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Stock Market Today: 2% Drop as Inflation, Fed, Oil Concerns Weigh on Traders

Investing.com -- Markets dropped after a promising start to the day, as risk assets suffered on Tuesday amidst signs that oil's high price is stabilizing and that the Fed is not interested in slowing down.

The S&P 500 dropped 2% on the day to 3822, while the Dow Jones Industrial Average dropped 1.6%. The Nasdaq Composite took the biggest hit, dropping 3%, a sign that the concerns of inflation and lagging growth predominated in Tuesday trading.

One of the blows to bullish hopes was cold water from the Fed in the form of pledges to continue to curb inflation. In an interview on LinkedIn, San Francisco Fed President Mary Daly said, "Many are worried that the Fed might be acting too aggressively and maybe tip the economy into recession. I am myself worried that left unbridled, inflation would be a major constraint and threat to the U.S economy and continued expansion." New York Federal Reserve Bank President John Williams and St. Louis Fed President James Bullard echoed those statements in separate interviews.

As a reminder of that potentially unbridled inflation, both crude oil and Brent oil closed up over 2% today. The commodity jumped on reports that gulf oil producers are near "max outputs", meaning no supply side solution is poised to come to the rescue.

And while consumer confidence surveys have come into some question among market participants, the Conference Board consumer survey missed expectations and set a 15-month low, dating back to pre-Covid vaccine rollouts in the U.S., a reminder of how inflation is weighing on sentiment.

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Musk Says New Tesla Factories Lose Billions of Dollars Ahead of Ramp Up

According to Bloomberg News, Elon Musk stated that Tesla, Inc. (NASDAQ:TSLA) is losing “billions of dollars” from its new plants in Germany and Texas as it tries to ramp up production, in a video interview with Tesla Owners of Silicon Valley posted online Wednesday.

Earlier this month, Musk announced its decision to cut costs by laying off 10% of its salaried workers over the next three months, which represents about 3.5% of its global workforce.

In the May 31 interview, Musk said that the company has struggled to quickly increase production in the Austin plant of Model Y SUVs that use the new 4680 cells and structurally integrated battery pack. Thus, the company decided it would also make Model Y SUVs with the older 2170 cells in Austin to keep up with the high demand for its cars, as noted in its April letter to shareholders. The struggles in getting the Austin and Berlin factories up and running were also a result of the company dealing with Covid-related lockdowns at its Shanghai plant.

According to Musk, the problems in the Austin factory are all going to get fixed real fast, but it requires a lot of attention and effort. The Berlin factory is in a “slightly better position” as the company outfitted it to build cars with its 2170 cells.

Coinbase Under a Dark Cloud as Rumors of Bankruptcy Surface on Social Media

The controversy surrounding Coinbase (NASDAQ:COIN) has worsened as a result of the extreme market conditions that have been present for the past couple of weeks. The largest crypto exchange in the United States was recently forced to laid off as much as 18% of its workforce, and not in the most pleasant way. Furthermore, the company inadvertently admitted that customer funds would probably be lost in the event of bankruptcy.

“General unsecured creditor” -New definition of customer in Coinbase admits users may lose crypto if exchange goes bankrupt | Fortune https://t.co/hj8Q7zawwX
— Kyle Keegan Radio () June 21, 2022

The post on the official Coinbase blog surfaced on June 14th, and featured an apology from CEO Brian Amstrong for the unexpected “downsize”, where he cited multiple reasons for the decision, including “growing too quickly”. An email delivering the bad news was sent to the personal email accounts of the affected personnel, and access to the Coinbase digital workspace was terminated in advance. “I realize that removal of access will feel sudden and unexpected, and this is not the experience I wanted for you”, lamented the Coinbase CEO.
Indeed, Brian Armstrong, who bought a $133 million mansion in Bel-Air to celebrate the New Year, felt that “employee costs are too high to effectively manage”. As a result, 1,100 employees lost their jobs in the blink of an eye.

