North American Morning Briefing: Stock Futures Pause Ahead of Fed Decision

MARKET WRAPS

Watch For:

Walmart formal business & shareholders meeting; U.S. Housing Starts for May; EIA Weekly Petroleum Status Report; U.S. Federal Reserve economic projections and interest rate decision; Canada Consumer Price Index for May.

Opening Call:

Stock futures wavered Wednesday ahead of the Federal Reserve's latest projections, which could provide cues on when policy makers may begin to dial back support for the economy.

Futures tied to the S&P 500 edged down less than 0.1%, pointing to a tepid drop at the opening bell. The broad market index ended Tuesday down 0.2%. Nasdaq-100 futures ticked up 0.1% Wednesday, suggesting muted gains in technology stocks.

Stocks are hovering close to all-time highs with many developed economies moving toward ending lockdowns while central banks keep easy-money policies in place. Investors this week are watching for any changes in Fed policy makers' views on inflation, the labor market, and other economic indicators that may offer hints on when they would begin tapering bond purchases. Data Tuesday showed that retail sales dropped in May while producer prices rose, offering a mixed picture of the recovery.

"We've had the initial exuberance and we are catching up a little bit to reality. Markets are less liquid-being summertime-and they are also digesting some of this anticipation," said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management. "There have been some data points that have come in lower than expected, such as retail sales. It has reduced the cause for concern that the Fed could taper faster than expected."

The Fed will release its latest monetary policy decision at 2 p.m. ET. The central bank will also release individual policy makers' updated quarterly economic projections. The new forecasts could show officials expecting to raise interest rates sooner than they anticipated in March. They are also likely to begin discussing when and how to start scaling back bond purchases.

"We are in the camp that everything we've seen so far isn't the kind of thing that will make the Fed change its policy outlook at all. Employment comes first, inflation second," said Samy Chaar, chief economist at Lombard Odier. "The Fed will stick to its pre-set course and tolerate inflation until the labor market improves."

Data on housing starts in the U.S. in May is due at 8:30 a.m. Economists are expecting an increase from strong demand, at the same time that higher costs for building materials and worker shortages are propelling house prices.

Forex:

The dollar may rise if the Federal Reserve signals it will soon begin talks about tapering bond purchases but gains are unlikely to be strong or long-lasting, Unicredit said.

The dollar's moves would also probably depend on the reaction of stocks and bonds in particular, considering the 10- year U.S. Treasury yield is struggling to rise above 1.50%, Unicredit analysts said.

"Recent EUR/USD lows of around 1.2090 will probably be breached on the Fed announcement, but we doubt that the USD recovery will be strong enough to drag the common currency below the 1.2050-1.20 key support levels and test additional downside potential." EUR/USD was last flat at 1.2128.

The pound rose after data showed annual U.K. inflation reached 2.1% in May, above a Wall Street Journal poll forecast of 1.9% and exceeding the Bank of England's 2.0% target for the first time in almost two years.

Gains are limited, however, ahead of a Fed decision later which has the potential to boost the dollar and weigh on risk appetite, sending the pound lower.

Bonds:

In bond markets, the yield on the benchmark 10-year Treasury note was relatively flat at 1.496%, compared with 1.498% on Tuesday.

Perhaps the best one can expect from the Fed's meeting is "some slightly more detailed guidance on the conditions that need to be met before the Fed will consider tapering initiatives," said David Norris, head of US credit at TwentyFour Asset Management.

This could include more of the same that Fed Chairman Jerome Powell has said before as substantial further progress on inflation and employment goals is needed before the Fed will look at cutting its $120 billion of monthly bond purchases, Norris said.

TwentyFour AM will focus its attention on comments from the various regional Fed presidents on conditions that could prompt tapering in the future, he said.

Commodities:

Oil prices rose, with both benchmarks' early gains softening despite sharper-than-expected draws in U.S. crude inventories shown in API data on Tuesday.

Investors are also awaiting EIA inventory data due out later Wednesday. Traders remain optimistic about the short-to- medium future for oil prices, according to DNB Markets' Helge Andre Martinsen.

At an event in London this week, Trafigura's CEO reportedly said he sees a chance of $100 a barrel oil, while the CEOs of Gunvor and Vitol both expect elevated prices in the coming months. UBS on Wednesday lifted its September oil forecast by $3 a barrel to $78 a barrel for Brent.

