MARKET WRAPS
Stocks:
European stocks posted solid gains by midmorning Friday
following a rebound in Asia after China cut its five-year loan
prime rate 15 basis points to 4.45% to support the economy.
"While the move is not seen as sufficient to overcome the more
general headwinds of regional lockdowns and a lack of consumer
demand for the quarter, it nonetheless shows something of a
sympathetic ear from the Chinese authorities which could lead to
more monetary easing in the near future," wrote Interactive
Investor analyst Richard Hunter.
Other analysts pointed to another choppy week for Europe with
sentiment seemingly much more fragile now on general fears the
global economy is headed for a slowdown.
"The one silver lining from the selling of the past two days was
that we managed to close well off from last week's lows, suggesting
a general reluctance to become too bearish too quickly," wrote
Michael Hewson, Chief Market Analyst at CMC Markets UK. "That said
every single rebound we've seen since early April has seen a
rebound shallower than the previous one followed by a lower
low."
Economic Insight:
April's producer prices rise in Germany highlights the stark
challenges facing the country's industrial sector, said Thomas
Rinn, global industrial lead at Accenture.
Producer prices rose 33.5% in April on year. Shocking energy
prices, material costs, and more backlogs than ever recorded for
manufacturers in April has left industrial companies in a
precarious position, hampering their ability to operate smoothly
and remain profitable, Rinn said.
"Though there is clearly demand for production, the sector must
prepare more effectively for inflationary pressures that are
preventing companies from reaping the rewards of strong order
books."
---
A sudden stop in Russian gas supplies to Europe would likely
push the eurozone into a recession, said Fitch.
"Exposures are so large that an immediate and total cessation of
Russian natural gas supplies would result in gas shortages and
rationing, causing a major macroeconomic shock."
According to Fitch's estimates, about 30% of domestic gas
consumption in the eurozone is supplied by Russia.
Eurozone GDP would fall by 0.7% if gas supply declines by 10%
and a 30% loss of gas supply would translate into a 2% decline in
eurozone GDP.
U.S. Markets:
Stock futures pointed to a strong bounce for Wall Street, with
sentiment getting a lift from the China rate cut. But investors
still faced yet another weekly loss.
The data calendar is empty for Friday, but next week will bring
another round of inflation data, personal consumption expenditure
prices excluding food and energy.
Government bonds have largely rallied this week as they
typically perform well in times of economic stress. The yield on
the benchmark 10-year Treasury note held steady at 2.855%, from
2.854% on Thursday.
Forex:
The European Central Bank could move away from negative interest
rates soon but this may not considerably boost the euro as some
anticipate, said RBC Capital Markets.
Looking at recent evidence on central banks moving into or out
of negative rates, it's hard see why the ECB raising its deposit
facility rate from -0.5% to zero would have more impact on the euro
than 50 basis points of cumulative rises at any other point in the
cycle, said RBC currency strategist Adam Cole.
A move to zero in September is more than fully priced and rates
will still remain far below other developed markets, RBC said,
which expects EUR/USD to fall to 1.00 by year-end, from 1.0567
currently.
---
The dollar edged higher after the Fed's Esther George said that
interest rates need to rise further to curb inflation. In an
interview with CNBC, George also said policymakers aren't focused
on the impact rate rises are having on the stock market.
"Not until the Fed pours cold water on tightening expectations
should the dollar build a top," said ING. "And yesterday Fed hawk,
Esther George, said that even this 'rough week' in equity markets
would not blow the Fed off course."
---
Sterling gained after data showed U.K. retail sales unexpectedly
rose in April.
Retail sales increased 1.4% on month in April, with the March
print revised to a 1.2% decline from the 1.4% drop initially
estimated. Economists in a WSJ survey expected retail sales to fall
0.3% in April.
The data suggested the cost-of-living crisis hasn't caused
consumer spending to collapse, said Capital Economics. "This adds
weight to our view that the Bank of England will have to raise
rates further to bring inflation back down to its 2% target."
Bonds:
Intraday fluctuations in the 10-year German Bund have been
substantial in recent days, with the yield trading between 0.9% and
1.1%, said UniCredit Research.
This has contributed to widening spreads between the Bund yield
and those of peripheral bonds--Italian, Spanish and
Portuguese--which are near their widest levels since the outbreak
of the pandemic.
"Lower volatility and clearer communication by ECB officials
could help reduce these spreads to Bunds," though they should
remain wider than earlier this year as the ECB will end net asset
purchases in July, UniCredit said.
Energy:
Oil prices ticked lower, on course to end the week largely where
they began, as investors weigh concerns about both supply and
demand.
Demand concerns stemming from Chinese lockdowns and flagging
global growth are balanced by tight supplies, heightened by the
threat of an EU embargo on Russian oil.
"The market continues to be torn between tight supply on the one
hand, led by underperformance by the OPEC+ group and export
declines in Russia, and weakening demand on the other, with
lockdowns in China undercutting imports," said Fitch.
Metals:
Gold prices were higher, adding to this week's gains, with the
precious metal looking slightly more attractive to investors as
other safe-haven assets slip.
Fitch said it expects significant volatility for gold prices
going forward, but sees gold prices remaining elevated due to
uncertainty surrounding the Ukraine invasion.
---
Copper prices, higher early Friday, are set to post their first
weekly gains since the end of March.
Expectations that China's copper demand is set to rise during
the second half of the year combined with labor shortages and high
energy costs hitting the red metal's supply growth, have helped
support prices, said ANZ Research.
"The prospect of a rebound in demand in China, amid falling
inventories, is unlikely to keep downward pressure on metals prices
for long."
