Summary: U.S. equity market fluctuated as S&P Global US Manufacturing PMI data came in strong and corporate results were mixed. Investors focus on the heavy earning calendar this week with 170 companies and over 40% of the S&P reporting results this week. In addition, investors are waiting for US GDP this Thursday and PCE deflator on Friday to gauge the Fed’s interest rate path.
The major US equity benchmarks (US500.I and USNAS100.I) are eyeing a slow start to Monday ahead of a major week of earnings and economic data
As investors await earnings results and outlooks from 170 companies in S&P500 this week, as well as seeing what the Fed’s preferred inflation gauge will reveal, the US futures are suggesting a slightly negative Monday open. The S&P 500 and Nasdaq 100 ended Friday’s session virtually flat, up just 0.1%, while rounding out the week in the red, with the Nasdaq down 0.6%. Still, it appears equites are remaining mostly rangebound, awaiting this week's major catalysts. Meanwhile, regional banks have continued to come under pressure, with SPDR S&P Regional Banking ETF (KRE:arcx) losing 1.3% on Friday. Truist Financial (TFC) tumbled 5.9% on reporting Q1 earnings that missed estimates, while giving downbeat guidance. On the other hand, Western Alliance (WAL:xnys) lifted 2.7% as deposit outflows seem to stabilise.
On Friday, Consumer discretionary, consumer staples, and healthcare outperformed. Amazon (AMZN:xnas) gained 3% ahead of reporting results this week. HCA Healthcare (HCA:xnys) climbed 3.75% after the hospital chain on an earnings beat and upbeat full-year outlook. Schlumberger (SLB:xnys) plunged 4.2% after reporting cash flow missing analyst estimates.
The S&P Global US Manufacturing PMI, the Services PMI, as well as the Composite PMI all came in stronger than expectations. In addition, average prices in the survey rose at the sharpest rate since September 2022. Treasury yield jumped on the report and finished the session 4bps higher across the curve, with the 2-year closing at 4.18% and the 10-year at 3.57%.
Hang Seng Index shed 1.6%, dragged by technology stocks. Hang Seng TECH Index dropped by 3.1%, driven by semiconductors, AI, and Internet names following a Bloomberg report that the U.S. is planning to impose wider than previously reported restrictions on American businesses to invest in semiconductors, AI and quantum computing in China. Chipmaker SMIC (00981:xhkg) plummeted 9.2%, being the biggest loser within Hang Seng Index. AI software and services provider Sensetime (00020:xhkg), tumbling 11.4%, was the worst-performing stock in the Hang Seng TECH Index. The China Internet space was sold off, with Alibaba (09988:xhkg) retreating 4.1%.
The weakness of EV stocks also weighed on the Hang Seng TECH Index as Nio (09866:xhkg), Li Auto (02015:xhkg), and XPeng (09868:xhkg) plunged 3% to nearly 5%. Non-auto consumer stocks outperformed. Sportswear maker Li Ning(02331:xhg) surged 2.9% and was the best-performing stock within the Hang Seng Index.
In A-shares, CSI300 tumbled nearly 2% on Friday, extending a straight 3-day retreat. Electronics, computing, semiconductors, software, and media names led the decline.
After the iron ore price pulled back 7% last week and has continued to pull back in early trade on Monday, losing 2.7% on concerns that China will slow down demand, we’ve seen the Australian share market has come under pressure. On Monday, the market opened 0.2% lower, following on from last week’s 0.4% pull back . That said, traders are also awaiting this week’s Australian CP report out Wednesday, which expected to show QoQ inflation cooled from 1.9% to 1.3%, with RBA expecting 1.8% QoQ and annual CPI of 7.4%. if we see a hotter read, the Aussie share market is likely to come under pressure and extend its pull back from last week. But, if the read is weaker that forecast, it will give the RBA power to keep rates unchanged again next week, which should support Aussie market sentiment. From a technical perspective, if the ASX200 can close above 7,392 a move to the February peak could be in the cards.
In the last few days, crude has wiped out all its gains after the surprise OPEC+ output cut. A report from the Energy Information Administration showed stockpiles fell 4.58 million barrels last week. What’s interesting is that this news of substantial drawdowns, should have supported the price, but oil has been sold down on the back of the increasing perceived risk of a US recession. This has forced traders to reduce longs that were bought following the production cuts, the bulk of which were around $84.50 in Brent and $80 in WTI, and this added to crude oil suffering its first weekly loss since the middle of March. As Ole Hansen writes, Saxo maintains the view that Brent looks set to continue to trade in the $80’s for the near term, while awaiting for a pick up in demand in the second half – as projected and reiterated by OPEC, IEA and the EIA in their latest oil market reports.
The S&P Global US Manufacturing PMI rose to 50.4, back to the expansion territory in April, from 49.2 in March and above the 49.0 expected. The S&P Global US Services PMI also came in stronger than the consensus estimate, bouncing to 53.7 in April, above 52.6 in March and beating the consensus 51.5. The composite measure was 53.5 in April, versus 52.3 in March and 51.2 expected. According to S&P Global Market Intelligence, new orders jump to the highest rate in 11 months and output prices rose in the fastest rate in seven months.
Bloomberg reports that U.S. President Biden is going to issue an executive order in the coming weeks to curb American businesses from investing in China’s semiconductors, AI, and quantum computing industries. The ban, according to Bloomberg, will be more expansive than what the other media previously reported. In February 2023, Politico reported that the Biden administration was scaling back the scope of the contemplated restrictions to new investment in China’s semiconductors industry only.
Meanwhile, U.S. Treasury Secretary Yellen took on a more hawkish tone saying that “even though these policies [against China] may have economic impacts, they’re driven by straightforward national security considerations, and we will not compromise on these concerns even when they make those trade-offs with our economic interests”.
Fortescue Metals Group (FMG), the fourth-biggest iron ore producer exported 46.3 million tons of the steelmaking material in the three months to March 31, which was little changed from last year’s corresponding quarter. That said, shipments for the first nine months of the fiscal year of 143.1 million tons were a record, as it saw first production at a new mine in Western Australia. Guidance for the year ahead was unchanged. The silver lining is that Fortescue sees costs being at the lower end of guidance range, at US$18 to US$18.75 a wet ton. The result follows a mixed set of production updates from iron ore producers including Rio Tinto Group, BHP Group, and Vale SA last week.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
