US equity futures are lower on news that the DOJ is considering a breakup of Alphabet’s Google search engine, in what would be a historic antitrust crackdown on Big Tech; Europe was flat while Asian markets slumped after Chinese A-shares suffered their biggest one-day plunge since February 2020 as investors are getting restless and demand stimulus actions from Beijing instead of just more words. As of 8:00am ET, S&P and Nasdaq futures are down 0.1%, but off session lows, with megacap tech stocks mixed: NVDA rises 1.4%, while Alphabet shares fell about 1.5% after the US Justice Department said it’s considering asking a federal judge to force Alphabet’s Google search engine to sell off parts of its business. Yields remain largely unchanged, the 10Y TSY yielding 4.03%, while the US Dollar rises. Oil prices failed to rebound, and slid to session lows, down 0.5% despite nervousness around Israel response and anticipation on China stimulus. Outside US, China finance ministry unveiled a press conference plan on Saturday; New Zealand Central Bank surprisingly cut 50bp.
In premarket trading, Boeing slid 1% after S&P said the company could be downgraded to junk; Boeing also said negotiations to end an almost monthlong strike collapsed. Alphabet slipped about 1% after the US Justice Department told a federal judge it’s considering recommending that Google be forced to sell off parts of its operations. Here are some other notable premarket movers:
While fears of antitrust crackdowns on Big Tech have been around for a while, the prospect of an actual breakup push is weighing on sentiment, said Kevin Thozet, a member of the investment committee at French asset manager Carmignac. However, he downplayed the eventual impact, because “at the end of the day, when we are looking at individual values of those separate business lines within Google, investors could be better off.”
Meanwhile, investors are monitoring clues on the outlook for interest rates. The 10-year US Treasury yield hovered above the key 4% level after diminished expectations for interest-rate cuts triggered a run of selling in previous days. The latest speeches from Fed Vice Chair Philip Jefferson and Atlanta Fed chief Raphael Bostic pointed to a measured approach.
Carmignac’s Thozet is among those expecting the Fed to slow the rate-cutting pace after September’s 50 basis-point move, as “the probability of a recession on the one hand is falling and probability of no landing is increasing.”
Globally, however, rate-setters are turning more dovish. A European Central Bank rate cut next week is very probable, Governing Council member Francois Villeroy de Galhau said. New Zealand cut rates by half a percentage point, stepping up the pace of easing, while India’s central bank opened the door for its first cut in four years.
In Europe, the Stoxx 600 index was flat despite Chinese stocks listed onshore suffering their biggest drop in more than four years. Real estate and automobile shares gained, while banks and travel stocks are the biggest laggards. Among individual movers, luxury goods firm Kering SA jumped as much as 1.3% on the news of a new CEO for its Gucci brand, while renewable energy companies were lifted by an International Energy Agency report predicting massive growth in renewable power capacity. Here are the most notable European movers:
Earlier in the session, Asian stocks were dragged lower by Chinese shares, which tumbled on growing skepticism over Beijing’s stimulus plans and soft economic data. The MSCI Asia Pacific Index fell as much as 0.6%, declining for a second session, led by Chinese tech names including Tencent Holdings Ltd. and Alibaba Group Holding Ltd. The onshore benchmark CSI 300 Index slumped 7.1%, the most since February 2020, while Chinese stocks listed in Hong Kong also fell. Chinese equities are coming under pressure as investors reassess the outlook for the country’s recovery after a key policy meeting Tuesday yielded little fresh stimulus and holiday-spending data underwhelmed. While the gauges pared declines after the Ministry of Finance said it would hold a Saturday briefing on fiscal policy, selling soon resumed as traders doubted there will be a major spending boost.
“The market’s cautious reaction suggests investors might be waiting for more than just announcements - they want actual fiscal action,” said Billy Leung, an investment strategist at Global X Management. “If the MOF doesn’t deliver solid details, the market could stay volatile.”
In FX, the Bloomberg Dollar Spot Index is up 0.1%, rising for an eighth straight day and set for its longest winning streak since April 2022 as traders priced less US monetary easing. The kiwi dollar is the weakest of the G-10 currencies, falling 0.9% against the greenback to its lowest in seven weeks after the RBNZ stepped up their easing pace with a 50 bps interest rate cut. USD/JPY rises 0.3% to 148.60. Traders will be watching now for minutes from last month’s Fed meeting, later on Wednesday, while US inflation data is due Thursday.
