Round up of today’s market news

North American News

US stocks give up gains

• Dow and NASDAQ now in a negative territory. S&P near unchanged

The major US indices have given up most of their gains. Both the Dow and the NASDAQ index are trading in negative territory. The S&P is hanging just above unchanged.

• Dow Industrial Average is down 22.2-0.06% of 34077.05
• S&P index is up 1.0 or 0.02% at 4170.45
• NASDAQ index is down -9.36 points or -0.08% at 12217.65

The S&P regional banking ETF (KRE) is trading down $1.22 or -2.84% and at new session lows as the market digests the First Republic failure.

S&P global US global manufacturing PMI for April 50.2 versus 50.4 preliminary

• Prior month came in at 49.2
• Manufacturing PMI 50.2 versus 50.4 preliminary
• prior month 49.2
• signals expansion for the 1st time in 6 months
• Output and employment rise amid renewed upturn in new sales
• Rates of input cost and selling price inflation quicken
• US manufacturing sector shows slight improvement in April
• PMI at 50.2, first time above neutral mark (50.0) in six months
• New orders return to expansion territory, client demand remains muted
• Production increases at fastest pace since May 2022
• Domestic market drives demand, new export orders contract further
• Employment rate increases, fastest job creation since September 2022
• Suppliers raise prices despite improved supply chains and vendor performance
• Cost burdens rise sharply, selling prices increase at an accelerated rate
• Output levels at goods producers rise modestly, fastest growth in close to a year
• Input costs and output charges increase at steeper rates in April
• Employment expands at the fastest pace in seven months
• Backlogs of work decline for the seventh consecutive month
• Manufacturers’ output expectations show optimism, in line with long-run average

ISM manufacturing PMI for April 47.1 versus 46.8 estimate

• ISM manufacturing PMI for April 2023
• Prior month
• Manufacturing PMI 47.1 versus 46.8 last month
• prices paid 53.2 versus 49.0 estimate and 49.2 last month
• employment 50.2 versus 46.9 last month
• new orders 45.7 versus 44.3 last month
• production 48.9 versus 47.8 last month
• supply deliveries 44.6 versus 44.8 last month
• inventories 46.3 versus 47.5 last month
• customer inventories 51.3 verse 48.9 last month
• backlog of orders 43.1 versus 43.9 last month
• new export orders 49.8 versus 47.6 last month
• imports 49.9 versus 47.9 last month

Atlanta Fed GDPNow ticks up to 1.8% from 1.7% last

• The inaugural estimate will was on Friday for 2Q growth

The Atlanta Fed GDPNow estimate for GDP growth in 2Q has ticked up to 1.8% from the inaugural reading on Friday.

In their own words:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 1.8 percent on May 1, up from 1.7 percent on April 28. After this morning’s construction spending release from the US Census Bureau and the Manufacturing ISM Report On Business from the Institute for Supply Management, the nowcast of second-quarter real gross private domestic investment growth increased from 0.3 percent to 1.0 percent.

US construction spending for March 0.3% versus 0.1% estimate

• US construction spending for March 2023
• Prior month -0.1% revised to -0.3%
• US construction spending for March 2023 0.3% versus 0.1% expected
• March 2023 construction spending: $1,834.7 billion, 0.3% above February, 3.8% above March 2022.
• First three months of 2023: $403.3 billion, 4.3% above the same period in 2022.
• Private construction spending: $1,435.1 billion, 0.3% above February.
  • Residential construction: $827.7 billion, 0.2% below February.
  • Nonresidential construction: $607.4 billion, 1.0% above February.
• Public construction spending: $399.6 billion, 0.2% above February.
  • Educational construction: $86.9 billion, 0.7% above February.
  • Highway construction: $121.7 billion, 0.1% below February.

GM is laying off hundreds of employees from product development

• Wall Street Journal reports

• General Motors (GM) cuts several hundred full-time contract positions, primarily from its Detroit product development.
• GM’s product-development group, employs thousands of engineers, designers and other salaried workers who develop future vehicle models.
• The cuts aim to reduce costs amid uncertainty in the car market.
• Last month, about 5,000 GM salaried U.S. workers took voluntary buyouts, costing the company roughly $1 billion.
• Despite economic concerns, GM’s business remains strong, with customers willing to pay for high-level models and features.
• GM is taking steps to protect against worsening economic conditions and plans to cut $2 billion in annualized expenses by the end of 2023.

FDIC releases report on options for deposit insurance reform

• FDIC reacts in the shadows of another bank failure

The FDIC releases a report on options for deposit insurance reform.

