Futures Slide As Small Bank Selling Returns

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by Tyler Durden
Tuesday, May 09, 2023 - 12:33 PM

US index futures retreated as the short squeeze that lifted distressed regional banks fizzled and went into reverse, dragging names such as PacWest as much as 20% lower in premarket trading, while the latest Chinese macro data spooked investors after imports dropped much more than expected; lastly investors braced for key US CPI data due tomorrow. Both S&P 500 and Nasdaq 100 contracts slipped 0.4% on Tuesday as of 8:00 a.m. ET.  Meanwhile, the dollar is edging higher, set for a second day of muted gains. Oil prices have lost the momentum of the past two sessions, falling back in today’s trading. Gold is set for its third day of gains. Iron ore dropped in the wake of data that showed China’s imports of the steel-making ingredient fell to a 10-month low in April. Copper also slides.

In premarket trading, PacWest shares tumbled as much as 16% in premarket trading Tuesday, set to decline after two days of gains, while other US regional banks were also lower. Lucid Group fell 9.1% in premarket trading after the EV maker’s revenue and expected production disappointed investors. PayPal dropped 4.3% after the payment company warned that its adjusted operating margin won’t grow as quickly as it had anticipated earlier. By contrast, Palantir jumped 19% in premarket after the software firm published a surprise profit and a strong forecast, as well as reporting solid demand for its upcoming artificial intelligence tool. Some other notable premarket movers:

  • Skyworks shares fall 9.5% in US premarket trading after the update from the wireless semiconductor company showed continued headwinds for the Android ecosystem, weighing on its margin guidance and overshadowing an otherwise in-line quarterly print.
  • Coherus Bio slid 15% in low-volume premarket trading after the biopharma firm’s quarterly results showed a revenue miss driven by weakness at its Udenyca product, with analysts split on the quality of the outlook for the biopharma. Shares were down 8.4% in extended trading Monday.
  • Premier’s announcement of a strategic review is not a major surprise, analysts say, given a stagnant share-price and trading performance in recent times. Private equity buyers are seen as the most likely suitors, according to Credit Suisse, while SVB Securities sees significant value in a breakup of the business. Premier shares climbed 7.2% in after-hours trading on the news.
  • Shockwave Medical shares topped expectations and showed growth remains strong for the medical-devices company, though its shares will be put under pressure from a report that talks on a potential takeover offer for the firm by Boston Scientific have broken down. The shares declined 4.6% in after- hours trading.
  • International Flavors & Fragrances’ first-quarter results are mixed, with sales slightly above expectations but guidance below for the group. Shares fell 1.5% in after-hours trading.
  • McKesson’s quarterly earnings were solid but the pharmaceuticals distributor’s guidance is the highlight of its update, coming in well ahead of expectations. Analysts flagged continued growth in key areas for the group and that its guidance indicates it is executing successfully on its strategy. Shares in the group rose around 4% in after-hours trading.

Sentiment was also hit by a report showing a drop in Chinese imports last month, raising concerns about the country’s ability to boost the global economy. Investors also weighed signs that the world’s central banks may need to do more to fight sticky inflation.

Focus is now shifting to the US consumer-prices data due on Wednesday to gauge the interest-rate path, according to Michael Hewson, chief analyst at CMC Markets in London. “The US labor market remains tight and there is still inflationary pressure within the underlying economy,” he said. “For all the expectation that last week’s Federal Reserve rate hike might be the last, the strength of the US economy might mean that there may be one left to come.”

Separately, investors are also tracking efforts in Washington to end a standoff over the US debt ceiling, with President Joe Biden due to sit down with House Speaker Kevin McCarthy Tuesday for their first meeting in three months as the two face pressure to forge a deal. As we discussed previously, this game of chicken is unlikely to be resolved without a market panic first.

“Whilst we expect a last-minute resolution to the US debt-ceiling melodrama, anxiety is now starting to creep into markets,” said John Leiper, chief investment officer at Titan Asset Management.