Yen sinks to fresh 24-year low vs U.S. dollar

LONDON/NEW YORK (Reuters) - The Japanese yen plunged against the U.S. dollar on Tuesday to its lowest level since October 1998, as the Bank of Japan's ultra-loose monetary policy was in stark contrast with an aggressive Federal Reserve determined to stamp out soaring inflation.

The yen dropped to a new 24-year low of 136.330 per dollar, extending losses which have already seen it shed more than 18% of its value versus the greenback this year.

"You're still looking at a trade where there is aggressive tightening by the Fed while the BoJ has yet to really budge. There is potential here to see a further leg of weakness in the yen," said Edward Moya, senior market analyst, at OANDA in New York.

The currency lost more ground after the BoJ on Friday dashed any expectations of a change in policy and continued to stand alone among other major central banks in its commitment to ultra-easy monetary settings.

Instead it has been ramping up bond-buying to hold 10-year yields in a targeted 0% to 0.25% range. But despite its efforts, the yield remains at the upper end of that target

Earlier in the day, Japanese Prime Minister Fumio Kishida effectively gave the green light to sell yen when he said the BoJ should maintain its ultra-loose monetary policy.

He brushed aside calls for the policy to be tweaked to target rising living costs.

The yen's decline was also accelerated by some stop-loss orders broken around the 135.60 level, according to analysts, who noted New York traders had been absent on Monday, a U.S. public holiday.

By midmorning trading, the Japanese currency was at 136.20 yen per U.S. dollar, just off the earlier 24-year low. The yen was also down 1.3% to 143.77 per euro, its lowest level since June 9.

Germany risks recession as Russian gas crisis deepens

BERLIN/COPENHAGEN (Reuters) -Germany faces certain recession if already faltering Russian gas supplies stop completely, an industry body warned on Tuesday, as Italy said it would consider offering financial backing to help companies refill gas storage to avoid a deeper crisis in winter.

European Union states from the Baltic Sea in the north to the Adriatic in the south have outlined measures to cope with a supply crisis after Russia's invasion of Ukraine put energy at the heart of an economic battle between Moscow and the West.

The EU relied on Russia for as much as 40% of its gas needs before the war - rising to 55% for Germany - leaving a huge gap to fill in an already tight global gas market. Some countries have temporarily reversed plans to shut coal power plants https://www.reuters.com/world/europe/europe-may-shift-back-coal-russia-turns-down-gas-flows-2022-06-20 in response.

Gas prices have hit record levels, driving a surge in inflation and adding to the challenges for policymakers trying to haul Europe back from an economic precipice.

Germany's BDI industry association https://www.reuters.com/article/germany-economy-bdi-idAFL8N2Y82N7 cut its economic growth forecast for 2022 on Tuesday to 1.5%, revising it down from 3.5% expected before the war began on Feb. 24. It said a halt in Russian gas deliveries would make recession in Europe's largest economy inevitable.

Russian gas is still being pumped via Ukraine but at a reduced rate and the Nord Stream 1 pipeline under the Baltic, a vital supply route to Germany, is working at just 40% capacity, which Moscow says is because Western sanctions are hindering repairs. Europe says this is a pretext to reduce flows.

Oil prices climb $2 on strong demand, tight supply

LONDON (Reuters) -Oil prices rose almost $2 on Tuesday on high summer fuel demand while supplies remain tight because of sanctions on Russian oil after its invasion of Ukraine.

Brent crude rose $1.80, or 1.6%, to $115.93 a barrel by 1209 GMT.

The U.S. West Texas Intermediate (WTI) crude contract for July, which expires later on Tuesday, rose $2.26, or 2.1%, to $111.82. The more active WTI contract for August was up $2.37 at $110.36.

UBS analyst Giovanni Staunovo said that despite concerns over economic growth, latest data on flight activity and mobility on U.S. roads continues to show solid oil demand.

"We expect oil demand to improve further, benefiting from the reopening of China, summer travel in the northern hemisphere and the weather getting warmer in the Middle East. With supply growth lagging demand growth over the coming months, we continue to expect higher oil prices," he said.

