Market Wraps
Watch For:
Durable Goods Orders for March; Advance Economic Indicators Report for March; EIA Weekly Petroleum Status Report; Bank of Canada summer of monetary policy deliberations; Goldman Sach annual shareholders meeting; Earnings from Boeing, Meta Platforms, Mattel
Opening Call:
Stock futures rose Wednesday as a surge in Microsoft shares boosted broader market sentiment.
Regional bank stocks were also on track to rise after Tuesday’s selloff.
“The problems at First Republic Bank have undoubtedly reopened the sores from March, as investors fret about the financial system again, and while the big U.S. banks largely impressed at the start of this earnings season, numbers from regional lenders…look set to be under heavy scrutiny in the coming days and weeks,” AJ Bell said.
In Europe, banks were under pressure again. Deutsche Bank shares were off nearly 2%, while UBS shares slipped 1%. Italy’s UniCredit lost 3%. The broader Stoxx Europe 600 was down nearly 1%.
Asian stock indexes were mixed. Japan’s Nikkei 225 was off 0.7%, but Hong Kong’s Hang Seng rose 0.7%.
Stocks to Watch
Alphabet rose 1% premarket, after it reported a second straight drop in advertising revenue.
Amazon gained almost 4% premarket, putting it on course to recoup Tuesday’s losses.
First-quarter earnings and sales at Chipotle Mexican Grill topped expectations, sending the stock up 7% in premarket trading.
Enphase Energy reported first-quarter earnings that beat expectations but guided for second-quarter revenue that was lower than anticipated. The stock was falling nearly 16% in premarket trading.
First Republic’s shares climbed almost 4% premarket after losing nearly half their value Tuesday.
Microsoft rose more than 7% premarket, after it reported revenue growth and an outlook for the current quarter that beat expectations. The U.K.’s antitrust watchdog is set to rule Wednesday on whether to approve Microsoft’s $75 billion acquisition of Activision Blizzard.
O-I Glass’s adjusted first-quarter earnings beat expectations by 50% and the company raised its outlook for the year. Shares rose 9% in after-hours trading.
PacWest said deposits have stabilized in recent weeks, even though they were still down on a quarterly and annual basis. Shares rose 4% in premarket trading.
Texas Instruments reported first-quarter earnings that topped forecasts but its revenue estimate for the current second quarter was below consensus. Shares rose 2%.
Visa was up 1% after the credit card company delivered top- and bottom-line beats in its fiscal second quarter.
Forex:
The dollar fell after Janet Yellen warned that the failure by Congress to raise the government’s debt ceiling would mark catastrophic for the economy.
“The debt ceiling issue is clearly a dollar-negative risk,” MUFG Bank said.
The issue reinforces the downside economic risks that are building based on incoming economic data, MUFG said.
Separately, MUFG said that data this week showing the U.K. government borrowed less than the Office for Budget Responsibility had predicted in the fiscal year to end-March opens the door to fiscal stimulus and could boost the pound later this year.
The data could allow the government to announce tax cuts in the Autumn Budget that would become effective in April 2024 ahead of a general election later next year, MUFG added.
This would add weight to prospects of the BOE taking longer to cut rates than the Fed and could propel GBP/USD to 1.3000 or above, it said.
The market currently prefers the euro over the dollar as the ECB has further to go in raising interest rates than the Fed but this won’t last, Commerzbank said.
“The ECB’s rate hikes will at some point be reflected in economic performance,” Commerzbank said.
“The market will realise at some point that the mechanism ‘interest rates up, economic performance down’ not only applies for the U.S., but also for the eurozone.”
The ECB started lifting rates much later than the Fed so the economic effects will take longer to become apparent but once they do the ECB could look to end rate rises, it added.
Bonds:
The outlook for bond investments for the coming months isn’t negative, Generali Investments Partners said.
“Although volatility may still be high, the yields that can be obtained today are largely positive and able to withstand market fluctuations.”
With the final phase of the monetary policy tightening cycle approaching, “we believe that rates, in the next future, could move in the range observed in the past weeks,” Generali added.
Energy:
Oil prices edged higher in Europe following a sharp drop that all-but erased gains made following Saudi-led production cuts.
Concerns about the health of the U.S. economy have weighed on oil prices, but a stronger-than-expected drop in U.S. crude inventories–according to API data–has helped halt the slide. U.S. crude stocks shrank by over 6 million barrels last week.
“A slump in oil refining margins is also weighing on sentiment. This could lead to lower processing rates at refineries, particularly in Asia, ” ANZ said.
Metals:
Base metals and gold prices pushed higher in early London trade, with the dollar continuing to weaken.
