Market Wraps
Stocks:
European stocks continued their start-of-week retreat, as investors looked ahead at some big-tech earnings on Wall Street and as fresh worries in U.S. regional banking stocks weighed on the overall mood.
Banking shares were weaker after embattled U.S. lender First Republic Bank reported a slump in deposits, while miners dropped on lower copper prices.
Markets are likely to remain on the quiet side this week ahead of the Federal Reserve’s next meeting, “unless we see a material surprise coming through in the key earnings releases,” BlackRock said.
Stocks to Watch
SAP’s first-quarter results prove its cloud business is continuing to grow, which bodes well for the revenue growth trajectory in coming quarters, Citi said, upgrading the stock to buy from neutral.
The software company is showing increasingly disciplined execution, which feeds into enhanced investment appeal thanks not only to defensive credentials such as a high recurring revenue base, but also capital allocation options that could arise from the Qualtrics stake divestment, Citi said.
Economic Insight
There are good reasons why U.K. inflation is set to tumble to as low as 3% by Christmas, Columbia Threadneedle Investments said.
First and most obviously, household energy bills won’t rise further and will probably be falling from July onward. Secondly, sterling was weak for most of last year, adding to inflation, and collapsing after Kwasi Kwarteng’s budget in September, but since then it’s been appreciating. Third is that wage inflation will slow from the summer, when student numbers, which have swelled during the pandemic, enter the workforce.
But this trend won’t prevent the Bank of England from raising interest rates further, Columbia said.
U.S. Markets:
Stock futures were weaker ahead of earnings from tech heavyweights Microsoft and Alphabet, and industrial giants such as General Motors and General Electric.
Regional banks retreated premarket after First Republic Bank reported the extent of its deposit losses in the first quarter.
The results, posted after the bell on Monday, showed that the lender had to borrow at high rates from the Fed and others to cover outflows. While the turmoil surrounding bank stocks has mostly subsided after Silicon Valley Bank and Signature Bank failed, First Republic’s report threatens to shake confidence once again.
Shares in First Republic fell over 20% in premarket trading.
Investors were also wary of looming economic data that may color the Fed’s thinking ahead of its interest rate decision in eight days time.
U.S. economic updates set for release on Tuesday include the S&P Case-Shiller, FHFA home price indices, March new home sales and April consumer confidence.
Forex:
The euro should trade steady against the dollar ahead of the Fed and European Central Bank’s interest rate decisions on May 3 and 4 respectively, Commerzbank said.
At present the euro seems to be the market’s preferred currency as the ECB is perceived as more restrictive while the Fed may be nearing the end of its rate rise cycle and the U.S. debt ceiling along with U.S. bank concerns are headwinds for the dollar, Commerzbank added.
“That means quite a lot would have to happen for the market to change its view ahead of the central bank meetings so that it could come to significant adjustments EUR/USD.”
The dollar edged higher but could turn lower if there is fresh instability in U.S. banking stocks after embattled lender First Republic Bank reported a sharp drop in first-quarter deposits, ING said.
“Dovish” bets on the Fed cutting interest rates later this year may gather momentum if U.S. banking stocks falter, ING said.
Despite the dollar’s safe-haven status, it could weaken against European currencies backed by central banks with restrictive policies and without excessively high sensitivity to sentiment such as the Swiss franc, euro and sterling, ING added.
Bonds:
Markets keenly await the next inflation releases from the U.S. and Europe to make up their mind about the next policy steps, ING said.
“In this context, the appetite to chase yields above the top of their recent ranges is likely to be limited,” it said, adding that the top of recent ranges is around 3.6% for 10-year Treasury yields and 2.5% for 10-year Bund yields.
Inflation releases are more so important because they will be followed by Fed and ECB policy meetings next week, ING said.
“Lack of risk appetite also means a limited capacity to fade sudden market moves, and both Fed and ECB officials have encouraged the recent hawkish repricing higher in yields.”
Bank turmoil, inflation, interest-rate rises and geopolitical risks are among the topics that are moving Bund yields more than eurozone government bonds spreads, DZ Bank said.
Ten-year yields have moved between 2% and around 2.7% since the beginning of the year, while the 10-year Italian BTP-Bund yield spread is “almost flat as a board,” DZ Bank said.
