Market Wraps
Watch For:
ADP National Employment Report for April; ISM Report on Business Services PMI for April; EIA Weekly Petroleum Status Report; Fed interest-rate decision; earnings from Kraft, CVS Health
Today’s Headlines/Must Reads
– With Fed Set to Raise Rates, Executives Watch Consumers for Signs of Stress
– How European Economies Are Finding New Ways to Pay for War on Their Doorstep
– Warren Buffett’s ‘Secret Sauce’ Involves One of Investing’s Most Basic Strategies
– Repo Men Haggle With Harley-Davidson Over Fees
Opening Call:
Stock futures were just about in positive territory on Wednesday, as focus turns to the Federal Reserve interest rate decision.
As the market is placing an 89% probability on the Fed raising rates by 25 basis points to a range of 5% to 5.25%, analysts suggested that investors will be particularly eager to look ahead and gauge whether this represents the final tightening of the cycle.
“Caution is set to take center stage ahead of the Fed’s interest rate decision later, as investors mull what’s ahead for the mighty U.S. economy,” said Hargreaves Lansdown.
“Worries have ratcheted up again that a maelstrom of problems are lurking within regional banks and that there could be another breakage as interest rates are set to be hiked again.”
But analysts were unsure to what extent these factors would color the Fed’s thinking.
“…the bigger question will be what Powell and the FOMC might signal moving forward, not least since market pricing is currently suggesting today will be the last move in the current hiking cycle, with futures still looking for around 64bps of cuts by year-end despite the more hawkish signals from the Fed,” Deutsche Bank said.
Global indexes were mixed: The Stoxx Europe 600 gained 0.4%, while in Asia, Hong Kong’s Hang Seng fell 1.2%.
Stocks on the Move
Concerns about the health of banks were persisting after First Republic’s assets were snapped up by JPMorgan Chase over the weekend. Another likely Fed rate increase and the prospect of recession, are further clouding the outlook.
PacWest Bancorp fell 5% in premarket trading, while Western Alliance was down 3% after shares of both regional lenders fell sharply on Tuesday. The reasons for the steep declines were unclear.
Other Stocks to Watch
AMD stock was down 6% in premarket trading after the chip maker reported a steep drop in first-quarter margins and issued a second-quarter forecast for revenue that roughly equaled revenue from the prior quarter.
Andersons swung to an unexpected loss in its latest quarter. Its shares dropped 11% in after-hours trading on Tuesday.
Ford was down 1% in premarket trading after the auto maker swung to a profit in the first quarter but left its guidance for the full year unchanged.
Livent gained 9% after the lithium company reported first-quarter earnings that beat forecasts and raised its outlook for the year.
Match Group’s first-quarter earnings topped Wall Street expectations, but revenue missed. The company also issued a second-quarter revenue forecast below estimates. The stock gained 5% premarket.
Mercury Systems reported fiscal third-quarter profit and sales above Wall Street expectations but cut its guidance for the year. Its shares fell 9% in after-hours trading on Tuesday.
Micro Computer guided much higher than views for its fiscal fourth quarter despite missing analysts expectations for its latest quarter. Its shares rose 9% in after-hours trading.
Starbucks topped fiscal second-quarter earnings and sales expectations, and comparable-store sales in China saw growth. The stock was down 5% in premarket trading. Coming into Wednesday, the stock has gained more than 15% in 2023.
Forex:
The dollar was weaker in Europe, as investors await the latest Fed decision, with the focus on whether the central bank keeps the door open to another rate increase or indicates a pause in June, RBC said.
“In the statement, the key factor to watch is whether the line ‘some additional policy firming may be appropriate’ is altered or removed altogether – no change would be read as hawkish.”
BBVA said the euro’s appreciation against the dollar–rising to around 1.10 from below parity over the past six months–was expected, but has come sooner than anticipated.
The driving factors include: the European economy seems to be overcoming the impact of the energy shock caused by the war in Ukraine; the narrowing spread between German Bund and Treasury yields, “reflecting how the market is adjusting to the growth outlook in Europe; and the slower momentum” of Fed interest rate hikes.
