Tech giants’ market cap falls on AI doubts, high rates; Alphabet, Tesla gain

The market capitalization of top technology giants fell sharply in April, pressured by diminishing enthusiasm for artificial intelligence and a scaling back of expectations for central bank interest rate cuts.

Microsoft’s market value plummeted by USD 232.5 billion, or 7.4%, ending the month at USD 2.89 trillion. Meta Platforms Inc. also suffered a drop of USD 146.8 billion, or 11.9%, ending at USD 1.09 trillion, following a lower-than-expected revenue forecast and rising expenses associated with burgeoning AI costs.

Nvidia Corp’s market cap fell 4.4% to USD 2.16 trillion, driven by diminishing AI optimism and concerns over slowing revenue growth from competitor chipmakers, with its stock further declining on Wednesday following weak guidance from rival Advanced Micro Devices.

European luxury conglomerate LVMH saw its market cap decline by about 8% to USD 415.1 billion as its first-quarter sales growth slowed to 3%, with higher prices deterring consumer purchases of its high-end products.

Conversely, Alphabet Inc saw its market cap surge 7.3% to USD 2.02 trillion, buoyed by the announcement of its first-ever dividend, a USD 70 billion stock buyback, and first-quarter earnings that exceeded expectations.

Electric car maker Tesla Inc saw its market value increase by 4.4% to USD 584.4 billion, boosted by the removal of regulatory barriers in China that had previously hindered the rollout of its autonomous driving technology.

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; editing by Christina Fincher)

Markets loving the Fed, yen loving the BOJ

The dovish waves from Fed Chair Jerome Powell’s press conference on Wednesday continue to wash over world markets, putting Asian stocks on the cusp of a second straight weekly gain and highs not seen in well over a year.

Investor sentiment is positive and risk appetite looks strong going into the Asian open on Friday, after world stocks rose and US bond yields and the dollar fell the previous day.

The upbeat mood may be strengthened by the first quarter results from Apple after the US close on Thursday, as the world’s second most valuable company reported a smaller-than-expected decline in revenue and Chief Executive Tim Cook said he expects a return to sales growth in the current quarter.

The regional economic and corporate calendar is light on Friday – the Australian services PMI, consumer inflation from Thailand, and retail sales from Singapore are the highlights.

Perhaps the most important news for world markets on Friday, apart from the US employment figures for April, will come from Tbilisi, where the Asian Development Bank is hosting its 57th annual meeting.

Japan’s Finance Minister Shunichi Suzuki and Bank of Japan governor Kazuo Ueda are scheduled to hold a press conference on the sidelines of the meeting and if they do face reporters, they will be grilled about Japan’s apparent intervention in the currency market this week buying yen.

Japan likely intervened early on Monday and early on Thursday local time buying yen to stem its rapid decline that culminated in a fresh 34-year low of 160.00 per dollar.

Estimates suggest Tokyo spent just under USD 60 billion in the two yen-buying forays, around the same amount used in the three interventions over September and October 2022, the last time authorities waded into the market.

The targeted action, when market liquidity was particularly thin, appears to have worked, for now at least – the yen hit 153.00 per dollar on Thursday, its strongest since April 15 and up 4.5% from that historic low on Monday.

In Asian equities, meanwhile, Hong Kong stocks go into Friday’s session at a six-month high, having leaped 2.5% on Thursday thanks to gains in local technology, property, and financial stocks. Beijing’s pledge this week to step up economic support has helped underpin sentiment.

The Hang Seng is now up eight days in a row, its best stretch in five and a half years. It still has some way to go to beat that run though – in late 2018 and early 2019 the index rose 14 days in a row, and only had one ‘down’ day in 22.

Mainland China markets are closed on Friday, the last of a three-day holiday.

Here are key developments that could provide more direction to markets on Friday:

– Australia services PMI (April)

– Thailand consumer inflation (April)

– Japan finance minister, central bank governor press conference

(Reporting and Writing by Jamie McGeever; Editing by Josie Kao)

US high yield spreads still tight despite pick-up in distress

By Matt Tracy

May 2 (Reuters) – Spreads on U.S. high yield bonds, or the premium companies pay over U.S. Treasuries, remain tight despite a pick-up in distress within the asset class, as investors see the majority of issuers weathering higher-for-longer interest rates.

