US equity futures are lower as traders awaited the latest inflation data that will determine if the Fed opts for a slower pace of interest-rate cuts. As of 8:00am, S&P 500 futures are down 0.2% after hitting a record high on Wednesday; Nasdaq futures are down by the same amount with most Mag7 stocks flat; TSLA is leading with a +1.1% pre-market move ahead of its Robotaxi unveil event tonight. Delta Air Lines Inc. kicked off the third-quarter earnings season, with profit and sales forecasts falling short of expectations. JPMorgan Chase & Co. and Wells Fargo & Co. are scheduled to report on Friday. Ten-year Treasury yields held above 4%, near the highest levels since end-July. Bloomberg’s dollar index was steady after an eight-day streak of gains, its longest since April 2022. Commodities are mixed with Oil higher, Base Metals lower, and Precious Metals higher. Today, key macro focus will be CPI, along with AMD (Advancing AI) and TSLA (Robotaxi) events.
In premarket trading, Delta Air Lines fell 5% after management forecast profit and sales that are short of Wall Street’s estimates for the final months of the year, suggesting a slow recovery from a challenging summer travel season. US insurance stocks rallied in premarket trading after Hurricane Milton weakened to a Category 3 storm, and supply-chain services provider GXO Logistics rose on the news of a potential sale. Here are some other premarket movers:
US CPI data is expected to show inflation moderating further in September, supporting the view that the Fed will continue easing policy in the coming months. However, as noted in our preview, the surprisingly strong jobs print for last month has forced traders to dial back rate-cut bets, with many expecting a 25-basis-points reduction in November. Meanwhile, CPI "whisper numbers" are higher than consensus and Goldman traders warn that a hotter than expected number would slam stocks (full preview here).
A strong inflation reading could change the reaction function from the Fed, Bénédicte Lowe, a strategist at BNP Paribas Markets 360, said on Bloomberg TV. “Given that equities are near all-time high in the US, close to multi-year highs in Europe, the risks are more skewed to the downside if we get a pick-up in inflation from here,” Lowe said.
Elsewhere, investors will want to see if profits are robust enough to sustain this year’s roughly 20% rally in the S&P 500. Companies in the index are expected to report a 4.7% increase in quarterly earnings from a year ago, according to data compiled by Bloomberg Intelligence, down from the 7.9% growth projected on July 12. Invesco Global Market Strategist Brian Levitt expects companies to surpass the pared-back expectations, keeping the rally going.
“It is a good nominal growth backdrop, investors are sitting there, looking at equity markets saying: all-time highs on the equity market, can I invest?” Levitt told Bloomberg TV. “Peak inflation, peak tightening, peak rates should be good for equities.”
European stocks edged lower ahead of the CPI report; the Stoxx Europe 600 Index was down 0.1% by 11:47 a.m. in London. Technology and mining stocks lagged, while insurers outperformed as analysts said costs related to Hurricane Milton may be less than initially feared. Spanish stocks were also underperformers as utilities firms weighed. The benchmark gave up early gains as investors weighed multiple risks, including the war in Ukraine, escalating tensions in the Middle East and uncertainty over further Chinese stimulus. Investors are also bracing themselves for the third-quarter earnings season. In individual movers, GSK Plc was among the biggest gainers after it said it will pay as much as $2.2 billion to resolve US court cases related to it Zantac medication. Shares in Italy’s BPER Banca SpA jumped after the lender gave new targets for earnings and dividends. Chip stocks including Soitec and BE Semiconductor Industries NV fell after analysts cut price targets ahead of the earnings season.
Earlier in the session, Asian equities rose, helped by a rebound in Chinese shares amid hopes that the country’s finance ministry will announce fresh stimulus during a briefing Saturday. The MSCI AC Asia Pacific Index jumped as much as 1.1%, snapping a two-day decline, as Chinese tech names including Tencent Holdings Ltd. and Meituan advanced. An index of Chinese stocks listed in Hong Kong climbed 3.4% and the onshore CSI 300 Index rose 1.1% in volatile trading. Shares in Japan, South Korea and Australia posted modest gains.
Two key events loom large for investors in the near term. China’s finance ministry briefing this weekend is a key focus, but traders are also awaiting US inflation data due Thursday, which may provide hints on the pace of the Federal Reserve’s interest-rate cuts in the coming months. “It does appear to be a cautious lift filtering through from Wall Street for Asia but ahead of US CPI, caution may rule the roost,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. He said the mentality among many onshore investors regarding more fiscal stimulus in China is “I’ll believe it when I see.”
