Mood is slightly better this morning than it was into the weekend, as Iran reportedly offered the US a proposal to reopen the Strait of Hormuz — a move that could pave the way for the continuation of peace talks between the two parties. The result? Asian equities are higher this morning, with the Nikkei and Kospi rallying to fresh all-time highs. Most US and European futures point to a positive open, except for the UK’s FTSE futures, which are flat as the slight retreat in energy prices weighs on appetite there. US crude is currently trading near $98.60 per barrel, and losses could accelerate if peace hopes improve — you know the music.
Peace hopes — along with resilient earnings — are keeping major markets in a bullish mood. The AAII survey showed that bullish sentiment improved among investors despite rising inflation expectations and early signs of deterioration in economic data. Sentiment indicators on Main Street tell a completely different story, however. Data on Friday confirmed that US consumer sentiment fell to its lowest level on record in April, driven by the spike in energy prices, inflation worries and affordability concerns.
How long can equity markets and underlying economic health diverge? Potentially for a while, as deteriorating fundamentals can also be seen as “good news” for markets: a weakening economy could encourage the central banks to ease policy (or not tighten much), which tends to support valuations.
Take Procter & Gamble, for example. The company jumped before giving back part of its gains despite announcing a Q1 earnings beat. It also said that Brent at around $100 per barrel would cost roughly $1bn after tax compared to pre-war levels. The company highlighted rising transportation and raw material costs, as well as ongoing supply chain disruptions.
These pressures help explain why investors are rotating back into tech stocks, which appear less exposed to supply chain constraints. After Amazon, Google announced plans to invest $10bn in Anthropic — with potentially up to $30bn more — to remain competitive in the AI race. In return, Anthropic is reportedly set to spend heavily on securing compute capacity, including multi-gigawatt agreements with cloud providers, supporting both Amazon’s and Google’s cloud revenues. What a world.
On the policy front, the DoJ suddenly dropped its investigation into Federal Reserve (Fed) Chair Jerome Powell on the renovation of the Fed’s HQ to clear the way for Kevin Warsh, yes, because Kevin Warsh is willing to cut the interest rates – though he said he would behave as a grown-up and not be a ‘sock puppet’, but the idea of lower rates appeal to him, and the White House is loving it. Warsh has also expressed openness to reducing the Fed’s balance sheet — a process that could prove challenging given softer demand for US Treasuries, but potentially manageable if regulatory changes allow banks to operate with lower excess reserves. In short: deregulation remains part of the narrative.
The combination of softer economic data and policy-related headlines pushed US 2-year yields lower on Friday, helping lift the S&P500 to fresh highs, alongside optimism around earnings. The week ahead looks promising, with potential peace developments and a heavy earnings calendar. Around 180 companies in the S&P500 are due to report this week, including major names such as Microsoft, Meta Platforms, Alphabet, Amazon, Qualcomm, Coca-Cola and Verizon, as well as energy giants ExxonMobil and Chevron.
So far, around 28% of S&P500 companies have reported results. Of those, 84% delivered a positive EPS surprise and 81% beat on revenues. The blended earnings growth rate stands at 15.1%. If confirmed, this would mark the sixth consecutive quarter of double-digit year-on-year earnings growth, according to FactSet — not bad at all given the political and geopolitical backdrop.
In Europe, attention will focus on banks, carmakers, LVMH and TotalEnergies. The picture is more mixed, with luxury and autos facing pressure from geopolitical tensions, trade frictions and Chinese EV competition. Given Europe’s relatively limited exposure to tech — which has once again taken the lead — European equities could lag their US peers as earnings season unfolds.
On the monetary policy front, the week is also busy for central banks. The Fed, the BoJ (Bank of Japan), the European Central Bank (ECB), the Bank of England (BoE) and the Bank of Canada (BoC) are all expected to keep policy unchanged at their respective meetings, although uncertainty remains high due to geopolitical risks, elevated energy prices and slowing growth. Most have turned less hawkish in recent weeks, hoping the energy shock proves temporary. Evidence of demand destruction would likely reinforce a “wait-and-see” approach.
The US dollar is sharply lower this morning, and its recent depreciation helps ease inflationary pressures globally. The EURUSD is holding above its 200-day moving average (near 1.1675), while the USDJPY is pushing toward the 160 level — a zone where intervention risks from Japanese authorities tend to increase.
