Morning Bid Americas: Mayday for bonds as 2024 Fed cut hopes dwindle

Aflac

01/05/2024 11:00

A look at the day ahead in U.S. and global markets from Mike
Dolan
May Day for Wall Street comes with the daunting prospect that
the multiple interest rate cuts once expected from the Federal
Reserve this year might now just be just one - if any.   
    Facing another $1.1 trillion in new Treasury debt sales over
the coming two quarters, Tuesday's jarring news that U.S.
employment cost growth accelerated during the first three months
of the year was the latest blow to bond markets already
struggling with a hawkish Fed. 
    With Wednesday's Fed decision unlikely to offer much
encouragement on rates, futures markets have reduced 2024 easing
expectations to just 27 basis points (bps). A quarter-point cut
is now not fully priced until the Dec. 18 central bank meeting -
well after November's election.
    Two-year Treasury yields  US2YT=RR  topped 5% again on
Tuesday to hit their highest for the year - barely 32 bps below
the current Fed policy rate - and 10-year yields crept back
above 4.7%. And exchange-traded funds capturing longer-term
Treasury bonds  TLT.O  are clocking losses of more than 10% for
the first four months of the year.
    With Japan's ailing yen  JPY=  still on the back foot
despite Monday's official intervention to support it and
Switzerland's sliding franc  CHF=  leading the way in Europe,
the dollar index  .DXY  is stalking six-month highs. Bitcoin
 BTC=  plummeted to its lowest in more than two months.
    Navigating this week's torrent of corporate earnings reports
alongside the rates markets rumble, Wall St stocks  .SPX 
recorded their worst day since January, with both the S&P500 and
Nasdaq  .IXIC  clocking monthly losses of more than 4%. 
    And stock futures remain in the red first thing - with even
megacap Amazon's  AMZN.O  earnings beat after the bell on
Tuesday doing little to lift the broader mood even as its shares
rose in out-of-hours trading. 
    And adding to the gloom was an miss from one of the past
year's artificial intelligence darlings, Super Micro Computers
 SMCI.O , sending its stock down 14% after the bell. AMD's
 AMD.O  AI chip sales forecast also underwhelmed and its shares
fell 7% too.
    All too negative? Some suggest month-end trading on Tuesday
and market holidays across much of Asia and continental Europe
on Wednesday may have exaggerated the moves.
    But it's hard to escape the discomfort in the bond market.
    Possible straws in the wind for inflation-anxious Treasuries
include a retreat in U.S. crude oil prices  CLc1  to their
lowest in more than a month amid Gaza ceasefire hopes and
Tuesday's weakening U.S. consumer confidence readings for April.
    
    FOCUS ON POWELL
    What's more, the employment cost hit for the first quarter
may yet be trumped by this week's series of April labor market
updates - starting with ADP's private sector payrolls update
later today and culminating in the full national employment
report on Friday. March job openings data are also due on
Wednesday.
    And while the Fed is unlikely to sound dovish on the policy
rate outlook at Chair Jerome Powell's press conference later in
the day, there's considerable focus on Fed discussions about
slowing the rundown of Treasuries from its balance sheet.
    On top of that, the Treasury itself also publishes details
of its quarterly refunding process with indications on auction
sizes and maturity buckets.
    Another heavy earnings diary for stocks is perhaps
overshadowed by the Fed meeting and bond market angst and Apple
 AAPL  is due to report on Thursday.   
    With many major markets closed on Wednesday, the macro
markets focus overseas remains on the still-fragile yen and
continues to probe 158 per dollar - some 1.5% weaker than it was
early last Friday despite Monday's intervention bout at 160.
    Japan's ruling Liberal Democratic Party is examining the
possibility of introducing measures to provide tax breaks for
companies converting foreign profits into the yen, two senior
party officials told Reuters. The tax holiday may be deployed as
a policy tool to stem the yen's sharp declines, incentivising
firms to return overseas profits to Japan.
        
Key diary items that may provide direction to U.S. markets later
on Wednesday:
* Federal Reserve delivers latest policy decision, statement and
press conference
* US April ADP private sector payrolls, March JOLTS job openings
data, ISM's April US manufacturing survey, S&P Global's final
April manufacturing survey, US March construction spending
* US corporate earnings: Pfizer, Kraft Heinz, MetLife, eBay,
Qualcomm, Mastercard, Automatic Data Processing, Marriott,
Dupont De Nemours, Global Payments, CVS, Marathon Oil, Mosaic,
Eversource, Yum! Brands, ETSY, Estee Lauder, Albemarle, PPL,
Paycom Software, Devon Energy, Generac, Aflac, Cognizant
Technology, Ventas, Allstate, MGM Resorts etc
* US Treasury details quarterly refunding schedules and auction
sizes
* Bank of Canada Governor Tiff Macklem testifies to Senate
committee 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
US employment costs pick up    https://reut.rs/4bhVMvD
Is US "disinflation" reversing?     https://tmsnrt.rs/41mXvfr
'Term Premium' still missing in action?    https://tmsnrt.rs/3wdWFqm
Markets brace for Fed balance sheet taper call     https://tmsnrt.rs/48s4Pt5
Amazon stock outperforms    https://tmsnrt.rs/3JFkcDt
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (By Mike Dolan, editing by Alex Richardson
mike.dolan@thomsonreuters.com)
 ((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: mike.dolan.reuters.com@thomsonreuters.net))