Marketing assets

North American morning briefing: Stock futures rise modestly after wipeout

MARKET ENVELOPES

To watch:

Industrial production, capacity utilization for May; Canadian industrial production, commodity prices for May

Opening call:

Stock futures rose on Friday, but worries persist that the Federal Reserve’s latest interest rate hike and plans for further aggressive hikes could push the economy into a recession.

Stock indices are on track to end the week with steep losses as investors tried to gauge inflation, central banks’ response to it and the outlook for the global economy.

Jeffrey Halley, senior market analyst at OANDA, said it was probably the Swiss National Bank’s decision “that broke the camel’s back because if the Swiss are worried about inflation, we should all be. “.

Halley said even the most ardent equity investors have begun to realize inflation is a threat, with “central banks poised to drag the world into a slowdown and possible recession to beat it out.”

Overseas, the pancontinental Stoxx Europe 600 index gained 0.7%, while in Asia, Japan’s Nikkei 225 equity index fell 1.8% after the Bank of Japan kept interest rates on hold. ultra low interest.

Economic overview:

Credit Suisse said interest rate hikes by most global central banks are likely to continue as inflation remains well above target in major economies.

A further rise in energy prices should contribute to higher inflation in the coming quarters, while further supply constraints from China could create additional price pressures in the goods sector.

“With high inflation expected to persist, central banks seem almost certain to remain hawkish for the foreseeable future.”

Credit Suisse expects the Fed to raise rates another 200 basis points this year to 3.50%-3.75%, and the European Central Bank to raise rates by 150 basis points to 1% .

Inflation is expected to pick up further in the euro zone and the United States in June due to higher fuel prices, Commerzbank said.

Inflation in the euro zone is expected to rise from 8.1% in May to 8.4% in June, while the trend in the United States seems similar with the acceleration in gasoline prices and rents. Core inflation should also continue to rise over the medium term, at least in the eurozone, Commerzbank added.

“In this environment, the market should revise its expectations for the Fed and ECB policy rates upwards. The rise in bond yields should not be over yet.”

Defaults are expected to rise — albeit from a low — as the Fed raises interest rates, said Nicole Serino, associate director at S&P.

Defaults in the United States this year are 40% lower than the previous year, with just 15 defaults so far in 2022, compared to 25 in 2021 and 66 in 2020, S&P said. “With rapidly changing financing conditions, defaults are expected to increase.”

Forex:

The Dollar rebounded in Europe as even recent ‘disturbing’ US data couldn’t lift the spirits of Fed doves in favor of looser monetary policy as they know the central bank won’t do much. something to support the economy before inflation subsides, Swissquote Bank said. “And unfortunately, inflation will not subside until energy prices come down significantly.”

The yen weakened sharply after the Bank of Japan kept interest rates ultra-low, sticking to its control of the yield curve [YCC] Politics.

There was arguably less impetus for an immediate decision from the BOJ, given that domestic prices have yet to see a runaway and the economy is still in a fragile state, Maybank said.

However, there could still be some hawkish clues, including the chances of a YCC review in the future if inflationary pressures widen in a more sustainable way.

Read: BOJ’s Kuroda says rapid yen weakening negative for economy

Obligations :

Credit Suisse turned neutral on government bonds, closing its long-standing underweight position, saying inflation dynamics are likely to change, with inflation likely to decline for the rest of the year.

Credit Suisse said another reason for the change is that most of the Fed’s monetary tightening should now be reflected in market prices, reducing the risk of further hawkish surprises.

Richard Saperstein, chief investment officer of Treasury Partners in New York, said his company had recently purchased short-term Treasuries in an effort to temporarily store cash as interest rates rose. “At some point in the cycle, we expect to tap into that cash to take advantage of fixed income opportunities,” he added.

Energy:

Oil futures edged higher as OPEC+ supply issues continue to keep prices around $120 a barrel.

“For oil traders in particular, outside of the supply and demand issues that are entrenched in the price, there are many questions about OPEC’s production commitment that need to be resolved,” said Stephen Innes, managing partner of SPI Asset Management.

With central banks now actively targeting energy-driven inflation in their playbook, the market will have to watch consumer reaction to the prospect of further rate hikes, Innes said.

