MARKET WRAPS
Stocks:
European stocks moved higher on Tuesday, with sentiment buoyed by some robust economic growth data from China.
China’s economy expanded 4.5% in the first quarter of the year compared with the same three months a year earlier, a better performance than the 4% pace expected by economists.
The rebound tees up a revival in growth that is expected to buoy the global economy as the U.S. and European economies slow.
Ahead, investors will be looking at more U.S. earnings.
“Markets are cautious ahead of the upcoming earnings, where not least the big banking giants will report how the year has started in times of continued rising interest rates,” SEB said.
In addition, markets are somewhat in wait-and-see mode ahead of the Fed decision in two weeks, SEB added.
Stocks to Watch
Hugo Boss’s current performance looks strong, Deutsche Bank said.
The German premium-fashion group should book sales growth of around 15% in the first quarter at its update next month, according to Deutsche’s estimates, suggesting continued momentum into the new year.
The gross margin may decline on year ahead of logistics tailwinds in 2H, but the operating margin should see a bump to 6.6%, the bank said.
Deutsche lifted its target price on Hugo Boss stock to EUR70 from EUR68, keeping a hold rating.
Mapfre’s valuation looks full and earnings aren’t likely to offer much upside, Berenberg said as it cut its rating on the stock to sell from hold and the target price to EUR1.62 from EUR1.94.
The Spanish insurer is set to book strong profits in many markets ahead, leaving no room for disappointment, Berenberg said.
Inflation, meanwhile, threatens some business areas, notably Spanish motor insurance, it warned.
“There are better opportunities elsewhere in the insurance sector, as the long-term investment in the group is limited by its willingness to grow the dividend.”
Economic Insight
Core inflation in the eurozone is likely to stay above 5% until autumn, Commerzbank said.
There are increasing signs pointing to lower inflation for industrial goods and for food, but price pressures remain strong in the services sector due to significant wage increases, it said.
“The doves in the European Central Bank Governing Council, who fundamentally favor a loose monetary policy, will use any signals of weakening inflationary pressure to end the [interest] rate hike cycle soon,” Commerzbank said.
“We expect two further rate hikes in May and June by 25 basis points each, after which a deposit rate of 3.5% would be reached.”
U.S. Markets:
Stock futures pointed higher with earnings reports coming from the likes of Bank of America, Goldman Sachs, and Johnson & Johnson.
“The earnings season is reflecting the fact that the economy is not doing so bad. We are at the beginning of it, but so far so good,” SYZ Private Banking said.
“The banking stress has had a lower impact than feared.”
Forex:
The euro’s recent gains are due to the view that the ECB is taking a more restrictive policy stance compared to other major central banks, Commerzbank said.
Some major central banks are either reaching the end of their interest rate rise cycle, have already paused rate rises or aren’t seen to be acting quickly enough to contain high inflation, Commerzbank added.
“That means the ECB’s approach looks most attractive, as it is still promising further rate hikes, which makes the euro seem most attractive.”
Sterling received a modest boost from strong U.K. wage data, even as the jobless rate rose slightly, ING said.
Sterling has enjoyed a modest lift from today’s data as it has increased expectations that the Bank of England will raise interest rates next month, ING added.
U.K. average weekly earnings excluding bonuses increased 6.6% on year in the three months to February, above the 6.2% expected in a WSJ poll of economists.
“Unless we see some significant slowing in U.K. March services inflation released tomorrow, it increasingly looks like the BOE will hike [interest rates by] 25bp after all.”
The dollar edged lower, having strengthened in recent days as short-dated Treasury yields rose, and any gains now look likely to be limited, Unicredit Research said.
Signs that the dollar rebound might progressively run out of steam “have already emerged,” Unicredit said, pointing to investors’ caution ahead of U.S. and eurozone rate decisions in early May.
Bonds:
The 2.39% level is expected to be the resistance level for 10-year German Bund yields, with the next support level at 2.59% and then at 2.80%, Citi said.
“Further bearish impetus could come from heavy supply,” it said.
Citi estimates eurozone government bond supply to reach EUR39 billion this week, likely the second largest weekly issuance volume year-to-date.
U.K. gilt yields rose after the unemployment and wage growth data raised expectations of further BOE interest-rate rises.
“For those of us expecting BOE to keep interest rates unchanged next month, the latest surprise pick-up in UK wage growth undoubtedly puts a spanner in the works,” ING said.
Energy:
Oil prices held gains after data showed China’s economic rebound is progressing faster than expected.
Many analysts and investors are betting that China’s reopening from its Covid-19 lockdowns will support further gains for oil prices over the coming year. Still, a strong U.S. dollar has weighed on oil prices in recent days, ING said.
Metals:
Base metals and gold moved higher in early trading, with China’s economic rebound in the first quarter helping boost sentiment around demand.
