The world's largest global diversified miner, BHP, is being forced to significantly raise its buyout offer of Anglo American or walk away from the proposed all-share deal valued at £31.1 billion ($38.9 billion). 

"The BHP proposal is opportunistic and fails to value Anglo American's prospects, while significantly diluting the relative value upside participation of Anglo American's shareholders relative to BHP's shareholders," Anglo chairman Stuart Chambers wrote in a statement on Friday. 

Chambers continued, "The proposed structure is also highly unattractive, creating substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders."

The first indication that Anglo executives would reject the deal came Thursday afternoon when Reuters reported two sources familiar with talks with top Anglo investors who said the offer was 'unattractive.' 

Anglo owns massive copper mines in South America. The miner has become an acquisition target of BHP solely to create the world's largest copper mining giant, with control of about 10% of the global copper mining supply. Copper mining supplies are dwindling, and demand is expected to soar as power grids worldwide are upgraded to support the green energy transition. 

The Financial Review quoted hedge fund manager Rafi Lamm of Melbourne's L1 Capital as saying BHP would have to increase its bid for Anglo's assets, which have been underappreciated by the market and make strategic sense for BHP. 

"We think it's a sensible move by BHP and we think they can afford to pay the proposed deal pricing and a lot more," Lamm said. 

James Whiteside, head of mining and metals corporate research at consultancy Wood Mackenzie, said BHP will have to raise its offer to bring its value "closer to the share price in 2023 before operational issues emerged." 

On Thursday, BHP proposed an all-share deal valued at £31.1 billion ($38.9 billion). The transaction depends on Anglo spinning off its South African iron ore and platinum businesses to its shareholders. The offer is conditional and non-binding at £25.08 a share, or about a 14% premium to Anglo's closing share price on Wednesday.

BHP investor Equity Trustees Asset Management told the Sydney Morning Herald that BHP's bid to buy Anglo American made sense strategically, "but much will depend on what BHP will eventually pay." 

"Having a bit more copper in the portfolio is a positive. If copper can move up from here this will likely offset any errors made in its purchase price of Anglo," Equity Trustees head of equities Chris Haynes said.

Haynes added, "As we know, large acquisitions like this always have problems and will likely weigh on the BHP stock price in the short term."

Shares in BHP fell on Friday, ending the Australian session at 4.6% lower.

Meanwhile, copper prices hit $10,000 a ton for the first time in two years, fueled by speculation of dwindling supplies and robust demand from the green energy transition. 

Copper bulls like BlackRock and Trafigura Group have said the base metal must move higher to spur new mine development. 

BofA recently warned, "The copper supply crisis is here." 

Let's not forget our note titled "The Next AI Trade," which explains the investment opportunities in upgrading America's grid as generative AI data centers increase power demand. 

And Jefferies is on it: "Copper Demand in Data Centers." 

Recall billionaire mining investor Robert Friedland, who explained last year on Bloomberg TV that "copper prices might explode ten times." 

In a rollercoaster 48 hours to close the week, yesterday's early market slump (after the disappointing Meta guidance) has been fully reversed and stock futures are now pointing sharply higher after blockbuster earnings from Microsoft and Alphabet with attention now turning to the release of US personal consumption data - the Fed’s preferred measure of inflation, where a hotter-than-expected reading after Thursday’s weaker GDP figures may signal US rates will remain higher for longer. As of 7:40am, S&P futures are 0.7% higher while Nasdaq futures gain 1.1%. The positive sentiment carried into European trading, with tech stocks leading equity gains, with miners outperforming as copper hit $10,000 a ton for the first time in two years. Traders are also speculating as to whether Japan will intervene to support the Yen after the currency slid to a 34-year low before rebounding after the central bank kept rates on hold and Ueda said nothing to prop up the currency in what Deutsche Bank has called a policy of "benign neglect." Later in the day, attention will shift. Elsewhere, the USD is higher and bond yields are slightly lower. In commodities, oil and precious metals are higher; base metals and Ags are mixed. Today, key focus will be the March PCE release at 8.30am ET, where consensus expects headline PCE and core PCE to both rise +0.3% MoM.

In premarket trading, Google parent Alphabet surged as much as 12%, poised to add more than $230 billion to its market capitalization and exceed $2 trillion in valuation. Microsoft rose 4% after the software giant reported third-quarter results that beat expectations, a sign that AI is fueling growth and demand. The companies trounced Wall Street estimates with their latest quarterly results, fueled in part by demand for AI services.  In other earnings-related moves, Exxon fell 1.2% after missing EPS but smashing revenue estimates, while Intel slumped more than 7% after providing weaker-than-anticipated guidance. Here are some other notable movers:

• Atlassian shares slide 5.3% after the application software company said co-founder Scott Farquhar is stepping down as co-CEO after 23 years.
• Boyd Gaming shares fall 14% after the regional casino operator reported adjusted earnings per share for the first quarter that missed the average analyst estimate.
• Chinese stocks listed in the US rise, reflecting a rally in Hong Kong as Asian big tech names get a boost following robust earnings from Alphabet and Microsoft. Alibaba +2.0%, Baidu +2.6%, PDD Holdings +2.5%, JD.com +5.0%, NetEase +1.7%, Trip.com +3.1%, KE Holdings +3.3%, Bilibili +5.4%
• Cloud software stocks rise following better-than-expected sales in Microsoft and Google’s cloud divisions. Datadog +4.9%, Snowflake +3.5%, MongoDB +3.8%, Cloudflare +2.3%
• Enphase Energy (ENPH US) shares rise 2.9% as Barclays upgrades its recommendation to overweight from equal-weight, saying the solar-equipment manufacturer is nearing an inflection point.
• Intel shares drop 7.3% after the chipmaker’s second-quarter outlook was weaker than anticipated, underlining the difficulties the company has had in executing a turnaround.
• KLA Corp shares rise TKTK after the semiconductor equipment supplier’s third-quarter earnings beat estimates and outlook for the fourth quarter was strong, prompting analysts to raise their price targets.
• Marathon Digital shares rise 3.3% after the company increases year-end hash rate target to 50 EH/s from 35-37 EH/s.
• Mobileye shares fall 3.0% after a downgrade to underweight at Morgan Stanley in the wake of the company’s results.
• Roku shares fall 4.8% as the streaming-video platform company said it expects adjusted Ebitda to moderate in the second half of the year, after reporting first-quarter results that beat expectations.
• Snap shares surge 24% after the social-media company reported first-quarter results that beat expectations and gave an outlook that is stronger than forecast, helping to ease concerns about its growth.
• T-Mobile shares waver after the carrier’s results received a mixed reception from analysts, who said that the earnings were overall solid, but were disappointed that the company didn’t raise its guidance for postpaid phone subscribers as it looks raise prices.
• Teladoc Health shares drop 4.4% after a second-quarter forecast missed estimates. The healthcare services company also reported a first-quarter gross margin that fell short of expectations.

