UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European shares made solid gains on Tuesday as investors assessed the impact that China's loosening Covid-19 restrictions would have on global supply chains.

Stocks have largely bounced back in recent sessions as traders reassessed expectations of steep Federal Reserve interest-rate increases. Weakening economic data have provided some investors with hope that U.S. central bankers might become less hawkish as it tries to fight inflation.

Still, doubts remain about how long-lasting any rally will be, and many note that indexes are still highly sensitive to news that could rapidly swing stocks either way. The latest example came Tuesday when China's National Health Commission on Tuesday said it would loosen its strict quarantine requirements for international travelers.

"Upbeat news flows out of China, the latest being an easing of quarantine rules, is coming up against the headwinds from another bounce in oil prices and the retracement higher in U.S. yields," wrote Stephen Innes, Managing Partner at SPI Asset Management.

"Lots of noise under the surface, but it is still about energy inflation, with the street also running with the recessionary baton."

Stocks to Watch:

Severn Trent topped the FTSE 100 fallers, down 5% after JPMorgan downgraded the U.K. water utility to under-weight from neutral. United Utilities and FTSE 250-listed Pennon dropped 1.4% and 6% respectively.

While the U.K. water sector has done well since the latest regulatory period started in April 2020, with all three U.K.-listed companies achieving strong returns and asset growth and increasing dividends at least in line with inflation, returns from April 2025 are likely to fall short of market expectations, JPM said.

"In our view, the regulator will challenge the companies to be more efficient while meeting environmental objectives--this may require further reinvestment in the coming years, limiting outperformance," said JPM.

Economic Insight:

High inflation and uncertainty over the war in Ukraine continue to weigh heavily on consumer confidence in Germany, said Pantheon Macroeconomics.

GfK's consumer confidence index in Germany fell to minus 27.4 in July from a revised minus 26.2 in June, declining to the lowest level on record. Pantheon expects little relief for German consumer confidence in the near term, as a softening inflation is a prerequisite for a rebound.

"Risks to overall headline inflation are tilted to the upside as Germany, and the rest of Europe, contend with a near-complete halt of Russian gas flows, lifting energy prices and inflation further."

U.S. Markets

Stock futures rose after a choppy trading session on Monday sent benchmarks lower.

Later Tuesday, investors will parse data on home prices, as well as consumer confidence data from The Conference Board. Economists surveyed by The Wall Street Journal expect consumers' optimism to further cool for June as Americans continue to assess the impact of high inflation and rising interest rates.

In premarket trading in New York, travel and energy companies were bright spots in the market. Occidental Petroleum and Devon Energy each climbed more than 2%. Wynn Resorts climbed 4.9% and cruise line Carnival rose 1.6%.

In the bond market, the yield on the benchmark 10-year Treasury note advanced to 3.222%, from 3.193% Monday. In general, Treasury yields have fallen in recent weeks as investors re-evaluated their expectations for the Fed's interest-rate hikes.

Forex:

The dollar could weaken further because of dimming prospects of interest-rate increases by the Fed, said ActivTrades.

"With commodity prices falling and recession fears growing, some now believe that the Fed will not be able to go as far as previously expected, in terms of tightening, in a dynamic that is shifting expectations towards a slightly lower benchmark U.S. rate than had previously been expected, creating scope for further dollar weakness."

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Sterling continued to show little reaction to Brexit headlines even after the U.K. government's Northern Ireland bill cleared its first hurdle, said ING.

The bill, which unilaterally rips up post-Brexit trading arrangements for Northern Ireland, passed the second reading stage in the House of Commons on Monday.

"There are surely many indications that the pound is largely pricing in this scenario, and markets remain mostly focused on other drivers of U.K. economic underperformance as well as assuming Brexit is not a major input in the Bank of England's policy decision-making process at the moment," said ING.

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The Hungarian forint's recent weakness has put pressure on the nation's central bank to raise interest rates aggressively at Tuesday's policy meeting, Commerzbank said.

Previously, market observers unanimously expected the central bank to deliver a standard pre-signalled 50 basis points rate rise but now a sizeable minority are predicting a 100bp move.

"This means that, if [Hungary's central bank] were to simply ignore such expectations and hike by 50bp, there could be immediate further pressure on HUF." The rate decision is at 1200 GMT.

Bonds:

JPMorgan expects volatile range-trading in German bonds over the summer months with an ongoing drift lower and the 10-year Bund yield ending the year around 1%.

JPMorgan prefers to express medium-term overweight via longs in intermediate sectors both in outright terms and versus U.S. Treasurys. The bank remains "broadly constructive" medium term about intra-eurozone, but expects government bond yield spreads to continue to test the European Central Bank in the near term until the ECB delivers its planned antifragmentation tool.

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High-yield corporate bonds bore the brunt of spread widening with credit in the second quarter, with only a brief respite during a short-lived relief rally at the end of May, said HSBC.

U.S. dollar-denominated high-yield had the worst performance and saw the most aggressive spread widening. USD investment-grade credit, which saw the least spread widening, outperformed euro-demonominated investment-grade credit, HSBC said.

Energy:

Oil prices rose around 1% over a lack of extra supplies from the world's leading producers.

The United Arab Emirates' Energy Minister said on Monday that the major oil producer was near to producing at its maximum capacity. The U.A.E. along with Saudi Arabia has been seen as one of the few major OPEC members capable of making up for lost Russian supply to help balance the market.

"A seam of tight supply news has bolstered the market," said CBA.

Metals:

Base metals and gold pushed higher, boosted by improving demand sentiment on signals that parts of China will be loosening lockdown restrictions in the near term.

