Futures Extend Rebound Into Second Day Ahead Of Tesla Earnings Despite Rising Yields

US equity futures are higher for the second day, even as small-caps underperform after bond yields rise about +4bps and trade near session highs. As of 7:40am S&P and Nasdaq futures were 0.3% higher after Wall Street’s rebound from a $2 trillion selloff; European stocks also rose on broad-based strength, with only commodity-related sectors in the red; the UK’s FTSE 100 index hit a record high as a rebound that took hold on Monday gathered momentum. Ahead of Tesla's earnings today, the Mag7 are mixed with semis higher pre-mkt after the recent rout. Commodities are stronger led by Ags and Energy with a flat USD. The macro data focus is on Flash PMIs, Home Sales, Regional Mfg Activity indicators; earnings are skewed towards the Industrials sector with TSLA the first Mag7 stock set to report. We will see if the last few trading sessions sufficiently squared positions and if realized stock moves can match the implied moves, expected to be the largest in 1.5 years.

Early results Tuesday were mostly positive, with shares of United Parcel Service and General Motors rising in premarket trading after earnings beats. PepsiCo slipped after reporting falling volumes in North America. But the main event will be the “Magnificent Seven” cohort of tech megacaps, with Tesla set to be the first to report after today’s market close. Next up is Meta Platforms on Wednesday, followed by Microsoft and Alphabet on Thursday. Here are some other notable premarket movers:

• Abeona Therapeutics shares slumped 48.1% after the biotechnology company’s drug for a rare connective tissue disorder failed to win approval from the US Food and Drug Administration.
• Cadence Design shares drop 5.8% after the maker of semiconductor design software’s revenue and adjusted earnings per share forecast for 2Q fell short of average analyst estimates. Additionally, the company reported 1Q product and maintenance revenue that missed expectations.
• JD Sports shares gained after the British sportswear and sneakers retailer agreed to buy Hibbett (HIBB US) for about $1.1 billion to speed up its US expansion, in a deal expected to be accretive in the first full year of ownership. Hibbett gained 19%.
• Roblox shares rose 4.2% after the game maker was upgraded to overweight from neutral at JPMorgan, which said it sees a “compelling” entry point for a company that has bookings growth of around 20%, exiting a heavy investment cycle and ramping new revenue streams in advertising as well as commerce.
• Sunnova Energy shares fell 2.4% after the renewable energy company is cut to sector weight from overweight by KeyBanc Capital Markets. The downgrade reflects a cautious industry-wide stance, despite Sunnova’s “undemanding valuation,” analyst Sophie Karp writes in a note.

Earnings will stay front and center of investors’ minds this week with about 180 companies — over 40% of the S&P 500 market value — report results. The focus on corporate profits comes after a rout fueled by geopolitical fears and signals the Federal Reserve will be in no rush to lower rates. "Whether markets see further consolidation from here is likely to hinge on the assessment of the sustainability of AI demand ahead following the earnings releases," said Eddie Cheung, a senior strategist at Credit Agricole CIB.

The challenge to S&P 500 returns is that companies will have to produce earnings, and outlooks, that support the already elevated multiples. Profits for the Magnificent Seven are forecast to rise 38% in the first quarter from a year ago, dwarfing the overall S&P 500’s 2.4% anticipated year-over-year earnings growth, according to Bloomberg Intelligence. But excluding Nvidia, the leading chipmaker for AI technology, expected net income growth for the group falls to 23%. Nvidia, which Goldman Sachs Group’s trading desk dubbed “the most important stock on planet Earth,” doesn’t report its earnings for another month.

“We remain focused on the current earnings season, which could re-focus investor attention on solid underlying fundamentals,” Citigroup Inc. strategists Mihir Tirodkar and Beata Manthey wrote in a note. “We would view the recent pullback as a buying opportunity."

Meanwhile, Investor positioning on megacap growth and tech stocks continues to be cut, down from the 97th percentile in early March to the 77th percentile now, according to Deutsche Bank strategists. The group is still the only sector where positioning is above historical average, even if no longer extreme, the strategists wrote, countering the self-serving and incorrect observations by JPM's Marko Kolanovic.

