US equity futures edged higher and were again on pace to reclaim all time highs (which again is less than 1% away away) on expectations that a slew of labor-market readings this week may support the Federal Reserve’s policy easing. As of 7:40am ET, S&P futures rose 0.25% and were at session highs with tech outperforming and small-caps keeping pace; Nasdaq futs were up 0.4% as all the Mag7 names were higher with Semis outperforming. AMD, INTC, MU, and NVDA all up at least 1% premarket. The S&P had seen three straight days of sliding in overnight trading, to then drift higher post EU close and close unchanged or green; today we start in the green so it will be interesting if in a mirror image we close red. Treasury yields were steady after their largest two-day drop for 2024, erasing an earlier yield gain of 2bps, and potentially aiding USD strength. Commodities are finally rebounding with strength in Energy, Ags, and precious metals. Oil was little changed and Bitcoin topped $70,000. In corporate news, Intel agreed to sell a stake in a venture that controls a plant in Ireland to Apollo Global for $11 billion, while activist investor Elliott is pushing SoftBank to launch a $15 billion buyback. Today’s macro data focus is ISM-Services and ADP.
In premarket trading, Hewlett Packard Enterprise and Crowdstrike were among the best performers after better-than-expected results. Meanwhile, chipmakers Intel, Nvidia and AMD were all quoted up more than 1%. Here are all the notable premarket movers:
Besides the barrage of labor market indicators which saw a disappointing JOLTS report yesterday, the ADP print and ISM Service employment today and the jobs report on Friday, investors will be focused on central banks: the ECB is expected to kick off an interest-rate cutting cycle Thursday, leapfrogging past the Fed; the Bank of Canada is likewise expected to cut rates. Meanwhile, expectations for the Fed’s first full 25 basis-point rate cut are now tilting toward November, a month ahead of earlier expectations, after the Fed’s preferred inflation gauge held steady and measures of manufacturing and spending came in softer than expected.
"We are starting to see labor market slackness, which gives the Fed more flexibility,” Justin Onuekwusi, chief investment officer at St James’s Place Management, said in an interview. “Given we have seen weakaness in labor market data this past week, all eyes will be on this number,” he said of the payrolls data.
European shares also rise a day before the European Central Bank is expected to deliver a 25bps interest-rate cut. Tech, telecom and retailers led the advance in Europe, as Zara owner Inditex SA delivered a stronger-than-expected trading update while banks and food beverages are the biggest laggards. Here are the biggest movers Wednesday:
Earlier, Asian stocks were mixed with Indian equities leading gains in the region, while the markets in Japan and Indonesia slid. Indian stocks outperformed as an alliance partner of Prime Minister Narendra Modi’s party affirmed support to form a coalition government. The Nifty 50 Index rose more than 2%, recouping some of Tuesday’s loss when the gauge fell the most in four years. As a result, the MSCI Asia Pacific Index pared most of its losses after dropping as much as 0.5%. TSMC, Tencent and Samsung provided main support, while Toyota and Hitachi were among the biggest drags on the gauge.
In FX, the Bloomberg Dollar Spot Index is little changed while the yen was the worst-performing currency as it tumbles, falling 0.8% against the greenback toward 156.20, as carry trades reassert themselves and after a surprisingly weak print in Japanese wage growth prompted fears the BOJ may not get to further tightening of monetary conditions. The Swiss franc is also slightly lower.
In rates, treasuries gain, extending some of Tuesday’s post-JOLTS rally, with US 10-year yields dropping 1bp to 4.32%. Gilts underperform bunds and Treasuries across the curve.
Oil prices hold losses near a four-month low with WTI near $73.30 as oil halts the recent slide, rising around 0.3%. Spot gold rises $6 to around $2,333/oz. Most base metals trade in the red.
Bitcoin continues to gain and currently holds above USD 70k as Bitcoin ETF's continue to take focus.
