MARKET WRAPS
Watch For:
Federal Reserve Bank of Philadelphia President Patrick Harker,
Federal Reserve Bank of St Louis President James Bullard and
Federal Reserve Bank of Dallas President Robert Kaplan to speak at
Fed Week.
Opening Call:
Stock futures rose Monday, pointing to a rebound following a
tumultuous week that saw the Dow drop by the most in more than
seven months.
Stocks appear poised to recover some ground at the start to the
week. Investors' risk appetite took a hit last week after Federal
Reserve officials signaled that they may raise interest rates
sooner than they had previously anticipated. The comments prompted
a pullback in prices on stocks, lumber and gold last week, before
they ground higher on Monday.
"There are no very strong convictions in the market for the time
being," said Nadège Dufossé, head of asset allocation strategy at
asset manager Candriam. "The market is really focused on the
evolution of rates and central bank comments."
Stocks are likely to remain at roughly current levels, albeit
with increased choppiness, if market sentiment doesn't shift in
some way, she added.
Higher economic growth and inflation in the coming months is
likely to support stocks because Americans will increase spending
on goods and services when pandemic restrictions ease, said Fahad
Kamal, chief investment officer at Kleinwort Hambros. Technology
stocks and long-dated government bonds are likely to outperform if
growth and inflation slow after 2023, he added.
"For most investors, looking across the asset landscape, there
still remains no alternative to equities," Mr. Kamal said. "Hiring
is happening and normality is returning, and all of that is really
positive for cyclicality. That is never going to happen in a
straight line. As last week showed, there is huge volatility still
in equities."
Forex:
The dollar is likely to rise further, especially against
low-yielding currencies such as the euro and the Japanese yen, as
expectations grow that the Fed will start raising interest rates
earlier than previously thought, said ING.
Last week, the Fed unexpectedly forecast rate increases during
2023, while on Friday, St. Louis Fed President James Bullard said
he expects interest rates to start rising in 2022.
ING said the market is currently pricing the first U.S. rate
rise around November 2022.
These expectations could lift the DXY dollar index--which is
"heavily weighted towards European low-yielders"--towards the
late-March high of 93.44, from a current level of 92.1110. EUR/USD
could fall towards 1.1700, from 1.1892 currently, ING said.
Bitcoin fell 7% from its 5 p.m. ET level on Friday to $32,991.09
Monday. Ether, the second-largest cryptocurrency by market cap,
shed more than 8% of its value and joke cryptocurrency dogecoin
fell more than 11% to about 25 U.S. cents. The digital assets in
recent weeks have come under pressure as China has intensified a
clampdown on bitcoin mining.
The euro is likely to fall towards $1.18 on the prospect of a
move toward monetary policy tightening in the U.S. while the
eurozone retains ultra-accommodative policy, UniCredit said.
On Friday, Federal Reserve Bank of St. Louis President James
Bullard said he expects interest rates to start rising in 2022,
earlier than the central bank's revised forecast at Wednesday's
meeting.
UniCredit also notes comments by Italian Prime Minister Mario
Draghi calling for economic stimulus in European countries to bring
growth back to pre-pandemic levels.
"The prospect of the Fed accelerating tapering while the
eurozone is still considering additional stimulus does not bode
well for the common currency," the Italian bank said.
Bonds:
In bond markets, the yield on the 10-year Treasury note ticked
down to 1.423%, from 1.449% Friday. The 10-year yield has dropped
for five consecutive weeks, its longest stretch of declines since
August 2019.
"It is completely linked to the decline in inflation
expectations," Ms. Dufossé said. "The market is not pricing
overheating anymore in the U.S. economy. Investors think the Fed
will be able to contain any overheating in inflation."
The so-called yield curve flattened, with shorter-dated yields
rising to reflect higher rate expectations, while longer-dated
yields fell because higher interest rates in the near term would
likely mean slower growth and lower interest rates further into the
future. The biggest moves have been in the difference between
2-year yields and 30-year yields since last Wednesday.
Central banks are likely going to try to brace markets for an
eventual removal of monetary accommodation and the U.S. Fed is
leading the way on that front by signalling two rate increases in
2023, said Brian Jacobsen, senior investment strategist at Wells
Fargo Asset Management.
