North American Morning Briefing: Stock Futures Rise Despite Middle East Tensions

OPENING CALL

Stock futures gained on Monday as tensions in the Middle East eased after Iran launched a drone and missile attack at Israel on Saturday.

The U.S. push to contain the Israel-Iran conflict appeared to be containing market nerves, too.

Investors hope the attack remains a one-off event, with the base scenario being that there won't be further escalation, though this could change at any time, CMC Markets said.

Citi said that although markets will recalibrate future risks in the following days, these events rarely change the direction of the world economy.

Overseas Markets

Global markets were mixed, as Europe's Stoxx 600 edged up, while the Nikkei and Hang Seng fell. Mainland Chinese stocks rose.

Premarket Movers

Apple declined 0.5% after it was supplanted by Samsung as the top smartphone provider in the first quarter, according to preliminary data from research firm International Data Corp.

Encore Wire agreed to merge with Milan-based Prysminian in a deal that values Encore Wire at an enterprise value of about $4.15 billion. Encore Wire stock rose over 7%.

Medical Properties Trust rose almost 17% premarket after announcing late Friday the sale of its stakes in five Utah hospitals to a new joint venture for $886 million.

Tesla fell 1% after the company lowered the price of its supervised Full Self-Driving software subscription to $99 a month from $199, and as Tesla over the weekend informed some soon-to-be Cybertruck owners about delivery delays because of production issues.

Salesforce is in advanced talks to acquire Informatica, WSJ reported. Informatica was rising 2.7% while Salesforce fell 2.5%.

Post Close Movers

KULR Technology's revenue more than doubled in 2023, but fell short of analysts' expectations. Shares fell 14%.

Mustang Bio said it would cut about 81% of its workforce as it continues to review alternatives for its business. Shares were up 2.4%.

Economic Insight

A rising oil price could halt or even reverse the recent trend of falling inflation, potentially leaving central banks cautious about cutting interest rates, DZ Bank said.

"The question then arises for central banks as to whether, as in the past, they can 'see through' the inflationary effect of rising oil prices and thus take into account the economic risks associated with higher energy prices."

However, central banks would more likely be wary of jeopardizing their recent successes in combating inflation by cutting interest rates, DZ Bank added.

Market Insight

Iran's attack against Israel could cause short-term market uncertainty due to concerns that it marks a new, more volatile phase of the Middle East conflict, OCBC said.

However, these concerns probably won't derail the broader medium-term investment outlook for markets. That would likely only happen if there is all-out war in the Middle East, involving Iran versus Israel and its allies, as well as a sharp and sustained rally in oil prices, OCBC added.

Markets will be on edge in the coming days, watching to see if Israel will retaliate against Iran. "If there is no major retaliation, markets will heave a sigh of relief."

Watch For:

Retail Sales; earnings from Goldman Sachs, Charles Schwab

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MARKET WRAPS

Forex:

The dollar could move higher, building on recent strong gains, due to safe-haven demand after Iran's drone and missile attack on Israel and as markets only price in just under two Fed interest-rate cuts this year.

"There seems little reason for the dollar to hand back recent gains. DXY may be due some consolidation around 106 after some powerful gains last week - but the direction of travel looks to be 107," ING said.

Even if weak, retail sales data are unlikely to alter rate expectations, ING added.

Bonds:

Economic fundamentals suggest more widening of the Treasury-German Bund yield spreads, Commerzbank Research said.

"As the FTQ [flight to quality] bid fades, UST-Bund spreads have scope to continue to widen as rate prospects are drifting further apart."

This week's macro data releases are unlikely to challenge the ECB's rate cut intention nor the cautious thinking at the Fed, Commerzbank added.

Energy:

Oil prices edged lower as Iran's retaliatory attack against Israel was already priced in last week, but the market remained on edge waiting to see how the Israeli government would respond.

ANZ Research said a surge in oil prices is unlikely near term in the wake of the latest escalation in the Middle East, given ample spare OPEC capacity and an already high geopolitical risk premium.

The market has been on edge since October when the Hamas-Israel conflict first started, and possible Iranian involvement has long been a concern, it added.

Regardless, it is Israel's response that will determine whether the escalation ends or continues, ANZ said.

