US index futures bounced, with Nasdaq 100 contracts halting a three-day drop, as investor attention turned to the start of corporate earnings season, which BofA dubbed the "Last big beat for a while" amid concerns over high inflation and slowing growth. Contracts on the Nasdaq 100 were up 0.4% as of 630 a.m. in New York, signaling a pause in the rout that wiped $1.6 trillion from the market value of technology behemoths in just over a week. S&P 500 futures and Dow futures gained 0.4%, with Asian stocks also rising even as Europe’s Stoxx 600 Index dropped; the selloff in U.S. Treasuries also eased with the 10Y yield flat at 2.72% while the US Dollar resumed its advance and the yen fell to a 20-year low as the growing gap between rising U.S. bond yields and perpetually low ones in Japan continued to pressure the currency. Oil rose after Russia vowed to continue the war in Ukraine and China partially eased Covid curbs. Bitcoin continued to trade on either side of $40K.
A quick look around the world: U.K. inflation surged to a 30-year high, surging 7% above expectations of 6.7%, before the Bank of England’s next decision in May, while New Zealand’s central bank delivered a surprise 50bps rate hike (exp 25bps) its biggest interest-rate increase in 22 years. Meanwhile, markets continued to digest Tuesday’s U.S. inflation data which was viewed by many as a peak in CPI, which prompted traders to pare back expectations on how aggressively the Federal Reserve will raise interest rates. St. Louis Fed President James Bullard said U.S. monetary policy needs to be tightened to a point that it curtails economic growth or policy makers will end up risking their credibility (translation: he wants stocks 30% lower). He supports a half percentage point increase at the Fed’s policy meeting in May and says the rate should move up “sharply” after that.
On the geopolitical front, the presidents of Poland and the three Baltic states are heading to Kyiv in a show of support that follows the visits of other leaders to the Ukrainian capital, including from Boris Johnson and European Union chiefs. The Biden administration is preparing a new military assistance package for Ukraine. Here are some of the latest news out of Ukraine:
- Ukrainian President Zelensky proposed swapping pro-Russian politician Medvedchuk for Ukrainian prisoners of war, according to Reuters.
- Ukrainian Deputy PM says it is not possible to open humanitarian corridors on Wednesday; occupying forces have violated the ceasefire, via Reuters.
- Sweden's largest party Social Democrats favour applying to NATO at the June meeting in Spain, according to SvD.
- US President Biden said it will be up to lawyers to determine if Russia's actions in Ukraine qualify as genocide but added it seems like genocide to him and that the evidence is mounting, according to Reuters.
- US President Biden's administration is expected to announce at least USD 750mln in additional weapons for Ukraine and deliberations continue on a mix of weapons, which could evolve, according to Reuters.
- Ukrainian President Zelensky said it is not possible to draw 100% firm conclusions about whether Russia used chemical weapons in Mariupol and that it is not possible to conduct a full investigation in a besieged city, according to Reuters.
- Chechen leader Kadyrov said over 1,000 Ukrainian marines surrendered in Mariupol, according to Sputnik.
US equities have been roiled again this month by the double whammy of soaring bond yields and concerns around a looming global recession. After data on Tuesday showed a smaller-than-expected increase in core inflation last month, focus this week will be on quarterly earnings starting with the big banks, which generally offer a window on the economy since they touch on everything from mortgages to general consumer behavior.
“Despite the increased price pressure, analysts are still expecting profit margins of the S&P 500 to reach new all-time highs by the second quater, which seems optimistic in our view,” said Mathieu Racheter, head of equity strategy at Julius Baer. “We see a higher risks of negative earnings revision ahead, driven by the cyclicals sectors. We continue to recommend investors to remain defensively positioned within their equities allocation.”
Among notable pre-market moves in the US, Sierra Oncology shares jumped 37% to $54.30 after GlaxoSmithKline agreed to buy the maker of therapies for rare forms of cancer for $55/shares in cash, or about $1.9 billion. Genius Group shares, on the other hand, tumbled 29% after a whopping 408% gain on their first day of trading yesterday. JPMorgan was little changed ahead of its first-quarter results due later in the morning. Here are some of the biggest U.S. movers today:
- Antares Pharma (ATRS US) surges 48% in premarket trading after Dow Jones reported that Halozyme Therapeutics (HALO US) is close to buying the maker of needle-free systems for $5.60 per share in cash, citing people familiar with the matter.
