North American Morning Briefing: Stock Futures Jump as Mood Improves

MARKET WRAPS

Watch For:

Existing Home Sales for May

Opening Call:

Stock futures rose sharply Tuesday as investors returned from a three-day weekend feeling a bit more optimistic after last week’s steep selloff.

Lifting sentiment were comments from Joe Biden, who said a U.S. recession wasn’t “inevitable.” The president’s comments were made Monday following a talk he had with former Treasury Secretary Larry Summers, who feels there is a recession ahead.

“No, I don’t think it is,” Biden said about asked whether the U.S. was headed for a recession. “I was talking to Larry Summers this morning and there’s nothing inevitable about a recession.”

Appearances before Congress from Jerome Powell will be closely watched by Wall Street this week. The Fed has been hiking rates in an effort to cool inflation that is running at 40-year highs. Some investors fear the Fed’s aggressive policy tightening will lead to a recession.

St. Louis Fed President James Bullard played down fears of a severe recession, saying Monday the U.S. economy should continue to grow in the coming several months. But he warned that high inflation posed a serious risk to the U.S. economy.

In premarket trading in New York, gains were spread across many sectors, with technology shares, travel companies and banks trading higher. Cruise lines Royal Caribbean , Carnival and Norwegian Cruise Line each climbed more than 3%, while American Airlines climbed 3.1%, boosted by expectations for what is expected to be a busy travel season.

Megacap technology companies climbed before the opening bell, too, with holidaydiscounts.info adding 2.2% and Netflix adding 2.3%. Tesla jumped 2.9%.

Overseas, the pan-continental Stoxx Europe 600 rose 1%, while trading was mixed in Asia.

Economic Insight:

The probability of a recession in the U.S. over the next year has risen to 30% from a previous estimate of 15%, as the Federal Reserve will likely be forced to respond more aggressively to high inflation, economists at Goldman Sachs said.

Tighter financial conditions are set to weigh on economic growth, and the Fed seems to be compelled to act if energy prices rise further and despite slowing economic activity. A recession caused by monetary policy tightening is likely to be shallow, but it could lead to a 2.5 percentage-point increase in the unemployment rate, the economists said.

“One additional concern this time is that the fiscal and monetary policy response might be more limited than usual.”

Read: Berenberg Expects Economy to Enter Recession in 2023

Forex:

The prospect of a temporary pause in the federal gasoline tax could support the dollar, ING said.

Looser fiscal policy combined with monetary policy tightening, which the Fed is carrying out, is “generally good news” for a currency, ING said.

“Let’s see how this gasoline tax holiday story develops and what size of fiscal stimulus it represents. This should be another factor keeping the dollar strong this summer.”

The euro could fall below parity against the dollar in coming years if weak growth and elevated inflation, or stagflation, becomes the new normal, said Danske Bank.

The global investment environment has been characterised by secular stagnation–mediocre growth but low inflation–since the 2007-08 financial crisis but it could transition toward years of stagflation, said Danske analyst Lars Sparreso Lykke Merklin. That means the dominance of the dollar, especially in EUR/USD, could last for some time.

“We may see a continued drift lower in EUR/USD over the coming 2-5 years, taking spot towards the 0.80-1.00 area.”

Cryptocurrencies continue to recover after the weekend’s heavy losses but they aren’t out of the woods, said Swissquote Bank analyst Ipek Ozkardeskaya.

“The risk of a further selloff cannot be ruled out as the tighter Fed expectations, the global selloff in risk assets and the fact that the massive outflows in cryptocurrencies started showing some cracks in the freshly born crypto industry make the cryptocurrencies increasingly less appetizing.”

Ozkardeskaya added that cryptocurrencies could see a limited recovery in the near-future.

Energy:

Oil prices made solid gains in Europe, clawing back some of last week’s losses as investors focus on limited supplies and building demand.

Recent Chinese data showing record oil imports for May suggests that demand is still strong, said OANDA’s Jeffrey Halley. “That remains so around the world, and the squeeze on refined products like diesel and gasoline remain as tight as ever.”

DNB’s Helge Andre Martinsen said last week’s slump in prices was technical in nature and “hence, we consider the recent weakness a buying opportunity.”

Exxon CEO Darren Woods said a lack of investment in new supply means that the oil market could remain tight for another three to five years, according to Bloomberg.

Metals:

Gold futures eased lower, pressured by weak demand.

“Physical demand is subdued, but we believe the gloomy economic backdrop should strengthen gold’s appeal,” said ANZ.

