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MARKET WRAPS

Watch For:

EU M3; Italy Foreign Trade non-EU; UK Capital Issuance, Advance Economic Indicators Report; updates from Pepkor, SAS, Old Mutual, Reckitt Benckiser, MTN Group

Opening Call:

An upbeat session on Wall Street should support gains for most European markets early Friday. In Asia, shares were solidly higher, along with oil and gold; the dollar dipped and Treasury yields were flat.

Equities:

Most major European benchmarks should add to recent gains Friday, although London's FTSE 100 faces a more cautious start, with Brexit tensions and the fallout from the energy windfall tax likely to weigh.

U.S. stocks wrapped up another solid day Thursday, as the market continued to chewed over the Federal Reserve minutes and after strong results from retailers lifted sentiment across the market.

Markets were mainly higher in Asia, despite data showing China's industrial profits fell 8.5% in April, reversing from 10.6% growth in March, as the country grappled with Covid-19 lockdowns in Shanghai and other cities, which wreaked economic havoc.

Read more here.

Stocks to Watch:

BHP has the edge over Rio Tinto as an investment opportunity as the market focus tilts toward growth, said UBS analyst Lachlan Shaw.

"We prefer BHP on operational performance and portfolio/growth optionality. BHP has an unparalleled copper equity resource position and significant nickel optionality."

Still, UBS is neutral-rated on both stocks. While elevated commodity prices continue to drive strong earnings for both miners in the short term, UBS is cautious around the price of iron ore in the medium to long term. Most of BHP and Rio Tinto's profit comes from iron-ore sales.

Economic Insight:

High inflation and a tight labor market are driving upward pressure on the eurozone's annual wage growth, said Fitch.

Unions have been pushing for higher wages and minimum wage rates are also increasing in most eurozone countries, Fitch said. Reflecting this, annual growth in the European Central Bank's indicator of negotiated wages rose from a subdued 1.6% in the fourth quarter to 2.8% in the first quarter of 2022.

Labor market indicators point to tight conditions, with the unemployment rate at a record low, Fitch said.

"Stronger momentum behind wage growth will support hawks on the ECB's governing council who are increasingly concerned about second-round effects."

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The Fed's desire to see financial conditions tighten is risky for the economy, said Deutsche Bank economists.

"We find that tighter financial conditions will help to move inflation closer to the Fed's objectives over horizons of two to three years. However, the magnitude of [financial conditions] tightening required to center the distribution around values much closer to 2% is extremely tight, consistent with elevated recession risks over the next three years."

Fed officials have welcomed tighter financial conditions and have argued that part of what they need to do now with rate rises is ratify the market's existing expectations of tighter monetary policy.

Forex:

The dollar weakened further in a mostly risk-on Asian session, with sentiment boosted by some U.S. retailers' strong earnings and positive outlooks, said Tina Teng, analyst at CMC Markets.

The broad relief rally suggests that investors may have overreacted to a recession scenario that could have been triggered by central banks' rate-increase approach, Teng added.

In the U.S., the VIX--Wall Street's fear gauge--fell 2.6% to 27.64 Thursday after trading as high as 36.64 earlier this month.

Friday will bring a look at the Fed's preferred inflation indicator, the core personal consumption expenditures price index.

Read: Fed Official Says Digital Dollar Could Coexist With Stablecoins

Bonds:

Treasury yields held steady in Asia, with the 10-year note yield remaining below 2.8%, as traders scale back expectations for 2022 Fed rate hikes.

Financial markets appeared to conclude from the Thursday's U.S. GDP report that the Fed could back off somewhat on continued aggressive rate increases, with Fed-funds futures traders pulling back on their expectations for continued hikes.

They're now placing a 57% chance on the fed-funds rate target getting between 2.5% and 2.75% by December, up from 35% a week ago. The likelihood that policy makers will get to a target between 2.75% and 3% by year-end, from a current level between 0.75% and 1%, dropped to 34% from 51% on May 19.

Energy:

Oil prices inched higher in Asian trade, after they ended with gains of more than 3% Thursday on data that showed a decline in U.S. crude and gasoline inventories ahead of the summer driving season.

ANZ said strong demand and supply shortages is likely to continue tightening the market.

"Despite the EU struggling to reach an agreement on sanctions on Russia's oil, supply is increasingly constrained."

Metals:

Gold futures advanced further as the dollar continued to weaken.

Safe-haven buying of the precious metal has been supported by the prospects of an economic slowdown due to China's Covid-19 lockdowns and the Russia-Ukraine conflict, but this may be offset by worries of an aggressive rate-hike cycle by the Fed, said ANZ.

"Ultimately what inflation does over the next couple of months will have a big part to play in gold's performance."

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Base metals gained on the improving market sentiment.

The possibility that China may ease its zero-Covid-19 policies is keeping sentiment afloat, said SPI Asset Management's Stephen Innes. Also, this week's FOMC meeting minutes have spurred speculation the Fed's hawkishness may have peaked.

