European equities started the trading week lacking direction, as
major indexes across the region bounced around flat but remained
broadly lower, amid a weakness and commodities and following
declines in Asia.
A move down in Europe followed a slump in Asian trading, led by
Japan. "Asian markets slumped heavily as investors continued to
react to last week's Federal Reserve meeting which has curdled
sentiment by raising the prospect of earlier than expected rate
rises," said Russ Mould, an analyst at AJ Bell.
Last week's news from the U.S. Federal Reserve has taken the
wind out of the reflation trade, analysts noted, piling onto
problems for commodities, after China announced plans last week to
tap national metals reserves to rein in a rally in the sector. Iron
ore futures for the month of June were down near 1%, while copper
futures fell more than 1%.
"Commodities have been pressured by the strong dollar. Given
they are denominated in the U.S. currency they become more
expensive to buy in other currencies when it rises," Mould
Marshall Gittler, an analyst at BDSwiss, noted that
"expectations of higher interest rates and lower inflation - plus
China's moves to rein in speculation - have sent commodity prices
Shares in London-listed mining giants Rio Tinto, Glencore,
Antofagasta, BHP and Fresnillo were lower. Rio Tinto stock was
further weighed on by a downgrade from Swiss bank UBS, which
changed its rating on the stock to sell from neutral, noting risks
from a more hawkish Fed and China taking actions to deflate
The standout stock in Europe was Morrisons - one of the U.K.'s
largest supermarket groups and e-commerce giant Amazon's grocery
delivery partner in the country. Shares in Morrisons jumped near
32%, as analysts expect the company to attract more takeover bids,
after rejecting an GBP8.7 billion ($12 billion) offer from U.S.
private-equity firm Clayton, Dubilier & Rice over the
Shares in Vivendi, the French media giant, rose near 1%, after
blank-check group Pershing Square Tontine Holdings - founded by
billionaire American investor Bill Ackman - agreed to buy 10% of
Universal Music Group on Sunday. The deal, for around $4 billion,
gives Universal Music an enterprise value of EUR35 billion ($41.6
billion). Pershing Square stock rose more than 2% in the U.S.
Lloyds Banking stock fell near 1%, after a report over the
weekend that the group was set to buy its first property under a
new plan to diversify its revenues by becoming a private landlord.
The bank is close to securing a block of flats in Peterborough,
England and could begin renting them out next month, in a move that
would make it the first major U.K. retail bank to move into private
rentals, the Mail on Sunday reported.
Stock futures rose, pointing to a rebound following a tumultuous
week that saw the Dow drop by the most in more than seven
"There are no very strong convictions in the market for the time
being," said Nadège Dufossé, head of asset allocation strategy at
asset manager Candriam. "The market is really focused on the
evolution of rates and central bank comments."
Stocks are likely to remain at roughly current levels, albeit
with increased choppiness, if market sentiment doesn't shift in
some way, she added.
Higher economic growth and inflation in the coming months is
likely to support stocks because Americans will increase spending
on goods and services when pandemic restrictions ease, said Fahad
Kamal, chief investment officer at Kleinwort Hambros. Technology
stocks and long-dated government bonds are likely to outperform if
growth and inflation slow after 2023, he added.
"For most investors, looking across the asset landscape, there
still remains no alternative to equities," Mr. Kamal said. "Hiring
is happening and normality is returning, and all of that is really
positive for cyclicality. That is never going to happen in a
straight line. As last week showed, there is huge volatility still
The dollar is likely to rise further, especially against
low-yielding currencies such as the euro and the Japanese yen, as
expectations grow that the Fed will start raising interest rates
earlier than previously thought, said ING.
Last week, the Fed unexpectedly forecast rate increases during
2023, while on Friday, St. Louis Fed President James Bullard said
he expects interest rates to start rising in 2022.
ING said the market is currently pricing the first U.S. rate
rise around November 2022.
These expectations could lift the DXY dollar index--which is
"heavily weighted towards European low-yielders"--towards the
late-March high of 93.44, from a current level of 92.1110. EUR/USD
could fall towards 1.1700, from 1.1892 currently, ING said.
Bitcoin fell 7% from its 5 p.m. ET level on Friday to $32,991.09
Monday. Ether, the second-largest cryptocurrency by market cap,
shed more than 8% of its value and joke cryptocurrency dogecoin
fell more than 11% to about 25 U.S. cents. The digital assets in
recent weeks have come under pressure as China has intensified a
clampdown on bitcoin mining.
