US equity futures swung between gains and losses and traded near session highs as US traders walked to their desks on Monday morning after a rollercoaster day for the Japanese yen, which increasingly looks like some 3rd world banana republic currency instead of belonging to the world's 3rd largest economy, and which first plunged below 160 vs the USD - the lowest level since 1990 amid dismal volumes thanks to the Japanese market holiday on Monday - only to soar more than 500 pips in what is now the first confirmed BOJ intervention since 2022. Futures were buoyed by rising earnings optimism as traders looked ahead to another very busy week for company results, and as of 7:40am, S&P futures gained 0.2% with Nasdaq futures rising 0.3%, boosted by another surge in Tesla shares. 10Y Treasury yields fell four basis points to 4.62% ahead of today's announcement by the Treasury of its funding needs for the coming quarter, while the dollar weakened. Oil retreated, with Brent first trading below $89 a barrel, only to rebound higher amid the endless speculation that a peace deal between Israel and Hamas is coming that would reduce geopolitical tensions in the Middle East (spoiler alert: there will be no deal). Gold rose and bitcoin fell.
In premarket trading, Tesla surged 11%, slamming the recent pile up of shorts (the biggest in two years) as Elon Musk’s quick visit to China paid immediate dividends, with Tesla receiving in-principle approval from government officials to deploy its driver-assistance system in the world’s biggest auto market.
Here are some other premarket movers:
The big overnight market event was the rollercoaster move in the Japanese yen which again took center stage with dramatic moves that fueled speculation over whether the government had intervened to support its beleaguered currency. In holiday-thinned trading, the yen swung wildly, rallying more than 2% on Monday after earlier dropping as much as 1.2% to 160.17 per dollar.
While analysts suggested the size and speed of the jump smacked of intervention, some traders questioned that conclusion and said Japanese banks sold dollars for customers as it rallied. Japan’s top currency official, Masato Kanda, chose to keep investors guessing by declining to comment. Dow Jones reported authorities stepped in to support the yen, citing people familiar with the matter.
It is a busy week: the Fed meeting on Wednesday and US jobs report on Friday will also be critical for markets this week. The last time Fed Chair Jerome Powell spoke, he signaled that policymakers were likely to keep borrowing costs high for longer than previously anticipated, pointing to the lack of further progress on bringing inflation down, and to enduring strength in the labor market. Meanwhile, with Apple and Amazon.scheduled to report in the next few days, investors will be hoping for more evidence that big technology profits can keep propelling stocks.
Morgan Stanley’s in house permabear Michael Wilson said the pressure from higher Treasury yields is taking the shine off an upbeat earnings season; that's even as Bloomberg data showed that 81% of S&P 500 firms have beaten first-quarter profit estimates so far. Still, as we noted over the weekend, the average stock price has barely outperformed the benchmark index on the day of results — the worst scorecard since the fourth quarter of 2020, the figures showed.
European stocks are higher, the Stoxx 600 rising 0.3% to 509.7, with Dutch medtech Philips the biggest stand-out performer, rising the most on record after striking a settlement related to a device recall; Deutsche Bank was the biggest decliner after making €1.3 billion of provisions, with its country peer Porsche falling too, following its latest earnings. Here are the biggest movers Monday:
Meanwhile, Asian equities climbed for a second straight day, as benchmarks for mainland and Hong Kong stocks looked set to enter a bull market. The MSCI Asia Pacific Index climbed as much as 0.3%, with AIA Group and TSMC among the top contributors to the gains. The MSCI China Index and Hong Kong’s Hang Seng Index were both on track to close more than 20% higher than their January lows, helped by a surge in property shares after a major Chinese developer reached a solution with bondholders for its liquidity issues.
“China may continue to outperform especially in a scenario where global risk sentiment remains cautious,” Nomura strategists including Chetan Seth wrote in a note. “Fundamentals remain tepid” and economic data in the next couple of months are important to avoid a reversal of recent gains, they added. Benchmarks in Taiwan, the Philippines and South Korea also advanced on Monday. Markets in Japan and Vietnam were closed for holidays.
In FX, the yen rallied to a 155 handle versus the dollar, having earlier weakened past 160 for the first time since 1990. The abrupt swing prompted speculation authorities may have intervened, although Japan’s top currency official has declined to comment even as Dow confirmed intervention. The Bloomberg Dollar Spot Index is down 0.3% as the greenback loses ground versus all its G-10 rivals.
