MARKET WRAPS

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Opening Call:

European shares may struggle for momentum early Thursday as investors weigh a slightly less hawkish Fed message against ongoing worries over inflation and global growth. Asian shares were mixed, following Wall Street's modest gains; the dollar dipped; Treasury yields were unchanged; and oil and gold prices advanced.

Equities:

European stocks are unlikely to make much headway Thursday as investors in the region get their first chance to react to the Federal Reserve minutes.

U.S. stocks closed higher as traders took away a message of flexibility from the minutes, with the central bank open to rethinking aggressive plans to raise rates to tame high inflation.

Minutes from the May meeting showed support for half-point moves by the Fed as it seeks to get its policy rate "expeditiously toward neutral," over the next couple of meetings and that high inflation remains a key focus.

"The one thing this Fed is very good at is being measured," said Eric Merlis, managing director of global markets at Citizens. "I chose to see this as a recognition that they're not going to go headlong along a path. They recognize things could change."

However, there was another disappointment for U.S. tech, with Nvidia stock falling after the chip maker provided a softer-than-expected outlook for its July quarter. The company cited the impact of both reduced business in Russia and Covid-related manufacturing shutdowns in China.

Read more here.

Economic Insight:

The culmination of inflation, driven by factors such as rising energy and food prices, ongoing supply chain disruptions, lockdowns in China and the cost of tackling climate change means that Europe's economy faces the most complex situation in the next 12 months that it has faced in decades, said Deutsche Bank CEO Christian Sewing.

He stressed that Europe needs to remove obstacles between countries to allow the free flow of investment and savings to ensure sufficient private financing is available to help the bloc reach its net zero objectives

"If we don't unlock the capital markets union now, the green deal cannot be financed," Sewing said.

Forex:

The dollar fell back slightly in Asia against a range of currencies as investors assessed the Fed's policy outlook following the release of the FOMC meeting minutes.

With inflation risks skewed to the upside, markets are pricing in the Fed's policy rate to finish the year at 2.75%, although only with a 58.9% probability, said Matt Simpson, senior market analyst at City Index.

"We're all questioning as to whether the Fed really can tame eye-watering levels of inflation without triggering a hard landing."

Silicon Valley Bank's Scott Petruska said "we're still bullish the dollar, over the long term all the factors supporting the dollar are still there," including expectations of the Fed hiking aggressively over the coming months, attractive yields and an economy that's fairly sound with a tight labor market.

Petruska said the currency's safe-haven status is crucial to its strength, faced with the Russian invasion of Ukraine and rising China-Taiwan tensions. But he cited a Bank of America survey showing fund managers are even more concerned about monetary policy and recession than geopolitical tensions.

Bonds:

Treasury yields were little changed in Asia, in a muted reaction to the Fed minutes.

"The Fed is moving slowly because when it talks tough, the market ramps up. Still, I don't think it dramatically changes the outlook and I don't see the Fed backing off," said Anthony Denier, CEO of Webull, a trading platform.

Dean Smith, chief strategist at FolioBeyond, said "market reaction to the Fed minutes is quite muted, as it is old news. Events have moved past the data available to the Fed at the time of the last meeting on May 3-4. That was a lifetime ago as it relates to the evolution of the highly volatile markets over the past several weeks."

The minutes showed some officials were worried about how the Treasury bond market, the backbone of the global credit system, might handle rate rises.

"Several participants who commented on issues related to financial stability noted that the tightening of monetary policy could interact with vulnerabilities related to the liquidity of markets for Treasury securities and to the private sector's intermediation capacity," the minutes said.

The document also noted that there was a lack of visibility into some aspects of commodities markets, which have been rattled by Russia's attack on Ukraine.

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Falling prices of investment-grade corporate debt means now could be an opportunity for investors, said Insight's Scott Ruesterholz. But he has advised potential investors to stick to U.S. firms as opposed to European ones.

"The ability of corporates to continue passing on higher input costs depends largely on the buying power of the consumer. The [U.S.] consumer is better placed than global peers to weather inflation," thanks to higher fiscal stimulus during the pandemic and because the war in Ukraine "has greater implications for European consumers."

Ruesterholz estimates that American consumers "could take on $400 billion of debt and still be less levered than the fourth-quarter of 2019."

