MARKET WRAPS
Stocks:
European stocks edged higher on Thursday as investors looked to the European Central Bank and whether it would raise rates and by how much, following the Credit Suisse turmoil.
The ECB must decide today which weighs more heavily -- inflation control or the fear of contagion from the U.S. bank crashes and the problems in Credit Suisse, Jyske Markets said.
SEB said that after all the recent uncertainty, policymakers will struggle to balance inflation control while dampening financial turmoil.
Central banks probably want to avoid looking like they're panicking by changing course too hard, but they must clearly show that they can control the situation, SEB added.
Markets were pricing in a higher probability of a 0.25 percentage point rate increase, down from 0.5 percentage point forecast last week.
Read Credit Suisse Borrowing Reassures But Banking Sector Remains Unstable
Read Credit Suisse's Reach For a CHF50 Bln Lifeline Sends a Mixed Signal
Stocks to Watch
Brunello Cucinelli can continue to gain market share ahead, Jefferies said, after the Italian luxury-fashion firm reported strong full-year earnings and upbeat guidance.
Cucinelli had already released sales figures for the year, and now expects 2023 revenue growth of 15%. This implies further outperformance versus the sector, with balanced contributions from volumes and price/mix, Jefferies said, adding that the group also looks less exposed to rising costs.
Cucinelli's momentum is more than just a China bounce as the market reopens, though there is potential for growth there too, Jefferies added, raising its target price on the stock to EUR90 from EUR80, and keeping a buy rating.
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Inditex's strong current trading should be the main focus, Deutsche Bank said.
The Spanish fashion giant said sales rose 18% on year in the first weeks of fiscal 2023, adjusted for its exit from Russia.
Deutsche raised its sales expectations for the year to 8% growth at constant currency, and lifted its target price on the stock to EUR30 from EUR27, though it kept a hold rating.
"Inditex continues to deliver a best-in-class sales performance," but the share price has limited headroom and some peers have more scope to boost their margins, Deutsche said.
U.S. Markets:
Dow and S&P futures moved lower despite the Credit Suisse news.
The SNB's move "reiterates that both in the U.S. and in Europe, regulators are going to be pretty quick to step in-first with SVB and now with Credit Suisse," said Legal & General Investment Management.
"It's a reminder that when things start to go wrong, central banks are all over it trying to stop it from getting out of control."
Economic updates set for release include the weekly initial jobless claims; the February import price index; housing starts and building permits for February; and the March Philadelphia Fed manufacturing report.
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Stocks to Watch
Adobe reported fiscal first-quarter earnings that topped its own guidance, as well as Wall Street estimates. The company also boosted its fiscal-year outlook. The stock rose 5% in after hours trading.
Snap and Meta Platforms rose 4.5% and 1.5%, respectively, after WSJ reported the Biden administration has demanded Chinese tech company ByteDance sell the U.S. arm of popular short video service TikTok or face a potential ban.
Forex:
The euro rebounded somewhat on the Credit Suisse funding news and ahead of the ECB decision.
Given banking concerns, the ECB may be cautious, MUFG Bank said.
"While the ECB's rate decision has the potential to have a significant impact on euro performance today, we expect it to be mainly driven by European bank equity performance in the coming days or even weeks."
Read Euro's Reaction to ECB Decision Hinges on Financial Sector Performance
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Stress in the European banking sector overshadowed the U.K. government's budget on Wednesday and may continue to drive sterling against the euro in the near-term, ING said.
The budget was "generally seen to strike the right notes" but it was hard to determine a sterling reaction given stress in financial markets, which sent EUR/GBP lower, ING said.
The European banking sector's performance will continue to determine EUR/GBP moves, although should the ECB credibly lift interest rates 50bps without unnerving banking stocks, EUR/GBP could rise above 0.8800, ING said.
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The dollar's appreciation potential is likely to be limited despite demand for safe havens as the banking crisis spills beyond the U.S., Unicredit Research said.
Falling long-term U.S. yields will probably put a brake on any dollar recovery after its recent losses, it added.
The DXY dollar index will struggle to regain the recent peak of 105.88, it said.
