A look at the day ahead in U.S. and global markets from Mike Dolan
The so-called 'Magnificent 7' of U.S. megacap tech stocks has retreated sharply as first-quarter earnings updates kick off this week, with AI-chip star Nvidia swooning 10% on Friday after a nervy week for the sector.
World markets stabilised more broadly on Monday as another tense weekend in the Middle East passed without another direct exchange of missiles between the Israel and Iran - even though a cooling of situation had been well flagged already on Friday.
Still, the post-weekend unwind of 'safety trades' has seen U.S. crude prices fall back to their lowest level this month and gold prices retreated 1%.
But with four of the Magnificent 7 due to report corporate updates this week - Tesla, Meta, Microsoft and Alphabet - the alarming recoil in tech behemoths is now top of mind.
The 10% drop of artificial intelligence bellwether Nvidia on Friday is perhaps the most eye-catching move of a pretty dour week for sector. Even though shares in the chip giant are still up more than 50% for the year to date, they have now dropped 22% from last month's peaks to their lowest since February.
It's not clear what triggered the rout, although some analysts pointed to a 23% drop in a smaller related stock Super Micro Computer over a lack of guidance on its upcoming earnings report as a factor.
But it had been a lousy week for tech and chip stocks before that. Although Nasdaq futures are back up about 0.5% ahead of Monday's bell, the index recorded its worst week last week since 2022 with a drop of more than 5%.
A sharp recoil in Taiwan's TSMC after its earnings update earlier in the week started the ball rolling and then a near 10% dive in Netflix on Friday was another blow after the video streaming company's second-quarter revenue view fell short of analysts' expectations.
The once-dominant NYFANG index lost a whopping 8.3% last week. UBS analysts on Monday downgraded what they dub the 'Big 6 Tech+' stocks - basically the Magnificent 7 minus Tesla - to neutral from overweight.
And elsewhere in the Magnificent 7, 2024 losses in Apple are now running at more than 14% - while Tesla's bruising slide of more than 40% this year shows no sign of abating.
Tesla's woes are legion - from a sharp fade in electric vehicle demand worldwide to a full-blown price war with Chinese competitors, corporate governance issues with boss Elon Musk's payout and numerous product glitches to boot.
But the 'higher-for-longer' view of Federal Reserve interest rates clearly doesn't help stretched valuations in the sector - where the earnings season so far shows there's an extremely high bar to wow the market gallery at this stage.
Elsewhere in the macro world, U.S. Treasuries and the dollar continue to chomp at the bit on the unfolding stubborn Fed view, strong incoming economic numbers and the contrasting picture in Europe that means interest rates there look set to fall first.
Two-year U.S. Treasury yields probed above 5% again on Monday, with an auction of two-year paper due Tuesday.
The dollar continue to push higher to within a fraction of last week's highs against Japan's yen just under 155 per dollar, with the Bank of Japan meeting later this week.
But with the European Central Bank crystal clear about plans to cut its key policy rates as soon as June, the dollar remains pumped up against the euro too.
According to the latest CFTC data, speculative long positions in dollar built further in the week ending April 16, hitting $28.51 billion - the biggest position since June 2019.
The big mover on Monday was sterling, which skidded to 5-month lows after a surprisingly dovish speech on Friday from Bank of England deputy governor David Ramsden flagged how the BoE expected inflation to fall to 2% this quarter and stay there for the next couple of years.
With U.S. stock futures higher, most other world bourses were firmer, too.
Hong Kong stocks climbed more than 1.5% even as mainland shares slipped, as investors found comfort in the China securities regulator's decision on Friday to promote the city's status as a global financial centre.
China will facilitate Hong Kong listings by leading Chinese companies and expand the Stock Connect cross-border investment scheme, the China Securities Regulatory Commission said.
China left benchmark lending rates unchanged at a monthly fixing on Monday, in line with market expectations.
European bank earnings will be in the stock market spotlight there this week as BNP Paribas, Deutsche Bank, Barclays and Lloyds all report.
Among the top stock movers on Monday, Galp Energia surged 17% after the Portuguese firm said that the Mopane field off Namibia could have at least 10 billion barrels of oil.
Key diary items that may provide direction to U.S. markets later on Monday:
* US corporate earnings: Verizon, Ameriprise Financial, Truist Financial, Globe Life, Nucor, Cadence Design, Alexandria Real Estate, Brown & Brown, Packaging Corp of America
* Chicago Federal Reserve March business survey; Euro zone April consumer confidence survey
* US Treasury sells 3-, 6-month bills
(Editing by Bernadette Baum)
