European stocks tumbled again on Thursday as investors looked
ahead to a second day of testimony from Jerome Powell after he
warned that rapidly rising interest rates threatened a
On Wednesday, Powell said a recession was possible and that a
soft landing for the U.S. economy would be "very challenging." The
Fed chief is set to continue his testimony later Thursday in front
of a second group of lawmakers.
"Inflation is at the center of all this but there is also fading
growth and interest rates are going up. All of that together is a
horrible cocktail and you just need to step aside and wait for that
to work itself out," said Hani Redha, a portfolio manager at
Stocks to Watch:
Ubisoft Entertainment has recently been plagued by delays in
releasing some of its games, leading the maker of "Assassin's
Creed" to cut its guidance, but new big-budget games should help
the company to post better-than-expected results in the months to
come, said Deutsche Bank as it initiates the stock with a buy
"We believe there is good scope for both revenue and margins to
beat expectations as recent heavy development efforts finally bear
fruit in the form of exciting AAA releases, and the launch of
premium free-to-play and mobile games," said Deutsche Bank.
Deutsche expects Ubisoft's non-IFRS operating profit to be 18%
above consensus for the fiscal year ending March 2024.
While the eurozone economy's postpandemic momentum--including a
recovery in tourism over summer and large backlogs of orders in
many industries--should support growth in the second and third
quarters, the situation is likely to deteriorate in the final
quarter, Barclays said.
Barclays expects consumption to contract at the turn of the year
as European consumers feel the real income squeeze and external
demand is likely to be soft. Barclays forecasts a mild technical
recession in the fourth quarter 2022 and first quarter 2023.
This pattern implies annual growth of 2.8% in 2022, but only
0.5% in 2023 for the eurozone, significantly below the 2.1%
consensus forecast for 2023, which is also the European Central
The U.K. economy is heading into a stall rather than a recession
this year, Barclays said.
High inflation will keep squeezing household incomes and is set
to put a lid on spending, but the combination of a strong labor
market, healthy household finances and additional fiscal stimulus
will somewhat offset the current headwinds.
"We expect the cost-of-living crisis to abate over the course of
this year, as inflation has already peaked in our forecast. Next
year, as inflation falls further, we see scope for growth momentum
to build again, " Barclays said.
It expects the U.K. economy to contract at an annualized rate of
2% in the second quarter, and to grow by an annualized 0.8% in the
Futures wavered between small gains and losses Thursday.
Technology-heavy Nasdaq-100 futures rose 0.3% while blue-chip Dow
Jones Industrial Average futures edged down 0.4%.
Economic data due ahead of Powell's comments should offer
investors additional clues about whether the economy is
The data include initial jobless claims -- one of the earliest
indicators of weakness in the labor market -- and a gauge of
activity in the manufacturing and service sectors.
In bond markets, Treasury yields declined for a second day
though remained close to their highest level in more than a decade.
The yield on the benchmark 10-year Treasury note fell to 3.129%
from 3.155% on Wednesday.
The euro fell after June's French and German PMI surveys showed
a worse-than-expected slowdown in manufacturing and services
The Norwegian krone briefly turned higher after the Norges Bank
lifted its benchmark interest rate 50 basis points to 1.25% and
raised its expectations for future rate hikes. Norges Bank Governor
Ida Wolden Bache said the policy rate will most likely be raised to
1.5% in August.
"Prospects for a more prolonged period of high inflation suggest
a faster rise in the policy rate than projected earlier," she said
in Thursday's policy statement.
However, if inflation and capacity utilization fall faster than
projected, the rate might be raised less than expected, she
Read: Norges Bank Press Release 'as Hawkish as They Come'
The dollar is unlikely to depreciate on a sustained basis even
though the market has scaled back its interest-rate rise
expectations due to recession fears and inflation expectations have
eased, said MUFG Bank.
The market has pared its expectations for the Fed's peak rate to
just over 3.5% while the 10-year breakeven inflation rate has
fallen to 2.55% from a peak of 3.04% in April, said MUFG.
Overall, recent developments have dampened upward pressure on
the dollar but they aren't "sufficient on their own to trigger a
deeper and/or sustainable reversal of dollar strength."
Eurozone government bond yields reversed early gains and tumbled
after flash estimate French and German PMI managers data added to
fears of a global recession.
Barclays said yields have risen notably so far this year, with
the increase in peripheral yields raising fears of financial
fragmentation, but the rising trend is broadly reflecting
fundamentals so far.
