MARKET WRAPS
Stocks:
European stocks were lower on Thursday as investors focused on a heavy slate of earnings ahead of a key policy decision from the European Central Bank.
With inflation running at 7% and core inflation at 5.6%, the ECB is not about to stop hiking interest rates now.
"Over the last year, inflation in the eurozone, which started as a supply-side issue, has become a demand-side issue. This is a clear invitation for the ECB to continue hiking interest rates," ING said.
That's reflected in market expectations, which more than price in a quarter-point rate later Thursday, with an 89% probability of another increase in June. The market then expects one last increase from the ECB, which would take its main interest rate to 3.75%.
"Christine Lagarde will certainly not announce the end of the rate hikes in the Eurozone. She will likely stay firm on the ECB's determination to fight inflation, and insist that the economic data will determine the size of the upcoming ECB actions," Swissquote Bank said.
U.S. Markets:
Aftershocks from March's banking turmoil rumbled on, even as the end of the Federal Reserve's aggressive rate-rise campaign approaches. In recent market action:
PacWest's already battered shares fell sharply in off-hours trading. The bank said it was talking to potential partners and investors, and would keep evaluating "all options to maximize shareholder value."
Read PacWest Says Deposits Are Rising and It's Holding Talks With Partners, Investors
Index futures were modestly higher ahead of a big earnings day, with Apple and other big companies on tap.
Follow WSJ markets coverage here .
Forex:
The dollar was lower and many analysts expect it to drop further after the Fed raised interest rates but omitted to mention that additional policy firming may be necessary.
"Market participants are increasingly pricing in rate cuts through the rest of this year as U.S. recession risks continue to build," MUFG said. "We remain confident the dollar will weaken further."
Rate cuts look even more likely due to renewed signs of U.S. banking-sector distress after shares in PacWest Bancorp tumbled more than 50% in after-hours trading, MUFG said.
Following the Fed's move to lift rates, OANDA said "the dollar is getting crushed as the end of the Fed's tightening cycle is likely here."
It said emerging market currencies will likely have a nice run as the interest rate differential should widely remain in their favor. OANDA added that the euro was benefiting as the focus now shifts to the ECB and "their tougher battle with inflation."
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Sterling hit an 11-month high of $1.2594 against the weaker dollar.
"It seems the view that European banks, including the U.K., are better regulated than those in the U.S. is providing some insulation to European currencies," ING said.
This is helping keep alive expectations that the Bank of England could raise rates two or three further times this year, a view which ING doesn't share.
Bonds:
Eurozone government bond yields were broadly flat after the Fed delivered a 25 basis-point rate rise, as expected, and with the ECB likely to follow suit.
"We continue to expect that the ECB will deliver two further 25bp hikes after today's meeting for a terminal deposit rate of 3.75%," RBC Capital Markets said, also forecasting a 25bp increase on Thursday.
The ECB is likely to seek to maintain optionality, and RBC doesn't expect the central bank to give any explicit forward guidance for subsequent meetings.
"It may, however, indicate that the bias (absent a deterioration in the data) remains towards further tightening," RBC said.
Mizuho said the ECB is forecast to raise interest rates by 25bp on Thursday and by another 25bps in June, followed by a long pause, giving a last lift to yields.
"Thus, we expect EUR yields to experience one last push higher, with short-term rates leading the move upwards," Mizuho said.
Rate cuts priced in the very front-end of the curve should be pushed further out, Mizuho said, expecting the first ECB rate cut in the second quarter of 2024.
Read Multiple 25Bp Interest-Rate Rises Appropriate for ECB
Read Expectations of ECB Interest-Rate Cut in 2023 Are Premature
Energy:
Oil prices partially rebounded from the 16-month low they hit on Wednesday, but continued volatility suggests investors remain jumpy about the outlook for crude.
Russian oil exports have continued at a strong pace while China's appetite for crude hasn't rebounded as fast as expected, Saxo Bank said.
"Combining these developments with continued weakness in economic data, especially in the U.S., and the ongoing crisis among U.S. regional banks, the demand outlook for the second half continues to be downgraded," it said.
Natural Gas
Well-stocked natural gas inventories and demand reductions are reasons for "cautious optimism" about natural gas supplies, the IEA said.
European gas stocks are around 60% full according to data from Gas Infrastructure Europe, much higher than typical levels, following a warmer-than-expected winter. Only half of the EU's gas imports from last summer would be needed this summer to refill those stocks to 90% full by the start of winter.
