Markets Lower Before the Bell on Big Earnings Day

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The DXY dollar index posted a two-day low at 91.00, extending the decline from yesterday’s high at 91.43 and returning focus to Tuesday’s seven-week low at 90.86. EUR-USD concurrently printed a two-day high at 1.2055 while USD-JPY pegged a seven-week nadir at 107.82. The dollar also managed to post a two-day low versus the Australian dollar, though managed to remain within yesterday’s range bounds in the cases against the New Zealand and Canadian dollars, and the pound.

The 10-year Treasury yield saw fresh lows under 1.54% before lifting back above 1.56%. Yesterday’s solid 20-year bond auction has quelled any concerns about demand holding in the face of the strengthening economy. USD-CAD found some buoyancy after sharply plunging after the BoC surprised by trimming QE purchases to $3 bln per week from 4 bln, with policymakers bringing forward their forecast for a return to full capacity growth to the second half of 2022 from 2023. USD-CAD settled near the 1.2500 level, above the post-BoC low at 1.2457, which was the lowest level seen since March 18th. Global stock markets have been in rebound mode after a two-day decline.

The MSCI All-World Index extended yesterday’s gain and has returned to within 1% of record highs. There has been some discordance between stocks and oil and base metal prices, with commodities trading softer, with the rise in global Covid cases cited as a principal concern in commodity market commentaries. Front-month WTI oil futures posted an eight-day low at $60.62 in what is now a third consecutive day of decline, and prices are down by over 5% from the highs seen earlier in the week.

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On the pandemic front, cases have been rising in many countries that have seen a low vaccination rollout and are offsetting the better news now coming out of Europe. Japan, just months away from hosting the Olympics, is facing a third state of emergency to contain Covid cases. The Tokyo motor show has been canceled. Plans for a Hong Kong to Singapore travel corridor are being delayed, too, while cases in India continue to surge, driven by the most worrisome new variant to date. Canada is grappling with rising new cases, while the situation in Brazil remains a concern.

A short-covering rally boosted Wall Street after two straight days of declines. Investors looked on the bright side of the recovery again and overlooked the surge in virus cases in parts of the world (especially India and Japan).

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We suspect the bulls will be in control more or less over the near term.

The risk is, however, that the stock market has already priced in a lot of good earnings news. Meanwhile, Treasuries seem to be locked into a narrow range trade for now, with yields biased lower, especially after the strong 20-year bond sale that allayed a lot of angst over future sponsorship of Treasuries.

Earnings and data will be a big focal point today. The earnings slate is heavy and includes Intel, AT&T, Danaher, SAP, Union Pacific, Snap, HCA Healthcare, Blackstone Group, Freeport-McMoran, Dow, American Electric Power, Biogen, Southwest Airlines, D.R. Horton, Old Dominion, SVB Financial, Nucor, VeriSign, Tractor Supply, FirstEnergy, KB Financial, Seagate, Celanese, Quest Diagnostics, Boston Beer, American Airlines, and Pentair.

The data calendar will also be of interest with initial jobless claims for the week of April 17, which coincides with BLS survey week, existing home sales, leading indicators, and the Chicago Fed National Activity index. The Treasury is also auctioning $18 bln in 5-year TIPS and announces 2-, 5-, and 7-year notes, and a 2-year FRN.

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