MARKET WRAPS
Watch For:
Federal Open Market Committee meeting; Earnings from Pfizer, Ford Motor, Starbucks, Uber
Today's Top Headlines/Must Reads:
- How Washington Got On Board With a Big-Bank Deal for First Republic
- Tight Supply Fuels Demand for Newly Built Homes
- Investors Are Piling Into Actively Managed ETFs
- Goldman Sachs CIO Tests Generative AI
- BP Beats Expectations With $5 Billion Profit After Fending Off Shareholder Challenge
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Opening Call:
Stock futures were a fraction softer on Tuesday as traders eyed looming monetary, earnings and economic data catalysts.
This week's main event is the Federal Reserve's monetary policy decision on Wednesday, when it is expected to announce a 25 basis point rate hike to a range of 5% to 5.25%.
DataTrek Research said that the market had been helped by generally better than expected company results but that it may later struggle given overdue optimism about earnings in coming quarters.
"The combination of a good Q1 earnings season and slightly higher estimates certainly explains why the S&P 500 is within 0.2 percent of a 6-month high. We still believe estimates for the back half of 2023 and 2024 are too high; it is hard to believe the S&P 500 will be printing all-time record quarterly earnings in Q4 2023.," DataTrek added.
Global stock markets were muted. Hong Kong's Hang Seng Index rose 0.2%, Japan's Nikkei 225 added 0.1%, and the Stoxx Europe 600 declined 0.3%. The Australian dollar surged after a surprise interest-rate increase, gaining 1% against the U.S. dollar.
Stocks to Watch
Arista Networks reported first-quarter earnings and issued a second-quarter outlook that beat expectations but the stock fell almost 8% after saying it expects some of its biggest customers-the "cloud titans"-soon could begin cutting back on spending.
BlackBerry said it is reviewing its entire portfolio and operational structure as part of a restructuring plan. Shares rose 8% in after-hours trading.
BP's first-quarter earnings fell from a year earlier on lower oil and gas prices but topped earnings expectations, and the British energy giant said it would be launching a buyback program of $1.75 billion. ADRs of BP were falling more than 5%.
Chegg warned of its performance being hit by OpenAi's CHATGPT chatbot. Shares fell 42% in pre-market trading.
Community Health Systems on Monday reported a first-quarter loss. Shares fell 19% in after-hours trading.
E2open Parent Holdings swung to a loss in its latest quarter amid lower-than-expected revenue. Shares dropped 20% in after-hours trading.
Forex:
Weaker-than-expected U.S. JOLTS job opening data could cause the DXY dollar index to weaken by around 0.5% but investors are unlikely to sell it much more ahead of Wednesday's Fed decision, ING said.
The Fed is expected to raise rates by 25 basis points and speculation is growing that rates may not be cut any time soon, it said.
"There are many serious U.S. bankers keen to go on record saying that the Fed will not be able to cut rates this year--a clear challenge to the consensus view of a weaker dollar."
Read Fed Likely to Be Done With Rate Rises After This Week's 25Bp Move
Energy:
Oil prices edged higher in Europe as investors awaited a busy week of central bank meetings and economic data.
Metals:
Base metals prices were mixed, while gold was flat in early London trading, as investors looked to major macro events due later this week.
"The macro mood is mixed and volatility is low ahead of three big market-moving events," Peak Trading Research said, referring to the Fed's interest-rate decision due tomorrow, the ECB's decision on Thursday and U.S. nonfarm payrolls on Friday.
Investors are pricing in a 25 basis point hike but are hoping it will be the last of this current cycle, which should benefit risk assets and weaken the dollar, Peak Trading Research added.
TODAY'S TOP HEADLINES
Goldman Sachs CIO Tests Generative AI
The pace of new developments in artificial intelligence came faster than expected for corporate technology leaders. Many have spent the past few months grappling with how and where they can leverage the new capabilities of generative AI and large language models, or LLMs, from categorizing reams of business documents to writing code.
"The technology is changing so fast in front of our eyes that I think it's almost like the limit is ourselves and being able to rationalize it, " said Marco Argenti, chief information officer of Goldman Sachs Group Inc.
BP Beats Expectations With $5 Billion Profit After Fending Off Shareholder Challenge
British oil major BP beat expectations in the first quarter on strong results from trading oil and gas, and said Tuesday it will buy back another $1.75 billion in shares.
