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Markets Commentary

For those who thought that the world’s biggest company losing over $40 billion in market cap in an instant on disappointing Apple earnings, would have been sufficient to put a dent in US equity futures, we have some disappointing news: with just over 7 hours until the FOMC reveals its April statement, futures are practically unchanged, even though the Nasdaq appears set for an early bruising in the aftermath of what is becoming a disturbing quarter for tech companies.

Angus Nicholson, an analyst at IG Ltd., told Bloomberg. “These aren’t good numbers out of the China segment which people are most concerned about, and if that continues to play out it will be a concern going forward.”

Instead of tech leading, however, the upside has once again come from the energy complex where moments ago WTI rose above $45 a barrel for the first time since November after yesterday’s unexpected 1.07 million barrel API inventory drawdown.

Adding to the oil move, the World Bank boosted its forecast for oil prices this year, projecting that refinery demand will pick up and U.S. output cuts will steepen in the second half of 2016.


So with oil back over the critical $45 level at which point US shale producers resume fracking, it is increasingly looking like the Morgan Stanley deja vu forecast, which sees 2016 being a repeat of 2015 is coming true.

Elsewhere, treasuries rose perhaps following Gundlach’s recommendation from yesterday afternoon to start buying, sending 10-year yields lower for the first time in eight days, and the dollar weakened, as markets signaled caution before the Federal Reserve’s latest interest rate decision. As Bloomberg reports, benchmark 10-year note yields retreated from the highest level in a month before the Fed’s policy announcement.

Looking ahead to today’s Fed meeting, virtually nobody expects Yellen to surprise and Fed Funds futures reflect zero chance of an interest-rate hike on Wednesday, though the central bank’s comments will be scrutinized for any hints of a move in coming meetings. “Whether they will still remain a little bit dovish, that is the key thing for us,” said Jens Peter Soerensen, chief analyst at Danske Bank A/S in Copenhagen. “Given that data has been not too strong but not too bad either, the risk is still very balanced. People are a bit reluctant to go in and buy the dollar until they see what the Fed does tonight.”

The futures contracts have nudged up to pricing a 22% probability of a June hike from as low as 14% mid-way through this month. How much this changes will likely hinge on what extent the Fed continues to acknowledge concerns about global growth and risks abroad. US data has been mixed of late. After getting back close to neutral at the start of April, economic surprise indices have trended steadily lower into negative territory as the month has passed. On the positive side the weaker US Dollar should give the Fed some confidence.

Meanwhile, confusion reigns: “People are questioning valuations because earnings growth just isn’t there,” said Francois Savary, chief investment officer at Prime Partners in Geneva. “It will be very difficult for stocks to gain more ground, especially with the higher euro. There’s also the issue of Fed credibility, and the fact that Yellen is looking at international events as a reason to not raise rates.”

BoJ Japan

More important than the FOMC will be tonight’s BOJ announcement, where there is a substantial probability of surprise by Kuroda. The Bank of Japan will review monetary policy on Thursday and Prime Minister Shinzo Abe’s economic adviser said Tuesday it’s possible that purchases of government bonds and exchange-traded funds will be stepped up.


Greek government bonds slid, pushing the yield on shorter-dated notes up by the most in more than three weeks, as Prime Minister Alexis Tsipras sought a meeting of euro-area leaders to resolve disagreements between the government and creditors, a move echoing last year’s drama when a quarrel over bailout terms almost pushed the country out of the currency bloc.

Market Snapshot

  • S&P 500 futures down 0.2% to 2084
  • Stoxx 600 up 0.1% to 348
  • FTSE 100 down less than 0.1% to 6280
  • DAX up 0.3% to 10290
  • German 10Yr yield down less than 1bp to 0.29%
  • Italian 10Yr yield down 4bps to 1.49%
  • Spanish 10Yr yield down 7bps to 1.57%
  • S&P GSCI Index up 1.2% to 356.1
  • MSCI Asia Pacific down 0.8% to 131
  • Nikkei 225 down 0.4% to 17290
  • Hang Seng down 0.2% to 21362
  • Shanghai Composite down 0.4% to 2954
  • S&P/ASX 200 down 0.6% to 5188
  • US 10-yr yield down 2bps to 1.91%
  • Dollar Index down 0.12% to 94.46
  • WTI Crude futures up 2.2% to $45.01
  • Brent Futures up 2.6% to $46.92
  • Gold spot up 0.2% to $1,246
  • Silver spot up 0.9% to $17.32

Top Global News

  • Apple’s Waning Smartphone Sales End 51-Quarter Growth Streak: Fewer iPhone upgrades lead to 16% decline in shipments; sees FY3Q rev. $41b-$43b vs est. $47.35b, 2Q EPS $1.90 vs est. $2.00; Apple Suppliers Fall After Forecast for Slowing IPhone Sales; Earnings No Help for Apple Stock Set to Become Dow’s Biggest Dog; Samsung Planning $9 Billion Down Payment on IPhone Displays
  • Twitter Gains in Users Aren’t Enough to Spur Advertising Growth: sees 2Q rev. $590m-$610m vs est. $677.1m, sees 2Q adj. Ebitda $145m-$155m vs est. $172.9m; 1Q rev. $595m vs est. $607.5m; says rev. came in at low end of forecast range because brand marketers didn’t raise spending as fast as expected in 1Q
  • EBay Forecast Beats Estimates as Traffic Efforts Pay Off: Sees 2Q rev. $2.14b-$2.19b, est. $2.14b, sees 2Q adj. EPS cont. ops 40c-42c, est. 44c; 1Q adj. EPS 47c, est. 45c
  • Comcast in Discussions to Buy DreamWorks Animation, WSJ Says:
  • U.S. Oil Rises Above $45 a Barrel for First Time Since November: Nationwide stockpiles drop 1.07m barrels last week: API
  • AT&T Profit Tops Estimates; Company Sees Net TV Customer Loss: 1Q adj. EPS 72c, est. 69c; added 129k monthly subscribers, below projections
  • Trump Declares He’s ‘Presumptive Nominee’ as Clinton Wins Four: Trump won all five states holding votes Tuesday — Pennsylvania, Connecticut, Maryland, Delaware and Rhode Island; Clinton beat Bernie Sanders in Connecticut, Pennsylvania, Delaware and Maryland, Sanders won in Rhode Island
  • NYSE Joins Nasdaq Assailing Plan to Overhaul Trading Fees: Proposed test will hurt investors, NYSE president says
  • Bond Inflation Outlook Sets Nine-Month High Ahead of Fed Meeting: Inflation seen at 1.57% pace next 5 yrs, yields show
  • Near-Zero Growth Happens Often in Slow-Motion U.S. Economy: Sluggish first quarter would be third in as many years, economists forecast GDP to rise 0.6%
  • Exxon Mobil Loses Top Credit Rating It Held Since Depression: Standard & Poor’s on Tuesday stripped Exxon of its highest AAA measure of credit-worthiness, cutting it to AA+
  • Adidas Lifts Profit Forecast Ahead of Euro Soccer Tournament: Now sees 2016 net income from cont. ops up 15%-18%, had seen up 10%-12%; raised outlook for 2nd time in less than 3 months
  • Chipotle Sales Tumble 23% as Food-Safety Fallout Persists: Restaurant chain reports first loss since going public
  • FBI Officials Said to Urge Against Review of IPhone Hacking Tool: Have recommended against conducting a review to determine whether the vulnerability that was used to hack into a dead terrorist’s iPhone should be disclosed to Apple



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