Stocks Edge Higher, Fed Decision In Focus, First Republic Fail, G-7 Eyes AI, Arm IPO – Five Things To Know

Stock futures rise with earnings, Fed focus; Next week: Fed decision highlights frantic slate on Wall Street; the sale of First Republic to JPMorgan as regulators take on another failed lender; G7 ministers agree to tame artificial intelligence developments, ensure a “trustworthy” system SoftBank plans to go public on Nasdaq for Arm after its London listing was rejected.

Five things you need to know before the market opens on Monday, May 1:

1. – Stock futures rise as earnings rise, focus on the Fed

US stock futures rose on Monday, while the dollar extended its recent gains against its global counterparts and oil prices slumped, as investors looked ahead to a busy week of earnings and data on Wall Street as they digested the second collapse of the local bank in as many months.

First Republic, a troubled lender and wealth manager, was taken into receivership by California regulators late Sunday and was strong for JPMorgan Chase, which took the bulk of its loan book and deposit base. The sale marks the second US bank failure since the collapse of SVB Financial in early March.

Investors are likely to look beyond the First Republic failure, however, given lower levels of market volatility and the overall strength of the US corporate earnings season, which saw about half of the S&P 500’s March quarter earnings report.

About 77.9% of the companies reporting beat Street’s outlook, beating the average of 73.5% recorded over the past four quarters and the longer-term average of about 66.3%. In fact, data from Bank of America shows that 65% of reporting companies issued earnings guidance that beat Street’s expectations, the best since the third quarter of 2021.

Elsewhere, a weaker-than-expected reading of China’s April manufacturing activity, released Sunday by the National Bureau of Statistics, points to a decline in the world’s second-largest economy and largest energy importer.

Oil prices turned lower as a result, with WTI for June delivery down $1.58 to $75.20 a barrel and Brent for July down $1.60 to $78.73 a barrel.

In the bond market, May 1 holiday celebrations in major European markets kept volumes low overnight, with the benchmark 2-year yield holding steady at 4.066% and the 10-year note trading at 3.467% as this week’s Fed rate decision looms on Wednesday. Meanwhile, the US Dollar Index rose 0.21% against a basket of global peers at 101,872.

Traders continue to price in at least a 90% chance of a 25 basis point rate hike, which could take the fed funds rate into a range of 5% to 5.25%, a level that is likely to remain in effect through November.

As the trading day begins on Wall Street, futures contracts linked to the S&P 500 index, which are up 9% for the year, are priced in for a two-point opening bell gain while those linked to the Dow Jones Industrial Average are set. Bump 16 points. The technology-focused Nasdaq rose 5 points.

Overnight in Asia, the MSCI ex-Japan index was up 0.09% in close trading, while European stocks were quiet amid Labor Day holiday celebrations.

Japan’s Nikkei 225 closed up 0.92%, however, ending the session at an 8-month high, and over 29,000 points, following the first policy meeting of Bank of Japan Governor Kazuo Ueda on Friday.

Ueda reiterated the bank’s determination to keep interest rates at near zero levels for an extended period of time, while also launching a broader policy review that could take up to 18 months.

2. – Next week: Fed decision highlights tough slate on Wall Street

The May Fed policy meeting, which concludes on Wednesday, will highlight another frantic week for earnings and data on Wall Street as markets look to extend their strong year-to-date gains for the S&P 500.

The Federal Reserve is widely expected to raise interest rates for the 10th consecutive time this week, possibly curbing the most aggressive policy tightening in decades as it continues to sell some of the bonds on its $8 trillion balance sheet. However, what follows remains hotly debated among investors and analysts alike as the economy shows signs of near-term recession and the pace of inflation slows significantly from a multi-decade peak last year.

Along with the Fed’s decision this week will come a series of critical readings of the domestic labor market, with the focus on Friday’s April employment report, expected to show a net gain of 180,000 jobs with only a modest easing in wage pressures. The ADP National Employment Report is expected on Wednesday at 8:15 AM ET with weekly jobless claims at 8:30 AM ET on Thursday.

The European Central Bank will also make a major policy decision on Thursday in Frankfurt, as markets are still undecided on whether President Christine Lagarde will opt for a 25bp or 50bp increase in the central bank’s main refinancing rate.

About 162 companies on the S&P 500 are also scheduled to report earnings for the March quarter this week, including Apple. (AAPL) – Get a free reportAfter the close of trading on Thursday. Pfizer (PFE) – Get a free reportCVS Health (CVS) – Get a free reportStarbucks (sex) – Get a free reportAdvanced Micro Devices (AMD) – Get a free reportand Qualcomm (QCOM) – Get a free reportShe is also on board for this week..

3. – First Republic sold to JPMorgan as regulators take on another failed lender

The first republic (FRC) – Get a free reportShares collapsed again in pre-market trading after California regulators, along with the Federal Deposit Insurance Corporation (FDIC), brokered the sale of the distressed lender and wealth manager to JPMorgan Chase. (JPM) – Get a free report.

California’s Department of Financial Protection and Innovation took control of First Republic late Sunday, naming the FDIC as its official recipient, while announcing that JPMorgan — the bank that led a $30 billion effort to boost First Republic’s deposit base in March — had emerged as the preferred bidder. to the bank’s assets.

Regulators said JPMorgan will take $173 billion from the First Republic’s loan book, while buying $30 billion in securities from its balance sheet and $92 billion in deposits. The FDIC will get $13 billion from the sale, while JPMorgan will get a one-time gain of $2.6 billion.

The transaction does not include First Republic’s debt nor its preferred or common stock.

“Our government and others have called on us to step up, and we have done so,” said CEO Jamie. “Our financial strength, capabilities and business model allowed us to develop a tender for the execution of the transaction in a way that minimizes the costs of the Deposit Insurance Fund.

First Republic shares were recorded down 38.75% in pre-market trading to indicate an opening bell price of $2.15 per share, while JPMorgan shares were up 2.86% to $142.20 per share.

4. – G7 ministers agree to tame AI developments and ensure a “trustworthy” system

Ministers from the G-7 economies responsible for digital progress have suggested that governments need to adopt a “risk-based” approach to regulating progress in artificial intelligence, marking the first major indication that governments will begin to move toward stewardship of the rapidly evolving technology.

In a statement that followed a meeting of G7 ministers in Takasaki, Japan over the weekend, the 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 official G7 summit, hosted by Prime Minister Fumio Kishida, later this month.

Artificial intelligence formed the centerpiece of many of the investment ambitions of major technology companies this year, following the launch of Microsoft (MSFT) – Get a free reportA large language form search program, developed with OpenAI, known as ChatGPT.

“We plan to hold future G7 discussions on generative AI which could include topics such as governance, how to protect intellectual property rights including copyright, promoting transparency and addressing disinformation, including manipulation of information by foreign forces,” the G7 statement said.

5. – SoftBank plans to go public on Nasdaq after refusing to list it in London

Japan’s Softbank Group has chosen to float chipmaker Arm Ltd on the Nasdaq later this year, setting up what is likely to be the largest initial public offering since 2021.

Arm will look to raise about $8 billion to $10 billion from the stock sale, according to media reports, though official price ranges and deal sizes are yet to be determined.

Softbank, which failed to complete the $40 billion sale of the UK-based chip maker to Nvidia (NVDA) – Get a free reportLast year amid opposition from competition authorities in the US and Europe, though, the British government balked in March by choosing to pursue listing only in the US.

Arm’s IPO is likely to double, or possibly triple, Kenvue’s $3.5 billion listing, Johnson & Johnson’s consumer health company. (JNJ) – Get a free reportwhich is expected to conclude next week.