Morning Bid: Recoiling oil and dollar sow calm as tech earnings loom

By Thomson Reuters Apr 18, 2024 | 5:04 AM

A look at the day ahead in U.S. and global markets from Mike Dolan

A sharp retreat in oil prices and a rare joint warning from major economies against excessive dollar strength have helped calm restive markets just as Big Tech earnings start to hit.

A volatile start to April looked like getting out of hand this week as a combination of stern Federal Reserve warnings about stubborn inflation and geopolitical stress sent the dollar rocketing and seeded four straight daily losses for Wall St stocks.

But there’s been some respite into Thursday’s session.

Despite the Middle East tensions and punchy U.S. economic readouts, U.S. crude prices turned tail and have now recoiled some 6.5% from Friday’s 2024 highs to levels last seen before Israel’s attack on Iran’s Syrian consulate on April 1.

Surging U.S. crude inventories, poor economic numbers from China for March and a U.S. warning about releasing more of its Strategic Petroleum Reserve if necessary have all reined in oil.

And it’s retreat eases at least some of the inflation anxiety irking bond markets and the Fed and U.S. Treasury yields have fallen back in tandem. Having briefly topped 5% this week, two-year Treasury yields have dropped 10 basis points since.

The dollar, similarly, has come off the boil – partly after a warning shot from Japan, South Korea and the United States about potentially destabilising currency moves in Asia.

With markets keeping an eye on G7 and G20 finance chiefs in Washington at the International Monetary Fund meetings, the rare three-way statement agreed to “consult closely” on FX markets, acknowledging concerns from Tokyo and Seoul over their currencies’ recent sharp declines.

The dollar/yen pair fell back slightly from 34-year highs, although it remains stuck above 154, and South Korea’s won backed away from its weakest in almost 18 months.

Easing market concerns that China may allow its yuan to weaken into a competitive regional exporting scramble too, China’s deputy central bank governor Zhu Hexin separately on Thursday restated Beijing’s “determination in keeping the yuan exchange rate basically stable.”

The steadier bond and currency complex helped soothe edgy stock markets around the world as first quarter corporate earnings stream in and attention switches to major tech sector updates.

After Dutch chip equipment firm ASML skidded more than 7% on its earnings miss on Wednesday, there was better news today from Taiwan’s chipmaking giant TSMC as it reported a beat that rides the wave of demand related to the artificial intelligence boom.

Streaming firm Netflix kicks off the U.S. Big Tech reporting season later on Thursday.

The upshot is U.S. stock futures are slightly firmer ahead of the bell today, but the VIX volatility gauge remains elevated above 18 after the four daily losses for the S&P500 in a row and cumulative losses of almost 5% from the record high set late last month.

Financial stocks have had a rough week, with heavy earnings-related share price swoons for Travelers and U.S. Bancorp on Wednesday.

In the central banking world, the Fed warnings this week about keeping interest rates restrictive for longer were not matched by its European peers.

European Central Bank Vice President Luis de Guindos said the ECB has made it “crystal clear” that interest rates could be cut in June – even if policy decisions beyond that remain up in the air.

Elsewhere, Bitcoin steadied after a one-month slide of almost 20% took it to 6-week lows below $60,000 on Wednesday – with this weeks ‘halving’ event seen as largely priced in already.

Key diary items that may provide direction to U.S. markets later on Thursday:

* US corporate earnings: Netflix, Blackstone, Comerica, PPG, Intuitive Surgical, DR Horton, March & McLennan, Snap-On, KeyCorp, Elevance Health, Genuine Parts

* Philadelphia Federal Reserve’s April business survey, US March existing home sales, weekly jobless claims

* G20 finance ministers and central bankers gather at International Monetary Fund’s Spring meeting in Washington

* New York Federal Reserve President John Williams, Fed Board Governor Michelle Bowman and Atlanta Fed chief Raphael Bostic speak; European Central Bank vice-president Luis de Guindos presents ECB annual report to European Parliament, ECB policymakers Isabel Schnabel Mario Centeno, Gediminas Šimkus and Boris Vujcic all speak; Bank of England policymaker Megan Greene speaks

* US Treasury sells 5-year inflation-protected notes, 4-week bills

(By Mike Dolan, editing by Kirsten Donovan; mike.dolan@thomsonreuters.com)