OPENING CALL
Stock futures ticked lower and bond yields were a touch firmer, as traders eyed March jobs data due on Friday and more comments on the economic outlook from Jerome Powell.
Stronger-than-expected economic data in recent days has caused investors to bet the Federal Reserve will reduce borrowing costs at a slower pace than previously thought, lifting 10-year Treasury yields to their highest level since November.
Traders will be keen to hear if the evidence that the U.S. economy is humming along quite nicely is enough to cause Powell to adopt a more hawkish tone in a speech he is due to deliver at 12:10 p.m. Eastern.
The market and Fed had been in rough alignment in thinking there was likely to be three 25 basis point rate cuts this year. However, the upbeat labor market and manufacturing surveys in the last few days have pushed the chances of a 25 basis point cut at the Fed's June meeting down to 63.6% from 70.1% a week ago.
"Investors may prefer to wait for Powell's speech later and Wednesday's data including the ADP employment report and the ISM services survey for March, before deciding if they will put faith in the Fed's 3 rate cuts for 2024 view," XTB said.
"Market expectations for rate cuts have been extremely fluid in recent months, it wasn't that long ago that the markets were looking for a 6/7 rate cuts this year," XTB added.
All eyes are on Disney , where one of the costliest proxy battles of all time is coming to a head.
Chief Executive Bob Iger-who is also steering a major corporate turnaround-is trying to fend off Nelson Peltz's Trian Partners, which is seeking two board seats. Early indications have suggested Iger has the upper hand.
Premarket Movers
Cal-Maine Foods was rising 8.4% after it said total sales volumes, or dozens sold, in its fiscal third quarter set a company record.
Dave & Buster's Entertainment reported fiscal fourth-quarter adjusted profit that missed Wall Street estimates. However, the company said its board increased its stock-buyback authorization by an additional $100 million, bringing the total authorization to $200 million. Shares rose 6.3%.
Intel was falling 4.1% after it revealed that its foundry business recorded an operating loss of about $7 billion in 2023, widening from a loss of $5.2 billion in 2022.
U.S.-listed shares of Taiwan Semiconductor Manufacturing fell 1.2% after it said it evacuated some plants and suspended work at construction sites following a major earthquake in Taiwan. The earthquake was the strongest to hit the island in 25 years.
Tesla declined 0.7% after shares fell 4.9% following first-quarter deliveries that fell to 386,810 in the first quarter, a decline of almost 9% from a year earlier and the worst drop from a prior year in company history.
Post-Close Movers
OneMedNet said it had secured up to $4.54 million in cash through a securities purchase agreement with an institutional investor. Shares rose 44%.
Vanda Pharmaceuticals said it had received regulatory approval for Fanapt to treat manic or mixed episodes linked to bipolar I disorder in adults. Shares rose 31%.
Watch For:
EIA Weekly Petroleum Status Report; World Bank commodities outlook; Walt Disney annual shareholders meeting
Today's Headlines/Must Reads:
- Janet Yellen Missed the First 'China Shock.' Can She Stop the Second?
- The Jobs Numbers Aren't Adding Up. Immigration Helps Explain Why
- Lender Blue Owl Capital Pushes Into Insurance
MARKET WRAPS
Forex:
The dollar retreated from a 20-week high, as traders pause ahead of speeches later by several Fed officials, including Jerome Powell.
This pullback looks more technical rather than driven by fundamentals, however, given that two- and 10-year Treasury yields are holding firm near recent highs, Brown Brothers Harriman said.
GBP/USD is likely to trade with a downward bias toward 1.2240 in the near term, based on the weekly chart, UOB said.
The currency pair's weekly moving average convergence divergence indicator has turned negative after it slightly fell below the 55-week exponential moving average on Tuesday, though the bias isn't strong for now, UOB said.
Currently, it's probably premature to expect GBP/USD to break below the weekly Ichimoku cloud's bottom, which is presently at 1.2100.
The debate about how long major central banks will hold on before cutting interest rates will be a key driver of forex markets in the second quarter, Saxo said,
Markets expect the Federal Reserve to start cutting rates in June or July, and this has raised the question whether some of the other central banks, particularly the European Central Bank, can hold rates higher for that long or whether by doing so they risk a hard landing.
"The competitive pivot story will keep driving the FX markets in 2Q."
Bonds:
Fixed income may have a good year, DWS Global said, as it reckons that central banks will cut policy rates, though not as quickly or as aggressively as some assume.
