MARKET WRAPS

Stocks:

Europe's oil and gas sector climbed on Tuesday as Brent crude-oil futures reached $75 a barrel, a milestone demonstrating the recovery in demand as economies reopen.

Integrated major oil companies Royal Dutch Shell and BP each rose 2%, and oil services firm TechnipFMC rose 4%, as the Brent contract ended Monday at the highest level since Oct. 31, 2018.

The Stoxx Europe 600 oil and gas sector has climbed 57% from its 52-week low reached in late October, and the SPDR S&P Oil and Gas Exploration ETF has jumped 138% from its October lows.

The broader European stock market was trading in a tight range after a solid finish to U.S. trading on Monday, with the Stoxx Europe 600 slipping.

"Yesterday's recovery across the Atlantic buoys European markets. With King Dollar taking a breather, and participants coming to terms with the fact that there is a significant lag between talking of tapering and the action of tapering itself, the path of least resistance for equities remains higher," said Ryan Paisey, market commentator at PriapusIQ.

Prosus, the technology investor, slipped 3%, after reporting a 45% rise in its core headline earnings per share for its March-ending fiscal year, which was in line with its forecast of core headline EPS growth between 41% and 48%.

Irish building materials company Kingspan rose 5%, after saying first-half sales will be around EUR2.9 billion ($3.5 billion), up from first-half 2020 levels of EUR2.07 billion, and its trading profit will be in the region of EUR315 million, some 58% above comparable 2020 levels.

U.S. Markets:

Stock futures ticked down as investors awaited comments from Federal Reserve Chairman Jerome Powell on the outlook for inflation and the labor market.

Futures tied to the Dow Jones Industrial Average slipped a day after the blue-chip index posted its biggest advance in more than three months. Contracts linked to the S&P 500 index also edged lower, while Nasdaq-100 futures pointed to technology stocks paring back gains at the opening bell.

Stocks have been volatile in recent days as investors looked for clues about how quickly the Fed will move to pull back its support of the economy, and whether the rebound may be stunted. Money managers' concerns about a spike in inflation and the prospect of higher rates have eased, but markets remain on edge.

Mr. Powell plans to tell Congress on Tuesday that job growth should pick up in coming months and temporary inflation pressures should ease as the economy continues to recover from the effects of the pandemic.

He is likely to take questions on the outlook for inflation and the labor market, which may offer fresh insights into the potential pace of interest-rate hikes and the easing of the Fed's bond-buying program.

"The market is in a very fragile, emotional state," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "It will be a rocky road, it will be bumpy and pronouncements from central bankers are going to get very quick, knee-jerk responses."

Money managers are reconciling themselves to the idea that stimulus measures will be pared back slowly, but not in the immediate future, he added. "There is still plenty of time for markets to get accustomed to [a rate increase]. It really doesn't feel like the beginning of the end just yet."

Existing home sales data, due at 10 a.m. ET, will offer a view into how the American housing market is faring. Economists expect that sales fell in May for the fourth consecutive month as record-high prices put off potential buyers.

Forex:

The dollar may struggle to continue to build on its gains after last week's Fed meeting where policy makers predicted an earlier-than-expected timeframe for raising interest rates, UniCredit said.

Long-term U.S. bond yields "remain low," with the 10-year Treasury yield still "finding it difficult" to breach the 1.50% level, the bank said.

"We warned that if long-term yields continue to face difficulty in moving upwards in the near term, this would dent the post-FOMC USD rally, and this has already been visible in the dollar index (DXY) backpedaling to around the 92 threshold," UniCredit said.

The DXY index was last up 0.1% at 91.9750, having dropped down from a two-month high of 92.4050 reached Friday.

Bonds:

In bond markets, the yield on the 10-year U.S. Treasury note edged up to 1.502%, from 1.481% on Monday. The 30-year yield, which has been particularly volatile in recent days, ticked higher to 2.117% from 2.103% on Monday.

New bonds issued by the EU could represent an attractive opportunity, said Lidia Treiber, director of research at WisdomTree, seeing a number of advantages in such debt compared with sovereign bonds.

"EU bonds are not linked to the credit rating of one specific country and can be a relative trade proposition to avoid sovereign bond volatility around national elections, for example," she said.

Treiber also pointed to the ESG aspects of new EU bonds. Bonds issued under the SURE program, proceeds of which helped to mitigate unemployment caused by the pandemic, were issued in social bond form. As for the EU's NextGenerationEU bonds, up to EUR250 billion will be issued as green bonds in the NGEU's EUR800 billion funding envelope.

The Fed must walk a tightrope to navigate a successful end to an extremely accommodative stance, with key rates close to 0% and monthly asset purchases of $120 billion, said Olivier de Berranger, chief investment officer of La Financiere de l'Echiquier.

Economic growth is skyrocketing, the employment market is returning to normal and inflation is making a surprise return, he said.

"This therefore seems the ideal time for the Fed to start preparing financial markets for an end to its liquidity injections as the scars of the crisis for the U.S. economy fade," he said.

