Futures Surge, Dollar Tumbles As Oil Swings Wildly

About one year ago, corporate profits didn't matter and stocks would continue levitating day after day because "any minute now" Trump would complete a Phase 1 trade deal with China. Well, one year later, profits again don't matter and probably never will again now that the Fed taken over capital markets (in fact, profits have been devastated and according to JPM won't recover their 2019 levels until 2022), but stocks are again levitating, this time on optimism about the economy's imminent reopening from the coronavirus pandemic.

U.S. stock index futures reversed early losses, and surged alongside European and Asian stocks on Tuesday, rising above 2,900 for the first time since March 8, ahead of a barrage of quarterly earnings reports, as investors are keenly looking at the safety and progress of reopening economies hit hard by the coronavirus-induced shutdowns.

Wall Street kicked off the week on a strong note Monday as several U.S. states allowed businesses to reopen after a near total halt in activity to contain the outbreak. Powered by a raft of U.S. monetary and fiscal stimulus, all three major stock indexes are now within 20% of their record closing highs, but analysts warn of further losses as economic data foreshadows a deep global recession. Consumer confidence figures for April due later in the day are expected to slide further from near three-year lows hit in March, as widespread production halts put millions of Americans out of work.

Southwest Airlines jump-started first-quarter reports for the day with its first quarterly loss in nine years, but shares rose 3.4% as it said its average daily cash burn will slow in the second quarter. Elsewhere, so far:

  • Caterpillar Inc (CAT) Q1 20 (USD): EPS 1.98 (exp. 1.68), Revenue -21% Y/Y at 10.64bln (exp. 10.92bln). Withdraws FY guidance due to COVID-19.
  • 3M Co (MMM) Q1 20 (USD): Adj. EPS 2.16 (exp. 2.03), Revenue 8.1bln (exp. 7.91bln); Withdraws FY20 guidance
  • Merck (MRK) Q1 2020 (USD): EPS 1.50 (exp. 1.34); revenue 12.1bln (exp. 11.46bln); lowers FY revenue range to USD 46.1-48.1bln (exp. 48.7bln); lowers FY GAAP EPS range to 4.12-4.32 (exp. 5.56)
  • Pfizer Inc (PFE) Q1 20 (USD): Adj. EPS 0.80 (exp. 0.73), Revenue 12.03bln (exp. 11.87bln). Reaffirms FY guidance for adj. EPS and revenue - not seen a significant disruption in its supply chain
  • HSBC Holdings slipped after adjusted profit slumped and the bank cautioned bad loan charges may climb to as much as $11 billion this year, the highest since the last financial crisis.
  • UBS gained after posting a jump in profit and expressing confidence it can withstand a surge in bad loans.

Google parent Alphabet, Ford Motor and Starbucks are among the high profile companies reporting after markets close.

Europe's Stoxx 600 Index climbs to a session high, hitting a level not seen since March 11, while a gauge tracking energy shares extends gains after Brent crude futures pare losses and turn positive. SXXP advanced 1.4% as of 11:09 a.m. in London, with insurers, banks and energy shares gaining the most among sectors. The Stoxx oil & gas gained 2.5% as BP rose 1.4% after posting results, which Goldman Sachs described as “resilient.”

Earlier in the session, Asian stocks also gained, led by finance and industrials, after rising in the last session. Most markets in the region were up, with Hong Kong's Hang Seng Index gaining 1.2% and Thailand's SET rising 0.9%, while Shanghai Composite dropped 0.2%. The Topix gained 0.1%, with YAC HD and Plant rising the most. The Shanghai Composite Index retreated 0.2%, with Jiangsu Jiangnan High Polymer Fiber and Shangying Global posting the biggest slides.

Besides earnings, investors will look at policy decisions from the Federal Reserve and European Central Bank as well as earnings from some of the world’s biggest companies, among them Amazon.com, Facebook, Apple, Microsoft and Samsung Electronics. At the same time they’re monitoring infection rates across major economies and the ongoing discussions of how to restart activity.