- The departure of PayPal (PYPL US) finance chief John Rainey to become CFO at Walmart (WMT US) was less concerning to some analysts than the absence of a guidance update with the announcement. PayPal stock falls 1.5% in premarket, Walmart +0.5%.
- Hillman Solutions (HLMN US) fell 8.9% postmarket Tuesday after holders offered 10m shares.
Investors are now turning their attention to the earnings season, while awaiting the European Central Bank’s meeting on Thursday. Money managers are increasingly hedging the risk of stagflation, especially in Europe, amid concerns that high inflation and slowing growth will end up squeezing company profits.
“It appears that the market is swinging quickly to try and price ‘peak inflation,’” Jeffrey Halley, senior market analyst at Oanda, wrote in a note. “Naturally, ‘peak inflation’ should be a reason to pile back into equities. However, it just isn’t that simple. The environment for equities remains challenging.”
“We’re hopeful that this is where it’s going to peak,” Ann Miletti, head of active equity at Allspring Global Investments, said on Bloomberg Television, referring to U.S. inflation. But she added that markets continue to face a wall of worry, ranging from rising rates to the impact of China’s Covid lockdowns.
In Europe, the Stoxx 600 Index was down 0.4%, with travel and leisure sector leading declines as energy, miners and media are the strongest performing sectors. FTSE 100 outperforms, adding 0.3%; DAX lags, dropping 0.3%. LVMH erased early gains as it warned of a negative impact on demand because of lockdowns in China. Here are some of the biggest European movers today:
- Telecom Italia shares rise as much as 4.7% after a local press report that Apax and France’s Iliad are preparing a joint offer for its ConsumerCo business.
- Ted Baker shares rise as much as 5.7% after the high-street retailer said Sycamore will participate in formal sale process.
- Oxford Instruments gains as much as 9.4% after the firm said it expects its financial performance to be marginally ahead of expectations.
- Tesco shares slump as much as 7% after the U.K. grocer said profit may show little change or decline slightly this year amid the U.K.’s cost of living crisis. Analysts noted Tesco’s focus on providing customers with “compelling” value.
- Other U.K. grocery stocks including Ocado, Sainsbury and Marks & Spencer also fell
- Adidas shares declined as much as 4.1% after being downgraded to reduce from add and PT cut to Street-low EU190 at Baader Helvea based on rising headwinds and a “more cloudy” outlook for rest of the year.
- LVMH shares fall as much as 1.3%, reversing earlier gains, as worry over a Covid-19 resurgence in the key market of China remained at the forefront of investors mind even as the luxury conglomerate beat first-quarter expectations.
- Barry Callebaut shares fall as much as 5.4% amid worries the Swiss chocolate maker may be further affected by the war in Ukraine and its far- reaching consequences. The company said it’s taking an impairment for its financial assets in Russia.
Earlier in the session, Asian equities rose for the first time in three days as U.S. Treasury yields retreated from multi-year highs, easing concerns over potential damage to corporate earnings. The MSCI Asia Pacific Index climbed as much as 1.2%, rebounding from its lowest level since March 16. Tech hardware stocks drove gains after the 10-year Treasury yield slipped overnight following a smaller-than-expected jump in a key U.S. inflation gauge. TSMC was among the biggest contributors to gains in Asia ahead of its earnings release Thursday.