DOW JONES NEWSPLUS
EMEA HEADLINES
Richemont Shares Fall After FY Op Profit Missed Views, No
Resolution Regarding YNAP
Shares in Compagnie Financiere Richemont SA fell sharply Friday
after it said full-year profitability missed expectations and a
planned divestment of its e-commerce platform Yoox Net-a-Porter
remained unresolved.
At 0740 GMT, shares in the Swiss luxury-goods giant traded 10%
lower at CHF10.94.
German Producer Prices in April Posted Highest Increase on
Record
Germany's producer prices rose strongly in April, driven by
higher energy prices, posting the biggest increase ever recorded,
the German statistics office Destatis said.
Producer prices rose 33.5% on year, Destatis said.
THG Rejects GBP2.07 Bln Bid From Belerion Capital, King
Street
THG PLC said late Thursday that has it rejected a proposal from
investment companies Belerion Capital Group Ltd. and King Street
Capital Management, LP for 170 pence a share, which valued the deal
at 2.07 billion pounds ($2.58 billion).
The U.K.-listed online retailer--known as the Hut Group--said
this had been an unsolicited, highly preliminary and indicative
nonbinding proposal, and that it undervalued the company and its
future prospects.
EDF Delays UK Hinkley Point Nuclear Plant Start Date, Raises
Costs Estimates
Electricite de France SA said late Thursday that it has delayed
the start date of its U.K. Hinkley Point C nuclear plant by a year
and now estimates project costs in the range of 25 billion to 26
billion pounds ($31.18 billion-$32.43 billion).
The French utility company said the start of electricity
generation for unit 1 of the reactor is targeted for June 2027 and
risk of further delay for the two units is assessed at 15
months.
U.K. Retail Sales Rebounded in April
U.K. retail sales rebounded in April, beating analysts'
forecasts, as spending on alcohol, fuel and at online stores rose,
the Office for National Statistics said Friday.
Retail sales volumes rose 1.4% last month from March. Economists
polled by The Wall Street Journal had forecast retail sales would
weaken by 0.3%.
Air France-KLM in Talks With Apollo for $530 Mln Capital
Injection
Air France-KLM said Friday that it has entered into exclusive
discussions with Apollo Global Management Inc. for a 500 million
euro ($529.3 million) capital injection to an affiliate of Air
France that owns of a pool of spare engines for the air
carrier.
The capital injection would reinforce the group's equity, as
well as facilitate the financing of future spare-engine purchases
under Air France's fleet-renewal program, the airline said.
SoftBank-Backed Fintech Giant Klarna Looks for New Funds at
Lower Valuation
Klarna Bank AB is seeking to raise new funds that could value
the fintech giant at almost a third less than the roughly $46
billion valuation it achieved just under a year ago, according to
people familiar with the matter, an example of the struggles facing
the tech investing world.
Klarna specializes in buy-now-pay-later services, a popular type
of cash advance that competes with credit cards and lets customers
pay for goods and services in installments without paying interest.
Klarna makes money by charging merchants who offer Klarna's
services a fee.
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.
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.
GLOBAL NEWS
China's Central Bank Makes Unexpected Rate Cut as Growth
Crumbles
SINGAPORE-China's central bank cut a key interest rate while
keeping another unchanged, an unexpected policy shift that
economists said would likely help the country's moribund housing
market but bring only limited relief to its struggling economy.
The latest in a series of targeted steps by the central bank
highlights how policy makers in China are constrained by rising
interest rates in the U.S. and Beijing's zero-tolerance approach to
the pandemic. Easing too aggressively would risk prompting capital
to flee China in search of better returns, while lockdowns are
crushing appetite for new loans from businesses and households.
Glynn's Take: RBA Likely to Consider Big Rate Hike in June
SYDNEY-The Reserve Bank of Australia's upcoming board meeting on
June 7 will again be dominated by the uneasy reality that policy
settings remain a long, long way from where they should be given
the huge jump in inflation over the past six months.
For that reason alone, a 40-basis-point rise in the official
cash rate next month to 0.75% can't be ruled out. The RBA faces
more than the usual amount of uncertainty around the economic
outlook and won't go overboard. But there is scope to act early and
with urgency.
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.
Palm Oil Outlook Still Bearish Despite Prices Rebounding --
Talking Markets
Palm oil prices recovered quickly from a knee-jerk dip after
Indonesia said its soon-to-be-lifted export ban will be replaced
with a requirement for local producers to keep some output for
domestic consumption.
But the outlook for the edible oil remains bearish as Malaysia
and Indonesia, the world's biggest palm oil producers, head into a
high production season in the second half, with supply likely to
overtake demand despite a potential easing of China's Covid-19
restrictions and the Russia-Ukraine conflict, analysts say.
Gas Prices Hit New Highs Again With All 50 States Above $4 a
Gallon
Gas prices continued to rise across the U.S. this week, and
pressure on the pump is unlikely to decrease as the summer travel
season begins.
The average price for a gallon of regular unleaded gasoline in
the U.S. hit a record of $4.59 on Thursday, according to AAA. It is
the highest national average recorded by AAA since they began
tracking fuel costs in 2000. On average, prices are about 50 cents
more a gallon than they were a month ago. A year ago, the average
cost of a gallon of gas was $3.04, according to the group.
Senate Passes $40 Billion Aid Package for Ukraine
WASHINGTON-The Senate passed a nearly $40 billion military and
economic aid package to help Ukraine repel Russia's invasion,
sending the bill to President Biden's desk and bringing America's
commitment to almost $54 billion.
The 86-11 vote was overwhelmingly bipartisan, with all Democrats
and most Republicans voting yes. The Republicans who opposed the
bill cited its price tag and misgivings about long-term involvement
in funding a foreign war.
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(END) Dow Jones Newswires
May 20, 2022 05:35 ET (09:35 GMT)
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