MARKET WRAPS

Stocks:

Stocks extended their rally in Europe, with the banking sector continuing to stabilize and as investors turned their attention to the Federal Reserve's decision on interest rates.

"Sentiment has turned more positive across European markets, with banks outperforming after the turmoil in recent sessions," Interactive Investor said.

Read Investors Go Bargain Hunting on UK Financials as Stocks Rebound

Eurizon said that despite tensions in the financial markets, economists' expectations point to another 25 basis point interest-rate rise by the Fed on Wednesday.

The market is more sceptical, however, with views divided between an interest-rate rise and a decision to keep the Fed funds rate unchanged.

"The spotlight will also be on the updated projections for Fed funds rates and on Jerome Powell's press conference, to garner elements [of] information on the future path of interest rates," Eurizon said.

Read Central Banks to Differentiate Between Price and Financial Stability Goals

Stocks to Watch

Supply-chain disruptions continue to affect the production efficiency of Europe's industrial sector, leaving companies with extended order backlogs, which should still help drive momentum, RBC Capital Markets said.

Backlogs will likely take until 2024 to normalize, which, for the likes of Siemens and ABB for example, appears set to remain supportive.

"We still see the sector as attractive, even though positive share price performance since October 2022 has reduced absolute upside," RBC said.

"While a significant liquidity crunch would definitely impact sector demand, generally low debt levels mean that the direct risks are limited in most cases."

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European insurers have limited exposure to banks' so-called additional tier one--or AT1--bonds which have been in focus after UBS's takeover of Credit Suisse, Berenberg said.

Swiss financial regulator Finma said the deal would trigger a write-down of Credit Suisse's AT1 debt with a nominal value of around CHF16 billion.

The insurance industry's average exposure to bank AT1s stands at 16 basis points of solvency own funds and Berenberg estimates only Sampo, ASR Nederland, Generali, Storebrand, Tryg and Scor have an exposure above 20 basis points.

"Our conclusion is that the European insurers' exposure is not material at the level of Credit Suisse's total bank debt, very small at the level of total bank sector AT1s and negligible at the level of Credit Suisse's AT1s," Berenberg said.

Read European Insurers' Share Underperformance Seems Overdone

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Fresenius has so far been given little credit for its steps toward simplifying its corporate structure and for its plans to turn around organic earnings growth and returns through non-core business disposals, Berenberg said.

The company is also targeting mid-single-digit organic growth and annual cost savings of EUR350 million by 2025. Those targets look achievable, Berenberg said.

"Equally, returning to a return on invested capital range of 6% to 8% in the near term does not look like a stretch if Fresenius can divest some of its non-core business lines and geographies."

U.S. Markets:

Stock futures edged higher with First Republic Bank stock rising 20% in premarket trading.

Shares of the regional lender lost nearly half their value and sank to a new low on Monday even as a report from The Wall Street Journal said talks to raise additional capital for First Republic were being led by JPMorgan Chase and other banks that already put $30 billion in deposits into the bank.

After Monday's close CNBC reported JPMorgan was advising First Republic on strategic alternatives that included a capital raise or sale. Also, investors were mulling reports that the U.S. Treasury is considering unlimited deposit guarantees if the current crisis hitting the banking sector continues.

Other Stocks to Watch

Nvidia kicked off its developer conference on Monday, and its CEO will be delivering the keynote address on Tuesday. He'll be sharing his "vision for the future of AI and how Nvidia is accelerating it with breakthrough technologies and solutions," the company said. The stock was up 0.5% in premarket trading.

Tesla was 1% higher in premarket trading. The company's debt was upgraded by Moody's to Baa3, its lowest level for investment grade, up one ratings notch from Ba1, the highest level of speculative grade, or so-called junk-rated debt.

Read Tesla outpaced European competitors in February, growing EU market share .

Nike and GameStop are scheduled to report quarterly earnings after the stock market closes on Tuesday.

Follow WSJ markets coverage here .

Forex:

The euro gained on improving sentiment towards European bank stocks, MUFG Bank said.

The turnaround in sentiment came after EU regulators welcomed actions by Swiss authorities to ensure financial stability and provided reassurances to bondholders in the UBS takeover of Credit Suisse, MUFG said.

"The adjustment higher in the euro against the dollar is also supported by yield spreads moving in favor of Europe over the U.S."

EUR/USD could strengthen further if the Fed delays further interest rate rises on Wednesday until the banking turmoil calms, MUFG said.

