In another quiet overnight session following Monday’s lowest trading volume in nearly a year, stocks have been rangebound, with US equity futures trading in a narrow range (although solid beats by UTX and Coke will likely push stocks higher into the open), while the oil rampage continued, as Brent jumped to near six-month highs on Tuesday after the US tightened sanctions on Iran, sending shares of energy companies higher but failing to help the currencies of the main crude-oil producers.

Confirmation that the US had told buyers of Iranian oil to stop purchases by May 1 or face sanctions pushed Brent toward $75 a barrel, nearly $10 higher in the past month, and up 50% since December, and as Reuters put it, “made for a lively return from the four-day Easter break for Europe’s markets.”

While oil and gas shares jumped nearly 2% for their best start in six weeks, almost every other sector suffered. So did bonds, as higher energy costs hung over profits and nudged up inflation expectations.

Overnight, MSCI’s index of Asia-Pacific shares ended 0.1% higher and Japan’s Nikkei closed up 0.2% as oil and gas gains were offset by losses for airlines and other transport shares facing higher fuel costs. China’s Shanghai Composite slumped in the last hour of trading, closing near session lows amid growing concerns that the PBOC will end its aggressive easing after China reported some impressive economic numbers. Asian volumes were below average ahead of Japan’s Golden Week extended holiday which will see Japanese markets closed for nearly 2 weeks.

China’s blue-chip stocks have surged over 30% so far this year on expectations of more stimulus and hopes Beijing and Washington will reach an agreement to end their nine-month trade dispute.

“We’ve had a fantastic run in Chinese equities year-to-date. Some profit taking is completely normal. I don’t think China is changing its policy that quickly,” said Stefan Hofer, chief investment strategist at LGT Bank Asia in Hong Kong.

Following a muted Asian session, European stocks slipped as many markets reopened after a long weekend and as the earnings season ramps up. Banks led a drop across many sectors for the Stoxx Europe 600 Index, though energy companies outperformed thanks to the bounce in oil.

With little of note in equity markets, traders remained focused on oil prices which are up nearly 50 percent since late December, and before the re-imposition of sanctions last year Iran was the fourth-largest producer among the OPEC at around 3 million barrels per day. Oil prices are “not so high that it crushes manufacturing by putting energy-price inputs up, but it is producing a nice boost to oil-producing nations,” said ING economist Robert Carnell, although a few more dollars of oil upside and oil prices may get “too high.”

Elsewhere, Sri Lankan stocks slumped and bonds fell for a second day after terror attacks on Easter Sunday killed more than 300 people.

In rates, Treasuries were steady with yields marginally lower and within a basis point of Monday’s close; as Bloomberg notes, upside was capped as bunds lag on light cash volumes. Focus is on supply as Treasury auction cycle begins with $40b 2-year note sale, followed by $41b 5-year Wednesday and $32b 7-year Thursday. The 10-year TSY yielded around 2.583%, richer by half basis point; German 10s cheaper by 3bp vs. Treasuries with the spread hovering around 254bp

In FX, volatility was still largely absent. The dollar held near a three-week high, but the usual beneficiaries of higher oil prices, the Canadian dollar and Norwegian crown, dipped to $1.33 and $8.52 respectively; ironically the biggest losers from higher oil prices – India and Turkey – did not see their currencies dip materially either.

“Oil is interesting, but the interesting thing for FX is that we are not getting the usual feed-through in the petrocurrencies,” said Saxo bank’s head of FX strategy, John Hardy, adding that might be caused by questions about Chinese stimulus. Both the Canadian dollar and the crown had gained on Monday, and the Russian rouble, another petrocurrency, hit its highest against the euro in more than a year its highest against the dollar in a month.

Emerging-market currencies and shares were mostly steady. The pound advanced against major peers as Prime Minister Theresa May foughtto keep her job.

Investor attention remains focused on earnings season which is about to see an avalanche of Q1 filings as one third of the S&P is set to report: “Some of the world’s biggest technology companies are reporting earnings this week as well as a raft of the big European banks,” Rakuten’s Nick Twidale said in a note to clients Tuesday. “Investors will be hoping for some better-than-expected results from both groups to keep the topside momentum in global equities. If the data starts to show a significant slowing across these key industries then expect both stocks and risk trades to start to come under some heavy pressure.”

Expected data include new home sales. Coca-Cola, Harley-Davidson, Lockheed Martin, P&G, Twitter, Verizon, and Snap are among companies reporting earnings.

