* Major U.S. indexes red; Dow off ~0.7%
* Energy weakest major S&P 500 sector; cons disc leads gainers
* Dollar up; gold down, crude slides >2%
* U.S. 10-Year Treasury Yield ~1.63%
April 30 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
PSST, MAYBE NOT WISE TO FOLLOW INFLATIONISTAS' TIPS (1240 EDT/1640 GMT)
HSBC Global Research is out with a Fixed Income Rates note this week adding their voice to the recent chorus on inflation.
Indeed, HSBC says that "inflationistas" are singing a well-known tune, calling for investors to get some protection and buy some inflation-linked bonds as insurance against higher inflation.
With a scramble into Treasury Inflation-Protected Securities $(TIPS)$, their price goes up, and of course their yield falls. With this, the TIPS-Treasuries yield spread, known as the breakeven yield, will increase, all else being equal.
HSBC points out that this creates a market-based measure of where inflation is headed in the future, which is used alongside survey results.
As stands, HSBC says the 5-year breakeven spread is "comfortably projecting levels above the Fed's 2% average inflation target."
That said, as the 5-year breakeven rate far outpaces inflation prints, such as U.S. core PCE, HSBC questions whether investors buying inflation-linked bonds have "overpaid."
HSBC believes that a "fully rational view" would consider the Fed's new average inflation target, and incorporate the longer-term global and structural drivers of inflation. If so, it leads them to "question what has changed and why increased inflation expectations, which are more fully reflected in the price, could turn out to have been overdone."
They point out that the Fed has repeatedly stated "it needs to see the 'whites of the eyes' of inflation." Therefore, actual inflation matters more than forecasts. Additionally, the Fed is looking at averages, and nobody knows for sure what time frame they are focused on.
In the end, HSBC believes now is the time to go with the Fed and not with the market. Although the "inflationistas" might be on the mark for a few months, bonds have already factored that in.
HSBC adds, "Investors would be paying the price of their bounded rationality if they were to overpay for protection they don't need."
(Terence Gabriel)
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STOXX 600 SECURES 1.8% GAIN IN APRIL (1205 EDT/1605 GMT)
April didn't end with fireworks despite quite an upbeat earnings season for Europe Inc.
The pan-European STOXX 600 ended the last trading day of the month down 0.3%, but still bagged a 1.8% monthly gain.
Not a stellar performance, but given the fact that it hit another record high this week, investors might take the view that actually earnings have so far vindicated the bullishness floating in the air.
The fact Barclays dropped 7% despite doubling its profits and beating expectations is a warning nevertheless, of the lack of exuberance left across trading floors.
There was no read-across the banking sector which is showing off surprisingly strong results for the first three months of the year.
Banco de Sabadel was the best performer across the continent, up 8.7% after its Q1 update.
The pharmaceutical sector, up 0.6%, provided much needed resilience today with AstraZeneca jumping 4.3% thanks to its core business doing well despite the controversy surrounding its COVID-19 vaccine.
(Julien Ponthus)
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BEARS POKE UP (1135 EDT/1535 GMT)
Individual investor pessimism over the short-term direction of the U.S. stock market rose to its highest level in 11 weeks in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, bullish sentiment slid, and neutral sentiment grew.
AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, increased 5.2 percentage points to 25.7%. Bearish sentiment was last higher on Feb. 10, 2021 (26.3%). Bearish sentiment is below its historical average of 30.5% for the 12th time this year.
Bullish sentiment dove 10.1 percentage points to 42.6%. Bullish sentiment was last lower on March 3, 2021 (40.3%). Optimism is above its historical average of 38.0% for the 22nd week out of the past 24 weeks.
Neutral sentiment gained 4.9 percentage points to 31.8%. Neutral sentiment was last higher on March 3, 2021 (34.4%). Neutral sentiment remains below its historical average of 31.5% for the 63rd time out of the past 67 weeks.
With these changes, the bull-bear spread fell to +16.9 from +32.2 last week :
(Terence Gabriel)
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PEDAL TO THE METAL: PCE, PMI, ECI, UMICH (1110 EDT/1510 GMT)
A data stampede unleashed on Friday provided a broad picture of the growing velocity of U.S. economic recovery, fueled by the dual injections of vaccine deployment and stimulus.
Consumer outlays bounced back in March, rising 4.1%, as personal income , turbo-charged by robust stimulus, surged by record 21.1%, according to the Commerce Department's personal consumption expenditures (PCE) report.
This resulted in the saving rate soaring to 27.6% of disposable income, the highest level since April 2020.
The saving rate, widely viewed as a barometer of consumer expectations, has been elevated throughout the crisis, which suggests that as restrictions are lifted, pent-up demand will drive consumers, armed with full piggy banks, to a full-on spending spree.