“A pause in the yield rally at the current level may provide a breather for the equities market in the coming days, as attention will be shifted to the upcoming earnings season to drive sentiment,” said Jun Rong Yeap, a strategist at IG Asia. Benchmarks in Taiwan, Japan and South Korea led gains around the region. New Zealand’s main index fell after an unexpectedly large 50-basis-point hike by its central bank --its biggest in 22 years. Chinese stocks declined as a top virus expert stressed the importance of the nation’s dynamic zero strategy and data showed Chinese imports unexpectedly fell. China’s Imports Drop, Export Growth Slows on Covid Lockdowns Amid news of looser quarantines in some Chinese cities, investors are keenly awaiting formal relaxation of Beijing’s strict virus policies as its growth slowdown weighs on the region. Meanwhile, soaring prices in the U.S. and parts of Europe have finally reached Asia, deepening concerns about rising input costs for businesses
Japanese equities gained, rebounding after two days of losses, following a smaller-than-expected rise in U.S. inflation and a drop in Treasury yields. Electronics and auto makers were the biggest boosts to the Topix, which rose 1.4%. Fast Retailing and Tokyo Electron were the biggest contributors to a 1.9% advance in the Nikkei 225. The yen extended losses against the dollar to a ninth day. The U.S. consumer price index increased 8.5% in March compared with a year earlier, less than economists expected. The 10-year Treasury yield slipped six basis points Tuesday following the inflation data. “Markets had been pricing in substantial negative impacts from higher U.S. interest and lockdowns in China, so stocks are rebounding somewhat today,” said Tomo Kinoshita, global market strategist at Invesco Asset Management. “There was a risk that if the U.S. CPI came in higher than market expectations that the Fed would turn more hawkish, but that didn’t happen.”
In FX, the Bloomberg dollar spot index is near flat. CHF and EUR are the strongest performers in G-10 FX, NZD and JPY underperform. Yen drops to a 20-year low against the U.S. dollar, trading now at 126.15.
In fixed income, bonds bounced ahead of Tuesday's new lows, but recovery remains weak rather than firm as Bunds hover above 155.00, Gilts just under 119.00 and T-note midway between 119-31/120-17 extremes. Lacklustre 10-year Bund auction in keeping with T-note sale last night, and with long bond supply still to come. Italy sees decent demand for multi-tranche offerings after recent heavier concession.
In commodities, crude futures advanced with Brent extending on its torrid Tuesday gains and rising 2% back over $106. The International Energy Agency halved its estimate for a decline in Russian crude oil output for April as the nation has been able to find new customers even with global restrictions and self-sanctioning by traditional buyers. But top oil trader Vitol Group said it intends to completely stop trading Russia-origin crude and products by the end of this year. Most base metals trade in the green; LME zinc rises 2.8%, outperforming peers. LME copper lags, dropping 0.1%. Spot gold rises roughly $9 to trade at $1,976/oz. Spot silver gains 1.2% to ~$26.
Looking at the day ahead now, data releases include US PPI for March, UK CPI for March and Italy’s industrial production for February. From central banks, we’ve got a policy decision from the Bank of Canada, as well as a speech from Bank of Japan Governor Kuroda. Finally, today’s earnings releases include JPMorgan Chase, BlackRock, Tesco and Delta Air Lines.
- S&P 500 futures up 0.6% to 4,418.25
- MXAP up 0.7% to 173.79
- MXAPJ up 0.7% to 577.71
- Nikkei up 1.9% to 26,843.49
- Topix up 1.4% to 1,890.06
- Hang Seng Index up 0.3% to 21,374.37
- Shanghai Composite down 0.8% to 3,186.82
- Sensex down 0.3% to 58,425.03
- Australia S&P/ASX 200 up 0.3% to 7,479.02
- Kospi up 1.9% to 2,716.49
- STOXX Europe 600 little changed at 456.72
- German 10Y yield little changed at 0.84%
- Euro little changed at $1.0832
- Brent Futures up 0.2% to $104.89/bbl
- Gold spot up 0.4% to $1,975.13
- U.S. Dollar Index little changed at 100.37
Top Overnight News from Bloomberg
- Federal Reserve Bank of St. Louis President James Bullard said U.S. monetary policy needs to be tightened to a point that it curtails economic growth or policy makers will end up risking their credibility
- The Biden administration is preparing a military assistance package of roughly $750 million for Ukraine in its battles against Russian invaders, people familiar with the matter said Tuesday night
- An immediate interruption in Russian energy supplies over the war in Ukraine could jeopardize 220 billion euros ($240 billion) of German output over the next two years, a report warned
- The yen’s drop to a two-decade low versus the dollar sets the tone in the options space, while overnight volatility in the euro rallies ahead of the ECB decision Thursday
- It’s the next big market call that could enrich traders across Wall Street: The raging global energy crisis and ever-more hawkish central banks knock key economies into 1970s- style stagflation
- French President Emmanuel Macron led his rival Marine Le Pen 53.2% to 46.8% ahead of the run-off presidential election set for April 24, according to a polling average calculated by Bloomberg on April 13. The gap between them has narrowed from the 8 percentage points recorded on April 11
A more detailed look at global markets courtesy of Newsquawk
Asia-Pac stocks mostly shrugged off the weak lead from the US and rebounded from a two-day losing streak. ASX 200 was kept afloat by the commodity-related sectors including energy after WTI crude futures climbed back above USD 100/bbl landmark and with Australia's government providing funding for domestic refiners. Nikkei 225 outperformed currency weakness and with the index unfazed by disappointing Machinery Orders. Hang Seng and Shanghai Comp lagged on COVID woes despite China testing an easing of quarantine rules in eight cities, as infections continued to spread with a fresh record of daily cases in Shanghai, while Sunac's missed coupon payment, further inclusions to the US HFCAA list and mixed trade data added to the cautious mood.
