US index futures gained on Thursday halting a two-day drop, led by the tech stocks, after Meta’s better-than-expected results helped mitigate investor concerns about the F(ailing)irst Republic Bank, economic outlook, inflation and monetary policy. S&P 500 futures traded just above 4,100, rising 0.7% as of 8:00 a.m. ET, while Nasdaq 100 futures rose 0.9%, extending Wednesday’s gains as the tech-heavy benchmark continues its outperformance of the broader market this year. According to JPM, "this week’s Equity performance highlights the divergence due to low market breadth" something we discussed yesterday. European stocks gained and were set to snap a three-day losing streak as Barclays, AstraZeneca and Unilever all rise after their respective updates. Asian markets were also green after a rebound in Chinese stocks. USD is weaker, longer-dated yields are higher, and commodities are mixed before US GDP and jobless claims to gauge the strength of the US economy. Yields on five-year notes dropped the most in a month on Tuesday, spurred by a wave of quant investors. The Federal Reserve’s preferred inflation gauge, the core PCE deflator, is due Friday.
In premarket trading, Meta jumped as much as 11%, helping fuel gains in Snap and Amazon, both of which report after the close. First Republic Bank rose 2.8% after tumbling 64% in the previous two sessions. Cryptocurrency-exposed stocks also rose in premarket as Bitcoin gained for a third consecutive day, inching toward the closely watched $30,000 mark. Here are all the notable pre-market movers:
Coming on the heels of strong earnings from Microsoft, Meta’s results buoyed sentiment as investors weigh risks from banking-sector turmoil and the likelihood of a US recession. GDP and jobless claims data later on Thursday, as well as the core PCE deflator due on Friday, could provide further clues about the Federal Reserve’s likely interest-rate path. “Tech seems to be acting as somewhat of a haven trade,” said Michael Hewson, chief analyst at CMC Markets in London.
The potential for a tightening of credit conditions linked to the banking turmoil may prompt the Fed to adjust the pace of its interest-rate increases, Evercore ISI’s head of central bank strategy Krishna Guha wrote in a note, citing issues at First Republic Bank. The US regional lender faces potential curbs on borrowing from the Fed.
“We cannot rule out the possibility developments around First Republic could unfold in a manner that would lead the FOMC to skip May, while signaling a hike in June,” Guha said.
Europe's Stoxx 600 is up 0.2% and looking to snap a three-day losing streak as Barclays, AstraZeneca and Unilever all rise after their respective updates. Sanofi’s profit topped stimates as the French drugmaker’s blockbuster therapy Dupixent gained market share. AstraZeneca’s profit also rose in the first quarter, helped by sales of its blockbuster oncology treatments. Deutsche Bank AG dropped after trading revenue disappointed. Here are the biggest movers Thursday:
Pharmaceuticals are well-positioned to weather recession, according to Janet Mui, the head of market analysis at RBC Brewin Dolphin, who recommends shifting to defensives. “There has been some weakening in credit data which suggests it’s getting more difficult to get a loan,” Mui told Bloomberg TV. “This raises a chance of recession by the end of the year.”
Earlier in the session, Asian stocks rebounded as China markets extended gains, with investors digesting a slew of corporate earnings for clues on the recovery’s strength. The MSCI Asia Pacific Index erased losses to advance as much as 0.2%, set to snap a four-day losing streak. Ping An Insurance was among the biggest boosts after reporting a surge in its first-quarter profit as China’s rebound helped demand and investment returns. Financials hauled up mainland China and Hong Kong indexes in afternoon trading. Markets in the region were mixed, with stocks also advancing in South Korea, Japan and Taiwan while indexes in Thailand and Singapore posted declines. Investors were focused on results including those from tech heavyweight Samsung Electronics, which reported worse-than-expected earnings but gave an upbeat outlook.
Investors also parsed earnings from Chinese lenders following the recent pullback in mainland equities that at one point wiped out $446 billion in market value in April. China Merchants Bank fell in Hong Kong after reporting a softer set of first-quarter results than analysts had expected. The recent rout may offer “a good opportunity for long-term investors” in reopening bets, according to Pruksa Iamthongthong, senior investment director of Asian equities at abrdn. “The market itself had moved very much ahead in terms of expectations so the pullback that we have seen in first quarter results is actually a good thing.
Japanese stocks closed slightly higher as investors continue to digest earnings from key corporates amid resurfaced concerns over US regional banks. The Topix rose 0.4% to close at 2,032.51, while the Nikkei advanced 0.1% to 28,457.68. Sony contributed the most to the Topix gain, rising 3.5% after UK regulators decided to block Microsoft’s purchase of Activision Blizzard. Out of 2,158 stocks in the Topix, 1,149 rose and 905 fell, while 104 were unchanged. “While Japanese stocks started the day lower on the back of weaker US market, earnings results from major tech companies were good,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. The market is in a “wait-and-see mood” ahead of the BOJ meeting tomorrow, where the focus will be on inflation outlook, he said.
