Wall St Recovers from Friday's Sell-Off Amid Mideast Jitters

Economic

Stocks

Summary:

Stocks rebound after Friday's sell-off, led by financials and defense stocks. Goldman Sachs earnings beat estimates. Mideast tensions still a concern. Retail sales data better than expected. Focus shifts to upcoming earnings reports.

Wall Street's main stock indexes rose on Monday after a bruising sell-off in the previous session on the back of disappointing earnings from some big U.S. banks, while escalating tensions in the Middle East made investors wary.

All three major indexes fell more than 1% on Friday, registering weekly losses.

President Joe Biden warned Israeli Prime Minister Benjamin Netanyahu the United States would not participate in a counter-offensive against Iran - an option Netanyahu's war cabinet favors after a mass drone and missile attack on Israeli territory - according to officials familiar with the development.

Iran launched the attack after a suspected Israeli strike on its embassy compound in Syria on April 1 that killed top Revolutionary Guards commanders. However, Iran's attack, launched using more than 300 missiles and drones, caused only modest damage in Israel.

Defense stocks like Lockheed Martin (LMT.N), opens new tab, General Dynamics (GD.N), opens new tab and RTX Corp (RTX.N), opens new tab gained between 1.1% and 1.5%.

On the earnings front, Goldman Sachs(GS.N), opens new tab gained 5.1% after its first-quarter profit beat Wall Street estimates as a recovery in underwriting and dealmaking boosted its investment banking unit, helping it post the highest earnings per share since 2021.

The stock lifted the financial sector (.SPSY), opens new tab up 1.5%, helping it to lead sectoral gains.

Meanwhile, U.S. retail sales rose 0.7% in March, compared to a 0.3% rise estimated by economists polled by Reuters.

"Certainly we're at a place in time this week where the economic data in large part will take a backseat to the earnings reports," said Art Hogan, chief market strategist at B Riley Wealth.

"But as it pertains to the retail sales, good news is good news. We're in that place that better news in terms of economic growth is certainly going to be a positive for markets now."

The Dow dropped one-and-a-quarter percent, the S&P 500 shed nearly one-and-a-half percent and the Nasdaq tumbled one-point-six percent.

U.S. equities have sold off recently as investors sharply readjusted their expectations of how much the Fed would cut rates this year. Traders have priced in only 39 basis points of cuts this year, according to LSEG data, down from about 150 bps at the start of the year.

At 9:37 a.m. ET, the Dow Jones Industrial Average (.DJI), opens new tab was up 342.51 points, or 0.90%, at 38,325.75, the S&P 500 (.SPX), opens new tab was up 36.24 points, or 0.71%, at 5,159.65, and the Nasdaq Composite (.IXIC), opens new tab was up 69.03 points, or 0.43%, at 16,244.12.

Most megacap growth stocks edged higher in early trading. However, Apple (AAPL.O), opens new tab fell 0.9% after data from research firm IDC showed the company's smartphone shipments dropped about 10% in the first quarter of 2024.

Tesla(TSLA.O), opens new tab will lay off more than 10% of its global workforce, an internal memo seen by Reuters showed. Shares of the EV maker were last down 2.0%.

Salesforce (CRM.N), opens new tab dipped 3.8% after Reuters reported, citing a source, that the customer relations software maker was in advanced talks to acquire Informatica (INFA.N), opens new tab.

Advancing issues outnumbered decliners by a 2.97-to-1 ratio on the NYSE and by a 1.61-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and no new lows, while the Nasdaq recorded 19 new highs and 70 new lows.

Source: Reuters

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Samantha Luan

Commodity

Economic

Australia's liquefied natural gas (LNG) exports will drop this year, continuing a trend from last year after reaching a record high in 2022.

That’s the projection of analysts at BMI, a Fitch Solutions company, in a report sent to Rigzone recently. The country’s LNG exports are estimated to fall to 3.425 trillion cubic feet (97 billion cubic meters) in 2024 after reaching a record high of 3.567 trillion cubic feet (101 billion cubic meters) in 2022, the analysts stated.

The analysts said in the report that the expected decline in 2024 is due to anticipated delays in the feed gas supply for the Darwin LNG project and the shutdown of LNG production trains at the Northwest Shelf (NWS) LNG.

