MARKET WRAPS
Watch For:
EU Flash Consumer Confidence Indicator; UK Producer Prices,
Monthly Inflation, House Price Index; Jerome Powell presents
Monetary Policy Report to U.S. Senate Banking Committee; updates
from Lanxess, Credit Agricole, Daimler Truck, Micro Focus, Wood
Group, Kingfisher, NN Group, Harbour Energy, Volvo
Opening Call:
Europe faces a sharp selloff early Wednesday as investors
cautiously await Jerome Powell's testimony to Congress. In Asia,
shares were weaker across the board, the dollar gained, oil tumbled
and long-dated Treasury yields and gold edged lower.
Equities:
European stocks are likely to slide early Wednesday as the
recent rally in global markets comes to an abrupt halt.
Worries about higher interest rates and inflation remain the key
focus for investors who have scrambled to unload riskier assets on
growing fears the Federal Reserve will plunge the U.S. economy into
a recession.
Although U.S. stocks rallied Tuesday off their worst week since
March 2020, futures were back in the red on Wednesday.
"This still feels like a bit of a dead-cat bounce," said Viraj
Patel, global macro strategist at Vanda Research said, referring to
Tuesday's rebound on Wall Street.
He said investors' willingness last week to dump shares of
winning sectors this year, including energy and utilities stocks,
might be a signal that this year's drawdown has entered its latter
stages. Still, he said, he believes the selloff "still has legs to
go."
Read: The Stock Market's Big Tuesday Bounce Likely to Fizzle
Out: Capital Economics
Economic Insight:
The expectation of a strong recovery in the tourism sector,
coupled with the divergence between resilient services activity and
a weaker industrial sector, means Southern European economies will
outperform the rest of the continent this year, wrote Angel
Talavera, head of Europe economics at Oxford Economics.
Contrary to conventional wisdom, the outperformance of
peripheral economies doesn't reflect a catch-up from the Covid-19
crisis, but the strength of the tourism sector in these countries,
Talavera said.
Traditional tourism powerhouses, such as Spain, Greece and
Portugal will be among the fastest-growing eurozone economies based
on Oxford Economics's forecasts. The strong comeback of "social"
consumption after two years of restrictions will drive growth in
those countries, Talavera added.
Forex:
The dollar made modest gains against a basket of currencies,
helped by the risk-off sentiment in Asian markets.
Ongoing global growth concerns, inflation worries and fears of
tighter financial conditions continue to keep a leash on risk
appetite, said Maybank analysts, adding the focus was on Jerome
Powell's congressional testimony.
The dollar has surged to multi decade highs as asset managers
hoard the world's reserve currency to protect themselves against
volatile moves in stocks and bonds.
Investors usually repatriate cash into their local currency, but
U.S. capital flow data show the foreign cash pile of dollars is
close to records as investors grapple with global shifts in
inflation, economic growth and monetary policy.
Bonds:
Longer-dated Treasury yields fell back in Asia, although the
curve got a little steeper as the two-year note yield continued to
rise.
Investors expect Powell's testimony to help figure out whether
the next Fed move will be a 75- or a 50-basis point hike. The CME
gauge of target rate probabilities puts the more hawkish option at
95.7%.
"Nothing much has changed since last week surrounding
expectations about central bank tightening or signs that
inflationary pressures may be moderating," said Raffi Boyadjian,
lead investment analyst at XM.
"Recession is still the foremost concern for investors, so this
week's rebound in equity markets looks more like a technical
correction following the heavy selling over the course of the
previous two weeks."
Energy:
Oil prices fell more than 3% in Asian trade as caution returned
to global markets.
Crude futures finished higher on Tuesday to mark a partial
rebound from sharp losses last week, with tight global supplies
coming back into focus.
"The oil market remains too tight over the short-term and rising
expectations over tougher sanctions with Russian crude should keep
demand especially strong here," said Edward Moya, senior market
analyst at OANDA.
SPI Asset Management said near-term sentiment may be supported
by the prospect of the temporary suspension of the U.S. federal
gasoline tax, "which would likely put a smile on U.S. travellers'
faces, hence increasing demand during the summer driving
season."
Metals:
Gold futures stretched their losses into a third trading
session, although bullion may be supported by safe-haven demand in
the near term, as lingering economic concerns could still weigh on
equity markets.
"Despite the noise of the past week, [gold] remains anchored in
the middle of its one-month range," said OANDA's Jeffrey Halley,
putting resistance at $1860 and support at $1805.
---
Copper prices were also lower, reversing Tuesday's gains as
demand concerns returned to the fore.
Signs of shrinking inventories pushed prices of base metals,
including copper, higher on Tuesday, brokerage Marex said. However,
"the reality is nothing has really changed."
Despite tightening supply, the health of downstream copper
demand remains uncertain for the second half, clouding the outlook
for the metal, Marex said.
---
Chinese iron ore futures fell almost 5% on growing demand
concerns.
The market is worried that demand-growth expectations from
China's pledge to boost infrastructure investment may not
materialize, especially with the country's zero-Covid policy still
in play, said CBA analyst Vivek Dhar.
