The record election rally has finally fizzled and futs are slightly lower after China's stimulus package revealed this morning disappointed investors. As of 8:00am ET, S&P futures were trading at exactly 6,000, down 0.1% from the first ever closing high above 6,000 but still on track for its best week in a year on the prospect of tax cuts and deregulation under Trump. Nasdaq futures are down 0.3%. Bond yields are 3bp lower after the Federal Reserve delivered a quarter-point interest-rate cut and left the door open for further easing next month; the dollar reversed some of yesterday's sharp losses when markets fretted they had taken Trump trades too far (they haven't). Oil is down but base metals are higher. Overnight, Chinese stock futures and the yuan are lower having extended declines after authorities announced a total 10 trillion yuan ($1.4 trillion) program to refinance local government debt, which was disappointing as (1) There was no lift to the Central Govt debt ceiling, and (2) There was no direct support for consumption or the property market, (3) The only announced a debt swap, not incremental stimulus. Today, the macro focus will be on Univ. of Michigan survey, where consensus expects an increase to 71.0 from 70.5 in October, although the rebound in mortgage rates could weight on sentiment. Later tonight, we will receive China PPI and CPI releases at 8.30pm ET.
In premarket trading, US-listed Chinese stocks declined as Beijing’s latest fiscal policies underwhelm. China announced a plan to refinance local government debt, but stopped short of announcing other measures to boost housing and consumption. Airbnb shares dropped 5.4% after the home-rental company reported third-quarter results. While analysts viewed the results as solid, they flagged the impact of investments on margins. Here are some other notable movers:
Friday’s moves follow a cross-asset rally on Thursday that was supported by Jerome Powell’s comments. He pointed to the strength of the US economy and said he doesn’t rule “out or in” a December rate cut. Powell added the election will have no effect on policy in the near term, and said he would not step aside if asked by Trump. Following yesterday’s cut, traders are betting on 82 basis points of Fed easing by September 2025. The yield on 30-year US bonds declined about two basis points to 4.51% Friday, falling for a second day to retrace some of its post-election spike. Bloomberg’s dollar gauge gained 0.2%.
After an initial stampede into “Trump Trades,” investors in some asset classes are tapering their enthusiasm as they question whether he will push through his ambitious tariff proposals as US president. “Even with red majorities across Congress, it’s likely that these policy actions will take time,” said James Athey, fund manager at Marlborough Investment Management. “That might make significant further gains in the short term a little harder to come by.”
Meanwhile, US equity funds attracted $20 billion on Wednesday when Trump secured victory in the election, the biggest daily addition in five months, according to BofA's Michael Hartnett. US stock funds overall added $32.8 billion in the week through Nov. 6.
Halfway across the globe, Beijing’s disappointing stimulus measures “look like it is just a debt swap, which is frankly not going to be that exciting for markets,” said Bernie Ahkong, global multi-strategy alpha chief investment officer at UBS O’Connor. “The big factor between now and the end of the year is if we are going to get some incremental stimulus from the consumer side.”
"To me, there is little alternative to the US," said Marija Veitmane, a senior multi-asset strategist at State Street Global Markets. “The US is already the best performing equity market globally and we expect that outperformance to continue. US companies are the most profitable and likely to remain so, helped by the potential for lower taxes and less stringent regulation.”
European stocks were also hit by the China disappointment, with mining and consumer products shares leading declines, while real estate and healthcare subsectors were the biggest outperformers leading declines on the Stoxx 600 which falls 0.6%. Here are the biggest movers Friday:
Asian equities rose, capping their first weekly gain in six, as the Fed’s rate cut drove broader risk-on trading despite declines in Chinese stocks. The MSCI Asia Pacific Index rose as much as 0.8% Friday before paring some gains, with TSMC, Recruit Holdings and Hitachi among the biggest boosts. The regional benchmark was on course for a weekly advance of around 2.6%. Key gauges in New Zealand, Singapore, and Australia were among the biggest gainers, tracking a rally in US stocks after the Fed lowered its key interest rate by a quarter point. Comments from Fed Chair Jerome Powell that he doesn’t rule “out or in” a December rate cut also helped boost investor sentiment. Sentiment was gutted, however, by the latest disappointing stimulus announcement out of Beijing, which sent Chinese futures and the yuan sliding. After market close, authorities announced a total 10 trillion yuan ($1.4 trillion) program to refinance local government debt, which disappointed investors who were expecting stronger fiscal spending. The disappointment spread to assets often correlated with the health of the Chinese economy. Market watchers are now turning their focus to upcoming policy meetings for further stimulus clues.
“The announcement is a letdown and indicative of the underlying conservative framework that reduces the scope for large positive surprises in the next few months,” said Homin Lee, senior macro strategist at Lombard Odier. “It appears that the authorities are kicking the can to December policy meetings, including the Central Economic Work Conference.”
