MARKET WRAPS

Stocks:

European shares were deep in the red on Wednday, tracking global losses and ahead of a panel of major central bank officials that is expected to provide insight into their views on the economy, inflation and the path of monetary policy.

Stocks have started the week on a shaky note as a series of data releases showed that higher prices are weighing on consumer sentiment. Investors remained concerned about central banks tightening policy too aggressively while fighting inflation and causing a recession.

"We expect markets to tread water at best until we get a convincing signal that inflation has peaked. Our confidence in a soft landing has gone down even further and the market has headed that way as well," said Arun Sai, a multiasset strategist at Pictet Asset Management.

Read: Spain Delivers Fresh Inflation Shock as Prices Surge to 37-Year High

Leaders of major central banks will be speaking on a joint panel later on Wednesday at the ECB's forum in Sintra, Portugal, including Jerome Powell, Christine Lagarde and the Bank of England's Andrew Bailey.

Stocks to Watch:

Credit Suisse's wealth-management revenue is being hit by weak markets and clients cutting back on lending as the bank navigates a more difficult than expected market environment, said Berenberg.

Given Credit Suisse's wealth-management business is more reliant on lending than peers--loans as a percentage of assets under management is 14% compared with UBS's 7%--its revenues are more vulnerable during periods of deleveraging.

Net loans in wealth management fell 14% in the first quarter compared with the year before, and have continued to fall in the second quarter. Weaker markets make the situation worse as lower AUM levels translate into lower recurring revenue, Berenberg said.

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Just Eat Takeaway is looking to sell its U.S. Grubhub business for an estimated price of less than $1 billion and there are doubts that proceeds will be returned to shareholders, as was hoped, analysts at Berenberg said.

Although the disposal could bring in net $400 million, the food-delivery group would still need $500 million in new funding, reflecting continuing negative free cash flow and the maturation of a number of debt facilities and convertibles, the analysts said.

"The company would need to raise around EUR1 billion in new funding to achieve FCF breakeven if it were to do nothing with the portfolio."

Berenberg has initiated cover on the stock with a sell rating and a EUR16.30 target price.

Economic Insight:

Global GDP is expected to grow 1.7% in 2023 as aggressive monetary policy tightening and reduced consumer purchasing power weigh on activity, said Wells Fargo economists.

The probability of a recession is increasing in many major economies, particularly in the U.S., and contagion effects will result in economic contractions across the G10 economies and emerging markets.

"As hawkish as most central banks have been this year, we now believe some central banks could look to unwind tighter monetary policy in the second half of 2023," Wells Fargo said.

A recession in the U.S. and the U.K. should result in the Federal Reserve and the Bank of England lowering interest rates, the economists added.

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The European Central Bank's job is likely to become even more challenging, as monetary policy can be rather ineffective against external shocks, and tightening can damage the economy without taming inflation, said Yieldstreet.

"Regardless of short-term policy decisions, eurozone long end rates appear to have plenty of room to go, especially in the periphery and especially if projected inflation remains sustained for a longer period, " said Michael Weisz, president and co-founder.

The effects of the ECB's tightening pledge has already become evident via rising bond yields. "And real monetary tightening has not even started yet."

U.S. Markets

Stock futures were little changed, oscillating between small gains and losses after makor U.S. indexes closed lower on Tuesday.

In premarket trading in New York, Pinterest climbed 4.5%. The company said its chief executive is stepping down and a Google commerce executive is taking over the top job. Carnival fell 6%, accelerating its two-day decline spurred by a series of price target cuts by equity research analysts.

A final reading for U.S. gross domestic product in the first quarter is set to go out at 1230 GMT and General Mills and Bed Bath and Beyond are scheduled to post earnings.

The yield on the benchmark 10-year Treasury note edged down to 3.134% from 3.206% on Tuesday, reversing direction after three straight days of rises.

Forex:

Wednesday's U.S. headline and core PCE deflator readings, as well as comments by the heads of the Federal Reserve, European Central Bank and Bank of England--who are due to speak on the Sintra panel later--could lift the dollar, said ING.

"High month-on-month [PCE] readings are expected for headline and core--0.7% and 0.4%--and any upside surprise could see U.S. rates and the dollar nudge higher."

The cuurency may also benefit from central bank comments given that "the pricing of U.S. rates is still the most subject to upside risks."

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The BOE could step up its pace of interest rate rises but this might not provide lasting support to sterling given concerns over weak investment and economic growth in the U.K., said Rabobank.

"Higher interest rates could bring a short-term boost, but ultimately may only serve to weaken the environment for investment and growth in the medium-term which could thicken the clouds over the outlook for the pound," Rabobank said.

By year-end, the BOE's window of opportunity for rate rises could close as the cost of living crisis grows. Rabobank sees scope for EUR/GBP to rise to 0.88 by year-end.

Bonds:

Eurozone government bond prices firmed ahead of a policy panel discussion of Jerome Powell, Christine Lagarde and the Bank of England's Andrew Bailey at the ECB's forum in Sintra, Portugal.

"The final day of the forum brings with it the most potential for market-moving news," said Mizuho's rates strategists.

