MARKET WRAPS
Watch For:
Eurozone Business & Consumer Surveys; Germany Provisional CPI; France PPI; Italy Industrial Turnover/Orders, Foreign Trade non-EU; updates from Traton, Ferrovial, Santander, Repsol, Telefonica, Volkswagen, Danone, Sanofi, TotalEnergies, Orange, EDF, L'Oreal, Enel, Nestle, Stellantis, Anheuser-Busch InBev, Centrica, Barclays, BT Group, BAE Systems, Diageo, Anglo American, Shell
Opening Call:
Clear Fed messaging on rates and inflation, and hopes of a possible slowdown in the pace of tightening, should help lift European stocks on Thursday. In Asia, major benchmarks broadly tracked Wall Street higher; the dollar extended losses; and Treasury yields, oil and metals all rose.
Equities:
Shares in Europe are poised for a positive start on Thursday as investors are betting that U.S. interest rate hikes could slow down soon.
U.S. stocks popped on Wednesday after the Federal Reserve raised interest rates by three-quarters of a percentage point, as expected, powering Nasdaq to its best gain since April 6, 2020.
The Fed, trying to quell high inflation, is still in rate-hiking mode, but Jerome Powell said that slowing the pace of rate hikes could soon be appropriate.
Read: How the Fed Could Lose Its Nerve
"From here, it is possible that the Fed slows its tightening pace," wrote Seema Shah chief global strategist at Principal Global Investors.
However, U.S. futures were lower early Thursday as Facebook parent Meta forecast third-quarter results that underwhelmed Wall Street expectations and dampened Nasdaq's massive gain.
Meta's disappointing outlook could weigh on European tech and cap overall market gains in the region on Thursday.
Post-Fed Analysis:
Capital Economics said a 50-basis point rate increase is the most likely scenario for the September Fed meeting, according to the CME FedWatch tool, which puts the odds at 62%, versus 33% for another 75bp hike and 4% for 100bp. CE said the Fed is likely "to shift to smaller rate hikes."
It added that rates are now "close to the Fed's estimate of neutral," while the economy is "clearly showing signs of a slowdown in the face of rising rates" and inflation is "set to fall in July."
Forex:
The dollar weakened further in Asia on possible less aggressive Fed tightening.
DBS Research said that overall, the dollar has likely peaked for the year, with the USD Index tipped to consolidate between 100.00 and 110.00 from now on.
The U.S. economy is no longer as strong as at the start of the rate-increase cycle. If nonfarm payrolls data stop surprising on the upside, this will build the case for smaller increases at upcoming FOMC meetings, DBS said.
Ally Invest said the greenback should remain strong in the long run. "There is a lot of nervousness about what's going to happen in the energy market and I think Europe is going to see a lot more slowing growth."
As the war in Ukraine curbs output expansion in the continent, the ECB will remain unable to raise rates as aggressively as the Fed, Ally Invest said. That, in turn, "is what's really been driving the dollar higher across all currencies."
Bonds:
Treasury yields rose slightly in Asia, following Wednesday's post-Fed retreat, while the spread between the 2- and 10-year yields remained deeply negative in a worrisome sign for the economic outlook.
"Bear in mind that since the 50bp hike in May, Fed policy has been all about inflation, not growth," said FHN Financial.
"A slowdown, even a recession, might slow the tightening pace, but it will not stop the Fed from tightening until inflation is significantly lower."
Investors are likely to watch Thursday's U.S. GDP data, with economists polled by WSJ expecting a 0.3% increase after the first-quarter's 1.6% contraction.
Energy:
Oil futures extended their advance in Asia, having settled on Wednesday at their highest in a week, buoyed by U.S. government data showing weekly declines in domestic crude and product supplies.
There's no way to look at energy prices and "not have a bullish outlook, " said Tyche Capital Advisors. "We do feel we could see crude regain the $100 level [in WTI] in the days and weeks to come."
Concerns that aggressive monetary tightening by the Fed and other central banks could tip the economy into recession or spark a sharp slowdown have weighed on crude-oil prices in recent weeks, analysts said.
Prices, however, held onto the bulk of their gains following the Fed decision to lift its benchmark interest rate. The move had been expected.
Metals:
Gold continued to push higher prices extending its post-Fed gains.
Gold and silver "clearly had [the] rate rise priced in, trading pretty much flat in a tight range before and after the statement," said BullionVault.
Lower bond yields and a weaker dollar also helped boost investor appetite.
