Futures Slump As Fed's Rate Hiking, QT-Ing Meeting Begins

After initially trading higher, extending the momentum of yesterday's last-hour meltup which saw US stocks close near session highs after plunging earlier, on Tuesday US futures hit an air pocket shortly after the European open, and slumped 0.5% at 715am EDT, as investors braced for more hawkish shocks from the Federal Reserve whose two-day meeting start today and is expected to announce its biggest rate hike since 2000. Tightening turmoil slammed bond markets: 10Y TSYs traded just below 3% after hitting the 4-year old milestone on Monday. Germany’s benchmark rate rose above 1% for the first time since 2015, while the corresponding yield on U.K. bonds climbed above 2% earlier on Tuesday. Australian bonds slid, and the currency jumped, after the nation’s central bank hiked rates costs by more than all economists had expected. The US dollar dipped, oil was lower while cryptos and gold traded flat.

In premarket, NXP Semiconductors rose with analysts lauding the company’s strong results and second- quarter revenue forecast driven by robust demand through a difficult three months, while Kellogg and Tyson were cut to underweight from neutral by Piper Sandler. Pfizer and Starbucks are among the many companies reporting earnings Tuesday. Here are some other notable premarket movers:

  • Pfizer (PFE) dropped 3% after the company reported Paxlovid revenue for the first quarter that missed the average analyst estimate. The company's covid-19 vaccine revenue $13.23 billion, estimate $10.6 billion
  • Nvidia (NVDA) could be active after Morgan Stanley resumed coverage with a recommendation of equal- weight, citing concerns about deceleration in gaming and the company’s high valuation compared to peers.
  • Kellogg (K) and Tyson (TSN) were cut to underweight from neutral by Piper Sandler analyst Michael S. Lavery, who cites shifting consumer habits caused by inflation pressures and valuations that are ahead of their historical averages.
  • MGM Resorts International (MGM) rose 1.3% in extended trading after reporting adjusted earnings per share for the first quarter that beat the consensus estimate. Analysts had been expecting the company to report an adjusted loss per share for the period, according to the average of projections compiled by Bloomberg.
  • Chegg (CHGG) slumped 32% in extended trading after the online education company lowered its revenue and adjusted Ebitda guidance for the full year.
  • Clorox Co. (CLX) declined 2% in postmarket trading after the company lowered its outlook for full-year earnings amid stubbornly rising costs while reporting profit in its latest quarter that exceeded market expectations.
  • Expedia (EXPE) shares gained 1.5% in extended trading, after the online travel agency reported its first-quarter results. Adjusted Ebitda came in ahead of expectations, and the company said it sees positive indicators for a strong recovery in leisure travel.
  • Alibaba (BABA) briefly dipped as much as 9.4% in Hong Kong, wiping off about $26 billion of market value, after a state broadcaster reported that authorities had imposed curbs on an individual surnamed Ma. Shares erased the majority of the losses after police reports indicated the accused person’s name was spelled differently to Alibaba co-founder Jack Ma

US stocks have started off May flattish after slumping in April as investors were worried about the Fed pursuing overly aggressive tightening to curb surging inflation. Morgan Stanley’s Michael Wilson has warned that the S&P 500 will sink to at least 3,800 in the near term and may fall as low as 3,460, a drop of over 16% from Monday’s close. In contrast, JPMorgan Chase & Co. strategists say that the negativity in the U.S. stock market has become so overwhelming that a rebound may not be far off.

Markets are getting whipsawed between concerns around persistent inflationary spirals and risks to global growth from rising yields, China’s Covid lockdowns and Russia’s war in Ukraine. The Federal Reserve’s plans to raise rates and reduce its balance sheet have ended an era of cheap money and forced money managers to reassess valuations.

“The right strategy right now is to position for inflation -- a clear and present fact -- rather than recession, which is still only a possibility,” Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote clearly unwilling to admit the writing on the wall.

“Investors are already welcoming the prospect of new monetary measures from central banks to combat inflation,” said Pierre Veyret, technical analyst at ActivTrades, adding that “bull traders are buying the recent dips on stocks this morning after most markets fell back to their weekly low, with many betting on the anticipation of tightening monetary conditions to mitigate rising prices. It is likely that most investors have already priced in tomorrow’s FOMC meeting where a record half-point rate hike is widely expected.”

