European Midday Briefing: Rate Hikes Hit Mood, BOE Up Next

MARKET WRAPS

Stocks:

European stocks traded lower on Thursday as investors looked to the Bank of England's likely rate hike and continued digesting the Federal Reserve rate move and Jerome Powell's comments.

"We think that today, just like the Fed, the BOE will be hiking the interest rate for the very last time, and we do not anticipate any other increases in interest rates in the future months or even quarters," Zaye Capital Markets said.

The BOE is expected to follow rate hikes from the central banks of both Switzerland and Norway.

Read Swiss Central Bank Lifts Key Rate, Declares End to Bank Crisis

Read Norway Central Bank Raises Key Rate to 3.0% and Lifts Rate Path

Stocks to Watch

European banks are highly liquid and have a diverse base of funding, but they could see that liquidity start to decline, Deutsche Bank said.

The repayment of liquidity facilities and the decline in central bank balance sheets are likely to tap into excess liquidity, it added.

"Maintaining the same level of excess liquidity but with smaller central bank reserves we expect will be more costly for banks going forward. But it will likely only be a partial offset to the continued benefit of rates rising."

---

Siltronic has no material catalysts to look forward to in the coming months as end-market demand remains sluggish, Jefferies said.

Shipment delays caused by high customer-inventory levels and higher costs are weighing on Siltronic's operational performance, and the German manufacturer of microchip parts says it expects a weaker market ahead, it added.

"Medium-term, we remain optimistic, particularly given the growing silicon content in consumer electronics, EVs, and industry, as well as the capacity expansion of semiconductor manufacturers."

Jefferies downgraded its rating on the stock to hold from buy and reduced its target price to EUR75 from EUR95.

U.S. Markets:

Stock futures were firmer as investors reassessed the market's negative reaction to events late in the previous session.

"There's been a bit of calm restored. A big part of it is that the Fed has signaled that they're almost done," Kleinwort Hambros said.

SPI Asset Management said "yesterday's meeting was mainly in line with expectations, with the markets suggesting there is now a 50:50 chance that the Fed could deliver one more 25bp rate hike in May."

"Still, there is elevated uncertainty around this expectation. If financial and credit conditions deteriorate quicker than anticipated and disinflation proceeds faster, the Fed could pause or reverse tack on this tightening cycle."

Stocks to Watch

Coinbase was falling 10.8% in premarket trading after saying it received a "Wells Notice" from the SEC, which warned that the agency's staff had made a preliminary determination to recommend an enforcement action against the crypto exchange.

First Republic Bank was rising 3.5% in premarket trading, while fellow regional lender PacWest Bancorp gained more than 5%.

Economic updates set for release today include the Weekly Jobless Claims, fourth-quarter Current Account, and New Home Sales for February.

Follow WSJ markets coverage here

Forex:

Falls in the dollar could propel the euro rapidly above $1.10, UniCredit Research said.

EUR/USD received a big boost, reaching a seven-week high of 1.0931, according to FactSet.

"This reopens the chance of a relatively rapid test of the year-to-date peak of 1.1033 [in EUR/USD], with no major obstacle in between," Unicredit said.

Once above 1.10, EUR/USD's path towards 1.12--UniCredit's current target for this year--could also be quite smooth, with only 1.1073 as a notable resistance level, it added.

---

The dollar hit a seven-week low against a basket of currencies and is likely to stay weak after the Fed raised rates, ING said.

"The dollar weakened on the back of the moderate dovish surprise by the Fed yesterday, and reluctance from the Treasury to consider an extension to the deposit insurance."

Sentiment towards the dollar should stay bearish especially against European currencies, albeit with small corrections high rather than a straight-line dollar depreciation, ING added.

---

The BOE may fail to offer much guidance on the future path of interest rates in a decision later, leaving sterling vulnerable to external developments, ING said.

The market is fully pricing in a 25 basis points rate rise for Thursday's meeting and the BOE is likely to be divided over the decision while potentially providing very little policy guidance amid recent market turmoil, ING added.

"Ultimately, the pound may rapidly default to being driven by external factors: primarily the banking situation and global risk sentiment."

Read Sterling to Fall if BOE Signals Pause But Declines May be Limited

---

The Swiss franc rose, turning higher on the day against the euro, after the Swiss National Bank raised interest rates despite the Credit Suisse troubles.

