US equity futures decline as traders assess policy, earnings

BLOOMBERG

US equity futures retreated along with European stocks and bond yields rose as traders assessed the latest corporate earnings reports against the backdrop of yet another hot inflation print from one of the world’s major economies.
Contracts on the rates-sensitive Nasdaq 100 fell about 0.8%, while those on the S&P 500 were down 0.5%. Morgan Stanley gained in premarket trading after a net revenue beat. Western Alliance Bancorp jumped as much as 20% after its earnings report, leading an advance across many of the regional banks stocks that were dented in March’s tumult. Tesla Inc dropped after the electric-vehicle maker cut prices on some models ahead of first-quarter results.
Amid continuing hawkish talk from policy makers, investors are monitoring earnings reports for signs of how central banks’ efforts to stifle inflation are affecting economic activity. Interest-rate traders are pricing in one more increase from the Federal Reserve in May. That’s raising anxiety about the prospect of a recession.
“Portfolio managers are trying to reduce risk because of concerns that nothing good can happen after so much central bank tightening,” said
Andrew Pease, head of investment strategy at Russell investments Ltd. On earnings, “companies are losing pricing power and a margin squeeze is happening in the background and that’s what to look for when the dust settles on quarter one,” he said.
The Stoxx Europe 600 index slipped about 0.3%, with the technology sector leading the decline. ASML Holding NV dropped as much as 4.8% after the Dutch chip maker’s earnings report raised concerns about its demand outlook.
The UK two-year yield jumped as much as 15 basis points and the country’s stock benchmark underperformed after data showed inflation beat estimates in March, prompting traders to ramp up bets on further Bank of England (BOE) interest-rate hikes.
European Central Bank (ECB) Chief Economist Philip Lane said that another increase in interest rates would be appropriate in May. In the US, Bank of Atlanta President Raphael Bostic told CNBC he favours raising interest rates one more time and then holding them above 5% for some time to curb inflation. His St Louis counterpart James Bullard said he favours getting rates into a 5.5%-to-5.75% range, according to Reuters.
The benchmark currently sits between 4.75% and 5%. Swaps are pricing in a quarter-point hike by the Fed in May, with rate cuts starting to take place in July.
“That might be too early,” Jonathan Liang, head of investment specialists for Asia ex-Japan at JPMorgan Asset Management, said on Bloomberg Television. “There could be a pivot, maybe towards the end of this year, but not maybe as soon as what the market is currently pricing.”
Elsewhere in the markets, oil declined as investors weighed signs of shrinking US crude stockpiles against concerns over an uneven demand recovery.
Gold dipped and iron ore declined after Chinese authorities vowed to curb “unreasonable” price gains in their latest move to crack down on market speculation.
S&P 500 futures fell as much as 0.6% in New York and Nasdaq 100 futures fell 0.8%. While futures on the Dow Jones Industrial Average fell 0.4%, the Stoxx Europe 600 fell 0.3% and the MSCI World index also drops 0.3%.
The Bloomberg Dollar Spot Index rose 0.4% and the euro fell 0.4% to $1.0924. The British pound fell 0.2% to $1.2397 and the Japanese yen also plunges 0.5% to 134.84 per dollar.
The yield on 10-year Treasuries advanced four basis points to 3.62% and Germany’s 10-year yield advanced three basis points to 2.51%. Britain’s 10-year yield advanced 11 basis points to 3.85%.