In Europe, the Stoxx Europe 600 Index was little changed, erasing an earlier advance of as much as 0.8% which saw stocks bounce after a flash crash sent shares tumbling on Monday. Europe tracked declines for U.S. futures. Basic resources stocks lled the retreat in Europe, down 1.4%, real estate -1.2%; Energy outperforms, +1.9%; autos +1%, banks +0.9%. Here are the biggest European market movers:

  • BP shares rise as much as 3.7% after reporting first-quarter results that were received positively by analysts, who highlight the expanded share buyback and overall strong results.
  • BNP Paribas shares climbed Tuesday after the French lender reported what Jefferies called a “massive earnings beat” on strong revenue, with all subdivisions outpacing expectations.
  • Stellantis gains as much as 3.2% after the company said it will acquire the Share Now car-sharing joint venture formed by BMW and Mercedes- Benz, to tap new revenue streams.
  • ISS rises as much as 8%, the day’s biggest winner on the Stoxx Europe 600 Index, after the cleaning company reported 1Q earnings that beat estimates and raised its FY outlook.
  • Electrolux rise the most in a month, after Kepler Cheuvreux raised its recommendation to buy from reduce, seeing a “buying opportunity” in a share where most negatives are already priced in.
  • Bayer climbs after Citi re-opens a positive catalyst watch on Bayer ahead of its 1Q earnings, which the broker expects to be ahead of guidance and consensus expectations.
  • Alstom also rises as much after Citi opens a positive catalyst watch ahead of the company’s full-year results on May 11, expecting Alstom to generate positive cash flow in 2H22.
  • Wizz Air gains as much as 4.4% in London after reporting monthly data traffic for April, with Goodbody noting the airline carried 3.62m passengers last month, up 6 times vs a year ago.

Earlier in the session, Asian stocks were mixed amid holiday-thinned trading, as investors braced for a potential increase in U.S. interest rates later this week. The MSCI Asia Pacific Index dipped as much as 0.5%, with markets including China, Japan, Singapore and India closed for holidays. Australian shares retreated after the Reserve Bank increased interest rates by more than economists anticipated and signaled further hikes. RBA Governor Lowe said he expects further interest rate increases will be necessary in the months ahead; does not preclude a bigger or smaller rate move in the future, and has an open mind on how fast rates need to increase, a more normal level of interest rate would be 2.50%.

“Once again the RBA has proven its ability to quickly pivot the policy direction,” wrote Kerry Craig, global market strategist at JPMorgan Asset Management, in a note. “A material slow-down in economic activity could see a reassessment of the path for policy normalization and there is a high degree of uncertainty.”

Hong Kong’s benchmark eked out a small gain as the city accelerated its reopening plans after Covid cases dropped. Hong Kong Chief Executive Lam said they will reopen bars in the second phase of easing COVID-19 restrictions on May 19th. Shares of Alibaba Group Holding pared losses after a brief bout of concern over the status of its co-founder Jack Ma triggered wild price swings, underscoring continued investor anxiety toward China’s tech sector. Investors are waiting for what could be the U.S. Federal Reserve’s biggest rate hike Wednesday since 2000, one of many central bank decisions this week. The 10-year Treasury yield has climbed above 3% before the decision.

In FX, the Bloomberg Dollar Spot Index eased 0.1% to trim Monday’s gain as the greenback traded mixed versus its Group-of-10 peers. The Australian dollar led gains over G-10 pairs after the Reserve Bank raised rates 25 basis points, to 0.35%, defying expectations for a hike of 15 basis points and signaled more hikes to come to rein in inflation. The nation’s bonds tumbled and the 3-year yield rose above 3% for the first time since 2014. The euro fluctuated around $1.05 and European bonds underperformed Treasuries and peripheral spreads widened. German 10-year yields touched 1% for the first time since 2015, as markets brace for a faster pace of tightening from the ECB.The pound advanced while gilts tumbled, sending the 10-year yield surging above 2% for the first time since April 22 as they catch up with Monday’s bund and Treasury declines when U.K. markets were closed for a holiday.

In rates, the global bond rout deepened as traders take cues from Australia’s hawkish pivot ahead of the Federal Reserve and Bank of England meetings later this week. German 10-year yield rose above 1% for the first time since 2015, subsequently drifting off the highs. U.S. 10-year yields stall again near 3% and 10-year gilts briefly rose to 2%.

