In 30 seconds: The Fed is expected to hold rates steady amid stagflation concerns, while a mixed batch of US economic data—including a consumer confidence beat and softening labor indicators—reflects ongoing uncertainty from the Iran crisis and elevated oil prices. Q1 earnings season is delivering broadly strong results, with Coca-Cola surging 5.5% and software stocks rallying, though semiconductor stocks are under pressure as the market's cap-weighted index outpaces equal-weighted peers. Escalating US-China tensions are playing out across AI acquisitions, semiconductor production, yuan reserve requirements, and dollar recycling arrangements, with analysts debating the structural implications for global trade and bond markets. The UAE announced its departure from OPEC+ effective May 1, sending Brent crude above $111 per barrel, with markets drawing parallels to the 1990 Gulf War oil shock amid the ongoing Strait of Hormuz disruption.
The Fed is holding rates steady at 3.50-3.75%, citing continued uncertainty over the war in Iran and its impact on growth and inflation. Inflation had been steadily improving, the economy was solid, and the premise was far enough removed from reality that Powell quipped about it. That was almost exactly two years ago. The premise no longer seems so remote. The data arriving on desks this week tells a split story. The Consumer Confidence Index printed at 92.8, comfortably above the 89.0 estimate, rising from a revised 91.8. The present situation sub-index came in at 123.8 while expectations sat at 72.2, the kind of gap that makes you wonder whether consumers are describing the economy they have or the one they see coming. Regional manufacturing surveys were modestly constructive. The Richmond Fed Manufacturing Index rose to 3 against an estimate of 1, with new orders climbing from 4 to 8 and shipments at 2. Manufacturing employment improved from -2 to 0. The services side was less cheerful: the Richmond Fed Services Index dropped from 2 to -6. The Dallas Fed Manufacturing Index (ISM-adjusted) slipped to 50.8 in April, continuing its retreat from February's recent high. On the labor front, private payrolls averaged 39,250 per week over the four-weeks ending Apr. 11, marking the first downward movement, albeit slight, since February. Meanwhile, FHFA House Prices came in flat at 0.0% month-over-month versus the 0.1% estimate. Gold settled at $4,612.50, off 1.35% on the day, a modest retreat that still leaves the metal priced for a world where the Iran crisis remains unresolved and central banks everywhere — from the Fed to the Bank of Japan, which held rates on a 6-3 vote while acknowledging the stagflationary winds — prefer to wait rather than act.
The broad story of this earnings season is that companies are clearing the bar, and the market is rewarding them for it. Earnings estimates were beaten by 20%. The cap-weighted S&P 500 made new highs, continuing to outpace the broader market. Coca-Cola's earnings reaction stood out as one of the session's bigger single-stock moves. Coca-Cola $KO earnings reaction: 7.6%. Selling sugar water, it turns out, is a defensible business. Microsoft, Salesforce, Adobe, and Workday each posted gains today, with moves ranging from 1% to 3.5%. Adobe $ADBE added 2.5%, Workday $WDAY gained 3.5%, Salesforce $CRM rose 1.8%, and Microsoft $MSFT ticked up 1%. Kforce $KFRC reported its first triple play in four years, and shares surged 40%. Crane $CR posted its first triple play since 2021 after ten straight quarters of EPS and revenue beats, though the stock managed only 1%. Amkor $AMKR reported its first triple play in more than five years, gaining 9%. The iShares Semis ETF $SOXX fell 2%. Microsoft $MSFT: 1%. The options market is pricing $AMD calls at a 20% breakeven move, even as $AMD stock has rallied 50% this month.
China is blocking Meta's $2 billion acquisition of AI startup Manus. Hua Hong's initial 7nm wafer production capacity is expected to reach a few thousand wafers per month by end of 2026. The dollar recycling machinery is creaking in interesting places. Russia's central bank wants commercial banks to hold mandatory reserves of yuan to prevent shortages of the currency in the fx market, after interest rates on yuan swaps jumped above 40% in March, driven by heavy yuan lending and reduced inflows. One analyst argues the US is now lending the UAE money to invest in the US when they were going to invest their own money 2 months ago, characterizing perpetually renewed swap lines as functionally indistinguishable from money printing. The same pattern, he argues, played out in Argentina, which forced the US's hand by turning to China. Gold settled at $4,612.50, down 1.35% on the day.
The UAE, which features in the US-China Trade War: Tech, AI, and Dollar Recycling Tensions section, is also a central factor in the UAE Exits OPEC+, Oil Prices Surge Past $111 story.
The UAE announced its exit from the OPEC+ oil cartel. This is not a country storming out of a room. A Japanese vessel owned by the same refiner behind the Nissho Maru — which broke the oil trading embargo that the UK had unilaterally imposed on Iran in 1953 — today exited the Strait of Hormuz. The macro math is unpleasant. The national average for regular gasoline has already hit $4.176 per gallon. At $111, Brent is now above both the $100 threshold and the $105 level flagged as the point at which the Treasury market starts dysfunctioning. The equity market, for its part, continues to trade along the 1990 Gulf War analog, presumably betting on a quick reversal from the current oil spike. The current drawdown from peak sits at 18%, compared with 19% during the 1990 episode. The cap-weighted S&P 500 made new highs last week. The good news, such as it is: US oil consumption per person is down almost 30% from its 1978 peak, because the economy has become much less oil-intensive following the oil shocks of 1973/74 and 1979/80. Brent crude (June): $111.
Here is where the labor market stands for your paycheck.
Initial jobless claims: 214,000, up 2.88% on the week
Continuing claims: 1,821,000, up 0.66% on the week
Job openings (JOLTS): 6,882.00, down 4.94% on the month
Quits rate: 1.90, down 5.00% on the month
Unemployment rate: 4.30, down 2.27% on the month