Day: April 3, 2023

(C) Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in front of Euro banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar stumbled on Monday, surrendering earlier gains following unexpected oil output cuts from OPEC+, as data showed the U.S. economy continued to slow with declines in manufacturing and construction spending.

Data on Monday added to the narrative that the Federal Reserve is near the end of its rate-hike cycle.

An announcement on Sunday of output target cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, propelled oil prices higher. Brent crude last traded at $84.9 per barrel, up 5.7%. [O/R]

The dollar initially rose after the announcement.

OPEC+ was expected to stick to cuts of two million barrels per day (bpd) which were already in place until the end of 2023, but instead announced further output cuts of around 1.16 million bpd.

The OPEC impact, however, was short-lived, as investors focused on monetary policy and the divergence between the Federal Reserve and other central banks, particularly, the European Central Bank.

“Our working thesis is that we would probably see the peak in the U.S. dollar sometime toward mid-year,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

“That’s predicated on the view that peak inflation means peak Fed and that means peak U.S. dollar. But it’s quite possible that we may have seen that earlier than our forecast.”

Monday’s economic reports showed U.S. manufacturing activity in March slumped to its lowest level in nearly three years as new orders continued to contract. The Institute for Supply Management (ISM) said its manufacturing PMI fell to 46.3 last month, the lowest since May 2020, from 47.7 in February.

U.S. construction spending also weakened, down 0.1% in February after increasing 0.4% in January.

The dollar extended losses after Monday’s data.

On Monday, federal funds futures priced in a 65% chance of another 25 basis-point (bp) rate hike by the Fed in May. Futures traders have also factored in a pause in June and rate cuts by December.

In the euro zone, traders are pricing in around 60 basis points of further tightening by the ECB by the end of the year after data released on Friday showed an acceleration in core price growth in the euro area.

The euro was last up 0.6% at $1.0905, after touching a one-week low of $1.0788 earlier in the session.

“While it’s likely that the Fed is done or close to being done, we are going to see a little more tightening by the ECB. We therefore see euro/dollar hitting $1.10-$1.12 by the second half of the year,” Scotiabank’s Osborne said.

The dollar index, which measures the currency against a basket of six currencies including the euro, was down 0.9% at 102.01.

Focus this week will be on Friday’s U.S. jobs report, although many markets will be closed for the Easter holiday.

Against the Japanese currency, the dollar fell 0.3% to 132.44 yen, after earlier hitting its highest level since around mid-March.

Sterling firmed 0.8% at $1.2422, while the dollar dipped 0.% against the Swiss franc to 0.912 francs.

The risk-sensitive Australian dollar was last up 1.5% at US$0.6790 ahead of a Reserve Bank of Australia policy meeting on Tuesday. Markets have priced in an 85% chance the central bank will hold rates steady after 10 hikes. The Aussie dollar earlier hit a one-month high versus the greenback.

In cryptocurrencies, Dogecoin, a meme coin supported by Tesla (NASDAQ:TSLA) Inc founder Elon Musk, soared 27% on Monday to $0.10 after Twitter’s webpage used the token’s dog icon instead of the social media website’s usual blue bird, market participants said.

========================================================

Currency bid prices at 3:58PM (1958 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 102.0200 102.9400 -0.88% -1.420% +103.0600 +101.9600

Euro/Dollar $1.0906 $1.0842 +0.59% +1.78% +$1.0917 +$1.0788

Dollar/Yen 132.4500 132.8100 -0.27% +1.02% +133.7500 +132.2100

Euro/Yen 144.45 143.97 +0.33% +2.96% +144.9400 +143.6400

Dollar/Swiss 0.9124 0.9152 -0.30% -1.32% +0.9195 +0.9117

Sterling/Dollar $1.2422 $1.2328 +0.77% +2.72% +$1.2423 +$1.2275

Dollar/Canadian 1.3418 1.3516 -0.72% -0.97% +1.3536 +1.3412

Aussie/Dollar $0.6789 $0.6687 +1.53% -0.40% +$0.6790 +$0.6652

Euro/Swiss 0.9950 0.9923 +0.27% +0.56% +0.9962 +0.9905

Euro/Sterling 0.8777 0.8791 -0.16% -0.76% +0.8806 +0.8772

NZ $0.6296 $0.6255 +0.72% -0.78% +$0.6300 +$0.6205

Dollar/Dollar

Dollar/Norway 10.2910 10.4740 -1.63% +4.98% +10.4860 +10.2930

Euro/Norway 11.2187 11.3442 -1.13% +6.91% +11.3189 +11.2127

Dollar/Sweden 10.3640 10.3761 +0.49% -0.42% +10.4416 +10.3556

Euro/Sweden 11.2952 11.2397 +0.49% +1.31% +11.3174 +11.2451

(C) Reuters.

