MARKET WRAPS
Stocks:
European stock markets were lower on Thursday, with Italian indexes leading losses on reports of political turmoil in Prime Minister Mario Draghi’s coalition government. Italy’s FTSE MIB was recently down 2.2%.
Caution dominated more widely ahead of the start of U.S. earnings season, with the first set of reports from major banks, which could shed light on whether the economy is headed for a downturn.
Wednesday’s stronger-than-expected inflation data suggested rapidly rising consumer prices haven’t yet peaked and heightened investors’ fears that the Federal Reserve will be more aggressive in raising interest rates than previously anticipated. With that backdrop, investors will be looking to what bank executives have to say about the state of the economy as much as about their own balance sheets.
Stocks to Watch:
Hugo Boss’s second-quarter sales were boosted by the company’s low exposure to the lockdown-hit Chinese market, said Bryan Garnier, which raised its target price on the stock to EUR68 but kept its neutral rating.
The premium-apparel firm on Wednesday booked consensus-beating sales and operating earnings for the quarter and raised its guidance for the full year. The results were in part driven by the success of a new brand and marketing strategy, but a favorable geographic mix was also key, Bryan Garnier said, pointing to a very low drag from China’s lockdowns.
It noted that demand in Europe and the U.S. meanwhile remained strong.
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Slowing global economic growth is a clear headwind for most commodities, but this isn’t necessarily the case for coal, especially in the very near term, said Jefferies.
It said thermal-coal prices will stay strong this summer due to seasonal demand and potentially worsening supply issues. Thermal coal is burnt to generate electricity and can replace gas-fired power stations when gas prices are too high, such as now.
“Glencore and Peabody are well positioned with thermal coal exposure, and Arch remains our top pick of the U.S. coal miners due to its clean balance sheet and substantial capital return program,” Jefferies added.
U.S. Markets:
Stock futures fell more than 1% ahead of earnings from some of the largest U.S. financial companies.
JPMorgan Chase and Morgan Stanley report ahead of the opening bell, while BlackRock, Citigroup, U.S. Bancorp and Wells Fargo will follow on Friday. Bank of America and Goldman Sachs give updates on Monday.
In bonds, the yield on the 10-year Treasury note rose to 2.982% from 2.904% on Wednesday while the yield on the two-year bond yield also rose. The yield curve is close to its most inverted since 2000.
“The Fed will keep hiking rates until they get material signs that the economy is rolling over,” said Charles Diebel, head of fixed income at Mediolanum International Funds. “Effectively the Fed has got to keep hiking rates until they break something.”
Jobless claims data are due to be released later Thursday. The labor market has been a source of economic strength, with new applications for unemployment benefits, a proxy for layoffs, close to historic lows. However, the figures have been trending higher in recent weeks.
Producer price figures-which should offer clues on whether suppliers are passing on higher input costs-are due at the same time. The data are forecast to show a 0.8% rise in June from May.
Forex:
Option-related activity around the key psychological level of parity is likely to mean EUR/USD will continue to hover close to that level before making an inevitable decisive break lower, said ING.
“Another attempt at breaking below 1.0000 appears likely over the coming sessions, and this time we could see a more decisive move lower,” ING said, citing prospects of more aggressive U.S. interest-rate rises and concerns over gas supply from Russia to Europe.
Bonds:
The 10-year Italian BTP-German Bund yield spread was trading wider ahead of a confidence vote Thursday in the Senate.
“The Italian coalition government led by [Prime Minister] Draghi is looking increasingly fragile after the split of the 5 Star Movement with an important vote of confidence to take place in the Senate today,” said ING.
It said a larger interest-rate rise by the European Central Bank in July, unless accompanied by a credible spread backstop, “still renders this spread vulnerable to further widening.”
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Danske Bank said the ECB designing a credible anti-fragmentation tool for markets is key, so the central bank’s bluff isn’t called and Italian bond yields aren’t sent sharply higher again.
“We expect the new instrument to be implemented in a flexible manner, with focus on shorter maturities, but without a pre-set intervention amount or timeframe.”
Danske said the bond purchases are likely to be sterilized.
It said the backdrop to the ECB’s July meeting, when a 25 basis point interest rate rise is expected, is difficult, with stagflation risks building, leaving the pace of further rate rises depending on how the economy evolves.
Morgan Stanley said Eurozone peripheral government bond yield spreads have become increasingly asymmetrical and have room to widen if the market finds the anti-fragmentation tool disappointing.
Energy:
Oil prices weakened, with Brent back below $100 a barrel, pressured by demand concerns due to fears of a global economic slowdown.
