MARKET WRAPS
Watch For:
Industrial production for EU, Italy and U.K; U.K. GDP, trade, Bank of England credit conditions survey; Germany CPI, balance of payments; trading updates from Tesco, Givaudan, Vinci, Publicis Groupe, Bang & Olufsen, Sberbank, Darktrace, Imperial Brands, Mediclinic International, Babcock International Group, B&M European Value Retail, BMW
Opening Call:
European indexes may be pressured at the open Thursday after declines on Wall Street. In Asia, stock benchmarks were mixed; the dollar was barely moved; Treasury yields were mixed; oil futures declined and gold gained.
Equities:
The Federal Reserve minutes and U.S. March CPI data released overnight may weigh on European stocks at Thursday's open.
Minutes from the Fed's March policy meeting showed policymakers agreed that the stress in the banking sector would slow U.S. economic growth.
Fed staff projected that the economy may enter a "mild recession" later this year before recovering over the next two years, according to the minutes.
Speaking at the Salt Lake Chamber, San Francisco Federal Reserve President Mary Daly said the recent turbulence in the U.S. financial system could slow the economy and even ease inflation.
Daly said the Fed has to continue to monitor the economy closely before determining how much further to raise interest rates.
"There are good reasons to think that policy may have to tighten more to bring inflation down," Daly said.
"But there are also good reasons to think that the economy may continue to slow, even without additional policy adjustments."
The consumer-price index, a closely watched measure of inflation, rose 5% last month, the Labor Department said Wednesday. The report showed inflation is continuing to pull back from its multidecade high hit last June.
Wednesday's consumer inflation report "keeps the Fed on track for another rate hike while trying to strike a delicate balance," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
While the CPI data is "good news," core CPI numbers show that inflation is still sticky, according to Giles Coghlan, chief market analyst at HYCM.
"That's why we're not seeing an unmitigated relief rally off the initial print," Coghlan said.
David Nicholas, chief executive officer of Nicholas Wealth Management, said markets have been "a little too opportunistic" as the Fed will not get anywhere close to pausing until they believe this fight against inflation is done.
Adding to investor caution is the looming first-quarter U.S. corporate earnings season, which gets into gear on Friday when the likes of JPMorgan Chase, Wells Fargo and Citigroup will present their numbers.
"If financials come out later this week and are reasonably at or even above expectations, you're probably gonna see this market heading higher, " said Nicholas.
Forex:
The U.S. dollar was barely moved early Thursday as mild inflation data boosted confidence that the Fed's tightening cycle was about to end.
Markets have scaled back their interest-rate rise expectations for the Fed in coming months and priced for rate cuts by year-end but the dollar is unlikely to weaken significantly, Rabobank said.
The lower rate expectations were based on the view that U.S. credit conditions have tightened, Rabobank said.
"Even if tighter credit conditions do not trigger another mini crisis, they do raise recession risks for the U.S.," it said.
The risk of a recession in the world's largest economy could discourage investors from risky assets, which should prevent the dollar from falling considerably in coming months given the currency's safe-haven status, it added.
Bonds:
Treasury yields were mixed in Asia after minutes of the Federal Reserve's last meeting discussed the possibility of a mild recession later this year and data showed U.S. consumer prices rose more slowly in March.
"Wall Street wants the Fed to be done with this rate hiking campaign but with supercore inflation nowhere near target, more work needs to be done, " Oanda's Edward Moya said.
"The minutes of the Fed's mid-March policy meeting are, overall, arguably dovish," Capital Economics' Paul Ashworth said.
He said odds of another 25-basis point hike were rising, but "with March retail sales and industrial production likely to be weak, it is still a close call."
Fed funds futures traders are pricing in a 68.9% likelihood that the Fed will raise interest rates by another 25 basis points to between 5% and 5.25% next month, followed by a pause and one or two rate cuts by the end of 2023, according to the CME FedWatch Tool.
Energy:
Oil futures were slightly lower in Asia in a likely technical correction after front-month WTI crude futures settled at the highest since November and front-month Brent at the highest since January.
Technical charts indicate that WTI could "dip back toward broken resistance range between $81.00/bbl to $81.80/bbl, given that it is testing its 200-day average," Fawad Razaqzada, market analyst at City Index and forex.com, said.
