North American Morning Briefing: Inflation Data, Fed Minutes Eyed in Busy Week Ahead

OPENING CALL

Stock futures dipped on Monday at the start of a week that includes inflation data and earnings from some of the largest banks. .

It's a new trading week, and for investors, a new question is in focus: Will the coming March inflation data boost or break the newly rekindled stock rally?

Friday's jobs report sent indexes climbing after wage-growth data suggested that inflationary forces are contained. But the real assessment will come this Wednesday, when the consumer-price index is due. Economists forecast that consumer prices rose 3.5% in March from a year earlier, up slightly from February's 3.2%.

Traders hope the report will offer more clarity around when the Federal Reserve may begin cutting rates-and how frequently cuts will come after that.

Week Ahead:

Minutes from the Fed's March meeting are due Wednesday.

Rate decisions from the European Central Bank and the Bank of Canada are also due this week.

JPMorgan Chase, Citigroup and Wells Fargo will help kick off earnings season on Friday.

Premarket Movers

Boeing was down 0.9% on two pieces of news. First, CEO David Calhoun, who is stepping down earlier than expected at the end of the year, received nearly $33 million in pay last year, up 45% from 2022. Meanwhile, the FAA is investigating an incident in which an engine cover fell off a Southwest jet during takeoff on Sunday.

MicroStrategy rose 11% and Coinbase Global rose 5% as the crypto-related stocks rose alongside Bitcoin, which has gained 3.6% over the past 24 hours to $71,951.

Tesla rose 3.6% after Elon Musk said late on Friday the company would unveil its "robotaxi" on Aug. 8.

United Airlines said Friday it was postponing its investor day, telling analysts and other industry observers in an email that the timing for a meeting wasn't right as the FAA reviews the carrier's protocols following recent safety incidents. The stock was down 1.3%.

Watch For:

Employment Trends for March

Today's Headlines/Must Reads:

- Doubts Creep In About a Fed Rate Cut This Year

- Earnings Season to Test Stock-Market Rally

- Why the Stock Market Keeps Changing Its Story

- Tesla Trial to Size Up Cause of Fatal Autopilot Crash: Driver or Tech

MARKET WRAPS

Forex:

The week could prove pivotal for the direction of the dollar through the rest of April with the latest U.S. CPI and PPI reports due for release, MUFG said.

"After U.S. inflation surprised to the upside in January and February, it will be harder to look through another upside surprise in March."

Barclays said the release of another strong U.S. employment report for March casts fresh doubts on the need for the Federal Reserve to begin cutting interest rates as soon as June.

CBA said most of the dollar's weakness versus the yen is likely to be in the second half, when the Fed's rate-cut cycle begins.

The narrowing of U.S.-Japan rate differentials should weigh on USD/JPY, while oil prices should move lower, which should support Japan's current-account surplus and undermine USD/JPY, CBA said.

However, these factors are likely to be partially offset by improvement in risk sentiment driven by global rate-cut cycle, it adds. Given CBA's updated Fed and BOJ policy outlooks, it raises USD/JPY quarterly forecasts for rest of 2024 and for 2025.

CBA sees USD/JPY at 142.00 vs. 137.00 previously for December 2024 and at 133.00 vs. 130.00 previously for December 2025.

Bonds:

German Bunds won't be immune to rising Treasury yields, Commerzbank Research said, as it sticks to a cautious duration stance, adding yields may erode the upper end of the recent range around 2.45%.

That said, Bunds should continue to outperform Treasurys, it said.

The short-end of the euro curves looks better anchored as the European Central Bank, which meets on Thursday, seems poised to indicate that interest-rates could start to fall from June.

March had $5.2 billion of Treasury notes and bonds stripped, where a bond's principal and coupon payments are broken up and sold separately to investors, Barclays Research said.

Most of the activity concentrated in 2053-dated issues, it said, adding that stripping activity for May 2053 bonds has accelerated in recent months. Stripping activity remained above historical monthly averages in March though slightly moderated compared with February.

Energy:

Oil prices fell more than 1% after Israel and Hamas sent delegations to Egypt for fresh talks over a potential ceasefire in Gaza six months into the war.

According to media reports citing an Egyptian state-linked outlet, talks in Cairo have made significant progress. Meanwhile, Israel reduced the number of troops in southern Gaza to prepare for future operations.

"Geopolitical risks have certainly grown, particularly when it comes to Israel and Iran, which has left the market nervous," ING said.

