MARKET WRAPS

Stocks:

European stocks were lower on Friday and likely to end the week on a sour note, as a round of growth data showed some surprising resilience, adding to worries that interest rates will continue to rise.

Read Europe's Economy Avoids Recession-Just About

Stocks to Watch

Jefferies said the Chinese economy will remain robust in the near term, which provides good opportunities to global companies with strong business exposure in China.

"Shadow China stocks also tend to be moats with resilient earnings and will be in demand as the global economy slows," Jefferies said.

It prefers high operating-leverage sectors where revenue growth was boosted by China's reopening for investors seeking direct access to Chinese equities. These include retail, durables and construction service sector.

Next Week's ECB Meeting

BNP Paribas Markets 360 has raised its forecast for the European Central Bank's peak deposit rate by 25 basis points to 3.75%.

"The fast recovery in market conditions from banking sector jitters has left the ECB's baseline scenario largely intact and poses upside risks to ours," it said.

BNP's base case for the upcoming May 4 ECB meeting is a 25bp rate rise, but it said the risks of another 50bp move has risen, and will also be influenced by next week's inflation data and Bank Lending Survey. Both of those are due on May 2. BNP Paribas Markets 360's forecasts are in line with money market forwards.

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Barclays said the bulk of the market's upward repricing of the ECB's terminal rate from the March lows is likely now behind.

Pricing of the terminal rate is currently around 3.75%, according to Refinitiv, up from lows of around 3.2% in mid-March.

"Even so, we think there could potentially be room for the pricing to push towards the 4% level [which had been breached in early March prior to the emergence of financial stability worries]," Barclays said.

This could happen if dataflow in coming weeks continues to support the narrative of resilient euro area growth and sticky core inflation.

Read Inflation Data to Be Decisive for ECB's Rate Decision

U.S. Markets:

Stock futures pointed to a lower start, with tech weaker after caution from Amazon.com on its cloud sector, while investors awaited an update on the Federal Reserve's preferred inflation gauge.

For Friday, the employment cost index, personal income and spending and the core personal-consumption expenditures price index are all due ahead of the opening bell.

The PCE index is one of the last major pieces of data before the Fed's meeting next week in which another 25 basis-point rate increase is widely expected.

The CME FedWatch Tool is pointing to a 88% chance of a quarter-point rate increase next Wednesday by the central bank.

Stocks on the Move

Shares of regional lender First Republic Bank extended declines after reports that authorities are working on brokering new assistance for the bank. The stock traded up 7% in Friday's premarket. That followed an 9% gain on Thursday.

Officials from the U.S. government, Federal Reserve, and Federal Deposit Insurance Corporation are coordinating meetings to provide a lifeline to First Republic, Reuters reported, citing unidentified people close to the talks. First Republic didn't immediately respond to a request for comment early Friday.

Other regionals were edging down. PacWest Bancorp was down 0.9% after falling 2% on Thursday, while Western Alliance was 1% lower.

Follow WSJ markets coverage here .

Forex:

Markets remain complacent about the risk of a U.S. "hard landing" repricing, Morgan Stanley said.

"Investors appear complacent about the idea that a slowing U.S. economy can raise market-implied risks of a global hard landing, bolstering safe havens like USD," it said.

Morgan Stanley remains bullish on the dollar, particularly against the euro, the Australian dollar and the Canadian dollar.

Morgan Stanley has stuck to a neutral view on EUR/CHF for now "as investors gauge how recent financial sector volatility may impact Switzerland's place as a global financial center."

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ING said sterling could stay rangebound against the dollar, with the focus on U.S. and European data, which...probably leave[s] GBP/USD in a 1.2400-1.2525 range."

Nonetheless, sterling could rise against the dollar later in 2023 as U.K. business sentiment improves and relations with the EU warm up, ING added.

"Pressure does look to be building for a GBP/USD move higher later in the year."

Bonds:

Eurozone government bond yields slid as investors digested weaker-than-expected GDP data from Germany.

Germany's GDP came in unchanged in adjusted terms in the first quarter, below economists' expectations of 0.2% expansion in a WSJ poll.

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Weaker risk appetite should support the German Bund market in the near term, SEB said. This, coupled with concerns on U.S. regional banks will keep EUR swap spreads biased for widening for now, it added.

