MARKET WRAPS
Watch For:
Housing Starts for June; earnings from Johnson & Johnson, Netflix
Opening Call:
Stock futures nudged higher on Tuesday, as investors continued to focus on corporate earnings and weighed the risks of recession amid inflationary pressures.
The risk of recession continues to dominate investor attention. Facing the highest inflation in decades, the Federal Reserve is expected to move forward on a path of aggressive monetary policy to tame red-hot prices, including further interest-rate increases.
With little economic data between now and the Fed's next policy meeting--when the central bank is expected to decide on another supersize rate hike -- markets are likely to continue focusing on corporate news and earnings.
"As the back-and-forth in sentiment yesterday showed, there are still plenty of obstacles for investors to navigate over the coming days," said Jim Reid, a strategist at Deutsche Bank.
"Not just recession risk but also the ongoing threat of a Russian gas shut-off at the end of the week."
Earnings are due ahead of the market open from Johnson & Johnson, Halliburton and Lockheed Martin. Netflix will report after the market close. Some technology companies have already slowed hiring or cut jobs.
Read: Tech Rises Modestly After Apple's Plans to Slow Hiring, IBM's Disappointing Outlook
Overseas, most major stock markets followed Wall Street's poor late-in-the-day performance from Monday.
In Europe, the euro rallied and the yield on the 2-year German bund rose in reaction to a Reuters report that the European Central Bank may kick off its rate hike campaign with a 50-basis point increase.
The report cited two unnamed sources with direct knowledge of the discussion. The ECB previously has guided for a rise of a quarter-point at its Thursday meeting.
Economic Insight:
The U.S. housing market has reached a turning point with rapidly rising mortgage rates and reduced affordability, but the sector isn't expected to experience a contraction like the one seen during the global financial crisis, Wells Fargo said.
New and existing home sales, new construction and home prices are all expected to pull back from their recent highs as the economy falls into a recession at the start of 2023, it said.
"Housing rarely escapes unscathed from a soft landing or a recession. However, unlike previous downturns, homeowners' finances are healthier and mortgage underwriting has been more cautious, Wells Fargo said.
Forex:
The dollar continued to weaken, extending Monday's fall due to the paring back of expectations that the Fed will raise interest rates by 100 basis points at its next meeting.
"The U.S. rate market is currently pricing in around 80bps of hikes," said MUFG Bank.
However, MUFG continues to favor a stronger dollar in the near-term as the Fed's focus remains on dampening upside inflation risks.
MUFG said it's premature to expect the Fed to pivot towards a loose policy stance even if evidence of a economic slowdown builds through the rest of 2022.
Energy:
Oil prices ticked higher in Europe, rebounding from earlier losses, with the focus back on supply tightness and limited spare capacity, after Joe Biden's visit to Saudi Arabia didn't result in a concrete pledge from the Saudis to increase output.
"Oil prices may have peaked, but they certainly don't look like they're going materially lower from here unless we get a huge surprise from OPEC+," said OANDA.
Metals:
Base metals were lower in Europe, with worries over housing demand in the U.S. and China growing.
The U.S. National Association of Home Builders index fell much more than expected in July, while protests in China over mortgage payments on construction projects have affected building projects.
"Rising cost pressures and interest rates will continue to dampen housing construction in our view," said Commonwealth Bank of Australia.
TODAY'S TOP HEADLINES
IBM Second-Quarter Earnings Advance on 9% Sales Growth
International Business Machines Corp. reported 9% sales growth in second-quarter results that also reflected some of the wider concerns tech investors confront as the sector kicks off its earnings season.
IBM on Monday said revenue for the April through June period reached $15.5 billion after Chief Executive Arvind Krishna vowed to reinject growth into the business. As part of that plan, IBM spun off some of its declining operations last year.
Twitter Says Elon Musk's Opposition to Expedited Trial Is a Tactical Delay
Twitter Inc. called Elon Musk's opposition to a speedy trial for its case against the billionaire a tactical delay and said his proposed timeline is "calculated to complicate and obfuscate."
The social-media company argued Monday in a legal filing in Delaware Chancery Court that the public dispute harms Twitter every day that Mr. Musk is in breach of their $44 billion agreement. Twitter reiterated that the court should set trial by mid-September, on an expedited schedule.
France to Pay $9.8Bln to Take EDF Private
The French government said Tuesday that it plans to pay about 9.7 billion euros ($9.84 billion) to take full control of Electricite de France SA, a step it says is needed to manage the transition away from fossil fuels at a time of energy crisis and the war in Ukraine.