In rates, treasuries dropped after plying narrow ranges during Asia session and European morning. 7- to 30-year yields are about 2bp cheaper on the day with 10-year around 4.03%, lagging bunds and gilts by ~2bp in the sector. Curve spreads, though steeper, remain within 2bp of Tuesday’s close ahead of a busy day of Fed speak and US inflation data on Thursday. Bunds and gilts outperform with more Treasury auctions on deck: $39b 10-year reopening at 1pm New York time and $22b 30-year reopening Thursday. Also Wednesday, six Fed officials have scheduled appearances.
In commodities, oil prices advance, with WTI rising 1% to $74.30. Spot gold falls $4 to $2,617/oz.
Looking at today's calendar, we get August wholesale inventories at 10am. Fed speakers scheduled include Bostic (8am), Logan (9:15am), Goolsbee (10:30am), Jefferson (12:30pm), Collins (5:30pm) and Daly (6pm), and minutes of FOMC’s September meeting are due out at 2pm.
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APAC stocks traded mixed and initially took impetus from the positive performance on Wall St where the major indices were led higher amid a tech rally, although Chinese stocks clouded over sentiment following the recent stimulus-related disappointment. ASX 200 eked marginal gains as strength in tech and telecoms offset the losses in the commodity-related industries. Nikkei 225 was underpinned at the open and climbed back above the 39,000 level but with gains capped by a lack of drivers. Hang Seng and Shanghai Comp were mixed as the Hong Kong benchmark fluctuated between gains and losses, with a late boost derived from reports China's Finance Ministry is to hold a press briefing on fiscal policy and economic development on October 12th. The mainland was pressured after the recent stimulus-related disappointment and amid China's ongoing trade frictions with the EU and US.
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European bourses, Stoxx 600 (U/C) are mixed, in what has been a choppy session thus far; indices opened around flat, and have traded indecisively on either side of the unchanged mark. European sectors are generally firmer, albeit with the breadth of the market fairly narrow vs initially opening with a slight defensive bias. Optimised Personal Care is towards the top of the pile, alongside Media whilst Banks and Tech lag. US Equity Futures (ES -0.1%, NQ -0.2%, RTY -0.3%) are very modestly in the red, taking a breather from the gains seen in the prior session; some of the pressure could be attributed to the Google antitrust case. In recent trade, futures have been edging off worst levels. US Justice Department outlines potential remedies in Alphabet's (GOOGL) Google antitrust case with the US said to be weighing a Google breakup as a remedy in monopoly case, according to Bloomberg. Says it will respond to the DoJ's ultimate proposals as the Co. makes its case in court next year, while it is concerned the DoJ is already signalling requests that go far beyond the specific legal issues in this case.
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Geopolitics: Middle East
US Event Calendar
Central Bank speakers
DB's Jim Reid concludes the overnight wrap
While I've been away in Berlin for a couple of days my 9-yr old daughter Maisie has been on her first ever residential trip away with school. When I spoke to my wife last night she said that she was missing her so much as she was like a good friend to her. I said what about missing me!? She said "well that's different". Such is life. One thing we can be in agreement on though is that when the twin boys do the same trip next year, the peace and quiet will outweigh any missing them feelings.
While I've been travelling, the week has started off a bit all over the place and markets have put in another varied performance over the last 24 hours, with sharp differences across regions and asset classes. On the one hand, several risk assets did quite well, with the S&P 500 (+0.97%) closing in on its all-time high again, driven by a strong performance for the Magnificent 7 (+1.71%). However, China-exposed stocks have slumped thanks to disappointment over the scale of China’s stimulus, or at least the lack of detail provided so far, which also helped to drive a sharp downturn in oil prices, even as geopolitical risks remained high.
Those geopolitical risks stayed front and centre yesterday, as investors waited to see what form Israel’s response against Iran might take. Amir Ohana, the speaker of the Knesset, said yesterday that “discussions are still taking place at the highest levels regarding the outline of the response — but it will be significant, and it will come”. In turn, Iran have also warned that they would respond to any attack, with foreign minister Abbas Araghchi saying yesterday that “We advise Israel not to test our will”. So there are still significant fears about how the current situation could escalate. Later on, there was renewed uncertainty over future steps by Israel as the US Pentagon confirmed that a planned visit to Washington by Israel’s defence minister Yoav Gallant had been postponed. Bloomberg and other outlets reported that this came due to last-minute objections to the trip by Israel’s PM Netanyahu.
The latter news caused a decent spike in oil intra-day but the overall market tone was still one of a moderation in geopolitical risk pricing, in part following earlier comments by Hezbollah’s deputy leader that it backed efforts by Lebanon’s officials to reach a ceasefire. This saw Brent crude (-4.28%) fall back to $77.47/bbl, whilst WTI (-4.63%) posted its biggest daily decline of 2024. So that ends a run of five consecutive daily gains, in which oil prices saw their largest increase over 5 sessions since Russia’s invasion of Ukraine began in early 2022. Broader volatility also fell back, with the VIX index coming down -1.22pts to 21.42pts.
