Equity futures rose for the third day in a row - last week's brutal drubbing a distant memory - with tech outperforming as Tesla soars premarket after Elon Musk vowed to launch less-expensive vehicles as soon as late this year while Texas Instruments jumped 7% after it forecast revenue above the average analyst estimate. The tech rally has kept stocks afloat after disappointing earnings in the European banking and luxury sectors. Technology shares stood out in the US, with contracts on the Nasdaq 100 rising 0.6% compared with a 0.3% gain for S&P 500 futures. Bond yields are 1-3bps higher, helping to boost the USD. Commodities are lower though base metals are positive. The macro data focus is on Durable/Cap Goods with META headlining today’s earnings releases. Keep an eye on macro read throughs from F, HAS, NSC, ODFL, SYF, WHR earnings, among others.
In premarket trading, Tesla soared 12% with analysts saying first-quarter results were not as bad as feared. The electric-vehicle maker is accelerating the launch of less-expensive cars in a bid to revive cooling demand. TXN jumped 7.3% following earnings while META +2.1% (which reports after the close), NVDA +1.8%, with the balance of Mag7 are all higher. Copper mining giant FCX is also +1.5% pre-mkt, and may point to investors looking at the broadening AI trade again.
Overnight, the Senate passed a long-delayed $95 billion emergency aid package for Ukraine and other allies, clearing the way for resumed arms shipments to Kyiv within days. It also voted to ban TikTok’s ownership by Chinese parent Bytedance. Looking ahead, Meta Platforms is due to report after the bell.
After a strong performance by US tech giants on Tuesday, attention will be on Meta as the next of the so-called Magnificent Seven group of companies to report. International Business Machines Corp. and Boeing Co. are also due to release results.
“There are high hopes for big US tech,” said Alexandre Hezez, chief investment officer at Paris-based asset manager Group Richelieu. “Inflation and valuation levels don’t seem to be a concern at the moment.”
European stocks edged higher, with the Stoxx Europe 600 rising 0.2% as a surge in the shares of ASM International NV was offset by declines for Lloyds Banking Group Plc. Luxury names dropped as Kering SA tumbled after warning that profit will plunge on slowing sales at Gucci, its biggest brand. Here are the biggest movers Wednesday:
In FX, the Bloomberg Dollar Spot Index rose 0.1% while the Australian dollar tops the G-10 FX pile, rising 0.3% versus the greenback after inflation topped estimates. Elsewhere, the yen remained a whisker away from the key 155 level to the dollar, with a former top Japanese foreign exchange official warning the country is on the brink of currency intervention.
In rates, treasuries were cheaper across the curve amid bigger losses in bunds and gilts after German 10-year auction and strong business sentiment gauge. Selloff began during Asia session when Australia’s bond market slumped on hot inflation data, its 3-year yield jumping as much as 19bps. US yields are cheaper by 3bp to 4bp across the curve with 10-year around 4.64%. Bunds and gilts lag by additional 1.5bp and 2.5bp in the sector. Australia’s 10-year closed almost 14bp cheaper on the day, its 2-year more than 18bp. Treasury coupon auctions resume at 1pm New York time with $70b 5-year notes, following strong 2-year note sale Tuesday. WI 5-year yield at around 4.655% is ~42bp cheaper than last month’s, which stopped through by 1bp in a solid sale. The week's auction cycle concludes Thursday with $44b 7-year note sale
In commodities, oil prices decline, with WTI falling 0.5% to trade near $83. Spot gold falls 0.3%. Iron ore rises to a seven-week high.
Bitcoin was flat and sits just above USD 66k, whilst Ethereum posted incremental gains and above USD 3.2k.
Looking at today's calendar, US economic data slate includes March durable goods order at 8:30am. There are no speeches from Fed members who entered quiet period ahead of May 1 policy announcement.
