Stocks close Q1 with largest quarterly gain since 2019 - Newsquawk US Market Wrap

• SNAPSHOT: Equities mixed, Treasuries flatten, Crude up, Dollar flat/up.
• REAR VIEW: Hawkish Waller; Q4 GDP revised up, Core PCE revised down; Inline jobless claims; Weak Chicago PMI; PHS beat; Soft German retail sales; Dovish ECB Villeroy; More Japan jawboning; Strong WBA earnings.
• COMING UP: Data: French CPI, Italian CPI, US PCE, Wholesale Inventories Speakers: Fed's Powell, Daly Holiday: Desk will close on Thursday 27th March at 20:30GMT. Thereafter, the desk will re-open on Friday at 12:00GMT for the coverage of US PCE. The desk will then close again at 12:45GMT for the remainder of the day, in observance of Good Friday with UK, EU and US markets all closed.
• WEEK AHEAD: Highlights include US PCE, Aus CPI, Riksbank. To download the report, please click here.
• CENTRAL BANK WEEKLY: Previewing Riksbank, BoJ SOO; reviewing FOMC, BoJ, SNB, BoE, RBA, PBoC, BCB, Banxico, CBRT, Norges Bank. To download the report, please click here.

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MARKET WRAP

Stocks were little changed on Thursday with no major swings in either direction to pin on month-end flows. However, Treasuries saw pronounced flattening after the late Wednesday hawkish Waller speech which was followed by a month-end grab for duration ahead of PCE and Powell. The duration bid into the European close was also heightened after the third-lowest Chicago PMI reading post-COVID was followed by downward revisions to the Michigan survey's consumer inflation expectations. That data came after the low-sided jobless claims figures and upward revisions to Q4 US GDP, albeit the PCE Prices did see a slight downward revision. The Dollar was little changed with the Euro an underperformer after poor German retail sales figures, not to mention some late session dovish remarks from ECB's Villeroy. Futures are now closing up for the week with FX the only thing open for Friday's PCE, Powell, and Daly comments. In commodities, oil futures ripped higher into the long weekend in the absence of an obvious catalyst, marking their third consecutive week of gains. Gold also saw strong gains, breaching beyond the mid-March all-time highs.

US

WALLER: Fed Governor Waller (Hawk) spoke after hours on Wednesday, in a speech titled "There's Still No Rush". He repeated there is no rush to cut rates in the current economy, noting the Fed may need to maintain the current target rate for longer than expected. Although Powell was somewhat dismissive of the hotter inflation reports, Waller said the recent data has been disappointing but he did acknowledge the Fed has made a lot of progress on lowering inflation. Waller still expects the Fed to cut rates later this year, but he needs to see more inflation progress before supporting a rate cut. Waller also spoke on the dot plots, he interprets them to show the Committee is not over-reacting to the recent data but is not discounting it either. In his view, Waller believes it is appropriate to reduce the overall number of cuts, or push them further into the future in response to recent data. The Fed Governor also repeated "The risk of waiting a little longer to cut rates is significantly lower than acting too soon", explaining that the overall strength of the US economy makes it a fairly easy decision to wait a little longer to get a better understanding of the trajectory of inflation and, when appropriate, begin easing policy. On the neutral rate, Waller said in the Q&A that it is unclear if the neutral rate has changed.

GDP: The final revision to Q4 23 GDP was revised up to 3.4% from 3.2%, despite expectations for an unchanged print. The breakdown saw GDP sales revised up to 3.9% from 3.5%, with the deflator unchanged at 1.7%. Consumer Spending was revised up to 3.3% while PCE Prices were unchanged at 1.8%, although core was revised down to 2.0% from 2.1% (exp. 2.1%). The super core metrics, PCE Services ex-energy and -housing was revised down to 2.6% from 2.7% while PCE ex-food, -energy and -housing was unchanged at 1.3%. It is worth stressing that this data is for Q4 23 and thus quite stale with the January and February CPI reports coming in hotter than expected ahead of the February PCE on Friday for a more timely update on the inflation picture. Meanwhile, after a strong Q4, Q1 GDP is expected to ease but still at a strong pace of 2.1%, according to the latest NY Fed GDPNow estimate.