The first step on what will be a long road to a rate hike will
likely need to be a tapering and ceasing of asset purchases, he
said, expecting tapering possibly starting late this year. "With
enough lead-time, the market can take a taper in stride," he
said.
Commodities:
Oil prices edged higher on hopes for strong summer demand and
after a hardliner won the Iranian elections. The victory of cleric
Ebrahim Raisi in Iran's elections could delay a nuclear deal, said
analysts at ANZ.
"The possibility of Iranian oil hitting the market in the short
term...looks unlikely," they wrote in a note.
Prices for both varieties have risen over 40% so far this year
on strong demand expectations. "The rebound in demand in the
northern hemisphere summer is so strong that the market is becoming
increasingly concerned about further sharp drawdowns on
inventories," said ANZ.
Copper prices continued their selloff as investors fear tighter
monetary policy is on the way. Three-month copper on the LME was
down 0.8% at $9,073.50 a metric ton.
The metal has now dropped over 11% so far this month after a
hawkish turn from the Fed. The Fed's James Bullard said late last
week that the central bank could raise rates as early as next year.
Those comments have helped intensify the selloff for copper, said
Anna Stablum at brokerage Marex.
Investors said comments from Fed officials are now likely to be
of key focus until the central bank's officials meet at the next
Jackson Hole Symposium in late August.
Gold prices stabilized after ending the week sharply lower as
the Fed said it would raise rates sooner than expected.
The precious metal has found support from falling bond yields
which have pared back on the gains they made last week after the
Fed's meeting.
Some investors have also used the low gold price as a buying
opportunity, said Carsten Fritsch, commodities analyst at
Commerzbank, pointing to inflows into gold ETFs on Friday.
The SPDR Gold Shares ETF saw inflows of over $632 million on
Friday, the biggest one-day gain since January, according to data
from FactSet.
TODAY'S TOP HEADLINES
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.
Read More ->
Westlake Chemical to Buy Boral's North America Building Products
Business for $2.15 Billion
Westlake Chemical Corp. will buy Boral Ltd.'s North America
building products business for $2.15 billion, the companies
said.
Houston-based Westlake, a manufacturer of petrochemicals,
polymers and building materials, said the acquisition will nearly
double its building products business and improve the diversity of
what it sells.
Read More ->
American Airlines Cuts Some Flights to Avoid Potential
Strains
American Airlines Group Inc., which rapidly increased flying to
meet a surge in travel demand, is trimming some flights to
alleviate potential strains on its operations.
The number of flights being culled is relatively small,
amounting to about 1% of planned flying in the first half of July,
the company said. But scrapping roughly 950 flights from the
schedule is the latest sign of how tricky it has been for airlines
to scale up after a year of depressed demand. The changes also
illustrate how companies are trying to adjust to the post-pandemic
normal, with the rapid rise in travel pressuring vacation-rental
operators and rental-car companies as well.
Read More ->
Deutsche Bank Jumps Back Into Payments With Fiserv Deal
Deutsche Bank AG wants to get back into the suddenly valuable
business of digital payments, nearly a decade after getting out of
it.
Germany's largest lender is setting up a joint venture with U.S.
payments giant Fiserv Inc. to offer customers payments-processing
services. The joint venture will allow Deutsche Bank's business
clients to accept payments from customers, both in person and
digitally, through Fiserv's platform called Clover, which reads
credit cards, debit cards and mobile wallets, and records orders
and inventory.
Read More ->
Live-Stream Shopping App Ntwrk Hires Its First Chief Marketing
Officer
The company behind Ntwrk, an app that sells limited-edition
merchandise during live-streamed videos often hosted by
celebrities, has hired its first chief marketing officer and is
planning its first major ad campaign.
Ntwrk executives want to raise awareness of the app and its
live-stream shopping experience, said Jason Brown, the newly named
CMO at Ntwrk, which is operated by Commerce Media Holdings LLC.
Founded in 2018, Ntwrk describes itself as a Home Shopping Network
or QVC for younger consumers on mobile platforms.
