MARKET WRAPS

Watch For:

Eurozone Harmonised CPI, Construction Output, Passenger Car Registrations; Italy Foreign Trade EU; central bank policy decisions from Norway, Switzerland, Turkey; Eurogroup meeting of eurozone finance ministers; updates from Saint-Gobain, Air France-KLM, Iberdrola, Carnival, Whitbread, Naspers, Petrofac, IAG, Halfords

Opening Call:

A slightly "hawkish" Fed policy update that raised inflation forecasts and brought forward the timing of an interest rate rise, will likely jolt European equities on Thursday. In Asia, most stocks fell, along with commodities, while the dollar and Treasury yields extended their gains.

Equities:

European shares are in line for moderate losses at Thursday's open after the Federal Reserve signaled it expects to increase the benchmark lending rate ahead of schedule.

The Fed's projections showed an interest-rate increase to 0.6% from 0% currently by the end of 2023, a bit sooner than previously anticipated. Also, more Fed members now see a rate increase in 2022. This comes after the producer-price index, released on Tuesday, rose more than expected, excluding food and energy. Still, the Fed isn't upending its easy-money policies and will continue to purchase $120 billion a month in bonds.

U.S. stocks retreated after the Fed's statement, having hugged the flat line for much of the day. But it wasn't an aggressive selloff: all three major indexes rose from their intraday lows and the breadth of S&P 500 stocks that were in the red fell significantly from above 90% earlier in the day.

That isn't a surprise to Jim Paulsen, chief investment strategist at The Leuthold Group, who said, "I don't see how that much changed today. I think they've [Fed members] been pretty clear in what they're doing, that they're gonna run this [economy] hot."

Mike Loewengart, head of investment strategy at ETrade, said: Overall, "the market may be reacting to the change in the dot plot [rate increase schedule] that now shows more officials indicating a rate increase is coming in 2022."

Stocks to Watch: A decision on a port option for BHP's Jansen potash project remains a key task to be completed before executives take the proposed investment to the board in the coming few months, said Rag Udd, BHP's President Minerals Americas. BHP, while advanced on its rail plans, is still considering two port options--one commercial, one greenfield, he said.

Speaking to investors, Udd also reiterated BHP is "open to partnering, but [that] this project doesn't need a partner." His remark follows media reports that BHP is in talks with Nutrien about a partnership on Jansen. Udd said an investment in Jansen is "a really big decision" given capital costs, and will rely on much more than just BHP's favorable view on the outlook for potash.

Forex:

The dollar continued to strengthen in Asia after the Fed signaled interest-rate hikes in 2023, with the ICE Dollar Index pushing through 91.30.

The Fed's dot plot got a lot of attention for its hawkish shift on Wednesday, but Jerome Powell cautioned against reading too much into the chart. The dot plot is "not a forecast or a plan," and officials didn't debate a rate hike this week, he said, adding "the dots are not a great forecaster," and should be taken with "a big grain of salt."

However, NAB said the dot plot indicates the median FOMC member forecast is for two rate increases in 2023, versus none at the March iteration, delivering a hawkish surprise on which most of the subsequent market reaction has turned.

An imminent interest rate rise by the Bank of England is unlikely, as the recent rise in U.K. inflation will prove temporary, but sterling should still strengthen against the dollar in coming months, said ING. "As the soft USD environment is set to unfold this summer and EUR/USD is to grind higher, GBP/USD should follow this direction."

ING expects EUR/USD to rise to 1.25 this summer from 1.2125 currently as it sees the dollar as the preferred funding currency in investors' search for yield following a cautious message from the Fed.

Bonds:

Treasury yields have added to Wednesday's gains, which were their biggest one-day advance in three months after the Fed surprised on in its interest rate hike timetable.

Yields began climbing after the Fed decision and continued to rise after Jerome Powell said that recent inflation data have exceeded the Fed's expectations. He reiterated the central bank's view that inflation is likely to subside by next year as the supply of goods catches up with consumer demand, but said that officials would respond appropriately if prices rise more persistently.

Powell said officials discussed how and when to start reducing purchases of Treasurys and mortgage-backed securities begun during the Covid-19 pandemic, though he said the economy still has to make significant progress before it reaches the central bank's goals. Mr. Powell has said the Fed would give markets plenty of advance notice before it begins withdrawing easy-money policies.

"Taken all together, there is a much more hawkish tone than any Fed communication that we've seen from the consensus," in a very long time," said Thomas Simons, an economist at Jefferies.

Powell also said the level of money flowing into the central bank's reverse repo facility, which has hovered around half a trillion dollars over recent days, is not a concern.

He said the reverse repo facility is working as planned, and when it comes to the changes in the Fed"s rate control toolkit, he said it's possible it could have an impact on usage of the facility, but that wasn't the aim of the Fed's shift.

Energy:

Oil retreated in Asian trade, with prices giving back Wednesday's modest gains.

A "surprisingly hawkish" Fed sent Treasury yields and the dollar higher and OANDA said a short-term rebound in the U.S. currency may pose a downside risk to WTI crude for now.

Markets were also caught off-guard by a rare increase in U.S. oil production to 11.2 million barrels a day, which is the highest output in 13 months. If production keeps trending higher, crude's long-running price rally could stall.

Metals:

Gold futures were almost 2% lower in Asia, extending their post-Fed losses.