Top Asian News
- Yen Falls to 20-Year Low as Policy, Yield Divergence Continues
- Japan Finance Minister Says Sudden FX Moves Problematic: Kyodo
- SMBC Nikko Ex-Deputy President Indicted Over Block Offers
- China’s Exports to Russia Slump After Ukraine Invasion
European bourses are pressured across the board, Euro Stoxx 50 -0.7%, in what has been a somewhat choppy European morning with limited fresh macro drivers emerging. Sectors are similar to their initial cash open performance, as Energy and Basic Resources outperform while Travel, Retail and Personal Goods lag. US futures are firmer across the board, ES +0.3%, and while they have been directionally moving with Europe magnitudes are more limited; support following yesterday's CPI but ahead of PPI and JPM earnings. BlackRock Inc (BLK) Q1 2022 (USD): EPS 9.52 (exp. 8.95), Revenue 4.699bln (exp. 4.74bln). +0.3% in the premarket.
Top European News
- Deutsche Telekom Edges Closer to T-Mobile Control With New Stake
- U.K. Inflation Jumps More Than Expected to 30-Year High of 7%
- European Gas Rises With Lower Flows Via Ukraine, Norway Outages
- U.K. Homebuilders Commit $2.6 Billion for Fire Safety Repairs
- Kiwi knee jerks higher after bigger than generally expected 50 bp RBNZ hike before retreating abruptly on reflection of unchanged OCR outlook; NZD/USD sub-0.6800 vs peak just over big figure above.
- Yen flogged yet again as Japanese officials continue to fret about speed rather than size of moves and core machinery orders miss consensus; USD/JPY knocks down barriers at 126.00 to reach 126.31 and breach 2015 peak.
- DXY extends advance above 100.000 before waning ahead of May 2020 peak just over 100.500.
- Aussie retains 0.7400+ status vs Greenback before jobs data, but with assistance from sharp reversal in AUD /NZD cross flows - from circa 1.0833 to 1.0950.
- Euro keeps its head above 2022 low against Dollar, narrowly, and Pound rebounds after minor boost from strong UK inflation prints, EUR/USD down to 1.0811 or so vs 1.0806, Cable revisits 1.3000 vs 1.2972 at worst.
- Loonie immersed in technical levels awaiting BoC and guidance to accompany a widely forecast half point rate rise; USD/CAD near 1.2650 and flanked by 200, 100 and 50 DMAs.
- Bonds bounce ahead of Tuesday's new lows, but recovery remains feline rather than firm as Bunds hover above 155.00, Gilts just under 119.00 and T-note midway between 119-31/120-17 extremes.
- Lacklustre 10-year Bund auction in keeping with T-note sale last night, and with long bond supply still to come. Italy sees decent demand for multi-tranche offerings after recent heavier concession.
- WTI and are firmer in a continuation of the consolidation from the upside seen in yesterday's session amid Brent geopolitical tensions.
- Most recently, the benchmarks have eclipsed a circa. USD 2/bbl range that had been holding throughout the morning; current bests, USD 102.13/bbl and USD 106.45/bbl respectively.
