European Stocks Steady After Wall Street rally, BoJ Unchanged

Wall Street Bullish, Europe Steady

Stocks in Europe were steady early on Friday after a handsome gain for Wall Street reasserted the bullish trend. The S&P 500 rallied 2% back close to the big 4,150 level for its best day since January, led by gains for big tech as Meta shares leapt 14%. The Nasdaq composite added 2.4% and the Dow was up 1.6%. In early trading on Friday the DAX added 0.2% and the FTSE 100 declined by the same. EZ and US inflation numbers out today.

Inflation Stubborn Despite Slower Growth

Data yesterday pointed to the US economy slowing down with GDP +1.1% vs 2% expected, down from 2.6% in Q4...suggests Fed hikes are taking effect...near the top for rates? Maybe but inflation remains super sticky – core PCE prices came in at +4.9% from 4.4% previously and 4.7% estimate...this is higher than for a long while. Jobless claims...down 16k to 230k. Continuing claims steady...jobs data still holding up really well, fluctuations are not a trend. Consumer also seems to be holding up ok with real consumer spending +3.7% from +1.0% previous, GDP sales +3.4% vs +2.3% estimated.

Market Movers

Merck – beat $1.40 vs $1.32 expected, raises guidance for sales for the full year...sales still down 30% on the year. Caterpillar – bellwether stock - bottom line better than expected, EPS beating handsomely at $4.91 vs $3.78 estimate, and top line +17% to $15.9bn, ahead of $15.2bn expected. Energy & Transportation +24%, Resource Industries +21%, Construction +10%.

Amazon – huge unwind after-hours suggests things not quite as rosy as ‘earnings beats’ imply...uncertainty over the cloud business...something-something about AI spend...not great, shares down 2% after-hours after erasing a rally of as much as 12%. Not sure if it was when Andy Jassy jumped on the call or what happened but AWS revenue growth rates in April are running about 500 basis points lower than the first quarter pace, and executives say could slow further. The weird thing about these big tech earnings is that they are beating such low expectations – inflation adjusted revenues are basically flat to negative...no pricing power or what? Unilever and co are jamming +10% price hikes down their customers’ throats without any trouble.

First Republic – shares rose 9% yesterday...US officials are co-ordinating rescue talks for First Republic but they have not yet found a private sector solution. FRC said: "We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients."

BoJ Plans Monetary Policy Review

Bank of Japan unchanged at Ueda’s first meeting in charge but announced "a broad-perspective review of monetary policy, with a planned time frame of around one to one and a half years". The messaging was dovish, with the BoJ saying the risk from tightening too hastily is larger than monetary policy falling behind the curve ...but just like when they widened the 10yr envelope, they are trying to show that they are slowing putting the pieces in place to move when really they are doing very little or indeed nothing...maybe they just print forever until it all blows up? Tokyo core-core CPI rose 3.8%, fastest pace in 41 years...no urgency. Love this line from Ueda – chance of starting process of normalisation in one and a half years is not zero. Kicking the can big time, yen offered.