MARKET WRAPS
Stocks:
European shares were slightly firmer on Thursday with many investors believing the Federal Reserve could pause hiking interest rates following the lower-than-expected U.S. inflation data.
"Fed rate cut expectations have jumped again. The consensus is that the Fed's latest rate hike was certainly its last for this cycle, and the Fed will cut the rates by 75bp before the year ends," Swissquote Bank said.
Stocks to Watch
BMW's year will likely turn out better than expected given its strong first-quarter, and an expected step-down in earnings come 2024 shouldn't hurt the car maker's ability to reward shareholders in the long term, Bernstein said.
After a booming 2023, Bernstein has predicted a 12% drop in earnings per share next year as European order books dwindle, supply returns to the market, and pricing and mix pressure BMW's margins.
Yet Bernstein is confident the company will continue returning more than EUR5 billion a year to shareholders, citing its renewed EUR2 billion buyback effort and around EUR3 billion in annual dividends, which look well covered by around EUR7 billion in free cash flow.
Bernstein raised the target price on the stock to EUR110 from EUR105.
Economic Insight
The U.K. housing market remained subdued in April, but with price declines less severe than the previous two months according to the latest Royal Institution of Chartered Surveyors survey, Goodbody said.
The market continues to adjust to the new reality of higher mortgage interest rates, though it has seen some stability relative to the freefall at the turn of the year, Goodbody added.
"The Bank of England meets again today and is likely to sanction a further rise in the base rate to 4.5%. With mortgage rates priced off swaps, this reality is already priced into mortgages.
Read UK Housing Market Struggling for Momentum, Survey Finds
U.S. Markets:
Stock futures edged higher as traders awaited another inflation reading: the producer-price index.
U.S. stocks have made little headway over the past year or so as the Fed embarked on one of the sharpest monetary tightening cycles in its history as inflation last June hit a four-decade high of 9.1%.
Now, with hopes the Fed may even begin cutting rates by the end of the year, the S&P 500 is once again moving up toward the top of the 3,800 to 4,200 range it has inhabited for about six months.
Bond yields were mixed. The 10-year Treasury yield wavered, while the two-year yield, which is more sensitive to interest rate expectations, rose to 3.941%, from 3.899%.
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Forex:
The dollar edged higher after falling in the previous session following the inflation data.
Commerzbank said inflation remains stubborn with price pressures falling "very, very slowly" so market expectations for imminent interest-rate cuts seems premature, adding that it seems the market is a little hasty if it sells the dollar but that mistake has already been reversed to some extent.
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Sterling was a touch lower against the broadly stronger dollar but rose versus the euro, ahead of an expected interest-rate rise by the Bank of England.
"A 25 basis points rate hike to 4.50% is expected and sterling's reaction will therefore likely mostly depend on the message that BOE Governor Andrew Bailey conveys in his press conference," UniCredit Research said.
Former BOE member Sushil Wadhwani said lifting rates to 5% as reflected by the U.K. forward overnight index swap curve would be unwise, but the BOE may not deliver guidance and stress data dependence for future decisions, which might not offer sterling much support either, UniCedit said.
Read BOE Decision Seen Having Contained Impact on Sterling
Bonds:
The short end of the curve, particularly the German Schatz, has an upside potential of 30 basis points by the end of the quarter, Natixis said, which sees the recent rally as excessive.
"Progress made on underlying inflation is not sufficient for the European Central Bank to be able to conclude its tightening cycle as early as the next month."
Natixis targets the two-year Schatz yield at 2.85% at the end of the quarter; the June 2025 Schatz is trading at a yield of 2.53%, according to Tradeweb. It expects the 10-year Bund yield at 2.45% at end-2023; it currently trades at 2.265%, down about 2 basis points, according to Tradeweb.
Separately, Nataxis said it was time to take profit on long positions in eurozone peripheral spreads.
"Several factors favourable to a widening could take centre stage: early repayments of TLTRO by Italian banks, and possible sovereign downgrades by credit rating agencies."
Lastly, advanced discussions on ending the full reinvestment of the ECB's Pandemic Emergency Purchase Programme could be a powerful catalyst for widening sovereign spreads, Nataxis said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Bayer 1Q Earnings Hurt by Glyphosate Business, Inflation
Bayer on Thursday posted a fall first-quarter earnings, which the company said were weighed by an impairment loss due to reduced market price expectations on the herbicide glyphosate, and inflation.