It said the 2-10 year Treasury yield curve is inverted now, so investors are incentivized to park money at the shorter end of the curve.
"Once rate cutting might start in the summer months, we expect current high money market fund balances to increasingly move into short duration sovereign debt," DWS said, adding a curve steepening should be also helped by falling inflation and moderating growth.
It expects Treasury yields to hit 3.95% and 4.20% for 2- and 10-years, respectively, by March 2025.
Aramea Asset Management said 10-year Treasury and German Bund yields are expected to edge lower on a six-month horizon as central banks are likely to start interest-rate cuts.
It forecasts the 10-year Treasury yield at 4% and the 10-year Bund yield at 2.25% in six months' time. This compares to the current levels of 4.36% and 2.38%, respectively, according to Tradeweb.
Increased term premium in Bund yields, however, limits the downward potential for Bund yields, it said. Aramea is ready to increase duration in its portfolios when the 10-year Bund yield rises to 2.4%-2.5%.
As the Federal Reserve and the European Central Bank prepare to cut rates, there is scope to extend a portfolio's duration up to 10 years, Saxo said.
That said, U.S. long-term rates remain vulnerable to the pace of inflation returning to 2%, and a possible rebound in term premium--the yield premium investors demand to hold a longer-dated bond rather than a shorter-dated one. .
Energy:
Oil prices held steady at five-month highs ahead of an OPEC+ meeting later on Wednesday, as global supplies are threatened by escalating hostilities in the Middle East and fresh waves of attacks against energy facilities in Ukraine and Russia.
Both benchmarks are moving into deeper backwardation, according to analysts, suggesting that the oil market continues to tighten on OPEC+ output cuts, geopolitical risks and signs of improving demand in the U.S. and China.
Meanwhile, OPEC and its allies are due to review members' implementation of production cuts at their online ministerial panel, but aren't expected to recommend changes to the current output policy.
Gas
European gas demand could recover later this year as anticipated interest-rate cuts are expected to drive a stronger economic recovery, according to Commerzbank Research.
Ample gas storage levels, a mild winter and the advance of renewables all contributed to subdued demand during the heating season, with EU gas consumption 14% below the 2019-21 average in January, Commerzbank said, citing data from think tank Bruegel.
Lackluster demand has pushed natural-gas prices significantly lower in recent months, with benchmark Dutch TTF currently trading around EUR25.85 a megawatt hour.
But widely expected cuts in key interest rates should support demand, leaving a "little more room" for gas prices to rise also amid higher supply risks due to growing geopolitical tensions worldwide, Commerzbank said.
Metals:
Gold futures hit a new record, with bullion's bullish momentum from last week persisting into the second quarter on simmering geopolitical tensions in the Middle East,according to Pepperstone.
On the other hand, continued expectations for the Federal Reserve to begin easing monetary policy this year are also providing support, even if the first 25 basis point rate cut is now penciled in for July, Pepperstone said. For now, the precious metal's rally shows few signs of stalling,
Elsewhere, copper made gains but other base metals slipped.
Silver
Gold has left silver trailing in its wake, but Shaw & Partners thinks the latter could go on a run from here.
"The gold price and silver price are historically strongly correlated, with the gold/silver ratio averaging 70x over the past 20 years," Shaw & Partners said.
"The recent gold price rally has left silver behind, and coupled with strong demand for silver for solar panels, there is a case for silver to rally toward $32/oz this year."
Silver ended Tuesday at $25.80/oz.
TODAY'S TOP HEADLINES
Kweichow Moutai 2023 Net Profit Jumped on Stronger Sales
Chinese liquor giant Kweichow Moutai is aiming for continuous sales growth in 2024, it said after posting a 19% rise in annual net profit on stronger sales.
China's most valuable liquor brand said late Tuesday that its 2023 net profit came at 74.73 billion yuan ($10.33 billion), slightly higher than the company's guidance.
Paramount shares rise on report it's considering exclusive sale talks with Skydance
Shares of Paramount Global rose in after-hours trading Tuesday following a report that the media giant may soon be one step closer to selling.
The New York Times reported Tuesday evening that Paramount PARA, which is controlled by Shari Redstone, is discussing entering exclusive sale negotiations with Skydance, the media and entertainment company led by David Ellison, son of Oracle founder Larry Ellison.
The Fed May Not Cut Interest Rates in June. How Investors Can Prepare.
Let's just fast-forward to June.
(MORE TO FOLLOW) Dow Jones Newswires
04-03-24 0621ET
