US equity futures and European markets are higher, reversing several days of losses after positive earnings from some of Europe’s biggest companies lifted the mood as markets were roiled by a more hawkish outlook for interest rates. Futures on the S&P 500 rose by 0.4% reversing three days of losses that saw the S&P drop by 2.9% to close Tuesday near a two-month low. Nasdaq 100 contracts edged higher, while consumer products and services led an advance of 0.7% in the Stoxx Europe 600. Treasury yields retreated from a 2024 peak helping small-caps outperform pre-market, and a gauge of the dollar snapped five days of gains that took it to a five-month high after Powell said it would likely take longer to have confidence that inflation is headed toward the central bank’s target. Commodities are mixed with metals stronger and oil weaker even as tensions in the Middle East persisted, while Israel weighs a response to Iran’s weekend attack. Macro data is light today with Beige Book, TIC (keep an eye on CB sales), and mortgage apps (which rose 3.3% after rising 0.1% last week).
In premarket trading, all seven Mag7 names are higher; semis are seeing some weakness following ASML’s earnings release (misses on orders/revs and beat on EPS; stock -4%). United Airlines shares rose 5.4% after the carrier’s second-quarter adjusted earnings per share forecast beat consensus estimates. Additionally, the company reported first-quarter operating revenue that came ahead of expectations. Here are some other notable movers:
Stocks have come under pressure this week as traders recalibrated bets on the timing and extent of Federal Reserve interest rate cuts. Corporate earnings will now have to do the heavy lifting for any rally, according to strategist at Barclays Plc and Bank Julius Baer who recommend buying the dips in anticipation of an economic recovery that could boost profits.
“We would actually advise to use such an opportunity to gradually increase exposure to cyclicals in the anticipation of the new economic cycle starting to unfold in second half of this year,” said Leonardo Pellandini, equity strategist at Bank Julius Baer. He likes shares of companies tied to the business cycle, those poised to gain from growth and inflation.
With earnings season about to go into high gear as tech giants report next week, market-implied expectations for Fed rate cuts have collapsed as tensions in the Mideast fan inflation expectations and a resilient US economy defies calls for easier policy. After starting the year by pricing in as many as six rate cuts, traders are now betting on two or less. Fed Chair Jerome Powell said Tuesday it would likely take longer to have confidence that inflation is headed toward the central bank’s target.
Meanwhile, tensions in the Middle East continue to simmer. Israel is weighing a response to what was the first attack on the Jewish state from Iranian soil. Saudi Arabia and the United Arab Emirates called for maximum “self-restraint” to spare the region “from the dangers of war and its dire consequences,” in an unusually frank joint statement Wednesday.
European stocks rose: the Stoxx 600 is up 0.5%, led by consumer product shares after reassuring updates from LVMH and Adidas. Technology stocks underperform as ASML falls 4% after new orders fell short of expectations. Among individual movers, Sportswear maker Adidas AG climbed more than 6% after raising its revenue and profit outlook, while LVMH led luxury stocks higher on the back of reassuring results. Rio Tinto Plc rose after saying elevated steel exports by China will continue support demand for the raw material. Volvo AB gained after the Swedish truckmaker reported resilient margins. ASML Holding NV plunged more than 6% after missing estimates for first-quarter orders. Just Eat Takeaway.com NV shares slumped after the company said orders slipped in the first quarter, signaling continued weak demand for food deliveries.
Earlier in the session, Asia’s lagging stock benchmark briefly erased its gain for the year, as worries about higher-for-longer interest rates and geopolitical tensions triggered losses across the region. The MSCI Asia Pacific Index fell as much as 0.4% Wednesday before paring losses, with consumer discretionary and industrials among the biggest drags. The measure was hovering around 169.39, the closing level reached on the last trading day of 2023, after Federal Reserve Chair Jerome Powell signaled policymakers will wait longer than previously anticipated to cut interest rates.