In Europe, the Stoxx 600 is down 0.6% with the consumer product and energy sectors also underperforming. Real estate stocks are leading the broader market lower in Europe as Swedish landlord SBB slumps after halting its dividend. Here are the biggest European movers:

  • SBB slumps as much as 13% to the lowest since April 2018, dragging the European real estate sector lower, after the Swedish landlord halted dividend payments and canceled a SEK2.6 billion rights issue
  • Fresenius SE shares gain as much as 7.4% on better-than-expected first quarter that Barclays says was boosted by its medicines and nutritions unit Kabi, as well as its separately listed dialysis unit
  • Grifols shares rise as much as 8.5%, the most since Feb. 16., with Jefferies saying the quarterly update from the Spanish blood-plasma firm beat on the top line and issued better margin guidance
  • Media stocks top all other Stoxx 600 sectors on Tuesday and buck weakness in the broader market, after Pearson said it’s working to embed generative AI technology across its product lineup
  • JD Sports shares rise as much as 3.2% after saying it’s in exclusive talks to buy French chain Courir for an enterprise value of €520m. Analysts say the deal fits with the company’s strategy
  • Banco BPM shares rise as much as 6%, with analysts saying the Italian lender’s quarterly results were strong, with the highlights being higher guidance and potentially greater shareholder returns
  • Amadeus shares rise as much as 1.7% with the travel IT services provider reported better-than-expected results across three main divisions as air traffic recovered across the globe
  • Marshalls slumps as much as 16% after the building materials group says trading this year has been weaker than expected. Analysts point to the weaker environment for housebuilding in 2023
  • Daimler Truck falls as much as 4.6% after 1Q results analysts say are consistent and in line with the pre-release last month, with the German truckmaker also confirming 2023 guidance
  • Evonik shares decline as much as 2.8% after it posted mixed results in 1Q. Analyst say the firm’s outlook will be a main focus after it said it now sees adjusted FY Ebitda “more likely” at the lower end
  • Victrex shares fall as much as 11%, hitting the lowest since April, as analysts said deteriorating volumes for the thermoplastics maker will put pressure on consensus estimates

JPMorgan strategists, who have been permabearish all year after cheering the 2022 collapse all year, are now calling for an end of European stock outperformance. Europe benefited from China’s reopening and a less-severe energy crisis than initially anticipated, but JPMorgan said these tailwinds are showing signs of fading, with economic surprises in the region now turning negative. After euro-zone stocks rose in the past seven months, investors “should be locking in these gains,” strategists led by Mislav Matejka wrote in a note on Tuesday.

Earlier in the session, Asian stocks edged lower as sentiment soured on China’s weak import data, while a recent rally in the nation’s state-owned enterprises fizzled. The MSCI Asia Pacific Index gave up earlier gains to fall as much as 0.2%, led lower by communication shares. Benchmarks in Hong Kong fell the most in two months, while Japanese shares outperformed the region as investors cheered latest corporate earnings. The Topix is approaching its highest level since August 1990. Chinese stocks slid in afternoon trading as a rally in state-owned firms reversed, dragging on the broader market. Meanwhile, fresh data showed imports slumped in April while export growth slowed, adding to pressures on an economic recovery that’s already been called into question. 

“The imports miss could signal that Chinese household consumption still has a way to go,” said David Chao,global market strategist for Asia Pacific at Invesco Asset Management, adding that Chinese households are “not ready to pry open their purse strings to buy discretionary goods and products.” The reopening rally in China has stalled in recent months due to a lack of fresh catalysts. Still, market conditions are favorable for the country’s equities, said William Fong, head of Hong Kong China equities at Baring Asset Management Asia. “Recovering consumption and supportive government policies are driving improvement in Chinese corporate fundamentals.” Investors will be watching the US inflation data due Wednesday for more clues on the Federal Reserve’s next moves. A decline in the inflation reading and the recent banking turmoil have fueled expectations that the Fed will soon halt its monetary tightening or even begin cutting interest rates.

Japanese stocks rose as investors applauded results from major local firms and awaited key US inflation data. The Topix rose 1.3% to close at 2,097.55, while the Nikkei advanced 1% to 29,242.82. Steelmakers and trading houses were the biggest advancing industry groups after reports from companies including JFE and Sumitomo Corp. Toyota Motor contributed the most to the Topix gain, increasing 3.3%. Out of 2,160 stocks in the index, 1,720 rose and 360 fell, while 80 were unchanged. “US earnings and employment data were strong, and if monetary tightening continues, the dollar will strengthen and the yen will weaken, which is positive for Japanese equities.” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management. “The market had low expectations for Japanese earnings, so the solid results should also be viewed positively.”

