OPENING CALL
Stock futures struggled for momentum on Wednesday, while bond yields climbed off a four-week low after a Federal Reserve official warned the central bank's next move may be to raise borrowing costs.
Neel Kashkari said he can't rule out that the next move from the central bank will be a rate hike.
Currently markets are pricing in very little chance that the Fed will cut interest rates from the range of 5.25% to 5.50% after its next two meetings in June and July, according to the CME FedWatch tool.
The chances of at least a 25 basis point rate cut by the subsequent meeting in September is priced at 64.8%, up from 53.9% a week ago.
Morgan Stanley thinks the Fed will cut by 25 basis points in September, and will deliver two more by the end of the year as disinflation takes hold once more.
"By September, there will be five more CPI inflation prints and four more PCE inflation readings, which are expected to average 0.20%," Morgan Stanley said. "We think waiting later than September to cut, given our inflation path, would be too late."
Sweden has become the second rich economy to shift into easing mode ahead of the Federal Reserve, with the country's central bank cutting its key rate by a quarter-point.
The Riksbank's cut, to 3.75%, was in line with consensus, and follows a reduction by its Swiss counterpart in March.
Premarket Movers
Anheuser-Busch InBev rose 4.6%. Underlying earnings per share rose to 75 cents a share, beating estimates of 62 cents. Revenue in the period rose 2.6% to $14.55 billion and beat expectations.
Arista Networks reported first-quarter revenue that rose more than expected and the company authorized additional stock buybacks of up to $1.2 billion. Shares rose 7.5%.
Astera Labs reported first-quarter adjusted earnings that beat analysts' predictions. Astera shares have more than doubled since its IPO but the stock was down 7.5%.
DoubleVerify fell 39% after it cut its full-year outlook, saying it expects revenue of between $663 million and $675 million, down from previous guidance of $688 million to $704 million.
Dutch Bros was up 8.4% after it raised its revenue outlook for the year.
Electronic Arts was down 3.5% after it reported fiscal fourth-quarter earnings that fell from a year earlier and net bookings declined 14% to $1.67 billion, below analysts' forecasts.
Lyft's first-quarter adjusted earnings topped forecasts. The stock was up 5.5%.
Reddit shares rose 16% after it reported a narrower-than expected first-quarter loss and revenue in the period jumped to $243 million from $163.7 million a year earlier, beating analysts' estimates.
Rivian fell 5% after reporting a first-quarter loss that was wider than expected.
Toast rose 6.2% after it reported a 31% rise in first-quarter revenue, ahead of expectations.
Shares of Twilio declined 9.1% after it said it expected second-quarter revenue of $1.05 billion to $1.06 billion, below Wall Street forecasts of $1.08 billion.
Watch For:
MBA Weekly Mortgage Applications; Monthly Wholesale Trade; EIA Weekly Petroleum Status Report; Fed speakers include Philip Jefferson, Susan Collins, Lisa Cook; earnings from Arm, Airbnb, Shopify, Uber
Today's Headlines/Must Reads:
- The Risk of Waiting for the Fed
- Profits Are Booming-and That's Shielding the Economy
- To Survive in China, Global Automakers Tap Local Tech Giants
MARKET WRAPS
Forex:
TD Securities expects the dollar to firm against other G-10 currencies as interest-rate differentials continue to favor the U.S. currency.
TD Securities forecasts the Bank of England to leave the bank rate unchanged at 5.25% on Thursday but expects a first rate cut in June.
Low volatility in forex markets is one where carry trades is likely to come back into sharp focus, Pepperstone said.
"Given that carry trades...aim to primarily profit from the yield differential, such a strategy tends to benefit in times of lower volatility."
This is primarily due to the reduced risk of an adverse market move eliminating any carry earned and it therefore encourages a greater number of participants to take such positions, Pepperstone said.
Bonds:
The term premia on Treasurys is too low to compensate investors, especially given abundant supply, Indosuez Wealth Management said.
"We believe that the condition to make this part of the curve attractive [in the absence of recession] is a positive yield curve slope with a higher term premia."
Indosuez has a positive view on the short end of the Treasury curve, expecting two-year yields to remain around 5% for the time being. Indosuez' fair value estimate on the 10-year yield is around 4.75%-versus the current market level of 4.474%, with upside risks.
