EUROPEAN MIDDAY BRIEFING – Shares Tumble as Snap Warning Sinks U.S. Tech



European stocks fell sharply Tuesday after a profit and revenue warning from social media company Snap sent futures of U.S. technology shares and the broader market tumbling.

The warning from Snap “stopped all the ‘worst is over’ pundits in their tracks,” said Jeffrey Halley, a senior market analyst at OANDA. “It highlights how fleeting swings in sentiment are now and also that investors are running at the first sign of trouble.”

“The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, U.S. summer driving season, supply chains, the list goes on,” Halley added. “The result is a day-to-day chop-fest, and it seems clear that volatility is the winner.”

That volatility could continue and run through the week as investors digest the release Wednesday of minutes from the latest Federal Reserve meeting.

Economic Insight:

The European Central Bank won’t be in a rush to raise interest rates because the current inflation spike is fuelled by the supply-side of the economy and inflation expectations remain well anchored, Christine Lagarde said in an interview with Bloomberg at the World Economic Forum in Davos.

“I don’t think we’re on the situation of surging demand at the moment…In this situation, we have to move in the right direction, obviously, but we don’t have to rush and we don’t have to panic.”

An economic recession isn’t the baseline scenario for the ECB, although an interruption of Russian gas supplies would have a significant impact on the eurozone’s economy, Lagarde added.

U.S. Markets:

The technology sector was poised to drag Wall Street down, with Nasdaq-100 index futures tumbling after the Snap warning.

Snap shares slumped 30% overnight after the social-media company warned Monday it would likely miss quarterly estimates as the economy has “deteriorated further and faster than anticipated.”

The Wall Street Journal reported late Monday that Snap told employees that it will slow the pace of hiring and look for more cost savings in the remainder of its 2022 budget. Still, 2022 remains “a significant investment year,” the company said in an internal memo, the Journal reported, and it still plans on adding 500 more employees by year’s end.

The warning weighed on other tech companies that rely on advertising as a revenue stream, with Meta Platforms losing nearly 9% in the late session, Pinterest down 16%, and Twitter off around 4%.


The euro pared gains against the dollar but only marginally after data showed growth in eurozone manufacturing and services activity slowed by more than expected in May.

The S&P eurozone manufacturing purchasing managers’ index fell to 54.4 in May from 55.5 in April and the services PMI dropped to 56.3 from 57.7. The euro remained buoyant, however, after Christine Lagarde’s comments Monday.

The dollar’s upward momentum could ease but the currency is unlikely to turn weaker just yet, as the Fed will continue to take a more aggressive approach to tightening policy than other central banks, said Swissquote Bank.

“It’s just that the others will also stop turning a blind eye on the inflation problem. And that should slow the dollar appreciation.”

Sterling could weaken as U.K.-EU tensions over the Northern Ireland protocol that forms part of the Brexit deal look set to escalate, said MUFG Bank.

Noting that Northern Ireland Secretary Brandon Lewis has signalled that the U.K. plans to introduce legislation to override parts of the Brexit deal in the next three weeks, MUFG said such action could create elevated uncertainty that will weigh on sterling.

The EU could threaten scrapping the entire Brexit trade agreement or suspend parts of the deal.

“The pound will get hit if these options are even mentioned as considerations by the EU.”


Eurozone government bonds were little changed after Christine Lagarde’s blog comments on Monday.

“The message in her blog seems crystal clear: lift-off in July, the end of negative rates in September and a progressive further normalisation towards the neutral rate depending on the outlook for inflation,” said Commerzbank.

“This sets the ECB on auto-pilot for a series of hikes starting in July and we think it will require an active decision and noticeably weaker data to stop it.”

Other News:

Italy’s new March 2038 BTP is expected to price about 8 basis points above the yield of the 0.95% March 2037 BTP, said Mizuho’s rates strategists.

They expect the March 2038 BTP to end up trading around 6.5 bps above the March 2037 BTP in the secondary market, but some new issue premium would take the pricing closer to a yield of 8 bps above the peer.

“This sort of NIP [new issue premium] is probably needed given how BTPs have been trading lately, but the smallish size on the bond could even see pricing a touch richer.”

Italy’s treasury plans to sell a maximum of EUR5 billion.


Oil futures extended losses in Europe as Chinese stimulus measures have so far failed to alleviate concerns about slowing growth.

