MARKET WRAPS
Watch For:
ECB economic bulletin, business & consumer surveys; CPI data for Germany, North Rhine Westphalia, Bavaria, Hesse, Baden-Wuerttemberg, Brandenburg, Saxony; Italy unemployment, PPI; trading update from H&M Hennes & Mauritz
Opening Call:
European shares may open slightly higher on Thursday as focus turns to U.S. economic data. In Asia, stock benchmarks were mixed; Treasury yields were largely unchanged; the dollar strengthened slightly; while oil and gold fell.
Equities:
Stock futures point to slight gains in Europe on Thursday, following advances by U.S. and European indexes on Wednesday as global banking concerns eased.
Appetite for risk was evident as investors were more relaxed about the health of the bank sector and the prospects for the path of interest rates.
Semiconductor and mega-cap technology stocks contributed largely to the advances on Wall Street.
"It suggests that perhaps we're still seeing businesses willing to spend on on technology and other productivity tools," said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management.
Strength in China-focused technology stocks also helped the mood after traders took news of entrepreneur Jack Ma's re-emergence and Alibaba's restructuring as a sign of Beijing easing its crackdown on the sector.
"We are in the middle of what we call a market chop phase, and we frame it by roughly in terms of prices of the S&P 500 at between 3,800 and 4,200, and we're right in the middle of there. We see volatility in between those two prices," Hainlin said.
"As we get into April and you start to get first quarter earnings results from companies, that will give us some clues perhaps as to the direction of markets coming out of this chop area," according to Hainlin. "We'll start to see if companies change their outlooks for the year, if they're still spending on technology and productivity, and what they're seeing in terms of consumer demand."
The CBOE VIX index, a gauge of expected equity market volatility, has dropped below its long run average of 20, a sign that traders are much calmer than of late.
Tom Lee, head of research at Fundstrat, noted that VIX futures were now back in contango, a more normal structure where longer-term contracts are priced higher.
"This normalization of spread is often a sign investors see the worst of the crisis behind," said Lee. "That is generally a constructive sign and is certainly counter to the general gloom of investors post-SVB failure. This ultimately becomes an important point. If investors are gloomy and expect a financial crisis to follow, but this doesn't happen, this means sentiment and positioning will be key. In many ways, this could be the setup now," Lee added.
Read: ECB's Schnabel says European banking sector looks resilient amid turmoil in U.S.
Forex:
The U.S. dollar edged higher early Thursday. USD has strengthened as Treasury yields have remained around one-week highs, said CMC Markets.
Caution may also be needed as the Fed might not be as market-friendly as thought if inflation doesn't help pave the way, CMC Markets added.
Bonds:
Treasury yields were little changed in Asia. The policy-sensitive 2-year Treasury yield had edged higher overnight as traders waited for U.S. inflation data to help gauge the path of Federal Reserve policy on interest rates. February's PCE inflation report is due Friday.
"Overall, we expect some moderation in the monthly PCE inflation numbers but at a rate that still remains too high," said Mizuho Securities.
"The economic impact of recent banking stress is highly uncertain and rate markets removed about six hikes from the expected fed-funds rate priced into the December 2023 FOMC meeting," said BofA Global's rates and currency research team.
Their forecast, given a "shallow easing trajectory" by the Fed, is a 2-year Treasury rate around 4.75%. Their 10-year rate forecast is 3.25% at the end of 2023, with downside risk to their forecasts if the credit cycle turns.
Energy:
Crude oil futures fell in Asia after settling lower overnight, giving up initial gains following American Petroleum Institute data showing a large drop in U.S. crude inventories.
ANZ said that although data from the Energy Information Administration also showed a drawdown in U.S. stockpiles, signs of weak industrial demand are keeping prices in check. The EIA figures showed U.S. crude inventories fell by 7.5 million barrels last week.
ANZ noted that U.S. demand for diesel--which is used as an industrial and heating fuel--is currently at seven-year lows.
Metals:
Gold prices fell slightly early Thursday. Prices of the metal likely retreated as the U.S. dollar strengthened, said CMC Markets.
The precious metal could continue to face pullback risks if the U.S. dollar continues to tick higher, CMC Markets said, estimating that the support level could be around $1,915/oz.
Risk appetite has been "slowly creeping back into the marketplace this week," said Kitco.com. "That's bearish for the safe-haven metals."
