MARKET WRAPS

Opening Call:

Equity futures fell sharply Monday, after surprisingly strong consumer-price data prompted investors to reassess how aggressive the Federal Reserve will have to be in raising interest rates to combat decades-high inflation.

The pullback in futures raised the prospect that the S&P 500 index could join Nasdaq in bear-market territory. Whether or not a given index has met that technical definition, some market participants say sentiment is already very bearish.

"This is what you call a bear market where fear is taking place and pushing people out of the market and having people empty up portfolios and capitulate," said Todd Morgan, the chairman of Los Angeles-based Bel Air Investment Advisors.

Still, Morgan said developments in the next month or two could help damp inflationary pressures, such as lower gasoline demand after the summer and slowing demand for houses due to rising mortgage rates.

"China opening up is a big deal, too," he said, as that would help ease supply-chain constraints. Figures last week showed Chinese exports surged in May as Covid-19 restrictions eased, adding to signs of economic recovery there.

Economic Insight:

The global economy is likely heading into recession in the next 12 to 18 months, said UniCredit, likely hit by the war in Ukraine, high commodity prices, China's zero Covid-19 policy and the prospect of a globally synchronized monetary policy tightening.

"I cannot recall a global outlook as clouded by a dangerous combination of geo-political, national politics and policy as well as economic uncertainty as what I'm staring at these days," said group chief economics advisor Erik F. Nielsen.

The current policy-tightening process, particularly in the eurozone, is expected to take a toll on economic growth and on asset prices, he said.

Forex:

The dollar strengthened broadly in Europe, gaining ground against a basket of currencies.

"Market participants are now more convinced that Fed tightening will be even more front-loaded with rates rising to a higher peak next year," said MUFG currency analyst Lee Hardman. The Fed is likely to raise its guidance for rate rises at Wednesday's meeting, which should support the dollar, he added.

Meantime, the possibility of an even wider interest-rate differential between the U.S. and Japan pushed the yen down further. The Japanese currency fell to a new multidecade low, weakening beyond 135 a dollar to trade at its weakest since 1998.

Masahiro Ichikawa, a strategist at Sumitomo Mitsui DS Asset Management said the yen's slide could be arrested if the Fed is forced to raise interest rates more quickly, fueling concerns about the global economic outlook. That in turn could boost traditional haven currencies, including the dollar, the yen and Swiss franc, he said.

Cryptocurrencies:

This year's rout in bitcoin deepened Monday, with the world's biggest cryptocurrency dropping toward $25,000. Meantime, Celsius Network, one of the largest crypto lenders, told users that it is pausing all withdrawals, swaps, and transfers between accounts due to "extreme market conditions."

Read: Bitcoin Revisits Late-2020 Levels as It Suffers Fresh Selloff

Read: Big Crypto Lender Celsius Freezes All Account Withdrawals

Bonds:

The yield on the benchmark 10-year Treasury note reached its highest since November 2018 after the CPI report and rose further Monday.

Read: Abandon Stocks for Bonds? If Only Life Were So Simple

Energy:

Oil prices extended their losses in Europe on mounting risks of new lockdowns in China and heightened inflationary pressures.

"Oil continues to trade lower with a broader risk of running for cover with stagflation storm clouds filling the horizon and fresh lockdown fears building in China," wrote Stephen Innes, managing partner at SPI Asset Management, adding that Beijing's government spokesperson referred to the current outbreak in the city as "ferocious".

"Hyperbole or not, China's zero-tolerance approach leaves the country stuck in a cycle of highly disruptive lockdowns and reopenings."

Metals:

Gold and base metals were lower as the dollar continued to climb on the Fed's likely tightening path and on growing economic risks.

"U.S. inflation being at another high just doesn't inspire any confidence at all, and the market expects an almost 100% probability of a rate hike at the next [FOMC] meeting," said Marex.

It said that "markets continue to show medium and longer-term bearishness when it comes to base metals."


TODAY'S TOP HEADLINES


Big Crypto Lender Celsius Freezes All Account Withdrawals

One of the largest crypto lenders, Celsius Network, told users Sunday night that it is pausing all withdrawals, swaps, and transfers between accounts due to "extreme market conditions."

