UKX FTSE 100 Index

MARKET WRAPS

Watch For:

Germany Ifo Business Climate Index; UK Retail Sales; Italy Consumer/Business Confidence Surveys, Foreign Trade non-EU; EU Summit concludes; updates from Clariant, Carnival, Steinhoff, Tesco

Opening Call:

Modest gains are likely for European shares after Jerome Powell's day-two testimony, as investors continued to evaluate the path of U.S. interest rates. In Asia, shares made solid gains; Treasury yields edged higher; the dollar dipped; oil was mixed; and gold extended its retreat.

Equities:

European and U.S. stock futures were firmer early Friday as investors continued to consider Jerome Powell's second day of Congressional testimony.

Wall Street advanced on Thursday after Powell--speaking about monetary policy with the House Financial Services Committee--didn't mention anything that made markets more concerned. He repeated that he didn't think a recession was inevitable, but said he had an "unconditional" commitment to fight inflation.

"It's a clear signal that the Fed doesn't have the market's back anymore, " said Anthony Saglimbene, Ameriprise Financial's global market strategist, of Powell's testimony. "I think the Fed is unbothered of slowing growth if it causes a shallow recession."

With that, Saglimbene expects it to be a tough summer for stocks, with little reason for investors to turn bullish until there's more clarity on where U.S. inflation is headed and also on what's "the Fed's stopping point for rate hikes," he said.

Given the jittery backdrop, it was difficult to pinpoint an exact driver of gains. "Dip buyers, bottom pickers, quarter-end rebalancing, rotation out of commodities into stocks. Pick your favorite," said Mohannad Aama, a portfolio manager at Beam Capital Management.

Economic Insight:

Inflation rates have hit records around the world, limiting the purchasing power of consumers and adding to the uncertainty of a volatile marketplace.

On the bright side, the U.S. core consumer price index is trending down and lowered demand for consumer goods is reducing prices, both of which look to ease inflation in the coming months, UBS Global Wealth Management said in its mid-year outlook.

However, shifting consumer patterns are creating increased pressure on core service prices and uncertainty in the labor market could keep overall inflation elevated for longer.

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A shortage of workers in the developed world could be about to soften, said Capital Economics.

"In the U.S., although participation of older workers remains depressed, an improvement is underway in the participation rate of prime-aged workers. In the U.K., a rise in inactivity due to long-term sick is a key factor [but] the experience after the global financial crisis points to at least some of this rise being reversed."

Capital Economics, which also expects improvement in the euro zone, said a potential return of labor supply might help tame inflation, but not quickly enough to lower the peak in interest rates.

Forex:

The dollar edged lower in Asia on improving risk sentiment driven by gains in regional equity markets and U.S. stock futures.

IG said risk appetite may attempt to recover on some resilience... but caution still mostly lingers heading into the weekend break and looking toward key U.S. inflation data due next week.

Bank of America said that going into the second half of the year, dollar-positive dynamics remain in place, where elevated inflation remains perversely positive for currencies as a result of pushing central banks into higher rates.

"Consequently, increasingly aggressive Fed rate hikes have helped USD strength. But with the ECB now likely to belatedly start hiking rates in the second half of the year, we remain focused on 1.05 for our EUR-USD forecast for the rest of 2022, and in general for the USD to stay on the stronger side near-term."

Bonds:

Treasury yields rose in Asia, having declined for a second day on Thursday, though they remained close to their highest levels in more than a decade.

The increasingly aggressive Fed--and moves by other major central banks--have stirred fears that policy tightening could push the U.S. economy into recession.

Energy:

Crude futures were mixed in Asia, with Brent lower but WTI holding early gains, as recession fears continued to rise.

Oil appears to be continuing its recent downward tick, with the WTI down more than 10% in the past week, said OCBC. Near-term market focus will likely be on upcoming U.S. inflation data.

"The next important test for the oil bears is the $100 level. Many investors don't expect a downturn in prices below this level, pointing at a tight global supply, and resilient demand," said Swissquote Bank.

Metals:

Gold prices were lower, stretching losses into a fifth straight session.

Choppy trade may be in store for the precious metal said Commerzbank. "Market participants appear to be changing their minds almost hourly about whether gold is a safe haven at present."

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Fitch said base metals are likely to "extend losses following their recent falls caused principally by the Fed's tightening and China's economic slowdown on the back of the country's zero-Covid policy."

It said a "stronger dollar and weaker global economic growth will cause a significant drop in demand across base metals." That said, supply-side concerns should mean prices won't fall back to their prepandemic levels.

