In a session marked by volatile trading, the S&P 500 climbed, ending the day up 1.08 points or 0.02%, closing at 5,071.63. This gain came as the market processed a series of mixed signals—from an uptick in bond yields following a substantial auction of U.S. Treasury notes to varied corporate earnings reports across key sectors.

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What is the Impact of Rising Yields? 

Wednesday witnessed an auction of $70 billion in five-year Treasury notes, contributing to the rise in the 10-year Treasury yield by five basis points to 4.6459%. Investors might view these higher yields as a signal to adjust their portfolios towards more fixed-income assets, potentially dampening the appetite for equities.

Corporate Earnings A Mixed Bag

The earnings landscape was diverse, with significant movements in individual stock prices reflecting the variegated nature of corporate health. Meta Platforms experienced an 11% decline post-market as the company forecasted a hefty capital expenditure of up to $40 billion in 2024. 

On a brighter note, Tesla surged 12% after announcing plans to ramp up production and introduce more cost-effective models, overshadowing weaker quarterly results. This aligns with past trends where automakers announcing major strategic shifts have often enjoyed bullish investor sentiment.

The day ended with seven out of the eleven S&P 500 sectors recording gains in consumer staples and real estate. This broad-based but selective sector advancement is typical in markets where investors are cautiously optimistic but discerning about sector-specific fundamentals.

Boeing’s stock fell 2.8% following a report of its first revenue decline in seven quarters, a situation that generally aligns with the historical performance of aerospace stocks which are sensitive to both market cycles and corporate earnings reports.

Nasdaq Shows Cautious Optimism

With major tech giants like Microsoft and Alphabet slated to report later in the week, the tech-heavy Nasdaq’s gain of 0.10% suggests a market that is cautiously optimistic but still wary of potential surprises in earnings reports. 

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Today, 25th April 2024, oil prices showed minor fluctuations in early Thursday trading, reflecting a blend of geopolitical concerns and economic indicators. Brent crude futures slightly dropped by 9 cents to $86.95 a barrel, while fell 7 cents to $82.74 a barrel, both marking a decrease of about 0.1%. These modest changes follow a less than 1% decline on Wednesday, suggesting a market attempting to find direction amid mixed signals.

Influences on Oil

The geopolitical landscape continues to influence oil prices significantly. Analyst Toshitaka Tazawa of Fujitomi Securities highlighted that while tensions between Iran and Israel had shown signs of easing, the ongoing Israeli military actions in Gaza, along with potential escalations in the region, are critical factors underpinning oil prices. The threat of these conflicts expanding to neighboring countries adds a layer of uncertainty that could potentially stabilize or increase oil prices temporarily.

Concurrently, economic data from the U.S. presents a contrasting pressure on oil markets. The delay in anticipated U.S. interest rate cuts, owing to persistent inflation and strong employment figures, has raised concerns about a slowdown in the U.S. economy and consequently, the demand for crude oil. The S&P Global flash Composite PMI Output Index for April indicated a slowdown in U.S. business activity to a four-month low, further complicating the economic outlook and its impact on commodity prices.

U.S. Oil Inventory and Market Response

The Energy Information Administration reported a significant draw in U.S. crude oil inventories, which declined by 6.4 million barrels last week, contrary to expectations of an 825,000-barrel increase. This substantial decrease in crude stocks suggests a tightening market, which typically would support higher oil prices. However, the market’s muted response indicates that broader economic concerns are dampening the bullish sentiment typically associated with inventory draws.

Historically, oil markets have been sensitive to both geopolitical disruptions and economic indicators. For example, during the Gulf War, oil prices spiked due to disruptions in supply and fears of broader conflict. Conversely, during the 2008 financial crisis, oil prices plummeted as global demand collapsed.

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CURRENCIES:

US Dollar Impact and Economic Indicators

• Recent weak PMIs have unsettled the US Dollar.
• Key economic indicators this week include Q1 GDP on Thursday and Core PCE on Friday.
• Despite a dip, potential for a short-lived US Dollar sell-off exists.
• Early Q2 shows a slowing US economic upturn, as reported by S&P Global.

US Economic Performance and Projections

• Early Q2 shows a slowing US economic upturn, as reported by S&P Global.
• Business activity growth was below trend in April.
• New business inflows decreased for the first time in six months.
• Business output expectations have declined, hitting a five-month low amid growing economic concerns.

US Treasury Yields and Market Movements

• Shorter-dated US Treasury yields have decreased following the PMI report but remain high.
• The 2-year yield struggled to surpass 5%; rate cut expectations have reduced significantly.
• A total of $183 billion in new US Treasuries will be auctioned this week.
• Poor auction results could increase existing US Treasury yields.

