MARKET WRAPS
Stocks:
European stocks dipped on Friday as investors continued to
absorb a hawkish turn by the Federal Reserve. Banks and energy
companies led the decliners.
On the data front, U.K. retail sales fell 1.4% in May, driven by
decreases at food stores and on the heels of a sharp rise in the
previous month, the Office for National Statistics said Friday.
Economists polled by The Wall Street Journal expected retail sales
to increase 1.6%.
Shares of Tesco fell more than 2%, after the British grocer
reported a 1% rise in retail sales 1% on the year on a comparable
basis and said that its profit outlook for the full year remains
unchanged.
"Tesco's first quarter numbers look sluggish, but that's because
they're lapping the unprecedented demand triggered by the pandemic
this time last year," said Sophie Lund-Yates, equity analyst at
Hargreaves Lansdown, in a note to clients.
As reflation trades unwound, bank stocks came under pressure,
with HSBC down 0.4% and BNP Paribas slumping 2.3%. Energy stocks
fell as TotalEnergies and BP each lost close to 1%, while Royal
Dutch Shell was 1.3% down.
Shares of Kerry Group surged 3% after the Ireland based food
company said late Thursday that it will sell its consumer foods'
meats and meals business in the U.K. and Ireland to Pilgrim's Pride
for 819 million euros ($975.1 million).
U.S. Markets:
Stock futures wobbled, leaving the Dow on track for its worst
weekly performance since the end of January.
Futures tied to the Dow Jones Industrial Average wavered between
gains and losses. The index of blue-chip stocks had dropped 1.9%
this week through Thursday, leaving it poised for its worst showing
since it fell almost 3.3% in the last week of January.
Investors have gained some confidence that the Federal Reserve
will act to curb rising inflation after policy makers signaled
Wednesday that they expect to raise interest rates by late
2023.
That has started to take the steam out of a recent rally in
stocks linked to a broad economic recovery, leading to a retreat in
banking and energy shares this week. It is also reviving appetite
for technology stocks and other assets that could benefit from
lower inflation and higher rates.
"If the Fed tapers bond purchases and it raises rates, then all
of a sudden the inflation dragon gets tamed," said Gregory Perdon,
co-chief investment officer at private bank Arbuthnot Latham. "If
inflation gets tamed, you want to buy the long-duration assets," or
investments that are sensitive to interest rates, he added.
In the near term, Mr. Perdon expects inflation to creep higher,
due to supply-chain bottlenecks, chip shortages, strong demand for
goods and services and easing pandemic restrictions. Stocks are
still likely to advance, he said.
"The Fed hasn't done anything yet. All they've done is signal,
and they're a long way off from doing anything," Mr. Perdon said.
"Markets are supported by the trifecta of monetary and fiscal
policy and the vaccine rollout. Markets may face a reckoning, but
that won't happen in 2021."
Some investors are also booking profits after a strong
monthslong rally that has left the S&P 500 off just 0.78% from
its record close on June 14.
"Given that a lot of investors are sitting on huge gains, the
temptation is to reduce risk," said Luca Paolini, chief strategist
at Pictet Asset Management. "When you have the combination of
expensive valuations and changes in Fed policies, it's better to
lock in gains."
Forex:
The dollar extended its rise, hitting a two-month high against a
basket of currencies, after the Fed this week unexpectedly forecast
a first interest-rate rise in 2023, with two increases during that
year.
Positioning data indicate that the market had been running
substantial short dollar positions, which are now being unwound,
MUFG said. However, given that longer-term U.S. bond yields have
dropped back, perhaps reflecting the Fed's much tamer message on
prospects of tapering asset purchases, a "sustained move stronger
for the dollar might not materialize," MUFG's Derek Halpenny
said.
The Swiss franc and the Japanese yen's correlation with risk
appetite has fallen since the pandemic took hold and the dollar is
now the favored safe haven but this isn't sustainable, RBC Capital
Markets said.
"The U.S. has some of the properties one would expect to see in
a haven (a large, relatively closed economy and light exposure to
commodities) but lacks others (it is a net debtor)," RBC's Adam
Cole said.
Markets have probably taken yield as a proxy for riskiness
recently, lifting the dollar, he said. But as yields normalize, the
dollar will turn more risk-neutral and the yen and the franc will
re-assume their roles as key havens, he said.
