MARKET WRAPS

Stocks:

European stocks extended their recent rebound on Thursday as investors absorbed the Fed's minutes from its June meeting and even as recession fears on the continent continued to mount.

Since the Fed's last meeting,a growing body of economic indicators have raised fears of a recession, while the prices of commodities have slid. First-quarter U.S. GDP growth was slightly revised lower last week to a contraction of 1.6% and yield curve recently inverted.

Markets may be reflecting the belief that if growth and hiring slow quickly, the Fed. won't need to approve as many interest-rate hikes as traders and the FOMC expected at the time of last month's meeting.

In the U.K., the benchmark FTSE 100 held solid gains despite news that Boris Johnson will resign as prime minister later Thursday, according to officials, after a full-scale mutiny in his party.

Johnson will remain in office until his replacement is found, these people said, a process that could take several months.

Read more here .

Economic Insight:

Gas flows from Russia to Europe are widely expected to decrease further, pointing to downside risks for growth, according to Goldman Sachs.

Gas flows through Nord Stream 1 are expected to remain subdued at 40% of capacity after the July maintenance period, driving up gas prices and decreasing industrial demand, the bank said.

In this context, the eurozone economy is expected to grow by a marginal 0.1% in 3Q and to stagnate in 4Q, GS said. "We thus see the eurozone on the edge of recession in 2H, and expect a technical recession in Germany and Italy," it said, adding that the eurozone would fall into a recession if gas flows through NS1 halt completely.

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May's small rise in industrial production in Germany wasn't big enough to change Capital Economics's view that output in the sector is likely to have declined in the second quarter.

Demand appears to be weakening, it said. Industrial orders fell 7% from February to May and the timelier surveys suggest that conditions in industry as a whole worsened in June, the economic research firm added.

Furthermore, manufacturers' expectations are consistent with steep declines in production, it said. Capital Economics expects German industry to continue to struggle over the rest of the year, with the possibility of further sustained disruption to gas flows from Russia presenting a downside risk.

U.S. Markets:

Stock futures ticked higher with the focus turning to labor market data, which traders will be watching for clues on how rising interest rates and high inflation are impacting hiring.

Data later Thursday are expected to show the number of new applications for U.S. unemployment benefits edged slightly lower in the week ended July 2 to 230,000.

That comes ahead of Friday's jobs report. 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.

Recent data on the job market have suggested it is cooling but remains unusually tight.

In premarket trading, GameStop shares jumped 9.8% after the retailer on Wednesday declared a 4-for-1 stock split.

Forex:

Sterling extended its gains after reports that U.K. Prime Minister Boris Johnson will step down following a raft of resignations from his government in an unprecedented revolt over his leadership.

The reports followed a series of scandals under Johnson's leadership that prompted more than 50 members of parliament to resign from his government.

There is no doubt he has failed the public on many occasions, said AvaTrade.

"However, political uncertainty has increased as a large number of political cards will come into play where the new prime minister may try to persuade public by adopting more loose fiscal policy, which could make the Bank of England's job even more difficult [in bringing down inflation],"

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The dollar lost ground after rising strongly in the previous session as investors digest the minutes from the Fed's June meeting.

Many market participants think developments since the Fed's decision last month are so dramatic that the minutes are no longer relevant while recession fears and morose market sentiment could prompt the central bank to lift interest rates 50 basis points at its July 26-27 meeting instead of the 75 bps that is largely priced in, Swissquote said.

Market chatter suggests market pricing has "room to get more dovish rather than more hawkish," which could slow the dollar rally, it said.

Bonds:

Eurozone government bonds fell in early trading, causing yields to rise, but the 1% level for the 10-year Bund yield remains in sight, according to analysts.

"Bunds are still relatively supported despite stabilizing risk sentiment and weaker U.S. Treasurys," Commerzbank said.

Volatility in bond markets is set to remain extremely high, it said, adding that with recession fears remaining in focus, the 10-year Bund yield could test the 1% level before long. The rise in eurozone government bond yields was led by Spain which conducts a bond auction Thursday.

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Eurozone peripheral bond spreads might have turbulent weeks ahead, with the bias tilted towards wider spreads, according to Mizuho.

