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MARKET WRAPS

Watch For:

EU Flash Consumer Confidence Indicator; UK Producer Prices, Monthly Inflation, House Price Index; Jerome Powell presents Monetary Policy Report to U.S. Senate Banking Committee; updates from Lanxess, Credit Agricole, Daimler Truck, Micro Focus, Wood Group, Kingfisher, NN Group, Harbour Energy, Volvo

Opening Call:

Europe faces a sharp selloff early Wednesday as investors cautiously await Jerome Powell's testimony to Congress. In Asia, shares were weaker across the board, the dollar gained, oil tumbled and long-dated Treasury yields and gold edged lower.

Equities:

European stocks are likely to slide early Wednesday as the recent rally in global markets comes to an abrupt halt.

Worries about higher interest rates and inflation remain the key focus for investors who have scrambled to unload riskier assets on growing fears the Federal Reserve will plunge the U.S. economy into a recession.

Although U.S. stocks rallied Tuesday off their worst week since March 2020, futures were back in the red on Wednesday.

"This still feels like a bit of a dead-cat bounce," said Viraj Patel, global macro strategist at Vanda Research said, referring to Tuesday's rebound on Wall Street.

He said investors' willingness last week to dump shares of winning sectors this year, including energy and utilities stocks, might be a signal that this year's drawdown has entered its latter stages. Still, he said, he believes the selloff "still has legs to go."

Read: The Stock Market's Big Tuesday Bounce Likely to Fizzle Out: Capital Economics

Economic Insight:

The expectation of a strong recovery in the tourism sector, coupled with the divergence between resilient services activity and a weaker industrial sector, means Southern European economies will outperform the rest of the continent this year, wrote Angel Talavera, head of Europe economics at Oxford Economics.

Contrary to conventional wisdom, the outperformance of peripheral economies doesn't reflect a catch-up from the Covid-19 crisis, but the strength of the tourism sector in these countries, Talavera said.

Traditional tourism powerhouses, such as Spain, Greece and Portugal will be among the fastest-growing eurozone economies based on Oxford Economics's forecasts. The strong comeback of "social" consumption after two years of restrictions will drive growth in those countries, Talavera added.

Forex:

The dollar made modest gains against a basket of currencies, helped by the risk-off sentiment in Asian markets.

Ongoing global growth concerns, inflation worries and fears of tighter financial conditions continue to keep a leash on risk appetite, said Maybank analysts, adding the focus was on Jerome Powell's congressional testimony.

The dollar has surged to multi decade highs as asset managers hoard the world's reserve currency to protect themselves against volatile moves in stocks and bonds.

Investors usually repatriate cash into their local currency, but U.S. capital flow data show the foreign cash pile of dollars is close to records as investors grapple with global shifts in inflation, economic growth and monetary policy.

Bonds:

Longer-dated Treasury yields fell back in Asia, although the curve got a little steeper as the two-year note yield continued to rise.

Investors expect Powell's testimony to help figure out whether the next Fed move will be a 75- or a 50-basis point hike. The CME gauge of target rate probabilities puts the more hawkish option at 95.7%.

"Nothing much has changed since last week surrounding expectations about central bank tightening or signs that inflationary pressures may be moderating," said Raffi Boyadjian, lead investment analyst at XM.

"Recession is still the foremost concern for investors, so this week's rebound in equity markets looks more like a technical correction following the heavy selling over the course of the previous two weeks."

Energy:

Oil prices fell more than 3% in Asian trade as caution returned to global markets.

Crude futures finished higher on Tuesday to mark a partial rebound from sharp losses last week, with tight global supplies coming back into focus.

"The oil market remains too tight over the short-term and rising expectations over tougher sanctions with Russian crude should keep demand especially strong here," said Edward Moya, senior market analyst at OANDA.

SPI Asset Management said near-term sentiment may be supported by the prospect of the temporary suspension of the U.S. federal gasoline tax, "which would likely put a smile on U.S. travellers' faces, hence increasing demand during the summer driving season."

Metals:

Gold futures stretched their losses into a third trading session, although bullion may be supported by safe-haven demand in the near term, as lingering economic concerns could still weigh on equity markets.

"Despite the noise of the past week, [gold] remains anchored in the middle of its one-month range," said OANDA's Jeffrey Halley, putting resistance at $1860 and support at $1805.

---

Copper prices were also lower, reversing Tuesday's gains as demand concerns returned to the fore.

Signs of shrinking inventories pushed prices of base metals, including copper, higher on Tuesday, brokerage Marex said. However, "the reality is nothing has really changed."

Despite tightening supply, the health of downstream copper demand remains uncertain for the second half, clouding the outlook for the metal, Marex said.

---

Chinese iron ore futures fell almost 5% on growing demand concerns.

The market is worried that demand-growth expectations from China's pledge to boost infrastructure investment may not materialize, especially with the country's zero-Covid policy still in play, said CBA analyst Vivek Dhar.

"Doubts over China's future steel demand growth has meant that markets could no longer ignore current market conditions of oversupply in China's steel sector."