Prices have been supported by supply anxiety after sanctions on oil shipments from Russia, the world's second-largest oil exporter, and questions over how Russian output might fall due to sanctions on equipment needed for production.

European Union leaders aim to maintain pressure on Russia at their summit this week by committing to further work on sanctions, a draft document showed.

Gold Up, Dollar Down as Asian Risk Appetite Grows

Investing.com – Gold was up on Monday morning in Asia, firming in volatile trading. A weaker dollar gave the yellow metal a boost, but a move towards riskier assets in Asia capped gains.

Gold futures gained 0.41% to $1,858.85 by 12:47 AM ET (4:47 AM GMT).

“With the three-day holiday in the U.S., which means lower liquidity than usual, and a lack of top-tier data until Wednesday, we may find that gold will remain nailed to its tight range around $1,850 unless a new catalyst arrives,” City Index senior market analyst Matt Simpson told Reuters.

Federal government offices, stock and bond markets, and the Federal Reserve will be closed for the Memorial Day holiday in the U.S. on Monday.

Gold has had a mostly positive showing since hitting an over three-month low of $1,786.60 per ounce on May 16, 2022. It is set for a second consecutive monthly fall for the first time since March 2021, down about 2.4% so far.

In other precious markets, silver edged up 0.1%, platinum firmed 0.1% to $954.51, and palladium rose 0.8%.

EU Russian Oil Embargo Plans in Trouble as Hungary Rejects Compromise

Investing.com -- The European Union's plans to impose an oil embargo on Russia appeared on the verge of collapse on Monday, ahead of a summit meeting of member states' leaders later in the day.

The EU had hoped to finalize plans to stop buying Russian crude oil and refined products by the end of the year. However, the new package of sanctions, the sixth proposed by the EU since Russia invaded Ukraine in February, needs the unanimous backing of member states to come into effect and has been resisted by Hungary and, to a lesser extent, Czechia and Slovakia. The three landlocked countries all have a historical dependence on oil delivered by Soviet-era pipelines.

Germany's Vice-Chancellor Robert Habeck warned at a press conference on Sunday that European unity is "starting to crumble and crumble again," after negotiations between diplomats failed to overcome Hungarian resistance, despite proposals for the embargo to be delayed for the three central European states.

The failure to agree on oil has also led to the package being weakened in other respects, according to various reports. A proposal to ban Russian investment in European real estate has also been dropped from the draft package.

Dollar resumes slide as stock markets tentatively pick up

LONDON (Reuters) -The U.S. dollar resumed its slide on Monday as risk appetite across markets tentatively strengthened, supported by encouraging economic data and bets that the Federal Reserve will tighten policy at a slower pace.

The dollar index - which tracks the greenback against six major rivals - is on track for its first monthly drop in five, as the safe-haven currency loses steam after a breakneck start to the year.

The dollar index is on track for a more-than 1.5% drop in May - although it remains up about 6% on the year. It was last down 0.2% on the day at 101.510.

Trade was likely to be light through Monday as U.S. stock and bond markets close for the Memorial Day public holiday.

Data on Friday showed that U.S. consumer spending rose more than expected in April as households boosted purchases of goods and services, and the rise in inflation slowed.

Analysts said the encouraging data, coupled with bets on a more cautious tightening path by the Fed, was weakening the dollar.

World share markets rose on Monday as easing COVID-19 restrictions and new stimulus in China helped sustain last week's rebound.

The offshore-traded Chinese yuan strengthened as much as 1% versus the dollar on the reopening news, and was last up 0.6% at 6.6802 yuan per dollar.

U.S., world stocks toast earnings, U.S. rate outlook

LONDON (Reuters) - U.S. stocks were indicating a higher open on Wall Street and world stocks eyed their first weekly gain in eight on Friday on a more upbeat earnings view and after this week's Federal Reserve minutes dampened fears of mega-high interest rates.

