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Short-term inflation expectations rose... again... according to the latest UMich sentiment survey with 1-year expectations at 3.2% final, up from preliminary 3.1% for April, and 2.9% for March. This is the highest level since Nov 2023...

Source: Bloomberg

The headline sentiment also declined in April from three-year-highs. Consumers’ perceptions of their current financial situation and the economic outlook over the next year both slid to four-month lows. The current conditions gauge dropped to 79 from 82.5. A measure of expectations fell to 76 from 77.4.

Source: Bloomberg

While “consumers’ frustration over high prices in their day-to-day spending decisions grew this month, price concerns for large purchases - durable goods, vehicles, and homes - were all little changed from last month,’’ Joanne Hsu, director of the survey, said in a statement.

About 38% of consumers reported that high prices were weighing down their living standards, up from 33% who said so last month.

Sentiment gauges also provide insight into voters’ feelings about the economy and their finances leading up to the presidential election in November. President Joe Biden’s recent polling bump in key battleground states has mostly evaporated amid economic pessimism, the latest Bloomberg News/Morning Consult poll found.

“Consumers continue to express uncertainty about the future trajectory of the economy pending the outcomes of the upcoming election,” Hsu said.

Partisan differences in views of the economy remain pronounced. While Democrats and Independents saw little change in sentiment this month, sentiment for Republicans fell about 6 index points.

Republicans reported declines for four of the five components of the sentiment index, reflecting their deteriorating views across multiple facets of the economy. Despite these declines, sentiment for Republicans remains well above 2022 and 2023 levels.

In fact, the current reading for Republicans’ Expectations Index is the second highest (after last month) since the end of 2020, as the Trump presidency came to a close.

Authored by Michael Snyder via The Economic Collapse blog,

According to the absurd numbers that the government feeds us, the unemployment rate is very low and there are lots of jobs available.  But if what they are telling us is true, why are so many Americans not able to find work?  As you will see below, some people haven’t been hired even though they have literally applied for hundreds of jobs. 

There seems to be an enormous disconnect between what is actually happening in the real economy and the economic narrative that they are constantly pushing.  By the time you are done reading this article, I think that you will agree with me.

Earlier this week, I received an email from a reader that has not been able to find work after seven months of searching.

He gave me permission to share part of that email with you, and it is certainly quite heartbreaking…

Hi Michael,

I am a long-time reader of theeconomiccollapseblog.com, and your recent article comparing the economy to the movie “Weekend at Bernie’s” really stood out to me.

I’m really trying to figure out WHY it is so hard to find a job.

I was laid off from my job as a Custodial Foreman in September 2023, and have had ZERO results for my countless hours spent searching for comparable work.

I don’t know if you want to use any of this for an article or not, but if you do, please just keep doing what you normally do: Praising Jesus Christ. Without my faith in him I don’t know what I’d do.

When I wake up, I make coffee and turn on the computer and go through the state’s unemployment job search sites they provided me when I was laid off. I have been looking and also applying for jobs DAILY since September 2023. And these are not “rocket science” positions; I’m simply looking for Maintenance or Custodial or Groundskeeper type jobs. You know, “normal working class” type jobs.

But after ~300 applications (And these are all just to the jobs that I not only have experience for but also would actually want to do), I have had 1 interview. One interview in 7 months of applying and sending tailored cover letters with, daily!

If the economy is doing so “great”, why can’t he find employment?

Some of you may be tempted to think that he is just an isolated case.

Well, here is another example of an experienced worker that has applied for approximately 300 jobs without any success…

Royal Siu, who lives in Seattle and is trained as a pharmacist, likes to make his friends guess how many jobs he’s applied to. They’ll often toss out some number around 40, he told BI. He’ll tell them to keep going. Most give up by the time they reach 100. That’s when Siu drops that he’s applied to about 300 jobs. “It’s usually a shock factor to them,” he said.

Siu, who’s trying to use his pharmacy degree to work in other parts of healthcare, is finding it harder to land interviews than in a prior job search. The 28-year-old was getting more phone screenings and first and second interviews in the past. This time, it’s been a couple of months since he had a screening call. So he continues to turn to his network but also doesn’t stop applying.

What in the world is going on here?

I thought that there were “millions” of good jobs just waiting for someone to step into them.

Something definitely does not add up.

Even Americans with advanced degrees from top schools are increasingly finding themselves out of work.

If you doubt this, just check out these numbers…

Even at some top business schools, the number of recently minted M.B.A.s without jobs has roughly doubled from a couple of years ago, when U.S. companies were rushing to hire as many workers as they could, according to data from the schools.

At Harvard Business School, 20% of job-seeking 2023 M.B.A. graduates didn’t have one three months after graduation, up from 8% in 2021. At Stanford’s Graduate School of Business, 18% didn’t, compared with 9% in 2021. About 13% of those at the Massachusetts Institute of Technology’s Sloan School of Management didn’t have a job within three months, up from about 5% in 2021.

How are those numbers possible if the unemployment rate is hovering near “historic lows”?

Of course the truth is that we have been sold a lie.

If you do not have a job, you are classified by the U.S. government as either “unemployed” or “not in the labor force”.

In 2008 and 2009, the combined total of those two categories never even reached 90 million.

Today, the combined total of those two categories is over 106 million.

The Biden administration says that only 6,429,000 Americans are officially “unemployed”.

The other 99,989,000 Americans without a job are considered to be “not in the labor force”.

And more will be lumped into those two categories soon, because large employers all over the nation continue to conduct mass layoffs.

For example, thousands of Tesla workers in California and Texas were just notified that they will be losing their jobs…

The notifications in California and Texas, where the electric vehicle (EV) maker has large presences, came in the form of WARN notices, according to reports.

In California, the planned Tesla headcount reductions will hit approximately 3,300 workers, The San Francisco Standard reported Tuesday.

They will apparently occur at locations in a total of four different cities in the Golden State.

Meanwhile, Texas will see almost 2,700 employees in Austin lose their jobs, according to the Austin American-Statesman.

