North American Morning Briefing: Tech Futures Rally After Brutal Week – Morningstar

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University of Michigan Preliminary Consumer Survey for May

Opening Call:

Stock futures rose Friday, suggesting markets could stage a relief rally at the end of a punishing week of losses across major indexes.

The stock market’s selloff this week came as investors have had to reckon with the growing risk of a recession, as the Federal Reserve attempts to wrestle inflation under control. Many institutional and individual investors alike have begun to discount the idea that the Fed can engineer a so-called soft landing, during which inflation falls but unemployment stays low and the economy keeps growing.

On Thursday, Jerome Powell acknowledged that getting inflation under control could create a short-term hit to the economy, saying on the Marketplace radio program that “the process of getting inflation down to 2% will also include some pain.” He repeated his view that further half-percentage point increases would likely be appropriate at coming meetings, but said the central bank could consider larger increases if economic data call for such steps.

This week’s inflation report offered little solace to investors, especially after data showed that price pressures were largely broad based. Even as gasoline prices eased, prices rose for groceries as well as dining out, airline travel and other services, spooking investors who had hoped that inflation had peaked.

That forced many to sell off riskier investments and pile into assets perceived as safer. Growth and technology stocks, which are typically hurt by higher interest rates, in particular were walloped. But the risk-off sentiment rippled elsewhere, leading to sharp plunges in cryptocurrencies, too.

“This week was like a pivot in the markets. The mood has changed from evaluating if we can live in an economy with higher rates to [investors] asking: ‘Are we on the brink of a recession?’ ” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

On Friday, however, technology stocks were among those that led the rebound. Tesla, Nvidia and Netflix each jumped 2.6% or more premarket.

Robinhood surged 21% premarket after Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, disclosed he bought a 7.6% stake in the brokerage.

Overseas stock markets also traded higher Friday. In Europe, the pan-continental Stoxx Europe 600 climbed 1.1%, while gains for most major benchmarks in Asia topped 2%.

Forex:

The dollar trimmed some of its recent steep gains after the DXY Index hit a 19-year high of 104.9250 Thursday, but any falls should be temporary, said MUFG.

“The dollar softness so far today looks more like a temporary respite with risks high that general financial market volatility will remain high.”

The euro could also be vulnerable, with focus on energy supply from Russia to Europe after a 12% rise in natural gas prices Thursday, MUFG added.

The dollar has weakened slightly with a generally risk-on prevailing mood but the currency’s gains are unstoppable, said LBBW. “For the time being, we expect the dollar strength to prevail.”

Bitcoin climbed 5.7% to about $30,205. Elsewhere, however, the beleaguered stablecoin TerraUSD continued to spiral lower, trading at 11 cents.

Energy:

Oil made modest gains in Europe, but prices were set for weekly losses as crude has been pushed around by uncertainty over an EU ban and China’s struggle against Covid-19.

Hungary has stepped up its opposition to an EU plan to ban Russian oil imports. The EU is now considering dropping the plan altogether, Politico reported. “For oil market participants, the central issue is the forever changing EU news flows as the EU’s Russia energy spat is turning into a comedy of errors,” said SPI Asset Management.

Commodities:

Gold edged down in early European trading, with its “status as an inflation hedge waning, as the risk of more aggressive monetary tightening rises,” said ANZ.

Most base metals–with the exception of nickel–were rebounding in Europe but demand worries persist.

Marex’s Asian metal desk expects “Dr Copper to take another hit,” over the apparent economic weakness and worries over Asian demand. Chinese copper smelters will soon move to annual maintenance, adding further pressure on demand.

 

TODAY’S TOP HEADLINES

 

Brookfield Maps Out Planned Spinoff of $80 Billion Asset Manager

Publicly traded Brookfield Asset Management Inc. plans to set up its asset management business as a separate enterprise and distribute a 25% interest worth an estimated $20 billion to shareholders later this year, Bruce Flatt, chief executive, said in a letter to investors Thursday.

The step will create a separately listed, pure-play investment firm with an estimated market value of about $80 billion, the letter said. The distribution by Toronto-based Brookfield will be valued at about $12 a share and will be tax-free for U.S. and Canadian investors.

 

FTX Founder Sam Bankman-Fried Buys 7.6% Stake in Robinhood

One of the biggest names in cryptocurrencies is betting on individual investors.