Australia's total LNG exports slightly decreased to 3.531 trillion cubic feet (100 billion cubic meters) in 2023, primarily because of lower production from the NWS LNG project, the suspension of Darwin LNG production following the loss of feed gas supply from the Bayu-Undan field, and the maintenance shutdown of Shell’s Prelude LNG project in the third quarter of 2023, the analysts said.

“Although Prelude LNG has completed maintenance, we foresee potential downside risks to LNG production and exports, which could stem from substantial production declines at the NWS and Darwin LNG projects,” they remarked.

The analysts noted that Woodside Energy is expected to take one 2.5 million metric tons per annum (mtpa) train of its 16.9 mtpa NWS LNG offline in 2024, while fellow operator Santos' 3.7 mtpa Darwin LNG will remain idle as it prepares for backfill from the Barossa field, scheduled for first gas in 2025.

“Our bearish near-term outlook for Australian gas production and LNG exports is also supported by Santos' weak production guidance for 2024. The company has stated that it expects its total hydrocarbon production to decline from an estimated 89-93 million barrels of oil equivalent (boe) in 2023 to 84-90 million boe in 2024,” they continued.

The analysts highlighted that legal risks to new gas projects could delay natural gas production and transportation intended for LNG production.

They cited an example in early November 2023, when Australia's Federal Court halted the construction of subsea pipelines for Santos' Barossa gas project due to environmental concerns and the cultural impact of the pipelines on local communities. In January, the Federal Court ruled in favor of Santos, allowing it to continue the construction of the Barossa gas pipeline project, which had been legally challenged by the Tiwi Islanders on environmental grounds.

“This ruling is a positive outcome for Santos, as it may proceed with the construction of the pipeline. However, it remains unclear whether the Tiwi Islanders will appeal the court’s decision. Santos is still attempting to develop environmental management plans to allay the concerns among the Tiwi Islands community stemming from the Darwin pipeline and Barossa gas production operations. If Santos resumes pipeline construction, we can expect Australia’s natural gas output to return to growth from 2025,” the analysts remarked.

The analysts also emphasized that the government's intervention in the domestic gas market and LNG exports remains a high regulatory risk. They noted that the government has exclusive authority to determine whether there are shortages of natural gas for domestic consumption and may decide to limit LNG exports accordingly.

“In the near term, we believe the impact of such potential controls on Australia's LNG exports will be limited. However, anticipated increases in natural gas supply shortages in the eastern and southern states, where gas production is falling, could prompt the government to divert more gas to the domestic market, undermining LNG exports,” they said.

“We expect a rebound in natural gas consumption supported by an anticipated increase in supplies for the domestic market,” the analysts conclude in the report.

Australia's natural gas consumption fell by 6.6 percent year-on-year, the analysts said, citing Joint Organizations Data Initiative (JODI) data. While natural gas consumption has remained subdued, due primarily to lower gas-fired electricity generation and a decrease in demand from alumina refining activity, the analysts foresaw a rebound in natural gas consumption “since the Australian Competition and Consumer Commission (ACCC) capped natural gas prices at $11.37 per million British thermal units (mmbtu) and banned the supply of gas above this reasonable price”.

Source：rigzone

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Alex

Economic

Political

Treasury Secretary Janet Yellen said the US wouldn’t take “anything off the table” in response to China’s manufacturing capacity, including the possibility of additional tariffs to stem what she has described as a flood of cheap goods into the US market.

“We’re concerned about the possibility of surges in Chinese exports to our markets in areas where they have a great deal of overcapacity,” Yellen said on CNN’s Fareed Zakaria GPS. “I’ve been very clear in my discussions with them that this is a concern not only to us, but also to other countries, to Europe, to Japan, and even to emerging markets. India, Mexico, Brazil,” she said.

Yellen visited China last week, where she rebuked the country for “unfair economic practices,” including alleged mistreatment of US and other foreign companies operating in China and distortion of global markets by subsidizing overproduction in certain sectors.

Asked if additional US tariffs could be in the cards, Yellen told CNN, “I wouldn’t take anything off the table as a potential response. But we really want to responsibly manage this relationship.”