The euro is likely to fall towards $1.18 on the prospect of a
move toward monetary policy tightening in the U.S. while the
eurozone retains ultra-accommodative policy, UniCredit said.
On Friday, Federal Reserve Bank of St. Louis President James
Bullard said he expects interest rates to start rising in 2022,
earlier than the central bank's revised forecast at Wednesday's
UniCredit also notes comments by Italian Prime Minister Mario
Draghi calling for economic stimulus in European countries to bring
growth back to pre-pandemic levels.
"The prospect of the Fed accelerating tapering while the
eurozone is still considering additional stimulus does not bode
well for the common currency," the Italian bank said.
In bond markets, the yield on the 10-year Treasury note ticked
down to 1.423%, from 1.449% Friday. The 10-year yield has dropped
for five consecutive weeks, its longest stretch of declines since
"It is completely linked to the decline in inflation
expectations," Ms. Dufossé said. "The market is not pricing
overheating anymore in the U.S. economy. Investors think the Fed
will be able to contain any overheating in inflation."
The so-called yield curve flattened, with shorter-dated yields
rising to reflect higher rate expectations, while longer-dated
yields fell because higher interest rates in the near term would
likely mean slower growth and lower interest rates further into the
future. The biggest moves have been in the difference between
2-year yields and 30-year yields since last Wednesday.
Central banks are likely going to try to brace markets for an
eventual removal of monetary accommodation and the U.S. Fed is
leading the way on that front by signalling two rate increases in
2023, said Brian Jacobsen, senior investment strategist at Wells
Fargo Asset Management.
The first step on what will be a long road to a rate hike will
likely need to be a tapering and ceasing of asset purchases, he
said, expecting tapering possibly starting late this year. "With
enough lead-time, the market can take a taper in stride," he
Oil prices edged higher on hopes for strong summer demand and
after a hardliner won the Iranian elections. The victory of cleric
Ebrahim Raisi in Iran's elections could delay a nuclear deal, said
analysts at ANZ.
"The possibility of Iranian oil hitting the market in the short
term...looks unlikely," they wrote in a note.
Prices for both varieties have risen over 40% so far this year
on strong demand expectations. "The rebound in demand in the
northern hemisphere summer is so strong that the market is becoming
increasingly concerned about further sharp drawdowns on
inventories," said ANZ.
Copper prices continued their selloff as investors fear tighter
monetary policy is on the way. Three-month copper on the LME was
down 0.8% at $9,073.50 a metric ton.
The metal has now dropped over 11% so far this month after a
hawkish turn from the Fed. The Fed's James Bullard said late last
week that the central bank could raise rates as early as next year.
Those comments have helped intensify the selloff for copper, said
Anna Stablum at brokerage Marex.
Investors said comments from Fed officials are now likely to be
of key focus until the central bank's officials meet at the next
Jackson Hole Symposium in late August.
Gold prices stabilized after ending the week sharply lower as
the Fed said it would raise rates sooner than expected.
The precious metal has found support from falling bond yields
which have pared back on the gains they made last week after the
Some investors have also used the low gold price as a buying
opportunity, said Carsten Fritsch, commodities analyst at
Commerzbank, pointing to inflows into gold ETFs on Friday.
The SPDR Gold Shares ETF saw inflows of over $632 million on
Friday, the biggest one-day gain since January, according to data
Deutsche Bank Jumps Back Into Payments With Fiserv Deal
Deutsche Bank AG wants to get back into the suddenly valuable
business of digital payments, nearly a decade after getting out of
Germany's largest lender is setting up a joint venture with U.S.
payments giant Fiserv Inc. to offer customers payments-processing
services. The joint venture will allow Deutsche Bank's business
clients to accept payments from customers, both in person and
digitally, through Fiserv's platform called Clover, which reads
credit cards, debit cards and mobile wallets, and records orders
Vivendi Agrees to Sell 10% of Universal to William Ackman
Vivendi SE on Sunday reached an agreement for a 10% investment
in Universal Music Group by William Ackman's Pershing Square
Tontine Holdings, valuing the world's largest music company at
about $40 billion.
In an email to UMG employees, CEO Lucian Grainge called the
investment a "strong validation." The deal-previously reported on
by The Wall Street Journal-follows a 20% stake investment by
Chinese internet giant Tencent and comes days before Vivendi
shareholders will vote on the potential listing of 60% of UMG
shares on the Euronext Amsterdam stock exchange.
