MARKET WRAPS
Stocks:
European stocks traded mostly higher on Monday as the banking sector turmoil has subsided, and as investors grew more optimistic about China's economic prospects after its post-Covid reopening.
In relation to last week's performance, CMC Markets said: "An improving economic picture coming out of China [...] gave a helping hand to European markets, particularly in luxury retail, in a picture that suggests Chinese consumers are starting to rediscover their ability to spend."
In addition, investors will be looking at more earnings from the U.S., with reports due this week from Morgan Stanley, Tesla, Johnson & Johnson, Netflix and others.
Stocks to Watch
Deutsche Telekom's stock has carried over into 2023 last year's strong momentum, when it was the best performer among European telecommunications names, but it still has further potential ahead, Deutsche Bank said.
The German telecommunications company's eventual participation in T-Mobile US's share buyback after it achieved majority ownership in the U.S. business, alongside 2023 guidance that was in line with expectations, support the case for growth in shareholder returns above peers, DB said.
DB increased its target price on Deutsche Telekom to EUR30.00 from EUR29.50, and reiterated its buy recommendation on the stock.
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Givaudan faces an uncertain volume outlook this year and this is likely to result in near-term margin pressure, Berenberg said, cutting the stock to hold from buy.
The Swiss flavor-and-fragrance company's price increases helped it deliver better-than-expected organic sales growth for the first quarter at 3.6%, but its North America operations continued to struggle with volume declines and there was no indication that this trend would ease in the short term, Berenberg said.
"We think there are better opportunities elsewhere in the ingredients sector, such as Symrise, which we believe has a better category exposure to navigate 2023 trends, and Kerry Group, which should see improved cash flows this year."
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Economic Insight
Germany's engineering production increased in early 2023, though a slump in incoming orders suggests the recent global economic slowdown is having an effect.
Production increased 3.2% in the first two months of 2023 compared with the previous year, as bottlenecks that have disrupted supply chains now ease, Germany's VDMA mechanical- and plant-engineering association said.
The present order backlog of close to 12 months continues to support production, it said, but cautioned that on-year orders fell by 17% in January and February.
Indeed, the slight improvement in the economic environment will only be reflected in the industry's order intake and revenue with a time lag, VDMA President Karl Haeusgen said.
Read German Labor Shortages Holding Back Engineering Sector
U.S. Markets:
Stock futures edged higher as investors digested growing expectations of another interest-rate increase and braced for a busy week of earnings.
Fed-funds futures implied an 84% chance the Fed will raise interest rates by 0.25 percentage point in May, CME Group data showed.
Earnings season continues after Friday's rush of bank earnings, with Charles Schwab and State Street due to post results before the market opens.
Stocks to Watch
Merck said Sunday it would buy Prometheus Biosciences for $10.8 billion, at a roughly 75% premium to where Prometheus shares closed on Friday.
ADRs in the Chinese tech giants Alibaba, JD.com and PDD all rose premarket. The moves followed gains for indexes in Hong Kong and mainland China.
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Forex:
The euro could gain if the market raises its expectations regarding a likely rate increase by the European Central Bank at its next meeting following comments from policymakers this week, ING said.
The market currently prices in a 32 basis-point rate rise on May 4 while ING expects a 25bp move.
"Were market expectations to shift more fully behind a 50bp hike, the euro could get a further lift," ING said.
Key ECB speakers this week include Lagarde at 1500 GMT and Schnabel on Wednesday.
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U.K. economic data this week could support the case for the Bank of England to leave interest rates on hold at its next meeting, potentially weakening sterling, ING said.
The chances of a pause in the BOE's rate-rise cycle at the May 11 meeting is underappreciated by markets, with a 19 basis points rate increase priced in, ING added.
"We suspect EUR/GBP could trade 0.89+ were the market this week to price out the chances of that May hike."
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The dollar has steadied after sliding to a one-year low last week, helped by Friday's comments by the Fed's Christopher Waller that further interest-rate rises are needed. However, ING said the greenback is unlikely to rise much further.