Market Snapshot

• S&P 500 futures little changed at 2,911.00
• STOXX Europe 600 down 0.2% to 389.76
• MXAP up 0.2% to 163.06
• MXAPJ up 0.1% to 542.39
• Nikkei up 0.2% to 22,259.74
• Topix up 0.3% to 1,622.97
• Hang Seng Index unchanged at 29,963.24
• Shanghai Composite down 0.5% to 3,198.59
• Sensex up 0.3% to 38,773.63
• Australia S&P/ASX 200 up 1% to 6,319.42
• Kospi up 0.2% to 2,220.51
• German 10Y yield rose 2.3 bps to 0.048%
• Euro down 0.05% to $1.1251
• Italian 10Y yield fell 1.0 bps to 2.231%
• Spanish 10Y yield rose 2.2 bps to 1.093%
• Brent futures up 0.5% to $74.42/bbl
• Gold spot down 0.1% to $1,273.76
• U.S. Dollar Index little changed at 97.32

Top Overnight News

• Oil extended gains after leaping to a six-month high on Monday after U.S. Secretary of State Mike Pompeo said any nation that continues to buy Iranian oil will face American sanctions. Futures in London added as much as 0.8 percent Tuesday.
• U.K. Prime Minister Theresa May is fighting to keep her job so she can complete her task of taking Britain out of the European Union — but her hopes of success now rest with her arch rival and opposition leader Jeremy Corbyn
• Benoit Coeure, the European Central Bank Executive Board member in charge of markets, said he doesn’t see any reason to dilute the effect of negative interest rates on banks and signaled a new long-term loan series may be less generous than the previous round
• China’s securities watchdog moved to curb cut-throat pricing competition among local debt arrangers looking to gain a bigger share in the world’s third-largest bond market
• The new indictment accusing Carlos Ghosn of redirecting $5 million from Nissan Motor Co. to his personal accounts not only may extend his time in detention, it also threatens to undermine his argument that he’s a victim of corporate intrigue

Asian equity markets traded mixed as sentiment somewhat deteriorated from the mostly positive close in the US, where the energy sector surged after the US decided to end Iranian oil sanction waivers but with gains in the broader market capped ahead of this week’s heavy slate of earnings. ASX 200 (+0.9%) was led higher by the energy sector after crude prices rallied around 3% to 6-month highs and NZX 50 (+0.5%) topped the 10K level for the first time ever, while Nikkei 225 (+0.2%) barely held on to early gains and stumbled from the weight of a firmer currency. Hang Seng (U/C) and Shanghai Comp. (-0.5%) were subdued after PBoC inaction resulted to a net liquidity drain of CNY 40bln which pushed the Overnight SHIBOR higher by over 27bps and with Hong Kong tentative amid resistance ahead of the 30K level and as its reflected on the recent mainland underperformance on return from its 4-day closure. Finally, 10yr JGBs were relatively flat after having recovered from earlier weakness as risk sentiment in Tokyo soured, while weaker results at today’s 2yr JGB auction also ensured price action was drab.

Top Asian News

• Maeda Says BOJ Will Consider Further Easing If Momentum Slows
• Singapore’s Pre-Election Cabinet Change Sets Heng Up for Top Job
• Fosun Could Only Buy Thomas Cook’s Tour Business: Citi
• Cash-Flow King for Templeton Seeing More Riches in China Stocks

Major European Indices are slightly subdued [Euro Stoxx 50 -0.2%], after being essentially unchanged for much of the session, with stocks largely following on from the indecisive sentiment seen overnight in Asia as participants return from the Easter weekend. Sectors are similarly mixed, although the significant outperformance in energy names continues following on from the lifting of Iranian waivers; as such Shell (+2.0%) are firmly in the green with the Co. also aided by the agreement to sell their 50% stake in SAREF to Saudi Aramco for USD 631mln. Due to the strong performance in Shell, alongside the Co. representing 11.3% of the FTSE 100 due to it having two listings in the form of A and B shares, the FTSE 100 (+0.4%) is outperforming its peers. Other notable movers this morning include Umicore (-15.4%) who are underperforming the Stoxx 600 following the Co. warning that 2020 revenue and earnings growth will be below expectations. Separately, Wirecard (-2.9%) are down after the expiration of BaFin’s short selling ban on Friday April 19th. Elsewhere, Thomas Cook (+16.3%) are soaring after reports that the Co. has received approaches for sections/entirety of the Co., with names such as Forsum International, KKR and EQT citied as potential bidders.

Top European News

• BlueMountain’s Europe CEO Church Is Said to Be Joining Och- Ziff
• Partners Group Buys Norwegian Gas Pipeline Owner CapeOmega
• Thomas Cook Up Most in 4 Months on Report of Buyout Interest
• Ahold Falls as Stop & Shop Strikes Will Cut Grocer’s Earnings

In FX, the dollar index remains firm and comfortably above the 97.000 handle within a 97.281-402 range amidst Greenback gains vs most major counterparts and EM rivals as the latest rally in oil prices continues to undermine crude importers and risk sentiment more broadly to the detriment of high beta currencies. However, the DXY still needs to overcome early April highs at 95.517 to expose ytd peaks posted in the previous month and virtually matching late 2018 levels just above 97.700.

