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.
---
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.
Follow WSJ markets coverage here .
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."
---
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
United Utilities Group PLC said Tuesday that it expects its
fiscal 2023 revenue and a performance-related payment to miss
guidance.
The FTSE 100-listed water company said revenue for the year
ending March 31 has been hurt by timing effects such as lower
consumption, which will be recoverable in future years.
ProSiebenSat.1 to Focus Investments on Entertainment
Business
ProSiebenSat.1 Media SE said Tuesday that it plans to focus
investments on its entertainment business as it seeks to boost its
Joyn streaming platform and increase the digital share of
advertising revenue.
The German broadcaster said it will review acquisition
opportunities and cooperate with industry peers to support its
growth ambitions in entertainment. The company also said will seek
to monetize its growing digital reach through new ad products.
Diageo CEO Ivan Menezes to Step Down After Nearly a Decade in
Role - Update
Diageo PLC on Tuesday said that Chief Executive Ivan Menezes
will be retiring after nearly 10 years in the role and will be
replaced by current Chief Operating Officer Debra Crew.
The London-based maker of Johnnie Walker Scotch whisky, Guinness
stout and Smirnoff vodka said Mr. Menezes will leave the board on
June 30 and Ms. Crew will join on July 1.
Easter flight disruption set to hit U.K. passengers as Heathrow
workers strike
British Airways cancelled hundreds of flights to and from
Heathrow airport over the Easter holiday week due to upcoming
strikes by airport staff.
Airport security workers part of Unite union voted to strike
between March 31, and Easter Sunday, April 9, over issues with pay.
Heathrow has offered a 10% pay rise after pandemic-induced pay
freezes.
GLOBAL NEWS
Top Bank Regulators to Face Senate Questions Over SVB, Signature
Collapses
Three top U.S. officials are likely to face pointed questions
from lawmakers Tuesday about their oversight of Silicon Valley Bank
and Signature Bank, as well as their response when the banks
collapsed.
The hearing is the first step on Capitol Hill in what could be a
monthslong process probing how the two banks quickly failed and
whether stricter supervision by financial regulators could have
prevented their demise.
To Some Investors, Banks Look Like Bargains
A growing number of investors are betting on a rebound in the
banking sector, wagering that regional lenders are in much better
condition than many initially feared after the collapse of Silicon
Valley Bank.
Bank shares rallied Monday, while U.S. Treasury prices fell,
after First Citizens Bancshares reached a deal with federal
regulators to buy large pieces of Silicon Valley Bank. The run on
SVB that started March 9 had sparked a rout in banks and a surge in
demand for Treasurys, reflecting fears that trouble in the
financial sector could hurt the broader economy.
For Chip Makers, a Choice Between the U.S. and China Looms
WASHINGTON-Semiconductor companies seeking federal grants under
the Chips Act could face a tough decision: take Washington's help
to expand in the U.S., or preserve their ability to expand in
China.
The Biden administration last week proposed new rules detailing
restrictions chip companies would face on operations in China and
other countries of concern if the companies accept taxpayer
funding.
Distress in Office Market Spreads to High-End Buildings
Defaults and vacancies are on the rise at high-end office
buildings, in the latest sign that remote work and rising interest
rates are spreading pain to more corners of the commercial
real-estate market.
For much of the pandemic, buildings in central locations that
feature modern amenities fared better than their less-pricey peers.
Some even were able to increase rents while older, cheaper
buildings saw surging vacancy rates and plummeting values. Now,
these so-called class-A properties, whose rents generally fall into
a city's top quartile, are increasingly coming under pressure.
U.S. and Japan Strike Deal on Minerals Used in Batteries for
Electric Cars
WASHINGTON-The U.S. and Japan reached a trade agreement for
minerals used in clean-energy technologies, a deal aimed at
allowing Japan to meet sourcing requirements for new
electric-vehicle subsidies in the U.S. and shifting energy supply
chains away from China.
Under the deal, the U.S. and Japan agreed not to levy export
duties on critical minerals they trade and coordinate labor
standards in producing minerals, among other steps, according to a
U.S. announcement. The pact builds on a limited trade accord the
two countries reached in 2019, and they will review the minerals
deal every two years to see if they should end or change it.
China Boosts Lending to Struggling Belt and Road Borrowers
SINGAPORE-China's emergency support for borrowers from its Belt
and Road infrastructure program has ballooned as foreign
governments struggle under heavy debts, highlighting the extent of
Beijing's bad loan problem as it works to overhaul its overseas
lending strategy.
The scale of China's often-opaque assistance to borrowers in
distress means Beijing has effectively established a new system for
international rescue lending that exists alongside the
International Monetary Fund and other Western institutions,
according to new research published by the World Bank.
