Five things you need to know before the market opens on Monday May 1:
1. -- Stock Futures Edge Higher With Earnings, Fed In Focus
U.S. equity futures edged higher Monday, while the dollar extended recent gains against its global peers and oil price tumbled, as investors looked to a busy week of earnings and data on Wall Street while digesting the second domestic bank collapse in as many months.
First Republic, the struggling lender and wealth manager, was taken into receivership by California regulators late Sunday and solid to JPMorgan Chase, which assumed the bulk of its loan book and deposit base. The sale marks the second U.S. bank failure since the collapse of SVB Financial in early March.
Investors are likely to look past the First Republic failure, however, given the low levels of market volatility and the overall strength of the U.S. corporate earnings season, which has seen around half of the S&P 500 reporting March quarter profits.
Around 77.9% of companies reporting have topped Street forecasts, besting both the 73.5% average recorded over the past four quarters and the longer term average of around 66.3%. Data from Bank of America, in fact, suggests that 65% of reporting companies have issued earnings guidance that topped Street forecasts, the best since the third quarter of 2021.
Elsewhere, a weaker-than-expected reading of manufacturing activity in China over the month of April, published Sunday by the National Bureau of Statistics, suggests a pullback in the world's second-largest economy and biggest energy importer.
Oil prices turned lower as a result, with WTI crude for June delivery falling $1.58 to $75.20 per barrel and Brent contracts for July down $1.60 to $78.73 per barrel.
In the bond market, May 1 holiday celebrations in key European markets kept overnight volumes low, with benchmark 2-year note yields holding at 4.066% and 10-year notes trading at 3.467% heading into this week's Fed rate decision on Wednesday. The U.S. dollar index, meanwhile, was marked 0.21% higher against a basket of its global peers at 101.872.
Traders continue to price in at least a 90% chance of a 25 basis point rate hike, which would take the Fed Funds rate to a range of between 5% and 5.25%, a level that is likely to remain in place until November.
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500, which is up 9% for the year, were priced for a 2 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 16 point bump. The tech-focused Nasdaq was marked 5 points higher.
Overnight in Asia, the region-side MSCI ex-Japan index was marked 0.09% higher into the close of trading, while European stocks were quiet amid the May Day holiday observances.
Japan's Nikkei 225 close 0.92% higher, however, ending the session at an 8-month high, and over the 29,000 point mark, following the first policy meeting of new Bank of Japan Governor Kazuo Ueda on Friday.
Ueda repeated the Bank's intention to keep rates at near-zero levels for an extended period of time, while launching a broader policy review that will likely take up to 18 months.
2. -- Week Ahead: Fed Decision Highlights Hectic Slate on Wall Street
The Federal Reserve's May policy meeting, which wraps-up on Wednesday, will highlight another hectic week for earnings and data on Wall Street are markets look to consolidate a robust year-to-date gains for the S&P 500.
The Fed is widely expected to deliver its tenth consecutive rate hike this week, potentially capping the most aggressive policy tightening in decades as it continues to sell bond some its $8 trillion balance sheet. What follows, however, remains hotly-debated among investors and analysts alike as the economy show signs of a near-term recession and the pace of inflation slows markedly from last year's multi-decade peaks.
Alongside the Fed decision this week will come a series of crucial readings of the domestic job market, with a focus on Friday's April employment report, expected to show a net gain of 180,00 net jobs with only a modest easing in wage pressures. ADP National Employment report is expected Wednesday at 8:15 am Eastern time with weekly jobless claims slated for 8:30 am Eastern time on Thursday.
The European Central Bank will also make a key policy decision Thursday in Frankfurt, with markets still undecided as to whether President Christine Lagarde will opt for a 25 basis point or 50 basis point increase in the central bank's main refinancing rate.
Around 162 S&P 500 companies are also scheduled to report March quarter earnings this week, including Apple (AAPL) after the close of trading on Thursday. Pfizer (PFE), CVS Health (CVS), Starbucks (SBUX), Advanced Micro Devices (AMD) and Qualcomm (QCOM) are also on deck for this week..
3. -- First Republic Sold To JPMorgan As Regulators Take Over Another Failed Lender
First Republic (FRC) shares collapsed again in pre-market trading after California regulators, along with the Federal Deposit Insurance Corporation (FDIC), brokered a sale of the struggling lender and wealth manager to JPMorgan Chase (JPM).
The California Department of Financial Protection and Innovation took control of First Republic late Sunday, while appointing the FDIC as its official receiver, while announcing that JPMorgan -- the bank which lead a $30 billion effort to boost First Republic's deposit base in March -- had emerged as the preferred bidder for the bank's assets.
JPMorgan will take on $173 billion of First Republic's loan book, the regulators said, while purchasing $30 billion in securities from its balance sheet and $92 billion in deposits. The FDIC will take a $13 billion hit from the sale, while JPMorgan will book a one-off $2.6 billion gain.
The deal does not include either First Republic's debt nor its preferred or common stock.
"Our government invited us and others to step up, and we did," said CEO Jamie. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.
First Republic shares were marked 38.75% lower in pre-market trading to indicate an opening bell price of $2.15 each, while JPMorgan shares gained 2.86% to $142.20 each.
4. -- G-7 Ministers Agree to Tame AI Developments, Ensure 'Trustworthy' System
Ministers from the G-7 group economies responsible for digital advancement suggested governments need to adopt a "risk-based" approach to regulating the advanced of Artificial Intelligence, marking the first major indication that governments will begin moves toward oversight of the rapidly-developing technology.
In a statement that followed a meeting of G-7 ministers in Takasaki, Japan over the weekend, leaders agreed that AI technology should be allowed an "open and enabling environment" but stressed the need for rules that would ensure a "trustworthy" system. Japan will host the formal G-7 Summit, hosted by Prime Minister Fumio Kishida, later this month.
AI has formed the central plank of several big tech company investment ambitions this years, following on from the launch of Microsoft's (MSFT) large-language model search program, developed with OpenAI, known as ChatGPT.
"We plan to convene future G7 discussions on generative AI which could include topics such as governance, how to safeguard intellectual property rights including copyright, promote transparency, address disinformation" including information manipulation by foreign forces," the G-7 statement said.
5. -- SoftBank Plans Nasdaq IPO For Arm After Spurning London Listing
Japan's Softbank Group has opted to float chipmaker Arm Ltd on the Nasdaq later this year, establishing what its likely to be the biggest IPO since 2021.
Arm will look to raise around $8 billion to $10 billion from the share sale, according to media reports, although official price ranges and deal sizes have yet to be determined.
Softbank, which failed to complete a $40 billion sale of the U.K-based chipmaker to Nvidia (NVDA) last year amid pushback from competition authorities in the U.S. and Europe, nonetheless spurned the British government in March by opting to pursue a U.S.-only listing.
The Arm IPO will likely double, or possibly triple, the $3.5 billion listing of Kenvue, the consumer health business of Johnson & Johnson (JNJ), which is expected to wrap-up next week.
