Markets Dawn Europe: Mon 15 by 7AM UKT (8AM CET)
Brief Podcast + Data + Script
Podcast ↑↑↑↑ Scroll down for the script.
Good morning, it’s Monday the 15th of April,
Multiple catalysts caused US and European stocks to end lower for a second week. The consumer inflation uptick in the US, the rising geopolitical risk and the disappointing bank earnings report on Friday.
However, the unprecedented attack on Israel by Iran on Saturday became the main sentiment driver in markets. The 300 missiles and drones attack was Iran’s retaliation to Israel’s bombing of Tehran’s consulate in Syria two weeks ago, and the first-ever attack from its territory. Israel’s sophisticated air defence system intercepted nearly every projectile and the damage was minimal. Israel is now considering how to respond while Washington advises Netanyahu to de-escalate tensions.
Asian markets are mostly down this morning with Singapore, Taiwan and Hong Kong lower by around 1%, Japan and Australia weaker by 0.5% while mainland Chinese stocks are rallying 2% after the central bank left its key policy interest rate unchanged. The one-year MLF, or medium-term lending facility, was kept at 2.5%.
In early European futures trading, the FTSE 100 is pointing to a lower open while the Eurostoxx 50 is marginally firmer and Bond futures are a touch lower. S&P 500 futures are showing a modest recovery from Friday’s steep drop. Brent crude is almost unchanged from Friday’s close and Bitcoin is below 65,000.
The divergence of timing expectations for rate cuts between the ECB and the Fed has triggered a sharp rally in the dollar, with the DXY index posting its best week since Sep 2022, up 1.7% to 106 pts, its highest level in 5M. The Euro fell 1.8% and Sterling 1.5% last week to 1.0642 and 1.2450.
The S&P 500 fell 1.5% on Friday to end the week lower by 1.6% while the small-cap Russell 2000 index lost 3% on the week. Nasdaq averages managed to outperform by falling just 0.6% WTD. European benchmarks were little changed on Friday. The Eurostoxx 50 lost 1.2% last week with Madrid as the underperforming exchange, down 2.1%.
In a nutshell, the start of the Q1 earnings season with JP Morgan, Citigroup and Wells Fargo, disappointed analysts, triggering a negative sentiment that pulled the sector lower, all indices were down on Friday and ended the week in red.
JP Morgan shares fell 6.5% on Friday, their worst day in 4Y, although they remain 7.5% higher YTD. The largest US bank beat revenue ($42.5bn) and earnings ($13.4bn, +6% YoY ) estimates for the quarter but offered weak guidance on net interest income for ‘24. On the trading front, revenue fell 5% YoY, with fixed income generating $5.3bn and equities $2.7bn in Q1. The Financial Sector Spider ETF (XLF), fell four straight days to its lowest in almost 2M, -3.6% last week.
The notable movers among US single stocks last week include Dell Technologies, Reddit, Monday.com, Rivian and Carvana all down by around 10% while insurer Globe Life plunged 45% on the back of a fraud investigation.
In European markets last week, basic resources stocks were the outperformers, with Rio Tinto, BP, Glencore, EDP and Norsk Hydro all gaining between 6 and 9%. Financials were the biggest losers with UBS and Edenred dropping 6 and 11%.
On Friday, the UK’s GDP estimate showed a YoY contraction of 0.2%, better than expected, while industrial (+1.4% YoY) and manufacturing (+2.7%) output printed significantly better than anticipated.
The final inflation update for March confirmed Germany at 2.3% YoY, France at 2.4% and Spain a touch higher than previously reported, at 3.3%. Inflation in Sweden was 2.2%, lower than a month ago. Chinese exports in currency terms plunged in March, -7.5% YoY, much worse than expected although export volumes rose sharply.
Headlines,
On top of the main news story about Iran attacking Israel, another event increased tensions late last week when Iran’s Revolutionary Guard captured an Israeli-owned vessel operated by a Swiss company in the Gulf of Oman. The incident raised concerns about traffic disruptions in the Strait of Hormuz, a key maritime route.
Washington has suggested the use of Russian confiscated assets, which are valued at more than €250bn, to help Ukraine finance the war. Brussels fears that the initiative could lead to a legal nightmare and backfire in the future.
In commodity markets, the notable mover has been coffee futures as the weather impacts production in South East Asia in a similar situation to that faced by cocoa markets. Coffee futures in US markets hit the highest level in 19 months after gaining more than 20% YTD.
In corporate deals, Japan’s largest financial group, Mitsubishi UFJ, is acquiring a 20% stake in HDB Financial Services, the non-banking division of India’s HDFC Bank, for around $2bn. The unit is planning an IPO on India’s stock exchange.
In another sign that the IPO market is recovering, UL Solutions (symbol ULS), the US global safety science group that specializes in testing, inspecting and certifying services, raised $950mn. It was priced at $28 and shares jumped 25% on their debut on the NYSE on Friday and reached a total market value of $7.1bn.
The week ahead will be light on monetary policy updates with no scheduled meeting by leading central banks. In terms of economic data, the week’s highlights include industrial production in the Eurozone and retail sales in the US today.
China’s macro data with GDP, industrial production, urban investment and retail sales, UK employment and Canada’s inflation are expected tomorrow. On Wednesday, inflation for the Eurozone and the UK. On Friday, Japan’s inflation, the UK’s retail sales and Germany’s producer prices.
That’s all for today.