Chicago National Activity Index for July; Canada New Housing Price Index for July; Federal Reserve Board of Governors closed meeting.
Stocks futures extended declines from a slump that capped last week as investors continue to grapple with the Federal Reserve’s monetary policy pathway, with the Jackson Hole economic symposium looming as a key event in the coming days.
The Fed’s pathway continues to dominate market sentiment, with investors negotiating expectations over to what extent the central bank will continue to aggressively tighten monetary policy and raise interest rates.
Against the backdrop of inflation at a multidecade high, the Fed has already hiked rates significantly this year and is expected to continue doing so through 2022 even as the risk of recession rears its head from a policy that dents economic demand. A recent stock market rally has come on the back of optimism that the Fed could begin cutting rates in 2023 — but this narrative has faced challenges amid messaging from Fed officials that fighting inflation remains a priority.
The week ahead holds the Jackson Hole Economic Symposium, which is likely to be a key catalyst for clarifying market expectations around Fed policy, with all eyes on Fed Chairman Jerome Powell’s remarks on Friday.
“As the market looks for direction on the uncertain economic outlook and Fed reaction function, Chair Powell’s remarks are one of the key events that can jolt U.S. policy expectations from their recent range, along with inflation and employment data preceding the September [Fed decision on rates],” said Tim Wessel, an analyst at Deutsche Bank.
Also coming Friday is the Fed’s preferred measure of inflation, the core personal-consumption expenditures (PCE) index, which will add new color to the picture of rising prices. Expectations are for core PCE to have risen 0.2% month-over-month in July, down from 0.6% in June.
“While this week’s U.S. PCE inflation numbers are likely to confirm the slightly softer U.S. inflation numbers, they are unlikely to be sufficient to shift the narrative enough to shake the complacency of those who still think a Fed pivot may be coming,” said Michael Hewson, an analyst at broker CMC Markets.
“This week could well be a challenge for market sentiment, where there still seems to be a hard-core cohort who believe the Fed will start cutting rates sometime next year,” Hewson added.
“Traders are chewing over the prospect of more Iranian supply following U.S. President Joe Biden’s discussions with European allies about reviving the 2015 nuclear deal,” noted Sophie Lund-Yates, an analyst at broker Hargreaves Lansdown.
“Extra supply is meeting a wider selloff which has been in motion since June, which was triggered by increased concerns over a global slowdown, which would dent demand.”
Overseas, the pan-European Stoxx 600 declined as did most Asian markets.
The DXY dollar index rose to a five-week high on Monday. Challenges facing countries outside of the U.S. are helping to lift the dollar while Federal Reserve Chairman Jerome Powell is likely to point to further rate rises in a speech later this week and may “counter notions of a 2023 pivot,” ING said.
The Dutch bank points to China cutting its benchmark loan prime rate to support a slowing economy and poor trade data out of Korea. Germany’s economic model of importing cheap energy from Russia and exporting high-value goods elsewhere, especially to China, is “facing challenges like never before,” ING said.
Oil prices were down after weekend diplomatic efforts to revive the 2015 Iranian nuclear deal. The leaders of the U.S., U.K., France and Germany spoke about reviving the deal, the White House said.
Meanwhile, CNN reported Iran had dropped one of its “red line” demands that had proved a major obstacle to securing an agreement.
The news of the discussions is dragging on oil prices as a deal with Iran could see the OPEC member increase output by up to 1 million barrels a day, DNB Markets said.
Gold prices edged down ahead of this week’s Jackson Hole symposium. Fed Chair Powell’s comments at the symposium may be a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his past comments, which had caused markets to price in rate cuts immediately following the rate-increase cycle, TD Securities said. As market expectations for rate cuts subside, speculative appetite in precious metals should dry up even further, it said.
Base metals inched higher after Chinese banks cut interest rates on loans to households and businesses in an attempt to prop up growth. Gains are modest, however, as the dollar also rose, weighing on dollar-denominated commodities. The move to cut interest rates comes after China’s central bank last week unexpectedly lowered two of its policy rates. China is the largest consumer of metals and moves to support growth could lead to more demand.
