MARKET WRAPS

Watch For:

Manufacturing PMI data for eurozone, Germany, France, Italy, UK; trading update from Ryanair

Opening Call:

European stocks may open mixed on Monday following a surprise production cut from OPEC+. In Asia, oil futures jumped; stock benchmarks were mostly higher; Treasury yields and the dollar rose; while gold fell.

Equities:

Stock futures signal a mixed open at the start of the week after the surprise OPEC+ decision to cut production sent oil futures soaring.

Higher oil prices could stoke inflation and complicate decisions for central bankers, who are caught between trying to tame rising prices and propping up a teetering banking system.

Equities had closed Friday's session higher as investors weighed data showing signs of moderating inflation. Core price pressures eased in February in the U.S., Barclays said. "On balance, the easing in February PCE inflation was fairly broad-based across goods and services, barring housing."

Meanwhile, U.S. consumer spending edged up 0.2% in February while personal incomes rose 0.3%, according to a Bureau of Economic Analysis report Friday.

"Incomes and spending are hanging in there and inflation's cooling," said Mike Skordeles, head of U.S. economics at Truist. "That has positive implications for markets" and the U.S. economy, he said.

"We need to see what the overall economy does," said Kim Caughey Forrest, founder and chief investment officer of Bokeh Capital Partners. "I think GDP matters, and if GDP holds up while inflation comes down, that could be good for stocks."

Forex:

The dollar strengthened in Asia after a Saudi Arabia-led group of large oil producers' plan to cut output.

The surge in oil prices this morning is likely to weigh on Asian currencies in general, given that most countries in the region are net oil importers, Commerzbank said.

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Monetary policymakers outside the U.S. seem more willing to press ahead with tightening than the Fed, Capital Economics said, adding relative interest rates are unlikely to benefit the dollar in the short term.

Interest-rate differentials "tend to shift against the US towards the end of Fed tightening cycles, but the dollar usually rallies anyway as slowing growth and worsening risk appetite boost the currency."

Capital Economics expects this pattern to play out later this year and thinks this week's ISM survey and nonfarm payrolls report will point to the start of the U.S. slowdown.

Bonds:

Yields on longer-dated Treasury notes rose early Monday as traders weighed OPEC+'s production cut news, retracing Friday's declines following the release of PCE price index data in the U.S.

"The latest inflation data affirm our view that the Fed will continue to raise interest rates," said Oren Klachkin, lead U.S. economist at Oxford Economics. His team expects the Fed to increase its policy rate by 25 basis points both in May and June, but said "the recent banking turmoil lends a risk that the Fed may stop after May."

"The bond party that commenced earlier this quarter should continue in the months ahead as inflation continues to move toward its steady state of 2 percent," said Peter Essele, head of portfolio management at Commonwealth Financial Network, following the PCE data release.

"Fixed income will likely offer investors double-digit returns in 2023, besting stock returns in a rare event of outperformance."

Energy:

Oil futures jumped early Monday after a group of producers led by Saudi Arabia said Sunday that they will cut output by more than 1 million barrels a day starting next month.

The output cut adds to a reduction of 2 million barrels a day agreed to in October by OPEC and a group of other producers led by Russia. Taken together, the output cuts amount to about 3% of the world's petroleum production taken off the market in seven months.

OPEC+ members delivered the surprise cut in an effort to support oil prices, said TD Securities. This decision signals a strong intent to buoy prices even as the West heads toward a recession, TD added.

Ole Hansen, chief commodities strategist at Saxo Bank, said the announcement "came out of the blue."

"Producers were clearly frustrated by the recent slump which was speculative more than fundamentally driven. They will likely achieve a return to the $80s while also trying to pre-empt a smaller than expected increase in global oil demand in the coming months. Remember most of the +2 m b/d increase expected for this year is backloaded into the second half with plenty of room for error should economic slowdown be as severe as currently priced in by the market through expectations of U.S. rate cuts," Hansen said.

"The Saudi oil minister love[s] to wrong foot the market, especially when it comes to hurting speculative short sellers," said Hansen.