Read Investor Confidence Improves After EU Regulators Joint Statement on AT1 Bonds

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The dollar was a touch higher and has the potential to gain further ahead of the Fed policy decision, as investors conclude that a 25bp rate rise is more likely than rates being left steady, ING said.

"We wouldn't be surprised to see the dollar-which fell yesterday as risk sentiment rebounded-find some support into the FOMC announcement as markets turn more defensive and potentially factor in a greater risk of a hawkish scenario."

The Fed decision will be "a big risk event," with markets currently only pricing in around a 60% chance of a rate increase, ING said.

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The pound could fall as there's a strong case for the Bank of England to leave interest rates unchanged on Thursday, although any declines may be limited, MUFG Bank said.

"Even prior to the recent pick-up in fears over the health of the banking system, the BOE was already much more cautious than the European Central Bank and Federal Reserve over the need for further rate hikes," MUFG said.

Leaving rates on hold would pose "some downside risk" for the pound but its recent resilience to risk aversion suggests it could continue to perform better than expected in the near-term.

Read BOE Looks Likely to Raise Rates by 25Bps, But Rates Are Near Their Peak

Bonds:

Eurozone government bond yields fell in early trading, signalling continued investor caution in light of the banking turmoil, DZ Bank said.

Nonetheless, the relatively muted yield drops pointed to tentative stabilization, DZ Bank added.

"Regarding bond-market sentiment, nerves are still jangling on both sides of the Atlantic in response to the uncertainties racking the banking sector. Yet market actors appear cautiously optimistic that the current bout of turmoil is not going to escalate into a global financial crisis."

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The AT1 bond market poses a threat to improved investor sentiment in Europe, ING said.

"The market's focus in Europe appears to be on the vulnerability of Additional Tier 1 bondholders after the Credit Suisse acquisition deal by UBS saw AT1 bonds being wiped out. The AT1 bond market now poses a major threat to any extension of the recovery in investor sentiment in the region."

Energy:

Oil prices edged down as investors cautiously await this week's Fed decision.

Oil losses over recent days, while not driven by changes to supply or demand expectations, have been heightened as demand in China has been slow to recover, Natixis said.

"The oil market sell-off can be partially attributed to fundamentals disappointing relative to lofty expectations-as of yet, China hasn't overtightened the physical market, whilst Russian exports have remained robust," Natixis said.

Metals:

Base metals and gold were slightly weaker, with traders looking to the Fed decision and how this will shape monetary policy.

"Markets are in waiting mode ahead of tomorrow's Fed decision," Peak Trading Research said. "How Powell balances inflation pressures versus financial risks will be critical."

Copper

Tight supply and a hike in demand from the energy transition is likely to push copper prices higher, according to Goldman Sachs.

The bank said near term, it is targeting $10,500 a metric ton for LME copper, and in the longer term, $15,000 a ton.

"The forward outlook is extraordinarily positive," Goldman Sachs said.

Referring to the U.S. inflation reduction act, the bank said demand is likely to spike because of the drive to electrify. Near term, prices should rise on tight inventories, with the expected 125,000 tons of observable inventories by the second quarter the lowest level on record.

Goldman Sachs expects peak mine supply by 2024.

Nickel

The LME's nickel contract is no longer fit for what the industry requires, according to the CEO of commodity trading giant Trafigura.

He said the current contract isn't fit for purpose for the global nickel industry given the shift in demand from stainless steel to batteries for nickel.

The CEO said the nickel industry has changed significantly over the last five years, during which the battery market has replaced stainless steel as the largest driver of demand.

"You have to have a contract or contracts that reflect the underlying business and how it operates," Trafigura said, adding that the nickel crisis last year was partly influenced by this shift.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

German Economic Expectations Declined in March as Turbulent Markets Weighed

The outlook for the German economy worsened in March, swinging from five months of improvements, as turbulent financial markets, alongside economic headwinds such as high inflation and rising interest rates, take a greater toll on the economy.

The ZEW economic research institute said Tuesday that its index of economic expectations for Germany fell to 13.0 in March from 28.1 in February.

   
 
 

What's Next for UBS After Buying Credit Suisse in Whirlwind Rescue

A weekend of frantic deal making changed everything for UBS Group AG.

A cut-price, $3.2 billion takeover of its top domestic rival, Credit Suisse Group AG, reinforces UBS's position as one of the biggest managers of money for the world's wealthy.

