MARKET WRAPS

Stocks:

European shares were little changed on Monday, hovering around the flat line, as investors held their fire at the start of a heavy week of big U.S. earnings and Federal Reserve action.

A mixed bag of results in Europe and some weak economic data ensured a cautious opening session,.

In Germany, the Ifo business-climate index showed a sharp deterioration in business confidence due to the energy crisis in Europe's largest economy.

The Fed on Wednesday is expected to deliver another 0.75-percentage-point interest-rate increase as it attempts to cool soaring inflation.

Edward Park, chief investment officer at Brooks Macdonald, said recent earnings reports have shown recession concerns on the rise in corporate America -- though that hasn't necessarily led to big stock selloffs.

"What markets want at the moment is recessionary fears to cause the Fed to back off," Park said. "The idea that lots of companies are talking about recessionary fears...in some ways plays to that narrative, so that's why markets have been shrugging off some of the poorer earnings guidance."

Economic Insight:

A recession in the eurozone is almost certain, as recent high-frequency and survey data point to a decline in economic activity, said UniCredit.

The commodity price shock has eroded real income to a very large extent, the global economy is not in a good spot and uncertainty is overwhelming corporate decision-makers and households alike.

"In this environment, [UniCredit] seriously struggles to believe that households will run down their excess savings to any measurable degree, which is the key assumptions among those still forecasting positive growth, including the ECB," UniCredit said.

Read: Eurozone Inflation, Supply-Side Pressures Are Easing, But Only Slowly

Read: Tourism Expected to Save Eurozone 3Q GDP Growth, 4Q Outlook Becoming Grim

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The European Central Bank's new data dependency and meeting-by-meeting approach to decisions is essentially a signal that the ECB doesn't have any good visibility, said Danske Bank. "They believe hikes will come, but do not know how many or how fast."

Danske Bank removed its forecast for two interest-rate rises by the ECB in the first quarter of 2023. It expect a 50 basis-point interest rise in September, followed by 25bps in October and also 25bps in December, seeing risks skewed to fewer hikes.

U.S. Markets:

Stock futures held near five-week highs as investors awaitws a wave of earnings and this week's Fed decision.

For the new week there will be 175 S&P 500 companies reporting, including Apple, Alphabet, Microsoft and Amazon, though the action doesn't pick up again until Tuesday.

Ahead of the Fed, the 10-year Treasury yield was up 3 basis points to 2.783%.

It's a thin start to the week for economic data. The Chicago Fed national activity index for June will be released at 1230 GMT.

Forex:

With the Fed expected to raise rates by 75 basis points this week, the dollar will stay strong but it won't experience the "fireworks" the euro did after last week's ECB hike, said ING.

"We don't think Fed week will be as tumultuous as ECB week, as the scope for surprises in Washington appears much lower and markets have made a strong conviction call on a 75bp hike."

ING expects the DXY Dollar Index will trade around 107.00 ahead of Wednesday's Fed meeting and possible rise above 108.00 afterward.

CBA said the dollar is likely to consolidate this week, though it could trade in a wide range. It expects the FOMC to increase the Funds rate target range by 75 basis points, which is priced in by financial markets but the risk is tilted to a 100bps increase and a jump in the buck.

If U.S. GDP data confirm a recession, and it is seen as a prelude to recession elsewhere, the dollar could jump as the preeminent safe-haven currency, CBA said.

Read: UK Leadership Debate Seen Having Limited Impact on Pound

Bonds:

The summer rally in German Bunds is over, according to Morgan Stanley, which sees a long list of headwinds for core duration over the coming months.

It said the summer bullish seasonality is over and the valuation is back to the expensive side, and sees Bunds about 20 basis points rich. It forecasts 10-year Bund yields rising above 2% by the early fourth quarter.

Read: Italian Politics Limits Upside Potential in German Bund Yields

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The Italian-German bond yield spread is still relatively tight and should be under pressure for the remainder of the year because of political risks, due to higher ECB rates and pressure on global credit spreads, said Societe Generale.

Its model indicates a 260-300 basis point range for the 10-year BTP-German Bund yield spread by year-end.

"A collapse in growth at a time of rising interest rates will bring the specter of debt sustainability to the fore, with debt levels likely to rise."

Societe Generale said that a worsening of the energy crisis could exacerbate the widening pressure.

Morgan Stanley said renewed political uncertainty in Italy should continue to weigh on eurozone peripheral government bond spreads.

