U.S. stocks climbed to record highs after better-than-forecast earnings with the S&P up 25% from its Christmas eve low. The S&P closed at 2,933.68 up 0.88% while the NASDAQ and the DOW closed at 8,120.82 (+1.32%) and 26,656.39 (+0.55%) respectively. The momentum is expected to continue as the earnings season goes into full swing with major releases such as Amazon, Facebook and Microsoft this week. The yield on 10Y USTs decreased 3bps to 2.57%.
With seemingly little progress in the Tory-Labour talks, the UK government is set on getting the Withdrawal Agreement Bill — the legislation that puts the Brexit divorce deal into law — passed by Parliament. People familiar with Labour’s position in the talks do not see the party backing the Bill unless May accedes to their demands for a customs union while May herself remains committed to Britain having an independent trade policy post-Brexit. The yield on 10Y UKTs rose one basis point to 1.225% while the pound traded almost flat against the dollar closing at 1.2936.
Markets are expecting weak first quarter results for European banks as trading revenue, long the mainstay of earnings at big banks, is likely to slide putting more pressure to shrink it further. The slowing eurozone economy is likely to exacerbate this by prolonging the period of low interest rates which in turn eat into profits from lending. Credit Suisse’s first quarter results seem to support the calls to shrink trading business as the bank has shifted resources from trading to wealth management and private banking; an 8% rise in first quarter net income resulted with the bank able to attract SFr9.6 billion in new assets. Yield on 10Y DBRs gained marginally to close at 0.0398% while the euro fell slightly against the dollar closing at 1.1228.
Asia stocks meanwhile were largely lower in early morning trading with the major stocks Nikkei, Hang Seng and CSI all in the red at -0.4%, -0.6% and -0.2% respectively. The CSI had initially gained in light of the central bank’s move to support liquidity in the banking system to fund lending after the injection of the equivalent of about $40 billion in medium-term loans. The People’s Bank of China has however refrained from stronger measures such as lowering the country’s benchmark lending rates.
Oil pulled back from a six-month high on reports of a gain in U.S. crude inventories to offset concerns over America’s campaign to halt Iranian exports. Saudi Arabia meanwhile, is ready to boost production but is waiting for a decline in Iranian output. The caution is largely stemming from its experience last time when it ramped up production to 11 million barrels a day on Trump’s statements regarding driving Iranian exports to zero last year before backtracking at the last minute and granting waivers. In a statement on Monday, Saudi Energy Minister Khalid Al-Falih said, “In the next few weeks, the kingdom will be consulting closely with other producing countries and key oil consuming nations to ensure a well-balanced and stable oil market,”.
Eyes are on the Russian Finance Ministry as it details today’s auction plans on its website. The ministry will be offering two tranches of OFZs both without limit – April 2030 in the first auction and July 2024 in the second. Russia 47s were largely unchanged closing at 101.76 while the ruble closed at 63.92 against the dollar.
President Jair Bolsonaro’s pension reform cleared the first of seven votes following a landslide 48-18 vote in the lower House Constitution and Justice Committee allowing it to pass to congress. This was at the expense of political mileage as the government had to concede to centrist-party demands to alter several aspects of the Bill. Brazil 47s gained marginally following the vote to close at 97.94 while the real closed lower against the dollar at 3.9219.