Saxo said any oil price gains will likely be driven by fear more than actual disruption.

"Despite deflating a bit on Friday, crude prices already included a risk premium and the extent to which it will widen further depends almost exclusively on developments near Iran around the Strait of Hormuz."

Metals:

Base metals rose, while gold futures slipped 0.1% after having risen to a record $2,448.8 on Friday as the markets awaited Iran's retaliatory attack against Israel.

The market appears to have taken the drone and missile attacks with a sigh of relief, RBC Capital Markets said.

The most likely interpretation is that the attack was seen as a well-telegraphed response from Iran that was designed to send a message and act as a response to the airstrike on the Iranian consulate rather than cause maximum damage and lead to further instability, RBC added.

Russian Metals Ban

Aluminum, copper and nickel miners should benefit from U.S. and U.K. restrictions on trading of Russian metals , potentially boosting prices over the medium term, Jefferies said.

The restrictions apply to Russian aluminum, copper and nickel produced after April 12 as preexisting stocks are exempt from these sanctions.

"We expect prices for these metals to be very volatile initially on this news," Jefferies said, adding that it will have the most significant impact on aluminum prices as they appear to have been depressed due to Russian supplies.

TODAY'S TOP HEADLINES

Samsung Electronics Gets $6.4 Billion for Texas Chip Plants

The U.S. government is granting Samsung Electronics up to $6.4 billion to build chip-making facilities in Texas, the latest in a string of major subsidy awards from the Biden administration aimed at reviving semiconductor manufacturing in the U.S.

Samsung is using the grant money to help hike its investment in Taylor, Texas, just outside Austin, to roughly $45 billion, adding a second chip-making factory, an advanced chip-packaging facility and research-and-development capabilities, the Commerce Department said. It more than doubles Samsung's commitment made in 2021 to build a chip-making plant in Taylor.

CVC Looks to Raise at Least $1.3 Billion in Amsterdam IPO

Global buyout firm CVC Capital Partners said it plans to list its shares in Amsterdam, making a second attempt to go public in less than six months.

CVC said Monday that it expects to raise at least 1.25 billion euros, equivalent to around $1.33 billion, by selling new shares as well as stock from some existing shareholders. The listing is expected to take place in the coming weeks, it said.

Berkshire Hathaway Buys More Liberty Sirius XM Stock. Trade Not a Winner for Berkshire.

Berkshire Hathaway continued to accumulate shares of Liberty Sirius XM Holdings in recent days and now holds over 30% of the tracking stock for Sirius XM Holdings, the satellite ratio company.

Berkshire purchased 1.9 million shares of Liberty Sirius XM from Wednesday to Friday of last week for nearly $50 million, bringing its total investment in the tracking stock to 103.7 million shares, according to form 4 filings with the Securities and Exchange Commission late Friday. That stake was valued at $2.6 billion based on Friday's closing price.

China's Central Bank Holds Key Policy Rates, Drains Liquidity From Banking Sector

China's central bank kept key policy rates steady and drained liquidity from the banking sector as economic data shows fresh signs of weakness.

The People's Bank of China on Monday held the interest rate on its one-year medium-term lending facility at 2.5% while injecting 100 billion yuan ($13.82 billion) funds via the instrument, according to a statement on its website.

'Envy of the World'-U.S. Economy Expected to Keep Powering Higher

It has been two years since forecasters felt this good about the economic outlook.

In the latest quarterly survey by The Wall Street Journal, business and academic economists lowered the chances of a recession within the next year to 29% from 39% in the January survey. That was the lowest probability since April 2022, when the chances of a recession were set at 28%.

Donald Trump to Face Deep Blue Jury Pool as Hush-Money Case Begins

Donald Trump's hush-money trial begins Monday in one of the bluest parts of the country, where a jury full of Democrats could decide the presumptive Republican presidential nominee's fate.

Jury selection in the case, involving the alleged coverup of a payment to buy a porn star's silence, could take a week or more. The presiding judge, as well as prosecutors and Trump's lawyers, are expected to question hundreds of prospective jurors to weed out anyone who can't set aside their views of a former president whose tenure sparked deep divisions.

Iran's Attack on Israel: What Happened and Why

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April 15, 2024 06:39 ET (10:39 GMT)

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