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A glimpse at the day ahead in U.S. and global markets from Mike Dolan. As the Federal Reserve meeting next week approaches – once a popular date for the first rate cut – this is not the result the bond market expected at the beginning of the year. A second U.S. inflation disappointment within a week, the largest annual oil price gains since 2022, and a high likelihood that the Bank of Japan will end its prolonged negative interest rate policy as soon as Tuesday have all impacted Treasuries over the past 24 hours. Expectations for a rate cut in the first half of the year have dwindled, with more than 50 basis points trimmed off forecasts for the entire easing cycle since January. Treasury yields surged again on Thursday, with markets now anticipating less than half of the rate cuts projected eight weeks ago for 2024. Both 2-year and 10-year Treasury yields rose by more than 10 basis points each following resilience seen in February’s consumer prices earlier in the week, matched by similarly resilient producer prices for the month. Additionally, concerns about oil supply pushed year-on-year oil prices up by nearly 20%, with crude reaching its peak for the year. In terms of price, two-year Treasuries are now in the negative for the year, while 10-year notes have declined by 7%. The dollar has rebounded to its highest levels in over a week amid the revised Fed outlook. Friday saw some stabilization as yields and oil prices retraced slightly. Despite the above-forecast readings, annual headline and core PPI figures remain at 2% or below, last month’s retail sales rebound was weaker than anticipated, and industrial output readings are expected to be stagnant for the month when released later today. However, these factors create an uneasy backdrop heading into next week’s central bank meetings. The shift in rates was sufficient to disrupt stocks once again, particularly affecting small-cap indexes with losses of nearly 2% on Thursday. Although the S&P500 and Nasdaq experienced relatively modest losses of 0.3%, and futures were steady early Friday, the equal-weighted S&P500 fell by almost 1%, and AI-leader Nvidia dropped by 3%. Tesla’s ongoing decline also raised concerns as the electric vehicle giant’s losses for the year reached 35%, wiping out around $250 billion from its market value as it tumbled another 4% on Thursday. Hindered by sluggish EV demand in the first quarter, a price war, intense competition from Chinese counterparts, a temporary shutdown in one of its factories due to arson in Germany, and speculations surrounding CEO Elon Musk’s $56 billion compensation package, Tesla’s stock losses are mounting. Tesla has now overtaken Boeing as the worst performing stock on the so far this year. Ten out of 48 brokerages rate the stock as “sell” or “strong sell”, according to LSEG data. Elsewhere, dropped to a one-week low in volatile trade, as investors took profit following its record high after the unexpected U.S. inflation surge. It plunged by more than 5% in the Asian session to a low of $66,629. In Japan, rumors about a potential BOJ tightening next week intensified, causing the to drop once again. Japan’s major companies have agreed to raise wages by 5.28% for 2024, the highest in 33 years, according to the country’s largest union group Rengo. This development reinforces the belief that the central bank will soon transition away from its decade-long stimulus program. Despite this, the yen weakened, possibly due to the dollar’s surge following the Fed reevaluation. European stocks retreated from Thursday’s highs but were relatively stable early on Friday. Chinese stocks showed mixed performance, with Hong Kong’s index declining amidst ongoing concerns about the property sector. China’s new home prices continued to decline for the eighth consecutive month in February, indicating that the fragile property market is struggling to stabilize despite numerous measures to support the sector. New home prices fell by 1.4% year-on-year – a faster decline than the 0.7% drop in January and the most significant decrease in 13 months. Key events scheduled for later on Friday that could impact U.S. markets include U.S. February industrial production, February import/export prices, New York Fed’s March manufacturing survey, University of Michigan’s March consumer survey, and Canada’s February housing starts. European Central Bank’s chief economist Philip Lane is set to speak, and U.S. Energy Secretary Jennifer Granholm will host an EU-US Energy Council meeting in Washington. French President Emmanuel Macron, Polish Prime Minister Donald Tusk, and German Chancellor Olaf Scholz are expected to meet in Berlin. Corporate earnings reports from Jabil, Groupon, and GigaCloud are also anticipated.
