MARKET WRAPS

Watch For:

EU New Commercial Vehicle Registrations; Germany GfK Survey; France Consumer Confidence Survey; Italy Foreign Trade non-EU; UK CBI Distributive Trades Survey; updates from Clariant, Schneider Electric, TechnipFMC, Credit Suisse, Naturgy Energy, Iberdrola, Daimler, Deutsche Bank, Puma, Atos, Air Liquide, Cellnex Telecom, MFE-MediaForEurope, Tod's, Generali, Anheuser-Busch InBev, Worldline, Ipsen, Aeroports de Paris, Unibail-Rodamco-Westfield, DWS Group, KUKA, Red Electrica, Aena, SME, Cellnex Telecom, Swiss Re, X5 Retail, GlaxoSmithKline, Yandex, Telia, SEB, Assa Abloy, Finnair, STMicroelectronics, Aveva, Lloyds Banking, Fresnillo, Renishaw, WPP, London Stock Exchange, Currys, Persimmon, British American Tobacco, NatWest, Pershing Square, EN+ Group

Opening Call:

Heavy losses on Wall Street will likely drag on European shares early Wednesday. In Asia, most major benchmarks were in the red; the dollar and oil extended their gains; while bond yields and gold lost ground.

Equities:

European shares face a negative start Wednesday, although losses are unlikely to mirror Wall Street's sharp retreat.

On Tuesday, the Dow lost 800 points, while Nasdaq booked its lowest close since 2020 as investors sifted through a raft of company results and awaited more tech earnings reports that came after the closing bell.

Shares of Microsoft rose more than 4% in after-hours trading after it announced first-quarter earnings and revenue above analysts' expectations. Alphabet reported slower sales growth in the first quarter, sending its shares down more than 4% after the close.

Read: Alphabet Earnings Show Slowing Sales Growth on Digital-Ad Tumult

Read: Microsoft Beats on Earnings after Raising Prices for Office; Stock Jumps

"Investors are not necessarily secure" in the strength of the market, with "fragility" on display since the beginning of the year, said Aoifinn Devitt, chief investment officer at Moneta. "There is this fear of slowing growth."

Stocks to Watch:

Rio Tinto faces earnings risks from lower iron-ore prices, said Barclays, downgrading the miner to underweight.

Rio has the most exposure to iron-ore prices of all the miners Barclays covers and while lower ore prices may be expected by consensus, historically Rio's share price has fallen 93% of the time when ore prices drop more than 5% month-on-month, Barclays said.

Anglo American's stock dropped 24% in three days after its first-quarter warning and Barclays said it sees scope for something similar to happen with Rio in the coming months, based on potentially lower ore shipments guidance and possible rises in unit costs.

Forex:

The dollar extended gains in Asia and MUFG Bank said there were several factors in play that could support the currency in the near term.

These included: fears of elevated levels of inflation, aggressive monetary policy tightening by major central banks and global growth concerns amid the Russia-Ukraine war.

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The euro may fall versus the dollar if data on Friday show eurozone core inflation and the Federal Reserve's preferred measure of inflation both accelerated, said BMO Capital Markets.

A sharp rise in eurozone core consumer prices in April and an unexpected increase in the U.S. core personal consumption expenditure price index in March would hurt EUR/USD because the European Central Bank's cautious policy stance will appear more detached while the Fed is taking action to curb inflation, said BMO.

"The point is that there isn't much high inflation can really do to help the EUR until the ECB provides markets with a time, a place, a roadmap, and a magnitude for tightening."

Bonds:

Treasury yields continued to move lower after they dropped to their lowest in almost 2 weeks Tuesday.

"It's still early days, but it could be that [Monday's] moves on bond markets were some profit taking on short positions with markets gradually keeping next week's FOMC meeting in mind," wrote analysts at KBC Bank.

"The trend on bond markets has been very strong with an aggressive Fed tightening cycle discounted by now. Why not lock in some gains awaiting some fresh guidance?" they wrote.

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Deutsche Bank's David Folkerts-Landau said a recession is to be expected as a result of the Fed's tightening cycle.

"The only way to minimize the economic, financial, and societal damage of prolonged inflation is to err on the side of doing too much," he said, comparing the Fed's predicament with the Volcker years.

"Like then, we will get a major recession but...the more aggressively the Fed acts, the less longer-term damage to the economy there will be."

Some analysts have said that recession fears are behind the recent demand for U.S. government debt.

Energy:

Oil prices added to Tuesday's gains after China took steps to backstop its economy and avoided a full lockdown of Beijing in response to rising Covid-19 cases.

