MARKET WRAPS

Stocks:

Stocks in Europe tumbled Monday as fresh worries that spreading Covid cases and more lockdowns in China will hurt the global economy added to concerns that Federal Reserve tightening could also weaken growth prospects.

China-exposed stocks all dropped while the energy sector took a hit on sharply lower oil prices.

Despite some relief after French President Emmanuel Macron's re-election on Sunday, European markets have been overshadowed by broader macro-economic concerns and are tracking Friday's selloff on Wall Street and in China overnight, said Interactive Investor's Victoria Scholar.

Market Insight - French Election:

Emmanuel Macron's clear victory in French presidential elections is likely to reassure markets the European dynamic will continue, said Frederic Leroux, member of Carmignac's strategic investment committee.

"The negative aspect for the markets of this rather comfortable election could, however, come from a quick decision in favor of a Russian oil embargo which would exacerbate inflationary pressures and an economic slowdown in Europe."

However, it would be dangerous to take for granted that the outcome of this election is clear enough to anticipate the June parliamentary elections will give Macron a majority that will allow him to implement his pro-business and pro-European policies desired by markets, Leroux added.

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Seema Shah, chief strategist at Principal Global Investors said that while the election result "is good news for the euro, French bond spreads and the share prices of French banks, it is hard to see much upside for these assets in the near term given the broader macro outlook in the wake of the war in Ukraine."

Principal believes the probability of Europe ending this year in recession is high, and Macron's victory doesn't change this.

U.S. Markets:

Dow futures dropped more than 300 points as Friday's losses were poised to resume.

Wall Street is bracing for another busy earnings week, with quarterly reports due from Apple, Meta Platforms, Alphabet, Amazon.com and Microsoft, among others.

Twitter shares added 2.6% in premarket trading after The Wall Street Journal reported that the social-media company is in discussions to sell itself to Elon Musk and could complete a deal as soon as this week.

The yield on the benchmark 10-year Treasury note ticked down to 2.833% Monday from 2.905% Friday as investors sought safer assets to hold. Yields and prices move inversely.

Forex:

The euro fell to a two-year low against the dollar on the prospect of the Fed raising interest rates more aggressively that the European Central Bank.

"The main theme at present remains the intensity of monetary policy normalization among major central banks and between the Fed and the ECB in particular," said Unicredit Research.

Macron's re-election lifted sentiment only briefly while this week's economic data could offer clues about central bank policy intentions. These include first-quarter U.S. and eurozone economic growth data on Thursday and Friday respectively, and eurozone inflation figures on Friday, UniCredit said.

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Sterling could extend its losses against the dollar on a mixture of investor risk aversion, a potential scaling back of the market's U.K. interest-rate rise expectations and Brexit concerns, said ING.

"The deterioration in risk sentiment, risks of a dovish re-pricing in the BOE rate expectations and potentially some re-emergence of negative Brexit-related headlines continue to pose downside risks to the pound in the coming weeks, and a test of the [GBP/USD] 1.2500 support cannot be excluded," ING analysts said.

Markets continue to fully price in the BOE delivering six more 25 basis points rate rises by year-end despite a weaker U.K. economic growth outlook, they added.

Bonds:

Eurozone government bond yields dropped across the board, signaling investors' flight to safety despite Emmanuel Macron's re-election.

Macron's clear election win "was not enough to offset the negative risk sentiment arising from the worsening Covid situation in China, which sent equities, oil, and the euro lower," Mizuho's rates strategists said.

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There is likely to be a relief rally in French and Southern European government bonds, as a big risk to EU integration and cohesion policies has been removed, said Matteo Cominetta, senior economist at Barings Investment Institute, in reference to Macron's election win.

"I expect spreads of these bonds versus German Bunds to tighten in the coming days," while the euro is likely to appreciate, especially versus safe-haven currencies, such as the Swiss franc, he says.

Improving integration and growth prospects could translate into German and French long-term bond yields increasing, Cominetta added. However, he expects the relief rally to be relatively contained and short-lived, without sharp moves.

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There is room for "meaningful" syndicated government bond issuance in the eurozone in the remainder of the first half of 2022, said.

A number of countries are lagging in terms of funding progress relative to last year, reflecting a slowdown in syndicated issues due to the Russia-Ukraine conflict, said rates strategists Cagdas Aksu and Max Kitson.