- US Private Energy Inventory Data (bbls): Crude +7.8mln (exp. +0.9mln), Cushing +0.4mln, Gasoline -5.1mln (exp. -0.4mln), Distillate -5.0mln (exp. -0.5mln).
- IEA OMR: Lowers 2022 global oil demand estimate by 260k BPD on COVID in China and lower OECD demand.
- February global stocks 714mln/bbl below the end-2020 level, OECD accounts for 70% of the decline. Russian oil supply is expected to fall by 1.5mln BPD in April and by around 3mln BPD from May.
- CNOOC (883 HK) is said to be considering exiting operations in Britain, US and Canada amid tensions with the West, according to Reuters sources.
- Spot gold and are bid this morning, though the yellow metal is still shy of yesterday's USD 1978.21/oz silver peak.
- LME Zinc outperforms piggybacking the performance of its Shanghai peer overnight
US Event Calendar
- 07:00: April MBA Mortgage Applications, prior -6.3%
- 08:30: March PPI Final Demand YoY, est. 10.6%, prior 10.0%; 08:30: PPI Final Demand MoM, est. 1.1%, prior 0.8%
- 08:30: March PPI Ex Food and Energy YoY, est. 8.4%, prior 8.4%; MoM, est. 0.5%, prior 0.2%
- 08:30: March PPI Ex Food, Energy, Trade YoY, est. 6.5%, prior 6.6%; MoM, est. 0.5%, prior 0.2%
DB's Henry Allen concludes the overnight wrap
After a succession of major bond selloffs this month, yesterday marked the first time so far in April that US Treasuries put in a positive performance. Given the US CPI report showed inflation hitting its highest rate since 1981 in March, with a year-on-year rate of +8.5%, that might seem counter-intuitive. But the monthly print of +1.2% was already expected by the consensus, even if it was the strongest since September 2005, whilst there was also a downside surprise in core inflation, which came in at +0.3% over the month (vs. +0.5% expected). In turn, that saw investors take out some of the expected monetary tightening they’d been pricing over the rest of the year, with the futures-implied policy rate by December’s meeting down by -10bps relative to the previous day.
Looking at some of the details, higher gasoline prices were responsible for more than half of the headline monthly increase in CPI, having gone up by +18.3% in March. That’s their biggest monthly increase since June 2009, and follows the major spike in oil prices following Russia’s invasion of Ukraine. On the other hand, used cars and trucks came down -3.8% over the month, which is their largest monthly decline since May 1969. In terms of housing inflation, rent of primary residence fell back to +0.43% (vs. +0.57% in Feb), though owners’ equivalent rent came in at +0.43%, in line with the narrow band of +0.41-0.45% in which it’s been rising since September.
Against that backdrop, yields on 10yr Treasuries came down -5.9bps to 2.721%, marking their first daily decline so far this month, with trademark intraday volatility, as 10yrs were as much as +5.3bps higher in early morning trading, before trading -10.8bps lower during the New York lunch hour. 2yr yields had a larger on net decline (-9.2bps) that saw the 2s10s curve steepen up to 31.2bps, which is the steepest its been since the March FOMC meeting when the Fed embarked on their new hiking cycle. And although the total number of hikes priced for the year as a whole came down somewhat, the odds of a 50bp move at the next meeting in May actually ticked up to 93.5%, the highest to date. Overnight though, the 10yr yield has pared back some of its declines yesterday, moving up +2.3bps to 2.744%.
While the CPI release may have triggered a bond rally, Fed communications remained just as hawkish, and yesterday we heard more from Governor Brainard, who is awaiting confirmation to her new post as Vice Chair. She expressed a preference to get the policy rate to neutral by the end of this year, echoing similar comments from Fed officials earlier in the week. She still thinks the Fed has room to engineer a soft landing and sustain the current economic expansion due to the historic strength of the labour market. Separately, in an interview released overnight with the FT, St Louis Fed President Bullard (who voted for a 50bps hike in March) said that it was a “fantasy” that the Fed could bring inflation down without going above neutral.
