MARKET WRAPS
Watch For:
EU, Italy retail sales; EU ECB survey of professional forecasters; Germany manufacturing orders, manufacturing turnover; France industrial production index, flash estimate of job creation; UK construction PMI; trading updates from Air France-KLM, Caixabank, adidas, Galp, Intesa Sanpaolo, Clariant, Thales, IAG, Sberbank
Opening Call:
Shares may open in positive territory in Europe on Friday, following earlier losses. In Asia, stock benchmarks were mixed; the dollar lost ground, with all eyes on U.S. payrolls data; while oil advanced and gold was barely changed.
Equities:
European shares could rise on the heels of previous declines amid risk-off sentiment after further interest rate rises by the Federal Reserve and the European Central Bank, as well as fresh concerns over the health of U.S. banks.
Some investors said Fed Chair Jerome Powell might have unsettled the market by still leaving the door open to future rate increases to combat inflation and not expressing greater concern about the banking system.
Barings expects stocks and bonds to bounce between gains and losses in the near-term as bouts of anxiety are tempered by solid economic data.
"We have still very tight labor markets, we have healthy wage growth, we have housing prices that aren't falling anymore and some of them may be rising again," it noted.
But it acknowledged that investor confidence was proving fickle at the moment, with seemingly one bank after the next coming under intense selling pressure.
Investors also added to bets that the Fed would cut interest rates later in the year, owing to an anticipated slowdown in economic growth and inflation.
Investors also fear the Fed might be powerless to ease pressure on the banking sector by cutting rates, said RIA Advisors.
"The Fed is stuck, if this would have happened prior to Covid and inflation wasn't an issue, the Fed would be talking about cutting rates or slowing down on quantitative tightening or stopping it. But right now, they have an inflation problem to deal with," it said.
Traders have already priced in a pause in Federal Reserve's monetary tightening at the June and July policy meetings, followed by multiple interest-rate cuts by year-end, according to the CME FedWatch Tool.
Forex:
The dollar weakened in Asia ahead of the U.S. nonfarm payrolls report due out later.
With the Fed now likely to pause in raising rates, traders will probably be more sensitive to unexpected weakness in the labor market than strength, said Matthew Weller, global head of research at FOREX.com and City Index.
If the report shows fewer than 125,000 net new jobs and wages rising less than 0.2% on month that would likely be USD-bearish, Weller added.
An easing in the labor market "is the last missing piece of the puzzle required to open the door for a genuine Fed pivot [and it] is falling into place," Deutsche Bank said in a note.
They question Chair Powell's assertion that the labor market remains extraordinarily tight, pointing to the quit rate, "which is now back in its pre-Covid range," it said.
"The quit rate is one of the most reliable indicators of [labor] market slack," Deutsche Bank said.
Markets are pricing a pause in Fed hikes in June and cuts starting as soon as July, according to the CME FedWatch tool.
Bonds:
Treasurys didn't trade in Asia due to a holiday in Japan.
Treasury yields finished lower on Thursday, a day after the Federal Reserve delivered its 10th straight rate hike --a divergence which reflects the market's view that central bankers are committing a policy error.
Traders saw a slight risk that the Fed will need to cut borrowing costs as soon as June. A falling two-year rate accompanied by a rising fed funds rate target, now above 5%, has historically signaled that traders think policy makers are making a mistake.
The prospects of further stress in the bank sector had fed funds traders pricing in a 100% likelihood of rate cuts this year, despite Chairman Powell's efforts on Wednesday to dash expectations of such action soon.
As of late Thursday, fed funds futures traders saw a small 5.7% chance that the first rate cut will take place in June, while pricing in a 94.3% probability that the Fed will leave interest rates unchanged at between 5% to 5.25% next month, according to the CME FedWatch tool.
The central bank is mostly expected to take its fed funds rate target down to between 4% and 4.25%, or lower, by December, according to 30-day Fed Funds futures.
Energy:
Oil prices rose in Asia amid possible position adjustments.
However, oil prices could remain under short-term pressure in the absence of strong signals from the physical market, said ANZ.
Investors have turned increasingly bearish about demand in developed markets, sparked by tighter monetary policy and the banking crisis, although this will likely be offset by slowing supply growth, it added.
For now, "it appears that recession concerns are the number one driver to watch for oil traders," said Jameel Ahmad, chief analyst at CompareBroker.io.
