Market Wraps
Stocks:
European stocks moved lower on Monday as worries about a weaker global economic outlook continued to weigh.
“A forecast deterioration in the health of the global economy is weighing on minds, pushing equities lower as investors mull the impact of further punishing interest rate hikes,” Hargreaves Lansdown said.
“It now seems probable that we’ll see at least one more 25bps rate hike from the likes of the U.S. Federal Reserve and the Bank of England, while the jury remains out on how many more might be coming from the European Central Bank beyond next month’s widely expected 50bps move,” CMC Markets said.
On the political front, the week started with escalating tensions as France and countries across Eastern Europe condemned remarks by China’s ambassador in Paris claiming that post-Soviet states lack a firm basis for their sovereignty under international law.
U.S. Markets:
Stock futures declined ahead of earnings from companies including Coca Cola and First Republic.
Earnings from major tech companies are coming up later this week, including Microsoft and Alphabet on Tuesday, Meta on Wednesday and Amazon on Thursday.
Markets are likely to remain on the quiet side this week ahead of the Federal Reserve’s next meeting, “unless we see a material surprise coming through in the key earnings releases,” BlackRock said.
“What we’re looking for is around the impact of the inflationary backdrop, as well as the slowing economic growth and the impact that that has on curbing consumer demand.”
Forex:
Sterling could benefit as asset managers continue to trim bets against the currency following last week’s sticky U.K. inflation data that boosted interest rate expectations for the BOE, ING said.
The re-balancing out of short sterling positions by asset managers is ongoing, which could support GBP/USD in a quiet week of U.K. data, ING said.
“This could see GBP/USD edging back to the 1.2500/2550 area if we are right with our slightly bearish stance on the dollar this week.”
The dollar traded flat after staging a modest recovery over the past week as economic data signals an increasing risk of a slowdown which could lead to interest-rate cuts by the Fed, MUFG said.
“The incoming economic data flow continues to signal an increasing risk of sharper slowdown/recession for the U.S. economy that will open the door for rate cuts later this year.”
The dollar had recovered as the market scaled back expectations for rate cuts, MUFG said.
Bonds:
German 10-year Bund yields should stabilize further in a range around 2.50%, Commerzbank said.
Moderating supply and backflows from France and Spain in the coming days are among the tailwinds for eurozone government bond yield spreads, it added, expecting spreads to tighten.
The recent richening of French government bonds has been very limited and the bonds have a number of supportive factors over the coming weeks, Morgan Stanley said.
Among the supportive factors, it mentions the supply dynamics and valuation. The only exception unlikely to be supported is the 50-year maturity segment on the French curve, MS added.
Against this backdrop Morgan Stanley maintained its 5-20-50-year OAT “fly”-a trade where investors bet on the shape of the curve-, implying long positions in the 20-year maturity.
It also stayed long in the November 2032 OAT versus Germany’s August 2032 Bund.
Energy:
Oil prices fell 1% as concerns about global demand undercut planned production cuts from some of OPEC+’s biggest producers.
The declines are being prompted by falling diesel and gasoline prices, which suggest the global appetite for crude could be weakening.
Still, many investors continued to bet that prices will rise later this year. Speculative investors added to their net long position last week, despite the declines, suggesting “some market participants feel that oil is underpriced at the moment,” ING said.
Metals:
Base metals and gold prices moved lower as concerns over the health of the U.S. economy and further rate hikes from the Fed continued to hit markets.
“The macro environment turned bearish at the end of last week,” Peak Trading Research said.
It said bond markets are now pricing a 90% probability that the Fed hikes by 25 basis points next week. “This hawkish shift has supported the U.S. dollar and pressured risk assets and commodity markets lower.”
EMEA Headlines
Credit Suisse Details Painful Final Days Before Rescue
Credit Suisse Group AG gave a glimpse of its chaotic final weeks before a rescue last month by UBS Group AG in a first-quarter earnings report that showed revenue diving and customers rushing to pull deposits.
The Swiss bank lost more than $2 billion from its businesses in the first quarter, but posted a large net profit because of the benefit of writing off $17 billion in bonds. Customers withdrew around $75 billion in deposits, in a run that the bank says has moderated since the UBS deal announcement on March 19. Revenue fell across its investment-banking and wealth-management arms and its domestic bank.
