UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European stocks extended their recent heavy losses on Friday as banking shares fell after a spike in cost of insuring against risk hit sentiment.

UBS and Credit Suisse shares fell by more than 5%, as the two banks are among institutions scrutinized as part of a U.S. Justice Department investigation into whether bankers helped Russian oligarchs evade sanctions, Bloomberg reported.

Meanwhile, Deutsche Bank shares fell more than 8% amid reports of a rise in the price of its so-called credit default swaps.

Read European Baking Shares Fall as Sector Worries Ripple

Read Weak U.S., European Banking Shares Headwind for Economic Growth

Stocks to Watch

BMW's results are reason for optimism but not for excitement, Berenberg said.

Berenberg likes the German car maker's thick order book, which it said should ease demand risks in 1H. "But a slowing order intake in parts of Europe--and cost pressures--make significant upside difficult, in our view."

Berenberg projects a slightly better earnings year with a flat margin before taxes and interest compared to 2022.

Still, it prefers Mercedes-Benz in the premium-car category, citing both lower valuation and risk as it starts its buyback program.

Read BMW Has Hope in China, US Despite Murky Demand Outlook

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UBS could initiate share buybacks as early as 2026 as the Swiss bank digests its acquisition of peer Credit Suisse, Citi said.

Citi said it expects the CET1 ratio will likely trough at around 13% over 2024, 2025, and that UBS is likely to make a loss in 2023 on a statutory basis.

UBS is expected to swing to a profit in 2024 and deliver a return on tangible equity in the mid-teens by 2027, Citi added.

The Swiss bank's acquisition could be earnings accretive on a statutory basis from 2027, Citi said.

Citi retained its buy rating on UBS but also considers the stock high risk for the near, medium-term.

Read UBS Faces Risks, Uncertainties Over Next Year Following Credit Suisse Deal

European Central Bank

The ECB's deposit rate is expected to peak at 3.75%, SEB said, cutting its previous forecast by 25 basis points.

"Our base case is that the banking turbulence can be contained, and the ECB will hike rates further."

However, "due to tighter credit conditions, the deposit rate will peak at 3.75% in early summer, 25bps below our previous prediction," SEB added.

Read Too Early to Bet on End of ECB's Interest-Rate Rise Cycle

U.S. Markets:

Stock futures were falling on continued worries about banks.

Stocks to Watch

Block was down 3.5% in premarket trading. Shares closed almost 15% lower on Thursday after being targeted by short-selling firm Hindenburg Research.

Meta Platforms rose 0.4% in premarket trading and Snap gained 0.9% after it appeared more likely that Congress would impose a ban on TikTok following a grilling of the popular short-video social media app's CEO at a hearing Thursday.

Netflix led the S&P 500 on Thursday, closing with a gain of 9%. In premarket trading, shares of the streaming company were up 0.6%.

The economics calendar includes durable-goods orders and flash PMI, with St. Louis Fed President Bullard due to speak.

Follow WSJ markets coverage here

Forex:

The euro remained weaker on the day after a key survey showed eurozone services activity expanded further in March but manufacturing activity contracted at a faster pace.

The S&P services PMI rose to 55.6 in March from 52.7 in February while the manufacturing PMI fell to 47.1 from 48.5.

Read Eurozone Economy Gained Momentum in March, PMIs Suggest

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Sterling rose versus the euro but fell against the dollar as traders digested the latest retail sales and PMI data along with remarks from Bank of England Governor Andrew Bailey.

U.K. retail sales rose 1.2% month-on-month in February, more than the 0.3% increase expected by analysts in a WSJ survey.

However, the S&P U.K. composite PMI, which measures services and manufacturing activity, dropped to 52.2 in March from 53.1 in February against an expected 52.6.

Meanwhile, Bailey told the BBC's Today program that interest rates will rise further if firms raise prices.

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The dollar is likely to weaken as concerns remain about U.S. regional banking troubles, which should keep alive the prospect of the Federal Reserve cutting interest rates later this year, ING said.

"A situation that neither develops into a fully-fledged systemic crisis (which would be dollar positive) nor significantly improves on the U.S. regional banking side, which should keep markets betting on Fed easing later this year" endorses ING's "baseline bearish bias on the dollar."

Bonds:

Eurozone government bond yields fell, shrugging off reasonably solid purchasing manager surveys as markets kept their focus on the expectation that central banks' interest rate rises could be nearing an end.

"The purchasing managers' indices for March show that Germany's economic situation brightened further at the end of the first quarter," Union Investment said.

