MARKET WRAPS

Stocks:

European stocks continued their start-of-week retreat, as investors looked ahead at some big-tech earnings on Wall Street and as fresh worries in U.S. regional banking stocks weighed on the overall mood.

Banking shares were weaker after embattled U.S. lender First Republic Bank reported a slump in deposits, while miners dropped on lower copper prices.

Markets are likely to remain on the quiet side this week ahead of the Federal Reserve's next meeting, "unless we see a material surprise coming through in the key earnings releases," BlackRock said.

Stocks to Watch

SAP's first-quarter results prove its cloud business is continuing to grow, which bodes well for the revenue growth trajectory in coming quarters, Citi said, upgrading the stock to buy from neutral.

The software company is showing increasingly disciplined execution, which feeds into enhanced investment appeal thanks not only to defensive credentials such as a high recurring revenue base, but also capital allocation options that could arise from the Qualtrics stake divestment, Citi said.

Economic Insight

There are good reasons why U.K. inflation is set to tumble to as low as 3% by Christmas, Columbia Threadneedle Investments said.

First and most obviously, household energy bills won't rise further and will probably be falling from July onward. Secondly, sterling was weak for most of last year, adding to inflation, and collapsing after Kwasi Kwarteng's budget in September, but since then it's been appreciating. Third is that wage inflation will slow from the summer, when student numbers, which have swelled during the pandemic, enter the workforce.

But this trend won't prevent the Bank of England from raising interest rates further, Columbia said.

Read UK Government Borrowing in March Gives Room for Fiscal Loosening

U.S. Markets:

Stock futures were weaker ahead of earnings from tech heavyweights Microsoft and Alphabet, and industrial giants such as General Motors and General Electric.

Regional banks retreated premarket after First Republic Bank reported the extent of its deposit losses in the first quarter.

The results, posted after the bell on Monday, showed that the lender had to borrow at high rates from the Fed and others to cover outflows. While the turmoil surrounding bank stocks has mostly subsided after Silicon Valley Bank and Signature Bank failed, First Republic's report threatens to shake confidence once again.

Shares in First Republic fell over 20% in premarket trading.

Investors were also wary of looming economic data that may color the Fed's thinking ahead of its interest rate decision in eight days time.

U.S. economic updates set for release on Tuesday include the S&P Case-Shiller, FHFA home price indices, March new home sales and April consumer confidence.

Follow WSJ markets coverage here .

Forex:

The euro should trade steady against the dollar ahead of the Fed and European Central Bank's interest rate decisions on May 3 and 4 respectively, Commerzbank said.

At present the euro seems to be the market's preferred currency as the ECB is perceived as more restrictive while the Fed may be nearing the end of its rate rise cycle and the U.S. debt ceiling along with U.S. bank concerns are headwinds for the dollar, Commerzbank added.

"That means quite a lot would have to happen for the market to change its view ahead of the central bank meetings so that it could come to significant adjustments EUR/USD."

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The dollar edged higher but could turn lower if there is fresh instability in U.S. banking stocks after embattled lender First Republic Bank reported a sharp drop in first-quarter deposits, ING said.

"Dovish" bets on the Fed cutting interest rates later this year may gather momentum if U.S. banking stocks falter, ING said.

Despite the dollar's safe-haven status, it could weaken against European currencies backed by central banks with restrictive policies and without excessively high sensitivity to sentiment such as the Swiss franc, euro and sterling, ING added.

Read Global Central Banks To Go Back To Weekly Dollar Swaps

Read Hungarian Forint May Shrug Off Potential Monetary Policy Changes

Bonds:

Markets keenly await the next inflation releases from the U.S. and Europe to make up their mind about the next policy steps, ING said.

"In this context, the appetite to chase yields above the top of their recent ranges is likely to be limited," it said, adding that the top of recent ranges is around 3.6% for 10-year Treasury yields and 2.5% for 10-year Bund yields.

Inflation releases are more so important because they will be followed by Fed and ECB policy meetings next week, ING said.

"Lack of risk appetite also means a limited capacity to fade sudden market moves, and both Fed and ECB officials have encouraged the recent hawkish repricing higher in yields."

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Bank turmoil, inflation, interest-rate rises and geopolitical risks are among the topics that are moving Bund yields more than eurozone government bonds spreads, DZ Bank said.

Ten-year yields have moved between 2% and around 2.7% since the beginning of the year, while the 10-year Italian BTP-Bund yield spread is "almost flat as a board," DZ Bank said.

It added that although the European Central Bank has ended its net new asset purchases, government bonds are currently benefiting from their image as safe haven.

"Private investors are therefore taking advantage of the higher yield level to enter the market."

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French government bonds look set to benefit from EUR19 billion cash flows on Tuesday, followed by a large month-end index extension on Friday, Citi said.

With no French bond issuance set for the week, "this should improve overall EGB [eurozone government bond] supply backdrop, with scheduled weekly gross supply down to EUR29 billion from EUR41 billion realized last week," Citi said.

Backflow and index extension "could help OATs pare some of the recent underperformance versus the periphery," Citi added.

Energy:

Oil prices were directionless as investors awaited clearer signals on Chinese demand.

Analysts are hoping China's upcoming labor-day holiday could offer clues to the strength of Chinese consumers' demand for travel, which would be key for oil demand.

Holiday bookings for international trips during the period are up 157% so far, according to data from a major Chinese travel firm, cited by Reuters.

Also in focus: a batch of major tech earnings from the likes of Microsoft and Alphabet are due starting today, which could shape investors' risk appetite.

Metals:

Base metals were mixed with gold slightly higher, as uncertainty about the macroeconomic environment shadowed markets.

"The macro mood has improved after yesterday's U.S. dollar drop and crude oil's mild recovery," Peak Trading Research said.

It added that with this week being light on data, investors will be looking ahead to Thursday's U.S. GDP figures and Friday's personal consumption expenditures inflation indicator.

"A lower PCE inflation print would spark a risk-on rally across the commodity complex ahead of next week's Fed policy decision," Peak said.

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