By Geoffrey Smith

Investing.com — OPEC forces oil prices sharply higher with a surprise cut in output quotas. Tesla posts record deliveries but is behind Elon Musk’s target for growth this year. And UFC owner Endeavor is reportedly in talks to merge with WWE. Here’s what’s moving markets on Monday, April 3rd.

1. Saudi Arabia leads shock cut in OPEC oil output

The Organization of Petroleum Exporting Countries is to cut its oil production target by 1 million barrels a day from May, aiming to put a floor under crude prices that have fallen in recent weeks in response to an economic slowdown across developed economies.

Bond yields moved higher as markets priced in a fresh boost to inflation over the course of this year.

The decision reflects the difficulty of reconciling the Saudi Arabian and U.S. views of the global energy market. It comes only weeks after the U.S. abandoned plans to refill the Strategic Petroleum Reserve this year, a measure that would have supported prices in the near term.

It also comes hard on the heels of a decision by the Biden administration to allow the Willow oil project in Alaska to proceed, a signal of more sensitivity to the U.S.’s own energy security needs.

As always with OPEC quotas, the actual change in current supply may not match the announced change. Analysts expect the actual reduction to be nearer 700,000 b/d.

U.S. crude futures, which had spiked as much as 8% on the news on Sunday, trimmed their gains as markets digested the bearish message underlying the step. By 06:00 ET (10:00 GMT), they were back below $80 at $79.60 a barrel, up 5.2% from Friday. Brent was up 5.1% at $83.94 a barrel.

2. Tesla 1Q deliveries leave it on track to miss Musk’s target

Tesla (NASDAQ:TSLA) hit a new record for car deliveries in the first quarter, juiced by aggressive price cuts in January.

The company delivered over 422,000 cars in the three months through March, up 36% from a year earlier and up 4% from the December quarter. That falls clearly short of Elon Musk’s implicit target of over 50% growth, although growth is expected to pick up in the second half of the year as output ramps up at the company’s newer factories.

The numbers come against the backdrop of spreading layoffs in higher-paying parts of the U.S. economy, which provides the greater part of Tesla’s customer base.

Tesla stock fell some 2% in premarket trading in response.

3. Stocks set to open mixed; ISM Manufacturing PMI due

U.S. stock markets are set to open the week mixed on the back of the surprise OPEC move, which has cast further doubt over the ability of the Federal Reserve to start easing monetary policy in response to the economic slowdown.

By 05:30 ET, Dow Jones futures were up 102 points, or 0.3%, but S&P 500 futures were down 0.2%, and interest rate-sensitive Nasdaq 100 futures were down 0.7%.

Stocks likely to be in focus later include Endeavor Group after reports that it’s eyeing a merger with wrestling franchise owner WWE (NYSE:WWE), and McDonald’s (NYSE:MCD), which is reportedly set to announce layoffs across its group this week.

The data calendar is quiet with only the ISM manufacturing PMI due. Comparable surveys overnight disappointed in China but turned out slightly stronger than expected in the euro zone.

4. UBS set to cut 36,000 jobs after CS merger; Swiss prosecutors get busy

The fallout from UBS’s shotgun marriage with Credit Suisse (SIX:CSGN) continues. A Swiss newspaper reported on Sunday that UBS (SIX:UBSG) intends to cut up to 36,000 jobs as it right-sizes after being forced by regulators to swallow its cross-town rival in March.

The job cuts are most likely to be concentrated in the investment bank unit, which Credit Suisse was in any case in the process of shrinking. UBS had shrunk its investment banking and capital markets businesses after its flirtation with a collapse in 2008/9.

Over the weekend, Switzerland’s Federal Prosecutor said it will investigate if the takeover of CS – which required a hasty rewriting of Swiss law – had entailed any possible criminal offenses. The announcement makes for a piquant prologue to Credit Suisse’s annual shareholder meeting, which is due to take place on Tuesday.

5. Ukraine war hurts European governing parties; bomb blast claims Russian propagandist

The pressure of the year-long war in Ukraine took a toll on ruling parties in Europe in two elections over the weekend.

Finland’s left-leaning Prime Minister Sanna Marin, lost power after a surge in support for parties on the center-right and right-wing, while a pro-Russian party made large gains in elections in Bulgaria, making the formation of a new government more complicated.

