Global markets took a step back on Wednesday, with US index futures and Asian stocks struggling to push higher following Tuesday’s record S&P close amid clear signals that China has put broader monetary stimulus on hold. The MSCI world equity index, edged down 0.1 percent in early European trade, as Treasuries continued to climb alongside European sovereign bonds and the dollar extended its rally to a six-week high, defying the signal from the fresh all time highs in US stocks as bond traders refuse to “rotate greatly” into stocks, and instead see even more economic weakness (or just more QE) in the future.

European shares followed Asia lower, pulling back from eight-month highs, with Europe’s Stoxx 600 index slipping 0.4% in early trading, although subsequent gains in technology companies and builders as the ETF bid came in, helped push the the Stoxx 600 into positive territory, and looking to extend the longest run of gains since 2017, boosted by positive earnings reports from companies including Credit Suisse.

Germany’s DAX was in the green despite the latest confirmation that Europe was still not out of the woods, after the German Ifo business survey showed German business morale deteriorated in April. The Ifo index measuring Germany’s business climate fell 0.5pt to 99.2 in April, below consensus expectations, driven by the manufacturing sector, while the services and construction sectors showed improvements. The decline reflects both a negative assessment of future economic conditions in the next 6 months (down 0.4pt to 95.2) and of current conditions, which fell 0.6pt (to 103.3). The March print was revised up from the first estimate (driven by a 0.1pt upward revision in the current conditions subindex).

The first major European bank to report, Credit Suisse’s shares rose 3.9% after the bank posted an unexpected rise in earnings and said it was cautiously optimistic about the second quarter following a challenging start to the year.  It posted a net profit of 749 million Swiss francs ($734 million) for the first quarter of 2019 as larger-than-expected wealth management gains offset investment banking declines. Results from UBS Group AG and Barclays follow on Thursday and Deutsche Bank on Friday.

The top performers on the STOXX 600 were payments company Wirecard and business software company SAP, which also boosted the DAX. As reported earlier, the battered Wirecard soared 8% after Bloomberg reported that Japan’s SoftBank was looking to invest about 900 million euros ($1 billion) for a minority stake in the company, forcing a violent short squeeze. Meanwhile, SAP climbed 6% as the company set new medium-term profit targets after reporting a first-quarter operating loss that chiefly resulted from a restructuring charge according to Reuters.

Elsewhere, payments firm Ingenico rose +5% after reporting 1Q sales and raising FY organic growth guidance; chip stocks quickly reversed opening losses to trade higher, shaking off cautious management comments from U.S. peer Texas Instruments which weighed on expectations of industry recovery in second half of this year. STMicro also rose +3.6% after cutting spending plans and keeping its forecast for sales growth to improve this quarter as well as in 2H.

Earlier in the session, the MSCI Index of Asian shares ex Japan dropped 0.2%, where the biggest regional loser was South Korea’s KOSPI, which fell 0.9%, with Samsung Electronics down 1%. Korean investors shrugged off the government’s proposed supplementary budget aimed in part at supporting exports from the country and focused instead on a warning from chipmaker Texas Instruments, which said it expects a slowdown in demand for microchips to last a few more quarters.

Chinese equities flitted between gains and losses as investors debated whether Beijing would slow its pace of policy easing following stronger-than-expected first-quarter economic growth.

“The big picture is the tussle between Asia, which has pulled back, and America, where the markets made new highs, so Europe is probably going to be a bit torn between the two,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments. “The positive for Europe is Credit Suisse’s earnings, which could reignite upbeat sentiment and show that some financials are doing well despite weak European economic sentiment and the problems from very low interest rates.”

The muted euphoria that took U.S. stocks to record highs on abysmal volume appears to have triggered some “soul-searching” among investors, with Bloomberg noting that positive earnings surprises in Europe failing to erase lingering concerns about the region’s economic outlook. To date, almost 80% of S&P 500 companies reporting results have exceeded estimates. Looking ahead we get some key economic news, with US Q1 GDP data due on Friday, while emerging market investors will be nervously watching the dollar’s climb.

“The risk is not massively balanced to the downside,” Jasper Lawler, head of research at London Capital Group, told Bloomberg. “We’ve had a big run higher, we’ve tested record highs in the U.S., and maybe this is time for consolidation. Everything has been baked into the market already.”

