US equity futures were flat after the S&P 500 notched its 25th closing record on Wednesday, even as global tech shares plowed higher with expectations of more rate cuts adding to the ongoing frenzy around artificial intelligence; With the ECB set to cut rates for the first time since 2019, Nvidia advanced almost 2% in premarket trading, building on its $3 trillion market capitalization after it surpassed AAPL as the 2nd biggest company on Wednesday and may become the world's biggest company if it adds another $150BN to overtake Microsoft - should be quite doable for a stock that has seen the world's biggest gamma squeeze.
The world's biggest company (because NVDA will surpass MSFT tomorrow) is getting gamma squeezed pic.twitter.com/b7PltycG2j
— zerohedge (@zerohedge) June 5, 2024
As of 7:45am ET, S&P futures were flat at 5,367 and Nasdaq futures rose 0.1%, as investors take a pause following yesterday’s session which saw the SPX have its best session in a month and NDX having its best session since Feb 22. Both indexes traded at all time highs. European stocks also surged to a new all-time high ahead of an ECB meeting that is expected to deliver the first rate cut in five years. Bond yields are +1 – 2 bps with the USD also rising after erasing an earlier loss. Commodities are seeing support, led by Ags and Energy; as base metals continue to underperform. Today’s macro data focus is on jobless claims but unlikely to see this being an investable data point ahead of tomorrow's NFP print
In premarket trading, Nvidia gained 2% after soaring yesterday amid an endless gamma squeeze that has added several hundred billion in market cap in the last week alone, and which saw the company surpass Apple as the 2nd largest company in the world; Nvidia now just needs another $150BN to overtake MSFT as the world's biggest company.
In premarket trading, other US tech firms, including Micron and AMD also rose in premarket trading, while in Europe, ASML Holding NV and ASM International NV surged to record peaks. As an aside, Microsoft, Nvidia and Apple are now worth more combined than China’s stock market. Among individual stock movers outside of technology, Lululemon rose more than 7% in US premarket trade after posting forecast-beating earnings and raising its profit outlook. Here are some other notable premarket movers:
“There is a reason tech companies are doing so well; the earnings are there, companies have been delivering on earnings,” said Guy Miller, chief strategist at Zurich Insurance Company Ltd. “Nvidia is a classic example. It seems extremely expensive but goes on not only meeting, but beating expectations.”
The latest tech euphoria coincides with growing confidence among investors that central banks across the developed world will be able to ease monetary policy this year. The ECB should deliver a 25 basis-point cut on Thursday, a day after the Bank of Canada kicked off its cutting cycle and hinted at more easing to come (see our ECB preview here). Traders have also started to price more Federal Reserve easing this year.
“With the Bank of Canada cutting rates and the expectation ECB will do so, momentum behind a coordinated global easing cycle is starting to gain some traction,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management.
European stocks rally to a record high ahead of the European Central Bank’s widely-expected first interest-rate cut this cycle. Tech shares are leading gains on the Stoxx 600 which climbs 0.6%; other outperforming sectors include consumer discretionary, financials and health care while utilities and personal care stocks are the biggest laggards. Private bank Julius Baer Group Ltd shed as much as 5.9% on speculation that it could take over rival EFG International AG. Shares in the latter spiked as much as 10%. Here are the biggest movers:
Bond yields across Europe ticked higher ahead of the ECB meeting, as traders waited to see if ECB head Lagarde might offer more guidance on the path for additional easing. Wagers on further ECB cuts have turned more cautious in the wake of data showing stronger-than-anticipated economic growth, inflation and wage increases.
Earlier in the session, Asian stocks advanced, as technology shares drove broad regional gains after Nvidia led a rally in US peers overnight on hopes for US rate cuts and a continued boom in artificial intelligence. The MSCI Asia Pacific Index rose as much as 1.4% to its highest since May 28, snapping a two-day losing streak. Chipmaker TSMC was the biggest boost, climbing to a record high as its share buyback plan added to positive sentiment amid the tech rally. The lack of a material rise in tech volatility suggests the AI rally has not reached a bubble yet, BofA Securities analysts led by Benjamin Bowler wrote in a note. “The question is can we incorporate AI into the economy without an asset bubble ensuing? It may be hard to avoid given the likely significant but unclear way in which AI will impact the global economy.”
In FX, the euro is little changed ahead of the ECB rate cut, while the Bloomberg Dollar Spot Index steadied. The Swiss franc led Group-of-10 gains against the greenback, while the New Zealand dollar led losses
In rates, treasuries dip, paring some of the prior five-day rally. Bunds are also in the red while gilts outperform across the curve. Treasuries were slightly cheaper across the curve with futures just below Wednesday’s highs, following similar price action in bunds ahead of European Central Bank meeting at 8:15am New York time, expected to deliver the first rate cut since 2019. US yields cheaper by 1bp-2bp across the curve with long-end lagging, leaving 5s30s spread near session highs; 10-year around 4.31% underperforms gilts by ~5bp in the sector. UK 2-year yields are richer by around 6bp on the day and lowest since May 21. Gilts outperform in sharp bull-steepening move as traders price in more aggressive path of Bank of England rate cuts.
