MARKET WRAPS
Stocks:
European markets mostly eked out cautious gains on Monday, as concerns about slowing global growth and the uncertainty surrounding the political stalemate in Washington kept investors on their guard.
"Sentiment hasn't been helped by the political theatre around the U.S. debt ceiling," CMC Markets UK said.
"While the risks around this are well-rehearsed it could be argued that [they] appear somewhat overstated given how regularly we've seen this scenario play out over the last few years on a regular 'rinse and repeat' basis before a late compromise is sealed."
Stocks to Watch
It is time for a performance reversal between ING and ABN AMRO, Jefferies said following the Dutch lenders' consensus-beating first-quarter results, which led the broker to upgrade its forecasts on net interest income, provisions and costs.
Both Dutch banks have similar attractive features such as significant capital return and rerating potential and positive earnings per share revisions from a positive net interest income surprise.
Yet, "we think it's time for price performance to change course & for ING [Buy] to outperform ABN [Hold], with 3 key differentiating factors from here: earnings revisions, buyback timing & capital generation," Jefferies said.
It lowered its price target on ABN to EUR15.5 from EUR17.0 and lifted ING's to EUR16.8 from EUR16.7.
Economic Insight
The right question about inflation is how fast it will decline and to what new "steady state," Danske Bank said, seeing more room for the ECB to tighten interest rates before pausing.
"Unless markets anticipate to see significant spill over from a U.S. banking crisis to Europe, then we are still quite some distance away from the ECB pause," it said.
Danske sees it to be a "slow grind to higher rates" as underlying inflation is only going to slow at a very modest pace in the coming months, and markets will not really price a 4% scenario until after the June meeting.
U.S. Markets:
Stock futures crept higher after Treasury Secretary Janet Yellen said over the weekend that negotiations over raising the debt ceiling were making progress and could result in a deal.
Stocks in the News
Newmont stock inched lower premarket, after it agreed to buy Australia's Newcrest Mining, concluding weeks of talks and marking a move into copper.
Oneok agreed to buy smaller rival Magellan Midstream Partners for about $14 billion. Oneok stock slipped in early premarket trading.
Economic Calendar
On the data front, the New York Fed will release its Empire State Manufacturing Survey for May. Consensus estimate is for a reading of one, about 10 points less than in April. The index turned positive last month after four consecutive months in deeply negative territory.
Follow WSJ markets coverage here .
Forex:
The Bank of England could leave interest rates steady in June, potentially weakening sterling, if data on Tuesday show U.K. wage growth moderated, ING said.
Sterling will be "ultra sensitive" to the data as the BOE has stressed its next policy decision will largely depend on wages and inflation figures, ING added.
The "downside risks are quite material" for sterling if wage growth eases and prompts the BOE to hold rates in June as markets are pricing in 20 basis points of rate rises, it said.
"We expect this to be mirrored in a higher EUR/GBP, which we expect to rebound to above 0.8800 by the end of this month."
Read EUR/USD May Have Peaked at April High of 1.1095 for Now, Charts Show
The Turkish lira was around 0.2% lower against the dollar as Turkey faces a runoff vote between President Erdogan and opposition rival Kilicdaroglu on May 28 after neither cleared the 50% threshold to win Sunday's general election outright.
Political uncertainty is keeping the lira volatile, Hargreaves Lansdown said.
"Erdogan has led highly controversial monetary policies aimed at increasing exports, rather than tackling painful inflation, and the prospect of Turkey's 'strongman' winning another term has weakened the currency further."
"There are expectations of a rollercoaster ride in the days ahead, as sentiment waxes and wanes about the prospects for the opposition coalition, which has pledged to pull more conventional levers to restore financial stability.".
Bonds:
Price fluctuations on eurozone government bond markets have calmed somewhat in recent weeks, with a tendency toward slightly higher prices on balance since mid-April, and inflation-linked bonds have minimally underperformed in this environment, while defending moderate relative strength versus the overall market year-to-date, Landesbank Baden-Wuerttemberg said.
"We see the recent setback in inflation expectations primarily as a result of growing concerns about the development of the global economy."
Measured by the iBoxx Euro Sovereign Inflation-linked Index, linkers have gained 3.4% since the start of the year, compared with 2.4% for the government bond market as a whole, LBBW said.
---
The cheapness of some French government bonds offers trading opportunities, Morgan Stanley said.
