European shares pushed solidly higher Tuesday after China Covid progress helped lift Asian markets.
Stocks have swung dramatically lately as investors have tried to assess the path for markets amid wide-ranging economic, geopolitical and Covid-19 concerns. Weighing most heavily on many investors' minds is the outlook for the U.S. economy as the Federal Reserve raises interest rates.
The reopening of some stores in Shanghai this week and a decline in Covid-19 cases in China has provided some sources of optimism. Still, many are expecting more choppiness ahead.
"All-in-all, the price action is suggestive of a market that can't decide what it wants to do here, and in the equity market's case, has still not been released from Accident and Emergency," wrote Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.
Investors need to get comfortable with significant uncertainty and volatility, said Pimco.
The war in Ukraine is worsening supply-side pressures and pushing commodity prices higher, and if the war escalates in Europe, "we would expect even more volatility and potentially higher inflation."
Pimco expects a meaningful risk of recession in the next couple of years as central banks are forced to tighten monetary policy aggressively to check inflation, but it isn't currently its base case.
Stock futures rose, suggesting Wall Street should rebound from Monday's choppy session.
Premarket gains were broad-based, though technology stocks emerged as early winners. Nvidia, PayPal and Apple each climbed 1.9% or more.
Twitter, in contrast, fell 1.7% before the opening bell to $36.75 after Elon Musk said his $44 billion bid for the social-media company can't move forward until the company is clearer about how many of its accounts are fake.
Twitter has now wiped out all the gains it notched after Musk disclosed a surprise 9% stake in the social-media company in April and is trading well below his deal that values the company at $54.20 a share. If the stock finishes lower Tuesday, it would mark the eighth consecutive decline for Twitter.
Later Tuesday, investors will get another look at the economy when retail sales are reported. They will also hear from Jerome Powell at The Wall Street Journal's Future of Everything Festival. Market watchers are also continuing to assess the effects of the war in Ukraine, as well the outlook for China's economy as lockdowns drag on.
The dollar edged lower in Europe as currency markets calmed a little after a riotous month but this may be brief, said ING, and traders may switch focus back to likely aggressive Fed rate rises as retail sales and industrial production data are expected to be strong.
"It seems too early in the tightening cycle for the Fed to be fighting market expectations of tightening and the dollar could in fact be a little stronger tomorrow after Powell's remarks," said ING.
Volatility in eurozone government bond markets on Monday, coupled with fairly low trading volumes, seem to indicate that fixed-income investors are currently in a wait-and-see mood and market liquidity is not particularly high, said UniCredit.
It doesn't think that eurozone and Treasury yields can rise significantly from their current levels, especially in the near future, as markets are already pricing in fairly aggressive trajectories for both the European Central Bank and the Fed. However, it doubts that strong appetite will emerge for government bonds again.
Finnish government bonds have been under pressure relative to core peer German and Dutch debt since the Ukraine war began, said Danske Bank.
"However, the ongoing issuance and the uncertainty of the Russian response to Finland potentially joining NATO makes the spread outlook uncertain despite an attractive pick-up to both Germany and Netherlands."
A positive for Finnish government bonds is the supply/demand dynamics which look likely to improve, said Danske bank, expecting Finland to have fulfilled almost 80% of its government bond issuance target at the end of the second quarter. Finland auctions up to EUR1 billion in a 0.50% April 2043 bond later Tuesday.
A multiday rally in oil prices paused after EU foreign ministers failed to convince Hungary to drop its opposition to a ban on Russian crude imports.
The embargo requires unanimous approval from all EU states and Hungary, which imports significant amounts of its energy supplies from Russia, remains the lone holdout.
Copper rose 0.2% on the LME after Shanghai laid out plans to end its Covid-19 lockdown which has weighed on demand expectations.
Officials in the city of 25 million said restrictions would be relaxed in stages beginning June 1, though the easing would be dependent on preventing new outbreaks. The strict lockdown in Shanghai has weighed heavily on Chinese economic activity and, with it, dampened hopes for metals demand.
"We are seeing the light at the end of the lockdown tunnel," SPI Asset Management said.
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May 17, 2022 05:51 ET (09:51 GMT)Copyright (c) 2022 Dow Jones & Company, Inc.