The pound fell, hitting a six-week low of 1.3855 against the
dollar after U.K. data showed retail sales fell, raising concerns
about a slowing economic recovery.
The currency is also vulnerable to trade tensions between the
U.K. and the EU, with the former threatening to unilaterally extend
a grace period for processed meat exports to Northern Ireland, ING
said.
The next few weeks "could be a vulnerable period" for GBP/USD,
which risks falling to 1.3800, ING said.
The European Central Bank's monetary policy divergence with the
Fed will likely limit any euro gains against the dollar, ING
said.
ECB Chief Economist Philip Lane on Thursday said it is premature
to discuss ending pandemic bond purchases, while the Fed on
Wednesday brought forward its interest-rate-rise expectations into
2023. By inserting this wedge with the Fed, the ECB will try to
encourage a weaker euro, ING analysts said.
"We doubt now EUR/USD can make it much above the 1.1950/80 area
on any intra-day correction and momentum may well carry EUR/USD
towards the 1.1835 area and potentially 1.1700 should any data/Fed
commentary add to tightening fears this summer."
Bonds:
In bond markets, the yield on the 10-year Treasury note ticked
down to 1.489%, from 1.509% Thursday.
Treasuries continue to look attractive to foreign investors on a
currency adjusted basis, despite the recent decline in yields, as
extraordinary policy actions by global central banks have kept
global bond yields low, said U.S. rates strategists Subadra Rajappa
and Shakeeb Hulikatti of Societe Generale.
They say foreigners' demand was evident in recnet three- and
10-year UST auctions despite the recent rally which brought the
10-year UST yield below 1.50%.
"Strong demand from Japanese and European investors is also
likely to persist in a low interest rate regime," they said.
Commodities:
Oil was lower in Europe, with the firmer dollar continuing to
weigh on prices. DNB Markets' Helge Andre Martinsen points to the
dollar's move as being responsible for oil's slip in the past day
or so.
Separately, Iran's presidential election takes place today.
While that vote might see a hard-liner oust moderate Hassan
Rouhani, the backing of Iran's supreme leader means "a change in
president is not expected to derail [nuclear] talks," Martinsen
added.
Gold futures rose, recovering some of their losses from
Thursday, when they suffered their largest drop in over 10 months.
The price of the precious metal tends to decline when investors
anticipate rates rising and yield-bearing investments becoming more
attractive.
Copper prices also rebounded somewhat but the gains did little
to erase the sharp losses the red-metal has seen this week.
Three-month copper on the LME was up 0.6% at $9,246.50 a metric
ton, but is set to close the week 7.5% lower.
That would be its worst weekly loss since the pandemic first
roiled markets in March 2020. The red-metal has been hit by a
combination of Chinese plans to offload stockpiles and a hawkish
turn by the Fed.
"Less liquidity from the U.S. and a firmer dollar, plus
prospects of a slowdown in China as the top consumer tries to rein
in overheated markets weighed on sentiment," said Anna Stablum at
brokerage Marex.
EMEA HEADLINES
Tesco 1Q Retail Sales Growth Slowed, Backs FY 2022 Profit
Outlook
Tesco PLC said Friday that first-quarter retail sales grew on
year on a comparable basis, but at a slower pace as the boost from
the coronavirus pandemic began to fade, and said its profit outlook
for the full year remains unchanged.
UK Retail Sales Fell in May as Spending Broadened
Retail sales in the U.K. fell in May after increasing sharply
the previous month as the further easing of restrictions across the
country gave consumers more opportunities to spend aside from
goods.
Sales fell 1.4% on the month, the Office for National Statistics
said Friday, driven by decreases at food stores. Economists polled
by The Wall Street Journal expected retail sales to increase
1.6%.
ArcelorMittal Launches $750 Mln Buyback Following
Cleveland-Cliffs Stake Sale
ArcelorMittal said Friday that it has concluded the sale of its
remaining stake in Cleveland-Cliffs Inc. and that the proceeds will
be returned to shareholders via a share buyback.
The steelmaker's subsidiary ArcelorMittal North America Holding
completed the sale of 38.2 million common shares in
Cleveland-Cliffs, held as part of a sale of ArcelorMittal USA to
the miner agreed last year. The proceeds will be returned to
shareholders in a buyback worth $750 million, beginning
immediately, ArcelorMittal said.
Europe's Chief Prosecutor Has 300 Cases on Her Plate Already
The European Union this month launched a regionwide prosecutor's
office to investigate crimes such as corruption, value-added tax
fraud and the misuse of Covid-19 recovery funds.