In Asian trading, metals were mixed with copper steadying after its recent slump, while aluminum extended its retreat, with one-month losses at 15%.

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Chinese iron-ore futures were buoyed by President Xi Jinping's repeated commitment on growth. Xi said China remained committed to achieve its 5.5% GDP growth target for this year and reiterated other social and economic development aims.

ANZ said it was the first time such economic targets have been highlighted since the Politburo meeting in April, sending a signal which is likely to support sentiment.

TODAY'S TOP HEADLINES

Japan Inflation Reaches 2.5% in May

TOKYO-Japan's inflation hit 2.5% in May due mainly to higher energy prices, exceeding the Bank of Japan's 2% target for two straight months.

Overall consumer prices rose 2.5% in May from a year earlier, government data showed Friday. The result followed a 2.5% increase in April, which marked the fastest rise since 1991 excluding the impact of sales-tax increases.

Jerome Powell Pressed Over How Fed Would Respond to Economic Slowdown

Lawmakers pressed Federal Reserve Chairman Jerome Powell over how the central bank would manage trade-offs it could confront if its interest-rate increases slow the economy sharply but don't reduce inflation quickly.

Mr. Powell on Thursday said that in such a scenario, the central bank would be reluctant to shift from raising rates to cutting them until it saw clear evidence that inflation was coming down in a convincing fashion.

Fed Stress Test Finds Big Banks Can Weather Severe Recession

The Federal Reserve gave the biggest U.S. banks a clean bill of health in its annual stress test, saying they would be able to continue lending to households and businesses even in a severe recession.

This year's stress test measured the 34 biggest banks' ability to maintain strong capital levels in a hypothetical recession marked by sharply higher unemployment and a steep decline in stock prices.

Energy Secretary Urges Oil Companies to Address High Gasoline Prices

Biden administration officials struck a more conciliatory tone with oil-company executives in a meeting Thursday to discuss potential responses to record-high gasoline prices.

Energy Secretary Jennifer Granholm pressed executives from Exxon Mobil Corp., Chevron Corp., Shell PLC, Marathon Petroleum Corp. and other major oil companies and refiners for their solutions on how to boost fuel supplies. But officials didn't criticize those executives for profiteering, as President Biden has done in recent days, participants said, leading to more constructive discussions in a meeting that lasted about an hour.

U.K. Consumer Confidence Falls to Record Low in June

Confidence among British households deteriorated again in June, setting a record low for the second consecutive month and adding to concerns of a pullback in consumer spending amid sluggish economic growth.

The consumer-confidence barometer compiled by research firm GfK declined to minus 41 in June from minus 40 in May, the lowest level since the survey began in 1974, missing economists' expectations of a slight increase to minus 38.

U.K. Consumer Confidence Falls to Record Low in June

Confidence among British households deteriorated again in June, setting a record low for the second consecutive month and adding to concerns of a pullback in consumer spending amid sluggish economic growth.

The consumer-confidence barometer compiled by research firm GfK declined to minus 41 in June from minus 40 in May, the lowest level since the survey began in 1974, missing economists' expectations of a slight increase to minus 38.

Russia's Welcome at Brics Summit Shows Disconnect With West

Russian President Vladimir Putin on Thursday was welcomed at a virtual summit with the presidents of China, India, Brazil and South Africa in a stark reminder of the limits of U.S.-led efforts to ostracize Moscow.

The Brics nation summit, hosted virtually by Chinese President Xi Jinping, gave Mr. Putin his most high-profile international stage in the four months since his forces invaded neighboring Ukraine, and he used it to denounce economic sanctions and call for unity between developing economies, a call echoed by Mr. Xi.

Write to paul.larkins@dowjones.com

Expected Major Events for Friday

04:30/NED: 1Q GDP - 2nd estimate

06:00/UK: May UK monthly retail sales figures

06:00/NOR: May Credit Indicator C2

07:00/CZE: Jun Business cycle survey (consumer/business confidence)

07:00/SPN: 1Q Final GDP

08:00/GER: Jun Ifo Business Climate Index

08:00/POL: May Unemployment

08:00/ITA: Jun Consumer Confidence Survey

08:00/ITA: Jun Business Confidence Survey

09:00/ITA: May Foreign Trade non-EU

09:00/LUX: Apr Trade

13:00/BEL: Jun Business Confidence Survey

15:59/UKR: 1Q Unemployment

16:59/SPN: 1Q Quarterly 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

June 24, 2022 00:37 ET (04:37 GMT)

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