MARKET WRAPS
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Eurozone unemployment; Italy unemployment; trading updates from Deutsche Lufthansa, Deutsche Post, EDP Renovaveis, BNP Paribas, Airbus, Enel, Porsche, EDF, Unicredit, Stellantis, Pandora, Lloyds Banking Group, Wolters Kluwer, Haleon, Ryanair
Opening Call:
European shares may open higher Wednesday as investors await the Fed decision. In Asia, stock benchmarks fell; the dollar weakened; while oil futures were mixed and gold edged higher.
Equities:
Stock futures point to gains in Europe on Wednesday ahead of the Federal Reserve decision later today and the European Central Bank decision Thursday.
U.S. indexes closed sharply lower overnight, as ongoing concerns about regional U.S. banks, the Fed decision and the deadlock in Congress over raising the U.S. debt ceiling were all putting investors in a risk-off mood.
"There's no shortage of things to be concerned about already," said Mike Loewengart, head of model portfolio construction at Morgan Stanley MS global investment office.
"We were convinced yesterday that the regional bank chaos was under control. Now, we don't have certainty," said Jeff Kilburg, chief executive of KKM Financial. "We went from overconfidence to anxiety in a 24-hour cycle."
The flight from risk comes at a critical juncture for Fed officials who are widely expected to proceed with another interest-rate increase aimed at cooling inflation that remains well above target. The Fed's aggressive rate moves over the past year set the stage for the crisis in the banking sector this spring, underscoring the risks to the economy should it tighten financial conditions too much.
Traders in futures markets have lined up behind bets that the Fed will raise rates by a quarter of a percentage point Wednesday to between 5% and 5.25%, but their positions show no expectation for more hikes beyond this week, according to CME Group's tracker. Instead, wagers are building that the central bank will start cutting rates over the next few months, a bleak view about the economy that contradicts the Fed's own projection it will hold rates steady.
Forex:
The dollar fell early Wednesday ahead of the FOMC decision. At his post-meeting press conference, Fed Chair Powell will likely take a more hawkish tone than the market expects, as inflation is too high and the labor market too tight, said Joseph Capurso, head of international and sustainable economics at CBA.
Should this happen, U.S. interest rates and USD will rise materially, Capurso added.
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The path for the dollar in coming months depends a lot on what happens in Europe, said Deutsche Bank's chief international strategist Alan Ruskin.
"There's a positive Euro story that runs independent of the Fed and relates to the ECB tightening." Ruskin said the ECB is likely to keep raising rates after the Fed pauses, reducing a gap that has supported the dollar over the past year. Even if the Fed needs to raise rates again, the reasons for that would probably apply to the ECB as well, Ruskin said.
"There is a lot of international common factors that are driving things."
Bonds:
Treasurys didn't trade in Asia due to a holiday in Japan.
Most Treasury yields finished lower overnight after March data showed U.S. job openings fell and as investors weighed the risks of additional banking-sector fallout. However, the 3-month T-bill rate touched its highest level in more than two decades on continued debt-ceiling worries ahead of today's policy decision from the Federal Reserve.
"The Fed will be approaching tomorrow's meeting like an acrobat on a tightrope," said Dan Raju, chief executive of Tradier.
"I expect the 10th interest rate hike of 0.25% to occur tomorrow, but I also believe that it's important to keep an eye on the indication they gave about pausing rate hikes in the future," Raju said. By going through with the anticipated quarter-of-a-percentage-point hike, "this still leaves them some room for another increase if need be."
Energy:
Oil futures were mixed early Wednesday amid a worsening economic outlook in the U.S. and China.
Oil faces weakening prospects from the world's two largest economies -- China and the U.S., said Edward Moya, senior market analyst at Oanda. If the macro backdrop deteriorates, momentum selling could easily send oil prices below the $70/bbl level, Moya added.
"Recession fear is like a hurricane that destroys everything along its path -- oil included," said Manish Raj, managing director at Velandera Energy Partners. "It does not matter that fundamentals for oil are now stronger than ever, with rising demand and falling supply in the foreseeable future."
Still, oil is getting dumped as investors want to preserve cash and stay on the sidelines while they wait for the storm to pass," he said.
Metals:
Gold futures rose slightly in Asia, underpinned by potential safe-haven demand. There are lots of things for investors to worry about right now, such as the U.S. debt ceiling, said Chris Beauchamp, chief market analyst at IG.
