By Chuck Mikolajczak

NEW YORK – U.S. equities tumbled on Monday, with the S&P 500 confirming it is in a bear market, as fears grow that the expected aggressive interest rate hikes by the Federal Reserve would push the economy into a recession.

The benchmark S&P index has fallen for four straight days, with the index now down more than 20% from its most recent record closing high to confirm a bear market began on Jan. 3, according to a commonly used definition.

All the major S&P sectors were sharply lower, with only about 10 components of the S&P 500 in positive territory on the day. Markets have been under pressure this year as climbing prices, including a jump in oil prices due in part to the war in Ukraine, have put the Fed on track to take strong actions to tighten its monetary policy, such as interest rate hike.

The Fed is scheduled to make its next policy announcement on Wednesday and investors will be highly focused on any clues for how aggressive the central bank intends to be in raising rates.

High-growth market heavyweights such as Apple Inc, Microsoft Corp and Amazon.com Inc were the biggest drags on the S&P 500, as the yield on the benchmark 10-year U.S. Treasury note hit 3.44%, its highest level since April 2011. Growth stocks are more likely to see their earnings suffer in a rising rate environment.

A hotter-than-expected consumer price index (CPI) reading on Friday prompted traders to price in a total of 175 basis point (bps) in interest rate hikes by September.

Goldman Sachs late on Monday said it expects 75-basis-point increases in June and July. Expectations for a 75 basis point hike at the June meeting jumped to 96% late on Monday from 30% earlier in the day, according to CME’s Fedwatch Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?redirect=/trading/interest-rates/fed-funds.html.

“The market had been trying to rally around the idea that inflation has peaked, and the Fed would not have to be more aggressive,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.

“That story fell apart on Friday with the CPI report, showing broad inflation being entrenched everywhere you look.”

According to preliminary data, the S&P 500 lost 149.91 points, or 3.85%, to end at 3,750.95 points, while the Nasdaq Composite lost 526.82 points, or 4.65%, to 10,813.20. The Dow Jones Industrial Average fell 857.70 points, or 2.73%, to 30,535.09.

Graphic: S&P 500 bear markets – https://fingfx.thomsonreuters.com/gfx/mkt/egpbkwzzyvq/Pasted%20image%201655136477182.png

In addition, the two-year 10-year U.S. Treasury yield curve briefly inverted for the first time since April, which many in the markets see as a reliable signal that a recession could come in the next year or two.

The Nasdaq Composite index, which suffered its fourth straight drop, confirmed it was in bear market territory on March 7 and has declined roughly 30% this year.

The CBOE Volatility index, also known as Wall Street’s fear gauge, spiked to its highest level since May. Still, many analysts view the level as subdued and could mean more selling pressure is in store.

“This is a market that does not look like it is capitulating as much as it is frustrated,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.

“Even with some of the securities being thrown out, it is just not deep enough, violent enough to see that people have taken positions off.

Graphic: S&P 500 timeline – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoxzdbpr/Pasted%20image%201655126727434.png

Cryptocurrency- and blockchain-related stocks, including Riot Blockchain, Marathon Digital Holdings and Coinbase Global, all plunged as bitcoin slumped more than 10% after major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers citing “extreme” conditions.

(Additional reporting by Lewis Krauskopf, Stephen Culp and Noel Randewich; Editing by Aurora Ellis)

By David Shepardson

ARLINGTON, Virginia -Industrywide demand for airplanes is strong and will continue to improve as airlines work to replace aging fleets, buy more efficient models and continue to see passenger growth, Boeing Co Chief Executive Dave Calhoun said on Monday.

“Demand for airplanes is as robust as I’ve ever seen it. I think it will get more robust,” Calhoun told Reuters and another news outlet on the sidelines of an event at Boeing’s new headquarters in Arlington, Virginia. The demand for airplanes “is more than a bubble,” he added.

Calhoun described the decision to move the headquarters to Arlington from Chicago, announced last month, as “not a momentary thing. It wasn’t an auction.”