Hong Kong stocks were little changed while mainland China gauges sharply rebounded from Tuesday’s losses that were driven by mixed economic data. Chinese small-caps rose, paring this week’s selloff, as the nation’s top securities regulator sought to ease concern over the potential delisting of firms with weak financial health. Overseas investors have sold more than $2.2 billion worth of equities on a net basis in emerging Asia excluding China in April, according to latest data compiled by Bloomberg. The bulk of the selling happened this week. Other bleak milestones are flashing across the region as the 10-day historical volatility on the MSCI index spikes. The Australian stock benchmark briefly erased its 2024 gains on Tuesday while South Korea’s small-cap gauge remains on the verge of entering a technical correction.
In FX, the Bloomberg Dollar Spot Index fell for the first time in six sessions while European stocks gain after positive earnings from some of the region’s biggest companies. The pound rises 0.4% after UK consumer prices slowed less than expected in March. Only the kiwi is having a better day among the G-10’s, rising 0.5% versus the greenback after data showed home-grown price pressures remained persistent.
In rates, treasury yields are lower by up to 3bp across belly of the curve with 5s30s spread steeper by 2.5bp on the day; 10-year yields trade around 4.645% down by 3bps from the 2024 highs hit yesterday...
... outperforming bunds and gilts by ~2bp, with front-end and belly leading, re-steepening 5s30s spread back toward middle of Tuesday’s range. Core European rates lag, led by front-end gilts after March UK inflation data showed less slowing than expected. US session includes 20-year bond auction but no major economic releases or Fed speakers. Treasury coupon sales resume at 1pm New York time with $13b 20-year bond reopening; a $23b 5-year TIPS new issue sale is ahead Thursday. WI 20-year yield ~4.875% is roughly 33bp cheaper than last month’s, which got a strong reception and stopped 2bp through.
In commodities, European natural gas edged higher for a fifth day. Oil dipped, with Brent crude falling below $90 a barrel and WTI falling 0.7% to trade near $84.70 a barrel as traders wait to see how Israel would respond to Iran’s weekend attack. Spot gold rose 0.4% to around $2,393/oz.
In crypto, Bitcoin is modestly firmer and back above USD 63.5k, Ethereum narrowly holds above USD 3k.
Looking to the day ahead now, and there are plenty of central bank speakers, including ECB President Lagarde, the ECB’s Cipollone, de Cos and Schnabel, BoE Governor Bailey, and the BoE’s Greene and Haskel, along with the Fed’s Mester and Bowman. In addition, the Fed will be releasing their Beige Book. Otherwise, data releases include the UK CPI print for March. Finally in the political sphere, EU leaders will be meeting in Brussels.
Market Snapshot
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Earnings
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed as the region picked up the pieces from the prior day's heavy selling but with the recovery limited after the choppy performance stateside amid Fed commentary and geopolitical concerns. ASX 200 eked mild gains albeit with upside capped by a lacklustre mining sector after Rio Tinto's quarterly production update which showed a decline in iron output and shipments from a year ago. Nikkei 225 was choppy after somewhat mixed trade data and recent speculation of FX intervention. Hang Seng and Shanghai Comp. were varied with the mainland underpinned by supportive measures with China's Financial Regulator vowing to allocate more credit resources to support manufacturing industry development and will continuously increase the proportion of medium to long-term loans for the sector, while financial institutions in Shanghai are to provide CNY 2tln in funding to support innovative technology companies over the next three years under an initiative backed by the PBoC.
Top Asian News
European bourses, Stoxx600 (+0.4%) are mostly firmer, with the exception of the AEX (-0.2%), hampered by poor ASML (-3.5%) results. Luxury name LVMH (+2.5%) leads the CAC 40 (+1%) higher. Sectors hold a positive tilt; Basic Resources tops the pile, benefiting from broader strength in underlying metals prices, namely iron. Consumer Products is lifted by Luxury bellwether LVMH, as well as post-earnings strength in Adidas (+8.1%). Tech is found at the foot of the pile after the poor ASML metrics. US Equity Futures (ES +0.3%, NQ +0.3%, RTY +0.3%) are modestly firmer and are trading towards session highs. UAL (+4.9%) benefits post-earnings, after reporting solid metrics and noting that demand remained strong.
