MARKET WRAPS
Breaking News:
The eurozone's annual rate of inflation fell for the third straight month in March, a surprise that makes it more likely that the European Central Bank will cut its key interest rate in June.
Consumer prices were 2.4% higher than a year earlier, a decline in the inflation rate from 2.6% in February, according to figures released by the European Union's statistics agency on Wednesday. Economists polled by The Wall Street Journal had expected inflation to remain at the same rate.
Stocks:
European stocks struggled again on Wednesday, as worries about persistent inflation and rate-cut doubts continued to stifle market sentiment.
Speeches later by several Federal Reserve officials, including Jerome Powell could offer fresh insight into the path of U.S. rates.
Stronger-than-expected U.S. economic data in recent days has caused investors to bet the Federal Reserve will reduce borrowing costs at a slower pace than previously thought, lifting 10-year Treasury yields to their highest level since November.
Traders will be keen to hear if the evidence that the U.S. economy is humming along quite nicely is enough to cause Powell to adopt a more hawkish tone in a speech he is due to deliver after the European close..
U.S. Markets:
Stock futures ticked lower and bond yields were a touch firmer, as traders eyed March jobs data due on Friday and more comments on the economic outlook from Jerome Powell.
All eyes are on Disney, where one of the costliest proxy battles of all time is coming to a head.
Chief Executive Bob Iger-who is also steering a major corporate turnaround-is trying to fend off Nelson Peltz's Trian Partners, which is seeking two board seats. Early indications have suggested Iger has the upper hand.
Elewhere, Intel was down 4% after it revealed that its foundry business recorded an operating loss of about $7 billion in 2023, widening from a loss of $5.2 billion in 2022..
Forex:
The dollar retreated from a 20-week high, as traders pause ahead of speeches later by several Fed officials, including Jerome Powell.
This pullback looks more technical rather than driven by fundamentals, however, given that two- and 10-year Treasury yields are holding firm near recent highs, Brown Brothers Harriman said.
GBP/USD is likely to trade with a downward bias toward 1.2240 in the near term, based on the weekly chart, UOB said.
The currency pair's weekly moving average convergence divergence indicator has turned negative after it slightly fell below the 55-week exponential moving average on Tuesday, though the bias isn't strong for now, UOB said.
Currently, it's probably premature to expect GBP/USD to break below the weekly Ichimoku cloud's bottom, which is presently at 1.2100.
There is little hope for recovery in the Turkish lira anytime soon, firm Conotoxia said, as price inflation continues to tick higher.
Reining in price pressures remains central to bolstering confidence and aiding recovery in the lira, Conotoxia said. But in the short term, the currency will continue to slide, forcing the central bank into fresh rate hikes.
Bonds:
Fixed income may have a good year, DWS Global said, as it reckons that central banks will cut policy rates, though not as quickly or as aggressively as some assume.
It said the 2-10 year Treasury yield curve is inverted now, so investors are incentivized to park money at the shorter end of the curve.
"Once rate cutting might start in the summer months, we expect current high money market fund balances to increasingly move into short duration sovereign debt," DWS said, adding a curve steepening should be also helped by falling inflation and moderating growth.
It expects Treasury yields to hit 3.95% and 4.20% for 2- and 10-years, respectively, by March 2025.
Aramea Asset Management said 10-year Treasury and German Bund yields are expected to edge lower on a six-month horizon as central banks are likely to start interest-rate cuts.
It forecasts the 10-year Treasury yield at 4% and the 10-year Bund yield at 2.25% in six months' time. This compares to the current levels of 4.36% and 2.38%, respectively, according to Tradeweb.
Increased term premium in Bund yields, however, limits the downward potential for Bund yields, it said. Aramea is ready to increase duration in its portfolios when the 10-year Bund yield rises to 2.4%-2.5%.
As the Federal Reserve and the European Central Bank prepare to cut rates, there is scope to extend a portfolio's duration up to 10 years,Saxo said.
That said, U.S. long-term rates remain vulnerable to the pace of inflation returning to 2%, and a possible rebound in term premium--the yield premium investors demand to hold a longer-dated bond rather than a shorter-dated one. .
Energy:
Oil prices held steady at five-month highs ahead of an OPEC+ meeting later on Wednesday, as global supplies are threatened by escalating hostilities in the Middle East and fresh waves of attacks against energy facilities in Ukraine and Russia.
