Morning Bid: Treasuries torpedoed, Tesla tanked
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[March 15, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
With next week's Federal Reserve meeting up close and personal - once a
hot favorite date for a first rate cut - this is not the outcome the
bond market bargained for at the turn of the year.
A second U.S. inflation disappointment in the space of a week, the
biggest annual oil price gains since 2022 and a very real chance the
Bank of Japan ends its long-standing negative interest rate policy as
soon as Tuesday all took a toll on Treasuries over the past 24 hours.
With futures now doubting a rate cut will come at all in the first half
of the year - and more than 50 basis points lopped off expectations for
the whole easing cycle since January - Treasury yields surged again on
Thursday. Markets are now expected less than half the 2024 rate cuts
they saw eight weeks ago.
Both 2-year and 10-year Treasury yields jumped more than 10bp each after
stickiness seen in February's consumer prices earlier in the week was
matched by equally stubborn producer prices for the month - while supply
concerns accelerated year-on-year oil prices close to 20% and crude hit
its highest for the year.
In price terms, two-year Treasuries are now negative for the year, while
10-year notes are down 7%.
With the whole Fed horizon being revised higher, the dollar has
rebounded to best levels in over a week.
Friday saw some calming as yields and oil prices fell back a touch.
To be sure, there were plenty of caveats around the latest sweep of
data. Although both above forecast, annual headline and core PPI numbers
are still 2% or less, last month's retail sales rebound was less than
expected and industry output readings are expected to be flat for the
month when released later today.
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But it makes for an uncomfortable backdrop going into next week's
central bank meetings nonetheless.
And the rumble in rates was enough to sideswipe stocks again too - with
small cap indexes taking the brunt with losses of almost 2% on Thursday.
Against all that, relatively modest 0.3% losses in the S&P500 and Nasdaq
were impressive and futures were steady early Friday. That said, the
equal-weighted S&P500 did lose almost 1% and AI-leader Nvidia dropped
3%.
And the ongoing swoon in Tesla continued to alarm as the electric
vehicle giant's losses for the year to date hit 35% - knocking some $250
billion from its market value as it dropped another 4% on Thursday.
Dogged by sluggish EV demand in the first quarter, a price war and
intense competition from China peers - not to mention a German arson
shutdown in one of its factories and noise around chief executive Elon
Musk's $56 billion pay package - the stock losses are mounting.
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A trader works on the floor at the New York Stock Exchange (NYSE) in
New York City, U.S., March 5, 2024. REUTERS/Brendan McDermid
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Tesla has replaced Boeing as the worst performing stock on the S&P
500 index so far this year. Ten out of 48 brokerages rate the stock
"sell" or "strong sell", according to LSEG data.
Elsewhere, Bitcoin eased to a one-week low in volatile trade, as
investors took profit from its run to a record high after the upside
U.S. inflation surprise. It fell more than 5% in the Asian session
to at low at $66,629.
In Japan, speculation about a BOJ policy tightening next week
intensified and dragged the Nikkei lower again.
Japan's biggest companies agreed to hike wages by 5.28% for 2024,
the highest in 33 years, the country's largest union group Rengo
said on Friday, reinforcing views that the central bank will soon
shift away from a decade-long stimulus program.
The yen weakened, however - perhaps as much to do with the dollar's
jump on the Fed rethink.
European stocks fell back from Thursday's records but were steadier
early on Friday.
Chinese stocks were more mixed, with Hong Kong's index falling as
property worries continue to jar.
China's new home prices dropped for an eighth straight month in
February, suggesting the fragile property market is struggling to
find a bottom despite a slew of measures to shore up the sector. New
home prices fell 1.4% over the year - faster than the 0.7% drop in
January and the biggest decline in 13 months.
Key diary items that may provide direction to U.S. markets later on
Friday:
* U.S. Feb industrial production, Feb import/export prices, New York
Fed March manufacturing survey, University of Michigan March
consumer survey; Canada Feb housing starts
* European Central Bank chief economist Philip Lane speaks
* U.S. Energy Secretary Jennifer Granholm hosts EU-US Energy Council
meeting in Washington
* French President Emmanuel Macron and Polish Prime Minister Donald
Tusk meet German Chancellor Olaf Scholz in Berlin
* U.S. corp earnings: Jabil, Groupon, GigaCloud
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com)
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