Market Wraps
Stocks:
European stocks were mostly higher on Friday, following data from a purchasing managers survey showed activity in the eurozone manufacturing and services sectors increased in April.
The PMI data for the eurozone points to continued economic resilience in April, but this was fully driven by the services sector, which is still benefiting from the normalization of demand after the Covid-19 pandemic, Commerzbank said.
The services sector is unlikely to be able to compensate for the downturn seen at manufacturers in the long term, with business-related services likely to feel the effects from this weakness at factories soon, it added.
Moreover, the rapid interest-rate increases will also hit demand for services going forward, Commerzbank said.
Stocks to Watch
Dutch charger manufacturer Alfen and operator Fastned are set for growth as the push toward zero-emission mobility and electric vehicles accelerates demand for a dense charging network, Deutsche Bank said, initiating coverage of both stocks with a buy rating.
The broker sees Alfen grow stronger than its underlying markets with sales increasing around 30% a year between 2022-25 against 26% for the market.
Fastned’s carefully selected locations are forecast to lead it to widen its market share and translate into 72% annual sales growth between 2022-25 compared with 44% in the battery EV market.
Deutsche put a target price of EUR100 on Alfen stock and EUR50 on Fastned’s.
Market Insight
Companies that sell eco-friendly products or services in the EU might be facing reputational and litigation risk from a new proposal to curb greenwashing, Sustainable Fitch said.
The legislation tabled by the EU Commission would set minimum requirements for making environmental claims about a service or product, exposing companies to regulatory scrutiny and possible penalties for false or unsubstantiated claims, Sustainable Fitch said.
Consumer organizations might also join the policing of greenwashing and that may lead to a significant number of cases as they join regulators to identify suspected non-compliance with the new standards, it added.
Fitch expects companies to modify their marketing before any such regulation is enacted, signalling some potential U-turns in environmental claims.
U.S. Markets:
Stock futures were treading water as investors awaited fresh data on the health of the economy and another batch of earnings.
“We are in the early stages of a labor-market slowdown and the early stages of an inflation slowdown, but neither is enough yet to stop the Fed from tightening,” Principal Asset Management said. “It is a fairly bearish outlook.”
Readings for the services and manufacturing sectors are due. The data are expected to point to a slowdown in activity, according to forecasts compiled by The Wall Street Journal.
Forex:
Sterling fell after retail sales dropped more than expected in March, as high inflation curtails household spending.
Moves were limited, however, and ING said the data are unlikely to dissuade the Bank of England from raising rates next month.
“The Bank of England is far more interested in inflation and this week’s sticky readings point to a 25 basis-point hike on 11 May.”
Read Sterling Stays Lower After UK PMI Survey
The dollar edged higher as risk sentiment on currency markets stayed sour, but it lacks direction, with weak U.S. economic data set against Fed comments suggesting interest rates may need to rise further.
“The FX market continues to seesaw with a lack of a clear direction. U.S. economic data, swings in the 2-year U.S. Treasury yield and hawkish remarks by major central banks remain the major drivers for currencies,” UniCredit Research said.
Bonds:
J.P. Morgan Asset Management said it continues to favor duration in bonds from a strategic perspective, given its base case of a recession ahead.
“After favoring a short duration positioning throughout 2022, investors have now shifted towards the very opposite end of the spectrum in anticipation of an end to the current cycle,” JPM AM said.
“Taking out risk and adding duration have been the key plays.”
The asset manager closely monitors factors that may have an impact on developed market central banks, in terms of when they may conclude their tightening.
As 10-year German Bund yields have reached 2.50%, 10-year French OAT yields reached 3% and 10-year Italian BTP yields move towards the top end of this year’s 4-4.50% range, “investors are being tempted to add to duration and ‘buy the dips’,” Societe Generale said.
That said, recent government bond auctions and syndications in the eurozone have received lower interest than has been the case since the start of the year, SocGen added.
In some transactions, the relatively weak demand was likely linked to low new issue premium or to investors being more selective, it said.