It holds its short peripheral trades through spreads, such as short 30-year Italian BTP versus French OAT and short five-year Spanish bono versus German Bobl, as well as a 5-year/10-year BTP flattener.

Energy:

Oil futures fell more than 1% in Europe as Libyan exports resumed while the Fed's meeting this week was in focus.

Libya oil production and exports have resumed after restrictions were lifted. Production has risen above 700,000 barrels a day and is expected to rise to 1.2 million barrels a day in a week, said SPI Asset Management.

Meanwhile, the FOMC meeting will be a key focus for oil markets. The Fed is expected to raise rates by another 75 basis points, which will add to fears about slowing economic growth.

Metals:

Metals were mixed in early London trading as demand signals diverged in China and Western economies.

"Industrial activity in China is improving, in a positive sign for industrial metals," said ANZ Research. Lower inventories are helping to support prices too, it said. But, rising Covid-19 cases are still "raising uncertainty over the demand recovery."

In western economies, the "deteriorating macro backdrop and aggressive monetary tightening are weighing on commodities demand."

DOW JONES NEWSPLUS


EMEA HEADLINES

German Business Sentiment Deteriorates Significantly in July

Business confidence in Germany worsened sharply in July as firms turned more pessimistic due to rising energy costs and the threat of gas shortages.

The Ifo business-climate index declined to 88.6 points in July from a revised figure of 92.2 points in June, data from the Ifo Institute showed Monday. This is the lowest value since June 2020. Economists polled by The Wall Street Journal expected the index to come in at 90.5.


Philips 2Q Hurt by China Lockdowns, Inflation, Ukraine War

Royal Philips NV on Monday reported a swing to a net loss for the second quarter, which it blamed on a number of issues including pandemic-related lockdowns in China, inflationary pressures and the Russia-Ukraine war.

The Dutch health-technology company has cut its full-year comparable sales guidance to 1% to 3% from a previous forecast of 3% to 5%.


Orange, Masmovil Agree to Combine Spanish Operations

French telecommunications company Orange and Spanish peer Masmovil Ibercom SA have agreed to combine their businesses in Spain, creating a company with an enterprise value of 18.6 billion euros ($19 billion).

The deal is based on an enterprise value of EUR7.8 billion for Orange Spain and EUR10.9 billion for Masmovil, Orange said on Saturday.


Vodafone 1Q Was in Line; Backs FY 2023 Guidance -- Update

Vodafone Group PLC said Monday that performance in its first quarter of fiscal 2023 was in line with its expectations after continued growth in Europe and Africa and that it is on track to deliver fiscal 2023 guidance.

The U.K.-based telecommunications company said revenue for the three months ended June 30 was 11.28 billion euros ($11.52 billion) compared with EUR11.10 billion a year earlier. Group service revenue growth was 2.5% on an organic basis, it said.


Ryanair 1Q FY23 Easter Bookings, Fares Affected by Ukraine War; Swung to Net Profit but Missed Market Views -- Update

Ryanair Holdings PLC said Monday that Easter bookings and fares in the first quarter of fiscal 2023 were hurt by the war in Ukraine, with flights into the country canceled and neighboring operations affected, as it reported a swing to a net profit that missed the market consensus.

The Irish low-cost carrier said that because of this, average fares in the period were down 4% when compared with the same quarter before Covid-19, adding that it had limited visibility on the second quarter and almost zero visibility into the second half.


Telefonica to Sell 45% Stake in Fiber Network Company Bluevia Fibra for $1 Bln

Telefonica SA said Monday that it has agreed to sell a 45% stake in Bluevia Fibra SL to a consortium formed by Vauban Infrastructure Partners and Credit Agricole SA for 1.02 billion euros ($1.04 billion) in cash.

The deal values Bluevia at EUR2.5 billion. The company, in which Telefonica will keep a 55% stake through its subsidiaries, will deploy and commercialize a fiber-to-the-home network, mainly in rural Spain.


Julius Baer 1H Net Profit Fell Amid Rocky Markets, Activity Slowdown

Julius Baer Gruppe AG on Monday reported lower earnings for the first half of 2022, hurt by a slowdown in client activity and volatile markets.

The Swiss private banking group said net profit fell 26% on year to 450.6 million Swiss francs ($468.1 million).


Galp 2Q Net Profit Jumped, Lifts 2022 View on Strong Oil Prices

Galp Energia SGPS SA on Monday reported higher second-quarter earnings and lifted its guidance for the full year on the back of strong oil-price assumptions.

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07-25-22 0543ET