"This is also because the JPY is perceived as the leading safe-haven currency at present while the CHF has been penalized by evidence that the ongoing banking crisis is also beginning to involve Switzerland," Unicredit said.
Bonds:
Eurozone government bond yields rose as market sentiment was shifting again toward a 50 basis point interest-rate rise by the ECB, even as concerns around Credit Suisse prompted a scale-back in market expectations.
"As the trouble reaches Europe for real, the ECB is in no enviable position," Commerzbank said.
"50bp remain in play after the [Swiss National Bank] measures, however, with market sentiment this morning probably tipping the scale."
According to Refinitiv data, markets were pricing in an interest-rate rise of more than 35 bps.
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Moves in Treasurys are expected to remain the key driver for Bunds in the near term, TD Securities said, adding that their base case argues for higher Bund yields.
Given elevated uncertainty, TD Securities sees all options on the table for the ECB's meeting, but it still expects a 50 basis point interest-rate rise, albeit adding that a 25bp hike can't be ruled out and liquidity operations may be announced.
TD Securities expects the ECB to act more cautiously after this meeting, with the policy statement likely dropping forward guidance and Lagarde being unlikely to firmly commit to further interest-rate rises.
Track the analysts' views on the ECB plans here
Energy:
Oil prices gained around 1% after falling to their lowest level since December, as fears about the global banks have seen risk assets tumble and raised fears about recession.
"There is a real possibility that the global economic growth may slow earlier and much more than expected. This implies that the [oil] demand growth trajectory would be much flatter into the rest of the year," said TD Securities.
"Crude could well move much lower than the fundamentals suggest, while systemic worries continue."
Metals:
Base metals markets were mixed in early trading, while gold moved lower, as turmoil within the banking sector continued on both sides of the Atlantic.
Noting the rise in Credit Suisse's share price after it announced significant borrowing from the Swiss Central Bank, Deutsche Bank said it would have to wait "to see if this will be enough to calm the market, but things are looking more positive than they did at the time of the European close yesterday."
DOW JONES NEWSPLUS
EMEA HEADLINES
Credit Suisse Will Borrow Up to $53.7 Billion
Credit Suisse Group AG, the Swiss bank whose shares tumbled Wednesday as fears about the health of global banks jumped the Atlantic Ocean, said it would exercise its option to raise as much as 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank in a bid to stanch liquidity concerns.
The firm, based in Zurich, called the decision a "decisive action to pre-emptively strengthen its liquidity."
Credit Suisse Stock Decline Tests Strength of European Banks
LONDON-A sharp drop in Credit Suisse Group AG's stock is putting European bank regulations to the test.
The Swiss lender's meltdown Wednesday prompted European Central Bank officials to call banks it supervises to ask about their exposure to the bank, people familiar with the matter said.
Suddenly a half-point ECB hike isn't guaranteed after bank collapses in U.S. and share price slides in Europe
Market expectations for a half-point rate hike by the European Central Bank are changing on the eve of the decision.
Now, the implied rate hike for Thursday's meeting is 35 basis points - basically meaning it's a 50-50 decision as to whether the ECB will lift rates by a half point, which the central bank had all but promised heading into it.
Europe to Unveil Clean-Tech Plans in Bid to Rival U.S., China
BRUSSELS-The European Union, fresh from targeting U.S. and Chinese green-tech subsidies, plans to spell out how it will make its industries more globally competitive in emerging environmental sectors.
The European Commission, the bloc's executive body, will set out a raft of proposals on Thursday aimed at growing Europe's share of the global clean-tech market. The plans include measures to speed up permitting and boost workers' skills and to help clean-tech companies secure the raw materials needed to build wind turbines, solar panels, electric vehicles and other technologies.
Germany's Rheinmetall Forecasts Significant Sales Growth as Ukraine War Grinds on - Update
German arms maker Rheinmetall AG is expecting significant sales growth this year and is hiking its dividend after posting a higher profit for 2022, a year marked by growing defense spending following Russia's invasion of Ukraine.
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03-16-23 0702ET