While earnings remain center stage, the focus Friday will also be on US data, with the Fed's preferred measure of inflation of particular interest. Treasury yields dipped following yesterday’s bond-market losses when stagflationary GDP data pushed back expectations for policy easing. A gauge of the dollar was steady.

“We have a precarious situation where the earnings of a few big companies are driving sentiment on the entire market,” said Justin Onuekwusi, chief investment officer St James Place Management. “We have seen a bit of volatility driven by earnings as well as rate decreases being priced out and that’s likely to continue.”

Almost 80% of S&P 500 firms that have reported so far have beaten analysts’ earnings estimates, according to JPMorgan strategists. Still, stock price reactions have been underwhelming, with better-than-expected results seeing below average upside, while those missing estimates are being penalized by more than usual, the strategists wrote. More than 50% of S&P 500 companies have yet to report.

A big highliight of the overnight session was the latest collapse in the Japanese yen which fell to a fresh cycle low near 157 versus the dollar after the Bank of Japan stood pat on interest rates and Governor Ueda did little to push back against recent weakness in the press conference. The yen’s slump to a record low versus the dollar has left traders on guard for any hints of intervention from Japan. The yen swung sharply from the day’s low to near its high amid jittery trading in the wake of the Bank of Japan’s decision to keep monetary policy unchanged.

“Should the yen fall further from here, like after the BOJ decision in September 2022, the possibility of intervention will increase,” said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp. “It is not the level but it’s the speed that will trigger the action.”

European stocks rose along with US equity futures: the Stoxx 600 is up 0.6%, with technology and construction sectors leading gains, while chemicals and insurance subgroups are the biggest losers. Thyssenkrupp shares jumped after Czech billionaire Daniel Kretinsky’s EP Corporate Group agreed to buy a fifth of the German manufacturer’s troubled steel unit. Miners outperformed as copper hit $10,000 a ton for the first time in two years. Here are the biggest movers Friday:

• Saint-Gobain shares gain as much as 6.3% after the French building-materials producer reported first-quarter sales that were slightly above expectations, according to Oddo. Separately, management is seeing signs of bottoming out for new build markets in Europe
• NatWest rises as much as 5.2% after net interest income and pretax operating profit for the first quarter beat the average analyst estimate
• Amundi soars 7%, most in two years, after the French asset manager reported net inflows for the first quarter that beat the average estimate. Citi analysts expect mid-single digit consensus upgrades. KBW called the results “solid.”
• Electrolux shares gain as much as 7%, the most since December, after first-quarter figures from the Swedish maker of domestic appliances weren’t as bad as feared, with an operating loss of SEK720 million, versus an expected SEK809 million
• Jeronimo Martins soars most in six months after Ebitda margin erosion in 1Q was smaller than analysts expected, showing that Portuguese retailer can withstand competition pressure in Poland as well as negative impact from slowing inflation
• Airbus shares fall as much as 3% to the lowest since early March after its first-quarter results were significantly below estimates, even as the planemaker reiterated its full-year targets
• IMCD’s shares sink as much as 10%, the most since March 2020, after the specialty chemicals and ingredients company reported first-quarter operating Ebita that missed estimates. ING says the story was “underlying quite weak.”
• Hexagon shares fall as much as 4.4% after the software firm reported sales and operating profit that missed estimates, while saying that demand will remain mixed in the near term
• ConvaTec Group shares decline as much as 7.2% after the medical equipment maker was downgraded to reduce by analysts at Peel Hunt, which has growing concerns about its wound care products in the US
• Yara shares fall as much as 6.9%, the lowest intraday since May 2020, after the Norwegian agricultural chemicals firm reported adjusted Ebitda below estimates

Earlier in the session, Asian stocks rose, headed for their best week since November, as investors cheered upbeat earnings from technology firms and sentiment on China continued to improve. Japanese stocks rose as the Bank of Japan left interest rates unchanged. The MSCI Asia Pacific Index rose 0.8%, with TSMC and Tencent among the biggest boosts. The gauge extended its weekly gains to more than 3%. Stocks rose in mainland China and Hong Kong, with the Hang Seng China Enterprises Index poised for its best week since April 2015. Signs of an improving Chinese economy, better corporate earnings and Bejing’s support measures have spurred inflows from global funds.

• Hang Seng and Shanghai Comp. were underpinned by strength in tech and property, while the constructive mood was also facilitated by a meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang where it was stated that the US-China relationship has stabilised although negative factors are building.
• ASX 200 underperformed after the prior day's losses caught up with the index on return from holiday.
• Nikkei 225 was initially choppy and briefly dipped into negative territory as participants braced for the BoJ policy announcement and whether the central bank flags a reduction in bond buying, but then surged as the central bank kept policy settings unchanged and refrained from any major hawkish surprises.

In FX, the dollar was slightly lower, as all the action was in the Japanese yen which cratered to a fresh 34 year low near 157 versus the dollar after the Bank of Japan stood pat on interest rates and Governor Ueda did little to push back against recent weakness in the press conference. USD/JPY did swing sharply lower to sub-155 before swiftly rebounding in jittery trading amid heightened speculation that authorities may intervene in the market.

In rates, treasuries climbed, paring some of Thursday’s post-data drop. US yields are richer by up to 2bp across long-end of the curve with 5s30s spread around 8bp, tighter by around 1bp on the day; 10-year yields around 4.685%, down 1.5bp on the day with bunds outperforming by 1bp in the sector.

In commodities, oil prices advance, with WTI rising 0.4% to trade near $83.90 a barrel. Spot gold rises 0.7% to around $2,350/oz. Copper hit $10,000 a ton for the first time in two years.

