Consumer-Price Index for April; EIA Weekly Petroleum Status Report; earnings from Sherritt International, Walt Disney; Federal Reserve Bank of Atlanta President Raphael Bostic speaks at World Affairs Council of Jacksonville event
Stock futures were higher Wednesday ahead of inflation data that will be closely watched for clues about the pace of interest-rate rises by the Federal Reserve.
Overseas markets were broadly higher. The Stoxx Europe 600 edged up 0.8%, while in Asia, Hong Kong's Hang Seng gained 1% and the Shanghai Composite Index added 0.8%.
Stocks, particularly in the U.S., have been hit by a wave of selling in recent weeks. Investors are contending with the unwind of easy monetary policies that had boosted gains for stocks and bonds since the early days of the pandemic.
Data on inflation in the U.S. are due to be published at 8:30 a.m. ET. The figures are expected to show that the consumer-price index rose 8.1% in April from the same month a year ago, decelerating from an 8.5% annual rate in March. Lower annual inflation last month would mark the first monthly easing of price increases since August 2021.
The trajectory of inflation and wages will determine how much the Fed will raise interest rates at its next policy meeting, investors and analysts said. The central bank last week lifted rates by half a percentage point, the biggest rise since 2000, and approved a plan to shrink its $9 trillion asset portfolio-kicking into a higher gear its campaign to rein in 40-year-high inflation
Adding to the uncertainty for investors are the war in Ukraine, which has propelled inflation even higher by boosting commodity prices, and Covid-19 lockdowns in China that threaten to hurt the global economy.
"If we only had rising policy rates, or only had high inflation, or only had China or only had Ukraine, we could probably manage that," said Daniel Morris, chief market strategist at BNP Paribas Asset Management. "But we've got all that simultaneously. That's why it's such a particularly challenging environment."
Mr. Morris said U.S. stocks could come under further pressure, saying valuations were down to average levels having been historically expensive before the selloff.
Central bankers around the world are in a "hawkish run," raising interest rates in a synchronized manner and to an extent probably not witnessed before, said Geraldine Sundstrom, asset allocation portfolio manager at Pimco.
"Meanwhile, the hawkish rhetoric at the European Central Bank has exceeded all expectations and a large number of board members have all but sealed a rate rise for June or July, earlier than previous expectations for an autumn hike," Sundstrom said. "In fact, markets now predict four hikes from the ECB by the end of 2022."
The dollar should stay strong after U.S. April inflation data, keeping the DXY Index between 103.20 and 104.00, said ING. "Barring a very soft CPI figure we see no reason for a sharp dollar sell-off."
Headline annual inflation is expected to fall to 8.1% from 8.5% in March, according to a WSJ poll, but the focus will be on month-on-month core inflation which is expected to edge up to 0.4% from 0.3%, ING said.
"Unless that surprises at something like 0.2% month-on-month, we would expect the dollar to stay largely bid--or consolidate near the highs."
Bond markets continue to recover after yields and spreads crossed major inflection points, as inflation fears appear to be easing, said Commerzbank.
Ten-year Treasury yields are below 3% again and 10-year Bund yields are back at 1%, having fallen from above these key levels. While inflation fears are retreating, "lower yields seem to trigger lower yields at this stage as investors are probably weary of missing the recovery," Commerzbank said.
Read Barrons.com: Russian Debt Default Could Become the Ukraine Conflict's Next Bargaining Chip
Crude futures gained more than 2% in Europe after China's Covid-19 cases fell to a two-month low, raising hopes that lockdown measures that have weighed on oil demand could ease. Covid cases in Shanghai and Beijing have fallen in recent days.
Even if Russia finds new Asian buyers for its oil in the wake of a possible import ban by the EU, Russian companies could still be forced to cut some crude production, said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie.
This is because not all of the country's oil supply might be successfully rediverted, as less efficient trade routes need to be used for Asian customers to get Russian crude, Gelder said. This would mean higher transport- and logistics-related costs, which may then ultimately lead to a tighter oil market and higher prices.
European gas prices fell around 1.4%, paring early gains that came after Ukraine said it would reduce the flow of Russian gas through its territory.
