MARKET WRAPS
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EU Spring Economic Forecast, Foreign Trade; Germany WPI; updates
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AngloGold Ashanti
Opening Call:
Europe will likely track losses in Asia following some weak
Chinese economic data. Elsewhere, the dollar steadied, while
Treasury yields, oil and gold all edged lower.
Equities:
A mixed picture in Asian stocks, weighed by data showing China's
economic activity cooled sharply in April, will likely drag on
European markets early Monday.
The Chinese data included below-forecast prints for retail sales
and industrial production, as stringent Covid-19 control measures
locked down cities and disrupted businesses.
However, in a surprise move to revive the struggling property
market, China's central bank cut mortgage-loan interest rates for
first-time home buyers by 20 basis points, while keeping the
minimum mortgage rates for second-home buyers unchanged.
This Week:
The week ahead includes an appearance by Jerome Powell at the
WSJ Future of Everything Festival for a conversation on the future
of the U.S. economy. Investors will be looking for more context and
clarity on monetary policy as inflation remains elevated and the
broader economic environment appears uncertain.
"Powell's appearance [on Tuesday] will attract some
attention--but the data docket will do most of the talking this
week with all eyes on U.S. retail sales," wrote Stephen Innes,
Managing Partner at SPI Asset Management.
"Indeed, investors remain laser-focused on the macro picture,
particularly on consumer-based recessionary guidepost."
Stocks to Watch:
India's Adani group has agreed to buy Holcim's cement business
in India in a $10.5 billion deal. The transaction, which is subject
to regulatory approvals, is expected to close in the second half of
this year.
Read more here.
Forex:
The dollar steadied in Asia as risk appetite wavered despite
Wall Street's rally Friday.
Westpac said the broader dollar bull trend remained in good
shape, however, noting the Fed is still resolutely hawkish while
the eurozone is coping with a more acute stagflationary situation
and China is battling a Covid-19 outbreak with strict
lockdowns.
Capital Economics said the dollar's recent rally could be due
for a pause.
Treasury yields' sharp declines despite higher-than-expected
inflation readings and hawkish Fed speak implies financial markets
appear increasingly driven by fear of an economic slowdown. That's
the pattern evident in G10 currencies--the riskier ones fell the
furthest last week, and in most cases are at their weakest vs the
dollar since mid-2020.
But with big declines by equities and risky currencies over the
past few weeks, Capital Economics said it wouldn't be surprised to
see a rebound or consolidation period in the near term.
Bonds:
Treasury yields edged lower in Asia after they moved
substantially higher Friday, led by gains in 5- through 30-year
rates, as investors returned to risk-on mode.
However, 2- and 10-year yields posted their biggest weekly
declines since March to end a week of choppy trade.
Investors remained sensitive to remarks by Fed officials. On
Friday, Cleveland Fed President Loretta Mester put the possibility
of a 75 basis point rate increase back on the table for September,
though she said she expects to support 50 basis point rate
increases at each of the Fed's next two meetings.
Energy:
Oil futures were lower, reversing opening gains in Asia, as
signs of cooling in China's economic growth spurred concerns about
demand.
Prices had risen early Monday, helped by optimism about the
strength of summer demand in the northern hemisphere. Rystad Energy
said the busy travel season of June, July and August will likely
boost demand significantly as the need for road and jet fuel
accelerates.
Demand for oil to power cooling systems in the Middle East
during the "baking" summer months will also probably be boosted,
Rystad said.
Metals:
Gold edged a few cents lower, extending Friday's losses, which
saw prices settle at their lowest since Feb. 4.
However, gold has tentatively tested the waters below $1,800 and
still remains in a danger zone for further downside, said OANDA.
Any decent rebound in the precious metal might fade, with sellers
probably emerging well before the $1,840 level.
---
Aluminum jumped almost 1.5% as Shanghai begins allowing
businesses to reopen on a limited basis.
Demand is likely to be supported by the transport and electrical
sectors, said CBA. The substitution of steel with lightweight
aluminum in the transport sector to boost the fuel efficiency of
lighter vehicles has been a driver of aluminum demand.
For the electrical sector, demand is underpinned by the increase
in renewable generation along with the expansion of power
transmission and distribution capacity.
