North American Morning Briefing: Stocks Seen Extending Rally on Inflation Hopes

MARKET WRAPS

Watch For:

Third Estimate GDP for 4Q; Weekly Jobless Claims; speeches by Fed's Collins, Barkin, Kashkari

Today's Headlines/Must Reads

March Swoon Is Nothing New for Bank Investors

As Quarter Ends, Earnings Season Comes Into View

Taiwan's President Lands in the U.S. Amid Threats From China

Apple Wants to Solve One of Music's Biggest Problems

Small Banks Are Losing to Big Banks. Customers Are About to Feel It.

Disney Lays Off More Than 300 Streaming-Focused Employees in China

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Opening Call:

Stock futures moved higher on Thursday after news of softer European inflation pushed bond yields lower.

German 10-year bund yields fell sharply, helping push U.S. peers down 3.4 basis points to 3.544%, after data showed a decelerating pace of German regional consumer price rises and Spanish inflation also dropping more than expected.

The relative lack of banking drama has allowed traders to turn their minds back to inflation and the prospects for Federal Reserve monetary policy.

"It feels a bit of a calm after the storm," said Viraj Patel, global macro strategist at Vanda Research. "'No news is good news' is the popular phrase that everyone's using."

This week has been comparatively quiet, with fewer economic-data releases and earnings reports, and growing signs of stability in the banking industry. That has helped boost riskier assets.

The next economic test comes on Friday, with the release of the Fed's preferred measure of inflation, the personal consumption expenditures index.

"The general expectation is for the number to have moderated further, although still remaining at levels which will suggest that the Fed's aim of taming inflation has not quite yet been achieved," Interactive Investor said.

Overseas stocks mostly rose, with the Stoxx Europe 600 adding 0.9%. In Asia, Hong Kong's Hang Seng gained 0.6% and China's Shanghai Composite rose 0.7%.

Bank stocks mostly continued to recover. In U.S. premarket trading, Western Alliance, Citigroup and Wells Fargo all rose modestly. In Europe, lenders including Deutsche Bank and UBS each rose around 2%

Other Stocks to Watch

Atreca said its ATRC-101 drug is showing progress in treating cancer in an early trial. Its shares rose 6% in after-hours trading.

Concentrix said it reached an agreement to merge with Paris-based Webhelp, which specializes in sales, marketing, and payment services in Europe, Latin America, and Africa, in a deal valued at about $4.8 billion, including debt. Its shares fell 7% in aftermarket trading.

Dragonfly Energy posted a wider loss and lower-than-expected sales in its latest quarter. Its stock dropped 9% in after-hours trading.

Electronic Arts said it would be cutting 6% of its staff. The company estimated it would incur charges of about $170 million to $200 million from the cost-cutting plan. The stock rose 0.4%.

Intel was up 0.3% in premarket trading. The stock closed Wednesday with a gain of 8% after it announced new data-center products and a timeline for their release. Intel has risen more than 19% this year.

RH fell 6% in premarket trading after fiscal fourth-quarter earnings fell from a year earlier and adjusted profit of $2.88 a share missed analysts' estimates

Sprinklr reported adjusted earnings in its fiscal fourth quarter that topped analysts' estimates. Revenue rose $165.3 million from $135.7 million and also beat estimates. Shares rose 13% in premarket trading.

Other Company Insight

Stellantis is pretty well-protected from an expected price war in the auto industry, Baader Europe said.

"As a mass-market player, Stellantis is at risk of a demand-driven price war. Nevertheless, we believe that in such a scenario the company's ongoing implementation of post-merger synergies should act as a buffer on the margin decrease."

The company's lack of exposure in China and its push into the Middle East and Africa further insulate Stellantis, Baader Europe said.

After a strong 2022, it said Stellantis's current outlook is a bit blurry, but expects growth in volumes faster than the market as a whole as supply-chain bottlenecks smooth.

Economic Insight

Consumer inflation expectations in the U.S., the eurozone and the U.K. are showing some signs of easing, but are still elevated, which means it is too soon for central banks to ease policy outside of a full-on recession scenario, JPMorgan said.

"With realized inflation and wage growth remaining elevated, we continue to flag the risk that the salience of this environment could lead to wage- and price-setting behavior settling at paces inconsistent with central banks' inflation targets."

Recent banking turmoil means that the odds of such an outcome are lower in the event of a significant tightening of credit conditions, but central banks are likely to stay focused on keeping its inflation-fighting credibility, JPM said.