Elevated rates and persistent inflation have eaten into the bottom lines of many U.S. corporate borrowers, particularly those with high leverage and lower credit ratings.

The dollar volume of defaulted debt rose to over $33 billion in the first quarter from roughly $19 billion in the fourth quarter of 2023, according to a Monday report by Moody’s Ratings.

In addition, the default rate among junk-rated borrowers came in at 5.8% over the last 12 months, its highest in three years, Moody’s noted.

High-yield bond spreads widened 3 basis points on May 1 but they have tightened 33 basis points so far this year, according to the ICE BofA High Yield index.

Distressed exchanges continue to play a significant role in these defaults. There have been $12.8 billion in distressed exchanges so far this year, on pace to beat out the $35.2 billion record high reached in 2008, according to a Thursday research note by JPMorgan.

The volume of distressed exchanges so far in 2024 accounts for half of all default volume, also on pace to be the highest percentage on record.

Despite a pickup in distress, U.S. high-yield spreads have narrowed in recent weeks. The ICE BofA High Yield Index Option-Adjusted Spread stood at 3.21% on Wednesday, down 21 basis points from their April high of 3.42%.

“Some of the companies that have defaulted either technically or actually entered bankruptcy thus far in the credit cycle are the ones that were weaker fundamentally heading into this cycle,” said Sinjin Bowron, portfolio manager and head of high yield and leveraged loan strategies at investment firm Beach Point Capital Management.

“So there haven’t been any real surprises in the market yet, and I think that’s one reason why spreads have been generally range-bound over the past several months,” he said.

Treasury bonds rallied on Thursday following Fed Chair Jerome Powell’s Wednesday remarks that while the central bank was unlikely to raise rates further, they could potentially remain steady in the 5.25% to 5.50% range that has been in place since July as inflation remains persistent.

High-yield bonds have provided a yield to maturity of 8.18% so far this year, according to the S&P U.S. High Yield Corporate Bond Index.

“Obviously any increase in default distress is concerning,” said Andrew Bellis, head of private debt at private equity firm Partners Group.

“But I think if you have to put it in comparison with where you’re coming from, the overall returns in the asset class are still very attractive,” he said.

(Reporting by Matt Tracy; Editing by Josie Kao)

((Matt.Tracy@thomsonreuters.com;))

Gold climbs over 1% as dollar, yields fall after Fed’s interest-rate decision

Gold prices climbed over 1% on Wednesday as the dollar and US Treasury yields tumbled lower after the Federal Reserve’s interest-rate decision and Chair Powell’s speech.

Spot gold was up 1.7% at USD 2,323.38 per ounce as of 15:15 p.m. ET (1915 GMT), after hitting its lowest level since April 5 earlier in the session.

US gold futures settled 0.4% higher, at USD 2,311.

The dollar eased 0.3%, making gold less expensive for other currency holders. Benchmark US 10-year bond yields also crept lower.

The US Federal Reserve held interest rates steady and flagged a “lack of further progress” towards its 2% inflation objective.

However, the Federal Reserve’s next rate move is unlikely to be an increase, Fed Chair Jerome Powell said, adding that the central bank’s focus has been to maintain its current restrictive policy stance.

“I believe that we’re in like a stagflationary environment that the Fed will ultimately end up cutting at some point forward,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

“In order to rekindle a new flame back up to USD 2,400, we need a new trigger, and then we start talking all-time highs again,” Streible said.

Gold hit a record high of USD 2,431.29 on April 12 due to strong purchases by central banks and demand from Chinese retail investors.

“There is a little more uncertainty about the global economy and along with geopolitical tensions and the uncertainty regarding the political elections, there’s just a lot that is working in favor of gold,” said Chris Gaffney, president of world markets at EverBank.

Data showed US private payrolls increased more than expected in April, suggesting that the labor market maintained its momentum early in the second quarter.

Spot silver rose 2%, to USD 26.81 per ounce, and platinum climbed 2.5%, to USD 956.75. Palladium rose 0.1%, to USD 954.50.