---
Iron-ore prices rose 1% in China on the easing of some Covid-19
curbs in Shanghai and CBA said Chinese policy remains pivotal to
the demand outlook for the metal.
Policy makers are also seeking to boost infrastructure
investment and stabilize the property sector this year, with
infrastructure and property construction each accounting for
roughly 30% of China's steel demand.
TODAY'S TOP HEADLINES
China's Economic Activity Cooled Sharply in April
BEIJING-China's economic activity cooled sharply in April,
official data showed Monday, as the stringent Covid-19 control
measures locked down cities and disrupted businesses.
Retail sales, a gauge of China's consumption, fell 11.1% on year
in April, widening from a drop of 3.5% in March, the National
Bureau of Statistics said. The result was also much lower than the
5.4% decline expected by economists polled by The Wall Street
Journal.
China PBOC Cuts Mortgage Rate Lower Limit for First-Home
Buyers
China's central bank cut the lower limit on mortgage rates for
first-home buyers, a move that could revive the property market and
support the cooling economy.
The People's Bank of China said Sunday that it would allow
commercial banks to reduce their mortgage rates by up to 20 basis
points from the current floors, while keeping the minimum mortgage
rates for second-home buyers unchanged.
Investors Stay Put, Because They Can't Think of Better
Options
Even the worst markets are supposed to have havens. Some
unnerved investors are wondering if this one doesn't.
The S&P 500 is down 16%, its worst start to a year since
1970, according to Dow Jones Market Data. But assets of all kinds
are also falling. Gold, typically considered a haven, has swung
into the red. Bonds are typically another shelter, but this year
they are falling alongside stocks, an unusual tandem that reflects
investors' uncertainty.
Rising Food Prices Roil Developing World
Soaring food prices are triggering shortages and protests across
the developing world as disruption from the Ukraine war adds to
existing strains on global supplies of grains, meat and other
foodstuffs.
India on Saturday invoked a rare ban on wheat exports to help
tame domestic prices, a move likely to exacerbate global strains.
The country is the world's second-largest wheat grower, behind
China. Late last month, Indonesia halted the export of certain
types of palm oil in an effort to lower soaring prices of cooking
oil at home.
Individual Investors Step Back From Options Bets
Options trading by individual investors is fading, the latest
sign that the stock market's speculative fever has broken.
Those individual investors had embraced options as a way of
riding the stock market's momentum that drove shares of companies
from Apple Inc. to Nvidia Corp. to new heights. Now, the Federal
Reserve's move to raise interest rates to tame inflation has thrown
that dynamic into reverse, sending the prices of stocks
skidding.
Stocks Are Way Down. They're Still Expensive.
U.S. stocks are off to their worst start to a year in more than
a half-century. By some measures, they still look expensive.
Wall Street often uses the ratio of a company's share price to
its earnings as a measuring stick for whether a stock appears cheap
or pricey. By that metric, the market as a whole had been unusually
expensive for much of the past two years, a period when especially
easy monetary policy turbocharged the popular view that low
interest rates gave investors few alternatives to stocks.
India Bans Wheat Exports, Putting More Pressure on Global Food
Supplies
NEW DELHI-India said it would ban wheat exports, in a move that
will add to global inflationary pressure and further strain global
food supplies that have been disrupted by the war in Ukraine.
"The food security of India, neighboring and other vulnerable
countries is at risk," India's Directorate General of Foreign Trade
said in a notice on Friday explaining the ban.
Loretta Mester Says Fed Is On Track for Aggressive Rate
Rises
Federal Reserve Bank of Cleveland President Loretta Mester said
the U.S. central bank needs to press forward with aggressive rate
rises, and that by early fall it may be able to take stock of
whether it can slow down or will need to speed up the process of
removing support from the economy.
"Given economic conditions, ongoing increases in the fed-funds
rate are called for, and unless there are some big surprises, I
expect it to be appropriate to raise the policy rate another 50
basis points at each of our next two meetings," Ms. Mester said in
a Friday speech text.
Saudi Aramco Posts Record Quarterly Profit on Surging Oil
Prices
DUBAI-Saudi Arabia's national oil company said Sunday that its
net income rose more than 80% to record highs in the first quarter
of the year, a surge that shows how some of the world's biggest
state-owned energy producers are benefitting from a price boom
accelerated by Russia's invasion of Ukraine.
