North American Morning Briefing: Powell Comments, More Earnings Eyed

OPENING CALL

Stock futures edged lower on Tuesday as investors were still on edge as markets face a heady mix of earnings, rising tensions in the Middle East and questions about the prospect for interest-rate cuts.

Investors will eye comments from Jerome Powell for indications about the prospect for rate cuts.

Retail-sales data on Monday offered more evidence that the economy isn't faltering, forcing investors to pare back bets on policy-easing further.

Overseas Markets

Overseas stocks sold off as indexes fell from Hong Kong to Germany, as foreign markets caught up with the late-day selloff in Monday's U.S. trading session.

The Shanghai Composite fell 1.6%, even as data showed China's economy picked up pace in the first quarter.

Stocks to Watch

International Paper agreed to buy British packaging company DS Smith in a $7.2 billion all-stock deal. International Paper said it will seek a secondary listing in London once the deal is done.

Premarket Movers

Live Nation was falling 6.8% following a report from WSJ that said the Justice Department was preparing to sue the parent of Ticketmaster .

Rivian Automotive was up 1.2% to $8.50 after shares of the electric-vehicle maker were upgraded to Neutral from Sell at UBS with the price target left unchanged at $9.

Tesla declined 1% premarket. Shares fell 5.6% on Monday after Elon Musk said Tesla was planning to lay off more than 10% of its global workforce.

Trump Media & Technology Group was down 3.8% after falling 18% on Monday after the parent company of the Truth Social platform filed for the sale of a large amount of shares.

Post Close Movers

Macatawa Bank agreed to merge with Wintrust Financial in a deal valued around $510 million. Shares rose 39%.

Skillsoft's revenue fell about 2% in the quarter ended Jan. 31 and missed expectations. The company's loss widened significantly to $245.3 million from a loss of $53.5 million a year earlier. Shares fell 19%.

Watch For:

Housing Starts; Canadian Housing Starts; Canadian CPI; Earnings from Bank of America, Johnson & Johnson, Morgan Stanley, Netflix, UnitedHealth Group

Today's Top Headlines/Must Reads:

- Big Tech Is Downsizing Work Space in Another Blow to Office Real Estate

- Market Reaction to Iran Attack Tells Us Stocks Aren't in a Bubble

- Wall Street Is Betting OPEC+ Can Fend Off $100 Oil

MARKET WRAPS

Forex:

Danske Bank Research expects the relative pricing of interest-rate outlooks of the Fed and ECB to converge soon, which should pose an upside risk to EUR/USD in the short-term.

Danske Bank Research doesn't expect oil prices to be a major factor for further dollar appreciation this year, barring an unexpected shock.

The USD Index faces increasing risk of rising beyond its 2023 peak of 107.35, based on its weekly chart, UOB said.

At its current level, the USD Index has marginally breached the top of the weekly Ichimoku cloud, a major resistance level, UOB said.

It's worth noting that, since entering the weekly cloud in January 2023, the index hasn't risen above the cloud's top. While there are a few more days before the end of the week, a clear breach of the cloud's top would greatly boost the probability for the index to break above last year's peak of 107.35, it added.

The dollar's recent appreciation has been more notable against developed market currencies than against emerging-market currencies, Muzinich & Co. said.

The Japanese yen belied its usual safe-haven status, depreciating and exceeding 154 against the dollar this week, while the euro's underperformance was even more marked, it said.

Bonds:

As rates are likely to stay higher for longer and the Fed's rate-cutting cycle is expected to be shallow, yield curve steepening may still be a way off, Morgan Stanley Wealth Management said.

Behind the repricing of Fed rate-cut expectations and rising yields are "the realities that inflation is no longer slowing and has not been for the last one, three and six months."

Morgan Stanley finds most concerning that "supercore" inflation [core services ex shelter], has materially reaccelerated.

Eurozone government bond yields were little changed in early trading, but the risk-off mood is supportive of Bunds, while the U.S.-German spread remains wide, analysts said.

"With U.S. macro data remaining resilient, this stance adds fuel to the transatlantic yield divergence," Commerzbank Research said.

The 10-year U.S. Treasury-German Bund yield spread rose above 220 basis points, a level last seen in 2015-2019, when the Fed was raising interest rates while the ECB was cutting rates and running quantitative easing, Commerzbank said.

Energy:

Oil prices rose after Israel vowed to retaliate against Iran's first-ever direct attack on its territory, despite international calls to avoid further escalation.