Still, the IEA says global gas supplies will remain tight and further measures, such as demand reductions and more renewables, are needed to ensure there is no return to the high prices of 2022.
Metals:
Base metals and gold moved higher in Europe, with traders optimistic the Fed has finished its current hiking cycle and will hold rates for the time being.
Gold, which hit $2,085.40 a troy ounce during Asian trading, got support from the weak dollar.
Read Rio Tinto Likes Lithium, But Cautious on Growing via Deals
DOW JONES NEWSPLUS
EMEA HEADLINES
Shell 1Q Earnings Exceeded Market Views; Declares $4 Bln Share Buyback
Shell said Thursday that earnings fell on quarter for the first quarter of 2023 but beat market expectations, and declared a $4 billion share buyback program.
The oil-and-gas giant generated adjusted earnings of $9.65 billion in the three months through the end of March, beating the market consensus of $7.965 billion, taken from Vara Research and averaged from 28 analysts' estimates. This was slightly down from $9.81 billion in the fourth quarter of 2022 but exceeds the $9.13 billion reported in the first quarter of 2022.
AB InBev 1Q Profit Jumped as Revenue Growth Beat Expectations
Anheuser-Busch InBev on Thursday reported an jump in net profit for the first quarter of 2023, driven by a better-than-expected revenue increase and supported by pricing actions.
The world's largest brewer-which houses the Stella Artois and Budweiser brands among its portfolio-made a net profit of $1.64 billion in the first quarter from $95 million a year earlier.
Germany's Trade Surplus Rose in March as Both Exports, Imports Fell
Germany's trade surplus rose on month in March despite both exports and imports ticking down, a sign that trade in German goods is making a rocky recovery from lows in 2022.
The country's adjusted trade surplus-the balance of exports and imports of goods-climbed to 16.7 billion euros ($18.48 billion) in March, compared with EUR16.1 billion in February, data from the country's statistics office Destatis showed Thursday.
Norway Central Bank Raises Key Rate by Quarter Percentage Point to 3.25%, Sees Further Hike in June
Norway's central bank raised its key policy rate on Thursday and said that another increase is likely next month as it battles to dampen stubbornly high inflation.
Norges Bank increased its key policy rate by 25 basis points to 3.25%, as expected, and said that with inflation still markedly above its 2% target and higher wage growth and krone depreciation keeping inflation elevated ahead, the policy rate will probably be raised in June.
ECB set to continue rate-hike campaign on Thursday
The European Central Bank is not about to stop hiking interest rates now.
The latest data from Eurostat showed inflation running at a 7% year-over-year clip in April - roughly what the market expected, but a modest acceleration from March. Core inflation - which excludes food, energy, alcohol and tobacco - ticked down a tenth to 5.6% from 5.7%.
Volkswagen Confirms 2023 Guidance After 1Q Revenue Rose
Volkswagen on Thursday confirmed its 2023 outlook after reporting higher revenue in the first quarter driven by vehicle sales in Europe and North America.
The German auto maker said sales rose to 76.20 billion euros ($84.31 billion), a 22% increase over the first quarter of 2022.
BMW Confirms 2023 Outlook After 1Q Boost From Top-End and BEV Sales
BMW on Thursday confirmed its 2023 guidance as it reported higher revenues and earnings in the first quarter on good price position and sales of top-end and electric vehicles.
The German luxury car maker's quarterly earnings before interest and taxes rose to 5.375 billion euros ($5.95 billion) from EUR3.39 billion in the first quarter of 2022. The company's automotive EBIT margin rose to 12.1% from 8.9%.
ArcelorMittal 1Q Earnings Beat Expectations as Market Conditions Improved
ArcelorMittal said Thursday that its first-quarter sales and earnings declined, but still exceeded analysts' expectations as market conditions showed improvement.
The Luxembourg-based steelmaker reported $1.1 billion in quarterly net profit compared with $4.12 billion in the first quarter of 2022, on sales that fell 15% to $18.50 billion.
Maersk 1Q Earnings Weighed by Sharp Drop in Freight Rates and Volumes
A.P. Moeller-Maersk on Thursday posted a sharp drop in first-quarter net profit as inventory corrections in western economies caused shipping demand to normalize, pushing freight rates and volumes lower.
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05-04-23 0541ET