In Europe, the Stoxx 600 index climbed 1%, with technology and retail shares leading gains, while the mining sector lagged. SAP SE jumped more than 4% as a boom in demand for artificial intelligence fueled the German software company’s growth. Drugmaker Novartis AG added as much as 5% after lifting full-year guidance. Here are some other notable premarket movers:

• JD Sports shares gain as much as 7.5% after the British sportswear and sneakers retailer agreed to buy Hibbett for about $1.1 billion to speed up its US expansion
• Novartis shares advance as much as 5%, the most in more than 9 months, after the Swiss drugmaker reported results for the first quarter that impressed analysts
• Nordnet rises as much as 9.7%, the most since October, after the digital bank reported its first-quarter results. Both Citi and Morgan Stanley highlight the company’s higher-than-expected brokerage income
• SAP shares jump as much as 4.4% in Frankfurt after the software company reported quarter-over-quarter acceleration in the growth rate of current cloud backlog, a key indicator of cloud revenue to be booked within next 12 months
• Akzo Nobel shares fall as much as 6.6%, to the lowest since November, after the coatings maker failed to raise its profit forecast for the year. The stock had risen in five of the six sessions leading up to Tuesday’s earnings report
• DNB falls as much as 3.9%, the most since October, after the Norwegian lender reported a net interest income miss for the third quarter in a row, with analysts also flagging a low-quality profit beat due to it being attributable to provision income
• Anglo American falls as much as 3.9% in London after the miner reported first-quarter earnings. Analysts noted that sales were behind production in copper and iron ore, leading to temporary inventory builds
• Kuehne + Nagel shares drop as much as 3.9% after reporting first-quarter earnings in which pricing and cost performance were offset by lower volumes, according to Citigroup
• Boliden declines as much as 5.9% after its first-quarter results, with analysts flagging that headline operating profit missed, but underlying operations performed reasonably well
• OVH shares slide as much as 17%, the biggest drop since March 2023, as weaker-than-expected 2Q growth led the IT services provider to lower its forecast for growth and capex for the year

PMI data on Tuesday reinforced the positive mood in Europe. Private-sector activity advanced to the highest level in almost a year, driven by a buoyant services sector and Germany’s return to growth. And yet, barring any economic surprises, a rate cut in June is a “fait accompli,” European Central Bank Vice President Luis de Guindos said.

Earlier in the session, Asian stocks also rose for a second day as sentiment toward China continued to improve, with easing fears of a wider Middle East conflict offering additional support. The MSCI Asia Pacific Index rose as much as 0.8%, with TSMC and Tencent among the biggest boosts. Most regional markets advanced, though mainland China stocks fell for a third day and Japanese shares trimmed gains as the yen strengthened after Finance Minister Shunichi Suzuki’s comments on possible intervention. Hong Kong stocks led the region’s gains after UBS upgraded Chinese stocks to overweight, citing resilient earnings and a growing focus on shareholder returns. Investors are turning more upbeat on the nation’s assets thanks to green shoots in the economy as well as signs of improving corporate performance.

• Hang Seng and Shanghai Comp. were mixed with outperformance in Hong Kong due to tech strength, while the mainland lagged amid the PBoC's continued tepid liquidity operations and with the US drafting sanctions that threaten to cut some Chinese banks off from the global financial system for aiding the Russian war effort.
• Nikkei 225 traded indecisively and on both sides of 37,500 after briefly wiping out all of its opening gains.
• ASX 200 was led by strength in real estate and tech, while the latest flash PMIs from Australia were varied.

“What makes us more positive now on earnings are the early signs of a pick-up in consumption,” UBS strategists including Sunil Tirumalai wrote in a note. “Any rebound in consumer confidence for us means the possibility of household savings flowing into consumption” and eventually markets.