(Reporting by Anushree Mukherjee, Anjana Anil, and Brijesh Patel in Bengaluru; Editing by Pooja Desai)

Japan’s yen climbs against US dollar amid signs of intervention

NEW YORK – The yen soared against the US dollar late on Wednesday, as market participants suspected Japan’s monetary authorities were in the market to prop up the beleaguered currency.

The Japanese unit rose as high as 153.19 per dollar from about 157.55. It was last at 154.83.

Market participants said the move happened right after the US stock market close and after Fed Chair Jerome Powell wrapped up his press briefing.

“It looks like intervention. The Japanese, I don’t think, are going to say anything or admit to it. They didn’t the last time, but it certainly looks like it,” said Joe Trevisani, senior analyst at FX Street.

The yen also jumped on Monday to 154 after hitting a 34-year low of 160.245 per dollar. Japanese officials on Monday declined to comment.

But Bank of Japan data showed that the Japanese central bank, which acts on behalf of the Ministry of Finance, may have spent some 5.5 trillion yen (USD 35.06 billion) supporting the currency on Monday.

The yen has been under pressure as US interest rates have climbed and Japan’s have stayed near zero, driving cash out of yen and into dollars to earn so-called “carry”.

The US dollar, meanwhile, fell on Wednesday after the Fed signaled it is still leaning toward eventual reductions in borrowing costs, but repeated that it wants to gain “greater confidence” that inflation will continue to fall before cutting rates.

“In recent months, there has been a lack of further progress towards the Committee’s 2% inflation objective,” the Fed said in its statement.

The statement was largely as expected while Powell also said at a press conference that it is unlikely that the US central bank’s next move will be a hike, easing some concerns about the Fed potentially pivoting to a more hawkish stance.

Stickier-than-expected consumer price inflation in March dashed hopes that elevated readings in January and February were anomalies, leading traders to push back expectations on when the US central bank is likely to cut interest rates.

Fed fund futures traders are now pricing in 35 basis points of easing this year, up from 29 basis points before the Fed statement.

“The lack of change in forward guidance was marginally dovish, and I am not sure the new inserted phrase about lack of progress on inflation is enough to offset that,” said John Velis, FX and macro strategist at BNY Mellon in New York.

In late trading, the dollar index fell 0.6% to 105.69 after earlier reaching 106.49, the highest since April 16. A break above 106.51 would be the highest since early November.

The Fed also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only USD 25 billion in Treasury bonds to run off each month versus the current USD 60 billion. Mortgage-backed securities will continue to run off by up to USD 35 billion monthly.

The next major economic indicator will be Friday’s jobs report for April, which is expected to show that employers added 243,000 jobs during the month.

The ADP Employment report on Wednesday showed that US private payrolls increased more than expected in April while data for the prior month was revised higher.

A US Labor Department report on Wednesday, meanwhile, showed that US job openings fell to a three-year low in March, while the number of people quitting their jobs declined.

The euro was last flat at USD 1.0711. The pound was also little changed at USD 1.2525.

In cryptocurrencies, bitcoin rose 0.8% to USD 57,708, after earlier reaching USD 56,483, the lowest since Feb. 27.

(Reporting by Gertrude Chavez-Dreyfuss, Karen Brettell, and Caroline Valetkevitch; Additional reporting by Laura Matthews and Chibuike Oguh in New York; editing by Barbara Lewis, Will Dunham, and Cynthia Osterman)

Oil falls to 7-week low on surprise US storage build, Middle East hopes

NEW YORK – Oil prices fell about 3% to a seven-week low on Wednesday on a surprise build in US crude stocks, the prospect of a Middle East ceasefire agreement, and as hopes faded for near-term US interest rate cuts that could boost oil demand.

Brent futures for July delivery fell USD 2.89, or 3.4%, from where the July contract closed on Tuesday to settle at USD 83.44 a barrel on Wednesday.

That was down about 5.0% from where the Brent June contract closed on Tuesday when it was still the front-month, which would be the front-month’s biggest daily percentage decline since October 2023.

US West Texas Intermediate (WTI) crude fell USD 2.93, or 3.6%, to settle at USD 79.00 a barrel.

