MARKET WRAPS

Watch For:

Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Board Governor Michelle Bowman speak at Fed Listens event; Federal Reserve Bank of Chicago President Charles Evans speaks at Detroit Economic Club event; Federal Reserve Bank of New York President John Williams moderates Economic Club of New York event with TIAA President and Chief Executive Thasunda Brown Duckett.

Opening Call:

Stock futures fell, with technology stocks on track to lead losses, as Covid-19 shutdowns in China added to the uncertainty investors face in a period of rising interest rates.

Ahead of bank earnings and inflation data later in the week, traders were left focusing on the health of the market.

Michael Darda, chief economist and market strategist at MKM Partners, says the S&P 500 is overvalued even with the recent pullback. He said that for the equity risk premium - the earnings yield minus the bond yield - to move back to its five-year average, one of four things would have to happen: bond yields to fall by around 100 basis points, earnings to rise about 20%, the stock market to fall about 17% or some combination of the three.

"Our valuation work shows that financials remain the most attractive cyclical sector while healthcare is the most attractive defensive sector. High valuation tech across the capitalization structure remains an 'avoid' or a short, in our view," said Darda.

In the spotlight this week will be a key U.S. inflation reading. The release Tuesday of the consumer-price index for March will be the last CPI data the Fed receives before its next meeting on monetary policy.

Also in focus is the start of the first-quarter earnings season. While just 15 companies in the S&P 500 will report results, they include major U.S. financial groups JPMorgan Chase and BlackRock on Wednesday, before Citigroup, Morgan Stanley), Goldman Sachs, and Wells Fargo on Thursday.

In Europe, France's CAC 40 was an outlier, rising 0.4% after President Emmanuel Macron garnered 28.2% of the estimated vote in the first round of the presidential election, ahead of far-right leader Marine Le Pen's 22.9%. The two will face off in an April 24 rematch of the 2017 election.

Ms. Le Pen has dialed down her criticism of the eurozone but her advance in the polls still sent jitters through European markets in recent weeks. The euro traded roughly level Monday at $1.0912. The yield on 10-year French government bonds rose to 1.297% from 1.257% Friday.

Stocks in China tumbled as the economic toll of Covid-19 lockdowns in Shanghai and supply-chain disruptions in the country continued to mount.

"Resurgence of the pandemic is the major reason," said Bruce Pang, head of macro strategy research for China Renaissance Securities. He said investors have been hoping for measures from Beijing to help counter the effects of the slowdown.

Chinese auto sales data on Monday showed that passenger-car sales fell 10.5% in March, after production was hampered by factory closures. Shanghai, the center of the Covid-19 outbreak, reported more than 25,000 asymptomatic carriers of coronavirus Sunday, according to the National Health Commission.

Forex:

The dollar rose as the Fed looks prepared to deal with surging inflation through expeditious monetary policy normalization, ING said. The market is currently expecting the Fed to raise interest rates by 250 basis points by year-end, ING analysts said. "And at ING, we look for 150bp of that tightening to come in the May-July period."

With uncertainty over the global economy also boosting demand for safe havens, investors are likely to hold onto their long dollar positions--bets on the currency strengthening--over the Easter break, the analysts said.

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The euro fell against the dollar following earlier gains in reaction to French President Emmanuel Macron's win in the first round of the country's presidential election.

Higher long-term U.S. Treasury yields and the consequent widening of the corresponding yield differentials with the rest of the world remain the main determinants of renewed dollar strength, together with demand for safe havens due to uncertainty over the Russian-Ukraine conflict, Unicredit Research analysts said.

"This is quite evident by simply looking at EUR/USD, which is still trading below 1.09 despite the result of the first round of the French presidential election."

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Uncertainty over the French presidential election could put modest pressure on the euro ahead of the second round of votes on April 24, MUFG Bank said.

The first round of the election and opinion polls suggest a close result in the second round, which could weigh on the euro slightly in coming weeks, MUFG currency analyst Lee Hardman said in a note.

"There is a risk that the euro could weaken further in the near-term if the opinion polls were to continue to narrow ahead of the second round."

However, President Emmanuel Macron should ultimately prevail, albeit less comfortably than the last election, meaning the euro's weakness on nervousness over the election outcome won't last, Hardman said.

