North American Morning Briefing: Stock Futures Head Lower as Recession Fears Loom Large

MARKET WRAPS

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Manufacturers' Shipments, Inventories & Orders for May; Canada Preliminary estimates of principal field crop areas for June; Canada Building permits for May

Opening Call:

Stock futures gave up early gains to trade lower on Tuesday, as investors continued to assess the odds of a global economic slowdown.

As the Federal Reserve and other central banks pull their interest-rate levers to try to curb inflation-thus, risking recession-analysts and investors are on edge and looking for more insight as to the Fed's plans.

This week, investors are looking ahead to Friday's jobs report for clues on how rising borrowing costs and inflation are affecting the labor market. Economists polled by The Wall Street Journal expect employers to have added 250,000 jobs in June, down from a rate of 390,000 in May.

Nordea Asset Management expects markets to stay under pressure as investors haven't yet fully prepared for a growth slowdown.

"We're pricing in a very shallow recession," it said. "But the odds are it's not going be to shallow. It never is."

Joe Biden is expected to roll back some tariffs on Chinese imports as the administration seeks to rein in inflation. The decision, which could come this week, could pause tariffs on consumer goods such as clothing and school supplies, as well as launching a broad framework to allow importers to request tariff waivers.

Read more here.

Economic Insight:

The U.S. economy is expected to contract 1.9% this year as it falls into a mild recession for the remainder of 2022, according to Yardeni Research.

GDP in the first quarter contracted by an annualized rate of 1.6% even though the underlying performance of the economy was reasonably good, and output is seen contracting again in the second quarter as demand weakens, it said.

The good news is that the recession should be over next year and should slow the rate of inflation in the second half 2022 and 2023, Yardeni Research said. "Next year, we expect growth to resume, with a 2.9% increase projected," it said.

Forex:

Reports that Biden could roll back some tariffs on Chinese imports might improve risk appetite and reduce safe-haven flows to the dollar, but the currency impact will be modest, ING said.

The news is slightly dollar negative but Treasury yields are rising, serving as a reminder that if the Reserve Bank of Australia has cause to raise its key interest rate by 50 basis points to 1.35%, the tightening case is even more compelling for the Fed, ING said.

"On balance, DXY [dollar index] could probably drift back to 104.50 or a little lower, but should hold above 104.00 ahead of tomorrow's [Fed meeting minutes]," ING said.

Energy:

Oil futures were mixed in early European trading, with Brent lower but WTI within touching distance of $110, as economic-growth concerns outweighed positive sentiment from the possible lifting of Chinese import tariffs by Washington.

Despite improved risk sentiment and the possible easing of trade tariffs against China, "oil is still struggling to break out from its current recessionary malaise as the market pivots away from inflation to economic despair," said SPI Asset Management.

Current supply issues from Russia and OPEC+ are taking a "back seat" while consumer and industrial demand concerns influence the broader market, it said.

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Goldman Sachs raised its forecasts for European gas prices on the uncertainty stemming from Russia reducing supply to Europe via Nord Stream 1.

The bank raised its forecast for the third quarter to EUR153 a megawatt hour from EUR104, and EUR121 a megawatt hour from EUR105 for the fourth quarter. It had previously banked on a full restoration of NS1 flows, but no longer sees this as possible, it said.

Goldman recommended long exposure on the Dutch TTF--a trading point for natural gas--on the highly volatile nature of prices, and the "expectation that the ongoing European tightness is not likely resolved in the near-to-medium term."

Metals:

Gold was little changed in early trade. The metal faces pressure from the strength of the dollar, given the pair's inverse relationship.

Still, ANZ thinks gold could get some support from worries about the economic outlook, noting that "the [Fed's] aggressive tightening is creating concerns over a looming downturn, which is likely to see safe-haven demand remain elevated for the precious metal."

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Base metal prices edged down despite more positive economic news coming out of China.

China's service sector expanded in June, with the Caixin China General Services Purchasing Managers Index coming in at 54.5--a reading above 50 indicates expansion.

"Good Caixin PMI prints and positive news about Trump-era tariffs being potentially lifted didn't attract much buying from Asia this morning," Marex said. "We do seem to be stuck in a sell rally environment."

TODAY'S TOP HEADLINES

New Zealand Treasury Bars Wall Street Journal From Restricted Briefings Until 2025

New Zealand's Treasury will bar The Wall Street Journal from attending restricted briefings for three years for publishing budget information before the scheduled release time in May.

The Treasury said Tuesday that the Journal will be barred from attending restricted briefings on New Zealand's budget, economic and fiscal updates, government financial statements and other meetings until a budget briefing in 2025. It will also bar a reporter from the Journal and Dow Jones Newswires who mistakenly sent a draft of a story before the time stipulated by the Treasury as a condition of attending the restricted briefing.

Little-Known Abortion Pill Maker Faces Scrutiny

The overturning of Roe v. Wade has put a spotlight on a small manufacturer of abortion pills, which are emerging as a flashpoint between advocates and opponents of the procedure.