Looking at today's US calendar, economic data includes May ADP employment change (8:15am), S&P Global services PMI (9:45am) and ISM services index (10am), Fed officials remain in blackout ahead of the June 12 FOMC policy announcement. Finally, we will have earnings from Dollar Tree and Lululemon.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed as the cautious mood from Wall Street reverberated into Asia-Pacific, with macro newsflow overnight on the lighter side. ASX 200 was modestly firmer with defensive sectors among the better performers, whilst lagging sectors include gold names, mining stocks, and energy companies. Little immediate reaction was seen on commentary from RBA Governor Bullock and the softer-than-expected Q1 GDP report. Nikkei 225 was the regional laggard and dipped under the 38,500 mark with mining and industrial firms among the losers, whilst autos continued to feel the woes of the latest safety scandal in the country. Hang Seng and Shanghai Comp varied with the former propped up by auto stocks after some firms were permitted to test out advanced levels of autonomous driving. Mainland markets shrugged off the improvement in Caixin Services PMI which also noted "China’s economy is generally stable and remains on the road to recovery."
Top Asian News
European bourses, Stoxx600 (+0.4%) are modestly firmer across the board, attempting to reclaim some of the losses seen in the prior session. European sectors hold a strong positive bias, with Tech topping the index alongside Retail, with the latter lifted by post-earning strength in Inditex (+5.5%). Banks are slightly in the red. US Equity Futures (ES +0.1%, NQ +0.3%, RTY +0.2%) are very modestly firmer and contained within a tight range ahead of US ADP and ISM Services. Barclays European Equity Strategy: Upgrades Consumer Staples to Marketweight from Overweight Upgrades Real Estate to Overweight. Upgrades Retail to Overweight. Cuts Energy to Underweight. Cuts Autos to Underweight.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
The last week has proved to be a real challenge for markets to work out whether weaker US data is good or bad news for equities. This marks a bit of a change as in recent months both good and bad data were used as a justification for a rally. It does seem we've moved to a more nuanced debate. However before we get too excited about a possible change in emphasis, the S&P 500 is only down -0.25% since returning to trading after Memorial Day last Monday and keeps on bouncing off the weaker data inspired intra-day lows of the last week.
This trend continued yesterday following the April JOLTS report which encouraged another notable fixed income rally with 10yr Treasury yields (-6.3bps) falling for a fourth consecutive session. The combined -28.6bp drop over that time period is the largest such fall in yields since Mid-December. Until the last 100 minutes of US trading equities were lower but another late rally helped edge the S&P 500 (+0.15 %) higher.
In terms of the details of the JOLTS report, the openings rate came in beneath expectations at 8.06mn (vs 8.35mn expected), falling to its lowest level since February 2021. So a clear indicator of a cooling US labour market, with labour demand continuing to moderate. This also follows on from a series of generally weaker US data over the past few days.
Elsewhere in the report, the ratio of openings to unemployed workers fell to its lowest level since July 2021, to 1.2, as the labour market slackened further in April. The private sector quits rate, which measures the number of people who voluntarily leave their job, came in at 2.4%, with the previous month also revised up to 2.4%. The revision confirms the series has been flatlining since the end of 2023, at its lowest level since 2020. In terms of other data, we also had US factory orders for April, which surprised a little to the upside at 0.7% (vs 0.6% expected). But this still marked a deceleration from 1.6% last month.
Against this backdrop, markets raised their expectations for Fed rate cuts this year. For example, the number of Fed cuts expected by year-end rose for the fifth consecutive day, up +3.9bps. Supporting the prospect of more rate cuts was another fall in oil prices, which brought further relief to inflation fears. Brent crude fell -1.07% to $77.52/bbl, the 5th consecutive decline in prices and the lowest level since February. WTI crude similarly fell -1.31% to $73.25/bbl. In turn, the chance of additional rate cuts supported US Treasuries, as 2yr yields fell -3.8bps, whilst the 10yr yield slipped -6.3bps to 4.326% (4.34% overnight). From here, the next major catalyst will be the US employment report on Friday.
In Europe, the major data point of the day was German unemployment, which jumped +25k (vs +7k expected). The increase helped contribute to investors dialling up the expected number of ECB cuts through to year-end by +2.6bps. Off the back of this, German 10yr bunds rallied, with yields falling -4.6bps. Yields on OATs (-3.9bps) and BTPs (-1.3bps) also declined.