Even as investors priced in a slightly shallower pace of Fed rate hikes over the coming year, US equities still managed to rollover after trading in the green for most of the day, with the S&P 500 down -0.34%. Financials (-1.07%) led the way lower with the decline in yields ahead of financials earnings kicking off today, while energy (+1.72%) was the clear outperformer on rebounding crude prices. Small-cap stocks put in a decent performance, with the Russell 2000 (+0.33%) ending a run of 5 consecutive declines. European equities also traded lower as well, with the STOXX 600 down -0.35%, along with other indices including the DAX (-0.48%), the CAC 40 (-0.28%) and the FTSE 100 (-0.55%).
Turning to commodities, oil prices moved sharply higher yesterday, with Brent Crude (+6.26%) closing above $104/bbl for the first time in over a week. That came as Russian President Putin said that talk with Ukraine were “at a dead end”, and other haven assets including gold (+0.68%) also moved higher on the day. Over in the US meanwhile, President Biden accused Russia of “genocide”, standing by his comments and saying that “it has become clearer and clearer that Putin is just trying to wipe out the idea of being able to be Ukrainian”.
Those further gains in oil prices meant that European inflation expectations rose to fresh highs, with the 10yr German breakeven up to 2.90%, its highest level yet in data going back to 2009, whilst the 10yr Italian breakeven rose to 2.69%, a level not seen since 2008. Importantly, measures of long-run inflation expectations, ostensibly beyond the influence of the current shock, have increased as well, with the 5y5y forward inflation swap for the Euro Area rising to +1.6bps to 2.38% yesterday, marking its highest level since 2013.
In spite of those rises in European inflation expectations, sovereign bond yields in Europe moved lower along with US Treasuries, paring back an initial rise that saw the 10yr bund yield move to its highest intraday level since 2015, at 0.87%. By the close of day however, yields on 10yr bunds (-2.6bps), OATs (-1.9bps) and BTPs (-5.7bps) had all moved lower.
Overnight in Asia, equity markets have bucked the trend seen in the US and Europe, with the Nikkei (+1.60%), the Kospi (+1.40%) and the Hang Seng (+0.29%) all moving higher. However, the Shanghai Composite (-0.44%) and CSI (-0.51%) are both lagging as the Covid-19 outbreak in China continues to weigh on investor sentiment. Looking forward, stock futures in the US are pointing to a decent start today, with contracts on the S&P 500 (+0.51%) and Nasdaq 100 (+0.69%) both higher. On the monetary policy front, we also heard from the Reserve Bank of New Zealand overnight, who hiked their official cash rate by +50bps to 1.50% as they seeks to tame inflation. This is the fourth consecutive interest rate hike by the central bank and its biggest hike since 2000.
Turning to the French election, we’re now just 11 days away from the second round between President Macron and Marine Le Pen, and the polls continued to point to a fairly tight race, albeit with Macron in the lead. In terms of yesterday’s polls, Macron was ahead by 54-46 in Opinionway (down from 55-45 the previous day), whilst Ifop’s 52.5-47.5 margin was unchanged from the previous day. French assets performed basically in line with their European counterparts yesterday, with the spread of French 10yr yields over bunds moving up by just +0.6bps to 50.8bps.
Running through yesterday’s other data, the UK employment report was somewhat softer than expected, with payrolled employees up by just +35k in March (vs. +125k expected). Nevertheless, the unemployment rate did fall back to the pre-pandemic low of 3.8% in the three months to February, in line with expectations. Elsewhere, Germany’s ZEW survey saw further declines in April, with the current situation reading down to an 11-month low of -30.8 (vs. -35.0 expected), and the expectations component fell to a 2-year low of -41.0 (vs. -48.5 expected), even if both were somewhat better than expected. Finally in the US, the NFIB’s small business optimism index fell to a 2-year low of 93.2 in March (vs. 95.0 expected).
To the day ahead now, and data releases include US PPI for March, UK CPI for March and Italy’s industrial production for February. From central banks, we’ve got a policy decision from the Bank of Canada, as well as a speech from Bank of Japan Governor Kuroda. Finally, today’s earnings releases include JPMorgan Chase, BlackRock, Tesco and Delta Air Lines.