Stocks in India failed to hold initial gains and closed nearly flat, with banks among worst performers on profit-taking by investors.  The S&P BSE Sensex was little changed at 61,761.33 in Mumbai, while the NSE Nifty 50 Index was flat at 18,265.95. The gauges surged more than 1% each on Monday, their biggest rally since March and are trading close to their highest levels since mid-December. India VIX, a gauge of volatility, has risen for three straight sessions through Tuesday amid selling in some sectors including banks after some lenders reported higher provisions for the March quarter. Out of 28 companies in the Nifty 50 guage that have so far reported quarterly earnings, 15 have either met or beaten consensus earnings estimates, while 10 have trailed. Construction major L&T and generic drug maker Dr Reddy’s will be reporting earnings on Wednesday.    

In FX, the Bloomberg Dollar Spot Index inches up 0.1%; weakness in most global share markets spur light demand for the haven currency. The Norwegian krone is the weakest of the G-10 currencies while the Japanese yen is the strongest.  Traders are also weighing “the outlook for interest rates alongside debt ceiling talks,” Jeff Ng, a senior currency analyst at MUFG Bank in Singapore, wrote in a note. “We anticipate more FX moves against the US dollar to materialize” as the US releases CPI numbers Wednesday, which may indicate that inflation stayed sticky. Investors are also bracing for US CPI figures due on Wednesday, as an expected steadying or slowdown in prices could bolster the view that Fed rate rises have ended after last week’s hike; further evidence of this could weigh on the dollar, strategists say. “While the short-term outlook for the dollar remains neutral in our view, thanks to positioning skewed to the short-side and unstable risk sentiment, markets remain ready to price in more Fed rate cuts, so downside risks are non- negligible,” ING strategists write in a note

In rates, Treasuries are slightly richer across the curve, erasing some of Monday’s losses, as stock futures retreat from Monday’s highs. Treasury yields richer by 2bp to 3bp across the curve with spreads slightly steeper, although broadly within a basis point of Monday’s closing levels; 10-year yields around 3.485%, richer by 2bp on the day with bunds lagging by 1.5bp in the sector;  the two-year Treasury yield slips 2bps to 3.98%, pulling back form 4.01% hit on Monday, its highest in a week. Sentiment weakened slightly during Asia session when Chinese import data showed a steep drop. Focal points of US session include 3-year note auction, with critical April CPI data ahead Wednesday. Treasury auctions cycle begins with $40b 3-year note sale at 1pm, followed by 10- and 30-year sales Wednesday and Thursday. WI 3-year yield at ~3.655% is 15.5bp richer than April’s result, which stopped on the screws. In Europe, Bunds are little changed while Gilts have dropped, pushing UK 10-year yields up 4bps to 3.83% ahead of the Bank of England rate decision on Thursday.

In commodities, crude futures decline with WTI falling 0.8% to trade near $72.60. Spot gold adds 0.3% to around $2,027.

Bitcoin is essentially unchanged within sub-USD 300 parameters and holding just above the USD 27.5k mark.

Looking at the day ahead, in the US we will get NFIB small business optimism, which will dovetail nicely with the SLOOS data that was released yesterday. Additionally, there is France’s March trade balance. From Central Banks, market participants will hear from the Fed’s Williams and Jefferson, as well as the ECB's Lane, Vasle and Rehn. Lastly, while we are in the back-nine of earnings season there will be interest in reports from Saudi Aramco, Airbnb, Nintendo, Mitsubishi, Apollo, Electronic Arts, Daimler, and Wynn Resorts today.

