MARKET WRAPS
Stocks:
European stocks struggled for momentum on Tuesday, as investors continued to monitor debt-ceiling negotiations.
It follows a warning from Treasury Secretary Janet Yellen that the U.S. could become unable to pay its bills as soon as June 1 if Congress doesn't first raise the federal borrowing limit.
Some disappointing Chinese data, which highlighted weakness in its economic recovery, added to the cautious mood.
Read China's Youth Unemployment Tops 20% Amid Signs of Stalling Recovery
"The recovery in China is simply not broad-based and there remain many pockets of weakness that targeted stimulus could provide a boost to," OANDA said.
"Industrial production and fixed asset investment were both well short of expectations last month and there's little sign of that improving without additional support."
Stocks to Watch
Associated British Foods should see double-digit earnings growth driven by an improvement in Primark profitability and this isn't captured by the current valuation, RBC Capital Markets said, as it raises its rating on the stock to outperform from sector perform.
Now that Primark has entered the U.S. market, gained brand traction and adapted the offer and supply chain, it offers a space story again and margin expansion, RBC said.
Primark "has fairly low gross margin meaning it should see a strong improvement in profitability in FY24," RBC said, adding that the dollar against the pound and euro conversions look neutral to slightly positive for the fashion retailer's gross margin, as do raw materials, and it looks to benefit from falling freight costs.
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U.K. life insurers have underappreciated protections in place amid commercial real-estate exposure jitters, RBC Capital Markets said.
Investors' concerns that such exposure will hurt their capital positions has weighed on shares year-to-date given insurers' higher asset leverage in the sector versus other subsectors. Defenses include diversification by property type/geography, low loan-to-value/high interest coverage, and strong balance sheets, RBC said.
"The approach of just focusing on gross exposure [i.e. total CRE assets] lacks nuance as it fails to consider a number of key characteristics of the sector's CRE strategies which provide a more defensive nature than gross exposure suggests," RBC said, reiterating its outperform ratings on Just Group, Chesnara, Legal & General, Aviva, Phoenix and M&G.
Read Hapag-Lloyd's Port-Network Expansion to Drive Growth
Read Rolls-Royce's Outlook Strengthens Amid Cash-Flow Momentum
U.S. Markets: Markets:
Stock futures traded mixed with Joe Biden and congressional leaders set to meet for another round of talks on raising the debt ceiling.
Traders also will be keeping an eye out for fresh information concerning the health of the U.S. consumer with Home Depot releasing its results and the April retail sales data.
Other economic updates include industrial production and capacity utilization for April, March business inventories and May home builder confidence.
There's also a flurry of Fed officials speaking, including Cleveland Fed President Mester; Richmond Fed President Barkin; New York Fed President Williams; Atlanta Fed President Bostic and Chicago Fed President Goolsbee.
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Forex:
The dollar and the yen could rise if lawmakers make no progress towards agreeing on raising the debt ceiling today, boosting demand for safe havens, ING said.
"Should we see no progress towards a debt-limit deal today, we could definitely see markets price a greater deal of the U.S. defaulting on its debt," ING said.
"The potentially very negative spill-over into risk sentiment and money markets means that the upside risks for the dollar and the yen are quite significant in such a scenario."
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Sterling fell after data showed the U.K. jobless rate unexpectedly edged up in the first quarter, while wage growth was slightly below forecasts, with the figures increasing the possibility the BOE could pause raising rates, ING said.
"With the BOE having put a lot of weight on this release, as well as the next CPI print, the chances of a pause at the June meeting have slightly increased," ING said, adding that the pound's falls reflect this
Bonds:
Eurozone 10-year bond yields were trading lower at the open, with macroeconomic indicators likely an increasing market factor in coming days and weeks, with views about a looming U.S. recession varying widely, Commerzbank said.
Energy:
Crude prices edged lower after Chinese industrial output data disappointed, although April's refining numbers pointed to more positive signs of demand, ING said, noting that "domestic apparent oil demand exceeded 15 million barrels a day over the month - record levels."
IEA Forecasts
China's insatiable demand for oil is growing at a faster-than-expected pace, threatening to tighten crude markets and send oil prices higher as supplies struggle to keep up, the IEA said.
The agency's latest outlook points to a widening divide between booming demand for crude across the developing world and lackluster demand in Europe and North America where economic prospects look bleak.