Sadly, the pace of layoffs is likely to increase during the months ahead, because business activity in the U.S. is declining…

The U.S. economy lost momentum in April, a pair of S&P surveys found, as businesses reported a decline in new orders and reduced employment for the first time since the pandemic.

The flash U.S. manufacturing purchasing managers index slipped to a four-month low of 49.9 in April from 51.9 in March.

The S&P flash U.S. services PMI fell to a five-month low of 50.9 this month from 51.7 in March.

The surveys are the first indicators of each month to give a sense of how the U.S. economy is performing.

Meanwhile, the cost of living crisis just continues to escalate.

Shockingly, at one station in California gasoline now costs $7.29 per gallon…

Soaring gas prices have skyrocketed to a whopping $7.29 per gallon in some parts of California – which is above the current the national hourly minimum wage.

While the average price for a gallon of gas varies from state to state – drivers in a certain Silicon Valley town are facing particularly extortionate rates that set them back almost $150 for a full tank.

The Chevron gas station in Menlo Park was exposed on Sunday by a bewildered customer who posted on X that the price per gallon was four cents ‘above the federal hourly minimum wage.’

If you think that this is bad, just wait until the war in the Middle East transforms into the apocalyptic conflict that I believe it will become.

I am entirely convinced that inflation will continue to be a major problem even as economic activity in the U.S. slows down even more.

We are already experiencing “stagflation”.

What is eventually coming will be so much worse than that.

Of course the economic pain that we are going through is just one of the factors that is systematically destroying our nation.

A Warning to America: 25 Ways the US is Being Destroyed | Explained in Under 2 Minutes pic.twitter.com/qwmBO8DmMt

— Western Lensman (@WesternLensman) April 22, 2024

Just about all of our major institutions are crumbling, just about every sector of our society is in the process of melting down, and conditions are rapidly getting worse all around us.

And now we are heading into the most chaotic election season in the entire history of our country.

This is a recipe for disaster, but there is no turning back now.

*  *  *

Michael’s new book entitled “Chaos” is available in paperback and for the Kindle on Amazon.com, and you can check out his new Substack newsletter right here.

The world's largest global diversified miner, BHP, is being forced to significantly raise its buyout offer of Anglo American or walk away from the proposed all-share deal valued at £31.1 billion ($38.9 billion). 

"The BHP proposal is opportunistic and fails to value Anglo American's prospects, while significantly diluting the relative value upside participation of Anglo American's shareholders relative to BHP's shareholders," Anglo chairman Stuart Chambers wrote in a statement on Friday. 

Chambers continued, "The proposed structure is also highly unattractive, creating substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders."

The first indication that Anglo executives would reject the deal came Thursday afternoon when Reuters reported two sources familiar with talks with top Anglo investors who said the offer was 'unattractive.' 

Anglo owns massive copper mines in South America. The miner has become an acquisition target of BHP solely to create the world's largest copper mining giant, with control of about 10% of the global copper mining supply. Copper mining supplies are dwindling, and demand is expected to soar as power grids worldwide are upgraded to support the green energy transition. 

The Financial Review quoted hedge fund manager Rafi Lamm of Melbourne's L1 Capital as saying BHP would have to increase its bid for Anglo's assets, which have been underappreciated by the market and make strategic sense for BHP. 

"We think it's a sensible move by BHP and we think they can afford to pay the proposed deal pricing and a lot more," Lamm said. 

James Whiteside, head of mining and metals corporate research at consultancy Wood Mackenzie, said BHP will have to raise its offer to bring its value "closer to the share price in 2023 before operational issues emerged." 

On Thursday, BHP proposed an all-share deal valued at £31.1 billion ($38.9 billion). The transaction depends on Anglo spinning off its South African iron ore and platinum businesses to its shareholders. The offer is conditional and non-binding at £25.08 a share, or about a 14% premium to Anglo's closing share price on Wednesday.

BHP investor Equity Trustees Asset Management told the Sydney Morning Herald that BHP's bid to buy Anglo American made sense strategically, "but much will depend on what BHP will eventually pay." 

"Having a bit more copper in the portfolio is a positive. If copper can move up from here this will likely offset any errors made in its purchase price of Anglo," Equity Trustees head of equities Chris Haynes said.

Haynes added, "As we know, large acquisitions like this always have problems and will likely weigh on the BHP stock price in the short term."

Shares in BHP fell on Friday, ending the Australian session at 4.6% lower.

Meanwhile, copper prices hit $10,000 a ton for the first time in two years, fueled by speculation of dwindling supplies and robust demand from the green energy transition. 

Copper bulls like BlackRock and Trafigura Group have said the base metal must move higher to spur new mine development. 

BofA recently warned, "The copper supply crisis is here." 

Let's not forget our note titled "The Next AI Trade," which explains the investment opportunities in upgrading America's grid as generative AI data centers increase power demand. 

And Jefferies is on it: "Copper Demand in Data Centers." 

Recall billionaire mining investor Robert Friedland, who explained last year on Bloomberg TV that "copper prices might explode ten times." 

Just days after the Biden administration signed a new military aid package worth billions of dollars to Ukraine, Kyiv launched a series of suicide drone attacks on Russian oil refineries. Biden's top officials have pleaded with Kyiv to stop attacks on Russia's energy infrastructure because of the fears that turmoil in crude markets would send pump prices in the US higher ahead of the presidential elections in November. 

"Our region is again under attack by Ukrainian UAVs," Smolensk Governor Vasily Anokhin wrote in a post on Telegram on Wednesday. Kamikaze drones damaged oil facilities in western Russia. 

Another drone attack hit the Lipetsk region further south, which is home to steel production plants and pharmaceutical sites, Governor Igor Artamonov said.

"The Kyiv criminal regime tried to hit infrastructure in Lipetsk industrial zone," Artamonov said. 

The Moscow Times pointed out:

A source in the Ukrainian defense sector confirmed to AFP on Wednesday that drones in the service of the Security Service of Ukraine (SBU) had carried out the attacks.

The source made no mention of the attack on Lipetsk but claimed two oil depots were destroyed in the Smolensk region.

