MARKET WRAPS

Stocks:

Most European benchmarks pushed higher Friday on improved risk sentiment after Wall Street's rally and following some encouraging U.S. earnings.

London's FTSE 100 lagged, however, as utility and oil companies were under pressure after U.K. Treasury Chief Rishi Sunak Thursday outlined a windfall tax on oil-and-gas producers to ease a cost-of-living crisis.

Market Insight:

UniCredit said a majority of European companies have reported better-than-expected quarterly financial results but this comes with warnings that future earnings may not meet analysts' expectations.

"The earnings season is almost over, with almost 90% of Stoxx Europe 600 corporates having reported their quarterly results," UniCredit analysts said, adding that companies surprised mostly on the upside.

Around 72% of them reported better-than-expected revenue and 65% reported better-than-expected earnings, though most companies issued outlook warnings, with the war in Ukraine likely to weigh on future earnings as the conflict drags on.

The ECB:

The European Central Bank is more likely to initiate the interest rate rise cycle with 25 basis points in July as favored by Christine Lagarde, rather than the 50 bps that has been advocated for by the more hawkish camp of the Governing Council, said SEB.

Although recent comments by ECB members paint a picture of a divided Governing Council, SEB continues to forecast 75 bps of deposit rate rises in 2022, followed by another 75 bps in 2023.

---

If the ECB Bank starts its interest rate rise cycle with a 50 basis-point increase in July, the market would likely price in follow-up 50bp rises in the rest of the year, said Barclays.

However, a 50bp rise in July is not a certainty as inflation expectations are starting to cool off from their peaks, while recessionary noise is increasing in the background.

Markets are pricing in an ECB deposit rate rise of slightly more than 25bps for July and a total of more than 100bps for 2022, according to Refinitiv data.

Economic Insight:

The U.K. government's fiscal package, valued at around GBP15 billion, significantly reduces the chances of the economy falling into recession later this year because it is timely and well-targeted, said Pantheon Macroeconomics' chief U.K. economist Samuel Tombs.

The extra support is expected to fully compensate the rise in October's energy bills at least for low-income households, whose finances have been most affected by the current cost-of-living crisis, he says. The extra cash is expected to increase GDP by 0.7% in the second half if all spending is concentrated this year, Tombs said.

"Accordingly, the risk of recession has fallen substantially."

U.S. Markets:

Stock futures edged higher, putting major indexes on track to extend a recent stretch of gains and snap a punishing losing streak.

Investors will parse data including consumer spending to get a better gauge of how Americans are feeling. Trading volumes may be light Friday ahead of the U.S. holiday weekend.

In early New York trading, shares of Dell jumped 12% after reporting a rise in profit and a decline in some operating expenses. Ulta Beauty climbed 8% after the retailer raised its full-year sales and earnings guidance following better-than-expected first-quarter results.

Gap shares tumbled 16% premarket after the retailer swung to a loss amid a drop in net sales. Shares of Workday fell 8.4% after it reported first-quarter adjusted earnings that came up short of expectations.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note fell to 2.750%, from 2.756% Thursday.

Forex:

Speculation of a possible pause in Fed interest-rate rises in September "was surely contributing to keeping the dollar soft," said ING currency analysts.

In the past week, market interest-rate pricing showed a reduction in Fed rate expectations of around 10 basis points, while "the likes of the ECB have seen all but a consolidation of expected tightening plans."

However, the Fed's rhetoric is "still very hawkish" and ING expects U.S. rate expectations to recover and the DXY Dollar Index to push back toward 103.00.

Bonds:

Ten-year German Bunds should start to strengthen as inflation shows signs of easing, said Mizuho's rates strategists and consider yields above 1% as an attractive level to enter longs.

The market's pricing of a 100 basis point interest rate rise by the ECB by the end of 2022 seems a "bit excessive," the strategists said, adding that with flash national and eurozone inflation data due Monday and Tuesday, "market participants are likely to remain cautious about putting money to work into the front-end."

---

Traders dealing in euro corporate bonds are likely to wait for next week's eurozone inflation data before taking substantial action, said UniCredit.

Investors potentially will be concerned about duration risk posing downside risk, particularly to long-dated segments of the market.

Duration risk, or the risk that a bond's price will drop as interest rates rise, has been already observed this week when sovereign, supranational and agency bonds were volatile and widened by up to four basis points.

Energy:

Crude futures edged higher, with Brent at a more- than two-month, as supply uncertainty continued to support prices.

Stephen Innes, managing partner at SPI Asset Management, said there "is likely a lot of short-term length in crude markets as speculators...position for the EU Russian embargo bounce," adding that there may be a reluctance to push the market higher because of this.

Metals:

Base metals gained in London on modestly improving overall market sentiment and despite consumption in Asia remaining weak due to the Covid-19 lockdowns. But prices were still lower for the week.

Inventories have moved higher in recent weeks, given the lack of consumption in Asia, said Fitch. "A recent slew of negative global economic readings has revived growth concerns, driving industrial metals back into decline following a muted attempt at recovery early on in May."

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

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.

   
 
 

Pepkor Holdings 1H Operating Profit, Revenue Rose on Organic Growth

Pepkor Holdings Ltd., controlled by Steinhoff International Holdings NV, said Friday that revenue and operating profit rose in the first half of fiscal 2022 on organic growth.

The South African retail group said for the six months ended March 31, operating profit was 5.68 billion rand ($361.6 million) compared with ZAR4.77 billion a year earlier.

   
 
 

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.

   
 
 

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.

   
 
 

Israel Deliberately Killed Al Jazeera Journalist, Palestinian Probe Concludes

RAMALLAH, West Bank-The Palestinian Authority on Thursday said an investigation concluded that an Israeli soldier deliberately shot and killed a Palestinian-American Al Jazeera reporter covering an Israeli raid in the West Bank this month, a finding Israel's defense minister immediately denied.

The bullet that killed Shireen Abu Akleh, 51 years old, was a 5.56mm armor-piercing bullet fired from a Ruger mini 14, said Palestinian Attorney General Akram Khatib at a news conference, a weapon he said is used often by snipers. Mr. Khatib said the bullet hit Ms. Abu Akleh from behind with her head tilted down, according to the autopsy.

   
 
 
   
 
 

GLOBAL NEWS

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.

   
 
 

Write to paul.larkins@dowjones.com

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(END) Dow Jones Newswires

May 27, 2022 05:45 ET (09:45 GMT)

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