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North American Morning Briefing : Stock Futures Inch Higher with Core PCE Index Eyed

05/27/2022 | 05:39am

MARKET WRAPS

Watch For:

Personal Income & Outlays for April; U. Michigan Final Consumer Survey for May

Opening Call:

Stock index futures traded modestly higher Friday, as investors looked ahead to an update on the Federal Reserve's favorite inflation indicator, with major indexes poised for weekly gains.

All three indexes are looking at gains of 3-4% for the week. The S&P 500 is poised for its first weekly gain in eight weeks, according to FactSet.

Investors will focus on a heavy load of economic data, with the core personal consumption expenditure index deflator in the spotlight. Investors will also get disposable income and consumer spending, along with advance international trade in goods, all at 8:30 a.m. Eastern Time. The University of Michigan's final consumer sentiment index for May is due at 10 a.m. Eastern.

"Personal spending is expected to be up 0.7% in April, compared with 1.1% in March," Sophie-Lund Yates, lead equity analyst at Hargreaves Lansdown, told clients in a note. "A weaker number in today's announcement would give further reason to expect that the Fed's next rate decision will be to pause, rather than increase - as it suggests inflation's core is having some of its energy sapped on its own."

While major stock indexes are poised for gains his week, wariness remains among strategists over whether Wall Street volatility may have ebbed for now.

"The equity market reacted exuberantly to the near term recession fears abating, but the haven bid has not faded from the Treasury market," said Michael O'Rourke, chief market strategist at JonesTrading,

"It is only a matter of time before yields are back above 3%. If it happens in the next few days, that month end rebalance will flip. Fading recession fears and the prospect of China reopening is setting the stage for energy to breakout," as crude and natural-gas prices remain elevated, he said.

Economic Insight:

Despite rising recession risks, historically elevated inflation means the bar for the Fed to abandon its aggressive rate hike plans is high, said SEB.

"To stop rate hikes the Fed will need to see convincing evidence of slowing consumer demand together with a less overheated labour market."

For now, SEB sticks to its expectations that the Fed will raise rates by 50 basis points over the coming three meetings in June, July and September, envisages the peak policy rate at 3.25%-3.50% in mid-2023 but acknowledge that increasing recession risks have made the pace beyond the Fed's coming two meetings more uncertain.

Forex:

Speculation of a possible pause in Fed interest-rate rises in September "was surely contributing to keeping the dollar soft," said ING currency analysts.

In the past week, market interest-rate pricing showed a reduction in Fed rate expectations of around 10 basis points, while "the likes of the ECB have seen all but a consolidation of expected tightening plans."

However, the Fed's rhetoric is "still very hawkish" and ING expects U.S. rate expectations to recover and the DXY Dollar Index to push back toward 103.00.

Energy:

Crude futures edged higher in early European trade, with Brent at a more- than two-month, as supply uncertainty continued to support prices.

Stephen Innes, managing partner at SPI Asset Management, said there "is likely a lot of short-term length in crude markets as speculators...position for the EU Russian embargo bounce," adding that there may be a reluctance to push the market higher because of this.

Read: Jet Fuel Prices Double Ahead of Busy Summer Travel Season

Metals:

Base metals gained in London on modestly improving overall market sentiment and despite consumption in Asia remaining weak due to the Covid-19 lockdowns. But prices were still lower for the week.

Inventories have moved higher in recent weeks, given the lack of consumption in Asia, said Fitch. "A recent slew of negative global economic readings has revived growth concerns, driving industrial metals back into decline following a muted attempt at recovery early on in May."


TODAY'S TOP HEADLINES


Broadcom Deal for VMware Highlights the Rise of Virtualization

Broadcom Inc.'s $61 billion acquisition of software maker VMware Inc., announced Thursday, reflects a relentless drive by companies to run an ever-growing portion of their operations in the cloud, corporate technology leaders and industry analysts say.

VMware's software provides an essential, below-the-radar component of that process designed to help businesses work across different cloud platforms-in part by replacing bulky computers, data and networking equipment with cheaper and more nimble software, they say.


Glencore Said It Revamped Its Compliance Program Following Guilty Pleas

Glencore PLC said it has revamped its ethics and compliance program, including boosting its annual compliance spending and hiring more full-time compliance staff, as the global mining and trading company settles corruption and bribery charges in the U.S., U.K. and Brazil.