In FX, the Bloomberg Dollar Spot Index rose 0.3%, hitting a session highs after China announced a disappointing 10 trillion yuan ($1.4 trillion) program to refinance local government debt as part of policy support measures to boost flagging growth. The yen is the best performer among the G-10’s, rising 0.4% against the greenback. The Aussie dollar drops 0.6% to the bottom of the G-10 FX leader board.
In rates, treasuries rise, with US 10-year yields falling 3 bps to 4.30%, underperforming bunds in the sector by 2.5bp, gilts by 0.5bp. Bunds outperform, supporting Treasuries, as euro-area stocks fall on global-growth concerns after China’s debt swap plan fell short of expectations. US data and Fed speaker calendars are light for Friday, and expectations for a heavy corporate issuance slate next week may drive hedging flows.
In commodities, the China disappointment hit prices with iron ore futures down 3%, and Brent crude down 1.5%. Spot gold fell $23 to $2,684/oz.
The US economic data calendar includes November preliminary University of Michigan sentiment at 10am New York time. Fed members scheduled to speak include Bowman at 11am on banking topics. Next week, Chair Powell speaks at an event put on by the Dallas Regional Chamber, Dallas Fed and World Affairs Council of DFW
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APAC stocks were ultimately mixed despite the early momentum following the fresh record levels on Wall St and a bout of rate cuts by major central banks, with gains capped as participants awaited a potential Chinese fiscal stimulus announcement. ASX 200 outperformed its major peers amid gains in nearly all sectors and with financials kept afloat post-ANZ earnings. Nikkei 225 traded higher but with gains capped after a contraction in household spending and the recent currency rebound. Hang Seng and Shanghai Comp wiped out early gains despite the HKMA's 25bps lockstep rate cut with price action cautious as participants awaited the conclusion of the NPC Standing Committee's session and potential stimulus announcement.
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European bourses, Stoxx 600 (-0.7%) are entirely in the red and to varying degrees vs futures initially indicating a positive open. Sentiment was hit following the China’s NPC press conference, where it largely refrained from providing specific details on fiscal stimulus, but did promise more forceful fiscal policy in next year. Bourses continued to trundle lower and currently reside just off worst levels. European sectors hold a negative bias; Healthcare takes the top spot, lifted by AstraZeneca after it reported a positive update on one of its treatments. Basic Resources and Consumer Products sit at the foot of the pile, with the former hampered by losses in underlying metals prices whilst the latter is weighed on by poor results from Richemont. Additionally, sentiment across these China-exposed sectors was hit given the lack of fresh stimulus measures from China’s NPCSC. US equity futures (ES -0.1%, NQ U/C, RTY U/C) are flat/incrementally lower, but have been edging ever so slightly lower in recent trade, given the weakness also seen in Europe. TSMC (2330 TT) has reportedly informed Chinese customers that it will be suspending production of some of their AI and high-performance chips, via Nikkei citing sources; as the Co. increases efforts to comply with US export controls
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DB's Jim Reid concludes the overnight wrap
Markets put in another very strong performance over the last 24 hours, with US risk assets continuing their post-election surge. In fact after yesterday’s moves, the S&P 500 (+0.74%) is now up more than +25% on a year-to-date basis, and the last time it was up this much YTD by November 7 was back in 1995. Moreover, US IG credit spreads tightened another -2bps yesterday to just 75bps, which is their tightest closing level since 1998. So there’s an incredibly buoyant mood right now, and the S&P 500 has also just recorded its strongest 3-day move (+4.56%) since 2022.
Of course, the main news yesterday came from the Fed, although the policy decision was a widely-expected 25bp cut, which took the target range for the fed funds rate down to 4.50-4.75%. The language in the FOMC statement was largely unchanged, keeping the view that “the risks to achieving its employment and inflation goals are roughly in balance.” Looking forward, Powell avoided sending any signal about the December meeting, emphasising the data still to come before then. But relative to the previous meeting in September, the overall tone leaned slightly hawkish, as Powell mentioned how the recent data pointed to “diminishing downside risks” as “the economy remains strong”. He also added that “the right way to find neutral… is carefully, patiently”. Our US economists continue to expect another 25bps cut in December, but they think the bar for a skipping a cut at that meeting isn’t high. See their full reaction here.
In terms of recent political developments, Powell steered clear of discussing the implications of the election for the Fed, saying that “We don’t know what the timing and substance of any policy changes will be”. He also replied “No” when asked if he’d resign if Trump asked him, and said that dismissal of any Fed board members was “not permitted under the law”. Separately, a CNN report earlier cited a Trump advisor saying that Trump would allow Powell to serve out the rest of his four-year term until May 2026.
