After the S&P closed up the first 7 trading days of July, US equity futures are down small following yesterday’s last hour meltup rally and into today’s CPI. As of 7:45am ET, S&P futures down 0.1% after the underlying index gained more than 1% to fresh all-time highs, with Nasdaq futures lagging the same as Mag7 names are mixed pre-market with AMZN/NVDA higher even as Goldman publishes another note warning that at some point the hyperscalers will have to "show investors the money" for all their AI capex investments. Bond yields are flat to down 1bps pushing the USD lower for a second day. In commodities, all 3 complexes are seeing strength. CPI and Fedspeak will dominate today’s headlines but also keep an eye on jobless claims as another Powell input.
In premarket trading, Pfizer rose more than 3% after moving forward with a new wieght-loss pill. Costco climbed after hiking its membership fee for the first time since 2017; the news helped move other staples such as WMT higher. Here are other notable premarket movers:
The core CPI reading Thursday is expected to rise 0.2% in June for a second month. That would mark the smallest back-to-back gains since August — a pace seen as palatable for Fed officials. Our full preview can be found here.
Swaps are pricing in two Fed cuts in 2024, with a strong chance of the first coming in September. Traders are also eyeing reports from JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. tomorrow to cap off the week.
“June’s CPI report looks to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory,” said Anna Wong at Bloomberg Economics. “That should set the stage for the Fed to start cutting rates in September.”
Meanwhile, Goldman strategists doubled down on their warning about the AI bubble, saying that investors are growing increasingly concerned that US technology megacaps are spending too much on artificial intelligence. Valuations could be due for a painful de-rating unless revenue and earnings rise to justify the capex spending, they said.
Investors broadly expect the frenzy to remain a key feature of a rally in the second half, although some are betting on sectors such infrastructure providers and utilities to lead gains for the remainder of 2024, the Goldman strategists said. One measure, though, signals that the rally may be losing momentum: market breadth has contracted in recent months, with the share of S&P 500 members trading above their 200-day moving average hovering around its lowest in 2024.
Europe’s Stoxx 600 advanced 0.3%, with consumer products, construction and utilities leading gains. DNB Bank ASA surged the most since Nov. 2020 after the Norwegian lender reported earnings that beat analysts’ estimates. Swiss chocolate maker Barry Callebaut AG dropped more than 10% after disappointing results affected by high cocoa-bean prices. Here are the biggest European movers:
Earlier, Asian stocks rose, as Taiwan Semiconductor traded at record levels after the sole supplier of the most-advanced chips for Nvidia and Apple said second-quarter sales grew the fastest since 2022. Sony, Tencent Holdings and Korean chipmaker SK Hynix which traded at its highest levels since 2000, were among top contributors to the climb in the regional stock index. The iPhone maker said it aims to ship 10% more new devices after a bumpy 2023. The S&P 500 has advanced in each of the past seven sessions, its longest winning streak since November. MSCI Inc.’s global stocks index is at a record high.
In FX, the Bloomberg Dollar Spot Index fell for a second day to a one-month low. The British pound rose to its strongest level against the dollar since March after data showed the UK economy expanded in May at twice the pace expected. Gross domestic product rose 0.4% month-on-month after the flat reading in April. That compares with the 0.2% pace economists had expected, reflecting the fastest expansion in construction in almost a year. Cable is up 0.2% and set to log its ninth gain in eleven sessions.
In rates, treasuries were steady with price action muted ahead of June CPI data at 8:30am New York time. European bonds lag, led by gilts after UK GDP rose 0.4% in May, double the median estimate. Yields are mixed across the curve but within 1bp of Wednesday’s closing levels. 10-year is around 4.28% with bunds and gilts lagging by 2bp and 3bp in the sector. Along with CPI, US session includes 30-year bond auction at 1pm, following good results earlier this week for 3- and 10-year offerings.
In commodities, oil climbed for a second day with WTI trading near $82.20 a barrel as a decline in US crude inventories countered the IEA’s call that demand growth is slowing. Gold edged higher for a third day, adding $12 to around $2,383/oz.
