North American Morning Briefing: Stock Futures Swing in Choppy Trading


Watch For:

ISM Report on Business Manufacturing for May; Bank of Canada Interest Rate Decision; Comcast, Alphabet Annual Shareholders Meetings

Opening Call:

Stock futures wavered between small gains and losses Wednesday in a choppy premarket trading session, pointing to more volatility ahead.

Wednesday’s session ushers in a new trading month, but few investors expect a reprieve from the volatility that has dominated the markets this year. Many traders remain worried about the pace of the Federal Reserve’s interest-rate increases and whether they will plunge the U.S. economy into a recession. Eight of the last 11 extended Fed rate-rise cycles have eventually ended in recession, according to Deutsche Bank analysts.

Still, many traders say a recession isn’t guaranteed, and any significant economic slowdown could be many months away. That has led some investors to wade into the market and scoop up shares with beaten-down valuations, injecting more volatility into markets.

More lightly staffed trading desks during the summer months could spur more volatility in the weeks ahead. Summer trading tends to have lower trading volumes and less liquidity, leading to more dramatic moves in stocks. Many investors are also bracing for more volatility ahead in other asset classes, which have also notched dramatic swings this year.

In premarket trading, Salesforce jumped 7.7% after reporting revenue that outpaced analyst expectations, easing concerns about demand for its business software. Shares of energy companies also climbed, tracing oil prices higher. Marathon Oil and Occidental Petroleum each advanced more than 1% ahead of the opening bell.

Fresh data on activity at U.S. factories are due later Wednesday, as are results from Hewlett Packard Enterprise and the meme stock GameStop.

Overseas, the pan-continental Stoxx Europe 600 fell 0.2%, erasing earlier gains while trading was mixed in Asia.


A selloff in bonds has helped to lift the dollar slightly, alongside concerns about the effect of the EU oil embargo on Russia and Tuesday’s better-than-expected U.S. consumer confidence data, said ING.

Speculation the Federal Reserve could pause raising interest rates in September is being kept at bay for now, which is “laying the basis for a period of gradual re-strengthening in the dollar.”

ING said the DXY Dollar Index could advance to the 103.00 area in the run-up to the June 15 Fed meeting. However, firmer equity markets on Wednesday might help lift riskier currencies against the dollar, ING added.

Fears about the risks to eurozone growth after the EU announced a plan to ban Russian oil imports are weighing on the euro, which could fall to $1.05 by the end of the month, said ING.

Growth concerns offset Tuesday’s news that eurozone annual inflation jumped to a record 8.1% in May, which failed to lift the euro despite confirming the likelihood of interest-rate increases by the European Central Bank.

“While high inflation is keeping the ECB tightening expectations supported, the euro–which is already embedding a good deal of monetary tightening–is struggling to find any solid bullish driver,” ING said.


Oil futures added almost 2% in Europe, boosted by the EU’s plan to ban Russian crude imports and despite reports that OPEC was considering suspending Russia from its quotas.

“Russian crude imports are likely to stay supported in the near term, with a phased reduction of Russian barrels by Europe offset by strong demand for discounted Russian barrels from India and China,” said UBS.


Gold extended its retreat in early European trading, as higher oil prices triggered by the EU’s ban on most Russian crude added more headaches for policymakers seeking to control inflation, while the dollar and Treasury yields rose.

Both have been the preferred inflationary hedge for investors over gold in recent weeks.

Base metal prices were also lower.

“The pullback in oil [Tuesday] was quite significant for aluminum, putting pressure on prices, given oil typically equates to energy and energy in turn is the biggest cost factor of the production of refined aluminum,” said Marex’s Asian metals team.

And copper prices falling against a rising dollar further highlights the recession risks faced by the global economy, Marex added.

Other News:

Fitch said iron ore has performed better than expected through the worst of China’s recent Covid-19 lockdowns, as it raised its 2022 price forecast to $130/ton from $120/ton.

“While we expect iron-ore prices to see some continued weakness for spot prices in the coming days from continuing lockdown restrictions in China, we believe that there is now primarily upside for iron ore demand in the months ahead.”




HP Lifts Earnings Outlook Despite Supply-Chain Disruptions

HP Inc. offered an upbeat earnings outlook even as ongoing supply-chain disruptions and sanctions against Russia impact its laptop and printing business.

