MARKET WRAPS

Stocks:

European stocks declined Monday, reflecting a broad-based selloff as traders worried about the prospect of further aggressive interest-rate increases by the Federal Reserve and the European Central Bank against a backdrop of slowing economic growth.

All eyes are on the Fed's annual economic symposium in Jackson Hole, Wyo, scheduled for Friday, which is likely to be key in clarifying market expectations around Fed policy, with investors looking to Fed Chairman Jerome Powell's remarks.

In London, Cineworld Group gained 2% after the movie theater chain that owns Regal Cinemas said it was considering a possible voluntary Chapter 11 filing in the U.S. as part of its restructuring objectives.

Filing for U.S. bankruptcy to allow a financial restructuring probably gives Cineworld more flexibility than if the business went into administration under U.K. rules," AJ Bell investment director Russ Mould said.

"However, shareholders don't need a movie trailer to tell them more pain could be coming their way."

Economic Insight:

A looming eurozone recession and energy crisis may not stop the ECB from raising policy rates, Barclays said. The U.K. bank expects the ECB to increase policy rates by 50 basis points in September, and flags that another 50 basis-point raise could occur in October due to the persistence of elevated inflation.

"A hawkish tone by ECB members suggests more aggressive policy tightening could be required to ensure record-high spot inflation does not lead to inflation expectations de-anchoring," Barclays said. A technical recession doesn't look like a binding constraint any more, it added.

U.S. Markets:

U.S. stock futures are down on Monday amid fears that the recent rally was based on false optimism about a less hawkish Fed.

Wall Street was on course for a consecutive day of chunky declines as investors expressed wariness over a series of monetary, technical and seasonal factors.

The benchmark S&P 500 had rallied sharply off its mid-June low, partly on hopes that indications of peak inflation would allow the Fed to slow the pace of interest rate rises and even pivot to a dovish trajectory next year.

However, that assumption has been challenged over the past several days by a succession of Fed officials who, to the market's mind at least, seemed to be making a concerted effort to disabuse traders of the less hawkish narrative.

"Fed speakers continued to reiterate a 'whatever it takes' narrative to curb inflation," said Julian Emanuel, analyst at Evercore ISI, adding that the Fed is likely to maintain its "resolutely hawkish tone" at the Jackson Hole Symposium that begins later this week.

The dollar index is back to 20-year highs as worries about the European economy amid surging energy prices pull the euro to parity with the buck.

Forex:

Challenges facing countries outside of the U.S. are helping to lift the dollar while Federal Reserve Chairman Jerome Powell is likely to point to further rate rises in a speech later this week and may "counter notions of a 2023 pivot," ING said.

The Dutch bank points to China cutting its benchmark loan prime rate to support a slowing economy and poor trade data out of Korea. Germany's economic model of importing cheap energy from Russia and exporting high-value goods elsewhere, especially to China, is "facing challenges like never before," ING said.

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The euro hovered just above parity against the dollar, falling to a five-week low of 1.0012, and this time, any breach below that level is likely to be more lasting than the fleeting breach last month, MUFG said.

The bank cited a "decline in optimism over inflation and some signs that the equity-market recovery could be petering out," as well as risks of weak advance eurozone purchasing managers' surveys due Tuesday.

"The hit from the surge in natural gas prices you feel has not yet been fully reflected in business sentiment readings," MUFG said. "A [EUR/USD] break below parity at this juncture could well be meaningful."

Disappointing growth in the eurozone remains a headwind for any recovery in the euro, but not enough to derail the ECB from its monetary policy normalization path, Barclays said.

"We think a technical recession is not a roadblock for ECB policy normalization, as indicated by Governing Council member [Isabel] Schnabel last week," the central bank said.

The ECB is scheduled to publish the minutes of the July monetary policy meeting when it raised interest rates by 50 basis points. The minutes "should shed more light on the rates outlook," Barclays said.

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RBC Capital Markets expects the pound to suffer from high inflation hitting the economy and advises selling GBP/CHF, targeting 1.1100 with a stop at 1.1450. Sterling "saw no benefit" from last week's "sharp repricing of U.K. rates"--when high inflation pointed to more interest-rate rises--RBC said.