German Business Sentiment Rose in April on Improved Short-Term Expectations
Business sentiment in Germany edged up in April for a sixth consecutive month, as expectations for the next six months improved despite the pressure of high inflation and rising interest rates.
The Ifo business-climate index increased to 93.6 in April from 93.2 in March, the highest since February 2022, according to data from the Ifo Institute published Monday.
Royal Philips Shares Rise on 1Q Consensus Beat – Update
Shares in Royal Philips NV rose Monday after the company reported a rise in sales and adjusted Ebita for the first quarter, beating market expectations, and said it was confident for its plan for 2023 despite current uncertainties.
Shares at 0833 GMT were up EUR1.95, or 11%, at EUR19.29.
Casino Gets Capital-Injection Offer From Kretinsky’s EP GlobalCasino Shares Rise on Investor’s EUR1.1 Bln Rescue Offer
Shares in Casino Guichard-Perrachon SA climbed Monday after the group received a capital-injection offer that analysts say could help drive a relaunch of the indebted French grocer.
At 0745GMT, shares traded up 4.4% at EUR6.76.
Vivendi Signs Put Option for Editis Sale to International Media Invest
Vivendi SE said Monday that it signed an option agreement for the sale of its book-publishing business Editis to International Media Invest as part of its bid to take over smaller French rival Lagardere SA.
The French media group said the agreement follows exclusive talks it disclosed last month with the subsidiary of Czech Media Invest, founded by Czech billionaire Daniel Kretinsky. The deal remains subject to consultation with employee-representative bodies and regulatory approvals, Vivendi said.
Iran Ships Ammunition to Russia by Caspian Sea to Aid Invasion of Ukraine
Russian ships are ferrying large quantities of Iranian artillery shells and other ammunition across the Caspian Sea to resupply troops fighting in Ukraine, Middle East officials said, posing a growing challenge for the U.S. and its allies as they try to disrupt cooperation between Moscow and Tehran.
Over the past six months, cargo ships have carried more than 300,000 artillery shells and a million rounds of ammunition from Iran to Russia, according to the officials and documents viewed by The Wall Street Journal. Intelligence about the shipments has been shared with the U.S., people familiar with the matter said.
China’s Ambassador to France Says Ex-Soviet States Lack Basis for Sovereignty
France and countries across Eastern Europe condemned remarks by China’s ambassador in Paris claiming that post-Soviet states lack a firm basis for their sovereignty under international law.
Ambassador Lu Shaye made the comments during an interview late Friday on French TV, in which he was asked whether he considered the peninsula of Crimea, which was annexed by Russia in 2014, part of Ukraine under international law.
Russia Evacuates Thousands in Border City It Accidentally Bombed
Russian authorities rushed to evacuate thousands of residents from parts of a border city struck by its own air force in an accidental attack the previous day, after finding unexploded ordnance in the area.
Authorities in Belgorod, which sits just 25 miles from the Ukrainian border, said that around 3,000 people who occupied 17 residential buildings were being evacuated.
Sanctions Against Russia Could Be Better, These Harvard Economists Say
In response to Russia’s invasion of Ukraine, Western nations have targeted Moscow with the biggest coordinated package of economic restrictions ever levied against a major economy, including sanctions, export controls, asset freezes and energy price caps.
Many of those measures, though, have proven less costly so far to Russia than some economists had expected and many officials in Washington and Brussels had hoped. Some Russian officials, meanwhile, had braced for more economic damage from the sanctions barrage by now.
Global News
Why the Banking Mess Isn’t Over
The panic phase of the past month’s banking crisis may be ending. The big question now is how much of a hit the economy faces from any lending pullback. The answer may not be clear for months.
The failures of Silicon Valley Bank and Signature Bank one month ago disrupted an already fragile equilibrium because many banks hadn’t raised deposit rates as the Federal Reserve aggressively lifted short-term interest rates to fight high inflation.
