Stock Markets

Marketmind: Crowded bonds unnerved


© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 14, 2023. REUTERS/Brendan McDermid
 
ABT
+6.75%
Add to/Remove from Watchlist


Add to Watchlist
Add Position

Position added successfully to:


Please name your holdings portfolio


 





GLNCY
-0.82%
Add to/Remove from Watchlist


Add to Watchlist
Add Position

Position added successfully to:


Please name your holdings portfolio


 





CFG
-2.04%
Add to/Remove from Watchlist


Add to Watchlist
Add Position

Position added successfully to:


Please name your holdings portfolio


 





SYF
+2.05%
Add to/Remove from Watchlist


Add to Watchlist
Add Position

Position added successfully to:


Please name your holdings portfolio


 





VIX
-2.73%
Add to/Remove from Watchlist


Add to Watchlist
Add Position

Position added successfully to:


Please name your holdings portfolio


 





KMI
-1.19%
Add to/Remove from Watchlist


Add to Watchlist
Add Position

Position added successfully to:


Please name your holdings portfolio


 





A look at the day ahead in U.S. and global markets from Mike Dolan

For an investment world now so convinced of looming recession and substantially positioned for it, the incoming growth, inflation, banking and earnings pictures still won’t play ball.

That leaves Wall St stocks in something of a sideways shuffle that has crushed implied volatility gauges such as the VIX to its lowest in 15 months. This has some wondering if the recent dash for cash and top-rated bonds has become a bit crowded and how much more tightening central banks have to do.

As we move into the weeds of the first-quarter U.S. earnings season, it’s been a mixed bag so far. No new shocks have emerged from the big U.S. banks, even though it’s early days for smaller regional banks under most pressure last month.

Goldman Sachs (NYSE:GS) trading division disappointed in its update on Tuesday, but its stock fell less than 2%. After the bell, Netflix (NASDAQ:NFLX) stock lunged initially in what was seen as an underwhelming rise in new subscribers but it has recovered before today’s open.

Tesla (NASDAQ:TSLA), IBM (NYSE:IBM), Morgan Stanley (NYSE:MS) and one of last month’s pressured banks Zions Bancorp top the slate on Wednesday.

For macro data watchers, the global growth picture remains punchy for all the recession angst about – but so too does the inflation picture. And nowhere more so than in Britain.

UK interest rate markets rushed to price more severe tightening by the Bank of England ahead after surprise data showed inflation there remained in double digits last month – more than twice U.S. inflation in March and the highest rate in western Europe. Rates markets now see another 75 basis points of BoE hikes to a terminal rate about 5% by September.

That clearly unnerved UK government bonds – where 10 year yields jumped 10bps – but it also jarred sovereign bonds around the world. U.S. two year yields climbed to their highest in more than a month at 4.26%.

With the Federal Reserve’s Beige Book of economic conditions due out later, many Fed officials are openly question what Bank of America (NYSE:BAC)’s strategists described as the “consensus lust” for recession among investors.

“Wall Street’s very engaged in the idea there’s going to be a recession in six months or something, but that isn’t really the way you would read an expansion like this,” the hawkish St Louis Fed chief James Bullard told Reuters on Tuesday.

European Central Bank hawks were circling too.

This may rankle with global fund managers polled in April’s BofA survey, which showed the largest overweight bond position and biggest underweight real estate positioning since 2009.

A net 63% of funds polled see a weaker economy ahead – the highest this year so far – and more than a third saw a bank credit crunch and global recession as the biggest risk ahead.

Overall on Wednesday, S&P500 futures and European bourses slipped back slightly and the VIX ticked a touch higher. Futures markets now see 90% chance of rate hike next month, but no reversal of that until November. The dollar was a bit higher, with sterling outperforming a fraction.

Elsewhere, further signs of healing were evident in the global bank funding market. Japan’s Sumitomo Mitsui (NYSE:SMFG) Financial Group sold $1 billion of additional tier-1 debt, the first major global bank to sell the risky securities since similar bonds issued by Credit Suisse were wiped out last month.

Glencore (OTC:GLNCY) told Teck Resources (NYSE:TECK) shareholders it’s willing to improve its $22.5 billion takeover offer, raising the pressure on the Canadian miner to ditch a restructuring plan and sit down at the negotiating table.

And Fox Corp and Fox News on Tuesday settled a defamation lawsuit by Dominion Voting Systems for $787.5 million, averting a trial putting one of the world’s top media companies in the crosshairs over its coverage of false vote-rigging claims in the 2020 U.S. election.

Key developments that may provide direction to U.S. markets later on Wednesday:

* U.S. corporate earnings: Tesla, IBM, Morgan Stanley, Zions Bancorp, US Bancorp (NYSE:USB), Citizens Financial (NYSE:CFG), Travelers (NYSE:TRV), Discover Financial, Synchrony Financial (NYSE:SYF), Nasdaq, Equifax (NYSE:EFX), Abbott Labs (NYSE:ABT), Alcoa (NYSE:AA), Baker Hughes, Kinder Morgan (NYSE:KMI), Lam Research (NASDAQ:LRCX) etc

* U.S. Federal Reserve releases Beige Book of economic conditions; Canada March industry output and housing starts

* New York Fed President John Williams, Chicago Fed chief Austan Goolsbee speak; European Central Bank board member Isabel Schnabel, ECB chief economist Philip Lane, Bank of Spain chief Pablo Hernández de Cos and Dutch central banker Klaas Knot all speak; Bank of England policymaker Catherine Mann speaks

* U.S. Treasury auctions 20-year bond

Britain now has Western Europe’s highest inflation rate, https://www.reuters.com/graphics/BRITAIN-ECONOMY/INFLATION/movakygkqva/chart_eikon.jpg

UK food and drink inflation rises to highest since 1977, https://www.reuters.com/graphics/BRITAIN-ECONOMY/INFLATION/lbvggwagevq/chart.png

China’s rising auto exports, https://www.reuters.com/graphics/AUTOSHOW-SHANGHAI/EXPORTS/gkplwjogdvb/chart_eikon.jpg

Rising Netflix subscribers underwhelm, https://www.reuters.com/graphics/NETFLIX-RESULTS/010010K54FB/Netflix-earns-flat.jpg

US bank results scatter, https://www.reuters.com/graphics/USA-RESULTS/010010H74CN/BANKEARNS.jpg

(By Mike Dolan, editing by Raissa Kasolowsky [email protected]. Twitter: @reutersMikeD)

More US consumers are falling behind on payments

Previous article

Rivian downgraded to Sector Perform at RBC Capital on limited near-term catalysts

Next article
BYStudy
As a seasoned financier, I have a keen eye for identifying profitable investment opportunities and creating strategic financial plans. My expertise in risk management and financial analysis has enabled me to deliver exceptional returns for my clients and stakeholders.

You may also like

Leave a reply

Your email address will not be published. Required fields are marked *