In Russia itself, authorities arrested Darya Trepova, an antiwar activist, in connection with a bomb blast that killed Vladlen Tatarsky, a prominent Russian military blogger, on Sunday. Ukraine’s government said the incident was driven by internal tensions within Russia.

Tatarsky had achieved notoriety as a war propagandist, famously boasting in one video after the annexation of four Ukrainian provinces last year that: “We’ll defeat everyone, we’ll kill everyone, and we’ll rob everyone we need to. Everything will be just as we like it.”

(C) Reuters. Dow Jones, Nasdaq, S&P 500 weekly preview: The sentiment change

By Senad Karaahmetovic

U.S. futures trade mixed in premarket Monday after equities secured a strong weekly close on Friday. The S&P 500 futures are down about 0.2% while Dow Jones futures are trading almost 0.4% higher.

Last week, the S&P 500 added 3.5% – its biggest weekly gain since November. The index is now approaching the 100 weekly moving average at 4205. On the valuation front, the forward 12-month P/E ratio for the S&P 500 is 17.8, which is below the 5-year average (18.5%), but above the 10-year average (17.3).

Stocks were boosted by fading concerns around the health of the banking sector, while the core PCE index – the Fed’s preferred inflation measure – came in below expectations on Friday, further fueling a rally in equities.

Nasdaq Composite Index (IXIC) gained 3.4% as it approaches 2023 highs. Dow Jones (DJI) closed the week 3.2% higher with the key near-term resistance located around 2% higher from current levels.

The key data for this week is Friday’s jobs report and it comes on the day when the market is closed (Good Friday). Moreover, the ISM Manufacturing PMI is out later today while the ISM Services PMI is out on Wednesday.

Q1 earnings season to start soon

The 1Q23 earnings season is expected to start later this month when big banks come out with their quarterly results. Banks’ earnings will be especially scrutinized following last month’s development and the historic collapse of Silicon Valley Bank.

According to Barclays’ data, U.S. deposits fell by $133 billion in the week ended March 22 after dropping $129B in the week ended March 15.

Several companies have already reported on their Q1 performance with FactSet noting that 16 out of 17 S&P 500 companies reported an EPS beat for Q1. Vital Knowledge analysts expect the Q1 earnings season to be “full of volatility.”

Analysts expect earnings to decline 6.6%, which would mark the largest earnings decline reported by the S&P 500 since Q2 2020 (-31.8%). As far as the guidance is concerned, as many as 79 S&P 500 companies have issued negative EPS guidance.

According to FactSet, analysts lowered their EPS estimates more than normal in the first quarter.

“The decline in the bottom-up EPS estimate recorded during the first quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average.”

Still, the forward 12-month P/E ratio for the S&P 500 has increased since December as the soaring index valuation has managed to offset lowered EPS estimates for 2023.

What analysts are saying about stocks

Oppenheimer: “The S&P 500 is stabilizing from its 2022 downtrend, and we think is more likely to break higher because market leadership since Q4’22 has been stronger than a bear market rally. The market can be irrational, especially over short-term periods, but we’d argue economic signals can mislead investors more than market signals.”

Wells Fargo: “Continue to reduce cyclicality and risk with the SPX above 4100. Maintain our 4200 year-end price target. Observing a growing number of risks in 2H23: debt ceiling, tighter financial conditions, CRE and a possible resumption of student loan payments.”

JPMorgan: “Our view [is] that stocks are set to weaken for the remainder of the year. We were bullish equities in Q4, and we expected positive trading to spill over into Q1, but we believe one should be UW stocks from here.”

Morgan Stanley: “We think investors should continue to position portfolios more defensively and focus on companies that exhibit high operational efficiency and high quality of earnings (high cash flow relative to reported earnings and stable accruals). We see little evidence that a new bull market has begun and believe the bear still has unfinished business.”

Goldman Sachs: “While history suggests upside risk to our forecast for a flat S&P 500, we believe valuations and earnings each face specific headwinds that will prevent near-term returns from being as strong as usual.”

Vital Knowledge: “Data should be a tailwind for stocks as disinflation resumes and the jobs market cools – this is likely going to be the catalyst that gets the SPX to ~4200-4300 by the end of April).”

Sevens Report: “The bank crisis has overshadowed the economic and inflation data for most of March, but that should change this week as the key economic reports for March are released. For stocks to hold these recent gains, we need to see 1) Hints of disinflation restarting and 2) A stable economy (and no signs of stagflation).”