MARKET WRAPS
Stocks:
European shares extended their recovery on Tuesday as banking sector worries continued to ease.
The agreement by First Citizens to buy the deposits and loans of Silicon Valley Bank has helped underpin sentiment, with European bank stocks remaining steady.
"With contagion limited for now, hopes that the debacle will have less of an impact on global growth have ticked up a little," Hargreaves Lansdown said.
Stocks to Watch
Things are looking up for Adidas after recent difficulties, Deutsche Bank said.
Demand for its Originals sneakers should help cover some of the shortfall from the ending of the Yeezy partnership with Kanye West, while selling off remaining Yeezy stock would lessen the blow to the bottom line this year, Deutsche Bank said.
Recent results by Nike suggest rays of light for Adidas's margin recovery and for its shift back toward greater wholesale sales, DB added. "The Adidas news flow is improving."
Deutsche Bank has kept its rating on the stock but lifted its target price to EUR170 from EUR165.
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Siltronic will suffer from overabundance in the microchip market, Hauck Aufhaeuser said, starting coverage with a sell recommendation on the stock.
Semiconductor demand is weakening at a time chip-wafer manufacturers--a market in which Siltronic has a 13% share--have embarked on a capacity-expansion drive, according to Hauck Aufhaeuser.
"As a result, capacity additions look largely superfluous now and are destined to trap the global wafer market in a state of oversupply, in our view."
Hauck Aufhaeuser believes the overabundance will start to pressure the company's prices and margins this year and accelerate in 2024, and expects sales to decline 1% each year through 2025.
Economic Insight
Protests against pension reform in France aren't expected to have a lasting impact on the economy as their short-term hit will be offset by stronger growth over the rest of the year, Oxford Economics said.
According to its baseline scenario, the pension reform bill will be implemented as it is by year-end, raising France's long-term economic outlook. However, if protests become stronger, there would be a larger impact on activity and likely a government reshuffle that could bring some market stress.
In a worse-case scenario, prolonged protests which led to the withdrawal of the reform would cause a permanent shift in French sovereign rates as investors see the bill as essential for public-finance sustainability.
U.S. Markets:
Stock futures were little changed, with the banking sector showing further signs of stabilization.
Banks that were hammered by a crisis of confidence after Silicon Valley Bank and Credit Suisse collapsed earlier this month have continued to stage a comeback.
In premarket trading, First Republic Bank rose 5%, while PacWest Bancorp and Western Alliance Bancorp each added 1%.
Later this week, a key inflation reading is due out: the personal-consumption expenditures price index, which is closely watched by the Fed.
Before that, Tuesday will deliver the advanced trade balance in goods, advanced retail inventories, advanced wholesale inventories reports for February, the January S&P Case-Shiller home price index, the FHFA home price index and consumer confidence for March.
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Forex:
Sterling has made more solid gains and was the third best-performing G10 currency in March after the yen and Swiss franc, boosted by a reversal of some investor pessimism towards the U.K. economy, MUFG Bank said.
The U.K. economy's resilience is keeping pressure on the Bank of England to raise interest rates, MUFG added. Meanwhile, BOE Governor Andrew Bailey on Tuesday provided reassurance that U.K. banks are well placed to support the economy.
"The comments leave open the possibility of one further 25 basis points hike at the next Monetary Policy Committee meeting on May 11," MUFG said.
Read Sterling Could Extend Gains Vs Dollar on BOE-Fed Divergence
Separately, MUFG said the dollar was being hit as improved global risk sentiment reduces demand for safe haven assets.
It follows some relief on Monday for European banks and U.S. regional banks after news that First Citizens BancShares will buy much of failed Silicon Valley Bank, MUFG said.
An expected tightening in credit conditions resulting from recent banking sector troubles has prompted the market to lower its Federal Reserve interest rate rise expectations.
"The tentative improvement in global investor risk sentiment at the start of this week leaves the dollar vulnerable to further weakness on the back of the recent sharp adjustment lower in U.S. yields."
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UniCredit Research said the euro could rise further as European Central Bank members continue to signal further interest rate rises.
"We still expect [EUR/USD] to recover even beyond the year-to-date peak of 1.1033, as we expect a progressive convergence in policy rates between the Federal Reserve and the ECB over the medium term," UniCredit said.