Australian stocks declined for a 5th straigh session, with the S&P/ASX 200 index falling 0.3% to close at 7,292.70. Banks and health shares contributed most to the benchmark’s decline. The drop comes after US shares fell for a second day as concern over American regional banks outweighed better-than-expected technology earnings. In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,918.22
Stocks in India surged for sixth consecutive session as investors remain optimistic of earnings recovery after initial disappointment from top technology names. The S&P BSE Sensex Index rose 0.6% to 60,649.38 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measure. The gauges have risen more than 1% this week as earnings season rolls out. Software makers Wipro and Tech Mahindra will be reporting earnings for the March quarter later on Thursday. Hindustan Unilever disappointed with lower than expected profit on account of weaker margins as the FMCG major struggles to increase sales volumes. Infosys contributed the most to the Sensex’s gain, increasing 1.5%. Out of 30 stocks in the index, 23 rose and seven fell.
In FX, the Bloomberg Dollar Spot Index slipped 0.1% while the Treasury two-year yield fell one basis point to 3.94% ahead of key US jobless claims and GDP data. Risk-sensitive currencies including the New Zealand dollar and Scandinavian currencies outperformed other Group-of-10 peers amid improving risk appetite. “With the Federal Reserve nearing the end of its rate-hiking cycle, we continue to expect the global macro outlook to translate into an unwinding of previous USD overvaluation over the medium term,” Bank of American strategists wrote in a note
In rates, Treasuries were mixed, slightly cheaper at long-end of the curve where 20- and 30-year yields are up ~1bp vs Wednesday’s close following similar shift in German curve. US 10-year yields around 3.45%, little changed on the day, outperforming bunds slightly in the sector. German 10-year yields are up 3bps. The Treasury auction cycle concludes with $35b 7-year note sale; 2- and 5-year auctions produced good demand metrics. WI 7-year yield at 3.475% is ~15bp richer than last month’s, which tailed by 1.1bp.
In commodities, Crude futures advance with WTI up 0.3% to trade near $74.50 after a Wednesday fall. Gold traded near the highest level in a week and Bitcoin resumed an advance. Hong Kong Securities and Futures Commission chief said will issue crypto exchange guidelines in May.
Focal points of US session include weekly jobless claims and 1Q GDP estimate, followed by 7-year note auction at 1pm New York time. Economic data includes initial jobless claims and 1Q GDP estimate (8:30am), March pending home sales (10am) and April Kansas City Fed manufacturing activity (11am). Fed slate remains blank with members in communication blackout period ahead of May 3 policy announcement. On the earnings side, today’s releases include Amazon, Mastercard, Eli Lilly, and Intel.
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APAC stocks traded mixed with most of the major indices subdued amid the banking sector headwinds in the US and as participants digested a deluge of earnings releases and quarterly performance updates. ASX 200 declined with the index pressured in early trade by weakness in the mining-related industries after a recent decline in underlying commodity prices and with gold miners hit after lower output and sales by Newcrest Mining and Northern Star Resources. Nikkei 225 was cautious as headlines were dominated by earnings and as the BoJ began its 2-day meeting. KOSPI was indecisive after earnings from index heavyweight Samsung Electronics which topped the preliminary release but confirmed an over-95% drop in its operating profit. Hang Seng and Shanghai Comp were somewhat mixed during the session with the biggest movers in Hong Kong driven by earnings releases, while the mainland was mildly underpinned by support measures after China's State Council unveiled a plan to stabilise employment and will support financial institutions to offer loans to businesses for expanding and stabilising jobs.
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European bourses are relatively contained but with an underlying positive skew, Euro Stoxx 50 +0.3%, with broader macro developments light and focus largely on earnings. On this, sectors are somewhat mixed with Autos/Parts outperforming after Michelin, Continental and Hella updates; Personal Care, Drug & Grocery is firmer following Unilever while Media names lag given poorly received UMG and WPP metrics. Stateside, futures are in the green with the NQ +0.9% once again leading after Meta's Q1 report with numerous heavyweights due on today's docket including AMZN. Meta (META) - Q1 2023 (USD): EPS 2.20 (exp. 2.03), Revenue 28.65bln (exp. 27.65bln). AI recommendations have increased time spent on Instagram by 24%, and added they are no longer behind in AI infrastructure. +11% in pre-market trade.
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DB's Jim Reid concludes the overnight wrap
There’s been a bit of a tug-of-war in markets over the last 36 hours between the dominance of US tech pulling aggressively on one side against the still shaky foundations of US regional banks on the other. The tech side dominated for most of yesterday but risk dipped through the latter part of the US session with the S&P 500 closing down -0.42%, whilst yields on 10yr Treasuries were up +4.9bps to 3.449%. Meta's positive after the bell earnings have helped again overnight but the battle is set to continue. Amazon, Intel and Mastercard headline earnings today. Q1 US GDP and initial claims are the data highlights with the latter still low historically but edging up slowly since February and now flirting with 18-month highs. So certainly one to watch over the next few weeks. With Q1 US GDP, DB’s preview link here suggests +1.9% real growth (down 0.3pp from our last estimate) but with most of the gains down to the consumer but likely slowing as the quarter progressed.