These concerns seem ready-made for the precious metal to move higher, as it offers shelter from the turmoil of the U.S. debt ceiling, Beauchamp added.
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Copper prices were flat in Asia after falling overnight, dragged by renewed concerns about demand amid signs of economic and financial weakness.
The banking troubles in the U.S. and soft Chinese economic data are weighing on sentiment across the base metals sector, ANZ said. The selloff in copper started after markets reopened Tuesday following a public holiday, with risk appetite contracting sharply, said ANZ.
Focus will be on an upcoming private gauge of Chinese manufacturing for more clues on the strength of construction demand.
Meanwhile, even as fears of recession in the global economy have been a force pressuring industrial metal prices in the past month, analysts see reason for copper to push through a potential recession environment.
Goldman Sachs Commodities Research said China's demand for copper has met the higher end of expectations by the firm -- growing 4% year over year so far in 2023.
Goldman Sachs forecasts copper prices could climb as much as 25% in the next 12 months. "Our forecast for the full year global copper deficit is broadly unchanged."
"Risk remains of macro volume depressing the copper price, absent an actual growth shock this will only serve to reinforce the deficit path and eventual necessity for a scarcity price spike."
TODAY'S TOP HEADLINES
Fed Should Pause Rate Increases After This Week, Former Vice Chair Says
The Federal Reserve should suspend its interest-rate increases after one more this week, former Fed Vice Chair Richard Clarida said.
"I would be in the camp of signaling a pause," Mr. Clarida said at The Wall Street Journal's Future of Everything Festival on Tuesday, citing the cumulative effects of the Fed's rate increases so far as well as tighter credit conditions following the failures of a few regional banks in the past two months.
House Democrats Try to Force Vote on Debt Ceiling
WASHINGTON-House Democrats took a step Tuesday toward trying to force a vote on a debt-ceiling increase if they can win over some Republicans, as GOP leaders and the White House remained in a standoff with just weeks to go until the U.S. faces a possible default.
Democrats said they would seek to use a discharge petition, which allows a majority of House lawmakers to bring a bill directly to the floor without the cooperation of leadership. But it is time-consuming and rarely successful, and Democrats earlier this year said they had shelved the idea as too difficult.
Why Washington Let JPMorgan Buy First Republic
Federal regulators wanted a strong deal for First Republic Bank. As a result, they helped America's largest lender get even bigger.
JPMorgan Chase beat out bids from at least three smaller peers, according to people familiar with the matter. The bank said it had some 800 people working over the weekend to scour First Republic's books and assess its business.
Bud Light Maker Offers Distributors Free Beer, More Ad Spending After Dylan Mulvaney Backlash
The maker of Bud Light is working to make amends with its distributors, who say they have taken the brunt of the backlash to a company promotion with a transgender influencer.
Anheuser-Busch InBev, the country's largest brewer, has pledged to boost its marketing spending on Bud Light, accelerate production of a new slate of ads, and give a case of Bud Light to every employee of an Anheuser-Busch wholesaler, distributors said.
Man Arrested Outside Buckingham Palace After Throwing Items on Palace Grounds
A man was arrested outside Buckingham Palace on Tuesday evening after he threw items into palace grounds, including suspected shotgun cartridges, London police said.
No one was hurt in the incident, which occurred four days before the coronation of King Charles III, according to the Metropolitan Police.
Ukraine Seeks to Bolster Air Defenses After Russian Missile Barrages
Ukrainian President Volodymyr Zelensky said further steps were being taken to shield the country's skies after Russia killed scores of people in two deadly missile barrages, seeking to weaken Ukraine ahead of a planned offensive to retake territories occupied by Moscow.
Ukraine's air defenses responded to the two deadly Russian missile barrages over the past week by shooting down all but five of the 41 missiles.
Celsius Network Seeks to Fold U.K. Affiliate Into Bankrupt U.S. Operation
Lawyers for Celsius Network LLC are seeking to fold a U.K. affiliate into the company, a move that could strengthen the hand of the firm's retail customers in their battle with institutional shareholders over the bitcoin mining business and other assets housed in the affiliate.
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Expected Major Events for Wednesday
06:00/ROM: Mar PPI
07:00/TUR: Apr CPI
07:00/TUR: Apr PPI
08:00/ITA: Mar Unemployment
09:00/EU: Mar Unemployment
(MORE TO FOLLOW) Dow Jones Newswires
05-03-23 0017ET
