MARKET WRAPS
Watch For:
Weekly Jobless Claims; EIA Weekly Petroleum Status Report; FedEx results
Opening Call:
Stock futures fell Thursday as investors continued to react to Jerome Powell's acknowledgement that a recession in the U.S. will be hard to avoid as the Federal Reserve fights a rapid rise of inflation.
Jeffrey Halley, senior market analyst at OANDA, said Powell's discussion about a "challenging" soft landing "should have been enough to spark a somewhat counterintuitive risk sentiment rally as Fed hiking expectations were dialed back."
But instead, Halley said, the response was mixed as Powell "asserted, quite forcefully, that soaring inflation had to be brought back to earth."
Economic Insight:
Recent economic data are sending signals that inflation and the Fed's tightening cycle are weighing on activity, Barclays said.
Household consumption, a key growth driver for the economy, has been resilient in the last few months but high-frequency indicators suggest that consumers are slowing their spending. The housing sector is also deteriorating, pointing to a sharp weakening of activity in the coming quarters, Barclays said.
It expects GDP to grow at an annualized rate of 2% on quarter in the second quarter and by 1.5% in both the third and fourth quarters.
"We predict growth to remain below trend in 2023, with quarterly GDP growth to drop to just 0.5% during the second half, suggesting high recession risks."
Forex:
The dollar is unlikely to depreciate on a sustained basis even though the market has scaled back its interest-rate rise expectations due to recession fears and inflation expectations have eased, said MUFG Bank.
The market has pared its expectations for the Fed's peak rate to just over 3.5% while the 10-year breakeven inflation rate has fallen to 2.55% from a peak of 3.04% in April, said MUFG.
Overall, recent developments have dampened upward pressure on the dollar but they aren't "sufficient on their own to trigger a deeper and/or sustainable reversal of dollar strength."
Energy:
Oil prices continued to fall in Europe, last down almost 2%, on heightened demand worries as recession expectations rise.
While commodity indexes have been "super weak for a while," oil has been a bit of an outlier on the lower supply and higher demand outlook, said SPI Asset Management's Stephen Innes.
"But I think it's a fallacy to think oil could stay this elevated given the amount of central bank-induced slowdown likely to be seen later in the year."
The Fed and other inflation-fighting central banks want lower commodities, which is what they are explicitly trying to engineer, he added.
Metals:
Gold edged lower in Europe but ANZ said the threat of an economic downturn is likely to provide a floor to prices, despite central banks aggressively hiking rates to tame inflation.
OANDA puts resistance at $1860 and support at $1805, with senior market analyst Jeffrey Halley saying: "I would need to see a couple of daily closes above $1900 to get excited about a reinvigorated rally."
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Copper prices continued to fall after hitting a 16-month low on Wednesday, as macroeconomic weakness pressured markets.
"The macro environment has gone from bad to worse this week," said Peak Trading Research. "Forward-looking inflation expectations keep dropping. This is no surprise given that Powell is laser-focused on getting inflation back down to 2%."
TODAY'S TOP HEADLINES
Elon Musk Calls Tesla's New Car Factories 'Gigantic Money Furnaces'
Tesla Inc.'s two newest car factories have been losing billions of dollars as supply-chain disruptions and battery-cell manufacturing challenges limit the company's ability to increase production, Elon Musk said in a recent interview.
The company's plants in Germany and Texas, which opened earlier this year, are "gigantic money furnaces," the Tesla chief executive said in a May 30 interview with a Tesla owners' club that was released Wednesday.
Revlon Stock Surges After Bankruptcy Filing, Aided by Individual Investors
Traders have found the latest meme stock in the makeup aisle.
Shares of Revlon Inc. surged $2.08, or 34%, to close at $8.14 on Wednesday, up 650% from an all-time low set last week, as individual investors helped the cosmetics maker's stock have its best three-day stretch on record following its mid-June bankruptcy filing.
BMW Opens Electric-Car Plant in China
Bayerische Motoren Werke AG opened a $2.2 billion plant in China for electric cars, as the German auto maker seeks to catch up with Tesla Inc. and Chinese rivals in the country's booming electric-vehicle market.
The 15 billion yuan investment in the plant is the biggest that BMW has ever made in China, its largest market, the company said in a statement Thursday. The plant in the northern industrial city of Shenyang will be operated by BMW and its local partner and will boost the joint venture's annual output by around 18% from 2021 to 830,000 vehicles, BMW said.
Chinese Shipping Companies Dive Amid Rising Recession Fears
Chinese shipping companies' shares dropped in Hong Kong on Thursday, following the U.S. Federal Reserve's overnight warning of a potential economic contraction, which could weigh on U.S. demand for imported goods and consequently global shipping activity.