Technical Analysis

• The US 2-year yield chart suggests a possible bullish flag formation, indicating a potential re-test of the 5.26% high from October 19th.

STOCK MARKET

Tesla Stock Performance and Strategic Shift

• Tesla stock surged in pre-market trading following the announcement to accelerate the launch of more affordable electric vehicles (EVs).
• This move contrasts earlier reports suggesting the company might abandon plans for cheaper car models.

Corporate Announcements and Timeline Adjustments

• In the first-quarter shareholder release, Tesla updated its vehicle lineup to introduce new models sooner than planned, originally set for the second half of 2025.
• CEO Elon Musk indicated on the earnings call that the launch of new vehicles could happen as early as 2025, potentially even later this year.

Financial Performance and Market Reaction

• Despite missing revenue and earnings expectations, Tesla’s announcement positively impacted investor sentiment, with shares rising up to 11%.
• Tesla reported first-quarter revenue of $21.30 billion, down 9% year-over-year, marking the first decline in four years.

Operational Highlights and Future Projections

• First-quarter results showed $1.2 billion in operating profit and $1.5 billion in adjusted net income, both below forecasts and significantly lower than the previous year.
• Delivery guidance remains lower, consistent with previous statements, reflecting challenges in production and demand.
• Tesla introduced a ridehailing feature in its app previewing the upcoming Tesla robotaxi service.

Production and Sales Challenges

• Q1 global deliveries and production numbers were below expectations, indicating potential weakening in global demand.
• Recent price reductions in the US and China were responses to sluggish sales, impacting the stock negatively earlier in the week.

Key Dates and Future Events

• Tesla plans to discuss its cheaper EV models and robotaxi service in more detail on August 8, the scheduled reveal date for the robotaxi.

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ICYMI – Market outlook for 24 April 2024

As we navigate through the final week of April, key economic indicators poised to test the resilience of the US dollar are on the horizon, with Q1 GDP figures and Core PCE data expected to shed light on the economic trajectory. While the US dollar has seen some volatility, spurred by recent weak PMI readings, the potential remains for a short-lived sell-off. Historically, similar patterns were observed in the early months of 2015, when the dollar initially weakened against a backdrop of disappointing economic data but regained strength as investor sentiments adjusted to the broader economic landscape.

The PMI data from S&P Global has indicated a slower start to the second quarter, marking a departure from the growth trends we have become accustomed to. This deceleration is mirrored in the experiences of the late 2000s recessionary period, where initial downturns in PMI were early indicators of broader economic headwinds. Currently, with new business inflows decreasing for the first time in six months and business output expectations at a five-month low, concerns are mounting about the sustainability of the recovery.

US Market Sentiments and PMI

On the treasury front, shorter-dated yields have taken a dip following the PMI report. Yet they remain high, indicating a market that is cautiously optimistic about the future of interest rates. The upcoming auction of $183 billion in new US Treasuries this week is reminiscent of similar large-scale auctions in 2011, where poor results led to a temporary spike in yields but eventually stabilized as market conditions normalized.

The technical analysis of the US 2-year yield suggests a bullish flag formation, potentially signaling a re-test of the 5.26% high reached last October.

Tesla’s Market Report 2024

Turning our focus to the stock market, Tesla has recently made headlines with its pre-market surge following the announcement to accelerate the introduction of more affordable electric vehicles (EVs).

This move by Tesla contrasts with its earlier hints at abandoning cheaper models and aligns with the strategic shifts often seen in the late 1990s by tech firms, which pivoted quickly in response to market demands and investor expectations. Despite missing revenue and earnings targets, with first-quarter revenue down 9% year-over-year, Tesla’s announcement has buoyed investor sentiment.

The market will closely watch developments as we approach key dates like Tesla’s detailed discussion on its cheaper EV models and robotaxi service scheduled for August 8,

Sterling stabilises after Tuesday’s strong gains, fueled by above-forecast U.K. purchasing-manager surveys, Bank of England signals that it isn’t in a rush to cut rates, and a weaker dollar. The currency’s performance reflects heightened market attention to central bank signals and economic data. The GBP/USD edged down 0.1% to 1.2436, while EUR/GBP remains steady at 0.8595.

Bank of England’s Stance on Interest Rates

Bank of England’s chief economist Huw Pill’s recent remarks highlight the central bank’s caution before considering easing monetary policy.

Despite a segment of policymakers dissenting against early rate cuts, the majority’s hesitance suggests a continued tight monetary stance in the near term.