Optimistic U.S. earnings outlooks from department store operator Macy's Inc (NYSE:M) and discount chains Dollar General Corp (NYSE:DG) and Dollar Tree (NASDAQ:DLTR) boosted U.S. stocks on Thursday.

The Fed's minutes of its May meeting released on Wednesday confirmed two more 50-basis-point hikes each in June and July, but policymakers also suggested the potential for a pause later in the year.

"It's all flowed through from the FOMC (Federal Open Market Committee) minutes," said Giles Coghlan, chief currency analyst at HYCM.

"Investors were relieved there wasn't a 75 basis points hint."

Markets would focus on the April core PCE price index for the United States - the Fed's preferred inflation measure - due later on Friday for further signs on whether inflation was running hot, Coghlan added.

S&P futures rose 0.33% after the Dow Jones Industrial Average rose 1.61%, the S&P 500 gained 1.99%, and the Nasdaq Composite jumped 2.68% on Thursday.

The MSCI world equities index rose 0.41%. It was heading for a 3.2% rise on the week and an almost 6% recovery from 18-month lows set two weeks ago.

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Oil on track for weekly rise on global supply concerns

LONDON (Reuters) -Oil prices edged higher on Friday and were on track for weekly gains, supported by the prospect of a tight market due to rising gasoline consumption in the United States in summer, and also the possibility of an EU ban on Russian oil.

Brent crude was up 64 cents, or 0.6%, at $118.04 at 1338 GMT, and was on track for a gain of about 5% this week.

U.S. West Texas Intermediate (WTI) crude rose 11 cents, or 0.1%, to $114.20 a barrel. WTI is set for a weekly gain of 0.6%.

"Oil prices have risen to the highest level since end of March, benefiting from renewed declines in U.S. oil inventories," said UBS analyst Giovanni Staunovo.

U.S. gasoline stocks fell by 482,000 barrels last week to 219.7 million barrels, U.S. Energy Information Administration said on Wednesday. The start of summer driving season in the United States normally entails increased consumption.

"The U.S. driving season and strong travel demand should help (prices). With supply growth lagging demand growth, the oil market is likely to stay undersupplied. Hence, we remain positive in our outlook for crude prices," Staunovo added.

Both benchmark crude contracts were also supported as the European Commission continued to seek unanimous support of all 27 EU member states for its proposed new sanctions against Russia, with Hungary posing a stumbling block.

European Union countries are negotiating a deal on Russian oil sanctions that would embargo shipment deliveries but delay sanctions on oil delivered by pipeline to win over Hungary and other landlocked member states, officials said.

Musk sued by Twitter investors for stock 'manipulation' during takeover bid

NEW YORK (Reuters) - Billionaire Elon Musk was sued by Twitter Inc (NYSE:TWTR) investors claiming he manipulated the company's stock price downward, as the chief executive of electric carmaker Tesla (NASDAQ:TSLA) Inc mounts a $44 billion takeover bid for the social media platform.

The investors said Musk saved himself $156 million by failing to disclose that he had purchased more than 5% of Twitter by March 14. They asked to be certified as a class and to be awarded an unspecified amount of punitive and compensatory damages.

They also named Twitter as a defendant, arguing the company had an obligation to investigate Musk's conduct, though they are not seeking damages from the firm.

The investors said Musk continued to buy stock after that, and ultimately disclosed in early April that he owned 9.2% of the company, according to the lawsuit, filed on Wednesday in San Francisco federal court.

"By delaying his disclosure of his stake in Twitter, Musk engaged in market manipulation and bought Twitter stock at an artificially low price," said the investors, led by Virginia resident William Heresniak.

Neither Musk nor his lawyer immediately responded to requests for comment. Twitter declined to comment.

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Musk says Twitter may charge slight fee for commercial, government users

(Reuters) -Elon Musk said on Tuesday Twitter Inc (NYSE:TWTR) might charge a "slight" fee for commercial and government users, part of the billionaire entrepreneur's push to grow revenue which has lagged behind larger rivals like Meta Platforms Inc's Facebook (NASDAQ:FB).

