Nasdaq futures dropped despite a continued slide in yields as the "bad news is bad news" mood extended for a third day, as traders awaited further data on the US jobs market that may fuel concerns about a potential recession. Nasdaq 100 contracts slid 0.2% by 7:30 a.m. in New York, the third straight day of losses for the tech index just after entering a bull market and posting its strongest March in over a decade. Contracts on the S&P 500 were little changed before the start of the Easter long weekend following a string of weaker-than-expected data releases from the US which has put the risk of a recession back into focus for investors who will be watching initial jobless claims closely today. Treasury yields extended a slump as growing fears that world economy is set for a sharper slowdown outweighed concerns over elevated inflation and monetary tightening. The dollar was flat, oil rose and bitcoin dropped.
In premarket trading, FedEx rose 1% after Raymond James raised the stock to outperform. FedEx on Wednesday it seeks to cut $4 billion in costs by combining its two main delivery networks. The Mosaic Co. dropped 2.7% after JPMorgan downgraded the stock to neutral. Costco Wholesale Corp. slipped in extended trading Wednesday as the second straight slowdown in a key monthly sales gauge stoked doubts about the strength of US consumers. Meanwhile, Toast Inc. was initiated hold at Deutsche Bank AG which says the restaurant software company is uniquely positioned to gain additional market share. Here are some other notable premarket movers:
The past week has exposed conflicting forces buffeting equity markets, with traders flip-flopping between defensive and cyclical stocks, as their focus switched from recession fears to monetary policy concerns and back again. The effects of the Fed's interest rate hiking campaign appear to be filtering through into readings of the economy. Private US job vacancy figures for February published on Wednesday showed a cooling of labor market dynamics, adding to bets that the recession the market has been predicting since the start of the year may finally be near. Traders now look to today’s initial jobless claims for further clues, with nonfarm payrolls due on Good Friday.
"Traders are likely to be very neutral going into the holidays, which is perhaps why the stocks and sectors that did so well in the first quarter are underperforming this week, and vice versa,” said Roger Lee, head of UK equity strategy at Investec Bank Plc. “It feels like a re-balancing of books ahead of the break.”
“The labor market is finally showing signs of slowing,” said Investec’s Lee, who also noted that the Institute of Supply Management data suggested a broader slowdown, “with services missing expectations and the new orders component falling sharply. The market has extrapolated from these data points and is now even more convinced a recession is imminent.”
This view is reflected in bond markets too. The yield on two-year Treasuries, the most sensitive to monetary policy, slid for a fifth day, its longest streak since July 2022, while the 10-year rate witnessed a seventh-day drop to 3.27%.
Investors also continue to hold concerns about potential instability in medium-sized lenders. Goldman Sachs strategists said earnings of smaller US companies are more likely to be affected by the stress in the banking system than larger firms, given they’re more economically sensitive and have more exposure to regional lenders.
Signs of slower activity have added to worries over the financial system sparked by bank failures. Economists now assign a 65% probability of a US recession and money markets see only a 44% chance the Federal Reserve will raise interest rates by 25 basis points in May. That marks a contrast to the start of the week when they had seen a 70% prospect of the hike. Now they also expect the central bank to start cutting rates as early as July.
“Overnight interest-rate swaps now price in a lower path for Fed rates than they did at the beginning of March,” UniCredit SpA strategists led by Marco Valli wrote in a note. “We regard this as an overshooting. The Fed will need to see substantial progress on core inflation moving down to 2% before it even considers rate cuts and, hence, policy rates will likely remain at their peak for longer than markets are now expecting.”
