MARKET WRAPS

Stocks:

Most major stock benchmarks were higher Wednesday ahead of the release of minutes from the Federal Reserve's most recent policy meeting, which will be combed for details on the path of coming interest-rate rises.

Heavyweight oil and mining stocks rose thanks to higher crude prices but gains generally were tentative, with caution dominating sentiment.

The Fed minutes, due after the European markets close, are expected to provide more signals for investors about the outlooks of policy makers on the economy and inflation.

"The market is pricing the slowdown that will eventually come from the Fed tightening. It also forecasts that inflation in 2023 will slow to much more reasonable levels," said Antonio Cavarero, head of investments at Generali Insurance Asset Management.

Stocks to Watch:

Siemens Gamesa's shares currently trade close to the price offered by Siemens Energy for the planned buyout, said Deutsche Bank, as it downgraded the stock to hold from buy.

The offer price of EUR18.05 a share represents a premium of around 28% to the last unaffected closing share price on May 17 and is seen as fair given the Spanish wind-turbine maker's various profit warnings and struggles with supply-chain issues and balance sheet, Deutsche Bank said.

Economic Insight:

The extremely high inflation expectations are a warning signal for central bankers and investors this year, said Ewout van Schaick, head of multi asset at NN Investment Partners.

Rising prices are the result of supply-chain tensions related to Covid and the conflict in Ukraine, he said. While de-globalization and a shortage of young workers in the developed world might support future price increases, the consumption patterns of older generations and low productivity underscore the potential for an opposite scenario.

"It appears that we are at the beginning of a new business cycle, but it is still too early to tell whether inflation will be structurally high in the years to come."

U.S. Markets:

Stock futures were little changed ahead of the release of the Fed minutes.

Shares have had a volatile start to the week, buffeted by concerns about the Fed tightening monetary policy to combat the bout of high inflation and how sharp of a slowdown in growth it could cause. The S&P 500 is down nearly 18% from its last record high in January and briefly fell into a bear market last Friday before paring losses.

In premarket trading, Snap shares rose 0.6% after plunging 43% Tuesday after the company issued a profit warning.

"Clearly there's been a revaluation of tech valuations. It's impossible to know how far it goes, but some of these are quality businesses and significantly cheaper than they have been trading recently," said Fahad Kamal, chief investment officer at Kleinwort Hambros.

"If you're a long-term investor, that's going to be something of interest."

Nordstrom jumped more than 10% premarket after raising its guidance for full-year revenue growth, while Toll Brothers rose nearly 7% after reporting revenue and profit that beat analysts' expectations.

Nvidia and Williams-Sonoma and Express are scheduled to report earnings on Wednesday.

Forex:

The dollar edged higher in Europe after the DXY Dollar Index fell to a four-week low Tuesday, and ING said the potential for further falls is shrinking due to prospects of aggressive Fed rate rises.

"The dollar has found some stabilization after a negative start to the week and should--for now--continue to trade primarily in line with swings in global risk sentiment," said ING. It said focus centers on the Fed minutes for indications on the level of support for multiple 50 basis-point rate rises.

Bonds:

The 15-year maturity sector of the German yield curve is cheap relative to the 10-year and 30-year sectors, said JPMorgan, ahead of an auction of a 1% May 2038 Bund Wednesday.

"Within the sector, the recently issued 15Y German benchmark is currently trading with a discount of around 5bp relative to surrounding high-coupon Bunds, quite excessive in our view."

JPMorgan's analysts have a medium-term high conviction overweight stance on German duration but their conviction on outright duration exposure remains low in the short term.

The short-term low conviction is due to heightened volatility, and risks that bearish momentum continues on the back of the frontloading of the tightening cycle in the eurozone and also across developed market rates, the analysts said.

They prefer to play their medium-term strategic overweight German duration view cross-market via long five-year Germany versus U.S. peers.

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Some investment-grade nonfinancial companies in North America and Europe, Middle East, and Africa could be downgraded to junk status if the economy slows and inflation remains elevated, said Fitch.

It estimates that around 2.5% of such companies in these regions could lose their investment-grade rating, which is however largely consistent with the annual average since 1990.

Also, the amount of debt falling into junk territory would be around 1.2% on a debt-weighted basis, well below the roughly 9% and 11% observed during the pandemic and the global financial crisis of 2008 respectively.