Saudi Arabian Oil Co., known as Aramco, said its quarterly
profit swelled to $39.5 billion in the quarter, a period during
which Saudi Arabia, the de facto leader of the Organization of the
Petroleum Exporting Countries, continued to rebuff U.S. requests to
pump more oil to help tame surging crude prices, instead sticking
by an agreement with Russia to only marginally increase output.
Finland Plans Next Step in NATO Bid as Ukraine Mounts
Counteroffensive Near Key Eastern City
KYIV, Ukraine-Finland said Sunday it would seek parliamentary
approval to join NATO as Kyiv's forces began a counteroffensive
toward the eastern city of Izyum, which Ukrainian officials said
was aimed at disrupting Russian supply lines into the Donbas
region.
Finnish President Sauli Niinistö said the government would apply
for membership in the North Atlantic Treaty Organization subject to
approval by parliament, which is widely expected, in the coming
days.
UK Housing Market Sentiment Is Positive Despite Stabilization
Signs
The U.K. housing market showed signs of stabilizing in April
following two years of frenzied activity, however buyer and seller
confidence remained high, according to new data from OnTheMarket
PLC.
Measuring more than 120,000 consumer responses, the property
sentiment index found around 76% of active buyers and 82% of
sellers were confident they would carry out a property transaction
within the next three months, in line with figures reported in
February and March, the online property portal said.
Adani Group to Buy Holcim's India Cement Business in $10.5
Billion Deal
One of India's largest business groups has agreed to buy Holcim
Ltd.'s cement business in India, in a $10.5 billion deal that is
biggest ever acquisition in the country's infrastructure and
materials industry.
The Adani Group will buy Switzerland-based Holcim's stake in
Indian listed companies Ambuja Cements Ltd. and ACC Ltd., which
will make Adani India's second-largest cement maker, Adani Group
said Sunday.
Russian Invasion Intensifies Role of New U.S.-EU Tech
Council
A new forum for the U.S. and European Union to settle
differences on trade and technology policy has taken on added
significance following Russia's invasion of Ukraine, with
supporters positioning it as a model for broader cooperation among
free-market democracies.
Nations Aim to Secure Supply Chains by Turning Offshoring Into
'Friend-Shoring'
WASHINGTON-As war and the pandemic expose the fragility of
supply chains, the U.S. and its allies are pursuing a new kind of
global trade, one that confines commerce to a circle of trusted
nations. Fans call the shift "friend-shoring."
The new strategy is a departure from economic globalization of
recent decades, when businesses bought and made products where
costs were low and free-trade policies made moving goods around the
world cheaper and faster.
Yellen Seeks to Win European Support for a Tax Deal Congress
Hasn't Approved
WASHINGTON-Treasury Secretary Janet Yellen wants to clinch the
European Union's approval of a global minimum tax on the profits of
large corporations, hoping to smooth out Poland's objections to
approving the plan in meetings next week.
But the larger threat to the agreement's future may rest closer
to home, in Congress, which hasn't yet approved the plan Ms. Yellen
negotiated.
Why It's So Hard to Keep Russian Diamonds and Gold Out of the
U.S. Despite Sanctions
Russian gold and diamonds could still be sold in the U.S.
despite being sanctioned, lawmakers and industry participants say,
unless companies and governments tighten their controls.
In theory, U.S. and European sanctions have outlawed the sale of
gold and diamonds from Russia. In practice, Russian gems and
precious metals are likely still entering Western markets, these
people say, often via a hard-to-police global web of middlemen.
Write to paul.larkins@dowjones.com
Expected Major Events for Monday
06:00/GER: Apr WPI
06:00/NOR: Apr External trade in goods
07:00/TUR: Mar Balance of Payments
07:00/SVK: Mar New orders in industry
07:00/CZE: Apr PPI
09:00/CRO: Apr CPI
09:00/EU: Mar Foreign trade
10:00/IRL: Mar Goods Exports and Imports
15:59/UKR: Mar Trade
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(END) Dow Jones Newswires
May 16, 2022 00:28 ET (04:28 GMT)
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