Those were the lowest closes for both benchmarks since March 12 and left both in technically oversold territory for the first time since December 2023.

In other energy markets, US diesel futures closed at their lowest since July 2023, while US gasoline RBc1 settled at a seven-week low.

The US Energy Information Administration (EIA) said energy firms added a surprise 7.3 million barrels of crude into stockpiles during the week ended April 26.

That compares with the 1.1-million-barrel withdrawal analysts forecast in a Reuters poll and the 4.9 million barrel increase shown in data from the American Petroleum Institute (API), an industry group.

“The crude build is a big one. At this time of year, we should be drawing down on crude oil as more barrels go through the refinery,” Bob Yawger, director of energy futures at Mizuho, told Reuters.

EIA also reported a surprise 0.3-million-barrel build in gasoline inventories. Analysts expected gasoline stocks would decline by 1.1 million barrels.

In the Middle East, expectations grew that a ceasefire agreement between Israel and Hamas could be in sight following a renewed push by the US and Egypt. Still, Israeli Prime Minister Benjamin Netanyahu has vowed to go ahead with a long-promised assault on the southern Gaza city of Rafah.

“The crude market is weighed down by continued hopes for a ceasefire,” Ole Hansen of Saxo Bank said.

In other news, the US accused Russia of violating the international chemical weapons ban by deploying the choking agent chloropicrin against Ukrainian troops and using riot control agents “as a method of warfare” in Ukraine.

US INTEREST RATES

The US Federal Reserve held interest rates steady and signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings.

The Fed’s latest policy statement did note that “inflation has eased” but any delay in rate cuts could slow economic growth and dampen demand for oil.

(Reporting by Scott DiSavino in New York and Alex Lawler in London; additional reporting by Deep Vakil in Bengaluru, Laila Kearney in New York, and Sudarshan Varadhan in Singapore; editing by Jason Neely, Mark Potter, Will Dunham, and Franklin Paul)

Dull monthly start for stocks, FX ahead of Fed decision

Emerging market stocks and currencies slipped on Wednesday in thin trading, with many regional markets closed for the Labor Day or May Day holiday, ahead of a Federal Reserve interest rate decision later in the day.

The MSCI indexes for emerging market currencies and stocks slipped 0.1% each.

Traders were focused on the Fed, which is set to conclude its meeting on Wednesday with a new statement and comments from Chair Jerome Powell that could give a clearer sense of how recent sticky inflation readings have changed expectations for rate cuts this year.

“The Fed must respond to three straight month jumps in inflation and probably take a step back in its plans to cut the interest rates this year,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The US central bank is expected to hold interest rates in 5.25%-5.50% range.

Emerging market currencies ended their second month lower in April as investors dialed back expectations for the timing and magnitude of US rate cuts this year and tensions between Israel and Iran sparked a rush to the safe-haven dollar.

In Brazil, the central bank chief said on Tuesday that he did not want to commit to a specific terminal rate at the end of the current cycle of interest rate cuts.

Data showed Peruvian consumer price inflation fell 0.05% in April, compared to 1.01% advance in March.

Peru’s economy will likely expand by 3.1% this year, the economy ministry said late on Tuesday, up slightly from a previous forecast of 3.0% growth.

Saudi Arabia’s real gross domestic product (GDP) decreased 1.8% year-on-year in the first quarter, flash estimates showed, hurt by a decline in oil activities.

South Korea’s exports rose for a seventh month in April as strong demand for chips continued to lead growth while automobile sales and US shipments climbed to record highs.

Emerging markets such as China, Taiwan, Brazil, India, South Korea, Mexico, Turkey, Argentina, Poland, South Africa, Colombia, Chile, Czech Republic, Peru, Romania, and Hungary were closed on Wednesday, impacting trading volumes.

(Reporting by Bansari Mayur Kamdar in Bengaluru)

US yields fall after Fed continues to flag easing, slows balance sheet runoff

NEW YORK – US Treasury yields pulled back on Wednesday after the Federal Reserve kept interest rates steady, as expected, but signaled that it still plans to cut interest rates at some point.