"We got a moderating CPI number, which could suggest that we can avoid more draconian rate hikes in the future," said Stewart Glickman, energy equity analyst at CFRA Research.
"So at least on the demand side of the oil equation, things look a little better ... and [that] probably reduces the odds of a sustained malaise in oil prices."
"Oil is also influenced by the dollar but OPEC+ support is more important, along with robust demand from China and Europe -- as it looks for substitutes for oil," said Jay Hatfield, chief investment officer at Infrastructure Capital Management.
"Oil traders will be focused on the progress of demand from China as well as OPEC compliance with the voluntary [oil production] cuts."
Metals:
Gold futures edged higher early Thursday, as the dollar declined on the back of U.S. data showing a smaller-than-expected rise in March consumer prices and a slowdown in the yearly rate of inflation.
Macroeconomic conditions for gold have probably improved although future upside may already be expected, RBC Mining & Materials Equity Team said.
The team anticipates slowing inflation and growth during 2023 will likely enable tight monetary policy to loosen, putting downward pressure on real-interest-rate expectations and offering support to the precious metal.
Gold may also be finding support from "foreign demand as investors seek safe havens as the European Central Bank continues to battle elevated inflation, and as China reopens and savers seek to shift savings from housing toward alternatives such as gold," said Rob Haworth, senior investment strategist at U.S. Bank Asset Management.
"However, softer global economic activity and weaker trends in U.S. growth likely temper demand for gold over the next quarter," he said.
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Copper prices rose in Asia amid prospects of tight supply.
Copper inventories in the LME's global warehouse network have dropped to 56,800 tons, extending declines after reaching their lowest level since 2005 on Tuesday, ANZ Research analysts said.
While market participants were reducing bullish bets in major industrial metals amid increasing recession risks, China's strong demand could offset some demand weakness in developed markets, the analysts added.
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Chinese iron-ore futures were lower in early trade, reversing gains from the past two sessions as the impact of Australian tropical cyclone wanes.
"The tropical cyclone may affect shipments in Western Australia, but the impact is just for the short-term," said Nanhua Futures analysts.
TODAY'S TOP HEADLINES
Fed's Daly says bank turmoil could slow economy by reducing loans
San Francisco Federal Reserve President Mary Daly said the central bank will use all its tools to keep country's financial system "safe and sound," but she did not offer any fresh details on Silicon Valley Bank in her first public remarks since its failure.
SVB was located in the San Francisco Fed's region and the bank was responsible for regulatory oversight. Daly and the San Francisco Fed have been criticized for not spotting the potential problems earlier.
Fed Keeps May Interest-Rate Increase on Table Despite Expected Recession
Stubbornly high inflation and tight labor markets led Federal Reserve officials to signal they could raise interest rates at their next meeting despite a greater likelihood of a recession later this year.
The fallout from the failures of two midsize banks led Fed officials to consider skipping a rate increase at their meeting last month, but they concluded regulators had calmed stresses enough to justify a quarter-point rate rise, according to minutes of the March 21-22 gathering released Wednesday.
White House Works to Satisfy Senate Democrats in Fed Vice Chair Search
WASHINGTON-The White House is working to secure the support of key Capitol Hill allies as officials deliberate over whom to nominate for the No. 2 job at the Federal Reserve, according to people familiar with the matter, with Democrats' slim majority in the Senate hanging over the search.
Last month, some administration officials privately identified Janice Eberly, a finance professor at Northwestern University, as the leading candidate for the Fed vice chair. But Sen. Robert Menendez (D., N.J.), a senior member of the Senate Banking Committee, has continued to mount an aggressive campaign to pressure the White House to nominate a Latino economist for the job.
EY Breakup Plan Doomed by Miscalculations and Powerful Opponents
For months, Ernst & Young's top leaders characterized their planned breakup of the firm as almost inevitable. All that was left were some adjustments around the edges and votes by partners in dozens of countries.
They missed a brewing revolt at the firm's biggest operation, where EY's top leader and the architect of the breakup had deep ties. A handful of U.S. partners, prodded by a vocal group of EY retirees, scuttled the deal.
(MORE TO FOLLOW) Dow Jones Newswires
04-13-23 0021ET
