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MARKET WRAPS

Stocks:

Stocks in Europe mostly edged higher on Wednesday as investors geared for a closely watched decision on interest rates from the Federal Reserve.

Easing tensions in the financial sector has made it more likely the Fed will raise its policy interest rate again later today. The fast-moving banking crisis was suddenly setting up a clash for the Fed between banking sector stability and price stability while inflation sticks around.

Read The Fed Flies in the Dark

"To hike or not to hike, that is the question that will dominate risk sentiment today when the Fed gets set to make a decision on rates in the shadow of a banking crisis that does appear to be all intents and purposes in the rear-view mirror," CMC Markets UK said.

Stocks to Watch

Adidas and Puma should be wary of Nike taking share and recovering faster in China, though the latter's good performance paints a healthy picture for the industry, Bryan Garnier said.

Nike posted consensus-beating sales and earnings for its third quarter as inventory levels fell. Strong momentum shows a good consumer response even against a darker macro backdrop; this is "obviously positive for the sporting goods industry and highlights its relatively defensive nature," Bryan Garnier said.

But EMEA growth suggests Nike is taking share from Puma and especially Adidas, while in China the sector leader is ahead of the curve, Bryan Garnier said.

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Marks & Spencer's GBP400 million savings program will enable selective investment in its clothing offering before underpinning outer year margin progression despite 2024's weaker macro environment expectations, Citi said.

M&S's five-year plan to grow clothing's market share by one percentage point from 9% with margins above 10%, with food growing by one percentage point from 3.6% and margins above 4% equates to EPS of around 25 pence before considering the Ocado JV, Citi said.

"Whilst acknowledging its legacy challenges, we view the risk-reward to be skewed to the upside for the shares."

Citi upgraded its rating on the stock to buy from neutral and raised the target price to 175 pence from 150 pence.

Market Insight

Fitch expects global market volatility to continue despite the government-brokered deal for UBS to acquire Credit Suisse likely easing concerns about a broader financial contagion.

"Investors and depositors are still trying to understand the magnitude of risks to the banking sector and...will remain jittery in the near term."

The rescue agreement, while positive, highlights the fragility of the banking sector and regulators' willingness to backstop additional risks, Fitch said.

The urgency of the deal also shows that despite regulators reaffirming Credit Suisse's capital position, they weren't certain the bank would be able to stem the loss of confidence, which could pose a more systemic risk, Fitch added.

U.S. Markets:

Stock futures and bond yields drifted lower, with the focus fixed on the Fed.

The Fed releases its decision and economic projections at 1800 GMT and Jerome Powell will speak thirty minutes later.

Stocks to Watch

First Republic Bank rose 2% in premarket trading after rising more than 29% on Tuesday. However, the stock fell in after-hours trading following a report from The Wall Street Journal that said the regional lender this week had hired Lazard to help with a review of strategic options that could include a sale, and tapped consultant McKinsey to assist with the bank's post-crisis structure.

GameStop rose almost 40% in premarket trading after it reported a surprise profit in its fiscal fourth quarter and sales that topped analysts' expectations.

Nike reported fiscal third-quarter earnings and sales that beat Wall Street expectations but its shares declined 2% in premarket trading as gross margins contracted.

Follow WSJ markets coverage here .

Forex:

The euro could fall against the dollar as the Fed is likely to lift interest rates by 25 basis points and raise its rate guidance later on Wednesday but any decline may be brief, ING said.

Regulators' efforts to contain the fallout from the UBS rescue takeover of Credit Suisse for bondholders is helping European sentiment, meaning market concern is now tilted to the U.S. given the unresolved regional banking crisis, ING added.

"Beyond the FOMC impact, we think there is room for a break above EUR/USD 1.0800 in the near-term as long as sentiment continues to stabilise."

Read Likely Fed Rate Rise Could Lift Dollar

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Sterling rose after U.K. inflation data for February was unexpectedly strong, with the headline annual CPI increasing by 10.4% and making a BOE rate rise look more likely.

Economists polled by The Wall Street Journal had expected CPI to decline to 9.9%, from January's 10.1%.

"Tomorrow's decision by the MPC was a coin flip before the red-hot data. These striking numbers should be an important input and now tip the balance in favor of another 25 basis-point rate hike," Vantage said.

Track the analysts' views on the latest inflation data and what it means for Thursday's BOE decision.

Bonds:

Eurozone bond yields were higher in early trading, with the front-end of curves driving the relief in markets, while spreads were tightening, Commerzbank said.