Friday should see "another huge increase" in the U.K. energy price cap, increasing cost-of-living concerns, while Tuesday's PMI data should show a weakening economy. RBC favors selling sterling versus the Swiss franc, which shouldn't be too impacted by Jerome Powell's speech Friday.

Bonds:

A return of 10-year Bund yields to 1.50% is a first target for the coming weeks, Morgan Stanley said, forecasting further rises in the fourth quarter. Their central scenario remains a rise above 2% in 4Q 2022.

Their rationale behind the expected yield rise is that the 10-year Bund yield is still 30 basis points too expensive even after the selloff from early August.

Further, "additional hawkish comments from European Central Bank members are likely which would fuel a repricing higher of October and December 2022 ECB meetings and a rise in Bund yields," Morgan Stanley added.

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September tends to be one of the weakest months for gilts from a technical aspect, Morgan Stanley said. "Some of that may be priced ahead of the beginning of the month but in any case we do not think that investors should be long duration now," the bank said. With the coupon reinvestments coming from short gilts, the support on the curve is likely to be minimal, MS added.

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Expected weakness in preliminary August eurozone purchasing manager survey data, due for release Tuesday, is likely to spark some demand for safe-haven bonds, ING said.

"The August PMIs aren't likely to paint a rosy economic picture, so some safe-haven demand should emerge for bonds," the Dutch bank said. The ECB's banging its "hawkish drum" should keep upward pressure on front-end rates, but the long end should fare better on weak economic data, ING said.

The preliminary eurozone composite PMI is expected to ease to 49.0 from 49.9 in July, according to The Wall Street Journal's poll of analysts.

Energy:

Oil prices edged up after falling earlier in the session, which follows weekend diplomatic efforts to revive the 2015 Iranian nuclear deal. The leaders of the U.S., U.K., France and Germany spoke about reviving the deal, the White House said.

Meanwhile, CNN reported Iran had dropped one of its "red line" demands that had proved a major obstacle to securing an agreement.

The news of the discussions is dragging on oil prices as a deal with Iran could see the OPEC member increase output by up to 1 million barrels a day, DNB Markets said.

Metals:

Gold prices edged down ahead of this week's Jackson Hole symposium. Fed Chair Powell's comments at the symposium may be a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his past comments, which had caused markets to price in rate cuts immediately following the rate-increase cycle, TD Securities said. As market expectations for rate cuts subside, speculative appetite in precious metals should dry up even further, it said.

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Base metals inched higher after Chinese banks cut interest rates on loans to households and businesses in an attempt to prop up growth. Gains are modest, however, as the dollar also rose, weighing on dollar-denominated commodities. The move to cut interest rates comes after China's central bank last week unexpectedly lowered two of its policy rates. China is the largest consumer of metals and moves to support growth could lead to more demand.

DOW JONES NEWSPLUS


EMEA HEADLINES

Europe's Natural-Gas Crunch Sparks Global Battle for Tankers

Europe's energy crisis has unleashed a global battle over natural-gas tankers, leading to a shortage of ships and further boosting the fuel's record prices.

European countries ramped up their purchases of liquefied natural gas from the U.S., Qatar and other sources this year as Russia cut supplies to the continent. They are competing with peers in South Korea and Japan-where gas demand has surged during a heat wave-for a finite amount of supply ferried by a limited number of vessels.


Vodafone Group Enters Terms to Sell Vodafone Hungary for $1.78 Billion

Vodafone Group PLC said Monday that it has entered terms to sell the entirety of Vodafone Magyarorszag Tavkozlesi Zrt, or Vodafone Hungary, for an enterprise value of 715 billion Hungarian forint ($1.78 billion).

The U.K.-based telecommunications company said it has agreed to sell its entire 100% stake in the unit to 4iG Public Limited Company and Corvinus Zrt, a Hungarian state holding company, subject to due diligence and regulatory approval. The companies are targeting a close of sale by the end of 2022.


Credit Suisse Appoints Dixit Joshi as Chief Financial Officer

Credit Suisse Group AG said Monday that it has appointed Dixit Joshi as its new chief financial officer to replace David Mathers, who is stepping down after more than a decade in the job.

The Swiss bank said that Mr. Joshi would take over in October after serving as group treasurer at Deutsche Bank AG for the past five years.


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08-22-22 0714ET