Elsewhere in global markets,

Sri Lanka’s main stock index traded at its lowest since December 2012 following the deadly Easter Sunday attacks that killed more than 350 people. Analysts have said the country’s economy might need IMF assistance to overcome the devastation from the incident.

The Turkish lira hit its weakest intraday level against the dollar since mid-October as investors worried about risks generated by challenges to Istanbul election results and strains in relations with the United States.

Market attention is also focused on the Turkish central bank’s rate-setting meeting on Thursday, when it is expected to keep its policy rate unchanged at 24 percent.

Also in FX, Australia’s dollar tumbled against all major peers after a very weak inflation print boosted bets for an interest-rate cut with Citi now expecting at least 2 rate cuts in the months ahead. The dollar climbed to the highest in almost 7 weeks, defying most bank predictions for a weaker greenback. The Euro stayed under pressure after German IFO data missed estimates, trying to hold above 1.12 before the European Central Bank releases its economic bulletin. The pound slipped as U.K. politics returned to center stage as Prime Minister Theresa May is said to be mulling a new plan to get her Brexit deal through Parliament

In commodities, after jumping to 2019 highs earlier this week, oil prices eased on Wednesday on signs that global markets remain adequately supplied. Brent traded down 0.34 percent at $74.26 per barrel, while U.S. crude dipped 0.39 to $66.04 a barrel. Gold prices dipped 0.1 percent to $1,270.60 per ounce, hovering around the four-month low touched in the previous session.

A busy earnings day lies ahead with Microsoft, Facebook, Visa, AT&T and Boeing among companies due to report.

Market Snapshot

• S&P 500 futures down 0.1% to 2,935.00
• STOXX Europe 600 down 0.2% to 390.67
• MXAP down 0.3% to 162.53
• MXAPJ down 0.2% to 541.57
• Nikkei down 0.3% to 22,200.00
• Topix down 0.7% to 1,612.05
• Hang Seng Index down 0.5% to 29,805.83
• Shanghai Composite up 0.09% to 3,201.61
• Sensex up 0.5% to 38,768.58
• Australia S&P/ASX 200 up 1% to 6,382.14
• Kospi down 0.9% to 2,201.03
• German 10Y yield fell 1.7 bps to 0.024%
• Euro down 0.1% to $1.1216
• Brent Futures down 0.4% to $74.21/bbl
• Italian 10Y yield rose 7.1 bps to 2.302%
• Spanish 10Y yield fell 1.4 bps to 1.102%
• Brent futures down 0.3% to $74.28/bbl
• Gold spot up 0.1% to $1,273.46
• U.S. Dollar Index up 0.01% to 97.65

Top Overnight News

• Key gauges of confidence in Germany and France, the euro area’s two largest economies, unexpectedly deteriorated, signaling that a long-expected rebound may still be some way off
• Trade negotiators led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing next week, the White House said, as both sides work to reach a draft agreement by next month
• The U.K. formally kick-started its search for Mark Carney’s successor as governor of the Bank of England, a role that’s been linked to both senior people within the institution and ex-central bankers around the world
• The People’s Bank of China offered 267.4 billion yuan ($40 billion) of targeted medium-term loans on Wednesday, a step that funnels money to some lenders while avoiding broad easing
• The death toll in the Easter massacre in Sri Lanka rose to 359, while internal tensions among the country’s dueling leaders have resurfaced in recent days over intelligence failures in the run-up to the blasts

Asian equity markets traded mixed after the region failed to sustain the tailwinds from Wall St where strong blue-chip earnings propelled the S&P 500 and Nasdaq to fresh record closes. ASX 200 (+0.9%) resumed this week’s outperformance as soft CPI data brought forward various expectations for a rate cut to as early as next month, while gains in the Nikkei 225 (-0.3%) were later pared on detrimental currency moves. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (U/C) also failed to sustain opening gains as White House confirmation that US-China trade talks will resume next week and the PBoC announcement of CNY 267bln in targeted MLF, was overshadowed after the PBoC dismissed rumours related to a potential targeted RRR cut for rural banks and refrained from Reverse Repo operations. Finally, 10yr JGBs saw mild gains as sentiment in the region soured and after similar upside in T-notes amid bull-steepening in the US, while the BoJ were also active in the market today for a respectable JPY 950bln of JGBs and focus now shifts towards the conclusion of the central bank’s 2-day policy meeting tomorrow.

