MARKET WRAPS
Watch For:
Bundesbank monthly report; Christine Lagarde appears at
Committee on Economic and Monetary Affairs; updates from Naspers,
Prosus, Bunzl
Opening Call:
Wall Street's slide on Friday will likely drag European shares
lower this morning, as investors pivot with a more hawkish Fed. In
Asia, major stock benchmarks tumbled, the dollar, yen and most
commodities strengthened, while Treasury yields eased further
lower.
Equities:
European and U.S. stock-index futures fell steadily on Monday,
following Wall Street's worst week since October.
The Dow retreated more than 500 points on Friday, as traders
warily eyed the Federal Reserve for hints of where monetary policy
is headed.
It isn't surprising that equities are falling, said ThinkMarkets
analyst Fawad Razaqzada. U.S. stocks have hit a series of record
highs and have been outpacing the economic recovery since last
year. Now traders are repricing that "reflation trade" as they
watch the Fed slowly start to alter its stance on monetary
policy.
"It was coming," he said. "This kind of selloff was coming
because the market got ahead of itself."
The Cboe Volatility Index, known as Wall Street's "fear gauge,"
climbed to its highest level in weeks.
"The markets will be more spooked by 2022 turning to a rate
hike, because that will mean they have to taper as well," said
Derek Halpenny, head of research for global markets in the European
region at MUFG Bank.
Stocks to Watch: Vivendi on Sunday reached an agreement for a
10% investment in Universal Music Group by William Ackman's
Pershing Square, valuing the world's largest music company at about
$40 billion.
In an email to UMG employees, CEO Lucian Grainge called the
investment a "strong validation." The deal-previously reported on
by The Wall Street Journal-follows a 20% stake investment by
Chinese internet giant Tencent and comes days before Vivendi
shareholders will vote on the potential listing of 60% of UMG
shares on Euronext.
"The fact that we now have, in addition to Vivendi, two
committed investors-the consortium led by Tencent, as well as
PSTH-is as powerful an endorsement as one could imagine from the
investment and technology communities," said Mr. Grainge.
Forex:
The dollar held firm against other major currencies in Asia,
except the yen, as risk-off sentiment dominated regional
markets.
St. Louis Fed leader James Bullard's acknowledgement that he
thinks a late 2022 hike may be in the cards, helped the dollar push
higher on Friday but it's more likely the real news was his comment
about mortgage bond buying as part of the Fed's stimulus
efforts.
"I'm leaning a little bit toward the idea that maybe we don't
need to be in mortgage-backed securities with a booming housing
market and even a threatening housing bubble here, according to
some people," he said, adding "we don't want to get back in the
housing bubble game that cost us a lot of distress in the
2000s."
Meanwhile, cryptocurrencies continued to fall over the weekend,
following a recent crackdown by China against crypto miners.
Bitcoin fell as low as $33,400 on Sunday, before recovering above
the $35,000 level. Bitcoin is down about 9% over the past five
days. Prices of ethereum and dogecoin also fell Sunday.
For global financial markets, it was all about the Fed's hawkish
dot plots last week and little will change this week. New York Fed
President John Williams speaks on Tuesday with Jerome Powell
speaking on Wednesday.
Commonwealth Bank of Australia said market participants will be
interested in whether Powell and Williams indicate concerns about
an inflation overshoot. CBA said signs the FOMC is growing less
certain about the inflation outlook is important for the policy
view, and can support the dollar, with any upside surprise to
Friday's U.S. PCE deflator also dollar supportive.
China's central bank on Monday held its benchmark lending
rate--the loan prime rate--unchanged in June, as it moved to use
administrative tools rather than price signals to rein in financial
risk, said Capital Economics.
The PBOC has held its policy rates unchanged for over a year
after it lowered the LPR twice last year to help the
pandemic-shocked economy. Capital Economics said the central bank
has succeeded in bringing credit growth back to the pre-virus pace
by using other tightening tools, which are likely to "act as a
headwind over the coming quarters even in the absence of any rate
changes."
The Czech koruna's potential gains in reaction to an expected
interest rate rise by the Czech National Bank on Wednesday will be
limited, said UniCredit. The CNB is seen raising its key rate by 25
basis points to 0.50% and could deliver two more increases in 4Q,
but that is largely priced in by the currency market, said
UniCredit's Roberto Mialich.