LFDE sees the Fed's meeting last week as a success despite the anticipation of an earlier start to rate rises by Fed members, de Berranger said.

The Fed's preferred plan and timing for tapering will become clearer in the coming months and Pimco expects an announcement on this could come as soon as the central bank's September meeting, said economists Tiffany Wilding and Allison Boxer.

"When the Fed does taper the monthly pace of purchases, it will likely follow a pre-planned, gradual path that takes roughly two to three quarters," they said.

Commodities:

Oil prices briefly hit their highest level in over two years before edging lower, as investors mulled the outlook for demand.

Brent initially rose above $75 in the Asian session for the first time since late-2018. Analysts say recovering demand should continue to support prices while suppliers keep taps only half-open.

"The ongoing demand outlook continues to outweigh the limited supply response amid cautious increases from OPEC+ and no still no agreement on the Iranian nuclear front," TD Securities said.

Copper prices inched higher as the metal stabilizes after concerns about demand prospects prompted several days of weakness. Three-month copper on the LME is up less than 0.1% at $9,182.50 a metric ton.

While losses appear to have halted, analysts remain concerned about the prospect of tightening monetary policy, slowing demand, and Chinese efforts to tamp down rising commodities prices.

"Underlying fundamentals are pretty much unchanged," said Malcolm Freeman, CEO of brokerage Kingdom Futures.

"There is still the real prospect of interest rate rises and the very fast bounce back from shutdown due to Covid is slowing."

EMEA HEADLINES

ABN Amro Sets Up $506 Million Impact Investment Fund

ABN Amro Bank NV is setting up a EUR425 million fund, equivalent to $506 million, to back growth-equity and venture investments in companies across northwestern Europe that promote environmental sustainability and social impact.

The new ABN Amro Sustainable Impact Fund will target investments in companies engaged in energy transition; social impact, including accessibility; and the circular economy, which describes a business model focused on recycling and reusing products and reducing the use of virgin raw materials.

EssilorLuxottica Is Reviewing Options for GrandVision After Court Ruling

EssilorLuxottica SA late Monday said it is reviewing its options for the acquisition of GrandVision NV after an arbitration ruling gave the eyewear company the possibility to end the deal.

"The arbitral tribunal ruled that EssilorLuxottica has the option to terminate the acquisition of GrandVision due to GrandVision's material breaches of its obligations to EssilorLuxottica," the Franco-Italian company said.

Aston Martin Files for Legal Proceedings Against Nebula Project

Aston Martin Lagonda Global Holdings PLC said Tuesday that it is filing civil legal proceedings against Nebula Project AG over failure to pay some customer deposits for cars, which it expects to reduce 2021 earnings.

The luxury car maker said it is filing civil legal proceedings and that with the support of its customers, it will seek criminal proceedings against board members of Swiss dealer network Nebula, in order to investigate any potential criminal behavior following the failure to pay some deposits for the Aston Martin Valkyrie program. Aston has also terminated the underlying commercial agreement.

German Finance Agency Slightly Raises 3Q Capital-Market Issuance Plans

The German Finance Agency slightly raised its capital-market issuance plans for the third quarter compared with preliminary plans published in December to cover increased financing requirements, and it also flagged the potential need for further adjustments in the fourth quarter, it said Tuesday.

The finance agency plans to raise 62 billion euros ($73.90 billion) via government bonds at auctions in the third quarter, a EUR2 billion increase compared with the preliminary target, it said.

Iran's Incoming President Rebuffs Calls to Reel In Missiles, Militias

TEHRAN-Iranian President-elect Ebrahim Raisi on Monday said the Islamic Republic wouldn't stop supporting Shiite militia groups fighting across the Middle East or rein in its missile program, rebuffing a key goal of the Biden administration as it negotiates a revival of the 2015 nuclear deal.

President Biden has said he wants any fresh agreement on Iran's nuclear activities to lead to broader discussions on how to reduce its military footprint in the Middle East. But in his first press conference in Tehran after winning Friday's election, Mr. Raisi ruled out such an approach.

Jordan's Royal Rift Spills Into Court as Men Face Sedition Charges

A public rift between Jordan's King Abdullah II and his younger half-brother entered a new stage, as two of the prince's alleged co-conspirators appeared in court for the first time to face charges of sedition over their involvement in a purported plot to replace the monarch.

In a remarkable scene Monday at the state security court in Amman that was closed to the public, former royal court chief Bassem Awadallah and minor royal Sharif Hassan bin Zaid appeared handcuffed and wearing blue prison uniforms, according to their lawyers. Authorities say both were working on behalf of Prince Hamzah bin Hussein.

U.S. Sanctions Senior Belarus Officials Allegedly Tied to Political Crackdown

WASHINGTON-The U.S. and its trans-Atlantic allies on Monday imposed financial sanctions against senior Belarus officials and police units the Biden administration said are responsible for escalating political repression, including the forced diversion of a commercial airline carrying dissident journalist Roman Protasevich and his subsequent arrest in May.