In rates, treasuries are under modest pressure with front-end yields higher by ~2bp before a flurry of bond auctions that will test investors’ appetite after yields hit the highest in 2024: the latest weekly supply cycle (2-, 5- and 7-year auctions) is set to kick off with record $69b 2-year later today. US 10-year yields around 4.645%, higher by nearly 4bps on the day. In Europe, gilts underperform their German counterparts after the UK raised its planned gilt issuance for the fiscal year more than expected, as the government’s budget shortfall overshot forecasts; the belly of gilts curve cheapened after DMO announcement, with 5-year UK yields higher by around 2bp. Treasury coupon auctions resume at 1pm New York time with $69b 2-year, followed by 5- and 7-year notes Wednesday and Thursday. The WI 2-year yield at around 4.965% is ~37bp cheaper than last month’s, which tailed by 0.5bp

In commodities, oil prices advance, with WTI rising 0.4% to trade near $82.20. Gold extends Monday’s drop, down 1% on the day; Monday’s 2.7% drop was biggest in nearly two years. Bitcoin is modestly softer and holds around the USD 66k mark.

Looking at today's calendar, US economic data slate includes April Philadelphia Fed non-manufacturing activity (8:30am), S&P manufacturing and services PMIs (9:45am), March new home sales and April Richmond Fed manufacturing index (10am). From central banks, we’ll hear from the ECB’s Panetta and Nagel, and the BoE’s Haskel and Pill as Fed members have entered quiet period ahead of May 1 policy announcement. Finally, today’s earnings releases include Visa, Tesla, PepsiCo, General Electric, UPS and General Motors.

Market Snapshot

• S&P 500 futures up 0.1% to 5,052.75
• STOXX Europe 600 up 0.6% to 505.15
• MXAP up 0.6% to 170.25
• MXAPJ up 0.9% to 524.40
• Nikkei up 0.3% to 37,552.16
• Topix up 0.1% to 2,666.23
• Hang Seng Index up 1.9% to 16,828.93
• Shanghai Composite down 0.7% to 3,021.98
• Sensex up 0.3% to 73,852.66
• Australia S&P/ASX 200 up 0.4% to 7,683.51
• Kospi down 0.2% to 2,623.02
• Brent Futures up 1.0% to $87.85/bbl
• Gold spot down 0.9% to $2,305.32
• US Dollar Index down 0.14% to 105.93
• German 10Y yield little changed at 2.50%
• Euro up 0.2% to $1.0680

Top Overnight News

• The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, arming Washington’s top envoy with diplomatic leverage that officials hope will stop Beijing’s commercial support of Russia’s military production, according to people familiar with the matter. WSJ
• Chinese universities and research institutes recently obtained high-end Nvidia artificial intelligence chips through resellers, despite the U.S. widening a ban last year on the sale of such technology to China. RTRS
• China QE drumbeat grows louder as the country’s finance minister expresses support for the PBOC to resume trading gov’t bonds (although many doubt this would lead to Fed/ECB-style QE). WSJ
• AAPL's iPhone sales in China fell 19% during the March quarter, according to data from an independent research firm that marked the gadget’s worst performance there since Covid struck around 2020. BBG
• Japanese Finance Minister Shunichi Suzuki said last week's meeting with his U.S. and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning to date on the chance of intervention. RTRS
• ECB’s Luis De Guindos says a June cut is all but guaranteed, but what happens beyond that could depend on the actions of the Fed. WSJ
• Europe’s flash PMIs for April point to firmer growth (and inflation), with the slump in manufacturing showing signs of easing while services rose to 52.9 (up from 51.5 in Mar and above the Street’s 51.8 forecast), and overall price pressures intensified slightly. S&P
• Tesla headlines today’s earnings after seven straight days of declines. Margins, its robotaxi and the fate of its lower-cost EV will be the focus. The company is also being sued in California by a former employee who claims it failed to provide required notice for layoffs. BBG
• MSFT launches smaller AI models that provide “good enough” capabilities for many, but at a fraction of the cost (the models don’t need high-end Nvidia chips to function). NYT

