North American Morning Briefing: Stock Futures Muted After Rally Fueled by Rate-Cut Hopes

OPENING CALL

Stock futures held steady on Tuesday, continuing a rally that followed a weaker-than-expected jobs report which boosted expectations of an interest-rate cut from the Federal Reserve this year.

It's a light week for economic data, and earnings are center stage.

Strong earnings reports so far were boosting stocks. With a majority of S&P 500 companies now having reported first-quarter results, roughly 75% of them have exceeded Wall Street's profit estimates.

Earnings growth has been "healthy" and is broadening beyond the "Magnificent Seven" large-cap tech companies, UBS Global Wealth Management said.

Overseas Markets

Globally, banks and oil companies were in focus. Switzerland's UBS smashed Wall Street profit expectations, while Saudi Arabia's Aramco and BP of the U.K. both said earnings declined.

Some Asian indexes rallied, lifted by the U.S.'s strong performance the day before. Korea's Kospi rose the most, followed by the Nikkei 225.

Australian bonds gained and the currency weakened after the central bank raised its inflation forecast, but signaled it wasn't likely to lift rates.

Stocks to Watch

Apple has been working on a chip to run artificial-intelligence software in data-center servers, WSJ reported, a move that could give Apple an edge in the AI race.

Premarket Movers

Beyond's loss widened in the first quarter as revenue rose 0.3% and missed Wall Street expectations. The stock was declining 8.6% in premarket trading.

Boeing was down 0.7% after the first crewed launch of the company's Starliner spacecraft was scrubbed two hours before its scheduled liftoff. The launch was postponed because of a problem with an oxygen relief valve on the United Launch Alliance Atlas V rocket.

BP posted a drop in profit due to lower oil and gas prices, missing analysts' estimates. U.S.-listed shares were falling 1.9%.

Lucid reported better-than-forecast sales, but a major portion of those came from the Saudi government, which is a big shareholder. The stock fell 8.5%.

Microchip Technology fell 4.9% after saying it expects first-quarter revenue of between $1.22 billion and $1.26 billion, below analysts' estimates.

U.S.-listed shares of UBS rallied in premarket trading after it reported blockbuster earnings, including quarterly profit that was roughly triple Wall Street's forecast.

Post Market Movers

Hims & Hers Health posted its second consecutive quarterly profit and raised its 2024 outlook. Shares rose 12%.

Palantir's U.S. commercial revenue growth decelerated sequentially in the first quarter, increasing 40% compared to a 70% increase in the fourth quarter. Shares fell 6.8%.

T2 Biosystems said it had reached a distribution deal in Qatar and had converted an additional $15 million of a term loan into equity to reduce its debt. Shares rose 17%.

Market Insight

The global electric-vehicle market is experiencing a slowdown in sales after three years of rapid growth, Bernstein said.

EV sales rose 20% on year in 1Q slower than Bernstein's forecast for 25% growth in 2024. The slowdown was weighed by slower sales growth in Europe while U.S. and China's EV markets were more or less in line with forecasts, it said.

Bernstein remained cautiously optimistic about China's auto sector with passenger vehicle sales estimated at 21.5 million-22 million units this year.

China sold 21.7 million passenger cars last year, according to China Passenger Car Association data. The Chinese government's trade-in program for autos may further boost domestic demand and help support exports, it added.

Watch For:

Johnson Redbook Retail Sales Index; RCM/TIPP Economic Optimism Index; Consumer Credit; API Weekly Statistical Bulletin; Canada Ivey Purchasing Managers Index; Disney earnings

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MARKET WRAPS

Forex:

The dollar recovered from the losses it suffered after Friday's jobs data, which reignited the prospect of the Fed cutting interest rates.

Low levels of volatility in a quiet week for U.S. data are positive for the dollar as this fuels carry trades--where investors borrow in low-yielding currencies to invest in higher-yielding assets elsewhere--, ING said.

"Here, the dollar does OK since it offers the highest short-term deposit rate in the G-10 space."

A quiet U.S. calendar and the possibility of Sweden's Riksbank cutting rates on Wednesday should keep the DXY dollar index supported, potentially lifting it toward 105.50/75, ING added.

Bonds:

Easing inflation, prospective rate cuts and a U.S. soft landing are behind Generali Investments' call to moderately increase duration exposure.

Global economic green shoots and bumpy U.S. inflation keep the risks to yields two-sided in the short term, though, Generali said.