Looking at the calendar, US economic data slate includes the CPI report and initial jobless claims (8:30am) and monthly budget statement (2pm). Fed members scheduled to speak include Bostic (11:15am) and Musalem (1pm)
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A more detailed look at global markets courtesy of Newquawk
APAC stocks took impetus from Wall St where the major indices rallied as outperformance in tech spear-headed the S&P 500 and Nasdaq to fresh record highs once again following TSMC's record quarterly sales and as Apple aims to boost iPhone shipments. ASX 200 gained with all sectors in the green and notable strength in tech, real estate, and heavy industries. Nikkei 225 continued its record-setting streak and advanced above the 42,000 level for the first time. Hang Seng and Shanghai Comp. conformed to the broad constructive mood amid the rising tide across equities despite NATO's firm rhetoric on China which it called a decisive enabler of Russia’s war effort in Ukraine, while sentiment was also unfazed by reports that Germany is to cut Huawei from its mobile networks.
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European bourses, Stoxx 600 (+0.4%) are entirely in the green, in a continuation of the strength seen on Wall St. in the prior session, which also helped to prop up sentiment in APAC trade. European sectors hold a strong positive bias; Consumer Products takes the spot, propped up by gains in the Luxury sector. Energy is found at the foot of the pile, though with marginal losses. US Equity Futures (ES -0.1%, NQ -0.1%, RTY U/C) are flat/lower, taking a breather from the significant gains seen in the prior session.
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DB's Jim Reid concludes the overnight wrap
After telling you earlier this week that I hoped my current trip to Cape Town would be less eventful than my last 20 years ago, it is fair to say it's not been without incident. Yesterday due to a historically bad run of weather, the mayor of Cape Town told everyone to work from home and today schools are closed with people urged to stay off the roads and remain indoors. So thanks to the many who braved the storm to meet us yesterday. Being forced to stay inside and watch England play in the current Euros would have been worse than any storm but miracles have happened and they reached the final last night. I'm not expecting Spain to be quaking in their boots this morning.
There are few storms in the US at the moment, with markets continuing to power forward over the last 24 hours, with the S&P 500 (+1.02%) advancing to its 37th record this year with the Mag-7 (+1.26%) now surpassing +50% YTD. These moves are becoming increasingly relentless now, as the S&P rose for a 7th consecutive day for the first time since November, and it’s also the first time since late-2021 that it’s managed 10 out of 11 gains in a row. So not the sort of rally you see every day, and if we can make it to 11 out of 12 gains today, that would be the first time that’s happened since April 2019. Over those 10 days the rally is +3.4% so steady and relentless rather than spectacular, at least prior to yesterday. This continued strength has been echoed across different asset classes though, but it’s now going to face several important tests, as the US CPI release is coming out today and earnings season is about to kick off in earnest, with several US banks reporting tomorrow.
That CPI release is in particular focus, because there’s been mounting anticipation that the Fed might still deliver two rate cuts this year, with September and December seen as the most likely dates. It’s true that their dot plot in June only signalled one cut this year, but since then we’ve had some weaker jobs reports, and the unemployment rate has ticked up to 4.1%, which is the highest since November 2021. So if there is positive news on inflation and we get another soft print, then that momentum for a rate cut is likely to build further.
Back in Q1, the inflation numbers were much stronger than expected, which meant that market pricing for rapid rate cuts this year proved wide of the mark. But since then, the April inflation numbers eased a bit, and the latest print from May was even better from the Fed’s perspective. Indeed, the monthly core CPI reading was down to just +0.16%, the weakest since August 2021. So with more numbers like those, the Fed could feel a lot more confident that inflation was heading durably back to their 2% target.