Market Snapshot

  • S&P 500 futures down 0.4% to 4,137.50
  • STOXX Europe 600 down 0.5% to 464.49
  • MXAP down 0.2% to 162.34
  • MXAPJ down 0.9% to 517.13
  • Nikkei up 1.0% to 29,242.82
  • Topix up 1.3% to 2,097.55
  • Hang Seng Index down 2.1% to 19,867.58
  • Shanghai Composite down 1.1% to 3,357.67
  • Sensex down 0.1% to 61,688.29
  • Australia S&P/ASX 200 down 0.2% to 7,264.08
  • Kospi down 0.1% to 2,510.06
  • German 10Y yield little changed at 2.31%
  • Euro down 0.2% to $1.0977
  • Brent Futures down 1.2% to $76.07/bbl
  • Gold spot up 0.1% to $2,023.51
  • U.S. Dollar Index up 0.16% to 101.54

Top overnight news

  • China exports rise 8.5% Y/Y in April, above the Street’s +8% forecast, while imports sink 7.9% (significantly worse than the -0.2% consensus forecast). BBG  
  • UBS appointed Ulrich Koerner to its top management body, giving the CEO of Credit Suisse a key role in overseeing the combination of the two firms. The announcement was part of a broader management shuffle that also saw Todd Tuckner, a veteran UBS banker, take over as CFO from Sarah Youngwood, who only joined the bank last year.  BBG
  • Sweden's Riksbank announced a half percentage-point hike to 3.50% on April 26 and said it would probably tighten policy again, by a quarter point this time, in either June or September before the hiking cycle comes to an end. RTRS
  • Investors shouldn’t count on the ECB’s unprecedented bout of interest-rate increases ending in July, as the majority of economists currently predicts, according to Governing Council member Martins Kazaks. “I don’t think it is that clear yet,” the hawkish Latvian official told Bloomberg on Monday by phone. “We still have quite some ground to cover and further rate increases will be necessary to tame inflation.” BBG
  • Americans have low confidence in Biden, Powell and Yellen on the economy according to a new Gallup poll (Biden’s economic polling numbers are nearly as low as they were for George W Bush during the heart of the ’08 financial crisis). CNN
  • Treasury Secretary Janet Yellen is reaching out to U.S. business and financial leaders to explain the "catastrophic" impact a U.S. default on its debt would have on the U.S. and global economies. RTRS
  • US lenders warned that commercial property is ‘next shoe to drop’. Executives and investors fret about impact of rising rates and empty buildings on $5.6tn market. FT
  • Fed steps up scrutiny of CRE risks at banks (“the Federal Reserve has increased monitoring of the performance of CRE loans and expanded examination procedures for banks with significant CRE concentration risk”). Fed
  • AMZN is offering certain Prime customers cash payments if they pick up their packages at various locations (including Whole Foods) instead of having them delivered to their home. RTRS  
  • Stocks and bonds moved in lockstep for much of 2022, but that relationship has flipped this year. The two asset classes now display the largest negative correlation since August 2020...(WSJ)

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed following the indecisive performance from Wall St where the focus was on the Fed’s SLOOS which showed banks tightened credit terms and demand for loans declined, while the attention in the region shifted to earnings and data releases including mixed Chinese trade figures. ASX 200 was lower with early pressure seen across nearly all sectors and with the top-weighted financial industry choppy after earnings from Australia’s largest lender CBA which reported a slight increase in Q3 cash profit although NII was lower compared to the quarterly average in H1 and the Co. also noted that many customers are feeling the strain of higher interest rates and rising living costs. Nikkei 225 outperformed and reclaimed the 29,000 status, with the index unfazed by weak household spending data as participants digested earnings. Hang Seng and Shanghai Comp. were varied after the latest Chinese trade figures which showed stronger-than-expected export growth but imports disappointed with a surprise contraction.

Top Asian News

  • EU Ambassador to China thinks the comment by EU's Borrell suggesting that EU navies patrol the Taiwan Strait has been grossly exaggerated, while he also commented regarding China's anti-espionage law and consultancy crackdown in which he stated that this is not good news and expressed doubts regarding the compatibility of this policy with the opening up of China's economy.
  • Chinese embassy said China strongly condemns and firmly opposes Canada's decision to expel the Chinese diplomat and has lodged a protest with the Canadian government. China also claimed that Canada 'sabotaged' relations and vowed 'resolute countermeasures'. Subsequently, China said it will expel a Canadian diplomat as a countermeasure.
  • BoJ Governor Ueda said their scheduled review won't have any pre-set idea in mind on specific monetary policy moves and said they will take necessary policy action at each meeting with an eye on financial and price developments even while conducting the review. Ueda also commented that if the price target is met in a sustainable manner, the BoJ will end YCC and then shrink its balance sheet, while he added they are seeing some bright signs including on inflation expectations which have heightened and remain at elevated levels.
  • Australian Budget: Government forecasts 2022/23 budget surplus of AUD 4.2bln (exp. AUD 4bln), 2023/24 budget deficit at AUD 13.9bln (0.5% of GDP), 2024/25 budget AUD 35.1bln (1.3% of GDP). Click here for more detail.