"This means that a more pronounced CZK appreciation towards and
beyond the 25.00 threshold would probably require more hawkish
comments by the bank's board rather than the rate hike alone," he
said. The CNB will likely refrain from providing such signals until
the next macroeconomic forecasts are released in August, said
Mialich.
Unicredit also said Hungary's central bank will likely raise its
benchmark interest rate by 30 basis points at its June 22 policy
meeting but that won't automatically boost the forint.
"The forint has already reversed recent gains against the euro
after the National Bank of Hungary indicated that normalization
will likely proceed on a quarterly basis, a pace that sounds too
tepid," said Mialich. NBH member Gyula Pleschinger said in an
interview last week that the bank could embark on quarterly
interest-rate rises to rein in inflation.
Pleschinger's remarks came after NBH Deputy Governor Barnabas
Virag last month indicated that the bank could raise rates in
June.
Bonds:
Long-dated Treasury yields fell back further in Asia after they
receded on Friday, although the short-term 2-year bond booked the
sharpest weekly rise in nearly 2 years, compressing the yield
curve.
Moves on Friday were sparked by comments by James Bullard but
had been at least partly set in motion after the Fed's Wednesday
meeting concluded with a hawkish tone for financial markets.
"We still expect nominal yields to reprice higher at some point
this year, once technical factors dissipate and fundamentals
reassert themselves," wrote Jefferies economists Aneta Markowska
and Thomas Simons, in a Friday note.
"In the longer term, we do think the more hawkish sounding Fed
does raise plenty of questions about how we are supposed to
interpret the new average inflation targeting regime," the
economists wrote.
Fitch on Friday revised its U.K. outlook to stable from
negative, affirming its AA- rating, saying the economy and public
finances have been "more resilient to the impact of the pandemic
shock than Fitch had expected."
Fitch also raised its 2021 real GDP growth forecast to 6.6% from
5% and forecast the general government deficit to decline to 10.7%
of GDP in 2021 from 12.2% in 2020.
Energy:
Oil prices extended their gains in Asia on signs that a
resumption of Iranian oil exports may take longer to happen.
Conservative cleric Ebrahim Raisi's win in the Iranian
presidential election on June 18 may increase the risk of a delay
to a U.S.-Iran nuclear deal, as he is under U.S. sanctions for
alleged human rights abuses, said CBA. These sanctions will need to
be lifted if any revival of the 2015 nuclear accord is to take
place.
Baker Hughes data on Friday raised the possibility of higher
U.S. oil production, as the number of active oil drilling rigs rose
for a second-consecutive week. Still, officials from OPEC's
Economic Commission Board were told last week by industry experts
to brace for U.S. output to see a limited rise of 200,000 barrels
per day this year, Reuters reported Friday, citing two sources.
Metals:
Gold futures were higher in Asia trade, recovering Friday's
modest losses, although the precious metal ended the week down
6%--its biggest weekly drop since March 2020.
UOB said a surge in the dollar has dented the metal's appeals,
expecting any upside above $1,900 will likely be capped by the
Fed's hawkish tilt last week.
Base metals edged lower, with the three-month LME copper
contract down 0.2% at $9,131 a ton and aluminum 0.1% lower at
$2,382 a ton.
Sentiment in metals has been weighed by the Fed's hawkish stance
on interest rate rises, said ANZ, with headwinds from the stronger
dollar and further measures by the Chinese government to quell
speculation in the commodities market also likely to keep the
downward pressure.
TODAY'S TOP HEADLINES
Bipartisan Infrastructure Bill Could Lose Gas-Tax Rise, Senator
Says
WASHINGTON-A proposed infrastructure spending plan may be
hammered out without a measure raising the gasoline tax, a key
Republican lawmaker said Sunday, suggesting the removal of an
obstacle to a nearly $1 trillion infrastructure plan pushed by a
bipartisan group of lawmakers.
Sen. Rob Portman (R., Ohio), one of the lead Republicans in the
group, said a higher gasoline tax may not be in the final package,
citing opposition from the Biden administration.
Supply Crunch Risks Extending Into 2022, Stoking Inflation
Supply constraints that have challenged businesses and caused
shortages of everything from semiconductors to sweatpants are
deepening, adding to pressure on inflation and testing the Federal
Reserve's resolve to keep juicing the economy.