Calhoun, speaking to reporters after an event Monday to herald the HQ announcement, said Boeing did not consider relocating its headquarters back to Seattle, where it had been based until its move to Chicago in 2001. “It was a simple consolidation of footprints,” he said.

Boeing, a major U.S. defense contractor, also plans to develop a research and technology hub in the Arlington area, home to the Pentagon and across the Potomac River from the U.S. capital.

“Our biggest customer in the world is right across the way — the Pentagon is the biggest in the world,” Calhoun said. “This is just a smart spot.”

Boeing’s new headquarters is in an Arlington office it has had since 2014 where it has significant unused space, and which sits just blocks from Amazon.com’s second headquarters, known as HQ2, which is under construction.

“This innovation campus really got jelled when Amazon came here,” Calhoun said.

The Chicago headquarters – a 36-floor, $200 million riverfront skyscraper – has been at the crossroads of a cost-cutting campaign for Boeing, which has shed real estate, including its commercial airplane headquarters in Seattle.

With the move to Arlington, some key executives, including Calhoun and the chief financial officer, will be based there, but not a lot more.

Asked how many jobs would move to Virginia from Chicago Calhoun said: “Almost none — like none.”

“Seventy percent of my day no matter where I am is virtual anyway because I run a large distributed company,” Calhoun said.

Boeing’s headquarters move to Chicago in 2001 came after 85 years in Seattle, following its 1997 merger with St. Louis-based rival McDonnell Douglas.

Raytheon announced last week that it also will move its headquarters to suburban Washington, joining the other largest defense contractors in the area.

“This industry is fighting every other industry to get STEM talent — that fight’s forever,” Calhoun said. “Raytheon, Northrop (Grumman), Boeing, Airbus — we’re all hunting for it.”

Asked if there was any movement on efforts to resume more airplane deliveries in China, Calhoun told Reuters he remains “constructive, and I believe someday good things will happen, but I can’t tell you the day.”

(Reporting by David Shepardson; Editing by Leslie Adler)

By Leika Kihara

TOKYO -The Bank of Japan is likely to keep interest rates ultra-low on Friday, unfazed by a relentless fall in the yen that is boosting import costs and shows little sign of abating while other central banks around the world withdraw monetary stimulus.

The yen’s weakness, once welcomed for the boost it gives to the export-reliant economy, has become a source of concern for Japanese policymakers as it inflates already-rising import costs and inflicts pain on households.

The deepening dilemma for the central bank was evident last week when BOJ Governor Haruhiko Kuroda faced a storm of criticism on social media for saying that households were becoming more accepting of higher prices.

He was forced to retract that comment, and backtracked on Monday from his long-held view that a weak yen was good for the economy.

Despite grumbling over the yen’s weakness, however, the BOJ is likely to maintain ultra-low interest rates on the view that hiking rates now would do more harm than good by cooling a fragile economy, said three sources familiar with the central bank’s thinking.

“The BOJ does not target exchange rates in guiding monetary policy,” one of the sources said.

“What’s important now is to support the economy with ultra-loose policy,” the source said. That view was echoed by the other two sources.

At a two-day meeting that ends on Friday, the BOJ is expected to keep unchanged both its -0.1% short-term rate target and its 0% cap for 10-year government bond yields.

The BOJ is caught in a fresh conundrum. While core consumer inflation exceeded its 2% target in April for the first time in seven years, the rise is driven mostly by fuel and food costs.

Wary that such cost-push inflation will hurt consumption, the BOJ has repeatedly stressed its resolve to keep monetary policy ultra-loose until wage growth intensifies.

But the BOJ’s dovish stance has driven down the yen, which weakened to 135.22 per dollar on Monday, the lowest since 1998. That is piling pain onto households by pushing up their cost of living.

While the BOJ could raise rates as a last resort if the yen spirals into free-fall, analysts doubt whether such a move could reverse a broad, strong-dollar trend driven by the U.S. Federal Reserve’s aggressive rate hike plans.

