MARKET WRAPS

Watch For:

Eurozone Retail Sales; Germany Manufacturing Orders/Turnover; UK Narrow Money, Construction PMI, CBI and PwC Financial Services Survey; FOMC Meeting Minutes; updates from Repsol, BMW, Bang & Olufsen, Harbour Energy, Norwegian Air Shuttle, Finnair, Aveva, Orsted

Opening Call:

European stocks should mount a partial rebound on Wednesday, although fears of a recession will continue to shadow markets. In Asia, stocks were lower; the dollar mostly held its solid gains while the yen rose on risk aversion; oil prices steadied; and Treasury yields and gold edged higher.

Equities:

European shares should recover some of the previous session's heavy losses when trading resumes later Wednesday, after U.S. stocks closed mostly higher after staging a sharp intraday rebound.

All three major U.S. indexes started the morning down but investors' appetite for risk suddenly reversed about halfway through the session, sparking a tech-led rebound that helped two of the three benchmarks close higher.

However, despite gains for tech tickers and some growth stocks, concerns over slowing economic growth loom alongside the challenge of high inflation.

Looking ahead, equity investors are facing a second-quarter earnings season that poses a risk to stocks as company executives could share more tidbits about a slowing economy, said Libertas Wealth Management.

The Federal Reserve will release the minutes for its June interest rate-setting meeting later Wednesday, while Friday sees publication of the June U.S. nonfarm payrolls report. Both will be eagerly scanned by investors for clues to the likely pace of Fed interest rate rises.

Forex:

The dollar dipped slightly in Asian trade following its steep gains on Tuesday, while the yen strengthened on worsening risk sentiment, as recession fears outweigh optimism over U.S.-China talks, said TD Securities.

More broadly, the flight to the dollar has pushed currencies around the world to their lowest levels in years, as economic prospects in Europe and elsewhere have darkened under the cloud of soaring energy prices.

The euro has neared a 20-year low against the buck and currency traders fear Europe's economy might buckle if Russia completely shuts off natural-gas supplies, renewing the view the euro could reach parity with the greenback.

Read: Strong Dollar Sends Euro to Lowest in More Than Decade

Bonds:

Yields on 2- and 10-year Treasurys edged higher in Asia after they fell for a fourth straight trading day on Tuesday, posting their biggest declines over such a time frame since March 2020.

The market is fearful that the Fed's battle to suppress price gains--by quickly raising interest rates and reducing its balance sheet--may tip the world's biggest economy into recession.

The result is a flattening yield curve and inversion--with the 2-year yield trading above the benchmark 10-year yield.

While the yield curve has inverted, "we have yet to see a sustained inversion. As the Fed raises short term interest rates and the economy slows, we expect the yield curve to continue to flatten. This is a yellow flag for recession risk, but not yet a red flag," said Bel Air Investment Advisors.

"Credit spreads have widened gradually suggesting incrementally higher default risk, which is also a yellow flag; however, we are not yet seeing signs of panic in CCC spreads."

Energy:

Oil futures steadied in Asia, although WTI remained below $100, after prices fell around 9% on Tuesday as concerns over the global economy spurred uncertainty about the demand outlook for crude.

"Oil and industrial metals will likely continue to react the most negatively to global growth fears, rising interest rates and a surging dollar," said CBA.

It said the market's focus likely will be on demand from China, one of the world's largest oil importers.

"A meaningful move away from China's Covid-zero policy looks unlikely in the near term,"

Read: U.S. Oil Has Tumbled Below $100--What That Says About Recession Fears, Tight Crude Supplies

Read: Norway's Government Ends Strike After European Gas Prices Soar

Metals:

Gold made modest gains but was still below the key $1,800 level, after prices dropped more than 2% on Tuesday to settle at their lowest level of the year.

The minutes of the latest Fed meeting and U.S. labour market data later this week will likely remain in focus, for gold investors.

"The latter in particular have the potential to drive the gold price via the development of the EUR-USD exchange rate," said Commerzbank.

---

Copper prices extended their recent selloff on worries about a U.S. recession and aggressive interest-rate increases by the Fed, which typically draw investors' funding away from commodities.

Huatai Futures said that overall market sentiment likely will remain low given a host of macroeconomic concerns globally. China's end-demand recovery also looks uncertain, due to the seasonal low during summer and the continued risk of a pandemic resurgence.

---

Iron ore futures weakened in line with global commodities' losses after a sharp drop in crude prices on Tuesday.

Iron has been tracking down due to rising concerns over deteriorating macroeconomic conditions around the world, and Huatai Futures reckons overseas steel demand is likely to remain low, putting pressure on iron ore prices in the coming months.

Moreover, China's steel production is likely to slow soon, after a post-pandemic rebound in May, as Beijing officials continue to reduce ferrous metal output and push for carbon-neutrality, Huatai added.

   
 
 

TODAY'S TOP HEADLINES

Food and Energy Inflation Spur New Social Spending Around the World

Governments around the world are rushing to cushion the blow of food and energy inflation, launching new subsidies and boosting social-spending programs to stave off unrest and hunger amid the rising cost of daily living.