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FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Other
US Event Calendar
Central Bank Events
DB's Jim Reid concludes the overnight wrap
Markets have stabilised a bit this morning after losing further ground yesterday, as investors continued to be increasingly sceptical about the chance of rate cuts, especially in the US. That was driven by some hawkish remarks from central bank officials, but risk appetite was also dampened by ongoing fears about a military escalation in the Middle East. That meant it was a pretty tough backdrop for most assets, and the selloff saw yields on 10yr Treasuries (+6.5bps) reach a fresh 5-month high of 4.67%. The S&P 500 (-0.21%) lost ground for a third day running even if futures are up by around the same amount this morning. Meanwhile in Europe, the losses were even bigger, and the STOXX 600 (-1.53%) had its worst performance in 9 months.
Yesterday's losses gathered pace as the day went on, but a key catalyst were remarks from Fed Vice Chair Jefferson. He said that “ if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer. I am fully committed to getting inflation back to 2 percent.” So an explicit acknowledgement that further upside inflation surprises would lead to a longer period of restrictive policy. Later in the day, Fed Chair Powell echoed the risks of a greater delay to rate cuts, saying that the “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence” in the path of inflation and noting that the Fed can keep rates steady “as long as needed”.
Those remarks saw investors price increased chances of higher-for-longer rates, with Fed funds futures now pricing only 40bps of cuts by year-end, the lowest this has been so far in this cycle. 2yr Treasury yields briefly passed 5% intra-day around the time of Powell’s comments, before closing +6.6bps higher on the day at 4.99%. And 10yr yields hit their highest level since early November (+6.5bps to 4.67%). Real rates drove the increase, with 10yr real yields up +8.0bps to 2.25%, but there were also rising market concerns about inflation. For instance, the US 2yr inflation swap (+2.2bps) reached a fresh one-year high of 2.68%, its highest level since the SVB turmoil back in March 2023.
Over in Europe, yesterday also brought some new comments from ECB President Lagarde. She confirmed that the ECB were moving closer towards a rate cut, saying that “If we don’t have a major shock in developments, we are heading towards a moment where we have to moderate the restrictive monetary policy that we have”. But even so, it was clear that the potential for a more hawkish Fed was having an impact on their thoughts, and Lagarde said that the ECB needed to pay attention to changes in exchange rates. Moreover, investors slightly dialled back the chance of a June cut, which fell from 90% the previous day to 87% by the close. Sovereign bonds sold off across the continent, with yields on 10yr bunds (+4.7bps), OATs (+5.3bps) and BTPs (+6.5bps) all experiencing fresh losses. For 10yr bunds, that left them at 2.48%, their highest level since November as well. On Monday DB changed their ECB rate profile from five cuts this year to three, even if the terminal rate remains at 2%, albeit pushed back three quarters to Q1 2026. See the note with the rationale here.
For Europe, a recent complication has been the path of natural gas prices, and yesterday saw futures rise another +6.53% to €33.45/MWh, well off the recent lows of €25.80/MWh on April 3. That’s been driven by growing geopolitical risk, and the move has left prices at their highest levels since early January. In the meantime, oil prices saw some stabilisation, with Brent Crude down a marginal -0.09% to $90.02 yesterday, and trading slightly lower at $89.50/bbl as I type.
For equities, there was growing concern about the prospect of rates staying higher, leading to a fresh selloff on both sides of the Atlantic. In Europe the selloff was particularly sharp, driven by growing concern about energy prices, as well as a catchup to the late US selloff the previous day. Indeed, both the STOXX 600 (-1.53%) and the FTSE 100 (-1.82%) experienced their worst daily performance since July, back when yields were breaching post-GFC highs. In the US, there was a much better performance, and the S&P 500 only fell -0.21%, which was pretty stable after its heavy declines in the previous two sessions. But this was still a rather broad decline, with the equal-weighted version of the S&P 500 down -0.54%. Banks (-1.82%) underperformed within the S&P 500, with Bank of America falling -3.53% after reporting higher charge-offs (despite a slight earnings beat). The NASDAQ (-0.12%) and the Magnificent 7 (-0.32%) saw modest declines.
