MARKET WRAPS
Stocks:
European equities extended their advance Monday as sentiment
improved somewhat after the S&P 500 managed to avoid closing in
a bear market.
Heavyweight mining and oil stocks were among the main risers as
crude futures and metals prices forged early gains.
Comments from Joe Biden that he was considering reducing tariffs
on China also lifted market sentiment. The tariffs were imposed by
the Trump administration.
Investors this week will be monitoring the minutes from the
latest Federal Reserve meeting to gauge the central bank's next
move on interest rates. It has been pushing rates higher in an
effort to cool historically high inflation. Some economists have
expressed concerns the Fed could move too aggressively and push the
U.S. into a recession.
Biden said Monday following a meeting with Japanese Prime
Minister Fumio Kishida that it wasn't inevitable the U.S. economy
will enter a recession.
The European Union on Monday called for a loosening of its
budget rules to be extended into a fourth year in response to the
economic impact of Russia's war on Ukraine. Read more here.
Economic Insight:
U.K. consumer spending seems to be holding up despite high
inflation and low confidence, wrote Pantheon Macroeconomics.
Households could be using savings or increasing borrowing to
keep their consumption levels, and worries over inflation could be
partially offset by a strong labor market. People might expect to
be worse off due to increasing prices, but they are still more
likely to maintain their spending than if they were worried about
losing their job.
Pantheon expects the U.K. economy to fall by 0.5% on quarter in
the second quarter but to rise in both the third and fourth
quarters, avoiding a recession.
U.S. Markets:
Stock futures were in positive territory Monday "as some
investors see opportunity in the actual market dip. But the trading
conditions will likely remain choppy, and gains may remain short
lived," wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote
Bank.
"In the medium run, there is a stronger case building for a
further retreat in the S&P500. Investors now eye a return to
the 3500/3600 range, according to the latest Bloomberg survey,"
Ozkardeskaya wrote.
Forex:
The dollar hit a two-week low against a basket of currencies, as
stock markets recovered some poise after their recent falls.
EUR/USD rose to its highest level in just over two weeks, with
RBC pointing to a weekend interview with Christine Lagarde, where
she indicated interest rates will likely rise in July, although she
played down prospects of a 50 basis-point increase.
The euro extended its rise after the German Ifo survey
unexpectedly showed business confidence improved in May.
The Ifo business-climate index rose to 93.0 points from a
revised figure of 91.9 points in April, beating the consensus in a
WSJ poll for a fall to 91.2.
"The German economy has proven itself resilient in the face of
inflation concerns, material bottlenecks, and the war in Ukraine,"
said Ifo President Clemens Fuest.
Breaking WSJ Headlines:
Lagarde Signals Likely Interest-Rate Hike at July Meeting
Lagarde: We Are Likely to Be in a Position to Exit Negative
Rates by End of 3Q
Lagarde: Premature to Discuss ECB's Balance Sheet Policies
Bonds:
Fragile risk and macro sentiment combined with a favorable flow
pattern should keep Bunds underpinned, said Commerzbank.
German Ifo business climate data due later Monday and flash
purchasing managers data Tuesday could take further steam out of
fears over European Central Bank interest rate rises and bring
market expectations closer to ECB officials' current signals,
Commerzbank said.
---
Austria is expected to debut on the green government bond market
possibly as early as this week, said Danske Bank, which expects the
debut green bond to have 15- or 20-year maturity, with up to EUR4
billion to be raised.
Societe Generale also expects maturity in the 10- to 20-year
range. "The 10-year maturity is a standard format that could
attract a large array of investors, and a 20 year could be useful
for ascertaining the level of demand for long-end GB [green
bonds]."
---
The prospect of weaker economic growth in the eurozone is
already priced in euro corporate bonds, according to UniCredit.
"We expect this week's slew of early indicators - starting with
the German Ifo index today - to reaffirm our view of slowing
economic momentum in the eurozone, though we see it as being
broadly priced into European corporate credit."
Higher energy costs, the war in Ukraine, China's Covid-19
lockdowns are some of factors dragging down growth.
Energy:
Oil prices held modest gains on hopes for a demand recovery,
after Shanghai began easing its monthslong lockdown Sunday and as
the peak driving season in the U.S. approaches with the Memorial
Day holiday.
Read: EU Must Step Up Efforts to Impose Oil Sanctions on Russia,
Says Germany
---
UBS said coal pries are likely to stay elevated this year,
albeit with risks to the downside should global tensions resolve
unexpectedly quickly and Chinese demand slows more.
The Ukraine war, Indonesian export restrictions imposed in early
January, and wet weather in Australia have led to seaborne coal
shipments falling 2.7% so far this year, but supply is already
showing some signs of recovery now that the Australian wet season
has concluded. Global shipments rose by 6% last week.