JOBLESS CLAIMS: Initial Jobless Claims were at 210k in the latest week, down slightly from the upwardly revised 212k (initially 210k) and just a touch beneath the 212k forecast. The 4wk moving average was 211k, down from 211.75k in the prior week. On the unadjusted data, that was relatively unchanged at 191.5k but seasonal factors had expected an increase of 1.9k. Continued Claims, for the week that coincides with the BLS survey window, rose to 1.819mln from a downwardly revised 1.795mln, a touch above the 1.815mln forecast. Many have been expecting an uptick in jobless claims data throughout the year but the labour market in the US has been remarkably resilient in the face of US rate hikes. Powell has said that an unexpected weakening of the labour market could warrant a policy response, but so far the labour market has remained strong. Nonetheless, when Powell was asked about a strong labour market being a reason to hold off on rate cuts, said that strong job growth is not a reason for the Fed to be concerned about inflation. The labour market data next week picks up with JOLTS and ADP to digest ahead of NFP on Friday.

PENDING HOME SALES: Pending home sales (PHS) rose 1.6% in February to 75.6 from 74.4, reversing part of their January decline. As Oxford Economics points out, pending home sales typically lead existing home sales(EHS) by a month or two and such OxEco think the January-February average of PHS points to a decline in EHS in March after February's surprisingly strong pace. Looking to the rest of 2024, Oxford’s forecast is for existing home sales to rise to 4.4mln by year-end, although there may be some upside risk to that forecast if the inventory of homes for sale continues to increase. Further, the consultancy adds “Affordability challenges will continue to keep some buyers out of the market, although we do expect a renewed decline in mortgage rates once the Fed starts to cut interest rates.”

MICHIGAN SURVEY: The University of Michigan's consumer sentiment survey final reading for March was revised higher to 79.4 from 76.5. That was led by increases in both the current conditions (82.5 from 79.4) and the forward-looking expectations (77.4 from 74.6) sub-indices. Most importantly, the Fed-followed consumer inflation expectations saw downward revisions, with the 1yr-ahead gauge nudged lower to 2.9% from the preliminary 3.0% reading while the longer-term expectations were revised lower to 2.8% from 2.9%. With the Jan and Feb inflation data coming in on the hot side, officials will find solace in inflation expectations remaining anchored.

FIXED INCOME

T-NOTE (M4) FUTURES SETTLE 2+ TICKS LOWER AT 110-25+

Treasuries saw pronounced flattening after hawkish Waller was followed by a month-end grab for duration ahead of PCE and Powell. 2s +5.8bps at 4.628%, 3s +5.4bps at 4.417%, 5s +3.1bps at 4.220%, 7s +2.0bps at 4.217%, 10s +1.0bps at 4.206%, 20s -0.1bps at 4.456%, 30s -1.0bps at 4.349%.

INFLATION BREAKEVENS: 5yr BEI +1.7bps at 2.366%, 10yr BEI +1.5bps at 2.332%, 30yr BEI +1.1bps at 2.277%.

THE DAY: Treasuries saw large bear-flattening after the late Wednesday Waller speech ("There’s Still No Rush"), sustaining into the APAC Thursday session, with the Fed governor saying he needs to see "at least a couple months of better inflation data" before having the confidence to cut rates whilst saying "it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data." Dealers note steepener unwinds were driving price action. After peaking at 110-31+ right after the strong 7yr auction on Wednesday, T-Notes hit support at 110-20+ in the Tokyo morning.

A soft German retail sales print provided some modest support during the London morning, although T-Notes failed to muster any further than 110-24+ before printing new lows of 110-18, hovering a few ticks above here in the NY morning. Dealers note that during London's morning session fast money accounts were active selling in the belly in addition to adding back steepeners after the acute flattening earlier on.

In reaction to the low jobless claims, upward revision to Q4 GDP, and downward revision to the Q4 Core PCE Prices, T-Notes stretched to session lows of 110-17 before swiftly recovering. The third lowest post-COVID print in the Chicago PMI was followed by downward revisions in the Michigan survey's consumer inflation expectations. The long end led the strength thereafter into the European close with month-end flows driving action, flattening the curve even further. T-Notes hit session peaks of 110-28+ late in the NY morning before pulling back to support at 110-22 ahead of settlement.