The negative sentiment also saw US high yield spreads (+6.0bps) widen for the fourth session in a row, the longest such run since January. By contrast, safe haven assets again benefitted, with gold up +1.71% to yet another record high of $2,398/oz while the broad dollar index (+0.05%) eked out another 5-month high.
Markets are stabilising in Asia with small catch-up declines but no additional falls. In fact Chinese stocks are rising on positive regulatory news. The small cap CSI 2000 is up +5.49% after the stock market regulator suggested only around 100 small caps would be delisted on tighter rules that would eliminate those in poor financial health. The number had been expected to be far higher but the regulator has said it will be confined to pure zombie companies. The Shanghai Composite (+1.24%) and the CSI (+0.79%) are rising in sympathy.
Elsewhere the KOSPI (-0.30%), Nikkei (-0.17%) and the Hang Seng (-0.13%) are lower but there is more calm than earlier in the week. The S&P/ASX 200 (+0.19%) is higher.
Early morning data showed that Japan’s exports grew +7.3% y/y in March (v/s +7.0% expected), up from +7.8% increase in the previous month as the slump in the yen provided a tailwind alongside demand in China picking up. Imports fell -4.9% y/y in March, compared with Bloomberg's estimate of a -5.1% decline as against a +0.5% gain in February. The total merchandise trade surplus stood in line with analysts' projections in March, coming in at ¥366.5 billion (v/s ¥345.5 billion) as against a revised -¥377.8 billion deficit recorded in February.
Here in the UK, the focus will now be on this morning’s CPI release for March, which is coming out shortly after we go to press. But yesterday we also heard from BoE Governor Bailey, who struck a relatively sanguine tone, noting “strong evidence” of price pressures easing in the UK. Bailey’s remarks came after the European close, where yields on 10yr gilts (+5.8bps) had already hit a 5-month high in the session. At the same time, investors continued to discount the chance of BoE rate cuts this year, with just 43bps now priced by the December meeting, down -9.3bps from the previous day. This came after yesterday’s stronger-than-expected February wage data, which saw regular average weekly earnings growing at +6.0% on a 3-month year-on-year basis (vs. +5.8% expected).
Whilst bonds were selling off globally, the one exception to that pattern came in Canada, where the latest inflation data surprised on the downside. It showed median core CPI fall to +2.8% (vs. +3.0% expected), trim core CPI fall to +3.1% (vs. +3.2% expected), whilst headline was in line with expectations at +2.9%. In turn, investors ratcheted up the chance of a rate cut at the Bank of Canada’s next meeting to 71%, up from 60% the previous day. And yields on 10yr government bonds were down -1.0bps, in contrast to the moves elsewhere.
In terms of yesterday’s other data, US industrial production was in line with expectations, showing +0.4% growth in March. But that came alongside an upward revision of three-tenths to the previous month’s growth. However, housing starts fell to an annualised rate of 1.321m in March (vs. 1.485m expected), the lowest in seven months. Similarly, building permits were down to an annualised rate of 1.458m (vs. 1.510m expected), the lowest in eight months. With all those releases, the Atlanta Fed’s GDPNow model for Q1 is pointing to an annualised growth rate of 2.9%, up a tenth relative to the previous day.
Finally, the IMF released their latest World Economic Outlook yesterday, including growth forecasts for the global economy. They upgraded their global growth forecast for 2024 by a tenth relative to January, and now see growth of +3.2% this year. In particular, there were upgrades for the United States, which moved up six-tenths to +2.7%, although the Euro Area was downgraded a tenth to +0.8%. For 2025, they left their global growth forecast unchanged at +3.2%.
To the day ahead now, and there are plenty of central bank speakers, including ECB President Lagarde, the ECB’s Cipollone, de Cos and Schnabel, BoE Governor Bailey, and the BoE’s Greene and Haskel, along with the Fed’s Mester and Bowman. In addition, the Fed will be releasing their Beige Book. Otherwise, data releases include the UK CPI print for March. Finally in the political sphere, EU leaders will be meeting in Brussels.
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