Headlines

* Euro surges to strongest in a year as Fed cut bets batter USD

* Fed’s emergency loans to banks fall for fourth straight week

* BofA sees S&P 500’s earnings going form bad to even worse

* Asia stocks rise, set for highest close since February

FX: USD fell for a third day after the surprise dip in factory gate inflation. The DXY slid another 0.5%. This year’s low at 100.82 is key support this morning. The next support is a zone around 99.40. The US Treasury 2-year yield continue to trade below the 4% level and 200-day SMA at 4.06%. The 10-year yield trades at the upper end of the recent range but still below 3.50%.

EUR extended its gains today for a fourth straight session. The year-to-date top at 1.1032 was taken out. A new high printed at 1.1075 this morning. GBP also advanced for a third day and closed at 1.2523. That’s its highest level since May last year. Cable earlier posted a fresh top at 1.2546. USD/JPY closed lower as the yen strengthened against the dollar.  The AUD and NZD both surged higher up over 1.35%, but not out of their recent ranges. USD/CAD is falling for a fifth straight day. It plunged through the April low at 1.3405 and 200-day SMA at 1.3398. The y-t-d February low is at 1.3262.

Stocks: US equities rallied through the session with Big Tech leading the gains. The Nasdaq 100 finishing up 2.03%. The benchmark S&P 500 was higher by 01.33%. The Dow made gains of 1.14%. The usual suspects (tech, communication, and consumer discretionary) outperformed. The FANG+ Index jumped 2.44% with Netflix and Amazon up close to 5%.

Asian stocks traded with modest gains. The Nikkei 225 outperformed still enjoying the bullish Buffett comments. Fast Retailing gained over 8% after revising higher its earnings forecasts. The Hang Seng saw a small gain with eyes on next week’s GDP data.

Gold surged over 1.3% as the sliding dollar and soft data boosted bugs. A one-year low in the greenback makes bullion cheaper for buyers holding other currencies. Investors are betting that the Fed funds “terminal” rate is close. ETF purchases and central bank buying remain long-term support. The April high at $2032 was taken out with a new peak at $2048. The March 2022 top sits at $2070. Silver has moved in tandem with gold and has hit a one-year peak. It is bound for its fifth consecutive weekly gain.

Day Ahead – Q1 earnings season kicks off

Major US banks report their first quarter results later today with JP Morgan, Citibank, and Wells Fargo in the spotlight. Focus will be on any commentary around how the recent banking stresses have impacted operations, deposit inflows and any provisions. Guidance on tighter lending and regulatory standards will also be important for stocks in general. The deposit flight into big banks from smaller, regional ones should help offset some of the credit tightening worries. But the wider market could worry about the health of those small banks.

Regarding the wider Q1 season, FactSet expects a 6.8% decline in earnings, which would be the biggest fall since the pandemic 30% plunge in Q2 of 2020. High inflation is expected to squeeze margins and fears of a recession are holding back demand. This gloomy outlook contrast with the S&P 500 which is up over 6% this year. But we note that just 20 stocks have accounted for much of that rise with the megacap tech stocks out in front. Soft US retail sales released today are forecast to add to the gloomy economic outlook.

Chart of the Day – S&P 500’s bullish breakout

Stock markets have enjoyed the reset in the Fed tightening cycle that has resulted from the banking stress and softer economic data. Another low inflation print yesterday also helped. But tighter lending conditions could signal a recession which will impact company’s earnings.

The benchmark S&P 500 has moved higher in a bullish channel with a series of higher highs and higher lows. This has come after the banking crisis low at 3808 in mid-March. Yesterday, the index broke above the April cycle high at 4133. Prices also bounced off long-term trendline support just below 4100 earlier in the week. Buyers are targeting the year-to-date February top at 4195 after the breakout of bull consolidation. The 50% level of the 2022 drop is at 4155.