Abortion-rights advocates have for decades lobbied for more access to mifepristone, the abortion medication that Danco Laboratories LLC manufactures under the brand name Mifeprex and sells for about $50 a pill. They want the Food and Drug Administration to remove safety restrictions on the drug, make it available without a prescription or expand its label to approve it for miscarriage, for which it is also sometimes prescribed, off label. An official use for miscarriage would help ensure women experiencing a miscarriage could get the drug. It might also make it more difficult for prosecutors to investigate doctors who dispense the pills in states where abortions are banned, abortion-rights advocates said.

Hard Rock Atlantic City Workers, Casino Operator Reach Labor Agreement

Atlantic City casino workers reached a tentative deal with the Hard Rock Hotel & Casino, averting a strike that could have started during the Fourth of July holiday weekend, according to the union.

Unite Here Local 54 union organizers said their negotiating committee approved the deal on Saturday-details of which weren't disclosed-and soon all unionized workers would be able to vote on it. The roughly 1,500 casino workers were set to go on strike if an agreement hadn't been reached by the July 3 deadline.

European Travel Just Got Harder After SAS Pilots Strike

LONDON-Pilots at Scandinavia's main airline walked out, starting a strike that the carrier said will hobble operations and add to a growing list of air travel woes on both sides of the Atlantic.

About 1,000 pilots at SAS AB, which has hubs in Denmark, Sweden and Norway, started the strike after talks with management fell through earlier on Monday. SAS said it would scrap about half of all scheduled flights each day of the strike, with cancellations already racking up. The airline warned that the financial fallout from the industrial action could jeopardize the company's survival.

SAS Files for Bankruptcy Protection in US to Push Through Restructuring

SAS AB said Tuesday that it has filed for chapter 11 bankruptcy protection in the U.S. as it seeks to push through its comprehensive financial restructuring to cut costs and raise capital under the supervision of the U.S. court system.

Struggling with high debt and a lack of cash, SAS earlier this year launched plans to cut annual costs by 7.5 billion Swedish kronor ($725.2 million), convert around SEK20 billion of debt and hybrid notes into common equity and raise at least SEK9.5 billion in new capital.

AstraZeneca to Buy TeneoTwo for Up to $1.27 Bln

AstraZeneca PLC said Tuesday that it is buying TeneoTwo, Inc. for up to $1.27 billion in a deal that strengthens its haematological cancer pipeline.

The pharmaceutical giant said it will make an upfront payment of $100 million upon closing of the deal. A further payment of up to $805 million will be made dependent upon research-and-development milestones being reached and extra payments of up to $360 million could be payable to TeneoTwo shareholders based upon commercial-related milestones.

Peter Thiel-Backed Crypto Lender Vauld Suspends Withdrawals

A cryptocurrency lender backed by Peter Thiel and Coinbase Global Inc. suspended withdrawals, trading and deposits on its platform, citing volatile market conditions and financial difficulties facing key business partners.

The platform, Vauld, said Monday that it froze the operations after users pulled almost $200 million over the last three weeks. A sharp decline in cryptocurrency prices that began with the collapse of two cryptocurrencies in May has spooked traders and caused knock-on effects in the digital asset world.

Biden Might Soon Ease Chinese Tariffs, in a Decision Fraught With Policy Tensions

WASHINGTON-President Biden is expected to roll back some tariffs on Chinese imports soon, a decision constrained by competing policy aims: addressing inflation and maintaining economic pressure on Beijing.

People familiar with the situation say what comes next has been pending with Mr. Biden in recent weeks and that he could announce his decision this week. It could include a pause on tariffs on consumer goods such as clothing and school supplies, as well as launching a broad framework to allow importers to request tariff waivers.

Chinese Vice Premier Liu, Treasury Secretary Yellen Discuss Economic Issues, Xinhua Reports

Chinese Vice Premier Liu He held a video call Tuesday with U.S. Treasury Secretary Janet Yellen and exchanged views on economic issues, state-run Xinhua News Agency reported.

The two discussed matters including the macroeconomic situation and global industrial and supply chains, said Xinhua, characterizing the talks as "constructive."

Australia's RBA Delivers Another Big Rate Increase

SYDNEY-The Reserve Bank of Australia delivered its second consecutive 50-basis-point interest-rate rise at a policy meeting Tuesday, noting that inflation risks remain high and that further action to rein in prices is likely in the coming months.

RBA Gov. Philip Lowe announced a rise in the official cash rate to 1.35% from 0.85%, adding to June's 50-basis-point hike and a 25-basis-point increase in May.

China Service Sector Activity Rebounded in June

China's Caixin services purchasing managers index, a private gauge, rebounded in June as Covid-19 restrictions were eased in the world's second-largest economy.

The Caixin services PMI rose to 54.5 in June from 41.1 in May, Caixin Media Co. and research company S&P Global said Tuesday. That marked the quickest expansion recorded since July 2021.