Energy:
Oil prices were lower and set for their first decline in a week since March as refinery margins were flashing warning signals about the health of the global economy.
Brent crude oil was on course for a decline of more than 6% this week.
Refinery margins are dropping, suggesting limited demand for diesel and other oil products, which could point to a sluggish economic outlook.
“The fall in refining margins-just weeks after oil prices jumped following the OPEC+ announcement on 2 April to sideline more production from May-raises credible concerns that demand for petrol and diesel may already be eroding because of high oil prices,” Commonwealth Bank of Australia said.
Read Barron’s OPEC Hasn’t Fixed the Oil-Price Slump. The Problem Is Demand.
Metals:
Copper declined in early trading, as prices were under pressure from pessimism surrounding the health of the economy.
The outlook for demand is mixed, analysts said, while the prospect of further interest-rate rises in the U.S. was also dampening expectations.
“Copper fell on uncertainty over further rate hikes and sluggish demand in China,” ANZ said.
Supply disruptions could provide support, the bank noted, pointing to major Chilean producer Codelco’s lackluster production in the first quarter.
EMEA Headlines
Eurozone Economy Gathered Pace in April, PMIs Suggest
Business activity in the eurozone continued its momentum in April, coming in better than expected as demand improved and inflation eased, data from a purchasing managers survey showed Friday.
The HCOB Flash Eurozone Composite PMI Output Index-which gauges activity in the manufacturing and services sectors-increased for the sixth consecutive month to 54.4 in April, from a downwardly revised 53.7 in March, the highest since May 2022.
UK Consumer Confidence Rose Again in April Despite High Inflation
Confidence among U.K. consumers rose for third consecutive month in April to its highest level in more than a year, indicating that momentum toward an economic recovery could be building, despite cost-of-living pressures from sky-high inflation.
Research firm GfK said its consumer-confidence barometer stood at minus 30 in April compared with minus 36 a month earlier, an improvement on the minus 34 expected by economists polled by The Wall Street Journal.
UK Retail Sales Fell on Month in March as High Inflation Weighed
U.K. retail sales fell more than expected on month in March, reflecting that cost-of-living pressures from high inflation are weighing on household spending.
Retail sales volumes dipped 0.9% in March from the previous month, compared with a downwardly revised increase of 1.1% in February, data from the Office for National Statistics showed Friday.
SAP Updates Guidance on Qualtrics Stake Divestment – Update
SAP SE on Friday updated its guidance for the year to account for the stake in Qualtrics International Inc. that it is divesting as the group continues to focus on its cloud business, the main driver of revenue growth in the first quarter.
The Germany-based software company said it now expects non-IFRS operating profit at constant currencies of between 8.6 billion and 8.9 billion euros ($9.43 billion-$9.76 billion) this year instead of EUR8.8 billion to EUR9.1 billion as previously expected.
EssilorLuxottica’s 1Q Revenue Rose Boosted by Developing Regions
EssilorLuxottica SA said Thursday that its revenue grew in the first quarter boosted by outperformance in developing markets.
The Franco-Italian eyecare company said it achieved 6.15 billion euros ($6.74 billion) in first-quarter revenue, up 9.7% compared with EUR5.61 billion the year-prior.
Holcim Raises 2023 Sales Guidance After Better-Than-Expected 1Q
Holcim Ltd. on Friday raised its sales guidance for 2023 after reporting revenue and recurring earnings for the first quarter that fell compared with last year but exceeded consensus expectations.
The Swiss buildings-material company said it expects organic net sales growth for the year to be more than 6%, which compares with its previous guidance for a rise of between 3% and 5%. It also forecast full-year organic growth in recurring earnings before interests and taxes to top 10%, having previously guided for over-proportional growth in recurring EBIT on a like-for-like basis. Holcim said the recurring EBIT margin is expected to exceed 16%.
Glencore 1Q Met Guidance; Backs Full-Year Outlook
Glencore PLC said Friday that first-quarter production largely met its expectations, with declines across copper, zinc, nickel and coal, and backed its full-year guidance.