Gold demand in China was strong through the first quarter, with data from the China Gold Association showing that domestic consumption rose 12% on year to 296.1 tons, ING said.
It added that much of this was led by strong consumer consumption for jewelry, gold bars and coins following the country’s reopening from lockdown.
Copper
Copper prices are likely well supported in the longer run, even though the base metal has retreated in recent sessions amid growing investor concerns over global recession risks, Saxo Bank said.
It said that most commodities have suffered year-to-date declines so far in 2023, as the Fed’s tightening and macroeconomic uncertainties weigh on sentiment.
But Saxo remains optimistic on copper’s longer-term potential, citing continued supply tightness based on recent inventory data, as well as the uptrend in structural demand amid the ongoing energy production transition, as many new-energy projects require copper.
Today’s Top Headlines
First Republic Joins the Living Dead
First Republic Bank appears to have gotten out of immediate liquidity trouble, but it has dug itself a deep profitability hole.
To cover deposit outflows, the lender had to borrow heavily at high rates from the Federal Reserve, the Federal Home Loan Bank and JPMorgan Chase & Co., in addition to the $30 billion that JPMorgan and 10 of the other largest banks deposited at the bank in an effort to rescue it. Total borrowings peaked at $138.1 billion on March 15, declining to $104 billion as of April 21, the bank said in its quarterly earnings statement on Monday.
Google Is All About Cost Control Now
Google is working hard to do more with less. How it does with a lot less remains to be seen.
Its parent company, Alphabet Inc., posted decent first-quarter results late Tuesday-decent in the sense that overall revenue narrowly beat Wall Street’s dim expectations thanks to some surprising resilience in the core search advertising business and despite a continuing slump in YouTube ads. But the company’s total advertising revenue was still flat year over year. And while Google doesn’t give formal projections, it said on its conference call to discuss its quarterly results that “the outlook remains uncertain.”
TikTok Ban in Montana Faces Speed Bump as Governor Seeks Changes
Montana’s governor is asking legislators to make changes to a bill that would be the first in the U.S. to ban TikTok outright, according to a draft of the amended bill language viewed by The Wall Street Journal.
The changes would broaden the ban from applying specifically to TikTok, which is owned by China-based ByteDance Ltd., and cover social-media applications that provide certain data to foreign adversaries, according to the proposed bill language.
Carrier to Buy Viessmann Climate Solutions for Nearly $13.2 Billion
Carrier Global Corp. has agreed to acquire Viessmann Climate Solutions for 12 billion euros, equivalent to $13.17 billion, expanding the air-conditioner maker’s business outside of the U.S.
Carrier on Tuesday said that the cash-and-stock deal, expected to close at the end of 2023, should be accretive to its adjusted earnings by 2025. The Wall Street Journal reported on Monday that Carrier was nearing a deal with Viessmann.
Tucker Carlson’s Vulgar, Offensive Messages About Colleagues Helped Seal His Fate at Fox News
Several weeks ago, as Fox News lawyers prepared for a courtroom showdown with Dominion Voting Systems, they presented Tucker Carlson with what they thought was good news: They had persuaded the court to redact from a legal filing the time he called a senior Fox News executive the c-word, according to people familiar with the matter.
Mr. Carlson, Fox News’s most-watched prime-time host, wasn’t impressed. He told his colleagues that he wanted the world to know what he had said about the executive in a private message, the people said. Mr. Carlson said comments he made about former President Donald Trump-“I hate him passionately”-that were in the court documents were said during a momentary spasm of anger, while his dislike of this executive was deep and enduring.
House Debt Ceiling Bill Cuts Deficits by $4.8 Trillion Over 10 Years, CBO Says
WASHINGTON-House Republicans’ debt-ceiling bill would cut government deficits by $4.8 trillion over 10 years, according to Congress’s nonpartisan scorekeeper, as party leaders moved to gather enough support for a vote this week.
The bill is designed to unify Republicans around a position as they prepare for expected talks with the White House and congressional Democrats over spending cuts, ahead of a projected summer deadline to raise the country’s borrowing limit. Unless Congress raises the ceiling, the U.S. could default on payments to borrowers and other obligations.
U.S. Treasury Looks to Curb ‘De-risking’ at Banks
The Biden administration is looking to address actions taken by U.S. banks to unbank certain customers and groups over their perceived connections to higher money-laundering risks.
Banks’ decisions to limit exposure to certain categories of customers over increased illicit finance risks could hurt those communities and pose a national security risk by driving financial activities out of the regulated banking system, the U.S. Treasury Department said.
Closed-End Bond Funds Are Selling at Steep Discounts. Moves to Make Now.