"We believe moves so far are consistent with an environment of
higher nominal growth that requires tighter monetary policy, and,
in turn, some pricing of a credit risk premium."
The high level of peripheral yields is much less concerning as
long as spreads remain orderly and well-contained, Barclays said,
adding that the debt metrics are resilient by historical
The massive short-covering in German Bunds triggered by U.S.
recession fears looks set to continue with weaker macro sentiment
indicators likely, said Commerzbank.
Thursday's potential drivers include flash estimate purchasing
manager data for France, Germany and the eurozone, with declines
forecast by economists in The Wall Street Journal's poll.
Pantheon Macroeconomics said that factoring-in its estimate for
the terminal policy rate around 1.5% and that Bund yields hit
almost 2% earlier this month "the worst should be over for bruised
Pantheon said near-term risks in Bund yields are tilted to the
downside after the more than 50 basis point leap in June.
Crude prices fell to the lowest levels since early May as
concerns mounted that the global economy is weakening.
Brent has lost more than 5% so far this week as investors worry
that steps taken by the Fed and other central banks to fight
inflation by hiking interest rates will undermine economic
"Oil is very highly correlated to growth and it will be very
sensitive to signs or anticipation of a slowdown," said PineBridge
German Economy Minister Robert Habeck will make a statement on
energy security on Thursday. The country is expected to announce a
second phase of an emergency plan to keep power flowing. That may
mean increasing output from coal-fired plants.
Gold edged lower in Europe but ANZ said the threat of an
economic downturn is likely to provide a floor to prices, despite
central banks aggressively hiking rates to tame inflation.
OANDA puts resistance at $1860 and support at $1805, with senior
market analyst Jeffrey Halley saying: "I would need to see a couple
of daily closes above $1900 to get excited about a reinvigorated
Copper prices continued to fall after hitting a 16-month low on
Wednesday, as macroeconomic weakness pressured markets.
"The macro environment has gone from bad to worse this week,"
said Peak Trading Research. "Forward-looking inflation expectations
keep dropping. This is no surprise given that Powell is
laser-focused on getting inflation back down to 2%."
DOW JONES NEWSPLUS
Norway Central Bank Hikes Rate to Surprise 1.25% From 0.75%,
Signals Next Move in August
Norway's central bank unexpectedly raised its key policy rate to
1.25% from 0.75% on Thursday, and said it expects to raise the rate
further to 1.50% in August.
Analysts polled by The Wall Street Journal had expected the
central bank to raise its key rate to 1.00%.
Ukraine Set to Be Invited to Become EU Member in Week of Summits
Uniting Against Russia
Ukraine is expected to take a step closer to European Union
membership as leaders of the world's liberal democracies kick off a
week of summitry Thursday, seeking a show of unity against Russia's
invasion despite pressure from rising food and energy prices, voter
discontent and internal discord over how to support Kyiv.
The gatherings begin in Brussels, where EU leaders are likely to
invite Ukraine and neighbor Moldova to begin the protracted process
of entering the bloc. The 27 leaders will also debate potential
responses to soaring bills for fuel and groceries that EU citizens
are facing in the wake of Russian President Vladimir Putin's
four-month-long war. They arrive days after France's recently
re-elected President Emmanuel Macron was humbled by angry voters in
parliamentary elections that cost his party a majority.
BMW Opens Electric-Car Plant in China
Bayerische Motoren Werke AG opened a $2.2 billion plant in China
for electric cars, as the German auto maker seeks to catch up with
Tesla Inc. and Chinese rivals in the country's booming
The 15 billion yuan investment in the plant is the biggest that
BMW has ever made in China, its largest market, the company said in
a statement Thursday. The plant in the northern industrial city of
Shenyang will be operated by BMW and its local partner and will
boost the joint venture's annual output by around 18% from 2021 to
830,000 vehicles, BMW said.
Italy's Monte dei Paschi Plans $2.64 Billion Capital Increase to
Italy's Banca Monte dei Paschi di Siena SpA said Thursday that
it would raise up to 2.5 billion euros ($2.64 billion), slash
thousands of jobs and close dozens of branches as part of its
multiyear plan to revamp its balance sheet, turning a page on a
chapter that saw the lender undergo state recapitalization and the
disposal of billions in bad loans.
The world's oldest bank said that it would aim to cut roughly
4,000 jobs through a voluntary exit scheme, a move Monte dei Paschi
expects will create EUR270 million in savings a year from 2023
against one-off restructuring costs of about EUR800 million. It
will also close some 150 branches, bringing its network to just
over 1,200 branches.
