MARKET WRAPS
Watch For:
Flash PMI data for eurozone, France, Germany, UK; UK retail
sales, Bank of England market participants survey results; trading
updates from Smiths Group, Investor, Babcock International, OMV,
B&M European Value, Deutsche Boerse
Opening Call:
Shares are off to a shaky start in Europe on Friday, weighed by
concerns about banking-sector stability. In Asia, stock benchmarks
were broadly lower amid cautious sentiment; Treasury yields
dropped; the dollar gained; while oil and gold both fell.
Equities:
European stocks look set to dip on Friday, as worries about
potential weakness in the banking system resurfaced after a raft of
interest-rate decisions, including those from the Bank of England
and Federal Reserve.
Bank-stability risks are back in focus, a day after Federal
Reserve Chairman Jerome Powell said policy-makers would use their
tools to protect depositors.
Meanwhile, Treasury Secretary Janet Yellen said she wasn't
considering ways to guarantee all bank deposits at a Senate
hearing.
"The contradictions between Powell's comments and Yellen's were
confusing to the markets, but Yellen's remarks [on Wednesday] were
seen as backtracking on her commitment to helping keep small banks
and their depositors safe in the event of panic setting in, which
is the leading cause of contagion," LPL Financial said.
"The last thing markets need now is confusion and reneging from
its top government officials, but that is exactly what
happened."
---
The Bank of England is likely to pause rate rises after
Thursday's 25 basis points rate increase, as the U.K. economy is
more sensitive to rate increases compared to the U.S. and the
eurozone, said UniCredit Research.
The U.K. has a greater proportion of short-term fixed-rate and
variable-rate mortgages than the U.S. and eurozone and this makes
its economy more sensitive to rate changes, it said.
Goldman Sachs said the Fed and ECB will each hike 50 basis
points further from here.
The Fed, BOE, ECB, and SNB all increased their policy rates over
the last week, signaling that recent interventions to stem deposit
outflows and promote liquidity are sufficient to allow central
banks to continue their rate hike campaigns for now, GS said.
The policy rate path of major central banks will ultimately
depend on how much stricter lending standards weigh on growth, it
said.
Forex:
The dollar strengthened on possible safe-haven demand spurred by
lingering financial stability concerns.
Investors still appear to be seeking safety amid banking turmoil
as the VIX Index has remained at a relatively high level, said CMC
Markets.
Goldman Sachs said the FOMC's meeting shows Fed officials think
tighter credit conditions could be a substitute for rate increases
to slow the economy, much as economists do.
But these two policy channels have opposite implications for the
dollar, GS said. "Unlike a higher risk-free rate, tighter credit
conditions lower the expected real rate of return on domestic
assets and thereby deter portfolio flows and weaken the
currency."
AMP Capital said it seems the major central banks that have
tightened since the banking turmoil are determined to show they
have measures to deal with financial stability issues and so
monetary policy is free to deal with inflation.
The ECB and Fed hiked but toned down hawkish guidance on rates
as a result of the turmoil, while the BoE was likely forced over
the line by a rebound in inflation reported earlier this week. The
SNB is still playing catch up to the ECB with a policy rate of just
1.5%.
Bonds:
Treasury yields fell, as markets increasingly priced in a pause
in monetary tightening, likely after only one more 25-basis point
hike in May.
Economic data and signs of further economic damage from the
banking crisis are likely to keep moving Treasury markets.
ING said the Bank of England may have reached its peak policy
rate in the current cycle after a 25-basis-points rate increase on
Thursday to 4.25%.
Short-dated gilt-yield volatility should decline as a result, it
said, adding that it expects the BOE to hold rates at their current
level in the coming months.
"Stability in policy rates means lower volatility in front-end
yields, if the BOE can stick to its message of patience," it said.
"This volatility will be displaced to the longer end, especially if
a resilient economy pushes the inflation premium higher."
Fed funds futures traders priced in a 70% probability that the
Fed will stand pat in May, and a 30% chance that policy makers will
raise rates by another 25 basis points to between 5% and 5.25% by
then, according to the CME FedWatch tool.
The central bank is mostly expected by traders to cut its main
interest-rate target range to between 4% and 4.25%, or lower, by
the year-end despite Powell's statement on Wednesday that "rate
cuts are not in our base case."
"The Fed is no longer what markets are worried about and
neither, really, is a recession," Commonwealth Financial Network
said. "What markets are now worried about is a financial
crisis."
Energy:
Oil headed down in Asia, extending overnight losses.
There could be concerns the U.S. government may not be able to
refill its strategic reserve in the short term, after U.S. Energy
Secretary Jennifer Granholm told lawmakers that refilling the SPR
would be difficult this year, ANZ said.
"The market is also becoming increasingly impatient with the
rebound in economic activity in China," ANZ said, adding that
consumer spending there remains subdued despite a sharp pickup in
travel demand.
Traders also weighed the prospects for an economic recession a
day after the Fed delivered an interest rate hike and signaled at
least one more increase this year.
Metals:
Gold prices weakened after settling overnight at a more than a
year high on declines in U.S. Treasury yields and dollar
weakness.