China Imposes Fresh Restrictions as Covid-19 Cases Rise

China is imposing fresh restrictions in some eastern cities as Covid-19 cases have spiked to near their highest levels in more than a month.

The country recorded 380 locally transmitted coronavirus cases on Sunday, China's National Health Commission reported on Monday. Two thirds of Monday's cases came from the eastern province of Anhui, the commission said.

U.S.-Stock Funds Fell 16.3% in Second-Quarter Rout

Keep repeating to yourself: Don't panic about short-term declines.

Easier said than done this time. Bruising inflation and rising interest rates bowled over markets in the second quarter-and fund investors weren't spared. The average U.S.-stock fund fell 16.3% in the quarter, according to Refinitiv Lipper data. The average fund is down 21.3% for the year to date. Only a handful of stock-fund managers have managed to stay in positive territory (see Winners' Circle).

Falling Commodity Prices Raise Hopes That Inflation Has Peaked

A slide in all manner of raw-materials prices-corn, wheat, copper and more-is stirring hopes that a significant source of inflationary pressure might be starting to ease.

Natural-gas prices shot up more than 60% before falling back to close the quarter 3.9% lower. U.S. crude slipped from highs above $120 a barrel to end around $106. Wheat, corn and soybeans all wound up cheaper than they were at the end of March. Cotton unraveled, losing more than a third of its price since early May. Benchmark prices for building materials copper and lumber dropped 22% and 31%, respectively, while a basket of industrial metals that trade in London had its worst quarter since the 2008 financial crisis.

Biden Says U.S. Can Choose Unity as Nation Faces Divisions

WASHINGTON-President Biden said in a Fourth of July address that many Americans are worried about the divisions roiling the country but the U.S. has the power to choose a "unity of purpose."

Mr. Biden, speaking to military families at a barbecue on the South Lawn of the White House, noted Monday's deadly shooting at a parade in the Chicago suburb of Highland Park, Ill.

Highland Park July Fourth Parade Shooting Leaves at Least Six Dead; Police Apprehend Person of Interest

HIGHLAND PARK, Ill.-Police late Monday apprehended a person of interest in a shooting at a July Fourth parade in this Chicago suburb that left at least six people dead and more than two dozen wounded.

Robert E. Crimo III, a 22-year-old from Highland Park, was caught in a car in the nearby town of Lake Forest following a brief pursuit, after he was spotted by an officer, according to local law enforcement.

Ukraine's Allies Talk of Rebuilding as Russia Consolidates Gains in Donbas

Ukraine's President Volodymyr Zelensky said huge investments would be needed to rebuild the country, addressing Western officials in Switzerland as Russian forces continued to press their advance in the east.

Mr. Zelensky spoke during a conference Monday via video-link to discuss a road map for Ukraine's reconstruction, after Russian forces gained control Sunday over the eastern city of Lysychansk.

Akron Declares State of Emergency Following Police Shooting of Jayland Walker

The mayor of Akron, Ohio, declared a state of emergency on Monday and issued a curfew starting at 9 p.m. after protesters damaged property amid protests over the fatal police shooting of a 25-year-old Black man.

The protests came after the release on Sunday of body-camera videos that appear to show multiple police officers firing dozens of times at Jayland Walker, who was unarmed, the morning of June 27. Akron Police Chief Stephen Mylett said a lot of rounds were fired and investigators are trying to determine exactly how many.

Jan. 6 Hearings to Examine Role Extremist Groups, White House Played in Capitol Attack

WASHINGTON-The House select committee investigating the Jan. 6, 2021, attack on the U.S. Capitol is expected to zero in on two overlapping areas of its probe in coming hearings: the extremist groups that participated in the attack and a minute-by-minute account of what took place inside the White House that day.

The committee in its previous hearings has largely focused on efforts by former President Donald Trump and his allies to overturn the 2020 presidential election by pressuring then-Vice President Mike Pence, senior officials in the Justice Department and state officials to take actions that would reverse the results.

Write to nihad.ahmed@wsj.com TODAY IN CANADA

Earnings:

None scheduled

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Economic Indicators (ET):

0830 Jun Preliminary estimates of principal field crop areas

0830 May Building permits

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Stocks to Watch:

Mercer International: Fire at Stendal Pulp Mill Didn't Damage Mill Operations; Fire Primarily Extinguished, Site to Be Monitored for Hot Spots for Several Days; Fire Was Contained to Wood Chip Storage Bunkers, Associated Conveyances; Insurance Expected to Cover Business Interruption, Property Damage

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Other News:

A Canadian-Chinese billionaire is standing trial in mainland China more than five years after he mysteriously disappeared from Hong Kong, marking progress in a protracted case that has baffled the country's business community.

A trial of Xiao Jianhua, a politically connected financier who once boasted vast holdings from insurance to beet farming, was due to take place on Monday, said a spokeswoman for the Canadian Embassy in Beijing. "Canadian consular officials are monitoring this case closely, providing consular services to his family and continue to press for consular access," the spokeswoman said, adding that several Canadian requests to attend the trial proceedings were denied by Chinese authorities.

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