However, CBA analyst Tobin Gorey said investors remained worried about global economic growth, particularly on how China's Covid-19 measures may weigh on energy demand. EU-Russia relations will also remain in focus, after Germany's Economy Minister said that a full embargo on Russia's oil is now "manageable".

"Such an embargo would constrict supply to some degree," Gorey said.

Other News:

Late Tuesday, the API reported inventories of crude in the U.S. jumped by 4.8 million barrels in the latest week, while gasoline supplies fell by 3.9 million barrels. The results, bearish for oil, were released ahead of official EIA inventory data later Wednesday.

Average forecasts in a WSJ survey indicate the EIA report will show crude inventories rose by just 600,000 barrels and that gasoline supplies increased by 100,000 barrels.

Metals:

Gold futures eased lower, after they closed the New York with modest gains.

The sharp selloff in U.S. equities Tuesday has weighed on the precious metal, said SPI Asset Management analyst Stephen Innes, with stocks typically used as a source of liquidity to buy gold.

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Base metals were broadly higher, buoyed by Beijing's increased monetary support and infrastructure spending, ANZ said.

In particular, copper was finding support as inventories of the metal has further depleted, ANZ said, although an improving trade relationship between China and Russia was easing supply concerns and may cap the price gains.


TODAY'S TOP HEADLINES

Russia Halting Gas Flows to Poland, Bulgaria Over Payment Terms

Russia said it would halt gas flows to Poland and Bulgaria starting Wednesday, the first time it has followed through on a threat to cut off countries that don't pay for their gas on new, wartime terms outlined in March by Russian President Vladimir Putin.

The move marks a major escalation by Russia, which has tried to bolster its currency by insisting customers pay for gas in rubles, and introduces the possibility that more economies in Europe, deeply dependent on Russian gas, could be targeted. Gas prices in Europe rose by more than 10% late Tuesday as traders weighed risks to already tight supplies.


China Industrial Profit Growth Stumbles on Covid Lockdowns

BEIJING-China's industrial profits increased 8.5% in the first quarter of the year, slowing from the final quarter of 2021 as a wave of Covid-19 spurred lockdowns at many industrial cities and hindered logistics and transportation.

In March, industrial profits rose 10.6% from a year earlier, accelerating from the 5% pace marked in the first two months of the year, the National Bureau of Statistics said Wednesday.


Russia Tried to Sell a Huge Slug of Oil. Nobody Wanted It.

Russia failed to sell a huge batch of oil, a sign that soon-to-be imposed sanctions against its state oil giant are playing havoc with the energy industry that undergirds its bruised economy.

Moscow maintained a brisk pace of energy exports in the two months after the invasion, bringing in revenue that Kyiv says funds the Kremlin war machine. Many U.S. allies left oil and gas shipments out of their harshest sanctions on Russia. Importers in India and elsewhere swooped in to buy cheap Russian barrels at a time of rocketing energy prices.


Senate Confirms Brainard as Federal Reserve's Vice Chairwoman

Federal Reserve governor Lael Brainard won Senate confirmation Tuesday to become the central bank's vice chairwoman with a 52-43 vote, securing her position as a top adviser to Chairman Jerome Powell as the central bank races to remove stimulus and contain rising inflation.

But absences of elected officials due to Covid cases delayed the confirmation process for another Fed nominee, Lisa Cook.


Russia's Lavrov Says NATO Is Using Ukraine as a Proxy, Warns Against Global Conflict

Russia's top diplomat said the West was engaged in a proxy war with his country that could escalate into a global conflict with nuclear weapons, as Western nations elevated their commitment to helping Ukraine defend itself.

"The risk is serious, real. It should not be underestimated," Russian Foreign Minister Sergei Lavrov said in a Russian state-television interview broadcast Monday night. "Under no circumstances should a third world war be allowed to happen," he said, adding that "there can be no winners in a nuclear war."


Real Yields Wade Toward Positive Territory, Denting Stocks

Yields on government bonds are catching up with expected inflation after years of lagging behind it, a threat to the speculative stock-market bets that proliferated in the era of rock-bottom rates and economic stimulus.

Bond yields that trail inflation push investors to seek an alternative; many found it in the stock market, powering a surge in risky assets.


Lawmakers Prepare to Tackle More Aid for Ukraine in Shift to Long-Term Support

WASHINGTON-Lawmakers said they were prepared to quickly approve another package funding weapons and economic aid for Ukraine, as the U.S. shifted to a longer-term commitment to back Kyiv to fend off Russia's invasion.

(MORE TO FOLLOW) Dow Jones Newswires

04-27-22 0019ET