Market expectations of central bank interest-rate rises were also returning, Commerzbank said, adding that "appeasing comments about bank concerns are helping to drive the recovery of risk sentiment and the reversal of flight-to-quality."

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ANZ said that given current fears over inadequate access to short-term liquidity to meet deposit withdrawals among regional banks, the Fed may reconsider the merits of quantitative tightening if it is exacerbating the problem at hand.

The reduction of the Fed's holdings of Treasury securities is exacerbating already extreme volatility in the Treasury market. So an adjustment to QT seems appropriate, either an end, a step down, or a pause. Such a move could be justified as supporting financial stability, ANZ said.

Energy:

Oil prices were weaker with all eyes fixed on the Fed.

While most investors are expecting a twenty-five basis point interest rate increase, how the Fed frames the rise and whether it addresses the banking issues will be keenly watched.

Metals:

Base metals were mixed, with gold slightly firmer, as investors looked ahead to today's Fed decision.

"There'll be plenty of focus on whether the Fed hikes today, but just as important will be how they're looking at the current turmoil and whether they still expect any more rate hikes after today," Deutsche Bank said.

Iron Ore

Commonwealth Bank of Australia said the price of iron ore is likely to retreat to $100 a metric ton by the fourth quarter, pulled lower by soft Chinese steel demand.

"Current policy settings suggest that China's steel demand impulse should ease through 2023."

Although, financial turmoil in advanced economies could prompt China to direct more stimulus to infrastructure if its own annual growth target comes under threat, which would be positive for iron-ore prices, CBA said.

DOW JONES NEWSPLUS

EMEA HEADLINES

Lagarde sees no evidence that underlying inflation is moving down

President of the European Central Bank Christine Lagarde says inflation is still too high.

"Since July last year we have raised interest rates by 350 basis points. However, inflation is still high, and uncertainty around its path ahead has increased. This makes a robust strategy going forward essential," she said a speech made on Wednesday in Frankfurt, Germany.

U.K. Inflation Resumes Its Rise, Defying Expectations

LONDON-Britain's inflation is proving stubbornly high.

Price increases in February picked up to 10.4% from 10.1% in January as the cost of food rose at the fastest pace since records began in 1989.

Credit Suisse Write-Off Upends European Bank Capital Bonds

Switzerland's move to wipe out $17 billion of Credit Suisse Group AG bonds has prompted investors to reassess a market integral to the safety and resilience of Europe's banking system.

The Credit Suisse bonds that were written down as part of its takeover by UBS Group AG were known as AT1s, or Additional Tier 1 bonds. These instruments exploded in popularity in Europe over the past decade and were seen as a way to build buffers that could protect banks in times of trouble without having to tap taxpayer funds.

UBS Launches Tender Offer for Bail-In Notes Issued Before Credit Suisse Deal

UBS Group AG said Wednesday that it is launching a tender for senior bail-in notes worth 2.75 billion euros ($2.96 billion) in aggregate that were issued last week, just before its agreement to take over rival Credit Suisse Group AG.

The Swiss bank said it is offering holders of EUR1.5 billion notes due March 2028 and EUR1.25 billion notes due March 2032 to tender their notes for cash. The bonds were issued on Friday, and the Credit Suisse deal was disclosed on Sunday.

Stellantis, Credit Agricole to Take Over Some ALD, LeasePlan Europe Operations

Jeep maker Stellantis NV and French lender Credit Agricole SA are to extend their auto-leasing business with the acquisition of rival operations in various European countries.

The two companies said Wednesday that they reached a deal to acquire ALD SA's activities in Ireland, Norway and Portugal, and those of LeasePlan in the Czech Republic, Finland and Luxembourg, as part of commitments made by ALD to the European Union relating to its acquisition of LeasePlan.

Japanese Premier Visits Kyiv as Ukraine War Divides Asia

Japanese Prime Minister Fumio Kishida held talks with Ukrainian President Volodymyr Zelensky in Kyiv on Tuesday, in a supportive visit that coincided with Chinese leader Xi Jinping's trip to Moscow and the U.S. rush to provide tanks and missile defense systems to Ukraine.

Mr. Kishida's visit to the Ukrainian capital illustrated how the war in Ukraine is affecting geopolitical alignments in Asia. It was the first by a Japanese leader since Russia invaded its neighbor in February 2022, and the first by a Japanese premier to a country at war since World War II. While Japan has supported Ukraine diplomatically and with financial aid, it hasn't provided it with lethal weapons, unlike all the other fellow members of the Group of Seven advanced economies that Tokyo currently leads, because of Japan's longstanding restrictions on arms sales.