Earnings

• Nucor Corp (NUE) Q1 2024 (USD): EPS 3.46 (exp. 3.66), Revenue 8.14bln (exp. 8.26bln). Expects earnings to decrease in Q2 vs Q1 due to decreased earnings in the steel mills segment. Average scrap and scrap substitute cost per gross ton USD 421 (exp. 399.58). Sales tons to outside customers 6.22mln (exp. 6.41mln).
• SAP (SAP GY) Q1 24 (EUR): Adj. EPS 0.81 (exp. 0.89), adj. revenue 8.04bln (exp. 8.03bln). Adj. cloud and software revenue EUR 6.96bln (exp. 6.93bln). Adj. cloud revenue EUR 3.93bln (exp. 3.94bln). Adj. cloud revenue in constant currencies +25% (exp. +24.5%). Adj. operating profit EUR 1.53bln (exp. 1.7bln). GUIDANCE: Cloud revenue view between 17.0-17.3bln (prev. 13.66bln in 2023). Cloud and software revenue view at EUR 29.0-29.5bln (prev. 26.92bln in 2023) Adj. Operating profit view EUR 7.6-7.9bln (prev. 6.51bln in 2023). Raises 2023 dividend 7% to EUR 2.20/shr vs 2022 dividend. (Newswires) SAP ADR (SAP) rose 2.1% in the US after-hours. Index Weightings: DAX 40 (10.9% - largest), Euro Stoxx 50 (5% - third largest), Stoxx 600 (1.3%).
• Renault (RNO FP) Q1 (EUR): Revenue 11.71bln (exp. 11.7bln). Sales +2.6% Y/Y. Strong order book in Europe, reflecting a very good start to the year. Co. is progressing well toward its target of cost reduction to lower EV costs by 40%. The EV market is a bit slower than had expected a few years ago. Talks with Geely and Aramco on the ICE powertrain JV are at an advanced stage.
• Novartis (NOVN SW) Q1 (USD): Revenue 11.8bln (exp. 11.5bln). Core EPS 1.80 (exp. 1.73); Raises FY24 Net Sales and Core Operating Income guidance. Strong sales momentum in Entresto (+36% cc), Cosentyx (+25% cc), Kesimpta (+66% cc), Kisqali (+54% cc), Pluvicto (+47% cc) and Leqvio (+139% cc). Free cash flow 2.0bln (-24%) - declined due to a prior-year one-timer and timing of payments. Novartis proposes Dr. Giovanni Caforio as Chair of the Board of Directors at AGM 2025. Index Weightings: SMI (15.9% - second largest), Stoxx 600 (2%). Net Sales are expected to grow high-single to low double-digit digits. Core operating income is expected to grow low double-digit to mid-teens.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded with a mild positive bias after the tech-led rebound stateside. ASX 200 was led by strength in real estate and tech, while the latest flash PMIs from Australia were varied. Nikkei 225 traded indecisively and on both sides of 37,500 after briefly wiping out all of its opening gains. Hang Seng and Shanghai Comp. were mixed with outperformance in Hong Kong due to tech strength, while the mainland lagged amid the PBoC's continued tepid liquidity operations and with the US drafting sanctions that threaten to cut some Chinese banks off from the global financial system for aiding the Russian war effort.

Top Asian News

• US is reportedly drafting sanctions that threaten to cut some Chinese banks off from the global financial system as it hopes to stop Beijing's commercial support of Russia's military production, according to WSJ.
• BoJ Governor Ueda reiterated that monetary policy will be data dependent and will depend on the economy and inflation, while he said they don't have any pre-set idea on the timing and pace of future rate hikes and if trend inflation accelerates in line with their forecast, they will adjust the degree of monetary support through an interest rate hike. Ueda also stated if their price forecast changes, that will also be a reason to change policy but noted it is hard to say beforehand how long the BoJ should wait in gathering enough data to change policy and would like to leave some scope for adjustment by not pre-committing to a certain policy too much.
• Japanese Finance Minister Suzuki said the government is ready to respond appropriately to excessive FX moves and is closely watching FX moves with a high sense of urgency, while they won't rule out any option and will deal appropriately with excessive FX moves. Suzuki also said he closely communicated with the US and South Korea on forex in Washington and won't deny that last week's discussions in Washington have laid the groundwork for Japan to take appropriate FX action.
• Senior Japanese ruling party official said recent JPY falls are excessive and out of line with fundamentals; said Japanese authorities could intervene to prop up the JPY at any time
• Japan Business Lobby Keidanren Chair Tokura said he think Government will make appropriate decision on intervention, via Kyodo

European bourses, Stoxx600 (+0.6%) began the session on a strong footing, and has remained at elevated (albeit contained) levels throughout the European morning. There was little reaction to the EZ Flash PMI data. European sectors hold a positive tilt; Tech takes the top spot, benefiting from US tech gains in the prior session, and post-earning strength in SAP (+3.9%). Basic Resources is found at the foot of the pile, amid broader weakness in metals prices. US Equity Futures (ES +0.1%, NQ +0.2%, RTY U/C) are tentative ahead of a busy earnings slate and the key US PMI data.

