MARKET WRAPS
Watch For:
EU Industrial Production; France CPI; G7 Foreign Ministers Meeting; updates from Ceconomy, Deutsche Telekom, Vitesco Technologies, Orpea, Fresenius, Porsche, Caixabank, Michelin, Sage, Norwegian Air Shuttle, MTN, Phoenix, Rolls-Royce Holdings
Opening Call:
Stocks in Europe were on a recovery course for Friday after Jerome Powell’s confirmation as Fed chief gave U.S. shares a late session lift. In risk-on Asia trading, shares were solidly higher; the dollar and Treasury yields dipped; oil gained and gold was flat.
Equities:
European shares should rebound Friday following a solid session in Asia and after Wall Street finished above session lows.
U.S. stocks pared losses in choppy trade Thursday after Jerome Powell was given more time to pull back the Federal Reserve’s easy-money stance to battle inflation. Before Powell’s confirmation to serve a second term as chairman was voted in by Congress, the S&P 500 had been veering close to bear-market territory.
“The market is reacting to inflation data that feeds into what the Fed is going to do,” said James Ragan, director of Wealth Management Research at DA Davidson. “There’s definitely a bearish economic opinion forming that there is a possibility of a looming recession.”
Forex:
The dollar edged slightly lower in Asia against most major currencies except the yen as risk appetite improved.
IG said sentiment appeared to be enjoying a slight reprieve but markets may need a relief catalyst for a sustained upside.
China’s Covid-19 situation remains closely watched, with ongoing efforts to contain its spread and minimize economic disruptions, IG added.
Capital Economics expects the dollar to grind higher against nearly all currencies over the course of the Fed’s current tightening cycle.
It sees the USD Index hitting a multidecade high of 108 by the end of the yearm adding that based on examination of past cycles, the relative stance of monetary policy between the Fed and other major central banks is the key determinant of the dollar’s performance.
CapEcon thinks there is some scope for further Fed divergence and that the global recovery will continue to disappoint, further supporting the dollar, “which tends to rise when the global economic and financial environment worsens.”
Jerome Powell said in a Marketplace radio interview Thursday that the Fed’s main job was getting inflation back under control, and noted “the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”
Powell reiterated that if the economy does what it expects, guidance he provided at the last FOMC meeting about 50 basis point hikes at the next couple of meetings remains operative. But he added about the longer run policy outlook, “If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.”
Read more of Powell’s radio interview here.
Bonds:
Treasury yields gained in Asia as regional stocks found some support.
“The market is really anxious to call a peak in inflation,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. in Chicago.
“But it’s very likely that we’ll see further price pressures come down the pipeline. What the market should be worried about is that inflation stays higher longer than expected and that’s going to complicate the choices for the Fed.”
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Buying euro corporate bonds when prices fall or selling them when they rise is a strategy that is helping traders navigate current volatility, said Societe Generale.
On the derivatives market, Societe Generale said it makes sense to buy protection, like credit default swaps, on dips rather than trying to sell on rallies, given their bearish medium-term view. Markets are “concerned that [Wednesday’s] higher-than-expected April consumer price index reading from the U.S. will make the Fed even more hawkish.”
Read: Treasury Investors Are Giving Up On Trying To Price In Stagflation Risks, Deutsche Bank Says
Energy:
Oil futures rose more than 1% in Asia, as the market tries to find its footing amid a supply and demand tug of war.
Pressure on oil prices “highlights how traders are struggling to price correctly the world’s most important energy contracts as the focus continues to alternate between China’s lockdowns hurting demand and high inflation killing economic growth,” said Saxo Bank’s head of commodity strategy Ole Hansen.
That’s as the EU has yet to agree on sanctions over Russian crude oil, “while Saudi Arabia and U.A.E. have warned that all energy sectors are running out of capacity. Underlying this market looks supported as inventories of fuel such as diesel and gasoline continue to decline,” said Hansen.
Metals:
Gold futures steadied in Asia after they booked their worst day in about a week Thursday, as the surging dollar sank prices to a 3-month low.
“Although gold is considered a safe-haven asset, it has not lived up to that reputation of late,” said DailyFX.