Wm. Morrison Supermarkets Rejects $7.65 Bln Clayton Dubilier
& Rice Offer Proposal
Wm. Morrison Supermarkets PLC said Saturday that it has rejected
a 5.54 billion-pound ($7.65 billion) possible cash offer by Clayton
Dubilier & Rice LLC as it "significantly undervalued" the
company and its future prospects.
The U.K.'s fourth largest grocer by market share said it had
received a 230 pence a share proposal from the U.S. private equity
company on June 14 which it rejected on June 17.
Telenor, Axiata Sign Deal for Previously Announced Merger of
Norwegian telecom provider Telenor ASA and Malaysian operator
Axiata Group Bhd. said Monday they have successfully concluded due
diligence and signed an agreement on the proposed merger of their
Malaysian mobile operations, Celcom Axiata Bhd. and Digi.
The companies in April said they were in advanced talks on a
Terrorist Attacks, Immigration Debates Push French Voters
Rightward, Boosting Le Pen
L'ISLE-SUR-LA-SORGUE, France-Wedged between river tributaries in
southeastern France, L'Isle-sur-la-Sorgue is known for its
cobblestone streets and its sun-dappled outdoor market.
But ahead of local elections this month, the debate in this
small town, and in others across France, has centered on the
fallout from the beheading of a schoolteacher near Paris last fall
by a Chechen refugee as well as the slaying of churchgoers in Nice
weeks later by a Tunisian migrant.
Iran's New Hard-Line President Poised for Pivotal Role in
When Iranian diplomats resume talks with Western officials to
revive a battered nuclear deal, one name will stand out on the list
of individuals Tehran wants removed from the U.S. sanctions list:
Ebrahim Raisi, Iran's president-elect.
The 60-year-old hard-line judge, who won Friday's presidential
election in Iran, was sanctioned two years ago by the Trump
administration for his close ties to Iranian Supreme Leader Ali
Khamenei. As Iran's president-elect, Mr. Raisi has emerged in a
pivotal role that could determine the fate of the 2015 multination
U.K. Home Prices Continue to Rise But Pace Is Slowing
U.K. house prices are continuing to rise to new highs though at
a slower pace than recent months, according to new data from
property portal Rightmove PLC.
The average price of property coming to the market between May 9
and June 11 rose by 0.8%, or GBP2,509 ($3,494), a more modest climb
than the preceding month's 1.8% but still pushing the national
average to a record high of GBP336,073 for the third consecutive
month. The portal measured 125,582 prices across the U.K. over the
U.S. Military to Withdraw Hundreds of Troops, Aircraft,
Antimissile Batteries From Middle East
WASHINGTON-The Biden administration is sharply reducing the
number of U.S. antimissile systems in the Middle East in a major
realignment of its military footprint there as it focuses the armed
services on challenges from China and Russia, administration
The Pentagon is pulling approximately eight Patriot antimissile
batteries from countries including Iraq, Kuwait, Jordan and Saudi
Arabia, according to officials. Another antimissile system known as
a Terminal High Altitude Area Defense, or Thaad system, is being
withdrawn from Saudi Arabia, and jet fighter squadrons assigned to
the region are being reduced, those officials said.
Chinese Junk Bonds Flash Warning Signs
Yields on Chinese junk bonds have jumped to levels last hit
during the tail end of last year's market turbulence, signaling
growing investor concern about defaults.
Last week, the yield on an ICE BofA index of Chinese junk bonds
in dollars topped 10% for the first time since May 2020. It closed
Friday at 9.93%. In contrast, the equivalent index for global
sub-investment grade debt ended the week at 4.57%. That was only
0.04 percentage point off a trough hit three days earlier, which
was the lowest yield in a data set that goes back to 1997. Bond
yields move inversely to prices.
Climate Fight Brews as SEC Moves Toward Mandate for Risk
WASHINGTON-The Securities and Exchange Commission is preparing
to require public companies to disclose more information about how
they respond to threats linked to climate change-and businesses are
gearing up for a fight.
The SEC's new chairman, Biden administration appointee Gary
Gensler, has said climate-related disclosure is a top priority, and
President Biden plans to meet Monday with top financial regulators
to discuss the issue. The SEC has already sought industry input,
much of which arrived last week, for a rule proposal that could be
issued by October.
Breaking Up Japan Inc.'s Love Affair With Itself
Japan's corporate-governance reform has been a long, often
painful process. But there has been some recent progress on one
perennial complaint: massive cross-holdings that empower management
and tend to weigh on returns.