Recession looks less likely for U.S., these economists say, but
a 'slog' still lies ahead
Despite the recent turmoil in the bank sector, a recession is
still not the most likely outcome for the U.S. economy over the
next two years, analysts at the Peterson Institute for
International Economics said Monday.
"The data has been more resilient than we thought it would be,"
said Karen Dynan, a professor of the practice of economics at
Harvard University, at a briefing for reporters ahead of the formal
release of their semi-annual forecast.
Wind-power industry predicts rapid growth in 2023, just in time
for Biden's offshore push
An optimistic global report on the outlook for wind energy
issued Monday bodes well for recent announcements in the U.S.,
which is pushing offshore to try to harness more green-energy
replacements for coal, oil and gas.
The Brussels-based trade association Global Wind Energy Council
in a report projected 680 gigawatts of new global onshore and
offshore wind will be installed by 2027. That represents enough
wind to power about 657 million homes annually.
Fed's Barr Calls Silicon Valley Bank a 'Textbook Case of
Mismanagement'
WASHINGTON-The failure of Silicon Valley Bank demonstrates a
"textbook case of mismanagement," the Federal Reserve's top banking
regulator is expected to tell Senate lawmakers on Tuesday, while
acknowledging there may have been shortcomings in the central
bank's oversight.
"SVB failed because the bank's management did not effectively
manage its interest-rate and liquidity risk, and the bank then
suffered a devastating and unexpected run by its uninsured
depositors," said Michael Barr, the Fed's vice chairman for
supervision, in written testimony released by the central bank.
Fed's Barr Calls Silicon Valley Bank a 'Textbook Case of
Mismanagement'
WASHINGTON-The failure of Silicon Valley Bank demonstrates a
"textbook case of mismanagement," the Federal Reserve's top banking
regulator is expected to tell Senate lawmakers on Tuesday, while
acknowledging there may have been shortcomings in the central
bank's oversight.
"SVB failed because the bank's management did not effectively
manage its interest-rate and liquidity risk, and the bank then
suffered a devastating and unexpected run by its uninsured
depositors," said Michael Barr, the Fed's vice chairman for
supervision, in written testimony released by the central bank.
Kim Jong Un Says He Will Expand Production of Nuclear
Material
SEOUL-North Korean leader Kim Jong Un called for expanding the
production of nuclear material to boost the country's arsenal
exponentially, saying his weapons program was aimed at defending
the country.
Photos released by North Korean state media on Tuesday showed
Mr. Kim inspecting new tactical nuclear warheads, called
"Hwasan-31," for the first time. Around 10 red and green nuclear
warheads were displayed alongside short-range ballistic missiles
and long-range cruise missiles. He also reviewed plans for a
nuclear counterattack and was briefed on a nuclear-weapons
management system called "Haekbangashoe," which means nuclear
trigger, state media said.
No 'Social Policy' in Chips Act Rules, Commerce Secretary Gina
Raimondo Says
WASHINGTON-Republicans and Democrats are sparring over measures
in the $53 billion Chips Act that the Biden administration says are
needed to ensure the measure's success, but which Republicans say
are an effort to pursue liberal social policies.
The Commerce Department has set rules for semiconductor
companies seeking grants under the act that encourage the hiring of
union workforces and economically disadvantaged individuals.
Companies seeking more than $150 million must provide child
care.
Republican-Led Panel Issues Subpoena to State Department for
Afghanistan Dissent Cable
WASHINGTON-The Republican-led House Foreign Affairs Committee
issued a subpoena to the State Department for a 2021 dissent cable
in which diplomats with the U.S. Embassy in Kabul called for a
hastened evacuation and warned that the Taliban's takeover of the
Afghan capital was imminent.
In a statement late Monday, committee Chairman Michael McCaul
(R., Texas) said the panel made "multiple good faith attempts" to
obtain the cable, adding "unfortunately, Secretary [of State
Antony] Blinken has refused to provide the Dissent Cable and his
response to the cable, forcing me to issue my first subpoena as
chairman of this committee."
Trump Probe Places Manhattan D.A. Alvin Bragg in Spotlight
Manhattan District Attorney Alvin Bragg's pursuit of potential
criminal charges against former President Donald Trump could
provide a case for the history books while also testing one of New
York City's top prosecutors, a newcomer to political office who
built his career in state and federal law enforcement.
Mr. Bragg, 49 years old, took office in January of last year,
becoming the first Black district attorney in Manhattan after
winning the nomination in a crowded Democratic field and then
triumphing in his first run for public office. He campaigned by
touting his lengthy record in law enforcement, which includes
stints with the U.S. attorney's office for the Southern District of
New York and the New York attorney general, as well as sharing his
personal experiences living with crime and aggressive policing
while growing up in Harlem during the 1980s crack epidemic.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
March 28, 2023 05:53 ET (09:53 GMT)
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