MARKET WRAPS
Watch For:
Eurozone Unemployment; Germany Foreign Trade Price Indices,
Retail Trade, Unemployment; France Consumer Spending, PPI,
Provisional CPI; UK GDP, Balance of Payments; Italy PPI,
Unemployment; OPEC and non-OPEC Ministerial Meeting; NATO Summit
concludes; updates from Ubisoft, 3i, Avast, Bunzl, X5 Retail,
Evraz
Opening Call:
Europe faces another negative open as investors continue to
weigh remarks from central bankers as they look to battle high
inflation by tightening policy. In Asia, stocks were mixed, with
encouraging Chinese data spurring gains in Shanghai, while the
Nikkei tumbled on disappointing industrial output figures.
Elsewhere, the dollar lost ground, while Treasury yields, oil and
gold advanced.
Equities:
European stocks are likely to extend losses on Thursday as
investors continue to focus on remarks from central bankers, while
fretting that soaring inflation is damaging the global economy.
Wall Street ended little changed on Wednesday, with earlier
gains mostly fading, as investors monitored corporate earnings and
remarks from Jerome Powell.
"It remains to be seen, but it feels like the market is
expecting profit margins to be squeezed, and profit to be revised
lower," said Jack Janasiewicz, portfolio manager at Natixis
Investment Managers Solutions.
He pointed to the S&P 500 sinking about 25% below its
January peak last week, before it staged a slight rebound, as a
sign that investor might be "somewhat discounting that earnings are
already being ratcheted down, " even before Wall Street analysts
have yet to substantially lower their earnings estimates.
"Maybe the equity market has already done some of that,"
Janasiewicz said.
In Asia, shares in China rose after official gauges of factory
and services activity rebounded to expansion in June after showing
activity contraction for three months in a row, as Beijing eased
Covid-19 restrictions and moved to support economic growth.
Read more here.
Economic Insight:
S&P expects the U.S. to avoid a recession this year, but
"the weight of extremely high prices is damaging purchasing power
and, as aggressive Fed policy increases borrowing costs, it's hard
to see the economy walking out of 2023 unscathed."
S&P maintains its forecast of 2.4% growth this year, but now
calls for a 1.6% expansion in 2023, down from 2% in May, with
unemployment at 4.3% by the end of 2023.
"The Fed will keep monetary policy tight until inflation
decelerates and nears its target in the second quarter of
2024."
Read: First Wall Street Bank to Call a U.S. Recession Now Sees
Chance that Inflation Fails to Decelerate
Forex:
The dollar edged down in Asia but the USD Index remained above
105 following the buck's solid gains on Wednesday.
Recession fears appear to have strengthened, said CMC Markets,
after the final reading of U.S. GDP was revised lower while the GDP
deflator climbed further, pointing to a sharp slowdown in economic
growth.
OANDA thinks there's pressure on the European Central Bank to be
a bit more aggressive following data showing record-high inflation
in Spain.
"Wall Street will likely lean towards anticipating more rate
hikes from the ECB, that will drive a weaker dollar, and weakening
growth outlooks which should prompt the safe-haven buying of
gold."
Read: What the Dollar's Historic Surge Means for Markets
Bonds:
Treasury yields rose in Asia after they posted their biggest
declines in a week on Wednesday following the U.S. GDP revision,
ending three straight sessions of gains.
In a note released after the GDP report, JPMorgan said "it is
reasonable to consider the risk that the U.S. and/or global economy
slips into recession this year."
It said "rising concern about persistent inflation shocks has
combined with news of a more aggressive Fed and sliding sentiment
to materially shift our views on second-half 2022 growth."
Just a week ago, JPMorgan's global markets outlook indicated the
firm's economics department saw no recession materializing this
year.
Other News:
ESG investors in fixed-income markets want better, more
standardized disclosures and target tracking, Bank of America
economists said in a report analysing data from a survey.
"Investors are increasingly forming their own views based on
underlying ESG data--if that data is unavailable or difficult to
interpret, it may begin to work against an issuer. Regulations and
equity markets do tend to drive ESG forward...Companies don't want
to become uninvestable, which can drive ESG disclosures when
regulation is lacking."
Energy:
Oil futures turned higher in Asia as tight inventories and low
supply helped support prices.
Total stocks at the U.S.'s Cushing oil hub fell by 1.35 million
barrels over the last two weeks, taking inventory levels to 21.26
million barrels, the lowest level held at the WTI delivery hub
since October 2014, said ING.
Also, there seems to be little progress in the Iranian nuclear
talks, raising expectations that Iranian oil supply won't be
forthcoming in the near term.
Oil settled lower on Wednesday, easing back after three
consecutive session gains, even as a more than three million-barrel
drop in U.S. crude supplies over the past two weeks fed concerns
over tight global inventories.
Metals:
Gold prices nudged higher on the gloomy U.S. economic data but
ANZ said the strong dollar could cap bullion's gains.
OANDA said for now, "gold is still stuck in a wide trading
range, but a collapse below $1,800 seems less likely as the dollar
peak might be in place."
Gold finished slightly lower on Wednesday while silver futures
lost 0.6% to end at their lowest settlement since July 2020.
---
Aluminum was little changed, with limited gains.
There are reports that at least two Japanese buyers have agreed
to pay premiums of $148 a metric ton for aluminum in the third
quarter, a drop of 14% from the second quarter, said ING. This
decline reflects weakening demand in the automotive sector and
indicates ample aluminum stocks.
