Stock futures rise as Biden hints at tariffs

MARKET ENVELOPES

Opening call:

Stock futures rose on Monday, putting the S&P 500 on track to move away from bear market territory.

Comments from Joe Biden that he was considering cutting tariffs on China helped boost market sentiment. The tariffs were imposed by the Trump administration.

Stocks have fallen in recent weeks as investors debated how aggressively the Federal Reserve would raise interest rates to tame high inflation. Pricing pressures have eroded some corporate earnings, but fund managers are also concerned that an excessive tightening of financial conditions could weigh on economic growth.

Inflation concerns have been heightened in recent months as China implemented containment measures to contain the spread of Covid-19, adding strain to supply chains. Russia’s war on Ukraine has also caused European countries to turn away from Moscow’s oil and gas, driving up prices.

“This year we face several issues, which in themselves would normally be news in any given year,” said Hugh Gimber, global market strategist at JP Morgan Asset Management. “Yet the markets have to manage them all at the same time.” This led to increased volatility, he said.

Overseas, the pan-continental Stoxx Europe 600 index rose 0.9%, while in Asia, major indices closed with mixed performance.

This week, investors will be watching the minutes from the last Fed meeting to gauge the central bank’s next interest rate decision. He pushed rates higher in an effort to quell historically high inflation. Some economists have expressed concern that the Fed could act too aggressively and push the United States into a recession.

Biden said Monday following a meeting with Japanese Prime Minister Fumio Kishida that it was not inevitable that the US economy would slide into recession.

Forex:

The dollar hit a two-week low against a basket of currencies as stock markets regained some balance after their recent falls.

EUR/USD hit its highest level in just over two weeks, with RBC citing a weekend interview with Christine Lagarde, where she indicated that interest rates will likely rise in July, although she played down the prospect of a 50 basis point hike.

The euro continued to rise after Germany’s Ifo survey unexpectedly showed that business confidence improved in May.

The Ifo business climate index rose to 93.0 points from a revised figure of 91.9 points in April, beating consensus in a WSJ poll for a fall to 91.2.

“The German economy has shown resilience in the face of inflation problems, material bottlenecks and the war in Ukraine,” said Ifo President Clemens Fuest.

Energy:

Oil prices recorded modest gains in Europe on hopes of a pick-up in demand, after Shanghai began easing its months-long lockdown on Sunday and as the peak driving season nears United States with the Memorial Day holiday.

UBS said coal prices are likely to remain high this year, but with downside risks if global tensions unexpectedly resolve quickly and Chinese demand slows further.

The war in Ukraine, Indonesian export restrictions imposed in early January and wet weather in Australia have led to a 2.7% drop in seaborne coal shipments so far this year, but supply is already showing signs of recovery now that the Australian rainy season is over. Global shipments increased by 6% last week.

UBS said the price of low-volatility premium coking coal has risen 48% to $530/ton so far this year, while the price of Newcastle Port thermal coal has more than doubled to $412. $/ton.

Metals:

Gold and platinum prices rose in Europe, helped by the weak dollar.

Base metals were also higher as expectations of increased demand from China rose after the country kicked off its economic stimulus package.

“China is easing its fiscal and monetary policies with a 4 trillion yuan infrastructure campaign. However, labor shortages and high energy costs will continue to weigh on copper, aluminum and nickel supply growth,” ANZ said.

Citi said the degree of weakness in Chinese demand for metals cannot be fully explained by the Covid lockdowns and believes the Chinese economy has deteriorated in the absence of sufficient government easing.

“We continue to recommend selling rallies until China is ahead of the curve and/or until the Fed starts offering ‘dovish’ hikes.”

Citi expects LME copper prices to fall to $8,500/tonne over the next three months and expects aluminum to fall to $2,700/tonne, nickel to $25,000/tonne and nickel to $25,000/tonne. zinc at $3,300/tonne over the same period.

THE BEST TITLES OF THE DAY

Broadcom in advanced talks to buy VMware

Broadcom Inc. is in advanced talks to buy VMware Inc., according to people familiar with the matter, paving the way for what would be one of the biggest deals of the year.