Those oil price declines were also driven by disappointment at the scale of China’s stimulus, which had already led to a slump in Chinese equities yesterday. That was echoed across a broader range of commodities too, mainly because of concern about Chinese demand, meaning that industrial metals put in a weak performance, with copper (-2.41%) seeing its biggest daily loss in over a month. Indeed, Bloomberg’s Commodity Spot Index (-1.58%) suffered its worst daily performance since June, albeit after a significant advance in the last month as US recession risks have eased and the geopolitical situation in the Middle East escalated.
That China news meant that equities in the US and Europe with China exposure also performed very poorly. For instance, the NASDAQ Golden Dragon China Index (made up of companies traded in the US who do a majority of their business in China) slumped by -6.85% yesterday, which was its worst daily performance since October 2022. A similar pattern was clear in Europe, where the CAC 40 (-0.72%) was one of the weakest European indices given its concentration of luxury goods firms. Meanwhile in Germany, the DAX fell -0.20%, with several automakers leading the decline given their exposure to China as well, and the STOXX 600 was down -0.55%.
By contrast, US equities posted renewed gains, with the S&P 500 (+0.97%) ending the day just two tenths of a percent from its all-time high on September 30. That was primarily driven by the Magnificent 7 (+1.71%), with the moves in the two indices near mirror images of Monday’s declines (-0.96% and -1.86%). All of the Mag-7 were higher on the day, with Nvidia (+4.05%) extending its 5-day gain to +13.58%. On the other hand the small-cap Russell 2000 (+0.09%) posted only a minor advance, while energy (-2.63%) and materials (-0.37%) sectors within the S&P 500 declined amid the reversal in commodities.
For rates it was a quieter day, but ultimately most sovereign bonds rallied, as the commodity price declines helped to ease concerns about inflationary pressures. For instance, the US 10yr yield was down -1.4bps to 4.01%, but that was entirely driven by lower inflation breakevens, as the 10yr real rate was actually up +1.1bps to 1.73%. Meanwhile at the front end, the 2yr yield came down -3.7bps to 3.96%. In Europe, there were similar modest gains, with yields on 10yr bunds (-1.2bps), OATs (-1.4bps) and BTPs (-2.8bps) all moving lower.
These bond gains came even as near-term pricing of Fed and ECB rate cuts was flat to slightly lower on the day amid some cautious commentary. The Fed’s Collins noted that “a careful, data-based approach to policy normalization will be appropriate”, suggesting that further large cuts are unlikely as things stand. A similar tone was visible from ECB’s Centeno who said “we have to be cautious — maintain gradualism in decisions”. So one of the of the most dovish ECB voices alluding to a high bar for more aggressive cuts. Later in the evening, Bundesbank’s Nagel commented that a Trump victory in the US election could lead to US policy shifts that “could lead to noticeable losses in growth” and “also bring inflation risks for the euro area and Germany”.
In Asia Chinese markets are continuing to reverse from their post holiday opening highs yesterday with the CSI down -6.95% and the Shanghai Composite falling -5.30%. The Hang Seng is also down -1.74%, extending its losses after the worst drop (-9.41%) since 2008 the previous day. In contrast, the Nikkei is up +0.62% and the S&P/ASX 200 has gained +0.11%. South Korean markets are closed for a public holiday. S&P 500 (-0.16%) and NASDAQ 100 (-0.25%) futures are lower with Google under pressure given the DoJ pronouncements overnight that the company may be forced to be broken up in the continued antitrust case around their online search monopoly.
In monetary policy news, the Reserve Bank of New Zealand has cut interest rates by 0.5 percentage points, lowering the Official Cash Rate from 5.25% to 4.75%. This marks the central bank’s second consecutive reduction, following a quarter-point cut in August. Following the decision, the New Zealand dollar has weakened by - 0.86%, trading at 0.6086 against the US dollar, as the RBNZ expressed a cautious outlook on the economy, suggesting the possibility of further cuts.
There wasn’t much data again yesterday, although German industrial production did grow by a stronger-than-expected +2.9% in August (vs. +0.8% expected). Otherwise, the US trade deficit for August came in at $70.4bn (vs. $70.5bn expected). Finally, the Atlanta Fed’s latest estimate for Q3 GDP in the US now stands at 3.2% following yesterday’s update.
To the day ahead now, and we’ll get the minutes from the September FOMC meeting, and also hear from plenty of central bank speakers, including Fed Vice Chair Jefferson, the fed’s Bostic, Logan, Goolsbee, Collins and Daly, along with the ECB’s Elderson and Villeroy. Data releases include the German trade balance for August.