Newsquawk US Market Wrap: Stocks and yields soared into the weekend amid hot jobs data and regional banks/AAPL surging

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  SNAPSHOT: Equities up, Treasuries down, Crude up, Dollar flat.


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  REAR VIEW: Hot NFP with wages rising and unemployment rate falling; Unusually balanced Bullard remarks, who is open to a June pause; White House weighing short-term extension of debt ceiling; Strong AAPL earnings led by iPhone sales.


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  WEEK AHEAD PREVIEW: Highlights include US CPI, Fed SLOOS, UK GDP, China Inflation, China Trade, BoJ SOO. To download the report, please click here.


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  CENTRAL BANKS WEEKLY: Previewing BoE, BoJ SOO, NZ Inflation Forecast, Riksbank Minutes; Reviewing FOMC, ECB, RBA, Norges, BCB. To download the report, please click here.


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  WEEKLY US EARNINGS ESTIMATES: [MON] MCK, PYPL; [TUES] APD, DUK, ABNB, OXY; [WED] DIS; [THURS] JD.I. To download the report, please click here.

MARKET WRAP

Stocks rallied through the session on Friday with banking sentiment improving, while a hot NFP report was indicative of a stubbornly hot labour market - SPX and NDX were still lower on the week. There was no particular new news for the banking sector, nonetheless, regional banks surged, with the KRE ETF up 6%, with the likes of PacWest (PACW) surging 82%. The strength was a function of mass short-covering into the weekend, with traders hesitant to hold exposure in anticipation of some sort of regulatory intervention given growing reports around scrutiny into short selling. The major indices were also lifted by Apple (AAPL) surging just shy of 5% after a strong report, particularly driven by iPhone sales, in addition to a fresh USD 90bln buyback programme, while its Q3 sales guidance was flat Q/Q. Treasuries saw a big bear-flattener (2s +19bps and 30s +3bps) on the hot NFP data (253k jobs added and a reacceleration in hourly earnings to +0.5% M/M), which held more weight on Fed expectations as banking sentiment improved, although June pricing continues to see no change. Fed's Bullard (non-voter; hawk) spoke post-data, but was unusually balanced in his remarks, saying he was even open to a pause in June, which gave more weight to stock buying through the afternoon and capped any further losses in Treasuries.

US

NFP: The NFP report was hot. Headline jobs rose by 253k, above expectations of 180k and towards the top end of the 94-265k analyst forecasts. The headline was also above the initial prior 236k, but that was revised down to 165k. The Unemployment rate fell to 3.4% despite an expected uptick to 3.6% from 3.5% while the participation rate was unchanged at 62.6%. The wages components were also hot, particularly of note ahead of CPI next week, the M/M rose by 0.5%, above expected and prior 0.3%, with the Y/Y rising 4.4%, above expected and prior 4.2%, but the March data was revised up to 4.3%. The report helped pare some of the extreme dovish market pricing, with fed fund futures pricing in 73bps of cuts by year end, vs the c 80bps seen ahead of the data. For the June meeting, markets still nearly fully price in an unchanged print, but now with a small 5% chance of a hike, vs the 5% probability of a cut beforehand. The data will do little to help the Fed's resolve in inflation with a strong labour market boosting demand and strong wages attributing to cost push inflation. However, with recent banking woes in the US, the report will help provide some solace to the recessionary fears seen later in the year. Overall it was a hot report, but some of the revisions on the headline NFP do take away some of the heat, but the accelerating wages are one to keep an eye on in regards to the Fed's fight against inflation, particularly after the jump in unit labour costs in Q1. However, it is worth noting Powell on Wednesday said he does not think wages are the principal driver of inflation.

DEBT-CEILING: The White House is reportedly weighing a short-term extension of the debt ceiling to allow parties to keep negotiating, according to CNBC citing sources, noting the key question is what would the GOP want in return and for how long. President Biden noted Republicans are divided on the debt ceiling and the "MAGA'' Republicans want the White House to agree to draconian cuts. Biden noted the budget and debt ceiling are unrelated and they can have budget discussions, but not under threat of default. White House also noted it is hopeful on avoiding a debt default. With debt limit woes causing fear of a US default, 1mth US Treasury Bills hit fresh record highs today while ING highlight 5yr CDS are now at highs since the GFC, adding although it is elevated, it far from discounting an actual default, and is just playing the mild probability of a default. ING also warn there would still be a material tarnishing of US Treasuries even if just one interest payment were missed. The desk also writes one default should not take down the system if holders are made whole through a swift resolution on the debt ceiling, but also warns things could also unravel quickly and uncontrollably, and "in essence the entire global financial system is at threat".