TODAY'S TOP HEADLINES

Biden Expected to Call for Temporary Federal Gasoline Tax Suspension

WASHINGTON-President Biden is planning to call for a temporary suspension of the federal gasoline tax, according to people familiar with the matter.

Mr. Biden and his advisers have been discussing the issue for months in the midst of increasing political pressure to take action to address record-high gas prices. The announcement is expected Wednesday, some of the people said. The White House said Mr. Biden would deliver remarks on gas prices at 2 p.m. Eastern Time, but didn't provide any details on the speech.

Bitcoin's Price Bounces Above $21,000, Reversing Weekend Slide

Bitcoin and other cryptocurrencies bounced back Tuesday, after a tumultuous holiday weekend marked the lowest prices in more than a year.

Bitcoin rose 4.6% to $21,435.25 after falling as low as $17,601.58 on Saturday afternoon, according to CoinDesk data-its lowest since November 2020. As of Tuesday, bitcoin was down 69% from its record high in November 2021. It closed Friday at $20,627.21.

Fed's Barkin Supported FOMC's Large Rate Increase

Federal Reserve Bank of Richmond President Thomas Barkin said Tuesday he was on board with last week's supersize rate rise by the Fed and expects more aggressive moves by the central bank as it seeks to lower high inflation levels.

"I was definitely supportive" of the 75-basis-point rate rise the Fed implemented last week, Mr. Barkin said in a virtual appearance. "We are in a situation where inflation is high, it's broad based, it's persistent, and rates are still well below normal...I think the spirit is you want to get back to where you want to go as fast as you can without breaking anything."

Yellen Says Fed Can Combat Inflation Without Unemployment Increasing Significantly

MISSION, S.D.-Treasury Secretary Janet Yellen said she thought the Federal Reserve's efforts to combat inflation could be effective, without significantly increasing the unemployment rate.

The tight labor market that formed over the past two years, as the economy recovered rapidly from a brief pandemic recession, could aid the Fed in combating inflation, Ms. Yellen said while speaking at a press conference during a visit to the Rosebud Indian Reservation in South Dakota.

Firms Warn of China Shipment Delays as U.S. Bans Xinjiang Imports

BEIJING-American businesses in China say they fear a U.S. law blocking most imports from China's Xinjiang region that went into effect Tuesday might interrupt shipments and raise compliance costs, as uncertainty clouds how it will be enforced.

The Uyghur Forced Labor Prevention Act presumes that all items produced in China's western region of Xinjiang, or by entities linked to the government there, are made with forced labor and blocks companies from importing such products.

France's Macron Faces Parliament Battle Over Pro-Business Agenda

PARIS-President Emmanuel Macron's pro-business agenda appeared in jeopardy Tuesday after France's conservative party Les Républicains rejected the idea of an alliance with the French leader to form a majority in Parliament.

Mr. Macron's centrist party, Renaissance, and its allies lost their majority in the National Assembly in Sunday's parliamentary elections after losing seats to the far right and the far left. An alliance with Les Républicains would allow Mr. Macron to retain the commanding majority that allowed the French leader to steamroll the opposition during his first term.

Credit Suisse Seeks Loophole to Shed $600 Million Court Judgment

Credit Suisse Group AG's Bermuda life insurance unit said a loophole in Bermuda company law means it shouldn't have to pay a billionaire client a $607 million court award.

The last-minute legal challenge, if successful, would wipe out a large liability hanging over the bank. Credit Suisse in March flagged damages of more than $500 million from the lawsuit, brought by former Georgia Prime Minister Bidzina Ivanishvili in Bermuda Supreme Court.

Supreme Court Declines to Hear Bayer Appeal on Roundup

The Supreme Court on Tuesday declined to hear a bid by Bayer AG to end thousands of lawsuits alleging its weedkiller Roundup causes cancer, potentially costing the German conglomerate billions of dollars in legal settlements.

Bayer has been mired in Roundup litigation since acquiring Monsanto, the product's original owner, in 2018.

Write to paul.larkins@dowjones.com

Expected Major Events for Wednesday

04:30/NED: Jun Consumer confidence survey

04:30/NED: Apr Consumer Spending

06:00/UK: May UK producer prices

06:00/UK: May UK monthly inflation figures

06:00/SWE: May Labour Force Survey

06:00/DEN: Jun Consumer expectations

07:00/SPN: Apr Industrial Orders & Turnover

07:00/SWI: 1Q Balance of Payments

08:00/POL: May Retail Sales

08:30/UK: Apr UK House Price Index

10:00/IRL: May WPI

12:30/CZE: Czech interest rate decision

13:00/BEL: Jun Consumer Confidence Survey

14:00/EU: Jun FCCI Flash Consumer Confidence Indicator

16:59/HUN: 1Q Balance of Payments

All times in GMT. Powered by Kantar Media and Dow Jones.

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(END) Dow Jones Newswires

June 22, 2022 00:29 ET (04:29 GMT)

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