Prices rose as high as EUR103.71 a megawatt-hour when the market opened but have since fallen back. Ukraine's pipeline network operator said it would stop gas flowing through a transit point in the Luhansk region, which is a battleground between Ukrainian and Russian forces. The company said Russian forces had interfered with pipeline infrastructure.
Read more here.
Prices for gold and base metals rose in European trade as more bullish data from China outweighed the lack of demand coming from the region.
China's producer price index hit 8% in April while the consumer price index reached 2.1%, accelerating from March's 1.5%. The PPI figure is a slight fall from the 8.3% in March which "isn't a bad read" when considering the "increases in fuel and oil, ferrous and base metals [prices]," said Marex's Asian metals team.
Demand might be driving commodity market sentiment right now, but supply risks remain an important influence that shouldn't be forgotten, said Commonwealth Bank of Australia.
Commodity prices have been falling on demand concerns because of the Covid-19 lockdowns in China--a top buyer of many commodities--and rising interest rates, which have damped risk appetite. But "the influence of supply-side dynamics is still notable," said CBA, especially as the Ukraine conflict continues to cloud the outlook for Russian commodity supply.
TODAY'S TOP HEADLINES
Allianz Books Extra $2 Billion in Legal Expenses
Allianz SE has set aside an additional $2 billion for legal expenses related to ongoing settlements with investors in funds that sustained losses during the March 2020 market mayhem.
The German financial giant said Wednesday it booked 1.9 billion euros, equivalent to about $2 billion, in legal provisions in the first quarter owing to further settlements with investors and continuing discussions with the U.S. government.
Swedish Match Agrees to $16 Billion Takeover by Philip Morris
Swedish Match AB said Wednesday that its board agreed to a 161.2 billion Swedish krona cash offer, equivalent to $16 billion, from Philip Morris International Inc.
Under the proposal, subject to shareholder approval, investors in the Stockholm-based company will receive 106 Swedish krona in cash for each share held. The price represents a 39% premium to the company's share price of 76.50 Swedish krona on Friday, the day before The Wall Street Journal reported that the companies were in talk.
Bain Capital Mulls Single-Asset Secondary Deal for Imperial Dade
Bain Capital Private Equity is preparing to launch a single-asset secondary deal for its portfolio company Imperial Dade, just a week after agreeing to sell a partial stake in the company to Advent International Corp.
The firm aims to raise between $500 million and $1 billion for a so-called continuation fund to support the deal, which would give it more capital and time to manage Jersey City, N.J.-based Imperial Dade, according to people familiar with the matter. Private-equity firms typically raise such funds from secondary investors to finance the acquisition of assets they own through prior funds.
Truist Financial Acquires Gamified Fintech Startup Long Game
Truist Financial Corp., operator of one of the nation's largest commercial banks, has made an investment in game technology, acquiring Long Game Savings Inc., maker of a mobile app that rewards users for saving money.
The deal, led by Truist Ventures, the Charlotte, N.C.-based bank's venture-capital arm, includes Long Game's team of engineers and designers. Truist said it plans to operate Long Game as a stand-alone app for now in an effort to convert the app's users to customers. Terms of the deal weren't disclosed.
Toyota Sees Higher Material Costs Eating Into Profit
Toyota Motor Corp. projected a 21% drop in net profit for the current fiscal year despite higher revenue, blaming higher material costs.
Toyota shares fell following the announcement Wednesday. The shares closed down 4.4% in Tokyo trading Wednesday.
CATL Shares Rise on Prospects of Profit Margin Recovery
Contemporary Amperex Technology Co. shares rose sharply Wednesday amid bullish sentiment for technology stocks and mounting hopes for a recovery in the Chinese electric-vehicle-battery maker's profit margins.
The Tesla Inc. supplier's Shenzhen-listed stock advanced 8.1% to 409.75 yuan ($60.84), notching its biggest one-day gain in almost two months as the broader ChiNext Price Index rose 3.1%. Over the past two sessions, CATL has risen 11%, erasing losses from the past two weeks.
Latam Airlines Beats Early Appeal of Creditors' $734 Million Fee
Latam Airlines Group SA's agreement to pay its major creditors $734 million in fees can't be appealed ahead of a bankruptcy-court trial next week on the Chilean airline's chapter 11 exit proposal, a federal judge said Tuesday.
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