Impressive results from U.S. megacaps Microsoft and Meta lifted their shares by 8% and 5%, respectively, ahead of Thursday's bell, with positive news on cloud computing and artificial intelligence, themes that have recently been overshadowed by tariff news.
Following last week's beat from Alphabet and with Apple and Amazon due to report late on Thursday, the tech earnings picture has brightened amid the trade war fog and given a shot in the arm to the wider market.
Nasdaq and S&P 500 futures are up 1-1.5% head of today's bell as a result. The Nasdaq, though still down 10% for the year to date, has clawed back all its losses since the April 2 tariff announcement. The S&P500 and 'Magnificent Seven' megacap ETFs on Thursday are likely to have also regained the ground lost after 'Liberation Day'.
Fittingly on 'International Workers Day', which has closed most of Europe's markets on Thursday, attention is zooming back in on the employment situation and how it is unfolding as the second quarter gets under way.
After a miss on April private sector payrolls from the ADP update on Wednesday, April layoff data and weekly jobless claims are next on the slate before the overall jobs report is released tomorrow. April manufacturing surveys from ISM will also be watched closely for signs of any tariff-related fallout.
Amid the blizzard of economic and corporate reports on Wednesday, the focus was on the negative U.S. GDP print for the first quarter, something that was almost unthinkable at the start of the year.
While the 0.3% contraction was below consensus forecasts for an equally modest expansion, the result was clearly distorted by import stockpiling ahead of tariffs. And it was slightly better than many updated 1Q growth forecasts put out just before the release.
Import surge aside, much of the attention was on the more resilient consumption and production readings, though there is debate about the extent to which these were also flattered by pre-tariff stockpiling.
Some correction of these trade-related distortions is expected in the current quarter, but it remains to be seen how much the actual tariff moves affected behaviour last month or what impact they will have moving forward.
President Donald Trump blamed the first quarter GDP hit on distortions and hangovers from the previous administration, even though those distortions were driven mostly by his tariff plans.
However, improving news on trade talks has continued to leak out. A social media account affiliated with Chinese state media claimed the United States had approached China seeking talks over Trump's 145% bilateral tariffs, potentially signalling Beijing's openness to negotiations.
And there was some progress on the geopolitical front too as Ukraine and the U.S. finally signed a deal that gives the United States preferential access to new Ukrainian minerals deals and funds investment in Ukraine's reconstruction.
But the combination of a GDP miss, softer jobs numbers and a benign core inflation reading for March has encouraged Federal Reserve easing bets. Futures are now pricing in just over 100 basis points of rate cuts by yearend, starting about midyear.
As a result, U.S. Treasury yields have slipped back further to three-week lows.
U.S. crude oil prices have also fallen further toward four-year lows around $57 per barrel.
The dollar has crept higher to touch its best level since mid-April, with Japan's yen falling back sharply as the Bank of Japan left its key interest rates unchanged on Thursday.
And now onto today's column, which looks at the contrasting fortunes of U.S. and euro zone GDP during the first quarter and considers whether Europe's rare outperformance will prove durable.