European bourses are softer across the board, Euro Stoxx 50 -0.7%, as the region struggles to find a foothold in relatively quiet trade after a mixed APAC handover. Sectors are similarly softer with Real Estate lagging after soft Halifax data and SBB headwinds; individual movers dictated by earnings updates for Fresenius, Daimler Trucks & more. ES -0.4% dips with the region again lacking firm direction ahead of Fed speak and Biden's debt ceiling meeting; NQ and RTY roughly in-fitting.

Top European News

  • ECB's Kazaks says rate hiking may not be finished in July, via Bloomberg; bets on Spring 2024 ECB cuts are significantly premature. Doing too little remains the greater danger. Not impossible for the ECB to hike/pause in the scenario the Fed is cutting.
  • ECB's Kazimir says based on current data, will need to keep raising rates for longer than anticipated; September projections are the earliest time to gauge the effectiveness of measures and see if inflation is heading to target.
  • Norges Bank Governor Bache says does not need additional policy tools, FX interventions to influence NOK are costly and not very efficient.
  • German Chancellor Schloz says the EU must reduce risks in China relations without cutting ties saying this is not decoupling, but smart de-risking is the way forward with China.
  • UK Barclaycard April consumer spending rose 4.3% Y/Y but was impacted by inflation squeeze on disposable incomes and higher food prices, according to Reuters.


  • Buck finds its feet vs most majors bar the Yen as Treasury yields ease off Monday's peaks and BoJ Governor Ueda notes higher Japanese inflation expectations.
  • DXY forms a firmer base around 101.500 and USD/JPY pivots 135.00 where 1bln option expiries roll off at the NY cut.
  • Aussie retreats as Chinese imports unexpectedly tumble and AUD/USD eyes support into 0.6750 from Monday's high just over 0.6800.
  • Euro loses 1.1000+ status vs Dollar and Fib support against Pound as Cable retains underlying bid mostly above 1.2600.
  • PBoC set USD/CNY mid-point at 6.9255 vs exp. 6.9251 (prev. 6.9158)
  • Turkey raises the wages of some civil servants by 45%, according to Turkish President Erdogan.

Fixed Income

  • Choppy trade in bonds, but Bunds piggy-back bounce in Bobls after super-strong 5 year German auction, both holding near intraday highs within 118.34-06 and 135.90-33 ranges.
  • Gilts lag in catch-up trade after long UK weekend between 100.85-43 parameters.
  • US Treasuries regroup after Monday's slump amidst a decline in NFIB business optimism and awaiting Fed commentary ahead of latest debt ceiling talks, T-note near 115-15+ peak vs 115-06+ trough.


  • WTI and Brent are back on a modest downward trajectory after recent positive sessions and yesterday's Alberta-driven upside; currently, the benchmarks are circa. USD 0.80/bbl lower.
  • Newsflow has been focused on UAE remarks and Aramco's update after Chinese trade data was mixed with an unexpected contraction in imports potentially a signal towards weaker demand and a headwind for the complex.
  • Saudi Aramco Q1 - Saw lower crude oil prices. Major investments advance strategic downstream expansion in key global markets. Global downstream strategy is gaining momentum. 99.7% supply reliability. Believe oil and gas will remain critical components of the energy mix for the foreseeable future. Moving forward with the capacity expansion and long-term outlook remains unchanged.. "Based on the government budget figures the Saudi Government 2023 budgeted revenues are likely based on Brent of ~USD 81/bbl", according to Al Rajhi Bank cited by Energy Intel's Bakr.
  • Spot gold remains underpinned around the USD 2025/oz mark and surrounded by resistance/support marks in relatively close proximity. Base metals are broadly softer, given the mentioned Chinese trade data.