BULLARD (non-voter; hawk) said in an event in Minneapolis he thought the 25bps hike this week was a good step, but there is a lot of inflation in the economy. Added that the Committee thinks it is in the territory of being sufficiently restrictive, but did not appear to clarify his own stance. However, in later comments to reporters, he said he feels policy is at the low end of the restrictive zone, but not yet clear it is restrictive enough to get on a downward inflation path. Those comments implied his view of 'sufficiently restrictive' remains above the Fed consensus; note that in mid-April, he said sufficiently restrictive was 5.50-5.75%, and given his buoyant commentary on the economy and dismissive attitude to banking woes, it's unlikely that has seen a material downgrade. Bullard offset that with his comment that he is ready to be data-dependent, with an open mind on whether to pause or hike at the June meeting, implying he is closer to the doves on erring on the side of caution amid the current banking episode. But, he said he does think the Fed will ultimately have to grind higher on rates.

FIXED INCOME

T-NOTE (M3) FUTURES SETTLED 27 TICKS LOWER AT 115-23

Treasuries bear-flattened on hot NFP data and improved sentiment in the banking sector. 2s +18.7bps at 3.914%, 3s +18.2bps at 3.636%, 5s +13.3bps at 3.409%, 7s +10.8bps at 3.414%, 10s +8.3bps at 3.435%, 20s +4.8bps at 3.841%, 30s +3.2bps at 3.754%.

Inflation breakevens: 5yr BEI +5.0bps at 2.208%, 10yr BEI +2.5bps at 2.215%, 30yr BEI +1.8bps at 2.226%.

PRE-NFP: After the continued post-settlement selling on Thursday, T-Notes drifted slightly higher into the Tokyo morning after the futures reopened, with the long-end paring some of Thursday's underperformance. Contracts couldn't muster past 116-12 and better selling picked up into the European session, with sentiment around regional banks improving somewhat. T-Notes found support at 116-02 ahead of the US payrolls.

POST-NFP: The 253k jobs added (exp. 180k) and acceleration in average hourly earnings (+0.5% M/M from +0.3%) saw Treasuries knee-jerk lower, led by the front-end, with T-Notes troughing at 115-13+. Contracts swiftly since pared back half the move with the 2s10s back to where it was pre-data, at -42bps, vs -48bps immediately after the data. Fed pricing continued to see no hike in June with cuts still priced through year-end amid the short-term banking uncertainty, although the 2024 pricing baked in more hikes. As the dust settled, regional bank shares continued their ascent into the weekend, with the Treasury front end coming under renewed selling pressure as the improved banking sentiment put more weight on the hot economic data. The curve reinverted as a result back to its lows of the session. It was choppy/sideways trade through the rest of the session, where an unusually balanced set of remarks from Fed's Bullard (non-voter; hawk) failed to provide an impetus.

REFUNDING: US to sell USD 40bln of 3yr notes on May 9th, USD 35bln of 10yr notes on May 10th, and USD 21bln of 30yr bonds on May 11th.

NEXT WEEK: (Mon) EZ Sentix, German Final CPI, Fed SLOOS; (Tues) Chinese Trade Balance, Fed's Jefferson and Williams; (Weds) US CPI; (Thurs) BoE, BoJ Summary of Opinions, Chinese Inflation, US PPI, Fed's Waller; (Fri) UK GDP (Mar/Q1), French CPI, US Import Prices, Uni of Michigan prelim., Fed's Bullard and Jefferson.

STIRS:

• SR3H3 -0.5bps at 95.065, H4 -23.5bps at 96.30, H5 -18bps at 97.215, H6 -11.5bps at 97.215.


• In options, a heavy slew of SOFR put structures seen in wake of NFP.


• US SOFR rises to 5.06% from 4.81%, volumes rise to USD 1.590tln from 1.544tln.


• NY Fed RRP op demand at USD 2.207tln (prev. 2.242tln) across 101 counterparties (prev. 101).


• US EFFR rises to 5.08% from 4.83%, volumes fall to USD 114bln from 115bln.

CRUDE

WTI (M3) SETTLED USD 2.78 HIGHER AT 71.34/BBL; BRENT (N3) SETTLED USD 2.80 HIGHER AT 75.30/BBL

Oil rebounded further on Friday, but still still closes the week firmly in the red amid initial rate hike fears, banking sector woes, and slowing Chinese demand. Highlighting the volatility in WTI and Brent this week, WTI ranged between USD 63.64-76.69/bbl and Brent between 71.28-80.24/bbl. The strength on Friday appeared to be on risk sentiment and short covering after the steep losses earlier this week as opposed to anything fundamental. While not market-moving, Bloomberg reported that Russian pipeline data reportedly shows scant evidence of any oil output cuts despite Novak's claims. While PBF, post-earnings, said the key theme for 2023 is the recovery in the demand for jet fuel and gasoline, supported by a stronger summer driving season. Lastly, the Baker Hughes US rig count saw oil rigs down three to 588, natural gas down 4 to 157, and total down seven to 748. Looking to next week, Fed's SLOOS survey (Mon), US CPI (Wed), BoE (Thurs), and a range of Fed speak accompanied by any further regional bank jitters/improvement, not to mention geopolitical concerns.

