MARKET WRAPS
Opening Call:
Stock futures rose Monday, putting the S&P 500 on track to
edge away from bear-market territory.
Comments from Joe Biden that he was considering reducing tariffs
on China helped lift market sentiment. The tariffs were imposed by
the Trump administration.
Stocks have slid in recent weeks as investors debated how
aggressively the Federal Reserve will raise interest rates to tame
elevated inflation. Price pressures have eroded some corporate
earnings, but money managers also worry that tightening financial
conditions too much risks weighing on economic growth.
Inflation concerns were exacerbated in recent months as China
implemented lockdowns to contain the spread of Covid-19, adding
strain to supply chains. Russia's war against Ukraine has also
caused European countries to shift away from Moscow's oil and gas,
adding to prices.
"This year, we're dealing with several issues, which in and of
themselves would ordinarily be the top story in any given year,"
said Hugh Gimber, a global markets strategist at J.P. Morgan Asset
Management. "Yet markets are having to deal with them all at the
same time." This has lent to heightened volatility, he said.
Overseas, the pan-continental Stoxx Europe 600 rose 0.9%, while
in Asia, major indexes closed with mixed performances.
Investors this week will be monitoring the minutes from the
latest Fed meeting to gauge the central bank's next move on
interest rates. It has been pushing rates higher in an effort to
cool historically high inflation. Some economists have expressed
concerns the Fed could move too aggressively and push the U.S. into
a recession.
Biden said Monday following a meeting with Japanese Prime
Minister Fumio Kishida that it wasn't inevitable the U.S. economy
will enter a recession.
Forex:
The dollar hit a two-week low against a basket of currencies, as
stock markets recovered some poise after their recent falls.
EUR/USD rose to its highest level in just over two weeks, with
RBC pointing to a weekend interview with Christine Lagarde, where
she indicated interest rates will likely rise in July, although she
played down prospects of a 50 basis-point increase.
The euro extended its rise after the German Ifo survey
unexpectedly showed business confidence improved in May.
The Ifo business-climate index rose to 93.0 points from a
revised figure of 91.9 points in April, beating the consensus in a
WSJ poll for a fall to 91.2.
"The German economy has proven itself resilient in the face of
inflation concerns, material bottlenecks, and the war in Ukraine,"
said Ifo President Clemens Fuest.
Energy:
Oil prices held modest gains in Europe on hopes for a demand
recovery, after Shanghai began easing its monthslong lockdown
Sunday and as the peak driving season in the U.S. approaches with
the Memorial Day holiday.
---
UBS said coal pries are likely to stay elevated this year,
albeit with risks to the downside should global tensions resolve
unexpectedly quickly and Chinese demand slows more.
The Ukraine war, Indonesian export restrictions imposed in early
January, and wet weather in Australia have led to seaborne coal
shipments falling 2.7% so far this year, but supply is already
showing some signs of recovery now that the Australian wet season
has concluded. Global shipments rose by 6% last week.
UBS said the premium low volatility coking coal price has risen
48% to $530/ton so far this year, while thermal coal from the port
of Newcastle has more than doubled in price to $412/ton.
Metals:
Gold and platinum prices climbed in Europe, helped by the weaker
dollar.
Base metals were also higher, with expectations of a bump in
demand from China increasing after the country started its package
of economic stimulus.
"China is loosening fiscal and monetary policies with a CNY4
trillion infrastructure campaign. However, labor shortages and high
energy costs will continue to weigh on growth in copper, aluminum,
and nickel supply, " said ANZ.
---
Citi said the degree of weakness in Chinese metals demand can't
be fully explained by Covid lockdowns and believes China's economy
has been deteriorating in the absence of sufficient government
easing.
"We continue to recommend selling rallies until China gets ahead
of the curve and/or until the Fed starts to deliver 'dovish'
hikes."
Citi expects LME copper prices will fall to $8,500/ton over the
next three months, and projects aluminum dropping to $2,700/ton,
nickel to $25,000/ton, and zinc to $3,300/ton over the same
period.
TODAY'S TOP HEADLINES
Broadcom in Advanced Talks to Buy VMware
Broadcom Inc. is in advanced talks to buy VMware Inc., according
to people familiar with the matter, setting the stage for what
would be one of the year's biggest deals.
The technology companies are discussing a cash-and-stock deal
that could come soon, assuming the talks don't fall apart, the
people said. VMware has a market value of $40 billion, while
Broadcom's is around $222 billion.
Abbott CEO Apologizes for Company's Role in Baby Formula
Shortage
Abbott Laboratories Chief Executive Robert Ford apologized
Saturday for his company's role in the nationwide shortage of baby
formula and promised production will ramp up again in June.
