MARKET WRAPS
Stocks:
European stocks traded higher on Monday following the news of OPEC+ cutting production, causing oil prices to surge.
“It will take some time to see precisely where oil’s price recenters and how much this impacts global prices as demand concerns linger,” SPI Asset Management said.
“Still, this news is potentially more kindling that could intensify inflation fires after the energy slump was chiefly the key ameliorating factor this year.”
ING agreed, saying “all of this has fuelled fears that inflation will prove to be a longer-lasting problem for central banks.”
“The ultra-volatile market pricing for the Federal Reserve’s rate path is once again set to be one of the most impacted,” ING added.
Stocks to Watch
Foreign-exchange rates are expected to become a headwind in the second quarter for European telecommunications operators that have benefited from favorable currency rates in recent quarters, Deutsche Bank said.
Current FX rates imply a 1.6% hit to European telecom operators’ Ebitda during the second quarter, DB added.
In the first quarter, the telecoms sector experienced a 0.4% tailwind from currency movements, down from gains of 2.9% and 4.1% in the fourth and third quarters of 2022, respectively, DB said.
Deutsche Telekom, Telefonica and Telecom Italia were the biggest FX beneficiaries in the first three months of 2023, according to DB.
European Logistics
Recent data on U.S. retail sales and credit-card transactions highlight that U.S. consumer spending remains healthy, which bodes well for European transport and logistics companies, Stifel said.
Meanwhile, major U.S. importers have indicated they are making progress in their efforts to clear out excess stocks, Stifel added.
“If transport companies report 1Q23 earnings and trading updates later in April that confirm these early green shoots, we would become more confident that the bear case for transport becomes significantly less likely.”
Miners
China’s relatively slow recovery from a very weak 2022 shouldn’t surprise the market and isn’t at odds with a bullish view on miners, Jefferies said.
“One main point of pushback against our positive call on the mining sector is that the China demand recovery has been ‘disappointing’,” it said.
But a gradual return to activity was expected and key indicators including credit growth and mortgages are trending higher, Jefferies added.
“We continue to expect significant improvements in Chinese demand as the year progresses.”
U.S. Markets:
Stock futures mostly declined following the OPEC+ news.
“This comes at a time when the fight on inflation is not over. If inflation from energy prices starts to rebound again, that won’t be a good scenario for central banks,” SYZ Private Banking said.
Stocks to Watch
Exxon Mobil jumped 3.2%, Chevron rose 3.1%, U.S.-listed shares of BP were up 3.9%, and Shell gained 3.7% after OPEC+, led by Saudi Arabia, said it was voluntarily planning on reducing output.
Tesla delivered 422,875 vehicles in the first quarter, and produced 440,808 units, both quarterly records.The stock was down 2.4% in premarket trading.
Nvidia shares fell 1% in premarket trading. Shares rose 90% in the first quarter, and secured the top spot in two indexes-the S&P 500 and Nasdaq-100-following a 50% decline in 2022.
Economic updates set for Monday include purchasing manager’s surveys on manufacturing.
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Forex:
The dollar rose, taking the DXY dollar index to a one-week high, as a jump in oil prices following coordinated OPEC+ output cuts reignited concerns about inflation and, consequently, expectations for the Fed to raise interest rates, ING said.
This translates into a higher dollar as markets play “catch-up” with U.S. rate expectations, ING added.
Separately, ING said that sterling could trade steady against the euro this week due to a lack of U.K. and eurozone catalysts while the dollar’s performance will continue to determine sterling’s moves against the U.S. currency.
“EUR/GBP may keep hovering around 0.8800 in a week where both the U.K. and eurozone’s economic calendars are pretty much empty,” it added.
“The dollar leg of GBP/USD will keep driving most moves in the pair this week and U.S. data will be in focus.”
Bonds:
UniCredit Research expects a total of 75 basis points of further interest-rate rises by the ECB, which will put some upward pressure on eurozone government bond yields, but not to levels as high as in early March.
“Due to a cumulative 75bp of depo rate hikes and cooling investor concerns, we expect Bund yields (and yields on eurozone government bonds in general) to rise from current levels, especially at the short end of the curve,” Unicredit said.
However, yields are unlikely to rise toward or above March 8 levels, when investors were pricing in a peak of 4.25% for the ECB deposit rate, it added.
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While non-residents’ exposure to Italian government bonds remains underweight, BTPs are expected to benefit from continued strong demand from domestic investors, which should allow some spread tightening in the second quarter, Morgan Stanley said.
