Stocks weaker - end of the hopium or are things improving?

Stocks push lower

Stocks pushed lower in early trading on Tuesday as investors showed caution ahead of big tech earnings and some big macro data later in the week, with bond yields also pressing to the downside as we see a bit of risk-off taking place. The FTSE 100 touched its weakest in almost two weeks after yesterday touching a 6-week peak briefly. Big tech names have been driving the S&P 500 higher this year so these numbers matter a lot for the direction – has the rally this year been built on something solid or just hopium... Wall Street was basically flat yesterday again with the Nasdaq down a bit and Dow up a bit. Alphabet, Microsoft, Visa, 3M and McDonald’s are among the larger cap names reporting today in the US. WTI firmer at $79 and gold steady just under $2k with yields just a touch softer this morning with the US 10yr at 3.45%.

Clipping big tech’s wings?

Big tech faces a new headwind with the UK set to announce tough new legislation aimed at companies that have “strategic market status”. The law would give Britain’s monopoly regulator the power to impose fines of up to 10% of a company’s global sales. Not a small amount by any stretch. It will be interesting to pay attention to whether this factors much in earnings calls or whether it’s going to be drowned out by all things AI.

The cost of goods goes up (and down)

More inflation – Nestle (number two on the Stoxx 600 after LVMH) raised prices by about 10% in the first quarter – matching the moves by Procter & Gamble flagged on Friday. Nestle shares up a bit after beating expectations – pricing power is strong thanks to strong suite of brands and products...like PG not seeing too much trade down, consumers spending but volumes down. Total reported sales increased by 5.6% to CHF 23.5 billion. Organic growth was 9.3%. Pricing was 9.8%, reflecting significant cost inflation, with volume -0.5%

UK grocery inflation eases to 17.3%...too early to say it’s topped but surely cannot get much higher than that...Aldi and Lidl taking more and more market share...good news for inflation and consumers. SBRY and TSCO both lower at the open, with Ocado also down after it said it will close its Hatfield fulfilment centre.

Tesla shares fell as it upped its capex spending guidance...long-time TSLA bull and one-time activist board wannabe Ross Gerber has apparently slashed his holding. 

Bank stocks still suffering

In Europe...UBS Q1 attributable profit down 52%...cost of toxic bad debt from years ago still hanging around like bad smell. Stoxx Banks index having worst day in a month, with UBS –5%, but the numbers are really rear-facing when you consider the scale of the task ahead of it in devouring CS. Sentiment also weighed on by Santander’s 1% rise in profits after a hefty windfall tax payment. 

Bank of Japan Governor Ueda, whose first meeting is this week, is doing a lot of talking. On Monday he said the central bank's inflation forecasts will need to firm to consider tweaking yield curve control. "At present, trend inflation is below 2% so we must maintain monetary easing," Ueda told the Japanese parliament. "But when trend inflation is projected to reach 2%, the BOJ must normalise monetary policy.” On Tuesday he stressed the need to keep rates low for now until or unless inflation overshoots. Lots of talk designed to make the announcement Friday as well telegraphed as possible...looks like Ueda is trying to avoid rocking the boat for now, saying risk is of inflation undershooting not overshooting.

ECB threatens higher rates

Meanwhile there is increasingly hawkish talk coming out of the ECB. Executive Board member Isabel Schnabel said that “data dependence means that 50 basis points are not off the table”. Belgian central bank governor Wunsch said the ECB won't stop raising rates until core inflation and wage growth comes down, sees rates above 4%. The commentary seems to have lifted EURUSD to test the 1.10 resistance again but we saw a sharp move off this level in early trade this morning. Chief economist Lane also out with hawkish remarks in a French paper today: “The current data are indicating that we should raise rates again … This is still not the right time to stop.”

Bitcoin...Standard Chartered out with a note saying it could hit $100k this year...heard it all before.

Decision from UK’s CMA on Activision Blizzard takeover by MSFT pending, due Apr 26th. Latest in the saga is that the CMA thinks it should be ok – final decision is tomorrow. 

The FTSE 100 slid half a percent to its lowest in almost two weeks, after briefly touching a 6-week high in yesterday’s session, taking it to the bottom of the recent range.