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STOXX 600 down 0.7%
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SBB scraps rights issue
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Euro zone volatility tops 19 points
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U.S. stock futures dip
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MANY U.S. BANKS LOG OVER 5% DROP IN DEPOSITS - S&P GLOBAL (1104 GMT)
First quarter earnings reports showed more than two dozen banks saw declines in deposits in excess of 5%, according to a note by S&P Global Market Intelligence data & analysis. The now defunct First Republic Bank failed after posting a 40.8% sequential drop in period-end deposits, the biggest decline among publicly traded banks that reported through April 28. PacWest Bancorp and Western Alliance Bancorp , peers that are also under scrutiny lately, logged 16.8% and 11.3% fall in deposits. Shares of the regional banks remained under pressure on Tuesday in premarket, with investors worried the ongoing banking crisis could deepen. Nevertheless, publicly traded banks in the U.S. posted a median 0.1% increase in deposits in the first quarter, a sign that many institutions navigated the environment relatively well, according to S&P Global. New York Community Bancorp , was a notable exception, and saw its deposits jump to $84.8 billion by March 31, compared to $58.7 billion at December 31, 2022, helped by its deal with U.S. regulators to buy deposits and loans from failed Signature Bank .
The Signature transaction, after experiencing initial expected outflows, contributed $31.5 billion of deposits as of quarter-end, according to the company's earnings report on April 28. Both the Federal Reserve and U.S. Treasury Secretary Janet Yellen have reassured this week that the banking system remains sound.
Below is a table on deposit trends at top U.S. banks by
assets in the first quarter:
Company QoQ
Total Deposits
(%)
JPMorgan Chase & Co 1.6
Bank of America Corp -1.0
Citigroup Inc -2.6
Wells Fargo & Co -1.5
U.S. Bancorp -3.7
Truist Financial Corp -2.1
PNC Financial Services 0.1
Group
First Republic Bank -40.8
Citizens Financial Group -4.7
Inc
Fifth Third Bancorp -0.4
M&T Bank Corp -2.7
KeyCorp 1.1
Huntington Bancshares Inc -1.8
Regions Financial Corp -2.5
New York Community Bancorp 44.4
Comerica Inc -9.4
Zions Bancorp -3.4
First Horizon Corp -3.2
Webster Financial Corp 2.3
Western Alliance Bancorp -11.3
Industry median 0.1
Data compiled by S&P Global Market Intelligence on May 3, 2023
(Bansari Mayur Kamdar)
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EARNINGS STRENGTH REFLECTS RESILIENT CONSUMER (1046 GMT)
We're more than half way trough the earnings season in Europe and even though growth is slowing from the double-digit rates seen following the pandemic, it is still positive and profit beats are running high. Against this backdrop, it is arguably quite difficult to detect many signs of the economic slowdown many expect for this year. In fact, so far, Europe Inc has defied the gloomy macro outlook. And for Bernstein, current evidence appears to support the view that "a resilient consumer, supported by excess savings and a strong labour market continues to absorb higher prices and support corporate profitability". That being said, analysts face a problem. "The dilemma... is that macro outlooks warrant lower earnings forecasts going forward but the large breadth of beats that we saw in Q1 makes it difficult to cut earnings estimates," writes Bernstein.
So, what's the way forward? Bernstein believes earning upgrades should continue in the short term, supporting equity prices, but over the course of the year, macro risks will start to trickle through corporate outlooks, kicking off analyst downgrades. Companies have reported EPS growth of 6% so far, an upside surprise of 14%, according to their estimates.
(Danilo Masoni)
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BUY EUROPE OVER US: GAME OVER? (0850 GMT) Buying Europe over the U.S. has been a profitable equity trade since the second half of 2022 but its days seem to be numbered, at least according to JP Morgan. "The time has come to close the trade of (overweight) Eurozone vs the US," writes Mislav Matejka, strategist at the U.S bank.
"Europe was the least liked region last summer, when the
consensus of economists was that it has already entered a
recession, but it has transitioned to a consensus long, a
preferred play on China rebound, and has enjoyed a big move up
in activity," he recalls.
"Given this, from the low last September to last week,
Eurozone equities have advanced as much as 30% vs the US. One
should be locking in these gains, especially if our current
sector and style views of more defensive leadership keep gaining
traction," he adds.