Chinese Developer Modern Land Nets U.S. Court Approval for Debt Restructuring
A U.S. judge on Monday approved Chinese property developer Modern Land (China) Co.'s proposed reorganization plan in the Cayman Islands under U.S. law, including the cancellation of roughly $1.4 billion in dollar-denominated debts.
The decision pushes back against the thrust of a May court ruling from Hong Kong justices seeking to limit the international scope of rulings by U.S. bankruptcy courts.
Celsius Defends Decision to Halt Withdrawals at Debut Bankruptcy Hearing
Celsius Network LLC tried to ease customers' anger over its freeze on account withdrawals, but indicated it doesn't intend to quickly release their funds as the cryptocurrency lender aims to weather the downturn in digital currencies and craft a repayment plan.
Celsius lawyers used the company's debut appearance in bankruptcy court Monday to defend its decision to halt withdrawals last month, saying that was necessary to safeguard customers' financial interests as users fled and crypto assets sold off.
Yellen Calls for Trade Overhaul to Diversify From China
SEOUL-Treasury Secretary Janet Yellen called for a reorientation of the world's trading practices in the wake of Russia's invasion of Ukraine, pushing again for countries to become less reliant on China for critical components like semiconductors.
Speaking at an LG Group research facility in South Korea's largest city and capital, Ms. Yellen explored so-called "friend-shoring," a proposed paradigm shift that would have the U.S. and its allies trade more closely with one another and less with geopolitical rivals. Supply disruptions during the Covid-19 pandemic, as well as the war in Ukraine, have exposed the danger of depending too heavily on a single producer, Ms. Yellen said.
RBA Warns Unanchored Inflation Expectations Would Stoke Rates Pain
SYDNEY-The Reserve Bank of Australia is keeping a watchful eye on medium- and long-term inflation expectations, warning in minutes of its July 5 policy meeting that the cost to economic growth and employment in the long run will be higher if the psychology around inflation deteriorates.
The minutes, published Tuesday, also show that the RBA is currently happy that long-term inflation expectations remain largely anchored.
Russia Orders Troops to Target Ukraine's Western-Supplied Long-Range Weapons
KYIV, Ukraine-Russia ordered its forces to target the long-range missiles and artillery weapons that Western countries have recently supplied to Ukraine, a sign of how Kyiv's additional firepower has begun to reshape the conflict.
On Monday, Defense Minister Sergei Shoigu told a group of Russian troops to make Ukraine's long-range weaponry a priority target to prevent shelling in parts of eastern Ukraine held by Russian forces, according to the Russian Defense Ministry.
Ukraine's First Lady Olena Zelenska in Washington for High-Level Meetings
WASHINGTON-Ukraine's first lady Olena Zelenska opened a round of high-level meetings Monday in Washington that includes a planned address to Congress later in the week.
Ms. Zelenska met Monday with Secretary of State Antony Blinken and is due to hold talks with first lady Jill Biden on Tuesday, the White House said. Ms. Zelenska is scheduled to deliver remarks to lawmakers on Wednesday at 11 a.m., House Speaker Nancy Pelosi (D., Calif.) said.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
None scheduled
Economic Indicators:
None scheduled
Stocks to Watch:
Cathedral Energy Services Names Chad Robinson as New CFO, Replacing Ian Graham; Outgoing CFO to Leave Company; Robinson Joined Co via Lexa Drilling Technologies Acquisition; Cathedral Energy Also Appointing Vaughn Spengler as VP of Canadian Ops
Cathedral Energy Also Announcing Purchase of Final 9.02% Stake in Lexa From Cathedral Director; Lexa Shares Being Purchased on Same Terms as Other 90.98% Bought Previously; Cathedral Energy Will Issue 159,836 Common Shrs as Consideration; Cathedral Energy Announced Acquisition of Downhole Tech Co Lexa in June
Expected Major Events for Tuesday
06:00/UK: Jun UK monthly unemployment figures
12:30/US: Jun New Residential Construction - Housing Starts and Building Permits
12:55/US: 07/16 Johnson Redbook Retail Sales Index
20:30/US: 07/15 API Weekly Statistical Bulletin
23:01/UK: Jun Scottish Retail Sales Monitor
All times in GMT. Powered by Onclusive and Dow Jones.
Expected Earnings for Tuesday
Aehr Test Systems (AEHR) is expected to report for 4Q.
Ally Financial Inc (ALLY) is expected to report $1.85 for 2Q.
(MORE TO FOLLOW) Dow Jones Newswires
07-19-22 0504ET
