US futures jump on earnings boost; bond yields slide

Bloomberg

US stock-index futures rise amid growing optimism for another strong earnings-reporting season, while a selloff in Treasuries resumed with a debate raging around whether
inflation is peaking.
June contracts on the Nasdaq 100 and S&P 500 indexes climbed at least 0.6% each after Tesla Inc posted record profits that blew past estimates. Treasury yields advanced, with the 10-year rate adding 3 basis points.
Bond bears took control of market sentiment on Thursday after a rally fuelled by some investors including Bank of America Corp. and Nomura Asset Management, who said the panic over inflation and rate-hike bets had gone too far. However, a Federal Reserve anecdotal survey showed inflationary pressures in the world’s largest economy remained strong. Meanwhile, equities stayed resilient to higher yields with their focus on earnings.
While the peak-inflation debate is intensifying, it’s unlikely to derail global central banks from their tightening path as commodity shortages from the war in Ukraine keep prices elevated. New Zealand inflation accelerated in first quarter to the fastest pace in 32 years, validating the central bank’s pursuit of an aggressive tightening cycle.
The US 10-year real yield turned positive for the first time since March 2020 as traders added to bets on an aggressive Fed hiking cycle. However, the level failed to hold for long.
Stock traders are yet to panic over higher rates. While it’s early in the US earnings-reporting season, the signs are encouraging so far. Of the 67 S&P 500 companies that have posted results, 78% have beaten estimates.
Tesla rallied in late New York trading after reporting better-than-expected first-quarter results and with Elon Musk predicting output will grow at a fast clip for the rest of the year.
The US economy grew at a moderate pace through mid-April, but rising prices and geopolitical developments created uncertainty and clouded the outlook for future growth, the Fed said in its Beige Book survey.
“Strong demand allowed firms to pass through input cost increases in consumers,” Carol Kong, a strategist at Commonwealth Bank of Australia, said in a note. “The anecdotal evidence supports our view the FOMC is well behind the curve and needs to tighten policy
aggressively.”
European stocks posted marginal gains at the open as investors watched the direction of bond yields. Traders are betting on three quarter-point hikes from the ECB this year, after Governing Council member Pierre Wunsch said policy rates could be raised above zero before year-end.