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APAC stocks gained as the region took impetus from the rally on Wall St where soft PMI data spurred a dovish reaction across asset classes. ASX 200 was led by gold miners after several quarterly production updates but with the advances in the index capped by firmer-than-expected CPI data. Nikkei 225 outperformed its peers and rose above the 38,000 level amid tech strength. Hang Seng and Shanghai Comp. conformed to the broad upbeat sentiment seen across the region amid tech strength in Hong Kong as SenseTime shares surged over 30% following the unveiling of its latest AI model. However, gains in the mainland were capped after the US Senate passed the Ukraine, Israel and Taiwan aid package which includes the threat to ban TikTok in the US.
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European bourses, Stoxx 600 (+0.2%) are mostly firmer; price action today has been contained within tight ranges, although bourses remained at session highs throughout the morning. European sectors are mixed; Tech is the clear outperformer, following significant post-earnings strength in ASM International (+10.5%). Basic Resources benefits from broader strength in base metals prices. Banks are found towards the bottom of the pile, after Lloyds (-0.9%) reported softer NII metrics. US Equity Futures (ES +0.2%, NQ +0.6%, RTY -0.2%) are mixed, with clear outperformance in the NQ, whilst the RTY lags. The former benefits from Tech-led gains, after Texas Instruments (+7%) reported strong results. Additionally, Tesla (+10.5%) benefits pre-market, despite missing on top and bottom lines, as traders focus on plans for affordable models.
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DB's Jim Reid concludes the overnight wrap
A very big happy 50th birthday to DB's logo for tomorrow. It came into being on April 25th 1974. The slanting line within a box is at exactly 53 degrees which ahead of my own 50th in less than 2 months time is about the same angle as my back as I get out of bed every morning.
Markets went up at a similar angle yesterday, meaning that the S&P 500 (+1.20%) has now posted its strongest 2-day performance since February. Several factors helped to drive this, but perhaps the most important was actually the disappointing flash PMIs in the US, which added to hopes that rate cuts would still happen this year. That supported a rally in US Treasuries as well, with the 10yr yield (-0.9bps) falling back for a third consecutive day.
That rally yesterday was led by the M agnificent 7 (+1.96%), and after the close, we then received results from Tesla . These saw a headline miss on revenue ($21.3bn vs $22.3bn expected) and earnings estimates for Q1, with the company noting that “vehicle volume growth rate may be notably lower” in 2024 than in 2023. However, investors made a more upbeat take on the company’s strategy going forward, with a focus on “accelerating” the rollout of new cheaper models. This sent Tesla shares as much as +13% higher in after-market trading, so a sizeable degree of relief after the -42% decline the stock has seen so far this year up to the close (+1.80% yesterday). US equity futures are trading +0.36% higher for the S&P 500 and +0.72% for NASDAQ overnight on the back of this. I did a CoTD yesterday here showing that at its peak 2.5 years ago Tesla was worth the same amount as the next 12 largest global auto companies. It's still the largest but was "only" around $83bn larger than Toyota in second place at the close yesterday. So it's come back to the pack. It's been a heavily shorted stock of late so the rebound in after hours probably also has something to do with that.
Earnings season will continue apace today, as we’ll hear from Meta after the US close later. Before the Tesla results, the weakness in the US PMIs helped to set the tone, with Treasury yields seeing a sharp intraday decline after they came out. In terms of the details, the composite PMI was down to 50.9 in April (vs. 52.0 expected), which is the lowest in 4 months. And there wasn’t much relief from the subcomponents, as new orders were down to a 7-month low of 48.4, whilst the employment index fell to 48.0, which is its lowest since May 2020 at the height of the pandemic. In sectoral terms, services fell to a 5-month low of 50.9 (vs. 52.0 expected), and manufacturing was at a 4-month low of 49.9 (vs. 52.0 expected).
The release led investors to dial up their expectations for Fed rate cuts this year, and the chance of a cut by the July meeting moved up from 46% to 52% by the close. In turn, that sparked a rally for US Treasuries, with the 2yr yield down by -3.9bps on the day to 4.93%, having been as high as 4.998% at its intraday peak. 2yr yields had troughed shortly after a solid 2yr auction that saw $69bn of notes issued at 4.898%, -0.6bps below the pre-sale yield. Further out the curve, the 10yr yield (-0.9bps) fell back marginally to 4.60%, having been just shy of 4.65% before the US PMIs. With rates moving lower, the broad dollar index (-0.38%) saw its weakest day in nearly three weeks. This morning in Asia, yields on the 10yr USTs (+1.7bps) have edged back higher to 4.617% as we go to print.
