MARKET WRAPS

Stocks:

European shares extended their recent losses on Wednesday, tracking Wall Street's retreat, after investor concerns about regional banks and the U.S. economy ticked upward.

"There are early signs that the First Republic stress will be contained. But if not, we could see U.S. yields and equities further fall and low risk assets, like the Swiss franc and gold amass safe haven flows," said Swissquote Bank.

Stocks on the Move

U.K. house-builders gained after Persimmon reported lower first-quarter new home completions and forward orders, but said its latest trading was encouraging.

Visitor numbers in the last few weeks had risen, cancellation levels had normalized and sales rates had continued a steady improvement evident since the start of the year, which if sustained meant full-year 2023 volumes likely would be toward the top end of guidance, Persimmon said.

The company's shares rose 5% and top-flight rivals Taylor Wimpey, Barratt Developments and Berkeley Group also advanced.

"Housebuilders are stemming steeper declines for the U.K. blue-chip index, with Persimmon leading the FTSE 100 after an improved trading update versus its previous release in March," Interactive Investor said.

Economic Insight

Core inflation, a measure of underlying price pressures excluding the more-volatile categories of food and energy, is expected to slow slightly in the second quarter, JPMorgan said.

Core inflation is expected to decline modestly in the U.S. and in emerging markets in the second quarter, but it is likely to edge up in China and to remain stable in the eurozone.

"Central bankers will thus have to grapple with stubbornly high inflation amid increased uncertainty about the path of GDP," JPM said.

While most central banks in emerging markets have finished their tightening cycles, monetary policy officials in developed economies will opt to raise rates further as inflation remains elevated, JPM said.

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Macroeconomic fears, banking worries, inflation dynamics and an unclear outlook for key interest rates still dominate financial markets, Metzler said.

"Headline inflation in the eurozone is now well past its high," but this isn't the case with the core inflation rate, which is still on an upward trend, it said.

In view of the fact that, despite positive base effects, the path toward the European Central Bank's 2% inflation target is likely to be more protracted than expected, "it will be exciting to see what the ECB Governing Council decides on May 4," Metzler said.

Read Sticky Core Inflation Could Justify 50 Basis Point ECB Rate Rise at May Meeting

Read Markets Remain Undecided About Size of ECB's Rate Rise Next Week

U.S. Markets:

Stock futures were higher with Nasdaq leading the charge following strong earnings reports from Microsoft and Alphabet.

Microsoft shares were sharply higher in premarket trading after the company posted better-than-expected results for its latest quarter. The upbeat results are a rare positive sign on IT spending as tech earnings season moves into full gear.

Other Movers

Alphabet reported first-quarter earnings that were better than expected, and its board expanded the company's stock repurchase program by up to $70 billion. The stock was rising 1.1%.

PacWest Bancorp rose 19% after the regional lender said deposits have stabilized in recent weeks.

Texas Instruments reported first-quarter earnings that topped forecasts but its revenue estimate for the current second quarter of $4.17 billion to $4.53 billion was below consensus of $4.44 billion at the midpoint. The stock rose 3%.

Visa was up 1% after the company delivered top- and bottom-line beats in its fiscal second quarter.

Earnings reports are expected Wednesday from Meta Platforms, Thermo Scientific, Boeing and Norfolk Southern.

Data scheduled for release include durable goods orders.

Follow WSJ markets coverage here .

Forex:

The dollar was lower after Janet Yellen warned that the failure by Congress to raise the government's debt ceiling would be catastrophic for the U.S. economy.

Her remarks came as a Republican bill authorizing a $1.5 trillion increase to the debt ceiling reached an impasse as the House Rules Committee delayed advancing the legislation to the full House of Representatives for debate and passage.

"The debt ceiling issue is clearly a dollar-negative risk," MUFG Bank said.

The issue reinforces the downside economic risks that are building based on incoming economic data, it added.

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Commerzbank said the market currently prefers the euro over the dollar as the ECB has further to go in raising interest rates than the Fed, but this won't last.

"The ECB's rate hikes will at some point be reflected in economic performance. The market will realise at some point that the mechanism 'interest rates up, economic performance down' not only applies for the U.S., but also for the eurozone."