"Gold looks like it could continue to stabilize now that Wall Street is starting to become convinced that we might only need to see three more FOMC rate hikes before they are done."
Read: Gold Investment Remains Attractive Despite Demand Slip on Dollar Strength
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Copper rose over 1%, buoyed by signs of improving demand in China.
The country's latest industrial profits data showed the first increase since March as major cities such as Shanghai reopened and the effects of the Covid-19 lockdown eased, said ANZ Research. Supply issues also have been supportive, it added.
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Chinese iron-ore futures rose almost 4%, building on recent strength, as expectations of steel mills resuming production increase, said Citic Futures.
The gloomy outlook appears to have lessened somewhat given that steelmakers can't reduce output much further, it said.
TODAY'S TOP HEADLINES
Fed Lifts Rates by 0.75 Point Again
WASHINGTON-The Federal Reserve continued a sprint to reverse its easy-money policies by approving another unusually large interest rate increase and signaling more rises were likely coming to combat inflation that is running at a 40-year high.
Senate Approves $280 Billion Bill to Boost U.S. Chip Making, Technology
WASHINGTON-The Senate on Wednesday approved a $280 billion bill aimed at boosting the semiconductor industry crucial to modern technology, in a bipartisan embrace of expanding U.S. industrial policy to counter the competitive threat posed by China.
The vote reflected growing concern in both parties that the U.S. lacks a long-term response to Beijing's technological and economic rise, a view galvanized when the Covid-19 pandemic disrupted chip supplies from Asia, with fallout across major industries.
Gold Investment Remains Attractive Despite Demand Slip on Dollar Strength
Demand for gold fell during the second quarter of 2022 as the strength of the dollar weighed on prices for the precious metal, but macroeconomic weakness is still likely to ensure it remains an attractive investment, the World Gold Council said in a report Thursday.
Gold demand fell by 8% from the same period in 2021 to 948 metric tons, with much of the weakness related to the dollar's strength, the WGC said.
Fed Chair Jerome Powell's Remarks Send Government-Bond Yields Lower
Short-term government-bond yields declined Wednesday afternoon after the Federal Reserve raised interest rates by 0.75 percentage point at its July meeting.
Most investors considered the Fed's rate increase, which brought its target to a range of 2.25% to 2.5%, a foregone conclusion. But Treasury yields fell as Chairman Jerome Powell spoke to reporters after the meeting, with some traders perceiving leeway in his remarks for a less aggressive series of rate hikes to follow.
Energy Prices in Europe Surge After Russia Slashes Gas Flows
Russia followed through on promises to slash natural-gas flows to Europe, triggering a surge in prices for fuel and electricity that if sustained will hobble the region's economy.
Moscow is using gas flows as an economic weapon to sow division and unrest among Ukraine's Western allies. Europe, and in particular Germany, has for years relied on gas produced in western Siberia to generate electricity, fire factories and heat homes.
Airbus, Bogged Down by Supply Chain Woes, Cuts Delivery Target
LONDON-Airbus SE cut its aircraft delivery guidance for this year and slowed production plans, citing delays in its supply chain that are holding back the European planemaker's aggressive ramp up targets.
The company will deliver 700 aircraft this year, 20 fewer than it had initially planned, it said on Wednesday. Airbus delivered 297 aircraft in the first half, with some handovers held back by missing or late components.
Credit Suisse Tries to Turn the Page-Again
Credit Suisse is still struggling to get its house in order. A new leader will help, but the job is getting harder.
The crisis-prone bank named a new chief executive officer and strategy on Wednesday, alongside dismal second-quarter results. The change isn't surprising after its recent string of quarterly losses, profit warnings and senior personnel changes. The board will be more involved, and the incoming CEO brings useful experience, but previous efforts have been disappointing and the macroeconomic backdrop isn't ideal for a turnaround.
Lufthansa Cancels More Than 1,000 Flights as Ground Handlers Strike
Deutsche Lufthansa AG canceled almost all of its flights from two of its hub airports as ground staff staged a walkout, exacerbating disruption that has plagued the aviation industry as it tries to increase flying to meet surging travel demand.
The German carrier said 678 flights had been scrapped from Frankfurt Airport and a further 345 at its Munich hub on Wednesday ahead of the start of the vacation season in parts of the country this weekend. About 134,000 passengers are affected, it said, adding that the strike could lead to additional delays and cancellations on Thursday and Friday.
UK Car Manufacturing Rose in June for Second Consecutive Month
(MORE TO FOLLOW) Dow Jones Newswires
07-28-22 0034ET