Leverage helps on the way up, but hurts on the way down, amplifying both gains and losses. That’s what closed-end bond fund investors learned the hard way in 2022.
Last year, Barron’swarned of the “debt time bomb” inside such funds as interest rates rose. Bond prices move inversely with rates, and leverage made things worse, with the market prices of some levered bond closed-ends such as Pioneer Municipal High Income Opportunities (ticker: MIO) falling by almost 40% last year. (The funds typically trade at premiums or discounts to their underlying net asset values.)
U.S., South Korea Pledge Cooperation on Potential Use of Nuclear Arms
WASHINGTON-The U.S. has agreed to give Seoul a greater voice in consultations on a potential American nuclear response to a North Korean attack in return for swearing off developing its own nuclear weapons, U.S. officials said.
The accord would grant South Korea’s leadership a long-sought place at the table on the use of U.S. nuclear forces to defend the country, though the U.S. would still retain control over targeting and the execution of nuclear operations. Seoul, in return, would restate its commitment not to develop its own nuclear arsenal.
TikTok Ban in Montana Faces Speed Bump as Governor Seeks Changes
Montana’s governor is asking legislators to make changes to a bill that would be the first in the U.S. to ban TikTok outright, according to a draft of the amended bill language viewed by The Wall Street Journal.
The changes would broaden the ban from applying specifically to TikTok, which is owned by China-based ByteDance Ltd., and cover social-media applications that provide certain data to foreign adversaries, according to the proposed bill language.
Senators to Introduce Bipartisan Bill Mandating Code of Ethics for Supreme Court
WASHINGTON-Sens. Angus King (I., Maine) and Lisa Murkowski (R., Alaska) will introduce a bipartisan bill Wednesday that would require the U.S. Supreme Court to create its own code of conduct within a year, following media reports that raise questions about whether Justices Clarence Thomas and Neil Gorsuch properly disclosed their financial activities.
“It’s pitiful that we’re having to introduce this bill-it’s pathetic that the Supreme Court hasn’t done this itself,” Mr. King said.
Prosecutors Seek to Restrict Evidence From Donald Trump in Hush-Money Case
Manhattan prosecutors on Tuesday asked a judge to restrict Donald Trump’s access to some evidence in his criminal case, citing the former president’s history of attacking witnesses and other people involved in legal matters.
The office of Manhattan District Attorney Alvin Bragg made the request for a protective order in a court filing Tuesday. Prosecutors asked the judge to order that Mr. Trump be allowed to view some evidence only in the presence of his lawyers. They also asked that defense attorneys show evidence from witness cellphones to Mr. Trump only with prosecutors’ consent.
U.S. Cyber Plans Are Built to Endure Political Winds, Senior Security Official Says
SAN FRANCISCO-Despite partisan divisions in Congress, current and former U.S. officials hope cybersecurity remains an issue that can unite Democrats and Republicans.
A top federal cyber official at the RSA Conference 2023 here emphasized the need for apolitical cooperation and information sharing to protect government bodies, the private sector and critical infrastructure.
Stocks to Watch:
Teck Resources 1Q Rev C$3.785B Vs. C$4.62B; 1Q Adj EPS C$1.78 Vs. Adj EPS C$2.96; 1Q EPS From Continuing Ops C$2.23 Vs. C$2.78;
No Change to Previously Issued Annual Guidance, Except for QB2 Capital Cost Guidance; QB2 Capital Costs Could Increase to US$8.0B-US$8.2B
West Fraser Timber 1Q Loss/Shr 52c; 1Q Loss $42M; 1Q Rev $1.627B;
Expect Aging Housing Stk and Greater Entrenchment of Work-From-Home Flexibility Will Help Offset Near-Term Headwinds and Spur Repair and Renovation Spending That Supports Lumber, Plywood and OSB Demand;
Over Longer Term, Growing Market Penetration of Mass Timber in Industrial and Comml Applications Is Also Expected to Become a More Significant Source of Demand Growth for Wood Building Products in N America; Demand for European Products Is Expected to Remain Robust Over the Longer Term as Use of OSB as an Alternative to Plywood Grows;
Expect Total Lumber Shipments in 2023 to Be Similar to 2022 as Transportation Challenges Are Not Expected to Be as Severe in 2023, Offset by Yr-over-Yr Softness in New Home Construction Demand, Permanent B.C. Mill Curtailments and Indefinite Curtailment of the Perry, Fla., Sawmill;
Reiterate 2023 SPF Shipments Guidance of 2.6B to 2.8B Bd Feet, and in the U.S. South, Reiterate 2023 SYP Shipments Guidance of 2.9B to 3.1B Bd Feet.
Source: Dow Jones Newswires