Five things you need to know before the market opens on Thursday May 4:
1. -- Stock Futures Slip Amid Hints From Fed On Rate Cycle, More Bank Woes
U.S. equity futures slipped modestly lower Thursday, while Treasury yields retreated and the dollar held steady against its global peers, as investors reacted to hints of a policy pivot from the Federal Reserve while tracking weakness in yet another regional bank.
The Fed lifted its benchmark interest rate by another quarter point last night, its 10th consecutive increase, taking the Fed Funds rate to a range of between 5% and 5.25% while warning that it remains "highly attentive to inflation risks" in the world's largest economy.
Chairman Jerome Powell told reporters in Washington, however, that while he and his colleagues were still expecting rates to remain elevated over the coming months, changes to the Fed statement -- which dropped the phrase “additional policy firming may be appropriate” in favor of "determining the extent to which additional policy firming may be appropriate" -- were meaningful.
Stocks were largely unmoved by the dovish tenor, however, with the S&P 500 eventually closing 0.7% lower on the session at 4,09.75 pints even as Treasury yields retreated amid bets on a late 2023 rate cut - something Powell told reports was not part of the policy committee's thinking.
The CME Group's FedWatch has completely priced out any further rate hikes, however, over the coming months, with bets on a quarter point reduction rising to 51.6% for the September meeting.
Benchmark 2-year Treasury note yields were marked 7 basis points lower in overnight trading at 3.866% while 10-year notes eased to 3.373%. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.07% higher at 101.410, near the same levels it traded immediately after last night's Fed decision.
The Fed also acknowledged simmering risks in the banking sector, following the failure of Silicon Valley Bank and the closure of Signature Bank in early March, as well as the sale of First Republic (FRC) to JPMorgan (JPM) earlier this week, but insisted the system is "sound and resilient."
Further declines are expected from most regional lenders today. however, after PacWest Bancorp. confirmed reports that it's considering strategic alternatives, including an outright sale.
PacWest shares were down more than 40% in pre-market trading, with Western Alliance (WAL) down 19.1% and Zions Bancorp (ZION) down 7.3%.
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 were priced for a modest 3 point opening bell decline while those linked to the Dow Jones Industrial Average are set for a 10 point dip. The tech-focused Nasdaq was marked 30 points higher.
In Europe, the region-wide Stoxx 600 was marked 0.36% lower ahead of the European Central Bank's highly-anticipated interest rate decision later today in Frankfurt, with analysts still divided as to whether Christine Lagarde and her colleagues will opt for a quarter or half point increase in the benchmark refinancing rate, which currently sits at 3.25%.
Overnight in Asia, the region-side MSCI ex-Japan index was marked 0.63% higher into the close of trading, while Europe's Stoxx 600 was marked 0.35% higher in early Frankfurt trading, tracking both today's Fed rate decision and tomorrow's European Central Bank meeting..
2. -- Apple Earnings On Deck With iPhone Demand Depth In Focus
Apple (AAPL) shares moved lower in pre-market trading ahead of the tech giant's all-important March quarter earnings expected after the closing bell.
Analysts expect Apple post a bottom line of $1.43 per share, down 6% from last year, with revenues falling 4.4% to just under $93 billion amid uneven China sales that could be offset by tailwinds from a weaker U.S. dollar.
Apple posted its first quarterly earnings miss in six years, alongside its first annual revenue decline since 2019, in early February as supply chain snarls in China limited the availability of its high-end iPhones and fading consumer demand dented personal computer sales.
Apple said iPhone sales, however, would accelerate over the three months ending in March, as iPhone pro handsets that went undelivered over the holiday period found their way to customers, adding that overall gross margins would improve to between 43.5% and 44.5%.
The group is also expected to unveil $90 billion worth of buybacks and dividends, but markets are likely to be more focused on commentary from CEO Tim Cook heading into the tech giant's autumn iPhone cycle.
Apple shares were marked 1.15% lower in pre-market trading to indicate an opening bell price of $165.53 each.
3. -- Qualcomm Slumps As Muted Outlook Clouds Q2 Revenue Beat
Qualcomm (QCOM) shares slumped lower in pre-market trading after the chipmaker forecast muted global smartphone demand, adding that a major customer, believed to be Apple, would delay some of its purchases into the back half of the year.
Qualcomm posted an adjusted bottom line of $2.15 or the three months ending in March, its fiscal second quarter, down 33% from last year but matching Street forecasts. Group revenues were down 16.7% at $9.3 billion, but narrowly topped analysts' estimates.
With "no evidence of a meaningful recovery" in handset demand, and little visibility with respect to China's post-Covid recovery, Qualcomm said it sees current quarter revenues of $8.1 billion to $8.9 billion, a 13% sequential decline at the lower end, linked to the likely delay of Apple's 'modem only' chip purchases. Earnings were forecast in the range of $1.70 to $1.90 per share.
Qualcomm shares were marked 6.5% in pre-market trading to indicate an opening bell price of $105.48 each.
4. -- PacWest Plunges As Bank Confirms Its Weighing Strategic Options
PacWest Bancorp (PACW) shares collapsed in pre-market trading after the Los Angeles-based lender said it's considering a host of strategic alternatives, including an outright sale, just weeks after touting its improved deposit base to investors.
Bloomberg first reported that PacWest has considered by raising fresh capital to bolster its balance sheet, or a breakup of its Pacific Western Bank franchise from its other consumer and commercial lending businesses. The bank confirmed that strategy late Wednesday.
PacWest scrapped plans to raise capital in March, as bank stocks were pummeled in the wake of the Silicon Valley Bank collapse, and noted Wednesday that 75% of its total $28 billion deposit base fell withing the FDIC's protection threshold.
"The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news," the bank said.
PacWest shares were marked 40.19% lower in pre-market trading to indicate an opening bell price of $3.84 each, a level that would value the bank at just $463 million.
5. -- Etsy Jumps After Solid Q1 Earnings, Robust Sales Outlook
Etsy (ETSY) shares jumped higher in pre-market trading after the online marketplace group posted stronger-than-expected first quarter earnings and a solid near-term sales outlook.
Etsy said diluted earnings for the three months ending in March came in at 53 cents per share, down around 11.7% from the same period last year and bang in-line with the Street consensus forecast.
Group sales, however, topped analysts' forecasts of $622.1 billion, rising 10.6% from last year to $640.9 million. Gross merchandise sales on the platform, the company said, fell 4.6% but came in just over the $3 billion mark.
Looking into the current quarter, Etsy said it sees revenues in the region of $590 million to $640 million,
"At first blush, we are impressed by Etsy's 1Q23 results given the challenging environment," said D.A. Davidson analyst Tom Forte. "It is consistent with our view that the company is doing an admirable job setting expectations despite low visibility and an increasingly challenging macroeconomic environment."
Etsy shares were marked 3% higher in pre-market trading to indicate an opening bell price of $101.90 each.
