Stock Futures Rise Modestly After Wipeout - Financial Daily News Site

Stock Futures Rise Modestly After Wipeout

MARKET WRAPS

Watch For:

Industrial Production, Capacity Utilization for May; Canada Industrial Production, Raw Material Prices for May

Opening Call:

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

Stock indexes are on track to finish the week with sharp losses as investors have tried to assess 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 move from the Swiss National Bank “that broke the camel’s back because if the Swiss are worried about inflation, we all should be.”

Halley said even the most ardent buy-the-dip equity investors have started to realize that inflation is a threat, “with central bank banks prepared to hike the world into a slowdown and possible recession to get on top of it.”

Overseas, the pan-continental Stoxx Europe 600 added 0.7%, while in Asia, Japan’s Nikkei 225 stock index fell 1.8% after the the Bank of Japan maintained ultralow interest rates.

Economic Insight:

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

A further rise in energy prices is likely to contribute to higher inflation in the coming quarters, while new supply constrains stemming from China could create additional price pressures in the goods sector.

“With high inflation set to persist, central banks look all but certain to remain hawkish for the foreseeable future.”

Credit Suisse expects the Fed to increase rates by 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 accelerate further in both the eurozone and the U.S. in June due to higher prices for fuel, said Commerzbank.

Inflation in the eurozone is likely to rise to 8.4% in June from 8.1% in May, while the trend in the U.S. looks similar as gasoline prices and rents accelerate. Underlying core inflation should also continue to rise over the medium term, at least in the eurozone, Commerzbank added.

“In this environment, the market is likely to revise its expectations for Fed and ECB key rates further upward. The rise in bond yields is unlikely to be over yet.”

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

U.S. defaults this year are 40% lower than the previous year, with only 15 defaults so far in 2022, compared with 25 in 2021 and 66 in 2020, S&P said. “With funding conditions changing rapidly, there is an expectation that defaults will rise.”

Forex:

The dollar rebounded in Europe, as even recent “upsetting” U.S. data couldn’t cheer up the Fed doves in favor of looser monetary policy as they know the central bank won’t do much to support the economy before inflation eases, said Swissquote Bank. “And unfortunately, inflation won’t soften until energy prices ease significantly.”

The yen weakened sharply after the Bank of Japan maintained its ultralow interest rates, standing pat on its yield curve control [YCC] policy.

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

However, there might still be some hawkish hints including chances for a YCC review going forward if inflation pressures broaden more sustainably.

Read: BOJ’s Kuroda Says Rapid Yen Weakening Negative for Economy

Bonds:

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

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

Richard Saperstein, chief investment officer of Treasury Partners in New York, said his firm lately has been buying short-term Treasuries in an effort to temporarily park liquidity as interest rates rise. “At some point in the cycle, we expect to draw this liquidity to take advantage of fixed-income opportunities,” he added.

Energy:

Oil futures inched higher, as supply issues from OPEC+ continue to keep prices hovering around $120 a barrel.

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

With central banks now actively targeting energy-driven inflation in their playbook, the market will need to track how consumers react to the prospect of more rate hikes, Innes said.

Metals:

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

Read Barrons.com: Gold Is Holding Up as Stocks, Bonds, and Crypto Plunge

Base metals were mixed in early London trade as macroeconomic worries continued to compound sentiment for industrial goods.

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

“The Western focus looks to be more on the overall weak macro,” said Marex’s Asian Metals team. It added that “with prices falling, smelters are starting to look to go into maintenance.”

TODAY’S TOP HEADLINES

Adobe Stock Is Falling After Hours. Earnings Guidance Was Disappointing.

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

Adobe (ticker: ADBE) stock is down 4.4%, to $349 in late trading. In the regular session Thursday, shares fell 3.1%.

Buttigieg to Airlines: Be Prepared for a Busy Summer Travel Season

Transportation Secretary Pete Buttigieg is putting airlines on notice he wants summer operations to go smoothly, as carriers gear up for what is expected to be a busy travel season.

In a virtual meeting with airline CEOs and industry officials Thursday, Mr. Buttigieg pressed airlines to detail steps they’re taking heading into the July 4 holiday and the rest of the summer, according to people familiar with the discussion.

Amazon Prime Day to Take Place July 12-13

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

The company said Thursday it would offer deals on gadgets, clothing and other items on July 12-13.

Bank of Japan Maintains Ultra-Low Interest Rates, Bucking Global Trend

TOKYO-The Bank of Japan maintained ultra-low interest rates on Friday, confirming that it won’t join the Federal Reserve and other major global central banks in tightening monetary policy.

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

Glynn’s Take: RBA Retaking Control of the Policy Narrative

SYDNEY-The events of the last week should have every mortgage holder in Australia factoring in a further half-a-percentage-point rise in interest rates in early July, and a few more of the same magnitude in the months beyond that.

Hiring remains white hot, with Thursday’s job market data for May showing a further 60,600 jobs added over the month with a heavy skew to full-time positions, comfortably ahead of the 25,000 consensus. Unemployment remained at a 48-year low of 3.9%, while participation and employment hit respective all-time highs.

China Launches Third Aircraft Carrier, Advancing Naval Ambitions

HONG KONG-China has launched its third aircraft carrier, its largest and most sophisticated to date, advancing its ambitions to build a modern oceangoing navy that can project power around the globe.

Christened the Fujian, after the coastal province that sits closest to the island democracy of Taiwan, the new carrier entered the waters at Shanghai’s Jiangnan Shipyard during a launch ceremony on Friday attended by Gen. Xu Qiliang, a member of 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 reports.

WTO Nations Agree to Ease Patent Rights to Boost Covid-19 Vaccine Supplies in Poorer Nations

GENEVA-The member countries of the World Trade Organization agreed Friday on a narrow measure aimed at boosting the supplies of Covid-19 vaccines in developing countries, wrapping up a bitter fight over corporate patent rights governing critical medical products during a pandemic.

The compromise measure on intellectual property rights will make it easier for companies in developing nations such as South Africa to manufacture and export a patented Covid-19 vaccine-under limited circumstances-without a consent from the patent holder if they have the approval of their own governments.

Write to [email protected] TODAY IN CANADA

Earnings:

None expected

Economic Indicators (ET):

0830 Apr International transactions in securities

0830 May Industrial product & raw materials price indexes

Stocks to Watch:

(MORE TO FOLLOW) Dow Jones Newswires

06-17-22 0511ET

Tags: #Stock #Futures #Rise #Modestly #Wipeout

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