Iron ore futures rose almost 4% on hopes for economic-stimulus measures from China spurred by Premier Li Keqiang's recent comments.

Investors continue to look ahead to such measures, which could support demand, said ANZ. However, any plan to boost infrastructure spending won't lift demand until steel production begins to rebound.

TODAY'S TOP HEADLINES

China's Industrial Profit Slid in April on Lockdown Impact

BEIJING-China's industrial profit slid in April as the country grappled with Covid-19 lockdowns in Shanghai and other cities, which wreaked economic havoc.

Profits at China's industrial firms dropped 8.5% in April, reversing from 10.6% growth in March, the National Bureau of Statistics said Friday. Industrial profit increased 3.5% in the first four months of the year, slowing from 8.5% growth in the first quarter, the bureau said.

Digital Dollar Could Coexist With Stablecoins, Fed Vice Chairwoman Says

WASHINGTON-A U.S. central bank digital currency could one day provide consumers with a level of safety amid a proliferation of privately-issued digital assets such as stablecoins, Federal Reserve Vice Chairwoman Lael Brainard told House lawmakers Thursday.

Ms. Brainard told the House Financial Services Committee that in the future a central bank digital currency could coexist with and be complementary to stablecoins by providing a widely available, government-backed means of payment.

Europe's Quest for Alternatives to Russian Gas Hits Obstacles in Middle East

Europe is hitting roadblocks as it tries to find alternatives to Russian gas in the Middle East and North Africa, as talks with big producers like Qatar, Algeria and Libya have become complicated.

The issues that have snarled negotiations range from the pricing of Qatari gas to stability in Libya and the politics of Western Sahara, a disputed North African territory. The challenges mark another indication that Europe will struggle to fully replace energy from Russia, which supplies 38% of the continent's natural gas.

Ukraine Slams Idea of Swapping Land for Peace

KYIV, Ukraine-Ukrainian President Volodymyr Zelensky dismissed suggestions that his country should cede territory to Russia in return for peace, comparing them to attempts to appease Nazi Germany, as Russia stepped up its attacks in Ukraine's east.

With the war in Ukraine now past the three-month mark, there is debate among Western officials about what it would take to achieve a cease-fire, and what concessions-including territorial ones-such a deal might necessitate. But despite Russia's renewed attacks in Kharkiv and other areas of the east, Moscow has absorbed heavy losses in both troops and equipment, raising questions of how long it can sustain the forward thrust of its military campaign in Ukraine.

Russia's Economy Is Tanking but the Ruble Soared. Here's Why.

Sanctions against Russia have pushed its economy into what could be the biggest decline in decades, but the country's currency has gone the other way.

The ruble strengthened this week to levels not seen since 2018, making the currency the second-best performer against the dollar this year, based on a Dow Jones Market Data analysis of 56 currencies, trailing only the Brazilian real. The ruble has risen 16% against the greenback in 2022 and is up nearly 150% since it bottomed out days after Russia's invasion of Ukraine three months ago.

Glencore Said It Revamped Its Compliance Program Following Guilty Pleas

Glencore PLC said it has revamped its ethics and compliance program, including boosting its annual compliance spending and hiring more full-time compliance staff, as the global mining and trading company settles corruption and bribery charges in the U.S., U.K. and Brazil.

The Anglo-Swiss commodities company published a 13-page investor update on the same day it announced the settlements with various regulators, saying it has "invested substantial resources" in its ethics and compliance program and has renewed its commitment to integrity and transparency.

Dell's Earnings Crush Estimates on Strong Enterprise Demand

Dell Technologies posted strong results for its fiscal first quarter, driven primarily by better-than-expected demand for enterprise computing hardware, and continued healthy sales of business PCs.

The company also significantly increased its full-year guidance.

American Shoppers Boost Retailers With Spending on Work Clothes, Discount Staples

American shoppers boosted spending at department stores and discount chains, showing resilience amid inflationary pressures that have weighed on consumers and dented results at many big retail chains.

Macy's Inc. and Dollar Tree Inc. reported strong sales increases in their most recent quarters. Those results came as shoppers spent more on clothing for work and special occasions, while turning to discount chains for necessities to offset rising costs for food and fuel. Another budget chain, Dollar General Corp., posted flat sales but raised its outlook for the full year, saying cash-strapped shoppers are gravitating to its stores more frequently.

Write to paul.larkins@dowjones.com

Expected Major Events for Friday

06:00/SWE: Apr Retail sales

07:00/SVK: Apr PPI

07:00/SPN: Apr Retail Sales

08:00/AUT: May Austria Manufacturing PMI

08:00/ITA: Apr Foreign Trade non-EU

08:00/EU: Apr Monetary developments in the euro area (M3)

08:30/UK: Apr Capital issuance

09:00/CRO: 1Q Flash Estimate GDP

09:00/CRO: Apr Retail trade

09:00/CRO: 1Q GDP

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

(END) Dow Jones Newswires

May 27, 2022 00:30 ET (04:30 GMT)

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