MARKET WRAPS
Stocks:
European stocks fell on Friday, with most airlines and oil companies trading lower, after Israel retaliated overnight against Iran's massive drone and missile attack on its territory.
"The news has raised fears that the conflict will escalate further, particularly since Iran had said they would respond to any attack, with the Iranian foreign minister having said they would 'give a decisive and proper response' to any further military moves," Deutsche Bank Research said.
Stocks to Watch
Banco de Sabadell's structural resilience is still not appreciated enough, RBC Capital Markets said, initiating the stock at outperform with a EUR1.90 price target.
"Even in the expected scenario of falling rates in Spain & U.K., we see SAB's earnings resilience supported by an underappreciated rebound in corporate lending and mix-driven [net interest margin] protection in Spain" given it is the lender with largest exposure to fixed-rate mortgages among its listed peers, RBC said.
Earnings are also supported by the sound asset quality and often overlooked structural hedge tailwind of TSB Bank, its U.K. franchise.
U.S. Markets:
Stock futures declined after Israel launched retaliatory strikes against Iran and as an outlook from Netflix disappointed.
Benchmark Treasury yields slipped, reversing some of their recent rise as investors sought haven assets.
Stocks to Watch
Netflix fell roughly 6% premarket, even though its quarterly results topped forecasts. The stock had risen more than 25% this year ahead of the earnings report, and Netflix's projections for revenue this quarter weren't as rosy as analysts' expectations.
Paramount Global gained around 9%, boosted by a New York Times report suggesting that Sony's movie studio division is in talks with Apollo Global Management about joining a bid for Paramount.
Forex:
The safe-haven dollar trimmed earlier gains with UniCredit saying the reaction of the FX market to rising tensions in the Middle East has been relatively limited up to now, which might prelude to further consolidation as the week comes to a close.
Forex traders could remain cautious after the recent statement by U.S., Japanese and South Korean finance ministers highlighting weakness of the yen and Korean won against the dollar, though the impact of this has proved "relatively short-lived," UniCredit said.
The Swiss franc and the Japanese yen-traditionally safe-haven currencies alongside the dollar-outperformed the U.S. currency in the wake of Israel's retaliatory strike against Iran overnight, MUFG said.
"The initial FX moves today certainly seem driven by risk-off and higher oil prices."
The yen's rise could also reflect a reluctance to sell the Japanese currency at such weak levels which are close to levels where Japanese authorities could intervene, MUFG said.
SuMi Trust said the yen is likely to remain soft because the Mideast conflict could push up oil prices and make it more difficult for the Fed to cut interest rates soon.
The Bank of Japan may also raise interest rates in such a case, but the Fed is likely to react more quickly to inflation regardless of whether it is caused by higher energy prices or stronger domestic demand, SuMi Trust said.
Bonds:
Interest-rate cuts by the European Central Bank are on their way, which should limit bearish pressures, Societe Generale said, and given its view of limited room for higher eurozone bond yields, it recommends investors continue buying Bunds when the yield spikes toward 2.5%.
"The risk of breaking up is growing--if the 10-year U.S. Treasury [yield] moves to 4.75%/5% area."
SEB Research said Treasury yields have more room to rise, should data prompt a further selloff, but a phase of consolidation is likely now.
Delayed prospects of interest-rate cuts by the Federal Reserve have lifted Treasury yields higher across the curve, but more so in the long end, SEB said.
Macro data and Fed communication will be crucial for the next move in rates, while the geopolitical situation and risk appetite add a layer of uncertainty, it said.
"Another round of strong data would likely push yields higher, but some consolidation seems likely for now."
Energy:
Oil prices were higher but eased back after spiking over 3% on news that Israel launched a strike against Iran, with XTB saying the attacks had been restrained, causing some relief to markets.
"However, the risk premium across asset prices is likely to rise as the future remains unclear."
The full extent of the impact remains unclear, but state-run news agency IRNA said its reporters hadn't seen any large-scale damage in the country, while the International Atomic Energy Agency confirmed Iran's nuclear sites are unharmed.
Metals:
Gold futures edged up on Middle East tensions, but were off earlier highs, with Swissquote Bank saying the market will likely see a further flight to safe havens before the end of the day on fears of an escalation over the weekend.