“In fact, in recent weeks, gold has bizarrely tracked losses in the equity space, rather than bucking the trend of risk assets, a sign that real rate dynamics are far more important to the precious metal than investor sentiment.”
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Copper edged down on fears that Beijing may enter a full lockdown.
“Officials initially denied a full lockdown but announced later that the city would start a full-scale nucleic test from Friday to Sunday and encourage people to work from home on Friday,” said ING.
“This has heightened the fears that the city would unavoidably fall into a de facto lockdown,” which is damaging sentiment as “it’s hard for many to see the light at the end of the tunnel.”
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Iron-ore prices were around 1% lower, weighed by the dollar’s strength.
Galaxy Futures analysts reckon the steel-making ore is likely to remain under pressure in the near term, as China’s property market and construction activities have yet to meaningfully recover from the pandemic’s impact, while the hot summer weather and heavy rains in Southern China will further weigh on demand.
TODAY’S TOP HEADLINES
Crash of TerraUSD Shakes Crypto. ‘There Was a Run on the Bank.’
The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin.
Since it launched in 2020, it had mostly done that, rarely straying more than a fraction of a penny from its intended price. That made it an island of stability, a place where traders and investors could stash their funds in between forays into the otherwise frenzied crypto market.
Senate Confirms Jerome Powell to Second Term Leading Federal Reserve
The Senate confirmed Federal Reserve Chairman Jerome Powell to a second four-year term that is shaping up to be every bit as trying as his first term as the central bank faces the highest inflation in 40 years.
Mr. Powell’s nomination, approved Thursday on an 80-19 vote, has been on track for months to win bipartisan approval despite unease over inflation and aggressive interest-rate increases that the Fed has urgently commenced to cool price pressures.
Hong Kong Spends Another US$365 Million to Defend Currency Peg
Hong Kong’s de facto central bank said it sold another US$365 million to buy Hong Kong dollars during New York hours Thursday, the third time it has acted this week to defend the city’s longstanding dollar peg.
The Hong Kong Monetary Authority had now sold about US$1.09 billion this week to stop the local currency trading beyond the weak end of its permitted range of 7.75 to 7.85 Hong Kong dollars per U.S. dollar.
Russian Tanker Giant Sovcomflot in Deals to Sell Ships Amid Western Sanctions
Sovcomflot has sold about a dozen ships to buyers in Asia and the Middle East, according to people familiar with the matter, as the Russian state-controlled company works to repay loans to Western banks ending business ties to comply with sanctions.
The company, among the world’s largest tanker operators, sold five tankers to Dubai-based Koban Shipping and four natural-gas carriers to Singapore-based Eastern Pacific Shipping, the people said. Eastern Pacific paid $700 million to a bank that had taken ownership of the vessels.
Russian Oil Output Shrinks Under Western Pressure
PARIS-Western pressure on Russia over the invasion of Ukraine lowered the country’s crude-oil output by 9% in April and reshaped the global oil market as Russia sought new buyers for its production outside the West, the International Energy Agency said.
Russia’s lost supplies amounted to 900,000 barrels a day in April and are expected to grow by a further 600,000 barrels a day this month-totaling around 1.5% of the world’s oil output when the invasion began. An oil embargo being considered by the European Union, the biggest destination for Russian crude, would likely push those losses to as much as 3 million barrels a day from July, bringing Russian oil production to its lowest level in nearly two decades, the IEA said in its monthly report Thursday.
Write to paul.larkins@dowjones.com
Expected Major Events for Friday
05:00/FIN: Mar Retail sales
05:00/FIN: Apr CPI
06:00/NOR: Mar Monthly GDP
06:00/ROM: Mar Industrial Production
06:45/FRA: Apr CPI
07:00/TUR: Mar Industrial Production Index
07:00/HUN: Mar Construction
07:00/SVK: Apr Core & net inflation development
07:00/SVK: Apr CPI
07:00/SPN: Apr CPI
08:00/CZE: Mar Monthly Balance of Payments
08:00/POL: Apr CPI
09:00/EU: Mar Industrial Production
12:00/POL: Mar Balance of Payments
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This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
May 13, 2022 00:34 ET (04:34 GMT)
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