Measures taken by Swiss authorities, including the SNB, to rescue Credit Suisse have "put a halt to the crisis," the SNB said in a statement accompanying the rate decision.

Bonds:

Eurozone government bond yields were lower in early trade as investors considered the approaching end of the Fed's interest-rate-rise cycle.

"The effect [of the Fed's rate rise] has been lower market rates, in particular on the front end as the market takes on board that the Fed seems to be almost done," ING said.

ING expects the disinversion of the bond curve to continue, it said, adding that it has seen another material move in that direction as a response to the Fed's decision.

Energy:

Crude futures were slightly lower, having made solid post-Fed gains. Despite the losses, analysts said demand for oil remains strong and is likely to strengthen further.

"The Energy Information Association's weekly report highlighted strong exports, while domestic fuel stockpiles declined," ANZ Research said, adding that Asian demand also remained firm, while the prospect of no more rate hikes this year was providing impetus for oil.

Read Big Oil Eyes New Deals in North Africa Amid Rising Energy Demand

Metals:

Base metal prices were mixed while gold rose more than 1%, as investors reacted to a "dovish" Fed.

"This was a 'dovish hike', i.e., higher rates but with lower projections, " Peak Trading Research said.

The dollar fell following indications from Jerome Powell that fewer or possibly no more rate hikes are set to happen for the rest of this year, a bullish trend for commodity markets, Peak said.

Read Weaker Dollar Should Be a Tailwind for Commodities

DOW JONES NEWSPLUS

EMEA HEADLINES

Swiss Central Bank Lifts Key Rate, Declares End to Bank Crisis

Switzerland's central bank raised its key interest rate Thursday and said the country's bank crisis had ended, the latest sign that policy makers are determined to press down on inflation despite strains in the banking system.

The Swiss National Bank increased its key interest rate by a half-percentage point to 1.5%, a move economists had expected before the banking strains that started in the U.S. spread to Switzerland. The central bank also indicated that it may again raise its key rate later this year.

Norway Central Bank Raises Key Rate to 3.0% and Lifts Rate Path

Norway's central bank raised its key policy rate on Thursday and said that it now expects the rate to peak at a higher level than previously anticipated as inflation remains markedly above target.

Norges Bank increased its key policy rate by 25 basis points to 3.00%, as expected, and said that despite considerable uncertainty about future economic developments, if things turn out as it now expects, the policy rate will be raised further in May.

It Wasn't Just Credit Suisse. Switzerland Itself Needed Rescuing.

ZURICH-The chairman of Switzerland's largest bank received an urgent call last week. On the other end were three top Swiss officials who delivered an ultimatum dressed up as a proposal. UBS Group AG needed to rescue its failing rival, Credit Suisse Group AG.

For any country, it would be a financial emergency. For Switzerland, the stakes verged on existential. Its economic model and national identity, cultivated over centuries, were built on safeguarding the world's wealth. It wasn't just about a bank. Switzerland itself needed rescuing.

Bank of England Expected to Follow the Fed and Raise Key Rate. Inflation Is Still a Worry.

The Bank of England is expected to raise its key interest rate by a quarter point on Thursday, a day after the Federal Reserve increased borrowing costs by the same amount.

The decision comes after weeks of worry about the health of banks that has rocked financial markets worldwide. While that threat to financial stability adds to forces that should bring down inflation, the annual pace of price increases is still in double digits in the U.K.-which gives impetus to the need for BoE Governor Andrew Bailey to tighten policy further.

Deutsche Boerse Doesn't Plan Provisions After US Judgment on Iran Case

Deutsche Boerse AG said it doesn't expect to make provisions after a U.S. court awarded judgement to creditors that sought transfer of around $1.7 billion attributed to Iran's central bank, which the company's subsidiary Clearstream Banking SA held in Luxembourg.

The German exchange operator said late Wednesday that the decision doesn't change the overall risk that would require Clearstream or the parent to make provisions. Clearstream is considering appealing the decision, the company said.

Big Oil Eyes New Deals in North Africa Amid Rising Energy Demand

CAIRO-After years of underinvestment in North Africa's energy infrastructure, global oil-and-gas giants from Halliburton Co. and Chevron Corp. to Eni SpA are ramping up their presence in the region as demand from Europe grows.

(MORE TO FOLLOW) Dow Jones Newswires

March 23, 2023 07:06 ET (11:06 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.