On the virus front, China’s top scientists said the novel coronavirus will not be eradicated, joining a growing consensus that the pathogen will likely return in waves. New cases in Germany fell below 1,000 for the first time in more than five weeks. Italy reported the lowest levels of new infections in seven weeks and prepared to begin reopening. Spain announces its plan to relax the lockdown on Tuesday. The Trump administration issued a strategy to expand U.S. testing, including partnering with retail chains.

In FX, a gauge of the dollar fell a second day as a gradual easing of lockdown restrictions drew closer in Europe. The Bloomberg Dollar Spot Index fell to the lowest in over 10 days and the greenback weakened against all Group-of-10 peers.

Norway’s krone led gains after oil’s rebound. Sweden’s krona advanced 1% against the dollar after the Riksbank refrained from adding further stimulus for now, while the market had priced in around 7bps worth of rate cuts. The Swiss franc fell to its lowest level versus the euro in four weeks and options traders see scope for more short-term losses. The New Zealand dollar halted a three-day gain as traders boosted bets for policy easing after Westpac Banking Corp. forecast that the central bank will cut its key rate to minus 0.5% in November. Bunds fluctuated and European peripheral bonds gained.

Oil prices recovered ground after another plunge; oil futures in New York had slumped below $11 a barrel as exchange-traded funds and indexes fled the volatility of nearby futures contracts, but recovered a chunk of their slide. earlier crude extended its slide to near $10 a barrel.

Expected data include wholesale inventories and consumer confidence. Caterpillar, Harley-Davidson, PepsiCo, Pfizer, UPS, Alphabet, and Starbucks are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 2% to 2,905.00
  • STOXX Europe 600 up 0.7% to 337.70
  • MXAP up 0.4% to 145.12
  • MXAPJ up 0.6% to 467.72
  • Nikkei down 0.06% to 19,771.19
  • Topix up 0.1% to 1,449.15
  • Hang Seng Index up 1.2% to 24,575.96
  • Shanghai Composite down 0.2% to 2,810.02
  • Sensex up 0.8% to 31,984.40
  • Australia S&P/ASX 200 down 0.2% to 5,313.10
  • Kospi up 0.6% to 1,934.09
  • German 10Y yield rose 1.8 bps to -0.435%
  • Euro up 0.2% to $1.0852
  • Italian 10Y yield fell 7.7 bps to 1.587%
  • Spanish 10Y yield fell 2.1 bps to 0.868%
  • Brent futures down 1.2% to $19.76/bbl
  • Gold spot down 0.7% to $1,702.13
  • U.S. Dollar Index down 0.2% to 99.83

Top Overnight News

  • Spain and France, two of the countries hardest hit by the coronavirus, are set to spell out plans to ease lockdowns as Europe moves to loosen restrictions despite concerns that such steps could backfire
  • Spanish Prime Minister Pedro Sanchez plans to announce loosening measures after Tuesday’s weekly cabinet meeting, and France’s Prime Minister Edouard Philippe will present the government’s blueprint to the National Assembly
  • Chinese scientists say the novel coronavirus will not be eradicated, adding to a growing consensus around the world that the pathogen will likely return in waves like the flu
  • Global confirmed cases passed the 3 million mark. Italy reported the fewest new infections in seven weeks, while U.K. deaths dropped to the lowest since March. Hong Kong is preparing to reopen public facilities, and New Zealand emerged from almost five weeks of nationwide lockdown, offering a return to work for as many as half a million people. The World Health Organization’s director general warned the pandemic is far from over
  • The Federal Reserve expanded the scope and duration of the Municipal Liquidity Facility, a $500 billion emergency lending program for state and local governments enduring the economic fallout from the coronavirus pandemic
  • Prime Minister Boris Johnson urged Britons to stick with the lockdown that has helped slow deaths from coronavirus as his government plans safe ways to reboot the battered U.K. economy
  • The White House issued a strategy to expand U.S. testing for the coronavirus on Monday, accelerating President Donald Trump’s push to reopen the economy even as the nation’s outbreak approaches 1 million infections
  • Crude extended its slide below $11 a barrel after the biggest oil exchange-traded fund unexpectedly began selling all its holdings of the most active contract amid rapidly dwindling storage capacity

