Market Wraps
Stocks:
European stocks fell back on Thursday as worries over inflation and possible higher interest rates continued to weigh on sentiment.
In London, miners lost ground after downbeat trading in Asia while some banks made solid gains.
“Banking stocks like Barclays, HSBC, NatWest, StanChart and Lloyds are trading higher after Morgan Stanley reported strong quarterly earnings and after hotter-than-expected U.K. inflation data,” Interactive Investor said.
Other stocks on the move included Renault, which said it had continued to experience logistics issues in the first quarter, detailing a big jump in total inventories. The car maker’s shares were last down 7%.
Stocks to Watch
Chocolate confectionery is an attractive and defensive category, and Barry Callebaut and Lindt & Spruengli are notably well placed, Deutsche Bank said.
The sector offers growth in the mid-single digits over the coming years, and premium chocolate makers like Lindt, as well as business-to-business players like Barry Callebaut are particularly attractive, it said.
Deutsche has initiated coverage of the two stocks, at buy for Barry Callebaut and hold for Lindt, and with target prices of CHF2,400 and CHF103,000, respectively.
Stellantis’s CFO change underlines the company’s increasingly honed focus on the U.S. market and points to a possible domicile change, Jefferies said.
Natalie Knight, who will replace Richard Palmer as vice president and CFO at the car maker, will be based at Stellantis’s North American headquarters in Michigan.
The move “seems consistent with various signals that Stellantis is focusing more of its financial communication towards U.S. investors, including, in our opinion, potentially considering a change of domicile to align its economic exposure and investor base,” Jefferies said.
U.S. Markets:
Stock futures pointed to a lower open on Wall Street, with Nasdaq leading the retreat after Tesla’s stock slumped nearly 8%.
Market mood was hit by the sharp slide in Tesla after Elon Musk suggested he was prepared to boost market share at the expense of profit margins.
Shares of other automakers, including Ford and GM, were down nearly 2% each in premarket action.
The focus remains on earnings with AT&T, Union Pacific, Phillip Morris, American Airlines and American Express, among others, in line to present their results on Thursday.
U.S. economic updates set for release include the weekly initial jobless claims and the Philadelphia Fed manufacturing survey for April, the March existing home sales report and U.S. leading economic indicators data.
And there’s a batch of Fed speakers too, including Christopher Waller, Loretta Mester, Lorie Logan, Michelle Bowman and Raphael Bostic.
Forex:
The dollar is likely to fall further if U.S. weekly jobless claims data due later on Thursday show an unexpected rise, ING said.
“The Beige Book did hint at a softening in the tight labor market and any big upside jump in initial claims could be worth a 0.5% drop in the DXY dollar index – i.e. a drop back to the 101.50 area,” ING said.
On an otherwise quiet trading day, focus for the dollar will center on second-tier U.S. data, with Federal Reserve officials due to speak after European markets close, including Christopher Waller.
The market pricing of interest-rate rises by the European Central Bank looks too ambitious, Mizuho said.
Its base case is two increases of 25 basis points each, which is more moderate than the market pricing of almost 85 basis points of rate hikes until September 2023.
“On that basis, the risk for downside in rates looks higher in the EUR space than in USD.”
Bonds:
The turmoil in the banking sector hardly seems to matter anymore as investors are at least to some extent looking for higher bond yields again, with the focus back on inflation, DZ Bank said.
“The focus of interest has recently shifted back to the inflation trend.”
Measured by the iBoxx EUR Sovereigns Index, German government bonds suffered total return losses of more than 1% since the beginning of April, DZ Bank said.
Ireland might be upgraded by Moody’s in a scheduled review on Friday, but the upside for Irish government bonds might be limited, Citi said, maintaining a neutral view. Moody’s has an ‘A1’ rating with positive outlook on Ireland.
“Given expectation of Ireland again clocking the highest GDP growth rate this year within EMU-10 [eurozone’s 10 largest issuers] and declining debt/GDP, an upgrade tomorrow looks likely and would bring Moody’s assessment in line with Fitch and S&P,” Citi said.
However, as much of the good news already seems in the price, the upside for Irish bonds may be limited.