Economists and business executives now say those supply-chain
disruptions, key labor shortages and resurgent demand driven by
multiple rounds of fiscal stimulus will persist through the end of
the year, if not longer.
Iran's New Hard-Line President Poised for Pivotal Role in
Nuclear Talks
When Iranian diplomats resume talks with Western officials to
revive a battered nuclear deal, one name will stand out on the list
of individuals Tehran wants removed from the U.S. sanctions list:
Ebrahim Raisi, Iran's president-elect.
The 60-year-old hard-line judge, who won Friday's presidential
election in Iran, was sanctioned two years ago by the Trump
administration for his close ties to Iranian Supreme Leader Ali
Khamenei. As Iran's president-elect, Mr. Raisi has emerged in a
pivotal role that could determine the fate of the 2015 multination
accord.
The Natural-Gas Glut Has Evaporated, Driving Prices Higher
Natural-gas prices are starting the summer air-conditioning
season nearly twice as high as they were a year ago.
Demand for the fuel is picking up as the world's economies
reopen and as Americans dial down their thermostats for what is
expected to be a hot summer. Meanwhile, U.S. producers have stuck
to the skimpy drilling plans they sketched out when prices were
lower, eliminating the glut that was keeping them depressed.
Vivendi Agrees to Sell 10% of Universal to William Ackman
Vivendi SE on Sunday reached an agreement for a 10% investment
in Universal Music Group by William Ackman's Pershing Square
Tontine Holdings, valuing the world's largest music company at
about $40 billion.
In an email to UMG employees, CEO Lucian Grainge called the
investment a "strong validation." The deal-previously reported on
by The Wall Street Journal-follows a 20% stake investment by
Chinese internet giant Tencent and comes days before Vivendi
shareholders will vote on the potential listing of 60% of UMG
shares on the Euronext Amsterdam stock exchange.
Terrorist Attacks, Immigration Debates Push French Voters
Rightward, Boosting Le Pen
L'ISLE-SUR-LA-SORGUE, France-Wedged between river tributaries in
southeastern France, L'Isle-sur-la-Sorgue is known for its
cobblestone streets and its sun-dappled outdoor market.
But ahead of local elections this month, the debate in this
small town, and in others across France, has centered on the
fallout from the beheading of a schoolteacher near Paris last fall
by a Chechen refugee as well as the slaying of churchgoers in Nice
weeks later by a Tunisian migrant.
U.K. Home Prices Continue to Rise But Pace Is Slowing
U.K. house prices are continuing to rise to new highs though at
a slower pace than recent months, according to new data from
property portal Rightmove PLC.
The average price of property coming to the market between May 9
and June 11 rose by 0.8%, or GBP2,509 ($3,494), a more modest climb
than the preceding month's 1.8% but still pushing the national
average to a record high of GBP336,073 for the third consecutive
month. The portal measured 125,582 prices across the U.K. over the
period.
European Union Lifts Bond-Sale Ban for Some Banks
The European Union lifted the ban against some banks that had
been excluded from working on its bond sale earlier in the
week.
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp.,
Barclays PLC, Deutsche Bank AG, Nomura Holdings Inc., UniCredit SpA
and Crédit Agricole SA are among the banks cleared to work on
future bond sales, according to an EU official.
Write to paul.larkins@dowjones.com
Expected Major Events for Monday
08:00/POL: May PPI
08:00/POL: May Industrial Production Index
08:00/POL: May Agricultural prices
09:00/LUX: May Unemployment
13:00/BEL: Jun Consumer Confidence Survey
16:59/HUN: 1Q Balance of Payments
16:59/LUX: 1Q Balance of Payments
17:59/POR: Mar ICSG Copper Report
17:59/UK: May Aluminium Production report
22:00/NED: May House Price Index
All times in GMT. Powered by Kantar Media and Dow Jones.
Write to us at newsletters@dowjones.com
We offer an enhanced version of this briefing that is optimized
for viewing on mobile devices and sent directly to your email
inbox. If you would like to sign up, please go to
https://newsplus.wsj.com/subscriptions.
This article is a text version of a Wall Street Journal
newsletter published earlier today.
(END) Dow Jones Newswires
June 21, 2021 00:10 ET (04:10 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.