Looking at today's calendar, the US session highlight is the March personal income/spending (8:30am); we algo get the April revised University of Michigan sentiment (10am) and April Kansas City Fed services activity (11am). Fed members are in self-imposed quiet period ahead of May 1 policy announcement

Market Snapshot

• S&P 500 futures up 0.8% to 5,121.00
• STOXX Europe 600 up 0.6% to 505.47
• MXAP up 0.7% to 172.65
• MXAPJ up 0.8% to 536.04
• Nikkei up 0.8% to 37,934.76
• Topix up 0.9% to 2,686.48
• Hang Seng Index up 2.1% to 17,651.15
• Shanghai Composite up 1.2% to 3,088.64
• Sensex down 0.7% to 73,833.99
• Australia S&P/ASX 200 down 1.4% to 7,575.91
• Kospi up 1.1% to 2,656.33
• German 10Y yield little changed at 2.60%
• Euro up 0.2% to $1.0748
• Brent Futures up 0.2% to $89.21/bbl
• Brent Futures up 0.2% to $89.21/bbl
• Gold spot up 0.6% to $2,347.56
• US Dollar Index down 0.10% to 105.49

Top Overnight News

• BOJ leaves rates unchanged, as expected, and retained its guidance from Mar about purchasing gov’t bonds (there had been some speculation of a taper or a hint of one). WSJ
• Japan’s Tokyo CPI for April cools far more than anticipated, coming in +1.8% ex-food/energy vs. the Street +2.7% and down from +2.9% in March. BBG
• China’s foreign minister says the relationship w/the US was starting to stabilize but that “negative factors” were increasing. NBC News
• Eurozone inflation expectations over the next 12 months ticked down to 3% (from 3.1%), hitting the lowest level since Dec 2021. ECB
• The ECB is likely to need extra interest rate cuts if global borrowing costs are pushed up by the US Federal Reserve maintaining its restrictive monetary policy stance, a top eurozone policymaker has said. Fabio Panetta, head of Italy’s central bank, said that if the Fed keeps rates on hold longer than markets expect, or even raises them, it would be “likely to reinforce the case for a rate cut [by the ECB] rather than weakening it”. FT
• Donald Trump’s allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term, in the midst of a deepening divide among his advisers over how aggressively to challenge the central bank’s authority. WSJ
• Walmart's CEO says inflation continues to cool: “At Walmart, we are now seeing prices that are in line with where they were 12 months ago. I haven’t been able to say that for a few years now. The last few weeks, we've taken even more prices down in areas like produce and meat and fresh food”. ABC News
• Annualized US core PCE inflation accelerated to 4.5% over the last three months, but underlying trends are less alarming. The Q1 acceleration mostly reflected one-off surprises in acyclical categories where costs pass-through with long lags, and forward-looking indicators are at target-consistent levels. Progress therefore appears delayed but not reversed, and we forecast that core PCE inflation will slow to 2.2% on a sequential annualized basis in 2024Q2-Q4. GIR
• Microsoft and Alphabet jumped premarket after stellar earnings and expectations for a surge in cloud revenue fueled by AI demand. Execs at both companies said they plan to spend more on AI. BBG

Earnings

• Alphabet Inc (GOOGL) Q1 2024 (USD): EPS 1.89 (exp. 1.51), Revenue 80.54bln (exp. 78.59bln); board authorised Co. to repurchase up to an additional 70bln and declared a cash dividend of 0.20/shr. Shares +11.5% in pre-market trade
• Microsoft Corp (MSFT) Q3 2024 (USD): EPS 2.94 (exp. 2.82), Revenue 61.86bln (exp. 60.8bln). Shares +4.1% in pre-market trade
• Intel Corp (INTC) Q1 2024 (USD): Adj. EPS 0.18 (exp. 0.14), Revenue 12.70bln (exp. 12.78bln). Shares -7.5% in pre-market trade
• Snap Inc (SNAP) Q1 2024 (USD): Adj. EPS 0.03 (exp. -0.05), Revenue 1.19bln (exp. 1.12bln). Shares +23.5% in pre-market trade
• TotalEnergies (TTE FP) Q1 (USD): Adj. Net 5.11bln (exp. 5bln). Adj. EBITDA 11.5bln (exp. 11.1bln). Plans a USD 2bln share buyback Q2; Cash flow from operating activities 2.2bln (prev. 5.1bln Y/Y); Dividend +7% Y/Y
• Airbus (AIR FP) Q1 24 (USD): Adj. EBIT 600mln (exp. 789mln), Revenue 12.80bln (exp. 12.87bln), Gross Orders 170 (prev. 156), Net Orders 170 (prev. 142), Deliveries 142. Reaffirms 2024 guidance.

A recap of overnight news courtesy of Newsquawk

APAC stocks were mostly higher as the region digested recent market themes including disappointing US data, strong big tech earnings and the BoJ policy announcement. ASX 200 underperformed after the prior day's losses caught up with the index on return from holiday. Nikkei 225 was initially choppy and briefly dipped into negative territory as participants braced for the BoJ policy announcement and whether the central bank flags a reduction in bond buying, but then surged as the central bank kept policy settings unchanged and refrained from any major hawkish surprises. Hang Seng and Shanghai Comp. were underpinned by strength in tech and property, while the constructive mood was also facilitated by a meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang where it was stated that the US-China relationship has stabilised although negative factors are building.

Top Asian News

• Chinese Foreign Minister Wang said in a meeting with US Secretary of State Blinken that the China-US relationship has stabilised but negative factors are building, while he added that sliding into conflict with the US would be a lose-lose situation that they ask the US not to interfere with China's internal affairs. Furthermore, Blinken said there is no substitute for face-to-face diplomacy and they need to avoid miscalculations, while he hopes the US and China can make progress on agreements, citing fentanyl, military-to-military ties and AI risks.
• US is pushing allies in Europe and Asia to tighten restrictions on exports of chip-related technology and tools to China amid rising concerns about Huawei's development of advanced semiconductors, according to FT sources. US wants Japan, South Korea, and the Netherlands to use existing export controls more aggressively, including stopping engineers from their countries servicing chipmaking tools at fabs in China.
• ByteDance reportedly prefers shutting down the app rather than a sale if it exhausts all legal options and the algorithms TikTok relies on are deemed core to ByteDance’s overall operations, making the sale of the app unlikely, according to Reuters sources.