"As health conditions improve and the economy reopens, generous fiscal stimulus, rebounding employment and rising optimism will help unleash pent-up demand," writes Gregory Daco, chief U.S. economist at Oxford Economics. "We foresee real consumption growth above 9% this year – the strongest performance since 1946 – and excess savings should help smooth spending into 2022."
President Joe Biden's generous stimulus plans, designed to help shift the recovery into overdrive, could cause the economy to overheat as demand outpaces supply, which some analysts fear could send inflation beyond the U.S. Federal Reserve's average annual 2% target.
The year-over-year core PCE price index - which excludes volatile food and energy prices and is the Fed's favorite inflation yardstick - edged closer to that target in March, rising to 1.8% from 1.4% in February.
For its part, the Fed has stated that it expects near-term price spikes, it does not expect those spikes to translate to longer-term inflation.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, agrees. "This core PCE print probably does not mark the start of a sustained surge," he writes. "It looks more like noise than signal."
The graphic below shows core PCE, along with other major inflation indicators:
In a separate report, midwest manufacturing activity went to the races this month.
MNI Indicators' Chicago purchasing manager index $(PMI.UK)$
unexpectedly rose to a reading of 72.1 for April, blowing past the slight decline to 65.3 analysts expected.
This marks the fastest acceleration since 1973.
On Monday, the Institute for Supply Management is due to release its broader U.S. PMI reading for April, projected to come in at a tamer 65.
A PMI number over 50 signifies increased activity over the previous month.
"The manufacturing sector remains resilient and continues to recover, responding to strong demand, even as supply bottlenecks are a headwind," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
The Labor Department also had its say in a report that showed labor costs increased by 0.9% in the first quarter as wage growth gathered speed.
The Employment Cost Index (ECI), seen as gauge of labor market slack and a harbinger of future inflation, came in above the 0.7% consensus.
"The next couple (of) ECI reports, as the economy recovers, will be critical in determining what the Fed does later this year and into 2022," Shepherdson adds.
The graphic below breaks the ECI down to its major components:
Finally, the University of Michigan released its final take on consumer sentiment for April, which showed a 1.8 point improvement over the initial number to a level of 88.3.
"The largest and most important change in April was that an all-time record number of consumers expected declines in the unemployment rate during the year ahead," writes Richard Curtin, chief economist at UMich's Surveys of Consumers. "Even if a booming economy resulted in higher inflation, consumer optimism would not diminish since consumers have already anticipated a temporary increase."
Wall Street has taken its foot off the gas by late morning trading, with the indexes lower and the S&P easing off Thursday's record closing high.
That said, the S&P and the Nasdaq appear set for weekly gains, and all three major averages are on course for a green April.
(Stephen Culp)
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U.S. STOCKS STRUGGLE, CLING TO SMALL WEEKLY RISE (1011 EDT/1411 GMT)
The S&P 500 is in the red in early trade. With this, the benchmark index is on track for its first down-end to a trading week since March 19.
And with a rise of only around 0.3% for the week, it's also on pace for its smallest weekly percentage gain since a 0.19% rise in mid-October of last year.
Meanwhile, U.S. April Chicago PMI came in at 72.1 vs a 65.3 estimate. Final U Mich Sentiment for April printed at 88.3 vs an 87.4 estimate.
Tech is the weakest S&P 500 sector. However, Amazon.com is leading the consumer discretionary
sector into positive territory on the day.
Here is the early market snapshot:
(Terence Gabriel)
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FANG INDEX: MUZZLED ON THE CHARTS (0900 EDT/1300 GMT)
It's been an eventful week for the NYSE FANG+TM Index
as 6 of its 10 members reported their quarterly numbers. The index ended Thursday up around 0.5% for the week, and 7% for the month.
NYFANG is equal-weighted and includes 5 core FAANG stocks: Facebook , Apple , Amazon.com , Netflix
and Alphabet . It also includes another 5 actively-traded technology/growth stocks: Alibaba , Baidu , Nvidia , Tesla and Twitter
.
TSLA, GOOGL, FB, and AAPL reported Monday-Wednesday, while AMZN and TWTR announced results last night. With this, AMZN is quoted up around 2% , and is the only gainer ahead of the open in the group. TWTR is poised to fall around 13%.
Meanwhile, since the NYFANG ended a record run of 12-straight up days on April 13 , the index has been trapped in a range essentially defined by resistance at the 76.4%/78.6% Fibonacci retracement zone of its February/March slide which resides around 7,070/7,098. The 50% level, and the 50-day moving average, are acting as support now around 6,732:
With this, historical volatility measures have been collapsing. Daily Bollinger Band width has hit a more than 3-month low.
Thus, although the index has been muzzled shorter-term, it appears ripe for another round of more spirited action.
A close outside the support/resistance levels will have the potential to spark increased momentum and volatility.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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