Metal prices edged higher in London but remained at multi-month lows on inflationary worries and weak demand, with Peak Trading Research saying that copper’s weakness is “a good proxy for weak global growth expectations.”

“We still need sustained consumption over a longer period to inspire macro confidence” with yo-yoing Covid-19 policies in China not helping to improve sentiment, said Marex’s Asian Metals team.

   
 
 
   
 
 

TODAY’S TOP HEADLINES

 
 

JetBlue Lifts Offer for Spirit Airlines, Commits to Selling Assets

JetBlue Airways Corp. is continuing its quest to buy Spirit Airlines Inc., increasing its offer and strengthening its commitment to divest itself of assets to get regulatory approval for the deal.

JetBlue on Monday increased its offer to $33.50 in cash per Spirit share. Previously, it had offered $31.50 per share.

   
 
 

Mondelez to Acquire Clif Bar for $2.9 Billion

Mondelez International Inc. said it would acquire Clif Bar & Co. for at least $2.9 billion, in a deal that adds the brands Clif Bar, Luna and Clif Kid to Mondelez’s food business.

The global food giant said Monday that it would continue to operate Clif Bar’s business out of the company’s headquarters in Emeryville, Calif., and would continue to manufacture products out of facilities in Indiana and Idaho.

   
 
 

Activists Target Nelson Peltz’s Trian Over U.K. Fund

A group of investors is agitating for change at a London-listed investment vehicle managed by shareholder activist Trian Fund Management LP, arguing that the company has deviated from its original purpose when it went public nearly four years ago.

The group, made up of Invesco Ltd., Janus Henderson Investors UK Ltd., Pelham Capital Ltd. and Global Value Fund, said Monday it is calling on the company’s board to convene an extraordinary general meeting of its shareholders and swap out current directors.

   
 
 

Canadian National Railway Says Shipments Uninterrupted After Union Walkout

Canadian National Railway Co. said its shipments throughout Canada and the U.S. haven’t been interrupted after its Canadian signal and communication workers walked off the job Saturday following months of contract negotiations.

The union is seeking improved benefits and wages. Robert Reilly, CN’s chief operating officer told employees in a letter Monday that the railway had offered the union, the International Brotherhood of Electrical Workers, a 10% wage increase and other benefits in a proposed three-year contract.

   
 
 

Fed’s Bullard Says He Expects Economic Expansion to Continue This Year

Federal Reserve Bank of St. Louis President James Bullard said the economy appears on track for more expansion this year, and that the central bank must meet market expectations for rate rises as part of its effort to rein in inflation.

“U.S. labor markets remain robust, and output is expected to continue to expand through 2022,” Mr. Bullard said in materials for a presentation in Spain. But he added, “Risks remain substantial and stem from uncertainty around the Russia-Ukraine war and the possibility of a sharp slowdown in China.”

   
 
 

Inflation Outpaces Forecasts in Australia and South Korea

Policy makers in Australia and South Korea warned that inflation was rising faster than expected, and the head of Australia’s central bank said it would take years for it to return to normal levels.

Reserve Bank of Australia Gov. Philip Lowe on Tuesday said inflation in Australia is on track to rise to 7% by the end of the year, higher than the bank’s last forecast in May when it expected inflation to peak at around 6%. Mr. Lowe added that it would take years before inflation returns to the central bank’s target range of 2%-3%.

   
 
 

RBA Seeks Credible Path Back to Inflation Target

SYDNEY-Australians should prepare for further interest rate increases as the Reserve Bank of Australia moves to implement what it describes as a “credible” path for returning inflation to the central bank’s 2.0%-3.0% target range.

RBA Gov. Philip Lowe said in a speech Tuesday that the pace of coming interest rate increases will be determined by events in the global economy, the rate at which labor costs rise domestically, and the strength of consumer spending over coming months.

   
 
 

U.S. Natural-Gas Exporter Completes First Deal With German Buyer

Venture Global LNG Inc. has struck the first binding deals by a U.S. natural-gas exporter to supply natural gas to a German company, as the European nation turns to America to help replace supplies from Russia.

On Tuesday, Venture Global said it agreed to sell 1.5 million metric tons of liquefied natural gas a year in two separate 20-year deals with German energy company EnBW Energie Baden-Württemberg AG, starting in 2026. Half of the amount will come from Venture’s Plaquemines LNG facility under construction in Louisiana, while the other half will come from another proposed facility in that state, it said.

   
 
 

Singapore Unveils S$1.5B Support Package to Help Combat Inflation

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June 21, 2022 05:39 ET (09:39 GMT)

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