When it comes to the election results, the only outstanding question now is whether the Republicans will take the House of Representatives. That’s still not formally confirmed, but the chances of a Republican sweep on Polymarket have now risen to 97%, and the latest seat count from AP now stands at 211 for the Republicans and 199 for the Democrats, with 218 required for a majority. Meanwhile in the Senate, the latest total now stands at 53-45 for the Republicans, with two seats left to be called. Finally, Trump announced his first appointment yesterday, saying that Susie Wiles, his campaign manager, would become his White House chief of staff.
Before the Fed’s decision, US Treasuries actually unwound some of their post-election moves yesterday, with 2yr Treasury yields ending the day -6.2bps lower at 4.20%, whilst the 10yr yield fell -10.6bps to 4.33%. This also meant the dollar index (-0.55%) posted its worst day since August, albeit giving up just a third of Wednesday’s +1.61% gain. And looking forward, investors believe that another 25bp cut in December is likely, but far from certain, with futures only giving that a 71% probability as we go to press this morning.
Elsewhere, US equities saw continued gains as Powell struck an upbeat tone on the economy. That saw the S&P 500 (+0.74%) reach its 49th all-time high this year, with its YTD gains crossing the +25% mark. Tech stocks led the advance, with the NASDAQ (+1.51%) and the Magnificent 7 (+2.28%) reaching new highs of their own. That said, some of Wednesday’s strongest performers did see a reversal, with the Russell 2000 (-0.43%) and the KBW Bank index (-2.68%) retreating. But positive sentiment dominated overall, with the VIX index (-1.07pts) falling to its lowest level since August at 15.20.
Overnight in Asia, the focus is now on the Standing Committee meeting of China’s National People’s Congress, and what measures they may announce, particularly with the prospect of higher US tariffs under a Trump administration. Ahead of that, equity markets have seen little moves in either direction across Asia, with the Hang Seng (-0.29%), the CSI 300 (-0.09%), the Shanghai Comp (+0.14%), the KOSPI (-0.12%) and the Nikkei (+0.11%) all seeing pretty modest moves. That’s been reflected among US equity futures as well, with those on the S&P 500 up just +0.05% this morning.
Ahead of the Fed, the Bank of England also delivered a 25bp rate cut yesterday, taking their policy rate down to 4.75%. The move was widely expected, and the Monetary Policy Committee voted 8-1 in favour of the decision, with the dissenting vote to keep rates unchanged. Their latest forecasts also included the impact of the government’s budget the previous week, which announced higher borrowing plans for the years ahead. Their statement said that the budget was “provisionally expected to boost CPI inflation by just under ½ of a percentage point at the peak”, and Governor Bailey said that the Budget changes “are expected to reduce the margin of spare capacity in the economy over the forecast period”. Looking forward, the BoE signalled that rates would continue to move lower, and Governor Bailey said that “a gradual approach to removing policy restraint remains appropriate”. From here, our UK economist expects the BoE to leave rates on hold at the next meeting, before delivering another cut at the subsequent decision in February, and eventually moving to a terminal rate of 3.25%.
With the BoE cutting rates, UK gilts saw a strong outperformance yesterday, which saw the spread of 10yr gilt yields over bunds tighten by -10.4bps to 205bps. That took it down from its two-year high the previous day, and it also marked the biggest move tighter in the spread since July 2023. But even as gilts rallied, sovereign bonds elsewhere in Europe struggled, with yields on 10yr bunds (+4.0bps) and OATs (+2.8bps) both moving up to their highest level since July, at 2.44% and 3.20% respectively. For equities it was the reverse picture however, with the UK’s FTSE 100 (-0.32%) lower amidst the stronger pound, whilst Germany’s DAX (+1.70%) posted its best daily performance of 2024 so far. Otherwise, the broader STOXX 600 posted a +0.62% gain.
Elsewhere in Europe, there’s been plenty happening in German politics after the federal coalition broke up on Wednesday night. As a reminder, the breakup happened after Chancellor Scholz of the SPD dismissed finance minister Christian Lindner, who also leads the FDP, and the other FDP ministers then left the coalition as well. In turn, Scholz said he would call a vote of no confidence on January 15, which would pave the way for new federal elections after that. There were calls yesterday for that vote to be brought forward, including from opposition leader Friedrich Merz of the CDU/CSU, but Scholz said again that he wouldn’t put the vote of confidence to the Bundestag until the start of next year.
Looking at yesterday’s other data, the US weekly initial jobless claims were broadly as expected at 221k (vs. 222k expected). However, the continuing jobless claims for the previous week ending October 26 ticked up to 1.892m (vs. 1.873m expected), their highest level since November 2021. Over in Europe, German industrial production contracted -2.5% in September (vs. -1.0% expected), and Euro Area retail sales were up +0.5% in September (vs. +0.4% expected).
To the day ahead now, and data releases from the US include the University of Michigan’s preliminary consumer sentiment index for November, and there’s also Italy’s retail sales and industrial production for September. Central bank speakers include the Fed’s Bowman and Musalem, the ECB’s Vujcic, and the BoE’s Pill.