EUROPEAN MIDDAY BRIEFING - Chinese Data Add to Growth Fears

MARKET WRAPS

Stocks:

European stocks rebopunded from opening losses Monday despite mounting concerns about rising inflation and interest rates.

Vodafone was one of the stocks that bucked the mostly flattish trend, after Emirates Telecommunications said it bought a 9.8% stake in the U.K.-based telecoms company.

"Demand for Vodafone shares is high this morning," said Marc Kimsey, equity trader at broker Frederick & Oliver, in a note. Although Emirates said it doesn't intend to make a takeover offer, "that won't deter traders from snapping up stock, as U.K.-listed companies continue to garner interest from foreign entities."

Stocks to Watch:

Emirates Telecommunications acquisition of a 9.8% stake in Vodafone is unlikely to advance the latter's core priority of delivering market repair or develop into a full takeover situation, said Jefferies.

However, UAE company's investment may embolden Vodafone to reset its expectations, or give it the ability to take its time delivering change, and its management expectations will likely be cleared up in its full-year results Tuesday, said Jefferies. Emirates' investment will likely counteract activist influence in Vodafone's shareholder base, and should it build its stake Emirates will inject downside protection in Vodafone's shares.

Jefferies has retained its hold rating and 125 pence price target.

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Reported claims related to the war in Ukraine have so far been limited, which could lead to lower risk of capitalization buffer in the U.K. insurance sector, said RBC Capital Markets.

The insurance industry estimates a loss from the war in the $10 billion to $15 billion range, but so far total reported war losses have reached $1.3 billion. The sector is set to benefit from a higher interest base rate as it remains above loss and cost trends, although RBC said that some margins could be used to offset inflation risks.

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Economic Insight:

The European Central Bank will likely have much less scope to tighten policy than the 200 basis points anticipated by the market before the end of 2023, said BlueBay Asset Management. It expects the ECB to end asset purchases in June and raise rates to 0% in the fourth quarter of 2022.

"However, we only think that rates will rise modestly in 2023 as a result of weak growth and muted inflation pressure, cumulatively delivering only around half of the tightening that markets currently discount."

U.S. Markets:

Stock futures wavered as weak data out of China revealed how Covid-19 lockdowns have weighed on the world's second-largest economy, adding to investors' concerns around global growth.

"Markets managed a big bounce on Friday but the mood has soured again in the Asian session after a weak slew of data from China as Covid lockdowns had an even worse impact than expected," said Jim Reid, a strategist at Deutsche Bank.

"Industrial production, retail sales and property investment all crashed through estimates by a large margin," Reid added, noting that the decline in retail sales and industrial production in April was the weakest since March 2020.

Forex:

If risk aversion continues to pick up, sending equity markets lower, the DXY Dollar Index could rise well above 105.00, said ING.

The dollar "has remained firmly in demand" as concerns grow about risks related to Russia's invasion of Ukraine and China lockdowns. "We doubt we are going to see a rapid and material unwinding of defensive dollar positions in the week ahead."

ING has raised its forecasts for U.S. interest rates and now expects three 50-basis point rate rises in June, July and September before a return to quarter-point increases in November.

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Barclays said the dollar has strengthened more than it had expected and sees room for further gains, lifting it to $1.02 per euro in three months' time, before weakening to $1.06 and $1.10 in six and 12 months. Barclays doesn't expect the euro to drop to parity, however.

"Expensive valuations, market expectations of European fiscal support, a partial and gradual reopening in Shanghai and moderating U.S. data are some of the key reasons why we are not calling for EUR/USD parity, and why we expect dollar strength to fade over time."

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Commonwealth Bank expects EUR/USD to consolidate this week after last week's tumble.

ECB officials have made it clear in their speeches that an interest rate tightening cycle will come sooner rather than later and around 20 basis points of tightening is priced for July. However, the ECB is in a similar situation to the Bank of England, with inflation rising in large part due to the current energy price shock and continued supply constraints at the same time that there are a number of strong headwinds for economic growth.

