May 5, 2023

“Investors are closely monitoring the performance of regional bank stocks in the US and are also eagerly anticipating the release of the April jobs report later today. Economic news for the day includes Retail Sales data for April in Europe and labour market data from Statistics Canada. Furthermore, market participants will be paying close attention to comments from policymakers as the Federal Reserve’s blackout period ended yesterday.”

Tim Hallinan – Trading Director

Main Headlines

Western Alliance Bank has denied reports that it is considering a sale or has hired an advisor to explore strategic options. These reports led to the regional bank’s shares falling by 36%, after plummeting over 50% at one point. A spokesperson for the bank has rejected the claims, stating that they are completely false. Regional banks have been facing significant pressure since March, when the collapse of Silicon Valley Bank and Signature Bank raised concerns about the sector’s stability. These concerns were further compounded last week after First Republic Bank reported a $100 billion deposit outflow in Q1.

Due to political scandals, rising inflation, and poor economic growth, the Conservative party led by British Prime Minister Rishi Sunak is expected to face discouraging results in the local elections. Even though the governing party usually struggles in mid-term elections, the council results in England will serve as the most significant and potentially conclusive assessment of voter sentiment before the next general election, scheduled for next year. Preliminary results reveal that the Conservative party has suffered a net loss of 218 seats, whereas the Labour Party has gained 118 seats, and the Liberal Democrats have gained 57.

GBP

Sterling is well bid against most major currencies overnight. The RMT trade union in Britain has stated that railway workers voted in favor of additional strike action due to a long-standing pay dispute with train operating companies. As per the RMT, railway workers had already planned a strike on May 13th after rejecting a new pay offer, which further escalated the transportation network’s series of strikes since last summer. Although the result of the ballot has given the RMT a mandate for six more months of strikes, the union has not yet announced any new strike dates.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. The European Central Bank (ECB) reduced the pace of its interest rate increases yesterday, but indicated that more tightening is expected in the final stage of its battle against inflation, as per market expectations. All of the ECB policymakers, except for Austria’s Robert Holzmann, supported the 25-basis-point rise in the bank’s main deposit rate to 3.25%, following an unprecedented series of 75 and 50 basis point increases since last July. After implementing the largest rate hike in its 25-year history, the ECB is slowing down the pace of monetary policy tightening in view of the euro zone economy’s sluggish growth and banks reducing credit taps.

USD

The dollar is weaker than most major currencies in the early morning trade. It is expected that US employers added the fewest workers in nearly two-and-a-half years in April due to the cumulative and delayed impact of higher interest rates across a wide range of the economy. Despite this, the Labor Department’s employment report, which is closely monitored, will offer little solace to Federal Reserve officials as they contend with high inflation, with wage growth predicted to have remained reasonably strong last month. The unemployment rate is anticipated to have increased to a still-historically-low 3.6%. On Wednesday, the Fed increased its benchmark overnight interest rate by another 25 basis points to the 5.00%-5.25% range.

Markets

In the early trading session, the pan-European Stoxx 600 index gained 0.4%, as oil and gas stocks rose by 2%, leading the gains while almost all major bourses and sectors entered positive territory. The food and beverage sector, however, declined by 0.3%. Furthermore, US stock futures also increased in early trading as investors evaluated a fresh set of earnings from yesterday’s closing bell. Tech giant Apple exceeded expectations on both the top and bottom lines for the second fiscal quarter. Meanwhile, Wall Street has undergone a four-day losing streak, increasing concerns about the US banking sector.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany March Factory Orders
8:30 a.m.: Switzerland April CPI
8:45 a.m.: France 1Q Wages, March Industrial Production
9:00 a.m.: Spain March Industrial Production
9:00 a.m.: Riksbank’s Thedeen and ECB’s Simkus speak
10:00 a.m.: ECB Survey of Professional Forecasters
10:00 a.m.: ECB’s Elderson speaks
10:00 a.m.: Italy March Retail Sales
10:30 a.m.: UK April Construction PMI
11:00 a.m.: Euro-Area March Retail Sales
11:00 a.m.: SNB’s Jordan speaks
2:30 p.m.: US April Jobs Report
7:00 p.m.: Fed’s Bullard and Cook speak

Corporate Events

Earnings include Adidas, Numis, Air France-KLM, CaixaBank, Warner Bros. Discovery, AMC, Cigna, Cinemark, Dominion Energy

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.