Top Asian News

• This Time Around, Asia Investors Aren’t Buying the Tech Euphoria
• Richest Family in Thailand Is Getting Richer by Helping China
• HKMA, SFC Inspect A China-Based Bank Over ‘Complex Transactions’
• China Stocks Fluctuate in Afternoon Trading as Small Caps Jump

Major European indices are mixed [Euro Stoxx 50 -0.1%] as sentiment continues to deteriorate from the Asia session which failed to sustain the momentum in US equities where the S&P and Nasdaq reached record closes. Sectors are similarly mixed, with Energy names underperforming in line with the oil complex’s positive momentum dissipating after the larger than expected API build. Also performing poorly is the auto sector, following Nissan cutting their FY guidance; which has weighed particularly heavily on Renault (-3.8%), with other auto names such as BMW (-0.8%) and Volkswagen (-1.0%) down in sympathy. Conversely, the Technology sector is significantly outperforming its peers led by the strong performance in sector heavyweight SAP (+6.8%) who represents 26% of the sector after the Co. reported strong earnings and raised 2019 operating profit guidance; subsequently, Co. shares have this morning printed a record high of EUR 109.3. Other notable movers this morning include Credit Suisse (+3.0%) and Novartis (+2.7%) following earnings with the SMI (+0.4%) outperforming on the back of this. In addition, Novartis strong performance, following the Co. raising guidance in-spite of the Q1 sales miss, has caused the Healthcare sector to perform strongly. Finally, in a turnaround from recent performance Wirecard (+7.1%) are the outperforming DAX constituent (+0.1%), after reports that the Co. and Softbank have signed an agreement for Softbank to purchase a 5.6% stake in the Co. for around USD 1bln.

Top European News

• U.K. Borrowing Hits 17-Year Low as Calls Grow to End Austerity
• London’s Unsold Homes Under Construction Increase to Record
• U.K. Said to Prepare Tougher Rules on Huawei, Avoid Full Ban
• Italy’s Coalition Reaches Accord on Rome Relief Amid Infighting

In FX, the Aussie has sharply extended losses in wake of weaker than expected Q1 CPI metrics overnight that have raised RBA rate cut expectations for the next policy meeting in May to circa 60% and heightened the probability of another 25 bp ease before year end. Aud/Usd collapsed from around 0.7102 to 0.7028 in response before finding some underlying bids ahead of big barriers at the psychological 0.7000 level and a couple of downside chart supports in very close proximity, like 0.7005 (50% Fib) and 0.7003 (March 7 low). Note also, more exporter bids are anticipated around the next big figure following similar interest at 0.7050 that were filled on the way down amidst all round selling from high frequency and leverage accounts along with macro funds when 0.7070 gave way. Similarly, Aud/Nzd saw leverage and momentum longs bail on a break through 1.0650 as the cross hit a low of 1.0618 from 1.0671 at one stage, while the Kiwi also fell in sympathy vs its US counterpart to 0.6614 from 0.6657 and Nzd/Usd is now hovering near 0.6625 ahead of NZ trade data on Thursday.

• CAD – The other non-US Dollar is also languishing and retreating further from recent highs as a downturn in crude prices adds to defensive positioning in the lead up to today’s BoC meeting and MPR that is expected to be cautious if not dovish, with downgrades to Canadian growth and inflation projections. The Loonie is currently near the bottom of 1.3461-18 parameters and not far from last month’s low of 1.3468, as Usd/Cad options predict a 67 pip break-event for the BoC.
• EUR – The single currency is holding rather precariously on to the 1.1200 handle after another dip below stopped just short of Wednesday’s 1.1192 base, with the latest German Ifo survey missing on all counts and softer than the previous month. Moreover, the institute noted that the April readings point to more slowing in the economy and industrial sector underperformance, chiming with underwhelming preliminary PMIs, and could translate to lower 2019 GDP growth overall compared to the 0.8% forecast that has only recently been revised down. However, Eur/Usd has recovered to retest a key Fib at 1.1216 within a 1.1195-1.1231 range.
• CHF/SEK – Relative G10 outperformers as the Franc rebounds through 1.0200 vs the Greenback and from 1.1450+ against the Euro, while the Swedish Krona is back above 10.5000 vs the single currency and braced for the Riksbank to reaffirm tightening guidance for H2 this year tomorrow. Conversely, Eur/Nok remains elevated over 9.6000 on the aforementioned retreat in oil.
• DXY – The Usd continues to proffer at the expense of others, in part if not the most part, but the index has not managed to build on Tuesday’s new 97.783 ytd peak as the JPY and GBP also display a degree of resilience and contain downside forays ahead of 112.00 and 1.2900 respectively. Cable has bounced off Fib support at 1.2911, albeit mildly amidst ongoing Brexit uncertainty, while Usd/Jpy is still encountering supply and the Yen retains underlying safe-haven support in the run up to the BoJ and US GDP data the day after. Note, detailed previews of all this week’s Central Bank policy convenes are available via the Research Suite and/or in the form of primers on the headline feed into each meeting.