European bourses, Stoxx 600 (+0.5%) are entirely in the green, though trade has been contained at session highs, as participants await March's US PCE at 13:30 BST. European sectors are almost entirely in the green, with the exception of Chemicals, following poor IMCD (-9.1%) results. Tech tops the pile, with optimism lifted following strong large-cap Tech earnings in the US. US Equity Futures (ES +0.7%, NQ +0.9%, RTY +0.1%) are entirely in the green, with the NQ outperforming, benefitting from significant pre-market strength in both Google (+11.1%) and Microsoft (+3.6%), after reporting strong earnings after-market.

Top European News

• ECB's Panetta said they must weigh the risk of monetary policy becoming too tight, while he added that timely and small rate cuts would counter weak demand and could be paused. Furthermore, he stated that hesitations in adjusting rates would hurt investment and productivity, while large rate cuts could create a credibility issue.
• ECB Consumer Inflation Expectations survey (Mar) - 12-months ahead 3.0% (prev. 3.1%); 3-year ahead 2.5% (prev. 2.5%). Economic growth expectations for the next 12 months 1.1% (prev. -1.1%)
• SNB Chair Jordan said SNB has been successful in fight against inflation; uncertainty remains elevated and shocks can occur at and time

BOJ

• BoJ kept its policy settings unchanged with the short-term interest rate target at 0.0%-0.1%, as expected, with the decision made unanimously, while it dropped the reference from the statement that it currently buys about JPY 6tln worth of JGBs per month but stated that it will conduct JGB, commercial paper and corporate bond buying in line with the decision in March. BoJ said it must be vigilant to FX and market moves and their impact on the economy and prices but noted no excessive behaviour is seen in Japan's asset market and financial institutions' practices. Furthermore, it stated that if trend inflation rises, the BoJ will likely adjust the degree of monetary easing but also added to expect accommodative monetary conditions to continue for the time being. In terms of the latest Outlook Report, Board Members' Real GDP median forecast for Fiscal 2024 was cut to 0.8% from 1.2% but the Fiscal 2025 median forecast was maintained at 1.0%, while the Core CPI Fiscal 2024 median forecast was raised to 2.8% from 2.4% and Fiscal 2025 median forecast was raised to 1.9% from 1.8%.
• PRESS CONFERENCE: BoJ Governor Ueda said easy financial conditions will be maintained for the time being; Weak JPY so far is not having a big impact on trend inflation. Difficult to gauge timing of future rate hikes. Weak JPY so far is not having a big impact on trend inflation. Reduction in JGB buying in the future is in sight. Will not comment on FX moves

FX

• USD is around flat, and holding within a 105.40-71 range. USD was initially being propped up by JPY softness post-BoJ, although that has abated somewhat, amid Yen intervention speculation.
• JPY is the clear laggard across the majors following the BoJ policy announcement overnight, which provided no hawkish surprise. USD/JPY took another leg higher amid BoJ Ueda's press conference, before being slapped down to sub-155 levels, a few hours later. Some will likely view the move as intervention but we are yet to see any official confirmation of this.
• EUR is flat vs. the USD and breached yesterday's 1.0740 best. If the pair ventures higher, 1.0756 from April 11th is the next potential target.
• Antipodeans are firmer vs. the USD and outmuscling peers alongside the favourable risk environment. AUD/USD has gained a firmer footing above its 200 and 50DMAs at 0.6526 and 0.6532 respectively with focus now on a potential approach of 0.66
• PBoC set USD/CNY mid-point at 7.1056 vs exp. 7.2449 (prev. 7.1058).

Fixed Income

• USTs are a touch firmer after yesterday's data induced losses, which sent the Jun'24 UST to a contract low of 107.04. Today's trade has been contained within a 107.04-108.01 range, with all eyes on March's US PCE metrics later.
• Bund price action has been following USTs and attempting to recoup recently lost ground which has been inspired this week by a combination of better data and speak from hawkish ECB members. Bunds are so far respecting yesterday's 129.53-130.38 range.
• Gilts are firmer and in-fitting with global peers in an attempt to claw back recent losses. However, with a lack of UK-specific drivers, UK paper will likely remain at the whim of global peers.

Commodities

• A relatively tame session thus far for the crude complex following Thursday's choppy trade, as participants await monthly US PCE metrics; Brent Jun'24 range between 89.08-69/bbl.
• Precious metals are firmer amid the softer Dollar and ahead of the US PCE data, with spot silver narrowly leading vs spot gold. XAU topped yesterday's peak (USD 2,344.93/oz) to trade in a current intraday range between USD 2,326.36-2,352.30/oz.
• Base metals are stronger across the board amid bullish momentum after copper crossed key levels, with the broader complex underpinned by the softer Dollar and broader risk appetite; 3M LME copper is posting gains of over USD 100/t at the time of writing after mounting the key USD 10,000/t mark to levels last seen in 2022.
• India Oil Minister said cartel of oil producers are responsible for current volatility in the market; oil producers are cutting down and holding back production, according to ETNow.

Geopolitics: Middle East

• "US Secretary of State Blinken to visit Israel on Tuesday", according to Sky News Arabia
• Hezbollah said it shelled an Israeli force with artillery at the site of Al-Malikiyah and achieved a direct hit, according to Al Jazeera.

Geopolitics: Other

• US official said the US could announce as soon as Friday USD 6bln in new weapon purchases for Ukraine.
• North Korean leader Kim supervised the test-firing of multiple launch rockets, according to KCNA.
• China's Defence Ministry said Chinese and French militaries established a dialogue mechanism for cooperation between theatre commands, according to Reuters.