"Rosneft lost two storage and pumping bases for fuels and lubricants in the towns of Yartsevo and Rozdorovo," the source said, referring to the Russian state-controlled energy giant.

The Financial Times, citing unnamed US officials, recently said long-range drones have hit at least 20 energy facilities deep within Russia so far this year. Kyiv's drone attacks on Russia's energy complex have been frightening for the Biden administration, as Brent prices have risen to the $90/bbl level on higher war risk premiums. Higher energy costs feed into inflation as stagflation concerns mount in the US. Also, gasoline pump prices in the US are inching closer to the politically sensitive $4 level. 

According to AAA data, the average cost of gas at the pump across the US was $3.66 as of Thursday, up from $3.10 in mid-January. 

"The recent uptick in US consumer price inflation, driven by services, housing and fuel, is already of concern to the Biden administration, which is hoping to secure a second term in the November election," Markus Korhonen, senior associate at geopolitical risk consultancy S-RM, told Newsweek.

In recent weeks, Brent prices jumped to the $90bbl to $92bbl range on a higher war risk premium as Israel and Iran volleyed missiles and drones at each other. Prices sank to as low as the $85bbl handle as the market saw the Middle East conflict was just theatrics. However, prices have increased from $85bbl earlier this week, to $89.50 on Friday morning - perhaps on new fears of tighter Russia supplies. 

The latest Bloomberg data shows Russian seaborne crude exports hit a multi-month high in the four weeks to April 21. Refineries in the country have struggled to be repaired from the series of drone attacks as oil processing sinks to lows last seen in May 2023 when floods forced the Orsk refinery offline. 

So far, Ukraine has only attacked oil-processing facilities deep within Russia, avoiding crude and crude product export ports. 

"Should Ukraine begin also targeting crude oil facilities, this could threaten Russia's overall production and exports and, more meaningfully, global oil prices would tick up, driving up inflation and cost-of-living pressures in the US and elsewhere," said Korhonen, adding, "It would also raise the prospects of Russia retaliating, for example, targeting energy infrastructure that the West relies on."

The ultimate goal of Ukraine's drone attacks is to reduce Moscow's oil revenues that finance the war. This means that Russia's crude export ports will be targeted at some point. And we're 100% sure the Biden administration is terrified about this ahead of the elections. 

If that happens, "it would not only bring up the price of oil, it would put a lot of pressure on inflation because of the impact on prices," said O'Donnell.

The question becomes when does Kyiv begin hitting Russia's crude export terminals. 

With inflation data surprising to the upside recently...

Source: Bloomberg

...the doves' last chance for sooner than later rate-cuts is today's Core PCE Deflator - often described as The Fed's favorite inflation signal. Last month saw an uptick in the headline deflator and following yesterday's core PCE rise for Q1, all eyes are on the March data released this morning.

However, both the headline and core PCE Deflator data printed hotter than expected (+2.7% vs +2.6% exp vs +2.5% prior and +2.8% vs +2.7% exp vs +2.8% prior respectively)...

Source: Bloomberg

The silver lining is that this hot PCE print is 'dovish' relative to the GDP-based data we saw yesterday, with whisper numbers of +0.4 to +0.5% MoM (vs the +0.3% print).

But still - it's not good for the doves.

As WSJ Fed Whisperer Nick Timiraos notes, the 3-Month annualized core PCE jumped to 4.4%...

The Service sector led the MoM and YoY acceleration in headline PCE...

Source: Bloomberg

And for Core PCE, it was Services prices too that drove the acceleration...

Source: Bloomberg

The so-called SuperCore - Services inflation ex-Shelter - rose once again, and was revised higher...

Source: Bloomberg

Stripping it back even further, Transportation Services and 'Other Services' were the biggest gainers in SuperCore...

Source: Bloomberg

Income and Spending both rose again on a MoM basis with spending outpacing income (again). The 0.8% MoM rise in spending was the highest since Jan 2023...

Source: Bloomberg

Spending is accelerating fast relative to incomes (on a YoY basis) - and remember this is all nominal...

Source: Bloomberg

On the income side, government and private wage growth accelerated:

• Govt wages rose to 8.5% YoY, from 8.3%, the highest Dec 22

• Private wages rose to 5.5% YoY, from 5.4%, highest since Dec 22 as well

Source: Bloomberg

Which meant the personal savings rate plunged to 3.2% from 3.6% - its lowest since Nov 2022...

 

And the soaring credit card balance explains how people are getting by...

Source: Bloomberg

And all this amid the fourth straight month of government handouts...

Source: Bloomberg

Finally, while the markets are exuberant at the survey-based disinflation, we do note that it's not all sunshine and unicorns. The vast majority of the reduction in inflation has been 'cyclical'...

Source: Bloomberg

Acyclical Core PCE inflation remains extremely high, although it has fallen from its highs.

Is The (apolitical) Fed going to be able to cut at all this year like Joe Biden said they would?

In a rollercoaster 48 hours to close the week, yesterday's early market slump (after the disappointing Meta guidance) has been fully reversed and stock futures are now pointing sharply higher after blockbuster earnings from Microsoft and Alphabet with attention now turning to the release of US personal consumption data - the Fed’s preferred measure of inflation, where a hotter-than-expected reading after Thursday’s weaker GDP figures may signal US rates will remain higher for longer. As of 7:40am, S&P futures are 0.7% higher while Nasdaq futures gain 1.1%. The positive sentiment carried into European trading, with tech stocks leading equity gains, with miners outperforming as copper hit $10,000 a ton for the first time in two years. Traders are also speculating as to whether Japan will intervene to support the Yen after the currency slid to a 34-year low before rebounding after the central bank kept rates on hold and Ueda said nothing to prop up the currency in what Deutsche Bank has called a policy of "benign neglect." Later in the day, attention will shift. Elsewhere, the USD is higher and bond yields are slightly lower. In commodities, oil and precious metals are higher; base metals and Ags are mixed. Today, key focus will be the March PCE release at 8.30am ET, where consensus expects headline PCE and core PCE to both rise +0.3% MoM.