The rates rally helped to spur a fresh advance for equities, with the S&P 500 closing up +1.20%. That was its best performance in two months, and it was aided by a strong performance for the Magnificent 7 (+1.96%). In addition, the advance was a broad-based one, and the small-cap Russell 2000 (+1.79%) had its best performance so far this month. Meanwhile in Europe, the STOXX 600 (+1.09%) also saw a sharp rise, and the UK’s FTSE 100 (+0.26%) edged up to a fresh record high.
Whilst European equities were advancing, and US rates rallying, it was a different story for European sovereign bonds, as the flash PMIs showed a further improvement in April. In particular, the Euro Area composite PMI hit an 11-month high of 51.4 (vs. 50.7 expected), and the services PMI was up to 52.9 (vs. 51.8 expected). The only notable weak spot was in manufacturing, where the Euro Area PMI hit a 4-month low of 45.6 (vs. 46.5 expected). And here in the UK, the composite PMI was up to 54.0 (vs. 52.6).
With that in mind, yields on 10yr bunds (+1.7bps), OATs (+1.6bps) and gilts (+3.6bps) all moved higher on the day. The move was particularly pronounced for gilts, as we also heard from BoE Chief Economist Pill, who struck a somewhat hawkish tone on the prospect of rate cuts. He said in a speech that “there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate”. Along with the upside surprise in the PMIs, that led investors to dial back the chances of a cut by the June meeting, which came down from 64% the previous day to 48% by the close. However, at the ECB, there was a continued convergence on the idea of a June cut with market pricing for June "only" down just a touch from 87% to 85% after the decent composite PMI. Bundesbank President Nagel, once of the more hawkish voices, said that “ If the favourable inflation outlook from March is confirmed in the June forecast and the incoming data supports this forecast, we can consider lowering interest rates.”
Shifting perceptions over risks in the Middle East led to a volatile day for oil prices. Brent crude fell from $87 to $86/bbl early on in the US session, but was up to $88.42 by the close (+1.63%) amid lingering uncertainty over new US sanctions against Iran as well as reports that American Petroleum Institute data showed a decline in US crude inventories last week. Easing geopolitical fears also saw gold fall to below $2300/oz intra-day for the first time in over two weeks, but it was virtually unchanged by the close (+0.02% to $2,330/oz).
In Asia markets are rallying hard this morning with the Nikkei (+2.07%) sharply higher and leading gains across the region with the KOSPI (+1.91%) and the Hang Seng (+1.53%) also climbing. China stocks are lagging with the Shanghai Composite (+0.31%) seeing softer gains.
Early morning data showed that Australia’s consumer price inflation slowed less than expected in the first quarter, advancing +3.6% (v/s +3.5% expected), slowing from the +4.1% annual pace in the previous quarter, thus frustrating hopes for any interest rate cuts for the next several months. The important trimmed mean, rose +1.0% in the first quarter, again above forecasts of a +0.8% gain. The annual pace slowed to 4%, from 4.2% but still too high for comfort for the RBA. Following the data release, the Aussie jumped +0.7% to $0.6530 versus the dollar before settling at $0.6517, while yields on the 2yr (+16.7bps) and 10yr government bonds (+11.5bps) moved higher to trade at 4.06% and 4.38% respectively.
Staying with data but wrapping up the rest of the US action from yesterday, we also had US new home sales for March. They hit an annualised rate of 693k (vs. 668k expected), which is their highest level in 6 months. Separately, the Richmond Fed’s manufacturing index rose to -7 in April (vs. -8 expected).
To the day ahead now, and data releases include the Ifo’s business climate indicator from Germany for April, and in the US there’s the preliminary reading of durable goods orders and core capital goods orders for March. From central banks, we’ll hear from the ECB’s de Cos, Nagel, Villeroy, Cipollone and Schnabel. Finally, today’s earnings releases include Meta, IBM, AT&T, Boeing and Ford.
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