MARKET WRAPS
Watch For:
EU, Italy business & consumer confidence surveys; trading updates from Cellnex, Repsol, Deutsche Bank, Sanofi, TotalEnergies, BASF, BBVA, Air Liquide, Pernod Ricard, Munich Re, Continental, AXA, Bouygues, Kering, Prada, STMicroelectronics, Barclays, AstraZeneca, Swedbank, Finnair, Sberbank, London Stock Exchange, Unilever, Schroders, Babcock International, British American Tobacco, ITV, NatWest Group
Opening Call:
Shares may open in negative territory in Europe on Thursday. In Asia, stock benchmarks were mixed; Treasury yields dropped; the dollar lost ground; while oil and gold advanced.
Equities:
European stocks could be off to a wobbly start on Thursday as economic uncertainty continues to damp sentiment.
"European markets are once again on the back foot as concerns over the economic outlook continue to weigh on sentiment," CMC Markets said.
Recent economic data continue to depict an overall weakening U.S. economy. "We expect equities to be range-bound in the near term as the market oscillates between the soft-landing and recession narratives," UBS Global Wealth Management said.
Part of the gloom stems from an emerging consensus that the U.S. Federal Reserve will continue raising rates next week. Investors are giving a roughly 75% probability that the central bankers will vote for another rate hike, according to CME Group, a move aimed at discouraging lending to businesses and consumers.
"That influences the economy, which then ripples through and influences earnings," said Glenmede.
U.S. central bankers have signaled that another rate increase is on the table next week, even amid growing fears of a recession and stress on regional banks. Some analysts said they believe regional banking stress in recent weeks is symptomatic of the Fed's rate hikes, rather than a systemic problem for the financial sector.
Forex:
The dollar is losing ground in Asia amid mixed signals.
Banking-sector worries are weighing on sentiment as First Republic's troubles continue, said RBC Capital Markets.
However, these concerns have also dragged down terminal Fed funds rate expectations, it said.
Also, the front-month Brent crude oil price has fallen below the technical support of $80/bbl, which could help support risk sentiment, particularly if the decline persists, as this would pull inflation expectations lower, it added.
The dollar has weakened again over the past month or so, leaving it only somewhat higher since the start of its rally in early 2022, Capital Economics said.
"In other words, the greenback has nearly reversed all of its gains from the Fed tightening cycle and last year's terms of trade shock," it said.
"While we don't expect these tailwinds to re-emerge, we think that the dollar's selloff has run its course and that the greenback will still rebound later this year as the U.S. and other advanced economies slip into recession."
Bonds:
Treasury yields fell after previous gains, as traders considered the Fed's most likely next steps at its May 2-3 policy meeting.
The prospect of banking weakness forcing the Fed to turn more dovish was revived by First Republic's Monday disclosure that it lost about $100 billion in deposits in the first quarter, leading to volatility trading on its stock and fueling bets on interest rate cuts in the second half.
As of late Wednesday afternoon, markets were pricing in a 70% probability that the Fed will still raise interest rates by another 25 basis points to between 5% and 5.25% on May 3, according to the CME FedWatch tool. The central bank is mostly expected to cut the fed-funds rate target back down to 4.25% and 4.5%, or even lower, by December, according to 30-day Fed Funds futures.
"The Fed looks set to deliver a final 25bp rate hike at the FOMC meeting next week, taking the fed funds target range to a peak of 5.00%-5.25%. Although the accompanying statement may leave open the possibility of more tightening, we suspect the Fed's next move will be a rate cut, as economic weakness helps drive inflation lower over the second half of this year," said Capital Economics.
"We suspect the updated statement may nevertheless retain the guidance that 'some additional policy firming may be appropriate.' But that would represent officials trying to keep their options open rather than a pre-set plan to raise rates further. If that line is dropped, however, that would be a signal that - for the next few months at least - the Fed's tightening cycle is over," it said.
Energy:
Oil prices edged up in Asia in a possible technical recovery after falling overnight.
Oil declined as continued worries about bleak economic growth prospects offset a bullish U.S. inventory report overnight, ANZ said.
EIA data showed that U.S. commercial stockpiles of crude fell last week, indicating stronger demand, but "the market shrugged off another large drawdown in oil inventories," it said.
