MARKET WRAPS
Stocks:
European stock markets were mostly higher on Tuesday, buoyed by a solid Asian session, and as investors geared for a week packed with key data and some big U.S. earnings.
In the U.K., the FTSE 100 extended its recent gains, supported by "a mixture of a move to a risk-on approach and strong U.K. retail sales data," Interactive Investor said.
Retail stocks rose thanks to data that showed a 5.1% year-on-year rise in sales in March.
Stocks to Watch
ASR Nederland has an undemanding valuation and a relatively defensive balance sheet, Citi said, upgrading its rating on the stock to buy from neutral and raising its target price to EUR46.52 from EUR45.00. It sees the insurer squeezing value from its acquisition of peer Aegon.
"We see the re-rating catalyst as a strong story set to build throughout 2H, following the transaction closing in July, based on additional capital return potential...cost synergy upgrades...and a potential bank sale..."
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A tough fiscal third quarter shouldn't mean any change to full-year guidance for Pernod Ricard, Deutsche Bank said.
The company should book a slight organic decline in revenue for the quarter, with U.S. performance hit by tougher comparatives and previous overshipments, and China demand still dragged by the pandemic, according to Deutsche's estimates.
But the group is likely to back its fiscal 2023 guidance for top-line growth in a normalizing environment, along with a sustained operating margin, Deutsche Bank said.
It has trimmed its target price on Pernod's Paris-listed stock to EUR166 from EUR167, maintaining its sell rating.
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Economic Insight
Inflation in Europe might stay above 4% for some time to come, and if this is the case, then the first interest-rate cut by the European Central Bank is unlikely to occur for another 12 months, RBC BlueBay Asset Management said.
"In the interim, we think that the [interest-rate rise] cycle is likely to peak around 3.75%, which infers that we are at a point in the cycle where the ECB still has more need to tighten than is the case for the [Fed]," it said.
With the banking risks less likely to be a lasting issue in the eurozone than may possibly be the case in the U.S, RBC BlueBay AM sees scope for the euro to outperform on a relative basis.
U.S. Markets:
Stock futures inched higher as Wall Street prepared for the release of inflation data at both the consumer and producer levels.
Then on Friday, the first-quarter corporate earnings season kicks into gear with the financial sector in the vanguard.
"The banks will be an early test of investors' mettle on any number of fronts, not least of which will be the early fallout from the recent banking turmoil, as JP Morgan Chase, Wells Fargo and Citigroup open the season," Interactive Investor said.
Stocks to Watch
Coinbase rose 3% in premarket trading, while MicroStrategy and Marathon Digital each gained 4% after Bitcoin, the world's largest cryptocurrency, traded above $30,000 for the first time in 10 months.
Cannabis company Tilray Brands fell 8% after agreeing to buy Hexo, the maker of pot products, for $56 million in an all-stock deal. Hexo fell 19% in premarket trading, reporting fiscal third-quarter results that were worse than analysts' expectations.
Virgin Orbit was down nearly 24% after saying that Nasdaq planned to delist shares of the space launch startup. Virgin Orbit filed for Chapter 11 bankruptcy protection last week.
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Forex:
The euro was trading in a narrow range against the dollar after showing a muted reaction to the strong nonfarm payrolls data, ING said.
If it wasn't for the Easter public holidays, EUR/USD may have fallen much further on the jobs data as it strengthened expectations the Federal Reserve will raise interest rates by 25 basis points in May, ING said. EUR/USD is now waiting for fresh catalysts, probably from the U.S., it added.
"EUR/USD can edge back up to the 1.0930/50 area today assuming that equities stay mildly bid and the U.S. NFIB emerges on the soft side," ING said.
"Looking at the rest of this week, market attention is set to remain on U.S. economic data, including consumer price index inflation, retail sales, industrial production and the University of Michigan consumer sentiment index," UniCredit Research said.
CPI data on Wednesday may show core inflation accelerated slightly, which could lift the dollar if markets further adjust Fed rate cut bets but only briefly as rate differentials between the U.S. and the rest of the world are expected to tighten.
