Mike Dolan provides an update on the US and global markets for the day ahead.
Global markets have returned to levels of almost a month ago, as fears of an overheating U.S. economy ease and corporate profit growth remains strong.
April’s failure in new hires and the prospect of annual wage growth below 4% were enough to shift the narrative toward a Federal Reserve on hold for now, rather than toward a Reserve which could even consider further increases in interest rates.
That may seem little consolation to investors who at the start of the year expected declines of more than 100 basis points in 2024, but it calmed choppy bond markets that saw $125 billion in New Treasury coupons hit the market this week, starting with $58 billion in 3-year bonds on Tuesday.
A review of upcoming US economic reports shows the surprising data is now the most negative since February last year.
Additionally, the Fed’s latest survey of loan officers shows a further weakening of industrial loan demand and a decline in household credit demand during the first quarter of the year.
Another survey from the New York Fed, released Monday, showed that Americans are bracing for another rise in housing costs.
New York Fed boss John Williams said that at some unspecified time the US central bank will lower its target interest rate.
“We will eventually reduce interest rates, but for now, monetary policy is “very well placed,” he said Monday.
So interest rate futures have returned to pricing in nearly 50 basis points of Fed easing for the year, even if only from September. Yields on two-year Treasury notes hovered around 4.80% on Tuesday, a far cry from highs of more than 5% reached before last week’s jobs figures were released.
Stocks on Wall Street rose sharply again on Monday, showing that the mood is buoyant again, with first-quarter corporate profits overall coming in well above expectations early last month . Walt Disney will lead the results later on Tuesday.
The dollar remained firm on Tuesday, pushing higher against the Japanese yen again to 154.65, despite two alleged episodes of Japanese intervention last week to prop up the yen.
Masato Kanda, Japan’s top foreign exchange diplomat, said again on Tuesday that Japan may have to take action against any disorderly and speculative movements in the foreign exchange market.
As for foreign stocks, most Asian and European stock markets were higher – only Hong Kong’s Hang Seng halted its recent advance to finish in the red. Hong Kong’s benchmark index nevertheless remains up 8.35% since the start of the year in dollar terms, slightly less than the 8.6% gain in the S&P500 index.
UBS EXCEEDS EXPECTATIONS
In Europe, Swiss bank UBS was the talk of the town on Tuesday, with its stock jumping 8% on first-quarter profits that beat forecasts and the bank saying it was sticking with its buyback plans. of shares over three years despite proposals from the Swiss government which would increase its capital requirements.
The bank’s shares have soared nearly 50% since its merger with Credit Suisse last year, with investors optimistic about UBS’s prospects given low acquisition costs, huge increase in assets and – so far – relatively easy progress in integrating its struggling rival.
Elsewhere, UniCredit, Italy’s second-largest bank, gained almost 3% as it raised its investor remuneration forecast for the year, after posting significantly better-than-expected net profit and increasing its capital levels.
In contrast, BP fell after the oil giant reported first-quarter profits down 40% from a year earlier and missed forecasts due to falling energy prices and a refinery outage in the United States, even though oil and gas production increased.
Key agenda items that could drive U.S. markets later on Tuesday: * Minneapolis Federal Reserve President Neel Kashkari speaks: Walt Disney, Duke Energy, Mckesson, Occidental Petroleum, Sempra , Assurant, Wynn Resorts, Rockwell Automation, Reddit, Arista Networks, Lyft, Match, Henry Schein, Electronic Arts, Jack Henry, Bio Rad, TransDigm, NRG, Kenvue etc * Chinese President Xi Jinping in France and Serbia as part of a week-long visit to Europe * British Finance Minister Jeremy Hunt answers questions from Parliament * The US Treasury auctions 58 billion dollars of 3-year bonds.