"We're sorry to every family we've let down," Mr. Ford wrote in
a Washington Post op-ed.
Macy's, Dollar General and Costco May Offer Clues on Strength of
Consumer Spending
Investors are looking for more signs that inflation and
lingering effects from the Covid-19 pandemic are wearing on
American consumers.
This week, Macy's Inc., Dollar General Corp., Costco Wholesale
Corp. and other retailers are slated to release quarterly reports
showing sales without the lift from government stimulus that helped
consumer spending last year. In addition, rising costs for fuel,
freight and labor as well as changing purchasing habits are
expected to weigh on profits.
Apple Looks to Boost Production Outside China
TOKYO-Apple Inc. has told some of its contract manufacturers
that it wants to boost production outside China, citing Beijing's
strict anti-Covid policy among other reasons, people involved in
the discussions said.
India and Vietnam, already sites for a small portion of Apple's
global production, are among the countries getting a closer look
from the company as alternatives to China, the people said.
Stock Market Bottom Remains Elusive Despite Deepening
Decline
U.S. stocks are in the midst of their longest selloff in
decades.
Whether they are close to bottoming is anyone's guess.
Conditions Are Ripe for a Deep Bear Market
With the S&P 500 briefly on Friday down 20% from its January
peak, it is very tempting to start trying to call the end of the
selloff. The problem is that only one of the conditions for a rally
is in place, that everyone's scared. That worked beautifully for
timing the start of the 2020 rebound, but this time around may not
be enough.
The other requirements are that investors start to see a way
through the challenges, and that policy makers start to help.
Without those, the risk is a series of bear-market rallies that
don't last, hurting dip buyers and further damaging investor
confidence.
Higher Rates Raise Risk of Future Fed Losses
The Federal Reserve's plans to raise interest rates aggressively
to combat high inflation could have an overlooked and uncomfortable
side effect for the central bank: capital losses.
The potential for losses hinges on obscure monetary plumbing.
The Fed's $9 trillion portfolio, sometimes called a balance sheet,
is full of mostly interest-bearing assets-Treasury and
mortgage-backed securities-with an average yield of 2.3%. On the
other side of the ledger-the liability side of the Fed's balance
sheet-are bank deposits held at the Fed known as reserves, which
are also interest bearing, as well as currency in circulation.
Biden Kicks Off Economic Group Linking U.S., Asia
President Biden and leaders from a dozen countries in the
Indo-Pacific region on Monday endorsed a new economic platform
meant to counter China's influence through cooperation on global
issues such as supply chains, clean energy and digital rules.
The Indo-Pacific Economic Framework marks the Biden
administration's most ambitious attempt to build economic ties with
Asian nations after the U.S. under then-President Donald Trump
pulled out of the Trans-Pacific Partnership in 2017. U.S. officials
said the framework represented a new approach to cooperation that
moves beyond a traditional trade agreement.
German Business Confidence Unexpectedly Rose in May, Ifo
Says
Business confidence in Germany rose in May as German companies
saw their current business situation with less pessimism.
The Ifo business-climate index rose to 93.0 points in May from a
revised figure of 91.9 points in April, according to data from the
Ifo Institute released Monday. Economists polled by The Wall Street
Journal expected the index to decrease to 91.2.
China's Markets Are Tested by Foreign Outflows and a Falling
Currency
HONG KONG-A withdrawal of foreign capital from China and a
weaker yuan have prompted comparisons with 2015, when Beijing faced
a vicious cycle of outflows and currency depreciation.
China has plugged many of the holes that once allowed its
citizens and companies to move money out of the country, making a
destabilizing exodus of homegrown funds less likely this time
around.
China Spends Far More Than Others to Help Favored Industries,
Report Finds
China spends much more in helping favored industries with
state-directed funds, cheap loans and other government incentives
than other major economies, according to a new study expected to
intensify the debate in Washington and elsewhere over Beijing's use
of industrial policy.
The study, to be published by the Center for Strategic and
International Studies on Monday, finds that China's backing of its
companies amounted to at least 1.73% of its gross domestic product
in 2019-the most recent year for which comprehensive data is
available-and the trend is continuing.
Small Businesses Lose Confidence in U.S. Economy
Small businesses are flashing warning signs on the U.S. economy
as inflation, supply-chain snarls, a shortage of workers and rising
interest rates darken the outlook for entrepreneurs.