  • Head of Russian Wagner Group Prigozhin said that they have not received the promised ammunition after earlier stating that shipments were preliminarily sent, according to Reuters.
  • US is to provide USD 1.2bln more in long-term military aid to Ukraine to further bolster its air defences, according to US officials cited by AP.
  • UK Foreign Secretary Cleverly is visiting the US and will hold talks with US Secretary of State Blinken on Tuesday to discuss support for Ukraine, according to Sky News.
  • US State Department said the US Ambassador to China told Chinese Foreign Minister Qin that there has been no change to US one-China policy, while US Secretary of State Blinken would like to visit China and intends to go when conditions allow.

US Event Calendar

  • 06:00: April SMALL BUSINESS OPTIMISM, 89.0, est. 89.7, prior 90.1
  • 08:30: Fed’s Jefferson Speaks to Atlanta Black Chamber
  • 12:05: Fed’s Williams Speaks to Economic Club of New York

DB's Jim Reid concludes the overnight wrap

We're back from the King's Coronation holiday today. I've had more quiche since I last sent the EMR than I've had in the previous decade. The weather over the three day weekend was in order; awful, quite nice, awful. Thankfully the big street party was on the sunny day. I'm looking forward to leaving the rain (and the leftover quiche) behind for a couple of days as I escape to Spain. DB is hosting a morning macro outlook event in our Madrid offices tomorrow, with a selection of research speakers, so please reach out to your DB sales coverage if you'd like to attend.

So London returns back to work today between the hotly anticipated US senior loan officers' opinion survey (SLOOS) last night and US CPI tomorrow.

On the former, the headline numbers were weak but maybe not as bad as feared, but there were plenty of weakness in the report regardless. The headliner saw the net percentage of banks tightening lending standards on commercial and industrial (C&I) loans to medium/large businesses rise to 46% from 44.8% in Q4, and for small banks 46.7% from 44.8%. The medium/large businesses number is still below the peaks observed during the pandemic, GFC, early-2000s and early 1990s but is in recessionary territory. Meanwhile, the percentage of banks reporting stronger demand for C&I loans dropped to 55.6% in Q1 - the lowest level since 2009. Even as demand is lower, the willingness of banks to lend continues to fall. This dynamic was more apparent at smaller lenders, as one would expect.

There was a relatively muted market response to the SLOOS data, as the results were broadly in-line with expectations, or as a minimum didn't bring any additional fear to the market. US 10yr Treasury yields were already around +6bps higher before the report and finished the day just off their highs to close +7.0bps higher at 3.507%. This morning in Asia, 10yr yields (-1.15bps) are slightly down as we go to press. 2yr yields similarly closed just off their highs, up +8.7bps on the day at 4.001% (-2bps in Asia). The rate selloff came despite minimal movements in Fed pricing. The chance of a rate cut in July fell from 40% to just under 37%, while fed futures are still implying two full 25bp rate cuts by year-end and a better-than-not chance of a third 25bp cut.

The SLOOS survey was followed by the Fed’s Financial Stability Report, which comes following the collapse of 3 of the 4 largest bank failures in US history in the last 2 months. The Fed remains concerned that worries about “the economic outlook, credit quality, and funding liquidity could lead banks and other financial institutions to further contract the supply of credit to the economy.” This would directly raise the cost of funding and potentially result in a meaningful slowdown in the broader economy. In terms of specific risks, the Fed pointed to high property valuations despite weakening fundamentals, high levels of business debt, and funding risks due to banks holding high amounts of AFS and HTM securities. They note that financial leverage is not in poor shape, saying “high levels of capital and moderate interest rate risk exposures mean that a large majority of banks are resilient to potential strains from higher interest rates.”

Treasury Secretary Yellen last night appeared on CNBC calling for congress to raise the Debt Ceiling, announcing that the Treasury could “run out of cash” as soon as June 1. This comes ahead of today’s meeting between the White House and Congressional leadership where they are expected to discuss a path forward. On the banking sector, Secretary Yellen noted that the system remains well capitalized but that the regulators are “ready to use tools if bank pressures arise”. She also did not rule out the possibility of a recession, but argued it is not the most likely path.