The Fed did acknowledge its disappointment over the “lack of further progress” in pushing inflation down to its 2% target.

The Federal Open Market Committee “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%,” the Fed said in a unanimously approved statement that still suggested that the next move on rates will be lower.

A big surprise for the market was the larger-than-expected reduction in balance sheet runoff under the Fed’s quantitative tightening program. This also helped push US yields lower.

The Fed said starting on June 1 it was reducing the cap on Treasury securities it allows to mature and not be replaced to USD 25 billion from its current limit of up to USD 60 billion per month.

The US central bank, however, left the cap on for mortgage-backed securities at USD 35 billion per month, and it will reinvest any excess MBS principal payments into Treasuries.

“The decision to hold rates steady was no surprise, but the aggressive moderation in tapering, reducing the Fed’s balance sheet, was a bit of a surprise, and modestly bullish for bonds at the margin because it means that the Fed will allow less supply of bonds to hit the market off of its balance sheet,” said Michael Rosen, chief investment officer, at Angeles Investment Advisors in Santa Monica, California.

Slowing the pace of exit from QT would mean the Treasury’s financing needs would decline because it no longer needs to borrow as much to cover the Fed’s redemptions.

Under QT, the Treasury’s borrowing needs effectively increase amid a series of operations. When the bond the Fed holds hits maturity, the Treasury redeems the bond and pays the Fed by subtracting the required amount from the cash balance it keeps on deposit with the Fed.

In order to replace the cash it paid the Fed, the Treasury needs to sell new securities.

Now that the Fed is slowing QT, there is less need to borrow to pay the Fed for the bond redemptions, said Tom Simons, US economist at Jefferies in New York.

“Going forward, these redemptions are at a slower pace and there’s more rollover coming from the Fed so there’s much less that they need to borrow from the market,” he added.

In afternoon trading, the benchmark 10-year yield fell 4.5 basis points to 4.638%.

US two-year yields slid 8.2 bps to 4.96%.

Fed Chair Jerome Powell, in his press briefing after the statement, was less hawkish than the market expected. He practically ruled out a rate hike.

Following the Fed statement and Powell’s briefing, US rate futures on Wednesday have priced in a 66.4% chance of a rate cut in November, compared with 58% late on Tuesday, according to CME’s FedWatch tool. It was more or less 50% in September and about 80% in December.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Carolina Mandl and Laura Matthews in New York; Editing by Kirsten Donovan, Cynthia Osterman and Matthew Lewis)

US yields drift lower before Fed policy meeting, economic data

NEW YORK – US Treasury yields fell on Monday, pulling back a little from highs hit last week ahead of a Federal Reserve meeting that is expected to strike a hawkish tone, while keeping interest rates unchanged.

A slew of important US economic data, including the nonfarm payrolls report on Friday, also awaits bond investors this week.

In afternoon trading, the benchmark 10-year yield was down 4.1 basis points at 4.628%. The yield on the 30-year Treasury bond dipped 3.2 bps to 4.750%.

On the short end of the curve, the US two-year Treasury yield, which typically reflects interest rate expectations, slipped 1.9 bps to 4.980%.

“The trend for higher Treasury yields is still there, but the higher CPI (consumer price index), PCE (personal consumption expenditures price index) are primarily fully reflected in the yield curve,” said Clayton Triick, head of portfolio management, public strategies, at Angel Oak Capital Advisors in Atlanta.

“Investors who have cashed in are looking to buy into the new month — 5% on twos and very high 4s (4%). And the belly of the curve is a good time to buy.”

A key event this week is the two-day Federal Open Market Committee meeting.

The Fed on Wednesday is widely expected to hold interest rates unchanged at the 5.25% to 5.50% range. Fed Chair Jerome Powell is likely to sound cautious on the economic outlook, outlining the risks with still elevated inflation and a tight labor market, analysts said.

The market will likely have confirmation of that labor tightness with the US jobs report due on Friday. Wall Street economists are forecasting new jobs created at 240,000 in April, a still lofty number, but down from the 303,000 posted in March, according to a Reuters poll.

“We expect Chair Powell to sound more cautious than usual. … Inflation has continued to surprise expectations to the upside in Q1 while the labor market has yet to show signs of meaningful deceleration,” TD Securities wrote in a note.

