Mid-Morning Look

Wednesday, April 09, 2025

U.S. stock futures swung between gains and losses overnight as traders tried to make sense of the market chaos after Trump’s tariffs took effect at midnight on China. After hitting overnight highs of 5,070 for S&P futures (Spuz), and off lows of 4,871.75 (which held the Sunday night low of 4,832), markets looked higher before China announced its latest retaliatory tariff move against the U.S. this morning, saying they were raising tariffs on U.S. imports to 84% from 34%, which will take effect on Thursday. Beijing said last week that it would impose 34% tariffs on U.S. goods, prompting Trump to escalate tariffs on Chinese imports to 84%. This brings the total cumulative tariffs on Chinese goods this year to 104%. After falling more than 2% on the China headlines in futures trading, stocks have clawed their way back into positive territory ahead of key items to watch today including: 1) US Treasury auction of $39B in 10-year notes, 2) any progress with other trading nations on tariffs (Vietnam, Japan, India), 3) does the US retaliate again vs. China? It’s all about the macro uncertainty right now for major averages that has pushed stock down sharply in recent weeks. We are coming up on key inflation data tomorrow (CPI) and Friday (PPI) and the start if earnings season.

The US dollar index (DXY) is down -0.7% on the day at 102.25 as Trump tariffs come into effect. Treasury yields are sharply higher amid concern over the potential impact of tariffs on the economy and inflation. Reminder the US Treasury will auction $39B in 10-year notes at 1:00 EST today; recall the 3-yr auction yesterday was very weak, prompting another surge in Treasury yields. The yuan stabilized somewhat, as the PBOC tries to manage the decline of the currency which finished the domestic trading session at 7.3498 per dollar yesterday, the weakest close since December 2007. The euro rises and the yen falls. Reuters noted traders of futures tied to the Federal Reserve policy rate now favor a June start to U.S. central bank interest-rate cuts, a shift from May earlier in the day, followed by three more rate cuts through the end of the year. Minneapolis Fed President Neel Kashkari said the hurdle is high to a Fed policy response “up or down” to the effects of sweeping tariffs. June gold prices jumping over 3.6% of $100 bucks to $3,090 an ounce in rotation to safety trade given all the uncertainty.

A sharp sell-off in US Treasuries sent yields surging to multi-year highs, while the dollar and oil also fell. U.S. government bond selloff resumes as the 10-yr U.S. Treasury note yield rises 24 bps on day at 4.5% (which follows a 35bps intraday range this week), before paring move to 4.35%. UBS suggests the volatility/wide moves are being cause by: A) dealer positions in Treasuries were very elevated coming into this equity drop, B) leveraged investors needed to raise cash to meet margin calls on equity positions, C) dealers had very little carrying capacity given their already elevated positions, limiting their ability to bid and forcing them to immediately liquidate new positions in the market. The dollar also lower as the euro (EUR/USD) hits the highest since last September.

A good take on the game of “chicken” battle between the US and China on trade and tariffs from @Galois_Capital:

Things in China’s favor:

1. U.S. needs to roll a lot of debt in the first half of 2025.

2. Midterm elections are a risk for Trump if he goes too hard for too long.

3. The Chinese, culturally, are world champions at being willing to endure hardship.

4. China controls a lot of rare earth metal production.

Things in the US’s favor:

1. China needs to fight deflation and already has a lot of debt.

2. Net importers have the advantage over net exporters in a trade war.

3. US can make trade deals with countries that net export to the US and net import from China where US tariffs are dropped if those countries puts up tariffs on Chinese imports.

4. The CCP really doesn’t want to see civil unrest like during the late stages of their zero covid policy.

5. US has geographic control of many global canals and shipping routes. This is why Panama was important.

In Interesting stats: @CyclesFan noted “The Nasdaq 100 bullish percent index closed at 6 which is the 4th lowest level in the history of the index. Totally crazy. It was at 1 in September 2001 and October 2008, and at 2 in March 2020. Other similar lows: 7 in June 2022 and 8 in July 2002.” 2) the Fear and Greed Index hit 4/100 = Extreme Fear. Lots of market fear out there and remains so with the VIX holding above 50 most of this week.

• CEG +3%; was upgraded to Buy at Citigroup saying the stock’s risk-reward profile looks more attractive after the sell-off, with upside in potential Co-location deals (it assumes ~1.0GW uprates & ~1.2GW existing), potential Texas gas builds, Calpine favorable stock issuance (power names VST, OKLO, NRG higher).
• DAL +9%; reported Q1 results above consensus but weaker guidance as Q1 adj EPS $0.46/$13.0B topped ests $0.38/$12.98B; guides Q2 adj EPS $1.70 to $2.30 vs est. $2.23 and guides Q2 adj rev growth outlook down -2%- to up 2%; reducing planned capacity growth in 2H to flat y/y; said considering economic uncertainty, Co is not affirming FY 2025 financial outlook.
• LNC +1%; after Bain Capital said it will acquire 9.9% stake for about $825M, the insurer announced, and Bain will also become LNC’s investment manager across asset classes including private credit. LNC will sell about 18.8 million shares at $44 apiece, a 52% upside to stock’s last close.
• NVDA +4%; as the Semiconductor index (SOX) early tech leader up nearly 3%.
• SMPL +11%; logged higher sales and earnings in Q2 as demand holds strong for high-protein and low-carbohydrate foods and beverages (EPS $0.46/$359.7M vs. est. $0.40/$354.6M).
• WMT +3%; reaffirmed its Q1 sales guidance and widened its range for operating income growth to stay flexible on pricing as tariffs go into effect; said it expects sales growth to continue to be in line with the 3% to 4% guidance it has previously shared for the Q1, which it reports on May 15

• CALM -2%; reported a top and bottom line Q3 miss as EPS of $10.38 missed est. $10.91 and Q3 revs of $1.4B vs. est. $1.43B; signed a definitive agreement to acquire Echo Lake Foods for approximately $258M.
• EXC -2%; as defensive and dividend paying utilities (ETR, ES, NEE, DUK, PPL) seeing weakness as Treasury yields spike the last few days (almost 60-bps move from low to high for 10-yr in 3-days).
• NEOG -35%; cuts FY25 revenue forecast to about $895M from prior view $905M-$925M after Q3 revs of $221M missed the $224.9M estimate saying uncertainty primarily related to global trade policies contributed to results being below expectations; also announced CEO John Adent will be stepping down.