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North American Morning Briefing: Futures Rise but Recession Fears Still in Focus


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EIA Weekly Petroleum Status Report; Final 1Q Economic Growth Figures

Opening Call:

Stock futures rose on Tuesday after the momentum from last week's rally stalled on Monday.

Concerns on Wall Street continue to center on how aggressive the Federal Reserve will be in raising interest rates with the risk of recession looming large.

The week ahead holds notable economic data and meetings, while action also could be driven by the close of the trading month and second quarter on Thursday.

"It is the month and quarter-end this week, and that will prompt no small amount of portfolio rebalancing by institutional investors globally," said OANDA's Jeffrey Halley. "We should expect the back-and-forth chop-fest to continue this week in the equity space."

Later Tuesday, investors will parse data on home prices, as well as consumer confidence data from The Conference Board. Economists surveyed by The Wall Street Journal expect consumers' optimism to further cool for June as Americans continue to assess the impact of high inflation and rising interest rates.

In premarket trading in New York, travel and energy companies were bright spots in the market. Occidental Petroleum and Devon Energy each climbed more than 2%. Wynn Resorts climbed 4.9% and cruise line Carnival rose 1.6%.

Overseas, the pan-European Stoxx 600 was up 0.4% while Asian stocks closed broadly higher.

Chinese shares gained after authorities said they will ease quarantine requirements for international travelers entering the country, as part of efforts to balance their zero-Covid policy and rising economic pressures.

Shares in airlines, restaurant chains and Macau casino operators surged.

Read: China to Loosen Quarantine Requirements for International Travelers

Economic Insight:

The economy is expected to grow 2.4% this year but higher prices and interest rates will likely push it into a recession in 2023, said S&P.

Economic momentum due to resilient consumers will likely protect the economy this year, but persistently high prices and aggressive interest rate increases will weigh on growth next year.

"With the Russia-Ukraine conflict and China slowdown exacerbating supply chains and pricing pressures, it's hard to see the economy walking out of 2023 unscathed."

S&P has forecast GDP growth to slow to 1.6% in 2023 and the unemployment rate to climb to 4.3% by the end of next year.


Consumer confidence likely declined again in June as Americans' views of both the current situation and the outlook will have worsened due to the drop in stock prices and the surge in gasoline prices, said Pantheon Macroeconomics.

However, the index from the Conference Board will likely remain just slightly below its long-term average as a strong labor market is partly offsetting concerns about inflation.

"With unemployment [rate] at only 3.6% and payrolls heading rapidly toward the pre-Covid peaks, it is hard for people to argue that the labor market is in poor shape."


The dollar could weaken further because of dimming prospects of interest-rate increases by the Fed, said ActivTrades.

"With commodity prices falling and recession fears growing, some now believe that the Fed will not be able to go as far as previously expected, in terms of tightening, in a dynamic that is shifting expectations towards a slightly lower benchmark U.S. rate than had previously been expected, creating scope for further dollar weakness."


Sterling continued to show little reaction to Brexit headlines even after the U.K. government's Northern Ireland bill cleared its first hurdle, said ING.

The bill, which unilaterally rips up post-Brexit trading arrangements for Northern Ireland, passed the second reading stage in the House of Commons on Monday.

"There are surely many indications that the pound is largely pricing in this scenario, and markets remain mostly focused on other drivers of U.K. economic underperformance as well as assuming Brexit is not a major input in the Bank of England's policy decision-making process at the moment," said ING.


Recession fears have brought much needed two-way risk in rates price action, said ING.

"This isn't to say that the past few months were a smooth transition towards a world of higher interest rates, but it feels like last week's rally has really woken up investors to the rates downside scenario."

Growing recession fears have undoubtedly contributed to calm long-term inflation swaps, the strategists say. "We are tempted to say that the upside in long-term yields is more limited than a few months ago, and that a bond market selloff would likely be felt more acutely in the front-end," ING said, referring to short-dated bonds.


High-yield corporate bonds bore the brunt of spread widening with credit in the second quarter, with only a brief respite during a short-lived relief rally at the end of May, said HSBC.

U.S. dollar-denominated high-yield had the worst performance and saw the most aggressive spread widening. USD investment-grade credit, which saw the least spread widening, outperformed euro-demonominated investment-grade credit, HSBC said.