"Doubts over China's future steel demand growth has meant that
markets could no longer ignore current market conditions of
oversupply in China's steel sector."
TODAY'S TOP HEADLINES
Biden Expected to Call for Temporary Federal Gasoline Tax
Suspension
WASHINGTON-President Biden is planning to call for a temporary
suspension of the federal gasoline tax, according to people
familiar with the matter.
Mr. Biden and his advisers have been discussing the issue for
months in the midst of increasing political pressure to take action
to address record-high gas prices. The announcement is expected
Wednesday, some of the people said. The White House said Mr. Biden
would deliver remarks on gas prices at 2 p.m. Eastern Time, but
didn't provide any details on the speech.
Bitcoin's Price Bounces Above $21,000, Reversing Weekend
Slide
Bitcoin and other cryptocurrencies bounced back Tuesday, after a
tumultuous holiday weekend marked the lowest prices in more than a
year.
Bitcoin rose 4.6% to $21,435.25 after falling as low as
$17,601.58 on Saturday afternoon, according to CoinDesk data-its
lowest since November 2020. As of Tuesday, bitcoin was down 69%
from its record high in November 2021. It closed Friday at
$20,627.21.
Fed's Barkin Supported FOMC's Large Rate Increase
Federal Reserve Bank of Richmond President Thomas Barkin said
Tuesday he was on board with last week's supersize rate rise by the
Fed and expects more aggressive moves by the central bank as it
seeks to lower high inflation levels.
"I was definitely supportive" of the 75-basis-point rate rise
the Fed implemented last week, Mr. Barkin said in a virtual
appearance. "We are in a situation where inflation is high, it's
broad based, it's persistent, and rates are still well below
normal...I think the spirit is you want to get back to where you
want to go as fast as you can without breaking anything."
Yellen Says Fed Can Combat Inflation Without Unemployment
Increasing Significantly
MISSION, S.D.-Treasury Secretary Janet Yellen said she thought
the Federal Reserve's efforts to combat inflation could be
effective, without significantly increasing the unemployment
rate.
The tight labor market that formed over the past two years, as
the economy recovered rapidly from a brief pandemic recession,
could aid the Fed in combating inflation, Ms. Yellen said while
speaking at a press conference during a visit to the Rosebud Indian
Reservation in South Dakota.
Firms Warn of China Shipment Delays as U.S. Bans Xinjiang
Imports
BEIJING-American businesses in China say they fear a U.S. law
blocking most imports from China's Xinjiang region that went into
effect Tuesday might interrupt shipments and raise compliance
costs, as uncertainty clouds how it will be enforced.
The Uyghur Forced Labor Prevention Act presumes that all items
produced in China's western region of Xinjiang, or by entities
linked to the government there, are made with forced labor and
blocks companies from importing such products.
France's Macron Faces Parliament Battle Over Pro-Business
Agenda
PARIS-President Emmanuel Macron's pro-business agenda appeared
in jeopardy Tuesday after France's conservative party Les
Républicains rejected the idea of an alliance with the French
leader to form a majority in Parliament.
Mr. Macron's centrist party, Renaissance, and its allies lost
their majority in the National Assembly in Sunday's parliamentary
elections after losing seats to the far right and the far left. An
alliance with Les Républicains would allow Mr. Macron to retain the
commanding majority that allowed the French leader to steamroll the
opposition during his first term.
Credit Suisse Seeks Loophole to Shed $600 Million Court
Judgment
Credit Suisse Group AG's Bermuda life insurance unit said a
loophole in Bermuda company law means it shouldn't have to pay a
billionaire client a $607 million court award.
The last-minute legal challenge, if successful, would wipe out a
large liability hanging over the bank. Credit Suisse in March
flagged damages of more than $500 million from the lawsuit, brought
by former Georgia Prime Minister Bidzina Ivanishvili in Bermuda
Supreme Court.
Supreme Court Declines to Hear Bayer Appeal on Roundup
The Supreme Court on Tuesday declined to hear a bid by Bayer AG
to end thousands of lawsuits alleging its weedkiller Roundup causes
cancer, potentially costing the German conglomerate billions of
dollars in legal settlements.
Bayer has been mired in Roundup litigation since acquiring
Monsanto, the product's original owner, in 2018.
Write to paul.larkins@dowjones.com
Expected Major Events for Wednesday
04:30/NED: Jun Consumer confidence survey
04:30/NED: Apr Consumer Spending
06:00/UK: May UK producer prices
06:00/UK: May UK monthly inflation figures
06:00/SWE: May Labour Force Survey
06:00/DEN: Jun Consumer expectations
07:00/SPN: Apr Industrial Orders & Turnover
07:00/SWI: 1Q Balance of Payments
08:00/POL: May Retail Sales
08:30/UK: Apr UK House Price Index
10:00/IRL: May WPI
12:30/CZE: Czech interest rate decision
13:00/BEL: Jun Consumer Confidence Survey
14:00/EU: Jun FCCI Flash Consumer Confidence Indicator
16:59/HUN: 1Q Balance of Payments
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(END) Dow Jones Newswires
June 22, 2022 00:29 ET (04:29 GMT)
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