Treasuries extended declines as trading kicked off Tuesday, driving the 10-year yield above 3% as investors braced for the Fed’s biggest interest-rate hike since 2000.  The Treasury curve unwound Monday’s 2s10s steepening move with front-end yields cheaper on the day and belly to long-end yields slightly richer, following similar flattening in German curve.  Treasury yields are cheaper by ~1bp at front-end of the curve, richer by 1bp-2bp from belly out to long-end, flattening 2s10s by ~3bp, 5s30s by ~1bp; 10-year around 2.96%, outperforming comparable bunds by 1bp, gilts by 8bp. Gilts reopen after Monday holiday, underperforming in catch-up to Monday’s Treasuries and bund declines. The Dollar issuance slate empty so far; five names priced $5b Monday with as many as seven others electing to stand down as conditions deteriorated.

In commodities, WTI and Brent were pressured on demand-side concerns as the COVID situation in China remains in focus and Beijing has asked residents not to leave the are unnecessarily. Currently, the benchmarks are holding marginally above session troughs of USD 103.41/bbl and USD 105.62/bbl respectively.  Spot gold falls roughly $7 to trade above $1,855/oz. Most base metals are in the red.

Bitcoin is little changed in European trade, pivoting narrow parameters above the USD 38k mark.

Looking at today's calendar, we’ll get PPI data from the Eurozone, German unemployment figures, and JOLTS and durable goods data from the US. It’s a heavy slate for earnings, with results due from Pfizer, Norsk Hydro, AMD, S&P Global, Airbnb, Estee Lauder, Starbucks, BP, BNP Paribas, Eaton, Deutsche Post, Marathon Petroleum, AIG, KKR, Hilton, DuPont, Teva, and Lyft.

Market Snapshot

  • S&P 500 futures down 0.2% to 4,138.5
  • STOXX Europe 600 up 0.7% to 446.83
  • MXAP down 0.1% to 167.81
  • MXAPJ down 0.2% to 556.12
  • Nikkei down 0.1% to 26,818.53
  • Topix little changed at 1,898.35
  • Hang Seng Index little changed at 21,101.89
  • Shanghai Composite up 2.4% to 3,047.06
  • Sensex down 0.1% to 56,975.99
  • Australia S&P/ASX 200 down 0.4% to 7,316.19
  • Kospi down 0.3% to 2,680.46
  • Brent Futures down 1.3% to $106.13/bbl
  • Gold spot down 0.5% to $1,852.78
  • U.S. Dollar Index down 0.22% to 103.51
  • German 10Y yield little changed at 0.99%
  • Euro little changed at $1.0512

Top Overnight News from Bloomberg

  • Citigroup Inc.’s London trading desk was a behind a flash crash that sent shares across Europe tumbling on Monday, dealing a fresh setback to the bank’s years-long efforts to improve controls
  • Russia’s closely watched dollar payments on two bonds are moving ever closer to creditors as the country races to unblock the transfers and avoid a default. At least one international clearinghouse has received and processed payments for eurobonds due in 2022 and 2042, according to a person familiar with the transaction who wasn’t authorized to speak publicly on the matter
  • The RBA’s shift is a blow to Australia’s center-right government that’s trailing in opinion polls as campaigning intensifies for a May 21 ballot
  • South Korea’s inflation accelerated to the fastest pace since 2008 in April, prompting the central bank to issue a statement as pressure intensifies for it to raise interest rates further at this month’s policy meeting

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed and lacked direction amid key market closures and looming risk events. ASX 200 was subdued heading into the RBA meeting and was pressured after the central bank delivered a larger than expected hike to the Cash Rate Target which was lifted by 25bps to 0.35%. Hang Seng initially declined on return from an extended weekend amid heavy losses in tech including Alibaba on speculation its founder Jack Ma could be the individual mentioned in Chinese press surnamed Ma who was subjected to compulsory measures for collusion with anti-China hostile forces However, sources later denied that the person was Jack Ma which helped pare some of the losses, while the announcement of looser COVID restrictions in Hong Kong from May 19th also provided encouragement.