In premarket trading, Google parent Alphabet surged as much as 12%, poised to add more than $230 billion to its market capitalization and exceed $2 trillion in valuation. Microsoft rose 4% after the software giant reported third-quarter results that beat expectations, a sign that AI is fueling growth and demand. The companies trounced Wall Street estimates with their latest quarterly results, fueled in part by demand for AI services.  In other earnings-related moves, Exxon fell 1.2% after missing EPS but smashing revenue estimates, while Intel slumped more than 7% after providing weaker-than-anticipated guidance. Here are some other notable movers:

• Atlassian shares slide 5.3% after the application software company said co-founder Scott Farquhar is stepping down as co-CEO after 23 years.
• Boyd Gaming shares fall 14% after the regional casino operator reported adjusted earnings per share for the first quarter that missed the average analyst estimate.
• Chinese stocks listed in the US rise, reflecting a rally in Hong Kong as Asian big tech names get a boost following robust earnings from Alphabet and Microsoft. Alibaba +2.0%, Baidu +2.6%, PDD Holdings +2.5%, JD.com +5.0%, NetEase +1.7%, Trip.com +3.1%, KE Holdings +3.3%, Bilibili +5.4%
• Cloud software stocks rise following better-than-expected sales in Microsoft and Google’s cloud divisions. Datadog +4.9%, Snowflake +3.5%, MongoDB +3.8%, Cloudflare +2.3%
• Enphase Energy (ENPH US) shares rise 2.9% as Barclays upgrades its recommendation to overweight from equal-weight, saying the solar-equipment manufacturer is nearing an inflection point.
• Intel shares drop 7.3% after the chipmaker’s second-quarter outlook was weaker than anticipated, underlining the difficulties the company has had in executing a turnaround.
• KLA Corp shares rise TKTK after the semiconductor equipment supplier’s third-quarter earnings beat estimates and outlook for the fourth quarter was strong, prompting analysts to raise their price targets.
• Marathon Digital shares rise 3.3% after the company increases year-end hash rate target to 50 EH/s from 35-37 EH/s.
• Mobileye shares fall 3.0% after a downgrade to underweight at Morgan Stanley in the wake of the company’s results.
• Roku shares fall 4.8% as the streaming-video platform company said it expects adjusted Ebitda to moderate in the second half of the year, after reporting first-quarter results that beat expectations.
• Snap shares surge 24% after the social-media company reported first-quarter results that beat expectations and gave an outlook that is stronger than forecast, helping to ease concerns about its growth.
• T-Mobile shares waver after the carrier’s results received a mixed reception from analysts, who said that the earnings were overall solid, but were disappointed that the company didn’t raise its guidance for postpaid phone subscribers as it looks raise prices.
• Teladoc Health shares drop 4.4% after a second-quarter forecast missed estimates. The healthcare services company also reported a first-quarter gross margin that fell short of expectations.

While earnings remain center stage, the focus Friday will also be on US data, with the Fed's preferred measure of inflation of particular interest. Treasury yields dipped following yesterday’s bond-market losses when stagflationary GDP data pushed back expectations for policy easing. A gauge of the dollar was steady.

“We have a precarious situation where the earnings of a few big companies are driving sentiment on the entire market,” said Justin Onuekwusi, chief investment officer St James Place Management. “We have seen a bit of volatility driven by earnings as well as rate decreases being priced out and that’s likely to continue.”

Almost 80% of S&P 500 firms that have reported so far have beaten analysts’ earnings estimates, according to JPMorgan strategists. Still, stock price reactions have been underwhelming, with better-than-expected results seeing below average upside, while those missing estimates are being penalized by more than usual, the strategists wrote. More than 50% of S&P 500 companies have yet to report.

A big highliight of the overnight session was the latest collapse in the Japanese yen which fell to a fresh cycle low near 157 versus the dollar after the Bank of Japan stood pat on interest rates and Governor Ueda did little to push back against recent weakness in the press conference. The yen’s slump to a record low versus the dollar has left traders on guard for any hints of intervention from Japan. The yen swung sharply from the day’s low to near its high amid jittery trading in the wake of the Bank of Japan’s decision to keep monetary policy unchanged.

“Should the yen fall further from here, like after the BOJ decision in September 2022, the possibility of intervention will increase,” said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp. “It is not the level but it’s the speed that will trigger the action.”

European stocks rose along with US equity futures: the Stoxx 600 is up 0.6%, with technology and construction sectors leading gains, while chemicals and insurance subgroups are the biggest losers. Thyssenkrupp shares jumped after Czech billionaire Daniel Kretinsky’s EP Corporate Group agreed to buy a fifth of the German manufacturer’s troubled steel unit. Miners outperformed as copper hit $10,000 a ton for the first time in two years. Here are the biggest movers Friday:

• Saint-Gobain shares gain as much as 6.3% after the French building-materials producer reported first-quarter sales that were slightly above expectations, according to Oddo. Separately, management is seeing signs of bottoming out for new build markets in Europe
• NatWest rises as much as 5.2% after net interest income and pretax operating profit for the first quarter beat the average analyst estimate
• Amundi soars 7%, most in two years, after the French asset manager reported net inflows for the first quarter that beat the average estimate. Citi analysts expect mid-single digit consensus upgrades. KBW called the results “solid.”
• Electrolux shares gain as much as 7%, the most since December, after first-quarter figures from the Swedish maker of domestic appliances weren’t as bad as feared, with an operating loss of SEK720 million, versus an expected SEK809 million
• Jeronimo Martins soars most in six months after Ebitda margin erosion in 1Q was smaller than analysts expected, showing that Portuguese retailer can withstand competition pressure in Poland as well as negative impact from slowing inflation
• Airbus shares fall as much as 3% to the lowest since early March after its first-quarter results were significantly below estimates, even as the planemaker reiterated its full-year targets
• IMCD’s shares sink as much as 10%, the most since March 2020, after the specialty chemicals and ingredients company reported first-quarter operating Ebita that missed estimates. ING says the story was “underlying quite weak.”
• Hexagon shares fall as much as 4.4% after the software firm reported sales and operating profit that missed estimates, while saying that demand will remain mixed in the near term
• ConvaTec Group shares decline as much as 7.2% after the medical equipment maker was downgraded to reduce by analysts at Peel Hunt, which has growing concerns about its wound care products in the US
• Yara shares fall as much as 6.9%, the lowest intraday since May 2020, after the Norwegian agricultural chemicals firm reported adjusted Ebitda below estimates

