MARKET WRAPS
Watch For:
Weekly Jobless Claims; Trade for March; Canada Trade for March; Earnings from Apple, Lyft, Coinbase, ConocoPhilips, Wayfair, Paramount Global, Moderna, Kellogg, Block
Today's Top Headlines/Must Reads:
- Scrambling to Avoid Default, White House Weighs Debt-Limit Fallback Options
- Corporate Profit Margins Are Finally Stabilizing, Creating New Tailwind for Stocks
- Bankrupt Businesses Fight to Keep Cheaper Loans on Books as Interest Rates Rise
- ECB set to continue rate-hike campaign on Thursday
- PacWest Stock Falls Further. Other Regionals Follow.
- Apple Set to Report Weaker Sales for Second Straight Quarter
Follow WSJ market coverage here
Opening Call:
Stock futures struggled for direction on Thursday as traders contemplated the latest Fed decision, more banking sector stress, and Apple's impending results.
Stocks on the Move
PacWest shares fell 40% in premarket trading, mirroring a steep selloff after-hours Wednesday. The regional bank said it was talking to potential partners and investors, after a report that it was considering strategic options, including a sale.
Fellow regional bank Western Alliance was falling 18% premarket.
Read PacWest Stock Falls Further After Attempt to Calm Market. Other Regionals Follow.
"It looks like more trouble is brewing for the U.S. banking sector, on the contrary to what Powell said yesterday," Swissquote Bank said.
In Europe, the European Central Bank is likely to follow the Federal Reserve and announce a 25bp hike later on Thursday.
"Christine Lagarde will certainly not announce the end of the rate hikes in the Eurozone," Swissquote Bank said.
"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."
Read ECB Expected to Raise Rates by 25Bp, To Move Toward 3.75% Peak Rate
Read Expectations of ECB Interest-Rate Cut in 2023 Are Premature
Europe's Reaction to Fed Rate Rise
Fed's Pause Allows Assessment of Tightening Impact
Fed's Higher-For-Longer Signal Expected to Come Through
Fed to Balance Tight Labor Market, Banking Stress at Next Meet
Other Stocks to Watch
Albemarle fell almost 1% after the lithium miner handily topped first-quarter earnings and sales estimates but cut guidance for the full year amid a drop in lithium prices.
First-quarter adjusted earnings at Anheuser-Busch, rose 14% to $4.8 billion, and the company reported organic revenue growth of 13%. U.S.-listed shares gained almost 1% in premarket trading.
Option Care Health and Amedisys on Wednesday said the two companies have entered into an agreement to combine in an all-stock deal that values Amedisys at $3.6 billion including net debt. Shares of Option Care Health fell 16% in after-hours trading.
Qualcomm on Wednesday gave a gloomy sales outlook as it signaled the market for smartphones was more turbulent than expected. Shares fell 6% in premarket trading.
Shell reported first-quarter earnings of nearly $10 billion that exceeded expectations and announced a new, $4 billion buyback. ADRs rose close to 3%.
Synaptics reported fiscal third-quarter adjusted earnings and revenue above expectations, but called for a weaker current quarter due to "the current economic slowdown." Shares fell 20% in after-hours trading.
Tripadvisor widened its loss in the latest quarter as the impact of incremental income tax expenses weighed on the bottom line. Shares fell almost 8% in premarket trading.
Economic Insight
China's leaders appear intent on re-orienting government priorities toward geopolitical competition with the U.S., Gavekal Dragonomics said.
The "overriding economic priority is to build up the economy so that it could survive, prosper and prevail in that competition," it said.
Gavekal Dragonomics pointed to government messaging issued since last October's party congress, including calls for increasing the country's scientific and technological self-reliance.
"We are now seeing this language about building a modernized industrial system that seems to have some security connotations," he says, adding that Beijing appears to want to "drive growth by investing in a whole-of-society effort to reshape the Chinese economy for this geopolitical competition."
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 rose to an 11-month high of $1.2594 against the weaker dollar.
"It seems that 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."
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.
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.
Read IEA 'Cautiously Optimistic' About European Natural Gas Supplies
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
TODAY'S TOP HEADLINES
Apollo Global-Led Group Nears Deal to Buy Arconic
Private-equity firm Apollo Global Management is nearing a deal to buy industrial-parts manufacturer Arconic, according to people familiar with the matter.
The deal is set to value Arconic at $30 a share, or roughly $3 billion, according to the people. It could be announced by the time Arconic reports its results Thursday, assuming the talks don't fall apart at the last minute. Shares of Arconic, which makes parts for the aerospace, automotive, building and energy industries, closed at $22.55 Wednesday.
PacWest Stock Falls Further After Attempt to Calm Market. Other Regionals Follow.
PacWest Bancorp plunged 40% in Thursday's premarket after issuing a statement aimed at reassuring markets.
On Wednesday evening, the regional bank said deposits were rising. The statement followed a plunge in the bank's stock price of as much as 55% in after-hours trading following a report the bank was weighing strategic options, including a sale. It was down 2% in Wednesday's trading session.
J&J Prices Consumer Unit IPO at $22 a Share
Johnson & Johnson's big consumer-healthcare business priced its initial public offering at $22 a share in the biggest new-stock listing of the year.
The offering was priced at the higher end of the $20 to $23 targeted range, with about 10% more shares sold than planned, according to people familiar with the matter. At that price, the offering is expected to raise at least $3.7 billion and value the new company, known as Kenvue, at more than $40 billion.
Apple Set to Report Weaker Sales for Second Straight Quarter
Apple is expected to report that sales declined for a second straight quarter as demand has waned for some of its products after reaching record levels during the pandemic.
The tech giant's revenue for the three months ended in March is projected by analysts to be $92.9 billion, according to FactSet, down more than 4% from the year-earlier period. Net income is expected to drop nearly 10% year-over-year to $22.6 billion when Apple reports its fiscal second-quarter earnings after markets close Thursday.
Big Tech Expects Some Assets to Last Longer. But the Boost to Profit Is Temporary.
A growing number of tech companies expect their servers and network equipment to last longer, an accounting change that reflects the slower pace of developments in certain chips while also boosting profits at a difficult time for the industry.
Companies such as Google parent Alphabet, information-technology business International Business Machines and cloud-services firm Akamai Technologies made extensions so far this year. Other tech firms-including Meta Platforms, Microsoft, Oracle and Amazon.com-have also revised their estimates since 2022. Alphabet, Microsoft and Amazon made two separate sets of extensions in recent years, two years apart, filings show.
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.
(MORE TO FOLLOW) Dow Jones Newswires
05-04-23 0617ET