Top Asian News

  • Shares Up on Support Vow, Sales Slump Deepens: Evergrande Update
  • HSBC Shares Rise in Hong Kong as Top Holder Supports Split
  • Another Kakao Company Is Working on a Seoul Listing: ECM Watch
  • Hong Kong Wealth Fund Hit by $7 Billion Quarterly Loss

European bourses are firmer across the board, Euro Stoxx 50 +0.6%, following late-door Wall St. upside; though, the FTSE 100 -0.5% lags as it catches up from Monday's holiday.Stateside, futures are modestly firmer/flat on the session but have been rangebound throughout the European morning ahead of Wednesday's FOMC. In Europe, sectors are primarily positive with Energy outperforming post-BP earnings and Banks supported on yield upside. US Securities and Exchange Commission (SEC) will boost the size of its special unit devoted to investigating cryptocurrency frauds, according to WSJ.


Top European News

  • Ukraine Latest: Pope Francis Pushing for Direct Talks With Putin
  • Covestro Shares Plunge After Company Cuts Forecast
  • Morgan Stanley Overtakes Goldman to Lead in EMEA Equity Sales
  • Electrolux Up as Kepler Upgrades, Sees Negatives Priced In


  • RBA hikes in front of Fed to give Aussie a leg up vs Greenback and advantage over Kiwi that is labouring ahead of NZ jobs data; AUD/USD hovers around 0.7100, AUD/NZD probes 1.1050 from lows circa 100 pips below and NZD/USD pivots 0.6450.
  • DXY firm around 103.500 awaiting FOMC, with passing interest provided by US factory orders 103.930 is near term resistance, with some charts also citing 103.807 as a long term hurdle.
  • Sterling rebounds on return from long UK holiday weekend and in anticipation of another 25bp rate hike on super Thursday, Cable back above 1.2500 and EUR/GBP retreats from 0.8400+ again.
  • Euro clinging to 1.0500 against Buck with aid of higher EGB yields and some technical support, 10 year German cash touches 1% and EUR/USD underpinned by 1.0494 ascending trendline.
  • Yuan fends off another attack on 6.7000 vs Dollar and Won looking for boost from BoK following strong SK inflation data.

Fixed Income

  • Debt futures bounce from new long term lows in some cases; Bunds back over 153.00 vs 152.66, Gilts 117.75 from 117.39 and 10 year T-note 118-12+ vs 118-04+.
  • Benchmark yields touch or top psychological levels at 1%, 2% and 3% respectively before retracement.
  • Treasury curve re-flattens marginally on the eve of the Fed, 2/10 year -4 bp and 2/30 year in -5 bp.


  • WTI and Brent are pressured on demand-side concerns as the COVID situation in China remains in focus and Beijing has asked residents not to leave the are unnecessarily.
  • Currently, the benchmarks are holding marginally above session troughs of USD 103.41/bbl and USD 105.62/bbl respectively.
  • Spot gold is softer as yields continue to climb, but remains above USD 1950/oz as the USD struggles to derive traction.
  • Similarly to crude, base metals are impacted on demand-side concerns re. China's COVID backdrop.

US Event Calendar

  • April Wards Total Vehicle Sales, est. 14.1m, prior 13.3m
  • 10:00: March JOLTs Job Openings, est. 11.2m, prior 11.3m
  • 10:00: March Factory Orders, est. 1.2%, prior -0.5%; Factory Orders Ex Trans, prior 0.4%
    • Durable Goods Orders, est. 0.8%, prior 0.8%; -Less Transportation, est. 1.1%, prior 1.1%
    • Cap Goods Orders Nondef Ex Air, est. 1.0%, prior 1.0%
    • Cap Goods Ship Nondef Ex Air, prior 0.2%

DB's Jim Reid concludes the overnight wrap

We had a bank holiday here in the UK yesterday and for once an extra round of golf didn't make me a pariah as when the twins were out all afternoon with mum on Sunday I did a surprise recording session with 6-year-old Maisie, putting her first ever self-penned song on record. She keeps on making up little songs in the car and l'd spotted a loop or two that I thought were quite good so I created a backing track and got her to sing it into my studio mic and then mixed it together with a video. We then surprised mum when she got home. Mum cried with joy, and I quickly booked in a season of golf competitions in the diary whilst she was overcome with emotion. In the unlikely event you'd like to see and hear it please see the link on my Bloomberg header or email me and I'll send it to you.