In FX, the Bloomberg dollar index traded little changed after rising for eight straight sessions through Wednesday close, its longest winning streak since April 2022. The yen reversed losses after earlier falling to its weakest since early August. USD/JPY slips 0.2% to 149.02; earlier, pair rose to 149.55, a fresh cycle high and strongest since Aug. 2. EUR/USD down 0.1% to 1.0930; GBP/USD little changed at 1.3074. Loonie leads G-10 losses against dollar; USD/CAD up 0.3% to 1.3751, the strongest since Aug. 8
In rates, Treasuries are marginally cheaper across the curve, following wider losses across core European rates. The long-end are cheaper by 1bp-2bp with 10-year around 4.09%, outperforming bunds and gilts in the sector by 1bp and 4bp; curve spreads are slightly steeper on the day, within 1bp of Wednesday’s closing levels. The week’s auctions conclude with $22 billion 30-year reopening, following average results for 3- and 10-year note sales which both tailed. The 30-year bond reopening at 1pm follows 0.4bp tail for Wednesday’s 10-year sale; WI 30-year yield near 4.36% sits ~34bp cheaper than September auction, which tailed by 1.4bp. Ahead of CPI and weekly jobless claims data, Fed swaps price in around 18bp of easing for the November meeting and a combined 42bp over the two remaining meetings this year. Gilts lead a selloff in European government bonds, with UK 10-year yields rising 4 bps to 4.22%. French bonds fall ahead of the budget announcement.
In commodities, oil prices advance after a two-day fall, with WTI climbing 1.4% to $74.30 a barrel and Brent futures strengthened above $77 a barrel, on fear that Israeli retaliation against Iran for its recent missile strikes will trigger all-out war in the Middle East. Spot gold rises $10 to around $2,618/oz.
Looking at today's data, US economic data calendar includes September CPI and jobless claims (8:30am). Fed speakers scheduled include Cook (9:15am), Barkin (10:30am) and Williams (11am).
Market Snapshot
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were higher following the record closes on Wall Street despite light macro catalysts as the latest Fed rhetoric and FOMC Minutes did little to spur a reaction, while the attention now shifts to looming US CPI data. ASX 200 mildly gained amid strength in real estate and the mining-related industries with the latter helped by M&A news after Rio Tinto announced a definitive agreement to acquire Arcadium Lithium. Nikkei 225 was underpinned at the open but with gains capped amid quiet newsflow and firmer-than-expected PPI data. Hang Seng and Shanghai Comp rallied with significant outperformance in the Hong Kong benchmark after returning to above the 21,000 level, while the mainland conformed to the broad upbeat mood which also followed the PBoC's announcement to establish a securities and funds swap facility of CNY 500bln to enhance the internal stability of the capital market.
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European bourses, Stoxx 600 (-0.2%) began the session on a modestly firmer footing, but as the morning progressed, indices generally edged lower. As it stands, indices are mostly in negative territory and to varying degrees. European sectors hold a negative bias vs initially mixed at the cash open. Healthcare tops the pile, a beneficiary of the significant gains in GSK (+5.4%) after it settled its Zantac litigation case. Tech is found towards the foot of the pile. US Equity Futures (ES -0.2%, NQ -0.2%, RTY -0.1%) are softer across the board, in a slight paring to some of the gains seen in the prior session; traders are also very mindful of the upcoming US CPI result. AMD (+0.2%) will host its AI event and Tesla (+0.8%) is firmer ahead of its Robotaxi event. Huawei smartphone sales within China surpassed Apple's (AAPL) in August 2024, via CINNO Research; for the first time in almost four-years. Four Taiwanese employees at a Foxconn (2354 TW) run facility in China which makes products for Apple (AAPL) have been detained by local authorities, via WSJ citing Taiwanese officials; said to have been accused of offenses similar to a breach of trust.
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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
Markets have put in another strong performance over the last 24 hours, as optimism about the near-term economic outlook continues to build. That helped the S&P 500 (+0.71%) to reach its 44th record high this year, whilst US IG spreads closed at their tightest levels since September 2021 as well. That strength means that the S&P 500 is now up +21.43% on a year-to-date basis, meaning that this is its strongest performance at this point of the year since 1997. And in turn, as optimism grew on the economy, investors continued to dial back the likelihood of rapid rate cuts from the Fed, lifting the 10yr Treasury yield (+6.1ps) to its highest level since July, at 4.07%. This backdrop also saw the dollar index (+0.37%) extend its winning run to eight sessions, its longest since April 2022.