Back to markets and First Republic (-29.88%) remained in the spotlight for a second-day running, and at one point intraday was even down as much as -41%. The latest moves took the share price down to an all-time low of $5.69, and at one point the bank’s market capitalisation fell beneath $1bn, down from an all-time high of $39.73bn. In terms of the latest developments, CNBC reported that advisers to First Republic were trying to persuade the big US banks to purchase bonds at above-market rates, similar to how the group of 11 larger firms agreed to deposit $30bn at First Republic at the height of the turmoil last month. According to the article, the rationale for those banks would be that the loss of a few billion would be less than the $30bn in FDIC fees if First Republic failed. The report also said that if they manage to persuade the larger banks of this plan, then they were confident others would help recapitalise the bank, with potential purchasers of new stock already lined up. Later in the session, there were additional reports that indicated that the FDIC was considering downgrading their rating of First Republic if they are not able to reach a private deal. The downgrade would limit the bank’s ability to fully utilise the Fed’s discount window and the emergency facility that the Fed started last month. This caused tremors throughout the market, causing a dip in risk sentiment more broadly as well.
When it comes to the question of any government intervention, CNBC reported that the US weren’t willing to intervene at this stage. However, there’s still concern among market participants that the turmoil we saw last month could flare back up again. At the lows yesterday, there were growing questions being asked about whether the Fed would even be able to pursue another hike if the turmoil flared up again, and futures lowered the chances of a May hike beneath 75%. By the close that was back up to just under 80%, but the moves speak to the fact that any financial turmoil could stop the Fed in its tracks.
With First Republic reverting to close nearer its lows for the day, the KBW Bank index (-1.03%) registered its 5th consecutive decline. That came alongside a broader drop among US equities, with the S&P 500 dropping -0.38%. 20 of the 24 GICS 2 industry groups were lower on the day with the exceptions being led by software (+4.17%) following the results from Microsoft (+7.24%). After the close, we then heard from Meta (+11.6% in after-market trading) who beat on revenues and profits while also seeing greater engagement and forecasting higher-than-expected profits this year. The day’s tech gains caused the NASDAQ (+0.47%) and the FANG+ (+1.97 %) to outperform. Back in Europe, there were bigger losses and the STOXX 600 fell -0.83%, but that reflected a catchup with the US selloff from the previous day.
With investors reacting to better-than-expected earnings from big tech on the one hand, alongside the ongoing banking issues on the other, sovereign bonds oscillated throughout the session. Eventually there was a steeping in yield curves as yields on 10yr Treasuries were up +4.9bps to 3.449%, while 2yr yield saw a -0.3bps decrease to 3.951%. Over in Europe, those on 10yr bunds (+1.3bps) and OATs (+1.5bps) saw a modest increase too.
When it comes to sovereign bond yields, investors are continuing to keep a close eye on debt ceiling developments as we move closer to the summer x-date. Notably, yesterday saw the 3m Treasury bill yield hit a post-2007 high of 5.108%. By contrast, the fact that 1m and 6m bill yields are still some way beneath their recent peaks speaks to the concern at the 3m horizon coinciding with the x-date and doubts around how and when investors will be paid. House Speaker McCarthy had made some small changes to his proposal in order to bring it to a vote overnight which passed with a 217-215 margin in the House but has no chance of getting through the Senate. President Biden told reporters ahead of that vote, that he was open to sitting down with McCarthy but “not on whether or not the debt limit gets extended.”
Overnight in Asia, stocks are mixed but with US equity futures being buoyed by Meta’s earnings. However Samsung’s disappointing results this morning are weighing on tech sectors of key bourses in the region, with the Nikkei (-0.27%) among the key laggards. The Hang Seng TECH index is down -0.84% so far. Elsewhere, the picture is more mixed amid a rally in the Shanghai composite (+0.20%) and an almost flat Hang Seng (+0.08%) and Kospi (+0.00%). By contrast, the S&P 500 (+0.22%) and Nasdaq 100 (+0.50%) futures are higher again.
On the data side yesterday, there weren’t a massive number of releases, although the preliminary reading of US durable goods orders for March surprised on the upside. That showed an increase of +3.2% (vs. +0.7% expected), and the ex-transportation reading was also up +0.3% (vs. -0.2% expected). That said, the reading for core capital goods orders surprised on the downside with a -0.4% decline (vs. -0.1% expected), and the previous month’s number was revised down six-tenths to show a larger -0.7% contraction.
To the day ahead now, and data releases from the US include the Q1 GDP number, the weekly initial jobless claims, and pending home sales for March. From central banks, we’ll hear from the ECB’s Panetta. And on the earnings side, today’s releases include Amazon, Mastercard, Eli Lilly, and Intel.