It added that although the European Central Bank has ended its net new asset purchases, government bonds are currently benefiting from their image as safe haven.
“Private investors are therefore taking advantage of the higher yield level to enter the market.”
French government bonds look set to benefit from EUR19 billion cash flows on Tuesday, followed by a large month-end index extension on Friday, Citi said.
With no French bond issuance set for the week, “this should improve overall EGB [eurozone government bond] supply backdrop, with scheduled weekly gross supply down to EUR29 billion from EUR41 billion realized last week,” Citi said.
Backflow and index extension “could help OATs pare some of the recent underperformance versus the periphery,” Citi added.
Energy:
Oil prices were directionless as investors awaited clearer signals on Chinese demand.
Analysts are hoping China’s upcoming labor-day holiday could offer clues to the strength of Chinese consumers’ demand for travel, which would be key for oil demand.
Holiday bookings for international trips during the period are up 157% so far, according to data from a major Chinese travel firm, cited by Reuters.
Also in focus: a batch of major tech earnings from the likes of Microsoft and Alphabet are due starting today, which could shape investors’ risk appetite.
Metals:
Base metals were mixed with gold slightly higher, as uncertainty about the macroeconomic environment shadowed markets.
“The macro mood has improved after yesterday’s U.S. dollar drop and crude oil’s mild recovery,” Peak Trading Research said.
It added that with this week being light on data, investors will be looking ahead to Thursday’s U.S. GDP figures and Friday’s personal consumption expenditures inflation indicator.
“A lower PCE inflation print would spark a risk-on rally across the commodity complex ahead of next week’s Fed policy decision,” Peak said.
EMEA Headlines
How a Star Banker Supercharged a Struggling Financial Stock
The financial world may be in a serious rough patch, but one bank stock has more than doubled over the past year, propelled by an audacious goal: turning a once-troubled Italian lender into a profit machine.
The bank, UniCredit SpA, turned in its highest annual profit in over a decade for 2022. As of Monday’s close, its shares were up 42% so far this year despite the March turmoil, compared with a 9% rise in the Stoxx Europe 600 Banks Index.
UBS Attracts Customers Ahead of Credit Suisse Integration
UBS Group AG reported strong customer inflows as it prepares to swallow rival Credit Suisse Group AG in the first banking megamerger for years.
Switzerland’s largest bank said the world’s wealthy flocked to it in the quarter, as many sought shelter from the troubles at Credit Suisse. It said its wealth management arm gained $28 billion in net new money-including $7 billion in the last 10 days of March-after UBS said it would buy Credit Suisse.
Novartis 1Q Profit, Sales Beat Expectations; Raises 2023 Guidance
Novartis AG on Tuesday posted slightly higher net profit and sales for the first quarter of the year, beating analysts’ expectations, and raised its guidance for the full year.
The Swiss pharma major reported net profit of $2.29 billion, up from $2.22 billion the year prior, and beating a consensus expectation of $2.27 billion. Operating profit in the quarter was $2.86 billion, slightly up from $2.85 billion in the same quarter of 2022. Earnings per share and core earnings per share also grew on year, reaching $1.09 and $1.71, respectively, Novartis said.
Santander 1Q Profit Rose; Says Its Is on Track to Meet 2023 Targets
Banco Santander SA on Tuesday reported an increase in net profit for the first quarter and said it is on track to meet its full-year targets.
The Spanish lender said quarterly net profit was 2.57 billion euros ($2.84 billion) compared with EUR2.54 billion in the same period a year earlier and above analysts’ expectations of EUR2.50 billion, according to a consensus forecast provided by FactSet.
ABB 1Q Profit Rose on Strong Customer Activity; Raises 2023 Guidance
ABB Ltd. said Tuesday that net profit rose 72% in the first quarter of 2023 on strong customer activity, and it raised its full-year guidance.
The Swiss industrial company said net profit grew to $1.04 billion from $604 million in the same quarter of 2022, as the company was able to convert its order backlog into customer deliveries.
Akzo Nobel 1Q Net Profit Fell But Beat Consensus; Macroeconomic Uncertainties to Continue
Akzo Nobel NV said Tuesday that first-quarter net profit fell after booking higher costs but beat consensus estimates, and that it expects the current macroeconomic uncertainties to continue and weigh on organic volume growth in 2023.