• FDIC suggests raising deposit insurance protection for payroll and business payment accounts
• Targeted approach seen as the best option for overhauling deposit-insurance system
• Other options discussed: unlimited insurance for all bank accounts or raising the current $250,000 cap
• Business payment accounts pose greater financial stability concerns
• Recent emergency decision guaranteed full recovery of funds for depositors at failed Silicon Valley Bank and Signature Bank
• Lawmakers considering raising deposit-insurance limit from the current $250,000 per depositor
• Changes require congressional approval and may trigger higher assessments on banks
• Expanded coverage may reassure customers and protect smaller banks from losing deposits to larger institutions
• FDIC’s targeted expansion for business accounts is similar to a financial crisis-era program with unlimited federal guarantees for noninterest bearing deposit accounts
• Revised program would allow depositors to move funds to accounts with higher coverage within the same bank, reducing the likelihood of panic-driven bank runs

Commodities

Silver whipsawed as US Dollar firms

• Silver is choppy on Monday surrounding US data and the banking sector. 
• US Dollar firms on JPMorgan Chase’s takeover of First Republic Bank.

Silver is trading at $25.0445 at the time of writing and has traveled in a wide range of between $24.8845 and $25.9123 so far. 

It has been a particularly choppy session for the white metal as traders digested news of JPMorgan Chase’s takeover of First Republic Bank, ahead of Wednesday’s policy decision by the US Federal Reserve.  

JPMorgan Chase has bought failed First Republic Bank’s deposits and a “substantial amount of their assets and certain liabilities,” JPMorgan Chase said in a press release Monday.

“Our government invited us and others to step up, and we did,” JPMorgan Chase CEO Jamie Dimon said in a statement. “This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”

Analysts at Brown Brothers Harriman said that ´´while the deal leads to even greater consolidation of the US banking sector, it was a necessary one in order to address this long-festering problem.´´

´´We are cautiously optimistic that this resolution finally ends the banking sector turmoil that began nearly two months ago,´´ the analysts said.

Meanwhile, the US Dollar is firmly higher as per the DXY index that measures the Greenback vs. a basket of currencies. DXY rallied from a low of 101.624 to a high of 102.189 so far. The boost came in line with Monday’s good news for the banking sector as well as US data. US Manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded.

Additionally, US construction spending increased more than expected in March. Weak economic data from China may have been a factor also with the manufacturing purchasing managers’ index (PMI) declining to below contraction territory (50) with the data reading 49.2 from 51.9 in March for the world’s second-biggest economy.

Meanwhile, this week is shaping up to be an eventful one in terms of economic data and earnings news while investors await the Federal Reserve decision. ´´We expect a 25bp rate hike at next week’s FOMC meeting, and anticipate that post-meeting communication will: (i) emphasize that disinflation has been evolving slower than expected, leaving open the possibility of additional tightening, and (ii) acknowledge the more uncertain economic environment, especially with regard to credit conditions post SVB collapse,´´ analysts at TD Securities said. 

Gold dips below $2000 on improved ISM report

• Gold price dips below $2000, extending its fall beneath the 20-day EMA.
• The ISM showed that manufacturing activity in the US improved but flashed that prices jumped compared to last month’s data.
• XAU/USD Price Analysis: To continue to fall as the RSI indicator approaches the 50-midline.

Gold price slides below the $2000 barrier on a report by the Institute for Supply Management (ISM), showing that manufacturing activity is improving. However, a jump in the prices subcomponent justifies the need for higher rates in the United States (US). The XAU/USD is trading at $1982.70.

US ISM Manufacturing PMI improved but stayed at recessionary levels

Wall Street opened with gains after JP Morgan Chase, of the largest banks in the US, acquired the troubled First Republic Bank. That improved the market mood, though the ISM’s data triggered a leg down in XAU/USD’s price.

The ISM Manufacturing PMI for April remained in contractionary territory for the fifth month, after expanding for 30 consecutive months, at 47.1, higher than March’s 46.3. Delving into the data, the Orders and Production subcomponents improved but lacked the strength to enter the expansionary territory. The Prices Index jumped 4 points to 53.2, sparking speculations that the Federal Reserve (Fed) will tighten monetary conditions next Wednesday.

The XAU/USD reacted downwards, down 0.11% in the early New York session. US Treasury bond yields increased, with the 10-year benchmark note rate yielding 3.513%, gaining eight bps, a headwind for the yellow metal.

The US Dollar Index (DXY), which measures the performance of six currencies vs. the greenback, is climbing 0.33%, up at 102.009, courtesy of elevated US Treasury bond yields.

Despite the backdrop, the latest report for growth in the US, recessionary fears linger around the US economy. The Advanced Gross Domestic Product (GDP) for ¡2 2023 at 1.1% showed that the economy is slowing down. But the Core PCE, the Fed’s preferred gauge for inflation, stood at around 4.6% for the second straight month,

Therefore, the CME FedWatch Tool flashes an 88.9% chance the Fed will raise rates by 25 bps to 5.00% 5.25%. Notably, the swaps market shows a 40% chance for the first rate cut in November’s meeting.