Energy:
Oil prices were more than 1% lower, with Brent still below $84 a barrel, on a stronger dollar and reports of a weekly build in U.S. crude inventories.
U.S. crude stocks grew 0.5 million barrels in the week ended May 3, according to reports citing the American Petroleum Institute, signaling lower demand in the top consumer ahead of official data from the Energy Information Administration due later on Wednesday.
Meanwhile, the physical market is showing signs of easing supply tightness, with the premium of Brent's front-month contract to the second month-known as prompt timespread-softening from a backwardation of more than $0.80 a barrel at the beginning of last week to $0.64 a barrel on Thursday's close, ING said.
Metals:
Gold slipped, with trading in a narrow band, but with prices were supported by demand from central banks, which has been the strongest on record for the first quarter of the year.
China's central bank expanded its reserves of the precious metal for an 18th straight month in April, adding 1.9 metric tons-bringing its total up to 2,264.3 tons, ING said.
TODAY'S TOP HEADLINES
Microsoft to Invest Over $3 Billion to Build AI in Wisconsin
Microsoft said it is investing billions of dollars on artificial intelligence in Wisconsin, the latest stop in a global spending spree to build AI infrastructure and calm fears about the powerful technology.
President Biden is scheduled to be in Mount Pleasant, Wis., on Wednesday along with Microsoft President Brad Smith to announce the $3.3 billion investment in a new data center there and training programs to educate locals about AI jobs in manufacturing.
KKR to Buy Perpetual's Corporate Trust, Wealth Management Units for $1.44 Billion
SYDNEY-Perpetual has agreed to sell its corporate trust and wealth management businesses to buyout firm KKR in a deal worth around 2.18 billion Australian dollars (US$1.44 billion).
The Australian financial company said Wednesday that it had concluded a strategic review, which would see it become a stand-alone, global multi-boutique asset management business, with the sale of the separated corporate trust and wealth management divisions to unlock value for shareholders.
Companies Are Balking at the High Costs of Running Electric Trucks
Executives at truck leasing company Ryder System spent years listening to some of their biggest customers say they wanted to switch to battery-electric big rigs.
Now that the heavy-duty trucks are available, the company says, few customers want to pay for them.
Pricier Insurance Makes Sense as Climate Risk Grows, Chubb CEO Says
SAN DIEGO, Calif.-Surging insurance premiums in regions vulnerable to climate change make sense, and government efforts to hold back those increases won't work in the long term, Chubb Chief Executive Evan Greenberg said.
U.S. states themselves are driving a crisis of insurance availability by blocking insurers from pricing climate change into policies, Greenberg said on Tuesday in San Diego at the RIMS Riskworld conference, an annual gathering of about 10,000 risk and insurance professionals.
German Industry Awaits Sustained Rebound After Decline in March
Germany's industrial production in March declined on month for the first time this year, a signal that a rebound in the sector could be fragile amid the country's gradual economic recovery.
Output of production in manufacturing, energy and construction fell 0.4% compared with the previous month, on a seasonally and calendar-adjusted basis, from an downwardly revised 1.7% increase in February, according to data published Wednesday by German statistics office Destatis. March's decline was the first since December.
On Campus and in Gaza, Chaos Threatens Biden's Campaign
WASHINGTON-The time had come to take a stand, and so President Biden gripped both sides of his lectern and made an urgent vow to the marbled atrium filled with Holocaust survivors and their descendants.
"People are already forgetting that Hamas unleashed this terror," he said, speaking seven months to the day since the Oct. 7 terrorist attack. "It was Hamas that brutalized Israelis. It was Hamas that took and continues to hold hostages. I have not forgotten, nor have you. And we will not forget."
U.S. Pauses Weapons Shipment to Israel Over a Possible Rafah Offensive
In Washington's first formal rebuke to Israel's campaign against Hamas in Gaza, the Biden administration said late Tuesday that it has paused a shipment of weapons including 2,000-pound bombs destined for its top Middle East ally, as Israel mounted new operations in Rafah in southern Gaza.
U.S. officials said they were conducting a review of other weapons sales amid Israel's operations in Rafah, launched late Monday, even after Hamas agreed to the rough outlines of a deal that could release hostages for a cease-fire.
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05-08-24 0616ET