In commodities, Brent (-0.2%) and WTI (-0.4%) prices have broken the Iran waiver induced positivity following last nights API’s, where crude stocks printed a significantly larger build than was expected; 6.9mln vs. Exp. 1.3mln; ahead of today’s EIA release which may result in some additional downward pressure on oil prices if a similar figure is reported. Newsflow for the complex has been relatively light, although Saudi Energy Minister Al Falih has reiterated that they remain focused on balancing the global oil market and global inventories will guide their actions. Adds that there will be little variance in May production levels from the previous months, as they will not pre-emptively increase production even though they expect increased demand following the conclusion of Iranian oil waivers. Gold (+0.1%) is little changed as the dollar remains firm with yellow metal remaining above the USD 1270/oz level and towards the top of the day’s relatively narrow range. Elsewhere, Copper has traded lacklustre in line with the general market sentiment and due to the underperformance seen in China for much of the overnight session; with China the largest buyer of the red metal.

US Event Calendar

• 7am: MBA Mortgage Applications -7.3%, prior -3.5%

DB’s Craid Nicol concludes the overnight wrap

Timing it with a holiday week doesn’t help, but you’d be hard pressed to find another occasion when there’s been a more subdued record-breaking day for US stock markets. Indeed the S&P 500 and NASDAQ waltzed to new all-time highs yesterday with both breaching their October peaks after advancing +0.88% and +1.32%, respectively. The DOW also gained +0.55% and remains just over 1% off its all-time peak. We had a quick glance back at this recent run and since the December trough, 82 trading sessions ago, the S&P 500 and NASDAQ are up a remarkable +24.78% and +31.13%, respectively. The last time they bounced as sharply and as quickly was after the financial crisis,after markets bottomed out in March 2009. Then, the S&P 500 took only 23 days to bounce over 25% off the trough, while it took the NASDAQ 36 days to rally 32%.

So this rebound has been the strongest in a decade, even if it feels less dramatic. Indeed, the VIX index slid -0.14pts yesterday to 12.28, back near its year-to-date lows. For comparison, during the aforementioned rebounds in 2009, the VIX averaged over 40pts over the rally period. In fact, we also looked back at the closing moves for the S&P 500 since April 2nd and the average in the 15 sessions up until and including then is just +0.15%. It doesn’t get any better if we look at ranges either with the average intraday range of just 0.59%. You have to go back to early January 2018 to find the last time we had a smaller average intraday range over 15 sessions. The good news is that the direction of travel is positive for now though and yesterday earnings played their part. We’ll go through the details on those below but with Microsoft and Facebook reporting today, positive earnings reports could provide a further tailwind for risk in the absence of any other drivers out there at the moment.

Speaking of earnings Caterpillar are also due to report their latest quarterly numbers today. Those results are always closely watched by both micro and macro investors given the company’s status as an economic bellwether.Remember that the stock tumbled -9.13% following its Q4 earnings release back in January when management flagged slowing demand in China. Caterpillar is expected to post Q1 EPS of $2.82 (Bloomberg consensus) which would be roughly flat on the same period last year. Like always though it’ll be the forward looking commentary which is most closely watched.

