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1. Google green.

Alphabet reported Q1 EPS of $2.81 on revenue of $90.23B, both above estimates. The stocks were up about 2% in the lead-up to the results, and popped 5% after the firm showed its earnings climbed 40% above estimates. Cloud unit pulled in 28% more revenue this quarter than in Q1 2024. Chief Sundar Picahi said the firm’s Gemini 2.5 AI model powers summaries seen by 1.5B users every month.

Also, Fed Governor Christopher Waller said he’d support rate cuts if tariffs hurt the jobs market, speaking with Bloomberg. Cleveland Fed President Beth Hammack told CNBC that the board could move on rates as early as June if it has a clear economic direction.

2. The dollar has further to fall, says Goldman Sachs chief economist.

The dollar has fallen over 4.5% in April, set for its biggest monthly drop since late 2022, as investors dump U.S. assets, sparking talk of a crisis of confidence in the world's No.1 reserve currency.

Further falls would exacerbate price pressures when tariffs are already pushing up inflation, Hatzius writes in an opinion piece in the Financial Times.

A weaker dollar, by making exports cheaper, would also help narrow the U.S. trade deficit and help buffer the economy from recession.

"I believe that the recent dollar depreciation of 5% on a broad trade-weighted basis has considerably further to go."

3. The rising Euro bodes well for European stock valuations.

“Over the long run, stronger euro regimes were mostly associated with periods of EU equities’ outperformance,” say Barclays strategists, led by Emmanuel Cau.

They add that the earnings hit is manageable if the euro goes up for reasons including a better outlook for economic growth. US policy uncertainty has dented confidence, with the dollar weakening and US stocks lagging European peers.

Flows dynamics show the unwind of the US exceptionalism trade is under way, and the trend may still be in its early stages given how crowded US assets were at the end of last year. “If the repatriation were to continue, it could mean upward pressure on the euro and equity outperformance in Europe,” Cau says.

Here is the correlation between the euro and the valuation of European stocks (P/E).

4. Euro-area domestic stocks are back in favour.

Further euro strength isn’t always a good thing, however.

Each 5% rally in the currency against the dollar shaves 1.5-2 percentage points off earnings growth in the MSCI Europe gauge, Morgan Stanley strategists estimate. They describe the currency moves as a “broad-based drag.” Some firms are already feeling the heat. Beer-producer Heineken said last week that revenue this year will be curtailed by €1.72 billion because of the euro’s strength. BioMerieux warned of a larger exchange-rate hit than previously expected.

Meanwhile, currency-driven earnings downgrades downgrades have started. Vontobel cut its estimates for Richemont, Swatch and Lindt because of the dollar’s depreciation against the Swiss franc. Bank of America lowered its predictions for Beiersdorf by 2%, while Barclays slashed profit-growth forecasts for Unilever, Nestle and Lindt.

Against this backdrop, domestic stocks are back in favor after underperforming internationally-exposed peers for years. “Focus on domestically driven businesses,” says Jacob Falkencrone, global head of investment strategy at Saxo Bank. “European exporters are fighting a strong euro, eroding profits just as they’re squeezed by tariffs.”

5. The burrito indicator.

Fewer people are buying burritos these days.

Chipotle's Q1 earnings felt like a burrito in the coal mine: Same-store sales declined for the first time since the pandemic.

While it's always hard to tell whether one company's struggle is truly a barometer for what's happening to the US consumer in general, America's most popular burrito chain having rare traffic declines and its first same-store sales decline since Americans were staying home in 2020 just doesn't feel great.

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