Stop us when this starts sounding familiar: futures are - once again - higher, led by tech with small-caps also outperforming following another all-time high, the 36th of 2024, fueled by dovish Powell comments. As of 8:00am ET, S&P futures are up 0.2% to a new all time high, while Nasdaq futures rise 0.3%, also to a new all time high, with premarket gains - once again - led by semis as TSMC sales beat expectations, +40% vs. +35.5% consensus. As a result, all Mag7 names are higher - Tesla is set for a 10th gain in a row - and several large-cap banks are higher, too. Yields on two-year Treasuries traded near a three-month low, reflecting a popular bet that the US yield curve will steepen, although today 10Y yields also dipped, and were down 3bps to 4.27%, aided by expectations for loose fiscal policy. Bond yields are down 2bps and the USD starts the day flat. Commodities are weaker but there is some relief in the Energy complex with both crude/natgas higher. Yesterday’s 3Y auction showed surprising strength, keep an eye on today’s 10Y auction, amid 4x Fed speakers including the 2nd day of Powell's congressional testimony. JPM predicts that we may see another low volume session ahead of tomorrow's CPI release; the market is pricing Sep and Dec rate cuts so an inline print keeps that on track.
In premarket trading, Aehr Test Systems shares surged 15% after its fourth-quarter revenue beat estimates. LegalZoom.com tumbled 30% after the legal services company cut its full-year revenue guidance to below consensus estimates. It also named chairman Jeffrey Stibel as CEO, replacing Dan Wernikoff. Here are the other notable premarket movers:
The S&P 500 climbed for a sixth consecutive session on Tuesday, its longest winning streak since January. Here are some striking facts from The Market Ear showing just how this bull market rally just won't end:
- Megacap Tech is +50% YTD, good for the second best 6-month start in its history. For context, last year was the best 6-month start: +54%
- NDX higher 8 of the last 9 sessions, good for a quick 5%
- S&P 500 up the first six days of July. This is officially the second longest win streak ever to start July ('89 had 10).
- AAPL +18% since WWDC... Its third best 18-session move since Covid
- Tesla higher for the 10th day in a row
- The worst day the past two months for the S&P 500 is only 0.74%.
- Now 345-day streak without a 2% S&P 500 decline
Speaking to lawmakers Tuesday, Powell was careful not to offer a timeline for interest-rate cuts, which investors are now betting will begin in September. Further Congressional testimony by Powell on Wednesday, and key US inflation and jobs data tomorrow, may provide further clues on the policy path.
“We’re in position for curve steepeners,” Nicola Mai, sovereign credit analyst at Pimco, said in an interview with Bloomberg TV. “This year or early next year we should be getting to that disinversion of the curve for a couple of reasons. First of all rates should start to fall. Also I think the long end of the curve is going to remain high on fiscal concerns.”
In Europe, the Stoxx 600 adds 0.5%, led by gains in real estate, travel and telecommunication. Here are the most notable premarket movers:
Earlier, Asian stocks edged higher as major markets saw mixed moves following Federal Reserve Chairman Jerome Powell’s testimony to Congress. The MSCI Asia Pacific Index traded in a tight range Wednesday, up 0.1% as of 5:09 p.m. in Hong Kong. TSMC was the largest contributor to the advance as its second quarter sales figures exceeded expectations. Japanese stocks gained as investors weighed the Bank of Japan’s next move, while Singapore shares closed at a six-year high. Benchmarks in Hong Kong and mainland China reversed earlier gains. A high-profile gathering of China’s top leaders next week will be keenly watched for the winners and losers in the country’s stocks as the latest inflation readings pointed to persistent deflationary pressure.
In FX, the Bloomberg Dollar Spot Index is little changed. The New Zealand dollar underperforms G-10 FX, falling 0.9% against the dollar after the Reserve Bank toned down its hawkish rhetoric, suggesting it could ease monetary policy sooner than previously signaled. The Norwegian krone nurses a similar drop after underlying inflation fell to the lowest level in more than two years.