US Event Calendar

• 08:30: March PCE Deflator MoM, est. 0.3%, prior 0.3%
  • March PCE Core Deflator MoM, est. 0.3%, prior 0.3%
  • March PCE Deflator YoY, est. 2.6%, prior 2.5%
  • March PCE Core Deflator YoY, est. 2.7%, prior 2.8%
• 08:30: March Personal Income, est. 0.5%, prior 0.3%
  • March Personal Spending, est. 0.6%, prior 0.8%
  • March Real Personal Spending, est. 0.3%, prior 0.4%
• 10:00: April U. of Mich. Sentiment, est. 77.9, prior 77.9
  • April U. of Mich. Current Conditions, prior 79.3
  • April U. of Mich. Expectations, prior 77.0
  • April U. of Mich. 1 Yr Inflation, prior 3.1%
  • April U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
• 11:00: April Kansas City Fed Services Activ, prior 7

DB's Jim Reid concludes the overnight wrap

It’s been a volatile 24 hours in markets, but in spite of a selloff yesterday, there’s increasing positivity this morning thanks to strong results from Microsoft and Alphabet after last night’s close. Both companies exceeded revenue and earnings expectations, with Alphabet seeing the larger beat on profitability, as their growth was boosted by demand for cloud computing and AI-related offerings. That’s seen Alphabet rise by over 11% in after-hours trading, while Microsoft is up more than -4%, having both been down in the main session yesterday. In turn, futures on the S&P 500 are currently up +0.81%, which is a significant turnaround from yesterday, as the index closed -0.46% lower, and that was only after recovering from initial losses that had pushed it down -1.60%.

That positivity has continued into Asian markets overnight, which comes as the Bank of Japan left their interest rates unchanged at their latest meeting. That’s seen the Japanese Yen weaken further, and it’s currently trading at 156.11 per dollar, which is its weakest level since 1990. Front-end government bond yields have also fallen overnight in Japan, with the 2yr yield down -0.7bps to 0.29%. And for equities, all the major indices have risen, including the Nikkei (+0.74%), the KOSPI (+1.10%), the Hang Seng (+1.98%), the CSI 300 (+1.03%) and the Shanghai Comp (+0.79%).

Before that overnight reversal, markets had struggled yesterday, as challenging data and poor earnings led to a notable selloff. That meant investors pushed back the timing of rate cuts yet again, and the 2yr Treasury yield (+7.1bps) closed at 4.998%, so almost at 5% for the first time since mid-November. That was mainly driven by the Q1 US GDP release, which had the unfortunate combination of a downside surprise on growth, and an upside surprise on inflation. As we found out in 2022, that stagflationary mix can potentially be a bad recipe for markets, so it wasn’t a surprise to see equities and bonds lose ground simultaneously even if equities have since been busy making up their initial losses.

In terms of the details, growth came in at an annualised rate of +1.6% (vs. +2.5% expected), which is the slowest growth since Q2 2022. But more alarmingly for markets, core PCE surprised on the upside, with an annualised rate of +3.7% in Q1 (vs. +3.4% expected). Headline PCE was also strong, at +3.4% in Q1, and core services ex housing (a measure Fed Chair Powell has cited in the past) was at +5.1%. So whichever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates. We’ll get the monthly US PCE numbers for March today within the spending report as well. If you’re looking for positives on growth, final private domestic sales came in at 3.1%, with the slowing in headline GDP growth coming from net exports, inventories and government spending. So domestic demand still holding up well. However you could argue that just ties in with the strong inflation component.

Unsurprisingly, that release meant markets dialled back the odds of rate cuts anytime soon. For instance, the chance of a rate cut by the July meeting fell from 50% the previous day to 34% afterwards. And for the year as a whole, futures are now pricing in just 34bps of cuts by the December meeting, down from 43bps the previous day and 67bps at the start of the month. So futures are now pricing the most hawkish profile we’ve seen to date in this hiking cycle, at least in terms of where rates are set to be by the end of 2024. Indeed for the first time, the first 25bp cut isn’t fully priced in until the December 2024 meeting.

With investors pricing out rate cuts, US Treasuries slumped and yields hit their highest levels of 2024 so far. In particular, the 2yr Treasury yield (+7.1bps) saw a closing value of 4.998%, having reached 5.02% intra-day. And similarly, the 10yr yield was up +6.2bps to 4.70%, although this morning it’s since come down -1.0bps to 4.69%. Bear in mind that just after Christmas, the 10yr yield hit an intraday low of 3.78%, so it’s moved up by almost 100bps from that point now. At the same time, there was a decent spike in real yields, with the 10yr real yield (+4.4bps) reaching a post-November high of 2.28%.

That trend was echoed in Europe, where investors lowered their expectations for ECB rate cuts this year, and now see just 68bps of cuts by December’s meeting, down -5.5bps on the day. As in the US, that meant 10yr yields hit new YTD highs, with those on 10yr bunds (+4.1bps) up to 2.63%, 10yr OATs (+3.7bps) up to 3.13%, and 10yr gilts (+2.8bps) up to 4.36%. For now at least, a June rate cut from the ECB is still seen as an 84% probability, but from Monday we’ll start to get the flash CPI prints for April, so it’ll be interesting to see if that changes anything.

For equities, this backdrop meant it was a tough day across the board even if the recovery was steady as the US session progressed. All the major indices fell, including the S&P 500 (-0.46%), the NASDAQ (-0.64%) and the Dow Jones (-0.98%). Rebounds by Nvidia (+3.71%) and Tesla (+4.97%) helped limit and reverse the earlier larger losses. But Meta (-10.56%) was the worst performer in the entire S&P 500 following its earnings release the previous day, meaning that the Magnificent 7 (-1.19%) underperformed despite the gains for Nvidia and Tesla. IBM (-8.25%) lost significant ground after its release the previous evening as well.

Over in Europe, the STOXX 600 (-0.64%) also saw a decent decline, although the FTSE 100 (+0.48%) was again an exception as it hit another record high, aided by a surge in Anglo American (+16.10%), which was the index’s best performer after BHP proposed a takeover. The proposed deal would bring together two of the world’s largest mining companies and create a clear number one globally. Our mining team think the deal rationale is about global scale and growth in copper, a structurally tight commodity which is key to future global electrification. Copper prices have risen by +17.6% so far this year, and overnight they’re trading at their highest level since April 2022. The mining team’s note (link here) runs through the deal terms and other talking points.

Looking at yesterday’s other data, the US weekly initial jobless claims fell to 207k in the week ending April 20 (vs. 215k expected), which is their lowest level in a couple of months. Otherwise, pending home sales grew by +3.4% in March (vs. +0.4% expected), reaching a 13-month high.

To the day ahead now, and data releases include US PCE inflation for March, along with personal income and personal spending. In addition, there the University of Michigan’s final consumer sentiment index for April, and in the Euro Area, we’ll get the M3 money supply for March. Finally, earnings releases include Exxon Mobil and Chevron.