The US banking sector saw a slight pullback yesterday after Friday’s strong rally in US regional banks following reports that the FDIC is set to exempt smaller US banks from contributing to the deposit insurance fund. The KBW bank index was down -0.26%, but embattled regionals such as Western Alliance (+0.59%), PacWest (+3.65%), and Zion (+2.10%) were able to finish higher on the day. PacWest was up nearly +30% at the open though, highlighting the whipsawing price action. More broadly, the S&P 500 was just better than flat (+0.05%) as cyclicals such as media (+1.45%) and autos (+0.95%) outperformed at the expense of bond-proxies and defensives like REITs (-0.65%), software (-0.48%), utilities (-0.32%), and food & beverage (-0.38%).

While the UK was out, the STOXX 600 (+0.35%) rose to a 2-week high on the back of cyclicals such as travel & leisure (+0.75%), banks (+0.75%) and retail (+0.56%), while defensives fell back slightly. 10yr yields also rose moderately, with those on bunds (+2.8bps), OATs (+3.0bps) and BTPs (+4.9bps) all closing higher.

The drop in commodity prices over the spring has been a positive for consumer inflation, however that trend has reversed over the past few sessions with commodity prices jumping again yesterday after closing last week rather strong. Indeed, Brent crude rose +2.27% to close at $77.01/bbl, after reaching a 16-month low last Wednesday. It was a similar story for European natural gas prices (+0.82%), which is now just over 3% higher than its recent 20-month lows of €35.65/MWh.

US inflation data is in focus this week with CPI tomorrow, followed by PPI (Thursday) and the University of Michigan survey (Friday). In terms of CPI, our US economists expect headline and core to come in at +0.3% m/m (vs +0.1% and +0.4% in March, respectively). For PPI, they are expecting a +0.3% core rise as well and a -0.5% headline contraction, due to falling energy prices. Lastly on the Michigan survey they are forecasting a 62.0 reading vs 63.5 for the sentiment gauge. The inflation expectations component both 1yr and 5-10 years especially will be in the spotlight.

Outside of the US inflation data, there will be a good deal of interest surrounding the Bank of England policy decision on Thursday. Our UK economist (see preview here) expects the central bank to deliver a +25bps hike, leaving the Bank Rate at 4.5%, and while they do not anticipate any major changes to forward guidance they acknowledge there is a risk that the MPC leans dovish. Further out, they expect a final +25bps hike in June, while underscoring upside risks to their terminal view. After the meeting, UK GDP Q1 will be out on Friday showing how the economy has fared through the winter.

Asian equity markets are mixed this morning with the Hang Seng (-0.52%) and the KOSPI (-0.51%) lower, whilst the Nikkei (+0.77%), the CSI (+0.42%) and the Shanghai Composite (+0.36%) are bucking the trend. In overnight trading, US stock futures are printing mild losses with those on the S&P 500 (-0.05%) and NASDAQ 100 (-0.10%) slightly lower.

Early morning data showed that China’s exports (USD) recorded a second straight month of growth, advancing +8.5% y/y in April (v/s +8.0% expected), compared with an increase of +14.8% while imports (-7.9% y/y) contracted sharply in April, higher than the market expected decline of -0.2% and compared to prior month’s drop of -1.4% indicating that domestic demand remains tepid. Elsewhere, household spending in Japan unexpectedly fell -1.9% y/y in March, notching its biggest decline since March 2022 asagainst a Bloomberg consensus forecast for a +0.4% rise and following a +1.6% gain in February. Separately data showed that real wages declined for the 12th consecutive month, dropping -2.9% y/y in March (v/s -2.4% expected) as persistent inflation works through the system.

Now looking at the day ahead, in the US we will get NFIB small business optimism, which will dovetail nicely with the SLOOS data that was released yesterday. Additionally, there is France’s March trade balance. From Central Banks, market participants will hear from the Fed’s Williams and Jefferson, as well as the ECB's Lane, Vasle and Rehn. Lastly, while we are in the back-nine of earnings season there will be interest in reports from Saudi Aramco, Airbnb, Nintendo, Mitsubishi, Apollo, Electronic Arts, Daimler, and Wynn Resorts today.