By Geoffrey Smith
Investing.com — U.S. markets are waking up with a post-Fed hangover, but strong earnings from various sectors of the economy after hours on Wednesday should help them hold onto most of their gains. Bond yields rose overnight as markets digested Jerome Powell’s forecast for a series of half-point rate hikes. The Bank of England is also expected to raise rates, but less aggressively due to the slowdown in the UK economy. Jobless claims are expected, along with results from ConocoPhillips (NYSE:), Shopify (NYSE:) and Datadog (NASDAQ:). And oil prices are rising as OPEC and its allies prepare to announce another production increase that will be difficult to achieve in reality. Here’s what you need to know in the financial markets this Thursday, May 5.
1. Bond yields rise as post-Fed hangover sets in
Global stock markets followed the U.S. rise overnight, but bonds are suffering from something of a hangover after the wild rally following Wednesday’s Federal Reserve press conference.
U.S. stock indexes had their best day in years after Fed Chairman Jerome Powell said rate hikes of 75 basis points in the future were not “actively discussed”. Powell had said the Fed was confident it could secure a “soft landing” for the economy with a series of half-point rate hikes over the summer.
Yields on US Treasuries rose again overnight, rising 4 basis points to 2.96% and the more Fed-sensitive , 7 basis points to 2.69%, after that the market viewed the rate trajectory pointed out by Mr. Powell as still a significant tightening of financial conditions.
There is a slight lull in US economic data today, with only the and the survey ahead of the official labor market report on Friday.
2. BoE poised to hike rates amid weakness
Interest rates continue to rise around the world. The Central Bank of Brazil raised its key rate by an additional percentage point – the second consecutive one-point hike – at its meeting on Wednesday, after that of the Fed. Brazil joins Australia and India among other G20 economies that raised rates this week.
The baton has now passed to the Bank of England, which is expected to raise its repo rate by another 25bps at 1pm to 1.0%, and talk about its balance sheet clearance plans. The BoE should refrain from taking more aggressive measures due to the sharp loss of momentum of the British economy in recent months, due to rising inflation and tax increases. The fell slightly to $1.1255 before the news was released.
Local elections in the UK are also set to grab headlines, with the country passing judgment on the government’s handling of the cost of living crisis and Prime Minister Boris Johnson’s repeated breaches of his own lockdown rules. .
In the eurozone, ECB board member Fabio Panetta, the bank’s most outspoken dove, acknowledged that negative rates and quantitative easing were no longer “necessary”.
3. Stocks should correct a bit on open; profits from Shopify and Conoco are expected
U.S. equity markets are expected to give back at least some of their gains in a correction from Wednesday’s rally at the open.
At 12:55 p.m., were down 126 points, or 0.4%, while were down 0.5% and down 0.7%.
Some support should be provided by another set of strong results after the bell on Wednesday, with online travel agency Booking (NASDAQ:) particularly prominent (NYSE:) also comfortably beating estimates, as did (NYSE: ) and the lithium miner (NYSE:). However, Etsy’s (NASDAQ:) stock is set to tumble after it failed to allay concerns about sellers leaving the platform due to its seller fees hike.
Thursday’s major updates are from ConocoPhillips, Shopify, Datadog, Kellogg (NYSE:) and Becton Dickinson (NYSE:), while EOG Resources (NYSE: , Vertex (NASDAQ:), McKesson (NYSE:), Illumina (NASDAQ 🙂 and Monster Beverages are leading laggards.
4. SEC adds 80 people to Chinese naughty list; Caixin services PMI plummets
Three stocks likely to receive particular attention are the Chinese ADRs JD (NASDAQ:).com, Bilibili (NASDAQ:) and Pinduo-duo (NASDAQ:), after the United States Securities and Exchanges Commission added them to its list. The Securities and Exchanges Commission added them to its list of companies at risk of delisting due to their failure to file accounts that comply with US regulations. JD.com’s ADRs fell 1.2% and Pinduoduo’s 3.4%.
China’s economic news is not improving yet. The , a more accurate reflection of non-manufacturing activity than the official version, tumbled to 36.2 from 42.0 a month earlier, and is now well below its level of a month other than February 2020. .
China’s COVID-19 outbreaks also show few signs of improving, with Beijing adding to the restrictions in place and Shanghai’s reopening still dragging on.
5. Oil hits two-week high as OPEC prepares to meet
Crude oil prices hit two-week highs as the market digested the implications of EU plans to wean itself off Russian oil by the end of the year. These plans, which still have to overcome opposition from Hungary before taking effect, are bolstered by new measures banning a series of ancillary services such as insurance cover for ships carrying Russian oil.
Attention now shifts to the meeting of OPEC and its allies, which is expected to have a slightly surreal tone from June despite evidence of a sharp drop in Russian production.
At around 12:55 p.m., US oil futures were up 0.6% at $108.41 a barrel, with the latest rise stopping at $108.97. Oil futures were up 0.9% at $111.08 a barrel.
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Bond Hangover, Expected BoE Rise, SEC Villain List – What’s Moving Markets Thursday By Investing.com