A look at the day ahead in U.S. and global markets from Mike

Dolan

With markets now re-shuffling central bank rate cut

calendars, attention switches abruptly to the first quarter U.S.

corporate earnings season on Friday - against a backdrop of an

alarming swoon in China trade last month and rising Middle East

tension.

As usual, the big U.S. banks are first out of the traps and

are preparing to report slightly lower quarterly profits - even

if investors may focus on this year's interest income outlook

given the rethink on the Federal Reserve's policy trajectory.

JPMorgan, Citi, Wells Fargo, State Street, BlackRock are all

due to report later today.

More broadly, technology-related company earnings are

expected to again lead S&P 500 profit growth during the first

three months - although the forecast annual earnings expansion

of 5% for the index is about two points lower than it was at the

start of the year.

And it was Big Tech yet again - spurred by a surge in

Apple ( AAPL ) shares on a report it plans to overhaul all its

Mac models with AI-focused chips - which led Thursday's Wall St

bounceback. It was more bumpy for earnings-focussed banks - with

Morgan Stanley ( MS ) slumping 5% on a Wall Street Journal

report that its wealth management arm is being probed by

multiple regulators.

But clocking a 0.7% rebound in the S&P500, the

general market mood improved considerably after Wednesday's

inflation-related shakeout. Softer U.S. producer price readings

for March - including in key components that feed the Fed's

favoured PCE inflation gauge - were a big relief to interest

rate markets.

And even though Fed officials were clearly cautious about

the stickiness in the prior day's consumer price data, they

didn't seem minded to redraw the whole policy map just yet.

"There's no clear need to adjust monetary policy in the very

near term," New York Fed boss John Williams told reporters.

Fed futures re-calibrated again, pushing back closer to

pricing two rate cuts this year - starting in September just six

weeks before the U.S election. While a June start is now off the

agenda, the chance of a move as soon as July moved back above

50%.

The easier producer price numbers and Fed speakers were also

enough to drag Treasury yield back off the year's highs - with

two-year yields recoiling from 5% to settle just over

4.90% first thing on Friday.

Rising tension surrounding an imminent Iranian response

Israel's attack on its Syrian embassy may have added a safety

bid to bonds ahead of the weekend. Gold, which has now

risen 17% in just six weeks, hit another record high of $2,400

early on Friday and U.S. crude oil ticked back above $86

per barrel.

The dollar too was pumped up - with its index hitting

another 2024 high.

But the buck is gaining as much on the shift in central bank

sequencing - with the European Central Bank indicating on

Thursday that it may well go ahead and cut rates in June

regardless of Fed hesitation.

Confirmation that German inflation sank to its lowest in

almost three years at just 2.3% last month underlined

expectations that the ECB will go solo by midyear.

German two-year government debt yields fell back

10 basis points and European stocks jumped 1% on

Friday as a result.

But the euro plunged to its lowest of the year,

clocking its biggest 3-day drop in 14 months.

The dollar was also bolstered by ongoing Japanese yen

weakness to 34-year lows and the shocking Chinese trade

data that hit the yuan.

China's March exports contracted sharply, while imports also

unexpectedly shrank, both undershooting market forecasts by big

margins. Shipments from China slumped 7.5% year-on-year last

month, marking the biggest fall since August last year and

compared with a 2.3% decline forecast in a Reuters poll of

economists.

Chinese stocks ended the week in the red as a

result.

Even though sterling also fell back to a one-month

low against the dollar, markets are less sure the Bank of

England will be as bold as the ECB in cutting rates as soon as

June. Money markets price less than a 50% chance of a BOE move

that month.

What's more, Britain's tepid economy is on course to exit a

shallow recession after output grew for a second month in a row

in February and January's reading was revised higher.

And former Federal Reserve Chair Ben Bernanke will set out

on Friday how the Bank of England should reform its economic

forecasting.

Key diary items that may provide direction to U.S. markets later

on Friday:

* US corporate earnings: JPMorgan, Citi, Wells Fargo, State

Street, BlackRock

* US March export and import prices, University of Michigan's

early April household survey

* Kansas City Federal Reserve President Jeffrey Schmid, Atlanta

Fed President Raphael Bostic and San Francisco Fed chief Mary

Daly all speak

* Bank of England publishes former Fed chair Ben Bernanke's

review of its forecasting methods

* ECOFIN meeting of European Union finance ministers in

Luxembourg

(By Mike Dolan, editing by Andrew Heavens

[email protected])