European stocks climbed, with the benchmark Stoxx 600 ending a three-day slide, as traders assessed trends in corporate earnings. The Stoxx 600 is up 0.3% with real estate, insurance, health care and travel the best-performing sectors. Shell Plc advanced as preliminary figures showed the company maintained the performance at its gas-trading business despite a price slump. TUI AG jumped 12% after the tourism-services company said it expects summer travel bookings close to pre-Covid levels. Here are some of the biggest European movers:
Asia stocks declined as mounting recession fears and deepening tensions between the US and China dented investor sentiment. The MSCI Asia Pacific Index dropped as much as 1%, with Japan and South Korea leading declines in the region. Gauges in Hong Kong eked out small gains while those in mainland China and Taiwan fell as traders returned from holidays. Measures in India bucked the selloff, erasing earlier losses, after its central bank unexpectedly left the benchmark interest rate unchanged. Markets in the Philippines and Thailand were closed for a holiday. Chip-related stocks such as Samsung, TSMC and Tokyo Electron were among the biggest drags on the Asian gauge amid worries over the US-China technology trade spat. A report by Yomiuri said Asia’s largest economy has urged the World Trade Organization to probe practices of US and its allies over their export curbs. Meanwhile, Samsung is expected to report its worst profit in at least 14 years on Friday. Data showed that US companies added fewer than expected jobs in March while wage growth has slowed, supporting forecasts for a possible recession in the US economy. Investors are on the watch for US payrolls report due Friday to gauge the Federal Reserve’s next rate move. “Until we get inflation down probably below 3%, we are going to keep seeing this volatility,” Christian Hoffmann, portfolio manager at Thornburg Investment Management, said in an interview with Bloomberg TV. “I might argue we are not seeing recession fears played out in any market” given elevated equity valuations, normal to tight credit spreads and core rates that remain high
Japanese stocks declined for a second day after weaker-than-expected US economic data exacerbated worries about a recession. The Topix Index fell 1.1% to 1,961.28 as of market close Tokyo time, while the Nikkei declined 1.2% to 27,472.63. Keyence Corp. contributed the most to the Topix Index decline, decreasing 4.1%. Out of 2,158 stocks in the index, 355 rose and 1,733 fell, while 70 were unchanged. “The US ISM data was weak, disappointing expectations that the service sector is solid and increasing concerns over the economy,” said Kenji Abe, chief strategist at Daiwa Securities/
Australia stocks snapped an eight-day winning streak as miners and real estate shares weighed; the S&P/ASX 200 index fell 0.3% to close at 7,219.00, Asian stocks declined against the backdrop of weaker-than-expected economic data that supported forecasts for recession. Still, the benchmark gained 0.6% during the shortened trading week. The market will be closed Friday and Monday for the Easter break. In New Zealand, the S&P/NZX 50 index was little changed at 11,870.08
Indian stocks rose for a fifth straight day in the longest gaining streak in more than two months as the central bank surprised with a rate pause. The S&P BSE Sensex rose 0.2% to 59,832.97 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measure. Both gauges rose more than 3% each for the truncated week that concluded on Thursday. Markets in India are shut on Friday for a holiday. The Reserve Bank of India kept its key rate at 6.50%. Most economists in a Bloomberg survey expected a 25 basis point increase. “I think it’s a brilliant move by the RBI because financial stability is equally important and inflation in India has been moderating,” Chakri Lokapriya, CEO at TCG Asset Management said. “As an equity investor, the focus will now be on companies that are showing visible signs of earnings growth and recovery.” The five-day rally in Indian stocks has now helped the benchmark Sensex trim its yearly losses to less than 2%. The gains are also supported by the resumption of buying from foreigners since March after three months of selling as valuations moderated to long-term averages. “This is good for banks and will help lenders take leadership of the market, which is very important,” said Atul Suri, founder of Mumbai-based investment advisory firm Marathon Trends Advisory Pvt. HDFC Bank contributed the most to the Sensex’s gain, increasing 0.7%.
In FX, the Bloomberg Dollar Spot Index is up 0.1% while the Swiss franc is the best performer among the G-10’s. The kiwi is the weakest, falling 0.6%.
In rates, treasuries are richer across the curve led by front-end, holding gains made during Asia session and London morning. Curves are steeper with spreads still inside Wednesday’s ranges; yields are richer by 5bp-6bp across front-end of the curve with 2s10s, 5s30s spreads steeper by ~3bp and ~4bp on the day; 10- year yields around 3.28% are richer by ~3bp vs Wednesday’s close with bunds and gilts slightly outperforming. The two-year US government-bond yield slid for a fifth day, while the 10-year rate witnessed a seventh-day drop to 3.27%. That was the longest sequence of declines since 2020, barring similar moves around the July 4 holidays in the past two years. IG dollar issuance slate empty so far; two deals priced $2.5b Wednesday, bringing weekly total to $9b vs $15b expectations.