First Republic Earnings Report to Shed Light on Depth of Bank Crisis
First Republic Bank is scheduled to report first-quarter earnings Monday. The results will give investors insight into the extent of the damage after sharp deposit outflows at the troubled bank.
First Republic has been at the center of a crisis of confidence in midsize and smaller U.S. banks spurred by the collapse of several banks in March. Concerns have mounted about other lenders that could face a liquidity crunch similar to the ones that ultimately took down Silicon Valley Bank and Signature Bank. First Republic, one of the larger lenders to be swept up in the contagion worries, had to be rescued by JPMorgan Chase & Co. and other big banks last month.
Corporate Insiders Step Up Stock Buying After Banking Turmoil
Corporate insiders raced to buy shares of their own companies after last month’s banking crisis, signaling a vote of confidence in this year’s market rebound.
More than 1,000 officers and directors at more than 600 companies bought their own stock in March. That is the highest number on an individual and company basis since last May, according to the Washington Service, an insider-trading data analytics provider. The ratio of insider buying to selling last month swelled to the highest level since September, the firm found.
Kevin McCarthy, House GOP Debt-Limit Plan Face Crucial Test This Week
WASHINGTON-Speaker Kevin McCarthy and House Republicans face a crucial test this week as they scramble to unite their factious party around a bill that would slash government spending in exchange for raising the nation’s borrowing limit.
With the health of both the economy and his speakership potentially on the line in the debt-limit fight, Mr. McCarthy and his allies have begun the process of wrangling the 218 votes needed for passage of their plan. In the narrowly divided 222-213 House, Republicans can afford no more than four defections, if all Democrats vote no, as expected.
Amazon, Facebook, Google Headline Busy Earnings Week for Tech
Technology companies including Google parent Alphabet Inc. and Amazon.com Inc. as well as stalwarts from the food, pharmaceutical and energy sectors, highlight a busy earnings week amid concerns about the U.S. economy.
The coming reports will provide clues to investors about how companies fared in the first quarter of 2023 as the recent banking crisis, continuing layoffs in sectors such as technology, and inflation weighed on the economy.
BOJ Gov Ueda: Will Continue Monetary Easing for Now, With Inflation to Start Slowing Down Soon
TOKYO-Bank of Japan Gov. Kazuo Ueda said Monday that he would continue monetary easing for the time being because he expects inflation to start slowing down soon.
“Trend inflation is still below 2% so we need to continue monetary easing,” Mr. Ueda told a parliamentary committee. He said inflation would likely fall below the central bank’s 2% target in the latter half of this fiscal year ending March 2024.
China Detained Communist Party Newspaper Editor After Meeting With Japanese Diplomat Last Year
SINGAPORE-A veteran Chinese journalist faces spying charges over his interactions with diplomatic and academic contacts from Japan and the U.S., his family said in their first public comments on the case, more than a year after authorities in Beijing detained him.
Dong Yuyu, a senior editorial writer and editor at a leading Communist Party newspaper, was taken into custody in February last year, along with a Japanese diplomat who he was meeting at a restaurant in central Beijing, according to a statement issued by Mr. Dong’s family on Monday.
Kevin McCarthy, House GOP Debt-Limit Plan Face Crucial Test This Week
WASHINGTON-Speaker Kevin McCarthy and House Republicans face a crucial test this week as they scramble to unite their factious party around a bill that would slash government spending in exchange for raising the nation’s borrowing limit.
With the health of both the economy and his speakership potentially on the line in the debt-limit fight, Mr. McCarthy and his allies have begun the process of wrangling the 218 votes needed for passage of their plan. In the narrowly divided 222-213 House, Republicans can afford no more than four defections, if all Democrats vote no, as expected.
Swift Evacuation of U.S. Staff From Sudan Prompts Questions
The U.S. and other governments moved swiftly over the weekend to evacuate embassy staff from Sudan, where a battle for power between the country’s top two generals has now left millions of residents with the difficult choice of whether to try to sit out the clashes at home or attempt a risky escape.
The rapid descent of the east African country-and especially its capital, Khartoum-into all-out war appeared to surprise many embassies, including the U.S. mission, which didn’t issue advisories for American citizens to leave the country before the fighting started on April 15.
Source: Dow Jones Newswires