Market Update

Good morning,
 
Yesterday the S&P 500 began to slip just after trading began and continued fading for the rest of the morning. News of an update to Anthropic’s AI offering brought the shouting about software displacement to a full-scale scream. Software names sold off overseas, which then quickly moved to the US and across industry verticals. Tech was easily the worst sector, dropping 2% with software seeing the worst of it. The IGV software ETF was down almost 5%. Comm Services was another laggard.  The S&P finished down 0.8% but was down as much as 1.6% at its lows, coinciding with a bounce after briefly trading below the 50d ma, after news of the passage of funding to end the partial government shutdown. Energy was the best sector as oil rose, while Materials and Staples also gained. Of note, the equal-weight’s losses were more modest (-0.3%) and the Russell gained 0.3% in the midst of the SAAS-pocolypse.
 
S&P futures are around unchanged, trading in a pretty tight range overnight. The IGV Tech-Software ETF is trading down another 1% in the pre-market. Not much reaction to a cooler ADP jobs number. AMD earnings last night are in focus today. Despite beating numbers and guiding above, the stock is down ~10% in the pre-market. Boston Scientific is also down a similar amount after earnings. Two stocks with high expectations. On the other hand, Eli Lilly is trading up 8% after a big print. It’s another big night for earnings which will include Alphabet, and Amazon reports tomorrow night.  Presidents Trump and Xi were reported to have spoken this morning, though no details have emerged yet. The two are scheduled to meet in April.
 

 
ADP employment data this morning took the place of yesterday’s JOLTS data delay (government shutdown). 22k jobs added were below consensus and the prior month. Education and Health Services added 74k jobs, while Professional and Business Services shed 57k and manufacturing shed 8k. Mid-sized firms added jobs 41k jobs while large employers shed 18k and small employers were flat. Treasuries didn’t react too much to the report, but right after, the detailed Treasury refunding schedule came out. While it was as expected, the long-end rose about 2bp, with the potential for more duration to eventually hit the market being contemplated. The US Dollar Index is relatively unchanged after taking a pause from recent gains yesterday. ISM services is out later today.                    
 
Government Yields

• US 2yr +0bps to 3.58%, 5yr +1bps to 3.85%, 10yr +2bps to 4.29%, 30yr +2bps to 4.92%
• USD index: +$0.05 to $97.36

Europe is trading higher outside of Germany. Not much of a bounce in software/tech but Industrial and autos are mostly higher. Europe CPI and PPI was about inline and declined from last month. Japan’s Nikkei fell ~1% overnight with large caps/tech/growth largely responsible for the decline, echoing US action yesterday. Meanwhile Industrials/Materials were bid with names like Mitsubishi Materials, Sumitomo Heavy and Sumitomo Chemicals up 5% or more. China was mostly higher but tech names were under pressure here as well.  
 

 
Metals continue to rally after the violent correction Friday/Monday. Crude is around flat. Last night’s API inventory data showed a big 11M barrel draw, well above consensus, but that disparity wasn’t unexpected due to the recent winter storm. The DOE print is later today.  Nat gas is modestly higher and the recent volatility has normalized since Monday. Bitcoin and Ethereum continue to move lower, though the move is modest so far today. Ag is also trading lower.
 

 
Earnings:
 

• After-Market (Tues): AFG, AMD, AMGN, APAM, ATO, BDN, CB, CBT, CLX, CMG, COLM, CRUS, CSL, CTVA, DOX, EA, EGHT, EMR, ENPH, HMN, HRB, IAC, J, JKHY, KREF, LITE, LUMN, MDLZ, POWL, PRU, RNR, SKWS, SONO, SMCI, THG, UFI, VLTO, WRFD
• Pre-Market: ABBV, ADNT, AVY, AZTA, BG, BSX, CDW, CME, CMI, COR, CTSH, EFX, EVR, FLEX, FOX/a, FTV, GEHC, IEX, JCI, KMT, LEA, LLY, NYT, NVO, NVS, ODFL, PFGC, PSX, REYN, SLGN, SWK, TECH, TKR, TROW, UBER, VSH, VVV, YUM

• After-Market: AFL, ALGN, ALL, ARM, ATEN, AVB, BKH, CCI, CCK, CLB, COHR, CPAY, DGII, EG, EGP, EQH, ELF, ESS, FMC, FORM, FR, GL, GOOGL, HP, KLIC, MAA, MC, MCK, MCRI, MET, MUSA, MWA, NOV, OHI, ORLY, PTC, QCOM, RAL, REXR, RNR, RRX, SITM, SNAP, STE, SYM, TTMI, UGI, VCTR, WEX

 
Economic Data:
US:

• API Crude Inventories: -11.1M vs 0.7M cons, prior -0.247M
• Mortgage applications: -14.4% vs prior -0.4%
  • Refis: -4.7% vs prior -15.7%
  • 30yr rate: 6.21% vs prior 6.24%
• ADP Monthly Employment Change: 22k vs 48k cons, prior 37k
• 9:45am Final Services PMI
• 10:00am ISM Services
• 10:30am EIA Crude Inventories

 
Global:

• Final Japanese Services PMI: 53.7 vs flash 53.4
• Final Australia Services PMI: 56.3 vs flash 56.0
• China RatingDog Services PMI: 52.3 vs 51.8 cons, prior 52.0
• Germany Final Services PMI: 52.4 vs flash 53.3
• Europe Final Services PMI: 51.6 vs flash 51.9
• Europe CPI y.y: 1.7% vs 1.7% cons, prior 2.0%
  • Core: 2.2% vs 2.3% cons, prior 2.3%
• Europe PPI m.m / y/y: -0.3% / -2.1% vs -0.3% / -2.3% cons, prior 0.7% / -1.4%