on a
sector that has long served as an economic growth engine.
Average new-home prices in 70 major cities edged 0.11% lower in
April from a year earlier, according to Wall Street Journal
calculations based on data released Wednesday by China's National
Bureau of Statistics.
Chinese Bonds Suffer Third Straight Month of Foreign
Foreign investors cut their holdings of Chinese bonds in yuan by
more than $16 billion in April, marking a third straight month of
Global investors started scaling back their investments in
February, amid concerns about the geopolitical risks of investing
in Chinese assets, and about the economic impact of China's tough
approach to Covid-19. Yields on Chinese sovereign bonds last month
fell below those on equivalent U.S. Treasury notes for the first
time in more than a decade, further reducing the former's
Japan's Economy Shrank Slightly in First Quarter
TOKYO-Japan's economy contracted in the first three months of
this year, when restrictions related to a resurgence of Covid-19
infections held back consumer spending.
While economists expect a rebound in the current April-June
quarter, the outlook for this year is cloudy because of factors
including Russia's invasion of Ukraine, the rise in energy prices
and the weakness of the yen, which is near a 20-year low against
North Korea Receives Aid From China as Covid Outbreak
SEOUL-North Korea, battling its first major Covid-19 outbreak,
has reached out for help to its closest ally, China, while ignoring
offers of vaccines from South Korea.
Three North Korean cargo planes flew to the Chinese city of
Shenyang on Monday, returning the same day carrying basic medical
supplies, according to diplomats familiar with the flights.
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(END) Dow Jones Newswires
May 18, 2022 05:48 ET (09:48 GMT)
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