“It’s clear the BOJ has no intention of tweaking ultra-loose monetary policy any time soon,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“But the environment surrounding the BOJ is changing rapidly,” she said. “If the yen slides below 140 or 145 to the dollar, the BOJ may be forced to raise its yield target.”

(Reporting by Leika Kihara; Editing by Edmund Klamann)

SINGAPORE/NEW YORK -Rising expectations that the Federal Reserve will this week raise interest rates by more than previously forecast unsettled investors on Monday, sending the S&P 500 tumbling to confirm a bear market and intensifying fears over the economic outlook.

The Fed meets on Wednesday following data last week showing that U.S. consumer prices rose at their fastest pace since 1981.

Citing a report on Monday in the Wall Street Journal, Goldman Sachs said it expects 75-basis-point increases in June and July, and then a 50-basis point hike in September.

Late on Monday, expectations for a 75 basis point hike at the June meeting jumped to 96% from 30% earlier in the day, according to CME’s Fedwatch Tool.. A 75-basis-point hike would be the biggest since 1994.

“The May inflation data was so concerning that we think the Fed will react even more aggressively in moving rates ‘expeditiously’,” BNY Mellon strategist John Velis said on Monday. His note forecast a 75-basis-point hike, up from a 50 basis-point prediction.

Barclays and Jefferies have also forecast a 75-basis-point hike.

“U.S. CPI surprised to the upside and continues to show broad and persistent price pressures,” Barclays analysts said in a Sunday note. “We think the Fed probably wants to surprise markets to re-establish its inflation-fighting credentials.”

The S&P 500 on Monday ended down more than 20% from its most recent closing high, confirming it was in a bear market. A key part of the Treasury yield curve inverted on fears that big Fed hikes would tip the economy into recession, and yields of benchmark 10-year Treasuries hit their highest levels since 2011. [.N]

“The markets are not waiting for Wednesday’s (Fed) meeting, they are going to front run them and that’s what is already happening in the markets today,” said Jim Paulsen, chief investment strategist at the Leuthold Group.

Other large investors on Wall Street said that while they do not see a 75-basis-point move as imminent, the probability of such a large rate hike in the next few months are rising.

Standard Chartered said that even a 100-basis point hike could not be precluded.

‘INCESSION’

Markets reacted with a sell-off in short-dated Treasuries along with futures tied to the Fed policy rate. Yields on the two-year Treasury note are at their highest since late 2007. [US/]

Bets on the U.S. terminal rate – where the Fed funds rate may peak this cycle – continue to rise. On Monday, rates were priced to approach 4% in mid-2023, up almost one percentage point since end-May. Deutsche Bank said it now saw rates peaking at 4.125% in mid-2023.

In one sign of turmoil in the global fixed-income market, credit default swap indexes measuring the cost of insuring against European corporate bond defaults jumped on Monday to their highest since 2020.

U.S. corporate bonds were also pummelled over the economic outlook and companies’ ability to repay their debt.

For Rabobank, the risk of “stagflation” – a period of weak growth and high inflation last seen in the 1970s – could give way to the threat of “incession”, a combination of inflation and recession, it said in a research note on Sunday.

The shape of the Treasury yield curve inversion, rising high-yield credit spreads, and the underperformance of cyclical stock market sectors, indicated rising concerns on the economic outlook, said Oliver Allen, an economist at Capital Economics.

“One interpretation is that investors are veering towards a view that the Fed will need to induce a recession if it is to bring inflation back to target,” he said in a note.

(Reporting by Tom Westbrook, Davide Barbuscia and David Randall; Additional reporting by Noel Randewich; Editing by Megan Davies, Tomasz Janowski and Lisa Shumaker)

(Reuters) -Oracle Corp topped Wall Street estimates for quarterly profit and revenue on Monday, as demand for its cloud products soars amid an industry-wide shift to cloud-based platforms.

Shares in the Austin, Texas-based company, whose fourth-quarter revenue jumped 5%, rose about 12% in extended trade.