"Twitter will always be free for casual users, but maybe a slight cost for commercial/government users," Musk said in a tweet. "Some revenue is better than none!" he added in another tweet.

Twitter declined to comment when contacted by Reuters.

Last week, Reuters reported that Musk told banks he would develop new ways to monetize tweets and crack down on executive pay to slash costs at the social media platform company.

Musk also told the banks he planned to develop features to grow business revenue, including new ways to make money out of tweets that contain important information or go viral, sources told Reuters.

At the annual Met Gala in New York on Monday, Musk said the reach of Twitter was currently only "niche," and he would want a much bigger percentage of the country to be on it.

Musk, also the chief executive officer of top electric vehicle maker Tesla (NASDAQ:TSLA) Inc, has been suggesting a raft of changes to Twitter since last month.

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Oil jumps 4% as EU proposes ban on Russian oil

LONDON (Reuters) - Oil prices jumped on Wednesday as the European Union, the world's largest trading bloc, spelled out plans to phase out imports of Russian oil, offsetting demand worries in top importer China.

Brent crude futures rose $3.99, or 3.8%, to $108.96 a barrel by 1121 GMT. West Texas Intermediate crude futures rose $4.05, or 4%, to $106.46 a barrel.

European Commission President Ursula von der Leyen on Wednesday proposed a phased oil embargo on Russia over its war in Ukraine, as well as sanctioning Russia's top bank, in a bid to deepen Moscow's isolation.

The Commission's measures include phasing out supplies of Russian crude within six months and refined products by end-2022, von der Leyen said. She also pledged to minimise the impact on European economies.

Hungary and Slovakia, however, will be able to continue buying Russian crude oil until the end of 2023 under existing contracts, an EU source told Reuters on Wednesday.

"Russian oil is now 'bad oil'," SEB chief commodities analyst Bjarne Schieldrop said.

"This energy war of 'good oil' versus 'bad oil' has just started," he added.

Investors are also waiting for an announcement from the U.S. Federal Reserve on Wednesday. It is expected to intensify efforts to bring down high inflation by raising interest rates and reducing its balance sheet.

In the United States, crude and fuel stocks fell last week, according to market sources citing American Petroleum Institute figures. Crude stocks fell by 3.5 million barrels for the week ended April 29, they said. This was more than an expected 800,000-barrel drop estimated in a Reuters poll. [API/S]

Twitter user growth rises amid Musk takeover

(Reuters) - Twitter Inc (NYSE:TWTR) reported stronger than expected user growth in what could be its last quarter as a public company after agreeing to a $44-billion buyout by billionaire Elon Musk.

But overall revenue and advertising sales fell short of analyst estimates, due to the ongoing war in Ukraine. Shares rose 1% in early trading.

The results lay out Musk's challenges in improving the social media platform's business to match its influence on news and culture.

Twitter has long faced criticism for its sluggish pace of product launches. Musk has tweeted suggestions ranging from releasing a widely-demanded edit button to making the Twitter algorithm open-source.

When Musk closes the deal, he will be overseeing a company that has had long-standing struggles with internal dysfunction, indecision and lack of accountability, Reuters previously reported according to eight current and former Twitter employees.

Daily active users on Twitter rose to 229 million in the first quarter ended March 31, from 199 million a year earlier. The figure beat analyst expectations of 226.8 million daily active users.

Facebook-owner Meta Platforms also reported a return to user growth on Wednesday, which helped propel social media stocks higher.

Twitter said an internal error resulted in the company overstating quarterly user numbers by about 1.5 million between the fourth quarter of 2020 to the end of 2021. The company said it also overstated the figures in 2019, but was unable to provide data.

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Gold in 6-Week High of $2,000 on Alarm Over U.S. Inflation/Recession, Ukraine

Investing.com - Gold is living up to its name again as the asset that investors turn to in times of economic and political troubles.