In rates, treasuries edge higher and hold curve-flattening gains, with long-end yields richer by around 2.5bp on the day, amid a bigger bull-flattening move in European bonds. The 10-year yield trades around 4.27%, more than 2bp richer on the day, trailing German and UK counterparts by 3bp and 4bp. 2s10s and 5s30s spreads are tighter by ~1bp, unwinding a portion of Tuesday’s curve-steepening move. Bunds, gilts and French OATs outperform comparable US bonds across the curve. The US session features a 10-year note reopening as well as Fed Chair Powell’s testimony to the House Financial Services Committee following his Senate testimony Tuesday. The week’s Treasury auction cycle continues at 1pm New York time with $39b 10-year reopening and concludes Thursday with $22b 30-year reopening. Tuesday’s 3-year sale drew strong demand, stopping through by 0.8bp. The When Issued 10-year yield at ~4.27% is ~17bp richer than June’s auction, which stopped through by 2bp.
Oil prices advance, with WTI rising 0.4% to near $81.70 as concerns about Chinese demand and continued uncertainty over the timeline for Fed rate cuts clashed with signs of another inventory draw in the US. Copper and iron ore declined, while gold rose $9 to around $2,373/oz.
Looking at today's calendar, US economic data slate includes May wholesale inventories at 10am. Powell testifies before the House Financial Services Committee at 10am in Washington. Goolsbee and Bowman (2:30pm) and Cook (7:30pm) are also slated to speak
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mixed following the indecisive performance stateside where the major indices finished rangebound after Fed Chair Powell largely stuck to the script and refrained from providing any signals on the timing of future policy action. ASX 200 was mildly pressured amid underperformance in the heavy industry sectors. Nikkei 225 swung between gains and losses despite initially printing fresh intraday record highs. Hang Seng and Shanghai Comp. diverged with the former kept afloat by outperformance among tech names such as Baidu, JD, Meituan & Alibaba, while the mainland conformed to the mostly downbeat mood after softer-than-expected Chinese CPI data and several companies also flagged losses for H1.
Top Asian News
European bourses, Stoxx 600 (+0.3%) are modestly in the green, paring back some of the hefty losses seen in the prior session. European sectors hold a slight positive bias, though with the breadth of the market fairly narrow. Real Estate tops the pile, whilst Basic Resources is subdued by broader weakness in the metals complex, following the softer than expected Chinese inflation data. US Equity Futures (ES +0.1%, NQ +0.3%, RTY +0.3%) are modestly firmer, with the ES & NQ sitting at session highs, whilst the RTY remains within recent ranges. TSMC (2330 TW) June (TWD): Sales 207.87bln (May's 229.6bln). Q2: 673.5bln (exp. 654.27bln)
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FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Other
US Event Calendar
Central Bank Speakers
DB's Jim Reid concludes the overnight wrap
After a lot of resilience through increasingly challenging macro news of late, markets were under a bit more pressure yesterday, which seems strange to say when the S&P 500 (+0.07%) edged up to a 36th all-time high for the year. The Mag-7 (+0.91%) dragged the index up yet again, but most US stocks were lower and French assets saw a sharp decline amidst the ongoing political gridlock, which meant the CAC 40 (-1.56%) saw its worst move in over three weeks while the Franco-German 10yr spread rose by +3.8bps. That went alongside broader declines for sovereign bonds, as there was disappointment that Fed Chair Powell didn’t sound more dovish in his congressional testimony, particularly given the uptick in the unemployment rate last week.
Overall, Powell’s tone was a fairly balanced one, and he reiterated the Fed’s message that they needed “greater confidence” that inflation was moving back towards target. Nevertheless, he also explicitly said in his statement that “elevated inflation is not the only risk we face”, pointing out that keeping policy too restrictive “could unduly weaken economic activity and employment” and that “labor-market conditions have now cooled considerably”. So there was an acknowledgement of the risk of staying on hold too long.