The precious metal may remain in an upward trajectory over the
medium term, "especially if financial turmoil resurfaces and
threatens to create systemic risks," DailyFX said.
"Throw in some risk-aversion on the back of Yellen's comments on
the government not considering blanket insurance for bank deposits
and gold is beginning to shine once more," Oanda said.
The Fed's 25 basis-point rate hike, coupled with the ongoing
banking crisis, has further strengthened gold's position as a
"safe-haven asset, " said Joseph Cavatoni, chief market strategist,
North America, at World Gold Council.
"This has resulted in a noticeable increase in the price of
gold, indicating that both short-term speculators and long-term
investors are showing a strong interest in this asset."
"Although there may be ongoing short-term volatility in the gold
market as investors respond to the rate decision and economic
outlook, we expect investors to consider strategic long-term
allocations to gold over the course of the year," said
Cavatoni.
---
Copper prices were down amid market volatility due to the U.S.
banking crisis.
All eyes will be on whether the U.S. Fed will pause rate
increases amid the banking turmoil, which could be good news for
prices of the metal, ANZ said.
If the U.S. dollar weakens, that could also support copper
prices, ANZ added.
---
Chinese iron-ore futures fell amid worries over demand.
The top iron-ore exporters are likely to increase their
shipments in the coming months as supply-side disruptions abate,
but this comes amid signs of weakening demand, ANZ Research
said.
Chinese steel mills have been cutting their selling prices,
while spot prices for rebar used in construction have dropped
sharply, it added.
TODAY'S TOP HEADLINES
Yellen says U.S. would take 'additional actions' to stabilize
bank system if necessary
Treasury Secretary Janet Yellen on Thursday told lawmakers that
the federal government would take extra steps to stabilize the U.S.
banking system if necessary.
"We have used important tools to act quickly to prevent
contagion," Yellen said in testimony prepared for delivery to a
House Appropriations subcommittee. "And they are tools we could use
again."
SVB Sale Is Close. FDIC Seeking a Deal by Monday.
The Federal Deposit Insurance Corp. is planning to announce its
decision on the sale of Silicon Valley Bank this weekend, Barron's
Advisor has learned.
A person familiar with the FDIC's plans indicates that the
banking regulator hopes to present a resolution of the auction over
the weekend.
U.K. Consumer Confidence Rose to 12-Month High in March
Confidence among U.K. consumers rose in March to its highest
level in a year but remained subdued as persistently high inflation
continued to weigh on household finances.
Research firm GfK said its consumer-confidence barometer
increased to minus 36 in March from minus 38 a month earlier, in
line with economist estimates in a poll by The Wall Street
Journal.
TikTok Fight Rocks U.S.-China Relations
U.S.-China relations were dealt another blow as lawmakers at a
House hearing pummeled TikTok's chief executive over the popular
app's ties to China, and as Beijing said it would fight any U.S.
attempt to force the company's sale by its Chinese owners.
The hearing Thursday, peppered with withering attacks on TikTok
from both Democrats and Republicans, ran more than five hours and
underscored growing concern about Beijing's potential influence
over the app. U.S.-China relations are already frayed over trade,
Taiwan, technology and geopolitical rivalries.
Iran Could Produce Nuclear Weapon in Several Months if It
Decides to Do So, Mark Milley Says
Iran would need only several months to build a nuclear weapon if
Tehran opted to produce a bomb, Gen. Mark Milley, chairman of the
Joint Chiefs of Staff, told Congress on Thursday.
Gen. Milley's assessment provides a significantly shorter
estimate for how quickly Tehran could become a nuclear power than
other public estimates by Western officials and adds to mounting
concern about the advances in Iran's nuclear program.
U.S. Strikes Iranian-Backed Group in Syria After Drone Attack
Kills One American and Wounds Six
The U.S. carried out airstrikes against Iranian-backed militias
in Syria on Thursday after a drone struck a base used by U.S.
personnel in the northeast part of the country, the Pentagon
said.
One U.S. contractor was killed in that drone attack, which U.S.
intelligence officials said was carried out by an unmanned aerial
vehicle made by Iran.
Write to singaporeeditors@dowjones.com
Expected Major Events for Friday
00:01/UK: Mar UK Consumer Confidence Survey
05:30/NED: 4Q GDP - 2nd estimate
06:00/FIN: Feb PPI
07:00/SWE: Feb PPI
07:00/UK: Feb UK monthly retail sales figures
07:00/NOR: Feb Credit Indicator C2
07:00/DEN: Mar Business tendency survey
07:30/HUN: Feb Employment & unemployment
08:00/CZE: Mar Business cycle survey (consumer/business
confidence)
08:00/SPN: Feb PPI
08:00/SPN: 4Q Final GDP
08:15/FRA: Mar France Flash PMI
08:30/GER: Mar Germany Flash PMI
09:00/EU: Mar Eurozone Flash PMI
09:00/ICE: Feb PPI
09:30/UK: Mar Flash UK PMI
14:00/BEL: Mar Business Confidence Survey
15:59/UKR: 4Q Unemployment
16:59/SPN: 4Q Quarterly Balance of Payments
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(END) Dow Jones Newswires
March 24, 2023 01:15 ET (05:15 GMT)
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