Energy:

Oil futures extended Wednesday's gains after the latest EIA data showed a decline in U.S. crude and gasoline inventories ahead of the upcoming summer driving season over Memorial Day weekend.

"The tightening in the U.S. gasoline market will raise concerns over supply as we move into driving season. Tightness in the U.S. is pulling in gasoline from elsewhere, including Europe, which is also looking increasingly tight," said Warren Patterson, head of commodities strategy at ING.

CBA said Brent could track around $110 a barrel in the near term, adding that an EU ban on Russian oil imports would likely be the main driver. A deal may formalize in the coming week, though Hungary appears to be the main hold--out amongst EU members.

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At Davos, the IEA asked the question: How can governments shore up oil and gas supplies right now without putting the world on track to emit more carbon?

The head of the agency, Fatih Birol, set out several possible steps. More oil can be pumped from fields that are already in operation without investing in production capacity.

"U.S. shale oil and gas is easy to come into the market and come out of the market--you don't need big infrastructure. In the short term, we need to make the most of existing nuclear-power plants," Birol said.

Where Europe is building liquefied-natural gas terminals to unwind its dependence on Russian gas, it should equip them to be able to import hydrogen ammonia in the future, Birol added.

Read: Ukraine War Threatens Transition to Cleaner Energy, Leaders Warn at Davos

Metals:

Gold futures held minor gains in Asia, with prices partially supported by the Fed minutes which showed little appetite for more aggressive rate increases, said ANZ.

"The technical picture continues to remain supportive, and it seems only a marked dollar recovery will cap gold's rally," said OANDA.

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Base metals were mixed, with copper higher but zinc trailing slightly, and sentiment overall may be weighed by signs of weakening economic growth in China.

Chinese Premier Li Keqiang told officials Wednesday that the country is faring worse in some respects than 2020, said ANZ. This has spurred the market consensus forecast for China's 2022 GDP growth to fall to 4.5%, well below the official target of around 5.5%.

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Iron ore futures fell more than 3% in China with sentiment driven by declines in Hong Kong and Chinese equities.

However, investors continue to look to China's stimulus measures that could support demand for the steel-making raw material, said ANZ. The country's state media has lauded China's focus on economic growth in high-profile articles.

TODAY'S TOP HEADLINES

Fed Minutes Show Urgency for Raising Rates to Tame High Inflation

Federal Reserve officials thought they would need to raise interest rates by a half-percentage point at each of their next two meetings when they approved an increase at their gathering earlier this month.

Minutes from the Fed's May 3-4 meeting, released Wednesday, show that officials discussed the possibility that they would raise interest rates to levels high enough to slow economic growth deliberately as the central bank races to combat high inflation.

Russia Bondholders Say Debt Default Could Already Be Here

Russia could already be in default on some of its foreign currency debts, according to bondholders that claim they are still owed a small interest payment that Moscow didn't send to them earlier this spring.

A change in U.S. sanctions on Wednesday is expected to cut off Russia's ability to stay current on its dollar-denominated sovereign debt, which it has managed to continue servicing since the invasion of Ukraine began. Some investors, though, allege that Moscow has defaulted already by failing to pay about $1.9 million in interest and they have submitted notices of the possible default to bond custodian Euroclear earlier this month, according to records viewed by The Wall Street Journal.

Ukraine War Threatens Transition to Cleaner Energy, Leaders Warn at Davos

DAVOS, Switzerland-The worst energy crisis in a half-century is disrupting the West's transition to cleaner sources of energy by providing new momentum to invest in fossil fuels, business and government leaders said at this week's World Economic Forum.

Europe's scramble to wean itself off Russian energy following the country's attack on Ukraine will lead to new short-term investments in coal, oil and natural gas, energy and government officials said.

CBO Projects Inflation, Economic Growth to Cool This Year and Next

WASHINGTON-U. S. inflation and economic growth are forecast to cool later this year and in 2023, the Congressional Budget Office said Wednesday, reflecting an economy in a moment of transition.

The nonpartisan agency's budget and economic projections came as the Federal Reserve has begun raising interest rates in an effort to combat inflation, actions that some economists and market observers think are likely to bring an economic slowdown in the U.S.-and possibly a recession.

SEC Proposes More Disclosure Requirements for ESG Funds

WASHINGTON-Regulators proposed new disclosure and naming requirements for investment funds that tap into public angst regarding climate change or social justice, in an effort to address concerns about "greenwashing" by asset managers seeking higher fees.