Oil prices rose around 1% in Europe on concerns over a lack of extra supplies from the world's leading producers.

The United Arab Emirates' Energy Minister said on Monday that the major oil producer was near to producing at its maximum capacity. The U.A.E. along with Saudi Arabia has been seen as one of the few major OPEC members capable of making up for lost Russian supply to help balance the market.

"A seam of tight supply news has bolstered the market," said CBA.


Base metals and gold pushed higher in early European action, boosted by improving demand sentiment on signals that parts of China will be loosening lockdown restrictions in the near term.

Beijing and Shanghai have slowly been lifting some Covid-19 lockdown restrictions this week, which should help boost buying for metals. Data from Bloomberg on Monday showed that economic activity in Shanghai had risen after it had lifted some restrictions.

Investors will be keeping a close eye on Thursday's release of PMI results for the region, looking for further signs of improvement.




JetBlue Again Raises Offer to Buy Spirit Airlines

JetBlue Airways Corp. isn't backing down in its fight to buy Spirit Airlines Inc., raising its offer yet again in an effort to outmaneuver rival Frontier Airlines.

JetBlue on Monday proposed a $400 million breakup fee, which it would pay to Spirit if regulators block the merger, up from the $350 million it had previously pledged. JetBlue also said it would prepay $2.50 a share once investors approve the deal, up from $1.50 a share previously.


Nike Posts Flat Sales, Jump in Inventories

Nike Inc.'s quarterly sales were roughly flat and its inventory surged, signs that the sneaker giant is still trying to balance consumer demand with supply-chain snarls.

Executives said they were optimistic as the company starts a new fiscal year, because production has surpassed prepandemic levels. They forecast stronger revenue growth for the year started June 1, but said near-term profits would be hurt by elevated shipping costs.


Former Toys 'R' Us Directors to Face Bankruptcy Trial Over Liquidation

A bankruptcy judge ordered former Toys "R" Us Inc. directors and officers to face trial on allegations stemming from an attempted chapter 11 restructuring that left suppliers with more than $600 million in unpaid bills.

Judge Keith Phillips with the U.S. Bankruptcy Court in Richmond, Va., declined to grant summary judgment before trial to former toy company executives in litigation alleging they misrepresented Toys "R" Us's ability to cover the bills it was racking up while it tried to engineer a chapter 11 restructuring.


Toshiba Shareholders Vote to Add Activist Investors to Board

TOKYO-Toshiba Corp. shareholders on Tuesday approved the company's proposal to invite representatives from two foreign activist funds onto its board, a move which may help speed the transition of the troubled industrial conglomerate.

Earlier this year, Toshiba decided to put itself up for auction and so far has received eight offers to take the company private and two proposals for minority investment.


Goldman Sachs and Wells Fargo Boost Shareholder Payouts

The largest U.S. banks said they would increase payouts to shareholders after the Federal Reserve said the banks are able to keep lending in a severe hypothetical recession.

Four of the six biggest banks boosted their dividend payments on Monday. The collective 15% increase in payouts is relatively muted compared with last year, when the banks raised dividends by 40%. Several banks also outlined plans to buy back their own stock.


Robinhood Shares Soar on Takeover Hopes

Robinhood Markets Inc. shares surged Monday on reports that cryptocurrency exchange FTX is exploring a potential acquisition of the brokerage.

Shares climbed as much as 21% and closed up 14% at $9.12. The stock, which was briefly halted for volatility, has slumped 49% this year and briefly traded at about $80 in August.


Grain Must Flow From Ukraine Ports to Ease Global Food Strains, U.S. Agriculture Secretary Vilsack Says

CHICAGO--U.S. Agriculture Department Secretary Tom Vilsack called for Ukrainian ports in the Black Sea to be opened to ship grain out of the embattled country, to help relieve a global food crunch.

Trading needs to resume from the ports in the Black Sea that have been damaged or disrupted by Russia's invasion, Mr. Vilsack said, freeing up storage space for the coming harvest in Ukraine. The U.S. also needs to look for ways for it to increase its own crop production to help make up the gap in global grain supplies, he said.


German Consumer Sentiment Expected to Drop to New Record Low in July

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June 28, 2022 05:26 ET (09:26 GMT)

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