JPM notes that in past U.S. recessions (Europe's) equities
have suffered and that "the best of the momentum" from China's
reopening is likley behind us.
(Danilo Masoni)
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REAL ESTATE FLASHING RED (0800 GMT) It's a day of heavy losses for real estate in Europe after top Swedish landlord SBB scrapped plans for a rights issue as its shares plummeted amid growing liquidity concerns that sparked S&P to cut its credit rating to junk. The STOXX Europe 600 Real Estate index was the biggest sectoral faller in early deals, down more than 2% at one point - welcome news for the short sellers.
SBB slid as much as 9.5% in Stockholm, adding to a 20% slide the day before, dragging other Swedish property stocks Fabege , Castellum and Balder lower. Real estate jitters however didn't show signs of spilling over to the broader market.
The region-wide STOXX Europe 600 index fell 0.3% and a gauge of euro zone equity volatility languished just above 18 points. Banking stocks were flat.
Yet, ING said SBB's troubles might cause fresh issues for the Swedish crown, already under significant pressure, especially against the euro. "This is sending shockwaves to the real estate sector in Sweden (and also spreading across Europe) and once again raising questions about the path of monetary policy in Sweden in light of the large slumps in house prices," wrote ING strategist Francesco Pesole. In the snapshot the top real estate fallers by mid morning.
(Danilo Masoni)
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(Danilo Masoni)
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EUROPEAN FUTURES SEEKING DIRECTION (0645 GMT) European shares were set to open without clear direction on Tuesday with futures moving around parity following an uncertain session in Asia and a flat Wall Street close, as investors grow cautions ahead of Wednesday's U.S. inflation report. EuroSTOXX50 and DAX contracts were last little changed, while FTSE 100 futures added 0.1%, as London reopens following a long weekend. U.S. futures were down slightly. In European corporate news, some earnings releases were in focus. Dialysis specialist Fresenius Medical Care reported a drop in its Q1 adjusted operating income but said labour shortages were slowly easing. Chemicals group Evonik reported a smaller than expected drop in Q1 core profit, while Daimler Truck reported a higher return of sales, towards the top end of its annual outlook for 2023. In M&A, sportswear group JD Sports proposed to buy France's Groupe Courir for an enterprise value of 520 million euros. SBB remained on the watchlist after the Swedish landlord delayed its dividend and scrapped plans for a $259 rights issue following heavy losses in its share price in the wake of a credit rating downgrade to junk.
(Danilo Masoni)
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US UNCERTAINTY FEEDS CAUTION IN ASIA (0558 GMT)
European investors hoping to find some clues on market direction from Asia may be disappointed today. Overall, the market mood was cautious ahead of the week's trading highlight, Wednesday's U.S. CPI report, which will put to the test the market's view that the Fed is done hiking. A regional stock benchmark eased back from a more than two-week high, the dollar was firm and Treasury yields remained elevated, despite coming off a bit in Tokyo. Crude oil and gold were basically treading water. However, the region's biggest stock markets were outliers: Japan's Nikkei rebounded sharply from losses in the previous session as strong earnings lifted the steel sector, and mainland Chinese blue chips jumped, showing little interest in data that revealed an unexpected decline in imports last month and slowing exports. Every U.S. economic indicator has taken on added importance after Fed Chair Jerome Powell signaled last week that the policy path will depend on incoming data.
And there are several other reasons that investor attention is squarely on the U.S., with the debt ceiling tussle deadlocked and banking sector troubles simmering. Lenders got a bit of respite overnight, after Treasury Secretary Janet Yellen said regulators stand ready to mobilize the same tools used in previous bank rescues. The Fed's quarterly Senior Loan Officer Opinion Survey ('SLOOS') also buoyed the mood, showing tighter lending conditions but no impending credit crunch. Still, the proviso is that the results missed the latest turmoil around First Republic and PacWest. Yellen also had a warning that failure to lift the debt limit would cause a huge hit to the U.S. economy and weaken the dollar as the world's reserve currency, reiterating that the government could be out of cash by June 1.
Key developments that could influence markets on Tuesday:
- ECB board members Philip Lane, Isabel Schnabel to speak at separate events - U.S. National Federation of Independent Business (NFIB) April survey of small businesses - President Joe Biden and Republican lawmakers meet to discuss the debt ceiling standoff
(Kevin Buckland)
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