Summary: The major US indices futures trade higher on Monday, following banks reporting stronger than expected results on Friday. The closely watched KBW Bank Index holds above its 21-day moving average for the fourth day, while the cost of insurance against a US government default hit a new cycle high. The market looks ahead to a busy week of US earnings results including results from Tesla and CATL, while assessing the latest oil supply deficit warnings. Australia’s share market hits new highs and the iron ore price falls into a contraction.
Ahead of a busy week of US earnings, US futures rose on Monday with investors awaiting earnings from Tesla, Netflix, Bank of America Morgan Stanley and CATL, among others who report this week. Meanwhile, optimism is slightly elevated following banks reporting stronger than expected results on Friday.
That said the major indices closed lower on Friday as investors grappled with elevated inflation expectations for the next 12 months and a warning from Federal Reserve Governor Christopher Waller of further policy rate hikes. The S&P 500 and Nasdaq 100 both lost 0.2%, while the S&P500 holds a 17% gain from its low, and holds above all of its key moving averages, suggesting momentum to the upside could continue. A similar scenario is playing out for the Nasdaq 100, though its up about 25% from its low.
Financials led the S&P500 sectors higher on Friday; with a 1.1% gain, buoyed by a surge banks reporting better than expected results. JPMorgan Chase (JPM:xnys) shares rose 7.6% on reporting strong Q1 revenues and earnings, Citigroup (C:xnys) rallied 4.8% on its results also beating estimates, despite a Q/Q fall in deposit balances. These gains helped the KBW Bank Index rise 1.1% and hold above its 21-day moving average for the fourth day in a row, with the index holding up off its low. Regional banks shares rallied but it was short-lived; with the SPDR S&P Regional Banking ETF (KRE), erasing its earlier gain before closing 2% lower and near its cycle lows. Separately, it's worth noting, the cost of insurance against a US government default hit a new cycle high, with implies recession and possibly banking woe concerns are not over.
Elsewhere, Boeing and Spirit AeroSystems saw sharp declines in their shares after Boeing reported significant delays in the delivery of its 737 Max aircraft after it had issues with part installations from supplier, Spirit AeroSystems. Boeing plunged 5.6%, while Spirit AeroSystems tumbled 21%.
US Treasury yields climbed higher on Friday, driven by a combination of rising inflation expectations and hawkish remarks from a Federal Reserve official. According to the University of Michigan consumer survey, 12-month inflation expectations surged to 4.6% in March from 3.6% in February. This uptick raised concerns over inflation and weighed on the shorter-term end of the Treasury curve, with the 2-year yield surging 13bps to 4.10%. The 10-year yield increased by 7bps to 3.51%.
The core readings for March retail sales showed smaller-than-anticipated declines and further contributed to the rise in Treasury yields. In addition, hawkish comments from Fed Governor Waller also boosted market expectations for continuous rate hikes. The market now expects nearly a 90% probability of a 25-basis point hike at the May FOMC meeting, up from approximately 75% the day before.
On Friday, the Hang Seng Index and CSI300 Index opened higher but lost momentum mid-day before recovering to finish modestly higher. The Hang Seng Index gained 0.5%, and the CSI300 Index added 0.6%. However, technology stocks lagged, with the Hang Seng Tech Index closing nearly unchanged. Baidu, experienced the biggest loss among large technology names, down 4.2%. Conversely, semiconductor stocks rallied strongly, with SMIC (00981:xhkg) gaining 7.2%, and Hua Hong Semiconductor adding 3%.
Meanwhile, in A-shares, semiconductor, electronics, auto, non-ferrous metal, and gold mining stocks advanced. Notably, Naura Technology (002371:xsec) and China Wafer Level CSP (603005:xssc) saw a significant jump, hitting the 10% up limit.
The Australian benchmark, the S&P/ASX 200 has risen for the second day, and is up 0.3% to 7,386 as of 10:45am Sydney time, with the index trading at its highest since Feb. 17 and extending its rally from its March low to 7%. It seems buying appetite is picking up with the fundamentals and technical indicators in alignment. The market is pricing in the RBA has ended its hiking cycle, and that's supporting buying, with the market trading above all of its key technical indicators, suggesting momentum could continue. On Monday, broad gains in banks and consumer discretionary stocks are supporting the ASX200, while optimism is also high after US banks reported better than expected results on Friday.
After a tough week, the USD recovered some ground on Friday into the close, bouncing higher as Treasury yields rose on the back of retail sales data and UoM survey signalling Fed could keep rates higher for longer. Fed’s Waller comments also brought back fear of more rate hikes, seeing EURUSD drop back below 1.10 and GBPUSD below 1.25 and testing 1.24 at last look. USDJPY also rose back higher to test 134 handle from lows of 132 in the week. NZDUSD is testing a break below 0.62 with AUDNZD back above 1.08 and NZ inflation data due this week will be key.