Sterling will be entirely driven by external factors this week given a lack of U.K.-specific catalysts, ING said.
The Fed’s expected rate hike may not have a sizeable impact on GBP/USD, ING added, but EUR/GBP faces “downside risks” later this week–potentially falling to 0.8750-0.8780–as the European Central Bank’s meeting on Thursday may fall short of the market’s “hawkish” pricing for further rate rises in the eurozone.
Bonds:
German Bund and Treas ury yields have been moving down decisively for some time now and this pattern should continue, especially if there is a slowdown in economic momentum, Vontobel said.
With the end of central banks’ interest-rate rises approaching, allocations to fixed income assets have been increasing significantly, it added.
“This is helpful defense as lower government benchmark yields would offset any eventual widening in credit spreads ,” Vontobel said. But it remains to be seen what sort of a slowdown in growth momentum materializes.
Energy:
Oil prices extended their retreat in Europe, as continued worries about the health of U.S. banks have revived concerns about the economy.
“There is little in the way of fresh fundamentals to justify the selloff, though investors seem to be getting increasingly nervous about the macro outlook and its implications for oil demand,” ING said.
Metals:
Base metals were slightly lower in London trade, with gold up a touch, with analysts saying Jerome Powell’s comments will be crucial as to whether he signals if the Fed will tighten further to fight inflation, despite ongoing banking sector stresses.
Today’s Top Headlines
Albemarle Approves Up to $1.5B Lithium Hydroxide Plant Expansion
Albemarle said it plans to double the capacity of a lithium hydroxide plant in Western Australia, raising its bets on the battery material used to power electric cars.
The Charlotte, NC-based company said Wednesday that the up to $1.5 billion project to build two additional processing trains at the Kemerton plant, south of Perth, would increase annual production capacity there to 100,000 metric tons of lithium hydroxide. That’s enough to produce batteries for more than two million electric vehicles a year, it said.
Unity Conducts Its Third and Largest Round of Layoffs in a Year
Unity Software is conducting its third and largest round of layoffs in the past year, according to people familiar with the matter, joining other companies in tech and beyond in trimming their workforces as recession fears mount.
San Francisco-based Unity is slashing roughly 600 jobs, about 8% of its workforce, the people said. The company, which will be left with around 7,000 employees after the layoffs, is also planning to reduce its global network of offices over the next few years to fewer than 30 from 58 today, they said.
Stellantis Confirms 2023 Guidance After First-Quarter Revenue Jump
Stellantis on Wednesday confirmed its 2023 guidance after reporting a rise in revenue on more shipments and higher net pricing for the first quarter.
The Netherlands-based maker of Jeep, Dodge, Peugeot and other brands recorded 47.2 billion euros ($51.92 billion) in sales, up 14% over the first quarter of 2022.
CEOs of Microsoft, Alphabet called to AI meeting at White House: reports
Vice President Kamala Harris will reportedly host the chief executives of Alphabet GOOG GOOGL, Microsoft MSFT, OpenAI and Anthropic at the White House on Thursday to discuss artificial-intelligence issues.
Reuters and CNBC reported Tuesday that Harris seeks a “frank discussion” of the risks and ethics in developing AI technology, and “other ways we can work together to ensure the American people benefit from advances in AI while being protected from its harms.”
Biotech Stocks Are Heavily Shorted. They Could Be Winners.
Bets against biotech stocks by so-called short sellers have surged recently. That may mean the group could be poised for a comeback.
Just under 45 million shares of the SPDR S&P Biotech exchange-traded fund (ticker: XBI), which owns 149 biotechnology stocks with an average market capitalization of just over $11 billion, were shorted as of Monday, according to figures from S3 Partners, a financial data and analytics firm. That is about 56% of the fund’s shares, up from a low point of about 30 million in August 2022.
With Fed Set to Raise Rates, Executives Watch Consumers for Signs of Stress
Executives are watching the Federal Reserve’s latest policy meeting for clues on its inflation-fighting campaign and the potential for a so-called hard landing that could cramp consumer spending on everything from airline tickets and cars to furniture and snacks.