"Below $80 a barrel on the back of concerns over weaker demand, prices appear set on a course to retest the recent lows," CMC Markets UK said. Still, "it probably won't be too long before OPEC+ raises the prospect of fresh reductions in output if demand continues to look weak," it said.
The Price Futures Group said that petroleum supply data from the Energy Information Administration released Wednesday would "normally would be extremely bullish -- if it were not for banking concerns."
"Gasoline demand really leapt and on the supply side, things are uncomfortably tight," it said. "If we shake off banking worries, [oil] prices should rise."
Metals:
Gold prices gained in Asia after retreating overnight.
"Gold got its groove back and unless First Republic is miraculously saved and we don't see any immediate stress on other midsized banks, the precious metal could make a run towards record highs," said Oanda.
Concerns about the U.S. debt ceiling debate in Congress and weak regional bank earnings and recession fears remain as supportive fundamental factors for prices of the safe-haven metal.
"Gold is destined for record price highs," said GoldSeek.com. "It is just a question of the path it will take." The short term is "a difficult call, but pullbacks are gifts," it said.
---
Copper fell amid negative market sentiment driven by ongoing stresses in the U.S. regional banking sector.
Cautionary signals are being raised for the demand outlook, said TD Securities.
Base metals have notably declined and have shown very weak price action, it said.
But this has come at a time when leading demand indicators point to a period of supportive destocking starting in May, which means next few weeks may be key to determining short-term demand outlook for commodities, it added.
---
Chinese iron ore futures were higher, as the steelmaking ingredient recovered from recent consecutive losses.
But analysts continued to warn of further downside risk in iron ore prices.
Guosen Futures noted that many steel producers in China have announced planned production cuts amid the country's lingering property-market weakness.
Buying interest will remain weak, as iron ore prices are still relatively expensive after a rally earlier this year. The rebound may be short-lived, it said.
TODAY'S TOP HEADLINES
Microsoft, Activision Decision Shows Tech Companies Face New Scrutiny From Regulators
BRUSSELS-The U.K. decision to block Microsoft Corp.'s plan to buy videogame producer Activision Blizzard Inc. is the latest sign of how global regulators are toughening their approach to market-dominating tech companies.
The Competition and Markets Authority, the U.K.'s antitrust watchdog, said Wednesday that it was prohibiting the deal because commitments Microsoft had proposed didn't go far enough in addressing its concerns. Microsoft said it would appeal the decision.
China's Xi Makes First Call to Ukraine's Zelensky Since Russian Invasion
Chinese leader Xi Jinping called Ukrainian President Volodymyr Zelensky on Wednesday, their first conversation since the Russian invasion more than a year ago, as Beijing attempts to portray itself as a potential peacemaker in the conflict.
China's Foreign Ministry said it would send a special representative for Eurasian affairs to Ukraine and other countries "for in-depth communication with all parties on the political settlement of the Ukrainian crisis."
Jeep Maker Stellantis to Offer Buyouts to Hourly, Salaried Workers
Jeep maker Stellantis NV plans to offer buyout packages to both white-collared and hourly workers as it trims costs in some areas to fund its transition to electric vehicles, the company confirmed Wednesday.
Stellantis, which also owns Chrysler, Dodge and Ram, said it would offer voluntary separation packages to certain salaried employees with at least 15 years of experience. The buyouts will be offered to 31,000 hourly employees and 2,500 salaried workers in the U.S., a company spokeswoman said.
Ardian, Blackstone and Apollo Are Top Buyers of $5 Billion Private-Equity Portfolio
A group of blue-chip buyers is set to acquire one of the largest portfolios to trade on the market for secondhand fund stakes.
Healthcare provider Kaiser Permanente in Oakland, Calif., is selling about $5 billion of private fund positions to a group that includes buyout firms Ardian, Blackstone Inc. and Apollo Global Management Inc., according to several people familiar with the matter. The assets are held by the company's pension plan.
Facebook Parent Meta Platforms Sees First Sales Increase in Nearly a Year
Facebook parent Meta Platforms Inc. on Wednesday reported its first increase in sales in nearly a year due to continued improvements in its advertising business, as the company continues to pare back spending during what Chief Executive Mark Zuckerberg has called a "year of efficiency."
(MORE TO FOLLOW) Dow Jones Newswires
04-27-23 0019ET