“We believe that this revenue growth spike indicates that our infrastructure business has now entered a hyper-growth phase,” Oracle Chief Executive Officer Safra Catz said in a statement.

Oracle, which reported a currency headwind of 5% in the fourth quarter, up from 2% to 3% in the third quarter, said it expects substantial revenue growth in its cloud business, despite rising inflation and a stronger greenback.

Microsoft in April and Salesforce Inc last month also indicated a strong future for the cloud market as companies increase spending, though the former cut its fourth-quarter forecast for profit and revenue earlier this month due to unfavorable exchange rates.

Oracle warned of a $100 million hit per quarter in fiscal year 2023 as a result of suspending services in Russia.

The company, however, expects first-quarter revenue growth between 17% and 18%, boosted by its $28-billion acquisition of healthcare IT company Cerner Corp.

Oracle’s forecast comes on a day U.S. equity markets tumbled with the S&P 500 confirming it was in a bear market as investors fear aggressive interest rate hikes by the Federal Reserve could plunge the economy into recession.

The company expects first-quarter adjusted EPS between $1.04 and $1.08 compared with analysts’ average estimate of $1.13.

Revenue for the fourth quarter ended May 31 grew to $11.84 billion, above analysts’ average estimate of $11.66 billion, according to IBES data from Refinitiv.

Excluding items, the company earned $1.54 per share, beating estimates of $1.37 per share.

(Reporting by Akash Sriram and Chavi Mehta in Bengaluru; Editing by Vinay Dwivedi)

By Jonathan Stempel

NEW YORK -A U.S. judge on Monday said shareholders can sue Deutsche Bank AG for allegedly hiding shortfalls in its internal controls while doing business with risky, ultra-rich clients like the sex offender Jeffrey Epstein and Russian oligarchs.

U.S. District Judge Jed Rakoff in Manhattan said shareholders may try to prove in their proposed class action that the German bank was aware its know-your-customer and anti-money laundering controls were ineffective, and that its share price fell as the truth became known.

In a 30-page decision, Rakoff said the complaint described specific processes that Deutsche Bank knowingly undermined through an “unwritten but pervasive practice” of exempting rich, politically connected clients from normal internal scrutiny.

Rakoff said shareholders may also pursue claims against Chief Executive Christian Sewing and his predecessor John Cryan. He dismissed claims against Deutsche Bank’s chief financial officer and his predecessor.

A Deutsche Bank spokesman declined to comment. The lawsuit covers investors in Deutsche Bank securities from March 14, 2017 to May 12, 2020.

Since taking over in 2018, Sewing has boosted profits and tried to restore investor confidence that the bank had moved past its internal controls shortfalls.

These included failures to better monitor its work for Epstein, which in 2020 led to a $150 million fine from a New York regulator, and dealings with Danske Bank’s Estonia branch, which was embroiled in a massive money laundering scandal.

The defendants said shareholders failed to show any intent to defraud, and that the bank’s statements about its compliance processes were “aspirational” or “puffery.”

But Rakoff said the complaint adequately alleged that Sewing and Cryan “were personally aware of the deficiencies in the bank’s KYC and AML practices” that made filings they signed false or misleading.

Emma Gilmore, a lawyer for the shareholders, said companies have long tried to evade liability by claiming their statements about compliance were aspirational.

“Judge Rakoff’s decision makes clear that not only is this argument extraordinarily cynical, it has no basis in law,” Gilmore said in an email.

The case is Karimi v Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 22-02854.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)

By Elizabeth Piper and Kate Holton

LONDON -Britain published plans on Monday to override some post-Brexit trade rules for Northern Ireland by scrapping checks and challenging the role played by the European Union’s court in a new clash with Brussels.

Despite Ireland describing the move as a “new low” and Brussels talking of damaged trust, Britain pressed ahead with what Prime Minister Boris Johnson suggested were “relatively trivial” steps to improve trade and reduce bureaucracy.

European Commission Vice President Maros Sefcovic said Brussels’ reaction would be proportionate, but ruled out renegotiating the trade protocol.

