EU New Passenger Car Registrations, Trade Balance, Industrial Production; Germany PPI; Italy Foreign Trade EU; UK Card Spending; IMF Fiscal Monitor; G7 Finance Ministers and Central Bank Governors Meeting; updates from Danone, Carrefour, Hermes, Tod’s, ASML, Wood Group, Just Eat, Bunzl, Vopak, Heineken, Serco, ABN AMRO, CRH
A rebound on Wall Street should help support modest gains for European shares early Wednesday. In Asia, most major benchmarks advanced despite higher oil prices and a continued surge in Treasury yields; the dollar dipped slightly and gold suffered more losses.
European shares should stabilize Wednesday, recovering some of the previous session’s losses after Wall Street closed sharply higher.
The Dow jumped nearly 500 points Tuesday, while tech-inspired gains helped lift Nasdaq and the S&P 500, as investors weighed whether a raft of corporate earnings results will help markets break out of a recent rut.
This week is one of the busiest weeks in the U.S. quarterly earnings reporting season, after a raft of banks posted somewhat disappointing first-quarter results last week.
“I would continue to forecast solid profit growth,” despite challenges companies have been facing such as high inflation, said Greg Marcus, managing director at UBS Private Wealth Management.
“The onslaught of earnings over the next 1.5 weeks brings some of the conversations back to the short term. Still, many overhangs remain and I’m not sure corporate results in themselves will be enough to alter the current debates meaningfully,” wrote Stephen Innes of SPI Asset Management.
Stocks to Watch:
Another soft operational update leaves Rio Tinto “with plenty of work to do,” RBC Capital Markets analyst Tyler Broda said. “Today’s result continues to shine a light on the challenges Rio Tinto is facing and is in our view, especially into a potential drop in iron ore prices, unlikely to allow the shares to recoup their recent underperformance.”
Other than bauxite, every division missed Broda’s expectations in the first quarter.
Jefferies said Rio Tinto’s production and shipments might have been relatively soft, but the investment case for the miner should improve over the course of 2022 as its iron-ore product quality gets better and its aluminum output rises.
Jefferies, which has a hold rating on the stock, reckons higher copper production, the possible takeover of Turquoise Hill and operational improvements, among other things, should help too. However, the miner could face a temporary period of weaker commodity prices due to expected weakness in demand later this year.
Read: Rio Tinto’s First-Quarter Australian Iron-Ore Shipments Fell 8%
The dollar weakened slightly while the yen strengthened against most G-10 currencies in a largely risk-off Asian session.
CBA currency strategist Joseph Capurso said the odds of currency intervention by Japan are rising though still not a baseline scenario.
“We do not know what level of USD/JPY is the line in the sand. Expect more comments from senior official about the need for stability in the yen. If there is to be intervention by the authorities, we judge it will most likely happen this month. Japanese government officials are more concerned about the speed of JPY weakness rather than the weakness,” Capurso said.
The Swiss franc’s depreciation Tuesday suggests rising global yields are finally making their mark on the currency, Saxo Bank said.
The franc’s recent strength despite rising yields and Switzerland joining other countries in sanctioning Russia suggests there is some residual safe-haven seeking in the currency, some of it possibly linked to the French presidential election.
If Marine Le Pen fails to secure a victory in the French election Sunday and yields continue to rise globally, the franc “could be in for some catch-up weakening,” forex strategist John Hardy said.
Sterling could suffer sharper falls versus the dollar this week as traders bet on the Federal Reserve raising interest rates more aggressively, ING said.
“Cable [GBP/USD] is currently trading around 1.3000: breaks below this level have proven to be very short-lived in previous instances [March-April], but we think that a supported dollar and the lack of major drivers for sterling this week could support a more decisive depreciation in GBP/USD,” ING said.
A selloff in long-dated Treasury maturities continued Wednesday, with the yield on the 10-year note extending gains above 2.9% as traders priced in the prospects of aggressively higher U.S. interest rates to control inflation.
On Tuesday, Charles Evans, president of the Fed’s regional bank in Chicago, indicated policy makers could raise the key U.S. interest rate target to 2.5% – and likely higher.
