©Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. March 30, 2023. REUTERS/Brendan McDermid
(Reuters) – A look ahead for the day ahead in the US and global markets by Mike Dolan
A flurry of potentially disruptive news developments is making for a jittery start to May for global markets – but there is little sign of it on seismographs tracking price volatility ahead.
There seems to be an offset for every jerk.
US Treasury Secretary Janet Yellen has hinted that the government could run out of money within a month – potentially leading to what she calls an “economic catastrophe” of a technical US debt default. But President Joe Biden signaled the first round of talks with his Republican rivals about how the administration will pay down its debt after a June 1 “X-date.”
US banking stress simmers with uncertain lending implications for the broader economy – but fears seemed to be easing with JPMorgan’s (NYSE:) purchase of the struggling First Republic over the weekend.
While the Federal Reserve is almost certain to hike rates again on Wednesday, it could be their last.
Australia’s central bank surprised markets on Tuesday with an unexpected resumption of its rate hike campaign – sending the dollar higher – but the yen continues to fall as the Bank of Japan is in no rush to change its super-loose monetary policy.
And while overall shrinking U.S. corporate earnings are likely to mark the start of a first-quarter earnings recession, “big tech” stocks are rushing ahead — spurred in part by an artificial intelligence arms race — and U.S. largest company Apple (NASDAQ 🙂 reports on Thursday.
Even for Europe’s mega-caps on Tuesday, a sizeable 5% drop in the price of oil giant BP (NYSE:) shares — as the company slowed its buyback program despite a $5 billion first-quarter profit — was offset by the banking giant’s surge HSBC offset 5% – after a tripling of earnings beat forecasts and sparked a $2 billion buyback plan.
In a holiday-strewn month around the world, Wall Street’s so-called “fear gauge” for implied stock market volatility for the coming month hit its lowest level since November 2021 on Monday. Although it ticked back up from just above 16 overnight, it remains three full points below its 33-year historical average.
Despite the earlier date of the debt ceiling and the banking drama over the weekend, the relevant index of Treasury market volatility remains lower for the month and is more than a third lower than the peaks from March’s banking explosion.
And even with all the central bank decisions this week – with the European Central Bank meeting as well as the Fed – overall FX market volatility is near its lowest level in more than a year.
For the macro markets, the Fed’s decision is complicated by the debt ceiling and the banking background.
A quarter-point hike on Wednesday is fully priced in, with a less than one-in-five chance of further move in June and at least 50 basis points of rate cuts from the peak still anchored in futures markets through year-end.
Two-year US Treasury yields gave back some of Monday’s gains as the debt ceiling expired. But concerns about the debt ceiling have been greatest in the bills market, where one-month yields, which now cover the June 1 date, rose as much as 50 basis points to 4.87% on Tuesday – and 3-month bill rates rose 20 basis points to 5.25%.
The dollar was marginally higher against the major currencies, with the exception of the Australian dollar.
Friday’s April US jobs report is the big data point after the Fed’s decision, although next week’s Lending Officer report plays a big role as an indicator of bank stress. The March job vacancy numbers later on Tuesday will give an indication of how tight the job market remains.
Stock futures were flat to slightly negative – with European bourses slightly lower and Asian indices higher.
Events to watch out for on Tuesday:
* US job openings data for March
* Fed’s Federal Open Market Committee begins two-day policy meeting – decision on Wednesday.
* US corporate earnings: Ford, Pfizer (NYSE:), Starbucks (NASDAQ:), Edison, T Rowe Price (NASDAQ:), Prudential Financial (NYSE:), AMD, Amcor (NYSE:), Clorox (NYSE:), Molson Coors (NYSE:), Match, Marathon, Marriott, Paycom (NYSE:), Caesars (NASDAQ:), Welltower (NYSE:), sealed air (NYSE:), gardener (NYSE:), Sysco (NYSE:), Ecolab, Illinois Tool Works (NYSE:), Eat (NYSE:) etc
Graphic: US Bank Stocks Scatter – https://fingfx.thomsonreuters.com/gfx/mkt/byprlbkwmpe/One.PNG
Chart: Rate hikes and results – https://www.reuters.com/graphics/USA-ECONOMY/RATES/lbpggmonrpq/chart.png
(By Mike Dolan; Edited by Bernadette Baum; [email protected] Twitter: @reutersMikeD)
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