Futs are slightly lower as bond yields rise after European inflation prints came in stronger than expected and PCE looms. As of 7:30am S&P futures are down -0.2%, off the worst levels of the session; Nasdaq futures slumped 0.5% as last night’s latest round of tech earnings disappointed: DELL plunged -14% as it failed to meet the high expectations on AI demand; MDB cratered 24% and is now down 55% below YTD highs. Indeed, most AI names (ex-NVDA) are mostly lower: AMD -1.0%, MU -78bp. Bond yields are 1-2bp higher in sympathy with the move wider in Bunds where the latest data showed European consumer prices rose more than expected; the Bloomberg dollar index dipped and commodities, energy and ags are mostly lower. Today’s macro data focus will be March PCE release; the street expects a headline and core PCE print of +0.3% MoM; on YoY basis, Core PCE is expected to rise 2.8%. Over the weekend, NVDA will host the CEO live keynote ahead of the Computex 2024 event on Sunday June 2 at 7am ET.
In premarket trading, megacap tech was mixed: NVDA +58bp, MSFT +25bp, AAPL -22bp, TSLA -53bp. Dell shares sink 15% as the personal computer maker’s strong AI server sales fail to impress investors. Analysts note that the first revenue increase since 2022 came at the cost of weaker profit margins. Here are some other notable premarket movers:
Prior to the recent swoon in tech, and especially software names, stock gains this month were fueled by the rally in tech as well as Jerome Powell’s dovish posture on rates at the start of May. That optimism has faded over the course of the month, and Friday’s data could revive hopes for easing if there are signs inflation is returning to target.
Indeed, investor attention now turns to the Federal Reserve’s preferred price-growth measure, the core PCE deflator, due at 8:30am and which likely moderated in April to the slowest monthly pace yet this year. As previewed earlier, headline PCE prices are seen rising +0.3% M/M in April (prev. +0.3%), with the annual rate expected to be unchanged at 2.7%. The core measure is seen rising +0.2% M/M (prev. +0.3%), while the core rate of annual PCE is seen unchanged at 2.8% Y/Y, although even a modest dip in the annual print would lead to the lowest annual increase in three years, since April 2021.
Elsewhere, a jury found Donald Trump guilty on all 34 counts of falsifying business records at his hush-money trial, making him the first former US president to be convicted of crimes. With Trump to due to face sentencing on July 11, the conviction creates a challenging legal and political path as he faces Biden in November as the presumptive Republican nominee. Trump Media & Technology Group traded down 12% in extended trading Thursday.
“Expectations for a guilty verdict were somewhat priced into markets,” Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management in Boston. “The bigger impact to markets could be if this guilty verdict begins to turn the momentum away from Trump to Biden.”
European stocks are little changed with losses in technology shares capping any upside in the Stoxx 600. Here are the biggest movers Friday:
Earlier, Asian stocks failed to hold initial gains to head for their second straight weekly decline, dragged by a selloff in equities in Hong Kong while contraction in factory activity weighed on Chinese shares. The MSCI Asia Pacific Index rose as much as 0.7% before trading little changed as TSMC, Tencent and Alibaba were among the biggest drags. Japan and New Zealand were among the key gainers, while a rebound in Samsung helped Korean shares higher. Shares fell about 1.5% on the week. Despite the recent decline, the Asian benchmark is still on track for a monthly gain of about 1.5% on an easing dollar and renewed expectations for help from the Fed, in addition to China’s support measures for its beleaguered property market.
In FX, the Bloomberg Dollar Spot Index is up less than 0.1% and is set to end the month 1% lower in May, after rising in the previous four months. The Swiss franc and Japanese yen are the weakest of the G-10 currencies. Euro rises 0.1% against the dollar to 1.0845 after earlier falling to 1.0811. The yen slips 0.3% to 157.27 per dollar, having risen 0.2% earlier due to a pickup in Tokyo CPI in May. In emerging markets, South Africa’s rand led declines after falling more than 3% over three days. Investors are awaiting the final results of the nation’s elections amid concern over the different permutations a coalition may take, and whether a market-friendly government will emerge.