UBS said the premium low volatility coking coal price has risen
48% to $530/ton so far this year, while thermal coal from the port
of Newcastle has more than doubled in price to $412/ton.
Metals:
Gold and platinum prices climbed, helped by the weaker
dollar.
Base metals were also higher, with expectations of a bump in
demand from China increasing after the country started its package
of economic stimulus.
"China is loosening fiscal and monetary policies with a CNY4
trillion infrastructure campaign. However, labor shortages and high
energy costs will continue to weigh on growth in copper, aluminum,
and nickel supply, " said ANZ.
---
Citi said the degree of weakness in Chinese metals demand can't
be fully explained by Covid lockdowns and believes China's economy
has been deteriorating in the absence of sufficient government
easing.
"We continue to recommend selling rallies until China gets ahead
of the curve and/or until the Fed starts to deliver 'dovish'
hikes."
Citi expects LME copper prices will fall to $8,500/ton over the
next three months, and projects aluminum dropping to $2,700/ton,
nickel to $25,000/ton, and zinc to $3,300/ton over the same
period.
DOW JONES NEWSPLUS
EMEA HEADLINES
German Business Confidence Unexpectedly Rose in May, Ifo
Says
Business confidence in Germany rose in May as German companies
saw their current business situation with less pessimism.
The Ifo business-climate index rose to 93.0 points in May from a
revised figure of 91.9 points in April, according to data from the
Ifo Institute released Monday. Economists polled by The Wall Street
Journal expected the index to decrease to 91.2.
Siemens Energy Offers to Buy Siemens Gamesa for $4.29 Bln
Siemens Energy AG said late Saturday that it has made an offer
to buy all outstanding shares in Siemens Gamesa Renewable Energy SA
for 4.06 billion euros ($4.29 billion), or EUR18.05 a share.
Siemens Energy already holds 67% of Siemens Gamesa, and said it
intends to fully integrate the Spain-based wind turbine maker. Full
integration would lead to cost synergies of about EUR300 million a
year within three years, and to mid-triple-digit million euros in
revenue synergies by the end of the decade, Siemens Energy
said.
Kingfisher Backs FY 2023 Profit View; To Buy Back Shares
Kingfisher PLC said Monday that sales fell in the first quarter
of fiscal 2023 due to strong comparatives the prior year but were
above prepandemic levels, and backed its full-year guidance and
outlined a share-buyback program.
The European home-improvement retailer backed its fiscal 2023
profit performance and expects adjusted pretax profit of around 770
million pounds ($962 million).
AstraZeneca's Covid-19 Vaccine Gets EU Approval for Third
Doses
AstraZeneca PLC said Monday that its Covid-19 vaccine has been
granted approval in the European Union as a third dose booster for
adults.
The pharmaceutical company said that its Vaxzevria vaccine can
now be used as a third dose booster in patients previously given a
vaccine schedule of either Vaxzevria or other EU-approved
vaccines.
Swedes Ask if NATO Membership and Peacemaking Can Coexist
For two centuries, Sweden has shunned military alliances. Its
decision last week to seek NATO membership ends that, fundamentally
altering the Scandinavian country's security posture.
It also challenges the notion of neutrality, for many years a
pillar of Swedish national identity, and poses a quandary for many
Swedes: How can the country seek to lead global efforts in peace
and nuclear disarmament as a member of a military alliance whose
power largely rests on nuclear weapons?
NATO Bids From Finland and Sweden Now Depend on Turkey's
President
ISTANBUL-NATO membership for Finland and Sweden, potentially
among the most dramatic shifts in European security policy in
decades, now depends largely on the decision of one man: Turkey's
President Recep Tayyip Erdogan.
Mr. Erdogan's decision to block a speedy entrance for the two
countries into the North Atlantic Treaty Organization has opened
the door to complex negotiations between Western allies and the
Turkish government over its stated concerns about the presence of
alleged Kurdish militants in Sweden and restrictions on arms sales
to Turkey.
Germany Warns Falling Euro Could Push Inflation Even Higher
Germany's Finance Minister Christian Lindner warned that a weak
euro might be driving up inflation in Europe and encouraged the
European Central Bank to increase interest rates, an unusual step
that underlines the growing concerns in Europe's largest economy
about the rapid pace of price increases.
The euro has fallen close to parity against the dollar in recent
weeks and is currently trading at around $1.05, down from about
$1.22 a year ago. That partly reflects the relative weakness of the
eurozone economy, which has been squeezed by surging energy prices,
as well as the anticipation of further interest-rate increases by
the Federal Reserve.
