US futures are lower on Nvidia day; with the stock down 56bps in premarket trading, while Mag7 and semis are also all lower pre-mkt. As of 7:20am, S&P futures are down 0.1%, just off session lows amid signs of sticky inflation that dampened bets on early interest-rate cuts; Nasdaq futures drop 0.2% while Europe’s Stoxx 600 gauge slipped 0.3%, with energy shares among the big losers amid an earlier drop in crude prices. Bond yields are higher by 2-3bps in sympathy with Gilts where yields jumped on much hotter than expected inflation, or rather less than expected disinflation. The USD is higher and commodities are mixed: energy is higher, reversing earlier losses, while precious metals are lower with Ags outperforming. Aside from NVDA, the latest Fed Minutes are also released today, which should align with recent Fedspeak (hikes unlikely in 2024 and need more data to support cuts), as well as some consumer-sector earnings (Target tumbled 8% after guidance disappointed) which, in total, show a still solid aggregate consumer but continued deterioration in the lower income consumers.
In premarket trading, Tesla slid after disclosing European sales fell to a 15-month low in April while Lululemon shares dropped 4.6% after the athleisure brand announced organizational changes, including the departure of chief product officer Sun Choe. Raymond James said Choe leaving the company added to the “wall of worry” in the near term, while Jefferies noted that the adjustments could indicate future issues with top-line growth. Here are some other notable premarket movers:
All eyes now turn to AI bellwether Nvidia, which is down 0.6% in thin premarket New York trading. It’s projected to report a 243% gain in revenue, according to Wall Street estimates, but its 90% year-to-date share rally sets a high bar for further gains. Shares have hit a fresh record high this week ahead of the result, seen as the grand finale for a robust US earnings season.
“Nvidia remains the focal point,” Pepperstone Group Ltd. strategist Chris Weston said, noting that options markets are pricing a 7% to 9% swing in the stock after the result. And while Nvidia’s sales and gross margins will grab the initial spotlight, “it’s the guidance on the earnings landscape and product roll-out from CEO Jensen Huang that could dictate if the market really wants to push this one along for a more sustained period,” Weston said.
Markets are also growing jittery about the prospect of stubbornly high inflation that could prevent central banks from easing policy as early as currently anticipated. The latest UK CPI figures lifted the pound and knocked bond prices across Europe as traders pushed back their expected timing for the first Bank of England rate cut. Earlier on Wednesday, the Reserve Bank of New Zealand kept interest rates unchanged and signaled policy will stay tight for longer, while Federal Reserve Governor Waller said on Tuesday he needs to see several more good inflation numbers to begin interest-rate cuts.
“Both the RBNZ and the UK inflation data highlight the fraught nature of the current juncture, with investors struggling to gauge both the timing and extent of long-awaited central bank easing cycles,” Rabobank’s head of rates strategy, Richard McGuire, said.
Meanwhile, two more Fed officials again reinforced a higher-for-longer message on rates. On Tuesday, Loretta Mester and Susan Collins said they need more evidence of slowing inflation before cutting. In response, traders dialed down expectatons for Fed interest rate cuts this year, currently seeing around 40 basis points of rate cuts in 2024, versus the 50 basis-point reduction priced last week. Minutes of the last Fed policy meeting, due later Wednesday, could offer further clues on rate-setters’ thinking.
European stocks dropped, with the Stoxx 600 index slipped 0.3%; travel and leisure stocks lead gains while the autos sector have the largest declines. Among individual stock movers, shares in Anglo American Plc weakened as investors waited to see if rival BHP Group Ltd. would launch its takeover bid to create a global copper behemoth. BHP has a deadline of 5 p.m. London time to announce a firm intention to make an offer for what could be among the world’s biggest takeover deals this year. Here are some of the biggest European movers Wednesday:
Earlier, Asian stocks traded in a narrow range as investors awaited new catalysts. The MSCI Asia Pacific Index dropped as much as 0.3% before erasing some losses. Toyota Motor and Alibaba Group dragged on the gauge, while chipmaker TSMC, a top Nvidia supplier, was among the biggest boosts. Stocks rose in Taiwan and New Zealand while benchmarks fell in Japan. Markets were closed for holidays in Singapore, Malaysia and Thailand. The key MSCI Asia stock gauge is trading close to its highest level in more than two years after a recent rally in Chinese stocks and hopes of US rate cuts. Strong gains in Hong Kong have raised some concerns of overheating, however, while two Federal Reserve officials reinforced a higher-for-longer message on interest rates Tuesday.
