Making sense of the forces driving global markets |
By Jamie McGeever, Markets Columnist |
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- U.S. stocks stage a remarkable rally in the last 30 minutes of trading. The Dow rises 0.4%, the S&P 500 gains 0.1% and the Nasdaq ends essentially flat.
- For the month, the Dow is down 3.2%, the S&P 500 dips 0.7%, and the Nasdaq is up 0.9%.
- Shares in tech giants Meta Platforms and Microsoft rallied in after-hours trading as investors cheer Q1 earnings results. Meta shares rise 4%, Microsoft shares leap 7%.
- Super Micro Computer shares slump 11.5% after company cuts Q3 forecasts, while Snapchat parent Snap shares sink 12.4% after it says it will not provide Q2 financial forecasts.
- Lucky for some - Britain's FTSE 100 extends winning streak to a remarkable 13 days, gaining 0.4%. That's its best run since early 2017.
- European shares rise, supported by surprisingly strong euro zone GDP data. But April is the second straight monthly decline.
- Dollar rises 0.4%, as cautious recovery from recent lows continues
- Oil falls for a third day, with Brent crude futures down 1.7%. So far this week, oil is off 4%.
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The U.S. economy shrank in the first quarter for the first time in three years, as trade dealt its heaviest blow to GDP on record. Another contraction in the April-June quarter will meet the definition of a technical recession. The late rebound on Wall Street was remarkable and came out of the blue, but perhaps even more interesting was the bond market's reaction to Wednesday's U.S. economic data. |
Since peaking just below 4.60% on April 11, the yield on the 10-year U.S. Treasury note has fallen around 45 basis points. But it crept up on Wednesday and the curve steepened again, suggesting inflation concerns rather than contracting economic activity drove longer-dated bond prices. Meanwhile, the 0.3% contraction of GDP in the first quarter pushed the two-year yield lower for a fifth day in a row, the longest declining streak since February, Traders moved to price in a Fed rate cut in June and another three by the end of the year. But prices are sticky, and tariffs are likely to keep them that way. The GDP deflator, a proxy for inflation, was 3.7% in the first quarter, higher than the expected 3.0%. Meanwhile, the headline reading of PCE inflation in March also released on Wednesday was slightly higher than expected at 2.3%. With stagflation pressures rising and barbs from the White House flying, Fed Chair Jerome Powell is in a difficult position. Powell has steered a straight path down the middle, insisting that more hard data is needed before the Fed acts. But right now, it looks like the 'stag' risks are weighing more heavily on policymakers' minds than the 'flation'. If there's one central bank traders are convinced will sit on their hands for the remainder of this year, however, it is the Bank of Japan, which announces its latest rate decision on Thursday. Global trade, economic and market turbulence looks to have put the BOJ's tightening cycle into long, cold storage - rates markets are pricing in only 15 basis points of hikes this year, down from around 75 bps in late January. Japan's economic surprises index is heading south and is close to turning negative, while Japanese bond yields look to have reached a plateau. That's a yen-negative backdrop. But Treasury yields are falling faster, U.S. growth is shrinking, and Fed rate cut expectations are intensifying. Throw in the yen's 'safe haven' status as Japanese investors bring money home, and the yen's outlook is suddenly a lot brighter. Strategists at TS Lombard on Wednesday said dollar could fall close to 130.00 yen later this year. |
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Dazed and confused, markets brace for Trump's second 100 days |
The first 100 days of Trump 2.0 were incredibly turbulent for world markets, as tariff-fueled chaos wiped trillions of dollars off U.S. asset prices. What will the second 100 days of President Donald Trump's administration look like? They will probably be less volatile, but markets may be underpricing the downside risk. Wall Street and the dollar ended Trump's first 100 days sharply lower as investors around the world reassessed their willingness to hold U.S. assets. |
Even though many markets, including the S&P 500, hit record highs in the month after Trump's inauguration in January, U.S. stocks ended up having their worst first 100 days under any president since Richard Nixon's second term in 1973, and the dollar index ended the period down nearly 10%. But several global markets have rebounded from their lows, as Trump has backed away from some of his more extreme policies and dialed down his rhetoric. The MSCI World index is now off only 3% since inauguration day. Chinese, British and European stocks are essentially flat, while the MSCI Asia ex-Japan index, Germany's DAX and India's Sensex are all up between 2% and 7%. Some of this relief is justified, but markets may be a bit too optimistic about what the next 100 days have in store. |
What could move markets tomorrow? |
- Bank of Japan policy decision
- Japan consumer confidence (April)
- April PMIs for several countries, including Japan, UK, Canada, US
- Q1 corporate earnings flow continues, with Apple reporting after the closing bell
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. |
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