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North American Morning Briefing: Stock Futures Climb after China Cuts Rate


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Advance Quarterly Services; State Employment and Unemployment; earnings from Deere, Foot Locker, Booz Allen Hamilton

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Equity futures advanced Friday, recovering some ground after China's central bank cut a key interest rate.

Stocks have come under pressure this week from concerns about global growth. Investors worried about how aggressively the Federal Reserve would respond to the bout of high inflation and Covid-19 lockdowns in China that limited economic activity and snarled supply chains, driving a selloff.

Earlier Friday, the Chinese central bank unexpectedly cut a key interest rate that acts as a benchmark for mortgages, a move that is predicted to support the country's housing market. It kept other rates unchanged.

"We have a growth scare at the moment, coming from China and monetary policy biting in the U.S. So this morning, sentiment was helped with China's action," said Arun Sai, a multiasset strategist at Pictet Asset Management. "But we still need to build more evidence to convince markets that a soft landing is possible."

Shares of Ross Stores plunged 25% in premarket trading after the retailer posted a decline in sales and said it expects another drop this quarter. Palo Alto Networks surged nearly 11% after it reported quarterly revenue that beat analysts' expectations.

"Earnings season has been good, there are slightly more companies than usual beating expectations. The question is from the next quarter onward, where we will have the full impact of the jump in oil prices and the war in Ukraine," said Kiran Ganesh, a multiasset strategist at UBS. "That will be key, this is a bit of a preview."

Stocks overseas recovered somewhat from their recent losses, with the Stoxx Europe 600 adding 1.2% and Asian stocks charging higher.


The dollar edged higher after the Fed's Esther George said that interest rates need to rise further to curb inflation. In an interview with CNBC, George also said policymakers aren't focused on the impact rate rises are having on the stock market.

"Not until the Fed pours cold water on tightening expectations should the dollar build a top," said ING. "And yesterday Fed hawk, Esther George, said that even this 'rough week' in equity markets would not blow the Fed off course."


The European Central Bank could move away from negative interest rates soon but this may not considerably boost the euro as some anticipate, said RBC Capital Markets.

Looking at recent evidence on central banks moving into or out of negative rates, it's hard see why the ECB raising its deposit facility rate from -0.5% to zero would have more impact on the euro than 50 basis points of cumulative rises at any other point in the cycle, said RBC currency strategist Adam Cole.

A move to zero in September is more than fully priced and rates will still remain far below other developed markets, RBC said, which expects EUR/USD to fall to 1.00 by year-end, from 1.0567 currently.


Sterling gained after data showed U.K. retail sales unexpectedly rose in April.

Retail sales increased 1.4% on month in April, with the March print revised to a 1.2% decline from the 1.4% drop initially estimated. Economists in a WSJ survey expected retail sales to fall 0.3% in April.

The data suggested the cost-of-living crisis hasn't caused consumer spending to collapse, said Capital Economics. "This adds weight to our view that the Bank of England will have to raise rates further to bring inflation back down to its 2% target."


Oil prices ticked lower in Europe, on course to end the week largely where they began, as investors weigh concerns about both supply and demand.

Demand concerns stemming from Chinese lockdowns and flagging global growth are balanced by tight supplies, heightened by the threat of an EU embargo on Russian oil.

"The market continues to be torn between tight supply on the one hand, led by underperformance by the OPEC+ group and export declines in Russia, and weakening demand on the other, with lockdowns in China undercutting imports," said Fitch.


Gold prices were higher in early European trading, adding to this week's gains, with the precious metal looking slightly more attractive to investors as other safe-haven assets slip.

Fitch said it expects significant volatility for gold prices going forward, but sees gold prices remaining elevated due to uncertainty surrounding the Ukraine invasion.


Copper prices, higher early Friday, are set to post their first weekly gains since the end of March.

Expectations that China's copper demand is set to rise during the second half of the year combined with labor shortages and high energy costs hitting the red metal's supply growth, have helped support prices, said ANZ Research.

"The prospect of a rebound in demand in China, amid falling inventories, is unlikely to keep downward pressure on metals prices for long."




Boeing's Starliner Spacecraft Launches Toward Space Station in Do-Over Mission

A Boeing Co. spacecraft blasted into orbit and began racing toward the International Space Station, despite facing an issue with two of the thrusters the vehicle uses.