• CHF/AUD/NZD/NOK/SEK – The G10 laggards and largest losers against the buoyant Buck, as the Franc extends its decline further towards 1.0200 and through 1.1450 vs a relatively resilient Euro, while the Aussie and Kiwi hover closer to the bottom of 0.7140-10 and 0.6685-57 ranges vs their US peer on more dovish RBA and RBNZ policy leanings compared to the Fed. On that note, the Aud will be eyeing Q1 inflation data overnight amidst the consensus for a slowdown in q/q and y/y CPI rates with caution given latest RBA minutes revealing discussions about the conditions that may warrant a lower OCR including weaker price developments along with any deterioration in the labour market. Elsewhere, even the Nok is underperforming alongside the Sek as the Scandi Crowns fall victim to overall aversion rather than gleaning more support from the aforementioned advance in oil, as the former retreats to circa 9.5900 and latter to around 10.5000 vs the Eur.
• GBP/JPY/EUR/CAD – All narrowly mixed vs the Usd, as Cable recovers from pre-Easter lows to retest the 1.3000 level after holding above the 200 DMA (1.2966) and shrugging off heightened pressure on UK PM May as Parliament returns from its recess. Meanwhile, Usd/Jpy remains capped just ahead of 112.00 within a 111.97-66 range and decent option expiry interest between 111.50-65 and 111.90-112.00 (1.1 bn either side). Note also, reported Japanese import and investor bids above 111.50 and the 200 DMA (111.51) may be curtailing a more concerted pull-back. Expiries could be impacting Eur/Usd as well given 2.3 bn rolling off from 1.1250 to 1.1260, while the Loonie is pivoting 1.3350 in the run up to Wednesday’s BoC policy meeting and press conference from Poloz and Wilkins – full preview of the event available on the Research Suite (along with a BoJ primer for Thursday).
• EM – Most regional currencies are on the back foot vs the Dollar, as noted above, but the Rand is also factoring in renewed concerns about SA’s Eskom in wake of reports that the Government had to bail out the company to the tune of Zar 5bn to avert non-payment and a call on state guarantees – Usd/Zar currently at 14.1900+ vs sub-14.1500 at one stage.

In  commodities, Brent (+0.6%) and WTI (+0.8%) prices are in the green, as the oil complex extends on yesterdays gains following the US announcing that they are not going to extend waivers for Iranian oil, which expire on May 2nd. For reference, Iranian exports averaged 1.3mln BPD in March as such if the US are successful in their goal of reducing Iran’s exports to zero then this would result in a significant supply reduction; although, some analysts believe that the complete elimination of exports is unlikely. RBC state that they believe around 700-800K BPD to be removed from the market in the short term as a result of the waiver elimination. Saudi Energy Minister Al Falih stated that Saudi Arabia will cooperate with other oil suppliers in order to ensure that there is sufficient supply and that the market will not go out of balance. In light of the US’ announcement to not extend waivers Barclays sees upside risks of at a minimum USD 5/bbl for the USD 70/bbl Brent 2019 forecast if their exports drop to zero; however, Goldman Sachs state that the price impact will be limited and reiterates their 2019 Brent range of USD 70-75/bbl. Looking ahead, we have the API weekly crude release where the expectations are for crude stocks to build by around 0.5mln barrels. Gold (-0.1%) is largely unchanged and trading within a narrow USD 4/oz range, largely in line with major stock indices and the generally indecisive risk tone as markets return from the extended Easter weekend. Elsewhere, the majority of steel mills in China’s Tangshan, Hebei province have been asked to cut around 40% of their sintering capacity due to the expected increase in pollution levels over the coming week.

Looking at the day ahead, we get housing data in the form of the FHFA house price index reading for February and March new home sales. We’ve also got the April Richmond Fed manufacturing index print due out. Away from that we’re due to hear comments from Larry Kudlow in Washington while the earnings highlights are Proctor & Gamble, Verizon, Coca-Cola, eBay and United Technologies.

US Event Calendar

• 9am: FHFA House Price Index MoM, est. 0.5%, prior 0.6%
• 10am: Richmond Fed Manufact. Index, est. 10, prior 10
• 10am: New Home Sales, est. 649,000, prior 667,000; MoM, est. -2.7%, prior 4.9%

DB’s Craig Nicol concludes the overnight wrap

Hope you all enjoyed the long weekend. Here in the UK, we even managed to dust off the barbecues such was the unseasonably hot weather. Mind you Jim probably didn’t feel quite so thrilled with it given that he’s in box moving and unpacking mode right now. The good news for him is that the temperature is expected to drop over the rest of this week while for markets there’s probably just enough in the week ahead to keep us distracted.

