*
STOXX 600 down 0.2%
*
U.S. CPI at 1230 GMT in focus
*
Earnings beat lifts Credit Agricole
*
Wall Street futures dip
Welcome to the home for real-time coverage of markets brought to
you by Reuters reporters. You can share your thoughts with us at
BANK INTEREST MARGINS IN EUROPE MAY PEAK IN H2 (1025 GMT)
European lenders have recovered around half of the stock market losses suffered during March's turmoil and that's most likely due to another great earnings season.
Morgan Stanley estimates 80% of the region's lenders have topped profit forecasts, delivering strong beats for the ninth quarter in a row with interest margins up 35% year-on-year. On top of that, capital was strong too and there was no sign of asset quality deterioration, MS says.
So, after another solid quarter, what lies ahead?
The U.S. bank believes risks to the outlook for net interest income (NII) are "overstated" and notes that deposit repricing continued to remain manageable. Yet, net interest margins (NIM) should peak at some point later in the year. "Managements are highlighting their expectations of shifting deposit mix and increasing deposit betas largely aligned with our own forecasts.. which should more than offset a slowdown in loan demand," MS says. "We expect euro area peak NIMs in 2H23." According to the U.S. bank, deposit betas - a measure of the pass-through of interest rate increases to deposits - should reach 30% by year-end from 18% as of March.
(Danilo Masoni)
*****
WHY THE EURO RALLY MIGHT BE OVER (0919 GMT) Markets are on hold ahead of U.S. inflation data that might influence the Federal Reserve's next rate decision. Analysts say the euro/dollar cross will likely see the most reaction to the data, but it is running out of gas. "The euro is running up a steep hill into a strong headwind. Market pricing looks for the ECB to continue raising rates in the second half of the year, and for the Fed to cut rates, resulting in the policy rate gap narrowing to under 1% by year-end from 2% now," Kit Juckes, strategist at SocGen says. "Given the contrast between Friday's payrolls and yesterday's weak German industrial production data has been hard to narrow the gap further," he adds. "Our bullish EUR/USD view for this year has rested on two pillars: that the market was underpricing the positive European outlook and that the next big move in U.S. Fed Fund expectations would be down rather than up," says George Saravelos, global head of forex research at Deutsche Bank.
"The positive European story has now largely been priced in.
For the next move higher in EUR/USD, negative dollar drivers
will have to kick in," he adds.
The trade-weighted euro index is now sitting close to
all-time highs and has reversed the entire drop from the war.
(Stefano Rebaudo)
*****
U.S. INFLATION DATA DENTS EUROPE MARKETS (0820 GMT) European shares slip ahead of U.S. inflation data that is likely to shape expectations for monetary policy in the world's largest economy, while corporate earnings across the region send retailers lower.
U.S. consumer price index (CPI) data, due at 1230 GMT, follows a payrolls report last week that dampened hopes of rate cuts from the Federal Reserve anytime soon. The pan-European STOXX 600 index is down 0.3% with the retail sector index falling the most, down 1%. UK online retailer ASOS shares drop 12% after the company swung to a first-half loss, hurt by a squeeze on household budgets and elevated product returns.
The biggest loser on the STOXX 600 is Swedish Orphan Biovitrum with a 15.3% decline after the drug maker said it had agreed to make a $1.7-billion cash offer to buy U.S.-based CTI BioPharma CTIC.O. On a brighter note, shares of Credit Agricole are up 5.5% after France's second-biggest listed bank beat first-quarter earnings estimates on a boost from trading revenue.
(Joice Alves)
*****
EUROPEAN FUTURES EDGE UP AHEAD OF U.S. CPI, EARNINGS IN FOCUS (0645 GMT) European futures are edging up as investors cautiously await for U.S. inflation data, due later in the day and digest a fresh batch of first quarter earnings results.
April U.S. consumer price data is due at 1230 GMT and economists expect headline CPI to hold steady at an annual 5% and core CPI to moderate very slightly to 5.5%, though anything stickier could soften the conviction that interest rates will fall sharply this year. In Europe, corporate results are still in focus. Credit Agricole SA , France's second-biggest listed bank, posted better-than-expected earnings as market volatility boosted trading revenue. British pubs group J D Wetherspoon forecast record full-year sales and its annual profit to be closer to the top end of market expectations. Travel firm TUI expects strong revenue and higher profit for the full year of 2023 on the back of strong booking momentum.
(Joice Alves)
*****
MARKETS ON HOLD FOR US CPI (0634 GMT) Sterling and the euro seem to be losing steam as currency markets tuck themselves in for a nap. JP Morgan's G7 FX volatility index stands at a one-year low, with financial markets in holding patterns as they await developments in key areas of focus. Frontlines in Ukraine remain frozen. U.S. debt ceiling talks are deadlocked. Today's inflation data, due at 1230 GMT, could offer a jolt if the surprise factor is big enough. Economists polled by Reuters see core CPI steady at a monthly 0.4%. However, as Joe Capurso at the Commonwealth Bank of Australia notes, Cleveland Fed's 'nowcast' forecasts core CPI going up and if that happens, it could challenge the market's assumption that U.S. interest rate hikes are finished. Indeed, CME's FedWatch tool shows futures imply better-than-even odds that the Fed cuts rates in September. Beyond the inflation data, U.S. default risks and banking wobbles loom as the next likely focus. Investors are so far avoiding T-Bills that mature around the "X-date" when the U.S. government runs out of cash, expected to be early in June. Most analysts and investors think that as in the past, an eleventh-hour resolution will be found. But nerves are starting to fray, especially since the assumption that the U.S. government pays its debt on time is the bedrock of much global market activity. "While this time might not be different, people are thinking that the politics and individuals are certainly much more ideologically driven and dogmatic ... party rifts are deeper," said ING economist Rob Carnell. "It's not inconceivable that this goes horribly wrong, whereas in previous occasions it sort of was inconceivable."
Key developments that could influence markets on Wednesday: U.S. CPI data
(Tom Westbrook)
*****
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Annual change in U.S. Consumer Price Index SGeuro DBeuro ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
