MARKET WRAPS
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EU PPI; U.K. Zoopla house price index; Germany foreign trade; trading updates from Credit Suisse, Clariant, Commerzbank, EDP Renovaveis, Ryanair Holdings, Tele2 AB, Homeserve, SEB, Volvo, Nokia
Opening Call:
European stocks may open higher on Tuesday as investors digest the impact of the surprise production cut from OPEC+. Asian stock benchmarks were mostly higher; Treasury yields were mixed and the dollar strengthened; oil futures gained while gold declined.
Equities:
Stock futures are seen tracking higher early Tuesday as investors continue to digest the surprise oil-production cut announced by Saudi Arabia and its allies over the weekend.
"The fight on inflation is not over. If inflation from energy prices starts to rebound again, that won't be a good scenario for central banks, " said Luc Filip, head of investments at SYZ Private Banking.
The spike in oil prices after the surprise OPEC+ production cut may make the Federal Reserve's inflation-fighting job "a little more difficult," but it is too soon to know for sure, St Louis Fed President James Bullard said in an interview on Bloomberg Television.
The St. Louis Fed president thinks the Fed should raise rates to a range of 5.5%-5.75%. That's higher than the median Fed forecast of 5%-5.25%.
"I think inflation will be stickier," he said, noting that the Dallas trimmed mean price index, which excludes each month's volatile components of inflation, was 4.6% in February, unchanged from the prior month.
Meanwhile, new data released Monday showed a slowdown in manufacturing activity. The Institute for Supply Management's purchasing managers index dropped to 46.3 in March from 47.7 the prior month.
The ISM says that readings below 48.7, over time, are usually an indication the overall economy is contracting.
"The whole report is uniformly weak and really is ammunition for the bearish camp, the people who think a recession is coming," Huw Roberts, head of analytics at Quant Insight, said of the ISM data.
"There are a lot of peripheral existential risks to the market competing against the potential for cash to come in and create a momentum bull market," said Phil Toews, chief executive of Toews Corp. in New York.
Those risks include emerging "challenges" in the banking sector and continued high valuations for stocks, he said.
Read: What surprise oil-production cuts mean for the Fed's rate plans and markets
Forex:
The dollar strengthened in Asia amid mixed signals.
On one hand, the U.S. ISM manufacturing index released overnight has added a fear of recession in the markets, the APAC Strategy Team at Saxo Markets said.
On the other hand, inflationary concerns have emerged following the weekend when OPEC+ members announced a surprise crude-oil output reduction, the team said, adding the focus had now turned to the U.S. ISM services PMI due Wednesday.
High-beta G10 and the haven bloc are plus or minus 1% YTD amid substantial volatility "as beginning-of-year optimism around disinflation and a global cyclical upturn has given way to credit contagion anxiety," JPMorgan analysts said.
Emerging-market forex has outperformed, somewhat surprising "in light of the poor performance of risky G10 FX that usually tends to be well-correlated to EM.... In sum, durable trends have been in short supply and conventional currency correlations have broken, rendering alpha generation in macro FX this year far more challenging than during 2022's one-way USD uptrend."
Bonds:
Treasury yields were mixed early Tuesday as traders weighed disappointing U.S. manufacturing data against a move by Saudi Arabia and its allies to cut oil production.
The weak reading on the ISM manufacturing index has fueled fears of economic slowdown.
The ISM slump "indicates that the post zero-Covid recovery in manufacturing activity in China has not benefited US producers and supports our view that a recession is on the horizon," Capital Economics said.
"Monday served as an archetype for angst as the OPEC+ and ISM headlines competed for influence on the US rates market. The latter ultimately held the greatest sway on Treasuries," said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a note.
"The surge in interest rates over the past year and the tightening in credit conditions brought about by the bank failures are dealing a huge blow to capital spending, the lifeblood of domestic manufacturing activity," Pantheon's Kieran Clancy said.
Read: What 'unprecedented' volatility in the $24 trillion Treasury bond market looks like
Energy:
Oil futures gained in Asia, as prices remain buoyed by the Saudi Arabia-led group's announcement on Sunday to reduce oil production by 1.66 million barrels a day.
The impact of the output cuts could send WTI crude oil to at least $85/bbl-$90/bbl before some weakness in oil prices could emerge again, said Fawad Razaqzada, market analyst at City Index and FOREX.com.