Read Banking Turmoil Is Hitting Sentiment Over Economic Outlook, Oxford Economics Says

Forex:

The dollar was steady after a modest recovery on Wednesday.

ING said the recent improvement in market sentiment has been accompanied by a pick-up in Fed rate expectations, which had been revised lower due to banking sector stress, but any gains for the dollar are likely to be limited.

"We think the small recovery seen yesterday could be one of many along a gradual decline path, but would favor some consolidation around current levels today."

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The euro fells after data showed Spanish inflation eased by more than expected in March. The release will be followed by German inflation data later Thursday and the overall eurozone inflation print on Friday.

With the European Central Bank saying its future policy decisions are data-dependent, this week's inflation figures are set to be an important driver of the market's interest rate expectations, ING said.

Energy:

Oil prices ticked higher after a sharp drawdown in U.S. crude oil stocks.

The drawdown comes as data points to a sharp uptick in U.S. crude oil exports, Vortexa said.

"Inventory draws are an important bullish signal given the otherwise lackluster pricing performance of crude. Crude futures are likely to have bottomed out after strong pressure from the banking/financial markets, with quite some upside down the line."

Metals:

Base metals were mixed and gold slightly higher, with trading activity quiet ahead of Friday's U.S. inflation data.

"Weekly jobless claims will highlight that the U.S. labor market is too tight," Commonwealth Bank of Australia said, adding that combined with a high inflation reading from Friday's PCE figure, it's likely the Fed will hike rates by 25 basis points in April, thus supporting the dollar--a headwind for commodity markets.

"Unless there is broad-based contagion among U.S. banks," CBA said.

TODAY'S TOP HEADLINES

Disney Lays Off More Than 300 Streaming-Focused Employees in China

Walt Disney Co. has laid off more than 300 employees in Beijing who worked on its streaming services, according to people familiar with the situation, part of a cost-cutting and restructuring effort at the entertainment company.

The layoffs in China come as Disney this week started carrying out the first wave of cuts in a previously announced plan to slash 7,000 jobs.

Country Garden Reports First Annual Loss in Over a Decade

Chinese developer Country Garden Holdings Co. reported its first annual loss in over a decade amid a downturn in China's property sector.

The company posted a net loss of CNY6.05 billion ($878.5 million), compared with profit of CNY26.80 billion for 2021, it said Thursday.

March Swoon Is Nothing New for Bank Investors

Bank stocks are reeling again in the wake of this month's turmoil. They face a long road to win back investors.

The abrupt collapses of Silicon Valley Bank and Signature Bank sparked contagion fears in the sector, helping to pull the KBW Nasdaq Bank Index down 25% in March through Wednesday. That is on track to mark the fourth-worst month on record dating to 1992, according to Dow Jones Market Data.

The Quarter Is Ending, and Earnings Season Will Start Soon. Why It Could Break the Market.

The first quarter is ending, and that means earnings season is just around the corner. It's one that will help the market decide if it wants to head higher-or retest its 2022 lows.

Analysts predict that S&P 500 earnings per share will decline 4.6% in the first quarter of 2023 compared with a year earlier, according to Refinitiv. That would follow a 3.2% year-over-year decline in the fourth quarter.

Controversies Can Make Stocks Attractive to ESG Investors

An environmental disaster or accounting scandal can slash a company's share price and valuation. But it can also spur changes in its environmental, social, and governance practices, making the stock more attractive to ESG investors.

Companies associated with controversies and accidents pay dearly for their mistakes: Investors dump their shares, shaving off billions in value, while fines and lawsuits drain their coffers. But these types of events can also force changes. And that's good news for investors on the lookout for companies that are making progress on ESG metrics-what fund managers call "ESG improvers."

Russian Security Service Detains Wall Street Journal Reporter

Russia's main security agency said it had detained a Wall Street Journal reporter for what it described as espionage.

The Federal Security Service said Thursday it had detained Evan Gershkovich, a U.S. citizen, in the eastern city of Yekaterinburg.

Hong Kong Arrests Show No Letup in Beijing-Driven Crackdown on Dissent

HONG KONG-Elizabeth Tang flew home to visit her husband in Stanley Prison, where he is awaiting trial on national security charges. As the 65-year-old labor activist left the Hong Kong maximum security facility earlier this month, a team of police was waiting-along with journalists from a state-owned newspaper.

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March 30, 2023 06:18 ET (10:18 GMT)

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