MARKET WRAPS

Watch For:

EU labor cost index; Germany ZEW indicator of economic sentiment; trading update from Wickes Group

Opening Call:

European stock futures declined, as Asian stock benchmarks were mostly lower following the Bank of Japan's exit from negative rates. The dollar gained; Treasury yields were little changed; oil futures fell while gold is little changed.

Equities:

Stock futures fell early Tuesday as markets await a series of major central bank meetings this week, following the Bank of Japan's decision early Tuesday to end negative rates after an eight-year experiment.

The decision marks the end of a global era of negative interest rates that began in the 2010s. Other central banks that had introduced negative rates in the 2010s, including the European Central Bank and the Swiss National Bank, have already moved back into positive territory amid inflation triggered by the Covid-19 pandemic and the war in Ukraine.

Next up is the Federal Reserve, which is widely expected to keep interest rates steady at the conclusion of its two-day policy meeting. But investors have some concern about what the Fed could signal about the prospects for rate cuts later this year after two straight months of firmer-than-expected inflation data.

Matthew Tuttle, chief executive officer of Tuttle Capital Management, said he wasn't betting against stocks at this point but was exercising caution ahead of the Fed meeting.

He said he expects that "there won't be any bullish surprise out of that meeting," but there could be a negative surprise.

Forex:

For USD to trend notably lower, HSBC Global Research thinks global activity data needs to show a much clearer upward trend, and provide more upside surprises outside the U.S.

"It is not enough for the US to be slowing, if the rest of the world is barely holding up its end of the equation, especially as shorting the USD still comes with such negative carry costs due to higher US rates," HSBC said. "This curbs the potential for more dramatic USD downside, in our view," the bank added.

Bonds:

Investment-grade corporate debt issuance "finally came in below the 2022-2023 average" last week, as rates get increasingly closer to those of Treasurys, Bank of America economists said.

They say the pace of I.G. supply so far this year "was unsustainable," and issuance is likely to "remain subdued." BofA expects spreads to keep tightening in March and April, with the ICE BofA U.S. I.G. index "potentially reaching into the 80s," but this is about how far spreads will go. Elevated U.S. economic growth and interest rate uncertainties will likely widen spreads to 100 to 120 basis points, BofA said.

Energy:

Oil futures fell slightly early Tuesday, after U.S. and global benchmark prices settled at their highest since late October on Monday.

However, losses may be limited by supply-side issues. Ukraine's drone strikes over the weekend hit three oil refineries in Russia, which account for 12% of Russia's total oil processing capacity, ANZ said. This has led to refinery margins picking up amid tighter availability of oil products in Europe, ANZ added.

Metals:

Gold is little changed amid caution ahead of high-impact events including the FOMC decision on Wednesday, said Diego Colman, contributing strategist at DailyFX.

If policymakers signal a less dovish roadmap and a delay in the easing cycle then Treasury yields and the U.S. dollar could shoot higher as Wall Street recalibrates interest rate expectations, he said. "This scenario could pose a threat to the current rally in precious metals and trigger a major downward correction in the space," he added.

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Copper fell slightly in possible position adjustment after a recent price rally. The base metal's recent gains had been driven by positive China data, said Charu Chanana, head of forex strategy at Saxo. Prices will likely see further correction in the near term, though they are unlikely to fall below $8,800, said Daria Efanova, head of research at Sucden Financial.

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Iron ore advanced after China reported solid economic activity data on Monday. Positive Chinese data boosted sentiment, helping reverse earlier losses in the iron ore market, while the rise in fixed asset investment should support steel demand, ANZ said.


TODAY'S TOP HEADLINES

Bank of Japan Ends Negative Interest Rates

TOKYO-The Bank of Japan said Tuesday it would end negative interest rates after an eight-year experiment, symbolizing a broader shift away from unorthodox monetary easing.

The Japanese central bank set a target for short-term interest rates in a range of 0% to 0.1%, carrying out its first rate increase since 2007.


Odds of a June rate cut by Fed slip below 50%, according to this gauge

In the run-up to Wednesday's policy update by the Federal Reserve, traders in overnight index swaps have gravitated toward a less than 50% likelihood that policy makers will deliver their first interest-rate cut in June.

Overnight index swaps, or "OIS," are derivatives contracts linked to the overnight monetary-policy rate, and used by Wall Street to hedge interest-rate risk.


Hedge Funds Sue SEC Over Treasury Dealer Rule, Continuing Industry's Legal Barrage

The hedge fund industry is continuing its legal assault on the Securities and Exchange Commission, this time over a new rule the industry says would subject many funds to increased oversight as Treasury bond dealers.


Ukraine's Impossible Choice: Conceding Territory or Lives

Russian forces were closing in when Sgt. Ivan Zhytnik made a desperate call to his family from a bunker on the front line in eastern Ukraine.

Ukrainian defenses in the city of Avdiivka were crumbling and Zhytnik's brigade had pulled out to avoid being overrun, leaving him and five other soldiers behind.


Cisco Closes $28 Billion Acquisition of Splunk, Betting Big on AI

Cisco Systems closed its $28 billion all-cash acquisition of cybersecurity and analytics company Splunk on Monday.

The deal, the largest in Cisco's history, was completed months earlier than projected and reflects the extraordinary effort many companies are undertaking as they remake their businesses around data and artificial intelligence.


Nvidia Unveils Latest Chips at 'AI Woodstock'

SAN JOSE, Calif.-The Nvidia frenzy over artificial intelligence has come to this: Chief Executive Jensen Huang unveiled his company's latest chips on Monday in a sports arena at an event one analyst dubbed the "AI Woodstock."

Customers, partners and fans of the chip company descended on the SAP Center, the home of the National Hockey League's San Jose Sharks, for Huang's keynote speech at an annual Nvidia conference that, this year, has a seating capacity of about 11,000.


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Expected Major Events for Tuesday

07:00/SWI: Feb Trade Balance

10:00/EU: 4Q Labour Cost Index

10:00/GER: Mar ZEW Indicator of Economic Sentiment

11:00/POR: Feb PPI

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(END) Dow Jones Newswires

03-19-24 0117ET