"The widespread selling that has taken place across recent days has also shown us that if there was a global asset that we can say has been particularly sensitive to recession fears, it is oil," he said.
He also said "central bank officials appear fairly confident that the economic downturn will not be as drastic as initially feared, which might subsequently mean that too much sensitivity has been priced into oil over recent weeks."
Metals:
Gold was flat after the precious metal marked its highest settlement since August 2020.
The real economy is likely to get knocked down a lot, given what is happening with financial institutions, and this will probably keep demand elevated for safe havens such as the precious metal, Oanda said.
Gold traders believe they have "a real shot at recording another all-time high as the Fed has finally thrown in the towel on the interest-rate-hike agenda," said Zaye Capital Markets.
"However, it is important not to underestimate the Fed, as it can and will change its narrative fairly swiftly if inflation doesn't tame."
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Copper edged up after the U.S. Fed signaled that it might pause its policy tightening.
Lower interest rates tend to be supportive of prices of commodities like copper.
ANZ said that gains in the metal are being supported by a weaker dollar and as appetite for risk assets increases on bets that the rate-hike cycle may be coming to an end.
Weakness in the greenback can heighten the appeal of the dollar-denominated metal.
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Chinese iron-ore futures were lower, as the steel-making ore continued to pull back.
The commodity's demand outlook may remain subdued in the near term, said Guangzhou Finance Holdings Futures.
Buyers and traders are worried over potential steel production curbs by the government later this year, which will weigh on iron-ore demand, they said.
Moreover, Beijing's recent indication to tighten regulatory scrutiny over price speculation in the iron-ore market, following a price rally in early 2023, could also damp buying sentiment, they added.
TODAY'S TOP HEADLINES
Russia Accuses U.S. of Helping Kyiv to Plan Kremlin Attack
Moscow accused the U.S. of organizing this week's drone attack on the Kremlin, while Washington denied any involvement and began its own investigation into what happened.
Speaking in Moscow, Kremlin spokesman Dmitry Peskov on Thursday promised a "balanced response" and dismissed suggestions from Ukraine that Russian President Vladimir Putin's domestic opponents were behind Wednesday's incident. White House press secretary Karine Jean-Pierre added to the doubts Wednesday, saying that Russia has a history of carrying out so-called false-flag attacks.
Bud Light Maker Compensates Workers Targeted in Dylan Mulvaney Backlash
The maker of Bud Light said it would triple its planned U.S. marketing spending on the brand this summer and is providing financial support to front-line teams and wholesalers who have taken the brunt of a backlash to a company promotion with a transgender influencer.
Anheuser-Busch InBev also will continue its support of LGBT rights organizations, said the company's chief executive, Michel Doukeris.
Biden Signs Executive Order to Levy Sanctions Related to Sudan Crisis
President Biden signed an executive order enabling the U.S. to impose new sanctions on individuals and entities related to the conflict in Sudan.
The order, published Thursday, expanded the scope of the U.S. sanctions regime against the East African nation to allow the U.S. Treasury Department and the State Department to blacklist people and entities involved in activities that threaten the peace, security and stability of Sudan.
Apple Finds Strength in India as Overall Sales Fall for Second Straight Quarter
Apple reported its second straight quarter of declining revenue but said iPhone sales surged due to strong demand in emerging markets, a sign of resilience as the tech giant continues to face economic uncertainty.
This is the third time in a decade that the iPhone maker has posted back-to-back quarters of falling revenue. The tech giant's revenue for the three months ended April 1 was $94.8 billion, down 3% from the year-earlier period. Net income dropped 3% year-over-year to $24.2 billion. Apple exceeded analyst expectations, according to FactSet, of $92.9 billion in sales and $22.6 billion in net income for its fiscal second quarter.
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Expected Major Events for Friday
05:45/SWI: Apr Unemployment
06:00/ROM: Mar Retail trade
06:00/GER: Mar Manufacturing orders
06:00/GER: Mar Manufacturing turnover
06:00/NOR: Mar Industrial Production Index
06:30/HUN: Mar Retail Sales
06:30/SWI: Apr CPI
06:30/HUN: Mar Preliminary Industrial Production
06:45/FRA: Mar Industrial production index
06:45/FRA: 1Q Flash estimate of job creation
07:00/SVK: Mar Internal trade, incl Wholesale & Retail
(MORE TO FOLLOW) Dow Jones Newswires
05-05-23 0016ET