Russia Pays Bond Coupons Ahead of Likely U.S. Payment Block
Russian finance officials said Friday that they had pushed
through around $100 million in interest payments due under some of
the country's foreign-currency debts, ahead of a likely change in
U.S. sanctions next week that is expected to curtail Moscow's
ability to keep paying its sovereign debt.
Russia's Finance Ministry said it had submitted roughly $71.3
million due under a dollar-denominated bond due 2026 and 26.5
million euros, equivalent to about $28 million, under a
euro-denominated bond due 2036, according to Russian state media
agency TASS.
U.K. Home Prices Rise in May to New High But Pace of Growth Seen
to Slow
U.K. house prices rose in May to a new high for the fourth
consecutive month, though there are signs the frenetic pace is
starting to ease, according to new data from property portal
Rightmove PLC.
The average price of property coming to the market rose by 7,400
pounds ($9,230) in May, an increase of 2.1% and hitting a record of
GBP367,501.
Russia Says It Has Taken Complete Control of Mariupol After
Surrender of Last Defenders
KYIV, Ukraine-Russia said it had taken complete control of the
southeastern port city of Mariupol on Saturday after the surrender
of the last remaining Ukrainian forces there, while Moscow's troops
pressed an offensive in the country's east.
Ukrainian President Volodymyr Zelensky described the soldiers
and marines who had defended Mariupol through a monthslong siege as
national heroes. He said the military had told them to get out and
save their lives.
Israeli Prime Minister Naftali Bennett Avoids Government
Collapse
TEL AVIV-An Israeli lawmaker who quit the government this past
week decided to rejoin the ruling, yet shaky, coalition helping
Prime Minister Naftali Bennett to stay in power and avoid new
elections for the time being.
The sudden resignation on Thursday of Ghaida Rinawie Zoabi, an
Arab lawmaker from the left-wing Meretz party, brought Mr.
Bennett's coalition down to 59 seats out of 120 seats in the
Knesset, Israel's parliament. With Ms. Rinawie Zoabi's return, Mr.
Bennett's coalition now counts 60 seats, split evenly with the
opposition. The opposition needs 61 lawmakers to vote to dissolve
the parliament and send Israel to its fifth election in a little
over three years.
Dior Lands in Venice With Tony Hawk, Luxury 'Skate Shoes' and a
Buzzy Collaboration
In many ways, the fashion show Thursday near the Venice
boardwalk by French luxury house Dior delivered coastal California
conventions.
There was a sweatshirt with an impossibly perfect wave stitched
along the front, marshmallowy skate shoes (albeit in satin) and a
front row cameo from Mr. 900 himself, Tony Hawk.
Saudi Sovereign-Wealth Fund Buys Stake in Royal's Investment
Firm
Saudi Arabia's sovereign-wealth fund bought a stake Sunday in a
firm owned by billionaire Prince al-Waleed bin Talal, further
intertwining the government with a high-profile investor who was
once detained by the state over corruption allegations.
The Public Investment Fund agreed to pay Prince al-Waleed $1.51
billion for 16.9% of Kingdom Holding Co., a figure based on the
closing price on the last trading day before the transaction was
announced, according to a filing with the Saudi stock exchange.
GLOBAL NEWS
Stock Market Bottom Remains Elusive Despite Deepening
Decline
U.S. stocks are in the midst of their longest selloff in
decades.
Whether they are close to bottoming is anyone's guess.
Conditions Are Ripe for a Deep Bear Market
With the S&P 500 briefly on Friday down 20% from its January
peak, it is very tempting to start trying to call the end of the
selloff. The problem is that only one of the conditions for a rally
is in place, that everyone's scared. That worked beautifully for
timing the start of the 2020 rebound, but this time around may not
be enough.
The other requirements are that investors start to see a way
through the challenges, and that policy makers start to help.
Without those, the risk is a series of bear-market rallies that
don't last, hurting dip buyers and further damaging investor
confidence.
Higher Rates Raise Risk of Future Fed Losses
The Federal Reserve's plans to raise interest rates aggressively
to combat high inflation could have an overlooked and uncomfortable
side effect for the central bank: capital losses.
The potential for losses hinges on obscure monetary plumbing.
The Fed's $9 trillion portfolio, sometimes called a balance sheet,
is full of mostly interest-bearing assets-Treasury and
mortgage-backed securities-with an average yield of 2.3%. On the
other side of the ledger-the liability side of the Fed's balance
sheet-are bank deposits held at the Fed known as reserves, which
are also interest bearing, as well as currency in circulation.