Back to markets yesterday where in Europe the STOXX 600 hit its highest level since last July after advancing +0.23%. The DAX and CAC posted fairly modest gains (+0.20% and +0.11% respectively), while Spain’s IBEX and Italy’s FTSE MIB lagged, falling -0.57% and -0.27%. More eye catching was European bank stocks falling -1.59%, possibly in response to comments from ECB Management Board member Benoit Coeure, playing down the possibility of deposit tiering. He told the Frankfurter Allgemeine Zeitung that “at the current juncture, I do not see the monetary policy argument for tiering” and sounded optimistic about the growth outlook.

The regional divergence was mirrored in fixed income markets, as 10y yields in Spain and Italy rose +5.2bps and +7.3bps respectively. Bund yields rose a more modest +1.7bps, while Treasury yields fell -2.4bps and also are down another -1.4bps overnight. A bit of catch up to the oil move seemed to play a part for European rates with WTI pushing above $66/bbl following another +0.91% jump yesterday. Il Sole also reported that Italy’s government could delay the approval of a growth pact until next week amidst feuding over corruption charges involving a League party lawmaker. On a related note it’s worth noting that S&P’s rating review for Italy is due this Friday with the sovereign currently rated BBB/Negative. While no change is expected it’ll be worth a watch all the same.

Meanwhile in FX there was a reasonable bid for the dollar yesterday which saw the Dollar index rise +0.36% and approach the top of a recent technical range. The euro (-0.27%) and sterling (-0.34%) suffered along with EM FX (-0.32%). There was some suggestion that a tweet from President Trump highlighting the impact of tariffs from the EU on Harley Davidson and the suggestion that the US would reciprocate as driving some of the price action however the reaction did appear to be somewhat delayed if so.

Looking out at screens this morning, despite the gains on Wall Street last night it’s a very different picture in Asia where most bourses are seeing decent losses.That’s the case for the Nikkei (-0.48%), Hang Seng (-0.85%), Shanghai Comp (-0.92%) and Kospi (-1.32%) in particular. Futures on the S&P 500 (-0.15%) are also slightly lower. The moves come despite confirmation from the White House that Lighthizer and Mnuchin will travel to China on April 30th for another round of trade talks while the Chinese Vice Premier Liu He will then lead a Chinese delegation to the US for subsequent trade talks on May 8th. Perhaps most significantly, Bloomberg is reporting that the US and China are aiming to announce during Liu’s visit that they have agreed to a deal and details of a signing summit.

Moving on. Back to the earnings releases that were out yesterday, the highlight was Twitter (+15.64%), which reported healthy gains in revenue and daily active users.Sales were up 18% yoy and the platform added 8 million new users over the first quarter. The other major mover was Hasbro (+14.23%) as sales surprisingly grew for the first time in six quarters and earnings were positive. Coca-Cola (+1.78%) also rallied on strong sales growth in Asia. On the other hand, Procter and Gamble (-2.69%) underperformed despite sales and profit growth, as guidance for the rest of the year was a touch soft, with the CEO citing higher input prices as a headwind.

In other news, you couldn’t really blame Brexit headlines for the Sterling move yesterday however we did see the return of some headlines yesterday. Bloomberg reported an official as saying that the withdrawal bill was planned to be put to parliament next week, although this would be the implementation legislation required to kick off the process, rather than the meaningful vote. A spokesman for PM May confirmed that all the focus is on getting the WA passed by Parliament and that talks with Labour are ongoing still.

Finally yesterday’s data was a sideshow once more, however for completeness the April Richmond Fed manufacturing index in the US dropped 7pts unexpectedly to +3 after expectations were for no change. The new orders component also dropped and turned negative for the first time since January however it’s worth noting that this data does tend to be fairly volatile. On the plus side March new home sales rose +4.5% versus expectations for a -2.7% mom decline while the February FHFA house price index rose +0.3% mom and slightly less than expected in February. In Europe the April consumer confidence reading slipped 0.7pts to -7.9.

In terms of the day ahead, this morning in Europe we’re due to get April confidence indicators out of France before focus turns to the April IFO survey in Germany and March public finances data in the UK. It’s quiet in the US with only the latest MBA mortgage applications data due. Away from that we’ve got the BoC decision this afternoon while UK Chancellor Hammond is due to testify on the Spring Statement. Russia President Putin may also meet North Korean leader Kim Jong Un. Expect earnings to be a big focus once more with Microsoft, Facebook, AT&T, Boeing and Caterpillar amongst the headliners.