MARKET WRAPS

Stocks:

European stocks were in the red on Tuesday, with worries around inflation and recession continuing to dominate markets, and despite some positive news on U.S.-China trade relations.

Concerns over the risk of recession continued to loom large as central banks move to fight multidecade high inflation with higher interest rates, risking spurring a slowdown by denting economic demand.

A wave of economic data in the week ahead-including the U.S. nonfarm payrolls report on Friday-as well as minutes from the Fed's June meeting will be closely watched as investors focus on monetary policy expectations.

"It's been a quieter 24 hours for markets thanks to the U.S. holiday, but the market remains confused about how to price fixed income in an environment where a recession is coming at some point," said Jim Reid, a strategist at Deutsche Bank.

"We've seen a big yield selloff to start the week even if equities have stabilized, with a fresh rise in energy prices only adding to concerns about how different economies [particularly in Europe] will fare this winter if Russia cuts off the flow of gas."

While stocks were lower, there was some optimism in markets following what China said was a "constructive" call between U.S. Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He, with the two agreeing better coordination on macro policies.

Expectations were also rising that the U.S. would pause tariffs on some Chinese imports, following a Wall Street Journal report detailing plans to lift tariffs for some consumer goods and launch a broad framework for importers to request tariff waivers.

"The market is alive with speculation that U.S. President Biden will cut tariffs on a swath of Chinese goods this week to lower inflation," said Jeffrey Halley, an analyst at broker Oanda.

In Europe, the airline sector was in focus, reacting to news that pilots at SAS, Scandinavia's main airline had started a strike that the carrier said will hobble operations and add to air travel woes.

SAS later announced 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.

Read more here.

Stocks to Watch:

Remy Cointreau is in a unique position to overcome the pressures of inflation and represents one of the most attractive long-term growth stories for the European beverages sector, Jefferies said.

Cognac retains its long-term attractiveness and is responsible for roughly 90% of the French spirit maker's profits, the bank said.

The reopening of China, as Covid-19 pandemic conditions stabilize, should generate earnings momentum to offset potential slowdowns in other regions going into 2023, it said.

The U.S. bank upgraded its rating on the stock to buy for the first time in a decade and raises its target price on the stock to EUR200 from EUR195.

---

A robust 12% growth outlook for the global biologics market, including cell and gene therapy, and the rising share of drug approvals bode well for Lonza's biologics segment, Citi said, upgrading the Swiss life-sciences company to buy from neutral.

The biologics segment contributes 50% to Lonza Group's sales and roughly 60% to Ebitda, Citi said. "The biopharma industry's focus towards new technologies like mRNA for Covid-19 and beyond creates significant optionality for longer-term and bodes well for Lonza, as it is one of the early adopters," it said.

Read: Moncler No Longer Trading at a Premium

Read: SAP to Reap Benefits of Leadership Position in Shift to the Cloud

Economic Insight:

U.K. car sales skidded 24% in June, the worst performance for the month in 26 years.

The Society of Motor Manufacturers and Traders said 140,958 vehicles were registered, in what the trade body blamed on problems in component supply, which have been exacerbated by restrictions in China.

For the year, registrations have dropped 12%, the SMMT said.

"With motorists facing rising fuel costs, however, the switch to an electric car makes ever more sense and the industry is working hard to improve supply and prioritize deliveries of these new technologies given the savings they can afford drivers," the SMMT said.

U.S. Markets:

Stock futures gave up early gains to trade lower, as investors assessed the possibility of U.S. officials easing tariffs on Chinese imports.

Wall Street kicked off July trading on a positive note on Friday before the long weekend, but investors are bracing for more pain ahead this year.

On Tuesday, however, investors were focused on the tariffs report.

"The market is desperate for good news," said Florian Ielpo, head of macro at Lombard Odier Investment Managers. But, he said, it has become increasingly difficult to offset investors' growing fears about the outlook for the U.S. economy.

Even with the possibility of a rollback of tariffs on the horizon, he said, investors are asking: "How is going to solve the two key issues we have, which is mounting recession fears and strong inflation?"

In the bond market, the yield on the benchmark 10-year Treasury note fell to 2.891% from 2.901% Friday, also reversing gains notched earlier in the session.

In premarket trading, energy stocks climbed, boosted by a slight rise in Brent crude. Exxon Mobil gained 1.7% and Exelon rose 2.1%.

In contrast, shares of Tesla fell 0.9% after it said on Saturday that its vehicle deliveries fell quarter-over-quarter for the first time in more than two years after the company had to temporarily shut down its largest factory, in Shanghai, because of local Covid-19 restrictions.