France's Emmanuel Macron Calls for Compromise After Losing
Majority in Parliament
PARIS-French President Emmanuel Macron said Wednesday he was
ready to work with other parties to form a new coalition, after
losing his majority in the French Parliament in elections this
The French leader said he was open to building an alliance with
other political parties to form a new parliamentary majority. His
party could also strike agreements with other political parties on
Polio Virus Found in London Sewage Puts U.K. on High Alert
Polio has been detected in London's wastewater system, U.K.
health authorities said, putting clinics on high alert for an
infectious disease that hasn't been recorded in Britain for nearly
The U.K. Health Security Agency raised the alarm on Wednesday
after it found several closely related polioviruses in sewage
samples taken from a treatment facility in east London between
February and May. That pattern of detection suggests that a form of
the virus has been spreading locally, the agency said.
Rolls-Royce Offers $2,500 Payment to Workers as Inflation
LONDON-Rolls-Royce Holdings PLC is offering U.K. staff a
one-time payment of GBP2,000, equivalent to about $2,450, hoping
the bonus will help ease pressure from union officials and
employees over rising inflation while keeping a lid on the
jet-engine maker's costs ahead of an uncertain economic future.
The move is one of many approaches companies are taking to
address soaring inflation that has unions and workers in many parts
of the world demanding higher pay. For months, private companies
have been boosting salaries and wages and offering signing or
retention bonuses, amid exploding post-lockdown demand and
super-tight labor markets. More recently, surging prices for items
from food to fuel have weighed on workers' buying power, pressuring
employers to boost pay to make up the shortfall.
Farmers Stick With Bayer's Roundup, Undeterred by Supreme Court
The U.S. Supreme Court this week denied an effort by Bayer AG to
stem thousands of lawsuits alleging its Roundup weedkiller caused
cancer among landscapers and residential gardeners. On Alan
Meadows's Tennessee farm, it was business as usual.
As the top U.S. court declined Tuesday to hear Bayer's appeal of
a 2018 jury verdict linking the company's herbicide to non-Hodgkin
lymphoma in a California plaintiff, Mr. Meadows said he was
spraying the chemical on his own 4,000-acre farm, which he said he
has done since the 1990s.
U.S. Gains in Push for Exception to EU Sanctions on Russian
A U.S. push to pare back one of the European Union's sanctions
on Russian oil has tentatively started to gain traction within the
27-member bloc, with officials weighing whether to allow insurers
to cover shipments of Russian oil if the price the oil will sell
for falls under a cap.
After weeks of infighting, the EU in early June approved a ban
on insuring shipments of Russian oil alongside a ban on imports of
Russian oil that is set to go into effect this later year. Because
many shipments of Russian oil are insured in the EU and U.K.,
Treasury Secretary Janet Yellen has repeatedly said she is
concerned that the EU's plans could take Russian oil off the global
market and further drive up prices.
European Parliament Backs Broader Carbon Border Tax
The European Parliament approved legislation to tax imports
based on the greenhouse gases emitted to make them, a plan that is
sending shudders through the global trading system.
The legislation backed by the parliament on Wednesday broadens a
previous proposal for the tariff to include some chemical makers.
It also sets a faster timeline for implementation than the earlier
proposal, which was drafted by the European Commission, the
European Union's executive arm.
Fed Chair Jerome Powell Says Higher Interest Rates Could Cause a
Federal Reserve Chairman Jerome Powell said the central bank's
battle against inflation could lead it to raise interest rates high
enough to cause a recession, offering his most explicit warning
"It's not our intended outcome at all, but it's certainly a
possibility, " Mr. Powell said Wednesday during the first of two
days of congressional hearings. "We are not trying to provoke and
do not think we will need to provoke a recession, but we do think
it's absolutely essential" to bring down inflation, which is
running at a 40-year high.
Congress Unlikely to Heed Biden's Call for Three-Month
Suspension of Gas Tax
President Biden called for a three-month suspension of federal
gasoline and diesel taxes-a move that is unlikely to have the
support needed to pass in Congress and one economists and business
leaders say would do little to address record-high gas prices.
"I fully understand that the gas tax holiday alone is not going
to fix the problem, but it will provide families some immediate
relief," Mr. Biden said at the White House on Wednesday. "Just a
little bit of breathing room."
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(END) Dow Jones Newswires
June 23, 2022 05:34 ET (09:34 GMT)
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