Meantime, LBBW said the dollar "will remain strong against the euro for the time being" and EUR/USD could drop to 1.03 by the end of June.

"Forward contracts on currencies traded by speculators on the Chicago Stock Exchange still do not indicate any dollar euphoria crying out for a correction," said LBBW. Its technical analysis suggests the trend towards dollar appreciation remains fully intact.

Bonds:

Societe Generale has kept a neutral view on eurozone government bond yield spreads.

In particular, it has stayed neutral on the 10-year Italian BTP-German Bund yield spread at 200 basis points but said it sees scope for a widening to 230 BPs in late 2022.

"While the bias is for wider spreads into the end of the year, we could see some stabilization, with less room for higher rate hikes expectations and demand resurfacing at these attractive absolute yield level."

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Ten-year Treasury and German Bund yields are likely to move sideways in the short term, around 3% for USTs and 1% for Bunds, said LBBW, adding for the next 12 months, it expect yields will continue to rise.

"Unlike the prior months, however, the balance between inflation and growth risks may improve," said LBBW, adding that the yield increase should be less extreme than in past months.

Energy:

Oil futures extended losses in Europe, after weak Chinese data that pointed to an economic hit from strict Covid-19 lockdowns, had dragged crude prices into the red in Asian trading.

China's strict Covid lockdowns have raised fears over economic activity, reducing demand for crude oil and the weaker-than-expected figures Monday suggested the hit to demand could also be worse than thought.

While concerns that the global economy is weakening are keeping a lid on oil prices, crude is still up more than 40% this year after Russia invaded Ukraine in February, raising questions about energy supplies. German officials announced over the weekend that Europe's biggest economy will stop importing oil from Russia by the end of the year even if the European Union cannot agree on a ban for all members.

Metals:

Gold and copper prices slipped as the bearish Chinese data and expected weakness from Europe continued to weigh on sentiment.

In addition, the worsening economic data continues to hit gold's place as an inflation hedge, said ANZ Research, adding that "a stronger dollar amid expectations of an aggressive rate hike cycle continues to weigh on investor demand."

DOW JONES NEWSPLUS

EMEA HEADLINES

EU Lowers Growth Outlook, Raises Inflation Forecasts Due to Ukraine War

Russia's invasion of Ukraine has dashed hopes for a prolonged and robust expansion following the Covid-19 pandemic, the European Commission said Monday as it lowered growth expectations for the eurozone economy for 2022 and 2023.

"Russia's invasion of Ukraine is causing untold suffering and destruction, but is also weighing on Europe's economic recovery," said Paolo Gentiloni, Commissioner for the Economy.

The war is exacerbating pre-existing headwinds to growth that were previously expected to subside, as it exerts further upward pressure on commodity prices, causing renewed supply disruptions and greater uncertainty, the European Commission said in its spring forecasts.

Emirates Telecommunications Buys $4 Bln Stake in Vodafone

Emirates Telecommunications Group Co. said Monday it has purchased a 9.8% stake in Vodafone Group PLC, worth around 3.26 billion pounds ($4.0 billion).

The multinational telecommunications services provider didn't disclose how much it paid for the stake, but said it had acquired around 2.77 billion shares in Vodafone, a telecoms company. As Vodafone's shares closed Friday at a price of 117.82 pence, the stake is likely worth around GBP3.26 billion.

Renault Sells Russia Business to State-Backed Entity for One Ruble

PARIS-French auto maker Renault SA has reached a deal to cede its 68% stake in Russia's biggest car maker to a state-backed entity for one ruble and a six-year option to buy back its shares, according to people familiar with the matter, an illustration of the limited options Western firms face in leaving Russia.

Renault said Monday that it was handing over its stake in AvtoVAZ to NAMI, a state-backed automotive research and development center. Renault said it was also transferring ownership of a factory in the center of Moscow, which makes vehicles under the Renault and Nissan brands, to the city's government.

Ryanair Expects to Return to Profitability in FY 2023

Ryanair Holdings PLC said Monday that it expects to return to profitability in fiscal 2023 as it reported a consensus-beating narrowed net loss for fiscal 2022 on higher revenue, but cautioned that the recovery remains fragile.