The tech companies are discussing a cash and stock deal that could happen soon, assuming the talks don’t collapse, the people said. VMware has a market value of $40 billion, while Broadcom’s is around $222 billion.

Abbott CEO apologizes for company’s role in infant formula shortage

Abbott Laboratories chief executive Robert Ford apologized on Saturday for his company’s role in the national infant formula shortage and promised production would resume in June.

“We’re sorry to all the families we’ve let down,” Mr. Ford wrote in a Washington Post op-ed.

Macy’s, Dollar General and Costco could offer clues to the strength of consumer spending

Investors are looking for more signs that inflation and the lingering effects of the Covid-19 pandemic are bearing down on US consumers.

This week, Macy’s Inc., Dollar General Corp., Costco Wholesale Corp. and other retailers are expected to release quarterly reports showing sales without the increased government stimulus that helped consumer spending last year. Additionally, rising fuel, freight and labor costs as well as changing shopping habits are expected to weigh on earnings.

Apple is looking to increase production outside of China

TOKYO-Apple Inc. has told some of its contract manufacturers it wants to increase production outside of China, citing Beijing’s strict anti-Covid policy among other reasons, people involved in the talks said.

India and Vietnam, which are already sites for a small chunk of Apple’s global production, are among the countries the company is looking more closely at as alternatives to China, officials said. sources.

Stock market bottom remains elusive despite growing decline

US stocks are in the midst of their longest selloff in decades.

Whether they are close to bottoming is anyone’s guess.

Conditions are ripe for a deep bear market

With the S&P 500 briefly on Friday down 20% from its January high, it’s very tempting to start trying to call an end to the selloff. The problem is that only one of the conditions for a rally is met, that everyone is afraid. It worked wonders for timing the start of the 2020 rebound, but this time may not be enough.

Other requirements are that investors start to see a way through the challenges and that policy makers start to help. Without these, the risk is a series of bearish rallies that don’t last, hurting bearish buyers and further damaging investor confidence.

Higher rates increase the risk of future Fed losses

The Federal Reserve’s plans to raise interest rates aggressively to combat high inflation could have an overlooked and uncomfortable side effect for the central bank: capital losses.

The potential for losses depends on obscure monetary plumbing. The Fed’s $9 trillion portfolio, sometimes referred to as a balance sheet, is replete with mostly interest-bearing assets — treasury bills and mortgage-backed securities — with an average yield of 2.3%. On the other side of the ledger – the liabilities of the Fed’s balance sheet – are bank deposits held with the Fed, called reserves, which also bear interest, as well as currency in circulation.

Biden launches economic group linking US and Asia

President Biden and leaders of a dozen countries in the Indo-Pacific region on Monday endorsed a new economic platform aimed at countering China’s influence through cooperation on global issues such as supply chains. , clean energy and digital rules.

The Indo-Pacific Economic Framework marks the Biden administration’s most ambitious attempt to establish economic ties with Asian countries after the United States under President Donald Trump withdrew from the Trans-Pacific Partnership in 2017. U.S. officials said the framework represents a new approach to cooperation that goes beyond a traditional trade agreement.

German business confidence rose unexpectedly in May, Ifo says

Business confidence in Germany rose in May as German companies view their current business situation with less pessimism.

The Ifo business climate index rose to 93.0 points in May from a revised figure of 91.9 points in April, according to data from the Ifo Institute released on Monday. Economists polled by The Wall Street Journal expected the index to fall to 91.2.

Chinese markets are challenged by foreign flows and a falling currency

HONG KONG — A withdrawal of foreign capital from China and a weaker yuan have prompted comparisons with 2015, when Beijing faced a vicious cycle of outflows and currency depreciation.

China has plugged many holes that once allowed its citizens and businesses to take money out of the country, making a destabilizing exodus of local funds less likely this time around.

China spends far more than others to help favored industries, report says

China is spending far more to help favored industries with public funds, cheap loans and other government incentives than other major economies, according to a new study that is expected to intensify debate in Washington and elsewhere about the use of the industrial policy by Beijing.

(MORE TO BE FOLLOWED) Dow Jones Newswires

05-23-22 0541ET