Following today’s data, the US economic agenda will feature the JOLTs Job Openings report and Factory Orders on Tuesday. On Wednesday, the Federal Reserve monetary policy decision will be highlighted.

WTI crude oil futures settle at $75.66

• Down -$1.12 or -1.46%

The WTI crude oil futures to settle at $75.66. Down $-1.12 or -1.46%. The high price reached $76.69. The low price was down to $74.53.

EU News

Reminder: European markets are closed today

• In observance of Labour Day

For the UK, it is the early May bank holiday i.e. May Day but just like everywhere else in the region, markets will be closed. 

ECB still likely to lean towards a 25 bps rate hike this week

• Money markets are pointing to roughly 80% odds of that at the moment

However, those odds could swing significantly depending on the numbers that we see for the Eurozone CPI data tomorrow. But after having seen the national breakdowns from last week, there’s no strong suggestion that the ECB needs to get panicky and go with a 50 bps move instead.

Adding to that is the slightly disappointing Eurozone Q1 preliminary GDP figures, which was largely weighed down by flat growth in Germany. The supposed resilience in the region lies mostly with the peripheries at this point and with inflation pressures still weighing, there are still concerns surrounding the outlook in the months ahead.

Eurozone annual core inflation continues to run at a record pace, seen at 5.7% in March. The estimate for April is expected to match that, so it won’t give policymakers too much comfort. But if we do see it come higher, that could trigger some last-minute debate on whether or not we will see a 50 bps rate hike this week instead.

Other News

WSJ Timiraos: Fed mindset could see a switch this week

• Fed set to raise interest rates to 16 year high and debate was

In a Wall Street Journal article, Nick Timiraos says that until now the Fed has been looking for clear signs of a slowdown in easing inflation to justify a pause. However after this week the calculations could flip. That is officials could need to see signs of stronger-than-expected demand and inflation to keep hiking.

A summary of the article says:

• The Federal Reserve is expected to raise interest rates again at their meeting this week, marking the fastest rate-raising cycle in 40 years.
• Officials believe that they are closer to the end of this tightening journey but will continue to debate the appropriate next steps.
• A quarter-percentage point increase would bring the benchmark federal-funds rate to a 16-year high.
• The Fed began raising rates from near zero in March 2022.
• Some officials are cautious about the potential impact of tightening credit conditions and would prefer to suspend rate increases.
• Others are more concerned about the risk of taking the foot off the brake too soon, leading to inflation, hiring, and economic growth exceeding forecasts.
• The policy statement released after the meeting will be crucial in understanding the Fed’s stance on interest rates.
• Officials are also monitoring the effects of recent bank deals and mergers, as well as the potential fallout from midsize bank failures in March.
• They will be cautious about the possibility of unanticipated financial stresses emerging before their meeting.

Top corporate executives speaking on the economy and other matters

• A view from above

Citi’s CEO Jane Fraser:

• It is good to have the last remaining major source of uncertainty resolved with acquisition First Republix today
• what has changed in the banking industry is the speed of deposits moves
• real estate concerns are at the bottom of CMBS, but it is already priced in
• this is not the world financial crisis, there will be stress but targeted and some investors will make a lot of money
• we don’t pick up the phone to tell politicians what to do
• debt ceiling turmoil has serious consequences and is more worrying than previous events

Bridgewater Co-CIO Karen Karniol Tambour

• If economy does not slow the Federal Reserve can afford to ease

Prudential investment management (PGIM) CEO David Hunt:

• Markets underestimate strength of US economy, how high rates will have to go

Cryptocurrency News

Bitcoin traders watch US Fed’s interest rate decision to plot likely return to $30,000

• Bitcoin open interest on Binance has dropped with price ahead of the US Federal Reserve’s interest rate decision and FOMC conference. 
• The US Central bank is expected to raise interest rates by 25 basis points. 
• Experts predict the Fed could emphasize disinflation has been slower than expected and make room for additional tightening measures. 

Bitcoin traders are watching the week’s macro events closely for clues on BTC price movement. The US Federal Reserve’s interest rate decision on May 3 is the key event for BTC traders keeping their eyes peeled. 

If the Fed’s rate hike matches expectations or comes in lower than 25 basis points, this could elicit a positive reaction from BTC traders and push the asset’s price higher. If the rate hike is greater than 25 bps, it spells a whiplash for BTC price this week, based on historical data. 

Bitcoin Open Interest on Binance drops ahead of Fed’s rate decision

Experts noted a significant decline in Bitcoin Open Interest, alongside the declining BTC price. This implies, there is a greater close in positions than opened, after traders with long positions are forced out and funding reprices lower, representing a spike in short positions in the market.

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