The budget airline expects to see "greater visibility in the second quarter" as there has been "a strong recovery in bookings in recent weeks" due to strong pent-up demand, but the company hasn't issued any profit guidance for the year due to risks stemming from the Covid-19 pandemic and the Ukraine war, Chief Financial Officer Neil Sorahan said.

Adani Group to Buy Holcim's India Cement Business in $10.5 Billion Deal

One of India's largest business groups has agreed to buy Holcim Ltd.'s cement business in India, in a $10.5 billion deal that is biggest ever acquisition in the country's infrastructure and materials industry.

The Adani Group will buy Switzerland-based Holcim's stake in Indian listed companies Ambuja Cements Ltd. and ACC Ltd., which will make Adani India's second-largest cement maker, Adani Group said Sunday.

Valneva Shares Plunge on EU Intention to Scrap Covid-19 Vaccine Contract

Shares in Valneva SE plummeted Monday morning after the European Union gave notice that it wants to terminate an advance purchase agreement for the French pharmaceutical company's Covid-19 vaccine.

At 0712 GMT, shares in Valneva were down 21% at EUR9.47.

Eurozone Trade Deficit Extends to March on Costly Energy Imports

The eurozone posted a trade deficit for the fifth straight month in March as the surge in energy prices amid the war in Ukraine caused a rise in the value of imports, data from the European Union's statistics agency showed Monday.

The eurozone's trade deficit in goods--the difference between exports and imports--stood at 16.4 billion euros ($17.08 billion) in March, compared with a EUR22.5 billion surplus a year earlier, Eurostat said.

Vodacom Group FY 2022 Boosted by Resilient South African Performance

Vodacom Group Ltd. on Monday reported a 3.5% rise in fiscal 2022 net profit on revenue that also rose, supported by a resilient performance in South Africa.

The South Africa-based telecommunications company, which is majority owned by Vodafone Group PLC, made a net profit for the year ended March 31 of 17.16 billion South African rand ($1.06 billion) compared with ZAR16.58 billion for the comparable period a year earlier.

Saudi Aramco Posts Record Quarterly Profit on Surging Oil Prices

DUBAI-Saudi Arabia's national oil company said Sunday that its net income rose more than 80% to record highs in the first quarter of the year, a surge that shows how some of the world's biggest state-owned energy producers are benefitting from a price boom accelerated by Russia's invasion of Ukraine.

Saudi Arabian Oil Co., known as Aramco, said its quarterly profit swelled to $39.5 billion in the quarter, a period during which Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, continued to rebuff U.S. requests to pump more oil to help tame surging crude prices, instead sticking by an agreement with Russia to only marginally increase output.

Finland Plans Next Step in NATO Bid as Ukraine Mounts Counteroffensive Near Key Eastern City

KYIV, Ukraine-Finland said Sunday it would seek parliamentary approval to join NATO as Kyiv's forces began a counteroffensive toward the eastern city of Izyum, which Ukrainian officials said was aimed at disrupting Russian supply lines into the Donbas region.

Finnish President Sauli Niinistö said the government would apply for membership in the North Atlantic Treaty Organization subject to approval by parliament, which is widely expected, in the coming days.

Russian Invasion Intensifies Role of New U.S.-EU Tech Council

A new forum for the U.S. and European Union to settle differences on trade and technology policy has taken on added significance following Russia's invasion of Ukraine, with supporters positioning it as a model for broader cooperation among free-market democracies.

Ukraine Launches Counteroffensive to Disrupt Russian Supply Lines

KYIV, Ukraine-Ukraine began a counteroffensive toward the eastern city of Izyum aimed at disrupting Russian supply lines into the Donbas region, officials said, as Ukrainian forces continued clearing villages north of Kharkiv and Russian President Vladimir Putin warned his Finnish counterpart that joining NATO would risk damaging relations with Moscow.