Both benchmarks are moving into deeper backwardation, according to analysts, suggesting that the oil market continues to tighten on OPEC+ output cuts, geopolitical risks and signs of improving demand in the U.S. and China.
Meanwhile, OPEC and its allies are due to review members' implementation of production cuts at their online ministerial panel, but aren't expected to recommend changes to the current output policy.
Gas
European gas demand could recover later this year as anticipated interest-rate cuts are expected to drive a stronger economic recovery, according to Commerzbank Research.
Ample gas storage levels, a mild winter and the advance of renewables all contributed to subdued demand during the heating season, with EU gas consumption 14% below the 2019-21 average in January, Commerzbank said, citing data from think tank Bruegel.
Lackluster demand has pushed natural-gas prices significantly lower in recent months, with benchmark Dutch TTF currently trading around EUR25.85 a megawatt hour.
But widely expected cuts in key interest rates should support demand, leaving a "little more room" for gas prices to rise also amid higher supply risks due to growing geopolitical tensions worldwide, Commerzbank said.
Metals:
Gold futures hit a new record, with bullion's bullish momentum from last week persisting into the second quarter on simmering geopolitical tensions in the Middle East,according to Pepperstone.
On the other hand, continued expectations for the Federal Reserve to begin easing monetary policy this year are also providing support, even if the first 25 basis point rate cut is now penciled in for July, Pepperstone said. For now, the precious metal's rally shows few signs of stalling,
Elsewhere, copper made gains but other base metals slipped.
Silver
Gold has left silver trailing in its wake, but Shaw & Partners thinks the latter could go on a run from here.
"The gold price and silver price are historically strongly correlated, with the gold/silver ratio averaging 70x over the past 20 years," Shaw & Partners said.
"The recent gold price rally has left silver behind, and coupled with strong demand for silver for solar panels, there is a case for silver to rally toward $32/oz this year."
Silver ended Tuesday at $25.80/oz.
EMEA HEADLINES
Genmab Strengthens Oncology Portfolio With $1.8 Bln Acquisition of ProfoundBio
Danish biotechnology company Genmab will acquire U.S. ProfoundBio for $1.8 billion in cash as it looks to bolster its pipeline of cancer treatments.
The acquisition will give Genmab worldwide rights to a portfolio of next-generation antibody-drug conjugates, or ADCs, which are designed to use the body's own antibodies to deliver drugs to tumors.
EQT Scoops Up Supply-Chain Risk Software Maker Avetta
European buyout shop EQT AB is buying risk-management software provider Avetta from private-equity firm Welsh, Carson, Anderson, & Stowe.
The transaction values supply chain-focused Avetta at more than $3 billion, including debt, according to several people familiar with the matter. The deal, which comes at a time when two of the world's crucial trade corridors have been roiled by disruptions, also marks an exit for Avetta investors Norwest Venture Partners and TCV, which backed the U.S. company with venture and growth investments at different times.
Swiss Re Appoints Andreas Berger as Group Chief Executive
Swiss Re said Andreas Berger will succeed Christian Mumenthaler as Group Chief Executive, effective from the start of July.
The Zurich-based reinsurer said Wednesday that Berger is the correct person to build on the company's momentum and to lead Swiss Re into the next phase of its development. He will step down as the CEO of Corporate Solutions, a position he has held for the past five years, the company said.
Volvo, Renault, CMA CGM Name Philippe Divry CEO of Electric Van JV
Volvo, Renault and CMA CGM have named Philippe Divry as chief executive of their new electric-van joint venture.
The three companies last year said they were pooling their efforts to decarbonize the transport and logistics sector and address booming e-commerce and rental businesses.
France's Macron Tries to Jolt Europe Into Taking Tougher Approach With Putin
President Emmanuel Macron of France held confidential calls with President Biden and German Chancellor Olaf Scholz in February to lay the groundwork for a Paris summit that he hoped would shake up the West's strategy in the Ukraine war.
Western allies-Macron told each leader, according to officials-should adopt a position of strategic ambiguity toward Russia that would leave all military options on the table.
GLOBAL NEWS
The Fed May Not Cut Interest Rates in June. How Investors Can Prepare.
Let's just fast-forward to June.
(MORE TO FOLLOW) Dow Jones Newswires
04-03-24 0531ET
