UKX FTSE 100 Index

MARKET WRAPS

Watch For:

Euro area balance of payments; UK CPI, PPI, UK House Price Index, CBI industrial trends survey; Italy balance of payments; no major corporate trading updates expected

Opening Call:

European shares may rise on Wednesday ahead of the Fed's interest-rate decision today. Asian stock benchmarks tracked Wall Street gains higher; the dollar and Treasury yields fell; while gold rose and oil futures declined.

Equities:

Stock futures point to gains at the open in Europe on Wednesday, as banking-sector worries recede and focus turns to the Federal Reserve decision later today.

Easing tensions in the financial sector makes it more likely the Fed will raise its policy interest rate again. The fast-moving banking crisis was suddenly setting up a clash for the Fed between banking-sector stability and price stability while inflation sticks around.

Fed-funds futures showed Tuesday afternoon that investors were pricing in a roughly 86% chance that the central bank lifts interest rates by 0.25 percentage point for a second consecutive time, according to data from CME Group.

"The Fed can take a cautious approach here, and an ultra cautious approach would be to not hike at all and simply wait to see what's going to happen," said Thierry Wizman, a global FX and rates strategist at Macquarie.

"It's important to keep in mind that this [banking] crisis comes at a time when unemployment is very low in the U.S., and we're at least on a backward looking basis, referring to coincident indicators like CPI [which shows] inflation is still high. And this is why this decision probably calls for some sort of compromise result, which is to do 25 basis points instead of zero," Wizman said.

But there's still many who think the Fed will stand pat for now despite the brightening mood surrounding regional banks and Yellen's remarks that regulators are ready to do what's needed to shore up the financial system. That includes Peter Cardillo, chief market economist at Spartan Capital Securities.

"Does that cure the present banking turmoil? I don't think so," Cardillo said. "I think the Fed can pause and revisit what inflation looks like in two months," he said.

Along with its decision on interest rates, Fed officials could have a significant impact on markets by signaling what their plans are for the future.

Some analysts have warned that Fed officials, including Fed Chair Jerome Powell, may be less concerned than investors that rate increases pose a serious threat to financial stability. If that becomes apparent on Wednesday, stocks could decline, these analysts say.

Forex:

The U.S. dollar edged lower early Wednesday ahead of the FOMC meeting outcome.

Markets are presently pricing in 85% chance of 25bp rate increase by the Fed, said MUFG Bank. A dovish increase or a hawkish pause may continue to maintain some uncertainty, and the onus is on Fed Chairman Powell providing certainty to markets, the bank said.

Bonds:

Treasury yields fell in Asia after rising overnight as traders focused on waning bank stress, which reduced demand for perceived safe-haven assets. Financial markets traded on the view that the Fed can continue to raise interest rates this week and again in May, as it maintains its battle against inflation.

"The Fed faces a tough decision this week," said Michael Weisz, co-founder and president of Yieldstreet. "On one hand, inflation has been consistently telegraphed as the number one objective, and a further increase would instill a sense of commitment."

On the other, "there is a real fear of continued contagion in the banking sector, and a pause would certainly provide welcomed stability, even as it invites criticism as a 180 [degree turnabout]. Overall, we will be focused on commentary from Jerome Powell on his thoughts on a go-forward strategy, regardless of the current rates decision.

"While there remains concern over the banking industry, capitalization levels and increased lending availability stemming from the Bank Term Funding Program (BTFP) may prove [to be] enough offset for the Fed to push ahead with its rate hikes," Weisz said.

Energy:

Oil futures declined in Asia. Commerzbank said oil prices may be pressured in the short term, partly due to energy strikes at French refineries which would likely reduce oil demand in Europe.

"The marked appreciation of the US dollar in the meantime, which profited from its role as a safe haven, likewise generated pressure on oil prices," the bank said.

Metals:

Gold prices rose slightly early Wednesday, rebounding after posting the largest one-day loss in about six weeks overnight as nerves over the stability of the banking sector cooled.

DailyFX said the outlook for the precious metal remains positive despite the recent shift lower, and focus will be on the FOMC decision later, which will guide gold's next move.

"A more dovish Federal Reserve will allay further rate-hike fears while worries that the current global banking crisis may flare up again, giving the precious metal an ongoing safety bid," said DailyFX senior strategist Nick Cawley.

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Copper prices rose, recovering from a broad downturn in recent sessions as China's reopening excitement cooled.

Analysts broadly cite the metal's bright price outlook amid low inventories, which continue to shrink and support prices in the long run.

Risk appetite is also improving as the latest banking crisis eases investor worries over the Fed's aggressive monetary tightening, Galaxy Futures said.

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The price of iron ore is likely to retreat to $100/metric ton by 4Q, pulled lower by soft Chinese steel demand, Commonwealth Bank of Australia said.

"Current policy settings suggest that China's steel demand impulse should ease through 2023," CBA said.

