Overnight Headlines

*Asian stocks eventually trade mostly positive after firm US performance

*The PBoC defied expectations for a cut to lending rates and more easing

*Netflix falls 26% after-hours as subscribers declined for first in over 10 years

*DXY rally has paused as majors attempt to claw back lost ground

US equities rallied posting their best session in more than a month. Best performance was seen in the Nasdaq and Russell. But the gains were broad based with 10 out of 11 sectors positive, led by consumer discretionary. Energy was the only subsector to fall as Brent crude fell over 5%. Stocks were bouyant in spite of US 10-year yields nearing 3% and the 30-year breaching that level. Asian stocks are in the green, with the Nikkei underpinned by currency depreciation. European futures are positive too though US futures are mixed.

USD saw highs of 101.03 in DXY before closing lower. The dollar continued to rise to a fresh 20-year high versus JPY, touching 129.40 this morning before pulling back. The greenback also tested a two-year peak against EUR before retracing above 1.08 today. GBP closed little changed as its finds support around 1.30. AUD snapped its four-day losing streak and now trades above 0.74. USD/CHF notably broke above resistance at 0.9472, making a new high at 0.9536, a level last seen in June 2020.

Market Thoughts – US “real yields” nearly positive

Bond markets may seem fairly distant and dull to many investors and traders. But their importance is without question, especially as there is now a lot of focus on yields as they surge. The most commonly quoted have been “nominal” yields which are non-inflation adjusted. These borrowing costs have been spurred by the Fed as it looks to raise rates and reduce its $9 trillion balance sheet to dampen price pressures.

Attention is also turning to US inflation-adjusted bond yields, so-called “real” yields. Having been deeply negative in 2020, these are now on the verge of turning positive for the first time since March 2020. They have soared more than 1% in a matter of five weeks.

This signals that bond pay-outs are coming close to exceeding medium-term inflation expectations. Ultimately, this adds another headwind to riskier assets, though financial conditions are still historically very loose.

Chart of the Day – Tesla holds support ahead of earnings

The Elon Musk-led carmaker reports its first quarter earnings after the close tonight. Wall Street’s forecast is for the company to post adjusted earnings of $2.27 per share on revenue of $17.85 billion. This represents sales growth of 65%. The common metric for Tesla is the capacity of output as it has the high-class problem of demand outstripping supply.

Ahead of these results, Tesla announced record deliveries of more than 310,000 during the first three months of the year. This was a 68% jump year-on-year. The company has sought to average 50% growth in annual deliveries. Much focus will be on ongoing supply chain issues and rising input costs. Attention will be on the “gigafactory” openings in Austin and Berlin helping to ease production bottlenecks.

Technically, near-term support for the stock sits around $973.10/41. The 100-day SMA is just below at $972.81. Any kind of disappointment will see sellers push the stock down. Next support is the 50-day SMA at $930.61 and the 200-day SMA at $893.07. Bulls will hope that bumper results can push prices up to the March highs around $1150.