Nonfinancial companies on the Tokyo Stock Exchange's first
section booked 610 billion yen ($5.3 billion) of gains from sales
of securities for the six months ending in March, a 92%
year-over-year rise, according to Goldman Sachs. And 137 companies
reduced such cross-shareholdings in the fiscal year ending in
March, a 59% increase from a year earlier, noted the bank.
Turbocharged U.S. Economy Attracts Foreign Investors
The extraordinary recovery of the U.S. economy is likely to make
the country the world's top destination for overseas investment
this year and next, according to new United Nations projections,
with foreign businesses drawn by the prospect of a rapid and
sustained rebound in consumer spending and the Biden
administration's multitrillion-dollar infrastructure plans.
According to U.N. figures published Monday, overseas investments
by businesses around the world fell by a third in 2020 from the
previous year. The U.S. recorded a 40% fall in investment but
narrowly held on to its long-held position as the top destination
ahead of China. The U.N. in January estimated that the U.S. had
lost the top slot.
China Tweaks Deposit Rate Rules to Guide Funding Costs Down
China has tweaked the mechanism to determine the upper limits on
banks' deposit rates, leading to a reduction of longer-term funding
rates, as competition for stable sources of deposits has
The Self-Disciplinary Mechanism for the Pricing of
Market-Oriented Interest Rates, backed by China's central bank,
said Monday that it has changed how to determine the ceilings on
deposit rates by adding certain basis points to the government-set
Economy Week Ahead: U.S. Existing-Home Sales, German Business
U.S. existing-home sales fell in April from the prior month as
record-high prices deterred potential buyers. But April sales
remained 51.7% higher than the same month a year before. Economists
expect another decline in May.
Bipartisan Infrastructure Bill Could Lose Gas-Tax Rise, Senator
WASHINGTON-A proposed infrastructure spending plan may be
hammered out without a measure raising the gasoline tax, a key
Republican lawmaker said Sunday, suggesting the removal of an
obstacle to a nearly $1 trillion infrastructure plan pushed by a
bipartisan group of lawmakers.
Sen. Rob Portman (R., Ohio), one of the lead Republicans in the
group, said a higher gasoline tax may not be in the final package,
citing opposition from the Biden administration.
Tight Labor Market Returns the Upper Hand to American
Low-wage workers found something unexpected in the economy's
recovery from the pandemic: leverage.
Ballooning job openings in fields requiring minimal
education-including in restaurants, transportation, warehousing and
manufacturing-combined with a shrinking labor force are giving
low-wage workers perks previously reserved for white-collar
employees. That often means bonuses, bigger raises and competing
Facebook, Alphabet Keep Rising; Apple, Netflix Fade
Big tech stocks are going their own ways in 2021.
It is a far cry from last year, when the so-called FAANG stocks
took a commanding role in a market driven by the coronavirus
The Natural-Gas Glut Has Evaporated, Driving Prices Higher
Natural-gas prices are starting the summer air-conditioning
season nearly twice as high as they were a year ago.
Demand for the fuel is picking up as the world's economies
reopen and as Americans dial down their thermostats for what is
expected to be a hot summer. Meanwhile, U.S. producers have stuck
to the skimpy drilling plans they sketched out when prices were
lower, eliminating the glut that was keeping them depressed.
Ethiopia's Nobel Prize-Winning Leader Faces Election as War
Rages in Tigray
Ethiopia's election was meant to be the crowning moment for
Nobel Peace Prize-winning Prime Minister Abiy Ahmed, a popular
recognition of his efforts to break open one of Africa's most
entrenched one-party states and liberalize its tightly controlled
Instead, the country of 110 million people headed to the polls
Monday in turmoil, fighting a bloody civil war in the northern
province of Tigray and escalating ethnic uprisings elsewhere that
are reverberating across the strategic Horn of Africa region.
Tokyo Olympics to Allow Spectators at Summer Games
TOKYO-The Summer Olympics in Tokyo will include up to 10,000
Japanese spectators at each event, organizers said, despite advice
by leading doctors that the Games would be safer without
Monday's decision clears up the final major uncertainty about
the Games ahead of the opening ceremony on July 23. Officials said
in March that foreign spectators wouldn't be permitted to travel to
Japan to attend the Olympics.
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(END) Dow Jones Newswires
June 21, 2021 06:15 ET (10:15 GMT)
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