GBP/USD and EUR/GBP in the Spotlight

The slight decline in GBP/USD and the stability of EUR/GBP indicate a market digesting recent economic inputs and central bank communications.

Comparing this situation to late 2016, when the sterling found a temporary footing after considerable post-Brexit vote losses, current stability might be short-lived if upcoming economic data shows unexpected weaknesses.

Bunzl and Lloyds Banking Maintain Guidance

Bunzl reported a revenue fall in Q1 but reassured investors by backing its full-year guidance. This move, reminiscent of its 2019 performance recovery, suggests Bunzl’s management has a confident outlook on operational rebound.

Lloyds Banking Group‘s announcement of maintaining full-year guidance, despite a slower-than-expected decline in net interest margin, points to a cautious optimism. 

Abrdn, Aviva Show Varied Performance

Abrdn’s increase in client assets and Aviva’s aggressive growth in its health business underscore a potentially shifting landscape in financial and health sectors. Abrdn’s return to quarterly reporting could enhance transparency and reduce earnings risk, recalling the positive reception to similar strategic shifts in other asset management firms during late 2010.

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24th April 2024

Japanese rubber futures on the Osaka Exchange (OSE) for October delivery experienced a downturn, falling by 5.1 yen or 1.65% to 304.2 yen ($1.97) per kg as of 0208 GMT. Similarly, the rubber contract for September delivery on the Shanghai Futures Exchange (SHFE) decreased by 155 yuan or 1.08% to 14,215 yuan ($1,962.26) per metric ton. These movements are in tandem with the dip in physical rubber prices in Thailand, where the benchmark export-grade smoked rubber sheet (RSS3) was quoted at 83.67 baht per kg, marking a 0.96% decrease from the previous day.

Impact of Lower Physical Rubber Prices

The decline in physical rubber prices in Thailand, a major producer, is exerting downward pressure on futures prices. This trend is reflected in the global pricing mechanisms, influencing trading strategies and sentiment across major rubber trading hubs in Asia.

Electric Vehicle Sector Challenges

Contributing to the bearish sentiment in the rubber market is the intensified price war among automakers of electric cars and plug-ins in China, anticipated due to an oversupply. China’s state planner has flagged this issue, noting that the competition could lead to significant pricing strategies among leading manufacturers, which may indirectly affect rubber demand as it is a key component in vehicle production.

Broader Market and Economic Indicators

Despite the declines in rubber futures, Japan’s benchmark Nikkei average showed positive movement, rising 2.01% as of 0128 GMT. This divergence highlights varying investor sentiments across different sectors of the economy. Additionally, the yen remains near a 34-year low against the U.S. dollar, with Japanese officials intensifying warnings about potential interventions. This situation underscores ongoing economic challenges, including inflation concerns exacerbated by weak exchange rates, as noted in a joint statement with the U.S. and South Korea.

Corporate Developments and Market Strategy

In corporate news, Tesla’s recent announcement about introducing “new models” by early 2025 using existing platforms and production lines, rather than pursuing more ambitious, costly new model plans, reflects strategic shifts that could influence market dynamics in related sectors, including rubber.

Current State of Rubber Trading on Other Platforms

On the Singapore Exchange’s SICOM platform, the front-month rubber contract for May delivery remained unchanged, trading flat at 160.7 U.S. cents per kg. This stability contrasts with the declines observed in the Japanese and Chinese markets, suggesting localized factors influencing market behaviors differently across regions.

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The dollar index, which tracks the U.S. currency against a basket of six major peers including the euro, sterling, and yen, held steady at 105.64 in early Asian trading, following a decrease of 0.4% overnight. This movement came after the dollar index reached its lowest point since April 12 at 105.23. This recent dip in the dollar’s strength can be attributed to stronger-than-expected economic activity in Europe and a slowdown in U.S. business growth.

Robust European Economic Data Lifts the Euro and Sterling

The euro remained stable at $1.069975 after climbing 0.45% on Tuesday. This increase followed reports that business activity in the eurozone had expanded at its fastest pace in nearly a year, driven primarily by a recovery in the services sector. Similarly, sterling was steady at $1.24485, having risen 0.79% in the previous session, bolstered by data showing rapid growth in British business activity and comments from Bank of England Chief Economist Huw Pill indicating that interest rate cuts are not imminent.

U.S. Economic Outlook and Federal Reserve’s Upcoming Decisions

In contrast, U.S. business activity cooled in April, reaching a four-month low due to weaker demand, while inflation rates eased slightly. These factors suggest possible relief for the Federal Reserve ahead of Friday’s release of the PCE deflator, its preferred measure of consumer inflation. Market expectations currently indicate a 73% chance of the Fed implementing its first rate cut by September.