EQUITIES

CLOSES: SPX +1.85% at 4,136, NDX +2.13% at 13,259, DJIA +1.65% at 33,674, RUT +2.39% at 1,759.

SECTORS: Energy +2.75%, Technology +2.71%, Financials +2.44%, Consumer Discretionary +2%, Materials +1.66%, Real Estate +1.53%, Industrials +1.51%, Communication Services +1%, Health +0.92%, Consumer Staples +0.89%, Utilities +0.67%.

EUROPEAN CLOSES: Euro Stoxx 50 +1.26% at 4,341, FTSE 100 +0.98% at 7,778, DAX 40 +1.44% at 15,961, CAC 40 +1.26% at 7,432, FTSE MIB +2.54% at 27,348, IBEX 35 +1.15% at 9,147, SMI +0.87% at 11,555.

STOCK SPECIFICS: Apple (AAPL) beat on top and bottom line with iPhone sales particularly strong. Authorised additional USD 90bln for share repurchases and raised quarterly dividend 4%. Q3 sales seen similar to Q2. Cigna (CI) surpassed St. expectations on EPS and revenue; raised FY23 outlook amid lower medical costs and strong growth at its health insurance unit. Warner Bros Discovery (WBD) posted a surprise loss per share and missed on revenue. CFO said they are working against pretty significant reductions in ad sales. DoorDash (DASH) reported a shallower loss per share than expected and beat on revenue, adj. gross margin and GMV. FY gross order value surpassed expectations. DraftKings (DKNG) EPS was in line while revenue, monthly unique users and ARPU beat; lifted FY guidance as demand for its services remains strong. Live Nation Entertainment (LYV) posted a shallower loss per share than expected and topped on revenue accompanied by upbeat commentary noting for the first time in three years, all of our markets are fully open. Expedia (EXPE) topped consensus on revenue and bookings, while an exec said Q1 saw strong travel demand, driven by increasing international travel and the reopening in Asia. Although, posted a deeper loss per share than expected. Lyft (LYFT) active riders were light, and said deterioration in margin was driven entirely by lower revenue per ride due to pricing competitively. Q2 revenue and adj. EBITDA guidance light. Note, had a shallower loss per share than expected and beat on revenue. Braskem (BAK) was reportedly subject of takeover proposal by ADNOC and Apollo, who plan to offer up to BRL 37.5bln for the Co., according to Brazilian Press Folha. However, Braskem later refuted the M&A chatter. Carvana (CVNA) posted a smaller-than-expected loss and expects to achieve positive adj. profit during Q2, which would be earlier than it previously stated. Horizon Therapeutics (HZNP) was bid on loose chatter that its buyout by Amgen (AMGN) was getting closer to completion.

WEEKLY FX WRAP

Strong US labour report only gives flagging Dollar a fleeting fillip

USD - Markets remained adamant about an impending pause in the Fed’s tightening cycle after the latest 25 bp FOMC hike and tweak to guidance, from anticipating that more policy firming may be appropriate to attain a sufficiently restrictive stance, to determining the extent to which additional policy firming may be appropriate, it will take into account tightening to date, policy lags and other developments. The key takeaway being ‘other’ developments and the ongoing stress in US regional banks that saw JPM take another stricken lender, FRC, into its fold at the behest of the FDIC. Indeed, the probability of no move in June hardly budged from 90%+ even though US data was largely upbeat and culminated in another comfortable headline payrolls beat, with a hefty net two month negative revision more than offset by hotter than forecast average earnings and an unexpected decline in the jobless rate. Prior to that, ISMs were a tad better than anticipated along with construction spending and prices paid particularly hot in the manufacturing survey. However, the Greenback only mustered enough momentum to pare some losses against G10 and EM counterparts, as the DXY rebounded to 101.770 from 101.110 inside 102.400-101.020 w-t-d parameters before waning amidst pressure from the Loonie within the index and the Aussie outside.