Sam Bankman-Fried, the 30-year-old billionaire who founded the cryptocurrency exchange FTX, bought a 7.6% stake in Robinhood Markets Inc., according to a Thursday regulatory filing. He paid about $648 million for the stake, which would make him the trading app’s third-largest shareholder.

 

Toshiba Discussing Strategic Options With 10 Potential Investors

Toshiba Corp. said Friday that it is discussing strategic options, including a potential buyout, with 10 investors.

The company will announce the number of nonbinding proposals and an overview of proposed deal structures ahead of its shareholder meeting in June, it said.

 

Senate Confirms Jerome Powell to Second Term Leading Federal Reserve

The Senate confirmed Federal Reserve Chairman Jerome Powell to a second four-year term that is shaping up to be every bit as trying as his first term as the central bank faces the highest inflation in 40 years.

Mr. Powell’s nomination, approved Thursday on an 80-19 vote, has been on track for months to win bipartisan approval despite unease over inflation and aggressive interest-rate increases that the Fed has urgently commenced to cool price pressures.

 

Bank of Japan Will Stick to Easy Monetary Policy, Gov. Kuroda Says

TOKYO-Bank of Japan Gov. Haruhiko Kuroda reiterated Friday that the central bank would stick to its monetary easing program as the nation’s economy is still recovering from the impact of the pandemic.

“While the inflation rate is expected to rise to around 2% in the short run, this will be driven by energy prices and lack sustainability,” Mr. Kuroda said in a speech. “The bank therefore does not consider that scaling back the current monetary easing is appropriate.”

 

Hong Kong Economy to Grow Slower Than Previously Forecast

Hong Kong’s economy is likely to grow slower than previously expected in 2022, as a worse-than-expected performance in the first quarter and the deteriorating export outlook outweigh the anticipated gradual revival of local economic activity.

The city’s real gross domestic product growth forecast for 2022 has been revised lower to 1%-2%, from 2%-3.5% as announced in the budget, the government said Friday. Underlying and headline consumer-price inflation forecasts for 2022 are maintained at 2% and 2.1%, respectively, it said.

 

China’s Money Supply Expanded in April as Central Bank Unleashed More Liquidity

BEIJING-China’s broadest measurement of money supply came in much higher than expected in April as the central bank provided more liquidity to further support the slowing economy.

M2 rose 10.5% in April from a year earlier, beating March’s 9.7% growth and market expectation of 9.9%, according to data released by the People’s Bank of China on Friday.

 

Hong Kong Spends Another US$365 Million to Defend Currency Peg

Hong Kong’s de facto central bank said it sold another US$365 million to buy Hong Kong dollars during New York hours Thursday, the third time it has acted this week to defend the city’s longstanding dollar peg.

The Hong Kong Monetary Authority had now sold about US$1.09 billion this week to stop the local currency trading beyond the weak end of its permitted range of 7.75 to 7.85 Hong Kong dollars per U.S. dollar.

 

Rand Paul Blocks Quick Passage of Ukraine Aid Bill

WASHINGTON-The Democratic and Republican leaders of the Senate tried to fast track a nearly $40 billion U.S. aid package to help Ukraine in its fight against Russia, only to be blocked by Republican Sen. Rand Paul of Kentucky, pushing passage of the bill into next week.

Senate Majority Leader Chuck Schumer (D., N.Y.) and Minority Leader Mitch McConnell (R., Ky.) came to the chamber floor together to request unanimous agreement from all 100 senators to allow a vote on the bill immediately.

 

Seoul to Offer Vaccines to Help North Korea Tackle Covid Outbreak

SEOUL-South Korea said it would offer vaccines to help with a nationwide outbreak of Covid-19 in unvaccinated North Korea, the first major outreach to Pyongyang by President Yoon Suk-yeol since taking office this week.

North Korea reported its first confirmed death from Covid-19 on Friday, after saying that there had been no cases for more than two years. More than 350,000 people contracted a fever that state media said “explosively spread nationwide” from late April, and at least one of six people who died tested positive for the BA.2 Omicron variant of the virus.

 

North Korea Cites Explosive National Covid-19 Outbreak, Reports First Death

SEOUL-North Korea reported its first death from a Covid-19 outbreak that it said for the first time had rapidly spread throughout the country.

(MORE TO FOLLOW) Dow Jones Newswires

May 13, 2022 05:38 ET (09:38 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.

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