MARKET WRAPS
Watch For:
Housing Starts for April; EIA Weekly Petroleum Status Report; Canada CPI for April; earnings from Target, Cisco Systems
Opening Call:
Stock futures crept lower after major stock indexes rallied in the prior session, putting Wall Street on course to extend the year's volatility.
Stocks have largely fallen in recent weeks as investors contemplated the global economic outlook, central banks' plans to tame inflation, geopolitical tensions and China's zero-Covid strategy. The culmination of factors has boosted volatility in markets. Even with Tuesday's rally, the S&P 500 is down about 14% this year.
At the forefront of investors' minds is decades-high inflation in the U.S., how much policy makers are willing to tighten financial conditions to subdue it and what that means for economic growth.
"Our expectation is that growth will start to slow down over the next few months," said Salman Ahmed, global head of macro at Fidelity International, adding that he anticipates that the Fed's actions will help curb inflation. "Then the next step for the Fed will be to focus on the growth shock."
The mix of concerns hitting markets has led Ahmed to adopt a more cautious investment approach in recent weeks, he said.
Investors are also monitoring whether Russia's war against Ukraine could further bolster geopolitical tension. Finland and Sweden formally applied for NATO membership on Wednesday, a move that, if approved, would fundamentally transform the security landscape of Northern Europe.
Stocks in Asia were mixed, while the pan-continental Stoxx Europe 600 edged down 0.1%.
Forex:
The dollar gained around 0.2% as investors continued to digest remarks from Jerome Powell that reaffirmed the Fed's commitment to controlling inflation by raising interest rates.
"While the dollar momentum is set to remain weak as long as global assets stay in recovery mode, the notion of aggressive Fed tightening continues to argue against a sustained bearish dollar trend," said ING.
---
The scope for the euro to rise against the dollar looks limited as the market's expectations for interest-rate rises from the ECB seem too aggressive, said ING.
Markets are pricing in too much tightening for the ECB but not for the Fed, while the U.S.-eurozone growth divergence will become more relevant into the summer, exacerbated by the EU-Russia standoff on commodities, said ING.
"With this in mind, we suspect that any further rally in EUR/USD may start to lose steam around the 1.0650-1.0700 area, with risks of a return below 1.0500 in the near term being quite material."
---
Sterling fell after data showed U.K. inflation accelerated further in April, hitting 9%, and adding pressure on already strained household incomes. Economists polled by the WSJ expected inflation to reach 9.1%.
"Inflation in the U.K. is completely out of control, and there is no doubt that soaring inflation is having a negative influence on disposable incomes," said AvaTrade analyst Naeem Aslam.
The Bank of England is under pressure to do more to control inflation but it is walking a fine line and can only do so much, he said.
Energy:
Oil futures were more than 1% higher in Europe on easing Covid curbs in China and expectations for new sanctions on Russia, with DNB Markets forecasting prices will rise as high as $130 by the end of the year before easing to $115 next year.
A combination of increased demand as China eases its Covid-19 lockdowns and declining Russian oil production is likely to completely exhaust global capacity by the end of the year, said DNB Markets.
Macquarie said that while the near-term outlook for oil is strong, it expects prices to fade in the second half.
Brent crude has averaged $107 in the second quarter so far but a likely increase in supply from OPEC and other countries, potentially including Iran, should weigh on prices in the second half, Macquarie said.
"We maintain our long-term assumption of $65 but defer this to the first quarter of 2024 [from 1Q of 2023]," Macquarie said.
Metals:
Industrial metals weakened on gloomy signs for the global economy following Jerome Powell's comments Tuesday. And weak Chinese data in recent days caused by lockdowns have raised concerns about demand.
TODAY'S TOP HEADLINES
Cerebral Board Members Agree to Replace CEO Amid Federal Probe Into Prescription Practices
Directors who control the board of Cerebral Inc. agreed on a plan to replace Chief Executive Kyle Robertson, sparking leadership tumult at the mental-health startup as it contends with scrutiny over its prescription practices for controlled substances, people familiar with the situation said Tuesday.
Investors and an independent director who together control four of the board's seven seats agreed that Mr. Robertson should be replaced by the firm's president and chief medical officer, David Mou, some of the people said. Mr. Robertson, who is also Cerebral's co-founder and controls the other three seats, didn't participate in the meeting, but afterward he lost access to the company's Slack messaging system without advance notice, another person said. Mr. Robertson hadn't agreed to depart his CEO role as of late Tuesday, the people said.