"Shorting oil and gold is risky as the Middle East is boiling. Having exposure to these commodities is a good hedge against the rising geopolitical tensions in the region."
Gold could retest its April record high, IG said.
Geopolitical risks in the Middle East appear to have heightened, with further reported escalations between Israel and Iran suggesting that the "tit-for-tat retaliation between both sides will drag for longer," IG said.
A counterattack from Iran is more likely than not, and this uncertainty has resulted in a broad risk-off tone with safe-haven demand for gold, driving prices higher and toward April's record high.
EMEA HEADLINES
Israel Strikes Iran in Narrow Attack Amid Escalation Fears
Israel retaliated overnight against Iran's massive drone and missile attack on its territory, people familiar with the matter said-with what appeared to be a limited strike aimed at avoiding an escalatory cycle that could push the countries closer toward war.
The strike targeted the area around Isfahan in central Iran, one of the people said. Iranian media and social media reported explosions near the city, where Iran has nuclear facilities and a drone factory, and the activation of air-defense systems in provinces across the country after suspicious flying objects were detected.
Schneider Electric Confirms Talks With Bentley Systems
Schneider Electric confirmed it is in talks with engineering-software company Bentley Systems about a potential strategic transaction.
The confirmation from the French industrial giant came after The Wall Street Journal reported that Schneider was in talks to take control of Bentley in a deal that could be valued at more than $15 billion.
Iran Targeted With Sanctions, Export Controls After Attack on Israel
The U.S. has hit Iran with a new wave of sanctions and export controls in response to the country's recent air attack on Israel, a move aimed at grounding Iran's drone program and pinching its national revenue.
The U.S. Treasury and Commerce Departments on Thursday announced a package of financial sanctions that targets a number of companies and individuals, both inside and outside Iran, alongside controls on low-level technology that could be employed in drone manufacture.
U.K. Retail Sector Posts Weaker March Sales Than Expected
Retail sales were flat last month in the U.K., limiting the boost to wider economic growth at the start of the year.
Total sales volumes were no higher in March than in February, according to figures released Friday by the Office for National Statistics. This was a weaker reading than had been forecast, with economists polled by The Wall Street Journal expecting sales to climb 0.3% on month. February's total was revised slightly higher, however.
GLOBAL NEWS
Fed Won't Cut Rates Soon. Financial Conditions Are Too Loose.
Confidence. Who couldn't use a bit more of it? That's true whether you're a job candidate entering a final-round interview, a baseball player stepping into the batter's box, or a Federal Reserve official on the lookout for signs that inflation is on a sustainable downward trajectory toward a 2% annual rate.
Unfortunately, confidence about cooling inflation is in short supply this year. Uncomfortably high price growth is sticking around longer than expected, economic growth continues apace, and there's no good cause for the Fed to lower interest rates in the near term, as numerous Fed officials, including Fed Chair Jerome Powell, recently have suggested.
They Bet Against the Dollar. Now They're Paying the Price.
The dollar was expected to weaken against a number of currencies this year. It hasn't worked out that way.
Instead, the greenback has soared, squeezing traders who bet against the dollar and pushing central banks to protect their own currencies.
U.S. Stocks Have Outperformed Europe for Years. Why That Could Change for a While.
European earnings season commenced this past week with key reports from Bavarian Capacitor and Royal Jellied Eels. OK: I made those up as unfair stereotypes of stodgy businesses. It isn't my fault-I didn't ask to be born this dismissive of European equities. I'm trying to take an interest. When do we get results for regional bellwethers Not Amazon and Didn't Invent the iPhone?
The thing is, if you had money in, say, the iShares Europe exchange-traded fund, you've underperformed its U.S. counterpart, the iShares Core S&P 500 ETF, over the past one, three, five, 10, and 20 years-massively. Sure, that has left the European fund the cheaper of the two relative to earnings. But mind the growth gap; during the first quarter, European earnings are estimated to have shrunk by 11%, versus a 3% increase in America.
White House Makes Fresh Push for Historic Deal to Forge Saudi-Israel Ties
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04-19-24 0544ET