Fifty-seven percent of small-business owners expect economic
conditions in the U.S. to worsen in the next year, up from 42% in
April and equal to the all-time low recorded in April 2020,
according to a survey of more than 600 small businesses conducted
in May for The Wall Street Journal by Vistage Worldwide Inc., a
business-coaching and peer-advisory firm.
Rising Risk of Recession Creates New Headache for Biden
The Federal Reserve's efforts to slow inflation are raising the
possibility of higher unemployment, a slower-growing economy and a
recession, prospects that could create new headaches for the Biden
administration.
As the country heads into midterm-election season, much of the
political discussion has centered around solid economic growth and
robust employment versus the damaging impact of inflation. More
recently, warnings about the prospect of an economic downturn-which
could come in 2023 according to some estimates-have complicated the
economic picture in a new way.
NFTs Are Put to New Use in China, Countering Censorship During
Pandemic
In most of the world, the market for NFTs is plummeting. In
China, nonfungible tokens are on the rise, not as digital-art
investments but as a way to strike back at censorship.
As Chinese internet censors have stepped up efforts to scrub
content from social media during the pandemic, web users have
increasingly turned to NFTs as a way to secure images, videos,
audio and social-media posts on a blockchain to prevent their
deletion.
Crypto Might Have an Insider Trading Problem
Public data suggests that several anonymous crypto investors
profited from inside knowledge of when tokens would be listed on
exchanges.
Over six days last August, one crypto wallet amassed a stake of
$360,000 worth of Gnosis coins, a token tied to an effort to build
blockchain-based prediction markets. On the seventh day,
Binance-the world's largest cryptocurrency exchange by volume-said
in a blog post that it would list Gnosis, allowing it to be traded
among its users.
Biden Says U.S. Would Intervene Militarily if China Invaded
Taiwan
TOKYO-President Biden said the U.S. would get involved
militarily to defend Taiwan if China tries to take it by force,
issuing a stark warning to Beijing and appearing to break with the
longstanding American policy of strategic ambiguity.
"Yes. That's the commitment we made," Mr. Biden said Monday at a
news conference in Tokyo during his first trip to Asia as
commander-in-chief. He was responding to a question about whether
the U.S. would get involved militarily in response to a Chinese
invasion of Taiwan after declining to send American troops to
Ukraine to fight Russia's invasion.
Biden Says U.S. Is Prepared if North Korea Conducts Missile
Test
SEOUL-President Biden said Sunday the U.S. is prepared for the
possibility that North Korea will conduct a missile test soon.
"We are prepared for anything North Korea does. We've thought
through how we would respond to whatever they do," Mr. Biden told
reporters here. "I am not concerned, if that's what you're
suggesting."
Biden Keeps Eye on Domestic Politics as He Travels Through
Asia
TOKYO-President Biden is roughly 7,000 miles from the White
House, but domestic affairs have taken a prominent role as he
travels through South Korea and Japan in his first trip to Asia as
commander in chief.
With his Democratic Party facing steep challenges ahead of
November's midterm elections, Mr. Biden has used the trip to make
the case that he is leveraging global alliances to boost the
American economy and promote union jobs. His overseas travel, which
includes the rollout Monday of a new economic framework with Asian
countries, has coincided with polls showing a majority of Americans
disapprove of his handling of the economy. U.S. inflation is at its
highest level in 40 years.
Pentagon Weighs Deploying Special Forces to Guard Kyiv
Embassy
WASHINGTON-U.S. military and diplomatic officials are weighing
plans to send special forces troops to Kyiv to guard the newly
reopened embassy there, proposals that would force the Biden
administration to balance a desire to avoid escalating the U.S.
military presence in the war zone against fears for the safety of
American diplomats, U.S. officials said.
President Biden has yet to be presented with the proposal. But
if he approves it, troops would be deployed only for the defense
and security of the embassy, which lies within range of Russian
missiles, U.S. officials said. Their presence inside Ukraine would
mark an escalation from Mr. Biden's initial pledge that no American
troops will be sent into the country.
Swedes Ask if NATO Membership and Peacemaking Can Coexist
For two centuries, Sweden has shunned military alliances. Its
decision last week to seek NATO membership ends that, fundamentally
altering the Scandinavian country's security posture.
It also challenges the notion of neutrality, for many years a
pillar of Swedish national identity, and poses a quandary for many
Swedes: How can the country seek to lead global efforts in peace
and nuclear disarmament as a member of a military alliance whose
power largely rests on nuclear weapons?
NATO Bids From Finland and Sweden Now Depend on Turkey's
President
ISTANBUL-NATO membership for Finland and Sweden, potentially
among the most dramatic shifts in European security policy in
decades, now depends largely on the decision of one man: Turkey's
President Recep Tayyip Erdogan.
