UKX

MARKET WRAPS

Stocks:

European equities rose on Wednesday following solid gains in Asia, as recent worries over a possible banking crisis continued to ease.

ING said every day that passes reinforces the conviction that a line has been drawn under systemic banking worries, although the recent sudden twists in market moves has taught the lesson to be cautious.

"We need to be as careful as possible...because turns in market sentiment in recent weeks have been sudden and violent."

That said, ING is of the view that while markets spent the last three weeks looking for "hairline fractures" in every bank's balance sheet and business model, "there is a case to be made that a large number of closets have already been checked for skeletons."

Stocks to Watch

ArcelorMittal should have wind in its sails as steel-market conditions improve, UBS said, upgrading its rating on the stock to buy from sell and increasing its target price to EUR30.70 from EUR26.

After the destocking of 2022, steel prices in Europe have risen aggressively amid limited imports and a restocking trend, UBS said. It expects the steelmaker to make $7.9 billion in 2023 Ebitda compared with consensus of $7.5 billion.

Securing state funding for direct-reduced iron plants also indicates clear progress toward decarbonization as customers commit to paying premiums for low-carbon steel, UBS added.

"We expect positive earnings momentum in 1Q, 2Q driven by improving prices, volumes and lower energy costs."

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Infineon raised forecasts for its fiscal second quarter thanks to its automotive and industrial businesses, Citi said.

"Upside was driven primarily by automotive and industrial power control divisions, but we also expect the power sensing and solutions division to have faced less pressure than anticipated, leading to less underutilization charges and boosting margins," Citi said.

Infineon is now forecasting more than EUR4 billion in revenue for the three months ending March 31, with its segment result margin reaching a high-twenties percentage. Citi has lifted its estimates to revenue of EUR4.04 billion and a margin of 28%.

Read I nfineon's Guidance Upgrade Underscores Business Resilience

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LVMH's fashion division should help drive growth in the first quarter, Citi said, as it raised its target price on the stock to EUR925 from EUR917 and maintained its buy rating.

The company should at its update next month book group organic sales growth of 8% in the quarter, little changed sequentially, according to Citi.

The mainstay fashion and leather-goods business, home to Dior and Louis Vuitton, should see 10% growth, while selective retailing, which includes beauty giant Sephora and travel retailer DFS, should lead the way with an 11% rise, Citi added.

Read Louis Vuitton Set to Go From Strength to Strength

Market Insight

The normalisation in both rates and equities continues, with rates rising as the focus returns to high inflation numbers, Danske Bank said.

Alongside that, sentiment is shifting to risk-on from risk-off, Danske Bank said, adding that this has been pushing Treasury yields higher.

In recent weeks investors flocked to safe havens amid the unfolding banking crisis, but with signs that the banking turmoil remains contained, the focus gradually turns back to fundamentals and to the expected trajectory of central banks' monetary policy paths.

Read Banking Sector Turmoil Causes Credit Investors to Favor Less Risky Assets

U.S. Markets:

Stock futures traded higher and bond markets steadied as investors appeared increasingly relaxed about the health of the bank sector and the prospects for interest rates.

Bank shares looked set to continue their recovery. Among regional lenders, First Republic gained 3% premarket and PacWest Bancorp rose 2%. Elsewhere, Bank of America added 1%.

Up ahead: U.S. pending-home sales for February are expected to fall 3% from January. Also, regulators will appear before a House panel to discuss the collapse of Silicon Valley Bank.

Follow WSJ markets coverage here .

Forex:

The dollar is unlikely to gain significant ground until uncertainty over the banking sector eases, Commerzbank said, adding that the market remains more sceptical towards the U.S. than the eurozone.

"That is why the dollar has a more difficult standing against the euro, as the Fed has become a little more cautious whereas the ECB has continued its rate cycle almost unaffected by the events of the past weeks and continues to sound restrictive. As a result, levels in EUR/USD above 1.08 seem justified."

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Sterling could fall against the euro after recent gains, as the ECB shows more resolve to raise interest rates further than the BOE, ING said.

ECB member Madis Muller joined the "hawkish" rhetoric of other policymakers Tuesday by signalling that there's still room to lift rates, ING said.

"We saw EUR/GBP fall below 0.8800, but we don't expect the pair's weakness to be very sustainable as we see the market pricing for BOE tightening as too aggressive and policy divergence should be a primary driver for a higher EUR/GBP."

Bonds:

Eurozone government bond yields edged higher, indicating improving risk appetite and thus less demand for safe havens.

"Risk sentiment continued to be well supported overnight," Mizuho said, adding that markets remain generally well contained within current ranges, on the lookout for any potential headline that steers sentiment one way or another.

Inflation data for March are likely to be the next focus point for bond markets, with Spanish and German CPI data due on Thursday, followed by French, Italian and eurozone data on Friday.