The FTSE 100-listed commodity mining and trading company said copper production declined 5% to 244,100 tons, largely due to planned lower grades in line with a pit phasing and delays associated with adverse weather.
Tele2 Backs Full-Year and Midterm Guidance
Tele2 AB on Friday backed its full-year and midterm guidance after posting unchanged first-quarter underlying earnings as end-user service-revenue growth and cost savings were offset by inflation pressures.
The Sweden-based telecom company posted a net profit for the quarter of 850 million kronor ($82.4 million), compared with SEK2.47 billion a year earlier. Analysts polled by FactSet had expected SEK854 million.
Credit Suisse Investors Challenge Switzerland’s $17 Billion Bond Write-Down
Credit Suisse Group AG bondholders have launched a legal challenge in Switzerland against regulators’ decision to write down $17 billion in securities as part of UBS Group AG’s rescue of the troubled bank last month.
Bondholders holding about 4.5 billion Swiss francs ($5 billion) of Credit Suisse’s canceled debt want the decision to write down their bonds revoked or amended, according to an outline of their appeal made in a Swiss administrative court and reviewed by The Wall Street Journal. The bondholders are alleging the total write-down was disproportionately punitive to them and violated their property rights, according to the summary of the legal filing.
Barclays Names HSBC Executive as Compliance Chief
Barclays PLC has hired a new chief compliance officer from rival HSBC Holdings PLC, as the bank navigates a deal-making downturn and continuing regulatory investigations into former Chief Executive Jes Staley’s ties with convicted sex offender Jeffrey Epstein.
London-based Barclays said Thursday that it has named Kirsty Everett as its new compliance chief, ending a few months of search. Ms. Everett is joining from HSBC, where she was group head of compliance after previously holding other senior compliance roles. She will start July 1, subject to regulatory approval, Barclays said.
Europe’s Air-Traffic Agency Under Attack From Pro-Russian Hackers
Europe’s air-traffic control agency said Thursday that it was under attack from pro-Russian hackers amid fears that Moscow could interfere with the region’s critical infrastructure as its confrontation with the West escalates.
The cyberattack on the agency’s website started on April 19, a spokeswoman for the European Organisation for the Safety of Air Navigation, also known as Eurocontrol, said, adding that it wasn’t affecting the agency’s air-traffic control activities.
Global News
Fed Rethinks Loophole That Masked Losses on SVB’s Securities
WASHINGTON-The Federal Reserve may close a loophole that allows some midsize banks to effectively mask losses on securities they hold, a contributing factor in the collapse of Silicon Valley Bank.
Led by vice chair for supervision Michael Barr, the Fed is considering ending an exemption that allows some banks to boost the amount of capital they report for regulatory purposes, according to people familiar with the matter. Capital is the buffer banks are required to hold to absorb potential losses.
Shopping for Insurance Against a Debt-Ceiling Debacle? Buyer Beware
As the U.S. government nears yet another debt-ceiling crisis, an obscure Wall Street instrument is gaining attention for the first time in 10 years.
It is basically an insurance contract known as a credit-default swap, whose price is commonly interpreted as the probability the U.S. will default on its Treasury debt. As of April 19, investors were willing to pay $9,600 a year to insure $1 million in U.S. Treasury debt, up from $1,400 at the start of the year. That is even more than during major budget fights in 2011 and 2013 when, like now, Republicans in Congress were refusing to raise the statutory ceiling on how much Treasury could borrow unless a Democratic president agreed to reduce spending.
Loretta Mester Says Fed Must Do More to Tackle Stubborn Inflation
Federal Reserve Bank of Cleveland President Loretta Mester said the U.S. central bank is much closer to the end of monetary policy tightening than the beginning, but it must still do more to lower inflation.
Despite progress in lowering inflation from last year’s highs, it remains too high and is proving to be stubborn, Ms. Mester said Thursday during a speech in Akron, Ohio.