Gold prices edged higher as investors awaited the Fed meeting. Comex gold futures rose 0.3% to $1,862 a troy ounce. Gold, which has edged down 2.3% so far this month, is likely pricing in expectations that the Fed will offer clues on tapering, suggesting it won't move greatly on such news, said Carsten Fritsch, an analyst at Commerzbank.

TODAY'S TOP HEADLINES

Regeneron's Antibody Drug Cuts Risk of Death in Some Covid-19 Patients

An antibody treatment developed by Regeneron Pharmaceuticals Inc. has been shown to significantly cut the risk of death among certain hospitalized Covid-19 patients, raising hopes for a valuable new tool for tackling severe cases.

A large U.K. trial involving nearly 10,000 patients showed that administering REGEN-COV on top of usual care reduced the risk of dying by a fifth among hospitalized coronavirus patients who hadn't produced antibodies to the virus. The drug had no effect among patients who had already produced antibodies.

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Chinese Trucking Startup Seeks to Raise Up to $1.6 Billion in U.S. IPO

Full Truck Alliance Co., a Chinese startup that provides an Uber-like service for the road-haulage industry, aims to raise as much as $1.57 billion from its U.S. initial public offering, a filing showed.

The company, also known as Manbang Group, runs a mobile app connecting truck drivers to businesses that need to transport goods within China. It has a number of high-profile investors including Alphabet Inc. and SoftBank Group Corp.'s Vision Fund.

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FDA Authorizes More Covid-19 Vaccine Doses From Troubled Baltimore Plant

The Food and Drug Administration cleared an additional batch of Johnson & Johnson Covid-19 vaccine doses Tuesday from a troubled production plant in Baltimore.

The agency cleared 15 million doses, bringing the total doses authorized for export to 25 million, according to a senior U.S. official.

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Platinum Equity Strikes Deal to Buy McGraw Hill From Apollo

Private-equity firm Platinum Equity has struck a deal to buy McGraw Hill from Apollo Global Management Inc.

The deal for the textbook publisher and educational-technology company, announced Tuesday following an earlier report by The Wall Street Journal, is valued at about $4.5 billion, including debt.

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Southwest Airlines Flights Thrown Into Disarray by Technical Problems

For the second day in a row, a technical problem snarled Southwest Airlines Co.'s operations, leading to hundreds of delays and prompting the airline to cancel 500 flights.

Southwest said it was in the process of resuming normal operations following what it called a system issue that created disruptions throughout its network. An airline spokeswoman said multiple systems had experienced connectivity issues.

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Oracle Reports Record Annual Profit, Revenue

Oracle Corp. reported an 8% revenue increase in the latest period, ending the year with a record $40.48 billion in revenue.

The business software giant also reported a record $13.75 billion profit for the year ended May 31 and pointed to accelerating growth rates of both its applications and infrastructure cloud businesses.

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Fed Meeting Likely to Signal Possible Policy Shifts

WASHINGTON-Federal Reserve officials are set to provide updated details on their plans for eventually scaling back easy-money policies as they conclude a two-day policy meeting amid signs of accelerating economic growth and inflation.

The Fed on Wednesday is likely to say after the meeting that it will maintain short-term interest rates near zero and keep buying at least $120 billion a month of Treasury and mortgage bonds. The central bank will also release individual policy makers' updated quarterly economic projections.

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Derby's Take: Consumer and Market Views on Inflation Diverge as Fed Meeting Looms

Federal Reserve officials are approaching this week's monetary policy meeting at a moment when consumers and markets are diverging on what they think the future path of inflation will be.

On Monday, the Federal Reserve Bank of New York said respondents to its May Survey of Consumer Expectations believe that a year from now, inflation will surge to a series high of 4%, while three years from now, they see inflation jumping to 3.6%. What is more, consumers expect nearly all the key real-world things people spend their income on-home buying, rent, food, gasoline, medical care-to see big price increases over the next year.

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China to Release Metal Reserves in Effort to Tame Commodities Rally

SINGAPORE-China plans to release national reserves of major industrial metals in an effort to rein in surging commodities prices fueled by a resumption of global economic activity.