Top European News

• ECB's de Guindos said a June rate cut looks like a set deal, if there are no surprises; end of inflation fight is in sight; largest remaining threat stems from services inflation. There's a clear slowdown in wage dynamics. Inclined to be very cautious what happens after June. Need to take into account what's happening in the US. What the Fed decides is crucial for the global economy. Beed to take impact of FX movements into account. Indicators point toward modest H2 Euro-area recovery.
• BoE's Haskel said UK food price inflation is "unusually high"; UK labour market is is "extremely tight", via Bloomberg. Inflation will stay high unless the job market weakens.
• Kantar UK Supermarket update (Apr): Grocery price inflation has fallen to 3.2% over the four weeks to 14 April, marking the fourteenth monthly drop in a row

FX

• DXY softer having briefly dipped under 106 amid gains in the EUR. Ultimately though, the index is in consolidation mode ahead of GDP and PCE metrics later this week and FOMC on May 1st. For now, the next downside target comes via last week's low at 105.74.
• EUR is boosted by PMI metrics which saw strong services and composite PMIs overshadow a soft outturn for the manufacturing sector. EUR/USD as high as 1.0695 with the 1.07 level not breached since 12th April; 1.0729 was the high that day.
• GBP: After a soft session yesterday which dragged the pair to a low of 1.23, Cable is on the front foot thanks to a strong showing for services PMI. 1.2388 is the high watermark thus far.
• JPY is steady vs. the USD but made another multi-decade high at 154.85. The closer the pair moves to 155, the louder the calls for intervention will get. For now, jawboning is providing minimal help for JPY.
• Antipodeans are varied the USD with slight outperformance in Aussie after AUD/NZD extended above 1.0900. AUD/USD saw little follow-through from PMI data overnight with the pair lingering around yesterday's best levels after printing a YTD low on Friday.
• PBoC set USD/CNY mid-point at 7.1059 vs exp. 7.2437 (prev. 7.1043).

Fixed Income

• USTs initially remained in overnight ranges, though succumbed to selling pressure, sparked by EZ-PMIs, which dragged EGBs lower. USTs matched yesterday's 107.31 high earlier in the session before pulling back to circa 107.25, and further downside could bring Monday's 107.17 low into view.
• Bunds looked as if they wanted to venture higher in early trade in an extension of yesterday's gains and with de Guindos labelling June as a done deal. However, EZ-wide and regional PMIs acted as a drag thereafter with a strong showing for the services sector, helping composite metrics to beat expectations. 131.47 was the peak before prices made a low at 130.98.
• Gilts started the session on the back foot thanks to an unwind of yesterday's Ramsden-induced gains and higher-than-expected public borrowing figures which saw the UK DMO revise higher its 2024/25 Gilt issuance remit. Gilts down as low as 96.90 with yesterday's trough at 96.71.
• UK DMO revises higher its 2024/25 Gilt issuance remit to GBP 277.7bln (prev. GBP 265.3bln)
• Italy sell EUR 2.5bln vs exp. EUR 2-2.5bln 3.20% 2026 BTP Short Term and EUR 2.5bln vs exp. EUR 2-2.5bln 1.50% 2029 & 1.80% 2036 BTPei:
• Germany sells EUR vs exp. EUR 5bln 2.90% 2026 Schatz: b/c 2.7x (prev. 2.31x) & avg. yield 2.91% (prev. 2.84%) and retention 18.6% (prev. 17.7%)