Waller's comments coincided with mediocre retail sales data and although the Fed could raise interest rates by 25 basis points in May, it should then hit the pause button, ING said.
The currency "may not need to rally too much further in the short term," keeping the DXY dollar index in a tight 101.00-102.00 range.
Bonds:
Eurozone government bond yields edged higher, facing renewed upward pressure, according to Tradeweb data.
The rise comes after U.S. data was slightly better last week, bank earnings lifted sentiment and the ECB remained hawkish, Commerzbank said.
"The market appears vulnerable near-term with ECB-forwards exploring the highs."
Money markets priced in the peak ECB deposit rate at around 3.75%, according to Refinitiv.
Government bond supply in the eurozone will be ample this week, with Slovakia, the Netherlands, Finland, Germany, Greece, Spain, France and Italy lining up for auctions.
Read Room for Eurozone Periphery Bond Spreads to Narrow Versus Semicore
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Bank of America said it remains constructive on French government bonds in cross-market terms, especially in the 10-year segment.
The macro considerations aren't significantly different from those in BofA's year-ahead outlook with the French economy being particularly well-positioned to deal with the risks from monetary policy tightening and relatively protected from external macro risks.
"This, together with the significant cheapening since [EU's recovery plan NextGenerationEU] and the fact that the OAT market remains a top option for liquidity, keeps us on the bullish camp for the asset," BofA said.
Read French Government Bonds Face Risk From Potential Rating Downgrades
Energy:
Oil futures were directionless as traders weighed mixed signals about the outlook for crude prices.
ING said investors were balancing persistent concerns about demand against expectations of a tighter market.
"While the flat price and time spreads have strengthened on the back of expectations of a tighter market, demand concerns clearly remain," ING said.
On the demand side, refinery margins are weak but forecasters such as the IEA are expecting strong demand in China and recent Saudi-led production cuts to tighten the market.
Metals:
Gold futures were higher in early trade, with demand holding firm, but prices remained below last week's high of $2,055.
Demand from institutions remains strong, according to Standard Chartered.
Gold buying from central banks in the first quarter was likely the strongest it has been since 2013, while investor buying in the form of exchange-traded funds, managed money and the official sector is at its highest since at least May 2021, the bank added.
It said physical buying has dropped on high prices but that "rate hike and rate cut expectations remain the primary drivers of upside momentum in the short-term."
Meantime, base metals were mixed with the improved macro mood of last week a double-edged sword, as bond markets see an 80% chance of the Fed hiking in May, which is bullish for the dollar and bearish for commodities, Peak Trading Research said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Credit Suisse fund outflows widen to $5.6 billion following UBS tie-up
Outflows from Credit Suisse branded investment funds have accelerated in the weeks since its historic merger with Swiss rival UBS, as investors continue to redeem billions of dollars.
Data provided to Financial News by Morningstar shows net outflows from around 300 EU and US domiciled Credit Suisse CH:CSGN CS funds have reached $5.6 billion over the three weeks since the tie-up.
'Angry Birds' Maker to Be Bought by Sega
Sega Sammy Holdings Inc. agreed to pay almost $800 million for the company behind the "Angry Birds" franchise, a deal that would end the independence of one of the pioneers of the mobile-gaming industry.
The transaction is the latest consolidation move in the broader gaming industry. Games played mostly on phones boomed during the pandemic but sales have ebbed more recently.
Belgium's Aliaxis Considers Making $2 Billion Bid For Finland's Uponor
Belgian pipe and fittings manufacturer Aliaxis said Monday it is considering making a 1.82 billion euro ($2 billion) cash bid for Finnish plumbing and heating systems provider Uponor Oyj.
Aliaxis, which has a 5% stake in Uponor, said it initially approached the company over a potential offer in May 2022 but attempts to negotiate a deal were inconclusive.
Faurecia 1Q Sales Rose on Growth in All Units; Backs 2023 Guidance
Faurecia SE said Monday that sales rose in the first quarter of 2023 on growth in all business groups and regions, and that it confirmed its 2023 guidance.
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04-17-23 0612ET