Earlier in the session, Asian stocks rose, headed for their best week since November, as investors cheered upbeat earnings from technology firms and sentiment on China continued to improve. Japanese stocks rose as the Bank of Japan left interest rates unchanged. The MSCI Asia Pacific Index rose 0.8%, with TSMC and Tencent among the biggest boosts. The gauge extended its weekly gains to more than 3%. Stocks rose in mainland China and Hong Kong, with the Hang Seng China Enterprises Index poised for its best week since April 2015. Signs of an improving Chinese economy, better corporate earnings and Bejing’s support measures have spurred inflows from global funds.

• Hang Seng and Shanghai Comp. were underpinned by strength in tech and property, while the constructive mood was also facilitated by a meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang where it was stated that the US-China relationship has stabilised although negative factors are building.
• ASX 200 underperformed after the prior day's losses caught up with the index on return from holiday.
• Nikkei 225 was initially choppy and briefly dipped into negative territory as participants braced for the BoJ policy announcement and whether the central bank flags a reduction in bond buying, but then surged as the central bank kept policy settings unchanged and refrained from any major hawkish surprises.

In FX, the dollar was slightly lower, as all the action was in the Japanese yen which cratered to a fresh 34 year low near 157 versus the dollar after the Bank of Japan stood pat on interest rates and Governor Ueda did little to push back against recent weakness in the press conference. USD/JPY did swing sharply lower to sub-155 before swiftly rebounding in jittery trading amid heightened speculation that authorities may intervene in the market.

In rates, treasuries climbed, paring some of Thursday’s post-data drop. US yields are richer by up to 2bp across long-end of the curve with 5s30s spread around 8bp, tighter by around 1bp on the day; 10-year yields around 4.685%, down 1.5bp on the day with bunds outperforming by 1bp in the sector.

In commodities, oil prices advance, with WTI rising 0.4% to trade near $83.90 a barrel. Spot gold rises 0.7% to around $2,350/oz. Copper hit $10,000 a ton for the first time in two years.

Looking at today's calendar, the US session highlight is the March personal income/spending (8:30am); we algo get the April revised University of Michigan sentiment (10am) and April Kansas City Fed services activity (11am). Fed members are in self-imposed quiet period ahead of May 1 policy announcement

Market Snapshot

• S&P 500 futures up 0.8% to 5,121.00
• STOXX Europe 600 up 0.6% to 505.47
• MXAP up 0.7% to 172.65
• MXAPJ up 0.8% to 536.04
• Nikkei up 0.8% to 37,934.76
• Topix up 0.9% to 2,686.48
• Hang Seng Index up 2.1% to 17,651.15
• Shanghai Composite up 1.2% to 3,088.64
• Sensex down 0.7% to 73,833.99
• Australia S&P/ASX 200 down 1.4% to 7,575.91
• Kospi up 1.1% to 2,656.33
• German 10Y yield little changed at 2.60%
• Euro up 0.2% to $1.0748
• Brent Futures up 0.2% to $89.21/bbl
• Brent Futures up 0.2% to $89.21/bbl
• Gold spot up 0.6% to $2,347.56
• US Dollar Index down 0.10% to 105.49

Top Overnight News

• BOJ leaves rates unchanged, as expected, and retained its guidance from Mar about purchasing gov’t bonds (there had been some speculation of a taper or a hint of one). WSJ
• Japan’s Tokyo CPI for April cools far more than anticipated, coming in +1.8% ex-food/energy vs. the Street +2.7% and down from +2.9% in March. BBG
• China’s foreign minister says the relationship w/the US was starting to stabilize but that “negative factors” were increasing. NBC News
• Eurozone inflation expectations over the next 12 months ticked down to 3% (from 3.1%), hitting the lowest level since Dec 2021. ECB
• The ECB is likely to need extra interest rate cuts if global borrowing costs are pushed up by the US Federal Reserve maintaining its restrictive monetary policy stance, a top eurozone policymaker has said. Fabio Panetta, head of Italy’s central bank, said that if the Fed keeps rates on hold longer than markets expect, or even raises them, it would be “likely to reinforce the case for a rate cut [by the ECB] rather than weakening it”. FT
• Donald Trump’s allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term, in the midst of a deepening divide among his advisers over how aggressively to challenge the central bank’s authority. WSJ
• Walmart's CEO says inflation continues to cool: “At Walmart, we are now seeing prices that are in line with where they were 12 months ago. I haven’t been able to say that for a few years now. The last few weeks, we've taken even more prices down in areas like produce and meat and fresh food”. ABC News
• Annualized US core PCE inflation accelerated to 4.5% over the last three months, but underlying trends are less alarming. The Q1 acceleration mostly reflected one-off surprises in acyclical categories where costs pass-through with long lags, and forward-looking indicators are at target-consistent levels. Progress therefore appears delayed but not reversed, and we forecast that core PCE inflation will slow to 2.2% on a sequential annualized basis in 2024Q2-Q4. GIR
• Microsoft and Alphabet jumped premarket after stellar earnings and expectations for a surge in cloud revenue fueled by AI demand. Execs at both companies said they plan to spend more on AI. BBG