Mr. Erdogan's decision to block a speedy entrance for the two
countries into the North Atlantic Treaty Organization has opened
the door to complex negotiations between Western allies and the
Turkish government over its stated concerns about the presence of
alleged Kurdish militants in Sweden and restrictions on arms sales
to Turkey.
Georgia Governor Race Is a Test for Trump. It Isn't Going
Well.
DAWSONVILLE, Ga.-Georgia Republican Gov. Brian Kemp seemed to
face a bleak political future in the contentious aftermath of the
2020 election.
He had angered former President Donald Trump by not going along
with Mr. Trump's false claim that Democrats used election fraud to
carry the state for President Biden. Being on the wrong side of Mr.
Trump and his supporters has doomed the careers of many GOP
politicians.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
None scheduled
Economic Indicators:
None scheduled: Victoria Day (except Quebec), financial markets
closed
Stocks to Watch:
GetSwift Announces Letter of Intent With Stage Equity Partners
for Sale of GetSwift Assets
Resolute Forest Products Announces Ratification of Collective
Agreement at Seven Canadian Pulp and Paper Mills; Four-Year
Agreement Ratified; Agreements Cover Approximately 700 Hourly
Employees Represented by Unifor
Expected Major Events for Monday
05:00/JPN: Apr Steel Production
08:00/GER: May Ifo Business Climate Index
10:00/FRA: 1Q OECD Quarterly National Accounts: GDP growth
12:30/US: Apr CFNAI Chicago Fed National Activity Index
All times in GMT. Powered by Kantar Media and Dow Jones.
Expected Earnings for Monday
Advance Auto Parts Inc (AAP) is expected to report $3.64 for
1Q.
America's Car-Mart (CRMT) is expected to report $3.10 for
4Q.
Beam Global (BEEM) is expected to report for 1Q.
BitNile Holdings Inc (NILE) is expected to report for 1Q.
Brooklyn ImmunoTherapeutics Inc (BTX) is expected to report for
1Q.
Capital Southwest Corp (CSWC) is expected to report $0.48 for
4Q.
Digital Ally Inc (DGLY) is expected to report $-0.06 for 1Q.
Flanigan's Enterprises Inc (BDL) is expected to report for
2Q.
Hallador Energy Co (HNRG) is expected to report $-0.06 for
1Q.
Heico Corp - A Share (HEI,HEIA) is expected to report $0.61 for
2Q.
Heliogen Inc (HLGN) is expected to report for 1Q.
InnSuites Hospitality Trust (IHT) is expected to report for
4Q.
Nautilus (NLS) is expected to report $-0.43 for 4Q.
Nordson Corporation (NDSN) is expected to report $2.30 for
2Q.
Oncotelic Therapeutics Inc (OTLC) is expected to report for
1Q.
ReShape Lifesciences Inc (RSLS) is expected to report for
1Q.
RespireRx Pharmaceuticals Inc (RSPI) is expected to report for
1Q.
Siebert Financial Corp (SIEB) is expected to report for 1Q.
Skyline Champion Corp (SKY) is expected to report for 4Q.
Sonida Senior Living Corp (SNDA) is expected to report for
1Q.
Star Equity Holdings Inc (STRR) is expected to report for
1Q.
Transcat (TRNS) is expected to report $0.44 for 4Q.
VirnetX Holding Corp (VHC) is expected to report for 1Q.
Zoom Video Communications Inc (ZM) is expected to report for
1Q.
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ANALYST RATINGS ACTIONS
Allstate Cut to Hold From Buy by Argus Research
Citi Trends Cut to Hold From Buy by Craig-Hallum
Comerica Raised to Outperform From Neutral by Baird
Dollar General Cut to Hold From Buy by Gordon Haskett
Freshpet Cut to Neutral From Overweight by Atlantic Equities
Hewlett Packard Ent Cut to Neutral From Buy by B of A
Securities
Mirati Therapeutics Raised to Buy From Neutral by Guggenheim
Ollie's Bargain Outlet Raised to Buy From Underperform by B of A
Securities
PPG Industries Cut to Hold From Buy by Berenberg
Pure Storage Cut to Neutral From Buy by B of A Securities
Ross Stores Cut to Market Perform From Outperform by Telsey
Advisory Group
Spero Therapeutics Cut to Hold From Buy by Berenberg
Trex Co Raised to Neutral From Underperform by Exane BNP
Paribas
This article is a text version of a Wall Street Journal
newsletter published earlier today.
(END) Dow Jones Newswires
May 23, 2022 05:41 ET (09:41 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.