Asian equity markets were mixed as a deluge of earnings and continued oil rout offset the momentum from Wall St. where the major indices were underpinned by reopening efforts and ongoing stimulus measures. ASX 200 (-0.2%) swung between gains and losses with the index pressured by underperformance in the commodity-related sectors as oil prices suffered double-digit losses on continued demand concerns and after the USO announced to dump all its June contracts by mid-week in favour of later-dated contracts. The largest weighted banking sector also added to the indecision with NAB on the backfoot as it resumed trade post-earnings and after the completion of its AUD 3bln placement, although Westpac surged despite flagging a AUD 2.2bln impairment for H1. Nikkei 225 (U/C) was lacklustre as participants digested earnings releases, while Hang Seng (+1.2%) and Shanghai Comp. (-0.2%) conformed to the choppy price action as focus turned to corporate updates and with participants kept tentative ahead of the blue chip banking names set to announce results this week beginning with HSBC which reported Q1 profit before tax fell nearly 50% Y/Y. Finally, 10yr JGBs were range-bound with prices restricted by resistance ahead of the 153.00 level and following the latest Rinban announcement in which the central bank upped its purchase intentions of 1yr-10yr JGBs but had recently reduced the frequency of purchases of 3yr-5yr maturities for next month.

Top Asian News

  • Debt Monetization Creeps Closer in Asia, Reshaping Bonds
  • China Merchants Mulls Taking $4 Billion Port Unit Private
  • Hong Kong Extends Quarantine for Arrivals From China to June 7
  • Steel Tycoon Seeks Reopening India Economy to Avoid Depression

European equities extend gains after a relatively flat open (Euro Stoxx 50 +1.8%) after a rather mixed APAC session, with sentiment skewed more towards the upside as the session goes underway. Bourses are mostly comfortable in the green, although the IBEX (+1.1%) sees underperformance on account of some large-cap stocks in the red – with Utility names weighing on the Spanish index. Elsewhere in the periphery, Italy’s FTSE MIB (+2.5%) continues to benefit after the country dodged a debt downgrade by S&P. Looking at sectors, Energy initially underperformoned but has since outpaced its peers to reside as a top performer amid the rebound in the energy complex. Financials outperform with the aid of higher yields and some more-upbeat earnings from regional banks. UBS (+5.7%) and Santander (+3.4%) trade firmer amid some bullish internals, although the former also saw improvements in Q1 pre-tax and Adj. pre-tax whilst highlighting high-quality credit exposure. On the flip side, HSBC (-0.5%) remains pressured as Q1 profits halved on increase loan loss provisions emanated from COVID-19. The bank also guides its FY20 to have materially lower profitability. Individual movers predominantly consist of other large-cap stocks post-earnings; BP (-1.9%) reported a 66% decline in Q1 earnings as it was hit by the plunge in energy prices – with the oil behemoth also anticipating a material impact in Q2 downstream from the pandemic. Novartis (+0.9%) has trimmed some of its opening gains but remains underpinned as top and bottom line topped estimates, with a favourable sales impact of USD 400mln expected from COVID-19. Aside from earnings, Wirecard (-19.7%) shares fell despite KPMG’s special report not identifying incriminating evidence for public allegation of balance sheet forgery – with downside potentially induced by the audit noting that not all data could be obtained that would have been required to proof revenue in these years as required data are primarily controlled by third parties. Furthermore, the Co. has delayed its earnings release and presser – originally due on April 30th. Finally, Lufthansa (-0.2%) was initially bolstered by reports that the German gov’t is to present a EUR 9bln rescue package for the Co. and the Swiss gov’t agreeing to a CHF 1.5bln support package via state-backed loans, although sources later downplayed an agreement on Germany’s aid, although separate reports noted that the Co. is said to be mulling insolvency proceedings as an alternative option.