The United Arab Emirates and Saudi Arabia are spending a combined nearly $13 billion to support lower-income citizens, while in Europe, governments from Germany to Greece, Spain and Portugal have in recent months announced tax rebates and energy subsidies.

   
 
 

Norway's Government Ends Strike After European Gas Prices Soar

The Norwegian government stepped in to end a strike that threatened to more than halve the country's gas exports, saying it was causing widespread risks to energy security.

Before the strike was halted, a benchmark for gas futures contracts in northwestern Europe rose as much as 14% to EUR172.88, or about $180, a megawatt-hour Tuesday, the highest level since March. Electricity prices across the region also rose, as many power plants run on gas.

   
 
 

Strong Dollar Sends Euro to Lowest in More Than Decade

A flight to the U.S. dollar pushed currencies around the world to their lowest levels in years, as economic prospects in Europe and elsewhere darkened under the cloud of soaring energy prices.

The euro neared a 20-year low against the dollar after natural-gas and electricity prices surged on the continent. Currency traders fear Europe's economy might buckle if Russia completely shuts off natural-gas supplies that are used for heating homes, keeping lights on and running factories. Energy prices were further boosted by labor strikes at Western Europe's largest gas fields in Norway.

   
 
 

Israel-Lebanon Maritime Dispute Threatens Gas-Extraction Plans

TEL AVIV-Threats from Iran-backed militant group Hezbollah could stall Israel's plan to deliver natural gas to Europe, Israeli officials said, as Israel's caretaker prime minister pursued help from France to defuse a crisis over its maritime border with Lebanon.

The border dispute risks turning into an armed conflict after Hezbollah, the Lebanese militant and political group that has fought several conflicts with Israel, threatened to take action aimed at stopping work in the Israeli-controlled Karish gas field.

   
 
 

U.K. Chancellor Rishi Sunak and Health Secretary Sajid Javid Resign From Boris Johnson's Government

LONDON-British Prime Minister Boris Johnson suffered a potentially fatal political blow Tuesday as his treasury chief and health secretary resigned from his cabinet, saying they no longer had confidence in his leadership.

The coordinated departures of Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid, two of Mr. Johnson's most senior ministers, represent a severe challenge to his ability to hold on to power.

   
 
 

EU Lawmakers Approve Sweeping Digital Regulations

European lawmakers approved two sweeping new pieces of digital regulation, paving the way for clashes between regulators and some of the world's biggest tech companies over how the rules should be applied.

The European Parliament on Tuesday voted its stamp of approval for the two laws-one focused on anticompetitive behavior, the other on content deemed illegal in Europe-after reaching an agreement on them with European Union member states in the spring.

   
 
 

CureVac Sues BioNTech Over mRNA and Covid Vaccines. Pfizer Stock Isn't Spared.

CureVac is suing BioNTech over intellectual property rights linked to mRNA technology, putting the Covid-19 vaccine developed by Pfizer and BioNTech in the crosshairs.

CureVac (ticker: CVAC) said Tuesday that it had filed a lawsuit in the German regional court in Düsseldorf against BioNTech (BNTX) and two of its subsidiaries. The company said it is seeking fair compensation for the infringement of intellectual property rights that aided in the manufacture and sale of Comirnaty-the ubiquitous Covid-19 vaccine developed by BioNTech and Pfizer (PFE).

   
 
 

Ben & Jerry's Sues Unilever Over Sale of Ice Cream Business in Israel

Ben & Jerry's is suing parent company Unilever PLC to block the sale of its Israeli business to a licensee, the latest twist in a rift over the ice cream maker's decision to end sales in Israeli-occupied West Bank and contested East Jerusalem.

In a complaint filed in U.S. District Court in Manhattan on Tuesday, Ben & Jerry's said Unilever's decision to sell the business in Israel last week was done without the approval of Ben & Jerry's independent board of directors.

   
 
 

Write to paul.larkins@dowjones.com

   
 
 

Expected Major Events for Wednesday

06:00/ROM: May Retail trade

06:00/GER: May Manufacturing orders

06:00/GER: May Manufacturing turnover

06:00/SWE: May New orders & deliveries in industry

06:00/SWE: May Industrial Production Index

06:00/FIN: May Foreign trade

07:00/HUN: May Retail Sales

07:00/SVK: May Internal trade, incl Wholesale & Retail

07:00/SPN: May Industrial Production

07:00/HUN: May Preliminary Industrial Production

07:00/AUT: Jun Wholesale Price Index

08:30/UK: Jun S&P Global / CIPS UK Construction PMI

08:30/UK: Jun Narrow money (Notes & Coin) and reserve balances

09:00/MLT: May Registered Unemployed

09:00/EU: May Retail trade

09:00/LUX: Jun CPI

10:00/IRL: Jun Monthly Unemployment

23:01/UK: CBI and PwC Financial Services Survey

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

July 06, 2022 00:35 ET (04:35 GMT)

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