In commodities, crude futures decline with WTI falling 0.5% to trade near $80.20. Spot gold is little changed around $2,019.
Given the tentative tone overall, Bitcoin is similarly contained and only incrementally in the red on the session and essentially neutral for the week as a whole.
Looking at today's calendar, US economic data slate includes March Challenger jobs cuts (7:30am New York time) and initial jobless claims (8:30am) and a speech by Fed’s Bullard. ; March employment report ahead Friday, an abbreviated session (Sifma recommended 12pm stop) with US stock markets closed
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A more detailed look at global markets courtesy of Newsquawk
Asia-Pac stocks were mostly subdued amid headwinds from further US weak data releases and with risk appetite also restricted as global markets approached the Easter holiday period, albeit with the downside stemmed as participants digested Chinese Caixin Services PMI data which showed a firm acceleration in services activity. ASX 200 was marginally lower as weakness in the tech and real estate sectors just about overshadowed the resilience in defensives and with trade data showing a monthly drop in both imports and exports. Nikkei 225 resumed the prior day’s underperformance amid some speculation of a potential policy shift by the BoJ soon as the Kuroda era comes to an end this week and with former BoJ Director Momma suggesting the recent drop in global bond yields has created favourable conditions for the BoJ to scrap its YCC this month. Hang Seng and Shanghai Comp were lacklustre after a substantial liquidity drain by the PBoC and amid frictions related to Taiwan President Tsai’s meeting in the US with members of Congress including House Speaker McCarthy although losses were kept to a minimum following the strong Chinese Caixin Services and Composite PMI data.
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European bourses are incrementally firmer but are set to conclude the shortened week roughly flat, Euro Stoxx 50 +0.1%. Sectors are mixed as such though Travel & Leisure is one of the outperformers after favourable Tui commentary. Stateside, futures are in close proximity to the unchanged mark but with a modest negative bias in-play ahead of IJC, Bullard and pre-Easter/NFP.
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Fixed Income
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US Event Calendar
DB's Henry Allen concludes the overnight wrap
Here in the UK, we’re about to have two public holidays, tomorrow and on Monday, so the EMR will be taking a break over the long weekend. We’ll resume normal service again on Tuesday morning. Happy Easter to all of you and many thanks for all your interactions over recent months.
As we approach the Easter weekend, risk-off sentiment has continued to grow in markets thanks to another round of weak data that’s added to fears about a potential US recession. First, we had the ADP’s report of private payrolls, which came in beneath every economist’s expectation on Bloomberg at just +145k (vs. +210k expected). So that’s more evidence that the labour market is beginning to cool off, and it echoes the narrative from the job openings data the previous day, which fell beneath 10m in February for the first time since May 2021.
The ADP report was the catalyst for another decline in Treasury yields, but the idea that the economy was weakening was cemented shortly afterwards by the final PMI readings for March, which showed some notable downgrades relative to the earlier flash estimates. Indeed, the US composite PMI came in at 52.3 (vs. flash 53.3), and the services PMI came in at 52.6 (vs. flash 53.8), so both were seeing downward revisions of at least a full point. 15 minutes later, that was then rounded out by the ISM services index for March, which fell to 51.2 (vs. 54.4 expected), with declines in both the employment (51.3) and new orders (52.2) components relative to the previous month as well. It’s worth noting that none of these prints showed a decline or were beneath the 50-mark pointing to a contraction, but given they were consistently beneath expectations, it’s certainly added to the jitters that the US economy could face a recession later this year.
With all these negative data releases coming through, investors maintained a fairly dovish path from the Fed over the coming months. For instance, at the next meeting in May, the chances of a rate hike according to futures remained at 47%, after having been as high as 70% earlier in the week. That was echoed further out the curve too, with the rate expected by the December meeting falling by -3.8bps to 4.09%. And in turn, there was a fresh decline in Treasury yields, with the 10yr yield down by -2.8bps to 3.31%, which hasn’t been seen since early September last year and overnight they’re down another -1.7bps to 3.29%. 2yr yields were down -14.9bps to under 3.70% intraday, before ending -4.6bps lower to 3.78%, and overnight they’ve fallen -2.3bps to 3.76%. For real yields it’s been much the same story, with the 10yr real Treasury yield falling as low as 1.02% at one point intraday, which is closer to the 1% mark than at any time since September.