Commodities

• Upside across the crude complex underpinned by the Flash PMIs from Europe which (although manufacturing fell short of expectations) pointed to a services-led recovery; however, prices have pulled back from best levels in recent trade. Brent June meanwhile trades in a USD 86.97-97.95/bbl range.
• Softer trade across precious metals despite the softer Dollar as the geopolitical unwind from yesterday continues, with relatively broad-based losses seen across spot gold, silver and palladium; XAU fell under USD 2,300/oz to find current intraday support around USD 2,291/oz.
• Base metals are lower across the board with sizeable intraday losses despite the softer Dollar and risk-on tone across the rest of the market. There has been no obvious catalyst for this pullback but some desks cite Asian investors being cautious of the recent rally driven, in part, by speculative trading.
• Anglo American (AAL LN) Q1 Copper Production 198k tonnes (exp. 191.3k tonnes)

Geopolitics: Middle East

• Israeli occupation forces reportedly stormed the city of Jericho in the eastern West Bank, while it was also reported that Israeli gunboats targeted the seashores in the city of Khan Younis in the southern Gaza Strip. In relevant news, sirens sounded in the town of Metulla and the Kiryat Shmona area in northern Israel on suspicion of rocket fire, according to Al Jazeera.
• Hezbollah fired dozens of rockets into northern Israel on Monday which drew retaliatory strikes, while it said its attack was in response to recent Israeli strikes on towns and villages in southern Lebanon, according to Associated Press.
• Israeli raids were reported on the town of Yaroun in southern Lebanon, according to Al Jazeera.
• Hamas said it condemns the statements of US Secretary of State Blinken and his attempt to hold the group responsible for obstructing reaching an agreement, according to Sky News Arabia. Hamas said Blinken's statements contradict the fact that the movement has provided flexibility more than once to facilitate an agreement, while it added that the movement's demands are a permanent ceasefire, the withdrawal of the occupation and the return of the displaced to their homes in all areas of the Gaza Strip.
• US defence official said the Al-Asad airbase in Iraq came under attack from an Iranian proxy group today which is the second attack on a US base in two days, according to Fox.

Geopolitics: Other

• UK PM Sunak is to unveil an extra GBP 500mln of military funding to Ukraine and announce the largest supply of munitions to Kyiv on Tuesday as he travels to Poland and Germany, according to FT.
• North Korean state media reported that leader Kim guided the first nuclear counterstrike drills, while it stated that the drills are a clear warning sign to enemies.

US Event calendar

• 08:30: April Philadelphia Fed Non-Manufactu, prior -18.3
• 09:45: April S&P Global US Composite PMI, est. 52.0, prior 52.1
• 09:45: April S&P Global US Services PMI, est. 52.0, prior 51.7
• 09:45: April S&P Global US Manufacturing PM, est. 52.0, prior 51.9
• 10:00: Revisions: Retail Sales
• 10:00: April Richmond Fed Business Conditio, prior -8
• 10:00: April Richmond Fed Index, est. -8, prior -11
• 10:00: March New Home Sales MoM, est. 1.1%, prior -0.3%
• 10:00: March New Home Sales, est. 669,000, prior 662,000

DB's Jim Reid concludes the overnight wrap

It may not be saying a lot, but markets had their best performance in some time yesterday, as investors became a bit more optimistic about the near-term outlook. Equities recovered, and the S&P 500 (+0.87%) finally managed to advance after a run of 6 consecutive declines. Adding to the positive sentiment were growing hopes that a further escalation in the Middle East would be avoided, and Brent crude oil prices (-0.33%) fell back to their lowest level so far this month, at $87.00/bbl. So there were several pieces of better news for investors, but there’ll be no let-up on the calendar today, as we’ve got lots of earnings reports, including Tesla after the US close. While the Magnificent 7 were up +0.94% yesterday, Tesla was down -3.40%, extending its decline this year to -42.8% and having halved since last July. It's maybe a slight warning for the darlings of the current AI boom that things can change quickly if profits don't follow very high expectations as new technologies grow. Talking of which Nvidia bounced back from their -10.0% decline on Friday and rose +4.35% yesterday.

On top of earnings today, we’ll get an initial indication about how the global economy has performed in Q2, as the April flash PMIs are coming out for the major economies. These will be of particular interest for assessing the nascent recovery in the euro area economy. In March the composite PMI rose above the 50 level for the first time in 10 months. There will also be attention on the price components within the PMIs, especially in the US, where the composite output price index posted a 10-month high of its own last month.