The Dutch paints company-which houses the Dulux, Polycell and Cuprinol brands-made a net income for the quarter of 94 million euros ($103.9 million) compared with EUR154 million for the first quarter of 2022, and net income estimates of EUR89.2 million, taken from FactSet and based on two analysts’ forecasts.
Daimler Truck 1Q Earnings Surged on Higher Sales
Daimler Truck Holding AG’s first-quarter earnings came in above expectations amid high demand for its vehicles, according to preliminary figures released by the company late Monday.
The German maker of commercial vehicles booked adjusted group earnings before interest and taxes of 1.16 billion euros ($1.28 billion,) beating market expectations, according to consensus figures provided by the company. In the same period last year, Daimler Truck made adjusted EBIT of EUR651 million.
Nestle 1Q Sales Rose; Backs 2023 Outlook
Nestle SA on Tuesday reported a rise in sales volumes in the first quarter of the year as the company stepped up pricing against significant cost inflation.
The Swiss consumer-goods giant reported quarterly sales of 23.47 billion Swiss francs ($26.45 billion), from CHF 22.24 billion in the previous-year period. Analysts had forecast sales of CHF23.27 billion, according to a company-compiled consensus.
Anglo American 1Q Production Rose 9% On Year; Backs 2023 Guidance
Anglo American PLC on Tuesday said its first-quarter production rose 9% compared with the same period the previous year driven by copper production at its new mine in Peru as well as improvements in its steelmaking coal and iron ore business operations.
The FTSE 100-listed diversified mining group kept its production and unit cost guidance for 2023 unchanged across all of its business units.
AB Foods Backs FY 2023 Views After 1H Sales Rose, Although Profit Fell
Associated British Foods PLC said Tuesday that adjusted operating profit for the first half of fiscal 2023 fell, but backed its full-year guidance amid robust sales growth and less volatile inflation, and raised its dividend payout.
The British conglomerate posted an adjusted operating profit–which strips out exceptional and other one-off items-for the 24 weeks ended March 4 of 684 million pounds ($854 million) compared with GBP706 million for the year-earlier period.
Whitbread says current performance is strong despite economic uncertainties.
Whitbread PLC UK:WTB said Tuesday that its current performance is strong despite economic uncertainties as it reported a rise in pretax profit for fiscal 2023 and launched a 300 million-pound ($374.6 million) buyback program which it expects to complete in the first half of fiscal 2024.
The owner of budget hotel chain Premier Inn said the board is confident in the outlook for fiscal 2024, with an expected capital expenditure in the GBP400 million to GBP450 million range.
Randstad first quarter net profit dips to EUR152 million.
Randstad NV NL:RAND on Tuesday reported a fall in first-quarter net profit after booking higher costs and against continued challenging macroeconomic conditions across its market, and said that trends have continued into April.
The Dutch staffing company made a net profit for the quarter of 152 million euros ($167.0 million) compared with EUR207 million for the comparable period a year earlier.
Global News
A Recession May Be Coming. Or Not. Buy Stocks Anyway.
With recession worries mounting, it may be time for investors to load up on stocks. Yes, you read that correctly.
Wall Street has been fretting over a looming recession for much of the last year after the Federal Reserve embarked on its rapid rate-rising path to ease inflation that was running at multi-decade highs. But while parts of the economy feel the sting of a slowing economy-the tech industry has laid off thousands of workers this year-many on Wall Street have come to believe that even if a recession materializes, it might not be as bad as some fear. With recession worries largely baked into the market-barring a sudden shock to the economy-it makes sense for investors to reintroduce riskier assets into their portfolios.
Bitcoin Is Falling. Liquidity Concerns Are Rising.
Bitcoin and other cryptocurrencies were dropping Tuesday, with market attention on a potential decline in monetary liquidity.
Bitcoin has fallen 0.6% over the last 24 hours to around $27,300. That consolidates a drop from heights of above $30,000 reached last week.
Sliding Diesel Prices Signal Warning for U.S. Economy
A nationwide freight slowdown has helped cut U.S. diesel prices by half from last year’s record, raising concerns that parts of the world’s largest economy have begun to slow.