Prices for key commodities edged higher, with oil gaining for a second session after the OPEC+ group rejected increasing crude output. WTI rises 0.2% to near $74.20. Industrial metals rallied after Wednesday’s slide, while palm oil steadied from a one-week low. Spot gold rises roughly $4 to ~$2,359/oz.
Looking at today's calendar, US economic data includes May Challenger job cuts (7:30am), 1Q final nonfarm productivity, April trade balance and weekly jobless claims (8:30am). Fed officials remain in a quiet period ahead of their June 12 policy announcement. As noted above, we get the first ECB rate cut since 2019.
Market Snapshot
Top Overnight News
AAPL: the WSJ has a long profile article detailing how the firm fell behind in AI, and detailing the revamped Siri set to be unveiled Monday. WSJ
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly firmer as the region largely took its cue from the positive lead on Wall Street, while South Korean markets were closed due to the Memorial Day holiday. ASX 200 saw its upside spearheaded by gold and IT with all sectors in the green but Consumer Staples and Telecoms with the shallowest gains. Nikkei 225 surged at the open and briefly rose above USD 39,000 as industrials and Tech led the gains whilst autos saw another dire session amid the ongoing safety scandal. The index waned off best levels heading into the Tokyo lunch break. Hang Seng and Shanghai Comp varied for most of the session with the former conforming to the positive mood across the region whilst the latter saw subdued and contained trade within a tight range, with news flow on the quieter side ahead of the upcoming risk events.
Top Asian News
European bourses, Stoxx 600 (+0.6%) began the session on a strong footing, taking impetus from a positive APAC session. As the morning progressed, stocks continued to climb higher, and currently reside just off session highs. European sectors hold a strong positive bias; Tech is the clear outperformer, building on the prior day’s advances, with sentiment also lifted after Nvidia’s market cap surpassed USD 3tln. Optimised Personal Care is found at the foot of the pile. US Equity Futures (ES U/C, NQ U/C%, RTY -0.4%) are mixed, taking a breather from recent strength in the last trading session; the RTY underperforms.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle-East
Geopolitics: Russia-Ukraine
Geopolitics: China-Taiwan
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Today is a first for me. I'm taking part in a ribbon cutting ceremony. No not for a new supermarket but for Deutsche Bank's wonderful new building at Moorfields in the City, here in London. The ceremony is full of dignitaries from the City, politics, the world of finance and the Lord Mayor of London. One fact to blow your mind is that the new building contains twice the amount of steel as the Eiffel Tower and yet has won many sustainability accolades. I would be confident of saying that our buildings in NY and London are now two of the nicest work buildings I've ever been in, and I get to go in many around the world. For balance I should probably say that this statement would certainly have not applied to our old buildings!
The ribbon was also cut for a brand new all time high in the S&P 500 (+1.18%) last night, the 25th so far this year. The last week has seen the index at the bottom and now the top of the (relatively narrow) one-month range. The advance yesterday came as good economic news was seen as good news for markets again, while renewed tech optimism saw Nvidia (+5.16%) become the third company to reach a $3trn market cap. So normal service for 2024 has returned.
Yesterday’s advance was initially supported by the US ISM services for May, which surprised on the upside at 53.8 (vs 51.0 expected). That was significant as the previous month had seen the index fall to a contractionary 49.4, so the bounceback suggests that was just a blip rather than the start of a more concerning trend. This reading was also the index’s highest level since last August, and the largest monthly increase since January 2023. That said, a few of the details weren’t quite as strong. For example, the employment component was still in contractionary territory at 47.1 in May (vs 47.2 expected), and therefore in line with the wider narrative of a slackening labour market. The prices paid index fell back from 59.2 to 58.1 (vs 59.0 expected), as inflationary pressures came off a tad. Supporting the employment story, the ADP payroll numbers for May also undershot expectations, rising +152k (vs +175k expected), which is its slowest pace since the start of the year.
These softer elements meant investors priced in more rate cuts for a sixth day in a row. For instance, the amount priced in by the Fed’s December meeting was up +4.7bps to 50bps. In turn, 2yr yields ended the day down -4.8bps to 4.72%, whilst 10yr Treasury yields saw their fifth decline in a row, down -5.1bps to 4.28%, their lowest since March. That move has stabilized overnight however, with 10yr yields (+1.9bps) back up to 4.29% as we go to print.