We’ll have to see how those events pan out, but before all that, risk assets managed to post a strong recovery on both sides of the Atlantic. That made a change after three weeks of losses for global equities, with the major indices including the S&P 500 (+0.87%), the NASDAQ (+1.11%) and the STOXX 600 (+0.60%) all advancing. Information technology (+1.28%) and financials (+1.20%) outperformed within the S&P 500. Alongside that, the VIX index of volatility (-1.8pts) fell to 16.94pts, which is its lowest level since Iran launched their recent missile strike on Israel . And here in the UK, the FTSE 100 (+1.62%) even closed at an all-time high, aided by the weakness in sterling (-0.19%), which hit its weakest level against the US Dollar since November.

Henry did a piece yesterday (link here) looking at what happens next after the S&P 500 has seen 6 consecutive declines as we saw before last night's positive close. The subsequent 1-month and 6-month performances have mostly been positive in recent history. Moreover, if the S&P had posted a 7th consecutive decline yesterday, that would have taken us into unusual territory, as it’s something we haven’t seen since February 2020 as Covid-19 spread globally. Indeed, the examples of 7 consecutive losses for the S&P 500 (in the 21st century at least) have either been during a crisis (GFC, US debt ceiling crisis, Euro Crisis, Covid-19) or in anticipation of a pivotal event with significant uncertainty (2016 US election).

As discussed at the top, sentiment was bolstered by the lack of any further escalation in the Middle East. Indeed, yesterday saw Iran’s foreign ministry spokesman say that Israel had received the “necessary response at this stage”. The apparent easing in tensions helped oil prices fall back, and there was also a sharp move lower in gold (-2.59%), which had its biggest daily decline since June 2021. It's down another -0.90% this morning.

The more positive tone was evident across sovereign bonds too. They were supported by the drop in oil prices, which added to hopes that any spike in inflation would prove temporary, and the 1yr US inflation swap (-1.2bps) fell back for a 4th session to 2.71%. In turn, that meant investors grew a bit more hopeful about the prospect of rate cuts, and the amount of Fed rate cuts priced by the December meeting (+1.2bps) inched up to 40bps. Similarly at the ECB, the number of rate cuts priced by December’s meeting (+4.2bps) rose to 78bps.

With more rate cuts being priced in, that helped to push down yields, with those on 10yr bunds (-1.4bps), OATs (-2.7bps) and BTPs (-8.7bps) all moving lower. Admittedly, there was a decent intraday turnaround, as the 10yr bund yield had risen to 2.55% at one point, its highest level since November, before reversing course and ending the day lower at 2.48%. Meanwhile in the US, there was a decline in the 2yr Treasury yield (-1.5bps) to 4.97%, whilst the 10yr Treasury yield (-1.2bps) fell to 4.61%, as it also pared back its earlier losses, having still being above at 4.66% as Europe finished lunch.

In Asia the Hang Seng (+1.64%) is leading gains on a broker upgrade, with the Nikkei (+0.27%), the KOSPI (+0.20%) and the S&P/ASX 200 (+0.41%) seeing minor gains. Chinese stocks are the worst performers with the CSI (-0.56%) and the Shanghai Composite (-0.41%) both trading lower. US stock futures are broadly flat as I type.

Early morning data showed that key gauges of Japan’s manufacturing and service activity improved in April to its highest levels in nearly a year. The au Jibun Bank flash manufacturing PMI rose to 49.9 in April, as against a level of 48.2 in March. The services PMI advanced to 54.6 in April up from 54.1 in March indicating that the service sector continues to remain the primary driver of growth.

Elsewhere, Australia’s Judo Bank PMI data for April showed the manufacturing PMI rising to 49.9 from 47.3. Meanwhile, the service sector PMI came off slightly from 54.4 to 54.2, though still registering a decent growth environment. The composite PMI hit a 24-month high of 53.6 in April, an improvement from the previous month's 53.3.

To the day ahead now, and the main data highlight will be the April flash PMIs from Europe and the US. Elsewhere, we’ll get US new home sales for March, UK public finances for March, and the Richmond Fed’s manufacturing index for April. From central banks, we’ll hear from the ECB’s Panetta and Nagel, and the BoE’s Haskel and Pill. Finally, today’s earnings releases include Visa, Tesla, PepsiCo, General Electric, UPS and General Motors.