Beijing and Shanghai have slowly been lifting some Covid-19 lockdown restrictions this week, which should help boost buying for metals. Data from Bloomberg on Monday showed that economic activity in Shanghai had risen after it had lifted some restrictions.

Investors will be keeping a close eye on Thursday's release of PMI results for the region, looking for further signs of improvement.

DOW JONES NEWSPLUS

EMEA HEADLINES

German Consumer Sentiment Expected to Drop to New Record Low in July

Consumer confidence in Germany is set to fall in July to an all-time low, as inflation and Russia's war in Ukraine weigh heavily on household sentiment.

Market research group GfK's forward-looking consumer sentiment index forecasts confidence declining to minus 27.4 in July from a revised figure of minus 26.2 in June. July's figure is below the forecast of economists polled by The Wall Street Journal of minus 27.0.

Volkswagen Nears Deal to Sell Stake in Electrify America to Siemens

Volkswagen AG is close to selling a minority stake in its U.S. electric-vehicle charge business to an arm of Siemens AG, a deal that would value the network at more than $2 billion, according to people familiar with the matter.

A sale of a stake in Volkswagen's Electrify America LLC would generate additional funding as part of a plan to more than double the number of EV charging stations that Electrify America operates across the U.S. and parts of Canada to 1,800 by 2026. Reston, Va.-based Electrify America also offers EV charging stations for use at home.

Grain Must Flow From Ukraine Ports to Ease Global Food Strains, U.S. Agriculture Secretary Vilsack Says

CHICAGO--U.S. Agriculture Department Secretary Tom Vilsack called for Ukrainian ports in the Black Sea to be opened to ship grain out of the embattled country, to help relieve a global food crunch.

Trading needs to resume from the ports in the Black Sea that have been damaged or disrupted by Russia's invasion, Mr. Vilsack said, freeing up storage space for the coming harvest in Ukraine. The U.S. also needs to look for ways for it to increase its own crop production to help make up the gap in global grain supplies, he said.

Steelmakers Avoid Russian Components but Bargain Hunters Swoop In

Many European steelmakers have said they would avoid Russia-sourced raw materials after the country invaded Ukraine in late February, but import volumes of some Russian steelmaking ingredients into Europe are surging anyway.

Russian exporters boosted shipments of Russia-sourced ferrotitanium, a metallic alloy used to strengthen steel, by 30% in March from the previous month, according to import and export documents. The alloy is key to making finished steel that goes into cars, stainless steel and shipbuilding.

Akzo Nobel Appoints Gregoire Poux-Guillaume CEO; Thierry Vanlancker to Step Down

Akzo Nobel NV said Tuesday that Gregoire Poux-Guillaume has been appointed chief executive officer effective Nov. 1.

The Dutch paint company--which houses the Dulux, Polycell and Cuprinol brands--said Mr. Poux-Guillaume's previous roles include CEO of Sulzer AG, CEO of CVC Capital Partners, and senior managing director of GE Grid Solutions.

Ericsson Working With U.S. Committee on Foreign Investment to Review Vonage Deal

Ericsson AB said Tuesday that it continues to work closely with the Committee on Foreign Investment in the U.S. as it reviews its proposed acquisition of Vonage Holdings Corp.

The Swedish telecom-equipment company announced the $6.2 billion deal to buy cloud-communications provider Vonage in November last year. The merger has cleared all other requisite foreign and U.S. regulatory approval requirements, and the parties are working to conclude the regulatory process as expeditiously as possible, it said.

Pennon Shares Fall as Watchdog Launches Probe Into South West Water

Shares in Pennon Group PLC fell Tuesday morning after the U.K. regulator for the water industry said it has opened an enforcement case against its subsidiary South West Water as part of an investigation into wastewater treatment works.

Ofwat said continuing concerns and the latest performance data on the company's environmental performance prompted the move. South West Water has been served with a formal notice to gather further information for enforcement purposes, joining Anglian Water, Northumbrian Water, Thames Water, Wessex Water and Yorkshire Water on the list of companies the watchdog has opened cases into.

Russian Missiles Hit Ukraine Shopping Mall, Zelensky Says, as G-7 Leaders Pledge More Aid

Russian missiles hit a shopping mall in central Ukraine on Monday, President Volodymyr Zelensky said, as Russia's forces sought to surround the last major city in the eastern Luhansk region still under Kyiv's control despite Western efforts to squeeze Moscow.

The strike came as Mr. Zelensky, in a virtual address to Group of Seven leaders meeting in Germany on Monday, made clear he wants to shorten the war, according to U.S. national security adviser Jake Sullivan, and the U.S. said it would provide more support for Ukraine's military.

GLOBAL NEWS

China to Loosen Quarantine Requirements for International Travelers

China will loosen its strict quarantine requirements for international travelers entering the country, in a bid to balance its zero-Covid policy and rising pressures on the world's second largest economy.

China's National Health Commission on Tuesday said in a statement that it will shorten the total quarantine period to 10 days from 21 days for both travelers entering the country and people who have come into close contact with Covid-19 patients. The government body also loosened its testing requirements for people in quarantine.

Rising Rates, Tech Pullback Pummel Convertible Bonds

The collapse of a pandemic-era boom in bonds that can turn into stocks is punishing investors and pressuring some rapidly growing companies to start delivering profits.

New sales of so-called convertible bonds have all but dried up, and the ICE BofA U.S. Convertible Index has slid about 18% this year, roughly matching the S&P 500.

Write to paul.larkins@dowjones.com

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

(END) Dow Jones Newswires

June 28, 2022 05:36 ET (09:36 GMT)

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