Authored by Andrew Korybko via Substack,

Polish President Andrzej Duda revealed in an interview that the Central Communication Port (CPK by its Polish abbreviation) transportation megaproject outside of Warsaw has dual military purposes.

He represents Poland’s prior conservative-nationalist government but remains in office despite the liberal-globalist opposition’s victory at the polls last fall since his term doesn’t expire till next year.

Duda’s latest claim makes Prime Minister Donald Tusk’s decision to pause and audit the CPK even more scandalous.

It was analyzed here at the time that he was economically subordinating Poland to Germany after having already done so on the political and military fronts, which lent credence to conservative-nationalist chieftain Jaroslaw Kaczynski’s warning late last year that Tusk is actually a “German agent”. Tusk then subordinated his country to its neighbor on the educational, judicial, and diplomatic fronts, all of which is being done on the pretext of implementing various “reforms”.

The end result is that Poland now plays an indispensable role in Germany’s “Fortress Europe” that was elaborated upon here, but Duda’s unexpected revelation about the CPK’s dual military purpose might reverse some of the tempo by putting grassroots and external pressure on Tusk to approve the CPK. Most Poles are in favor of this transport megaproject according to the latest polls that Duda’s interlocutor cited, while the US has an interest in using Poland as an anti-Russian military launchpad.

Here's exactly what Duda said according to Google Translate:

“It is no secret to anyone, and I emphasize this: If a situation of potential danger for Poland were to occur, and the relocation of additional allied forces to Poland would be necessary to defend our territory, we do not currently have an airport that would be able to provide such support for the West to quickly come to Poland.”

This reminder is meant to imply that Tusk is harming NATO’s contingency plans for partisan reasons.

It’s also a dog whistle harkening back to what the former conservative-nationalist government’s Defense Minister claimed about his liberal-globalist predecessors regarding Tusk’s defensive plans during his prior two terms in office. Mariusz Blaszczak alleged that Tusk’s government planned to withdraw west of the Vistula River in the political fantasy that Russia invaded Poland until NATO reinforcements arrived and claimed to have the classified documents to prove it too.

Tusk’s previous time in power was marked by the arguably German-advised Russian-Polish rapprochement that was meant to create a “Europe from Lisbon to Vladivostok” during the halcyon era of Russian-EU relations. Those hopes were obviously dashed as everyone now knows, after which Tusk’s conservative-nationalist successors never wasted an opportunity to speculate that his pragmatic policy at the time was due to secret Russian influence over his government.

Blaszczak’s allegation should be seen in that light just like Duda’s reminder should too. Their conservative-nationalist movement sought to exploit political Russophobia in Polish society ahead of the elections to remain in power, but even though that didn’t work, they haven’t learned their lesson and are now trying to employ it yet again in their attempt to return to power one day. That said, it’s indeed important for Poles to be aware of both facts, after which they can make up their own mind.

Revealing allegedly classified details about outdated Polish national defense policy is one thing, while raising awareness of how possibly canceling the country’s largest megaproject in recent memory could impact national security in theoretical contingencies (not to mention killing lots of jobs) is another.

The first disclosure didn’t succeed in reshaping popular perceptions of the liberal-globalists whereas the second stands a greater chance of success of doing so even though it’s too early to conclude that it will.  

Another point to pay attention to is that this isn’t the first time that Duda dropped a bombshell about a significant issue. Earlier in April, he told Lithuanian media that foreign companies own most of Ukraine’s industrial agriculture, thus confirming what had previously been reported but denied by the West. He therefore has a habit of being very candid about issues that he sincerely believes are of immense importance for Poland’s objective national interests.

Regardless of whatever the reader’s opinion might be about the likelihood of Duda’s scenario unfolding, which concerns Poland relying on the CPK to serve as the port of entry for a large-scale NATO intervention in the event of a Russian invasion, his point about that megaproject is militarily and strategically sound. It’ll be very difficult for Tusk to argue against it after he himself jumped on the Russia-bashing bandwagon since returning to power and continues fearmongering about its intentions.

He even jumped the shark last month by sensationally claiming that “we are in a pre-war era” that he compared to the run-up to World War II, thus suggesting whether sincerely or not that he supposedly believes that it’s possible for Russia to invade Poland in the coming future. If he ultimately decides to cancel the CPK despite Duda reminding him of its dual military purposes, then he’d discredit his previous fearmongering about Russia, which is the pretext for justifying Poland’s subordination to Germany.

Tusk’s hands might be tied, however, since the combination of grassroots and external (US/NATO) pressure might be enough to get him to reconsider weaponizing the CPK as part of his partisan war against his conservative-nationalist opponents under whom this megaproject was initiated. In any case, Duda inadvertently vindicated those Russian observers who long suspected that the CPK had dual military purposes, thus proving that they were right about Poland’s real plans all along.

After two and a half hours, the Supreme Court has finished hearing arguments on whether a former president is immune from criminal prosecution.

Reading the tea-leaves of the comments has left most believing that SCOTUS will fail to grant former President Trump the full immunity he is seeking (choosing instead to narrow the protections for former presidents), but are likely to issue a ruling that could further delay his trial on charges of conspiring to overturn the 2020 election.

That would be a partial win for the former President.

As Axios reports, a definitive ruling against Trump - a clear rejection of his theory of immunity that would allow his Jan. 6 trial to promptly resume - seemed to be the least likely outcome.

• A majority of the justices seemed inclined to rule that former presidents must have at least some protection from criminal charges, but not necessarily the "absolute immunity" Trump is seeking.

• The core distinction during oral arguments came down to a president's official vs. unofficial actions. — and which of Trump's efforts to overturn the 2020 election results were official vs. unofficial.

• The most likely outcome might be for the high court to punt, perhaps kicking the case back to lower courts for more nuanced hearings.

That would still be a victory for Trump, as Sam Dorman reports via The Epoch Times that the outcome of this appeal could delay lower court proceedings in President Trump’s Washington trial as well as his cases in Georgia and Florida. It’s unlikely that the Supreme Court, which is expected to release a decision in June, will write an opinion that delays his ongoing criminal “hush money” trial in New York.

The bottom-line is that no clear, concise majority opinion emerged this morning.

But there may be five justices willing to kick the can down the road - and that's enough for Trump, at least for now.

