MARKET WRAPS

Stocks:

European stocks struggled for momentum on Friday as investors digested the latest eurozone inflation data.

The core inflation print hit a record of 5.7% in March, a setback for central bankers whose rapid interest-rate rises have exacerbated financial sector strains and caused pains in part of the bloc's economy.

The fresh data increases the likelihood the European Central Bank will raise its key rate again in May. It could also encourage other policy makers to explore alternative ways to cool prices rises, by targeting excessive profiteering by companies or inflationary wage increases.

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Ahead

The Federal Reserve's preferred measure of inflation, the PCE price index, is due for release alongside the latest numbers on consumer spending and personal income later on Friday.

"Given the calmer waters around the global banking system, investors will take on today's PCE data in a much better frame of mind," SPI Asset Management said.

Swissquote Bank said "core inflation may have eased on a monthly basis but is expected to remain steady on a yearly basis around the 4.7% mark."

"A read in line with expectations, or ideally lower than expected could keep the Fed hawks at bay, and let the dollar further relax," it added.

Stocks to Watch

Europe's airlines look set to rake in more profit this year than previously estimated, Deutsche Bank said, raising their ratings on Franco-Dutch group Air France-KLM and Germany's Lufthansa to buy from hold.

Deutsche raised its operating-profit forecasts for the two carrier groups by some 20%, noting a likely quicker recovery than had been envisaged.

The first quarter may still be loss-making for airlines, and the market may still be wary of the effects of economic downturn on consumer demand, but higher earnings for the year, coupled with lower debt burdens, could boost the groups' share prices in coming months, it said.

Deutsche lifted its target price on AF-KLM to EUR2.30 from EUR1.75, and on Lufthansa to EUR14.50 from EUR10.50.

U.S. Markets:

Stock futures edged higher in early trading ahead of the PCE data.

Stocks to Watch

Rumble was rising 14.3% and Digital World Acquisition jumped 11.3% in premarket trading. Shares of the right-wing social media platforms rose following the indictment of Donald Trump.

Tesla is expected to release deliveries numbers for the first quarter over the weekend. According to 10 estimates compiled by FactSet, Wall Street expects the electric-vehicle company to have delivered 432,000 units in the first quarter, up from about 405,000 in the fourth quarter of 2022.

Virgin Orbit Holdings was falling 48.6% in premarket trading to about 17 cents after the space launch startup said it would cut 85% of its workforce.

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Forex:

The euro remained weaker against the dollar after the latest eurozone inflation data.

"The European Central Bank has repeatedly emphasized that it is currently focusing primarily on the core inflation rate," Commerzbank said. "In this respect, the ECB is still under pressure to raise key rates further."

UniCredit Research said earlier the euro could rise if eurozone inflation data showed underlying price pressures remained elevated in March, particularly after German inflation data eased by less than expected.

That, combined with a potential mix of sluggish personal income and spending data along with steady personal consumption expenditures price index figures, could help EUR/USD end the week on "quite a firm footing, " UniCredit added.

"EUR/USD has the potential to definitively break above the past peak of 1.0930 and then re-approach the year-to-date high of 1.1033."

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Sterling is set to be the best performing currency of the first quarter, boosted by an improved economic outlook and expectations the BOE will continue to raise interest rates further despite recent financial turmoil, ING said.

BOE Governor Andrew Bailey on Monday largely endorsed market pricing, although it's unlikely that upcoming economic data will underpin the need for additional rate rises, ING said.

"This morning's revision of fourth-quarter GDP data on the strong side is probably too outdated to have a material impact in this sense."

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The dollar edged higher after earlier losses as investors await the release of February's PCE data.

"Barring a major upside surprise, we don't expect a material impact on the dollar from PCE data today," ING said.

As evidenced recently, higher chances of the Fed lifting rates in May don't automatically translate into a stronger dollar in the current market environment, it said.

The dollar may stabilize after a week of losses but the short-term bias remains negative for the currency, ING added.

Bonds:

Investors of eurozone government-bond spreads have been unfazed by recent banking sector woes and higher rates volatility, Societe Generale said.

"A regime of low spread [volatility] is being fed by a 'buy the dip' mentality," it said.

That said, it sees clouds on the horizon, such as a deterioration in risk assets as the end of the interest-rate hiking cycle is approaching.

SocGen added that with the ECB prudently approaching the end of its hiking cycle, it expects spreads to remain rangy.

