The Tuesday Market Minute
- Global stocks higher as U.S. data, stimulus and vaccination pace drive markets higher, while bond yields and rate hike bets ease amid dovish central bank comments.
- Credit Suisse reveals a $4.7 billion writedown, alongside a near $1 billion first quarter loss, following risk management failures linked to its role in the Achegos Capital collapse.
- Benchmark 10-year note yields ease to 1.705% as Cleveland Federal Reserve Bank President Loretta Mester tells CNBC that near-term tapering of bond purchases is unlikely.
- CDC data shows 64 million Americans have now been fully vaccinated against the coronavirus, with more than 167 million doses administered as of Monday.
- U.S. equity futures suggest a softer open on Wall Street ahead of Redbook retail sales data at 8:55 am Eastern time and JOLTS job openings at 10:00 am Eastern time.
U.S. equity futures slipped modestly lower Tuesday, pulling back from the record highs reached last night, as investors eyed any impact on the financial sector from the Archegos Capital implosion while closely tracking Treasury bond yields.
Credit Suisse (CS) - Get Report, one of the investment banks at the center of the Archegos drama, revealed Tuesday that it will take a $4.7 billion writedown of its assets, and book a near $1 billion loss for the first quarter, as a result of its lapse risk management practices in dealing with the now-defunct family office/hedge fund.
JPMorgan analysts had estimated financial sector losses of around $10 billion from the collapse, a figure that would be easily absorbed, but the worrying amount of leverage Archegos was able to deploy -- and the lengths many banks were willing to go in order to facilitate it -- have raised concerns over the levels of unknown risk in a market that is both awash with central bank liquidity and operating under record low interest rates.
Those concerns aren't likely to derail the current equity market rally, however, and today's modest pullback belies underlying conditions that remain supportive for both U.S. and global stocks: accelerating vaccine rollouts, improving corporate earnings, a robust and expanding labor market and consistently outperforming economic data.
Yesterday's reading of the U.S. services sector -- the biggest and most important component of the domestic economy -- showed the best growth on record, building on last week's nearly 1 million new jobs for the month of March and CDC data indicating that more than 165 million coronavirus vaccine doses have been administered as of Monday.
Refinitiv data also suggests the first quarter earnings season, which kicks-off next week with updates from JPMorgan (JPM) - Get Report, Citigroup (C) - Get Report, Goldman Sachs (GS) - Get Report and Wells Fargo (WFC) - Get Report, will show S&P 500 profits for the three months ending in March rising more than 24% last year to a share-weighted $336.5 billion.
Futures contracts tied to the Dow Jones Industrial Average, which closed at a record high 33,527.19 points last night, are priced for a modest 30 point slip at the start of trading, while those linked to the S&P 500 are indicating a 7.5 point pullback.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, rebounded from its biggest decline in three weeks yesterday to trade at 92.645, while benchmark 10-year Treasury notes yields held at around 1.705% in early European trading.
Rate hike bets also eased after Cleveland Federal Reserve Bank President Loretta Mester told CNBC Monday that the central bank is "still far from our policy goals" and needs to be "very deliberately patient in our approach to monetary policy."
European stocks hit an all-time high on Tuesday, as well, as investors returned from a four-day Easter break, with gains lead by the trade-sensitive DAX performance index in Germany, which rose more than 1.1% to a fresh record high in early Frankfurt trading.
Global oil prices were also firmer, with traders taking advantage of the U.S. dollar weakness, as well as the bullish economic data from Europe and the United States, to take crude modestly higher ahead of today's American Petroleum Institute data release on domestic stockpiles later this afternoon.
WTI contracts for May delivery were marked 83 cents higher on the session at $59.48 per barrel while Brent contracts for June, the global benchmark, added 83 cents to trade at $62.92 per barrel.
Overnight in Asia, a firmer yen hit export-focused stocks on the Nikkei 225, with the benchmark falling 1.3% on the session to 29,696.33 points while reports of government plans to curtail loan growth in China held down gains for the region-wide MSCI ex-Japan index, which was marked 0.3% higher heading into the final hours of trading.