Wholesale diesel recently fell to $2.65 a gallon in New York Harbor, down from $5.34 last May, after Russia’s invasion of Ukraine sent commodity markets haywire and turned prices advertised at gas stations into street-level reminders of inflation’s 40-year highs. Record diesel costs made it more expensive to operate excavators at construction sites, run machinery on farms, and haul goods from ports, rail yards or factory floors.
Chinese Banks Pressured to Lower Deposit Rates, Report Says
Chinese banks cut deposit interest rates in response to narrowing net interest margins as Beijing continued to pressure down financing costs to help the economy recover, the state-run Security Daily reported Tuesday.
In their annual earnings reports, seven listed Chinese banks reported net interest margins-the difference in lending and borrowing rates-below 1.8%, the level they are supposed to maintain according to the official regulations taking effect this month, said the newspaper.
The U.S. Wants a Rare-Earths Supply Chain. Here’s Why It Won’t Come Easily.
A bipartisan bill set to be introduced in Congress this week would offer a tax credit for establishing rare-earth magnet production in the U.S., a crucial component for the clean-energy transition. MP Materials efforts to build a local supply chain demonstrate the challenge for American producers.
The bill, to be introduced by Rep. Guy Reschenthaler (R., Pa.) and Rep. Eric Swalwell (D., Calif.), includes a $20-a-kilogram credit for U.S.-made magnets, while manufacturers sourcing 90% of their component parts from U.S. producers could be entitled to a $30-a-kilogram credit, according to a draft seen by The Wall Street Journal. The credit is planned to be phased out by Dec. 31, 2035.
Supreme Court Allows State-Law Climate Suits Against Oil Companies to Proceed
WASHINGTON-The Supreme Court on Monday turned away appeals by oil companies seeking protection from potential liability under state laws for harms caused by climate change, a decision that at least for now allows a number of cases to move forward under state laws the industry sees as less favorable than federal environmental statutes.
Oil companies, among them Chevron Corp., Exxon Mobil Corp. and Shell PLC, are facing lawsuits alleging varied environmental harms from greenhouse-gas emissions filed under state laws by Rhode Island and several local governments, including the city of Baltimore; Boulder and San Miguel counties, Colo.; Honolulu and Maui counties, Hawaii; and Marin, San Mateo and Santa Cruz counties, Calif.
Global Military Spending Hits Record Amid Ukraine War, China Tensions
The war in Ukraine and tensions over China’s increased military clout pushed worldwide military spending to a record last year, and is expected to continue to boost demand for weapons.
Military spending rose by 3.7% to a record high of $2.24 trillion in 2022, according to data released Monday by the Stockholm International Peace Research Institute, a think tank known as Sipri. The figures mark the eighth consecutive year of spending growth.
U.S. Sent Teams into Foreign Networks to Hunt SolarWinds, Microsoft Hackers
SAN FRANCISCO-The U.S. military deployed teams of hackers to foreign networks in 2020, in the days after a major cyberattack on federal agencies was revealed. They hunted for intruders to study their behavior before shutting down their access, according to U.S. officials discussing the events publicly for the first time Monday.
Shortly after a long-running breach of SolarWinds Corp. software was disclosed by cybersecurity company FireEye Inc. in December 2020, the U.S. government moved quickly. The Cybersecurity and Infrastructure Security Agency, an arm of the Department of Homeland Security, identified around nine federal agencies that had been compromised, said Eric Goldstein, CISA’s executive assistant director for cybersecurity, speaking on a panel Monday at the RSA Conference.
Options Narrow for People Trapped by Fighting in Sudan
Foreign governments continued to evacuate their personnel and dependents from Sudan on Monday, but for the millions of Sudanese and thousands of expatriates caught up in a lethal power battle between the country’s top two generals, the options to get to safety were narrowing.
For a 10th day, the Sudanese military, commanded by Lt. Gen. Abdel Fattah al-Burhan, the country’s de facto head of state, and Rapid Support Forces, a state-sponsored militia led by Gen. Burhan’s deputy, Lt. Gen. Mohamed Hamdan Dagalo, exchanged artillery and gunfire, residents reported. Jet fighters circled above the capital, Khartoum, and other parts of the country.
Source: Dow Jones Newswires