MARKET WRAPS
Watch For:
U.K. monthly unemployment figures; Germany ZEW Indicator of Economic Sentiment; Italy Foreign Trade EU; trading updates from Sika, BMW, Lagardere, Deliveroo, X5 Retail Group, easyJet, Anglo American, Entain, MFE-MediaForEurope
Opening Call:
Shares look set to rise in Europe on Tuesday with the first full week of first-quarter earnings season in the U.S. under way. In Asia, stock benchmarks were mostly lower; Treasury yields fell; the dollar weakened; while oil and gold futures gained.
Equities:
European stocks could head higher early Tuesday, ahead of a busy week of earnings, with some of the biggest U.S. corporations due to report.
The first-quarter earnings picks up steam this week, with 60 S&P 500 companies, including six Dow components, reporting quarterly results, according to FactSet.
"We have a pretty conservative view of earnings over the next 12 to 18 months," said Gabelli Funds.
"I think the market has come to terms with the fact that the Fed will be hiking again in May," said Jane Foley, head of foreign-exchange strategy at Rabobank.
What happens at Fed meetings in June and beyond remains uncertain, but a lineup of Fed speakers this week may offer some clues, she said.
"Whereas attention was on a lot of big banks last week, this week you have a lot of regional or midsize banks reporting. People will want to know what they plan to do with their loan books and how conservative they will be," said Derek Tang, an economist at Monetary Policy Analytics.
Banking stress "has been contained and is not getting worse, and people are taking that as good news," as markets position for the likelihood of one more Fed hike and possibility that policy makers won't cut rates as quickly as thought, Tang said.
Some analysts said that investors should be cautious despite the lull in stocks lately.
Jake Jolly, head of investment analysis at BNY Mellon Investment Management, said he expects the economy to take a turn for the worse later this year and for U.S. businesses to have a tougher time accessing credit.
"We do think the most likely scenario is a credit crunch," he said.
Read: Even a mild recession could cause stocks to crater by 15% or more, JPMorgan's Kolanovic says
Forex:
The dollar weakened early Tuesday after data showed China's economy accelerated in the first three months of the year, pointing toward a robust recovery from three years of strict pandemic policies that had held back the world's second-largest economy.
Policymakers are most uncertain about the degree to which tighter credit standards will substitute for changes in the price of credit through rate hikes, which is key for FX, a Goldman Sachs team said.
Investor positioning in the dollar switched to underweight in April after a brief and reluctant move higher last month, according to Bank of America's latest foreign exchange and rates survey.
Dollar sentiment is much more negative than the change in exposure, suggesting significant further room to add to short positions which bet on the currency falling, BofA analysts said.
The survey also showed that the consensus forecast is for a U.S. recession with 45% of investors expecting the Federal Reserve to cut interest rates in the second half of 2023.
Bonds:
Treasury yields were lower early Tuesday, reversing from Monday's gains.
Treasury yields climbed Monday after data showed that the New York Fed's Empire State business conditions index, a gauge of manufacturing activity in the state, jumped 35.4 points in April to 10.8.
Economists had expected a reading of negative 15, according to a survey by The Wall Street Journal.
However, the hawks remain in the driver's seat even among expectations of a sharp slowdown on housing starts.
March housing starts due later today is expected to have shrunk by 3.4%, reversing a 9.8% expansion in February.
Expectations that the Federal Reserve will raise interest rates in a few weeks time have hardened as consumers see inflation over the coming year at a higher level than previously thought, while bank earnings appear healthier than expected.
Markets are pricing in an 86.1% probability that the Fed will raise interest rates by another 25 basis points to a range of 5.0% to 5.25% at the conclusion of its next policy meeting on May 3, according to the CME FedWatch tool. That's up from 78% on Friday.
Traders also appeared to have become less concerned about the chances of sharp vacillations in bonds from surprises in rates.
Energy:
Oil futures gained early Tuesday, supported by improved sentiment after China's economic data signalled a robust recovery.
China's 1Q GDP grew 4.5% on year, beating the 4.0% expansion predicted by economists polled by The Wall Street Journal.
1Q GDP "beat market expectations amid mixed March activity data, suggesting a very strong post-reopening recovery in China," said Goldman Sachs analysts.
China is the one of the world's largest oil importers.