“As the demand destruction narrative builds against the backdrop of incoming supply [from the UAE and Saudi Arabia], it will undoubtedly put the oil market’s invincible bullish thesis to the stress test,” said SPI Asset Management.
Metals:
Base metals and gold were sharply lower as worries continued to mount over rising inflation and whether the Fed’s efforts to control prices will work.
Investors will be looking to today’s PPI, with Peak Trading Research noting that “PPI Producer Wholesale inflation usually plays second-fiddle to CPI data, but all inflation data points matter today. Investors are fatigued…hopefully, yesterday’s CPI print was the peak, especially given the recent drop in commodity prices.”
DOW JONES NEWSPLUS
EMEA HEADLINES
EU Raises Eurozone Inflation Forecasts, Cuts Growth Outlook Due to Ukraine War
The European Commission has raised its inflation forecasts for the eurozone considerably and has slashed its 2023 growth forecast for the bloc as Russia’s war against Ukraine takes its toll on the economy.
Following the revision, the European Commission expects eurozone inflation to peak at a historical high of 7.6% in 2022, up from its previous forecast of 6.1% published in May. For 2023, eurozone inflation is forecast at 4.0%, up from 2.7% in the Spring forecasts.
Brookfield, DigitalBridge to Buy Stake in Deutsche Telekom’s Tower Business for About $6.64 Bln
A consortium of Brookfield Infrastructure Partners LP and DigitalBridge Group Inc. agreed to buy a stake in Deutsche Telekom AG’s tower business for roughly 6.6 billion euros ($6.64 billion), raising their bet on a telecommunications sector that has seen a flurry of deal making in recent years.
Germany’s Deutsche Telekom on Thursday said it had agreed to sell the consortium a 51% stake in GD Towers, its tower unit in Germany and Austria, valuing the entire business at EUR17.5 billion. Deutsche Telekom expects cash proceeds of EUR10.7 billion, including debt of EUR4.1 billion, from the deal.
Ericsson 2Q Weighed On by Lower Licensing Revenue and Higher Costs
Ericsson AB on Thursday posted a second-quarter net profit that missed expectations, but said it continued to see strong 5G sales momentum in North America and Europe.
The Swedish telecommunications-equipment company reported net profit attributable to shareholders of 4.5 billion Swedish kronor ($426.3 million), compared with SEK3.68 billion a year earlier, as sales rose 14% to SEK62.47 billion.
SAS Pilot Strike Costing $9.5 Million-$12.3 Million Every Day
SAS AB said Thursday that the current pilot strike is costing it between 100 million and 130 million kronor ($9.5 million-$12.3 million) every day, with the cost so far totaling between SEK1 billion and SEK1.3 billion.
Around 1,000 pilots went on strike 10 days ago after talks with the Scandinavian airline failed to deliver an agreement on pay and conditions. So far, the strike has caused over 2,550 flight cancellations which have affected over 270,000 passengers, SAS said.
Swatch Backs 2022 View Despite China Drag on 1H Sales
Swatch Group AG on Thursday reiterated its growth guidance for the full year as first-half sales increased despite major headwinds in China.
The Swiss watchmaker, owner of brands including Swatch, Omega and Tissot, said sales in the January-June period rose by 7.4% on year at constant currency to 3.61 billion Swiss francs ($3.69 billion.) This was in spite of a hit of around CHF400 million from closures of warehouses and retail stores in China in April and May, Swatch said. The war in Ukraine meanwhile affected group sales by less than 1%, Swatch said.
Aker Solutions Raises Revenue Guidance
Aker Solutions ASA on Thursday raised revenue growth guidance for 2022 to 30% from more than 20%, and reported increased profits for the second quarter.
The Norwegian engineering company said that its main projects globally continue to progress, whereas tendering activity is at record highs and the market outlook remains positive. Aker highlighted increased market activity especially in the oil-and-gas sector.
Barratt Developments Completions, Sales Prices Rose in FY 2022
Barratt Developments PLC said Thursday that selling prices and completions in fiscal 2022 rose, reflecting strong customer demand for homes and site productivity.
The home builder said that for the year ended June 30, its average selling price rose to around 300,000 pounds ($356,640) from GBP289,000 a year earlier. The number of completions including joint ventures rose to 17,908 from 17,243, Barratt said.
Lufthansa Cancels 2,000 More Flights, Citing Staff Shortages
(MORE TO FOLLOW) Dow Jones Newswires
07-14-22 0550ET
Source: marketscreener.com