Yieldstreet said European bonds are likely to suffer from further downward pressure, and investors are expected to keep a close eye on the next policy moves.

"Should inflation continue to bite in Europe, the ECB may decide to move 50 basis points [of interest-rate rise] per meeting, which will make peripheral bonds even less appealing, in our view," Yieldstreet said.

Peripheral government bonds could become less appealing regardless of whether the ECB will redirect some of its PEPP envelope reinvestment capacity toward the periphery.

Energy:

Oil prices edged higher, erasing earlier session losses, as concerns build over the ability of OPEC producers to increase supply.

OPEC members, particularly leading producers Saudi Arabia and the U.A.E., are being seen as increasingly unlikely to be able to increase supply to compensate for lost Russian barrels.

"The market's perception that OPEC+ is struggling to meet existing supply commitments, and even more so to expand supply is supporting prices," said CBA.

The cartel's technical committee meets later Wednesday ahead of a full ministerial meeting Thursday.

Metals:

Metals were lower in early European trading, with copper down 1%, as sentiment was hampered by a lack of optimism about the economy from consumers.

"Inflation worries continue to be propagated around," said Marex. It reckons a rate hike from the ECB is likely and said investors aren't that convinced "a global recession can be avoided altogether."

Other News:

China's daily crude steel output rate will need to fall from 3.12 million tons in May to an average of just below 2.78 million tons from June to December in order to meet Beijing's goal to lower annual steel production, said Commonwealth Bank of Australia.

While it is unlikely China will need to curb output toward end-2022 with the same vigor experienced toward the end of last year, as it rushed to significantly rein in production, "some steel output discipline is required to meet the NDRC [National Development and Reform Commission] target, especially if China's steel output rates remain elevated for a few more months," CBA said.

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Higher diesel and electricity costs on Australia's east coast are pressuring a number of energy-intensive mining operations and could push some companies to accelerate their energy-transition plans, said Macquarie analysts.

Rio Tinto earlier this month called for proposals to develop large-scale wind and solar power in Queensland state, where it runs aluminum assets, the analysts noted. They also highlighted other recent renewable-power supply deals, including one at BHP's Olympic Dam copper operation in southern Australia, which is due to begin next month.

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Economic Sentiment Declines in June

Confidence among the eurozone's consumers and businesses fell in June due to rising inflation and the war in Ukraine.

The European Commission said Wednesday that its economic sentiment indicator--an aggregate measure of business and consumer confidence--fell to 104.0 in June from 105.0 in May. Economists polled by The Wall Street Journal had expected the index to come in at 103.0.

U.K. June Retail Price Inflation Highest Since 2008

U.K. retail price inflation increased on year in June, accelerating from the prior month and marking the highest rate of inflation since September 2008, according to the latest report by Nielsen IQ and the British Retail Consortium.

Prices at U.K. stores rose 3.1% on-year for June 1 to June 7, up from 2.8% in May, the report found. This greatly exceeds the six month and 12 month average price increases of 2.3% and 1.0% respectively.

Grubhub CEO Says Sale Isn't Imminent, as Owner Seeks a Partner

CHICAGO-Grubhub Chief Executive Adam DeWitt said company parent Just Eat Takeaway.com NV hopes to find a strategic partner to invest in the U.S. online ordering company, though an outright sale isn't off the table.

In some of his first public remarks about the company since Just Eat said in April it would consider selling Grubhub, Mr. DeWitt said no sale was imminent and that Just Eat was exploring options to strengthen Grubhub as its U.S. division encounters challenges.

H&M Launches $295M Share Buyback as 2Q Earnings Beat Forecasts

Sweden's Hennes & Mauritz AB on Wednesday launched a three billion Swedish kronor ($295.4 million) share buyback, and reported a higher-than-expected fiscal second-quarter net profit as earnings were boosted by well-received collections and lower markdowns.

The fashion retailer said sales in physical stores increased substantially in the quarter ended May 31 while online continued to do well, though sales in June are expected to decrease by 6% in local currencies on the year amid tough comparables. Paused sales in Russia, Belarus and Ukraine represent five percentage points of the June sales decrease, the company said.

Turkey Backs NATO Membership for Sweden, Finland

MADRID-The North Atlantic Treaty Organization is on a course to admit Finland and Sweden following an agreement with Turkey, a move that would add vast territory and new military abilities in the wake of Russia's invasion of Ukraine.

The two Nordic countries, which had long shunned joining the alliance, abruptly changed their stance following Moscow's attack on its neighbor on Feb. 24.

War, Weather Endanger Global Food Supplies, Farm Leaders Say

CHICAGO-War and weather are imperiling global food supplies, according to U.S. agriculture officials and executives, as rising food prices drive shortages and protests around the world.

The pressures are playing out this year as conflict in Eastern Europe disrupts exports from Ukraine, one of the world's top crop producers, and drought and poor weather afflict major crop-growing regions.

Oil Tanker Is Stopped by U.S. in Transit From Russian Port to New Orleans

U.S. authorities have stopped a ship traveling from Russia to Louisiana with a cargo of fuel products, say people familiar with the matter.

