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."
---
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
---
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
---
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.
---
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."
---
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.
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(END) Dow Jones Newswires
March 21, 2023 06:55 ET (10:55 GMT)
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