The accounts of the European Central Bank's June meeting, due for release later on Thursday, might be one of those opportunities where market participants might get a more precise picture of the continuing debate in the ECB about the anti-fragmentation tool, it said. "We believe that there is a decent probability for the market to feel underwhelmed on any proposed tool (or lack of thereof)," Mizuho said.

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The green premium, known as "greenium," in German Bunds has been under pressure for the past three months, perhaps driven by supply, Citi said. Germany's green government bond supply has been the highest among the eurozone's 11 largest issuers in the year to date, it said.

However, Italy's April 2045 green BTP and France's June 2039 green OAT have seen the best performance with no supply in these bonds year to date, according to Citi. Greenium on eurozone government bonds currently ranges between two and 12 basis points, it said.

Eurozone green government bond issuance totaled EUR25 billion in 1H, lower than expected, though it should pick up with EUR35 billion of issuance in 2H, according to Citi's strategists

Commodities:

Oil prices wavered along the flatline, with the hawkish Fed minutes not helping the macro mood, according to Peak Trading Research.

Fitch said oil is likely to remain elevated as supply-side risks mount, revising its 2022 average Brent price forecast to $105/bbl from $100/bbl previously.

"Russian exports will come under increasing pressure over the second half of the year, as the EU approaches its partial import ban on Russian crude oil, effective December 5," Fitch said.

Also, OPEC+ continues to fall far short of its production targets, and rising political instability in Libya has triggered renewed production outages, it said.

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Spot gold was slightly firmer early Thursday but UOB said the precious metal may break below support at $1,720/oz, as its weekly downward momentum on the technical charts remains strong.

The precious metal has fallen this week and dipped beneath the December 2021 low of $1,753/oz on Wednesday.

A break below $1,720/oz would shift the market's focus to the major, critical support zone of $1,676/oz-$1,684/oz, UOB said, noting that these levels were tested a few times in March and August of last year.

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Base metals rose as Asian buyers look to secure materials despite rising Covid-19 cases in Shanghai and macroeconomic concerns in the U.S. and Europe.

"Onshore [traders] do not seem to be bearish with various brokers even recommending a buy," Marex said.

"Despite all the negative news such as Shanghai Covid-19 cases doubling, mass testing in place, and various other cities and provinces also reporting fresh cases, the market doesn't seem to be perturbed."

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

U.K.'s Boris Johnson to Resign After Scandals Grow Too Great to Handle

LONDON-Boris Johnson will resign as British prime minister later Thursday, officials said, after a full scale mutiny in his party. Mr. Johnson will remain in office until his replacement is found, these people said, a process that could take several months. It caps an astonishing fall from grace for a politician who until recently looked poised to dominate U.K. politics for years.

Following a string of scandals, two senior ministers and a wave of more-junior members of government quit over the past week, saying they no longer had confidence in the British leader. Mr. Johnson attempted to cling to power amid frenetic plotting by rebels to unseat him and a push by a group of cabinet members to have him resign. Until recently he had spoken of his intention to stay in office until the 2030s. But as his authority withered, and with the growing threat that the party would change its internal rules to hold a vote to oust him, he agreed to step aside.

   
 
 

Shell Says Fuel-Refining Margins Could Add $1 Billion to Quarterly Earnings

LONDON-Shell PLC said it expects strong second-quarter profit from higher fuel-refining margins that could add more than $1 billion to earnings, while forecasts for sustained high energy prices boosted the value of its oil and gas holdings.

The London-based oil major said Thursday that it expects the outlook for energy prices will allow the company to reverse between $3.5 billion to $4.5 billion in impairments it took early in the pandemic, when sagging demand had a big impact on energy-price forecasts. Demand has since come roaring back amid a resurgence in travel and other activities curtailed by Covid-19.

   
 
 

Telecom Italia Outlines Plan to Separate Fixed Network Infrastructure Assets From Services

Telecom Italia SpA on Thursday outlined the details of a plan to separate its fixed-network infrastructure assets from services as it aims to improve its financial position.

The Italian telecommunications company said the fixed-network assets, or NetCo, will cover both the domestic and international wholesale businesses and be focused on further accelerating the fibre network deployment.

   
 
 

Persimmon 1H Revenue Fell on Lower Completions; Sees Profit Beating Views

Persimmon PLC said Thursday that revenue for the first half fell on lower house completions, but it expects profit to beat expectations and its forward sales position rose.

