Market rolls
See for:
Eurozone M3, new commercial vehicle registrations; Germany GfK survey; French consumer confidence survey, unemployment; Italian consumer/business confidence surveys; UK capital issue; US interest rate decision; Updates from Airbus, Iberdrola, EDP Renovavis, Mercedes-Benz, Puma, Lagardere, Saint-Gobain, Carrefour, UniCredit, Credit Suisse, Holcim, Naturgy Energy, BASF, Deutsche Bank, MTU Aero Engines, Atos, Vivendi, TotalEnergies, GSK, British American Tobacco, Smurfette Kappa, Vopak, Equinor, Reckitt Benckiser, Rio Tinto, Lloyds Banking, Universal Music Group, First Group, Fresnillo, Hiscox, Halleon
Opening call:
Some strong US tech earnings should help lift European stocks on Wednesday, as investors prepare for the Fed’s decision. In Asia, stocks were broadly lower against the dollar and metals; Treasury yields and oil increased slightly.
Shares
European stocks should post modest opening gains on Wednesday as a late round of U.S. earnings helped lift the tech sector and lift sentiment ahead of an expected Federal Reserve rate hike.
Wall Street futures were higher as investors prepared for second-quarter earnings results that sent shares of Alphabet, Chipotle, Microsoft and Texas Instruments up in after-hours trading.
Major U.S. indexes edged lower in Tuesday’s regular session, but an afternoon corporate earnings blitz sent investors into Wednesday in a better mood.
Along with higher levels of corporate earnings, investors continue to diversify their portfolios from the Fed news. A 0.75 point increase in the target interest rate is expected to reach a 75% chance, while there is a 25% chance that the FOMC will decide to raise the rate by a full percentage point.
“Anything other than a 75bp hike would be very surprising, but we expect Powell’s press conference to more or less repeat the June event and his testimony to Congress on June 22 and 23,” Pantheon Macroeconomics.
“The Fed sees inflation as a scourge, especially on low-income households, and policymakers are determined to bring it down,” Powell reiterates.
More on Federal:
One big risk from the monetary policy event is that Jerome Powell, if asked about it, “will not back expectations of a modest rate cut from early next year,” Piper Sandler said.
“The market may be too optimistic about the timing of a Fed rate cut. If inflation continues, the Fed will likely cut as soon as the market expects, despite clear signs of a recession.”
Piper Sandler says another big risk is the “outlier chance of a 100-bp move.”
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The Fed will “continue to talk tough,” Barclays said, despite the prospect of more dovish talk following an expected 75-basis-point move.
“The Fed is sticking to its forecast, which sees it traveling up to 3.8% and then staying there, although markets expect a 70bp cut in 2023,” Barclays said.
He said markets were bought in anticipation of loose monetary policy amid growing concerns that the economy was slowing.
“The Fed has seen what happens when it prematurely declares victory over inflation and is unlikely to repeat that mistake.”
Featured Stocks:
The war in Ukraine has created challenges for Norsk Hydro, but also brought opportunities, says CFO Pål Kildemo.
Aluminum prices have fallen since Russia – one of the world’s biggest aluminum producers – invaded Ukraine. Meanwhile, Russia’s increase in natural gas has prompted EU countries to prepare to reduce gas consumption, which poses some risk to Norsk Hydro, Kildemo said.
But according to Kildemo, whose company did not provide figures for the market share it gained, demand from customers who have moved away from buying goods from Russian companies has increased. It is an “exciting opportunity” to enhance the company’s position, he said.
Forex:
The dollar edged lower in Asia, but the Fed’s message said how much tightening ING follows Wednesday’s decision, how fast and for how long, will still weigh on assets investors seem reluctant to leave on the table ahead of the meeting.
Silicon Valley Bank’s opinion of the Fed will be key for the dollar.
“The risk in business b [the Fed’s] Words to be less hawk. If they say we have global growth concerns, if they are a little hawkish we could see a rally in aid and a weakening of the dollar.
Bonds:
Treasury yields were a touch firmer early Wednesday and the inversion of the yield curve continued to rise ahead of the Fed’s expected 75-basis point rate hike.
The reversal, economists say, is a sign that investors expect the hawkish Fed to trigger a recession, which would require rate cuts as soon as next year. Some researchers doubt this will happen, instead predicting that rates will remain high for a long time as policymakers ensure that inflation is under control.