“We are really now in the countdown to the Fed’s meeting on May 4th and, the day after that, a meeting at the Bank of England. The market in the U.S. looks perfectly set up for a 50-bps rate hike from the Fed and with few Fed speakers this week to muddy the waters, we’d expect limited market ructions should the Fed lift rates by 50-bps early next month,” said Steven Barrow, head of G-10 strategy at Standard Bank, in a note.
Read: Two Fed Officials Doubt Need for Super Aggressive Front Loading for Rate Increases
The European Central Bank reconfirmed last week that its Asset Purchase Program will end in the third quarter, leaving credit “very unsupported” from September, said ING.
Reinvestments will still be “decent” in September, at around EUR2.5 billion under the central bank’s Corporate Sector Purchase Program [CSPP] but will be relatively low thereafter for the remainder of the year.
“The ECB has already reduced its normal 40% orders in primary market purchases in CSPP down to 30%. We may even see this drop to 20% in May/June, before the programme ends.”
Oil futures recovered some of Tuesday’s heavy losses, as expectations of a demand rebound in China helped support sentiment.
Even though aviation traffic–both domestic and international–has fallen significantly, road-traffic activity in China remains robust, Rystad Energy senior vice president of analysis Claudio Calimberti said.
Hong Kong traffic activity has increased since Covid-19 restrictions were eased, and Beijing road-transport activity is already at 110% of 2019 levels, Calimberti noted. This should help support demand for fuel and, hence, oil.
Oil prices fell more than 5% Tuesday to settle at their lowest in a week, as traders weighed a Libyan supply outage, China’s Covid lockdowns and surging dollar.
Late Tuesday, the API reported inventories of crude oil in the U.S. dropped by 4.5 million barrels in the latest week, while gasoline supplies jumped by 2.9 million barrels.
The results, bullish for crude but bearish for products, were released ahead of official inventory data from the DOE due later Wednesday. Average forecasts in a WSJ survey indicate the DOE report will show crude inventories rose by 2.2 million barrels and that gasoline supplies decreased by 800,000 barrels.
Gold extended its retreat in Asia as bond yields continued to surge and as expectations firmed for ongoing Fed interest-rate hikes.
Gold fell almost 1.5% Tuesday from a 5-week high to its lowest finish in a week as the USD Index touched a more than 2-year high.
Lukman Otunuga, manager, market analysis at FXTM said gold has the potential trend higher, based on the charts, but seems to be forming a new range.
Support is seen at around $1,960 an ounce with resistance at $2,000. A move back below $1,960 could trigger a selloff toward $1,920, while a solid breakout above $2,000 could pave the way for tests of resistance levels seen at $2,009, $2,015 and $2,050.
Copper prices rose on supply disruptions, as the MMG-operated Las Bambas copper mine in Peru faced a production halt, ANZ Research said.
The mine won’t be able to continue production as of Wednesday after local protesters entered the property last week, MMG has said.
However, ANZ said there are price headwinds after the World Bank this week downgraded its 2022 global growth forecast, potentially signaling weaker copper demand. The IMF has also lowered its forecast for global growth, further dimming the outlook for the world economy.
TODAY’S TOP HEADLINES
Two Fed Officials Doubt Need for Super Aggressive Front Loading for Rate Increases
Two Federal Reserve officials made the case on Tuesday for ongoing interest rate increases to combat inflation, but said uncertainty over the economic outlook makes it hard to say how aggressive the central bank will need to be.
Federal Reserve Bank of Chicago President Charles Evans said in an appearance in New York that he sees the federal-funds target rate reaching around 2.25% to 2.50% by the end of the year, which could include a couple of half percentage point increases.
China Benchmark Lending Rates Remain Unchanged
BEIJING-China’s central bank on Wednesday held its benchmark loan rates unchanged as expected, after it kept its key policy rates stable last week.
The People’s Bank of China said the one-year Loan Prime Rate stayed at 3.7%, while the five-year rate remained at 4.6%.
Japan’s Exports Grew for 13th Consecutive Month in March
Japan’s exports increased in March for the 13th consecutive month, driven by robust demand for steel and semiconductor manufacturing equipment, Ministry of Finance data showed Wednesday.
Exports rose 14.7% from a year earlier in March. That compared with February’s 19.1% increase and was weaker than the 18% increase expected by economists surveyed by data provider FactSet.
Rio Tinto’s First-Quarter Australian Iron-Ore Shipments…