Why It's So Hard to Keep Russian Diamonds and Gold Out of the U.S. Despite Sanctions

Russian gold and diamonds could still be sold in the U.S. despite being sanctioned, lawmakers and industry participants say, unless companies and governments tighten their controls.

In theory, U.S. and European sanctions have outlawed the sale of gold and diamonds from Russia. In practice, Russian gems and precious metals are likely still entering Western markets, these people say, often via a hard-to-police global web of middlemen.

Nations Aim to Secure Supply Chains by Turning Offshoring Into 'Friend-Shoring'

WASHINGTON-As war and the pandemic expose the fragility of supply chains, the U.S. and its allies are pursuing a new kind of global trade, one that confines commerce to a circle of trusted nations. Fans call the shift "friend-shoring."

The new strategy is a departure from economic globalization of recent decades, when businesses bought and made products where costs were low and free-trade policies made moving goods around the world cheaper and faster.

Yellen Seeks to Win European Support for a Tax Deal Congress Hasn't Approved

WASHINGTON-Treasury Secretary Janet Yellen wants to clinch the European Union's approval of a global minimum tax on the profits of large corporations, hoping to smooth out Poland's objections to approving the plan in meetings next week.

But the larger threat to the agreement's future may rest closer to home, in Congress, which hasn't yet approved the plan Ms. Yellen negotiated.

UK Housing Market Sentiment Is Positive Despite Stabilization Signs

The U.K. housing market showed signs of stabilizing in April following two years of frenzied activity, however buyer and seller confidence remained high, according to new data from OnTheMarket PLC.

Measuring more than 120,000 consumer responses, the property sentiment index found around 76% of active buyers and 82% of sellers were confident they would carry out a property transaction within the next three months, in line with figures reported in February and March, the online property portal said.

Somalia's Parliament Picks Former Leader, Hassan Sheikh Mohamud, as President

Somalia's lawmakers voted Sunday to bring back a former leader, Hassan Sheikh Mohamud, and oust President Mohamed Abdullahi Mohamed, whose attempts to delay elections and remain in office beyond his term alienated the U.S. and other Western countries.

Mr. Mohamud's election to a four-year term comes as Somalia, which sits on the tip of East Africa, faces profound threats poorly addressed by the country's divided leaders. Al-Shabaab, the local al Qaeda affiliate, has gained ground in rural areas of Somalia and carried out devastating attacks in Mogadishu, the capital. The country is experiencing drought that has left some six million people facing acute food insecurity and 1.4 million children under the age of five with acute malnutrition, according to the United Nations.

Lebanon Votes for New Government in First Election Since Economic Collapse

BEIRUT-Lebanese voted Sunday to choose a new government in the country's first parliamentary election since the onset of a once-in-a-century economic collapse and since the deadly 2020 Beirut port explosion sparked widespread demands for accountability from those in power.

The stakes are high for the tiny Middle Eastern country. A new government must negotiate an urgent economic rescue package with international donors and institutions, while navigating a deeply divided political system.

U.A.E. Names Mohammed bin Zayed as New Leader Following His Half-Brother's Death

The United Arab Emirates named Mohammed bin Zayed al Nahyan as its new president following the death of his half-brother, elevating the Abu Dhabi crown prince after nearly a decade as de-facto ruler of the U.S. partner.

The leadership change is likely to have few short-term political or economic implications for the U.A.E., as Sheikh Mohammed for years has steered the country's domestic and foreign policy, alongside a cadre of powerful brothers and other leaders of the federation.

Israeli Police Launch Probe Into Melee at Shireen Abu Akleh's Funeral

TEL AVIV-Israeli police launched an investigation into a violent melee that took place before the funeral of a prominent Palestinian-American journalist, amid growing international condemnation of officers who fought with casket bearers trying to march to a Jerusalem church.

Israeli officials have said officers who struck pallbearers Friday were seeking to carry out a plan agreed upon with the family of Shireen Abu Akleh, the 51-year-old Al Jazeera journalist killed last week as she covered an Israeli military raid in the West Bank, to have the body transported in a vehicle.