   
 
 

RWE Sees 2023 Earnings Broadly Below Prior Year Level; Raises Dividend

RWE AG expects most metrics in 2023 to be below the previous year's level but said it aims to increase its dividend.

The German energy company on Tuesday said that it expects adjusted net income of between 2.2 billion euros and 2.7 billion euros ($2.36 billion - $2.89 billion) in 2023.

   
 
 

Kingfisher FY 2023 Profit Fell on Higher Costs, Sees Year Ahead in Line With Market Views - Update

Kingfisher PLC reported Tuesday a fall in pretax profit for fiscal 2023 on the back of higher costs, but said its performance was in line with the board's views and that it sees fiscal 2024 profit being in line with market expectations.

The home-improvement retailer posted a pretax profit for the year ended Jan. 31 of 611 million pounds ($750.1 million) compared with GBP1.01 billion a year earlier. Analysts expected GBP740.8 million in profit, according to forecasts taken from FactSet and based on eight analysts' estimates. Adjusted pretax profit came in at GBP758 million, beating analysts' views of GBP741 million.

   
 
 

European Ports Brace for Cybersecurity Regulation

European ports are preparing for a major regulatory change next year in how the hundreds of companies in their global supply chains address cybersecurity as ports have become a target for criminal hacker groups and state-sponsored attacks.

Cybersecurity rules approved by the European Union for pharmaceuticals, transportation, energy and other critical infrastructure companies are set to take effect in 2024 and will require hundreds of firms that operate out of Europe's big ports to use basic security measures and report hacks to cybersecurity authorities. The regulation will be the first such cybersecurity requirements for many companies that provide services to critical sectors. Violators face fines of up to 10 million euros, equivalent to roughly $10.7 million, or up to 2% of global revenue, whichever is higher.

   
 
 

EU Car Registrations Rose in Feb, With Electric Vehicles Gaining Market Share

Passenger car registrations in the European Union rose in February on the year, with fully electric vehicles taking a bigger share of the market, the European Automobile Manufacturers Association said on Tuesday.

New car registrations, which reflect sales, rose to 802,763, an 11.5% increase over February 2022-a difficult time for the industry due to the semiconductor shortage.

   
 
 

Ferrari Investigating Cyber Incident

Automobile company Ferrari NV is investigating a cybersecurity incident after a subsidiary was contacted with a ransom demand related to certain client contact details.

   
 
 

Macron's Government Survives No-Confidence Vote in National Assembly

PARIS-French President Emmanuel Macron's government narrowly survived a no-confidence vote in the National Assembly on Monday, fending off a last-ditch effort to kill his contentious pension overhaul and topple his administration.

The no-confidence motion, spearheaded by a group of centrists, won the support of 278 lawmakers in the lower house of Parliament, nine votes short of a majority. A second no-confidence vote, filed by Marine Le Pen's far-right National Rally, failed by a wide margin.

   
 
 

Northern Ireland Impasse to Persist After Unionist Party Rejects Brexit Compromise

LONDON-Efforts by the British government to end political paralysis in Northern Ireland suffered a blow on Monday after the Democratic Unionist Party said it would reject a compromise agreement recently hammered out by Prime Minister Rishi Sunak and the European Union over the region's trading status.

The so-called Windsor Framework is aimed at appeasing the DUP and other unionist communities in Northern Ireland who felt cut off from the rest of Britain after the country agreed as part of its 2019 Brexit divorce deal to place a border between Northern Ireland and the rest of the U.K., rather than a border between the province and Ireland, which remains an EU member.

   
 
 

Ukraine's Leadership Doubles Down on Bakhmut Defense as Russians Get Closer

KOSTYANTYNIVKA, Ukraine-Every time Pvt. Viktor Daletskiy drives into the besieged eastern city of Bakhmut to pick up the injured and dead, the front line is a bit closer and the route in more precarious.

"It's really tough. They're getting closer and closer," he said of the Russians during a pit stop this week outside a gas station 14 miles west of Bakhmut. "But their losses are still greater than ours."

   
 
 
   
 
 

GLOBAL NEWS

Pro Take: Fed Faces Balancing Act Between Bank Rescues, Inflation Fight

The Federal Reserve's new bank-rescue plan injects cash into troubled financial firms through loans while Fed officials also seek to tighten credit in the banking system and slow the economy-a contradictory set of aims.