Energy:
Oil prices were down almost 2% as demand concerns lingered.
U.S. Department of Energy data Wednesday painted a mixed picture with crude stocks falling by 4.6 million barrels last week, while gasoline stocks jumped by 1.3 million barrels. Analysts had been expecting gasoline stocks to fall by 1.2 million barrels.
“Demand remains a key concern,” ING said but added that Brent is hovering close to its 50-day moving average, which should provide some support.
“However, if these support levels fail, it could trigger some further selling.”
Metals:
Base metals were slightly lower, with gold making modest gains, as worries over the global economy continued to weigh on investor sentiment.
Weak economic sentiment has been hurting industrial demand, ANZ Research said.
“This was exacerbated by hawkish comments from the Fed following data showing wage gains in the U.S. are outpacing inflation,” ANZ said, adding that this could mean more interest-rate hikes from central banks.
Pressure from the dollar and Treasury yields was keeping gold’s gains capped for now, ANZ said.
EMEA Headlines
Nokia 1Q Net Profit Missed Forecasts; Sees Rebound in 2H
Nokia Corp. on Thursday posted a lower-than-expected first-quarter net profit and cautioned that it is seeing some early signs of the economic environment impacting customer spending.
“Given the ongoing need to invest in 5G and fiber, we see this primarily as a question of timing,” Chief Executive Pekka Lundmark said.
Rio Tinto’s Iron-Ore Exports Hit Record; Cuts Copper Output Estimate
Rio Tinto PLC reported record first-quarter iron-ore shipments from its mammoth Australian mining operations, but downgraded its full-year copper-production estimate, citing a conveyor outage at its Kennecott mine near Salt Lake City, Utah.
The company also said it is reviewing the budget and schedule for a project at its Rincon lithium development in Argentina due to searing local inflation and rising equipment costs.
Renault Shares Fall After Flagging Continuing Logistics Issues
Renault SA shares fell Thursday after the company said it continued to experience logistics issues in the first quarter, but reported a jump in revenue and confirmed its outlook for 2023.
At 0754 GMT, shares in Renault fell 6.8% to EUR34.14.
Publicis Posts Better-Than-Expected Organic Growth as Ad Industry Appears Resilient
Publicis Groupe SA reported higher-than-expected organic growth of 7.1% in the first quarter, and the advertising holding company said demand for its services continues despite the choppy macroeconomic environment.
Analysts expected 5.89% growth in the quarter, according to FactSet.
Volvo Truck Orders and Deliveries Rise as European Supply-Chain Disruptions Ease
Volvo AB said Thursday that it posted a first-quarter record for truck deliveries as European supply-chain disruptions eased, while demand for new trucks rose sharply.
Truck deliveries rose 11% in the quarter, while order intake rose 32%.
Rentokil Backs 2023 Views After 1Q Revenue Increased on M&A, Demand and Pricing
Rentokil Initial PLC said Thursday that 2023 started with a continued strong momentum as revenue in the first quarter rose supported by its merger and acquisitions amid resilient demand and pricing, which has continued to offset inflationary pressures.
The pest-control, hygiene and workwear services provider said revenue at constant exchange rates rose to 1.24 billion pounds ($1.54 billion) in the period from GBP754 million a year ago, while revenue at actual exchange rates increased to GBP1.26 billion from GBP722 million. The increase also reflects a robust organic revenue growth of 6.7%, it said.
French Manufacturing Sentiment Edged Down Again in April
Confidence among manufacturers in France declined in April for the second consecutive month after expectations for production and orders worsened, as a series of strikes in protest of pension reforms hit the sector.
French manufacturing confidence decreased to 101 in April from 104 in March, according to data from the country’s national statistics office Insee released Thursday.
Ukraine Asks Turkey to Seize Ship It Alleges Is Carrying Stolen Grain
ISTANBUL-Ukrainian authorities have asked Turkey to seize a ship carrying what prosecutors in Kyiv say is thousands of tons of grain stolen from areas of Ukraine occupied by Russia, according to correspondence reviewed by The Wall Street Journal.
