Inflation Swaps Move Lower

MACRO FRAME

Market euphoria is back with earnings are doing the heavy lifting. Activity is relatively muted ahead of tomorrow’s jobs report, while inflation expectations have eased on US-Iran news.

STOCK INDEX FUTURES

Equity index futures are little changed overnight as markets await further details of US-Iran peace talks, while traders likely also reluctant to make big moves ahead of April’s nonfarm payrolls report due tomorrow. The S&P and Nasdaq both notched record closes the previous session, while the Dow exited correction territory as momentum gained on US-Iran peace talk hopes. Approximately 70% of S&P 500 companies have reported earnings; the season has been decisively stronger than anticipated heading in. The blended year-over-year EPS growth rate now stands at approximately 25–27.8%, depending on the source (FactSet at 27.8% per LSEG/Reuters; other estimates around 25%), roughly double the 12–13% growth anticipated at the end of March. This would mark the highest quarterly earnings growth since Q4 2021 and the 11th consecutive quarter of year-over-year growth. The Mag 7 (combining actuals for the 6 that have reported with NVIDIA’s estimate) are tracking to +45.7% EPS growth on +24.6% revenue growth. Tech and Communication Services are collectively delivering ~50% earnings growth, which is the single largest driver of the index-level outperformance. The VIX is trading at 17.45, up 0.06 points (+0.35%) from Wednesday’s close of 17.39, reflecting marginally firmer hedging demand into Thursday’s session despite continued strength in equity futures. A reading in the moderate 15–20 zone, essentially unchanged on the session, signals neither complacency nor stress and argues against any meaningful risk-off posture at current index levels.

The June S&P is trading at 7,397.00, up 0.10% from Wednesday’s settlement of 7,389.50, within an overnight range of 7,377.00 to 7,410.50. Near-term support is seen at 7,377.00 (overnight low), with initial resistance at 7,410.50 (overnight high) and the 7,500 round number above. The S&P 500 cash ($SPX) closed Wednesday at a record 7,365.12, holding +7.70% above its 50-day SMA of 6,838.40 and +9.20% above its 200-day SMA of 6,744.44.

The June Nasdaq is essentially flat at 28,729.75, up 0.05% from Wednesday’s settle of 28,716.75, within an overnight range of 28,637.00 to 28,814.50. Initial support is at 28,637.00 (overnight low), with resistance at 28,814.50 (overnight high) and the 29,000 round number above. The Nasdaq 100 cash ($IUXX) closed Wednesday at a record 28,599.17, sitting +12.73% above its 50-day SMA (25,370.38) and +14.86% above its 200-day SMA (24,898.46) — the most extended of the three indexes.

The June Dow is at 50,092, up 0.12% from Wednesday’s settle of 50,034, within an overnight range of 49,984 to 50,217. Support sits at 49,984 (overnight low) and the 50,000 round number, with resistance at 50,217 (overnight high). The DJIA cash ($DOWI) closed Wednesday at 49,910.59, holding +4.26% above its 50-day SMA of 47,871.00 and +5.56% above its 200-day SMA of 47,283.18.

Watch point: In the near-term Friday’s payrolls figure will help determine if the recent rally has legs, though the earnings backdrop and positive news on the US-Iran front offer positive momentum for the indices.

CURRENCY FUTURES

US DOLLAR: The USD index is 0.12% lower at 97.90, weighed down by optimism over US-Iran talks that has spurred risk-on moves in the currency market and unwound dollar positions. The broader currency market is largely in a wait-and-see mode ahead of tomorrow’s nonfarm payrolls report and further news regarding the US-Iran conflict. Optimism surrounding a potential agreement to end the conflict and restore energy flows through the Strait supports broader risk sentiment, mainly benefiting oil-exposed currencies, while additional easing Fed tightening expectations, weighing on the dollar’s upside.

Watch point: An in-depth, formal peace agreement is likely to be dollar negative, while any retort of such from either party presents upside risk.

EURO: The euro is 0.20% higher to $1.1768 as the dollar’s safe-haven demand waned amid growing hopes for a US-Iran agreement. Developments regarding the US-Iran conflict will continue to be the dominant factor in price direction for the euro; optimism over a possible/complete agreement to end the war will be friendly to prices. However, ebbing inflation pressures are likely to temper expectations for further European Central Bank tightening, which could in turn cap the upside for the euro. Still, interest rate differentials for the ECB will provide support against the dollar. Markets are pricing a 70% chance of a hike at the June meeting. The fluid US-Iran peace agreement news is likely to contribute to volatility regarding rate-hike expectations.

Markets are fully priced for two rate hikes by year-end from the ECB, with July’s meeting fully priced for a hike, a shift from earlier pricing for a hike come June.

Watch point: Language from ECB policymakers will be keenly watched for signals on whether a June hike is feasible given the geopolitical uncertainty.