The Fed this week is on track to increase interest rates by a quarter percentage point while deliberating whether that will be enough to then pause the fastest rate-raising cycle in four decades. The central bank’s benchmark rate stands at a range between 4.75% and 5%, and another quarter-point increase at the meeting that concludes Wednesday would lift it to a 16-year high.
What Another Fed Rate Increase Means if You Want to Buy a House
Home buyers dreading another rate increase by the Federal Reserve on Wednesday can take heart: The move is probably already priced into current mortgage rates.
The Fed is expected to raise interest rates another quarter-percentage point, lifting the benchmark federal-funds rate to a 16-year high as part of its continuing campaign to stamp out inflation. The Fed doesn’t set mortgage rates, but rate increases push up the yield on the Treasury note higher, which in turn pushes up the cost of a mortgage.
Warren Buffett’s ‘Secret Sauce’ Involves One of Investing’s Most Basic Strategies
What has made Warren Buffett’s stock portfolio so successful over time?
One answer is an uncanny knack for picking good businesses. Another, according to Mr. Buffett, is something more understated: an appreciation of dividend-paying stocks.
European Economies Are Finding New Ways to Pay for War on Their Doorstep
COPENHAGEN-Denmark, a founding member of NATO, has no artillery, submarines or air-defense system. The small Nordic nation didn’t think it needed them because a ground war in Europe seemed far-fetched-until Russia’s invasion of Ukraine.
The conflict in its neighborhood has set it and similar European nations scrambling to plug gaps in their armory. Denmark, one of the richest nations per capita in the Western world, has pledged to boost military spending from about 1.4% of gross domestic product to the North Atlantic Treaty Organization’s target of 2% by 2030.
House Democrats Try to Force Vote on Debt Ceiling
WASHINGTON-House Democrats took a step Tuesday toward trying to force a vote on a debt-ceiling increase if they can win over some Republicans, as GOP leaders and the White House remained in a standoff with just weeks to go until the U.S. faces a possible default.
Democrats said they would seek to use a discharge petition, which allows a majority of House lawmakers to bring a bill directly to the floor without the cooperation of leadership. But it is time-consuming and rarely successful, and Democrats earlier this year said they had shelved the idea as too difficult.
Biofuel Stocks Are Sputtering. They Could Soon Get a Jump Start.
Billions of gallons of fuel refined from cooking oil, french fry grease, landfills, and farm byproducts are being pumped into the engines of American vehicles every year. As long as people keep planting corn and eating fast food, there’s no imminent shortage of oil to pump into tanks. But there has been a shortage of cash to pay for it lately, stalling the industry’s growth and raising questions about its future.
Following a selloff in the industry that has pushed several stocks down more than 20% in the past year, some analysts now see buying opportunities. Among the names that are receiving positive buzz are Darling Ingredients (ticker: DAR) and Opal Fuels (OPAL).
Biden to Send 1,500 Troops to Mexican Border as Fears of Migrant Surge Grow
WASHINGTON-President Biden is sending 1,500 active-duty troops to the southern border, while cities across the country are declaring states of emergency and asking for federal support as the country prepares for a surge of migration expected to accompany the lifting of Title 42 border restrictions next week.
A large number of migrants have already been illegally entering El Paso, Texas, in recent days. Hundreds unable to find spots in shelters gathered in the past few days around downtown churches in the border city looking for help, according to photos and videos of the scene.
Lawmakers Grapple Over Whether Supreme Court Needs an Ethics Code
WASHINGTON-Senate Democrats on Tuesday faulted the Supreme Court’s ethics rules following news reports that Justice Clarence Thomas accepted luxury vacations from and sold real estate to a billionaire friend, as Republicans said that scrutiny of the justices was grounded in the court’s conservative supermajority overturning precedents such as Roe v. Wade.
The forum was the Senate Judiciary Committee, where Chairman Richard Durbin (D., Ill.) moved ahead with a hearing on Supreme Court ethics even after Chief Justice John Roberts declined an invitation to testify. The chief justice instead sent a statement signed by all nine justices saying that while they have no binding code of conduct or internal compliance office, they nonetheless “follow the same general principles and statutory standards as other federal judges.”
Source: Dow Jones Newswires