Read Eurozone Government Bond Supply Forecast to Decline in April Vs 1Q Average

Read Net Government-Bond Issuance in Eurozone Progresses Well in 1Q

Energy:

Crude futures were higher on supply concerns and signs pointing to strengthening U.S. demand.

The continued closure of a key pipeline for Iraqi oil is supporting prices, ING said. The pipeline handles around 400,000 barrels a day of oil.

"Supply concerns continue to prop up prices," ING said.

Data on U.S. crude stocks reportedly showed a large drawdown following weeks of rising inventories, slumping by over 6 million barrels a day, according to API data.

Metals:

Base metals and gold were weaker, with relative calm in the markets following recent banking sector turmoil.

Deutsche Bank said the calm is most felt in bond markets and Fed futures, with yields starting to rise and the market trimming expectations of rate cuts from the central bank.

Outlook

Commodities, especially oil, have been hit during the banking crisis this month, but UBS expects prices to move higher for the rest of the year, helped by a weaker dollar and higher demand from China.

UBS expects prices to broadly rise 20% in the next 12 months with the gains led by energy and industrial metals, while gold will also be a valuable hedge.

"Our stance is backed by China's recovery, an expected inflection point in the Fed's rate-hiking cycle and the associated weaker dollar, several unresolved supply-side issues due to lacking investment or geopolitics, persistently low inventories in key consuming countries, and ongoing weather risks."

DOW JONES NEWSPLUS

EMEA HEADLINES

German Consumer Sentiment Set to Improve in April, Helped by Lower Energy Prices

Consumer confidence in Germany is expected to improve again in April, its sixth gain in as many months, prompted by lower energy prices, though momentum in the month weakened as recession fears loom.

Germany's forward-looking consumer-sentiment index forecasts confidence to tick up to minus 29.5 in April from a downwardly revised minus 30.6 in March, the highest level since July 2022, according to data from market-research group GfK published Wednesday.

UBS Brings Back Former CEO Sergio Ermotti After Credit Suisse Deal

UBS Group AG said its former leader Sergio Ermotti will return as chief executive, as the Swiss banking giant moves into a new era with its takeover of Credit Suisse Group AG.

Mr. Ermotti, who previously ran UBS for nine years, will start on April 5 after the bank's annual general meeting, it said.

Next PLC Backs FY 2024 Guidance After FY 2023 Pretax Profit Beat Views

Next PLC said on Wednesday that pretax profit for fiscal 2023 rose ahead of the board's expectations and backed its guidance for fiscal 2024 as it anticipates inflation will ease.

The FTSE 100 clothing retailer posted a pretax profit of 870.4 million pounds ($1.07 billion) for the year ended Jan. 28 compared with GBP823.1 million for fiscal 2022. This compares with the company's guidance of GBP860 million.

Roll-Royce's CEO Has a Turnaround Plan. The Stock Is Revving Up.

Rolls-Royce is synonymous with classic British luxury cars. But the company doesn't actually make cars anymore-that unit has been a subsidiary of Germany's BMW since 2003.

Rolls-Royce still exists as its own company, though. It is mainly an aerospace firm, making and maintaining high-powered engines. It's more like General Electric than Ford.

Atos Shares Slump After Report Suggests Airbus Seeks Lower Price for Evidian Deal

Shares of French IT company Atos SE plunged in Wednesday morning trading after a report suggested that European plane maker Airbus SE is seeking a lower price for a minority stake in Atos's cyber business Evidian.

At 0800 GMT, Atos shares traded 6.5% lower at EUR12.03.

ITA Airways Targets Higher Sales This Year Amid Network Expansion

ITA Airways is expecting a substantial increase in revenue this year as the Italian carrier formerly known as Alitalia continues to add routes in a bet on the continued recovery in air travel.

The airline ramped up direct flights to Asia, North America and South America last year, adding routes from its hub in Rome Fiumicino to New Delhi, the Maldives, San Francisco and Rio de Janeiro, among other destinations. Travel restrictions and border closures brought international traffic to a near standstill at the height of the Covid-19 pandemic. Now, airlines are scrambling for planes to expand capacity to meet surging demand for international air travel.

GLOBAL NEWS

As Interest Rates Rose, Banks Did a Balance-Sheet Switcheroo

As the Federal Reserve's interest-rate hikes sent bond prices plunging last year, some of the country's largest banks used a simple accounting maneuver to help keep billions of dollars of losses from piling up on their books.

They declared that they intended to hold on to large portions of their money-losing bonds until they matured rather than selling them, and they then changed the bonds' accounting labels accordingly. From then on, the bonds would be frozen in time, no matter how far their values fell in the market.

Banking Worries Fuel Gold Price Rally

Banking-sector turmoil and worries about the economy have gold prices hitting $2,000 a troy ounce for the first time in a year.