Through the summer, however, SEB expects EUR rates to range-trade before the downside in yields should gain traction in the autumn. That could happen once markets shift focus to expectations of interest rate cuts by the ECB, SEB said.

Markets currently price in the first ECB rate cut in February 2024, according to Refinitiv data.

SEB also said the two-year Italian-German bond yield spread is expected to widen further, driven by repayments of loans taken out under the ECB's TLTRO, triggering the closing of carry positions in Italy.

"We expect a weaker general risk sentiment to contribute to the spread widening, essentially further lifting the Italy versus Ester [euro short-term rate] component of the spread."

Less attractive remuneration of the Eurosystem government deposits should provide some support to highly rated short-term money market instruments with some spillover even slightly further out on the curve, SEB said.

This might push yields in the German two-year segment lower relative to the Ester curve.

Energy:

Oil prices edged up but remained on course for a sharp weekly fall as demand concerns have undermined a round of Saudi-led production cuts.

Diesel prices have tumbled in recent months, "spurring worries of an impending recession," JPMorgan said. "The declines are weighing on crude oil and pushing down margins for refiners."

Metals:

Base metals and gold prices edged lower, with investors looking to the U.S. PCE indicator, the Fed's preferred measure of inflation. Analysts said persistently high inflation figures are likely to keep the Fed more hawkish going forward.

"The core PCE inflation print for the first quarter showed that inflation was still running at 4.9% versus 4.7% expected," Deutsche Bank said.

"Bear in mind that's up from 4.4% in Q4, which puts a dent in the narrative that inflation is heading lower now."

Precious Metals

The price outlook for precious metals may remain clouded in the near term, given lingering uncertainties over the Fed's monetary tightening, Saxo Bank said.

Macroeconomic data in the U.S. has sent mixed signals for how the Fed may act in the coming months, and the market likely lacks "clear clues" on tightening expectations, it said. This could weigh on trading sentiment for precious metals.

Higher interest rates typically weigh on gold and silver buying demand. But Saxo reckons a brighter outlook could emerge once it becomes clearer when the Fed will stop raising interest rates, as peaking rates are historically followed by a strong precious metals rally.

Lithium

The use of direct lithium extraction technologies could be a game changer for the lithium industry, similar to how shale transformed the oil industry, Goldman Sachs said.

A number of proven direct lithium-extraction technologies are emerging and being tested at scale. Their implementation "has the potential to significantly increase the supply of lithium from brine projects, nearly doubling lithium production/yield [taking recoveries from 40-60% to 70-90%+] and improving project returns," Goldman Sachs said.

The technologies also have ESG benefits--with land area needs and water usage much lower--while also widening, rather than steepening, the lithium cost curve, Goldman Sachs said, adding that as a result, prefers "briners over miners."

DOW JONES NEWSPLUS


EMEA HEADLINES

Mercedes-Benz Reports Higher First-Quarter Profit on Top-End Models, Pricing

Mercedes-Benz Group AG on Friday confirmed its outlook for the year and reported higher profit and revenue in the first quarter on sales of top-end cars and vans and improved pricing.

The German luxury car maker said net profit rose to 3.945 billion euros ($4.35 billion) from EUR3.49 billion in last year's first quarter. Revenue increased 7.6% to EUR37.52 billion. Earnings before interest and taxes were confirmed at EUR5.50 billion, in line with preliminary figures released last week, while adjusted EBIT rose to EUR5.42 billion from EUR5.30 billion.


Remy Cointreau Sees Stable Organic Sales in Year Ahead After 4Q Growth

Remy Cointreau SA on Friday forecast organic sales will remain stable in the year ahead after it reported higher sales for the fourth quarter and fiscal 2023 as a whole.

The French cognac maker said it anticipates a sharp sales decline in the first half of fiscal 2024, due to weakness in the U.S. and high year-earlier comparisons, and a strong recovery in the second half driven by a U.S. rebound that is expected to start in the third quarter.


NatWest Backs 2023 Guidance After 1Q Income, Profit Beat View

NatWest Group PLC on Friday said its income and pretax operating profit grew ahead of expectations in the first quarter of 2023 and that it is retaining its full-year guidance.

The U.K. bank posted a pretax operating profit of 1.82 billion pounds ($2.27 billion) compared with GBP1.25 billion for the year-earlier period. A company-compiled consensus had expected it to report GBP1.57 billion.


German Economy Flatlined Unexpectedly in 1Q

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04-28-23 0544ET