EMEA HEADLINES
Ericsson Cautions on Choppy Year With Poor Visibility
Ericsson AB on Tuesday posted a smaller-than-expected drop in first-quarter net profit but cautioned that the operating environment will remain choppy in 2023 with poor visibility as operators remain cautious with spending plans and continue to adjust inventories.
The Swedish telecommunications-equipment company said that customers in early 5G markets have slowed their deployment pace somewhat, while some customers have also lowered elevated inventory levels built up in a tight supply environment. It expects this inventory adjustment to be mostly completed during the second quarter but might spill into the third quarter.
GSK to Acquire Canadian BELLUS Health for Around $2 Bln
GSK PLC said Tuesday that it has reached an agreement to buy the late-stage biopharmaceutical company BELLUS Health Inc. for $14.75 a share in cash, representing a total equity value of around $2.0 billion.
The pharmaceutical giant said the deal will provide access to camlipixant, a treatment for refractory chronic cough currently in phase III development.
UK Jobless Rate Rose Slightly in Three Months to February as Pay Growth Stalled
The U.K.’s jobless rate ticked up in the three months to February, albeit remaining at relatively low levels, while pay growth held steady, reflecting a labor market slightly cooling amid pressures on the economy.
The U.K. unemployment rate stood at 3.8% in the December-February period, slightly higher than the 3.7% rate recorded in the three months to January, according to data from the Office for National Statistics released Tuesday.
easyJet Sees FY 2023 Profit Beating Market Views After 1H Pretax Loss Narrowed – Update
easyJet PLC said Tuesday that it expects to beat market expectations for fiscal 2023 profit and that its headline pretax loss narrowed for the first half of the year.
The low-cost airline said that while it remains mindful of the uncertain macroeconomic outlook, based on current high levels of demand and strong bookings, it expects to beat market profit expectations for the year ending Sept. 30, which it provided as being 260 million pounds ($321.8 million).
Entain 1Q Net Gaming Revenue Rose as Customers at Record Level – Update
Entain PLC said Tuesday that it has made a strong start to 2023, with increased net gaming revenue and record levels of active customers.
The Ladbrokes owner said in a trading update that first-quarter group net gaming revenue was up 15%, or 11% on constant currency. Including the 50% share of BetMGM, first-quarter group net gaming revenue was up 17% on constant currency.
Air France-KLM Signs ESG-Linked Facilities for $2.40 Billion
The Air France-KLM group, and Air France and KLM individually, signed two revolving credit facilities linked to ESG key performance indicators for a total of 2.2 billion euros ($2.40 billion), as the airlines seek to gradually decarbonize their activities.
The Franco-Dutch carrier group said Tuesday that a set of ESG-linked key performance indicators are embedded in the financing cost for each facility that the airlines signed with a pool of international financial institutions.
Sika’s First-Quarter Sales Fell Slightly
Sika AG’s sales fell slightly in the first quarter amid a weaker performance in its European markets, it said Tuesday.
The Swiss specialty-chemicals company made 2.33 billion Swiss francs ($2.59 billion) in first-quarter sales compared with CHF2.40 billion in the first three months of last year. That compares with the average expectation of CHF2.41 billion according to a poll of analysts by FactSet.
GLOBAL NEWS
China’s Economy Rebounds After Three Years of Zero-Covid Isolation
SINGAPORE-China’s economy rebounded in the first three months of the year after Beijing dismantled its heavy-handed Covid-19 controls, teeing up a revival in growth that is expected to buoy the global economy as the U.S. and European economies slow.
China’s economy expanded 4.5% in the first quarter of the year compared with the same three months a year earlier, China’s National Bureau of Statistics said Tuesday, a better performance than the 4.0% pace expected by economists polled by The Wall Street Journal.
Few Banks Are Hedging Interest-Rate Risk
Few U.S. banks protected themselves against rising interest rates during the Federal Reserve’s monetary-tightening campaign last year, according to a research paper that says unhedged securities holdings are more widespread than investors might realize.
The paper-“Limited Hedging and Gambling for Resurrection by U.S. Banks During the 2022 Monetary Tightening?”-contends that hundreds of other banks share that risk, which played a role in the collapse last month of Silicon Valley Bank. The paper didn’t single out individual institutions, instead presenting an analysis of aggregate data.
Warren Buffett and Japan’s Trading Titans Would Be Formidable Allies
Warren Buffett has shone a spotlight on Japan’s trading companies-gigantic conglomerates with diverse sets of businesses and long histories. So far, they have been good investments for the celebrated investor-but these storied Japanese companies could be his partners, too.
Last week, Mr. Buffett said in an interview with local publication Nikkei that his company Berkshire Hathaway has raised its stake in five Japanese trading conglomerates-Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. Berkshire now owns more stocks in Japan than in any other country outside the U.S. Berkshire first disclosed its investments in the five trading giants in August 2020.
