EUROPEAN MIDDAY BRIEFING - Oil Rises as Stocks -2-

The euro is likely to stay weak on reports that the EU could implement new sanctions against Russia, and could weaken further depending on the harshness of the measures and their implications for energy prices, ING said.

"The euro's performance is very strictly tied to the content of new sanctions the EU looks likely to impose on Russia; the bigger the implications for the energy market, the larger the impact on the euro," ING's analysts said in a note.

Details of new sanctions may not emerge until Wednesday, while the euro is unlikely to recover from Monday's sharp falls that took it below $1.10 unless sanctions "prove milder than expected," the analysts said.

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The pound looks set to be moved by external drivers this week in the absence of major U.K. catalysts to influence the market's expectations for interest-rate rises from the Bank of England, ING said.

"For now, money markets are embedding five more hikes by the end of the year, which is likely offering some support to GBP in the background," ING analysts said.

However, adverse energy developments caused by potential new sanctions against Russia could take a toll on sterling with GBP/USD possibly falling below 1.3100 by the weekend, they said.

Bonds:

Whether investors admit or not, "we have entered a bond bear market," said Saxo Bank's strategists. In this environment, bond yields are destined to increase substantially, and traditional safe havens like U.S. Treasuries will not protect investors looking to diversify portfolios, they said.

To underpin this view, Saxo said that, since the beginning of the year, U.S. Treasuries have suffered from the most significant losses compared to any year since 1974, with the weak performance attributable to investors' bets of interest-rate rises in 2022.

Years of accommodative monetary policy distorted investors' risk perception and forced them to take on more risk either through duration or credit, they said.

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French OAT-German Bund yield spreads are verging on year-to-date wide levels, but still aren't showing too much election-related stress, Mizuho's rates strategists said.

The French president is still in a "commanding position," but OATs should continue to be under pressure versus Bunds, Mizuho said, "as investors trim some risk prior to the first round [of presidential elections] on 10th April."

Incumbent President Emmanuel Macron comfortably leads first-round polls. The 10-year OAT-Bund yield spread traded at 51 basis points, having started the year at around 37 bps, according to Tradeweb.

Commodities:

Oil ticked higher as the market waits to see whether the West will hit Russia with fresh sanctions in response to war crime reports.

Western nations have been considering how to respond to reported war crimes against Ukrainian civilians, with details expected to be released later Tuesday. France has called for a ban on Russian oil imports, but Germany has pushed against banning Russian gas imports.

"It feels right now that a complete shut off [of Russian energy imports] is going to be too painful," said Kara Murphy, chief investment officer at Kestra Holdings. "But there is a growing consensus that there needs to be more done and they need to tighten the spigot."

EMEA HEADLINES

Europe to Propose Fresh Sanctions on Russia

The European Commission is set to propose broad new sanctions on Russia on Tuesday, including a ban on imports of Russian coal, blocking new machinery exports to Russia, targeting Russian oligarchs and some family members and slashing the access of Russian road and shipping goods carriers into the bloc. The measures would still need backing from the bloc's 27 member states.

Write to Laurence Norman at [e-mail]

Sanctioned LPs Complicate Private-Equity Fund Dynamics

Private-equity firms are navigating the complications of cutting sanctioned Russian investors out of their funds, a task that can create challenges for a fund's remaining investors or even threaten the fund itself.

In the weeks since the U.S. and Europe imposed sanctions on certain entities in response to Russia's invasion of Ukraine, financial-services firms world-wide have struggled with the complex logistics of removing a major economy out of the global financial system.

Eurozone Growth Remained Strong in March; Challenging 2Q Seen Ahead

The eurozone economy maintained a strong rate of growth in March, easing slightly from February's five-month high as looser pandemic restrictions continued to accommodate rising levels of business activity, S&P Global said.

The eurozone composite purchasing managers index was 54.9 in March, a slight decline from 55.5 in February but still indicative of strong growth in business activity across the eurozone, as readings above 50.0 signal an expansion.