Earnings

• Alphabet Inc (GOOGL) Q1 2024 (USD): EPS 1.89 (exp. 1.51), Revenue 80.54bln (exp. 78.59bln); board authorised Co. to repurchase up to an additional 70bln and declared a cash dividend of 0.20/shr. Shares +11.5% in pre-market trade
• Microsoft Corp (MSFT) Q3 2024 (USD): EPS 2.94 (exp. 2.82), Revenue 61.86bln (exp. 60.8bln). Shares +4.1% in pre-market trade
• Intel Corp (INTC) Q1 2024 (USD): Adj. EPS 0.18 (exp. 0.14), Revenue 12.70bln (exp. 12.78bln). Shares -7.5% in pre-market trade
• Snap Inc (SNAP) Q1 2024 (USD): Adj. EPS 0.03 (exp. -0.05), Revenue 1.19bln (exp. 1.12bln). Shares +23.5% in pre-market trade
• TotalEnergies (TTE FP) Q1 (USD): Adj. Net 5.11bln (exp. 5bln). Adj. EBITDA 11.5bln (exp. 11.1bln). Plans a USD 2bln share buyback Q2; Cash flow from operating activities 2.2bln (prev. 5.1bln Y/Y); Dividend +7% Y/Y
• Airbus (AIR FP) Q1 24 (USD): Adj. EBIT 600mln (exp. 789mln), Revenue 12.80bln (exp. 12.87bln), Gross Orders 170 (prev. 156), Net Orders 170 (prev. 142), Deliveries 142. Reaffirms 2024 guidance.

A recap of overnight news courtesy of Newsquawk

APAC stocks were mostly higher as the region digested recent market themes including disappointing US data, strong big tech earnings and the BoJ policy announcement. ASX 200 underperformed after the prior day's losses caught up with the index on return from holiday. Nikkei 225 was initially choppy and briefly dipped into negative territory as participants braced for the BoJ policy announcement and whether the central bank flags a reduction in bond buying, but then surged as the central bank kept policy settings unchanged and refrained from any major hawkish surprises. Hang Seng and Shanghai Comp. were underpinned by strength in tech and property, while the constructive mood was also facilitated by a meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang where it was stated that the US-China relationship has stabilised although negative factors are building.

Top Asian News

• Chinese Foreign Minister Wang said in a meeting with US Secretary of State Blinken that the China-US relationship has stabilised but negative factors are building, while he added that sliding into conflict with the US would be a lose-lose situation that they ask the US not to interfere with China's internal affairs. Furthermore, Blinken said there is no substitute for face-to-face diplomacy and they need to avoid miscalculations, while he hopes the US and China can make progress on agreements, citing fentanyl, military-to-military ties and AI risks.
• US is pushing allies in Europe and Asia to tighten restrictions on exports of chip-related technology and tools to China amid rising concerns about Huawei's development of advanced semiconductors, according to FT sources. US wants Japan, South Korea, and the Netherlands to use existing export controls more aggressively, including stopping engineers from their countries servicing chipmaking tools at fabs in China.
• ByteDance reportedly prefers shutting down the app rather than a sale if it exhausts all legal options and the algorithms TikTok relies on are deemed core to ByteDance’s overall operations, making the sale of the app unlikely, according to Reuters sources.

European bourses, Stoxx 600 (+0.5%) are entirely in the green, though trade has been contained at session highs, as participants await March's US PCE at 13:30 BST. European sectors are almost entirely in the green, with the exception of Chemicals, following poor IMCD (-9.1%) results. Tech tops the pile, with optimism lifted following strong large-cap Tech earnings in the US. US Equity Futures (ES +0.7%, NQ +0.9%, RTY +0.1%) are entirely in the green, with the NQ outperforming, benefitting from significant pre-market strength in both Google (+11.1%) and Microsoft (+3.6%), after reporting strong earnings after-market.

Top European News

• ECB's Panetta said they must weigh the risk of monetary policy becoming too tight, while he added that timely and small rate cuts would counter weak demand and could be paused. Furthermore, he stated that hesitations in adjusting rates would hurt investment and productivity, while large rate cuts could create a credibility issue.
• ECB Consumer Inflation Expectations survey (Mar) - 12-months ahead 3.0% (prev. 3.1%); 3-year ahead 2.5% (prev. 2.5%). Economic growth expectations for the next 12 months 1.1% (prev. -1.1%)
• SNB Chair Jordan said SNB has been successful in fight against inflation; uncertainty remains elevated and shocks can occur at and time

BOJ

• BoJ kept its policy settings unchanged with the short-term interest rate target at 0.0%-0.1%, as expected, with the decision made unanimously, while it dropped the reference from the statement that it currently buys about JPY 6tln worth of JGBs per month but stated that it will conduct JGB, commercial paper and corporate bond buying in line with the decision in March. BoJ said it must be vigilant to FX and market moves and their impact on the economy and prices but noted no excessive behaviour is seen in Japan's asset market and financial institutions' practices. Furthermore, it stated that if trend inflation rises, the BoJ will likely adjust the degree of monetary easing but also added to expect accommodative monetary conditions to continue for the time being. In terms of the latest Outlook Report, Board Members' Real GDP median forecast for Fiscal 2024 was cut to 0.8% from 1.2% but the Fiscal 2025 median forecast was maintained at 1.0%, while the Core CPI Fiscal 2024 median forecast was raised to 2.8% from 2.4% and Fiscal 2025 median forecast was raised to 1.9% from 1.8%.
• PRESS CONFERENCE: BoJ Governor Ueda said easy financial conditions will be maintained for the time being; Weak JPY so far is not having a big impact on trend inflation. Difficult to gauge timing of future rate hikes. Weak JPY so far is not having a big impact on trend inflation. Reduction in JGB buying in the future is in sight. Will not comment on FX moves

FX

• USD is around flat, and holding within a 105.40-71 range. USD was initially being propped up by JPY softness post-BoJ, although that has abated somewhat, amid Yen intervention speculation.
• JPY is the clear laggard across the majors following the BoJ policy announcement overnight, which provided no hawkish surprise. USD/JPY took another leg higher amid BoJ Ueda's press conference, before being slapped down to sub-155 levels, a few hours later. Some will likely view the move as intervention but we are yet to see any official confirmation of this.
• EUR is flat vs. the USD and breached yesterday's 1.0740 best. If the pair ventures higher, 1.0756 from April 11th is the next potential target.
• Antipodeans are firmer vs. the USD and outmuscling peers alongside the favourable risk environment. AUD/USD has gained a firmer footing above its 200 and 50DMAs at 0.6526 and 0.6532 respectively with focus now on a potential approach of 0.66
• PBoC set USD/CNY mid-point at 7.1056 vs exp. 7.2449 (prev. 7.1058).