Metals:

Gold futures rose slightly despite the strengthening dollar. Tina Teng of CMC Markets said that while risk sentiment prevails across all markets, safe-haven assets such as bullion will benefit.

Read Barrons.com: Gold Resists Fall in Stocks, Bonds and Crypto

Base metals were mixed at the start of trade in London as macro concerns continued to worsen sentiment towards industrials.

Three-month copper was down 0.2%, approaching its second lowest level this year, but aluminum edged higher despite falling 4.2% for the week.

“The West is more focused on overall macro weakness,” said Marex’s Asian Metals team. He added that “as prices fall, foundries are starting to look to get into maintenance.”

   
 
 
   
 
 

THE BEST TITLES OF THE DAY

 
 

Adobe Stock drops after hours. Earnings forecasts were disappointing.

Adobe stock lost ground late in Thursday’s trading after the creativity, marketing and document software provider provided softer-than-expected guidance for the August quarter and the full year ending in November. Adobe is feeling the effects of both the intensifying headwinds of negative exchange rates and the fallout from the war in Ukraine.

Adobe stock (ticker: ADBE) is down 4.4%, at $349 at the end of the session. In Thursday’s regular session, shares fell 3.1%.

   
 
 

From Buttigieg to the airlines: be ready for a busy summer travel season

Transport Secretary Pete Buttigieg is warning airlines that he wants summer operations to go smoothly as carriers prepare for what is expected to be a busy travel season.

In a virtual meeting with airline CEOs and industry officials on Thursday, Mr Buttigieg urged airlines to detail the steps they are taking ahead of the July 4 holiday and the rest of the summer. , according to people familiar with the discussion.

   
 
 

Amazon Prime Day will take place on July 12 and 13

Amazon.com Inc. said it would hold its annual two-day Prime Day sales event in July, at a time when the company is dealing with a slowdown in online shopping.

The company announced Thursday that it will be running deals on gadgets, apparel and other items on July 12 and 13.

   
 
 

Bank of Japan keeps interest rates ultra-low, bucking global trend

TOKYO – The Bank of Japan kept interest rates ultra-low on Friday, confirming that it will not join the Federal Reserve and other major global central banks in tightening monetary policy.

The Japanese central bank kept its short-term interest rate target at minus 0.1% and its 10-year Japanese government bond yield target around zero.

   
 
 

Glynn’s view: The RBA is taking back control of the political narrative

SYDNEY – The events of the past week should cause all mortgage holders in Australia to factor in another half-percentage-point hike in interest rates in early July, and a few more of the same magnitude over the course of of the following months.

Hiring remains hot, with Thursday’s labor market data for May showing 60,600 additional jobs added during the month with a strong trend towards full-time positions, comfortably ahead of the consensus of 25,000. Unemployment remained at its lowest level in 48 years at 3.9%, while participation and employment reached all-time highs respectively.

   
 
 

China launches third aircraft carrier, advancing naval ambitions

HONG KONG-China has launched its third aircraft carrier, the largest and most sophisticated to date, advancing its ambitions to build a modern ocean-going navy capable of projecting power around the world.

Named Fujian, after the coastal province closest to the democratic island of Taiwan, the new carrier entered the waters of Shanghai’s Jiangnan shipyard during a launch ceremony on Friday attended by General Xu Qiliang, a member of the China’s 25-member politburo and vice chairman of the Communist Party’s Central Military Commission, which commands the armed forces, according to state media.

   
 
 

WTO countries agree to ease patent rights to boost supply of Covid-19 vaccines in poorer countries

GENEVA – Member countries of the World Trade Organization agreed on Friday to a narrow measure to increase the supply of Covid-19 vaccines in developing countries, concluding a bitter battle over the patent rights of the companies governing critical medical products during a pandemic.

Compromise measure on intellectual property rights will make it easier for companies in developing countries like South Africa to manufacture and export a patented Covid-19 vaccine – in limited circumstances – without the consent of the patent holder if they have the approval of their own Governments.

   
 
 

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Earnings:

None planned

Economic indicators (ET):

0830 Apr International securities transactions

0830 May Price indices for industrial products and raw materials

Actions to watch:

(MORE TO BE FOLLOWED) Dow Jones Newswires

June 17, 2022 05:11 ET (09:11 GMT)

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