Indeed, in all likelihood earnings will probably dictate the direction of travel for now especially with a number of tech heavyweights due to report including eBay, Amazon, Facebook, Twitter and Microsoft.Last week saw the NASDAQ 100 hit a fresh all-time high with the broader NASDAQ one decent session away from its own record high, so this week should be a reasonable test as to whether or not we can hold those levels. More broadly, in total we’ve got 148 more S&P 500 companies reporting this week and the stats after 86 companies having reported so far is 67 beating on earnings, which is above the five-year average, but just 41 on revenues, which is below the five-year average. Not to be left out, it’s worth noting that this week will also see a number of European Banks report their latest quarterlies.

Outside of that we’ve also got a few high-profile meetings between politicians over the next few days.Markets will likely be most fixated by Trump’s meeting with Abe at the White House from Friday with trade talks likely to be high up on the agenda list. Before that, Abe is due to meet Tusk and Juncker on Thursday while also on the cards this week is a possible meeting between Putin and Kim Jong Un tomorrow. Oh, and UK politicians return from their Easter recess today. So that only means one thing for the prospect of Brexit headlines. The last 10 days was fun while it lasted.

Also worth flagging this week is the BoJ meeting on Thursday where no change in policy is expected, however the meeting does include the BoJ’s latest quarterly report. Finally, it’s fairly quiet for data releases however the Q1 advance GDP reading for the US is by some distance the highlight. In terms of what to expect, at the expense of Q2 growth and the recent strong retail sales data, our US economists recently revised up their forecast to 2.6% for Q1 which is ahead of the market consensus for 2.2%. That data is due out on Friday.

Ahead of all that Wall Street was open for business yesterday however it wasn’t a particularly exciting session with the S&P 500 and NASDAQ advancing +0.10% and +0.22% respectively, while the DOW retreated -0.18%. With volumes also 25% below average, the range on the S&P 500 was in fact just 0.45%. That makes 14 straight sessions with no intraday ranges of +/-1%, the longest streak since October.

The good news is that there was one big mover and shaker yesterday and that was oil where WTI rose +2.31% to a fresh 6-month high of $65.55/bbl. The catalyst was the surprise move by the US to end their waivers on Iran sanctions.These waivers had allowed eight countries to continue importing oil from Iran despite the Trump administration’s withdrawal from the nuclear accord last year, and their termination will likely result in further reductions to Iran’s exports. The US said that other countries would compensate for the fall in Iranian supply to leave the global market balanced. However, the risk of disruptions injected a risk premium into oil markets. In an immediate response, an Iranian military official said that they would close the Strait of Hormuz in retaliation if the US completely blocks their exports. The 5y Treasury breakeven was +1.5bps higher off the back of that move while 10y Treasuries more broadly speaking were +2.9bps higher. The energy sector also led gains for the S&P, closing up +2.05%, while HY energy spreads were -3bps tighter, in contrast to a moderate widening for the broader HY index. The currencies that gained the most included oil-exporters like the Russian Ruble (+0.40%) and Canadian Dollar (+0.33%), while oil importing EMs were hit negatively, with the Indian rupee (-0.46%) and South Korean won pacing losses (-0.41%).

This morning in Asia it’s been just as muted for equity markets with the Nikkei (-0.06%), Hang Seng (-0.08%), CSI 300 (-0.03%) and Kospi (+0.06%) all struggling for direction in thin trading conditions once again. Oil has held onto the gains from yesterday while US equity futures are flat.

As for other news yesterday, the data calendar was light with only a few releases in the US. The Chicago Fed’s National Activity Index rose to -0.15 from -0.31, though lower than the expected -0.10. A negative reading points to lower-than-average growth, not necessarily economic contraction. Existing home sales fell more than expected, at 5.21 million versus consensus expectations for 5.30 million, a -4.9% mom drop. That’s the sharpest monthly percentage drop since 2015 and the second sharpest since 2011. US homebuilder stocks fell -1.39% in response.

Elsewhere, President Trump announced via twitter that he will not proceed with nominating Herman Cain to the Federal Reserve Board.That came as media outlets reported fresh scrutiny of his other pick, Stephen Moore. His nomination is still reportedly on track though not officially submitted.

Finally, in terms of the day ahead, the only data release due out in Europe is the April consumer confidence reading for the Euro Area this afternoon. In the US we’ve got more housing data in the form of the FHFA house price index reading for February and March new home sales. We’ve also got the April Richmond Fed manufacturing index print due out. Away from that we’re due to hear comments from Larry Kudlow in Washington while the earnings highlights are Proctor & Gamble, Verizon, Coca-Cola, eBay and United Technologies.