Top European News

  • Riksbank Says Rate Cut May Yet Come, But Isn’t Needed Now
  • Austria to Relax Some Lockdown Measures as Virus Cases Decline
  • SAS Slashes 5,000 Jobs in Most Drastic Cut at a European Airline
  • Bayer Seeks Investor Patience as Roundup Cloud Persists

In FX, all taking cues from Central Bank and monetary authority directives, to an extent, as the Swedish Krona responds to relatively hawkish or less dovish than anticipated Riksbank guidance after rates were left on hold alongside current QE remits and a truncated repo path due to high levels of uncertainty over the outlook due to COVID-19. Some were looking for an increase in asset purchases or an extension in the schedule beyond the current end of September timeframe, and more than just another pledge to lower rates if required, so Eur/Sek has fallen from pre-policy pronouncement levels through the 55 DMA (10.8110) and Fib support (10.7999) on the way down to circa 10.7800, thus far. Meanwhile, the Yen paused at the psychological 107.00 mark again in wake of comments from Japan’s Ministry of Finance raising uncertainty about the currency’s value given stable interest rates despite high levels of Government spending, but Usd/Jpy subsequently breached the round number and supposedly strong technical levels just below amidst a stop-fuelled run to around 106.60 and eying a 50% retracement to 106.45 next, assuming 106.50 is pierced first. Conversely, the Kiwi has been undermined by an aggressive call from Westpac on RBNZ rates looking for -0.5% by this November vs market expectations via OIS pricing for just a 25 bp ease between now and Q1 next year. Hence, Nzd/Usd struggling to rebound much further above 0.6050 from sub-0.6000 overnight lows even though the Greenback is broadly softer.

  • GBP/CAD/AUD/EUR/CHF/NOK - Cable has peered over 1.2500 amidst general, albeit moderate Usd selling for month end from one rebalancing model exacerbated by the aforementioned Yen outperformance, but Sterling has also clawed back more losses against the Euro with the cross back down 0.8700 as the single currency is capped ahead of 1.0900 and the DXY finds a degree of underlying support at 99.5000. Elsewhere, the Loonie has derived momentum and encouragement from a firm rebound in crude alongside overall risk sentiment to reclaim 1.4000+ status and the Aussie eclipsed 0.6500 at one stage with favourable Aud/Nzd tailwinds through 1.0700 and touching 1.0750. The oil price revival has also helped the Norwegian Crown, Russian Rouble and Mexican Peso rally, while even the Swiss Franc has nursed some recent losses vs the Buck, though has extended its post-sight deposit retreat against the Euro to 1.0612 or so.
  • Riksbank leaves its Repo Rate unchanged at 0.0% as expected; decided to continue govt' and mortgage bonds purchases up to the end of Sept-2020 at the current pace. The repo rate path is seen unchanged until February 2021, but does not rule out the possibility of the interest rate being cut at a later date. (Riskbank) In the post meeting press-conference, Governor Ingves largely reiterates remarks from the release stressing the willingness to act whenever is most appropriate; as has been clearly illustrated by the QE related intra-meeting action. (Newswires)