Tasked with policing the use of EU funds, the European Public
Prosecutor's Office will prosecute companies and individuals by
using the laws and judicial systems of the 22 member-states that
have opted to participate. How it will work in practice remains to
be seen.
Canada Vaccine Panel Recommends Against AstraZeneca for Second
Dose
A Canadian vaccine panel said Thursday that people who received
a first dose of AstraZeneca PLC's vaccine against Covid-19 should
get a different vaccine for their second dose.
Canada's national advisory panel on immunization said earlier
this month that authorized Covid-19 vaccines could be mixed, and
noted some people might prefer to get a messenger RNA vaccine for
their second shot. The panel has previously said mRNA vaccines,
such as the ones produced by Pfizer Inc. in partnership with
BioNTech SE, as well as Moderna Inc., are preferable to viral
vector vaccines, such as those developed by AstraZeneca and Johnson
& Johnson.
Supreme Court Rules Cargill, Nestle Can't Be Sued in Child-Labor
Case
WASHINGTON-The Supreme Court ruled Thursday that Nestlé USA and
Cargill Inc. can't be sued in U.S. courts for abuses allegedly
committed in Ivory Coast, where plaintiffs accused the
food-processing giants of obtaining cocoa from plantations that
relied on the forced labor of children.
The court, in a decision by Justice Clarence Thomas, said the
plaintiffs' case didn't have enough of a connection to the U.S. to
proceed.
Israel Strikes Militant Targets in Gaza After More Arson
Attacks
JERUSALEM-The Israeli military hit the Gaza Strip with a series
of airstrikes Thursday night, rattling a shaky month-old cease-fire
between the two sides that mediators are trying to keep from
falling apart.
Soon after, for the first time in nearly a month, air raid
sirens sounded the alarm in southern Israel when Gaza militants
used heavy machine guns to fire across the border, the Israeli
military said.
Turkey Commits to Securing Afghan Airport After Americans Leave,
U.S. Says
WASHINGTON-The U.S. and Turkey have agreed to a plan for the
Turks to continue providing security at the airport in Kabul, U.S.
officials said, ensuring the U.S. and other nations can maintain a
diplomatic presence in Afghanistan following the withdrawal of
troops, expected by next month.
Jake Sullivan, President Biden's national security adviser, told
reporters Thursday that both sides had made a "clear commitment" on
the security of Hamid Karzai International Airport in Kabul.
CureVac Value Halves in Reminder of Vaccine Research Risks
CureVac NV's market value nearly halved Thursday after the
Nasdaq-listed German company reported disappointing results for its
experimental Covid-19 vaccine, even as executives voiced hope that
the shot could still find a use in certain groups.
Investors wiped up to $9 billion off CureVac's value after the
company said its vaccine was just 47% effective against the disease
in an interim analysis of a large trial, one of the poorest results
for any prospective Covid-19 shot. By midday, shares in the company
were trading down 40%.
GLOBAL NEWS
BOJ Introduces Lending Facility for Climate Change
TOKYO-The Bank of Japan on Friday said it would introduce a
lending facility to help banks finance projects connected to
climate change.
The central bank said climate change would have an "extremely
large impact" over the long term on the economy, prices and
financial conditions.
Glynn's Take: RBA Gov. Increasingly Likely to Raise Rates Before
Stepping Out the Door
A career devoted to the understanding and implementation of
monetary policy has left the governor of the Reserve Bank of
Australia, Philip Lowe, a tad unfulfilled.
He hasn't had to raise interest rates while in the top job, and
if current policy guidance plays out, his term will expire before
he gets a chance.
Bipartisan $1 Trillion Infrastructure Package Gains Steam
WASHINGTON-A growing bipartisan group of lawmakers and the White
House haggled over how to finance a roughly $1 trillion
infrastructure proposal, awaiting feedback from President Biden as
Democrats began discussions on a separate economic package that
could cost up to $6 trillion.
Since negotiations between Mr. Biden and a group of Senate
Republicans collapsed last week, an alternative set of Republican
and Democratic senators have held talks on a infrastructure plan
that would spend $973 billion over five years, with $579 billion of
that funding above expected baseline levels. Initially a group of
five Democrats and five Republicans, the group expanded to include
11 Republicans and 10 members of the Democratic caucus on
Wednesday.