In terms of today, our US economists are expecting that both headline and core will be a bit firmer than last month, with headline at a monthly +0.09%, and core at +0.25%. In turn, that would push the year-on-year measure down to 3.1% for headline CPI, although the core CPI measure would tick up a tenth to 3.5%. When it comes to the Fed, it’ll also be worth keeping an eye on tomorrow’s PPI report as well, since several components in that feed into the PCE measure of inflation that they officially target. So over the next couple of days we’ll get a better idea of where that’s likely to land and if the Fed have the space to cut rates. Our US economists point out that the median forecast for core PCE in the June SEP was at +2.8% on a Q4/Q4 basis, so to achieve that we need to see monthly core PCE at an average pace of 20bps a month for the rest of the year. So for them, that’s the primary test for whether the Fed can cut earlier than their baseline, which sees a first cut in December. For more details on their CPI forecast and how to sign up for their subsequent webinar, click here.
Ahead of that, Fed Chair Powell was continuing his semiannual congressional testimony yesterday, appearing at the House Financial Services Committee. But there weren’t really any fresh headlines from that, and T reasury yields were largely steady on the day, with the 2yr yield (-0.6bps) and the 10yr yield (-1.2bps) both slightly lower. It was a similar story for Fed pricing, with the amount of cuts priced by the December meeting (+0.4bps) also little changed at 51bps.
On the equity side, the S&P 500 (+1.02%) posted its biggest gain in over a month, with the advance once again led by the tech mega caps. The Mag-7 (+1.26%) extended its YTD gain to +50.9%, led by Nvidia (+2.69%) and Apple (+1.88%) on the day. That said, the session saw broad gains with all top level sector groups within the S&P 500 up by at least 0.4% on the day.
Meanwhile in Europe, markets staged a recovery yesterday, with the S TOXX 600 (+0.91%), the DAX (+0.94%) and the CAC 40 (+0.86%) all advancing. It was the same story for sovereign bonds, with spreads tightening as yields on 10yr bunds (-4.7bps), OATs (-5.9bps) and BTPs (-8.8bps) all came down as well. However, UK gilts (-3.3bps) saw a smaller decline in yields, which followed comments from BoE chief economist Pill that were perceived a bit more hawkishly. He said that “It’s still an open question of whether the time for that cut is now or not,” which seemingly cast doubt on the prospect of a cut when they announce their next decision on August 1. Indeed, investors moved to dial back the chance in response, with the probability of a cut down from 64% the previous day to 56% by the close. The next important data print will be the CPI release next week, but Pill also pointed out that “we have to be realistic about how much any one or two releases can add to our assessment.”
Asian equity markets are all higher this morning as the globa l risk move gathers momentum . Across the region, Chinese stocks are outperforming with the Hang Seng (+1.45%) leading gains while the CSI (+0.99%) and the Shanghai Composite (+0.77%) are also higher. Elsewhere, the Nikkei (+0.94%) is being powered by technology stocks and crossing 42,000 for the first time. The KOSPI (+0.75%) is also higher as the Bank of Korea kept interest rates steady at 3.5% for the 12th consecutive meeting, as widely expected. In overnight trading, US stock futures are pausing for a breather at the moment and are broadly flat alongside Treasury yields.
Early morning data showed that Japanese core machinery orders unexpectedly fell sharply again in May (-3.2% m/m v/s +0.8% expected) dampening expectations for a recovery in Japanese investment in Q2/Q3. It followed a -2.9% decline in April.
In the geopolitical space, today will see the final day of this year’s NATO summit in Washington. The summit has been somewhat overshadowed by lingering questions over President Biden’s candidacy for the November US election. These re-intensified yesterday, initially triggered by an interview from former House Speaker Nancy Pelosi, who avoided unequivocally supporting Biden, saying “it’s up to the president to decide” if he should stay on in the race. Later on Peter Welch of Vermont became the first Democratic senator to call on Biden to withdraw from the race, while Axios reported that Democrat Senate Majority Leader Chuck Schumer was privately open to replacing Biden as the presidential nominee.
To the rest of the day ahead now, and data releases include the US CPI reading for June, the weekly initial jobless claims, and UK GDP for May. From central banks, we’ll hear from the Fed’s Bostic and Musalem.
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