The ECB started lifting rates much later than the Fed so the economic effects will take longer to become apparent but once they do the ECB could look to end rate rises, Commerzbank said.

Sweden

The Riksbank on Wednesday lifted its key policy rate to 3.5% from 3%, as expected, and signaled a further smaller hike later in the year as it continues to fight stubbornly high inflation. Read more here .

Read Riksbank Could Opt For Final 50Bps Rate Increase Before Loosening Policy

Read Swedish Krona Turns Weaker After Rate Decision

Bonds:

Eurozone government bond yields edged lower, extending the previous day's moves and signaling investor caution even as sticky core inflation looks to justify further interest rate rise, analysts said.

"This would be the seventh interest rate hike in a row since the euro currency guardians initiated the interest rate turnaround in July 2022," Landesbank Baden-Wuerttemberg said.

The decision between a 25 basis point interest-rate rise and a 50bp one remains open for the May 4 meeting, with LBBW analysts expecting a 25bp move. They also expect two further rate rises of the same magnitude thereafter.

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Developed market yields remain in a tug-of-war between resilient data versus tightening of credit conditions and lingering risks of something breaking, JPMorgan said.

This backdrop makes the bank stick to its tactical long-duration stance and to hold longs in five-year German debt.

JPM economists price in an additional 75 basis point interest rate rise by the ECB, which would bring the peak deposit rate to 3.75%. As for the May ECB meeting, JPM's base case is a 50bp increase, but said it would be a close call between 50bps and 25bps.

Read Bond Yields Seen Able to Withstand Market Fluctuations

Read Euro Bond Yields Expected to Remain in Recent Ranges

Energy:

Oil prices edged higher following a sharp drop that all-but erased gains made following Saudi-led production cuts.

Concerns about the health of the U.S. economy have weighed on oil prices, but a stronger-than-expected drop in U.S. crude inventories--according to API data--has helped halt the slide. U.S. crude stocks shrank by over 6 million barrels last week.

"A slump in oil refining margins is also weighing on sentiment. This could lead to lower processing rates at refineries, particularly in Asia, " ANZ said.

Sudan Oil Exports

Sudan's powerful militia group, currently battling the country's military, will likely target oil infrastructure linking South Sudan with Khartoum, potentially disrupting crude exports at Port Sudan, intelligence firm Verisk Maplecroft said.

Sudan's military used airstrikes Tuesday to drive militias out of a refinery near Khartoum, raising fear of damage to facilities, on which neighbouring South Sudan relies to export it's nearly 170,000 barrels-a-day in crude output.

"Damage to oil infrastructure would disrupt the oil exports of Malaysian, Chinese and Indian operators in South Sudan that are 100% dependent on accessing the global market via Sudan," Verisk Maplecroft said.

"South Sudan's comparatively low output will limit any impact to global oil markets, but 90% of Juba's economy is based on oil exports."

Metals:

Base metals and gold prices pushed higher, with the dollar continuing to weaken.

Gold demand in China was strong through the first quarter, with data from the China Gold Association showing that domestic consumption rose 12% on year to 296.1 tons, ING said.

The It added that much of this was led by strong consumer consumption for jewelry, gold bars and coins following the country's reopening from lockdown.

Copper

Copper prices are likely well supported in the longer run, even though the base metal has retreated in recent sessions amid growing investor concerns over global recession risks, Saxo Bank said.

It said that most commodities have suffered year-to-date declines so far in 2023, as the Fed's tightening and macroeconomic uncertainties weigh on sentiment.

But Saxo remains optimistic on copper's longer-term potential, citing continued supply tightness based on recent inventory data, as well as the uptrend in structural demand amid the ongoing energy production transition, as many new-energy projects require copper.

Commodities Demand

Divergence in China's economic growth with developed markets is creating uncertainty in commodity markets, as industrial metals and bulks related to China are showing better demand prospects, ANZ said.

Oil demand in China is recovering even as demand concerns in developed markets are looming, ANZ added.

With industrial activity improving in China and other regions after the country's reopening, demand for industrial metals has risen and is reflecting in rising spot premiums. ANZ sees supply constraints ahead for major metals increasing especially aluminum due to the hydro power shortages.

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04-26-23 0550ET