Any short-term weakness in oil prices could "prove to be bear traps, and thus may well be bought," Razaqzada said.
"Even though, like OPEC, we expect only subdued demand growth this year, the scale of supply cuts will send the oil market balance into a deficit in 2023, with an even larger deficit in [the fourth quarter]," said Capital Economics.
Capital Economics had previously forecast a deficit in the fourth quarter but had expected the market to be in balance in the year as a whole.
Questions remain over how strongly OPEC+ countries will comply with the voluntary cuts. Analysts said uncertainty over the demand outlook may also serve to limit upside after the initial surge.
Read: Soaring oil prices: 6 things investors need to know about the surprise OPEC+ production cuts
Metals:
Gold prices were lower in Asia, tracking back their overnight gains bolstered by a weaker U.S. dollar and a decline by U.S. Treasury yields.
However, analysts expect an uptrend ahead.
"In the end nothing good can happen if oil prices continue to rise," Oanda said.
"Demand for safe-havens appears to be elevated and that should be good news for gold."
"Momentum and sentiment is very bullish. Only a very strong March jobs numbers will cause a sell off in gold. Incoming news will be the key before the Easter Vacation," said Chintan Karnani, director of research at Insignia Consultants.
China Everbright Bank analysts expect the safe haven asset to be well supported, given lingering uncertainties over the banking sector's systematic risk, while expectations of the end of the Fed's tightening cycle could offer an extra boost for gold prices.
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Base metals were broadly lower in Asia.
The latest rally for crude oil prices has increased concerns about inflation, said TD Securities.
Also, the recent easing in China's manufacturing PMIs has "taken some of the wind out of the sails" of the base-metal markets, it added.
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Chinese iron-ore futures were lower, extending Monday's losses amid downbeat market sentiment after the weaker-than-expected March Caixin manufacturing PMI data, indicating China's economic recovery has lost momentum.
The market sentiment was frustrated by the rumor of Beijing's crude steel output cut and weak Caixin PMI data, China Futures analysts said.
TODAY'S TOP HEADLINES
Oil Prices Surge 6.3% in Steepest Rise in Over a Year
A Saudi Arabia-led production cut vaulted crude prices 6.3% higher Monday in their steepest one-day increase in more than a year. But with oil markets facing a host of challenges including a possible U.S. recession, only the most bullish analysts see prices touching $100 a barrel soon.
Brent futures, the international oil benchmark, jumped to $84.93 a barrel after Saudi Arabia and other leading members of the OPEC+ cartel said they would throttle production. The uptick marked prices' biggest one-day percentage gain since March 2022, when Russia's invasion of Ukraine sent a shudder through energy markets.
Saudi Arabia's Oil Production Cuts Reflect Cost of Reshaping Economy
DUBAI-An oil production cut by Saudi Arabia and its allies demonstrated how Crown Prince Mohammed bin Salman is willing to set aside U.S. concerns to pursue a nationalist energy policy aimed at funding an expensive makeover of his kingdom.
This weekend's move came as a surprise after Saudi Energy Minister Prince Abdulaziz bin Salman told industry analysts privately in February that the kingdom would tolerate oil prices slipping to around $65 or $70 a barrel, according to analysts and Saudi officials familiar with the matter. Brent crude, the international benchmark, was trending downward since late last year on global recession fears, nearing $70 a barrel last month. On Monday, oil prices posted their steepest one-day increase in more than a year, rising 6.3% to $84.93 a barrel.
In Russian Courts, Secret Trials and Near-Certain Convictions Await Accused Spies
WASHINGTON-As Moscow prosecutors prepare an espionage case against jailed Wall Street Journal reporter Evan Gershkovich, lawyers with experience in the Russian judicial process predict a journey through a justice system with the familiar features of Western courts but little of their substance.
Like in the U.S. and other Western legal systems, Mr. Gershkovich is guaranteed a defense lawyer in Russia. But in practice, there is no promise of when his lawyer will be allowed to talk to him. When they do talk, their conversations will be closely monitored, say experts who track legal developments in Russia.
Israel's Netanyahu Delays Defense Minister's Dismissal
JERUSALEM-Israeli Prime Minister Benjamin Netanyahu has temporarily suspended his decision to fire Defense Minister Yoav Gallant due to the tense security situation in the country, people close to the premier said Monday, days after the dismissal amplified mass protests across Israel.
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04-04-23 0015ET