Read Riksbank May Intervene in FX Market as Swedish Krona Too Weak
Bonds:
German Bunds were gapping lower, catching up with Treasuries, with the U.S. payrolls data taking the edge off recession fears, Commerzbank said.
"The coming days will show whether the recession fears will continue to wane, if the quieter Easter U.S. trading was any indication," Commerzbank said.
The bank prefers selling Bunds into recoveries at the start of the week, expecting the recent ranges to hold.
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French government bond spreads are a "bit cheap," according to NatWest Markets.
"Supply intensity is a good story for OAT spreads because German bond supply is relatively heavier."
However, France's debt metrics are "poor", and semi-core as an asset class has been widening due to EU funding, a situation which could increase with competition from Iberia, whose debt metrics may soon surpass France and Belgium, NatWest Markets said.
Increased political tension is the risk to watch, but it is not NatWest Markets' base case. It sees the fair value range for the 10-year OAT-Bund yield spread at 46-50 basis points.
Energy:
Oil prices edged higher at the start of a week busy with data on demand.
The U.S. Energy Information Administration releases its short-term energy outlook report on Tuesday, followed by OPEC's monthly report on Thursday and the IEA's monthly report on Friday.
The oil market is hungry for information on demand and oil balances after OPEC+ members made a surprise cut to their production levels. "Investors are weighing supply tightness against prospects of slowing demand," ANZ said.
Saudi Cuts
Investors sharply slashed short positions on crude oil and added to longs following a Saudi-led round of production cuts.
Speculative investors' net long position--the balance of their bullish and bearish bets--jumped by around 73,000 contracts in the week through April 4, according to data from ICE Futures Europe.
Investors added around 44,000 long positions during that time and reduced their short positions by almost half, or around 29,000 lots. The changes mean investors hold a net long position of 234,461 lots on Brent crude.
Metals:
Base metal prices were lower, with gold futures firmer as investors look ahead to Wednesday's inflation data.
"The macro environment is sending mixed signals for commodity money flows," Peak Trading Research said. Markets are expecting a drop in CPI to 5.1% from 6% on month, it said.
"Softer inflation data [below 5%] would be a bullish tailwind for commodity markets via a more dovish Fed and a weaker U.S. dollar."
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EMEA HEADLINES
UK Retail Sales Growth Stabilized in March Despite Mother's Day
U.K. retail sales grew slightly less than the previous month in March despite lower volumes year-on-year, with Mother's Day providing a small boost as inflation continues to bite, the latest report by KPMG and the British Retail Consortium released on Tuesday showed.
Total retail sales for the five weeks to April 1 rose 5.1% year-on-year, above the three-month average of 4.8%, the report said. This compares to a 5.2% rise in February.
France's Emmanuel Macron Draws Criticism Over Taiwan Remarks
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Mr. Macron made the remarks in an interview with Politico and the French daily Les Echos on a flight Friday between Beijing and the southern Chinese city of Guangzhou. Mr. Macron was in China to press Chinese leader Xi Jinping to limit Beijing support for Russia in the war in Ukraine.
Ukraine Says Russia Is Using 'Scorched Earth' Tactics in Bakhmut
Russia is using "scorched earth" tactics as it fights to take Bakhmut, a top Ukrainian military commander said Monday, as the city in Ukraine's east is reduced to rubble after months of heavy combat for which Kyiv and Moscow have paid a heavy price in lives and equipment.
"The fighting from both sides is tough," said Col. Gen. Oleksandr Syrsky, Ukraine's commander of ground forces overseeing the Bakhmut campaign in a visit to troops, according to the military. Russia, he said, is "destroying buildings and military positions with airstrikes and artillery fire."
Moldova's President Calls for Closer Ties With Europe
Moldovan President Maia Sandu called for closer integration with Europe and urged supporters to take part in a mass action to signal that Europe is the path they have chosen, rejecting the Kremlin's attempts to pull the tiny ex-Soviet nation back into its orbit.
"Everyone's voice will cement our European path," Ms. Sandu said in a televised address Monday and called for supporters to assemble in the Great National Assembly Square on May 21 in the capital of Chisinau. "Let's prove that we want peace. We want the European Union at home," she said.
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