MARKET WRAPS

Stocks:

European stocks mostly tracked global gains on Monday, but trading was largely range bound, with U.K. markets closed and as investors looked ahead to a busy week of data that includes a key U.S. inflation release.

"This week's April CPI numbers are likely to be a key benchmark feeding into whether the next meeting will see the Federal Reserve hit the pause button and keep rates unchanged after several meetings of consecutive hikes," CMC Markets UK said.

Stocks to Watch

First-quarter results for Adidas weren't as bad as expected, but the shares risk/reward profile still looks unappealing, Hauck & Aufhaeuser said.

Although the better-than-expected results suggests the company could slightly top its downbeat full-year guidance, the stock looks priced for perfection, H&A said. "Hence, the stock's risk/reward profile looks unattractive."

H&A lifted its price target on the stock to EUR85 from EUR75, but kept its sell rating.

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Raiffeisen Bank could see earnings rise by as much as 46% this year boosted by net interest income, lower operating expenses and lower loan-loss provisioning, Citi said.

Citi has increased its earnings estimates for the bank for 2024 by 43% and by 23% for 2025. It also upgraded its rating on the bank to neutral from sell and raised its target price on the bank's shares to EUR15 from EUR12.

U.S. Markets:

Stock futures struggled for traction at the start of a busy trading week with more earnings and more inflation data scheduled.

Stocks on the Move

PacWest Bancorp and other under-pressure regional bank stocks pointed higher in premarket trading as the sector continued its comeback after Friday's strong rally.

The lender said on Friday it was cutting its dividend, citing economic uncertainty and volatility in the banking sector. Its CEO described it as a "prudent step."

The market appeared to take encouragement from it, as PacWest stock was up 13% premarket. Western Alliance rose more than 5%, while Zions Bancorp rose 2%.

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Forex:

The dollar continued to edge lower as concerns over U.S. banking-sector stress and debt ceiling negotiations keep alive expectations the Fed will cut interest rates soon, despite Friday's above-forecast jobs data, Swissquote said.

"The dollar remains under a decent selling pressure. The debt ceiling and the ongoing stress in U.S. regional banks help keep the Fed doves in charge of the market despite economic data calling for a tight hand from the Fed."

Strong U.S. inflation data on Wednesday could help tame U.S. rate-cut expectations, however, Swissquote added.

Bonds:

Eurozone government bond yields were little changed after data showed German industrial output declined more than expected in March.

"Still, it is not only industrial data which disappointed. In fact, all German macro data in March plunged," ING said.

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A couple of more interest rate rises are on the cards of the European Central Bank this spring and summer, "but even with this outlook," AXA Investment Management said it still likes fixed income in Europe.

It seems just a matter of time before weakness is creeping into the services sectors and there is more meaningful declines in core inflation, AXA said.

There is little stress in eurozone peripheral spreads, and yield curves are likely to remain inverted but, as in the U.S., credit in Europe might offer a favourable return potential over the course of 2023.

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J.P.Morgan Asset Management said that as central banks race toward the finish line of interest-rate rises, investors are extending duration in their portfolios.

"This can be seen in proprietary J.P. Morgan Asset Management positioning surveys which show that as the markets approaches the peak of policy rates, investors seek to lock in these higher level of yields before central banks start the next race of lowering policy rates."

With a recession on the horizon, JPM AM finds that investors are also allocating capital to safer parts of the fixed-income universe such as USD and EUR government funds, with these inflows coming at the expense of riskier sectors such as USD loan funds and USD high yield funds.

Energy:

Oil prices rose more than 1% following a volatile stretch of trading that has seen prices slump to 16-month lows.

Underwhelming Chinese economic data has raised the most credible concern over oil demand, CBA said.

"The narrative that oil markets will tighten later this year because of rising Chinese demand is being challenged," it added.

Traders are looking for fresh clues on crude demand this week. OPEC is set to release its monthly report on Thursday while the EIA will release its short-term outlook on Tuesday.

Metals:

Gold prices ticked higher ahead of inflation data later this week that will be key for the metal's direction.

The precious metal has mostly gained in recent weeks as investors have added to safe-haven assets amid concerns about the U.S. economy.