*  *  *

The Supreme Court will hear oral argument today over former President Donald Trump’s claim that he’s immune from criminal prosecution for official acts he undertook while in office.

Listen live here (due to start at 1000ET):

LISTEN LIVE: Supreme Court hears case on whether Trump has presidential immunity from prosecution
https://t.co/zGSnfhqCJq

— PBS NewsHour (@NewsHour) April 25, 2024

Jonathan Turley is live-blogging the hearing on X:

We are off and running on the oral arguments on immunity with John Sauer, former Scalia clerk, arguing for the former president.

...Chief Justice Roberts asked the most poignant question. What if a president appointed an ambassador (a clearly official act) but does so for a bribe? Sauer offered a nuanced point that the bribe itself would not be an official act...

...Justice Sotomayor just hit Sauer and said that Trump was only acting for personal gain and not in the interests or in a function of his government. She is making the slippery slope argument that such immunity would protect the assassination of a president...

...Justice Jackson said that "every president from the beginning of time" understood that they could be prosecuted but they "have continued to function and do their job."...

...Sauer agrees that a president can be prosecuted for private conduct. His point is only that the motivations of official conduct should not be the inquiry of the court. He is doing a good job in maintaining a more nuanced position before the Court...

Justice Jackson gets embarrassed by Trump lawyer John Sauer when she tries to describe America where the president has immunity:

“The regime you've described is the one we've operated under for over 234 years.” pic.twitter.com/yo15zSUkhA

— Greg Price (@greg_price11) April 25, 2024

...Justice Alito is asking whether the "robust form of immunity" that he is presenting is really necessary. Alito is exploring the middle ground that some of us have previously discussed...

...Sauer responded again about the danger of allowing motivations to be pursued. Alito suggests that they may insist on objective, not subjective, grounds in making the key determination -- on "purely objective grounds" to determine if this is an official function or issue...

...Interestingly, Alito seems to have answered Sotomayor on a hypothetical in dealing with the term "plausible" . . . an early preview of the conference!

HAHAHA: Justice Alito Exposes Flaws in D.C. Court Opinion Being Used Against Trump After Special Counsel Attorney Claimed Grand Juries Are Layers Of Protection, Says That May Not Be True Since Even Ham Sandwiches Aren't Safe from Grand Jury Indictments! LISTEN pic.twitter.com/ueYZXcdN0r

— Simon Ateba (@simonateba) April 25, 2024

... Justice Thomas just asked Sauer if he is challenging the constitutionality of the Special Counsel. Sauer said that they have not come so in this case.

...Sotomayor just referred to the alternative electors as "fake" and Sauer pushed back on the language of the indictment on the record for decision...

Trump Lawyer NUKES Sotomayor's "Fraudulent Electors" Talking Point at SCOTUS

"Apply it to the allegations here. What is plausible about the president assisting in creating a fraudulent slate of electoral candidates, assuming you accept the facts of the complaint on their face,… pic.twitter.com/0J0A8KzenM

— Kyle Becker (@kylenabecker) April 25, 2024 ...Justice Kagan just asked what would happen if the President order a "coup" and whether it would be an official act. Sauer said that "it would depend." Kagan responded "that sure sounds bad doesn't it?"

Michael Dreeben is now up for Special Counsel...

...Roberts just slammed the lower court "a former president can be prosecuted for his official acts because the fact of the prosecution means that the former president has acted in defiance of the laws."...

...He said that he is "concerned" because it sounds like "a former president can be prosecuted because he is being prosecuted."...

...Roberts just laid low the appellate decision and Dreeben struggled in defense of it. Roberts responded that, if the Special Counsel does not subscribe to the sweeping decision, why shouldn't the court send it back?

...Roberts said that the D.C. Circuit failed to do a "focused" analysis on these act by adopting a "tautological" standard...

...Gorsuch returned to whether Dreeben is suggesting that immunity questions turn on motivations. Dreeben insists that it is the objection of the conduct rather than the motives...

...Dreeben just conceded that he is not sure if motivations would be relevant in determining immunity in relation in core powers...

...Gorsuch noted however that all presidents use their powers in part out of a desire to get reelected. Dreeben insisted that this all just falls under a different category. Gorsuch is clearly frustrated the lack of clarity if motive are relevant...

...Dreeben just dealt with the drone strikes and said Obama fell in an exception from the murder statute. 

...Barrett noted that that sounds a lot like a public versus private distinction...

...This "public authority defense" sounds a lot like arguing a question of motives, again, as raised by the other justices. Dreeben could only say that it was based on "objective" facts.

...Justice Barrett just asked if any immunity would also bar state prosecutions. She suggested that immunity may also protect a president from standing for trial on the state or local levels...

As The Epoch Times' Sam Dorman reports, besides altering longstanding precedent, the decision could bear heavily on, and delay the criminal prosecutions President Trump is facing before the election.

An appeals court in Washington rejected his attempt to claim immunity in the Justice Department’s prosecution of his activity on Jan. 6 and in response to the 2020 presidential election.

The Supreme Court is set to review that decision and potentially establish a broader definition of presidential immunity.

The Supreme Court here has three main options:

1. to uphold the appeal court’s rejection of President Trump’s immunity claims,

2. to accept his claims,

3. or remand the matter back to U.S. District Court Judge Tanya Chutkan with a refined test on what presidential acts are immune from prosecution.

Nixon v. Fitzgerald, a Supreme Court case from 1973, established that presidents enjoy absolute immunity from civil liability for actions that fell within the “outer perimeter” of their official duties.

Experts speculated to The Epoch Times that the justices could extend that same framework to criminal liability.

This is the second major oral argument the justices are hearing about attempts to punish President Trump for his conduct following the 2020 presidential election.

They heard oral argument in February over Colorado’s attempt to disqualify him from the state’s ballot, and issued a unanimous judgment in opposition.

A week before President Trump’s appeal is reaching the Supreme Court, the justices also heard oral argument over how the DOJ applied a financial reform law to Jan. 6 defendants. That same law forms part of DOJ’s indictment against President Trump.

Separation of Powers is a major issue that will likely loom large in both the oral argument and eventual opinion.

President Trump has argued that judicial review of his official acts would be inappropriate, while Special Counsel Jack Smith said granting criminal immunity would upset the balance of power and allow presidents to get away with egregious wrongdoing.