"The stakes were high with this Fed meeting and policy statement, as investors wondered whether the FOMC would blithely ignore or reasonably acknowledge the latest inflation and economic data," Brien Lundon, editor of Gold Newsletter, told MarketWatch.

"We got the latter, as the FOMC fired its first post-Covid shot across the market's bow, with the majority now predicting the first rate hikes by the end of 2023."

Base metals were sharply lower after media reports that China's top regulatory body for state-owned enterprises has instructed them to curb their exposure to the overseas commodities markets.

TD Securities said this appears to be an escalation from increasing warnings from China's State Council against speculators and 'hoarders,' in an effort to cool commodities markets.

Recently, the three-month LME copper contract was down 1.6% at $9,513.00 a metric ton, nickel was 2.2% lower at $17,260.00 and zinc was off 1.1% at $2,990.00.

TODAY'S TOP HEADLINES

Fed Pencils In Earlier Interest-Rate Increase

WASHINGTON-Federal Reserve officials signaled they expect to raise interest rates by late 2023, sooner than they anticipated in March, as the economy recovers rapidly from the effects of the pandemic and inflation heats up.

Their median projection showed they see lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March they had expected to hold it steady through that year.

Wall Street Banks Warn Their Trading Boom Is Over

The Wall Street boom is petering out at U.S. banks.

For much of 2020 and through the first quarter of this year, the biggest U.S. banks posted blockbuster results from trading stocks and bonds and advising companies on deals. The Federal Reserve flooded the market with money, companies raced to sell new debt and go public, and traders on Reddit and from big institutions moved those securities quickly. Banks at the middle of all of those transactions reaped the rewards.

House GOP Leader Criticizes Bipartisan Bills Targeting Big Tech

WASHINGTON-Bipartisan legislation to curb the market power of big technology companies faced a new hurdle Wednesday, with House Minority Leader Kevin McCarthy (R., Calif.) criticizing the bills introduced last week.

Mr. McCarthy's opposition widens a GOP divide over the proposals-which has been the aim of tech industry lobbyists seeking to derail legislation that threatens the businesses of some of America's largest companies, Amazon.com Inc., Facebook Inc., Alphabet Inc.'s Google and Apple Inc.

China's New Home Prices Remained Largely Stable in May

BEIJING-Home-price growth in China remained largely stable in May amid Chinese authorities' efforts to cool the market and tackle a buildup in developers' debt.

Average new home prices rose 4.47% in May from a year earlier, after a 4.45% increase in April, the National Bureau of Statistics said Thursday.

Biden, Putin Discuss Prickly Issues During First Summit

GENEVA-President Biden and Russian President Vladimir Putin sought to ease tensions during a high-profile summit, even as the Russian leader denied involvement in cyberattacks and Mr. Biden warned of significant consequences for future cyber-aggression or harm to jailed Russian dissident Alexei Navalny.

The summit, which took place in an 18th century villa overlooking Lake Geneva, came as both presidents have acknowledged that relations between the U.S. and Russia have reached a post-Cold War low in recent years. While the leaders expressed disagreements, they also offered measured assessments of each other, avoiding the heated rhetoric that has at times strained the bilateral relationship.

CureVac Covid-19 Vaccine Candidate Disappoints in Key Study

CureVac NV said Wednesday its experimental Covid-19 vaccine was 47% effective against the disease in an interim analysis of a large clinical trial, a disappointing outcome likely to dim the shot's prospects for wider use.

The setback could hinder vaccination campaigns in Europe because the German company has a contract with the European Commission to supply up to 405 million doses. CureVac has struck partnerships with big pharmaceutical companies GlaxoSmithKline PLC and Novartis AG to help make doses.

Israel-Hamas Tensions High as Gaza Militants Launch More Flaming Balloons

TEL AVIV-Palestinian militants in Gaza launched more flaming balloons into Israel on Wednesday, as a new round of violence between Israel and Hamas entered a second day and threatened to trigger another conflict.

Little-known militant groups in Gaza claimed responsibility for the arson attacks, which ignited four fires in agricultural zones in southern Israel, according to Israel's Fire and Rescue Authority.

Regeneron's Antibody Drug Cuts Risk of Death in Some Covid-19 Patients

An antibody treatment developed by Regeneron Pharmaceuticals Inc. has been shown to significantly cut the risk of death among certain hospitalized Covid-19 patients, raising hopes for a valuable new tool for tackling severe cases.

A large U.K. trial involving nearly 10,000 patients showed that administering REGEN-COV on top of usual care reduced the risk of dying by a fifth among hospitalized coronavirus patients who hadn't produced antibodies to the virus. The drug had no effect among patients who had already produced antibodies.

Write to paul.larkins@dowjones.com

Expected Major Events for Thursday

04:30/NED: May Unemployment

06:00/EU: May New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

06:00/SWI: May Trade Balance

07:00/SVK: May Harmonized CPI

07:00/AUT: May CPI

07:00/SPN: Apr Trade Balance

07:30/SWE: 1Q Financial accounts

07:30/SWI: Swiss National Bank monetary policy assessment

08:00/ITA: Apr Foreign Trade EU

08:00/NOR: Norges Bank monetary policy decision and presentation of Monetary Policy Report

09:00/MLT: May Harmonised CPI

09:00/EU: May Harmonised CPI

09:00/EU: Apr Construction output

11:00/TUR: Turkish interest rate decision

All times in GMT. Powered by Kantar Media and Dow Jones.

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

(END) Dow Jones Newswires

June 17, 2021 00:30 ET (04:30 GMT)

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