Moving on to more details on equities, the -0.5% mid-session decline followed by a late rally was typical of the last few days with the index closing +0.15% higher. The underperformers were largely the energy (-0.97%) and materials (-1.22%) sectors driven by lower commodity prices. The rebound was led by Telecoms (+1.89%), Real Estate (+0.95%) and Consumer Staples (+0.93%). The NASDAQ likewise rebounded to finish at +0.17%. The second half bounce back was not that broad-based, as the Russell 2000 index of small cap stocks underperformed, falling -1.25%. Elsewhere, other global equities were generally on the backfoot. The STOXX 600 retreated -0.54%, whilst the MSCI EM index underperformed after falling -0.66%.
Not helping sentiment was a dramatic turnaround in India as Exit Polls over the weekend proved to be very inaccurate. They suggested Modi's NDA coalition would get 355-380 out of the 543 seats with his own BJP party on course for around 327 seats. 272 is needed for a majority. The final count is that his party looks set for 240 seats (losing their own majority from 2019's 303 seats) and the coalition 292 (down from 353 in 2019). While Modi can still form the government if his alliance sticks together, it provides a much more uncertain environment than was anticipated as we woke up on Monday. As a result Indian equities had their worst performance in 4 years with the Nifty 50 falling -5.93% yesterday after bouncing +3.25% to an all-time high on Monday. This morning it is slightly higher as I type early in the session. Last night our economist published an initial reaction (see here) to the surprise result, one that he doesn't see derailing India's impressive growth prospects.
Elsewhere in Asia, there is a divergent trend in equities this morning. As I check my screens, the KOSPI (+1.08%) is leading gains across the region with the Hang Seng (+0.34%) and the S&P/ASX 200 (+0.36%) also edging higher. Chinese stocks are mixed though with the CSI (+0.03%) swinging between gains and losses while the Shanghai Composite (-0.30%) is lower. However, the Nikkei (-0.80%) is bucking the regional trend albeit trimming its opening losses as stronger wage data spurred fears of tighter monetary policy from the BoJ. S&P 500 (+0.18%) and NASDAQ 100 (+0.31%) futures are higher.
Early morning data showed that China's Caixin services PMI accelerated at the fastest pace in 10 months jumping from 52.5 in April to 54.0 in May on improving local and overseas demand. However, the private survey data contrasted with official PMI data released last week, which showed that services sector activity grew at a slower pace in May than April. Moving to Japan, real cash earnings declined -0.7% y/y in April (v/s -0.9% expected), notching a record streak of 25 consecutive monthly declines. It followed a revised -2.1% drop in the preceding month. On the brighter side, labour cash earnings rose at the fastest pace in 10 months, increasing +2.1% y/y in April (v/s +1.8% expected) as against an upwardly revised +1.0% rise in March.
Elsewhere Australia’s first quarter 2024 GDP growth slowed to just +0.1% (v/s +0.2% expected) and slower than the revised +0.3% pace for the final three months of 2023. On an annual basis, the economy expanded +1.1% with markets expecting it to slow to +1.2% from a growth of +1.5% in the December quarter. Yields on 10yr Australian government bonds initially fell -9.76bps (half domestic and half a global story) before settling -6.7bps lower at 4.23% as we go to print.
It's a huge week (past and present) for elections and tomorrow the European Parliamentary Elections start. We'll preview the implications later in the week. Also of note was the -6.01% fall in the Mexican index on Monday that was followed by a +3.24% rebound yesterday. The peso fell -3.82% on Monday and then fell a further -0.97% yesterday. The overall decline is on concerns that the landslide victory for the ruling party may increase state influence on the economy. See DB's review of the implications from the election results here.
Briefly back on commodities, oil prices were not alone in recording a fall yesterday. Copper prices pulled back -2.80% to $453.70/lb, and now officially erasing all its May gains (-11.4% from the peak). The fall comes as global inventories rise, with the Shanghai Futures Exchange recording its highest level of stockpiles since 2020. Elsewhere after a +5.23% surge on Monday following disruption to Norwegian supply, European natural gas retreated yesterday, falling -6.16% to EUR33.80/MWh following reports the outage is expected to be short-lived.
Now to the day ahead, and data releases include the US May ADP report and ISM services, the UK May new car registrations, official reserves changes, France April industrial production, Italy May services PMI, Eurozone April PPI, Canada Q1 labour productivity and the May services PMI. In terms of central banks, we have the Bank of Canada decision. Finally, we will have earnings from Dollar Tree and Lululemon.
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