A surge in restaurant traffic boosted Chipotle Mexican Grill's first-quarter earnings and revenue, topping the average estimate of Wall Street analysts tracked by Bloomberg on Wednesday.

Shares are higher by more than 5% in the cash session on Thursday. However, this note will not expand on earnings. Instead, we will focus on a letter from the company to employees stating: Stop eating chicken during lunch and dinner meals because soaring demand has collided with dwindling poultry supply—and the need to preserve supply urgently. 

Bloomberg obtained the letter Chief Restaurant Officer Scott Boatwright sent employees last week. He told them:

"Due to its sustained strong sales we need your help to keep up with our guests' demand for this popular protein option." 

Boatwright told store managers and hot-side and cold-side kitchen employees not to order chicken or chicken al pastor with their free or discounted employee meals. Even white-collar Chipotle workers were told not to order chicken. 

The message read, "Let's Conserve Our Fan-Favorite Chicken." Execs did not give a timeline for boosting the chicken supply. The letter aimed to "preserve our supply of Adobo Chicken for our guests." 

Chief Corporate Affairs and Food Safety Officer Laurie Schalow told Bloomberg in an emailed statement:

"Due to the high demand for chicken in our restaurants and sustained success of our limited-time offer chicken al pastor, we temporarily asked all of our employees at corporate and in-restaurants to select another protein option for their meals to preserve our supply." 

The Chipotle mobile app shows no disruptions to any protein option on the menu. 

Harper McNamara, an employee in Michigan at the only unionized Chipotle US store, was quoted by Bloomberg as saying the company's move was a slap in the face to its workforce: "It's disrespectful, just on a personal level." 

By Julianne Geiger of OilPrice.com

In a move that could reshape Europe's energy landscape, the European Commission is poised to propose new sanctions targeting Russian liquefied natural gas (LNG) imports.

According to Reuters sources close to the matter, the proposed measures will include a ban on shipments within the EU and sanctions on three Russian LNG projects.

The European Commission's decision comes amid growing concerns over Europe's reliance on Russian energy, particularly in the wake of the ongoing conflict in Ukraine. While the EU imposed a ban on Russian seaborne oil imports earlier this year, it has thus far refrained from taking similar action against LNG imports. However, with imports of Russian LNG surging since the start of the war, accounting for around 15% of EU gas supply, pressure has been mounting on Brussels to act.

The proposed ban on trans-shipments within the EU is aimed at preventing the diversion of Russian LNG cargoes to other destinations. Currently, Belgium, France, and Spain are the largest importers of Russian LNG, with many of these imports being re-exported to other countries, including China. By imposing restrictions on trans-shipments, the EU hopes to ensure that Russian LNG does not find its way to markets outside of Europe.

In addition to the ban on trans-shipments, the European Commission is also considering sanctions on three Russian LNG projects - Arctic LNG 2, Ust Luga, and Murmansk. While the details of these sanctions are still being discussed, they are expected to target projects that are not yet operational, further complicating Russia's efforts to expand its LNG exports.

The move by the European Commission reflects growing unease within the EU over its dependence on Russian energy. With tensions between Russia and the West showing no signs of abating, European policymakers are increasingly looking for ways to reduce Europe's exposure to Russian energy supplies. By targeting Russian LNG imports, the EU hopes to send a clear message to Moscow that its actions in Ukraine will not go unpunished.

However, the proposed sanctions are likely to face resistance from some EU member states, particularly those that are heavily reliant on Russian energy. Nevertheless, with pressure mounting on Brussels to take action, it seems increasingly likely that Europe's energy landscape could be in for a significant shake-up in the coming months.

Russia has warned that Poland will make itself a 'priority target' if it hosts NATO nuclear weapons on its territory. In a Thursday statement Russian Deputy Foreign Minister Sergei Ryabkov said "Moves in this direction will not provide greater security (for Poland or other nations that host such weapons)." He was further quoted in Russian media as saying: 

Moscow considers any expansion of NATO’s nuclear-sharing arrangement as “deeply destabilizing” in nature, “and in fact threatening” Russia, Ryabkov was quoted as saying by TASS on Thursday. This applies to joint missions, where non-nuclear members of the US-led bloc are trained to use American hardware, and even more so to the permanent stationing of such weapons “which hotheads in Warsaw are talking about,” he said.

In follow-up, Foreign Ministry spokeswoman Maria Zakharova stipulated that "any nuclear weapons deployed to Poland would be legitimate targets in the event of war with the alliance." Russian media translations said Moscow would see this as a "priority target".

All of this was in response to words issued by Polish President Andrzej Duda in a Monday interview. He said his country is "ready" to host nuclear weapons should NATO decide to do so as reinforcement of its eastern flank. It remains that the United States chiefly supplies and oversees NATO's nuclear-sharing program, thus any possible future nukes in Poland would be supplied by Washington.

"Russia is increasingly militarizing the Königsberg oblast (Kaliningrad). Recently, it has been relocating its nuclear weapons to Belarus," Duda continued, apparently wanting to match and mirror Russian moves. Indeed Belarus is now believed to host possibly dozens of Russian tactical nukes.

via infobrics.org

"If our allies decide to deploy nuclear weapons as part of nuclear sharing on our territory as well, in order to strengthen the security of NATO's eastern flank, we are ready for it," the Polish president had added.

Duda additionally said while discussing the topic of NATO's nuclear sharing program in the interview that Warsaw and Washington have been in talks "for some time." He emphasized: "I've already talked about it several times. I must admit that when asked about it, I declared our readiness."

But the reality is Brussels and Washington are likely to be deeply hesitant based on the nuclear threats emanating from Moscow of late. Moving NATO warheads to Polish soil would most certainly greatly intensify the already somewhat high nuclear tensions, and at a moment the proxy war in Ukraine shows no sings of abating.

While three NATO members are officially nuclear weapons states - the United States, France and the United Kingdom – others are authorized to host nukes (typically 'tactical' nuclear weapons). They are Belgium, Germany, Italy, the Netherlands and Turkey.

Apparently Poland is now throwing its name in the hat for NATO's nuclear-sharing program, which would expand Western nuke placement right up to Russia's backyard. The Kremlin would no doubt deploy more of its strategic assets near Eastern Europe in such a scenario.