The sanctions mark a significant expansion of pressure by the Biden administration as it coordinates joint action with the European Union and other Western governments against the political crackdown by the former Soviet state's leader, Alexander Lukashenko.

GLOBAL NEWS

Rising Inflation Looks Less Severe Using Pre-Pandemic Comparisons

As consumers deal with starkly higher prices than a year ago, the Federal Reserve has maintained its stance that high inflation, the increase in the price consumers pay for goods and services, isn't expected to last very long.

The Fed tweaked its outlook and now expects to raise interest rates by late 2023-sooner than previously anticipated-noting progress in economic activity and employment.

Whatever Their CEOs Say, Banks Are Wary About the Office

Some bank chiefs, like JPMorgan's Jamie Dimon, talk as if the office will soon look more or less as it did before. Their real estate lending teams seem less sure.

Banks on both sides of the Atlantic are becoming more selective about which offices they will lend against. Pockets of the market have been resilient during the pandemic: The rate banks charge for mortgages on the best central London offices was 1.65% in the first quarter of 2021, more or less where it was before the crisis, data from real-estate company CBRE shows. But U.K. lending margins for older, less central offices are close to historic highs, based on the Cass Business School's commercial real estate lending report.

Economy Is Showing Sustained Progress, Powell Says

WASHINGTON-Federal Reserve Chairman Jerome Powell said Monday that job growth should pick up in coming months and temporary inflation pressures should ease as the economy continues to recover from the effects of the pandemic.

"The economy has shown sustained improvement," Mr. Powell said in testimony prepared for delivery Tuesday on Capitol Hill, noting progress on vaccinations and vast stimulus efforts by Congress and the Fed.

Wage Gains at Factories Fall Behind Growth in Fast-Food

Pay for factory jobs has grown so slowly in the U.S. that manufacturers are having trouble competing with fast-food restaurants.

Take Western Michigan, home to many office-furniture and car-parts factories as well as a growing tourism industry. Restaurants and hotels along Lake Michigan have been hiring rapidly as people, kept fairly stationary during the pandemic, start traveling again. The shift is making it harder for factories to staff their production lines, and the added demand has increased both openings and the rate at which workers leave their jobs.

Fed's Williams Not Ready to Pare Aid, but Other Officials Talk Tapering

Federal Reserve Bank of New York leader John Williams said he isn't ready for the U.S. central bank to dial back the support it is giving the economy amid uncertainty about the recovery from the pandemic.

"It's clear that the economy is improving at a rapid rate, and the medium-term outlook is very good," Mr. Williams said in a virtual appearance Monday. "But the data and conditions have not progressed enough for the [Federal Open Market Committee] to shift its monetary policy stance of strong support for the economic recovery," he said.

Bitcoin Price Extends Drop After China Intensifies Crypto Crackdown

The price of bitcoin and other cryptocurrencies slid Monday after China's central bank ordered the country's largest banks and payment processors to take a more active role in curbing cryptocurrency trading and related activities.

The People's Bank of China on Monday said it summoned representatives of multiple institutions-including state-owned commercial banks and Ant Group Co.'s Alipay-and told them to "strictly implement" recent notices and guidelines from authorities on curbing risks tied to bitcoin and cryptocurrency fundraising activities. It was the latest sign that Beijing is intensifying its crackdown on unregulated virtual currencies.

SEC Wants More Climate Disclosures. Businesses Are Preparing for a Fight.

WASHINGTON-The Securities and Exchange Commission is preparing to require public companies to disclose more information about how they respond to threats linked to climate change-and businesses are gearing up for a fight.

The SEC's new chairman, Biden administration appointee Gary Gensler, has said climate-related disclosure is a top priority, and President Biden met Monday with Mr. Gensler, Treasury Secretary Janet Yellen, and other top financial regulators to discuss the issue. The SEC has already sought industry input, much of which arrived last week, for a rule proposal that could be issued by October.

The Copper Price Mountain Crumbles

Green energy plus inflation, infrastructure and easy money must equal a copper-price rally-at least that seems to have been the thinking of commodity investors, who had helped copper prices nearly double since late 2019.

Over the past week, that optimism has waned. The Federal Reserve, eyeing stubborn supply-chain and labor-market bottlenecks, has begun sending less dovish signals. And China, eyeing skyrocketing commodity costs, has elected to release part of its state copper reserves into the market. That one-two punch has taken copper prices off about 8% since mid-June.

Great Barrier Reef Is in Danger, U.N. Agency Says

SYDNEY-The United Nations body that oversees World Heritage sites has recommended that Australia's Great Barrier Reef be classified as in danger, saying the country's center-right government hasn't done enough to protect the reef from the effects of climate change.

The warning echoes the concerns of environmental groups that say the reef is deteriorating after experiencing three mass coral-bleaching events in roughly the past five years, the frequency of which scientists attribute to climate change. Bleaching, which occurs when water temperatures rise, can kill the corals and one study last year estimated the reef has lost more than half its corals since the 1990s.

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

(END) Dow Jones Newswires

June 22, 2021 06:29 ET (10:29 GMT)

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