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.

---

Sterling could gain if Bank of England officials indicate that interest rates could rise more aggressively in speeches this week, Ebury said.

"Any indication that policymakers are erring towards raising rates by 50 basis points at the next [Monetary Policy Committee] meeting in August would be positive for the pound and may trigger a recovery rally from currently suppressed levels," it said.

BOE Governor Andrew Bailey and BOE member Silvana Tenreyro speak Tuesday at 1000 GMT and 1630 GMT respectively, while BOE Deputy Governor Jon Cunliffe and BOE chief economist Huw Pill speak Wednesday followed by BOE official Catherine Mann Thursday

---

Asian central-bank reserve managers selling foreign currency reserves to prop up their local currencies could hurt the euro, ING said.

"The issue here is that after Asian central banks intervene to sell USD/Asia, the next step is for their portfolio management team to sell EUR/USD in order to rebalance the euro weight in their FX reserves back to benchmark levels," the bank said.

"This looks like a real headwind for EUR/USD this summer and may be one of the reasons why EUR/USD struggles to make it much above 1.05 now," it said.

Bonds:

Fixed-income markets are currently subject to alternating concerns of interest rate rises and recession fears, which explains the huge, double-digit swings recently, UniCredit Research said.

In each of the past nine sessions, the 10-year German Bund yield has shown a trading range of wider than 10 basis points, it said, expecting more sessions with sharp moves.

"There is more to come, in our view," UniCredit Research said. Interest rate rise expectations might revive on the back of minutes from the Federal Reserve's and European Central Bank's meetings, due this week, while recession concerns are mounting at the same time, it said.

---

Mizuho's baseline strategy for rates this week is to look for some retracement in yields until Wednesday-Thursday, initially eyeing 3% in 10-year U.S. Treasury yields or around 1.4% in 10-year Bund yields.

For Tuesday, Mizuho said it favors a small short duration bias, while as attention shifts to Friday's U.S. payrolls, the case for being long duration might strengthen.

"The risk is that June's set of payrolls signal that tighter financial conditions are starting to make more of an economic impact," it said.

Commodities:

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.

---

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."

---

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."

---

Base metal prices edged down in early trading 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."

DOW JONES NEWSPLUS

EMEA HEADLINES

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.

Sainsbury Sees FY 2023 in Line With Views; Blathnaid Bergin Appointed New CFO

J Sainsbury PLC said Tuesday that like-for-like sales declined in the first quarter of fiscal 2023, and added that its current commercial and retail finance director, Blathnaid Bergin, has been appointed chief financial officer.

The British grocer's like-for-like sales excluding fuel for the quarter ended June 25 were down 4%, it added, noting that its performance for the quarter as a whole was in line with views.

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.

Guinea Halts Work on Simandou Iron-Ore Project, Source Says

Guinean officials have ordered work be stopped on the Simandou iron-ore project, in which mining giant Rio Tinto PLC has a stake, amid protracted negotiations to agree on a joint venture, a person familiar with the matter said on Tuesday.

Simandou is among the world's largest undeveloped, rich deposits of iron ore--the main ingredient in steel--and has the potential to reshape the global market, which has long been dominated by exports from Australia and Brazil.

Swedish Battery Manufacturer Northvolt Raises $1.1 Bln to Finance Expansion

Swedish battery manufacturer Northvolt AB said Tuesday it has raised $1.1 billion to finance the expansion of its battery-cell and cathode-material production in Europe amid rapidly expanding battery demand.

The capital raise, through a convertible note, means Northvolt has secured close to $8 billion in equity and debt since 2017, it added.

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.

French Industrial Output Stagnates in May

France's industrial production stagnated in May, following three consecutive drops, according to data released Tuesday by the country's statistics agency Insee.

Total industrial output--comprising output in manufacturing, energy and construction--remained unchanged from the previous month. Economists polled by The Wall Street Journal had expected factory output to fall 0.3% on the month.

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.

Macron Removes Minister Accused of Rape, Sexual Assault From French Government

PARIS-French President Emmanuel Macron on Monday pushed out a minister accused of sexual assault and rape as part of a wider government reshuffle aimed at breathing new life into his administration after losing control of the legislature last month.

Paris prosecutors recently opened a probe into Damien Abad, who served as France's minister for the disabled, after receiving a complaint from a woman who accused him of attempted rape. Two other women accused Mr. Abad of rape in 2010 and 2011 in interviews with French news website Mediapart. Mr. Abad has denied any wrongdoing. He said his disability, a condition called arthrogryposis that affects all four of his limbs, made it physically impossible for him to commit the acts he was accused of.