The U.K. house builder said that first-half revenue was 1.69 billion pounds ($2.02 billion) for the period compared with GBP1.84 billion a year prior.

   
 
 

Entain Downgrades 2022 Online Net Gaming Revenue, Backs 2023 Positive Ebitda Views

Entain PLC said Thursday that it expects online net gaming revenue to be flat year-on-year given that the macroeconomic environment is moderating customers' spending.

The betting-and-gambling group previously expected a 2022 online net gaming revenue growth of mid-to-high single digit.

   
 
 

British Airways Slashes More Than 10,000 Flights Amid Industry Staffing Shortages

British Airways is scrapping another 10,300 flights from its summer schedule as airlines contend with a resurgence in travel demand that has overwhelmed operators.

The airline's cancellations have been mounting, starting with an initial 8,000 return flights scrapped at the start of the summer season. On Tuesday British Airways said it was canceling more than 1,000 more. Including the 10,300 announced on Wednesday, the carrier has now reduced its flying schedule by about 30,000 flights, representing some 13% of its originally planned capacity.

   
 
 

France's Macron Confronts Divided Parliament With Plan to Raise Retirement Age

PARIS-The government of French President Emmanuel Macron struck a defiant tone Wednesday, saying it planned to press ahead with a contentious overhaul of the country's pension system despite recently losing its majority in parliament.

Mr. Macron's newly appointed prime minister, Élisabeth Borne, began her first address before France's highly polarized National Assembly with conciliatory notes and an appeal for unity.

   
 
 

Russian and Ukrainian Forces Prepare for Next Phase of Battle for Donbas

Russia's invading army shelled the positions of Ukrainian defenders along the front line as both sides girded for the next battles for control of Ukraine's east.

After capturing the city of Lysychansk over the weekend, Russian forces are turning their sights to parts of the Donetsk region that remain under Ukrainian control, including the cities of Slovyansk and Bakhmut.

   
 
 
   
 
 

GLOBAL NEWS

India's Central Bank Takes Steps to Stem Rupee's Slide

India's central bank has relaxed debt-market rules for foreign portfolio investors and allowed commercial banks to raise interest rates on nonresidents' foreign-currency deposits in a bid to support the rupee and boost forex reserves.

"The Reserve Bank [of India] has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate [U.S.] dollar tightness with the objective of ensuring orderly market functioning," it said late Wednesday.

   
 
 

Australia Posts Record Trade Surplus for May

SYDNEY-Australia's seasonally adjusted trade surplus rose to a record 15.97 billion Australian dollars (US$10.83 billion) in May, supported by a big jump in the value of exports over the month.

The value of exports jumped 9.5% on month to A$58.40 billion, driven by higher prices for coal, coke and briquettes, and other mineral fuels, the Australian Bureau of Statistics said Thursday.

   
 
 

Inflation Fears Drove Larger Fed Rate Increase in June

WASHINGTON-Federal Reserve officials agreed at their meeting last month they would have to raise interest rates faster and to levels high enough to slow economic growth because of the worsening inflation picture.

Officials voted to raise their benchmark rate by 0.75 percentage point in June, the largest increase since 1994, and several officials have indicated since then that they are prepared to support another such increase at their meeting later this month.

   
 
 

Heads of FBI, MI5 Issue Joint Warning on Chinese Spying

LONDON-The heads of the FBI and Britain's domestic security service issued sharply worded warnings to business leaders about the threats posed by Chinese espionage, especially spying aimed at stealing Western technology companies' intellectual property.

In a rare joint appearance on Wednesday at the headquarters of MI5, Christopher Wray, director of the Federal Bureau of Investigation, and Ken McCallum, director-general of MI5, urged executives not to underestimate the scale and sophistication of Beijing's campaign.

   
 
 

China Escalates Efforts to Influence U.S. State and Local Leaders, Officials Warn

WASHINGTON-U.S. counterintelligence officials are stepping up a campaign to warn state and local government leaders and business executives about what they see as China's increasing use of overt and covert means to influence policy-making.

A notice released Wednesday by the U.S. National Counterintelligence and Security Center cites an aggressive, escalated campaign by China to lobby and otherwise influence state, local, tribal and business leaders as tensions with Washington rise.

   
 
 

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(END) Dow Jones Newswires

July 07, 2022 05:46 ET (09:46 GMT)

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