MARKET WRAPS
Stocks:
European shares were steady on Tuesday, as caution before the Federal Reserve decision overshadowed enthusiasm for U.S. technology stocks.
The Fed should leave rates on hold but investors are wary that it could lower rate-cut forecasts for 2024 following recent solid economic data.
"The outcome of the meeting is more likely to be met by a negative rather than positive reaction," Interactive Investor said.
Stocks to Watch
Airbus shares are up more than 18% since the year began and should continue to benefit from positive investor sentiment, RBC Capital Markets said, as it upgraded the stock to outperform from sector perform.
"The improvement in sentiment is due to the strong 2023 deliveries, execution issues at Boeing, and an initial 2024 outlook that has been well received by investors."
RBC noted that Airbus continues to score gains in the market for narrow-body jets, while concerns that the Pratt & Whitney's geared-turbofan engine recall would harm Airbus's aircraft deliveries appear so far to have been overdone.
Swiss watch exports fell in February, which could be a negative read-across for hard luxury stocks including Richemont and Swatch, RBC Capital Markets said.
Total exports of Swiss timepieces dropped 3.8% on year to CHF2.15 billion, according to data from the Federation of the Swiss Watch Industry. Exports to mainland China and Hong Kong saw sharp declines, by 25% and 19% respectively, while those to the U.S. increased 5.5%. The U.K. posted a 2.1% decrease.
The performance in the U.K. and to a lesser extent the U.S. could be viewed as stable to incrementally less negative for Watches of Switzerland, RBC said.
U.S. Markets:
Stock futures edged into the red and benchmark government bond yields were little changed ahead of the Federal Reserve's policy decision and after markets easily absorbed the Bank of Japan's first rate hike in 17 years.
Stocks to Watch
Nvidia was down 1.2% after it announced at its GTC conference its next-generation chip architecture and related products, including its latest artificial-intelligence chip.
Ahead
Economic data due later on Tuesday include February housing starts and building permits.
Forex:
The dollar has risen recently and should continue to gain in the medium term due to markets significantly scaling back expectations of Federal Reserve rate cuts to two by the end of the year from seven anticipated earlier this year, XS.com said.
"The dollar index is trading in the green zone after markets were shaken on Thursday by a series of U.S. economic data releases, indicating that inflation pressures have not yet subsided," XS.com said.
The Federal Reserve's monetary policy will drive USD/JPY more than that of the Bank of Japan, SEB Research said.
"Although we still believe U.S. rates will have a more substantial decline in 2Q, leading USD/JPY to trade towards 139, the fate of the pair will be dominated by the Fed rather than the BOJ."
Danske Bank Research expects CHF/JPY to fall as it forecasts an interest-rate cut from the Swiss National Bank on Thursday.
Bonds:
Eurozone government bond yields were little changed in early European trade, with investors unfazed by the Bank of Japan's exit from its negative interest rate policy, analysts said.
"The BOJ's cautious rate hike should also not weigh on EGBs or USTs," Commerzbank Research said.
In the eurozone government bond space, French OATs are often seen as the most exposed to Japanese repatriation flows, Commerzbank added.
As inflation proves persistent, the Fed's dot plot might project only two rate cuts this year, possibly pushing Treasury yields higher, Saxo said. The Summary of Economic Projections might reveal higher growth and inflation forecasts for 2024, Saxo said.
"Treasury yields are likely to adjust higher across tenors, with two-year yields testing resistance at 4.75% and 10-year yields breaking above 4.35% for the first time since November last year."
Energy:
Oil prices edged lower after reaching highs last seen in early November on signs of a tighter market, but traders remain cautious ahead of the Fed's policy meeting.
"The major short-term risk is a hawkish shift from the Fed that could spoil global demand expectations and limit the topside," Swissquote Bank said.
Oil was still hovering near a four-and-a-half-month high after gaining support from Ukrainian attacks against Russian refineries, Iraq pledging to reduce oil exports and upbeat economic data from top consumer China.
There's a high chance that Brent crude may breach key resistance at $87.30/bbl, given its swiftly building upward momentum on the weekly chart, UOB said.
On Monday, Brent rose to test significant resistance formed by the convergence of its descending weekly trendline and weekly Ichimoku cloud resistance, with this trendline now slightly lower at $87.30/bbl, UOB noted.
A clear breach of this resistance could trigger a rapid rise, with subsequent resistance levels at $90.00/bbl and $93.80/bbl.