Apple Pauses Plans to Go From Two Days to Three Days a Week in the Office
Apple Inc. is sticking with two days back in the office each week, for now.
The iPhone maker on Tuesday paused plans to start bringing employees back to the office an extra day a week, amid an increase in Covid-19 cases in the San Francisco area and complaints from some workers, unhappy with the proposed increase.
U.S. Allows Chevron to Maintain Venezuela Operations but Won't Permit Drilling
The U.S. extended a limited license held by Chevron Corp. on Tuesday that allows the oil company to maintain its operations in Venezuela and negotiate future business in an attempt to encourage talks between the government of Venezuelan President Nicolás Maduro and the U.S.-backed opposition to open a path to free and fair elections.
The U.S. didn't expand the license to allow Chevron to drill for and market Venezuelan crude, as the company had hoped. Chevron didn't immediately respond to a request for comment.
JPMorgan Shareholders Reject Jamie Dimon's $50 Million Bonus
JPMorgan Chase & Co. shareholders objected to a roughly $50 million retention bonus for Chief Executive Jamie Dimon and voted against the bank's compensation plan Tuesday.
Only 31% of shareholders voted in favor of the bank's pay plans at the annual shareholder meeting.
JD.com Drops on Uncertain Demand Outlook Amid China Lockdowns
Shares of e-commerce company JD.com fell in early Asian trade after analysts cut target prices amid guidance for softer second-quarter demand, largely due to the effects of pandemic-related lockdowns in China.
JD.com's Hong Kong-listed shares fell as much as 4.5% to 205.20 Hong Kong dollars (US$26.14) early Wednesday, a day after the company reported a first-quarter earnings beat, while also flagging concerns about demand going forward.
Powell Says Fed Has Resolve to Bring U.S. Inflation Down
The Future of Everything Festival is happening right now. Click here to register and watch for free as a member.
Federal Reserve Chairman Jerome Powell said the central bank's resolve in combating the highest inflation in 40 years shouldn't be questioned, even if it requires pushing up unemployment.
Fed's Evans: Inflation Is Much Too High and Fed Must Act
Federal Reserve Bank of Chicago President Charles Evans said Tuesday that aggressive central bank rate rises are needed to get inflation back under control.
"Inflation is clearly much too high and monetary policy must be repositioned to address this," Mr. Evans said in a speech in New York.
China's New Home Prices Fall for the First Time in More Than Six Years
BEIJING-A monthly measure of new home prices in China fell for the first time in more than six years, offering further evidence of the pain that Beijing's regulatory campaign is inflicting on a sector that has long served as an economic growth engine.
Average new-home prices in 70 major cities edged 0.11% lower in April from a year earlier, according to Wall Street Journal calculations based on data released Wednesday by China's National Bureau of Statistics.
UK Inflation Accelerated to 40-Year High of 9% in April
U.K. annual inflation reached a four-decade high of 9% in April as higher energy prices fed through households' utility bills, exacerbating a cost-of-living crisis that is squeezing consumers' real incomes.
The consumer price index--which measures what consumers pay for some goods and services--increased at its fastest pace since 1982, a sharp pickup from the 7% inflation rate registered in March, according to data from the U.K.'s Office for National Statistics released Wednesday.
Chinese Bonds Suffer Third Straight Month of Foreign Outflows
Foreign investors cut their holdings of Chinese bonds in yuan by more than $16 billion in April, marking a third straight month of outflows.
Global investors started scaling back their investments in February, amid concerns about the geopolitical risks of investing in Chinese assets, and about the economic impact of China's tough approach to Covid-19. Yields on Chinese sovereign bonds last month fell below those on equivalent U.S. Treasury notes for the first time in more than a decade, further reducing the former's appeal.
Spain, Australia, U.K. Most Exposed to Financial Shock as Rates Rise, Says Fitch
SYDNEY-As central banks raise interest rates to combat the biggest inflation spike in decades, Fitch Ratings says Australia, Spain and the U.K. are the most exposed to a financial shock.
Australia and Spain's vulnerability stems from a high proportion of variable-rate mortgage lending, while borrowers in the U.K. already have relatively high debt-to-income ratios.
Japan's Economy Shrank Slightly in First Quarter
(MORE TO FOLLOW) Dow Jones Newswires
05-18-22 0532ET