Pace of Japan’s Consumer Inflation Slowed in March
TOKYO-Japan’s overall consumer prices rose at 3.2% from a year earlier in March, slightly slower than the 3.3% increase in February, government data showed Friday.
The pace of price increases has slowed since February due to the government’s measures to ease the impact of higher electricity and gas prices.
Glynn’s Take: Woe to Those Signing Up to the New RBA Board
SYDNEY-Australian Treasurer Jim Chalmers moved to retool the country’s central bank this week by throwing out its old policy-setting board in favor of a modernized committee of experts that will look and operate a lot like similar bodies at the Bank of England and the Bank of Canada.
For some observers, the change looks like a breath of fresh air for a Reserve Bank of Australia that has grown stale in its way of thinking. For the Australians who lived through a record-breaking streak of 10 straight interest-rate increases over the past year, there is hope that perhaps the new board experts will ease pressure on a crippled mortgage belt.
OPEC Hasn’t Fixed the Oil-Price Slump. The Problem Is Demand.
Oil prices have given back almost all of the gains they made after OPEC and its allies surprised the market by agreeing to cut production by 1.2 million barrels a day starting in May. It’s a sign that the oil market is more focused on demand now, and doesn’t see enough evidence that countries are using more oil.
Weak demand is also weighing on oil stocks, which have had a mediocre month despite OPEC’s actions. The SPDR S&P Oil & Gas Exploration & Production ETF (ticker: XOP) is trading flat since before the announcement, and is down 0.8% so far this year even as the S&P 500 has risen 8%.
U.S. Begins Planning for 6G Wireless Communications
WASHINGTON-The Biden administration is beginning to plan for 6G wireless telecommunications, seeking to expand internet access while reasserting U.S. leadership in a sector where China has notched gains.
The White House on Friday will meet with corporate, government and academic experts to begin developing goals and strategies for the new 6G communications technology, which would have the ability to take cloud computing and the mobile internet to true global ubiquity, among other improvements.
Russia Mistakenly Bombs Own City
Russia said it had mistakenly bombed its own territory late Thursday as Ukraine’s Western backers were preparing to meet to discuss future military deliveries to the country to assist in Kyiv’s expected counteroffensive.
Moscow said that one of its jet fighters had accidentally dropped a weapon over the Russian city of Belgorod near the Ukrainian border, causing an explosion and leaving several injured.
Russia’s Wagner Offered Arms to Sudanese General Battling Army
Russia’s paramilitary Wagner Group has offered heavy weapons to the leader of Sudan’s Rapid Support Force, one of two rival factions battling for control of the East African country, according to a current and a former U.S. official, and a person close to the Sudanese general.
The Kremlin-backed group has offered to send arms, including shoulder-mounted MANPADS antiaircraft missiles, that it has in neighboring Central African Republic, where Wagner has been active in recent years, these people said.
Donald Trump Tops Ron DeSantis in Test of GOP Presidential Field, WSJ Poll Finds
WASHINGTON-Donald Trump has gained command of the GOP presidential-nomination race over Ron DeSantis, a new Wall Street Journal poll finds, with the former president building support across most parts of the primary electorate as the Florida governor has struggled on the national stage.
Mr. DeSantis’s 14-point advantage in December has fallen to a 13-point deficit, and he now trails Mr. Trump 51% to 38% among likely Republican primary voters in a hypothetical head-to-head matchup.
President Biden Plans Video Re-Election Bid Announcement as Soon as Next Week
WASHINGTON-President Biden is looking to formally launch his re-election campaign with a video announcement as early as next week, said people familiar with the planning.
A formal campaign announcement from Mr. Biden, 80, has long been expected, and the president has been vocal about his desire to “finish the job” he started during his first term. But aides have said there was little urgency to make it official, given the lack of a serious Democratic primary challenger and the chaotic Republican field. Tuesday, April 25, will mark the four-year anniversary of the launch of Mr. Biden’s last presidential campaign.
Source: Dow Jones Newswires