Pacific Basin Shipping Ltd. plunged as much as 10% by the midday trading break, while COSCO SHIPPING Holdings Co. and Orient Overseas (International) Ltd. each were down 4.7% and 7.2%, respectively.
Norway Central Bank Hikes Rate to Surprise 1.25% From 0.75%, Signals Next Move in August
Norway's central bank unexpectedly raised its key policy rate to 1.25% from 0.75% on Thursday, and said it expects to raise the rate further to 1.50% in August.
Analysts polled by The Wall Street Journal had expected the central bank to raise its key rate to 1.00%.
Philippines Raises Benchmark Interest Rate as Inflation Risks Loom
The Philippine central bank raised its benchmark interest rate to rein in rising prices amid a longer-term outlook of elevated inflation in the Southeast Asian nation.
The Bangko Sentral ng Pilipinas on Thursday increased its benchmark overnight borrowing rate by 25 basis points to 2.50% and its corresponding lending rate by the same amount to 3.00%.
Bank Indonesia Stands Pat, Says Will Keep an Eye on Inflation
Indonesia's central bank kept its benchmark interest rate unchanged on Thursday, in line with economists' expectations but as many other economies tighten policy to tame rising inflation.
Bank Indonesia maintained its key benchmark seven-day reverse repo rate at 3.50%, as predicted by six out of 10 economists polled by The Wall Street Journal. It held its overnight deposit and lending facility rates at 2.75% and 4.25%, respectively.
China Approves Plan to Develop Fintech Sector Regulations
Chinese President Xi Jinping approved a plan to standardize and develop regulations for the payments and financial technology sector in a high-level meeting, signaling that a regulatory crackdown on the sector might be easing.
The core function of fintech platform companies should serve the real economy and authorities will enhance the supervision of payment firms and their financial activities, according to a Wednesday meeting of the Central Commission for Comprehensively Deepening Reform chaired by Mr. Xi, state media Xinhua reported.
Ukraine Set to Be Invited to Become EU Member in Week of Summits Uniting Against Russia
Ukraine is expected to take a step closer to European Union membership as leaders of the world's liberal democracies kick off a week of summitry Thursday, seeking a show of unity against Russia's invasion despite pressure from rising food and energy prices, voter discontent and internal discord over how to support Kyiv.
The gatherings begin in Brussels, where EU leaders are likely to invite Ukraine and neighbor Moldova to begin the protracted process of entering the bloc. The 27 leaders will also debate potential responses to soaring bills for fuel and groceries that EU citizens are facing in the wake of Russian President Vladimir Putin's four-month-long war. They arrive days after France's recently re-elected President Emmanuel Macron was humbled by angry voters in parliamentary elections that cost his party a majority.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
BlackBerry 1Q
Evertz Tech 4Q
Field Trip Health 4Q
Neighbourly Pharmacy 4Q
Economic Indicators (ET):
0830 Apr Employment Insurance
Stocks to Watch:
Cathedral Energy Services Announces Acquisition of Operating Assets of Compass Directional Services for C$9.5M
Turqoise Hill Target Price Cut 14% to C$42.00/Share by Macquarie
Xenon Pharmaceuticals Prices $250.0M Public Offering of Shrs, Warrants; Offering 7,868,854 Common Shrs, Pre-Funded Warrants for 327,868 Shrs; Shrs Being Offered at $30.50 Each, Pre-Funded Warrants at $30.4999 Each; Xenon Has Granted Underwriters Option for 1,229,508 Shrs
Xenon Offering Expected to Close on or About June 27; Jefferies, J.P. Morgan, SVB Securities, Stifel Acting as Managers for Offering
Expected Major Events for Thursday
00:30/JPN: Jun Japan Flash Manufacturing PMI
05:30/JPN: May Tokyo area department store sales
05:30/JPN: May Nationwide department store sales
06:00/UK: May Public sector finances
06:45/FRA: Jun Monthly business survey (goods-producing industries)
07:15/FRA: Jun France Flash PMI
07:30/GER: Jun Germany Flash PMI
08:30/UK: Jun Flash UK PMI
10:00/UK: Jun CBI Distributive Trades Survey
12:30/CAN: Apr Employment Insurance
12:30/US: 1Q International Transactions
12:30/US: 06/18 Unemployment Insurance Weekly Claims Report - Initial Claims
13:00/RUS: Weekly International Reserves
13:45/US: Jun US Flash Manufacturing PMI
13:45/US: Jun US Flash Services PMI
14:30/US: 06/17 EIA Weekly Natural Gas Storage Report
15:00/US: 06/17 EIA Weekly Petroleum Status Report
(MORE TO FOLLOW) Dow Jones Newswires
06-23-22 0514ET
