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
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(END) Dow Jones Newswires
May 20, 2022 00:22 ET (04:22 GMT)
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