The state stockpiling body, China's National Food and Strategic Reserves Administration, said Wednesday that it plans to release copper, aluminum, zinc and other national reserves in batches in the near future to ensure the supply and price stability of bulk commodities.

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Turkey's Troubles Point to Emerging-Market Risks as Economies Recover

Any signal that the Federal Reserve will tighten policy on Wednesday could ripple across emerging markets that are dependent on the U.S. dollar. Prime among them is Turkey.

The Turkish lira has come under pressure in recent weeks as investors try to assess whether the country's central bank will heed the demands of its president to cut interest rates. But a rate cut could drag the lira down further at the same time that the country's high inflation rate is already diminishing the currency's buying power.

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China's Economic Growth Moderates in May

China's economic growth moderated in May as the favorable base effect faded.

Industrial production rose 8.8% in May from a year earlier, slowing from April's 9.8% pace, according to data released Wednesday by the National Bureau of Statistics. The growth in industrial production matched the 8.8% pace expected by the economists polled by The Wall Street Journal.

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Ifo Institute Cuts Its 2021 German Economic Growth Forecast to 3.3%

The Ifo Institute has lowered its forecast for economic growth for Germany in 2021 to 3.3% from 3.7% forecast in March, because of bottlenecks in the supply of intermediate products.

"Reopening businesses triggered a strong recovery, but this is now getting pushed back a bit further than we thought in the spring," Timo Wollmershaeuser, head of forecasts at Ifo, said.

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UK Inflation Rose Above Bank of England's 2% Target in May

Annual inflation in the U.K. exceeded the Bank of England's target in May for the first time in almost two years.

The data add to signs of inflationary pressure worldwide, though BOE officials have said they expect any pickup in price growth to prove transitory.

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Democratic Leaders Start Talks on Second Infrastructure Bill

WASHINGTON-Democratic leaders began to discuss the contours of a broad-ranging child care, climate and education package Tuesday in an effort to appease the concerns of the party's liberal wing over the narrower scope of a bipartisan infrastructure proposal under discussion.

Progressive Democrats in both chambers criticized the size and breadth of a more limited agreement reached late last week by a bipartisan group of 10 senators. They threatened to withhold their votes unless they received assurances that it would be accompanied by a far-reaching package that could pass with only Democratic votes.

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Political Summits Signal International Focus on Ransomware

The attention of world leaders to ransomware in a series of high-level meetings highlights how quickly the destructive cyberattacks have climbed the political agenda as a string of recent attacks disrupted companies and critical infrastructure in the U.S. and other countries.

On Wednesday in Geneva, President Biden is expected to pressure Russian President Vladimir Putin to curb ransomware groups based in Russia. Meanwhile, at the North Atlantic Treaty Organization summit on Monday and the Group of Seven meeting last weekend, leaders committed to disrupting ransomware networks and holding attackers accountable in documents published at the end of both summits.

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Israeli Airstrikes Hit Gaza As Nationalist March in Jerusalem Stokes Tensions

JERUSALEM-Israeli police fired rubber bullets at Palestinians trying to disrupt a right-wing nationalist march in Jerusalem, while Hamas militants launched incendiary balloons into Israel that triggered Israeli airstrikes in the Gaza Strip, raising the specter of renewed violence in the region.

The Israeli military said it carried out a limited series of airstrikes on the militant group's compounds across the Gaza Strip, marking the first time the rival forces have traded blows since the two sides agreed to a May 21 truce that brought an end to an 11-day conflict.

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Federal Judge Stops Biden Administration From Blocking New Oil and Gas Leases

A federal judge in Louisiana issued a preliminary injunction blocking the Biden administration from pausing new oil and gas leases on federal land.

Judge Terry A. Doughty of the U.S. District Court in Monroe said the administration doesn't have the legal right to stop leasing federal territory for oil-and-gas production without approval from Congress.

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Write to sarka.halas@wsj.com

TODAY IN CANADA

Earnings:

Nothing major scheduled

Economic Indicators (ET):

0830 May CPI

0830 Apr Wholesale trade

1830 Bank of Canada Governor Tiff Macklem appears before the Standing Senate Committee on Banking, Trade and Commerce via video conference

Stocks to Watch:

No items published

Other News:

When Will the Canada-U.S. Border Reopen? What We Know

For the past 15 months, the U.S. and Canada have turned away tourists at entry points across the 5,500-mile land border in an effort to contain further spread of Covid-19. In light of progress in both countries on the Covid-19 vaccination front, business groups are now pushing Washington and Ottawa to reopen border crossings -- to the fully vaccinated, at least at the start.

