EUROPEAN MIDI BULLETIN – Waver share on Powell’s Hawkish pivot

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European stocks mostly fell on Wednesday as investors continued to weigh the Federal Reserve’s commitment to fighting inflation after Jerome Powell’s latest hawkish comments.

Mining stocks fell on weaker base metals while the oil sector gained as crude futures rose.

Economically, UK annual inflation hit a four-decade high of 9% in April as rising energy prices rippled through household utility bills, deepening a cost crisis of life which compresses the real incomes of consumers.

The consumer price index – which measures what consumers pay for certain goods and services – rose at its fastest rate since 1982, a strong recovery from the 7% inflation rate recorded in March.

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Economic overview:

Citi rate strategists expect the market to hover around a 50% chance of a 50 basis point interest rate hike by the European Central Bank at the Citi monetary policy meeting. July.

They consider a 25bp rate hike in July “to be as close to a ‘deal as possible’,” adding that there appears to be little opposition within the ECB’s Governing Council to the move. end of negative rates. Strategists expect hawks to worry about a recession closing the window for rate hikes.

US markets:

Stock futures traded slightly lower on Powell’s hawkish pivot.

Deutsche Bank analyst Jim Reid said while Powell’s sentiment was not “necessarily new, his explicit comment that neutral rates are ‘not a stopping point’ drew attention” to Wall Street.

The yield on the benchmark 10-year Treasury fell to 2.964% from 2.969% on Tuesday.

Actions moving before marketing:

Lowe’s was up slightly ahead of the company’s first-quarter earnings report. Home improvement rival Home Depot ended with a 1.7% gain on Tuesday after earnings beat analysts’ expectations and it raised guidance for 2022.

The target gained 0.4%. It publishes its results on Wednesday. Shares of the retailer fell 1.4% on Tuesday after Walmart missed first-quarter earnings expectations and forecast lower earnings per share for the full year.

Forex:

The euro’s room for upside against the dollar appears limited as market expectations for ECB interest rate hikes appear too aggressive, ING said.

Markets are pricing in too much tightening for the ECB but not for the Fed, while the US-euro growth divergence will become more relevant this summer, exacerbated by the EU-Russia stalemate on commodities, a declared ING.

“With this in mind, we suspect that any further rally in EUR/USD could start to fizzle out around the 1.0650-1.0700 area, with the risks of a return below 1.0500 in the near term quite high. important.”

The pound fell after data showed UK inflation accelerated further in April, hitting 9% and adding pressure to already stretched household incomes. Economists polled by the WSJ had expected inflation to hit 9.1%.

“Inflation in the UK is completely out of control, and there is no doubt that soaring inflation is having a negative influence on disposable income,” AvaTrade analyst Naeem Aslam said.

The Bank of England is under pressure to do more to control inflation, but it is walking a fine line and can’t do much, he said.

Obligations :

Eurozone government bonds stabilized at the start of European trading after a sell-off on Tuesday triggered by a risky mood in global markets.

Citi estimates the fair value of the new February 2028 0.75% French government bond to be 8 basis points above the yield of the February 2027 0% OAT.

The French Treasury Agency will launch the new bond on Thursday in a €10-11.5 billion auction, where it will also reopen the 0% February 2025 OAT and the 0% February 2026 OAT. Citi said he saw relative value in the February 2025 and February 2026 OATs on the French bond curve.

The green premium on Denmark’s November 2031 0% green bond, which will re-open at auction on Wednesday, narrowed to 1 basis point from its conventional twin bond of around 5 basis points during the auction. launch auction in January, Danske Bank said. However, the green premium rarely dips below 1bp and therefore the Danish 10-year green bond looks cheap compared to its EU counterparts such as Germany and the Netherlands.

The green premium, or “greenium”, on the Danish government’s green bond is exactly measurable because the Danish Debt Management Office issues green bonds in a dual bond structure, first applied by Germany, with conventional and green bonds with identical maturity and coupons.

Energy:

Oil futures rose more than 1% on the easing of Covid restrictions in China and expectations of further sanctions against Russia, with DNB Markets forecasting prices to rise to as high as $130. by the end of the year before dropping back down to $115 next year.