Chinese leaders have been pouring money into manufacturing, focusing on new industries such as electric vehicles, batteries and renewable energy as China looks for new sources of growth for its slowing economy.

President Joe Biden’s administration has tightened US measures to deny China advanced technology and has signaled it’s exploring tariff increase on Chinese EVs. The EU has launched a probe into subsidies for electric vehicles manufactured in China.

Inflation Influence

Yellen defended the administration’s efforts to boost domestic manufacturing to steer away from a reliance on cheap Chinese goods, saying the effort will have only “a very modest influence on inflation.”

She said surging Chinese imports since China joined the World Trade Organization were to blame in part for industry that’s “hollowed out” in parts of the US. “We want to engage in trade that’s mutually beneficial,” Yellen said in the interview broadcast Sunday.

Yellen warned China during her trip against supporting Russia in its war on Ukraine. She said companies that provide material support for Russia’s war, including banks which facilitate transactions that channel military goods to Moscow, will be at risk for US sanctions.

Bloomberg reported that US officials have warned China is providing Russia with substantial quantities of parts to build drones and missiles to bolster its resources in the conflict. The US has also been cautioning allies that China has provided geospatial intelligence to boost the Kremlin’s efforts, according to people familiar with the matter.

Treasury’s sanctions office is investigating some companies, both US and foreign, for selling chips that have eventually ended up in Russia. China denies seeking to benefit from Russia’s war in Ukraine.

“I was clear at the highest levels in my meetings that the United States will not tolerate violations of our sanctions by Chinese banks or firms that are aiding Russia in its war against Ukraine,” Yellen said. “And that if that’s done, that there will be consequences.”

Source：Bloomberg

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Swissquote

Economic

Risk appetite is better this Monday morning than it was last Friday when the world was bracing for the Iranian retaliation on Israel. Iran fired more than 300 drones and missiles on Israel on Saturday night, but only a small number reached Israel, limiting damages. There were no fatalities, just an army base was slightly damaged.

Good news is Teran called the operation a success and declared that it won’t take further actions unless Israel responds. Oil traded slightly lower as the first reaction to the weekend news, while gold gapped higher at the open as last week’s rising tensions left a sour taste in investors’ mouth. Elsewhere, base metals including copper, iron and aluminum surged after the US and the UK decided to impose sanctions on Russian supplies. Spot aluminum jumped more than 5% while copper futures advanced to the highest levels since last summer. The dollar index consolidated on Monday after a 2% jump last week.

Too strong to cut

The US dollar strengthens on the back of a severe deterioration in Federal Reserve (Fed) rate cut expectations following strong jobs and inflation data, and the dollar outlook remains comfortably bullish.

The US 2-year yield hit 5% post-US CPI data, and the probability of a June Fed rate cut fell to around 22%. July cut expectations is around 50-50, and a September rate cut is given around 73% chance.

And you know the election narrative that the Fed may not opt for a rate cut approaching the November presidential election, which would delay the first cut to after the election. And some believe that the Fed’s next move won’t be a cut, but a rate hike to tame rising inflationary pressures. That’s a significant readjustment compared to the expectation of six rate cuts in January.

Diverging fortunes

While the US data continues to cement the strength of the US economy and the fact the US doesn’t need to cut rates – and should not be cutting rates with heating inflation – the rate cut expectations elsewhere remain pretty solid. Last week’s European Central Bank (ECB) meeting gave another hint that the bank will more likely than not cut its own rates in June. ECB Chief Christine Lagarde said that the ECB is data dependent and not Fed dependent and other members noted that it’s time to ‘diverge’ from the Fed, as the US consumers are relentless – and the US government is very supportive – with Biden looking to cancel $7.4bn in student debt to please young voters before the election.

As a result, the gap between the Fed and the ECB rate cut expectations widened to the highest level this year following a dovish ECB stance and another set of strong jobs and inflation read in the US. And the chatter of a further euro depreciation to parity against the US dollar is being brought back on the table. At the current levels, the RSI indicator is very close to the oversold territory, meaning that the euro was sold too rapidly in a too short period of time and a correction could be needed. But most traders will be looking to sell the tops in the EURUSD on the back of the growing divergence between the soft ECB and the Fed – that simply can’t justify a rate cut this summer.