BP's first-quarter underlying replacement-cost profit-a metric similar to net income that U.S. oil companies report-of $4.96 billion-exceeded the $4.27 billion average forecast by 25 analysts in a survey compiled by the company. It compared with $6.25 billion a year prior.
HSBC Profit Surges on Interest Income, Accounting Gains
Banking giant HSBC Holdings reported a sharp rise in profit in the first quarter, driven by bumper interest income and an accounting gain after the planned sale of its French retail bank became less certain.
The bank's profit hit $10.3 billion in the first three months of 2023, more than three times that of a year earlier, HSBC said Tuesday. That beat the estimates of analysts polled by HSBC, who had predicted a profit of around $6.4 billion on average.
Vice Media Prepares to File for Bankruptcy
Vice Media is preparing to file for bankruptcy as soon as within the next several days, people familiar with the matter said, a move that would mark a major fall from grace for a once-hot media startup that was valued at $5.7 billion at its peak.
Vice, whose assets include Vice News, Vice TV, Refinery29 and Motherboard, has struggled for years to find growth. The company has been looking to sell itself, but a deal hasn't materialized, The Wall Street Journal previously reported. Its chief executive, Nancy Dubuc, departed earlier this year, and last week the company announced it would be restructuring its news division, ending its Vice World News Tonight show and shutting down the Vice World News brand.
Ron DeSantis's Oversight Board Sues Disney
The board overseeing the district covering Walt Disney Co.'s Orlando-area theme parks sued the entertainment giant in state court, accusing the company of striking a "backroom deal" in an effort to preserve its ability to essentially self-govern the district.
The lawsuit, filed on Monday in the Ninth Judicial Circuit Court, which includes Orange and Osceola counties, marks the latest salvo in the escalating battle between Disney and Florida Gov. Ron DeSantis.
How Washington Got On Board With a Big-Bank Deal for First Republic
Federal regulators wanted a strong deal for First Republic Bank. As a result, they helped America's largest lender get even bigger.
JPMorgan Chase beat out bids from at least three smaller peers, according to people familiar with the matter. The bank said it had some 800 people working over the weekend to scour First Republic's books and assess its business.
Tight Supply Fuels Demand for Newly Built Homes
Home builders are enjoying stronger-than-expected business this spring, capitalizing on the recent fall in mortgage rates and the shortage of existing homes for sale.
Last year's rapid rise in mortgage rates made home purchasing far more expensive for most buyers, slowing home sales and pressuring the home-building industry. Home builders pulled back on land acquisition and new construction.
Investors Are Piling Into Actively Managed ETFs
Investors are pouring money into actively managed exchange-traded funds, underscoring the appeal of active strategies after years of calls for passive index investing to take over.
Active funds still make up a sliver of the roughly $7 trillion ETF market-less than 6% of total assets-but have attracted about 30% of the total flows to ETFs so far this year, according to Bloomberg Intelligence. That follows a banner year for active ETFs in 2022, when they gathered roughly 14% of total flows.
Treasury Chief Janet Yellen Says U.S. Risks Default as Soon as June 1 Without Debt Ceiling Increase
WASHINGTON-Treasury Secretary Janet Yellen said the U.S. government could become unable to pay all of its bills on time as soon as June 1 if Congress doesn't first raise the debt limit.
President Biden on Monday invited the top Republicans and Democrats on Capitol Hill to meet next week to discuss raising the country's roughly $31.4 trillion borrowing limit, the White House said soon after Ms. Yellen's warning.
Eurozone Inflation Rebounded in April Ahead of ECB Meeting
Eurozone inflation rebounded slightly in April, after five consecutive months of falls, as food prices stayed high, complicating the European Central Bank's task of bringing down stubbornly elevated inflation ahead of its meeting this week.
The consumer price index increased 7.0% in April on year, from a 6.9% rise in March, preliminary data from the European Union's statistics agency Eurostat showed Tuesday, matching the 7.0% consensus forecast from economists in a poll by The Wall Street Journal.
Australia, Spooked by Inflation, Resumes Raising Interest Rates
SYDNEY-The Reserve Bank of Australia surprised financial markets by raising interest rates a month after pausing to assess the impact of earlier tightening on the economy, illustrating how central banks are wary of declaring victory over inflation.
The RBA lifted its official cash rate by a quarter of a percentage point to 3.85%, arguing that while inflation had already peaked it was still too high at 7% and could take a couple of years before it reaches the top end of a 2% to 3% target range.
(MORE TO FOLLOW) Dow Jones Newswires
05-02-23 0618ET
