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US stocks tumble on Powell remarks, airlines rally, USD firms

Jerome Powell

Asia markets are set to open lower following a negative close in the US markets overnight. Wall Street gave up early gains and closed at session lows after US Federal Reserve Chair Jerome Powell signaled a 0.5% rate hike on the table in early May. US bond yields jumped on Powell’s comments as bond traders priced in further aggressive tightening moves by the Fed.

Australia and New Zealand day ahead

SPI futures slid 0.86%, pointing to a lower open in the ASX. The benchmark index is hovering around an 8-month high, with mining stocks under pressure, while big banks are holding strongly amid rising rates. BHP Group (BHP) shares dipped 3% after the company stated that iron ore and nickel volumes dropped amid multiple issues caused by the pandemic. Notably, Qantas Airways soared to a 5-month high, supported by global optimism toward borders reopening and the US airlines’ positive outlook for open travel.

The NZX 50 fell 0.3% at the open and may be subject to headwinds in today’s session after the country recorded a 22-year high annual inflation of 6.90% despite a lower read than expected. The Reserve Bank of New Zealand is most likely to continue its aggressive approach to rate hikes. At the same time, Auckland Airport has been outperforming amid optimism toward recovering in tourism as the border reopens.

US and EU stocks

The Dow Jones Industrial Average fell 1.05%, S&P 500 was down 1.48% and Nasdaq declined 2.07%  

The broader markets closed in red, with all 11 sectors in the S&P 500 finishing lower. Most of the mega-caps were down, with Meta Platforms slumping 6% and Amazon down 3.66%. Chipmaker stocks were also lashed by growth concerns. Nvidia fell 7% and Advanced Micro slipped 5.60%.

Tesla shares cut gains from an initial 10% jump and finished 3.30% higher. The company beat both revenue and earnings per share in its first-quarter report. CEO Elon Musk said he had secured $46.5 billion in funding and may commence a tender offer for the Twitter acquisition. Snap Inc. shares dipped slightly in the after-hours trading due to a miss on earnings expectations. However, the social platform added more daily active users in the first quarter, up 18% from a year ago.

Unexpectedly, energy stocks slumped despite a steady oil price, most likely caused by profit-taking trades, with Chevron down 5.36%, Devon Energy falling 5.36% and Occidental sliding 3.66%.

On the flipside, United Airlines’ stocks surged 9% as the carrier indicated a profitable year in 2022. All of the other airline groups were boosted by the comment, with Delta Air Lines up 2.75% and American Airlines rising 3.84%.

The European major indices held strongly after the ECB President Christine Lagarde raised concerns about high inflation, hinting interest rates may rise sooner than anticipated. The incumbent French President Emmanuel Macron may win the election according to the recent consensus pool, adding to the optimism. The Stoxx 50 rose 0.80%, CAC 40 was up 1.36%, DAX advanced 0.98% and the FTSE 100 dipped 0.02%.

Treasuries

US bond yields jumped on Powell’s vows to tame inflation by a larger scale of rate hike, indicating a 50 basis points lift is on the table in the early May meeting. The 10-year US Treasury yield rose to 2.91% from 2.83% the previous day and the 2-year Treasury yield jumped to 2.67% from 2.57% a day ago. Notably, the 30-year bond yield rose to 2.93%, while the 5-year bond yield surged to 2.96%, leading to an inversion again which raises concern of a possible recession.

The Australia 5-year bond yield surged to 2.91%, a fresh 8-year high. The New Zealand 5-year bond yield was steadied at 3.43%.

Commodities

Crude oil gained slightly after the selloff in the early week as investors turned their focus back to supply issues. In addition, China is slowly reopening its manufacturing plants, fuelling optimism toward a rebound in its demands.

Oil prices steadied. WTI futures were slightly up 0.39%, to US$103.61 per barrel, and Brent futures were down 1.24%, to US$108.12 per barrel. The natural gas price was flat at US$6.927 per MMBtu.

Precious metals are under pressure of rising bond yields, but the risk-off trades offset some losses. 

The NYMEX gold futures cut losses and finished slightly down $2.20, to US$1,953.40 per ounce, after dropping to $1938.20 at an intraday low. However, silver slumped 2.16% to US$24.75 per ounce.

Currencies

The US dollar firmed on Powell’s hawkish comments on rate hikes, while commodity currencies tumbled. Both Australian dollar and New Zealand dollar tumbled 1% against the greenback. The major Australian exporters said iron ore shipments declined significantly by the impact of the pandemic. New Zealand recorded 22-year high inflation of 6.90% y/y, which is lower than estimated. Canadian dollar also fell on moderating oil prices.

The Eurodollar surged initially as the ECB officials signaled to raise interest rates in the third quarter to curb inflation, but fell on the USD’s rally. EUR/USD was down 20 points, to 1.0832. Both the British pound and Swiss franc also weakened against the US dollar.

Cryptocurrencies

The Cryptocurrencies declined on risk-off sentiment. The global crypto market cap fell 2.03%, to US$1.88 trillion in the last 24 hours. Bitcoin was down 1.55%, and Ethereum fell 2.17%, to US$3,013. 


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