"We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets," the company said in a blog post.


More BlackRock Investors Opt to Vote Their Own Shares

BlackRock Inc.'s plan to get institutional investors to vote their own shares is taking shape.

The world's biggest asset manager said Monday that its voting-choice platform has added investors representing some $120 billion of assets since its launch in October, bringing the total to $530 billion. BlackRock has made the option available to large investors who control $2.3 trillion in passive equity assets all told.


Google Suspends Engineer Who Claimed Its AI System Is a Person

Google suspended an engineer who contended that an artificial-intelligence chatbot the company developed had become sentient, telling him that he had violated the company's confidentiality policy after it dismissed his claims.

Blake Lemoine, a software engineer at Alphabet Inc.'s Google, told the company he believed that its Language Model for Dialogue Applications, or LaMDA, is a person who has rights and might well have a soul. LaMDA is an internal system for building chatbots that mimic speech.


Google Settles Gender Discrimination Lawsuit for $118 Million

Google agreed to pay $118 million to settle a lawsuit claiming the tech giant had discriminated against women in pay and promotions.

The settlement concludes a class-action suit in San Francisco Superior Court initiated in 2017 by three female former employees who said that Google, a unit of Alphabet Inc., placed them in lower-job levels than similarly qualified males, leading to lower pay, and denied the women promotions or transitions to other teams that would have led to better career advancement.


Electric Last Mile Solutions Files for Chapter 7 Bankruptcy

Electric-car startup Electric Last Mile Solutions Inc. has filed for bankruptcy within months of its top two executives quitting and the company confirming an investigation by the U.S. Securities and Exchange Commission.

Nasdaq-listed ELMS said in a filing Sunday that the bankruptcy under chapter 7, which seeks to liquidate the business, is in the best interest of the company and its shareholders.


McDonald's in Russia Reopens Under New Ownership

MOSCOW-More than a dozen former McDonald's restaurants reopened here under a new brand and new ownership, accompanied by a marketing blitz aimed at convincing Russians that the new chain's burgers are as good as the American version.

Officials also used the reopenings-including that of McDonald's first restaurant in Russia, near Moscow's Pushkin Square-to project a narrative of Russian economic resilience in the face of international sanctions and an exodus of Western businesses from the country. McDonald's Corp. and other Western companies have pulled out of Russia in the wake of Moscow's invasion of Ukraine. They have cited a number of reasons for doing so, including the difficulty of doing business in Russia amid the sanctions.


Baby-Formula Shortage Has Spurred Competition, but Tough Road Remains to Unseat Similac, Enfamil

Baby-formula makers have their best shot in decades to shake up a U.S. market long dominated by two players.

Long-established companies and startups are angling to emerge from a nationwide formula shortage in a stronger market position as they work to hold on to new customers who are more willing to switch brands while shelves remain thinly stocked.


Three-Dose Pfizer Covid Vaccine Works Safely in Young Children, Review Says

Three doses of the Covid-19 vaccine from Pfizer Inc. and BioNTech SE were effective at preventing symptomatic disease in children ages 6 months through 4 years in studies, according to U.S. health regulators.

The FDA staff also said, in a review of study data posted online Sunday, that there were no new safety concerns using the vaccine in young children compared with older age groups.


Smithfield Foods, Citing High Costs of Operating in California, to Close Pork Plant

Smithfield Foods Inc., the largest pork processor in the U.S. by volume, is closing an 1,800-person plant in California and shrinking the size of its hog herd in the region, saying the cost of doing business in the state wasn't worth it.

Smithfield, owned by Hong Kong-based pork conglomerate WH Group Ltd., said Friday that it would close the plant in Vernon, Calif., just outside of Los Angeles, in early 2023, citing higher taxes, utility costs and labor costs in the state compared with other areas where it operates.


Apple Goes Deeper Into Finance With Buy Now, Pay Later Offering

Apple Inc. tiptoed into finance with Apple Pay and the credit card it launched three years ago with Goldman Sachs Group Inc. Now it is going all in.

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06-13-22 0452ET