Read China's Demand for Oil Hits Record as IEA Raises Global Forecasts
Metals:
Base metals and gold were moving lower as worries over demand lingered, with data showing China's economy was struggling to recover from the effects of Covid-19.
DOW JONES NEWSPLUS
EMEA HEADLINES
China's Demand for Oil Hits Record as IEA Raises Global Forecasts
China's insatiable demand for oil is growing at a faster-than-expected pace, threatening to tighten crude markets and send oil prices higher as supplies struggle to keep up, the International Energy Agency said.
The Paris-based agency's latest outlook points to a widening divide between booming demand for crude across the developing world and lackluster demand in Europe and North America where economic prospects look bleak.
UK Jobless Rate Rose Slightly in 1Q as Pay Growth Sped Up
The U.K.'s jobless rate ticked up slightly in the three months to March, albeit remaining at relatively low levels, while pay growth continued to rise, reflecting a little slacking in the labor market despite continuing pressures on employers to raise wages.
The U.K. unemployment rate stood at 3.9% in the first quarter of 2023, slightly higher than the 3.8% rate recorded in the December-February period, according to data from the Office for National Statistics released Tuesday.
Vodafone Plans 11,000 Job Cuts Over Three Years as Part of Turnaround Plan
Vodafone Group said Tuesday that it plans to cut 11,000 jobs over three years as part of Chief Executive Margherita Della Valle's plan to turn around the group's performance.
The U.K.-based telecommunications group said it will pursue a Germany turnaround plan, continued pricing action and a strategic review in Spain, and that it will seek to drive further growth from its business-focused operations.
Telecom Italia Shares Fall After Report of Netco Bidder Pulling Out
Telecom Italia shares fell Tuesday after a media report that Italian state lender Cassa Depositi e Prestiti plans to pull out of the bidding process for the telecommunications company's fixed-network assets.
At 0748 GMT, shares in Telecom Italia fell 3.3% to EUR0.26, having earlier fallen more than 4%.
Imperial Brands Backs FY 2023 Guidance After Stable Revenue in 1H
Imperial Brands PLC on Tuesday said it is on track to meet its full-year guidance as it posted a rise in pretax profit and stable revenue for the first half of fiscal 2023.
The FTSE 100 tobacco group-which houses Davidoff, Gauloises and JPS among its brands-made a pretax profit of 1.44 billion pounds ($1.81 billion) for the six months ended March 31, up from GBP1.26 billion a year ago.
Bouygues Confirms 2023 Targets After Widened 1Q Net Loss
*Bouygues 1Q Current Operating Loss EUR14M
Bouygues on Tuesday reported a slightly wider net loss despite a rise in first-quarter revenue, and confirmed its 2023 financial targets.
Emmanuel Macron Courts Elon Musk Amid Duel With U.S. for Battery Supremacy
PARIS-French President Emmanuel Macron held talks with Elon Musk Monday as part of his drive to counter U.S. subsidies and tax incentives that European officials say risk luring away investment in batteries and other technologies pivotal to the energy transition.
Mr. Musk-head of companies including Tesla, Twitter and SpaceX-met with Mr. Macron inside the Élysée Palace. He then attended a lunch at the Palace of Versailles, the historic home of French kings, with dozens of other foreign CEOs as part of an investment conference organized by Mr. Macron.
GLOBAL NEWS
Tentative Progress but No Deal Ahead of Biden Debt-Ceiling Meeting
WASHINGTON-The outlines of a possible deal to raise the debt ceiling and limit spending are starting to emerge, but negotiators are far from an agreement as President Biden and top lawmakers are set to meet at the White House on Tuesday afternoon.
White House and congressional staff have been meeting behind closed doors for several days, and people briefed on the discussions said they were making incremental progress. But Tuesday's meeting between Mr. Biden and the congressional leaders will be a significant test of whether the staff-level work can win broader buy-in, amid mounting signs that progressive Democrats are opposed to some of the proposals under discussion.
Default Fears Rattle Main Street Investors
Benjamin Samuels, a 31-year-old cybersecurity auditor from Los Angeles, started shifting his emergency cash into Treasurys last year, attracted by rising interest rates. He hadn't expected the U.S. government-thought to be the world's safest borrower-to find itself two weeks from default.
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05-16-23 0551ET