Fresh Scandal Threatens to Tarnish U.K.'s Boris Johnson and Tory Party

LONDON-British Prime Minister Boris Johnson is wrestling with a fresh scandal that threatens to further tarnish his Conservative Party, after a senior lawmaker was suspended for allegedly groping two men.

Last week Conservative lawmaker Chris Pincher quit as deputy chief whip after two men said he made unwanted advances to them at a London club last week.

Seven People Killed in Italian Glacier Avalanche

At least seven people were killed and about 20 were missing following an avalanche of glacial ice in the Italian Alps on Sunday.

Rescue workers continued to search on Monday, though officials said they were unlikely to find survivors.

GLOBAL NEWS

Americans Tap Pandemic Savings to Cope With Inflation

Americans are starting to dip into the huge pile of savings they accumulated over the first two years of the pandemic.

From the start of the pandemic to the end of 2021, U.S. households built up $2.7 trillion in extra savings, according to Moody's Analytics. Covid-19 lockdowns kept people at home with nowhere to spend money, and three rounds of stimulus payments boosted their incomes.

'Doom Loop' Fears Are Putting Italian Banks to the Test

Rising interest rates in Europe are making investors worry about an old ghost haunting Italy's banks: the "doom loop."

The European Central Bank is expected to unveil a special bond buying program later this month to shield highly indebted eurozone economies-and their banks-from rising borrowing costs. The "anti-fragmentation" program is a response to a widening of bond yields in Italy in particular and a punishing selloff in bank stocks in the eurozone's third largest economy.

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.

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."

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).

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.

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.

Glynn's Take: RBA Not Done yet With Blockbuster Rate Hikes

SYDNEY-The Reserve Bank of Australia delivered a second blockbuster interest-rate rise Tuesday, taking the official cash rate to 1.35% from 0.85%, but it's not done yet.

The reality for Australia's vast swaths of highly indebted mortgage holders is that the RBA will almost certainly sting homeowners again with a further 50-basis-point rise in interest rates in August, and depending on the look of second-quarter inflation data at the end of this month, it could line up even more.

Thai Baht Falls to Five-Year Low on Global Growth Concerns

The Thai baht fell to a five-year low against the U.S. dollar for a second day this week on worries over a slowdown in global economic growth.

"The baht was recently impacted by concerns of global growth that may derail the domestic economic recovery," said Jeff Ng, senior currency analyst at MUFG Bank, in an email to Dow Jones Newswires. "The economy, in particular the current account, is somewhat reliant on tourism," he added.

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.

South Korea Inflation Hits Over Two-Decade High

South Korea's inflation rate hit a more-than-two-decade high in June, raising the likelihood of a bigger-than-usual interest rate increase by the central bank to curb price increases.

The benchmark consumer-price index rose 6.0% from a year earlier-the fastest since November 1998-following a 5.4% increase in May, the statistical office said Tuesday. That beat a median market forecast for a 5.9% increase for June.

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.

Our Recession Forecasting Model Is Broken

Of course the U.S. could slip into a recession. But with the economy nowhere close to anyone's idea of normal, thinking a downturn is coming on the basis of what some model or rule of thumb says could be a mistake.

The same goes for putting too much credence in indicators that say the risk of a recession is still very low.

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.

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.

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."

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.

Argentina Names New Economy Minister as Inflation Crisis Mounts

BUENOS AIRES-Argentine President Alberto Fernández appointed a little-known public servant as economy minister as his administration was facing soaring inflation and a weakening currency, which risk leading to social unrest.

Silvina Batakis, an economist aligned with the ruling Peronist coalition's far-left faction, took over the government's top economic post Monday, two days after the surprise resignation of Martín Guzmán, a moderate aligned with the president.

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.

Brittney Griner Makes Direct Plea to Biden for Her Freedom

WASHINGTON-Women's professional basketball star Brittney Griner made a direct plea to President Biden to work to free her and other Americans detained abroad, in a handwritten letter delivered Monday to the White House.

"As I sit here in a Russian prison, alone with my thoughts and without the protection of my wife, family, friends, Olympic jersey, or any accomplishments, I'm terrified I might be here forever," Ms. Griner wrote, according to excerpts provided by her agent.

Write to nihadahmed@wsj.com

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

July 05, 2022 06:18 ET (10:18 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.