In commodities, WTI and Brent front-month futures initially deteriorated , but have pared back a lion’s share of its losses in recent trade - with notable underperformance experienced in the US benchmark as downside was exacerbated by US Oil Fund unexpectedly began selling all its holdings of the WTI June contract against the backdrop of dwindling storage and decimated demand. Furthermore, the S&P GSCI Commodity Index announced that it will be moving all WTI exposure away from June. Desks note that the funds’ moves highlight a trend among market participants, with little-to-no demand in the contract amid fears of a repetition of deep negative prices seen heading into the May expiry. For reference, June WTI is set to expire on May 19th. “The move we are seeing suggests that the Jun-20 contract is going to become increasingly illiquid, and as a result, will likely suffer from increased volatility in the lead up to expiry”, ING writes. Meanwhile, eyes will be on today’s API release with attention on the Cushing figure as a gauge of when the WTI delivery hub will reach full capacity – “If we see similar builds to the last few weeks, we will likely reach full capacity at Cushing over the first half of May”, the Dutch bank says. WTI June trades lower by some 20% and printed a current base at USD 10.13/bbl (vs. high USD 13.18), whilst its Brent counterpart initially follows suit, albeit to a much lesser extent, with prices now in positive territory around the top of today’s USD 18.73-20.86/bbl range. Elsewhere, spot gold trades on either side of USD 1700/oz as the yellow metal balances risk appetite with a weaker buck. Copper nursed losses seen in APAC trade as sentiment attempts to make somewhat of a recovery.

US Event Calendar

  • 8:30am: Advance Goods Trade Balance, est. $55.0b deficit, prior $59.9b deficit, revised $59.9b deficit
  • 8:30am: Retail Inventories MoM, est. 0.5%, prior -0.3%, revised -0.3%; Wholesale Inventories MoM, est. -0.4%, prior -0.7%
  • 9am: S&P CoreLogic CS 20-City MoM SA, est. 0.3%, prior 0.3%; CoreLogic CS 20- City YoY NSA, est. 3.19%, prior 3.08%
  • 10am: Conf. Board Consumer Confidence, est. 87, prior 120; Conf. Board Expectations, prior 88.2; Conf. Board Present Situation, prior 167.7
  • 10am: Richmond Fed Manufact. Index, est. -42, prior 2

DB's Jim Reid concludes the overnight wrap

Yesterday was a relatively quiet day for markets ahead of a busy rest of the week with both the Fed and ECB meetings coming up, alongside a raft of earnings reports and China PMIs and the US ISM on Thursday. We’ll increasingly hear from countries about their slow lifting of restrictions (France and Spain today). It does feel that there is a lot of exhaustion with lockdowns in the West but as you’ll see in the CCD, although new cases and fatalities are generally falling the virus is not likely to be eradicated by the time restrictions start being lifted. So managing this exit strategy will be challenging and full of trade-offs.

For now there continues to be optimism in the market that we’re starting to see some light at the end of the lockdown tunnel. Global equities advanced further yesterday with the S&P 500 (+1.47%) finishing at its highest level since March 10th, while the STOXX 600 (+1.77%) was just 0.26 index points away from similar highs. The DAX (+3.13%) and the FTSE MIB (+3.09%) were obviously standouts. The VIX index fell for a 4th straight session to a 7-week low at 33.3 points. Furthermore, financial conditions are continuing to ease as well, with the Bloomberg index for the US now at its most accommodative in over 6 weeks. US Banks responded by rallying +5.50% as an industry, leading the S&P 500 yesterday. The only industry groups in the US lower on the day were Food Staples (-0.17%) and Household Products (-0.97%), which were – as one would expect – some of the best performers as virus fears took hold through March and early April. In Europe, every sector rose on the day, with Autos the best performer, up +4.92%. Notably, the second best performing sector on the day was Travel and Leisure stocks, up +4.75%. The sector has rallied +41.88% since the March lows, but remains down over 36% from the February highs.

A quick refresh of our screens this morning shows a slightly more mixed picture for markets in Asia with the Nikkei (-0.20%), Kospi (-0.06%) and ASX (-0.55%) down while the Hang Seng (+0.83%) and Shanghai Comp (+0.11%) have posted small gains. Elsewhere, futures on the S&P 500 are down -0.38% while June WTI prices are down a further -13% this morning to a little over $11 with Bloomberg reporting that the biggest oil ETF unexpectedly started selling all of its holdings in the contract. Brent crude oil prices are down a more muted -3.80% to $19.23 and spot gold prices are down -0.98% this morning.