Earnings

The S&P 500 posted its worst weekly performance since late October 2023. Mixed bank earnings didn’t help improve mood on Friday. JPM tanked 6.5% as net interest income missed expectations and slipped from the previous quarter as investors chased higher returns. The latter is a real joy killer among investors who were expecting to hear how much more net interest income the bank could gain with a delayed rate cut from the Fed. Similarly, deposits that don’t pay interest at Wells Fargo slumped 18% in Q1.

This week, the earnings season gains momentum with the rest of the US big banks, Netflix and TSM due to announce their Q1 results. The expectation is a 3.8% annual growth in S&P500 companies’ earnings per share in the Q1, while profits for the Magnificent Seven are expected to have risen around 38%. Another strong quarter in terms of earnings could slow a potential selloff in the S&P500 – that sees the selling pressure rise on the back of rising hawkish voices. But a softer-than-expected earnings season will likely trigger profit taking.

Halving

Bitcoin slumped over the weekend as rising geopolitical tensions weighed on risk appetite. Bitcoin halving is expected to happen in the coming days. Lower supply is fundamentally supportive of an asset’s valuation, but we might not see a clear kneejerk reaction to Bitcoin halving as most of it is already priced in.

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Cohen

Cryptocurrency

The wave of crypto adoption by TradFi continues to pick pace globally, especially amid excitement surrounding Bitcoin halving. In a major breakthrough, Germany’s biggest federal bank Landesbank Baden-Württemberg (LBBW) also revealed plans to offer crypto custody services in partnership with crypto exchange Bitpanda.

Germany’s Top Bank and Bitpanda to Offer Crypto Custody

Landesbank Baden-Württemberg, Germany’s biggest federal bank, and the Bitpanda crypto exchange to provide cryptocurrency custody services in the second half of 2024, reported Bloomberg.

Germany’s top federal bank and the largest crypto exchange in the country coming together is a major development for crypto adoption ahead MiCA regulation. Austrian unicorn company Bitpanda received a crypto license from Germany’s financial regulator (BaFin) in November 2022 to become one of the few companies to get crypto custody and proprietary trading license.

LBBW and Bitpanda will offer crypto custody to institutional and corporate clients, according to a statement by the companies on April 15. LBBW is owned by some of Germany’s savings banks such as the state of Baden-Wuerttemberg and the city of Stuttgart. It has nearly €333 billion ($355 billion) in assets.

“The demand from our corporate customers for digital assets is increasing. We are convinced that crypto assets will establish themselves as a building block for further business models. With this cooperation, we are creating the technical and regulatory basis at an early stage to best support the individual crypto strategies of our corporate customers,” said Jürgen Harengel, managing director of corporate banking at LBBW.

Banks’ Active Participation in Crypto

German banks and asset managers’ interest in crypto assets are increasingly active ahead of EU’s MiCA regulations taking effect later this year.

In March, Germany stock exchange firm Deutsche Boerse launched a fully regulated crypto trading platform Deutsche Boerse Digital Exchange (DBDX). The aim is to offer a fully regulated and secure environment for institutional trading, settlement, and custody for this digital asset class.

Also, Germany has massive demand for Bitcoin and altcoins from retail and institutional investors. Electronic securities trading platform Xetra has been offering crypto ETP and ETN for companies such as 21Shares and WisdomTree.

A recent research by KPMG shows German investors are actively buying crypto assets as trust returns ahead rise in Bitcoin price.

Source：coingape

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Ukadike Micheal

Economic

Forex

Consumers displayed resilience in the face of rising inflation in March, defying expectations by maintaining a robust pace of spending, according to the latest report from the Commerce Department. Retail sales surged by 0.7% for the month, significantly surpassing the forecasted 0.3% increase, as indicated by Census Bureau data adjusted for seasonality but not for inflation.

Despite the 0.4% uptick in the consumer price index reported by the Labor Department the previous week, consumers managed to keep up with the pace of inflation, which ran at a 3.5% annual rate for the month. This ability to maintain purchasing power amidst inflationary pressures highlights the underlying strength of consumer sentiment and economic resilience.