In rates, US Treasuries slip, sending 10-year yields 1-2bps higher to 4.56%. German bund yields advanced five basis points to 2.70%, the highest since November, after the latest data showed European consumer prices rose 2.6% from a year ago in May, up from +2.4% in Apr and ahead of the Street’s +2.5% forecast. Core CPI came in +2.9%, up from +2.7% in Apr and ahead of the Street’s +2.7% forecast. Still, traders maintained bet for a cut at the ECB meeting next week, but reduced bets on easing after that. US Treasuries were also slightly cheaper across the curve with losses led by front-end, following a more aggressive selloff across bunds. Focal points of US session include PCE deflator data at 8:30am New York time. Treasuries may subsequently garner support from month-end buying flows, with a larger-than-average extension estimated for June.
In commodities, oil prices declined, with WTI falling 0.3% to trade near $77.70. Spot gold is steady near $2,343/oz.
Bitcoin has reversed earlier losses and trades just above $68k, while Ethereum has staged a rally and is trading just above $3,800.
US economic data includes April personal income and spending, including PCE deflators (8:30am) and May Chicago PMI (9:45am, 3 minutes earlier to subscribers). Fed officials’ scheduled speeches include Bostic at 6:15pm.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly in the green and shrugged off the weak lead from the US but with gains capped amid a deluge of data releases at month-end including disappointing official Chinese PMIs. ASX 200 traded higher with outperformance seen in gold mining stocks and the defensive sectors. Nikkei 225 advanced with the index ultimately unfazed by the mixed data mixed data from Japan including mostly in-line Tokyo CPI, a surprise contraction in Industrial Production and better-than-expected Retail Sales. Hang Seng and Shanghai Comp conformed to the positive tone albeit with gains capped in the mainland after disappointing Chinese PMI data in which Manufacturing PMI unexpectedly slipped into contraction territory
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European bourses, Stoxx 600 (+0.1%) are mixed, and generally trading near the unchanged mark as focus turn to the upcoming US PCE report. Equities saw very modest pressure on the back of the hotter-than-expected EZ HICP figures. European sectors are mixed and with the breadth of the market fairly narrow; Telecoms takes the top spot, continuing to build on the prior day’s outperformance. Tech is among the worst performers, joined by Travel & Leisure. US Equity Futures (ES -0.2%, NQ -0.4%, RTY -0.3%) are entirely but modestly in the red, continuing the negative sentiment seen in the prior session; however, the price action is relatively contained given the focus around the upcoming US PCE at 13:30 BST / 08:30 EDT.
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Geopolitics: Middle East
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DB's Jim Reid concludes the overnight wrap
I arrived back from NY yesterday to unexpectedly find a half-term sleepover with several noisy and excitable 8-year old girls. I ran back to the taxi to try to return to the airport but alas the driver had gone.
While I was away, the last few days have been the first for some time where good economic data (Tuesday) was a reason for markets to sell-off, and then weaker economic data (yesterday) was also seen as a reason for markets to sell-off. In recent times, both good and bad data have managed to build a bullish narrative, as bad data has been seen to raise the likelihood of rate cuts. Having said that, the sell-off this week remains pretty mild and the S&P 500 is only -1.6% beneath its record from last week, so it's hard to get too excited about a new trend emerging.
On the plus side, sovereign bonds recovered yesterday as investors dialled up the likelihood of rate cuts this year. But on the more negative side, the S&P 500 (-0.60%) still fell back for a second day, as the data included negative revisions to consumer spending. So it encouraged the idea that the US economy had lost some momentum at the start of the year, and it means the S&P 500 has now posted its worst two-day performance (-1.33%) in four weeks.
In terms of the details of that US data, the main headline was that Q1 growth was revised down to an annualised pace of just +1.3%, having been at 1.6% in the first estimate. That included downward revisions on the consumer spending side, with personal consumption expenditures revised down to half a point to +2.0%, whilst final sales to private domestic purchasers was also revised down three-tenths to +2.8%. That final measure was something Chair Powell had cited in his May press conference, as it was argued that underlying demand was strong despite the slowdown in headline growth. So it’s noticeable that’s been revised lower.