Moreover, investors remain considerably net-long EUR/USD, expecting it to rise, showing no signs that confidence in the euro has been undermined by recent market turbulence affecting the eurozone banking sector.
Bonds:
Volatility is the big "winner" in this banking crisis, according to Natixis.
"Constantly on the lookout for the weakest link, markets seesawed in reaction to any news concerning banking sector issuers on both sides of the Atlantic," it said.
In this context, visibility on the evolution of the Federal Reserve's and European Central Bank's monetary policies is much murkier.
"For the time being, markets are sceptical about further rate hikes, yet central banks are sticking to their restrictive rhetoric about combating inflation," Natixis said, adding, that logically, this divergence of views is stoking bond market volatility.
Read Banking Jitters Seem to Justify Bullish View on Rates, ING Says
Energy:
Crude futures wavered after registering their biggest gains since December, as the turmoil surrounding U.S. banks continued to drive moves in oil prices.
"Crude oil surged higher after investors were emboldened by promised support for the U.S. banking sector," ANZ Bank said.
Metals:
Metal prices were mixed in early trading, with gold slightly firmer, as investors feel more optimistic about bank risks and oil's recovery is rippling through commodity and currency markets, Peak Trading Research said.
"Investors feel more optimistic about bank risks and crude oil's recovery is rippling through commodity and currency markets."
Peak also noted that there are few major macro data points this week, with markets looking to Friday's PCE inflation data.
Rare Earths
The rare-earths market's reaction to Tesla saying it won't use rare earths in next-generation motors was overdone, according to Macquarie, which highlighted that no reliable high-performing magnets without neodymium have been used in EV manufacturing to date. "Impacts would be limited in the short term."
Still, Macquarie expects a small market surplus near term, with rare-earths supplies likely to be boosted by higher mining and refining quotas in China. That prompted downgrades to the bank's rare-earths price forecasts.
DOW JONES NEWSPLUS
EMEA HEADLINES
Multinationals Slam New EU Foreign-Subsidy Law's Reporting Rules
BRUSSELS-Multinational companies including Intel Corp. and Raytheon Technologies Corp. are warning that new European Union rules for reporting foreign subsidies are so onerous they could disrupt mergers and acquisitions and impede public tendering.
In a letter sent last week to the European Commission, the bloc's executive body, the companies said the commission "severely underestimates" the work required to comply. While the companies said they support the overall aim of the new rules, they said their implementation "will result in an extremely complex administrative ordeal."
New Shell CEO Faces Big Dilemma: Should the Company Pump More Oil?
HOUSTON-Wael Sawan knows he is about to make some people very unhappy.
The new chief executive of Shell PLC is in the midst of crafting his business plan for the London-based energy giant, including whether to increase oil production. Doing so would please many investors looking to build on last year's oil-and-gas bonanza, which produced record annual earnings for Shell.
Adidas and Beyoncé to Part Ways After Ivy Park Sales Struggles
Beyoncé and Adidas AG have decided to end their fashion partnership, according to people familiar with the matter, splitting up after years of lackluster sales for her Ivy Park line of apparel.
The partnership will end after the company releases Ivy Park collections of merchandise that are already planned for this year, the people said. The Hollywood Reporter earlier reported that the two sides were breaking up.
UK Shop-Price Inflation Hits Record High in March Led by Fresh Food
U.K. shop-price inflation hit record highs across all categories in early March, lead by fresh food, according to the latest report by NielsenIQ and the British Retail Consortium released Tuesday.
Prices at U.K. stores in the period March 1-7 were 8.9% higher than the same period a year earlier. This compares a record increase of 8.4% in the same period a month prior, and a three-month average rate of 8.4%, according to the report.
Ocado Backs FY 2023 Views After 1Q Retail Revenue Rose on Higher Orders
Ocado Group PLC said Tuesday that first-quarter sales of Ocado Retail Group, the joint venture it co-owns with Marks & Spencer Group PLC, rose and that guidance for fiscal 2023 remains unchanged.
The online grocer and retail-technology specialist said retail revenue for the 13 weeks ended Feb. 26 rose to 583.7 million pounds ($717.1 million) from GBP564.7 million a year ago. The rise was followed by average orders per week increase of 3.6%.
United Utilities Expects FY 2023 Revenue, Performance Payment to Miss Guidance
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03-28-23 0553ET
