MARKET WRAPS

Stocks:

European stocks were mostly higher on Tuesday, with the energy sector in focus following oil's rise after the killing of a senior Iranian general raised tensions in the Middle East.

However, gains were capped following a spike in Treasury yields, as investors focused on economic data that could impact the outlook for U.S. interest rates.

"Given concerns around the delays for Federal Reserve monetary easing, the gains seen across European indices of late do highlight a growing fondness for the relatively cheap European indices over their comparatively pricey U.S. counterparts," Scope Markets said.

Stocks to Watch

Barclays' improving revenue and risk-weighed assets in its investment banking division are key to convincing the market that the lender can hit its return on tangible equity target by 2026, Jefferies said, lifting its target on the stock to 330 pence from 220 pence.

The market doesn't yet have faith that Barclays is a consistent 12% bank, Jefferies said, noting that its recent rerating is likely attributed more to the lender's clarity on capital returns.

"The implied 2026 revenue/RWA productivity level is 6.9%, up from 5.5% in 2023 and compared with the local peak of 6.8% in 2020," Jefferies said. This measure will be a material key performance indicator to watch, it said.

Burberry is poised to report weak fourth-quarter business and the trend is likely to continue through the first quarter, Deutsche Bank said.

"It is hard to point to anything in particular which has gone wrong although the timing of a big, bold new Burberry under Daniel Lee may have coincided with a period of 'quiet luxury' and the weakness of aspirational luxury," Deutsche Bank said.

Burberry has cut twice its full-year 2024 adjusted Ebit target, currently in the range of GBP410 million to GBP460 million, while DB cut its forecast by 8% to GBP395 million and broadly flat outlook for fiscal 2025 following wider industry comments.

Economic Insight

Falling inflation in major German states suggests that both German and eurozone inflation will come in lower than expected in March, Capital Economics said.

"This will please European Central Bank policymakers, but we still think they will wait until June before cutting rates."

The breakdown for North-Rhine Westphalia shows that the decline in the headline rate was mainly due to a drop in food inflation, though core inflation also declined.

Meanwhile data already released for France showed inflation fell there, while for Italy it rose, albeit less than expected.

While it still looks unlikely, investors are now pricing in a not-impossible chance of an ECB cut in April, CE added.

U.S. Markets:

Futures for major indexes slipped, after the S&P 500 and Dow industrials edged down on Monday.

Ten-year Treasury yields also slipped after settling on Monday at 4.329%, their second-highest close of the year. Futures pricing implies a roughly 40% chance the Fed will stand pat at its next two meetings, the CME FedWatch tool shows.

U.S. economic data due Tuesday include February factory orders and February job openings. Fed officials making comments include Michelle Bowman, Loretta Mester and Mary Daly.

Forex:

The DXY dollar index was slightly firmer, with JOLTS and U.S. factory orders data awaited, potentially giving the greenback a further boost, Swissquote Bank said.

"Any positive surprise on both data should continue to soften the Fed doves' hands into Friday's official jobs data and back a further rally in the dollar across the board."

UBS Global Wealth Management said the backdrop for a well-bid dollar is expected to stay in place moving into the second quarter.

"With the timing of Federal Reserve easing still in doubt, the balance of risks points to fewer rather than more cuts compared with current consensus expectations."

UBS still advises holding the dollar on an unhedged basis, but it notes that there are well-known limits on dollar strength linked to the elevated U.S. twin deficits and the expectation that global growth dynamics will converge with the U.S. in the second half of the year.

Brown Brothers Harriman said more strengthening of the dollar is likely ahead.

"The strength of the U.S. economy and sticky underlying inflation mean the Fed can afford to stay on the sidelines for longer than is currently discounted by the money market. We expect USD to benefit further from a reassessment in Fed funds rate expectations."

MUFG said the strength of the dollar has been capped against the yen in the near term by the heightened threat of intervention from Japanese officials to support the yen. "It has helped to keep USD/JPY below the 152.00-level."