Oil was one of the best performing commodities last week, rising about 2.3% as the market is refocusing on the lack of supply. The International Energy Agency (IEA) warned that deep output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers such as Russia, could exacerbate the oil supply deficit. The oil price is trading around $82.50, and under its 200-day moving average, which appears to be acting as resistance. The oil derivate, diesel, is however flashing signs of an economic slowdown, with trucking and container port activity being noticeably down in China recently, while S&P Global says diesel global demand is on track to contract 2% in 2023.
Higher yields into the close on Friday brought USD higher and weighed on Gold shine. Gold prices slumped from $2040 to sub-2000 on hawkish comments from Fed voter Christopher Waller who speaks again this week, although a recovery to just above $2000-handle was seen subsequently. Silver also plummeted from $26 to lows of $25.15 with support at the 25-handle still holding. This week’s PMI data will be key for precious metals along with a host of Fed speakers and Gold will need to hold supports at $1992 and $1988 to maintain upward trajectory.
Headline retail sales fell 1.0% in March, deeper than the expected decline of 0.4% and the prior -0.2% (revised up from -0.4%). Core Retail sales were also weak, falling 0.8% vs the -0.3% consensus and against a prior -0.1%. However, the retail control group, an input into the consumer spending section of GDP, declined by 0.3%, coming in better than the Bloomberg consensus expectation of -0.5%. The March industrial production also came in better-than-expected at 0.4% MoM vs. +0.2% expected, further boosting short-end yields. Data was giving markets relief that US economy is not falling into a recession, and rates could stay higher for longer.
Preliminary print UoM for April saw the headline rise to 63.5 (exp. 62.0, prev. 62.0) reflected by current conditions and forward-looking expectations both lifting more-than-anticipated to 68.6 (exp. 67.3, prev. 66.3) and 60.3 (exp. 60.0, prev. 59.2), respectively. Meanwhile, inflation expectations jumped sharply higher, with 1yr expectations coming in at 4.6% from 3.6% previously while long-term 5yr expectations remained at 2.9%. This is probably a signal of higher gasoline prices at the pump, and continues to signal that it may be too soon to take inflation concerns off the table.
A host of Fed speakers were on the wires on Friday. Specifically, Waller’s (voter) comments were particularly hawkish, as he noted the recent data shows Fed has not made much progress on its inflation goal, and rates need to rise further. He also said that policy needs to remain tight for a substantial period and longer than what markets are expecting. Bostic (non-voter) also supported the case for a May rate hike, saying that the recent inflation data is encouraging, though prices are still rising too fast and the Fed needs to do more. Dovish member Goolsbee (voter) repeated his comments from earlier in the week, noting he does not want to comment on what he will be voting for in May as he still wants to see the data, but repeated the need to be mindful as Fed has already hiked a lot and there is some lag possibly coming through and possibly evident in the weak March retail sales. With data flow remaining thin this week, focus will be on a host of Fed speakers to assess the path of interest rates from here.
JPMorgan Chase, Wells Fargo, and Citigroup have all announced robust Q1 earnings, boasting elevated net interest income and earnings that surpassed market expectations. JPMorgan Chase emerged as the top performer in terms of deposit growth and credit losses, eliciting a favorable market response. JPMorgan’s non-interest-bearing deposits grew 1.3% Q/Q. While all three banks denied any credit tightening, Wells Fargo noted a decline in consumer spending during late Q1. JPMorgan reported an adjusted revenue of $39.3bn, exceeding estimates, with a marked increase in net interest income. Wells Fargo posted revenue of $20.7bn, slightly above expectations. Citigroup's revenue clocked in at $21.5bn, also surpassing projections but with deposits falling 3% Q/Q. While JPMorgan CEO Jamie Dimon cautioned about tighter credit conditions in the future, he asserted that the number of regional banks likely to encounter difficulties is limited.
It's worth keeping an eye on mining companies, as Western Australia was hit by the strongest cyclone in more than 10 years, with the storm closing a key iron ore export port and forcing a gold mine 248 miles inland to wind down operations. The iron ore (SCOA) price has however fallen below its 100-day moving average with the steel ingredient trading at $114.50. Its price is now in a correction, down almost 13% from its cycle high, as traders have been spooked by China announcing it is going to cut steel production for the third year in a row, to curb emissions. That said, ore price is up 54% from its October low. In the week ending April 14, shares in BHP, Rio, Fortescue, and Champion Iron moved up ~3%+ after Chinese credit data rose more than expected, suggesting iron ore demand could pick up. Should we see port shutdowns persist, iron ore supply concerns could pick out, and thus pressure iron ore prices higher. A close above iron ore’s 21-day moving average, at around $120.41 could imply buying appetite returns.
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Chief Investment Strategist
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Chief Investment Strategist
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Chief Investment Strategist
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Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy