MARKET WRAPS

Watch For:

EU Consumer Confidence Index; Germany PPI; France New Home Sales; UK Retail Sales; G7 Finance Ministers/Central Bank Governors Meeting concludes; updates from Richemont, Wacker Chemie, EssilorLuxottica, Croda, Old Mutual

Opening Call:

European equities should bounce back Friday after China's surprise stimulus move helped lift the mood in Asia. leaving stocks higher. Elsewhere, the dollar and Treasury yields gained slightly while oil and gold edged lower.

Equities:

Higher stock-index futures suggest a swift rebound for European shares Friday, likely buoyed by solid gains in Asia after China made an unexpected rate cut.

The PBOC lowered the benchmark lending rate for loans with tenors of five years or more, a move that could help trim financing costs for struggling businesses.

The central bank said the five-year loan prime rate was cut to 4.45%, down from 4.6% previously.

The cut was unexpected after the central bank kept the key policy rate-the medium-term lending facility that is used to price LPR by commercial banks-unchanged earlier in May.

Meanwhile, the PBOC kept the one-year LPR unchanged at 3.7%.

U.S. stocks gave up earlier gains to end lower Thursday, leaving the S&P 500 index down almost 19% from its record, or close to a bear market.

Forex:

The dollar was slightly firmer in Asia, with the USD Index edging above 103.00 following a rise in Treasury yields, which increases the appeal of USD-denominated fixed-income assets.

The euro eased down after it touched a two-week high against the dollar after Thursday's European Central Bank minutes suggested a high likelihood of interest rates rising in July due to inflation fears.

"A rate hike in July is no longer uncertain, the only uncertainty is whether it will be 25bp or 50bp," said ING. The ECB's minutes stressed high inflation was likely to persist for now, and confirmed that interest rates rising "some time" after net asset purchases end could mean as little as one week. The ECB "wants not just to run but to sprint, " ING added.

Other News:

The cryptocurrency bloodbath shouldn't bring a massive amount of pain to the overall U.S. economy, said Goldman Sachs.

Losses in this sector are likely modest relative to total American wealth and any headwinds to overall spending as a result of the woes of cryptocurrencies should be "very small."

Goldman said financial conditions are tightening broadly on the hawkish shift in monetary policy and "any incremental impact from the recent declines in cryptocurrency prices will likely be modest."

Bonds:

10-year Treasury yields nudged higher in Asian trading after they hit their lowest levels in a week Thursday as investors sought safety in government bonds.

"Investors have become increasingly concerned the market is overtightening for the Fed before the Committee has even brought rates back to neutral," said BMO Capital Markets.

"At the end of the day, the simple characterization of the price action of the last couple weeks is that the market is testing the Fed's resolve. A more cynical interpretation would be investors are attempting to call the Fed's bluff, although we're less convinced of this narrative."

Energy:

Oil futures swung lower in Asia on the prospects of Russian supply to China.

China is reportedly in talks with Russia to replenish its strategic crude reserves, taking advantage of discounted Russian oil, said NAB.

This would be a sign of strengthening energy ties between them and could damp the impact of European efforts to limit Russian oil exports, NAB added.

Other News:

Some of Europe's biggest natural-gas utilities have agreed to new payment terms with Russia's Gazprom, defusing the threat of a sharp cutoff of Russian gas to the region after Vladimir Putin demanded payment in rubles.

Italy's Eni, one of Europe's biggest buyers of Russian gas, this week agreed to open both accounts with Gazprombank. The company said it would make its first payment under the new terms in coming days.

Utilities in Germany, the largest buyer of Russian gas, said they have opened euro accounts with Gazprombank, while France's Engie said it is testing a new payment mechanism that would keep the gas flowing and won't violate European sanctions.

Read more here.

Metals:

Gold futures edged into negative territory as risk-on sentiment improved slightly in Asian markets, dulling the safe-haven appeal of bullion.

Gold has been basically flat this year as the S&P 500 has dropped about 18%. Analysts at HSBC Global Private Banking said the current environment is one that's mixed for gold.

"Gold of course typically behaves differently from the more cyclical commodities, and the rising real rate and strong dollar are headwinds for gold, while the mixed risk appetite is a tailwind."

---

Copper was down around 0.4% on worries over China's continuing Covid-19 lockdowns.

Although overall Covid cases in China are falling, many restrictions remain in place and local flare-ups continue to raise concerns of further lockdowns, said TD Securities.

A cluster in China's Sichuan province is of particular concern given potential spread to Chongqing, a major manufacturing hub.

---

Iron ore futures were higher on an improvement in market sentiment, boosted by gains in Asian equities.

However, China's imports of base metals may remain subdued this year in view of the continued contraction in housing activity, said Barclays.