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Cryptocurrencies were lower, in line with stocks. Bitcoin prices lost more than 1% over the past 24 hours and were holding above $42,000; the leading digital asset was trading above $45,000 less than a week ago. Smaller peer ether lost almost 3% to around $3,150.

Bonds:

U.S. government bonds extended their selloff. The yield on 10-year Treasury notes rose to 2.758% from 2.713% Friday. Yields have climbed for four of the past five weeks.

Commodities:

Oil prices slipped as fears of waning demand in China from surging Covid-19 cases weigh. Cases of Covid-19 in Shanghai have surged to 130,000 raising fears that the lockdown of the city of 25 million people could continue.

"The lockdowns that are slowing oil demand in the world's second-largest consumer country threaten to persist for even longer," said Commerzbank.

The setback to oil demand from canceled flights and movement restrictions could stand at 1.2 to 1.3 million barrels per day, Commerzbank said, citing data from consultancy FGE.

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Second-quarter earnings results bode well for oil and gas and basic resources issuers, said UniCredit's research team. "Oil & Gas and Basic Resources issuers are likely to have benefited further from commodity prices, which were already high in 1Q," they said.

On the flipside, sectors particularly exposed to discretionary spending, such as retail and travel & leisure, are likely to have witnessed further deterioration of their credit metrics due to the decline in real household income, they said.

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Base-metal prices sunk as worries over Chinese consumption mount, particularly in key industrial regions such as Shanghai, which last week pushed the city's 26 million residents into a coronavirus lockdown.

Three-month nickel on the London Metals Exchange was down 3.3% to $32,855 a metric ton, while copper and aluminum futures were down 1.1% and 2.3%, respectively.

Investors' worries over Asian appetite for metals have so far outweighed the supply issues coming from Russia. Last week, miner Rio Tinto relinquished Russian giant Rusal's share of the Gladstone refinery in Queensland--something which was seen as a key source of raw material for Rusal and again could strain supply from the region.

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Precious-metal prices rise as investors look to haven assets, on mounting fears of inflation globally. Gold futures were up 0.1% in New York, with investors seeing the metal as a strong hedge, especially given the effects of the war in Ukraine on consumer prices already.

Elsewhere, platinum group metal prices are also rising, particularly for palladium which is 2.8% higher at $2,487 an ounce, having risen more than 8% on Friday after the London Platinum and Palladium Market removed two Russian-government tied refiners from its permitted list of goods delivery list.

Platinum too was 0.9% higher at $984 an ounce.


TODAY'S TOP HEADLINES


Elon Musk Reverses Decision to Join Twitter's Board, CEO Says

Elon Musk decided not to join Twitter Inc.'s board of directors, Chief Executive Parag Agrawal said, a dramatic reversal that cast new uncertainty over the relationship between the social-media platform and its largest shareholder.

The late-Sunday announcement capped a whirlwind week. Mr. Musk's 9.2% stake in Twitter was made public Monday, plans for him to join the board were announced Tuesday, and he spent much of the weekend tweeting criticisms, suggestions and apparent jokes about the company.


China's Auto Sales Drop More Than 10% as Covid Restrictions Hit

China's car sales fell more than 10% in March, as car makers grappled with extended manufacturing halts and the country's strict Covid-19 lockdowns disrupted supply chains.

Passenger-car sales dropped 10.5% year over year in March to 1.58 million vehicles, as the shutdowns in cities affected auto production and consumer purchases, the China Passenger Car Association said Monday. Quarterly sales were also affected, falling 4.5% from a year earlier to 4.92 million vehicles, the association said.


Societe Generale to Exit Russia, Sell Rosbank

Société Générale SA said Monday that it will cease its banking and insurance activities in Russia, including selling Rosbank, as it exits the country after its invasion of Ukraine.

The French bank said it would divest its entire stake in Rosbank, one of Russia's largest foreign-owned lenders, and its Russian insurance subsidiary to Interros Group, a previous shareholder of Rosbank.


Cnooc to Raise at Least $4.4 Billion in Shanghai Offer

One of China's biggest oil companies, Cnooc Ltd., plans to raise $4.41 billion from a Shanghai listing, after its shares were delisted from the New York Stock Exchange.

The state-owned company is selling a total of 2.6 billion shares for 10.80 yuan (US$1.70) a share, it said Monday.


Russia's Rusal Disagrees With Rio Tinto Alumina Refinery Step-In

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04-11-22 0604ET