We’ll have to see if these weak data outturns from yesterday are backed up by tomorrow’s jobs report, which has added importance since it’s the last one ahead of the Fed’s next decision in early May. Our US economists think that’ll show nonfarm payrolls grew by +250k, which if realised would actually be the second-slowest pace of monthly job growth over the last two years. They think that should keep the unemployment rate steady at 3.6%. Bear in mind however, that even though we’ve had some weak data on the employment side, the ADP report for January also came in beneath every economist’s expectation on Bloomberg, but nonfarm payrolls went on to surge by +517k on the initial estimate, so there’s still scope for a wide range of outcomes tomorrow.
For now however, the risk-off tone has predominated, and the S&P 500 (-0.25%) fell for a second consecutive session for the first time in over three weeks. The decline was led by the more cyclical industries, and the NASDAQ (-1.07%) and the FANG+ Index (-2.28%) were particular underperformers, in spite of the decline in rates. At the same time, the KBW Bank Index (-0.50%) lost ground for a third day running, with Western Alliance Bancorp (-12.38%) as the worst performer in the index. Otherwise in Europe, the STOXX 600 (-0.16%) posted a modest loss for a third consecutive day.
Whilst markets were pricing in a growing chance of a pause in the Fed’s cycle of rate hikes, Cleveland Fed President Mester suggested in a Bloomberg interview that they still had a bit further to go. She said that “I think we’re going to have to go a little bit higher from where we are”, and that they would “then hold there for some time” to ensure inflation returned to target. Over at the ECB, we also heard from Croatia’s Vujcic, who said that the “biggest part of the cycle of rate rises is behind us”. However, he also said that if core inflation stayed above 4%, then “further hikes” could be expected, and remember that core inflation hit a Euro Area record of +5.7% in March. The other speaker we heard from was Slovenia’s Vasle, who said that core inflation was “clearly on an upward trend”. For now at least, investors seem more confident in the chances of an ECB hike in May than one from the Fed, with overnight index swaps pointing to a 87% chance of a 25bp hike from the ECB, whereas Fed funds futures are at just 47% for the Fed.
Overnight in Asia, there’ve been further losses overnight, with the Nikkei (-1.36%), the KOSPI (-1.17%), the CSI 300 (-0.30%), the Hang Seng (-0.05%) and the Shanghai Composite (-0.04%) all losing ground. That’s in spite of a rise in the Caixin services and composite PMIs from China in March, with the services measure up to a 2-year high of 57.8 (vs. 55.0 expected). The mood remains pretty downbeat more broadly as well, with futures on the S&P 500 (-0.25%) pointing towards a third consecutive decline today.
Amidst this gloomy backdrop, one asset that’s managed to outperform has been gold (+0.02%), which hit its highest intraday level since March 2022 yesterday, with a peak of $2,032 at one point. It’s come off its highs overnight to $2,012 this morning, but prices have been supported by several factors recently, including the flight into haven assets and the prospect that the Fed might pause its cycle of rate hikes shortly. In fact, in less than a month since March 8, just before the market turmoil began over SVB, gold is now up by +11.4%.
When it came to yesterday’s other data, German factory orders expanded by a much stronger-than-expected +4.8% in February (vs. +0.3% expected). On the other hand, the US trade deficit widened by more than expected in February to $70.5bn (vs. $68.8bn expected). The other main release were the final PMI numbers from Europe, with the Euro Area composite PMI coming in at 53.7. That was slightly down from the flash reading of 54.1, but is still a 5th consecutive monthly gain, adding to the picture that the European economy has continued to rebound since late last year amidst a considerable decline in natural gas prices.
To the day ahead now, and data releases include German industrial production for February, along with the US weekly initial jobless claims. Otherwise from central banks, we’ll hear from the Fed’s Bullard.