Additionally, SocGen said the focus for investors in Eurozone government bonds now turns to fundamentals which show no imminent risk of a crisis but remain gloomy.

This outlook could favor smaller eurozone government bond markets versus bigger ones, enabling them to outperform.

"The rising interest costs particularly for Italy will linger and restrain any large-scale spread narrowing," the French bank said.

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In anticipation of an end to the recent interest-rate rises, broker positioning monitors indicate that investors have moved toward a more defensive stance and started to add duration and steepeners to portfolios, J.P.Morgan Asset Management said.

While investors are searching for indicators that the acute phase of stress has cooled down, volatility remains high, JPMorgan AM said.

"With the market still making up its mind on what's to come, we think that volatility is here to stay," JPMorgan AM added, positioning for a recession, and making use of backups in yields to add duration to portfolios.

The MOVE index, which reflects rate volatility, is currently at levels only seen in 2020 and not far from levels experienced in the global financial crisis in 2008, the asset manager said.

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The 10-year Italian BTP-German Bund spread continued to trade in the 180-190 basis point range, but the market might underestimate political risks in Italy, Natixis said.

The spread has been almost unaffected by the risk-off environment and the higher volatility in the rates market in March, it said.

"However, we think the market has ignored the latest political news in Italy which suggests some political uncertainties may come to the fore in the coming days."

It points to news about growing concerns over the government's capacity to implement the EU-funded plan of reforms and investments, and the new code of public procurement.

Energy:

Oil prices ticked lower ahead of the PCE data, which is expected to show price pressures eased month on month but remained steady on year.

A stronger-than-expected reading could raise concerns the Fed will need to keep monetary policy tighter for longer.

Metals:

Base metals were mixed with gold slightly firmer, with markets having taken a breather this week following price whipsaws for much of the month triggered by banking turmoil.

Peak Trading Research said Friday's PCE outcome "will provide clues as to whether the Fed can pause [rate hikes] in May."

Copper

Low inventories of copper in LME warehouses and growing demand from China are likely to boost prices this year, Fitch said, lifting its annual price forecast for 2023 to $9,000 a metric ton from $8,500.

Rising demand from China as the country emerges from Covid-19 lockdowns and a weaker dollar are likely to act as tailwinds for copper, Fitch said. This, added to the fact that LME warehouse inventories are sitting at multi-year lows, means prices should remain elevated.

That said, countries slipping into recession and jitters around banking are likely to cap prices, Fitch said.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Eurozone Core Inflation Hits Record High

Core inflation in the eurozone hit a record in March, a setback for central bankers whose rapid interest-rate rises have exacerbated financial sector strains and caused pains in part of the bloc's economy.

The fresh data increases the likelihood that the European Central Bank will raise its key rate again in May. It could also encourage other policy makers to explore alternative ways to cool prices rises, by targeting excessive profiteering by companies or inflationary wage increases.

   
 
 

UK Economy Expanded More Than First Anticipated in Fourth Quarter

The U.K. economy expanded slightly in the fourth quarter, a stronger performance than previously anticipated, though it remains smaller than its size before the pandemic as elevated inflation and high interest rates hit economic activity.

Gross domestic product grew 0.1% from October to December compared with the previous three-month period, in comparison with the stagnation previously estimated in February, according to data from the Office for National Statistics released Friday.

   
 
 

French Inflation Eased in March on Slowing Energy Prices

French inflation took a dip in March, reaching its lowest level in six months, as energy prices decelerated markedly compared with a year earlier.

The consumer price index rose 5.6% in March on year measured by national standards, slowing from February's 6.3% increase, the lowest level since September, according to preliminary data from the country's statistics office Insee released Friday.

   
 
 

German Retail Sales Slumped More Than Expected in February

German retail sales came in weaker than expected in February, as rising prices curbed spending amid high inflation.

Retail sales declined 1.3% on month in February in real terms, after a revised 0.1% increase in January, German statistics office Destatis said Friday.

   
 
 

Airline profits are set to take off, says Deutsche Bank, upgrading three carriers to buy

Airlines will lose money in the first quarter, but profits from there are set to zoom higher, said Deutsche Bank as it upgraded three European carriers to buy on Friday.

Deutsche Bank upgraded Air France-KLM, International Consolidated Airlines Group and Deutsche Lufthansa to hold from buy, and said the German airline was its top pick.

   
 
 

Santander Upbeat on 2023 Targets as 1Q Lending, Revenue to Rise

Banco Santander SA said it is confident of meeting its targets for 2023 after getting off to a good start to the year.