However, they expect issuers to step up issuance to benefit from the final months of net asset purchases by the European Central Bank. Any pick-up in the pace of syndicated supply could add to bearish pressures on outright eurozone duration and eurozone government bond spreads.

Commodities:

Oil futures were close to 4% lower as Covid-19 cases spread in China, raising fears about further lockdowns weighing on demand.

China's latest outbreak is showing no signs of stopping, with deaths in Shanghai more than tripling on Saturday while cases have spread to Beijing. China has continued to respond with strict lockdowns that severely curtail activity.

A lockdown in Shanghai, a city of 25 million, is expected to eat into oil demand and the threat of continued measures is weighing on oil prices, analysts said.

Other News:

An immediate European Union ban on Russian oil would drive Brent price to $185 a barrel, JPMorgan said.

Such a move would disrupt more than 4 million barrels a day of Russian oil flows "with neither room nor time to re-route them to China, India, or other potential substitute buyers."

EU countries are weighing a ban on Russian crude imports but it is unclear how swift or gradual a ban would be. The largest customers for Russian oil, such as Germany, have pushed back on a sudden ban, favoring a phased approach.

The high prices resulting from a sudden ban would likely cause more pain to European consumers than Russian producers in the near term, JPMorgan said.

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Precious metals prices were weaker on subdued economic sentiment and possible bigger rate rises from the Fed.

"Traders are pricing in expectant higher real yields either because inflation expectations come down as growth expectations slow or further central bank hawkishness," said Stephen Innes, managing partner at SPI Asset Management.

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Iron ore and steel futures slumped as demand expectations are weighed by Shanghai's extended lockdown and fears that other parts of China, including Beijing, may be subject to similarly harsh curbs.

"Intensifying risks presented in rising virus infections [are driving] a need to stay cautious," said IG market strategist Yeap Jun Rong.

Read more here.

DOW JONES NEWSPLUS


EMEA HEADLINES

France's Emmanuel Macron Wins Second Term in Presidential Election

PARIS-French President Emmanuel Macron was re-elected by a wide margin, according to projections based on early ballot counts, overcoming deep divisions among voters worried about inflation, the war in Ukraine and the impact of immigration on France's national identity.

Mr. Macron garnered 58.8% of the estimated vote Sunday, while far-right leader Marine Le Pen won 41.2%, according to a projection from polling firm Ipsos.


Roche 1Q Sales Beat Expectations; Backs 2022 Outlook

Roche Holding AG on Monday posted a sales increase for the first quarter that beat analysts' expectations, and backed its outlook for the full year despite an expected decrease in the sales of Covid-19 medicines and diagnostics.

The Swiss pharma major reported sales of 16.45 billion Swiss francs ($17.19 billion) for the quarter, up from CHF14.93 billion the year prior, and beating analysts' expectations of CHF16.11 billion.


German Business Confidence Unexpectedly Rises, Ifo Says

Business confidence in Germany has stabilized at a low level, following a sharp drop in the previous month due to high energy prices and uncertainty from the Ukraine war.

The Ifo business-climate index rose to 91.8 points in April from 90.8 points in March, according to data from the Ifo Institute released Monday. Economists polled by The Wall Street Journal expected the index to decrease to 89.1.


Philips Swung to 1Q Net Loss; Sales Beat Forecasts

Royal Philips NV on Monday reported a swing to a net loss for the first quarter of the year, though sales rose, beating forecasts.

The Dutch health-technology company said it is implementing extra cost measures and increasing prices to offset inflationary headwinds.


Vivendi 1Q Revenue Rose

Vivendi SE said Monday that revenue grew in its first quarter, including at its core media business.

The French media group made quarterly revenue of 2.38 billion euros ($2.57 billion), an organic increase of 7.9% from EUR2.1 billion in the same period last year. The comparable result is adjusted for the results of Universal Music Group NV, which has been spun off and listed separately.


Cat Rock Urges Just Eat Takeaway Shareholders to Vote Against CFO Re-Election

Just Eat Takeaway.com NV shareholder Cat Rock Capital Management LP on Monday called on other shareholders to vote against the re-election of the company's chief financial officer, Brent Wissink, and legacy supervisory board at the coming annual general meeting.

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04-25-22 0555ET