Iron-ore and copper imports by volume remained deep in contraction in April, which reflects weak demand for housing construction, Barclays said.

   
 
 

TODAY'S TOP HEADLINES

China PBOC Cuts Five-Year Benchmark Lending Rate

China's central bank on Friday lowered the benchmark lending rate for loans with tenors of five years or more, a move that could help lower financing costs for struggling businesses.

The People's Bank of China said the five-year loan prime rate was cut to 4.45%, down from 4.6% previously.

   
 
 

Japan Inflation Tops 2% for First Time in 13 Years

TOKYO-Consumer prices in Japan rose at a pace above 2% for the first time in more than 13 years, a sign of how higher costs of energy and raw materials are hitting even the world's most inflation-resistant regions.

Despite the price numbers released Friday and interest-rate increases by other global central banks, the Bank of Japan is likely to stick to its policy of keeping interest rates near zero. Both the BOJ and outside economists see consumer demand in Japan as relatively weak and believe inflation above the bank's 2% target is unlikely to take hold.

   
 
 

Russia Rejects Pleas to Permit Grain Shipments From Ukraine

Russia dismissed calls from top United Nations and Western officials to halt a Black Sea blockade that has prevented Ukraine from exporting much of its grain to world markets, causing price hikes and exacerbating food shortages.

Moscow's ambassador to the U.N., Vasily Nebenzya, told a meeting of the U.N. Security Council on Thursday that rising food prices had been caused by Western sanctions against Russia and other factors, rather than the nearly three-month old war in Ukraine. He didn't acknowledge calls to negotiate the shipment of grain from Odessa and other Ukrainian ports.

   
 
 

Europe's Natural-Gas Buyers Defuse Standoff With Kremlin Over Ruble Payments

PARIS-Some of Europe's biggest natural-gas utilities have agreed to new payment terms with Russia's Gazprom, defusing the threat of a sharp cutoff of Russian gas to the region after President Vladimir Putin demanded payment in rubles.

The demand roiled Europe's energy industry and prompted warnings from the European Union that paying for gas in rubles would run afoul of sanctions the bloc imposed in response to February's invasion of Ukraine. Gazprom last month cut off supply to Poland and Bulgaria after the countries refused to comply with a Kremlin decree.

   
 
 

Crypto Exchange FTX Expands Into Stock Trading

Crypto exchange FTX will let customers trade stocks and exchange-traded funds on its popular trading app alongside bitcoin and dogecoin.

FTX said Thursday that it opened access to its new stock-trading service for a limited number of U.S. users, It plans to expand the functionality to all American customers in the next few months, the head of the crypto exchange's U.S. arm said in an interview.

   
 
 

U.K. Consumer Confidence Falls to Record Low as Cost of Living Crisis Intensifies

Confidence among British consumers fell in May to its lowest level in at least five decades as high inflation continued to weigh on households moods and squeezed real incomes.

The consumer-confidence barometer compiled by research firm GfK declined to minus 40 in May from minus 38 in April, the lowest level since the survey began in 1974. The index, which gauges consumers' views on the general economy and their personal finances, has decreased for six consecutive months.

   
 
 

Sweden, Finland Weigh Cyber Risks Stemming From NATO Applications

Authorities in Sweden and Finland have raised alert levels for cyberattacks, concerned they face increased hacking risks because of the war in Ukraine and the two Nordic countries' subsequent applications to join NATO.

Since Russia invaded Ukraine in February, cybersecurity officials in Sweden and Finland haven't seen an increase in attacks targeting critical infrastructure, though they say the countries are becoming more interesting targets for hacking groups with Russian ties.

   
 
 

Write to paul.larkins@dowjones.com

   
 
 

Expected Major Events for Friday

04:30/NED: May Consumer confidence survey

06:00/GER: Apr PPI

06:00/DEN: May Consumer expectations

06:00/UK: Apr UK monthly retail sales figures

06:30/SWI: 1Q Industrial production

06:45/FRA: 1Q New home sales

07:00/SPN: Mar Industrial Orders & Turnover

08:00/POL: Apr Average gross wages

08:00/POL: Apr Agricultural prices

08:00/POL: Apr PPI

08:00/POL: Apr Industrial Production Index

09:00/LUX: Apr Unemployment

10:00/UK: Apr Aluminium Production report

10:00/IRL: Apr WPI

13:00/BEL: May Consumer Confidence Survey

14:00/EU: May FCCI Flash Consumer Confidence Indicator

15:59/GRE: Mar Balance of Payments

17:59/POR: Feb ICSG Copper Report

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

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

 

(END) Dow Jones Newswires

May 20, 2022 00:22 ET (04:22 GMT)

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