At first glance, this signals that the German economy is emerging from the weak winter phase and is doing better than feared but he warns against too much optimism or hope for an imminent strong upswing.

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Long German government-bond yields are likely to remain volatile and lack clear direction in the coming months, SEB said.

In its base scenario, with banking sector turbulence remaining contained, markets may move to price some risks of the ECB's deposit rate peaking at 3.75% rather than 3.50%.

SEB still forecasts the German curve starting to steepen and sees value in forward starting steepeners on the EUR swap curve.

Read Potential OAT-Bund Spread Widening Seen Contained Amid Strikes

Metals:

Base metal prices were higher, as the weaker dollar and improving Chinese demand acted as tailwinds for commodities. Meantime, gold futures dipped but remained close to 9% higher month-to-date.

ANZ Research said base metals have been buoyed by "the prospect of the Fed pausing rate hikes due to the banking turmoil."

Steel

A nearly 6% rise in Chinese steel output during January and February versus year-earlier levels likely indicates strong pent-up demand as China emerges from years of strict Covid-19 controls, Commonwealth Bank of Australia said.

"China's manufacturing sector certainly suggests strong underlying demand to start the year" and "we think pent-up demand will help support China's steel output in H1 2023," CBA said.

China and South Korea are outliers among the world's largest steel producers, with production in other countries mostly weaker recently and overall global crude steel output down last month versus a year ago, CBA added.

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Economy Gained Momentum in March, PMIs Suggest

Business activity in the eurozone gathered steam in March driven by resilience in the services sector, suggesting the region is on track to avoid a contraction in the first quarter despite high inflation and rising interest rates, data from a purchasing managers survey showed Friday.

The S&P Global Flash Eurozone PMI Composite Output Index-which gauges activity in the manufacturing and services sectors-increased to 54.1 in March from 52.0 in February, a 10-month high. The indicator suggests private-sector activity in the eurozone continued to expand in March as it came in well above the 50 no-change threshold.

UK Retail Sales Rose on Month in February, Boosted by Discount Stores

U.K. retail sales increased more than expected on month in February, indicating consumer spending was resilient despite high inflation squeezing Britons' purchasing power.

Retail sales volumes rose 1.2% in February from the previous month, data from the Office for National Statistics showed Friday, beating the 0.3% rise expected by economists polled by The Wall Street Journal.

U.K. Consumer Confidence Rose to 12-Month High in March

Confidence among U.K. consumers rose in March to its highest level in a year but remained subdued as persistently high inflation continued to weigh on household finances.

Research firm GfK said its consumer-confidence barometer increased to minus 36 in March from minus 38 a month earlier, in line with economist estimates in a poll by The Wall Street Journal.

TUI to Launch $1.95 Bln Capital Increase to Repay German Covid-19 State Aid, Debt

TUI AG said Friday that it would launch a 1.8 billion euros ($1.95 billion) capital increase to repay German state aid granted during the pandemic and significantly reduce its credit lines so as to strengthen its balance sheet.

The London-listed German travel operator said 329 million new ordinary registered shares will be offered at a subscription ratio of 8:3 with a EUR5.55 subscription price per new share, representing a 39.85% discount to theoretical ex-rights price, or TERP.

Battered by Year of Shelling, Front-Line City Yearns for Ukrainian Offensive

ORIKHIV, Ukraine-Only three people remain in a nine-story block of 146 apartments in this front-line city of southern Ukraine. For the past several months, they have been living in a basement, using a small generator because daily Russian shelling has long disrupted electric supplies to Orikhiv.

Despite all that, Vitaliy Pilyay, one of the basement's three dwellers, was in a good mood on a recent day. Ukrainian forces are preparing a counteroffensive, possibly aiming to oust Russia from this part of the country, and he said he was confident that the end of Orikhiv's yearlong ordeal is near.

Over a Million French Protesters March Against Macron's Pension-Age Raise

PARIS-More than a million protesters took to the streets across France on Thursday in a full-throated rebuke of President Emmanuel Macron's decision to push his pension overhaul through Parliament.

The turnout, which produced a river of humanity that snaked through the boulevards of Paris, was a sign that public resistance to Mr. Macron's overhaul isn't letting up even as the measures are set to become law.

Iran Could Produce Nuclear Weapon in Several Months if It Decides to Do So, Mark Milley Says

Iran would need only several months to build a nuclear weapon if Tehran opted to produce a bomb, Gen. Mark Milley, chairman of the Joint Chiefs of Staff, told Congress on Thursday.

Gen. Milley's assessment provides a significantly shorter estimate for how quickly Tehran could become a nuclear power than other public estimates by Western officials and adds to mounting concern about the advances in Iran's nuclear program.

