Stocks Struggle with Focus on Earnings, Rates Path:
Hedge funds boost their short positions on Treasury futures
Cross-asset volatility holds near lowest since February 2022
European stocks wavered and US equity futures slipped as traders weighed the latest corporate earnings reports before a slew of economic data this week that may help illuminate the path for interest rates.
The Stoxx Europe 600 fluctuated in early trading, with energy companies leading declines as crude prices added to last week’s slump. Koninklijke Philips NV jumped more than 12% after easing supply-chain pressures helped drive strong first-quarter earnings for the Dutch medical technology firm.
Contracts for the S&P 500 and the Nasdaq 100 extended losses following a muted end to trading last week. MSCI Inc.’s Asia Pacific Index was on course for the lowest close since the end of March. Treasury yields fell and a gauge of the dollar edged higher.
Leveraged investors boosted net short positions on 10-year Treasury futures to a record 1.29 million contracts as of April 18, data from the Commodity Futures Trading Commission show. That’s an indication they think the Federal Reserve will keep raising rates to tackle inflation. Big-tech earnings this week will be parsed for insights into the effect of higher borrowing costs and a struggling economy.
“In this environment of higher rates for longer than had previously been anticipated, some companies have found it difficult to maintain margin, others have done well,” said Nigel Green, chief executive of Devere Group. “Guidance will be critical as indicators show the economy is headed for a downturn and investors will be eager to know which companies are best-positioned to manage this.”
Swaps markets continue to see Fed rates peaking in coming weeks before a series of cuts later this year. US GDP data is forecast to reveal slowing growth, while the so-called core PCE deflator, the central bank’s preferred inflation gauge, is expected to show price growth cooled.
“We should take the Fed at face value when they say rates are not going lower this year,” said Kieran Calder, head of equity research for Asia at Union Bancaire Privée in Singapore, on Bloomberg Television. “Inflation, especially core inflation, remains really sticky.”
Meanwhile, new Bank of Japan Governor Kazuo Ueda will hold his first policy meeting later this week. The central bank is planning to review and inspect policies taken over the past decades as soon as this week’s meeting, Sankei newspaper reported Sunday.
A global gauge of cross-asset volatility remained near the lowest since February 2022, while other volatility gauges, such as the VIX Index and the ICE BofA MOVE Index, are also well below recent highs.
The situation may not last. Volatility is likely to pick up due to the lack of clarity after the Fed’s May meeting, said Priya Misra, global head of rates strategy at TD Securities in New York. “There’s enough uncertainty on the economic outlook as well as how the Fed might respond,” she said on Bloomberg Radio.
Elsewhere this week, the euro-area will publish GDP data and there will be a policy decision in Sweden.
A busy week for earnings will include The Cocal Cola Co., First Republic Bank and First Citizens Bank, the acquirer of Silicon Valley Bank. Tech companies will also be in the spotlight with those to report including Microsoft Corp., Meta Platforms Inc. and Amazon.com Inc.
Credit Suisse Group AG earlier Monday reported 61.2 billion francs ($69 billion) of outflows in the first quarter and net revenue of 18.47 billion francs. The bank said it expects a substantial loss in wealth management for this year.
Key events this week:
- ECB Governing Council members Boris Vujcic, Francois Villeroy de Galhau, speak at events, Monday
- US new home sales, consumer confidence, Tuesday
- South Korea GDP, Tuesday
- Australia CPI, Wednesday
- Sweden rate decision, Wednesday
- Eurozone economic, consumer confidence, Thursday
- US initial jobless claims, GDP, Thursday
- Bank of Japan meets on interest rates, Friday
- Euro-area GDP, Friday
- US personal income, Friday