US equities endured a dramatic Tuesday session, falling 1.4% overall with the decline led by the technology sector. In Saxo Bank head of equity strategy Peter Garnry's view, more turmoil could be ahead as the US 10-year Treasury yield remains north of the psychologically key 3% level.
"The ostensible catalyst for Tuesday's decline was the Caterpillar earnings release, in which the firm's CEO states that the first quarter of 2018 might represent a high-water mark for the company, but I think this story is too simple," Garnry says.
While Caterpillar shares fell 6.2% on the news, US equity prices reflect a complex landscape of macro and cross-asset relationships, with Garnry unwilling to link Tuesday's declines to a single factor, particularly in light of elevated yields.
In Europe, Garnry sees stocks heading lower on mixed earnings following Credit Suisse trending positive on the company's shift to wealth management while Nordea struggles to hit its 2018 targets. Another event in focus this week is the European Central Bank's April 26 press conference in light of data showing ECB corporate bond purchases down 50% in April, leading investors to question whether a "stealth taper" is already in effect.
The twin questions of a hawkish ECB and a potential selloff in risk assets on elevated bond yields are very much active in the fixed income space as well, although Saxo bonds specialist Althea Spinozzi notes that fixed income volatility did not notably pick up in the wake of the surge past 3% in 10-year US yields.
Saxo Bank head of commodity strategy Ole Hansen reports that oil prices headed lower from the recent peak on French president Emmanuel Macron's visit to Washington, where he called for a new Iranian nuclear deal. Geopolitical pressures, however, remain elevated in Hansen's view as the US and major European powers move to isolate and/or oppose Iran and Russia.
"The key levels here are $66.60/barrel in WTI and $72.12 in Brent, representing the 38.2% retracement of the April rally".
In gold, Hansen reports that prices remain tied to the 2018 average of $1,332/oz although downside pressures risk a move to $1,320 and potentially beyond. Finally, Hansen reports that coffee prices have spiked on an improved technical outlook and in the wake of speculative funds overselling an expected 5 million bag surplus by a factor of four.