Metals:
Base metals and gold were weaker on a stubbornly-strong dollar ahead of Wednesday's Fed rate decision.
Investors turned their attention to the Fed's policy meeting--and while it is expected to keep interest rates unchanged, the meeting could provide hints around the timing of future rate cuts.
Investors believe the Fed will strike a more hawkish tone tomorrow due to firmer inflation metrics, better U.S. data, and higher energy prices, Peak Trading Research said.
EMEA HEADLINES
Unilever to Spin Off Ice-Cream Unit, Including Ben & Jerry's
Unilever plans to separate Ben & Jerry's and its other ice-cream brands into a stand-alone business as part of a wider effort to streamline its operations that could affect around 7,500 jobs.
The consumer-goods giant said Tuesday the move would help it become a simpler, more focused company, and that it expects the productivity program to deliver cost savings of around 800 million euros, equivalent to $870 million, over the next three years.
AstraZeneca Buys Fusion for Initial $2 Bln
AstraZeneca is buying Fusion Pharmaceuticals for up to $2.4 billion as part of a plan to accelerate the development of next-generation cancer treatments, and marking the latest in an acquisition spree by the company.
The deal follows a number of other recent billion-figure takeovers from AstraZeneca and comes at a time of intense merger-and-acquisition activity in the pharmaceutical industry, which has seen big companies snapping up smaller biotechnology businesses.
Thyssenkrupp, Carlyle to Evaluate Possible Sale of Marine Systems Business
Thyssenkrupp said that it and Carlyle have agreed to begin due-diligence procedures for a possible partial sale of the German conglomerate's marine systems business to the private equity company.
Thyssenkrupp said that it and Carlyle will work on examining and valuing the business, the products of which range from naval electronic systems and services to surface vessels and also include submarines.
GLOBAL NEWS
Global Era of Negative Interest Rates Ends as Japan Goes to Zero
TOKYO-The world's nearly 12-year experiment with negative interest rates is over now that the last holdout, the Bank of Japan, has moved its key policy rate back to at least zero.
Of the many unusual measures central bankers took over the past decade and a half, negative rates were among the most controversial, with uncertain benefits and potential risks.
The Fed Is Playing a Waiting Game on Rate Cuts. The Rules Are Starting to Change.
For investors, the big question hanging over this week's meeting of the Federal Reserve is whether it will wait a little longer to cut interest rates because of recent, firm inflation readings.
The Fed, though, has a different preoccupation: If it waits too long, will it inadvertently cause a recession?
RBA Keeps Rates Steady, Says All Policy Options Remain on the Table
SYDNEY-The Reserve Bank of Australia said Tuesday that it still can't rule out the possibility that interest rates will need to be raised further, adding that inflation remains too high and is expected to remain elevated for some time yet.
The RBA left its official cash rate on hold at 4.35% at its policy meeting. The decision was widely expected by economists.
Russia's Backdoor to the Global Banking System Is Slamming Shut
When the U.S. and Europe tried to sever Russia from the Western financial system, Moscow found workarounds. Key among them: banks in the Gulf and Europe that maintained ties with Russia.
Now, Washington's efforts to close these loopholes appear to be paying off. Dubai's main state-owned bank has shut some accounts held by Russian oligarchs and traders of Russian oil. Turkish lenders are growing wary of handling Russia-related business. The U.S. has also put bankers in Vienna, another important financial hub, on notice.
Trump Stays on Sidelines as Biden Takes Heat Over Israel-Hamas War
WASHINGTON-Former President Donald Trump has been open in criticizing President Biden's handling of the Israel-Hamas war. But the presumptive GOP presidential nominee has had little to say about how he would resolve the conflict.
Trump has largely watched from the sidelines five months into a war that has cast a shadow over Biden's re-election campaign. He has expressed general support for Israel's military campaign against Hamas, claimed the war wouldn't have happened on his watch and largely avoided specifics about how it should end and what should happen after.
Israel Sending Delegation to Washington to Discuss U.S. Concerns Over Rafah Invasion
WASHINGTON-Israeli Prime Minister Benjamin Netanyahu has agreed to send a team of officials to Washington to discuss U.S. concerns over its planned military operation in southern Gaza that would potentially put over a million civilians at risk, the White House said, as Israel and Hamas began a key round of talks over hostages and a cease-fire proposal.
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03-19-24 0633ET
