MARKET WRAPS

Watch For:

Consumer Price Index for May; University of Michigan Preliminary Consumer Survey for June; World Agricultural Supply and Demand Estimates; Canada Labour Force Survey for May

Opening Call:

Stock futures pointed to a choppy start for Wall Street Friday, with investors in a nervous wait for May inflation data.

The consumer-price index is expected to show a large 0.7% increase when the report is released ahead of the open--more than double the gain in the prior month.

Heightened inflation is likely to put pressure on the Federal Reserve to lift interest rates quickly in an effort to temper rising prices. Fed officials are largely expected to raise the central bank's key interest rate by half a percentage point next week and replicate that in July.

"Analysts expect inflation to stabilize around last month's 8.3% level, but we could see a bad surprise today, as the positive pressure on food and energy prices and the unexpected uptick in secondhand car prices in May could prevent the index to ease for a second consecutive month," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note to clients.

"A stronger-than-expected inflation figure would revive the Fed hawks, and eventually push the S&P 500 below the 4000 mark before the weekly closing bell. A softer inflation read on the other hand, would resuscitate hope that inflation has peaked two months ago, and the worst is behind," said the analyst.

Overseas, the pan-continental Stoxx Europe 600 declined 1.1%, leaving the broad index on course for its fourth-consecutive day of losses. In Asia, most major indexes closed lower.

Forex:

The dollar could rise along with Treasury yields if the inflation print exceeds forecasts, said ING.

The data could show the month-on-month core inflation rate surpassed market expectations of 0.5% ahead of what should be a "hawkish" Fed policy meeting next week, with continued signals for interest rate rises.

The prospect of further rate rises remains a headwind for risk assets, which should also drive safe-haven flows into the dollar, ING said.

"The DXY dollar index remains well supported at 103 and should remain bid as the U.S. inflation/Fed narrative returns to dominate markets."

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The euro should recover after falling Thursday, said Commerzbank.

"The combination of ECB statement and market reaction points towards a recovery in EUR/USD," wrote analyst Ulrich Leuchtmann.

"The ECB provided certainty about the future rate path to an extent that could not have been predicted beforehand," which is at least "moderately euro-positive."

The micro structure of a market can sometimes mean it doesn't react in a linear manner to news flow, Leuchtmann added.

Bonds:

Treasury yields made further gains early Friday, led by shorter-end rates, as investors awaited the inflation data.

Fixings, or derivative-like instruments related to Treasury inflation-protected securities, or TIPS, imply that May's year-over-year CPI reading will come in hotter-than-expected and rise above March's 40-year high in coming months.

"Thursday's curve dynamics reinforced one of our core tenets for the year: monetary policy makers will remain in the drivers' seat unless and until risk assets come sufficiently off the rails," wrote BMO Capital Markets strategists Ian Lyngen and Benjamin Jeffery.

Energy:

Oil prices extended their retreat in Europe as new lockdowns in China threatened further damage to demand.

Parts of Shanghai introduced new Covid-19 restrictions Thursday and outlined a new round of mass testing. The new measures come weeks after the city of 25 million people eased measures that had weighed heavily on oil prices and knocked economic activity.

Friday's inflation data will be keenly watched by oil traders since it will have a bearing on monetary policy and with implications for oil demand.

Metals:

Metals prices were lower across the board in early European action, with risk sentiment hit by worries over inflation and economic growth.

The selloff suggests the metals market is shrugging off micro developments such as copper mine restarts in Peru, and adopting a bearishness to weak macro sentiment, Marex analysts wrote. "Longer-term trends show bearishness in the base metals space."


TODAY'S TOP HEADLINES


Facebook Rethinks News Deals, and Publishers Stand to Lose Millions in Payments

Meta Platforms Inc.'s Facebook is re-examining its commitment to paying for news, people familiar with the matter said, prompting some news organizations to prepare for a potential revenue shortfall of tens of millions of dollars.

The company has paid average annual fees of more than $15 million to the Washington Post, just over $20 million to the New York Times, and more than $10 million to The Wall Street Journal, according to people familiar with the matter. The Journal fee is part of a broader Facebook News deal largely negotiated by parent company Dow Jones & Co., including annual compensation worth more than $20 million, people familiar with the partnership said.