"Renewed concerns about U.S. banking stress, slowing economic growth and rising geopolitical tensions all bode well for gold investment demand," ANZ said.

U.S. inflation data on Wednesday, that will shape the Fed's views on interest rates, will likely be a key driver of gold prices.

Lithium

Morgan Stanley said the lithium market may have reached a turning point, "for now at least."

After a five-month selloff, some prices are bouncing as inventories fall, supply growth disappoints and sentiment improves.

"The China ex-works carbonate price bottomed at $21/kg [ex-VAT], close to what we believe to be the cost support level from China's high-cost and low-grade lepidolite supply," Morgan Stanley said. That price is now back around $27.50 a kilogram.

"Unlike for nickel and cobalt, we still model a full-year lithium market deficit for 2023 [on very conservative China pure BEV sales growth of +13% yoy], and we expect the recently oversupplied lithium market to become tighter again for the remainder of 2023,"

DOW JONES NEWSPLUS


EMEA HEADLINES

Shell and BP's Hidden Spark

Europe's cheap oil stocks are straining to catch up with more highly valued American ones. A conundrum they face is that they can't talk much about the business they lead in.

Shell and BP continued to make bumper profits in the first quarter of the year. They produced more oil and gas to offset lower energy prices, but their commodity traders also played a role. While neither company splits out profits from trading, BP said its gas trading result was "exceptional" in the quarter.


German Industrial Production Fell in March as Car Manufacturing Slumped

Industrial production in Germany contracted more than expected in March, driven by a decline in automotive production, suggesting weak demand as high interest rates weighed on spending.

Industrial output-comprising production in manufacturing, energy and construction-fell 3.4% in March compared with the previous month on a price, seasonally and calendar adjusted basis, swinging from an upwardly revised 2.1 increase in February, data from the German statistics office Destatis showed Monday.


VW's New CEO Expected to Replace Management of Ailing Software Unit

BERLIN-Volkswagen Chief Executive Officer Oliver Blume, in his first major restructuring move since becoming chief last year, is expected to replace the management of the company's struggling software unit after it caused delays to new model launches, according to people familiar with the matter.

The decision to remove Dirk Hilgenberg, head of the unit called Cariad, finance chief Thomas Sedran, and Lynn Longo, a Michigan native who serves as Cariad's chief technology officer, could be announced as early as this week, possibly before VW's planned shareholder meeting on Wednesday, the people said.


DOJ Settles Antitrust Case, Clearing Way for Assa Abloy Deal

The Justice Department said Friday that it has settled its antitrust challenge to the Swedish lockmaker Assa Abloy's planned acquisition involving a U.S. rival, putting the $4.3 billion deal on track for completion.

Assa Abloy sells locks under various brand names. In September 2021, it announced plans to buy Middleton, Wis.-based Spectrum Brands' Hardware and Home Improvement segment. The Justice Department sued in September 2022 to block the deal, saying it would diminish competition in the residential door hardware industry and raise prices.


U.S. and Allies Look at Potential China Role in Ending Ukraine War

Some U.S. and European officials said they believe that Ukraine's planned spring offensive could pave the way for negotiations between Kyiv and Moscow by the end of the year, and that China could help bring Russia to the table.

The willingness to encourage negotiations and seek out a role for China in talks represents a shift in Western thinking, particularly in the U.S., which has been highly skeptical of any involvement for Beijing given China's longstanding support for Moscow. Secretary of State Antony Blinken publicly expressed cautious optimism recently that Beijing could help defuse the conflict.


GLOBAL NEWS

Stock Funds Rise, but Outlook Is Iffy

It's not much but investors will take it.

Despite bank-sector turmoil, the stock market notched another positive month in April, thanks in part to strong earnings from several large companies. The average U.S.-stock fund rose a bare 0.03% in April, according to Refinitiv Lipper data, to leave the year-to-date gain at 5.6%. Funds focusing on large-cap stocks did better than most, with gains of more than 1% in the month.


Investors Flock to Safety Plays, but Stock 'FOMO' Lingers

Investors are trying to play offense and defense at the same time.

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05-08-23 0600ET