MARKET WRAPS
Stocks:
European stocks were higher on Thursday as investors waded through earnings, with banks especially in focus.
"We have banks like Barclays reporting strong numbers, but traders should keep in mind that overall higher interest rates in Europe and the UK represent a significant threat to the mortgage portfolios that these banks hold," Zaye Capital Markets said.
Zaye added that the banks "are setting aside big chunks of money to weather that storm, but what matters here is the intensity of that storm, and no one can really tell how strong that will be."
Stocks on the Move
Barclays was at the top of London's blue chip index after the bank posted first-quarter results ahead of expectations, driven by a beat in its fixed income, currencies and commodities business.
"The diversity of the group's businesses is a boon to Barclays through the various economic cycles and, to some extent, the three main units are all hitting something of a sweet spot," Interactive Investor said, adding that the strength of the numbers and the unchanged outlook will give some comfort to embattled investors.
Meanwhile, St. James's Place sat at the bottom of the FTSE 100 index as its shares shed over 4% in early trade after the wealth manager posted first-quarter net flows below market views.
"Net flows missed consensus by 9% as both withdrawals / maturities and surrenders showed some normalization to historical levels, which may partially reflect cost of living pressures," Citi said.
The brokerage sees some downward pressure on net flows for 2023 as it expect consensus to build in surrender or withdrawal levels which align more to historical averages, it added.
Gross flows were broadly in line with consensus and down 12% on-year, which is consistent with U.K. advisor-based peers who have reported declines of 13%-14%, Citi said.
Market Insight
The release of weak 1Q earnings by First Republic Bank has renewed concerns about global banking sector stability and led to widening spreads for riskier European bank credit, ABN Amro said.
Spreads of Tier 2 debt and Additional Tier 1 (AT1) bonds--some of the most risky bank credit--have widened by roughly 10 and 20 basis points so far this week, it said.
"Spreads of riskier ranks of debt are likely to remain under pressure as long as the situation related to First Republic Bank remains unresolved."
U.S. Markets:
Stock futures were rising, with Nasdaq contracts out front. The earnings beat from Meta Platforms is likely to send stock in the company surging when the market opens. Its shares rose 10% in premarket trading.
Other Stocks to Watch
eBay rose 3% in premarket trading after it swung to a profit in the first quarter and adjusted earnings topped forecasts.
Hilton Worldwide raised its full-year outlook after topping analysts' expectations for the first three months of the year. Shares rose nearly 5% before the bell.
Earnings are expected from Amazon and others. Economic updates set for release include the reading of first quarter GDP, weekly initial jobless claims, and pending home sales for March.
Follow WSJ markets coverage here
Forex:
Markets seem to favor the euro over other currencies when the dollar falls on a scaling back of interest rate expectations for the Fed and U.S banking concerns, ING said.
Investors prefer currencies that offer ongoing monetary policy tightening and room for a "hawkish surprise" at upcoming central bank meetings like the ECB, ING said.
"The euro is one of the very few currencies that can offer this combination at the moment, and we don't fail to see its attractiveness compared to peers," it added.
"Today, a stabilisation around [EUR/USD] 1.1050/1.1100 seems plausible, although a break above 1.1100 could trigger another substantial rally in the pair."
---
The dollar edged lower as investors look ahead to the release of first-quarter U.S. gross domestic product data later in the session.
The data are unlikely to change the market's view that the Fed will cut interest rates in the second half of 2023, Commerzbank said.
"The GDP data will probably confirm the picture of a robust economy, albeit with reduced momentum, so that the market is likely to feel confirmed in its view that inflation and economic developments will justify imminent rate cuts."
Read Dollar Could Fall Further if Fed Signals Pause in Rate-Rise Cycle
Bonds:
The 10-year Italian BTP-German Bund yield spread faces the risk of widening above 200 basis points following Moody's Investors Service's review of Italy on May 19, Mizuho said.
"The negative tone from the latest Moody's article concerning Italy has re-ignited market jitters," it added.
The 10-year BTP-Bund spread has widened but hasn't gone above 200bps, Mizuho said.
"Nonetheless, the risks of that with the Moody's decision on the horizon are on the rise."
Energy:
Oil edged higher after a sharp drop that took it to a four-week low.
The international oil benchmark has now completely erased the gains it made following the surprise production cut from Saudi Arabia and others less than a month ago.