Yellen Declines to Offer Position on State-Tax Deduction Cap
WASHINGTON-Treasury Secretary Janet Yellen repeatedly declined
to offer a clear administration position on the deduction for state
and local taxes during a House hearing, leaving vagueness on an
issue that will be the subject of tense negotiations among
Democrats considering President Biden's fiscal agenda.
Under pressure from House Democrats and Republicans on Thursday
to take a position, Ms. Yellen wouldn't say whether the Biden
administration favors repealing the $10,000 cap on the deduction.
Eliminating that limit would cut taxes for high-income households
and disproportionately benefit residents of high-tax
Democratic-leaning states such as New York, New Jersey and
California.
Jobless Claims Rose Last Week, Pausing Downward Trend
Worker filings for initial unemployment benefits rose last week
for the first time since late April but remained near a pandemic
low as the labor market continues to heal from the impact of
Covid-19.
Initial jobless claims rose by 37,000 to 412,000 in the week
ended June 12. Despite the increase, the four-week moving average,
which smooths out week-to-week volatility, reached a new pandemic
low of 395,000. This was the lowest average level since March 2020,
when the pandemic first took hold in the U.S.
Floating-Rate Bonds Are Coming Back, Boosted by Bets on Rising
Rates
Investors are snapping up bonds with yields that rise and fall
with interest rates, spurring a wave of debt offerings by blue-chip
companies.
Nonfinancial companies including Verizon Communications Inc. and
7-Eleven have sold more than $18 billion worth of investment-grade
bonds with variable interest rates this year through June 14,
according to data compiled by Dealogic. That is nearly four times
the amount issued in the same period last year.
Lawmakers Urge Private Sector to Do More on Cybersecurity
The private sector in the U.S. must do more to defend against
cyberattacks, lawmakers from both major parties stressed Thursday
as several senators introduced legislation designed to target
hackers.
The ransomware incident that brought operations at Colonial
Pipeline Co. to a standstill for six days starting May 7, and
resulted in fuel shortages across Southeastern states, shows that
cybersecurity efforts must improve, said Sen. Sheldon Whitehouse
(D., R.I.).
China Considers Lifting All Childbirth Restrictions by 2025
SINGAPORE-Chinese officials are drawing up plans to further
loosen birth restrictions and transition toward policies that
explicitly encourage childbirth, according to people familiar with
the matter, reflecting increased urgency in Beijing as economic
growth slows and China's population mix skews older.
Policy makers are discussing the possibility of fully doing away
with birth restrictions by 2025, the end of the ruling Chinese
Communist Party's current five-year economic plan, according to one
of the people. According to that person, China will likely begin by
eliminating birth restrictions in provinces where the birthrate is
the lowest before enacting nationwide changes.
Israel Strikes Militant Targets in Gaza After More Arson
Attacks
JERUSALEM-The Israeli military hit the Gaza Strip with a series
of airstrikes Thursday night, rattling a shaky month-old cease-fire
between the two sides that mediators are trying to keep from
falling apart.
Soon after, for the first time in nearly a month, air raid
sirens sounded the alarm in southern Israel when Gaza militants
used heavy machine guns to fire across the border, the Israeli
military said.
Turkey Commits to Securing Afghan Airport After Americans Leave,
U.S. Says
WASHINGTON-The U.S. and Turkey have agreed to a plan for the
Turks to continue providing security at the airport in Kabul, U.S.
officials said, ensuring the U.S. and other nations can maintain a
diplomatic presence in Afghanistan following the withdrawal of
troops, expected by next month.
Jake Sullivan, President Biden's national security adviser, told
reporters Thursday that both sides had made a "clear commitment" on
the security of Hamid Karzai International Airport in Kabul.
U.S. FCC Proposes Fresh Ban on Equipment From Chinese Firms
Including Huawei, ZTE
The U.S. Federal Communications Commission has proposed new
rules that would prevent U.S. communications networks from using
equipment made by a handful of Chinese companies deemed as national
security threats, including telecom giants Huawei Technologies Co.
and ZTE Corp.
The proposed regulation also seeks to revoke prior
authorizations issued to five Chinese companies that allowed U.S.
networks to use their equipment, the telecom regulator said in a
statement Thursday.
Write to sarka.halas@wsj.com
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(END) Dow Jones Newswires
June 18, 2021 06:24 ET (10:24 GMT)
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