Morning bid: earnings hurdle overcome

A Day Ahead View in US and Global Markets by Mike Dolan

Wall Street and global stock markets finished the first quarter corporate earnings season comfortably enough to return to historic highs, but macro markets don’t want to move forward much until they see this week’s US inflation update.

Wednesday’s report on U.S. consumer prices sucks much of the early week’s oxygen from markets – critical as it is in revealing whether disinflation has resumed after a difficult first quarter, and at least enough to maintain Expectations of easing from the Federal Reserve this year are on the table.

For what it’s worth, consensus forecasts for the April print show that monthly CPI gains will slow to a 0.3% pace from 0.4% in March – dragging the annual rate to 3.6% from 3 .8%. The global rate is expected to fall from 3.5% to 3.4%.

The New York Fed’s survey of inflation expectations for last month will be released later on Monday to color the picture in advance – and provide a reality check on the rise in the equivalent University of Michigan survey that angered Wall Street in the past month. Friday.

Despite bumpier US CPI readings during the first quarter, year-ahead inflation expectations in the New York Fed survey held steady at 3% during the first three months of the year. The University of Michigan’s 1-year outlook, however, jumped to 3.5% this month from 3.2% in April — even as consumer sentiment fell sharply.

Also unusual compared to recent months is that the CPI data will be released after the April producer price report, which will be released on Tuesday. The annual PPI base rate is expected to remain stable at 2.4%.

And whatever heat is left in US inflation certainly isn’t there in China. Although the CPI rose above forecasts last month, it is still just 0.3% year-on-year, while producer price deflation continues at 2.5% annually.

With new bank lending in China falling more than expected in April and credit growth hitting an all-time low, pressure for more stimulus to support the economy remains intense.

China’s Finance Ministry said it will begin long-awaited sales of 1 trillion yuan ($138.23 billion) of long-term treasury bonds this week, proceeds that Beijing hopes to use to help stimulate key sectors.

Starting Friday, Reuters sources said 300 billion yuan of 20-year bonds, 600 billion yuan of 30-year bonds and 100 billion yuan of 50-year bonds will be sold.

For Chinese stocks, however, geopolitics is never far from the headlines. While Hong Kong stocks rose again on Monday, mainland stocks were more subdued as new energy vehicle shares lost 2.2% following Friday’s news that new tariffs planned by the US President Joe Biden to China would include a large increase in taxes on electric vehicles.

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World stocks remained stable overall, with Tokyo losing some as a slightly weaker yen held the line.

In a sign that recent government intervention to support the yen may be altering market psychology, the latest data from the Commodity Futures Trading Commission showed that hedge funds and speculators have reduced their yen short positions in 20% for the week until May 7th – highest weekly value in yen. bullish swing since 2020.

Back on Wall Street, the CPI watch left the S&P500 little changed on Friday and futures are also ahead of today’s bell.

But with the first-quarter earnings season winding down, it’s not hard to see why stocks are back at record highs. Companies in the S&P500 are now reporting annual earnings growth of around 7.4% in the quarter – higher than expectations at the start of the year. Excluding the energy sector, this pace is now in double digits and estimates for the equivalent quarter of next year reach 15%.

On Monday, Treasury yields were generally stable and the dollar was roughly flat.

In Europe, macromarkets will keep an eye on the meeting of euro group finance ministers in Brussels – where national budgets, competitiveness and the banking and capital markets union are being discussed.

Danish shipping giant AP Moeller-Maersk stood out with its shares rising 7.1%, driven by a rise in freight rates amid higher trade volumes and the Red Sea crisis.

Top daily items that could guide US markets later on Monday:

* New York Federal Reserve April inflation expectations survey

*Federal Reserve Board Vice Chairman Philip Jefferson and Cleveland Fed President Loretta Mester speak

* Eurogroup finance ministers meet in Brussels, with the presence of European Central Bank board member Piero Cipollone

* US Treasury auctions 3-month and 6-month notes

(Reporting by Mike Dolan, Editing by Ed Osmond mike.dolan@thomsonreuters.com)