Morning bid: Calm markets hover near highs, metals step back
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[May 21, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Partly due to the absence of top-tier economic news this week, world
markets have found a relatively calm plateau with stocks near their
latest records - and even fizzing metals prices cooling a touch.
Wednesday's release of both Nvidia's quarterly earnings and the Federal
Reserve's latest meeting minutes loom largest as potential game changers
- but the broad constellation of influences remains bullish.
After recording its lowest close since just before the pandemic on
Friday, Wall St's VIX volatility gauge is comfortably subdued and even
Treasury market volatility has subsided to seven-week lows.
U.S. financial conditions, as measured by the Chicago Fed's index, are
at their easiest since January 2022 - just before the Fed kicked off its
credit tightening campaign. And even though futures markets retain
expectations of about 41 basis points of Fed easing over the remainder
of this year, Fed officials themselves seem in no rush.
U.S. economic surprises are indeed at their most negative since January
2023, but that's reflecting a welcome cooling of growth that the Atlanta
Fed still estimates to be running close to 3.5% this quarter. Excluding
the energy sector, annual U.S. earnings growth is running north of 10%
and rising.
And even some of the more doggedly bearish Wall St strategists are
throwing in the towel on year-end targets. Morgan Stanley's Mike Wilson
on Monday lifted his base-case 12-month forecast for the S&P500 to 5400
points - only 2% from Friday's close but 20% higher than his previous
forecast of 4500.
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Moving into Tuesday's session, a packed diary of Fed speakers dominates.
S&P 500 futures are flat, with the Nasdaq having eked out another record
on Monday. Treasury yields edged down a touch and the dollar has stalled
broadly.
Canada's April inflation release might feed the voracious appetite for
price clues - with headline annual consumer price gains there expected
to ease to 2.7% from 2.9%.
But much of the speculation now spins on the artificial intelligence
theme and Nvidia's latest update tomorrow.
Traders are pricing in a big move for Nvidia’s shares after the
chipmaker reports, though expectations for volatility are more muted
than in the past.
Nvidia's options are primed for an 8.7% swing in either direction by
Friday, according to data from options analytics firm Trade Alert. That
would translate to a market cap swing of $200 billion - larger than the
market capitalization for about 90% of S&P 500 companies.
While massive by most measures, that implied move would fall far short
of the 16.4% jump Nvidia’s shares notched after the company’s most
recent quarterly earnings report.
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![](../images/052124PIX/busine65.jpg)
People visit the Charging Bull at the Financial District by the New
York Stock Exchange (NYSE) in New York, U.S., December 29, 2023.
REUTERS/Eduardo Munoz/File Photo
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Commodities too have been pumped up of late, mostly in metals where
a mix of China's latest property market rescue plans and
considerable speculative activity sent copper and gold to new
records on Monday.
But even these have calmed down a bit today, with both stepping back
from new milestones overnight.
Oil prices too fell back from Monday's three-week highs - helping
take some of the heat out of Treasury yields.
Asian and European bourses slipped back earlier. Hong Kong's Hang
Seng was the big underperformer with losses of more than 2% as
doubts linger about the effectiveness of China's latest attempts to
backstop its housing bust and geopolitical rhetoric around Taiwan
appearing to have risen several notches in recent days.
G7 finance ministers, meantime, head to Italy this week for a
meeting in Stresa on Thursday.
U.S. Treasury Secretary Janet Yellen is pushing for them to agree on
a plan to use the income stream from some $300 billion worth of
frozen Russian sovereign assets to back a larger loan to Ukraine.
Proponents of the plan say this could provide up to $50 billion up
front for Ukraine, without confiscating the assets, as opposed to
just using about $3.5 billion a year in interest earnings.
Speaking in Frankfurt on Tuesday, Yellen also said the United States
and Europe need to respond to China's industrial policies in a
"strategic and united way" to keep manufacturers viable on both
sides of the Atlantic.
Key diary items that may provide direction to U.S. markets later on
Tuesday:
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* Canada April consumer price inflation
* US corporate earnings: Autozone, Lowe's, American Resources,
Trip.com, Urban Outfitters, XP, Viasat, Alvotech etc
* Federal Reserve Board Governor Christopher Waller, New York Fed
President John Williams, Fed Vice Chair for Supervision Michael
Barr, Atlanta Fed President Raphael Bostic, Cleveland Fed chief
Loretta Mester, Boston Fed chief Susan Collins and Richmond Fed boss
Thomas Barkin all speak. Bank of England Governor Andrew Bailey
speaks
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com)
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