Digging deeper into the retail sales data, it's evident that certain sectors experienced notable growth. Excluding auto-related receipts, retail sales jumped by an impressive 1.1%, well above the estimated 0.5% increase. This strong performance underscores the broad-based nature of consumer spending, with various categories contributing to the overall uptick.

The headline retail sales figure was bolstered by an increase in gas prices, with sales at service stations surging by 2.1% for the month. Additionally, the robust growth in online sales, up by 2.7%, reflects the ongoing shift towards e-commerce as a preferred shopping channel. Miscellaneous retailers also saw a substantial increase of 2.1%, further highlighting the diversity within the retail sector.

Market reaction to the upbeat retail sales data was positive, with stock market futures and Treasury yields both experiencing sharp increases. Despite concerns over escalating tensions in the Middle East following Iran's aerial strikes on Israel over the weekend, investors remained optimistic about the outlook for the Wall Street open. This optimism underscores the market's confidence in the resilience of consumer spending as a driver of economic growth.

However, amidst the positive market sentiment, lingering concerns persist regarding the trajectory of monetary policy. Federal Reserve officials have expressed caution about potential interest rate cuts in the face of ongoing inflation pressures, leading investors to adjust their expectations for policy easing in the near term. This uncertainty surrounding monetary policy adds a layer of complexity to the market environment, influencing investor sentiment and market dynamics.

The strong retail sales data for March reflects the robustness of consumer spending, which continues to serve as a crucial driver of economic growth. Despite challenges posed by inflation and monetary policy uncertainties, consumer confidence remains resilient, supporting the overall stability of the U.S. economy.

Source: U.S. Census Bureau

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Warren Takunda

Economic

Stocks

U.S. stock futures ticked higher Monday even as investors dealt with a multitude of issues, including Iran’s missile and drone strike on Israel and a spike in equity market volatility that sent the Dow Jones Industrial average to its worst week of the year last week.

Futures tied to the Dow Jones Industrial Average rose 108 points, or 0.3%. S&P 500 and Nasdaq-100 futures added 0.5% each.

Gold futures pulled back slightly to trade at $2,367.90 an ounce. Bullion hit a record level last week and is up 15% this year as investors seek safety from sticky inflation and geopolitical tensions.

The Dow on Friday lost 476 points and the S&P 500 posted its worst day since January on lingering inflation concerns and a poor start to the first-quarter earnings reporting season. The losses caused the Dow to shed 2.4% last week for its worst week since March 2023 and its second down week in a row. The S&P 500 slid 1.5% for its worst week since October 2023. The Nasdaq Composite Index posted its third negative week in a row.

Iran launched drones and missiles on Israel on Saturday night, marking the first direct attack on Israel from Iranian territory. While the majority of the threats were intercepted, concerns of retaliation remain.

Oil prices, which have risen in the last few weeks prior to the attack on the rising Middle East tensions, were slightly lower Sunday.

“This remains a dangerous situation, but risks to oil and markets may be a bit less than feared Friday on the eve of the attack,” Krishna Guha, Evercore ISI senior managing director and head of the Global Policy and Central Bank Strategy Team, wrote in a Sunday note.

Guha added that the a key question remaining is how Israel Prime Minister Benjamin Netanyahu will respond to the attack. The Biden administration has made it clear it does not want Israel to retaliate, noted Guha.

“Provided that Netanyahu looks like he is willing to follow U.S. advice, there may be some element of a relief rally in markets Monday. However, our colleagues in the energy team do not expect a big retracement in the price of oil,” said Guha.

On the earnings front, investors will be watching for Goldman Sachs and M&T Bank results Monday morning. More economic data is also scheduled for release. Retail sales data is scheduled for Monday, as well as business inventories data for February and manufacturing numbers for March.

Treasury yields were jumping for most of last week amid a third-straight hotter-than-expected CPI reading. However, rates eased on Friday as investors bought Treasuries as a safe haven from the geopolitical tensions. Prices move inversely to yields.

While JPMorgan Chase bested analysts’ profit estimates in its first-quarter report Friday, investors sent the shares 6% lower on concern about what it may generate from lending in the year ahead. CEO Jamie Dimon also raised concerns about the “unsettling” global landscape and “persistent inflationary pressures.”