Fixed Income

• USTs are a touch firmer after yesterday's data induced losses, which sent the Jun'24 UST to a contract low of 107.04. Today's trade has been contained within a 107.04-108.01 range, with all eyes on March's US PCE metrics later.
• Bund price action has been following USTs and attempting to recoup recently lost ground which has been inspired this week by a combination of better data and speak from hawkish ECB members. Bunds are so far respecting yesterday's 129.53-130.38 range.
• Gilts are firmer and in-fitting with global peers in an attempt to claw back recent losses. However, with a lack of UK-specific drivers, UK paper will likely remain at the whim of global peers.

Commodities

• A relatively tame session thus far for the crude complex following Thursday's choppy trade, as participants await monthly US PCE metrics; Brent Jun'24 range between 89.08-69/bbl.
• Precious metals are firmer amid the softer Dollar and ahead of the US PCE data, with spot silver narrowly leading vs spot gold. XAU topped yesterday's peak (USD 2,344.93/oz) to trade in a current intraday range between USD 2,326.36-2,352.30/oz.
• Base metals are stronger across the board amid bullish momentum after copper crossed key levels, with the broader complex underpinned by the softer Dollar and broader risk appetite; 3M LME copper is posting gains of over USD 100/t at the time of writing after mounting the key USD 10,000/t mark to levels last seen in 2022.
• India Oil Minister said cartel of oil producers are responsible for current volatility in the market; oil producers are cutting down and holding back production, according to ETNow.

Geopolitics: Middle East

• "US Secretary of State Blinken to visit Israel on Tuesday", according to Sky News Arabia
• Hezbollah said it shelled an Israeli force with artillery at the site of Al-Malikiyah and achieved a direct hit, according to Al Jazeera.

Geopolitics: Other

• US official said the US could announce as soon as Friday USD 6bln in new weapon purchases for Ukraine.
• North Korean leader Kim supervised the test-firing of multiple launch rockets, according to KCNA.
• China's Defence Ministry said Chinese and French militaries established a dialogue mechanism for cooperation between theatre commands, according to Reuters.

US Event Calendar

• 08:30: March PCE Deflator MoM, est. 0.3%, prior 0.3%
  • March PCE Core Deflator MoM, est. 0.3%, prior 0.3%
  • March PCE Deflator YoY, est. 2.6%, prior 2.5%
  • March PCE Core Deflator YoY, est. 2.7%, prior 2.8%
• 08:30: March Personal Income, est. 0.5%, prior 0.3%
  • March Personal Spending, est. 0.6%, prior 0.8%
  • March Real Personal Spending, est. 0.3%, prior 0.4%
• 10:00: April U. of Mich. Sentiment, est. 77.9, prior 77.9
  • April U. of Mich. Current Conditions, prior 79.3
  • April U. of Mich. Expectations, prior 77.0
  • April U. of Mich. 1 Yr Inflation, prior 3.1%
  • April U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
• 11:00: April Kansas City Fed Services Activ, prior 7

DB's Jim Reid concludes the overnight wrap

It’s been a volatile 24 hours in markets, but in spite of a selloff yesterday, there’s increasing positivity this morning thanks to strong results from Microsoft and Alphabet after last night’s close. Both companies exceeded revenue and earnings expectations, with Alphabet seeing the larger beat on profitability, as their growth was boosted by demand for cloud computing and AI-related offerings. That’s seen Alphabet rise by over 11% in after-hours trading, while Microsoft is up more than -4%, having both been down in the main session yesterday. In turn, futures on the S&P 500 are currently up +0.81%, which is a significant turnaround from yesterday, as the index closed -0.46% lower, and that was only after recovering from initial losses that had pushed it down -1.60%.

That positivity has continued into Asian markets overnight, which comes as the Bank of Japan left their interest rates unchanged at their latest meeting. That’s seen the Japanese Yen weaken further, and it’s currently trading at 156.11 per dollar, which is its weakest level since 1990. Front-end government bond yields have also fallen overnight in Japan, with the 2yr yield down -0.7bps to 0.29%. And for equities, all the major indices have risen, including the Nikkei (+0.74%), the KOSPI (+1.10%), the Hang Seng (+1.98%), the CSI 300 (+1.03%) and the Shanghai Comp (+0.79%).

Before that overnight reversal, markets had struggled yesterday, as challenging data and poor earnings led to a notable selloff. That meant investors pushed back the timing of rate cuts yet again, and the 2yr Treasury yield (+7.1bps) closed at 4.998%, so almost at 5% for the first time since mid-November. That was mainly driven by the Q1 US GDP release, which had the unfortunate combination of a downside surprise on growth, and an upside surprise on inflation. As we found out in 2022, that stagflationary mix can potentially be a bad recipe for markets, so it wasn’t a surprise to see equities and bonds lose ground simultaneously even if equities have since been busy making up their initial losses.

In terms of the details, growth came in at an annualised rate of +1.6% (vs. +2.5% expected), which is the slowest growth since Q2 2022. But more alarmingly for markets, core PCE surprised on the upside, with an annualised rate of +3.7% in Q1 (vs. +3.4% expected). Headline PCE was also strong, at +3.4% in Q1, and core services ex housing (a measure Fed Chair Powell has cited in the past) was at +5.1%. So whichever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates. We’ll get the monthly US PCE numbers for March today within the spending report as well. If you’re looking for positives on growth, final private domestic sales came in at 3.1%, with the slowing in headline GDP growth coming from net exports, inventories and government spending. So domestic demand still holding up well. However you could argue that just ties in with the strong inflation component.