CAD/AUD - As noted above, the Loonie outpaced its US rival and a stellar Canadian LFS provided macro impetus as the employment change topped consensus circa two-fold, albeit solely due to a jump in part-time jobs, while the unemployment rate held steady. Moreover, crude prices ended a week to forget on a more encouraging note, with WTI back over Usd 71/brl following a collapse from Usd 76.69 peak on Monday to Usd 63.64 trough yesterday. Usd/Cad breached the 200 DMA at 1.3446 having been up to 1.3639 at the other end of the spectrum and also took on board comments from BoC Governor Macklem along the way reminding that the current pause is conditional given the risk that inflation will get stuck materially above the 2% target level. On that very note, the RBA caught all but a select few offside when opting to resume its rate hike cycle on Tuesday after just one break (or brake thus far) in April and the rationale was a determination to return inflation to target. The accompanying statement and subsequent SOMP reinforced the Board’s resolve as some further tightening of monetary policy may be required to ensure that it achieves its goal within a reasonable timeframe. In response, Aud/Usd bounced firmly from the low 0.6600 zone, but ran into resistance around 0.6700 later that day and only cleared the round number convincingly when broad risk sentiment improved markedly to push the pair beyond the 200 DMA to the brink of 0.6750 (vs 0.6608 at one stage).

GBP/NZD - The Pound more than made up for lost time on return from the long May Day holiday weekend and looks set to celebrate King Charles’ coronation in regal fashion, as Cable rallied in excess of two big figures from 1.2436 to post a new 1.2650+ 2023 pinnacle and Eur/Gbp retreated through 0.8800 and 0.8750 to expose a Fib retracement not far from 0.8700. Sterling’s ascension came regardless of what appears to have been a terrible performance by the Tories at the UK’s local elections and was more externally-driven, but with solid backing from upgraded final PMIs and a surprise rise (m/m) in Nationwide house prices. Meanwhile, the Kiwi topped 0.6300 vs the Buck compared to a base of 0.6162 and actually outperformed relative to the Aussie (Aud/Nzd midway between 1.0833-1.0625 bounds) with much stronger than anticipated NZ HLFS metrics compounded the RNBZ contending that the nation’s financial system is well placed to handle the higher interest rate environment and international financial disruptions.

EUR/JPY/CHF - In contrast to the Fed, May’s ECB policy event was deemed to be hawkish, eventually, as the smaller than prior ¼ point hike came with guidance for more via President Lagarde’s press conference where she responded to questions about the GC’s intentions going forward emphatically. To recap, she repeated a line from the official statement that the outlook for inflation continues to be too high for too long, adding that the Bank is not pausing, there is more ground to cover and some policymakers were in favour of sticking with a 50 bp pace of tightening. Note, that latter was backed up by sources who also suggested that the decision to end APP reinvestments as of July and maintain guidance for further rate rises was made to appease the hawks. Nevertheless, Eur/Usd failed to reach 1.1100 following several attempts and big option expiries were a barrier alongside weak Eurozone data, though the Euro is keeping afloat of 1.1000 and a key chart level (Fib at 1.0959) that was only probed briefly. Elsewhere, risk and rates, or yields to be more accurate were key factors for the Yen that staged an impressive comeback from 137.77 to 133.51, but stalled when the market mood brightened, mainly on no further angst in the US financial sector and partly on the back of reports that the White House is weighing a short-term extension of the debt ceiling to allow parties to keep negotiating, according to CNBC citing sources, noting the key question is what would GOP want in return and for how long. Similar story for the Franc, but its demise on Friday was mostly data-related as Swiss CPI was softer than forecast to appease the SNB that is not ruling out higher rates and has plenty in reserve to intervene. Usd/Chf was choppy within 0.8821-0.8995 extremes and Eur/Chf between 0.9746-0.9867.

SCANDI/EM - The omens were turning increasingly bearish for the Nok as Brent slumped from Usd 80.24/brl to Usd 71.28 and the technical backdrop became darker, but the tide turned following the Norges Bank policy meeting when the 25 bp hike flagged in March was confirmed and another pencilled in for next month with a more explicit acknowledgement of recent Krona depreciation. This came via a warning that the rate path may be higher than previously envisaged and the peak last longer. Staying with that theme, the BNM matched the RBA with an unexpected 25 bp hike, the HKMA kept pace with the Fed, and while the BCB and CNB both maintained rates there were hawkish vibes mixed in with dovish tones. The Cnh welcomed back the Cny and recovered lost ground with the aid of support from the 200 DMA rather than conflicting Chinese PMIs, and the Mxn shrugged off the aforementioned oil spills to extend its gains vs the Usd, but the Zar decoupled from Gold and underperformed, while the Try remained weak ahead of Turkish elections despite latest CBRT efforts to shore up the Lira and more disinflation via the CPI and PPI.

05 May 2023 - 21:20- EquitiesData- Source: Newsquawk