Dynamics in Other Major Currencies

The Australian dollar was trading near its highest level since April 15 at $0.64875, following a more than 1% increase over the past two days. This rebound came after the currency touched a five-month low last Friday, with upcoming consumer inflation data likely to influence its short-term trajectory.

Yen Struggles Near Historic Lows Despite Intervention Warnings

Despite the broader struggles of the dollar, it briefly reached a fresh 34-year high against the yen at 154.88. The yen has remained near this 34-year low, even as Japanese officials have intensified warnings about potential market interventions. This situation highlights the challenges faced by Japan in managing its currency value amidst ongoing policy decisions by the Bank of Japan, which is expected to maintain its policy settings at the conclusion of its two-day meeting on Friday.

Implications of Market Movements and Central Bank Policies

This week’s market movements reflect a complex interplay between economic data, central bank policies, and trader sentiment. The stability of the dollar against the backdrop of potential central bank actions, both in the U.S. and Japan, will be crucial in determining short-term movements in global currency markets. The outcome of upcoming economic data releases and central bank meetings will provide further clarity on the direction of major currencies and the broader financial markets.

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Today in the agricultural commodities market, Chicago wheat recorded a drop on Wednesday, marking its first decline in five sessions. This pullback came after the grain hit a two-month peak in the prior session, demonstrating a slight correction after its recent upswing.

The most-active wheat contract on the Chicago Board of Trade (CBOT) decreased by 0.5% to $6.00 a bushel. This adjustment occurred following a rise to $6.03-1/2 a bushel on Tuesday, which was its highest value since mid-February.

Wheat Prices Respond to Russian Weather and U.S. Crop Ratings

Concurrently, corn prices saw a decline by 0.1% to $4.52-1/4 a bushel, and soybeans showed minimal movement, gaining just a quarter of a cent to settle at $11.82-1/4 a bushel. The recent dynamics in wheat prices have been influenced by several factors, such as the decline in U.S. crop ratings and adverse weather conditions affecting crop maturation in Russia.

Increased Concerns Over Global Wheat Supply

The latest U.S. Department of Agriculture’s (USDA) weekly crop progress report indicated that only 50% of the U.S. winter wheat crop was rated in good-to-excellent condition, a decrease from 55% the previous week and slightly lower than analysts’ expectations.

This reduction is primarily attributed to dry conditions impacting hard red winter wheat areas in Oklahoma and Kansas. Similarly, dry weather in southern Russia and a cold spell in western Europe have heightened concerns over global wheat supplies.

Furthermore, adjustments to wheat production forecasts have been made, with Argus Media revising its expectations for Ukraine’s wheat output downward to 19.93 million metric tons, reflecting a decrease of about 230,000 tons from previous estimates. This represents an 11% reduction compared to the previous year, linked to a smaller planted area.

US Corn Planting Matches Expectations, Soybeans Ahead of Schedule

In terms of planting progress, the U.S. is experiencing somewhat favourable conditions for corn, with the USDA reporting 12% of the corn crop planted, aligning with analyst expectations. For soybeans, planting is slightly ahead of forecasts, with 8% completed compared to an anticipated 7%.

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In today’s trading session, gold continued its recent decline, dropping 1% to reach $2,300. Earlier in the month, the precious metal approached the $2,400 level but did not maintain it at the close of the day. This decline appears tied to a reduction in geopolitical tensions, which previously had driven investors towards the safety of gold.

Yesterday we also discussed how the rise in benchmark 10-year U.S. Treasury yields illustrates the traditional inverse relationship between yields and gold prices.

Historically, when yields climb, the opportunity cost of holding non-yielding assets like gold increases, steering investors towards assets that generate returns. This trend can be observed in more recent economic cycles, such as during the aftermath of the 2008 financial crisis.

As the economy stabilised and interest rates began to rise from their historic lows around 2015, gold prices experienced volatility, reflecting shifts in investor preference towards yield-bearing assets.

Technical Analysis Gold April 2024

Over the last two months, gold increased by over 20%, but this rapid rise is now facing a corrective phase. Recent trading sessions suggest a shift, with gold beginning to trend downwards. This correction aligns with typical market behaviors observed when an asset moves up quickly.

Technically, the situation looks set to possibly extend this decline. According to Fibonacci retracement analysis, gold could find temporary support around $2,260, which marks the 38.2% retracement level. A break below this could lead the prices towards the $2,200 area.

Opportunities in Gold Trading

Despite the retreat, the underlying factors that previously propelled gold upward—such as market uncertainties—still exist. This suggests that the current dip could be seen as an opportunity to buy at a lower price before any potential future increases.

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