In rates, treasuries climbed with US 10-year yields falling 4bps to 4.62%, with gains supported by euro-zone bond markets, particularly France’s, outperforming after Moody’s and Fitch affirmed the sovereign’s rating Friday. April inflation numbers from Germany and Spain were taken in stride. US yields richer by 2bp to 4bp across the curve with long-end-led gains flattening 2s10s, 5s30s spreads by 1.5bp and 0.5bp on the day; 10-year remains near session low around 4.625% with bunds outperforming by around 1.5bp in the sector, French 10-year by ~3bp. On Wednesday, Treasury announces quarterly refunding, expected to follow through on its January guidance of holding off on further increases
Oil prices are lower as the US pushes to broker a peace deal between Israel and Hamas. WTI falls 0.2% to trade near $83.70. Spot gold is little changed around $2,338/oz.
Monday’s US session has few calendar events. US economic data slate includes April Dallas Fed manufacturing activity at 10:30am New York time; ahead this week are consumer confidence, ADP employment change, manufacturing PMI, ISM manufacturing, factory orders and April jobs report. Fed members are in self-imposed quiet period ahead of May 1 policy announcement.
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APAC stocks began the week on the front foot after the tech-led surge last Friday on Wall St and amid increased optimism regarding a Gaza truce with negotiators set for talks in Cairo on Monday, although Japan was on holiday and ahead of this week's key risk events. ASX 200 was led higher by real estate, tech and telecoms owing to softer yields. Hang Seng and Shanghai Comp. gained with the former entering into bull market territory after climbing over 20% from its January lows, while participants digested a slew of earnings and the mainland also shrugged off the slowdown in March Industrial Profits.
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European bourses, Stoxx600 (+0.3%) are almost entirely in the green, taking the lead from a positive APAC session overnight. Trade has been rangebound since the open, though has just been coming off best levels in recent trade. Basic Resources is found towards the top of the pile, benefiting from modestly firmer base metal prices and after further takeover reports regarding BHP/Anglo American. Retail marginally underperforms. US Equity Futures (ES +0.2%, NQ +0.3%, RTY +0.3%) are entirely in the green, posting modest gains in tandem with European peers. In terms of pre-market movers; Apple (+1.5%) gains on reports that it has resumed talks with OpenAI. And Tesla (+6.5%) benefits from news that the Co. has received tentative approval for its self-driving service.
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DB's Jim Reid concludes the overnight wrap
I wrote some of this while supervising my three kids doing their homework this weekend. The 6yr old twins had fractions and adverbs, with the latter being pretty challenging. They had a whole story where they had to insert missing adverbs. It was incredibly, astonishingly, extremely, exceedingly, enormously, supremely, difficult. So if you see a few stray adverbs below it's because I've been swimming in them this weekend.
With just two days left of a difficult April for markets, last week actually saw the best week for the S&P 500 (+2.67%) and NASDAQ (+4.23%) since November as earnings generally gave markets a boost even if the US inflation data was net net worrying. You’ll see our full recap of last week towards at the end but looking forward first it's an exceptionally busy week of important events.
The FOMC conclusion on Wednesday is the obvious highlight (full preview below) but we also have payrolls on Friday to look forward to. DB expect a more hawkish-leaning Fed this week. While our economists expect the Committee will maintain an easing bias (preview here), they do expect the statement and press conference to echo Chair Powell’s view that firmer inflation prints suggest it will take longer to gain confidence about disinflation. The press conference will be fascinating to see the nuances in Powell’s responses as he justifies a likely unchanged easing bias, even if the rhetoric is more hawkish, in the face of rising inflation.
In terms of the jobs report on Friday, our US economists see payrolls gaining +240k in April (consensus +250k), down from +303k in March. The consensus expects the unemployment rate and the hourly earnings growth rate to stay at 3.8% and +0.3% MoM, respectively, although DB expects the former to tick up a tenth. Overall the market sees a solid report.
Other key data in the US includes consumer confidence tomorrow, the manufacturing ISM, JOLTS, and ADP on Wednesday, and the services ISM on Friday. We also see the latest US Treasury quarterly refunding announcement on Wednesday, after the borrowing estimate is due today. This was a big pivot point for global markets back in August (negative) and October (positive) but since then a commitment not to increase auction sizes has reduced its importance. Our strategists preview the event and detail their estimates here. Finally in the US, earnings season maintains its peak pace as 174 report in the S&P versus 180 last week with Amazon (Tuesday) and Apple (Thursday) the obvious highlights. Meanwhile, 66 Stoxx 600 companies will report this week.