BRITISH POUND: Sterling is 0.24% higher to $1.3625 as moves in the currency largely react to news around oil and Iran, though local elections in the UK also remain significant for their impact on price direction. Local and regional elections could see the nationally governing Labour party lose council seats and in turn, put pressure on Prime Minister Starmer to quit or lay out a timetable for his departure. Bond markets have signaled worry that Starmer will shift policy or be replaced by a more left-wing leader who could push for more spending. In recent years, selloffs in British bonds have pressured the pound. For now, the options market is not pricing any sharp swings in the currency due to the election.

Money markets are pricing a 32% chance of a hike from the Bank of England at its June meeting, a substantial drop from 55% priced on Tuesday, reflecting falling expectations of tightening given the weakness in the UK economy, which is expected to limit any tightening from the BoE.

JAPANESE YEN: The yen is little changed at 156.37 yen per dollar. Japan’s top currency diplomate said the country faces no constraints on how often it can intervene in currency markets and is in daily contact with US authorities. The comments underscore that the 160 level is a pain threshold for the government, which is likely to act as solid support for the currency. US Treasury Secretary Bessent will be visiting Japan next week, lending focus to whether or not the US will join Japan in intervening. For the moment, official intervention is likely to be limited solely to Japan.

Minutes from the Bank of Japan’s most recent meeting showed that some policymakers pressed for an early rate hike at the March meeting. The minutes did move rate hike odds up slightly, with markets now pricing a 63% chance of a hike come June, compared to 55% odds yesterday. For the Yen, firm policy support will be needed to achieve further price gains. Without firm policy support from the BoJ, the yen is likely to consolidate in the 157-159 range.

Watch point: Given the current status quo, the yen is likely to consolidate in the 157-159 range, unless policy support from the BoJ firms.

AUSTRALIAN DOLLAR: The Aussie is 0.26% higher to $0.7255. Australia unexpectedly recorded a goods trade deficit of AUD 1.84 billion in March, its first in over eight years, as imports of data center computing equipment surged, while fuel shipments also jumped on higher prices driven by the Iran conflict. The Reserve Bank of Australia raised the cash rate to 4.35% and hinted that any further rate hike may be on hold saying, “monetary policy is well placed to respond to developments.” The board voted 8 to 1 for the hike, a hawkish shift from March when it split 5-4. Markets imply around a 18% chance of an additional move in June, but are fully priced for another hike to 4.60% by September. However, a reopening of the Strait this month would likely result in the board holding on rates. The main downside risk for the Aussie in the near term remains the geopolitical bid.

Watch point: While a durable ceasefire would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to keep the RBA on a tightening path.

TREASURY FUTURES

Yields edged lower ahead of tomorrow’s payrolls report, which is likely to keep Treasurys trading in a contained range today. The March JOLTS report painted a mixed but broadly stabilizing labor-market picture, with job openings holding above their long-run median and revised higher for February, while still drifting lower in year-over-year terms. Stronger-than-expected openings and a sharp rebound in hires to their highest rate since early 2024 were offset by a notable pickup in layoffs, particularly at large firms and in professional and business services, leaving the underlying “low-hire, low-fire” equilibrium largely intact.

3M 3.681% (-0.8 bp from 3.689%), 2Y 3.828% (-4.4 bps from 3.872%), 5Y 3.955% (-4.7 bps from 4.002%, decisively back below 4.00%), 10Y 4.318% (-3.6 bps from 4.354%), and 30Y 4.919% (-2.4 bps from 4.943%). The 2/10 spread stands at 49 bps (+1 bp wider from 48 bps), 5/30 at 96 bps (+2 bps wider from 94 bps), and 3M/10Y at 64 bps (-3 bps tighter but still uninverted). With the 5Y down 4.7 bps versus the 30Y down only 2.4 bps, this is a clean bull steepening at the long end — the easing-pricing impulse is concentrated in the belly while the long end remains anchored by yesterday’s revised-up Q3 borrowing estimate of $671B and ongoing supply concerns.

Inflation compensation extended yesterday’s roll-over with a meaningful break in the rising trend, consistent with falling oil and the US–Iran de-escalation story. 5Y breakeven 2.58% (-9 bps d/d from 2.67%, -11 bps w/w from 2.69% on 5/01), 10Y breakeven 2.42% (-5 bps d/d from 2.47%, -6 bps w/w from 2.48%), and 5y5y forward 2.26% (-1 bp d/d from 2.27%, -1 bp w/w), the front-end breakevens have given back essentially all of last week’s run-up while the longer-horizon forward remains stable. The 5Y/10Y BE spread compressed to 16 bps (from 22 bps Tuesday), confirming the front-loaded inflation profile is fading rapidly as the energy/tariff premium unwinds. With the 5y5y forward at 2.26%, comfortably below the 2.50% de-anchoring threshold, the Fed retains full optionality to ease.

Watch point: Fed policy is poised to stand pat for the time-being, though a path to loosening remains open. Well-anchored inflation expectations should offer resistance to higher yields, while also supporting the case for Fed easing later in the year.

 

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