Tensions have simmered for months after Britain accused the bloc of heavy-handed approach to the movement of goods between Britain and Northern Ireland – checks needed to keep an open border with EU-member Ireland.

Always the toughest part of the Brexit deal, the situation in the region has rung alarm bells in European capitals and Washington, and among business leaders. It has also heightened political tensions, with pro-British communities saying their place in the United Kingdom is being eroded.

“I’m very willing to negotiate with the EU, but they do have to be willing to change the terms of this agreement which are causing these very severe problems in Northern Ireland,” British Foreign Secretary Liz Truss said.

“We’re completely serious about this legislation.”

Britain has pointed to the breakdown of a power-sharing administration in Northern Ireland as a reason for drafting the legislation, the first step in what could be a months-long process before the bill becomes law.

The legal advice cited the “doctrine of necessity”, which is invoked when governments may take law-breaking action to protect stability, as the foundation for the move, saying the conditions had been met because of the situation in Northern Ireland.

Britain has long complained that negotiations with the EU have failed to come to fruition and the legislation is seen as an insurance policy, and possibly a bargaining chip. The bill could accommodate any solution agreed in those talks.

The new trade row comes as Britain faces its toughest economic conditions in decades, with inflation forecast to hit 10% and growth stalling. Johnson said any talk of a trade war would be a “gross, gross overreaction”.

The EU’s Sefcovic said the bloc will not renegotiate the protocol and called the idea “unrealistic”.

“Any renegotiation would simply bring further legal uncertainty for people and businesses in Northern Ireland,” Sefcovic said in a statement.

“Our aim will always be to secure the implementation of the Protocol. Our reaction to unilateral action by the UK will reflect that aim and will be proportionate.”

NEW CLASH

Britain has long threatened to rip up the protocol, an agreement that kept the region under some EU rules and drew an effective customs border between Northern Ireland and the rest of the UK to prevent a back door for goods to enter the EU’s vast single market.

It now plans a “green channel” for goods moving from Britain to Northern Ireland, to change tax rules and end the European Court of Justice’s role as sole arbiter in disputes. It also wants a dual regulatory regime, angering companies which fear higher costs.

The move has again exposed divisions in Johnson’s Conservative Party, a week after the prime minister just survived a rebellion by his own lawmakers.

Brexit supporters said it could have gone further, critics feared it again undermined London’s standing in the world by challenging an international agreement.

Similar divisions were evident in Northern Ireland.

Brussels believes any unilateral change may breach international law, while Irish foreign minister Simon Coveney said that only the British government thought it was not a breach.

The EU could launch legal action or eventually review terms of the free trade deal it agreed with Britain. It has already thrown doubt on Britain’s role within the $99 billion Horizon Europe research programme.

On Monday, the White House urged Britain and the EU to resolve their differences, but said it saw no impact on a U.S.-UK trade dialogue planned in Boston next week.

“The U.S. priority remains protecting the gains of the Belfast Good Friday agreement, and preserving peace, stability and prosperity for the people of Northern Ireland,” White House press secretary Karine Jean-Pierre told reporters.

Asked if Britain’s plans could be an impediment for June 22 U.S.-UK trade discussions or a future trade deal, Jean-Pierre said, “No, I don’t believe it will be.”

A spokesperson for the British embassy in Washington said there was no linkage between the dialogue, which will focus on small and medium businesses, and Britain’s talks with the EU.

“The UK government is focused on doing what’s right for the people of Northern Ireland and to safeguard peace and stability,” the spokesperson said.

($1 = 0.9553 euros)

(Additional reporting by Paul Sandle, Andrew MacAskill, William James, Alistair Smout and Kylie MacLellan in London, Marine Strauss and Benoit Van Overstraeten in Brussels, Padraic Halpin in Dublin and Alexandra Alper and Andrea Shalal in Washington; Editing by Louise Heavens, Mark Potter, Ed Osmond, William Maclean, Tomasz Janowski and David Gregorio)