The reversal has been driven by concerns about the health of the global economy, prompted by lingering concerns about bank stability and falling diesel prices.
"Falling refining margins and worries over the recovery in China's commodity-intensive economy have continued to weigh on oil futures," Commonwealth Bank Australia said.
Oil prices this week have also overlooked data showing falling U.S. inventories, typically a signal of strong demand.
Metals:
Base metal prices were moving lower while gold rose, amid worries over the U.S. financial sector.
Worries around First Republic have been spreading through the market, with the U.S. government currently unlikely to intervene at this stage, Deutsche Bank said.
"There's still concern among market participants that the turmoil we saw last month could flare back up again," Deutsche said, adding that the stresses the financial sector is seeing could stop the Fed hiking interest rates past May--a boon for non-yielding assets like gold.
Lithium
The pace of transition to the green economy could be slowed because of increasing resource-nationalism, with countries such as Chile moving to nationalize its lithium assets, a potential headwind for green uptake, ANZ Research said.
Lithium prices have fallen 75% this year, amid worries over Chinese electric-vehicle demand and rising supply, ANZ said.
"These concerns may be unwarranted."
If the lithium resource is nationalized in Chile--the country with the world's largest reserves--then delivery to the market could be slowed with the country wanting to use "unproven" technologies to make the extraction process more environmentally friendly, it said.
"This could delay the delivery of its pipeline of projects," ANZ said, adding that it expects prices to rebound on this.
DOW JONES NEWSPLUS
EMEA HEADLINES
Deutsche Bank Reports Higher Profit in Tumultuous Quarter
Deutsche Bank AG said its business held up well during March's banking turmoil, with first-quarter profit rising 8% as it continued to benefit from rising interest rates.
The performance of its bread-and-butter lending and deposit-taking business offset a weaker performance for its investment-banking operation, which continued to be hit by a drought in deal making and capital raising by clients.
Barclays Profit Lifted by U.S. Credit-Card Business
Barclays PLC's profit rose robustly in the first quarter despite banking turmoil that roiled both sides of the Atlantic.
Profit grew 27% in the first three months of the year from a year earlier, to GBP1.78 billion, or about $2.22 billion, the British bank said Thursday. Analysts had expected a profit of GBP1.45 billion, according to a Barclays poll.
Europe Moves Toward Cutting a Last Source of Russian Energy
Europe is taking steps to turn off one of the last significant supplies of Russian fossil fuels, seaborne shipments of liquefied natural gas.
The question is whether the move would hurt Europe more than Russia.
AstraZeneca 1Q Profit Rose, But Decline in Covid-19 Drug Sales Hurt Revenue
AstraZeneca PLC on Thursday reported a rise in profit for the first quarter, but said a decline in sales of its Covid-19 medicines hurt revenue.
The Anglo-Swedish pharma giant posted net profit of $1.80 billion for the period, up from $388 million the year prior, and beating analysts' expectations of $1.52 billion.
BBVA 1Q Net Profit Rose Ahead of Views, Driven by Higher Net Interest Income
Banco Bilbao Vizcaya Argentaria SA said Thursday that net profit rose in the first quarter, beating consensus expectations, as higher rates boosted net interest income.
The Spanish bank said net profit was 1.85 billion euros ($2.04 billion) compared with EUR1.325 billion in the year-earlier period. The lender attributed the rise to the performance of its banking business and net interest income in particular.
Swedbank 1Q Net Profit Beats Forecasts; Boosted by Higher Income
Swedbank AB on Thursday reported a 68% rise in first-quarter net profit, beating market forecasts, as it benefited from higher income.
The Swedish lender made a net profit for the quarter of 7.56 billion Swedish kronor ($732.4 million) compared with SEK4.48 billion for the comparable period a year earlier and a FactSet consensus of SEK6.76 billion.
Volvo Car 1Q Earnings Beat Forecasts, Cautions on Volatile Environment
Volvo Car AB on Thursday posted a smaller-than-expected drop in first-quarter earnings and cautioned that the external environment remains challenging and volatile.
Net profit attributable to shareholders slipped to 3.61 billion Swedish kronor ($349.8 million) from SEK3.85 billion a year earlier, as revenue rose 29% to SEK95.71 billion.
WPP first quarter revenue rises to $4.21 billion
(MORE TO FOLLOW) Dow Jones Newswires
04-27-23 0630ET