The Anglo-Swiss commodities company published a 13-page investor update on the same day it announced the settlements with various regulators, saying it has "invested substantial resources" in its ethics and compliance program and has renewed its commitment to integrity and transparency.


Alibaba Shares Soar in Hong Kong as Optimism Persists Over Earnings Beat

Alibaba Group Holding Ltd. shares soared in Hong Kong trading on Friday, extending the positive momentum from U.S. trading overnight as investors welcomed the company's better-than-expected earnings.

Shares of the Chinese e-commerce giant jumped as much as 14% in Hong Kong to 92.40 Hong Kong dollars (US$11.77), after its American depository receipts closed 15% higher on Thursday.


Microsoft Slows Some Hiring Amid Economic Uncertainty

Microsoft Corp. said it would be slowing down some of its hiring, making it the latest tech giant to become more cautious about adding staff.

The Redmond, Wash., company said it would be reducing the pace at which it hires people for its software group that develops its Windows, Office and Teams applications. The group had been one of the company's fastest-growing divisions in recent years.


Old Navy to Scale Back Its Inclusive Sizing Strategy

Old Navy is scaling back an attempt to make women's clothes more inclusive for all body types, after demand for the larger sizes fell short and the chain didn't have enough middle sizes.

Gap Inc. CEO Sonia Syngal said Old Navy stores will no longer carry all the sizes. Old Navy will continue to offer on its website the full size range, which runs from 0 to 30 and XS to 4X.


WeWork Names Third CFO in Less Than Three Years

Co-working space operator WeWork Inc. has hired Andre Fernandez as its chief financial officer, marking the third CFO appointment since March 2020. The company's current finance chief, Benjamin Dunham, plans to leave after roughly 18 months in the role.

New York-based WeWork, which went public in October 2021 through a merger with a special-purpose acquisition company, said Mr. Dunham will depart on June 9. His exit is not related to financial disclosure issues or accounting matters, the company said.


China's Industrial Profit Slid in April on Lockdown Impact

BEIJING-China's industrial profit slid in April as the country grappled with Covid-19 lockdowns in Shanghai and other cities, which wreaked economic havoc.

Profits at China's industrial firms dropped 8.5% in April, reversing from 10.6% growth in March, the National Bureau of Statistics said Friday. Industrial profit increased 3.5% in the first four months of the year, slowing from 8.5% growth in the first quarter, the bureau said.


Senate Republicans Block Domestic Terrorism Bill

WASHINGTON-Senate Republicans blocked debate Thursday on a bill that would establish new domestic terrorism offices in the wake of a shooting that killed 10 Black people at a Buffalo, N.Y., supermarket this month, saying the legislation could let the government target conservatives for their political views.

The Domestic Terrorism Prevention Act failed to reach the 60 votes need to advance under the threshold set by Senate filibuster rules, with 47 in favor and 47 opposed.


Justice Department Won't Charge FBI Agents in Nassar Case Failures

The Justice Department said Thursday it is standing by an earlier decision not to charge the FBI agents who disregarded Olympic gymnasts' allegations that former national team doctor Larry Nassar sexually assaulted them and later made false statements to cover their mistakes

Officials said in October that they would review their decision not to prosecute the agents. The monthslong inquiry analyzed evidence and the outcome "reflects the recommendation of experienced prosecutors," the department said in a written statement.


Ukraine Slams Idea of Swapping Land for Peace

KYIV, Ukraine-Ukrainian President Volodymyr Zelensky dismissed suggestions that his country should cede territory to Russia in return for peace, comparing them to attempts to appease Nazi Germany, as Russia stepped up its attacks in Ukraine's east.

With the war in Ukraine now past the three-month mark, there is debate among Western officials about what it would take to achieve a cease-fire, and what concessions-including territorial ones-such a deal might necessitate. But despite Russia's renewed attacks in Kharkiv and other areas of the east, Moscow has absorbed heavy losses in both troops and equipment, raising questions of how long it can sustain the forward thrust of its military campaign in Ukraine.


Fiji to Join Biden's Asian Economic Platform as Pacific Competition Intensifies

SYDNEY-President Biden's economic platform to counter China in the Indo-Pacific region expanded to 14 founding members after the U.S. said Fiji had agreed to join, a move that comes on the eve of a visit by Beijing's top diplomat to the Pacific island nation.

(MORE TO FOLLOW) Dow Jones Newswires

05-27-22 0538ET

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