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STOXX 600 down 0.3%
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HSBC up, BP down after results
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Eurozone CPI picks up, core slows
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U.S. stock futures edge down
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A LESS HAWKISH ECB? (1017 GMT)
Today's two main data points for the euro zone - the bank lending survey and April's inflation reading - are out and both would seem to point towards a potentially less hawkish ECB just two days before the central bank decides again on rates. Core CPI in the bloc unexpectedly slowed last month and corporate credit standards are tightening at their fastest pace since the sovereign debt crisis in 2011. Clearly these signals have a dovish flavour but analysts see policymakers carrying on with their tightening plans. "This is not yet the moment of relief," says Carsten Brzeski, Global Head of Macro at ING. "The ECB doesn't want to repeat the previous mistake of underestimating inflation and will therefore be willing to go too far, even if this eventually turns out to be a policy mistake". Brzeski sticks to his call for a 25 basis points rate hike on Thursday but whether the ECB's governing council will go for 25 bps or 50 bps remains an "open question". Christoph Weil, Senior Economist at Commerzbank, doesn't expect underlying price inflation to ease much for the time being and says the ECB is still under pressure to raise rates.
"By now, companies should have passed on a large part of the energy price-induced increase in production costs to consumers. But now a new wave of costs is on the horizon with the strong rise in wages," he writes. And Florian Ielpo, Head of Macro at Lombard Odier Asset Management notes: "Large inflation surprises are history now, but inflation remains too high to be ignored by markets and by the ECB."
(Danilo Masoni)
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AN UNEASY CALM (0947 GMT) April was a steady month for equity markets despite several "uncomfortable" risks lurking in the background.
Investors are concerned about the stability of the banking system, a deteriorating geopolitical landscape and a weaker corporate earnings picture. But according to Adam Singleton, head of investment solutions at Man FRM, there isn't enough in any of these narratives yet to set a definitive course for markets. "Everywhere one looks, there is an uneasy calm," Singleton writes.
"When uncertainty is high, we should expect short, sharp periods of higher volatility (regardless of source), and therefore remaining liquid and nimble enough to capitalise on opportunities as they arise seems like a sensible position," he says. With most hedge fund managers primed for something to go wrong, Singleton says an uneasy situation for hedge funds could be a market where banking crises are contained, the debt ceiling issues get resolved, there are no material negative geopolitical developments, inflation falls back towards target and corporate earnings improve.
"While not exactly a 'pain trade', the slightly uncomfortable trade for some of the hedge fund industry might be this Goldilocks path through the rest of 2023," Singleton writes.
(Samuel Indyk)
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STOXX STEADIES AS BANK GAINS OFFSET OIL DRAG (0746 GMT) European shares were little changed in early trading on Tuesday, with gains in banks ahead of another likely rate hike from the ECB this week offsetting a drop in oil stocks on the back of weaker crude prices. Results from energy heavyweights also came in play. HSBC rallied 4.5% after Europe's biggest bank rewarded shareholders with its first quarterly dividend since 2019 following strong numbers. BP declined almost 5% after the oil major cut its share buyback programme. The region-wide STOXX 600 was flat on the day. The overall picture across country benchmarks was mixed, while the DAX was also little changed after briefly surging to its highest since January 2022.
(Danilo Masoni)
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EUROPE SET FOR POSITIVE START (0649 GMT) European shares were set to kick off a big week for central bank meetings, up slightly after JPMorgan agreed to buy First Republic Bank assets to help solve the third U.S. banking crisis in two months. EuroSTOXX50 and FTSE 100 futures rose around 0.2-0.3%respectively, while S&P 500 futures were last just above parity, pointing to a muted start later on Wall Street. The Fed is expected to hike rates by 25 basis points on Wednesday before pausing, while the ECB policy decision is due on Thursday.
In corporate news, earnings continue to dominate the scene. HSBC shares were called up 2-3% in London after Europe's largest bank beat quarterly profit expectations and announced a new cycle of share buybacks for up to $2 billion. Eyes also on BP after the UK oil major made a $5 billion profit in the first quarter, topping expectations, although it pared back a share buyback programme. Numbers to digest also from Logitech , AMS-OSRAM and Geberit , among the others. Electrolux was on the watchlist too after reports of an approach from China's Midea Group for a potential acquisition of the Swedish brand.
(Danilo Masoni)
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RBA SHOCK HIKE STARTS HUGE WEEK FOR CENTRAL BANKS (0553 GMT) The Reserve Bank of Australia kicked off a string of major central bank meetings this week by surprising markets with a quarter-point rate hike, when most had been positioned for a pause. It even signalled the possibility of more tightening to come, jolting the Aussie to a one-week high. The Fed is up tomorrow, followed by the ECB the next day, all while the Bank of Japan's decision on Friday to remain a dovish outlier continued to reverberate in FX markets, knocking the yen to a fresh 15-year low against the euro. Japan markets will be shut for public holidays for the next three days, missing not just the Fed and ECB decisions but Friday's monthly U.S. payrolls report as well. The ECB is among the most hawkish of the major monetary authorities and is expected to raise rates for a seventh straight meeting. The debate among policy makers is whether to opt for another half-point hike or slow to a quarter-point pace. The Fed, meanwhile, is widely expected to hike rates by a final quarter point and then signal a pause. Money markets are still betting on a Fed rate cut before the end of the year.
Treasury yields were ticking down in Asia with risks from the debt ceiling standoff ramping up. President Joe Biden has called for a meeting with top congressional leaders amid warnings the U.S. may run short of cash around June 1, earlier than the market had been estimating. Asian stocks were lower, pressured by weakness in financial shares in Tokyo, Sydney and Hong Kong after the seizure of First Republic Bank by regulators rekindled worries about the U.S. banking sector. JPMorgan will pay $10.6 billion to the FDIC as part of a deal to take control of most of First Republic's assets while gaining access to its coveted wealthy client base. The White House said the lender was "severly mismanaged", suggesting problems are not systemic in the second biggest bank failure in U.S. history. Biden repeated a call for stronger rules and oversight. Meanwhile, changes may be in the offing for the Fed's board, with the New York Times reporting that Biden is likely to nominate current governor Philip Jefferson to be vice chair and World Bank economist Adriana Kugler as a governor.
Key developments that could influence markets on Tuesday:
Euro-area CPI data U.S. JOLTS report Wall Street earnings including Pfizer ahead of the open, and Starbucks and Ford after the bell
(Kevin Buckland)
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