The German pharmaceutical and agricultural company posted net profit of 2.18 billion euros ($2.39 billion), down from EUR3.29 billion the previous year and short of analysts' forecasts of EUR2.21 billion. Earnings before interest, taxes, depreciation and amortization before special items declined to EUR4.47 billion from EUR5.25 billion the year prior while earnings before interest and taxes fell to EUR2.97 billion from EUR4.21 billion in the same quarter of 2022, Bayer said.
Merck KgaA 1Q Earnings Hit by Lower Covid-19 Demand, Decline at Display Solutions
Merck KgaA on Thursday posted lower earnings for the first quarter, which it attributed to a decline in its Display Solutions business and to a decrease in earnings contributions from Covid-19-related sales.
The German health-care and technology company posted after-tax profit of 800 million euros ($878.6 million), on sales that rose to EUR5.29 billion from EUR5.20 billion the year prior.
ING 1Q Profit Beat Views, Launches EUR1.5 Bln Buyback
ING Groep NV on Thursday beat expectations as it reported first-quarter earnings boosted by interest rates and lower provisions, and launched a 1.5 billion-euro ($1.65 billion) share buyback.
The Dutch bank posted a net profit of EUR1.59 billion for the three months to March 31 compared with EUR429 million a year earlier and exceeding expectations of EUR1.11 billion taken from a company-compiled consensus.
Hapag-Lloyd Backs 2023 Outlook After 1Q Hit From Weaker Demand
Hapag-Lloyd on Thursday confirmed its 2023 outlook after reporting sharp falls in first-quarter earnings and revenue, as weaker shipping demand weighed on freight rates and transport volumes.
The German shipping company said after-tax profit for the quarter was $2.03 billion compared with $4.86 billion in the same period of 2022, on revenue that was 33% lower at $6.03 billion.
Rolls-Royce Performance to Date is in Line With Views, Strategic Review on Track
Rolls-Royce Holdings said Thursday that its financial performance for the year to date is in line with expectations and that the strategic review is on track.
The British aerospace and defense company, which launched a review of the business earlier this year, said that long term service agreement large engine flying hours in civil aerospace were 83% of 2019 levels in the four months ended April 30 and are on track for the 80%-90% full year target, as guided in February.
Thyssenkrupp Swung to Second-Quarter Net Loss Amid High Costs, Lower Orders
Thyssenkrupp on Thursday reported a decline in second-quarter orders and swung to a net loss amid high energy and raw-material prices.
The German industrial company reported net loss of 223 million euros ($244.9 million) for the three months ended March, compared with profit of EUR565 million in the prior-year period, on sales that declined 5% to EUR10.11 billion.
RWE Says Renewable-Energy Investment Helped Boost 1Q Earnings
RWE said Thursday that investment in renewable energy helped drive first-quarter earnings higher, as it confirmed quarterly results and again backed its outlook for the full year.
The German energy company confirmed preliminary results released last month showing adjusted earnings before interest, taxes, depreciation and amortization of 2.8 billion euros ($3.08 billion), and adjusted net profit of EUR1.67 billion.
Telefonica on Track to Meet 2023 Guidance After 1Q Earnings Decline
Telefonica on Thursday said it is on track to meet its financial objectives for 2023 after it reported first-quarter earnings that fell despite higher revenue but were slightly ahead of expectations.
The Spanish telecommunications company said operating income before depreciation and amortization-a key profitability metric-was 3.12 billion euros ($3.43 billion) in the quarter, down from EUR3.20 billion in the same period last year, as it was hit by declines in its Spanish and Latin American businesses.
Coca-Cola Trials Turning Hard-to-Recycle Plastic Into Bottles
Coca-Cola is trialing technology in Europe that turns hard-to-recycle plastic into new bottles, as part of its effort to meet its sustainability goals.
The company's biggest European bottler, Coca-Cola Europacific Partners, is funding a startup in the Netherlands that will produce food-grade recycled plastic from plastics that usually get sent to landfill or are incinerated-such as films, trays, clothing and colored packaging. It will create an additional source of recycled material. Current supplies of recycled plastic are costly and limited, which is keeping companies hooked on abundant and cheaper oil as a key ingredient in the production of packaging.
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