"However, any premium priced into the market will eventually erode in the absence of any escalation."

Traders await key oil-market reports this week for supply and demand forecasts.

Brent crude prices are forecast to stay below $100 a barrel this year on expectations of solid demand and no additional hits to supply from geopolitical escalations, according to Goldman Sachs.

It forecasts demand growth of 1.5 million barrels a day--above estimates provided by the International Energy Agency--and said it expects OPEC+ to raise production by 1.2 million barrels a day from July through November.

"We assume that OPEC+ won't push oil prices to extreme levels because the 2022 energy crisis showed that extreme prices destroy long-term residual demand for OPEC barrels by boosting non-OPEC supply and capex in alternatives to oil."

BIMB Securities said Brent may rise to $95--$105/bbl near term given likely higher demand and supply shortages,

It said the IEA has revised its oil demand growth upward due to increased bunker fuel demand resulting from the Red Sea crisis. IEA has reduced its oil supply estimate amid expectations of rollover in OPEC+ production cuts until end-2024, BIMB noted.

Metals:

Gold futures rose as bubbling tensions in the Middle East continued to offset falling interest-rate cut hopes.

The precious metal had hit a record $2,372.5 an ounce earlier in the session, and is up nearly 14% in the year to date. Its prices continue to buck the status quo, rising even as expectations for three interest-rate cuts from the Federal Reserve continue to fall, Capital.com said.

"Gold's correlation to real rates, and, by extension, the dollar, has diminished significantly recently, suggesting gold's uptrend is a likely geopolitics story, compounded by momentum chasing by speculators."

TODAY'S TOP HEADLINES

Taiwanese Chip-Making Giant TSMC Gets $6.6 Billion for Arizona Project

Taiwan Semiconductor Manufacturing is getting up to $6.6 billion from the U.S. government for a factory complex under construction in Phoenix and will expand the operation's scope and sophistication, part of a drive to regrow the domestic semiconductor industry.

TSMC, as the company is commonly called, will invest more than $65 billion in total and add a third chip factory to the manufacturing complex it started building in 2021, U.S. officials said. The company, the world's largest contract chip maker, will also make currently cutting-edge 2-nanometer chips at one of the factories there.

Wildfires Make Utilities a Tricky Investment. Just Ask Warren Buffett.

Warren Buffett made a fortune by investing in electric utilities in the western U.S. Now, the world's best-known investor says wildfires might undermine that strategy.

PacifiCorp, a utility company owned by Buffett's Berkshire Hathaway, has incurred hundreds of millions of dollars in liability costs tied to a series of Oregon wildfires in 2020 and might owe hundreds of millions more. In his most recent annual letter, Buffett told shareholders that he might rethink utility investments in states at high risk of wildfire.

Steelworkers Push Back Against $14 Billion Deal for U.S. Steel as Vote Looms

United States Steel's Mon Valley Works mill in recent years has endured a debilitating fire and millions of dollars in regulatory fines. The steelmaker abandoned plans for a $1.2 billion upgrade, and analysts have speculated that the mill could eventually close.

Now, the collection of aging plants along the Monongahela River southeast of Pittsburgh is taking on a central role in Nippon Steel's $14.1 billion gambit to acquire 123-year-old U.S. Steel, whose shareholders are set to vote on the deal Friday.

German Industrial Production Beat Expectations in February

Germany's industrial production rose more than expected in February, helped by a recovery in the construction and car industry, as the country looks to exit a recent manufacturing slump.

Output of production in manufacturing, energy and construction ticked up 2.1% compared with the previous month, on a seasonally and calendar-adjusted basis, from an upwardly revised 1.3% rise in January, according to data published Monday by German statistics office Destatis.

China Holiday Activity Tops Prepandemic Levels, Adds to Recovery Signs

China's weak consumer activity got a temporary boost from the Qingming holiday ended Saturday, during which more travelers hit the road, adding to signs of green shoots in the world's second-largest economy.

Official data released over the weekend show that Chinese tourists made 119 million domestic trips during the three-day holiday, up 11.5% from the same period in 2019 before the pandemic. Domestic tourism revenue totaled 53.95 billion yuan ($7.46 billion), up about 13% from 2019 levels.

China Holiday Activity Tops Prepandemic Levels, Adds to Recovery Signs

China's weak consumer activity got a temporary boost from the Qingming holiday ended Saturday, during which more travelers hit the road, adding to signs of green shoots in the world's second-largest economy.

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April 08, 2024 06:13 ET (10:13 GMT)

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