TODAY’S TOP HEADLINES
Bed Bath & Beyond’s Fizzling Rally Narrows Options for Cash Infusion
Bed Bath & Beyond Inc.’s financing options to help staunch its cash bleed have narrowed after billionaire activist Ryan Cohen sold all his shares in the company last week. Now, the struggling retailer is under more pressure to persuade lenders to provide it with fresh funds.
Since Mr. Cohen on Wednesday announced plans to sell his entire 10% stake, many of the individuals who followed him to invest in the retail chain’s shares have also sold. Its stock slid more than 60% over two days to close at $11.03 on Friday. Before that, its shares had more than quadrupled this month through Wednesday.
MGM China Pumps $594 Million Into Macau Casino Unit Ahead of License Bid
HONG KONG-The Chinese unit of U.S. gambling company MGM Resorts International said it would pump almost $600 million into its Macau casino operator as the company prepares to bid for a new license in the pandemic-battered gambling enclave.
MGM China Holdings Ltd. recorded widening losses in the first half of the year due to Covid-19 outbreaks in mainland China and Macau that the company said have restricted travel to the city. Earlier this month, the Hong Kong-listed company posted a $306 million loss attributable to the owners of the company in the first six months of 2022, deeper than a year-earlier loss of $221 million.
Credit Suisse Appoints Dixit Joshi as Chief Financial Officer
Credit Suisse Group AG said Monday that it has appointed Dixit Joshi as its new chief financial officer to replace David Mathers, who is stepping down after more than a decade in the job.
The Swiss bank said that Mr. Joshi would take over in October after serving as group treasurer at Deutsche Bank AG for the past five years.
Vodafone Group Enters Terms to Sell Vodafone Hungary for $1.78 Billion
Vodafone Group PLC said Monday that it has entered terms to sell the entirety of Vodafone Magyarorszag Tavkozlesi Zrt, or Vodafone Hungary, for an enterprise value of 715 billion Hungarian forint ($1.78 billion).
The U.K.-based telecommunications company said it has agreed to sell its entire 100% stake in the unit to 4iG Public Limited Company and Corvinus Zrt, a Hungarian state holding company, subject to due diligence and regulatory approval. The companies are targeting a close of sale by the end of 2022.
Amazon Among Bidders for Signify Health
Amazon.com Inc. is among the bidders for healthcare company Signify Health Inc., joining other heavy hitters vying in an auction for the home-health-services provider, according to people familiar with the matter.
Signify is for sale in an auction that could value it at more than $8 billion, the people said. Bids are due around Labor Day, according to the people, but it is always possible an eager bidder could strike a deal before then.
Shrinking Deficits Cushion Fed’s Retreat From Markets
A shrinking federal budget deficit is providing a major boost to investors, enabling the Treasury Department to cut longer-term debt issuance despite the Federal Reserve’s recent move to buy fewer bonds.
The prospect of the Fed shrinking its bondholdings, a policy known as quantitative tightening, or QT, has long been a nagging concern for investors. While it’s early to conclude that the Fed maneuver won’t hit markets, the strong rally in stocks and bonds in recent months suggests that the relationships are more complicated than many analysts had assumed.
Europe’s Natural-Gas Crunch Sparks Global Battle for Tankers
Europe’s energy crisis has unleashed a global battle over natural-gas tankers, leading to a shortage of ships and further boosting the fuel’s record prices.
European countries ramped up their purchases of liquefied natural gas from the U.S., Qatar and other sources this year as Russia cut supplies to the continent. They are competing with peers in South Korea and Japan-where gas demand has surged during a heat wave-for a finite amount of supply ferried by a limited number of vessels.
Chinese Banks Cut Rates to Spur Economic Growth
SINGAPORE-Banks in China cut benchmark interest rates on loans to households and businesses, a small attempt to help revive growth in an economy struggling with a property bust and Beijing’s zero-tolerance to Covid-19.
The People’s Bank of China last week unexpectedly trimmed two of its policy rates in response to slowing growth and feeble demand for credit. Changes to so-called loan prime rates, which are set by a panel of banks and represent the terms offered to the most creditworthy borrowers, usually follow soon after.
Fintech CFOs Seek Reliable Funding as Investors Pull Back, Demand Higher Yields
Fintech lenders are bolstering their funding options, seeking sources of capital that are sustainable through an extended downturn.
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