Japanese Finance Minister Shunichi Suzuki reiterated again that the government will monitor market developments closely with a high sense of urgency, and will take appropriate measures against excessive moves, without ruling out any options.

Bonds:

Volatility in bond markets is expected to continue to fall in the second quarter, Generali Asset Management said, with falling inflation rates and declining inflation volatility, combined with upcoming key rate cuts contributing to this.

This offers some potential for lower swap spreads, Generali added.

"In addition to the decline in bond market volatility, the record-high 12-month rolling net issuance of Bunds, combined with the expected steepening of the yield curve, also points to somewhat tighter swap spreads."

Generali expects bond yields to remain within a fairly narrow corridor in the coming months, while in the longer term, there is potential for a decline, particularly for U.S. yields.

"There are opposing effects regarding the future development of core yields. In this respect, we do not expect a clear trend and the absolute change is likely to remain within a relatively narrow range," it said.

Overall, Generali sees the evolution of yields skewed to the downside.

Energy:

Oil prices hit a five-month high on signs of tighter supply due to OPEC+ cuts and growing geopolitical risks, as well as improving demand in the U.S. and China.

Gains were boosted by escalating hostilities in the Middle East after Syria and Iran accused Israel of a missile attack on an Iranian diplomatic building in Damascus.

"To date, the market hasn't been worried about supply disruptions, with the war remaining contained," ANZ said. But "Iran's involvement could see its oil supply under threat."

Meanwhile, manufacturing activity in the U.S. and China expanded in March, raising expectations that improving economic growth in both countries will boost demand for oil.

Brent crude and WTI are moving into deeper backwardation, signaling that oil market fundamentals continue to firm, according to ING. "The tightening in the oil market is evident in the price action we have seen in the timespreads."

ING said the prompt ICE Brent timespread-the premium of Brent's front-month contract to the second month-is trading just shy of $1 a barrel, up from $0.70 a barrel toward the end of last week.

Metals:

Base metals were higher with gold trading just below its all-time record, a clear symptom of the economic and political turmoil shaking global markets as investors seek a haven, Xs.com said.

That said, experts are divided on whether this bullish trend will persist in the long term, Xs.com added.


EMEA HEADLINES

UBS to Launch Buyback of Up to $2 Bln

UBS Group plans to launch a new share-buyback program of up to $2 billion.

The Swiss banking giant on Tuesday confirmed its expected share repurchases for 2024 will amount to up to $1 billion.


Lonza Taps Siegfried Holding's Wolfgang Wienand as Next CEO

Lonza Group said it appointed Wolfgang Wienand, who is currently chief executive at smaller Swiss peer Siegfried Holding, as its next CEO.

The Swiss life-sciences company said Tuesday that Wienand will join in the summer of 2024 and will replace Albert M. Baehny, who became interim CEO in October last year after the departure of Pierre-Alain Ruffieux.


Turkey's Erdogan Suffers Setback in Nationwide Election

ISTANBUL-Turkey's main opposition party kept control of the country's largest cities and rose to power in others while clinching a surprise victory in local elections that represent a rebuke to President Recep Tayyip Erdogan, reflecting discontent with the country's turbulent economy.

Istanbul's incumbent Mayor Ekrem Imamoglu, who is one of Erdogan's top critics and a possible presidential candidate, led his opponent by 50.8% to 40.1% with more than 95% of ballot boxes opened in the city by early Monday morning, according to Turkey's state-run news agency.


Israel Blamed for Attack Killing Iranian General in Damascus

Syria and Iran accused Israel of a missile attack on an Iranian diplomatic building in Damascus that killed a senior Iranian general, in a potential escalation of a shadow war between Israel and Iran that has intensified during the war in Gaza.

Iranian state media said the attack on Monday killed a senior leader in the elite Quds Force of Iran's Islamic Revolutionary Guard Corps, which oversees Tehran's network of militia allies throughout the region. The commander, Gen. Mohammad Reza Zahedi, managed Iranian paramilitary operations in Syria and Lebanon, according to Iranian state media and U.S. officials.


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04-02-24 0541ET