Energy:

Oil and especially gas prices were higher, as the prospect of tighter supply from Russia continued to dominate sentiment in the energy markets.

The possibility of European sanctions on Russian oil still remains, although whether this occurs in the near term is likely to be debated.

Meantime, Saudi Arabia's foreign minister on Tuesday indicated it was unlikely to step up oil production in the near term. Speaking at the World Economic Forum he said: "As far as we are aware, there is no shortfall of oil."

Metals:

Metals were lower with demand for industrial metals still weak, especially in Asia with a new wave of Covid-19 in Wuxi--one of China's steel hubs--further dampening consumption, while the bleaker economic outlook hit gold, as investors moved back into the dollar and Treasurys.

DOW JONES NEWSPLUS


EMEA HEADLINES

German Consumer Sentiment Expected to Improve Slightly in June, But at Low Level

Consumer confidence in Germany is set for a small rise in June, although remaining depressed after falling to a historic low in the previous month, as inflation and Russia's war in Ukraine weigh heavily on households' sentiment.

Market research group GfK's forward-looking consumer sentiment index forecasts confidence rising to minus 26.0 in June from minus 26.6 in May. This figure is in line with the forecast of economists polled by The Wall Street Journal.


Marks & Spencer Swung to FY 2022 Profit But Warns on Hit From Russia Exit, Cost-of-Living Crisis

Marks & Spencer Group PLC reported Wednesday a swing to fiscal 2022 pretax profit but said profit growth will be harmed this year by its Russia exit and rising cost pressures on consumers.

The British retailer posted a pretax profit of 391.7 million pounds ($490.9 million) for the year ended April 2, compared with a loss of GBP201.2 million for the same period a year earlier.


SSE Raises Medium-Term Earnings Growth Guidance; Shares Jump

Shares in SSE PLC climbed Wednesday in early trading after it raised earnings growth guidance for the five years to March 2026, reported higher profits for fiscal 2022 and said that they will grow further this year.

The U.K. energy group now expects to deliver an adjusted earnings per share compound annual growth rate of between 7% and 10% in that five-year period, up from previous forecasts of 5%-7%. SSE said that this is based on its strong performance in fiscal 2022, higher inflation forecasts, higher and volatile energy commodity prices and increased value creation potential for its thermal, hydro and gas storage assets.


Taylor Wimpey Says 2022 Performance Remains In Line; Confirms Financial Targets

Taylor Wimpey PLC said Wednesday that its performance for 2022 remains in line and that it is confirming its financial targets for the year.

The U.K. home builder said it continues to target an operating profit margin of 21%-22% and a return on net operating assets of 30%.


Sodexo Shares Fall After Turning Away From Investor for Benefits Business

Shares in Sodexo SA fell on Wednesday after it said it wouldn't open up the capital of its benefits business to an external investor.

At 0730 GMT, shares were down 4.2% at EUR68.76.


Timeline for EU Oil Embargo on Russia Appears Further Set Back

BRUSSELS-European Union officials on Tuesday suggested the bloc might not decide whether to impose an oil embargo on Russia for weeks, as Hungarian Prime Minister Viktor Orban, who is the main hurdle, declared a state of emergency at home over the Ukraine war.

Mr. Orban wrote to Charles Michel, who organizes EU summits, warning him he won't discuss the oil embargo at a summit on Monday and Tuesday, where many EU diplomats had hoped the issue would be settled after weeks of tense negotiations. Hungary has refused to back the oil ban.


Treasury to Block U.S. Investors From Receiving Russian Debt Payments

WASHINGTON-The Treasury Department moved to cut off Russia's ability to make payments on its dollar-denominated sovereign debt, putting Russia on a path toward defaulting on its foreign debts this summer and deepening the country's economic isolation after its invasion of Ukraine.

Since imposing a raft of sanctions on Russia this year, the U.S. had maintained an exemption allowing U.S. banks and investors to process and receive payments on existing Russian bonds. The Treasury said Tuesday it would allow the exemption to expire on Wednesday.


Stellantis, Samsung SDI Plan New EV Battery Plant in Indiana

Auto maker Stellantis NV and Samsung SDI Co. Ltd. said Tuesday that they would build a new battery plant in Indiana to support the Jeep and Ram manufacturer's electric-vehicle production plans.

The $2.5 billion plant is expected to break ground later this year and open in the first quarter of 2025, they said.


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05-25-22 0531ET