Headlines

* China’s economy gathers speed, consumers spend but recovery “not yet solid”

* Wall Street edges up, tough earnings season off to best start in a decade

* EUR/USD remains sub-1.10 and GBP/USD toying with 1.24

* Asia stocks trim losses, Gold rises on USD pullback

FX: USD rose 0.4% as its Friday rebound from the February low continued. The first increase in five months in April’s NY Fed manufacturing activity helped the chance of further Fed policy tightening. That lifted the US Treasury 2-year yield. It climbed to around 4.20%.The 10-year yield advanced 9bps to 3.60%. These are now both above their 200-day SMAs.

EUR was the worst major performer and closed 0.7% lower. Friday’s high was 1.1075. GBP slipped 0.3% to finish at 1.2378. The 21-day SMA is at 1.2364.  But stronger wage growth this morning has pushed cable above 1.24. USD/JPY moved north to a fresh one-month high at 134.70 this morning. There are reports of a potential below-target core CPI forecast for 2025 at next week’s BoJ Outlook Report. The AUD printed a doji around 0.67. It remains below its 200-day SMA at 0.6742. The RBA minutes kept the door wide open for more rate hikes. USD/CAD rallied for a second day but closed below its 200-day SMA at 134.02. Friday’s low was 1.3300. The y-t-d February bottom is at 1.3262.

Stocks: US equities pared losses into the close driven by financial stocks. The VIX dropped to one-year lows below 17. The benchmark S&P 500 was higher by 0.33%. The Nasdaq 100 closed narrowly higher up 0.06%. The Dow made gains of 0.30%. “Real economy” stocks were supported by the data with a value/cyclical bias. The Empire State survey beat expectations and the homebuilder sentiment also rose helping real estate. Strong guidance from M&T bank lifted the broader regional banking sector.

Asian stocks were generally lacklustre. The strong China GDP data failed to lift the mood. But other data was mixed with industrial production and fixed asset investments below estimates and retail sales surging. That saw the Hang Seng contained. The Nikkei 225 was in the green on reports the BoJ could delay its exit from easy monetary policy due to soft CPI projections.

Gold fell for a second day after its dramatic selloff on Friday form the recent highs. Higher yields and a steady bid in USD are not helping bugs. The dollar rip briefly pushed the precious metal below its 21-day SMA for the first time since early March.

Day Ahead – Fedspeak and earnings

The next few days see a slew of Fed officials on the wires. This is their last chance to have their say on policy ahead of the blackout period and the FOMC 3 May rate decision. Markets are now pricing in an 87% chance of a 25bp hike. This nailed on rate rise has driven Treasury yields and the dollar higher. How much further do they go, unless the market sides with the Fed and the idea of no rate cuts this year?

Bank earnings have grabbed the headlines with State Street plunging 9.2% after quarterly profits missed expectations. Deposits were down 5% in the first three months of the year. Charles Schwab rose 3.9% as EPS jumped more than a fifth year on year and the results were “not as ugly as feared”. The shares have fallen nearly 40% since the collapse of Silicon Valley Bank in mid-March. Focus turns to the “too big to fail” investment banks this week with Goldman Sachs reporting later today. Overall, forecasts seem very bearish as we mentioned in yesterday’s webinar. But bottom-up earnings do not seem consistent with either a recession or inflation returning to the 2% target.

Chart of the Day – Nasdaq consolidating above support

The tech-heavy Nasdaq 100 will be driven by some heavyweight incoming company updates over the next few sessions. Netflix reports after the bell today with updates on advertising and password sharing. Expectations are for the all-important subscriptions to come in below the average. But analysts say this should mark the low point of the year due to the impact of password sharing. Spending cuts and a focus on lower cost TV content should please the market.

The broader tech index has rebounded very strongly this year, up over 22%. But prices have stalled around 13,000. That’s after printing a multi-month high at the start of the month at 13,204. The longer the index tracks sideway, the greater the breakout will be. A move above the recent cycle top sees bulls targeting 13,457. Strong support is seen around the February peak at 12,880.