While OPEC's decision to cut output by more than 1 million barrels a day will not take effect until next month, ANZ analysts expect the cuts "will increase the market deficit to 2mb/d in 2023."
Some traders believe that the U.S. economy is going to continue to slow down further, said Naeem Aslam, chief investment officer at Zaye Capital Markets.
"This is limiting the upside for oil prices, and we see selling pressure building up," he said.
For now, oil prices are "more likely to grind to the downside, and we may see crude oil moving below the $80 handle," with a move toward the $78 price handle possible, Aslam said.
Metals:
Gold futures rose after declining overnight on a stronger dollar that was supported by Fed Gov. Waller's comments that inflation was "still much too high."
While precious metals like gold tend to weaken when the U.S. currency and rates rise, DailyFX's contributing strategist Diego Colman reckoned that gold's bullish bias remains in place despite Monday's small pullback.
"If bulls manage to defend the $2000 floor and spark a rebound off of that zone, initial resistance lies at $2,060," he said.
In addition to a stronger dollar, "gold has also been held back by a selloff in government bonds, causing bond yields to rise, which, in turn, has undermined zero-yielding assets like gold," said Fawad Razaqzada, market analyst at StoneX.
Even so, "while the metal may well extend its drop in the short-term, my longer-term gold outlook remains positive," he said.
"I therefore envisage a rise to a new record high soon."
"The fact that major central banks are at or near the peak means interest rates will fall back going forward and thus keep gold's appeal intact as a haven asset," he added.
--
Gains in Chinese iron-ore futures narrowed after China released weaker-than-expected fixed-asset-investment and industrial-production data.
Investment in buildings, machinery and other fixed assets declined 0.3% on month in March.
Industrial production rose 3.9% on year in March, short of the estimated 4.1% increase in a WSJ poll.
"We see fairly modest growth in industrial production as a result of the drag imposed by weakening external demand in the U.S. and Europe," ING economist Iris Pang said.
--
Tin prices climbed early Tuesday amid supply worries.
There are concerns over supply in Myanmar, CBA said, noting that the northern area, which has been controlled by the United Wa State Army, has announced the suspension of mining operations from Aug. 1.
This decision to halt mining will sideline roughly 10% of global tin concentrate supply, with China's tin smelters the most exposed to the suspension of tin mining in the Wa state, CBA added.
TODAY'S TOP HEADLINES
China's Economy Rebounds After Three Years of Zero-Covid Isolation
SINGAPORE-China's economy accelerated in the first three months of the year, pointing toward a robust recovery from three years of strict pandemic policies that had held back the world's second-largest economy.
China's gross domestic product expanded by 4.5% in the first quarter of the year compared with the year earlier, the country's National Bureau of Statistics said Tuesday, as the lifting of three years of tough Covid-19 controls and Beijing's supportive policies helped to rekindle growth.
State Street, Schwab See Deposits Drop
Charles Schwab Corp. and State Street Corp. both reported a decline in customer deposits, the latest sign that rising interest rates continue to weigh on banks' balance sheets.
At Schwab, the brokerage giant, deposits fell 11% to $326 billion from the previous quarter and were down 30% from a year earlier. State Street, one of the largest custody banks, said Monday that deposits totaled about $224 billion at the end of the first quarter, down 5% from December and 11% from a year ago.
U.S., Allies Weigh How to Reduce Economic Ties With China
WASHINGTON-The U.S. and its allies are grappling with how to pare their economic relationships with China, attempting to limit ties in certain sectors they view as strategic while preserving broader trade and investment flows with the world's second-largest economy.
Russia's invasion of Ukraine changed how Western powers think about their strategy toward China, another geopolitical rival and a close partner of Moscow. Russia throttled natural-gas exports to Europe during the war, destabilizing global energy markets.
Saudi Arabia, U.A.E. Scoop Up Russian Oil Products at Steep Discounts
As Russia scours the globe for buyers of its energy products, it is finding eager trade partners in an unlikely place: The oil-rich petrostates of the Persian Gulf.
Since Western sanctions over the war in Ukraine cut off Russia from many of its established trading partners, state companies from Saudi Arabia and the United Arab Emirates have stepped in to take advantage of discounted prices for Russian products, according to oil executives and industry analysts.
Many French Tune Out Emmanuel Macron's TV Address on Pension Overhaul
(MORE TO FOLLOW) Dow Jones Newswires
04-18-23 0014ET