The tech equipment company on Tuesday said demand for computers in recent months was largely fueled by sales to commercial customers. HP joined Dell Technologies Inc. and others in seeing a slowdown in lower-cost laptop sales that boomed during the pandemic, whereas businesses are still investing in computers as staff switch from remote to hybrid work arrangements.


Wells Fargo Told by Senator to Fix Its Risk-Management Practices

Wells Fargo & Co. must fix its governance and risk-management issues, the chairman of the U.S. Senate Banking Committee said, highlighting what he called a “laundry list” of consumer abuses and compliance breakdowns.

The bank has been plagued by weaknesses in its governance and risk-management practices for nearly a decade, Sherrod Brown (D., Ohio) said in an open letter sent Tuesday to Wells Fargo Chief Executive Charles Scharf.


Salesforce Sales Jump 24%, Easing Concerns About Business Demand

Salesforce Inc. posted a better-than-expected 24% increase in fiscal first-quarter revenue, easing concerns about demand for its business software.

Shares of Salesforce, which have fallen this year along with a broader selloff in tech stocks, rose more than 7% in after-hours trading following the company’s results.


Supreme Court Gives Tech Industry Reprieve From Texas Social-Media Law

The Supreme Court on Tuesday blocked Texas from immediately enforcing a new state law that aims to prohibit large social-media platforms from suppressing users’ posts based on the content of their speech.

The court, in a brief written order, granted an emergency request by a pair of leading tech-industry trade groups to put the law on hold for now while they challenge it in court.


DWS CEO Woehrmann Resigns Hours After Raid on Offices

The chief executive officer of Deutsche Bank AG’s asset-management subsidiary DWS Group will step down, the German lender said Wednesday, hours after a raid by German authorities on their Frankfurt offices.

CEO Asoka Woehrmann, who has led DWS since 2018, said he would resign “in agreement with the company”, to be replaced by Stefan Hoops effective June 10, after DWS’s annual general meeting on June 9, Deutsche Bank said.


Chinese EV Maker WM Motor Plans Hong Kong IPO

Chinese electric-vehicle maker WM Motor Holdings Ltd. is planning an initial public offering in Hong Kong, in the wake of secondary listings by several rivals in the Asian financial hub.

The Shanghai-based company said in a filing to the Hong Kong bourse on Wednesday that it plans to use the proceeds from an offering to fund research and development of next-generation EVs, expand its sales-and-services network, and repay loans, among other things. It didn’t specify a timeline for the deal nor say how much it intends to raise.


Exclusive: Fed’s Bostic says idea of September pause is not tied to any looming market rescue

Atlanta Fed President Raphael Bostic, in an exclusive interview with MarketWatch, said his suggestion that the central bank take a September “pause” in its push to raise interest rates should not be construed in any way as a “Fed put,” or belief that the central bank would come to the rescue of markets.

In a Tuesday interview, Bostic said the notion of any sort of “Fed put” was never a factor in his thinking.


Eurozone Manufacturing Orders Fall for First Time in Almost Two Years

The fragility of the eurozone manufacturing sector was once again clear in the purchasing managers index for May, as manufacturing orders fell for the first time since June 2020, S&P Global said in a note.

The S&P Global manufacturing PMI fell to 54.6 in May from 55.5 in April. This is the lowest mark in 18 months.


China Manufacturing Sector Deteriorated at Softer Pace in May

A private gauge measuring activity in China’s manufacturing sector declined at a slower pace in May as more cities across the country emerged from the lockdowns that had brought daily life and economic activity to a near-standstill.

The Caixin China purchasing managers index rose to 48.1 in May from April’s 46.0-a 26-month low-but still marked a third straight month of contraction, according to data released Wednesday by Caixin Media Co. and S&P Global.


BOJ Deputy Gov Calls for Fiscal Support to Ease Burden of Energy Inflation

Bank of Japan Deputy Gov. Masazumi Wakatabe said Wednesday that both monetary easing and fiscal expansion would be needed to tackle higher commodity prices and Japan’s low inflation at the same time.

“Since the price rises in energy and food are mainly caused by cost-push factors from abroad, it is desirable to respond to them through measures other than monetary policy, which is aimed at managing aggregate demand, ” Mr. Wakatabe said in a speech.


Ukraine’s Zelensky Rejects Trading Land for Peace With Russia

(MORE TO FOLLOW) Dow Jones Newswires

June 01, 2022 05:38 ET (09:38 GMT)

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