Read More ->
North Face Owner Pulled Xinjiang Criticism, Then Reinstated
It
In late March, the maker of North Face jackets and Vans sneakers
quietly took down a statement raising concern about allegations of
forced labor in China's cotton-rich Xinjiang region. Rival fashion
company H&M had just been erased from China's internet for a
similar statement.
Three other big apparel companies also pulled or altered
statements critical of Xinjiang from their websites in the days
that followed the boycott of H&M, according to a Wall Street
Journal analysis. At Denver-based VF Corp., though, executives
quickly convened to deliberate over what they felt was the right
thing to do, according to a person familiar with the matter.
Twenty-four hours after pulling its statement, the company posted a
new, shorter statement reaffirming its stance.
Read More ->
Amtrak's Regional Rail Expansion Faces Hurdle From Freight
Trains
WASHINGTON-Amtrak and the Biden administration have a $75
billion plan to transform passenger train travel across America-but
aside from funding, the biggest challenge might be getting the
nation's freight railroads to get on board.
The seven major freight carriers have long resisted calls to
make more room on their tracks for trains carrying people rather
than coal, grain and steel. Current and former federal officials
say the greatest impediment to Amtrak's national expansion could be
finding a way to work with freight carriers.
Read More ->
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.
Read More ->
Economy Week Ahead: U.S. Existing-Home Sales, German Business
Confidence
Tuesday
U.S. existing-home sales fell in April from the prior month as
record-high prices deterred potential buyers. But April sales
remained 51.7% higher than the same month a year before. Economists
expect another decline in May.
Read More ->
Turbocharged U.S. Economy Attracts Foreign Investors
The extraordinary recovery of the U.S. economy is likely to make
the country the world's top destination for overseas investment
this year and next, according to new United Nations projections,
with foreign businesses drawn by the prospect of a rapid and
sustained rebound in consumer spending and the Biden
administration's multitrillion-dollar infrastructure plans.
According to U.N. figures published Monday, overseas investments
by businesses around the world fell by a third in 2020 from the
previous year. The U.S. recorded a 40% fall in investment but
narrowly held on to its long-held position as the top destination
ahead of China. The U.N. in January estimated that the U.S. had
lost the top slot.
Read More ->
China Tweaks Deposit Rate Rules to Guide Funding Costs Down
China has tweaked the mechanism to determine the upper limits on
banks' deposit rates, leading to a reduction of longer-term funding
rates, as competition for stable sources of deposits has
intensified.
The Self-Disciplinary Mechanism for the Pricing of
Market-Oriented Interest Rates, backed by China's central bank,
said Monday that it has changed how to determine the ceilings on
deposit rates by adding certain basis points to the government-set
benchmark rate.
Read More ->
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.
Read More ->
Tight Labor Market Returns the Upper Hand to American
Workers
Low-wage workers found something unexpected in the economy's
recovery from the pandemic: leverage.
Ballooning job openings in fields requiring minimal
education-including in restaurants, transportation, warehousing and
manufacturing-combined with a shrinking labor force are giving
low-wage workers perks previously reserved for white-collar
employees. That often means bonuses, bigger raises and competing
offers.
Read More ->
Breaking Up Japan Inc.'s Love Affair With Itself
Japan's corporate-governance reform has been a long, often
painful process. But there has been some recent progress on one
perennial complaint: massive cross-holdings that empower management
and tend to weigh on returns.
Nonfinancial companies on the Tokyo Stock Exchange's first
section booked 610 billion yen ($5.3 billion) of gains from sales
of securities for the six months ending in March, a 92%
year-over-year rise, according to Goldman Sachs. And 137 companies
reduced such cross-shareholdings in the fiscal year ending in
March, a 59% increase from a year earlier, noted the bank.
Read More ->
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.
Read More ->
Troubled Companies Take Page From AMC Playbook in Seeking
Stock-Market Lifelines
The frenzied stock-buying activity that may have saved AMC
Entertainment Holdings Inc. from bankruptcy is opening up a
potential escape hatch for other troubled borrowers as well.
More companies with steep financial challenges are seeking a
lifeline from equity markets, eager to capitalize on the surge of
interest in stock buying from nonprofessional investors. Earlier
this month, coal miner Peabody Energy Corp., offshore drilling
contractor Transocean Ltd. and retailer Express Inc., all announced
plans to sell stock, betting equity markets will support them
despite heavy debt loads, recent losses and industry headwinds.
