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Main U.S. indexes decline: S&P 500 down ~1.5%
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All S&P 500 sectors red: energy weakest group
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KBW regional banking index slides ~6%
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Euro STOXX 600 index declines ~1%
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Dollar edges down; crude off >4%; gold, bitcoin gain
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U.S. 10-Year Treasury yield tumbles to ~3.45%
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BLACK SEA GRAIN DEAL AND WHAT'S AT STAKE (1040 EDT/1440 GMT)
Talks on a U.N-brokered deal that allows the safe Black Sea export of Ukrainian grain are scheduled for Wednesday, with all sides in the negotiations involved, said a senior Ukrainian source.
Ukraine, one of the world’s largest grain exporters, used to supply around 45 million tonnes of grain to the global market every year before the Russian invasion last year.
A drop in Ukrainian shipments was one of the major catalysts for the global food price crisis last year, with poorer emerging markets that are among the largest global importers of wheat bearing the brunt and still reeling from its impact.
For instance, Egypt a major importer of basic commodities such as wheat and vegetable oil has suffered a foreign currency crunch that pushed its pound down by nearly 50% against the dollar, suppressed imports and pushed official headline inflation to 32.7% in March, just shy of an all-time record.
Since the July deal, global food prices have fallen and were down 20.5% in March from a record high hit one year ago.
"An end to this deal obviously risks a new price spike, once any excess inventory depletes," said Hasnain Malik, head of equity research at Tellimer Research.
"This implies inflation, current account balance, and, where there are subsidies, fiscal deficit risks in the poorer emerging markets that are among the largest global importers of wheat, eg Bangladesh, Egypt, Indonesia, Morocco, Philippines, and Vietnam."
However, Russia has repeatedly signaled there will be no extension after May 18 unless the West removes obstacles to the export of Russian grain and fertilizers, including the reconnection of Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payment system.
"The US and EU are very unlikely to yield on those sanctions," added Malik.
"The Black Sea deal has always been fragile and its collapse would increase expectation of a ramp up in hostilities on the battlefield this spring."
WALL STREET SLIPS AS THE FED'S POLICY DECISION LOOMS (0958 EDT/1358 GMT)
Wall Street is trading lower early on Tuesday as investors await one more day to see whether the Federal Reserve pauses its monetary tightening or keeps the door open for further rate hikes to brake worrisome wage growth and other signs of inflation.
Heath care/Industrials are leading the 11 S&P 500 sectors higher, while energy is the biggest decliner.
Semiconductors are up as the Dow Transports and small caps are lower. Growth is declining less than value.
A 25-basis-point increase in the federal funds rate is expected when a two-day policy meeting ends on Wednesday, while chances of a quarter-point hike on June 14 rose to 32.1% from 27.7% on Monday, according to CME Group's FedWatch Tool.
While there is likely to be a further reduction in forward guidance from the Fed on Wednesday, the statement and comment from Chair Jerome Powell should keep open the possibility of further hikes, Macquarie economists in Canada said.
Further labor market deterioration is likely, "but based on current data this is not yet a foregone conclusion. This dynamic contributes to the argument that the FOMC is likely to keep its subsequent policy options open," economists David Doyle and Neil Shankar said in a note prepared for sales and trading personnel.
Incoming data will continue to deteriorate with the U.S. economy entering a recession in 3Q23, the pair said. "This informs our view that this week's rate hike is likely to be the final one for the cycle," they said.
The following is a snapshot of market prices in early trading:
(Herbert Lash)
THE CASE FOR AN ITALIAN LUXURY CHAMPION (0923 EDT/1323 GMT)
In luxury, big is better. Take LVMH which has seen its market cap rise seven fold over the last decade to become Europe's biggest company by market value.
But it's not only LVMH, or just a matter of market cap.
"Over the past ten years, luxury conglomerates have outperformed their mono-brand competitors on most metrics: taken together, LVMH, Richemont and Kering revenues grew twice as fast, margins expanded 10ppt more, and share prices outperformed by >200%," BofA Global Research says.
So, based on that, the U.S. bank is floating the idea of an Italian luxury champion reaping the benefits of larger scale, whereas now mono-brands are the rule.
"Overall, we think organic growth will, and should, remain the priority for these Italian groups. However, given the very strong brand momentum and financial performance some Italian groups currently experience, and the clear advantages multi-brand groups come with, inorganic growth and combinations could now be considered again," write BofA analysts.
"It is also interesting to note that several family-owned Italian luxury groups are in a management transition phase, with a new generation of the family taking more important responsibilities - which could lead to changes in growth strategy and cooperation," they add.
The market cap of LVMH, Kering and Richemont combined is up over 250% since 2014, while the Italian names - Prada, Moncler, Cucinelli and Ferragamo - have grown less than 50%, per BofA.
(Danilo Masoni)
NASDAQ COMPOSITE: ONE TOUGH CEILING (0900 EDT/1300 GMT)
Like the S&P 500 index, the Nasdaq Composite is bumping up against levels that have proven to be especially strong resistance:
In September of last year, the Composite put in a high at 12,270.189. After hitting new lows later in the year, the IXIC then rallied into an early February 2023 high at 12,269.555.
Thus, the Composite stalled less than one point from its September high, before then suffering another sharp setback into mid-March.
A subsequent recovery continues to be capped by the September 2022 high.
Over the past five weeks or so, strength has continued to peter out on an approach of the September ceiling. The weekly highs have been 12,228, 12,225, 12,206, 12,245, and 12,228. On Monday, the Composite's high was at 12,261.318 before it settled back to end at 12,212.598.
Given that this week will bring the results of a critical FOMC meeting, Apple's quarterly results and the latest non-farm payroll report, traders will be focused on whether the Composite can break through the ceiling, potentially clearing the way for further gains, or if it will once again fail, putting the index at risk for another downdraft.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