The ship, the Panama-flagged Bomustafa O, arrived in the Turkish Black Sea port of Samsun on Monday, with a cargo of 19,000 tons of barley, according to shipping records and the correspondence. Days earlier, Ukrainian prosecutors in Kyiv wrote to Turkish authorities asking them to seize the ship, saying that it had loaded barley at a port in Russian-occupied Crimea, according to the correspondence reviewed by the Journal.
Libyan Militia and Egypt’s Military Back Opposite Sides in Sudan Conflict
A powerful Libyan militia leader and the Egyptian military have sent military support to rival generals battling for control of neighboring Sudan, people familiar with the matter say, an illustration of how the fighting threatens to draw in regional powers.
Khalifa Haftar, the commander of a faction that controls eastern Libya, dispatched at least one plane to fly military supplies to Sudan’s paramilitary Rapid Support Forces, these people said. Meanwhile, Egypt sent warplanes and pilots to back the Sudanese military, they added.
Global News
Janet Yellen to Say Security Comes Before Economy in U.S.-China Relationship
WASHINGTON-Treasury Secretary Janet Yellen plans to say Thursday that the U.S.’s policies toward China will give priority to addressing national-security concerns over preserving economic growth.
In prepared excerpts of a speech she will give, Ms. Yellen listed three goals for the U.S. relationship with China: protecting human rights and national security, establishing healthy economic ties and cooperating on major global issues. She criticized subsidies the Chinese government offers to its industries and said the U.S. will remain the world’s dominant economic power.
Top Fed Official Signals Support for May Interest-Rate Increase
A top Federal Reserve official said the central bank had more work ahead to bring down inflation, suggesting another interest-rate increase would be warranted at the Fed’s meeting in two weeks.
“Inflation is still too high, and we will use our monetary policy tools to restore price stability,” said New York Fed President John Williams in a speech Wednesday night to a group of financial-industry professionals in Manhattan.
China’s PBOC Keeps One-Year Loan Prime Rate Steady
China’s benchmark lending rates were kept unchanged, as signaled by unchanged policy rates earlier this week, suggesting that Beijing is comfortable with the current pace of the country’s economic recovery led by consumption.
The one-year loan prime rate was held steady at 3.65% while the five-year LPR was unchanged at 4.3%, the People’s Bank of China said Thursday.
China Shifts to More Upbeat Tone Over Economic Recovery
China’s top economic planner adopted a more upbeat tone in its latest assessment of the economy this week, marking a change from Beijing’s previous cautious outlook and suggesting rising optimism that the country is on track for a solid recovery.
The current status of China’s economy can be summarized into “demand expansion, recovering supply and improving expectations,” Meng Wei, a spokesperson for the National Development and Reform Commission, said Wednesday.
Lending Slowed, Economy Cooled After Bank Failures, Fed Report Shows
Consumers and businesses borrowed less as overall economic growth flattened in the weeks since two mid-March bank failures sparked financial turmoil, the Federal Reserve said in a report Wednesday.
Banks in several parts of the country tightened lending standards and raised concerns about liquidity and uncertain expectations for future growth after Silicon Valley Bank and Signature Bank collapsed, some of the Fed’s 12 regional reserve banks reported.
Investors scour markets for recession signs. Here’s what this closely watched credit gauge says.
Investors are worried about an economic slowdown, but the corporate credit market is not screaming recession.
Spreads on corporate bonds with low investment-grade ratings have not widened in line with the rise seen ahead of past economic contractions in 2001-2002, 2007-2008 and 2020, said John Silvia, founder of Dynamic Economic Strategy, in a research note Wednesday. He was referencing spreads over 10-year U.S. Treasurys for bonds rated Baa by Moody’s Investors Service, the note shows.
House Republicans Unveil Bill to Raise Debt Ceiling, Cut Spending
WASHINGTON-House Republican leaders unveiled legislation Wednesday that would curb government spending and pare back some of President Biden’s signature initiatives in exchange for an increase in the government’s debt ceiling.
The proposal-dubbed the Limit, Save, Grow Act-would set discretionary spending levels for the coming year at fiscal 2022 levels and limit spending growth to no more than 1% a year, Speaker Kevin McCarthy (R., Calif.) said in a floor speech.