Stocks looking to end a flat week lower, oil dips further

Rather a dull week: Stocks in Europe were flat in early trading on Friday, turning more negative as the early part of the session wore on with defensives like healthcare and utilities about the only segments in the green. Dollar firmer with risk seeing little bid, oil off sharply and yields lower, retreating further away from month-highs struck in the middle of the week. The major bourses look set to end the week barely changed after a directionless period ahead of some tastier data and earnings to come in the coming fortnight – big tech earnings and an FOMC meeting in the next two weeks. Fed blackout commences from tomorrow.

Although it’s been a rather lacklustre few days, US stocks showed a clear direction to the downside yesterday – perhaps stalked by increasing chances the Fed goes for more hikes, signs of further slowing in the economy, some rather uninspiring earnings and now fresh concerns about the US debt ceiling. Also looks to be that bulls have run out of juice at the Feb highs around 4,150. Treasury yields back to Monday lows with 10s at 3.5%. VIX higher yesterday after touching its lowest since Nov 2021…often a time to strike.

Ceiling: The S&P 500 has turned lower after running into the Feb high resistance, now MACD looking likely to crossover into bearish mode. Confirmation today perhaps.

Cleveland Fed President Loretta Mester, usually hawkish, said she preferred to see rates going above 5%; comments echoed by Philadelphia Fed chief Patrick Harker. Data showed banks increased the amount they borrowed from the Fed’s emergency facility for the first time in five weeks.
Continuing unemployment claims in the US rose to their highest level since November 2021 – pointing rate hikes taking effect. Meanwhile UK retail sales slumped 3.1% annually in March as the cost-of-living squeeze really hit home – that is volume down 3.1% but value up 4.5%...less is more! But consumer confidence is improving – up 6pts to minus 30. Flash PMIs from Europe are split – services better than expected, manufacturing worse. More PMIs coming - UK at 09:30 and US at 14:45.

US debt ceiling – JPM says a ‘non-trivial’ risk of default...unthinkable surely? Credit default swaps rose to their highest since 2011, when US debt was downgraded after a standoff over the debt ceiling. Tax receipts have not been as high as thought and this could see stress emerge as early as May, according to JPM, with August seen as a likely time for a shutdown if the situation is not resolved. This will have a non-trivial impact on the market in the meantime.

The dollar is catching some bid this morning but it’s sitting in the middle of the week’s narrow range – here is EURUSD for illustration. Bearish MACD crossover in play, may see 1.090 retested before 1.10 again.

Oil flashing recessionary warning light as the surprise OPEC+ production cut premium gets unwound – another bearish MACD on the charts too. Oil vol also increasing.