On the one hand, the Fed is making money available for banks so they can continue to lend. On the other, it is making it more expensive for consumers and businesses to borrow.

   
 
 

Bank Fears Rattle Oil Markets Poised for Chinese Boom

Wall Street's outlook for oil this year is suddenly looking a bit less bright.

Crude prices dropped to 15-month lows after strains in the U.S. banking system sent tremors throughout financial markets and intensified fears of a broader economic slowdown. Those worries have hit prices just as energy-hungry China has finally shown signs of revving up from strict pandemic lockdowns.

   
 
 

Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse

Strains in the banking sector are roiling a roughly $8 trillion bond market considered almost as safe as U.S. government bonds.

So-called agency mortgage bonds are widely held by banks, insurers and bond funds because they are backed by the mortgage loans from government-owned lenders Fannie Mae and Freddie Mac. The bonds are far less likely to default than most debt and are easy to buy and sell quickly, a crucial reason they were Silicon Valley Bank's biggest investment before it foundered.

   
 
 

JPMorgan CEO Jamie Dimon Leading Efforts to Craft New First Republic Bank Rescue Plan

JPMorgan Chase & Co. Chief Executive Jamie Dimon is leading discussions with the chief executives of other big banks about fresh efforts to stabilize troubled First Republic Bank.

The discussions, while preliminary, have focused on how the industry could arrange for an investment that would boost the bank's capital, according to people familiar with the matter. Among the options on the table, the people said, is an investment in First Republic by the banks themselves.

   
 
 

Stocks and Bonds Are Moving in Opposite Directions. Here's the Good News in the Bad.

The dance between stocks and bonds is starting to shift-and it could mean that investors will have a way to play defense once again.

For a while now, stock and bond prices have moved together in lockstep. When bond yields rise, their prices fall, and that's what happened for much of last year. From the S&P 500's all-time high in early January 2022 to its bear market low in early October, the 10-year Treasury yield roughly doubled to almost 4%, causing both stock prices and bond prices to tumble. The SPDR S&P 500 ETF (SPY) dropped 18% including reinvested dividends, while the iShares 20+ Year Treasury Bond ETF (TLT) fell 31%.

   
 
 

Stocks Hold Up in Tumultuous Markets

The market turmoil that has fueled a surge in bond prices and sent bank shares reeling is hitting stock indexes far more modestly, reflecting an undercurrent of investor optimism that stress in the banking sector can be contained.

Since Silicon Valley Bank collapsed more than a week ago, commentators have speculated on whether the bank's failure could amount to some version of a "Lehman moment"-a sudden shock to the financial system that could inflict severe economic damage.

   
 
 

How a Potential Indictment and Arrest of Donald Trump Could Unfold

The Manhattan grand jury hearing evidence about Donald Trump's role in a payment to a porn star appears to be wrapping up its work, indicating that prosecutors could soon ask jurors to vote on an indictment of the former president.

Mr. Trump, who has denied wrongdoing, has said the probe by the office of Manhattan District Attorney Alvin Bragg, a Democrat, is politically motivated.

   
 
 

U.S. Warns China Against Using Taiwan President's U.S. Stop to Raise Tensions

WASHINGTON-The Biden administration is urging China not to use a U.S. visit by Taiwan's president to raise tensions, with a senior official saying the trip is consistent with previous ones that passed without incident.

Taiwan President Tsai Ing-wen plans to stop in New York and Los Angeles in coming weeks on her way to and from formal visits to Guatemala and Belize. These stops, often called transits, are part of the strained diplomatic choreography over Taiwan and are intended to hew to a U.S. commitment to Beijing to maintain unofficial relations with Taiwan, while allowing its leaders to meet with supporters, including members of Congress.

   
 
 

Biden Signs Measure on Declassifying Intelligence on Covid-19 Origins

WASHINGTON-President Biden on Monday signed into law a measure requiring his administration to declassify intelligence related to potential links between China's Wuhan Institute of Virology and the Covid-19 pandemic, amid continued questions about the virus's origins.

The Covid-19 Origin Act of 2023 gives the director of national intelligence 90 days to declassify the information about the lab's research and activities related to the Covid-19 outbreak, including details about any researchers who fell ill in the fall of 2019. It allows the director to make redactions necessary to protect sources and methods.

   
 
 

Write to paul.larkins@dowjones.com

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(END) Dow Jones Newswires

March 21, 2023 06:55 ET (10:55 GMT)

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