When Treasury markets open up again next week they will have the latest Core PCE data to digest alongside any comments from Fed's Powell and Daly with the tenor of Fed Speak post-FOMC so far (Bostic and Waller) having a particularly hawkish bent to it vs Powell's presser.

STIRS:

• SR3M4 -3bps at 94.855, U4 -5.5bps at 95.125, Z4 -7bps at 95.415, H5 -7.5bps at 95.685, M5 -7bps at 95.925, U5 -7bps at 96.105, Z5 -6bps at 96.230, H6 -4.5bps at 96.315, M6 -3.5bps at 96.360, M7 flat at 96.415, M8 +1.5bps at 96.36.
• SOFR rises to 5.33% from 5.32%, volumes fall to USD 1.807tln from 1.849tln.
• NY Fed RRP op demand at USD 0.594tln (prev. 0.518tln) across 90 counterparties (prev. 83).
• EFFR flat at 5.33%, volumes fall to USD 82bln from 85bln.
• US sold USD 75bln of 1-month bills at 5.285%, covered 2.74x; sold USD 80bln of 2-month bills at 5.275%, covered 2.89x.
• US leaves 13-, 26-, and 6-week auction sizes unchanged at USD 70bln, 70bln, and 65bln, respectively; 13- and 26-week sold April 1st and 6-week sold on April 2nd; all to settle on April 4th.

CRUDE

WTI (K4) SETTLES USD 1.82 HIGHER AT 83.17/BBL; BRENT (M4) SETTLES USD 1.39 HIGHER AT 87.48/BBL

Oil futures ripped higher into the long weekend on Thursday, marking their third consecutive week of gains. The bulk of the gains were made during the European morning and were held on to during the US session in the absence of an obvious catalyst with speculation ranging from month-end buying to hedging against geopolitical risk over the long weekend. The Dollar was flat too so there was no impulse there. In newsflow, Reuters reported the supply of the five North Sea crude grades which underpin Brent is to average 654k BPD in May, maintained from April. Reuters separately reported Russia's daily offline primary refining capacity has risen by a third in March from February to 4.079mln T. And in the US, the Baker Hughes US rig count (w/e March 28th) saw oil rigs down three at 506 and Nat Gas rigs flat at 112.

EQUITIES

CLOSES:SPX +0.11% at 5,254, NDX -0.14% at 18,255, DJI +0.12% at 39,807, RUT +0.48% at 2,125.

SECTORS: Energy +1.1%, Utilities +0.76%, Real Estate +0.69%, Financials +0.57%, Materials +0.26%, Consumer Staples +0.17%, Health +0.11%, Industrials +0.07%, Technology -0.11%, Consumer Discretionary -0.14%, Communication Services -0.3%.

EUROPEAN CLOSES: IBEX 35: -0.33% at 11,075, CAC 40: +0.01% at 8,206, PSI: +0.06% at 6,281, DAX: +0.15% at 18,505, FTSE 100: +0.26% at 7,953, Euro Stoxx 50: +0.02% at 5,083, SMI: +0.17% at 11,725.