Ahead of the Spanish lender's annual shareholders' meeting Friday, Executive Chair Ana Botin said lending should grow by 4% in the first quarter on year at constant currency and deposits by 6%, with more than 1 million new customers. Revenue will have grown in the double digits in the same period, Ms. Botin said.

   
 
 

ArcelorMittal, Nippon Steel India JV Gets $5 Bln Loan to Expand Capacity

ArcelorMittal said Friday that AMNS Luxembourg Holding SA, the parent company of its steelmaking joint venture with Nippon Steel Corp. in India, has entered into a $5 billion loan with a consortium of Japanese banks to expand production capacity.

ArcelorMittal said proceeds will be used to fund the expansion of the AM/NS India JV's annual steelmaking capacity at its Hazira plant in India to 15 million metric tons from 9 million tons.

   
 
 

U.K. Joins Trans-Pacific Partnership as It Seeks to Diversify International Commerce

The U.K. government said it had struck a deal to join the Pacific trade alliance the U.S. exited under former President Donald Trump, as Britain looks to diversify trade away from Europe after Brexit.

The U.K. will become the first European country to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, known as the TPP. The club of 11 countries largely spans the Indo-Pacific region and includes nations such as Japan, Canada, Chile and Vietnam.

   
 
 

U.K. Plans to Invest $495 Million in Economic Crime Crackdown

The U.K. government said it would hire 475 financial crime investigators and change laws around corporate crime as part of a new plan to crack down on economic crime.

The three-year plan, unveiled Thursday, calls for new spending of GBP400 million, equivalent to $495 million, at several government agencies-GBP200 million of which will come from the government and GBP200 million from a levy on the private sector. The government will make a GBP100 million investment in data analytics and other technology to aid law enforcement.

   
 
 
   
 
 

GLOBAL NEWS

How Trump's Indictment Spells Trouble for Stocks and the Economy

Former President Donald Trump's indictment by a New York grand jury is one more reason that Congress, which desperately needs to compromise, will have a tough time doing so. And that could spell trouble for the U.S. stock market and economy.

On its own, Trump's indictment might not seem like much of an issue for the stock market. It comes, however, at a fraught moment. A compromise between the U.S. and Democrats and Republicans on the debt ceiling was never going to be easy. There are just too many differences between the parties-some over how government money should be spent, others simply due to political animus. But the decision to indict the man who is effectively the face of the GOP for many in the party suggests that a middle ground will be even harder to find.

   
 
 

The Debt Ceiling Is Forgotten, but Not Gone. It Could Still Slam Stocks.

The debt ceiling has been forgotten amid the banking turmoil, but it has the potential to cause chaos of its own.

The U.S. federal government hit its self-imposed debt limit of just under $31.4 trillion in January, and Congress appears to be barreling toward a protracted fight over lifting it in the coming months-or else risk a disastrous first-ever U.S. default. Markets have taken notice, but they don't appear overly concerned just yet.

   
 
 

Wild Quarter for Markets Might Foretell Further Turbulence

Markets showed their resilience in the first quarter, despite being rocked by shock waves that few anticipated.

Investors began the year feeling largely upbeat. Inflation appeared to be subsiding, and many bet that would lead the Federal Reserve to switch quickly from raising interest rates to cutting them.

   
 
 

Pro Take: Banks Turn to Federal Home Loan Bank Funding as System Faces Review

When banks run into distress, they have a go-to source for emergency funds other than the Federal Reserve's discount window: the little-known Federal Home Loan Bank system.

Silicon Valley Bank and First Republic Bank both turned to the federally chartered banking system in the months before concerns about their falling deposit levels burst into the headlines in March. The two California-based banks, one seized by regulators and the other partly rescued by large banks, were the biggest borrowers at the Federal Home Loan Bank of San Francisco at the end of 2022, according to a San Francisco FHLB regulatory filing.

   
 
 

Consumer Spending Report to Show Whether Strength Continued in February

A government report Friday will offer insight into how the U.S. economy fared in February, as elevated inflation continued to weigh on consumer purchasing power and interest rates remained high.

The Commerce Department will release February figures on household spending, income and saving, alongside the Federal Reserve's preferred inflation gauge, at 8:30 a.m. Eastern time. The figures won't reflect any impact on consumer spending from banking industry turmoil, which emerged in March.

   
 
 

Bond Rally at Risk as Bank Stress Diminishes

The sharpest rally for U.S. government debt in years has left investors and analysts warning that bond markets are vulnerable to a reversal.