But financial turmoil in advanced economies could prompt China to direct more stimulus to infrastructure if its own annual growth target comes under threat, which would be positive for iron-ore prices, the bank added.

Meanwhile, Chinese iron ore futures fell in possible position adjustment ahead of the FOMC decision.

However, market sentiment appears to be turning positive, ANZ said. The growth of residential buildings under construction has recovered strongly in China, while the country's steel PMI is back in expansionary territory, ANZ said.

TODAY'S TOP HEADLINES

Credit Suisse Write-Off Upends European Bank Capital Bonds

Switzerland's move to wipe out $17 billion of Credit Suisse Group AG bonds has prompted investors to reassess a market integral to the safety and resilience of Europe's banking system.

The Credit Suisse bonds that were written down as part of its takeover by UBS Group AG were known as AT1s, or Additional Tier 1 bonds. These instruments exploded in popularity in Europe over the past decade and were seen as a way to build buffers that could protect banks in times of trouble without having to tap taxpayer funds.

The Fed Flies in the Dark

When the Federal Reserve's rate-setting committee gathers for one of its two-day meetings, it is usually pretty clear ahead of time what it is going to do. In an era of greater central-bank transparency, Fed policy makers have usually telegraphed their intentions. Investors have also generally been able to take a look at what is going on with the economy to make an educated guess.

But the meeting that will conclude Wednesday isn't like that. Worries about the banking system have upended the central bank's plans, and heading into their meeting on Tuesday policy makers themselves might not have known what they would decide.

Swiss government says it will limit bonuses at Credit Suisse

The Swiss government on Tuesday said it would restrict bonuses at Credit Suisse after the bank agreed to be taken over at a steep discount by UBS UBS.

Invoking a rule about systemically important banks getting state aid, the government said it has ordered Credit Suisse CS to suspend deferred bonuses that have not already been made covering years up to 2022. Credit Suisse had already decided not to award bonuses to its executive board members for 2022.

Russia-China Summit Showcases Challenge to the West

MOSCOW-Chinese leader Xi Jinping and Russian President Vladimir Putin reaffirmed the deepening political and economic ties between their two countries at a summit that telegraphed their shared interest in challenging a world order led by the U.S. and its democratic allies.

With war raging in eastern Ukraine, hundreds of miles away from the gilded Kremlin hall where the men met, Mr. Xi, in his third term as China's leader, noted that "political mutual trust is deepening" between Moscow and Beijing and "common interests are multiplying."

First Republic Bank Taps Lazard for Help With Review of Strategic Options

First Republic Bank is beefing up its adviser ranks as the troubled lender seeks to stay afloat and plan for a postcrisis future amid a trans-Atlantic crisis of confidence in the banking system.

The California bank this week tapped Lazard Ltd. to help with a review of strategic options that could include a sale, a capital infusion or asset trimming, according to people familiar with the matter. It also hired consulting firm McKinsey & Co. to help map out a postcrisis structure for the bank, the people said.

Silicon Valley Bank's Former Parent Says FDIC Seized About $2 Billion of Its Cash

Silicon Valley Bank's former parent company can't access about $2 billion that it had deposited at the failed bank, after regulators froze the company's accounts and are exploring whether it should help shoulder costs associated with the bank's failure.

Lawyers for SVB Financial Group, the holding company that used to control the now-defunct bank, claimed during the company's first hearing in bankruptcy court on Tuesday that the Federal Deposit Insurance Corp. has improperly blocked access to cash stored in accounts it holds at the successor to Silicon Valley Bank.

TikTok CEO Shou Zi Chew Promises Firewall to Shield User Data

WASHINGTON-TikTok CEO Shou Zi Chew plans to offer a series of broad promises on platform safety and security at a much-anticipated congressional hearing on Thursday, according to his testimony.

Mr. Chew will pledge to keep safety on Chinese-owned TikTok a top priority-especially for teenagers-and also will promise to firewall U.S. user data from foreign access and keep the platform free from government interference.

Write to singaporeeditors@dowjones.com

Expected Major Events for Wednesday

05:30/NED: Mar Consumer confidence survey

07:00/DEN: Feb Central Government Finance & Debt

07:00/UK: Feb UK producer prices

07:00/UK: Feb UK monthly inflation figures

07:00/NOR: Jan Labour force survey SA, incl unemployment

08:00/SWI: 4Q Balance of Payments

09:00/POL: Feb Agricultural prices

09:00/EU: Jan Euro area balance of payments

09:00/ICE: Feb Labour Force Survey

09:30/UK: Jan UK House Price Index

10:00/BEL: Mar Consumer Confidence Survey

10:00/ITA: Jan Balance of Payments

11:00/IRL: Feb WPI

11:00/UK: Mar CBI Industrial Trends Survey

13:00/POL: Feb Broad money M3

17:59/POR: Jan Balance of Payments

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(END) Dow Jones Newswires

March 22, 2023 01:16 ET (05:16 GMT)

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