“We see the 10y BTP-Bund spread returning below our 175 basis point base case scenario towards our 160bp bull case scenario in 2Q23.”
It added that latest ECB statistics on MFI [monetary financial institution] holdings showed some strong demand for eurozone government bonds.
Read Irish Bonds Mildly Outperform Bunds After Scope Raises Outlook
Energy:
Oil prices jumped after Saudi Arabia and other oil producers’ surprise announcement to cut production.
For both Brent and WTI, the moves took prices back to their levels at the start of March, before concerns about the health of global banks sent prices tumbling.
Saudi Arabia said Sunday it would cut 500,000 barrels a day from its oil output, with the U.A.E, Iraq, Kuwait and others planning smaller cuts. Meanwhile, Russia said it would extend its planned 500,000-barrel-a-day cut until the end of the year.
Read Only Some OPEC+ Members Part of Production Cuts, Raising Questions About Compliance
Oil Forecast
Goldman Sachs raised its Brent crude oil forecasts to $95/bbl from $90/bbl for December 2023 and to $100/bbl from $97/bbl for December 2024 on the announcement by OPEC+ members to reduce oil production.
This “surprise cut is consistent with the new OPEC+ doctrine to act pre-emptively,” GS said.
“While surprising, this cut reflects important economic and likely political considerations.”
On the economic front, GS models show this cut will probably boost Saudi Arabian and OPEC+ oil revenues, on net, it added.
On the political side, SPR releases in the U.S. and in France may have contributed to the group’s decision, GS said.
Read JPM Sticks to Oil-Price View Despite Saudi-Led Output Cut
Read OPEC+ Production Cut Could See Potential Downsides
Gas Outlook
The European Union should need to buy much less gas than usual to prepare for next winter, making it unlikely it would face shortages even if there is little Russian gas to replenish storage facilities, Berenberg said.
The EU has ended the heating season with gas storage at 56%, well above the 26% registered a year ago, it said.
Colder weather could bring a more adverse scenario, but Berenberg assumes that the EU won’t consume much more gas because companies have adjusted their energy mix and households continue to refit their homes in response to still-high prices.
“Short of a highly unlikely combination of adverse risks, the EU should be safe for the next winter,” Berenberg said.
Metals:
Base metal prices were mixed in early trading in London, while gold was lower, with investors looking to key data points this week to see what will determine Fed policy in the near term.
“Looking ahead to this week, the US jobs report on Friday should be the main focus,” Deutsche Bank said.
The ISM manufacturing data is due Monday, which Deutsche said “coupled with the jobs report, whether the ISM indices also show robust growth, especially in components like employment and prices, will be key to assess the economy’s resilience.”
Gold
Gold prices are struggling to reach the $2,000 a troy ounce mark, despite a supportive macro environment that includes a weak dollar and general volatility, according to Standard Chartered.
Gold usually benefits from safe-haven demand, but firming equity markets have pushed down gold’s appeal in recent days while high prices have hit demand for physical buying, it said.
Central bank buying might not be as strong as it was in 2022 and without that floor to prices, investor demand will be required to fill the gap, Standard Chartered added.
The bank said it expects rate cuts later in the year, and while investors would usually reduce exposure to gold in this scenario, effects of the cuts are likely priced in early, reducing gold’s headwinds.
DOW JONES NEWSPLUS
EMEA HEADLINES
Saudi-Led Oil Producers to Lower Output Further
A group of large oil producers led by Saudi Arabia said Sunday they would cut more than a million barrels of output a day starting next month, a surprise move that upset Washington and led to a jump in crude prices amid concerns about the global economy.
The output cut adds to a reduction of 2 million barrels a day agreed to in October by the Saudi-led Organization of the Petroleum Exporting Countries and a group of other producers led by Russia. Taken together, the output cuts amount to about 3% of the world’s petroleum production taken off the market in seven months.
European Oil Stocks Rise After OPEC+ Production Cut
Shares in European oil companies rose in early trade Monday after a group of large oil producers led by Saudi Arabia said they would cut output, boosting crude prices.
At 0732 GMT, shares in Shell PLC, BP PLC and TotalEnergies SE had gained more than 4%. Galp Energia SGPS SA rose more than 5% and Eni SpA more than 3%, while Repsol SA and OMV AG traded more than 2% higher.
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April 03, 2023 06:10 ET (10:10 GMT)
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