DocuSign Earnings Disappoint, Sending Down Shares

DocuSign Inc. shares fell 23% in after-hours trading Thursday after the e-signature software developer said that its growth slowed in the first quarter and that it is scaling back its hiring plans.

Chief Executive Daniel Springer said DocuSign is experiencing many of the macroeconomic headwinds that peers are also facing, adding that "the level of growth in certain areas is lower than our prior expectations."


Former Theranos President's Defense Rests in Criminal-Fraud Trial

SAN JOSE, Calif.-Lawyers for Ramesh "Sunny" Balwani called their second and final witness and rested their brief defense of the onetime Theranos Inc. executive charged with a dozen counts of criminal fraud.

Mr. Balwani didn't testify in his own defense. Thursday's testimony from technical consultant Richard Sonnier brings the trial, which follows the conviction of Theranos founder and Chief Executive Elizabeth Holmes in January, nearer to completion. Mr. Sonnier's technical testimony about a database followed testimony from an Arizona physician, who backtracked some of her support for Theranos on the stand.


Stitch Fix to Cut About 330 Jobs

Stitch Fix Inc. said it would cut about 330 jobs as the personal shopping and styling service grapples with a slowdown in sales and widening losses.

The moves would affect roughly 15% of the salaried positions at the San Francisco-based company, and about 4% of its overall workforce, Chief Executive Officer Elizabeth Spaulding said in a memo to staff Thursday. Most of the reductions are in the company's nontechnology corporate roles and styling leadership roles, the memo said.


Yellen Sees High Gasoline Prices Persisting

WASHINGTON-Treasury Secretary Janet Yellen said elevated gasoline prices-near $5 a gallon-are likely to persist, but she doesn't see a slowing U.S. economy slipping into recession.

Disruptions in global oil markets caused by Russia's war against Ukraine and the subsequent sanctions imposed on Russia are likely to keep oil prices elevated, she said Thursday. Oil prices typically drive gasoline costs. She said President Biden's decision to release oil from the strategic petroleum reserve this year was the administration's main tool to put downward pressure on prices.


China's Inflationary Pressures Stay Muted

HONG KONG-Inflationary pressure stayed soft in China as Covid-19 lockdowns hammered domestic demand, leading economists to forecast that policy makers may ramp up stimulus to boost economic growth and employment.

Consumer inflation continued low in May, the National Bureau of Statistics reported Friday, with prices up 2.1% from a year earlier, matching April's rate. With decades-high inflation continuing to torment the U.S. and many developed countries, that makes China an outlier among the world's largest economies.


Japan Financial Authorities Voice Concern Over Yen's Fall

Japan's Ministry of Finance, the Bank of Japan and the Financial Services Agency on Friday expressed concern over the yen's recent rapid weakening.

"We are concerned about rapid falls in the yen seen in the foreign exchange market recently," they said in a joint statement issued after a meeting.


Chinese Banks Extended More Loans Than Expected in May

Chinese banks extended more loans than expected in May amid Beijing's calls to step up support for the cooling economy.

New yuan loans issued by commercial banks stood at 1.89 trillion yuan ($282.4 billion) in May, up sharply from CNY645 billion in April when massive Covid-19 lockdowns reined in credit demand, according to data released by the People's Bank of China on Friday.


The China-Germany Investment Nexus Frays

Germany Inc. and China Inc. have long been wrapped in the tightest of corporate embraces. But lately there have been increasing signs that the bonds of friendship-and profit-have started to chafe a bit.

The latest sign came last week, when The Wall Street Journal reported that the German government had declined to renew state-sponsored insurance covering losses related to political upheaval for Volkswagen's operations in China. Berlin cited concerns over human-rights violations in China's Xinjiang region, where Volkswagen has a plant. Volkswagen says there is no forced labor at its factory and that it still sees China as the world's key driver of economic growth.


Eurozone Has a Hot Travel Season Ahead -- Talking Markets

Rising eurozone inflation is squeezing household purchasing power and the manufacturing sector continues to struggle with supply shortages. But in this weakening economy, there is one sector that is taking off: tourism.

"Hospitality and travel is booming as Europeans make the most of their post-Covid freedoms," Capital Economics' Andrew Kenningham said in a research note.


Biden Pushes Back Against Waning U.S. Influence in Latin America at Summit

(MORE TO FOLLOW) Dow Jones Newswires

06-10-22 0534ET