Adding to concerns is continued Hungarian opposition to the EU’s plan to ban imports of Russian oil. “The EU is increasingly unlikely to approve a ban,” said DNB Markets.

Other News:

Ukrainian officials have descended on Davos to make sure the world doesn’t forget about the war while contending with inflation and other challenges, said Andrii Zhupanyn, head of the parliament’s subcommittee on gas policy.

On Europe’s ongoing reliance on Russian natural gas, Zhupanyn said “something needs to be done.” A full embargo on Russian gas in the EU is off the table for now but Ukraine is suggesting alternatives that would deprive Moscow of revenue, Zhupanyn said.

They include a tariff on Russian fuel or a requirement that payments go into an escrow account that cannot be accessed for general purposes–a workaround previously used for purchases of Iranian oil.

Spanish Prime Minister Pedro Sanchez said in an interview with CNBC at Davos that it’s important to build more connections allowing the transportation of natural gas and other forms of energy between the Iberian Peninsula and the rest of Europe.

Spain represents 37% of the EU’s regasification capacity, while Iberia concentrates nearly half of the EU’s liquefied natural gas storage capacity, Sanchez said. The region could also export renewable energy, such as green hydrogen.

“Spain and, I would say, Southern Europe, will have a chance to provide an answer to this energy dependence of Russia fossil energy…the only problem that we have is the interconnection.”

The European Commission wants to increase Iberia’s connectivity to Europe’s energy markets, Sanchez added.


Base metal prices were lower after data from Australia and Japan signaled dips in manufacturing growth.

While both readings were expansionary, the data confirmed manufacturing took a significant hit as inflation worries, China lockdowns and supply-chain issues added pressure to global industry.




Eurozone Growth Remains Robust in May Thanks to Booming Service Sector, PMIs Show

Eurozone economic growth remained robust in May despite headwinds associated with the Ukraine war, Covid-19 pandemic supply constraints and the rising cost of living, S&P Global said.

The eurozone composite purchasing managers index edged down to 54.9 in May from 55.8 in April, according to the preliminary reading. This figure indicates an expansion of economic activity for the 15th successive month, with the rate of growth easing only modestly.


German Export Sentiment Improves in May

Sentiment among German exporters has brightened despite the climate of uncertainty due to Russia’s invasion of Ukraine, the Ifo Institute said.

The Ifo export expectations index rose to 4.5 points in May from 3.0 in April.


Air France-KLM Launches $2.4 Bln Capital Increase to Repay State Aid, Strengthen Equity

Air France-KLM on Tuesday said that it has launched a capital increase through the issuance of 1.93 billion shares to raise gross proceeds of 2.26 billion euros ($2.42 billion).

The Franco-Dutch carrier said proceeds will be used to repay the deeply subordinated bonds held by the French state and to strengthen its balance sheet.


Smallpox Vaccine Enters Wider Production Amid Monkeypox Outbreak

Danish vaccine maker Bavarian Nordic A/S is making more of a smallpox vaccine typically stockpiled in case of biological warfare, as governments seek doses that also offer protection against monkeypox amid an unusual outbreak around the world.

Monkeypox, a viral illness that is only rarely detected outside of Africa, has been reported in recent weeks in at least 17 countries including the U.S., U.K., Spain, Portugal and Australia, according to nonprofit data platform In the U.S., a case was confirmed in Massachusetts and at least five more are suspected-one each in Florida, New York and Washington and two in Utah, state officials and the Centers for Disease Control and Prevention said Monday.


At Davos Confab, CEOs Fret Over Economy, Start to Plan for a Downturn

DAVOS, Switzerland-Fears of an economic downturn have lately gathered steam. Corporate executives at the World Economic Forum here struck a mostly gloomy tone to match.

“There is a cycle of mood,” said Alex Karp, chief executive of Palantir Technologies Inc. “You walk around and everyone thinks it’s going to be bad, so it’s going to be bad.” Mr. Karp isn’t alone, but the pessimism he says he’s picking up among other CEOs also isn’t uniform.


Egypt’s Bread Crisis Awakens Old Fears of Political Unrest

CAIRO-For decades, vendors sold subsidized Egyptian baladi bread for almost nothing in Al-Sayeda Zeinab market, a bustling hub for this city’s working class. One day last month, there was suddenly no baladi.

(MORE TO FOLLOW) Dow Jones Newswires

May 24, 2022 05:30 ET (09:30 GMT)

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