The better news came on the inflation side, with headline PCE inflation for Q1 revised down a tenth to 3.3%, whilst core PCE inflation was also revised down a tenth to 3.6%. So that leant slightly against the Q1 inflation spike, although there’s no doubt that it was still well above target. Bear in mind as well that we’ll get some more info on inflation today, as the monthly PCE inflation print for April is out later. That still gets a lot of attention because it’s what the Fed officially targets, even though it comes out after the CPI print a couple of weeks earlier.
This data backdrop proved supportive for sovereign bonds, and US Treasuries saw a clear rally after the release came out, taking the 10yr yield (-6.6bps) to 4.55%. That also came as investors became marginally more confident about rate cuts, with the likelihood of a cut by November up to 83% by the close, having been at 75% the previous day. Yesterday also saw mixed Fedspeak with Federal Reserve Bank of New York President Williams saying, “ I expect inflation to resume moderating in the second half of this year.” Federal Reserve Bank of Atlanta President Bostic added that he did not expect a Fed cut in July but was open to it if the data moved accordingly, and that another hike was not necessary at this time. But on the other hand, Federal Reserve Bank of Dallas President Logan was more hawkish, saying that policy may not be “as restrictive as we think it is” and that all policy options are on the table.
Remember as well that today is the last day before the Fed’s blackout period begins at the weekend, so we now won’t hear from Fed speakers until Chair Powell’s press conference in June.
That dovish trend carried over to Europe, with expectations mounting further that the ECB is going to cut rates next Thursday. Indeed, the likelihood of a cut is now priced as a 97.8% probability by overnight index swaps. In turn, sovereign bond yields fell back across the continent, having closed at their highest level in months on Wednesday. For instance, yields on 10yr bunds (-3.8bps), OATs (-3.7bps) and BTPs (-6.2bps) all fell. And that came in spite of strong labour market data, with the Euro Area unemployment rate down to 6.4% in April (vs. 6.5% expected), which is its lowest rate since the formation of the singe currency.
For equities, there was a more divergent performance on either side of the Atlantic. In the US, the S&P 500 (-0.60%) lost ground, but that was mainly down to sharp losses from tech stocks, with the Magnificent 7 down -1.73% and the Nasdaq -1.08%. In fact, 72% of the S&P was actually higher on the day, and the equal-weighted S&P 500 was up +0.44%, so it wasn’t all bad. For example, the small-cap Russell 2000 saw an even larger gain of +1.00%. Meanwhile in Europe, there was also a decent performance, with the STOXX 600 (+0.59%), the DAX (+0.13%) and the CAC 40 (+0.55%) all recovering after two days of losses.
Overnight in Asia, we’ve seen a more optimistic tone in markets, with a recovery across the major equity indices. That’s come despite weaker-than-expected data from the China PMIs, with the manufacturing PMI falling back to 49.5 (vs. 50.5 expected), whilst the non-manufacturing PMI fell to 51.1 (vs. 51.5 expected). The data out of Japan has also been mixed overnight, with industrial production down -0.1% in April (vs. +1.5% expected), although retail sales did see growth of +1.2% (vs. +0.6% expected). Nevertheless, the weaker data has been seen as raising the likelihood there might be more stimulus, and there’ve been gains for the Nikkei (+0.94%), the Hang Seng (+0.94%), the KOSPI (+0.39%), the Shanghai Comp (+0.27%) and the CSI 300 (+0.20%). Looking forward, however, US equities are still struggling for momentum, and futures on the S&P 500 (-0.19%) currently point towards a third day of losses.
Looking at yesterday’s other data, the US weekly initial jobless claims were at 219k (vs. 217k expected) in the week ending May 25. Continuing claims were also broadly in line with expectations at 1.791m (vs. 1.796m expected). Otherwise, pending home sales were down -7.7% in April (vs. -1.0% expected), taking the index down to its lowest level since April 2020 at the height of the pandemic.
To the day ahead now, and data releases include the US PCE inflation reading for April, alongside personal income and personal spending. Elsewhere, there’s the Euro Area CPI reading for May, UK mortgage approvals for April, German retail sales for April, Canada’s Q1 GDP, and in the US there’s also the MNI Chicago PMI for May. From central banks, we’ll hear from the ECB’s Vujcic and Panetta, and the Fed’s Bostic.