The most-actively traded gold futures contract has jumped 7.4% to $1,973.50 this month, reaching an intraday high of $2,014.90 last week and on pace for the largest monthly percentage increase since May 2021. Prices hadn't topped $2,000 since Russia's invasion of Ukraine last spring.

BlackRock says the market is wrong on the Fed. Here are the bonds it's recommending now.

The Federal Reserve is going to stop throwing punches, but it's not about to cut interest rates even as signs of fragility in the financial sector emerge, says leading fund manager BlackRock.

In a note from the BlackRock Investment Institute, the fund manager says the Fed, and other central banks, have made clear that banking troubles wouldn't stop them from hiking interest rates.

International stocks outperform, decouple from U.S. equities by 'unusual degree'

International stocks are broadly outperforming this quarter, decoupling from the U.S. to an unusual extent, according to DataTrek Research.

"Non-US stocks have decoupled from domestic equities by a statistically unusual degree over the last 50 days," said Nicholas Colas, co-founder of DataTrek, in a note Tuesday. This together with their outperformance may bode well for flows into international stocks heading into the second quarter, according to the note.

Australian February Inflation Data Opens Door to Rate Hike Pause

SYDNEY-Australia's inflation pressures cooled in February, opening the door to a pause in the Reserve Bank of Australia's campaign of aggressive interest-rate increases that began almost a year ago.

The monthly consumer-price index rose 6.8% in the year to February, down from 7.4% in January and 8.4% in December, the Australian Bureau of Statistics said Wednesday. Economists had expected an annual CPI increase of 7.1% in February.

Lawmakers Scold Fed Over Silicon Valley Bank Collapse

Senators rebuked the Federal Reserve for failing to prevent the collapse of Silicon Valley Bank despite identifying risks beforehand, while the central bank's top regulator blamed the firm's executives for not fixing its problems.

In an appearance Tuesday before the Senate Banking Committee, Michael Barr, the Fed's vice chairman for banking supervision, defended the actions of the Fed's supervisors and said the central bank had privately raised concerns with SVB before its March 10 collapse and had given the lender poor ratings for managing its risks.

Ukraine Downs Russian Warplane Near Bakhmut

Ukraine said its forces shot down a Russian warplane near Bakhmut while repelling multiple attempts by the Kremlin's forces to seize the eastern city, which has become an important prize in the broader war.

Bakhmut, a small city in Ukraine's eastern Donetsk region, has become a central battleground in Russia's assault on the country, with the fight there taking on increasing symbolic and strategic importance to both sides after more than six months of brutal combat. Ukraine's forces have held out in the city against overwhelming Russian firepower after the Kremlin's forces began targeting the area last summer.

Kevin McCarthy Pushes for Debt-Ceiling Talks as Unity Eludes GOP

WASHINGTON-House Speaker Kevin McCarthy tried to prod President Biden into starting talks over spending cuts as a condition for raising the debt ceiling, just as Republicans are struggling to unite around a blueprint for negotiations ahead of dual deadlines later this year.

The White House released its own budget proposal earlier this month and has said it won't negotiate on spending until Republicans put forward their own plan. Mr. McCarthy has rejected that notion and said in a letter to Mr. Biden that talks should start as soon as possible. While neither budget would have a chance of becoming law, they serve to outline the parties' policy intentions.

Trump Grand Jury Won't Consider Hush-Money Probe Again This Week

The Manhattan grand jury investigating Donald Trump's role in paying hush money to a porn star has concluded its work for the week, according to people familiar with the matter, making the timing of any potential charges against the former president unknown.

The grand jury isn't expected to meet Wednesday, when it has often heard Trump-related evidence, and any work the panel does on Thursday is expected to be on other cases, the people said. It isn't clear whether grand jurors will consider the Trump matter next week, according to the people.

Jamie Dimon to Face Questioning in Lawsuit Over JPMorgan's Epstein Ties

Jamie Dimon will be questioned in a civil lawsuit over JPMorgan Chase & Co.'s relationship with Jeffrey Epstein, people familiar with the matter said.

The U.S. Virgin Islands sued JPMorgan late last year, saying the bank facilitated Esptein's alleged sex trafficking and abuse by allowing him to remain a client and helping him send money to the late financier's victims.

Taiwan President's U.S. Trip Touches a Flashpoint in U.S.-China Ties

The U.S. and China have described Taiwan as the most volatile flashpoint in their increasingly fraught bilateral relations.

Now, after months of sparring by Washington and Beijing over the Ukraine war, a suspected surveillance balloon, TikTok and other issues, Taiwan is set to return to the center of great power tensions, with the island's leader traveling to the U.S.

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

(END) Dow Jones Newswires

March 29, 2023 05:53 ET (09:53 GMT)

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