Skip to Content
Global News Select

EUROPEAN MIDDAY BRIEFING - Shares Lifted by China Covid Relief; Powell Eyed

MARKET WRAPS

Stocks:

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.

Economic Insight:

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.

U.S. Markets:

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.

Forex:

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.

Bonds:

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.

Energy:

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.

Metals:

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.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

ContourGlobal Receives $2.1 Bln Takeover Bid From KKR; Shares Jump

Shares in ContourGlobal PLC jumped Tuesday in early trading after it agreed to be acquired by U.S. private equity firm KKR & Co. for $2.14 billion.

Under the terms of the deal, the owners of the FTSE 250 power generation group will receive 263.6 pence in cash per share, representing a 36% premium to the 193.4 pence closing price on Monday.

   
 
 

Vodafone Group FY 2022 Adjusted Earnings Rose on Revenue Growth, Cost Control

Vodafone Group PLC said Tuesday that fiscal 2022 adjusted Ebitda rose on revenue growth and strong cost control.

The U.K. telecommunications group made a pretax profit for the year to March 31 of 3.95 billion euros ($4.12 billion) compared with EUR4.4 billion a year earlier.

   
 
 

Eurozone Economy Grew in 1Q Despite Omicron, Russia's Invasion of Ukraine

The eurozone economy grew in the first quarter but only modestly, as the spread of the Omicron coronavirus variant and Russia's invasion of Ukraine weighed on economic performance, according to a second estimate.

Across the 19 countries that use the euro as their currency, gross domestic product grew 0.3% on quarter in the first three months of the year, the European Union's statistics agency Eurostat said Tuesday, up from a first estimate of 0.2% for the period and compared with a 0.3% rise in the previous quarter. Economists polled by The Wall Street Journal forecast the economy to grow by 0.2%.

   
 
 

U.K. Unemployment Rate Falls to a Near Five-Decade Low

The jobless rate in the U.K. fell to its lowest in almost five decades and employment continued to grow in April, in a further sign that tightness persisted in the labor market despite increasing headwinds to economic growth.

The U.K.'s unemployment rate declined to 3.7% in the three months through March from 3.8% in the previous three-month period, the lowest reading since December 1974, data from the Office for National Statistics showed Tuesday.

   
 
 

Daimler Truck 1Q Profit Fell; Backs Margin Target for 2022

Daimler Truck Holding AG on Tuesday said that first-quarter profit fell, despite higher revenue, and backed its margin guidance for the year.

The German commercial-vehicles maker said quarterly net profit came in at 257 million euros ($268.1 million) down from EUR1.43 billion a year earlier.

   
 
 

Engie Upgrades 2022 Guidance on Strong 1Q

Engie SA on Tuesday said that it has upgraded its full-year guidance following a strong performance in the first quarter.

The French utility company said it expects net recurring income in the range of 3.8 billion euros and 4.4 billion euros ($3.96 billion-$4.48 billion). Earnings before interest, taxes, depreciation and amortization are expected between EUR11.7 billion and EUR12.7 billion, with Ebit between EUR7 billion and EUR8 billion.

   
 
 

CaixaBank Sets Out 2022-24 Strategic Plan

CaixaBank SA on Tuesday unveiled a 2022-2024 strategic plan that includes targeting an increase in shareholders' returns through a rise in core revenue as well as cost savings achieved after its merger with Bankia.

The Spanish lender said it expects to generate capital of around nine billion euros ($9.38 billion) in the period, including dividends with a payout ratio of more than 50% and a EUR1.8 billion share buyback.

   
 
 

U.S., EU Boost Trade Ties to Remedy Supply Shortages, Counter Russia and China

SACLAY, France-Senior U.S. and European Union officials agreed to expand cooperation on supply chains for critical technologies including semiconductors and materials used in their production, they said at a high-level gathering about shared concerns surrounding high-tech international commerce.

At the second meeting of the U.S.-EU Trade and Technology Council, the two sides unveiled initiatives to better align policies and work in 10 areas, including high-tech supply chains, artificial intelligence and international industrial standards. In response to the economic impact of Russia's invasion of Ukraine, the group added an additional work stream on global food security.

   
 
 

U.N. Seeks to Ease Russian Blockade of Ukraine Grain Shipping to Avert Food Shortages

United Nations Secretary-General António Guterres is pursuing a high-stakes deal with Russia, Turkey and other nations to open up Ukrainian food exports to world markets and stave off a potential global food shortage, according to diplomats familiar with the effort.

Russia has sealed off Ukraine's Black Sea ports to weaken the country and conquer its coast. Mr. Guterres has asked Moscow to permit some Ukrainian grain shipments in exchange for moves to ease Russian and Belarusian exports of potash fertilizer.

   
 
 

Turkey Lays Out Demands as Finland, Sweden Plan NATO Entry

(MORE TO FOLLOW) Dow Jones Newswires

May 17, 2022 05:51 ET (09:51 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.