Metals:

Gold prices fell in Asia, as analysts broadly pointed to potential for further pullback in the precious metal on recent hawkish signals from the Fed. The Saudi-led decision to lower crude output could push up inflation in the U.S. and lead to more aggressive monetary tightening.

Galaxy Futures advised investors to keep monitoring global interest rate trends and macroeconomic data, especially from the U.S.

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Copper slipped in Asia amid a stronger USD, which tends to have an inverse relationship with the base metal.

However, losses could be limited. China's official manufacturing PMI reading for March beat expectations on Friday, while nonmanufacturing PMI, which includes construction and service activity, also rose, ANZ said.

The data appear to suggest a better-than-expected recovery in demand in China, ANZ said.

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Chinese iron ore prices declined, as investors took a breather after last week's rally fueled by optimism over China's reopening recovery.

However, iron ore likely remains in the de-stocking stage and prices are unlikely to fall sharply, Nanhua Futures said.


TODAY'S TOP HEADLINES

Oil prices soar after Saudi Arabia leads coordinated OPEC+ cuts totaling more than 1 million barrels a day

Oil prices spiked late Sunday, after Saudi Arabia led a surprise oil production cut across several OPEC+ nations that will remove more than 1 million barrels of oil a day from May.

In an announcement on Sunday, Saudi Arabia's Ministry of Energy stated that the kingdom will implement a voluntary cut of 500,000 barrels a day from May until the end of 2023, in conjunction with other countries.


World Bank Warns of Lost Decade for Global Economy

Over the past year, governments around the world have announced tax breaks, subsidies and new laws in a bid to accelerate investment, combat climate change and expand their workforces.

That might not be enough.


Individual Investors Slow Stock Purchases, Leaving Markets Vulnerable

Individual investors are losing their appetite for U.S. stocks, leaving equity markets without a dependable leg of support after a rocky first quarter.

They bought beaten-down shares with a fury at the start of 2023 and chased the momentum as the S&P 500 climbed. Net purchases of U.S. equities by individuals reached a monthly record in February, according to Vanda Research data going back to 2014.


SVB Collapse Complicates Banks' Efforts to Unload More Than $25 Billion of Junk Debt

Recent turmoil in the banking industry has made the already-difficult task of selling off tens of billions of risky buyout debt even harder for Wall Street firms.

Bank of America Corp., Barclays PLC, Morgan Stanley and others together currently hold $25 billion to $30 billion of "hung debt" on their balance sheets, according to leveraged-finance analytics firm 9fin. The unsold debt is tied to leveraged buyouts that banks agreed to finance before worsening credit conditions last year sapped investor appetite for the paper.


New York Fed's John Williams Says It Will Take Time to Reach 2% Inflation

Federal Reserve Bank of New York President John Williams said he expects U.S. inflation to fall to about 3.25% this year before moving closer to the central bank's 2% target in the next two years.

The Fed has taken decisive action to bring down inflation, but "lags exist between policy actions and their effects," Mr. Williams said Friday in a speech in Bridgeport, Conn. "It will take time for all of our inflation gears to move at a pace that takes us to our 2% target."


Saudi-Led Oil Producers to Lower Output Further

A group of large oil producers led by Saudi Arabia said Sunday they would cut more than a million barrels of output a day starting next month, a surprise move that upset Washington and could raise crude prices amid concerns about the global economy.

The output cut adds to a reduction of 2 million barrels a day agreed to in October by the Saudi-led Organization of the Petroleum Exporting Countries and a group of other producers led by Russia. Taken together, the output cuts amount to about 3% of the world's petroleum production taken off the market in seven months.


Paris Votes to Ban E-Scooter Rental Companies

PARIS-People in the French capital have voted to ban electric-scooter rental services from its streets in a hotly debated referendum, a dark signal for an urban transportation market that the city helped pioneer.

Electric-scooter rentals lost in a landslide, with 89% of the relatively few people who participated Sunday voting against the services, according to final tallies released by the city.


Finland's Sanna Marin Defeated in Election Ahead of NATO Ascension

Finland's Prime Minister Sanna Marin suffered defeat in Sunday's general election, days before the country was set to enter NATO, after a campaign dominated by the economic and security aftershocks of Russia's invasion of Ukraine.

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04-03-23 0016ET