Russia-China Summit Showcases Challenge to the West

MOSCOW-Chinese leader Xi Jinping and Russian President Vladimir Putin reaffirmed the deepening political and economic ties between their two countries at a summit that telegraphed their shared interest in challenging a world order led by the U.S. and its democratic allies.

With war raging in eastern Ukraine, hundreds of miles away from the gilded Kremlin hall where the men met, Mr. Xi, in his third term as China's leader, noted that "political mutual trust is deepening" between Moscow and Beijing and "common interests are multiplying."

GLOBAL NEWS

What to Watch From the Fed Meeting

The Federal Reserve faces on Wednesday one of its thorniest policy decisions in years: whether to lift interest rates again to fight high inflation or hold them steady amid the most intense banking crisis since 2008.

The central bank will announce its decision at 2 p.m. Eastern time in a statement. Officials are also scheduled to release new interest-rate and economic projections. Fed Chair Jerome Powell is set to answer questions from reporters at 2:30 p.m. ET.

Apple, Microsoft Dominate U.S. Markets After FAANG Trade Fizzles

The FAANG era is apparently over. The U.S. market is dominated by just two stocks now.

Bank Failures Train Spotlight on Shortcomings in Risk Management

As banks and regulators scurry to respond to the most perilous industry conditions since the 2007-08 financial crisis, experts say one persistent issue needs attention: risk oversight that's not always up to the job.

Board-level risk committees at many banks have neither the clout nor the expertise to push back against corporate leadership, risk professionals say, a weakness that should be addressed in the wake of the recent bank collapses.

Commercial Property Debt Creates More Bank Worries

A record amount of commercial mortgages expiring in 2023 is set to test the financial health of small and regional banks already under pressure following the recent failures of Silicon Valley Bank and Signature Bank.

Smaller banks hold around $2.3 trillion in commercial real estate debt, including rental-apartment mortgages, according to an analysis from data firm Trepp Inc. That is almost 80% of commercial mortgages held by all banks.

Donald Trump Grand Jury to Reconvene as Potential Indictment Looms

The Manhattan grand jury investigating Donald Trump's role in a hush-money payment to a porn star is set to meet Wednesday as it comes closer to voting on a potential indictment of the former president.

The grand jury's activities have been closely watched as the hush-money investigation into Mr. Trump, run by Manhattan District Attorney Alvin Bragg Jr., nears its end. On Wednesday, jurors could hear from additional witnesses or prosecutors could formally present charges, which is the final step before the jurors vote whether to indict.

North Korea Fires Off Several Cruise Missiles

SEOUL-North Korea fired several cruise missiles on Wednesday, continuing its spree of weapons tests in response to ongoing joint military drills by the U.S. and South Korea.

Several cruise missiles were fired at 10:15 a.m. local time from the northeastern city of Hamhung, the military in Seoul said. The missiles landed in waters between Korea and Japan.

Trump Challenge Prompts Stay of Order on Lawyer's Testimony

WASHINGTON-Donald Trump is challenging a recent court decision that paved the way for federal investigators to elicit potentially crucial grand jury testimony from one of the former president's lawyers as part of the special counsel inquiry into the handling of classified documents at Mar-a-Lago.

At the request of Mr. Trump's legal team, a three-judge appeals-court panel in Washington put a temporary halt Tuesday on a sealed ruling that rejected attorney-client privilege claims raised by the former president's lawyer, Evan Corcoran, during a grand jury appearance in January. The panel of the U.S. Court of Appeals for the D.C. Circuit set extraordinarily tight deadlines for additional information and arguments, ordering Mr. Trump's lawyers to file a briefing by midnight and special counsel Jack Smith's team to respond by 6 a.m. Wednesday.

Kevin McCarthy Boasts of GOP Unity, but Tests Loom on Spending Cuts, Trump

ORLANDO, Fla.-For House Speaker Kevin McCarthy, it could be the calm before another political storm.

At House Republicans' retreat, Mr. McCarthy projected a unified picture of a party seeking conservative wins as well as bipartisanship, pointing to votes on issues related to crime and the Covid-19 pandemic. But he now heads into tough challenges that will test his leadership, including how deeply to try to cut government spending as a condition for raising the debt ceiling, as well as how to handle the re-emergence of former President Donald Trump as a center of attention in the party.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

March 22, 2023 06:32 ET (10:32 GMT)

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