North American Morning Briefing: Stock Futures Rise; Earnings Take Center Stage

OPENING CALL

Stock futures edged higher on Wednesday as more earnings were set to roll in and as investors moved past comments from Jerome Powell that dialed back expectations for rate cuts.

Overseas Markets

Overseas stocks were mixed, with the Nikkei 225 dropping 1.3%, while the Hang Seng Index was flat. Europe's Stoxx 600 edged up.

Stocks to Watch

Chip stocks were in focus after ASML reported earnings. The stock fell 4.5% in early European trading after the company's orders missed expectations in the first quarter.

Shares of Intel pointed 0.5% lower ahead of the open. Applied Materials fell 1.9%. Other chip stocks were under pressure, including Advanced Micro Devices and Micron Technology, while Nvidia edged higher.

Premarket Movers

Autodesk said a probe of its accounting practices is continuing and that it won't be able to file its annual report with regulators within a given extension period. Shares were down 3.3%.

Interactive Brokers Group's first-quarter earnings rose from a year earlier, getting a boost from its highest number of new account openings in three years and increased trading by its customers. The stock was falling 0.5%.

J.B. Hunt Transport Services fell 6% after it reported a decline in quarterly profit and revenue.

Take-Two Interactive Software said in a filing that it plans to cut 5% of its workforce under a program aimed at saving $165 million a year. The stock rose 0.5%.

Trump Media & Technology Group was down 1.2%. Shares of the parent company of the Truth Social platform fell 14% on Tuesday and 18% on Monday, dropping the company's market cap to about $3.1 billion.

United Airlines reported a jump in first-quarter revenue, boosted by strong demand for flights. Shares rose 5%.

Watch For:

Federal Reserve Beige Book; EIA Weekly Petroleum Status Report; Earnings from Abbott Laboratories, Prologis, CSX and U.S. Bancorp.

Today's Top Headlines/Must Reads:

- Biden Calls for Steep Hike to Tariff on Chinese Steel

- A Fear Trade as Tensions Rise in the Mideast

- Chinese Regulators Downplay Effects of New Equities Rules

MARKET WRAPS

Forex:

Powell's comments that firm inflation questioned whether rates will be cut without an unexpected economic slowdown are likely to lift the dollar in the near term, MUFG said.

The Fed looks on course to lag behind the European Central Bank, thus "opening up a window of monetary policy divergence in the near-term that is supportive for a stronger dollar."

Powell's comments suggest rates might not be cut until September, MUFG said.

DZ Bank Research said the Fed's monetary policy outlook remains a key driver for the dollar.

"The situation in the Middle East remains unclear, but the dollar is mainly driven by speculation that the Fed may not be able to lower its key interest rate."

The increased uncertainty over the Fed's future monetary policy path means that its Beige Book should receive a lot of attention.

Sterling gained after U.K. data showed annual inflation eased but was still higher than expected in March at 3.2%, casting doubt on whether the Bank of England will cut rates before autumn.

The currency rose to its strongest in nearly six weeks against the euro as the European Central Bank still looks likely to cut rates in June.

"It is looking increasingly likely that the first rate BOE cut will only come in August," ING said.

It noted that annual services CPI only slowed from 6.1% to 6.0%, against consensus and the BOE's own projections for 5.8%.

Bonds:

Powell's comments that it was likely to take "longer than expected" to achieve the level of confidence needed to cut rates had a relatively muted market reaction, "but we think that's coming, or at least part of a process that will ultimately see the 10-year [Treasury yield] back in the 5% area," ING said.

The route to 5% consists of two components-the downsizing of rate cut expectations and the re-build of term premium, ING said.

Energy:

Oil prices edged lower as gains sparked by growing geopolitical risks were curbed by the Fed signaling elevated inflation will likely delay interest-rate cuts this year and reports of a rise in U.S. crude inventories.

The price rally sparked by fears of a widening conflictin the Middle East stalled in recent sessions, with markets now focused on Israel's looming retaliation plans. "The lack of direction in the market reflects the significant uncertainty about Israel's possible response to Iran's attack over the weekend," ING said.

Meanwhile, expectations of higher-for-longer interest rates and a likely build in U.S. crude inventories last week were bearish signs for the market.

Metals:

Base metals prices were rising while gold futures slipped.

Powell dialed back interest-rate cut expectations. This knocked down gold prices, which have historically been closely linked to interest rates.