The Daytona tanker is owned by Greek shipowner TMS Tankers Ltd. and was chartered by Vitol, a commodity trading house based in Switzerland. It sailed from Russia's Taman peninsula in the Black Sea in early June carrying fuel oil and vacuum gasoil, the data showed, and was planning to arrive in New Orleans on Sunday.

G-7 Bid to Cap Russian Oil Price Faces Hurdle of Global Enforcement

PARIS-The Group of Seven major economies wants to impose a price cap on Russian oil exports. The challenge is enforcing it on buyers worldwide.

The G-7 leaders said Tuesday after their summit they were exploring a ban on the provision of maritime services to tankers carrying Russian oil, unless the oil were sold below a particular price. Backers say the proposal would achieve two goals: cutting Russian oil sales that are fattening Moscow's foreign-exchange coffers and lowering global oil prices that have surged since the war in Ukraine.

U.S., Iran Gather for Indirect Talks on Nuclear-Deal Revival

Efforts to revive the Iranian 2015 nuclear agreement resumed Tuesday in Qatar's capital, with U.S. and Iranian officials playing down expectations of a quick breakthrough that would open the way to a restored deal.

The talks, which are being mediated by European Union diplomats since Iran refuses to meet directly with the U.S., are the first since negotiations broke down in mid-March. The aim is to agree steps Washington and Tehran would need to take to return into compliance with the nuclear deal, which lifted most international sanctions on Iran in exchange for tight but temporary restrictions on Iran's nuclear work.

European Cloud Restrictions Could Limit U.S. Providers' Reach

European cybersecurity authorities are drafting a new certification system for cloud services that could limit the amount of critical data held by American providers.

Companies and tech associations are concerned that the coming European Union system will require that data considered critical or in need of high security measures must be stored in cloud services run by European companies, limiting businesses' use of major U.S. providers such as Microsoft Corp., Alphabet Inc.'s Google Cloud or Amazon.com Inc.'s cloud unit.

Ukrainian Rescuers Search for Survivors After Russian Missiles Strike Mall

Ukrainian rescuers sifted through the rubble of a shopping mall in Kremenchuk looking for survivors the day after it was struck by Russian missiles, killing at least 20, as Western leaders vowed fresh measures to increase economic pressure on Moscow to call off its forces.

"More than a thousand people worked all night on the ruins-rescuers, police, medics and volunteers," said Gov. Dmytro Lunin of Poltava, the region where the Amstor shopping mall was hit. "We're continuing the search."

Default Won't Trigger a Long Winter for Russia

Failing to pay your debts can stop you getting a loan again. Except if you are a country-even Russia.

Russia has defaulted on its foreign debt for the first time since the Bolshevik Revolution. Because this is a result of Western sanctions forbidding banks, clearinghouses and bondholders from processing and receiving the money-despite Moscow's willingness and ability to pay-it will spark a yearslong legal battle with far more complexity than previous sovereign delinquencies.

GLOBAL NEWS

Fed's Williams Sees Another Large Rate Rise at July Meeting as Possible

Federal Reserve Bank of New York President John Williams said Tuesday that the U.S. central bank will be weighing another large rate rise when it meets next month, while noting that he also believes the economy can escape falling into recession.

"We've got to get interest rates higher and we need to do that expeditiously," Mr. Williams said. "In terms of our next meeting. I think, you know, 50 [basis points] or 75 [basis points] is clearly going to be the debate" among policy makers, although the actual size of the rate increase will be driven by the data, he said.

Analysis: Hong Kong, Chinese Markets Deepen Ties With ETF Connect

Chinese and Hong Kong regulators' decision to allow mutual trading of exchange-traded funds from next week not only expands investors' access to different asset classes but also signals Beijing's move to further strengthen financial linkages with one of Asia's most active stock exchanges.

The inclusion of eligible ETFs in the stock-trading link between the markets could improve liquidity in the overall market and allow investors to pick thematic or sector ETFs to gain exposure to Chinese industries such as new-energy vehicles and semiconductors, analysts said.

U.S. Expands Plan for Monkeypox Vaccines in Effort to Curb Outbreak

U.S. health officials said they are significantly expanding efforts to vaccinate people against monkeypox, a disease recently confirmed in more than 300 people around the country and thousands more in countries where it isn't typically seen.

The Centers for Disease Control and Prevention is now recommending vaccines for people with presumed exposure to the viral illness and not just confirmed exposure, federal health authorities said Tuesday. This latest recommendation also covers men who have sex with men who recently had multiple sex partners in a venue where monkeypox was known to be or in an area where the virus is spreading.

Lack of Progress on Deforestation Puts Net-Zero Targets at Risk, Study Says

Many big companies working in agriculture and other sectors that drive deforestation won't hit their climate targets without immediate action to protect forests, according to a study published on Tuesday.

The study, commissioned by the United Nations-affiliated Race to Zero climate campaign, analyzed the environmental programs of 350 companies in the forestry, land use and agriculture sectors that have a major impact on the world's forests. It found that 148 of those companies have committed to net zero but judged that only nine were making strong progress on curbing deforestation.

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(END) Dow Jones Newswires

June 29, 2022 05:43 ET (09:43 GMT)

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