Prices of the shiny metal hit a six-week high of just above $2,000 an ounce as inflation and recession indicators, along with concerns over the festering Russian invasion of Ukraine, sent alarm bells clanging anew across markets.

Front-month June gold futures on New York’s Comex settled up $11.50, or 1.2%, at $1,986.40, after a session high at $2,000.55. June gold rose 1.7% last week, adding to the previous week’s 1.2% gain.

Monday’s spike in gold came as the yield on the U.S. Treasury’s benchmark 10-year note peaked at 2.884%, a level unseen since December 2018, when it stood at 3.050%.
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The last time gold got to above $2,000 an ounce was on Mar. 11, a fortnight after the start of the war in Ukraine that heightened geopolitical risk across markets. Since then gold had also been volatile, tumbling to as low as 1,888.30 on Comex on March 29.

Interestingly though, Monday’s run-up came as the Dollar Index broke above 100 the first time since the COVID-19 outbreak, with its last high above that level registered in May 2020. The two typically move inversely, and there was no telling if that negative correlation had truly snapped and will not immediately return.

Wall Street, bond yields head higher as global growth hopes trimmed

LONDON/WASHINGTON (Reuters) - Wall Street opened higher on Tuesday and bond yields continued to swing upward as Russia's invasion of Ukraine weighed on global growth expectations and looming Fed tightening kept investors on edge.

The International Monetary Fund slashed its forecast for global economic growth by nearly a full percentage point on Tuesday morning, citing "seismic waves" from Russia's invasion and the "clear and present danger" of inflation in many countries.

Investors were also preparing for the next barrage of company earnings that will help them assess the impact of the Ukraine war and a spike in inflation.

Heineken (OTC:HEINY), Nestle and Renault (EPA:RENA) report out of Europe this week. Netflix (NASDAQ:NFLX), Tesla (NASDAQ:TSLA) and Verizon (NYSE:VZ) are scheduled to report this week from the United States.

Buoyed by good earnings reports out of the financial sector in recent days, Wall Street opened on Tuesday higher after a choppy trading day on Monday.

The Dow Jones Industrial Average rose 266.7 points, or 0.78%, the S&P 500 gained 0.67% and the Nasdaq Composite added 0.5% in early trading.

The MSCI world equity index, which tracks shares in 50 countries, up 1.5%.

Yields on 10-year U.S. inflation linked bonds held near the two-year highs they reached on Monday, and are within touching distance of turning positive for the first time since the onset of the COVID-19 pandemic.

Balkans turns to coal as energy crisis trumps climate commitments

OSLOMEJ, North Macedonia (Reuters) - Balkan nations in southeast Europe are turning to coal as they try to tackle a global surge in energy prices, raising fears among environmentalists that countries are rowing back on commitments to phase out the most polluting fossil fuel.

North Macedonia, once a frontrunner in attracting renewable energy investors, said earlier this month it planned to open two new coal mines to supply power stations.

The energy ministry also said it wants to buy 3 million tonnes of coal from neighbouring Kosovo, though no deal has been signed.

"With the start of the energy crisis, not just us but all nations in Europe have immediately increased the production of electricity from coal because it is the cheapest and most secure (source)," said Vasko Kovacevski, CEO of state-owned power utility Elektrani na Severna Makedonija (ESM).

Surging wholesale prices, low inventories and Russia's invasion of Ukraine have sent energy prices soaring and prompted many countries to scramble to secure supplies.

But environmentalists say turning to coal is not the answer.

"Decarbonisation is one of the pillars of the green agenda and we submit a plan for a coal mine? This is unacceptable," said Nevena Smilevska of environmental group Eko-svest in Skopje.

The new coal mines are Zivojno, close to the Bitola power plant in the south of the country, and Gushterica, near the Oslomej plant in the west. Neither the government nor ESM have said when they will open or how much they will produce.

Skopje originally planned to phase out coal by 2027, but in January pushed this back to 2030.