Such a move "would sustain jobs, boost business confidence and allow more families to reunite," according to a joint statement issued by six U.S. and Canadian business lobbies, among them the U.S. Chamber of Commerce. "It would help facilitate a safe and gradual return to a more normal life."

The U.S. and the U.K. have agreed to open up travel between the two trans-Atlantic allies as soon as possible. Canadian Prime Minister Justin Trudeau said he spoke with President Biden at the margins of the Group of Seven leaders' summit in England about reopening the border.

When will the Canadian border reopen?

Theoretically, it could open as soon as June 22, or at the end of the current monthly ban on nonessential travel. U.S. and Canadian officials have mutually agreed to renew the 30-day ban around the 21st of each month since it was first imposed in March 2020.

The Centers for Disease Control and Prevention earlier in June downgraded its warning about travel to Canada by one level, from "very high" to "high," coinciding with a steep drop in Covid-19 cases in Canada after a destabilizing third wave of infections.

The third wave prompted authorities in Canada to impose strict economic and social-distancing restrictions. However, nearly all regions across Canada have started to relax some of the restrictions, based on vaccination rates -- nearly two-thirds of the population has received one dose of a Covid-19 vaccine -- and a sharp drop in infections.

Market Talk:

No items published

Expected Major Events for Wednesday

06:00/UK: May UK producer prices

06:00/UK: May UK monthly inflation figures

08:00/GER: Ifo Economic Forecast

08:30/UK: Mar Card Spending statistics

08:30/UK: Apr UK House Price Index

11:00/US: 06/11 MBA Weekly Mortgage Applications Survey

12:30/US: May Import & Export Price Indexes

12:30/US: May New Residential Construction - Housing Starts and Building Permits

12:30/CAN: May CPI

12:30/CAN: Apr Wholesale trade

14:30/US: 06/11 EIA Weekly Petroleum Status Report

18:00/US: Federal Reserve economic projections

18:00/US: U.S. interest rate decision

All times in GMT. Powered by Kantar Media and Dow Jones.

Expected Earnings for Wednesday

AEterna Zentaris Inc (AEZS,AEZS.T) is expected to report for 1Q.

Andrew Peller (ADW.A.T,ADW.B.T) is expected to report for 4Q.

Ashford Inc (AINC) is expected to report $-5.92 for 1Q.

BeyondSpring Inc (BYSI) is expected to report $-0.54 for 1Q.

Culp Inc (CULP) is expected to report $0.08 for 4Q.

Genesis Healthcare Inc (GENN) is expected to report $-0.33 for 1Q.

Lennar Corp - A Share (LEN,LENB) is expected to report $2.38 for 2Q.

Neptune Wellness Solutions Inc (NEPT,NEPT.T) is expected to report for 4Q.

Oatly Group AB - ADR (OTLY) is expected to report for 1Q.

Progressive Corp (PGR) is expected to report.

Simply Inc (SIMP) is expected to report for 1Q.

Powered by Kantar Media and Dow Jones.

ANALYST RATINGS ACTIONS

Broadstone Net Lease Cut to Neutral From Overweight by JP Morgan

Bruker Corp Raised to Buy From Neutral by Cleveland Research

Ceridian HCM Cut to Hold From Buy by Needham

Cimarex Cut to Neutral From Buy by UBS

Crane Co Raised to Buy From Neutral by DA Davidson

Fastenal Cut to Underweight From Equal-Weight by Morgan Stanley

Finance of America Raised to Strong Buy From Outperform by Raymond James

Olin Corp Raised to Buy From Neutral by UBS

Principal Financial Cut to Neutral From Overweight by Piper Sandler

Spirit Airlines Raised to Buy From Neutral by Citigroup

W. P. Carey Raised to Overweight From Neutral by JP Morgan

Welltower Raised to Strong Buy From Market Perform by Raymond James

This article is a text version of a Wall Street Journal newsletter published earlier today


  (END) Dow Jones Newswires
  06-16-21 0603ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

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