• Walgreens (WBA) +3.3%: EPS and revenue beat, but cut FY EPS view citing "challenging retail environment in the US".
• Estee Lauder (EL) +6.4%: Upgraded at Bank of America, who state earnings have bottomed.
• RH (RH) +14%: Although it fell short on both EPS and revenue, it is forecasting better-than-expected revenue growth in 2024 thanks to improving demand trends.
• Chemours (CC) -9%: Cooperating with authorities concerning its internal audit of its financial practices.
• Solventum (SOLV) and GE Vernova (GEV) will be added to the S&P 500, replacing VF Corp. (VFC) and Dentsply Sirona (XRAY), respectively.
• B. Riley Financial (RILY) +12%: Secures extension under existing credit agreement.
• Home Depot (HD) -0.5%: Has entered into a definitive agreement to acquire SRS Distribution for a total enterprise value of approx. USD 18.25bln.
• Verint Systems (VRNT) +6.5%: Top and bottom line beat alongside raising its FY outlook to reflect AI momentum.
• Braze (BRZE) -12%: Next quarter and FY profit guidance was light.
• MillerKnoll (MLKN) -19%: Revenue missed accompanied by downbeat comms. with next quarter and FY guidance disappointing.
• AMC Entertainment (AMC) -14%: Files to sell up to USD 250mln in common stock.
• Apple (AAPL) -1%: Set to release new iPad models in May after long wait; to release 12.9-inch iPad Air and OLED version of iPad Pro; suppliers are ramping up production ahead of launch, according to Bloomberg.
• Disney (DIS) +1%: Blackwells Capital sues Disney (DIS) in Delaware court to seek books and records to determine possible disclosure violations in its dealings with hedge fund ValueAct, via Court Filing.

US FX WRAP

Note, although it is Good Friday tomorrow, FX markets will remain open. All attention will be on US PCE and then Fed Chair Powell thereafter.

The Dollar was marginally firmer but traded within tight parameters on Thursday despite several data points to digest and remarks from Fed's Waller Wednesday evening. The Dollar did see some slight strength on Waller's remarks where he said there is still no rush to cut rates, noting that the recent hot inflation data was disappointing and he believes it is appropriate to reduce the number of overall cuts, or push them further into the future. The European morning saw the DXY push to highs supported by Euro weakness after dismal German retail sales data. On US data, Q4 23 GDP was revised up while Core PCE prices were revised down. Jobless claims were in line, Chicago PMI missed while UoM sentiment was revised up and inflation expectations were revised down. Pending home sales beat.

Euro lost hold of 1.08 to lows of 1.0775 after the German retail sales miss although the cross managed to rebound back above the level to c. 1.0815 amid a weak US Chicago PMI print. Nonetheless, the Dollar's slow grind higher throughout the rest of the session saw EUR/USD slip back beneath the psychological 1.08. There were some notably dovish remarks from ECB's Villeroy late in the session who called on the need to take out insurance against a hard landing by starting to cut rates, adding it is not important whether they cut in April or June, but they should cut in the Spring, independent of the Fed's decision. He also said the ECB will likely start with a "moderate" cut, after that it doesn't have to cut at each meeting though it should keep that option

The Yen was flat vs the buck and traded between 151.16-151.54 with more jawboning from officials in an apparent attempt to keep the pair sub 152. ING suspects "authorities would pull the trigger were USD/JPY to burst through the 152 area, intervening perhaps somewhere in the 153-155 range." That adds to JPM's spot FX desk who believe a swift move through 153 could serve as the trigger.

Sterling was softer vs the buck but firmer vs the Euro. BoE's Haskell (hawk) warned against rushing to cut rates, noting cuts should be a long way off. Meanwhile, Q4 23 GDP was in line with expectations and unchanged from the prior. Meanwhile, the latest Citi/YouGov poll saw consumer inflation expectations ease for both the 1 and 5-10yr forecasts. Cable traded either side of 1.2600 while EUR/GBP traded either side of 0.8550.

Antipodes were sold vs the buck with underperformance in the Kiwi to see AUD/NZD rise above 1.09 despite a miss in Aussie retail sales data. In New Zealand, Finance Minister Willi announced economists Carl Hansen and professor Prasanna Gai have been appointed to the RBNZ MPC.

CAD saw gains vs the Dollar likely supported by upside in crude prices and the better than expected January GDP numbers.

In EM, ZAR was softer despite gold printing a fresh record high and a wider-than-expected trade surplus with the weakness stemming from softer-than-expected PPI numbers. TRY saw similar weakness; little impact seen from CBRT Minutes or Consumer Confidence data. LatAm FX was generally weaker, aside from the COP which saw marginal gains thanks to gains in crude. CLP was flat while manufacturing output data beat expectations and the jobless rate was beneath forecasts. BRL was softer, BCB Chief Neto stated the BCB still does not have a clear view for the June meeting, while BCB's Guillen said they expect food inflation to reverse and underlying services inflation to gradually slow.