"But we see 10-year U.S. Treasury yields above 4.60% as a good entry level."

Energy:

Oil prices were steady as traders assessed geopolitical developments in the Middle East after Israel stepped up attacks in the southern Gaza city of Rafah while negotiations for a ceasefire remained on edge.

Israel took control of the crossing linking the Gaza Strip to Egypt after saying that the terms of the Egyptian-Qatari ceasefire proposal that Hamas accepted didn't meet its core demands.

Oil was also supported by expectations of strong demand this summer after top exporter Saudi Arabia raised the official selling price of its flagship crude to Asia, northwest Europe and the Mediterranean.

Metals:

Gold futures were broadly flat, trading in a narrow band, with losses tempered by increased tensions in the Middle East and market speculation around potential U.S. interest-rate cuts.

Copper

Janus Henderson Investors is positioning for a copper boom. "Let's face it. It's the flavor of the year. Everybody likes copper."

It's more bullish on the metal than other commodities because of its role in electrification.

"There's no better alternative for copper," Janus said, adding ot isn't concerned about the risk of manufacturers substituting aluminum in its place should prices get too high.

Still, any road to higher prices could be bumpy. "It's not going to be one-way traffic" and concerns about supply shortfalls don't "mean it can't go down $1.50 before it doubles."

TODAY'S TOP HEADLINES

Tesla Faces Strong Self-Driving Rivals in China

Elon Musk's recent surprise trip to China paid off handsomely.

Beijing's tentative backing for Tesla's "Full Self-Driving" technology kicked off the sharpest one-day percentage gain the stock had seen in more than three years. But it may not necessarily be a smooth ride from here on out.

Amazon to Invest $9 Billion in Singapore Cloud Infrastructure

Amazon.com will spend $9 billion to expand its cloud services in Singapore, coming as global tech companies are boosting their data-center footprints in Asia amid a boom in demand for artificial-intelligence computing.

Amazon Web Services, the U.S. tech giant's cloud-computing arm, said Tuesday that it will make the investment through 2028 to meet rising demand for cloud technology and services in the Southeast Asian city-state, adding to about $8.5 billion the Seattle-based company has already spent in recent years on cloud infrastructure in Singapore.

Disney's Earnings Are Nearly Here. Streaming Is in Focus.

Walt Disney expects its streaming division to become profitable by the last quarter of its fiscal year, so investors will be looking for signs of progress when it turns in its latest results.

Earnings and revenue will be in focus as well, together with whatever management has to say about the future following its proxy-fight victory against activist investor Nelson Peltz's hedge fund Trian Partners last month. The company has historically disclosed its results after the closing bell, but the report this time will arrive before markets open.

Glynn's Take: RBA May Eventually Be Forced to Take Stronger Stand

SYDNEY-Amid rising uncertainty about the outlook for the Australian economy, tensions were high heading into the central bank's policy meeting. After two days of deliberation, the Reserve Bank of Australia elected to do pretty much nothing.

Official interest rates were left on hold at 4.35% on Tuesday and the RBA's policy-setting board only tinkered with its guidance to financial markets.

It's a Good Time to Look at Apple and Other Growth Stocks That Pay Dividends

Apple announced it was boosting its dividend in its earnings report last week. Tech titans Meta Platforms, Alphabet, and Booking Holdings all initiated dividends this year. Paying a dividend is all the rage for cash-rich companies. And Wall Street is starting to notice.

Wolfe Research said in a report Friday that a combination of growing dividends and healthy free cash flow is a recipe for success.

Israeli Forces Seize Key Gaza Crossing Ahead of Planned Rafah Offensive

TEL AVIV-Israel sent tanks into Rafah and took control of a key crossing linking the Gaza Strip to Egypt, securing a strategic corridor as it ramps up preparations for a military offensive in the border city.

Israeli military footage showed its tanks entering the Gaza side of the Rafah crossing. The move followed a series of airstrikes against Hamas targets and warnings for civilians in the eastern part of Rafah to evacuate to zones in the west.

Social Security Funds Are Running Dry. Don't Panic.

Social Security's finances are in dire straits.

An aging population is pushing up the cost of the program as a smaller share of Americans directly pay into it. That imbalance means that Social Security could become unable to provide full retirement and disability benefits to Americans in 2035, the program's trustees warned on Monday.

U.S.-Israel Rift Widens Over Rafah Assault

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May 07, 2024 06:24 ET (10:24 GMT)

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