Prices for Treasurys leapt after turmoil in the financial sector drove investors to lower their expectations for how high the Federal Reserve would raise interest rates. Now, some worry that with banks stabilizing, a resumption of the Fed's inflation-fighting efforts could spark declines as rapid as the rally.

   
 
 

Green Energy Is Stuck at a Financial Red Light

After years of uncertainty, last year's Inflation Reduction Act finally gave America's renewable-energy industry a long, green signal. Now the economy is blocking the road.

The wind and solar industries have always suffered from the short-term nature of subsidies, with federal tax credits often extended in nail-biting one-year increments. Last year's climate bill changed that, giving the industry subsidies that last at least a decade. But just as policy winds blow in their favor, two critical growth drivers-interest rates and equipment costs-are moving in the wrong direction.

   
 
 

China's Consumers Extend Economic Rebound From Pandemic

SINGAPORE-A gauge of activity in China's services sector reached its highest level in more than a decade in March, a sign that Chinese consumers are heading back to stores and restaurants, powering an economic recovery following the end of almost three years of strict Covid-19 controls.

The reading represents a promising signal for the global economy, which is depending on Chinese consumers to prop up growth this year as their counterparts in the U.S. and Europe battle rising interest rates, high inflation and the prospect of a squeeze on lending following turmoil in the banking sector.

   
 
 

Japan Restricts Semiconductor-Equipment Exports as Ties With China Chill

TOKYO-Japan said it would restrict the export of advanced semiconductor equipment, a measure that could hamper development of China's industry and marks a further cooling of relations after the detention of a Japanese pharmaceutical-company employee in Beijing.

Foreign Minister Yoshimasa Hayashi will visit Beijing Saturday to meet with his Chinese counterpart, the Japanese government said Friday. It didn't disclose the purpose of the visit, the first by a Japanese foreign minister to China since December 2019, but Tokyo has called for the quick release of the detained Japanese man.

   
 
 

Donald Trump Indictment Sets Historical Marker

A Manhattan grand jury's indictment of former President Donald Trump represents an extraordinary moment for America: the first time a former U.S. president has ever been charged with criminal wrongdoing.

Other presidents have been impeached or left office in disgrace under the shadow of scandal or criminal suspicion. But none of the other men who previously occupied the nation's highest office ever found themselves in the legal jeopardy that now imperils Mr. Trump.

   
 
 

Grand Jury Votes to Indict Donald Trump

Donald Trump was indicted for his role in paying hush-money to a porn star on the eve of the 2016 election, marking the first time in American history that a former president has faced criminal charges.

The grand jury returned the indictment of Mr. Trump after a vote on Thursday, kicking off a process in which the former president is expected to come to New York to face the charges. The indictment, sought by the office of Manhattan District Attorney Alvin Bragg, isn't public.

   
 
 

Trump Indictment Could Boost GOP Primary Bid, but Hurt in a Rematch With Joe Biden

WASHINGTON-The indictment of Donald Trump is unlikely to derail his 2024 White House bid and could help in the GOP primary, but it could also further alienate swing voters turned off by the controversies that continue to swirl around him since he left office.

The unprecedented nature of a former president facing criminal charges, in a case involving a hush-money payment to a porn star, carries many unknowns. But Mr. Trump's strategy is already in view, following hard-hitting tactics he has used throughout a short, turbulent political career.

   
 
 

U.S.-Russia Rift Complicates Case of Arrested Journal Reporter

WASHINGTON-Moscow's arrest of a Wall Street Journal reporter on espionage charges this week broadens a rift between the U.S. and Russia that is already so wide, the two nuclear powers barely maintain diplomatic communications.

That will make any agreement on the release of the reporter, 31-year-old Evan Gershkovich, difficult to secure as he heads toward a trial in a court under the control of Russia's security service, the FSB, U.S. officials say.

   
 
 

Taiwan Leader's U.S. Visit Is Purposely Low-Key

NEW YORK-It is the highest-profile U.S. visit by a Taiwan leader in years. Nonetheless, President Tsai Ing-wen is keeping largely out of the public eye.

A U.S. stopover that began Wednesday in New York marks Ms. Tsai's first foreign travel since mid-2019 and comes at a time of heightened tensions with China that many fear could veer into future armed conflict.

   
 
 

Write to ina.kreutz@wsj.com

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(END) Dow Jones Newswires

March 31, 2023 06:24 ET (10:24 GMT)

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