Talking of the bank holiday, for those missing yesterday here are the brief highlights of what's left in a busy week ahead. Tomorrow sees the FOMC decision, where a +50bp hike and the start of QT are expected. The Fed is followed on Thursday by the BoE who are expected to lift rates (+29.3bps are priced in). We also have US payrolls on Friday and 161 S&P 500 companies reporting through the week. On that, our equity team published their Q1 earnings takeaways so far late last week, link here. While the season has been noisy so far, the median beat has been solid at 6.2% despite some notable outliers dragging the average down to 2.6%, below historical average. However 81% of companies have beat consensus. Earnings growth is in line with historical norms at 11.3% YoY. Margins have remained near record highs despite input price pressures.

Price action on the first day of May rhymed with what we saw over April. US Treasury yields continued their march higher, with yields increasing above 3% on benchmarks from 5 to 30 years intraday during the New York session, ahead of tomorrow’s FOMC. Ten-year yields gained +4.7bps, closing at 2.98%, but as mentioned managed to breach 3% for the first time since 2018 at one point. Similar to the price action last week, the nominal figure masked divergence in the decomposition. Real yields gained +15.6bps ahead of the Fed’s anticipated QT announcement tomorrow, punching through to positive territory for the first time since March 2020’s whipsawing price action, closing at +0.15%. 10yr breakevens, thus narrowed -10.9bps to 2.83%. European sovereign yields trended in a similar direction, with bunds (+2.7bps) and OATs (+3.2bps) picking up ground at the 10yr point, with 10yr BTPs continuing their recent run of spread widening, climbing +5.8bps over bunds yesterday, to 189bps, their widest level in two years. This comes following fears on global growth taking hold, but also with the market revising its expectation toward an earlier exit of ECB accommodation. Indeed, our Europe economists changed their call last week, now expecting APP net purchases to finish in June, with liftoff following in July, with 100bps of hikes in 2022 now pencilled in. See the link for more details.

Stocks were broadly lower in Europe, catching down with a very poor US close on Friday, with the STOXX 600 pulling back -1.46% and every sector lower on the day. The DAX (-1.13%) managed to slightly outperform, while the CAC (-1.66%) fared slightly worse. Europe did survive a morning flash crash though caused by an erroneous trader entry. American stocks were saved from starting May the way they ended April with a late rally in New York, leaving the S&P 500 +0.57% higher. There was a clear divergence between underperforming defensives and outperforming cyclical stocks, as real estate (-2.55%), staples (-1.29%), utilities (-1.04%), and health care (-0.68%) were the four worst performing sectors, while communications (+2.43%), tech (+1.56%) and energy (+1.37%) led the rebound. The large intraday swing ensured the Vix stayed above 30 for another session, closing the day at 32.34pts.

Despite the strong showing from US energy stocks, brent crude oil also started the month lower, falling -1.61%. Again, the dollar index marched to its highest level since 2002, gaining +0.76% yesterday, meaning the index has gained at least +.50% in 6 of the last 7 sessions, and cleared +0.6% in 4 of those.

Overnight in Asia, the biggest news is just coming through as I type with the RBA hiking rates by 25bps, a bit more than expected. 2yr Aussie notes are up +11bps in the immediate aftermath and the Aussie Dollar is soaring. Elsewhere news of upcoming covid rules easing in Hong Kong is lifting the Hang Seng (+0.12%) with the KOSPI (+0.0%) unchanged while exchanges in Japan and China are closed for holidays. S&P 500 futures (+0.38%) are trading in positive territory.

On data yesterday, US ISM Manufacturing surprised to the downside in April, with the index realising at 55.4 versus expectations of 57.6. The survey responses were replete with examples of supply chain pressures still plaguing industry. The US PMI figure came in at 59.2, just missing the 59.7 expectations.

To the day ahead, we’ll get PPI data from the Eurozone, German unemployment figures, and JOLTS and durable goods data from the US. It’s a heavy slate for earnings, with results due from Pfizer, Norsk Hydro, AMD, S&P Global, Airbnb, Estee Lauder, Starbucks, BP, BNP Paribas, Eaton, Deutsche Post, Marathon Petroleum, AIG, KKR, Hilton, DuPont, Teva, and Lyft.


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