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Copper declined amid an uncertain global economic outlook.
Inflation is high, central banks are expected to keep tightening monetary policy and the speed of China's economic recovery has been disappointing, ANZ said.
As these headwinds ease, however, there are growing expectations that the copper market could tighten, ANZ said, adding that this may be exacerbated by the low level of inventories.
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Chinese iron ore futures rose, extending gains. Iron ore contracts on the Dalian Commodity Exchange were higher across the board.
Focus now shifts to the level and sustainability of downstream demand in the short term amid China's economic recovery, China Futures said.
TODAY'S TOP HEADLINES
White House to Call for New Midsize Bank Rules After SVB, Signature Failures
The White House is planning as soon as this week to recommend tougher rules for midsize banks, according to people familiar with the matter, after the collapse of two lenders earlier this month sent tremors through the banking system.
The recommendations are expected to call for new rules from the Federal Reserve and other agencies, including for banks with $100 billion to $250 billion in assets.
Tech stocks back as a haven? 'It's a mistake,' say market analysts
Volatility in bank sector stocks caused by the quick collapse of Silicon Valley Bank earlier this month has ignited a rush into technology stocks which are now seen as safe haven trade.
The S&P 500 index communication services sector XX:SP500.50 has risen 5.6%, while the information technology sector XX:SP500.45 has gained 5.2% compared to a 0.9% drop for the broader benchmark stock index SPX since March 8, when the Silicon Valley Bank first announced it had to sell all its available-for-sale securities to strengthen its deteriorating financial position.
A Fed 'pause,' yes, but interest-rate cuts this year? Forget it, Clarida says
The former vice chairman of the Federal Reserve said it's unrealistic to expect the central bank to start cutting interest rates in the near future given the persistence of high inflation.
Richard Clarida, who left the board in 2022, said the Fed is likely to raise rates one or two more times and then pause to see how much inflation declines. Higher borrowing costs reduce inflation by slowing the economy.
Deutsche Bank Selloff Focuses Attention on Credit-Default Swap Market
Last week's selloff in Deutsche Bank AG shares and bonds has drawn attention from regulators-and sparked broad debate about whether credit-default swaps caused the market stress, or simply reflected investor unease.
The instruments are derivatives that effectively insure the holder against a corporate default. The cost of insuring Deutsche Bank's debt against default in this way surged late last week, helping fuel an 8.5% decline in the bank's Frankfurt-traded stock on Friday. The episode had echoes of a social-media frenzy around Credit Suisse Group AG last fall, in which default-swap pricing also fed into a broader loss of confidence.
Saudi Arabia Strengthens Relations With China Amid Strained U.S. Ties
DUBAI-Saudi Arabia is strengthening its commercial and security ties with China, as U.S. influence wanes in the Middle East region.
The Saudi government approved partial membership in the Shanghai Cooperation Organization, a political and security bloc that includes China, Russia and India, the Saudi state news agency reported Wednesday. The decision comes ahead of a May meeting of foreign ministers from the regional grouping, where Iran recently gained full member status.
Satellite Operators SES, Intelsat Discuss Merger as Industry Looks to Consolidate
Satellite operator SES SA on Wednesday said it is in talks with Intelsat about a possible combination, the latest example of satellite-internet providers seeking to merge as competition intensifies.
Any deal between the two companies would position them to better compete with Starlink, the satellite-internet service operated by Elon Musk's SpaceX.
Microsoft Patched Bing Vulnerability That Allowed Snooping on Email and Other Data
Microsoft Corp. patched a dangerous security issue in Bing last month, days before it launched a new artificial intelligence-powered version of the search engine.
The problem was discovered by outside researchers at the security firm Wiz Inc. It was created by a mistake in the way that Microsoft configured applications on Azure, its cloud-computing platform, and could be exploited to gain access to emails and other documents of people who used Bing, the researchers said.
Elon Musk, Other AI Experts Call for Pause in Technology's Development
Several tech executives and top artificial-intelligence researchers, including Tesla Inc. Chief Executive Officer Elon Musk and AI pioneer Yoshua Bengio, are calling for a pause in the breakneck development of powerful new AI tools.
(MORE TO FOLLOW) Dow Jones Newswires
03-30-23 0016ET