But despite Powell’s comments, Treasury yields initially moved higher across the curve. In large part, that was because of hopes that Powell would be even more dovish, and it’s worth noting that markets were already pricing more easing than the Fed had signalled in their June dot plot. For instance, the median dot had pointed to just one rate cut this year, but futures were fully pricing in two rate cuts before Powell’s testimony and this was little changed on the day (-0.4bps at 50bps). Treasury yields were a few bps higher intraday as Powell spoke, but began to turn lower around the end of his testimony. The 2yr yield ended the session -0.3bps lower at 4.63%, with the reversal also helped by a solid 3yr Treasury auction that saw $58bn of bonds issued 0.8bps below the pre-sale yield. Still, the 10yr yield closed +1.7bps higher on the day at 4.30%.
Aside from monetary policy, one other comment from Powell was around the new Basel proposals on bank capital, where Powell said that they had “ made quite a bit of progress and are very close to agreeing the substance of those changes ”. That came as Reuters reported yesterday that the Fed was considering a change to the GSIB surcharge that global systemically important banks have to hold.
Over in Europe, political risk remained the prominent theme yesterday, with France no closer to forming a government. It isn’t clear how a government can be formed given the split between three major groups in the National Assembly, and even the largest group (the left-wing alliance) are more than 100 seats away from an overall majority. That backdrop has seen French equities decline further, with the CAC 40 (-1.56%) down for a 3rd consecutive day, alongside fresh losses for BNP Paribas (-2.35%) and Société Générale (-2.22%). Indeed, it means the CAC 40 is now only just above its recent low on June 28 ahead of the first round vote, and the index is only a little more than 1% away from entering technical correction territory, having shed almost -9% since its recent peak back in mid-May. Sovereign bonds also struggled, with yields on 10yr OATs (+7.8bps), Bunds (+4.6bps) and BTPs (+5.4bps) all rising.
Equities followed a similar pattern across Europe, although the losses weren’t quite as large as France. That included the STOXX 600 (-0.90%), the DAX (-1.28%) and the FTSE 100 (-0.66%). But over in the US there was a stronger performance that left the S&P 500 (+0.07%) at another record high, and it was also the index’s 6th consecutive advance for the first time since January. That was driven by the Magnificent 7 (+0.91%), with a weaker tone more broadly. Indeed, 60% of the S&P 500 were down on the day, while the small-cap Russell 2000 (-0.45%) was almost back into negative territory on a YTD basis.
Overnight in Asia, equity markets have remained fairly steady overnight, with no major moves in either direction. Looking at some of the major indices, the Hang Seng (+0.27%) is up a bit, whilst the CSI 300 (+0.01%), the KOSPI (-0.03%) and the Nikkei (-0.04%) have seen little change, and the Shanghai Comp (-0.33%) has fallen. That comes against the backdrop of China’s latest inflation data for June, which showed that deflationary pressures are still present. For instance, the PPI remained in deflationary territory, falling -0.8% year-on-year as expected, whilst the CPI was up just +0.2% (vs. +0.4% expected). Looking forward, US equity futures are pointing to further gains, with those on the S&P 500 (+0.04%) and the NASDAQ 100 (+0.14%) both up this morning.
Elsewhere overnight, the Reserve Bank of New Zealand left its Official Cash rate unchanged at 5.5%, in line with expectations. However, there were some dovish aspects, and the meeting summary said that “ A range of business and consumer surveys, and higher frequency spending and credit data, all point to declining activity.” In turn, the New Zealand Dollar has weakened against other major currencies, and is down -0.57% against the US Dollar this morning, and its 10yr government bond yield is down -4.9bps.
To the day ahead now, and we’ll hear from Fed Chair Powell again at the House Financial Services Committee today. Otherwise, central bank speakers include the Fed’s Goolsbee, Bowman and Cook, Bundesbank President Nagel, and the BoE’s Pill and Mann. Finally, data releases include Italy’s industrial production for May.