Read More ->
Facebook, Alphabet Keep Rising; Apple, Netflix Fade
Big tech stocks are going their own ways in 2021.
It is a far cry from last year, when the so-called FAANG stocks
took a commanding role in a market driven by the coronavirus
pandemic.
Read More ->
Tokyo Olympics to Allow Spectators at Summer Games
TOKYO-The Summer Olympics in Tokyo will include up to 10,000
Japanese spectators at each event, organizers said, despite advice
by leading doctors that the Games would be safer without
crowds.
Monday's decision clears up the final major uncertainty about
the Games ahead of the opening ceremony on July 23. Officials said
in March that foreign spectators wouldn't be permitted to travel to
Japan to attend the Olympics.
Read More ->
Supreme Court Signals Expansion of Religious Exemptions From
Laws
WASHINGTON-With all nine justices voting to exempt a Catholic
social-service agency from Philadelphia's nondiscrimination
policies, the Supreme Court sent a message Thursday that secular
interests will increasingly have to give way to some religious
rights. The question now is how many-and how fast.
For three conservative justices, not fast enough. "We owe it to
the parties, to religious believers, and to our colleagues on the
lower courts to cure the problem this Court created," Justice Neil
Gorsuch wrote in a concurring opinion Thursday, joined by Justices
Clarence Thomas and Samuel Alito. They argued that it was time to
overrule a 1990 precedent holding that religious believers can't
invoke the First Amendment to exempt themselves from neutral laws
that apply to the public at large.
Read More ->
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.
Read More ->
Write to sarka.halas@wsj.com
TODAY IN CANADA
Earnings:
None scheduled
Economic Indicators:
None scheduled
Expected Major Events for Monday
05:00/JPN: May Convenience Store Sales
12:30/US: May CFNAI Chicago Fed National Activity Index
17:59/UK: May Aluminium Production report
All times in GMT. Powered by Kantar Media and Dow Jones.
Expected Earnings for Monday
Ennis Inc (EBF) is expected to report for 1Q.
Powered by Kantar Media and Dow Jones.
ANALYST RATINGS ACTIONS
Alaska Air Group Raised to Outperform From Peer Perform by Wolfe
Research
BancorpSouth Bank Raised to Buy From Neutral by DA Davidson
Biogen Raised to Overweight From Neutral by Piper Sandler
CAI International Cut to Neutral From Buy by B. Riley
Securities
Cimarex Cut to Equal-Weight From Overweight by Morgan
Stanley
Compass Minerals Cut to Underweight From Neutral by JP
Morgan
Constellation Brands Cut to Mixed From Positive by OTR
Global
Crinetics Pharmaceuticals Raised to Overweight From Neutral by
JP Morgan
CuriosityStream Cut to Underperform From Buy by B of A
Securities
Delta Air Raised to Outperform From Underperform by Wolfe
Research
Devon Energy Cut to Equal-Weight From Overweight by Morgan
Stanley
EQT Corp Cut to Equal-Weight From Overweight by Morgan
Stanley
Everest Re Cut to Neutral From Buy by Citigroup
Host Hotels & Resorts Raised to Overweight From Equal-Weight
by Capital One
Lennar Raised to Overweight From Neutral by JP Morgan
Marathon Oil Raised to Equal-Weight From Underweight by Morgan
Stanley
National Health Investors Raised to Market Perform From
Underperform by BMO Capital
Occidental Petroleum Raised to Overweight From Equal-Weight by
Morgan Stanley
Saia Raised to Overweight From Equal-Weight by Wells Fargo
Shockwave Medical Cut to Equal-Weight From Overweight by Wells
Fargo
Sykes Enterprises Cut to Neutral From Buy by Sidoti &
Co.
Troubled Companies Take Page From AMC Playbook in Seeking
Stock-Market Lifelines
United Airlines Raised to Peer Perform From Underperform by
Wolfe Research
This article is a text version of a Wall Street Journal
newsletter published earlier today.
(END) Dow Jones Newswires
June 21, 2021 06:08 ET (10:08 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.