After months of delays, the Starliner spacecraft launched toward orbit shortly before 7 p.m. Eastern time Thursday from Kennedy Space Center in Florida without crew members on board, according to a National Aeronautics and Space Administration live stream. The vehicle is expected to fly to the space station and dock there Friday, before it returns to Earth several days later.


Alaska Permanent Fund to Slow Its Private-Equity Commitment Pace

Alaska Permanent Fund Corp. is dialing down the amount of capital it plans to commit to private equity as the so-called denominator effect hits its investment portfolio.

The $80 billion Juneau-based state sovereign fund will set aside $1.2 billion for new private-equity commitments in the fiscal year ending June 30, 2023, 25% less than the $1.6 billion it initially planned to allocate, Steve Moseley, deputy chief investment officer and head of alternative investments, told the board of trustees at their meeting Thursday.


Shares of Ross Stores Fall 17% After Sales Decline

Ross Stores Inc. shares fell 17% to $76.86 in after-hours trading Thursday after the company reported a decline in sales in the first quarter and forecast same-store stores would decline in the second quarter.

The off-price retail-apparel and home-accessories store operator reported $338.4 million in net earnings, or 97 cents a share, for the quarter ended April 30, compared with net earnings of $476.5 million, or $1.34 a share, in the year-earlier period. Analysts polled by FactSet expected earnings of 99 cents a share.


Applied Materials Profit Climbs but Supply-Chain Issues Persist

Applied Materials Inc. said Thursday that profit increased in its fiscal second quarter as sales rose, but added that supply shortages were holding the company back from making even more sales.

The Santa Clara, Calif.-based supplier of equipment to make semiconductors reported net income of $1.54 billion, compared with $1.33 billion in the same period a year earlier. Earnings per share rose to $1.74 from $1.43 in the and adjusted earnings per share climbed to $1.85 from $1.63.


Tencent's Recovery Prospects Rest on Gaming

A recovery for Tencent Holdings Ltd.'s earnings after its dismal first quarter will likely depend on its gaming segment.

Domestic gaming revenue fell as the Chinese social media and videogame giant suffered its steepest quarterly profit drop and slowest total revenue growth since going public in 2004.


China's Central Bank Makes Unexpected Rate Cut as Growth Crumbles

SINGAPORE-China's central bank cut a key interest rate while keeping another unchanged, an unexpected policy shift that economists said would likely help the country's moribund housing market but bring only limited relief to its struggling economy.

The latest in a series of targeted steps by the central bank highlights how policy makers in China are constrained by rising interest rates in the U.S. and Beijing's zero-tolerance approach to the pandemic. Easing too aggressively would risk prompting capital to flee China in search of better returns, while lockdowns are crushing appetite for new loans from businesses and households.


Glynn's Take: RBA Likely to Consider Big Rate Hike in June

SYDNEY-The Reserve Bank of Australia's upcoming board meeting on June 7 will again be dominated by the uneasy reality that policy settings remain a long, long way from where they should be given the huge jump in inflation over the past six months.

For that reason alone, a 40-basis-point rise in the official cash rate next month to 0.75% can't be ruled out. The RBA faces more than the usual amount of uncertainty around the economic outlook and won't go overboard. But there is scope to act early and with urgency.


German Producer Prices in April Posted Highest Increase on Record

Germany's producer prices rose strongly in April, driven by higher energy prices, posting the biggest increase ever recorded, the German statistics office Destatis said.

Producer prices rose 33.5% on year, Destatis said.


Japan Inflation Tops 2% for First Time in 13 Years

TOKYO-Consumer prices in Japan rose at a pace above 2% for the first time in more than 13 years, a sign of how higher costs of energy and raw materials are hitting even the world's most inflation-resistant regions.

Despite the price numbers released Friday and interest-rate increases by other global central banks, the Bank of Japan is likely to stick to its policy of keeping interest rates near zero. Both the BOJ and outside economists see consumer demand in Japan as relatively weak and believe inflation above the bank's 2% target is unlikely to take hold.


Palm Oil Outlook Still Bearish Despite Prices Rebounding -- Talking Markets

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