MARKET WRAPS

Watch For:

Eurozone EuroCOIN, PPI; Germany Foreign Trade; Frankfurt Euro Finance Summit; U.S. Independence Day, financial markets closed; no major corporate earnings expected

Opening Call:

Shares in Europe should open higher in a likely subdued trading session on Monday, with U.S. markets closed. In Asia, stocks were mixed; the dollar and oil faltered; bonds continued to rally; and gold edged up.

Equities:

European stocks were poised for modest opening gains on Monday despite a generally cautious Asian session, as worries over high inflation and slowing growth continue to weigh on markets.

In the week ahead, the Federal Reserve releases minutes from its June monetary-policy meeting, at which officials approved a 0.75-percentage-point increase in its benchmark federal-funds rate, its biggest rate rise since 1994. The minutes should provide more details on the internal discussions over the decision.

Investors will also gear up for Friday, when the June U.S. nonfarm payrolls and unemployment report is released.

Read: China's Slowdown Could Tamp Down Global Inflation

Forex:

The dollar was off Friday's highs but remained generally firm, with the WSJ Dollar Index just short of a 20-year high set June 14.

Commerzbank said market sentiment remains fragile and uncertain as investors grapple with signals from the recent drop in sovereign bond yields in the U.S. and Europe. The question is whether this indicates a peak in inflation or increasing risks of a slowdown. Investors may get some clues from Fed minutes and the U.S. employment report due this week.

Bank of America said the ECB forum in Sintra reinforced the message of a paradigm shift in inflation which will require further policy adjustments.

"But whilst 50bps has become the norm for many central banks, the ECB remains cautious as the Fed remains on the offensive. We expect EUR/USD to remain under pressure through the summer."

Read: EU Sets First Rules to Regulate Cryptocurrencies

Bonds:

Treasury yields continued to fall in Asia, after the 10-year note yield tumbled further below 3% on Friday, suffering its biggest weekly drop since March as recession fears continued to grip the bond market.

Lower bond yields are expressing a view that growth prospects are poor at the moment, said Seaport Global Holdings.

"I think we are headed for the biggest, most traumatic recession since the global financial crisis. Inflation cannot be contained and will probably surge before it falls. The Fed will have to raise rates at a very quick pace and that will most likely affect equity prices for the foreseeable future."

Read: Bond ETFs Attract New Investors With Narrower Offerings

Other News:

S&P affirmed Finland's AA+ rating on Friday, cutting its growth forecast due to factors including Russia's invasion of Ukraine but noting "effective efforts" to reduce trade exposure to Russia.

S&P lowered its real GDP forecast for 2022 to 1.3%, down from 2.8% at the beginning of the year. "Imports from Russia are concentrated in the energy sector, but Finnish exports to Russia are more diversified. We expect the economic impact from shifting trade to be contained, and mainly concentrated in the forestry and air transportation sector."

Finland's inflation is more than 7%, but this is still less than many peers, S&P said.

Energy:

Oil edged lower on continued demand concerns spurred by recession fears.

However, prices may be supported in the near term due to tight supply.

"With OPEC+ opting to raise production by 648,000 [bpd] again in August but not comment beyond then, there is a cloud of uncertainty over the supply side again," said OANDA.

"The tight market is here to stay and the only real case for significant price declines is a recession, sadly."

Metals:

Gold futures were firmer in Asia, recovering Friday's losses.

ANZ said prices were pressured following India's decision to raise import duties for refined gold. "This could weaken demand just as outflows from gold-backed ETFs pick up.

SPI Asset Management said: "We will likely need to keep an eye on how two-year yields impact the dollar, given gold's strong inverse relationship to the greenback as a primary signal that the market thinks the Fed may tap the rate hike breaks a touch."

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Copper remained under pressure, weighed down by worries over China's zero-Covid approach.

President Xi's recent reaffirmation of China's commitment to this policy confirms a willingness to endure temporary economic pain for citizens' health and safety, said Commonwealth Bank of Australia. However, the policy is likely to drag on the recovery of the property-construction sector, which accounts for an estimated 20%-30% of China's copper, aluminum and zinc consumption.

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Iron ore futures were almost 5% lower, extending their broad downturn in recent weeks, as global commodities have retreated due to fears of aggressive rate rises by the Fed.

Galaxy Futures reckons the weakness will likely drag on in the near term, given muted steel production activities in China due to continued local Covid-19 outbreaks, as well as low summer seasonality.

It added that fast inflation in the U.S. is another negative that could weigh on overseas steel demand and hurt iron ore prices.