A combination of increased demand as China eases its Covid-19 lockdowns and lower Russian oil production is likely to completely deplete global capacity by the end of the year, DNB said. Markets.

Macquarie said while the near-term outlook for oil is strong, it expects prices to decline in the second half.

Brent crude has averaged $107 in the second quarter so far, but a likely increase in supply from OPEC and other countries, potentially including Iran, is expected to weigh on prices in the second half. , Macquarie said.

“We maintain our long-term assumption of $65, but are rolling it back to the first quarter of 2024. [from 1Q of 2023]”, said Macquarie.

Metals:

Industrial metals weakened on gloomy signs for the global economy following Powell’s comments on Tuesday. And weak Chinese data in recent days caused by shutdowns has raised concerns about demand.

DOW JONES NEWSPLUS

   
 
 

EMEA TITLES

UK inflation accelerated to 9%, its highest level in 40 years, in April

UK annual inflation hit a four-decade high of 9% in April as rising energy prices rippled through household utility bills, exacerbating a cost of living crisis that is compressing consumers’ real incomes.

The consumer price index – which measures what consumers pay for certain goods and services – rose at its fastest rate since 1982, a strong recovery from the 7% inflation rate recorded in March, according to data from the UK Office for National Statistics. Wednesday.

   
 
 

Siemens Energy considers takeover bid for Siemens Gamesa

Siemens Energy AG announced on Wednesday that it is considering a cash tender offer for all outstanding shares of Siemens Gamesa Renewable Energy SA with the aim of delisting them.

“The outcome of this reflection is open,” the German energy company said following media reports earlier this week. “No decision has been made and there is no certainty that a transaction will materialize.”

   
 
 

Finland and Sweden seek NATO membership, breaking decades of neutrality

Finland and Sweden formally applied for NATO membership on Wednesday, a move that, if approved, would fundamentally change the security landscape of northern Europe and give the alliance a valuable advantage against Russia after Moscow’s invasion of Ukraine.

The bid by the two Nordic countries to join the North Atlantic Treaty Organization breaks with a decades-long defense doctrine that has seen them balance political and security partnerships with other Western nations while remaining outside the formal military alliances.

   
 
 

Burberry’s FY2022 profit rose despite Q4 hit from China lockdowns

Burberry Group PLC on Wednesday reported improved profits for the fiscal year ended April 2, although coronavirus-related restrictions in China severely affected business in the fourth quarter.

The British luxury brand made a pre-tax profit of £511m ($638.5m) in financial year 2022, up from £490m a year earlier.

   
 
 

ABN AMRO moves to first quarter net profit; Sees the war in Ukraine affecting customers

ABN AMRO Bank NV said on Wednesday it moved to a net profit for the first quarter and expects the war in Ukraine to affect its customers.

The Dutch lender reported a net profit of 295 million euros ($311.3 million), compared with a net loss of 54 million euros a year earlier.

   
 
 

New car sales in the EU fell in April as supply tightens

Continued supply chain pressures led to a sharp drop in new car registrations in the European Union in April, according to data from the European Automobile Manufacturers Association, or ACEA.

Total new car registrations in the block fell 21% year on year to 684,506 units sold. This is the lowest volume for the month of April since records began, except for the Covid-19 pandemic in April 2020, ACEA said. “[S]supply chain issues continued to weigh heavily on auto production,” the association said.

   
 
 

Spain, Australia and UK most exposed to financial shocks as rates rise, Fitch says

SYDNEY – As central banks hike interest rates to tackle the biggest spike in inflation in decades, Fitch Ratings says Australia, Spain and the UK are most at risk of a shock financial.

Vulnerability in Australia and Spain stems from a high proportion of variable rate mortgages, while borrowers in the UK already have relatively high debt ratios.

   
 
 

UK threatens to tear up key part of Brexit deal over Northern Irish tensions

LONDON — The British government threatened on Tuesday to tear up a major part of its Brexit divorce deal with the European Union, saying it was causing political paralysis in Northern Ireland.

(MORE TO BE FOLLOWED) Dow Jones Newswires

May 18, 2022 05:48 ET (09:48 GMT)

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