Biden Kicks Off Economic Group Linking U.S., Asia
President Biden and leaders from a dozen countries in the
Indo-Pacific region on Monday endorsed a new economic platform
meant to counter China's influence through cooperation on global
issues such as supply chains, clean energy and digital rules.
The Indo-Pacific Economic Framework marks the Biden
administration's most ambitious attempt to build economic ties with
Asian nations after the U.S. under then-President Donald Trump
pulled out of the Trans-Pacific Partnership in 2017. U.S. officials
said the framework represented a new approach to cooperation that
moves beyond a traditional trade agreement.
China's Markets Are Tested by Foreign Outflows and a Falling
Currency
HONG KONG-A withdrawal of foreign capital from China and a
weaker yuan have prompted comparisons with 2015, when Beijing faced
a vicious cycle of outflows and currency depreciation.
China has plugged many of the holes that once allowed its
citizens and companies to move money out of the country, making a
destabilizing exodus of homegrown funds less likely this time
around.
China Spends Far More Than Others to Help Favored Industries,
Report Finds
China spends much more in helping favored industries with
state-directed funds, cheap loans and other government incentives
than other major economies, according to a new study expected to
intensify the debate in Washington and elsewhere over Beijing's use
of industrial policy.
The study, to be published by the Center for Strategic and
International Studies on Monday, finds that China's backing of its
companies amounted to at least 1.73% of its gross domestic product
in 2019-the most recent year for which comprehensive data is
available-and the trend is continuing.
Rising Risk of Recession Creates New Headache for Biden
The Federal Reserve's efforts to slow inflation are raising the
possibility of higher unemployment, a slower-growing economy and a
recession, prospects that could create new headaches for the Biden
administration.
As the country heads into midterm-election season, much of the
political discussion has centered around solid economic growth and
robust employment versus the damaging impact of inflation. More
recently, warnings about the prospect of an economic downturn-which
could come in 2023 according to some estimates-have complicated the
economic picture in a new way.
Crypto Might Have an Insider Trading Problem
Public data suggests that several anonymous crypto investors
profited from inside knowledge of when tokens would be listed on
exchanges.
Over six days last August, one crypto wallet amassed a stake of
$360,000 worth of Gnosis coins, a token tied to an effort to build
blockchain-based prediction markets. On the seventh day,
Binance-the world's largest cryptocurrency exchange by volume-said
in a blog post that it would list Gnosis, allowing it to be traded
among its users.
Biden Says U.S. Would Intervene Militarily if China Invaded
Taiwan
TOKYO-President Biden said the U.S. would get involved
militarily to defend Taiwan if China tries to take it by force,
issuing a stark warning to Beijing and appearing to break with the
longstanding American policy of strategic ambiguity.
"Yes. That's the commitment we made," Mr. Biden said Monday at a
news conference in Tokyo during his first trip to Asia as
commander-in-chief. He was responding to a question about whether
the U.S. would get involved militarily in response to a Chinese
invasion of Taiwan after declining to send American troops to
Ukraine to fight Russia's invasion.
Biden Says U.S. Is Prepared if North Korea Conducts Missile
Test
SEOUL-President Biden said Sunday the U.S. is prepared for the
possibility that North Korea will conduct a missile test soon.
"We are prepared for anything North Korea does. We've thought
through how we would respond to whatever they do," Mr. Biden told
reporters here. "I am not concerned, if that's what you're
suggesting."
Biden Keeps Eye on Domestic Politics as He Travels Through
Asia
TOKYO-President Biden is roughly 7,000 miles from the White
House, but domestic affairs have taken a prominent role as he
travels through South Korea and Japan in his first trip to Asia as
commander in chief.
With his Democratic Party facing steep challenges ahead of
November's midterm elections, Mr. Biden has used the trip to make
the case that he is leveraging global alliances to boost the
American economy and promote union jobs. His overseas travel, which
includes the rollout Monday of a new economic framework with Asian
countries, has coincided with polls showing a majority of Americans
disapprove of his handling of the economy. U.S. inflation is at its
highest level in 40 years.
Pentagon Weighs Deploying Special Forces to Guard Kyiv
Embassy
WASHINGTON-U.S. military and diplomatic officials are weighing
plans to send special forces troops to Kyiv to guard the newly
reopened embassy there, proposals that would force the Biden
administration to balance a desire to avoid escalating the U.S.
military presence in the war zone against fears for the safety of
American diplomats, U.S. officials said.
President Biden has yet to be presented with the proposal. But
if he approves it, troops would be deployed only for the defense
and security of the embassy, which lies within range of Russian
missiles, U.S. officials said. Their presence inside Ukraine would
mark an escalation from Mr. Biden's initial pledge that no American
troops will be sent into the country.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
May 23, 2022 05:44 ET (09:44 GMT)
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