In Europe, preliminary CPI reports for Germany and Spain today, and the Eurozone tomorrow will have a lot of significance for the June ECB meeting and whether we will see the first cut. Our European economists preview the release here. For the Eurozone, they expect the headline HICP to fall one-tenth to 2.31% yoy, its lowest value since August 2021 and see core inflation slowing further to 2.45% yoy, 0.50pp lower than in March 2024. Staying in Europe the latest GDP data for Germany, France, Italy and the Eurozone are due tomorrow. In Asia, various China PMIs (tomorrow) will be a big focus and in Japan, several key economic indicators are also due, including industrial production and labour market data tomorrow.
The day-by-day calendar at the end as usual gives a more detailed diary of the main events this coming week.
Asian equity markets have started the week on a positive note extending Friday’s rally on Wall Street. Chinese stocks are the best performers across the region with the Hang Seng (+1.93%) leading gains followed by the CSI (+1.63%) and the Shanghai Composite (+0.94%), buoyed by a rally in property stocks after embattled property developer CIFI Holdings reached a solution with bondholders on a plan to restructure its offshore debt. Elsewhere, the KOSPI (+0.91%) is also trading higher while stock markets in Japan are closed for a public holiday, also meaning no cash Treasury trading as yet. S&P 500 (+0.25%) and NASDAQ 100 (+0.34%) futures are edging higher.
In FX, the Japanese yen remained under pressure as it weakened past 160 earlier (from just below 158 at the open), its weakest level since 1990. This was in thin holiday trading and it's subsequently bounced back to below 156. So some astonishing moves this morning!
Over the weekend, China’s industrial profits fell -3.5% in March (YoY) and have now risen + 4.3% y/y in the first quarter, significantly down from a +10.2% expansion in the January-February period, thus still pointing to challenges for China even with a better outlook of late.
Recapping last week now, the US March PCE inflation came in line with expectations on Friday at +0.3% month-on-month, allowing markets to breathe a slight sigh of relief compared to the strong Q1 PCE deflator in the GDP data the day before. In year-on-year terms, the March PCE release came in just above expectations at +2.7% (vs 2.6% expected). The month-on-month core print was also in line with consensus at +0.3%, and at +2.8% year-on-year (vs 2.7% expected). The March data also pointed to a still vibrant US consumer, with real personal spending up +0.5% on the month (vs +0.3% expected).
With the PCE print largely in line with expectations, US equities rallied, with the S&P 500 rising +1.02% on Friday. A strong performance by the tech giants following strong Q1 results from Alphabet (+10.22%) and Microsoft (+1.82%) the previous evening saw the Magnificent Seven post their best day in two months (+3.27%). After three weeks of consecutive losses, both the S&P 500 (+2.67%) and the NASDAQ (+4.23%) saw their largest weekly gains since last November. Even as technology spearheaded the rally, the gains were broad-based, as the Russell 2000 index rose +2.79% (and +1.05% on Friday). European equities also advanced, with the STOXX 600 up +1.74% last week (and +1.11% on Friday). The FTSE 100 hit another record high after gaining +3.09% (and +0.75% on Friday).
Friday’s PCE print did little to reverse expectations for fewer Fed rate cuts this year. The number of cuts anticipated by the December meeting was unchanged on Friday (+0.1bps) but down -4.9bps over the week to 34bps, with the decline coming on Thursday following the inflation data within the Q1 GDP release. US Treasuries did see a moderate rally on Friday, as the 2yr and 10yr yields fell -0.3bps and -4.0bps respectively. However, this was insufficient to erase earlier losses with Treasury yields seeing their highest weekly close year-to-date, up +0.9bps to 4.996% for 2yrs and +4.3bps to 4.665% for 10yrs. The story was similar in Europe, as investors dialled back their expectations of ECB rate cuts by -2.2bps on the week to 72bps. This saw 10yr bund yields rise +7.5bps on the week to 2.57%, despite a sizeable recovery on Friday (-5.5bps).
Meanwhile in Asia, the major story last week was the weakening of the Japanese yen. With the Bank of Japan leaving interest rates on hold, alongside restrained commentary on the exchange rate by policymakers, the yen fell -2.33% (and -1.78% on Friday) to 158.33 per dollar, its weakest level since 1990. Against this backdrop, the Nikkei 225 rose +2.34% (and +0.81% on Friday).
Finally in commodities, copper secured its fifth consecutive week of gains after rising +1.48% (and +1.03% on Friday) on the back of growing demand for clean transition metals and tight supply. On the other hand, gold ended its five-week streak of consecutive gains, falling -2.26% (+0.39% on Friday) amid easing geopolitical fears.