Those risk-on moves happened despite the ongoing geopolitical tensions in the Middle East, where attention is still focused on how Israel might respond to Iran’s missile strikes last week. In terms of the latest, Israeli PM Netanyahu spoke with US President Biden yesterday, although the White House readout did not directly mention Israel’s potential retaliation against Iran. According to Bloomberg reporting, the Biden administration is pressing Israel to limit its retaliation to military targets, while Axios reported that Netanyahu will convene Israel’s security cabinet today. In the meantime, oil prices came down for a second day running, with Brent crude falling -0.78% to $76.58/bbl.
Aside from the geopolitical situation, attention today will be on the US CPI release for September, which is coming out at 13:30 London time. This is in particular focus after the strong jobs report last Friday, as there’s been growing speculation that the Fed might not cut at all at their next meeting in November. Indeed, yesterday saw futures lower the chance of a rate cut down to 83%, so the prospect of a hold at the next meeting is increasingly being considered, even if it’s not the base case for investors.
In terms of what to expect, our US economists are forecasting that headline CPI will likely come in at a monthly +0.10% in September. That should bring the year-on-year number down to +2.3%, which would be the lowest since February 2021. Then for core inflation, they see that at a stronger +0.27% for the month, keeping the year-on-year number at +3.2%. Remember as well that tomorrow’s PPI data will also be in focus, as that will give a better idea of some of the categories included in the PCE measure, which is what the Fed officially target. For more info, you can read our economists’ full preview and how to sign up for their subsequent webinar here.
Ahead of the CPI release, investors continued to dial back the likelihood of rapid rate cuts from the Fed, and Treasury yields rose across the curve. For instance, the rate priced in for the December 2025 meeting moved up +6.6bps to 3.425%, the highest since mid-August. So the 2yr Treasury yield was up +6.5bps on the day to 4.02%, and the 10yr yield (+6.1bps) moved up to 4.07%. In part that followed comments from Dallas Fed President Logan, who said that “a more gradual path back to a normal policy stance will likely be appropriate from here”, which also pointed away from a faster pace of cuts.
Later in the session, we then got the FOMC minutes from the September meeting, where the Fed delivered their recent 50bp rate cut. These said that “some participants observed that they would have preferred a 25bp” cut and “a few others indicated that they could have supported such a decision”. So while Fed Governor Bowman was the only dissenting vote in favour of a 25bp cut in the end, the accounts confirm that the 50bp decision saw some pushback within the FOMC.
For equities, it was another strong day, and the S&P 500 (+0.71%) powered forward to another record high. The advance was a broad-based one, and banks put in a particularly strong performance, with the KBW Bank Index (+1.26%) reaching its highest level since June 2022 yesterday. By contrast, the Magnificent 7 (-0.00%) was flat on the day, with Alphabet down -1.53% following the previous day’s news after the close that the US Justice Department was considering the breakup of Google. But in general, it was a strong day, and the VIX index of volatility also came down -0.56pts to 20.86pts by the close. That strength was echoed in Europe too, where the STOXX 600 was up +0.66%.
Elsewhere today, France’s budget for 2025 is being presented this evening. It follows new PM Barnier’s speech last week, in which he said that the target to reach the EU’s deficit limit of 3% of GDP would be delayed by two years to 2029. Ahead of that, the Franco-German 10yr spread remained steady at 77bps, with yields on 10yr bunds and OATs both rising by +1.5bps yesterday.
Overnight in Asia, the risk-on tone has continued, and there’s been a fresh rally in Chinese stocks after the PBOC released details of a 500bn yuan swap facility, which will provide liquidity to institutional investors to buy shares. That’s helped support a sizeable rally, with the CSI 300 (+2.85%) and the Shanghai Comp (+2.95%) both posting a strong advance, and the Hang Seng has seen an even larger gain of +4.22%. Elsewhere in Asia the gains have been more muted by comparison, with the KOSPI up +0.64%, and the Nikkei up +0.21%. In the meantime, US equity futures are basically flat, with those on the S&P 500 down just -0.01%.
Finally, it’s been another light day on the data side, although Japan’s PPI inflation has surpassed expectations overnight, coming in at +2.8% in September (vs. +2.3% expected). Otherwise yesterday, weekly data from the Mortgage Bankers Association data in the US showed the contract rate on a 30yr mortgage was up 22bps to 6.36% over the week ending October 4, which is its biggest weekly jump in over a year. Nevertheless, that still leaves rates well beneath their levels earlier in the year, having been at 7% as recently as early July.
To the day ahead now, and data releases include the US CPI reading for September, along with the weekly initial jobless claims. Meanwhile in Europe, we’ll get German retail sales and Italian industrial production for August. From central banks, we’ll get the account of the ECB’s September meeting, and speakers include the Fed’s Cook, Barkin and Williams.