The Securities and Exchange Commission voted Wednesday to issue two proposals that aim to give investors more information about mutual funds, exchange-traded funds and similar vehicles that take into account ESG-or environmental, social and corporate-governance-factors. One of the proposed rules, if adopted, would broaden the SEC's rules governing fund names, while the other would increase disclosure requirements for funds with an ESG focus.

Russia Weighs Easing Ukraine Grain Blockade in Return for Sanctions Relief

Russia is open to easing its blockade of Ukraine's ports along the Black Sea if sanctions on Moscow are lifted, a Russian official said Wednesday, a move that, if it went ahead, could increase grain exports and help relieve rising food inflation and shortages.

Andrey Rudenko, Russia's deputy foreign minister, said Moscow is willing to establish a humanitarian corridor that would provide safe passage for ships carrying food from the ports. In return, countries would have to lift sanctions on Russia.

U.K. to Probe Chinese-Led Takeover of Chip Maker

LONDON-The U.K. government on Wednesday began a national-security probe into a Chinese-controlled company's purchase of a British computer-chip factory, a move that could lead it to unwind the deal almost a year after it was completed.

The scrutiny is the latest sign that countries are becoming increasingly protective of their semiconductor industries amid a global chip shortage.

U.K. Car Manufacturing Hurt by Continued Chip Shortages, Supply-Chain Issues

U.K. car manufacturing fell 11% in April, an industry body said Thursday, blaming a number of issues including continued chip shortages and the effect of Ukraine war on supply chains.

The Society of Motor Manufacturers and Traders said a total of 60,554 cars drove off production lines in April compared with 68,306 in April 2021. This takes the number of cars produced for the first four months of the year to 267,901 down from 374,864 for the same period in 2021.

U.S. Sanctions Russian Companies Accused of Helping Iran's Revolutionary Guard

WASHINGTON-The Biden administration accused the Russian government of helping Iran's blacklisted military unit sell hundreds of millions of dollars of oil around the globe, as Washington levied a barrage of sanctions against companies and individuals allegedly involved in the smuggling operation.

The action on Wednesday marks a double-barreled financial and diplomatic salvo against the U.S.'s top two foes, linking Russia's state oil company to the Islamic Revolutionary Guard Corps's Quds Force, the Iranian military unit designated a terrorist group by the U.S. and other Western nations.

Russia's Absence at Davos Marks Unraveling of Globalization

DAVOS, Switzerland-The country that dominated discussions at this year's annual meeting of the World Economic Forum isn't even here.

Organizers of the forum withheld invitations to Russians after President Vladimir Putinordered the invasion of Ukraine on Feb. 24, and the country's absence from the meeting in Davos is freighted with symbolism.

Nvidia Posts Record Sales, Warns of Russia, China Hit

Graphics-chip maker Nvidia Corp. gave a muted sales outlook, citing supply-chain disruptions in China and reduced business in Russia, as it posted record sales for the most recent quarter.

Nvidia said sales in the current quarter are likely to come in at $8.1 billion, missing Wall Street forecasts. The company said it anticipated a roughly $500 million hit to sales relating to Russia and Covid-19 lockdowns in China.

Elon Musk Plans to Rely More Heavily on Equity for Twitter Deal

Elon Musk is committing more of his wealth to finance his $44 billion deal for Twitter Inc. and seeking additional financial backers amid a sharp decline in Tesla Inc. stock in recent weeks.

Mr. Musk's funding plan now includes $33.5 billion in equity, up from $27.25 billion, according to a Wednesday regulatory filing. The billionaire Tesla chief executive no longer plans to rely on a margin loan backed by shares of his electric-vehicle company, which are down by about a third since Twitter accepted his bid in late April.

Write to paul.larkins@dowjones.com

Expected Major Events for Thursday

07:00/HUN: Apr Employment & unemployment

08:00/ITA: May Consumer Confidence Survey

08:00/ITA: May Business Confidence Survey

09:00/ITA: Mar Industrial turnover & orders

10:00/IRL: 1Q Labour Force Survey

11:00/TUR: Turkish interest rate decision

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(END) Dow Jones Newswires

May 26, 2022 00:26 ET (04:26 GMT)

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