(Bloomberg) — US equity futures retreated as investors studied earnings from some of Wall Street’s biggest banks, capping a busy week for traders forced to sharply revise their expectations for interest-rate cuts.
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JPMorgan Chase & Co. dropped as much as 4.4% in premarket after its outlook for full-year net interest income missed expectations. Citigroup Inc. gained after its first-quarter profit topped estimates. Contracts for the S&P 500 fell 0.4%, while those on the Nasdaq 100 slid 0.5% after tech stocks jumped 1.7% Thursday.
European stocks rallied the most in more than two months, led by mining and energy stocks as simmering Middle East tensions pushed commodities higher. Brent climbed above $90 a barrel as traders watched how Iran might respond to a deadly attack on its diplomatic compound in Syria last week. Gold hit a record beyond $2,400 an ounce. Base metals extended a rally on increased supply risks and an improving outlook for demand.
The euro sank to the weakest level against the dollar in five months as prospects grow that the European Central Bank will start cutting rates in June, well before the Federal Reserve can begin easing because of stubborn US inflation. Markets are pricing three rate cuts in the euro zone this year and fewer than two by the Fed.
Given the diverging outlook confronting the two central banks, “you could see the ECB deliver cuts when the Fed does not — or even the ECB can deliver cuts at a pace that is somewhat faster than the Fed, because of the differences in the inflationary trajectory in the euro zone,” Mohit Mittal, chief investment officer of core strategies at Pacific Investment Management Co., said on Bloomberg Television.
Bonds rallied, recovering some of their sharp losses earlier in the week. The 10-year Treasury yield dropped seven basis points, after surging 22 basis points in the previous two sessions. Data Thursday showed US producer prices in March increased less than forecast, sparking relief after consumer-price growth exceeded forecasts the previous day.
Strategists at Bank of America Corp. said a rare rally in both tech stocks and commodities, combined with a jump in bond yields, has echoes of periods when bubbles are forming. The unusual price moves are consistent with bets that interest rates will stay higher for longer while economic growth remains strong — a so-called no-landing scenario.
While that narrative is “correctly in vogue,” there’s also a risk of higher inflation and an increased cost of capital, the strategists led by Michael Hartnett wrote. The price action is “typical of bubbly markets,” according to Hartnett, who makes a comparison with the pre-tech bubble period of 1999.
Meanwhile, Kokou Agbo-Bloua, Societe Generale’s global head of economics, cross-asset and quant research, said continued evidence of US economic resilience is good news for stocks. “The strong jobs data has increased the likelihood of the no-landing, no-cuts scenario,” he said on Bloomberg TV. “This is positive for equity. It means there is a higher discount rate. And in this environment we can expect equities to rise another 6% to 8% from here.”
In other individual stock moves, BlackRock Inc. rose in premarket after the world’s largest money manager reported a record $10.5 trillion in client assets. Wells Fargo & Co. shares retraced a slump after a miss on NII in its first-quarter report. State Street Corp. gained after its earnings beat estimates.
In commodities, iron ore headed for its best week in two years on speculation that China’s economy may be on the mend, buoying the outlook for demand. A rally in industrial metals strengthened, with zinc rising to a one-year high on increased risks to supply.
Copper hit the highest since June 2022 on an improved outlook for global demand, aluminum was on course for a fifth weekly climb, and tin was up 11% since last Friday’s close.
Oil resumed gains as Israel braced for a potential strike by Iran or its proxies, while gold rallied and silver hit the highest in more than three years on the Middle East tensions.
Key events this week:
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China trade, Friday
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US University of Michigan consumer sentiment, Friday
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Citigroup Inc. due to report results, Friday
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San Francisco Fed President Mary Daly speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.4% as of 8:27 a.m. New York time
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Nasdaq 100 futures fell 0.5%
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Futures on the Dow Jones Industrial Average fell 0.3%
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The Stoxx Europe 600 rose 1%
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The MSCI World index was little changed
Currencies
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro fell 0.7% to $1.0649
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The British pound fell 0.6% to $1.2473
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The Japanese yen was little changed at 153.13 per dollar
Cryptocurrencies
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Bitcoin rose 0.3% to $70,718.91
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Ether fell 0.3% to $3,515
Bonds
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The yield on 10-year Treasuries declined six basis points to 4.53%
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Germany’s 10-year yield declined 10 basis points to 2.37%
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Britain’s 10-year yield declined six basis points to 4.14%
Commodities
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West Texas Intermediate crude rose 1.6% to $86.41 a barrel
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Spot gold rose 1% to $2,396.21 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael Msika.
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