Unsurprisingly, that release meant markets dialled back the odds of rate cuts anytime soon. For instance, the chance of a rate cut by the July meeting fell from 50% the previous day to 34% afterwards. And for the year as a whole, futures are now pricing in just 34bps of cuts by the December meeting, down from 43bps the previous day and 67bps at the start of the month. So futures are now pricing the most hawkish profile we’ve seen to date in this hiking cycle, at least in terms of where rates are set to be by the end of 2024. Indeed for the first time, the first 25bp cut isn’t fully priced in until the December 2024 meeting.

With investors pricing out rate cuts, US Treasuries slumped and yields hit their highest levels of 2024 so far. In particular, the 2yr Treasury yield (+7.1bps) saw a closing value of 4.998%, having reached 5.02% intra-day. And similarly, the 10yr yield was up +6.2bps to 4.70%, although this morning it’s since come down -1.0bps to 4.69%. Bear in mind that just after Christmas, the 10yr yield hit an intraday low of 3.78%, so it’s moved up by almost 100bps from that point now. At the same time, there was a decent spike in real yields, with the 10yr real yield (+4.4bps) reaching a post-November high of 2.28%.

That trend was echoed in Europe, where investors lowered their expectations for ECB rate cuts this year, and now see just 68bps of cuts by December’s meeting, down -5.5bps on the day. As in the US, that meant 10yr yields hit new YTD highs, with those on 10yr bunds (+4.1bps) up to 2.63%, 10yr OATs (+3.7bps) up to 3.13%, and 10yr gilts (+2.8bps) up to 4.36%. For now at least, a June rate cut from the ECB is still seen as an 84% probability, but from Monday we’ll start to get the flash CPI prints for April, so it’ll be interesting to see if that changes anything.

For equities, this backdrop meant it was a tough day across the board even if the recovery was steady as the US session progressed. All the major indices fell, including the S&P 500 (-0.46%), the NASDAQ (-0.64%) and the Dow Jones (-0.98%). Rebounds by Nvidia (+3.71%) and Tesla (+4.97%) helped limit and reverse the earlier larger losses. But Meta (-10.56%) was the worst performer in the entire S&P 500 following its earnings release the previous day, meaning that the Magnificent 7 (-1.19%) underperformed despite the gains for Nvidia and Tesla. IBM (-8.25%) lost significant ground after its release the previous evening as well.

Over in Europe, the STOXX 600 (-0.64%) also saw a decent decline, although the FTSE 100 (+0.48%) was again an exception as it hit another record high, aided by a surge in Anglo American (+16.10%), which was the index’s best performer after BHP proposed a takeover. The proposed deal would bring together two of the world’s largest mining companies and create a clear number one globally. Our mining team think the deal rationale is about global scale and growth in copper, a structurally tight commodity which is key to future global electrification. Copper prices have risen by +17.6% so far this year, and overnight they’re trading at their highest level since April 2022. The mining team’s note (link here) runs through the deal terms and other talking points.

Looking at yesterday’s other data, the US weekly initial jobless claims fell to 207k in the week ending April 20 (vs. 215k expected), which is their lowest level in a couple of months. Otherwise, pending home sales grew by +3.4% in March (vs. +0.4% expected), reaching a 13-month high.

To the day ahead now, and data releases include US PCE inflation for March, along with personal income and personal spending. In addition, there the University of Michigan’s final consumer sentiment index for April, and in the Euro Area, we’ll get the M3 money supply for March. Finally, earnings releases include Exxon Mobil and Chevron.

Just as President Biden was signing into effect the newly approved foreign defense package which includes $60 billion for Ukraine, the United Kingdom also rolled out its own massive aid package (though paling in comparison), first unveiled Tuesday.

Britain announced its single largest aid package for Ukraine yet, at the equivalent of $620 million (£500 million). According to UK NATO officials, the arms include Storm Shadow missiles among a total of 1,600 strike and air defense missiles, four million rounds of ammo, 60 boats, and over 400 vehicles.

Even though the White House is busy cautioning that in the coming months Russia is likely to make more gains on the front lines, according to fresh words of Jake Sullivan, British leadership is still talking about "winning".

Defense Minister Grant Shapps, for example, had this to say about new aid: "This record package of military aid will give President Zelensky and his brave nation more of the kit they need to kick Putin out and restore peace and stability in Europe."

"The UK was the first to provide NLAW missiles, the first to give modern tanks, and the first to send long-range missiles," he added. "Now, we are going even further. We will never let the world forget the existential battle Ukraine is fighting, and with our enduring support, they will win."

Britain's military leadership is also echoing this optimism, with UK defense chief, Admiral Sir Tony Radakin, telling Financial Times that the West's new infusion of military aid will help Ukraine increase its long-range strikes on Russian territory:

Ukraine is set to increase long-range attacks inside Russia as an influx of western military aid aims to help Kyiv shape the war “in much stronger ways”, the head of the UK military has said.

Admiral Sir Tony Radakin acknowledged the downbeat mood surrounding Ukraine’s defence in an interview with the Financial Times, admitting the country was facing a “difficult” fight to repel advancing Russian forces.

But Britain’s chief of defence, a key figure in the west’s military support for Kyiv, stressed that such a gloomy “snapshot” of the war failed to recognise longer trends more in Kyiv’s favour.

Adm. Radakin continued, "As Ukraine gains more capabilities for the long-range fight?.?.?.?its ability to continue deep operations will [increasingly] become a feature" of the war. He emphasized of new weapons systems, "they definitely have an effect."

UK leadership has of late put the country's defense industry on a "war footing" in preparation to support Kiev for the long haul. More of Radakin's words point to escalation (and not negotiations) in the following...

"Don’t expect anyone to say publicly ‘this is the plan’ and A, B and C are now going to happen," he told FT. Some aspect of Ukraine's strategy and operations "will be hidden?.?.?.?some will be dictated by a tactical or operational advantage, and some also depends on more foundational aspects," he added.

Nowhere in the UK defense chief's interview was acknowledgement that these policies could lead to runaway escalation, and an eventual direct confrontation between nuclear-armed powers. The Kremlin has in response vowed that it will take more territory in Ukraine in order to counteract the longer range of NATO missiles.