The rates rally and the upside data surprise supported the rally in equities, but it was tech optimism that was the largest driver. There were a few triggers for this, including the news that semiconductor equipment manufacturer ASML will ship its most advanced chipmaking machine to TSMC this year. ASML’s stock gained +8.10% yesterday, surpassing luxury company LVMH as the second largest company in Europe. This backdrop saw the NASDAQ (+1.96%) and Magnificent Seven (+2.24%) post new record highs. Nvidia spearheaded this rally, as the AI and semiconductor heavyweight (+5.16%) moved above $3trn market cap and overtook Apple as the second most valuable company in the world (even as the latter posted an eighth consecutive advance).
The tech advance helped the S&P 500 index (+1.18%) post its fourth consecutive gain, and its largest in over a month. But the rally was not confined to tech, and the Russell 2000 index of small caps was up +1.47%. This risk-on sentiment spread to global equities more broadly. In Europe the STOXX 600 jumped +0.81%, while the MSCI EM index gained +1.03%. Notably, Mexican equities recovered by +1.73%, following on from the +3.24% gain on Tuesday. So they’ve now recovered three-quarters of the -6.11% fall seen on Monday after the landslide victory in Sunday’s election for Claudia Sheinbaum of the ruling left-wing party.
Looking forward to today, all eyes will be on Europe with the ECB rate decision out later. This is a significant one, as it’s widely expected that the ECB will cut rates for the first time this cycle, and our European economists are looking for a 25bps cut in the deposit rate to 3.75%. See their full preview here. As we go to press, overnight index swaps are now fully pricing in a cut today, so the bigger question will be what the ECB signals moving forward, and how quickly future cuts might happen. For now at least, investors don’t think the cuts will happen every meeting, as there’s currently only 62bps of cuts priced by the December meeting (which encompasses 5 meetings including today). So if that market pricing is realized, that would be equivalent to between two and three 25bp cuts at the remaining five meetings. 10yr German bund yields traded down ahead of the meeting, falling -2.2bps, while OATs (-2.7bps) and BTPs (-4.8bps) outperformed.
When it comes to central bank rate cuts, there was another milestone yesterday after the Bank of Canada became the first G7 country to cut rates this cycle. They cut their interest rate by 25bps to 4.75% as expected, and there was a dovish tone from Governor Macklem, who explicitly mentioned additional cuts, saying it was “reasonable to expect further cuts” if inflation continued to ease. Macklem also mentioned the Bank of Canada does not “need to move in lockstep with the Federal Reserve”, although “there are limits to divergence”. So several central banks aren’t hesitating to begin rate cuts even as the Fed elects to hold its rate steady for now. Markets are currently pricing a further 55bps of cuts by the BoC this year.
This morning in Asia, the optimistic mood for global markets has continued, with gains across the major equity indices. That includes advances for the Hang Seng (+0.59%) the Nikkei (+0.58%), and the CSI 300 (+0.37%), although the Shanghai Comp (-0.08%) is currently lower. Meanwhile, markets in South Korea are closed for a holiday. Outside of Asia, US equity futures are pointing to a positive start, with those on the S&P 500 (+0.05%) and NASDAQ 100 (+0.11%) trading slightly higher.
After a material retreat in commodities in the first part of the week, oil bounced back yesterday as prices continue to be volatile in the days after the most recent OPEC meeting. Brent crude rose +1.15% to $78.41/bbl, ending five days of consecutive declines, while WTI rose +1.12% to $74.07/bbl. Copper similarly gained +1.52% yesterday, to $460.60/lb, after having retreated by -11.4% from its peak two weeks ago.
Turning to politics, in India, Prime Minister Modi’s Bharatiya Janata Party has managed to secure the backing from two key allies, the Janata Dal (United) and Telugu Desam Party (TDP), to form a coalition in the Indian government. The Nifty 50 rose +3.36% yesterday and closed at around last Friday's levels (before the exit polls) after a volatile week. This morning the index has opened up +0.74%.
Staying on politics, the European Parliamentary election begins today, before concluding on Sunday when we'll see the first exit polls and the results start to come through. See DB's preview here from Marion Muehlberger. I'll likely do a CoTD on this this morning so watch out for it around lunchtime. Meanwhile in the UK, the general election is now just 4 weeks away, and yesterday saw YouGov publish the first poll since Nigel Farage’s announcement earlier in the week he was becoming leader of the right-wing Reform UK party. The poll put the opposition Labour Party on 40%, the governing Conservatives on 19%, and Reform UK just two points behind them on 17%.
Now to the rest of the day ahead. In terms of data releases, we have the US April trade balance and initial jobless claims, the UK May construction PMI, Germany May construction PMI, April factory orders, Italy and Eurozone April retail sales and Canada April international merchandise trade. From central banks, we have the ECB decision and the BoE’s DMP survey, and we will have earnings from Nio.
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