Also on Monday, the US Treasury announced higher-than-expected borrowing estimates for the second quarter of USD 243 billion, up from USD 202 billion outlined in January.

Despite the increase in financing estimates for the quarter, Action Economics said in its blog that it does not expect the Treasury to raise coupon issuance at the upcoming May refunding announcement on Wednesday.

Treasury said in the January refunding that it did not expect further increases for at least the next several quarters, given the current projected borrowing needs.

Traders also said that Treasury yields came off their lows earlier in the session on the back of numerous corporate bond issuances, led by Boeing, as issuers rush to get in their funding before month-end.

Boeing announced on Monday a six-part senior unsecured note offering, priced at USD 10 billion, according to IFR.

Wall Street dealers typically looked to lock in borrowing costs for corporate bonds they are underwriting. As part of that process, a dealer sells Treasuries as a hedge to lock in the borrowing cost on the bond issue before the deal is completed. Once the bond is sold, the dealer buys Treasuries to exit the “rate lock.”

Also on Monday, the yield curve flattened, or deepened its inversion. The spread between US two- and 10-year notes was minus 35.1 bps, from minus 33.7 bps late on Friday.

This curve, effectively a “bull flattener,” refers to a scenario in which long-term interest rates are falling faster than short-term rates.

The curve has been on a steepening trend, reflecting expectations that the Fed’s next policy move will be a rate cut, although it could hold rates steady in between.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Christina Fincher and Jonathan Oatis)

Oil falls more than USD 1/bbl on Middle East peace talks, US rate cut doubts

Oil prices lost more than USD 1 a barrel on Monday as Israel ceasefire talks in Cairo tempered fears of a wider Middle East conflict, while US inflation data dimmed the prospect of imminent interest rate cuts.

Brent crude futures for June settled at USD 88.40 a barrel, falling USD 1.10, or 1.2%. The more active July contract ended at USD 87.20, losing USD 1.01 a barrel.

US West Texas Intermediate (WTI) futures settled at USD 82.63 a barrel, falling USD 1.22, or 1.5%.

Israeli airstrikes killed at least 25 Palestinians and wounded many others on Monday, as Hamas leaders arrived in Cairo for a new round of talks with Egyptian and Qatari mediators.

Egypt is hopeful but waiting for a response on the plan from Israel and Hamas, Egyptian Foreign Minister Sameh Shoukry said.

“You’re seeing the geopolitical risk premium leak out again today because of no new escalation in the Israel-Hamas situation,” said John Kilduff, partner at Again Capital LLC. “A ceasefire or hostage negation release would take out even more risk premium.”

Markets were also on watch for the US Federal Reserve’s May 1 monetary policy review, which could indicate the direction of the central bank’s interest rate decisions.

“The language and forward forecasts will be pored over by all market participants,” said John Evans, analyst at oil broker PVM.

Investors are cautiously pricing a higher probability that the Fed could hike interest rates by a quarter percentage point this year and next as inflation and the labor market remain resilient.

US monthly inflation rose moderately in March, putting a damper on expectations of rate cuts in the near future. Lower inflation would have increased the likelihood of rate cuts, which tend to stimulate economic growth and oil demand.

“The sticky US inflation sparks concerns for ‘higher-for-longer’ interest rates,” leading to a stronger US dollar and putting pressure on commodity prices, independent market analyst Tina Teng said.

A stronger dollar makes oil more expensive for those holding other currencies. Additionally, the oil market was looking forward to the monthly US nonfarm payrolls report, which is due on Friday and closely watched by the Fed.

“That will likely have a significant impact on next week’s oil trade,” said Jim Ritterbusch of Ritterbusch and Associates.

By contrast, an early look at April inflation data from the euro zone, from Spain and Germany, offers a mixed picture for the European Central Bank, but looks unlikely to derail a June rate cut.

Inflation data from the wider euro zone is to be released on Tuesday.

(Reporting by Laila Kearney in New York and Deep Vakil in Bengaluru, Colleen Howe, and Mohi Narayan; editing by Richard Chang and Marguerita Choy)

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