Pro Take: A Persistent Holdout in the Fed’s Inflation Fight Leads to the Bakery Aisle
Food prices flatlined in March after rising 8.5% over the past year. But with summer “bun season” right around the corner, a time of baseball outings and barbecue, inflation doggedly holds on in baked goods.
White bread prices surged 16.5% in the past year and rose 1% in March, the government reported last week in its consumer-price index. Cookie prices climbed 16.6% for the year and 0.5% in March. Prices for frozen and refrigerated bakery products such as pies and turnovers rose 16.2% over the year and 2.8% in March.
RBA Signals That Rate Hike Pause May Not Be End of Tightening Cycle
SYDNEY-The Reserve Bank of Australia said that despite announcing a pause in interest-rate increases this month, it doesn’t want to send a message that the tightening cycle is over.
“Members observed that it was important to be clear that monetary policy may need to be tightened at subsequent meetings and that the purpose of pausing at this meeting was to allow time to gather more information,” the central bank said in the minutes of its April 4 policy meeting released Tuesday.
G-7 Countries Claim Unity on China After Macron Comments
KARUIZAWA, Japan-The Group of Seven industrialized democracies sought to show a unified front on China following recent comments by French President Emmanuel Macron that the European Union shouldn’t follow Washington’s lead on the issue of Taiwan.
“With regard to Taiwan, there is clear unanimity in the approach that we’re taking with all of our G-7 partners,” said Secretary of State Antony Blinken after the group’s top diplomats concluded a meeting in the Japanese mountain resort town of Karuizawa. On China-Taiwan issues, he said the G-7 nations shared “an expectation that any differences be dealt with peacefully.”
Putin Makes Rare Trip to Russian-Occupied Areas of Ukraine
Russian President Vladimir Putin has made a rare visit near the front lines of the war he began in Ukraine, meeting with military commanders in occupied areas of the country as Kyiv prepares for an offensive to wrest territory from Moscow’s grip.
Mr. Putin traveled to Ukraine’s Kherson and Luhansk regions, both of which are partly occupied by Russian forces, and was briefed by senior officers about the situation on the front line, the Kremlin said on Tuesday, without specifying when the trip took place.
U.S. and Other Diplomats in Sudan Are Attacked as Violence Flares
Secretary of State Antony Blinken on Tuesday called for a cease-fire in Sudan after speaking to two generals fighting for power there, and he said a U.S. diplomatic convoy in the country was fired upon.
Mr. Blinken said no one in the U.S. convoy was injured. “This action was reckless, irresponsible and, of course, unsafe,” he said at a news conference in Karuizawa, Japan, after a meeting of the top diplomats from the Group of Seven nations.
Moscow Court to Hear Appeal on Detention of Jailed WSJ Reporter Evan Gershkovich
A Moscow court is scheduled Tuesday to hear an appeal on the detention of Evan Gershkovich, the jailed Wall Street Journal reporter arrested in Russia last month.
Mr. Gershkovich’s lawyers, Tatyana Nozhkina and Maria Korchagina of the ZKS law firm, are challenging his detention, nearly three weeks after the journalist was arrested for espionage, an allegation the Journal and the U.S. government vehemently deny.
SEC Chair Gensler to Defend Climate, Crypto Plans Before GOP-Led Panel
WASHINGTON-Securities and Exchange Commission Chair Gary Gensler is set to defend his regulatory agenda Tuesday before a House panel that has grown hostile to his plans under Republican leadership of the committee.
“The SEC is the cop on the beat watching out for your constituents,” Mr. Gensler said in prepared remarks for the hearing before the House Financial Services Committee. He framed his plans as necessary to protect investors and markets in an era of rapid technological change and emerging risks.
FBI Investigating Ex-Navy Noncommissioned Officer Linked to Pro-Russia Social-Media Account
The FBI is investigating the activities of a former U.S. Navy noncommissioned officer who oversaw a social-media account involved in the spread of intelligence documents allegedly leaked by Airman First Class Jack Teixeira, U.S. officials said Monday. The Wall Street Journal reported Sunday that the woman, Sarah Bils, administered several pro-Russian outlets while in uniform.
The scope of the investigation into Ms. Bils, a 37-year-old who left the Navy in November, couldn’t be determined.
Covid Emerged as Chinese Lab Faced Biosafety Issues, Senate Republican Study Finds
WASHINGTON-A Chinese laboratory conducting advanced coronavirus research faced a series of biosafety problems in November 2019 that drew the attention of top Beijing officials and coincided with the Covid pandemic’s emergence, according to a new report being released by Senate Republicans on the pandemic’s origins.
The report, released Monday by a Republican member of the Senate Health Committee, a final version of which was viewed by The Wall Street Journal, charts a confluence of unexplained events in that month and concludes the pandemic more likely began from a lab accident than naturally, via an animal infecting humans.