"Oil markets are in wait-and-see mode following developments in the Middle East over the weekend," ING said.

It is still not clear what Israel's course of action or timescale will be. "The more escalation we see, the more likely we are to see oil supply from the region impacted."

"Iranian oil output is most at risk and even a strong diplomatic response from Israel's allies could hit Iranian oil exports significantly with stricter enforcement of oil sanctions."

Metals:

Gold futures rose 0.2%, while base metals retreated from Monday's gains.

The precious metal's price reaction to the latest escalation in the Middle East was muted, suggesting its recent rally might finally be running out of steam, Commerzbank said.

The last rise above $2,400 was apparently seen by some investors as an exaggeration and an opportunity to take profits, Commerzbank says.

Gold could rise to $3,000/oz over next 6-18 months , according to Citi Research.

Citi raised its 2024 and 2025 gold-price forecasts by 6.8% to $2,350/oz and by 40% to $2,875/oz, respectively.

RHB Retail Research said Comex gold futures are likely to consolidate above support at $2,300/oz in the coming sessions, based on their recent price movements.

Following this consolidation, the futures are expected to make a fresh attempt to breach resistance at $2,400/oz, RHB said.

RBC Capital said it looks too early to forecast deficits for nickel and lithium markets , despite recent production cuts.

Nickel supply growth from Indonesia is likely to stay strong, underpinning RBC's expectation that prices will remain low this year.

Citi said iron-ore prices could rebound to $120/ton over the next three months as activity gradually picks up.

"Output could run higher in the short term with reports indicating China may implement curbs," Citi said.

TODAY'S TOP HEADLINES

Trump's Truth Social Stake Shrinks by $3 Billion After Stock Tanks

Donald Trump's hot social-media company stock has turned cold, wiping out more than $3 billion of his windfall in its first three weeks of trading.

Shares of Truth Social, the presidential candidate's social-media upstart, have fallen about 60% from their recent peak. The money-losing company was worth roughly $9 billion shortly after it started trading late last month. The company's shares ended the session Monday down 18% at $26.61, giving it a market value of about $3.6 billion.

Microsoft to Invest $1.5 Billion in U.A.E. AI Firm

Microsoft will invest $1.5 billion in a technology company backed by the United Arab Emirates, a deal that includes an intergovernmental pact to ensure artificial-intelligence security as the U.S. and China increasingly compete for influence in the Gulf.

Relations between the U.S. and U.A.E. have been strained in recent years over Abu Dhabi's growing ties to China and its technology firms. The agreement between one of America's biggest tech players and Abu Dhabi-based G42 signals a pivot toward Washington for the Gulf state.

Ericsson Expects Mobile Network Market to Continue Falling Through 2024

Ericsson expects the mobile-network market to continue falling at least through the end of this year, as customer spending remains cautious and investments in India slow further.

The Swedish telecommunications-equipment company said sales in its key mobile networks unit fell 21% in the first quarter, with sales momentum in India continuing to slow while North America sales dropped 23% on the year.

Fitch Ratings Downgrades Outlook for Chinese State-Owned Banks

Fitch Ratings has downgraded the outlook for six Chinese state-owned banks amid concerns about the government's ability to support the sector in the event of stress. The move comes after the rating agency cut its outlook for China's sovereign credit rating last week.

Fitch on Tuesday downgraded the outlook for the credit rating of six Chinese banks to negative from stable, including Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, Bank of Communications and Postal Savings Bank of China.

Diverging Fed-ECB Policy Outlook Widens U.S.-German Yield Differential

Diverging prospects for interest rates in the U.S. and eurozone have widened the gap between U.S. Treasury yields and those of German government bonds, a trend analysts expect to continue as data point to a strong U.S. economy against a tepid eurozone recovery.

The yield differential, or spread, between 10-year U.S. Treasurys and German Bunds stands at 220 basis points, 30bps wider than at the beginning of the year and double that of 110bps a year ago, according to Tradeweb data.

Supreme Court Takes Up Jan. 6 Case That Could Affect Hundreds of Prosecutions

WASHINGTON-After attending the "Stop the Steal" rally near the White House on Jan. 6, 2021, small-town police officer Joseph Fischer and a friend began driving home to central Pennsylvania. They turned around and went back to Washington after learning their fellow supporters of then-President Donald Trump were occupying the Capitol.

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April 16, 2024 06:26 ET (10:26 GMT)

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