That said, persistent inflation and global tensions are keeping gold appetite close to record levels. The yellow metal is perceived as a good hedge against rising geopolitical tensions and against a potential meltdown in risk appetite due to a more hawkish Fed, Swissquote Bank said.

Gold

Gold could pull back in the short term after a recent charge higher, but won't lose its luster longer term, Pictet Wealth Management said.

The precious metal may be vulnerable to a deterioration in jewelry demand and central bank buying, as well as high opportunity costs. However, any price pullback will likely find support at around $2,100-$2,200/oz given the multitude of drivers behind the rally, Pictet said. Gold remains attractive longer-term as central banks look set to keep ramping up buying.

Pictet Wealth's current 12-month projection for gold at $2,350/oz looks timid next to current prices, it said, and could be upgraded once there's more visibility on Asian demand.

Silver

Silver may rise to around $32/oz in 2H, aided by investment demand, Citi Research said.

Silver's rally from mid-February to mid-April stems not only from short-covering activity but also from fresh long positions among investors. Also, silver ETF inflows during March-April have been the strongest since 1Q 2021, while silver derivatives traders are tilting bullish given volatility-skew steepening for calls versus puts in the options market.

In addition, passenger-vehicle and electric-vehicle demand for silver, also considered an industrial metal, looks structurally supportive of prices, Citi said.

Iron Ore

This year's iron-ore price declines are likely to have been a dress rehearsal for what's ahead, Capital Economics said.

Prices have softened on weakness in China's property sector, at one point tumbling below $100/ton before recovering slightly as steel output improved. Capital Economics said a forecast for China's property sector to halve by the end of the decade doesn't bode well for iron-ore producers' plans to ramp up production.

"What's more, China's push to control emissions from the steel industry means that iron ore consumption is set to fall even quicker than steel production."

TODAY'S TOP HEADLINES

General Electric's Power Spinoff Could Be Formidable Once Fully Charged

General Electric's spinoff of its power and wind business-named GE Vernova-comes at an opportune time when investors are excited about everything electricity themed. Yet investors might also be cautious about picking up a GE business unit with a checkered past.

GE Vernova spun off and started trading as a stand-alone entity on April 2. Since its debut as a stand-alone company, the shares have declined about 7% to about $130, well below the $152.25 mean target price from analysts polled by FactSet.

VW Workers Vote on Unionizing Tennessee Plant in Latest UAW Push

A historic effort by the United Auto Workers to unionize more than a dozen factories outside of Detroit faces its first test this week, as workers at Volkswagen's lone U.S. plant cast ballots.

More than 4,000 employees at VW's SUV factory in Chattanooga, Tenn., are scheduled to begin voting Wednesday on whether to be represented by the UAW, with results expected by the end of the week.

Nelson Peltz Got Crushed by Disney. Can He Recover?

Nelson Peltz's proxy fight at Disney had the potential to help turn around his hedge fund after a tumultuous stretch.

Instead, the activist investor's unsuccessful quest for two seats on the media giant's board could make a comeback even harder.

Apple Weighs Manufacturing in Indonesia Amid Diversification Drive

Apple will consider making some of its products in Indonesia, Chief Executive Tim Cook said, coming on the heels of a plan by the U.S. tech giant to ramp up investment in neighboring Vietnam.

Cook said after a meeting with Indonesian President Joko Widodo in Jakarta on Wednesday that the two men discussed possible investment in Southeast Asia's largest economy, among other matters.

Europe's Action on Forced Labor Lags Behind U.S., Lawmakers Say

The U.S. State Department should press the U.K. and European Union to take a harder line on forced labor linked to China's Xinjiang region, influential House lawmakers said, pressing for more diplomatic engagement as the EU weighs new rules.

The department should increase U.S. diplomatic efforts to combat China's alleged use of forced labor, the bipartisan leaders of the House Select Committee on the Chinese Communist Party wrote Secretary of State Antony Blinken in a letter that will be made public later Wednesday.

Jury for Donald Trump's Hush-Money Trial Takes Shape: An Oncology Nurse, a Software Engineer, a Teacher

Seven jurors for Donald Trump's hush-money case were selected quickly Tuesday afternoon after a sluggish start, a pace that could clear the way for trial testimony to begin next week.

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April 17, 2024 06:48 ET (10:48 GMT)

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