In the eurozone government bond universe, Morgan Stanley exploits the cheapness of the five-year maturity segment of the French OAT curve via buying the 2-5-10-year bond "fly".
Fly is a bond trading strategy where investors bet on the shape of the yield curve, buying the bond in the "belly," or middle segment, and selling those in the "wings."
Morgan Stanley also keeps its 10-year OAT-Bund compression trade. Measured between the 3.00% May 2033 OAT and the 2.30% February 2033 Bund, the 10-year OAT-Bund yield spread was last trading unchanged at 57.5 basis points, according to Tradeweb.
Read UK Gilt Underperformance Expected to End in the Near-Term
Energy:
Oil prices edged lower, adding to sharp losses this month, as demand signals look weak while supplies have remained strong.
"The sell-off in the market has been unrelenting over recent weeks, with negative sentiment rising following concerns over the macro environment and what it could eventually mean for oil demand," ING said.
Oil supplies could also get a boost in the coming days if a pipeline linking them to Turkey restarts as suggested by Iraqi officials last week. (
Metals:
Base metals were mixed in London and gold nearly flat, with concerns about the macroeconomic outlook still weighing on investors at the start of a light data week for policy makers.
"China's uneven recovery has weighed on sentiment in the base metals market," ANZ Research said but added that physical demand indicators are showing signs of improvement.
"Stockpiles held on exchange are down, while operating rates of downstream processors in China have bounced sharply."
DOW JONES NEWSPLUS
EMEA HEADLINES
EU Lifts Eurozone Growth Forecasts on Easing Energy Prices, Strong Labor Market
The eurozone's economy is expected to grow this year at a faster pace than previously thought, after a better-than-expected start to 2023, supported by easing energy prices and a strong labor market, according to the European Union's executive body.
The European Commission said Monday in quarterly forecasts that gross domestic product in the eurozone is expected to grow 1.1% in 2023, higher than the 0.9% increase anticipated in February.
A Rally in the British Pound May Be Winding Down
After a phenomenal run for the British pound, market watchers say the currency's fortunes could be about to change.
Sterling crashed to a record low in late September, following then-Prime Minister Liz Truss's controversial tax-cutting plans. Since then it has staged a stunning turnaround, rebounding from an intraday low of below $1.04 to a high of about $1.26, before easing slightly.
Erdogan and Challenger Appear Headed for Runoff Election in Turkey
ISTANBUL-Turkey's President Recep Tayyip Erdogan and his main challenger said they were both prepared to accept a runoff election later this month with neither candidate claiming an outright victory in a vote that marked the most severe political challenge to the Turkish leader's two decades in power.
Early results appeared to show neither Mr. Erdogan or his top challenger, opposition leader Kemal Kilicdaroglu, reached the 50% threshold required to avoid a runoff, which would take place on May 28.
HSBC Sets out Mid-Term Growth Ambitions for Asia Business
HSBC Holdings on Monday issued a medium-term growth outlook for its Asian business.
The lender-which is listed both in London and Hong Kong-sees high-single digit percentage wealth revenue growth in the region over the next three to four years. It also targets mid-single digit percentage lending growth over the medium-to-long-term but is more cautious in the short-term, it said.
Siemens Energy Adjusts Fiscal 2023 Outlook After 2Q Net Loss Narrowed
Siemens Energy on Monday said that net loss narrowed in the second quarter and adjusted the outlook for fiscal 2023.
The German energy company said it registered a quarterly loss of 189 million euros ($205.04 million) in the period ended March 31, compared with a loss of EUR256 million in the year earlier.
Axa Posts Rise in 1Q Revenue Boosted by Property and Casualty Business
Axa on Monday reported a rise in its first-quarter revenue driven by growth at its property and casualty business.
The French insurer's total gross revenue came to 31.8 billion euros ($34.51 billion) in the quarter, a 2% rise compared with EUR31.17 billion a year ago.
BAT Taps Finance Director Tadeu Marroco as CEO to Replace Jack Bowles
British American Tobacco said Monday that Tadeu Marroco, currently the company's finance director, has been appointed as chief executive to succeed Jack Bowles.
Mr. Bowles is stepping down with immediate effect, the cigarette maker said.
Once Europe's Headache, Greece Finds Its Feet
ATHENS-Greece's economy nearly broke the euro last decade. Now it is one of the fastest-growing in Europe's common-currency zone.
(MORE TO FOLLOW) Dow Jones Newswires
05-15-23 0555ET