In other news, the Fed lowered the population thresholds under which counties and cities would be eligible to sell short-term debt to the Municipal Liquidity Facility. The new levels are at least 500,000 for counties and 250,000 for cities, down from 2mn and 1mn respectively. Meanwhile, President Trump said at his press briefing that the US government is partnering with Walmart, CVS Health, Walgreens Boots Alliance, and other chain stores and diagnostics companies to put testing facilities in place nationwide and added that the White House plans to enough tests for all 50 states to screen at least 2% of their residents as the US gears up to come out of the lockdown. Elsewhere, the BoJ increased it's purchases of JGBs in 1y-10y segment at a regular operation today after widening the indicative buying ranges for these zones for the next month. The European Commission is also expected to announce a series of capital relief measures today which is likely to include a relief on how banks calculate leverage ratio.

Back to markets yesterday where the risk-on move was also seen over in sovereign debt markets with a narrowing of southern European spreads. Italian BTPs outperformed in particular after Friday’s decision from S&P to keep their credit rating on hold at BBB. By the end of the session, 10yr BTP spreads over bunds had fallen by -9.9bps, continuing the moves that began last week, while those on Spanish (-8.3bps), Portuguese (-8.6bps) and Greek (-10.5bps) also narrowed. Core bonds lost ground however, with yields on 10yr Treasuries and bunds rising by +6.0bps and+2.0bps respectively.

In a blog post yesterday (link here), our rates strategists write that their positive bias on BTPs has been reinforced, thanks to a combination of (i) documented deviation from capital keys, (ii) the increasing probability of an OMT backstop if/when Italy activates an ESM ECCL, and (iii) a decrease in the probability of ratings downgrades in the near-term. That said, they note that the political situation in Italy is a risk to that view, as it could prevent or delay an ESM activation that would open the door to the OMT backstop.

Today, all eyes will move over to earnings releases, with a number of big names reporting later. By the time this hits your inbox we should have already got some of the European releases, while highlights from the US include Alphabet, Ford and Caterpillar, the latter being a traditional industrial bellwether. Worth keeping an eye out also to see if any more companies withdraw their guidance for the year thanks to the pandemic.

Not everything was buoyant yesterday and it was another dire day for oil yesterday following last Monday’s slump into negative territory. WTI closed down by -24.56% to $12.78/barrel yesterday as investors continued to react to the ongoing limits in storage capacity. While Friday sees the OPEC+ group’s agreement to reduce supply come into effect, this continues to be dwarfed by the effect that the global lockdowns are having on demand. In a sign of how volatile things have been for oil lately, this is the 7th occasion this month alone that WTI has moved by at least 10% in either direction, something that only happened one in the entire three years from 2017-19, and that was in the aftermath of the drone attack on Saudi oil facilities last September.

There wasn’t much in the way of data yesterday, though the Dallas Fed’s manufacturing outlook survey saw a further deterioration in April, with the general business activity index for April falling to -73.7 (vs. -75.0 expected), a record low. For those of you interested in hearing more about the US economy, which is set this year to undergo the sharpest contraction in GDP and the largest rise in unemployment since the war, you can listen to our latest podcast with Matthew Luzzetti, our chief US economist, who shares his insights. Click here to listen and subscribe on Spotify, Apple and Google podcasts.

To the day ahead now, and data releases include French consumer confidence for April as well as the CBI’s distributive trades survey from the UK. Meanwhile in the US, we’ve got the Conference Board’s consumer confidence reading for April, the Richmond Fed’s manufacturing index for April, along with March’s advance goods trade balance and the preliminary March wholesale inventories. From central banks, the ECB will be publishing their quarterly bank lending survey, while earnings highlights today include Alphabet, Merck & Co., Pfizer, PepsiCo, Starbucks, Caterpillar and Ford.