TODAY'S TOP HEADLINES

China's Slowdown Could Tamp Down Global Inflation

China's slowdown may have a silver lining for the rest of the world: weaker inflation.

Growth in the world's second-largest economy has tumbled this year as Covid-19 outbreaks triggered mass lockdowns and business closures. The government has announced a range of stimulus policies, but many economists say Beijing's 2022 growth target of around 5.5% is unlikely to be achieved as long as the threat of new lockdowns hangs over the economy.

Banks Get Burned by Risky Debt, Imperiling Buyout Activity

Investment banks are facing big losses on leveraged buyouts they agreed to finance before markets soured, further chilling the outlook for deal activity.

Bank of America Corp., Credit Suisse Group AG and Goldman Sachs Group Inc. are among the banks that could collectively lose billions of dollars on buyout loans they agreed to provide when demand for the debt was running high.

Bond ETFs Attract New Investors With Narrower Offerings

This wouldn't seem to be the best of times for exchange-traded funds that focus on fixed income. A resurgence of inflation not seen in 40 years has put upward pressure on interest rates, which, in turn, has sent prices of bonds and bond funds tumbling.

Yet new investment in fixed-income ETFs continues apace.

Markets Had a Terrible First Half of 2022. It Can Get Worse.

We're halfway through the year, but markets are beginning to fear we're not even halfway through the bad news 2022 has in store.

The first six months were full of surprises: Inflation. The biggest selloff in bonds in four decades. A plunge in tech stocks rarely matched in history. And the implosion of crypto.

Crypto's Domino Effect Is Widening, Threatening More Pain

Turmoil in the digital-assets ecosystem has grown in recent weeks, with losses in cryptocurrencies blowing holes in balance sheets and pushing firms near bankruptcy.

After a pair of cryptocurrencies crashed, wiping out billions of dollars in value in May, a British Virgin Islands court this past week ordered a hedge fund that had survived several crypto downturns to liquidate. Another platform that counts the hedge fund as an investor capped withdrawals while evaluating how the hedge fund's woes would affect its liquidity.

While Big Stock Sales and IPOs Stall, Energy Investors Are Making Hay

With stock indexes falling, interest rates rising and inflation running hot, it has become nearly impossible for companies or investors to sell big chunks of stock or go public at the price they want. Unless you're in energy, where business is booming.

EnerVest Ltd., a Houston-based private-equity firm that focuses on energy investments, said it has sold 28.4 million shares of Magnolia Oil & Gas Corp., netting $661 million in proceeds, including $257 million last month. The well-timed initial public offering of natural-gas company Excelerate Energy Inc., one of the best-performing IPOs this year, boosted the net worth of oil magnate and founder George Kaiser by more than $1 billion.

EU Sets First Rules to Regulate Cryptocurrencies

European Union officials agreed on rules that would regulate the crypto market in the bloc, forcing platforms to seek authorization to operate and providing safeguards to users.

The agreement still needs to go through Brussels' complex legal process and might not kick in until 2024. However, officials say it will make the EU the first broad region with common crypto-asset regulation in the world. Some countries have national legislation governing digital assets, but these would mark the first EU-wide rules.

Russia Claims Control of Luhansk as Ukrainian Forces Retreat From Lysychansk

Russian forces have captured Lysychansk, the last major Ukrainian stronghold in Luhansk, effectively placing under Russian control the eastern region at the center of the war in recent months.

Russia's defense minister, Sergei Shoigu, told President Vladimir Putin on Sunday that Russian forces, together with militia from the self-proclaimed Luhansk People's Republic, had established full control over Luhansk, Russia's Ministry of Defense reported.

Strife Rises in Tunisia as Democracy Erodes, Economic Hardship Grows

TUNIS, Tunisia-A new constitution that would consolidate the power of Tunisian President Kais Saied is generating dissent among Tunisians who are angry at what they describe as his increasingly autocratic rule and who are grappling with rising food prices and economic hardship.

On Thursday, Mr. Saied presented a draft version of a new constitution that would grant him the ability to extend his tenure beyond the current limit of two presidential terms. It would also increase the powers of the presidency and curtail those of the parliament, which, under the existing constitution, check the executive's power.

Write to paul.larkins@dowjones.com

Expected Major Events for Monday

06:00/ROM: May PPI

06:00/GER: May Foreign Trade

06:30/SWI: Jun CPI

07:00/SPN: Jun Unemployment

07:00/TUR: Jun CPI

07:00/TUR: Jun PPI

07:30/EU: Jun EuroCOIN indicator of euro area economic activity

09:00/EU: May PPI

14:00/DEN: Jun Foreign Exchange & Liquidity

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

July 04, 2022 00:36 ET (04:36 GMT)