Luxury Brands Broke Their Jet-Set Addiction, and Aren't Looking Back

Luxury handbag, jewelry and fashion brands have long been a beneficiary of tourist euros, with shopping sprees in Europe's cities a cornerstone of consumption in the industry. Chinese tourists, especially, had become a key consumer base for luxury brands such as Gucci, Dior and Hermes. So when the coronavirus pandemic grounded transcontinental tourism, brands were forced to shift gears and court customers in their home markets.

Two years on, some luxury-goods companies are proving able to turn this crisis into opportunity.

Berlin Takes Control of Gazprom's German Business

BERLIN-The German government will temporarily take control of a key unit of Russian state-owned natural gas giant Gazprom PJSC in Germany in a bid to secure gas deliveries, as tensions grow between Russia and Europe over energy supplies.

Economy minister Robert Habeck said Monday that the Federal Network Agency would become a trustee of Gazprom Germania GmbH until Sept. 30. The move comes after Gazprom on Friday said that it was exiting its business in Germany without elaborating.

Novartis's Restructuring Expected to Lead to $1 Billion in Cost Savings

Novartis AG said Monday that it is undergoing a restructuring that it expects will save the company $1 billion by 2024.

Several of the Swiss pharmaceutical company's top management, including its chief medical officer, will be leaving, the company said.

Europe Faces Pressure to Dial Up Sanctions on Russia Over Ukraine Deaths

BERLIN-French President Emmanuel Macron's call Monday for sanctions banning imports of Russian oil and coal into the European Union following the weekend's allegations of atrocities in Ukraine is set to trigger the most divisive intra-EU clash yet over how to respond to Russia's invasion of its neighbor.

European governments, some of them divided internally on the issue, have so far tiptoed around energy imports, with proponents of some form of energy ban-including Poland, the Baltic States, Sweden and the Netherlands-accepting that opposition in other capitals remained too strong.

U.S. and Allies Vow Action Over Reports of Russian Atrocities in Ukraine

BUCHA, Ukraine-Western leaders vowed to investigate alleged war crimes in Ukraine and impose new penalties on Moscow over purported Russian atrocities against Ukrainian civilians that have sparked international condemnation and outrage.

President Biden called for a war crimes trial over the accounts of rape and killings of hundreds of civilians in Bucha and other formerly Russian-occupied towns around the Ukrainian capital and said Russian President Vladimir Putin must be held accountable.

GLOBAL NEWS

Private-Equity Giants Back New Nonprofit Promoting Employee Ownership

A group of large private-equity firms has agreed to get stock into the hands of more employees at companies they own in an effort to address income inequality.

A coalition of more than 60 groups that also includes banks, pension funds and others has signed on to back a new nonprofit aimed at promoting broad-based stock ownership, officials told The Wall Street Journal.

In Australia, Central Bank Reveals More Hawkish Stance

SYDNEY-The Reserve Bank of Australia kept its official cash rate at emergency settings, but nudged open the door to an interest-rate increase in the months ahead with a more hawkish outlook.

The country's central bank on Tuesday said it would keep its benchmark rate at 0.10%, as economists had expected, but dropped remarks that it was prepared to be patient from policy guidance as it acknowledged signs that wage growth could accelerate.

How Hackers Target Bridges Between Blockchains for Crypto Heists

A $540 million cryptocurrency heist revealed last week marked the latest in a string of eye-popping hacks hitting a technology seen as a linchpin to building a more decentralized internet.

Hackers moved the funds by exploiting the Ronin Network, software that allows users of the online game "Axie Infinity" to transfer digital assets across different blockchains. Growing sums of money exchanged over such bridges has turned them into targets.

Shanghai's Covid-19 Cases Rise Above 13,000 as City Extends Lockdown

Rather than emerging from a two-stage lockdown on Tuesday as planned, most of Shanghai's 25 million residents remained homebound as the city's daily Covid-19 cases continued to rise.

Shanghai reported over 13,000 new local infections Tuesday, more than tripling the number reported nine days ago, when it said it would close down half of the city at a time for four days. The part of the city locked down in the first phase had been scheduled to emerge Friday. The second stage was due to end at 3 a.m. Tuesday.

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

(END) Dow Jones Newswires

04-05-22 0629ET