---
Iron ore futures were lower over fresh concerns about China's
Covid-19 lockdowns.
Beijing's efforts to quell outbreaks have led to fairly tough
restrictions, which haven't been supportive of iron-ore demand,
said ING. There are also growing concerns over the macroeconomic
outlook.
Iron ore's prospects mostly are going to depend on how China
approaches any further outbreaks through the year, as well as on
the scale of stimulus the government carries out, said ING.
TODAY'S TOP HEADLINES
China's Manufacturing, Services Activity Returned to Expansion
in June
China's official gauges of factory and services activity
rebounded to expansion in June after showing activity contraction
for three months in a row, as Beijing eased Covid-19 restrictions
and moved to support economic growth.
The official manufacturing purchasing managers index rose to
50.2 in June, up from 49.6 in May, the National Bureau of
Statistics said Thursday. However, the reading was lower than the
50.5 median forecast by economists polled by The Wall Street
Journal.
U.S. GDP's Early 2022 Dip Was Bigger Than Previously Thought
The U.S. economy entered the second quarter on shakier footing
than previously thought.
Consumer spending, the economy's main engine, was much softer in
the first quarter than previously reported, according to Commerce
Department gross domestic product revisions released Wednesday.
Spending grew at a revised annual rate of 1.8% in the first
quarter, down from a previous estimate of 3.1%.
Russia's Surprising Economic Headache: A Strong Ruble
After its first default on international debt in a century amid
a grinding war with Ukraine, one might expect Russia's currency to
be suffering. But Russia has the opposite problem.
The Russian ruble has soared to a roughly seven-year high
against the U.S. dollar-an astounding turnaround for a currency
that earlier this year was in free fall after Russia invaded
Ukraine. The ruble on Wednesday had risen 42% against the dollar
this year, making it the best performer against the greenback,
according to a Dow Jones Market Data analysis of 56 currencies.
Iran, U.S. Nuclear-Deal Talks End Without Progress
U.S. to Ramp Up Military Presence in Europe to Counter
Russia
MADRID-The U.S. will make its biggest military expansion in
Europe since the Cold War, including its first permanent troop
presence in Poland, as NATO prepares for two more members to join
the alliance in response to Russia's invasion of Ukraine.
The announcement, which follows a NATO pledge this week to
increase its high-readiness forces sevenfold, comes despite
Washington's efforts to shift U.S. attention toward China and
offers further evidence of how Russia's war is upending
international security.
U.K. Car Manufacturing Rose in May for First Time in 11
Months
U.K. car manufacturing rose in May for the first time since last
June, an industry body said Thursday.
The Society of Motor Manufacturers and Traders said a total of
62,284 cars drove off the production lines in May, compared with
54,962 in May 2021. However this was well below May 2019's
prepandemic figure of 116,035.
Of those cars manufactured last month, 11,134 were for the home
market compared with 7,984 in May 2021.
Deal on Bigger NATO Likely Helps Turkey's Erdogan Shore Up
Support at Home
This week's deal in which Turkey agreed to allow Sweden and
Finland into the North Atlantic Treaty Organization in return for
foreign-policy concessions hands Turkish President Recep Tayyip
Erdogan a victory he can use to boost his political standing at
home.
The agreement grants, on paper, all of Mr. Erdogan's demands,
ending a dispute that threatened to drag on for months and
interfere with NATO leaders' plans for historic expansion designed
to counter Russia's threat to European security after its invasion
of Ukraine.
Write to paul.larkins@dowjones.com
Expected Major Events for Thursday
04:30/NED: May PPI
04:30/NED: May Retail turnover
06:00/GER: May Foreign trade price indices
06:00/UK: 1Q Balance of Payments
06:00/DEN: 1Q Revised GDP
06:00/DEN: May Unemployment
06:00/UK: Jun Nationwide House Price Index
06:00/UK: 1Q UK quarterly national accounts
06:00/GER: May Retail Trade
06:30/SWI: May Retail Sales
06:45/FRA: May Household consumption expenditure in manufactured
goods
06:45/FRA: May PPI
06:45/FRA: Jun Provisional CPI
07:00/HUN: May PPI
07:00/SWI: Jun KOF economic barometer
07:00/TUR: May Foreign Trade
07:30/SWE: Swedish repo rate announcement
07:55/GER: Jun Labour market statistics (incl unemployment)
08:00/BUL: May PPI
08:00/ITA: May Unemployment
08:30/UK: 1Q Business investment revised results
09:00/ITA: May PPI
09:00/CRO: May Industrial Production Volume Index
09:00/CYP: May PPI
09:00/GRE: May PPI
09:00/GRE: Apr Turnover Index in Retail Trade
09:00/LUX: May PPI
09:00/CRO: May Retail trade
09:00/EU: May Unemployment
10:00/POR: May Retail trade
12:00/POL: 1Q Quarterly Balance of Payments
13:00/BEL: 1Q Balance of Payments
16:59/LUX: 1Q Balance of Payments
16:59/SPN: May Budget deficit
16:59/SPN: Apr Monthly Balance of Payments
16:59/BEL: May PPI
23:01/UK: May Zoopla House Price Index
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(END) Dow Jones Newswires
June 30, 2022 00:36 ET (04:36 GMT)
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