Now the three-month to 10-year yield curve is close to inverting. This spread has been narrowing since early May, moving from 2.27% on May 6 to 29 basis points on Tuesday.
The Fed’s research shows that this measure is the most reliable sign of recession, and it’s not going in a Fed-friendly way.
Power:
Oil prices recovered in Asian trade on Tuesday after settling lower on a subdued economic outlook. The oil market continues to show “significant downside risks and recession risks,” Schneider Electric said.
Other news:
The API said U.S. crude oil inventories fell by 4 million barrels last week, while gasoline supplies fell by 1.1 million barrels.
From E.I.A. Ahead of the official inventory information, the somewhat terrifying results were released. The EIA report showed crude inventories fell by 700,000 barrels from last week and gasoline supplies fell by 100,000 barrels, according to the average forecast in a WSJ survey.
Metals:
Gold futures weakened further, extending losses to a third day.
As investors continue to see signs of recession and await the Fed’s decision, ANZ thinks gold will be supported by safe-haven demand in the near term. The latest weak economic data from the US pointed to a sharp decline in consumer confidence.
OANDA places gold support at $1,680 and resistance at $1,745.
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Copper edged lower as the FOMC meeting and US GDP data weighed on prices, according to DailyFX.com.
An overly hawkish Fed or weaker-than-expected GDP growth could encourage dollar strength through reliable liquidity, which could weigh on copper prices, he said.
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China’s iron ore futures were a strong drag on demand prospects.
Guotai Junan Futures said the market expects steel mills’ profitability to continue to improve and higher steelmaking profits will typically be positive for iron ore demand.
Today’s main news
Biden will speak with Chinese President Xi on Thursday
President Biden will hold talks with Chinese President Xi Jinping on Thursday amid renewed tensions in Taiwan, the war in Ukraine and a decision to remove some Trump-era tariffs, a US official said.
Separately, John Kirby, the National Security Council’s strategic communications coordinator, said Tuesday that there would be a “strong agenda” during the call, including the war in Taiwan and Ukraine. Speaking, he said it would be the fifth call between the two leaders.
The Senate advanced a $280 billion bill to subsidize chip manufacturing technology
WASHINGTON — The Senate voted 64 to 32 Tuesday to advance $280 billion in subsidies and research funding to boost the competitiveness of U.S. semiconductors and advanced technology.
60 votes were needed to pass the evenly divided Senate. Seventeen Republicans joined all but one member of the Democratic caucus to move the bill forward. Four senators were absent.
China’s industrial profits have returned as mild Covid curves boost factories
China’s industrial profits rose year-on-year in June, reversing a two-month slump as factory output rebounded after the easing of Covid-19 restrictions.
Industrial profits rose 0.8% in June from the previous month, a sharp increase from a 6.5% decline in May, the Office for National Statistics said on Wednesday.
Credit Suisse CEO Thomas Gottstein prepared to leave
Credit Suisse Group AG is to announce the departure of CEO Thomas Gottstein as part of an effort to turn around the struggling Swiss bank’s fortunes, according to people familiar with the bank.
An announcement is likely to come on Wednesday, when the bank is set to announce quarterly results, but the release date is not known, the people said. Credit Suisse indicated in June that it would report its third consecutive quarter of losses.
LVMH has been bought by Big Spenders in Europe and America.
Luxury company LVMH Moët Hensy Louis Vuitton SE reported higher sales and profits in the first half of the year as freer spending in Europe and the US more than offset a Covid-19-related disruption in China.
The world’s largest luxury group said in earnings Tuesday that total sales rose 28 percent year-on-year to $36.7 billion, equivalent to $37.1 billion, while profit rose 34 percent to 10.2 euros in the six months to June 30. billion.
UK retail prices accelerated in July, mainly driven by food
UK retail prices rose further in July, mainly due to higher food price inflation, according to the latest report by the British Retail Consortium and NielsenIQ.
Retail prices rose 4.4 percent in July, an index higher than in 2018. Prices rose by 3.1% in June.
Write to paul.larkins@dowjones.com
Main events expected for Wednesday
06:00 / SWE: Jun foreign trade
(More to follow) Dow Jones Newswires
July 27, 2022 00:28 ET (04:28 GMT)
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