U.S. Strikes Iranian-Backed Groups in Syria After Drone Attack Kills One American and Wounds Six

The U.S. carried out airstrikes against Iranian-backed militias in Syria on Thursday after a drone struck a base used by U.S. personnel in the northeast part of the country, the Pentagon said.

One U.S. contractor was killed in that drone attack, which U.S. intelligence officials said was carried out by an unmanned aerial vehicle made by Iran.

GLOBAL NEWS

First Republic, Regional Bank Stocks Rebound After Yellen Says Tools Could Be Used

Regional bank stocks were slightly higher early on Friday after Treasury Secretary Janet Yellen said the emergency actions used to contain the fallout from Silicon Valley Bank could be used again if needed.

The SPDR S&P Regional Banking exchange-traded fund (ticker: KRE) was up 0.3% in premarket trading Friday. Shares of First Republic Bank (FRC) and PacWest Bancorp (PACW), which have been in focus, climbed 1.2% and 2%, respectively. Western Alliance Bank (WAL) also advanced 2%.

The U.S. Is Scaring Off Foreign Investors. Where They're Going Instead.

Welcome to America the Uninvestible.

That seems like a strange thing to say about the go-to destination for investors around the world, offering the world's biggest companies, the most liquid markets, and rule of law to protect shareholder returns. Government interference, too, is supposed to be limited. The fact that U.S. stocks have outperformed the rest of the world over the past decade has certainly helped as well.

Companies Big and Small Lose Access to Credit Amid Bank Stress

The capital markets have been on ice since the collapse of Silicon Valley Bank two weeks ago.

No companies with investment-grade credit ratings sold new bonds over the seven business days from March 9 through March 17, the first week in March without a new high-grade bond sale since 2013, according to PitchBook LCD. The market for new junk-bond sales has largely stalled this month, and no companies have gone public on the New York Stock Exchange in more than two weeks.

Where to Put Your Money During a Banking Crisis

This year's market turmoil has sent nervous investors rushing to cash. But protecting your money isn't as simple as parking it in a mattress.

Despite recent strains in the banking sector, a bank account remains the simplest place to store cash. Balances up to $250,000 are protected by the Federal Deposit Insurance Corp., or FDIC, at any U.S. bank.

North Korea Threatens 'Radioactive Tsunami' With New Underwater Drone

SEOUL-North Korea said leader Kim Jong Un oversaw an attack simulation of an underwater drone capable of carrying nuclear warheads, threatening use of a new weapon that could target the vessels and ports of the U.S. and its allies.

The new drone detonated a mock nuclear payload underwater and cruised in figure-eight and oval-shaped patterns at a depth of around 260 to 490 feet for nearly 60 hours, North Korean state media said on Friday.

Chinese Authorities Raid Office of U.S. Investigations Firm Mintz Group

NEW YORK-Authorities this week raided the Beijing offices of Mintz Group, detaining all five of the New York-based due diligence firm's staff members in mainland China, the company said-an incident likely to unnerve global businesses operating in the country.

The move comes as the heads of multinational companies including Apple Inc. and Pfizer Inc. are due to arrive in Beijing to meet with top Chinese officials. This weekend's annual China Development Forum will be the first to be held fully in-person since the Covid-19 pandemic broke out, and is just weeks after Beijing installed a slate of new government leaders as it signals fresh efforts to boost foreign investment.

Do Kwon Arrested in Montenegro as U.S. Charges Crypto Fugitive With Fraud

The Justice Department charged South Korean crypto entrepreneur Do Kwon with fraud on Thursday as officials in Montenegro arrested the creator of the failed TerraUSD stablecoin.

In an indictment unsealed in a New York federal court, Mr. Kwon was charged with eight criminal counts of fraud and is accused of conspiring with an unnamed U.S.-based investment firm to use trading strategies to alter the price of the stablecoin in May 2021. That month, TerraUSD fell beneath its $1 peg but recovered, a rebound that Mr. Kwon later cited as evidence of its stability.

Grand Jury Won't Act in Trump Hush-Money Payment Investigation This Week

The Manhattan grand jury hearing evidence about former President Donald Trump's role in paying hush money to a porn star won't take action this week, people familiar with the matter said.

Grand jurors met Thursday, but to hear another matter unrelated to Mr. Trump, the people said. It is common for grand juries in New York to hear multiple cases at a time. Grand jury schedules can be unpredictable because panels juggle cases with competing demands and deadlines, former prosecutors said.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

March 24, 2023 07:00 ET (11:00 GMT)

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