In FX, the Bloomberg dollar index rose to sessoon highs, tracking the rise in yields. The pound rose to the strongest level in two months against the euro as traders pared UK rate-cut bets after inflation cooled at a slower-than-expected pace. “UK services inflation remains high and suggests the BOE can wait before cutting the policy rate,” said Elias Haddad, a senior strategist at Brown Brothers Harriman & Co. in London. “The upward adjustment to UK interest rate expectations supports a firmer GBP particularly versus EUR.”
Treasuries were pressured lower over early London session, following wider losses seen across gilts which aggressively bear flattened with yields at highest in weeks after inflation slowed far less than expected. Following the UK April CPI, the UK 2-year year yield remains cheaper by around 12bp on the day into early US session with UK 2s10s spread flatter by 3bp and 5s30s by 4bp on the day. Subsequently, UK markets no longer fully priced two Bank of England rate cuts for this year. US yields are also cheaper by 3bp to 5bp across the curve with belly-led losses on the day flattening 5s30s spread by around 1bp; 10-year yields around 4.45%, cheaper by 4bp vs. Tuesday close with UK 10-year underperforming by around 6.5bp in the sector
US session focus also includes supply pressure with $16 billion 20-year bond sale scheduled for 1pm New York, while Fed release latest policy minutes at 2pm. Treasury auctions resume with $16b 20-year bond sale at 1pm, before $16b 10-year TIPS reopening Thursday. The WI 20-year yield at ~4.66% is roughly 16bp richer than April’s stop-out, which traded 2.5bp through the WI in a strong auction result
In commodities, crude reversed earlier losses, when prices were pressured by the surprise build in private inventories (Crude +2.5mln vs exp. -2.5mln) ahead of today's DoEs; Brent traded as low as $81.50 before rebounding over $82. Precious metals are softer with spot gold subdued amid a lack of notable geopolitical developments in recent days and ahead of FOMC minutes; XAU resides within a USD 2,410.69-2,426.62/oz range. A pullback is seen across most base metals following the recent rally, with profit-taking not to be discounted, with 3M LME copper towards the bottom end of a 10,636.50-10,857.50 intraday range.
In crypto, Bitcoin stabilized around $70K, with Ethereum holding just above $3.7k.
To the day ahead now, and the main highlight will be Nvidia’s earnings after the close. Otherwise, data releases include the aforementioned red hot UK CPI print for April and US existing home sales for April. We’ll get the FOMC minutes from the May meeting, and hear from ECB President Lagarde, BoE Deputy Governor Breeden, and the Fed’s Goolsbee.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly rangebound as global markets brace for the FOMC Minutes and Nvidia earnings. ASX 200 just about kept afloat as strength in the heavy industries picked up the slack from the sluggish consumer and tech sectors. Nikkei 225 underperformed following a retreat beneath the 39,000 level and amid mixed data releases as trade data disappointed but machinery orders topped forecasts and showed a surprise M/M expansion. Hang Seng and Shanghai Comp were somewhat varied as the former mildly resumed its advances with XPeng among the notable gainers in Hong Kong due to its Q2 delivery guidance, while the mainland was contained amid a lack of drivers and lingering trade frictions.
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European bourses, (Stoxx 600 -0.3%), are subdued across the board, but within recent ranges as the tone from APAC reverberated into Europe. European sectors are mostly lower, with the breadth of the market fairly narrow; Autos are found at the foot of the pile, after EU car registrations showed a fall in EV market share. Energy is also hampered by broader weakness in the crude complex. US equity futures (ES -0.1%, NQ U/C, RTY -0.2%) are trading tentatively in a catalyst-thin session, with focus on the FOMC Minutes and after-market earnings from Nvidia.
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US Event Calendar
Fed speakers
DB's Jim Reid concludes the overnight wrap
Markets continued to inch higher yesterday, with the S&P 500 (+0.25%) closing at another all-time high. But even with the new record, there were still clear signs of investor caution ahead of Nvidia’s earnings announcement later today, which is now the main focus for investors. It might seem strange that markets are hanging on the results of a single company, but over recent quarters, the release has become one of the most important events on the macro calendar. Moreover, that status has been justified by the massive moves afterwards, and Nvidia’s previous results in February saw the S&P 500 surge by +2.11% the next day, marking its strongest daily performance in over a year. So this is a pivotal event, and the recent releases have seen reactions that rival the sort of moves taking place after a surprise US jobs report or CPI release.
We won’t get Nvidia’s results until after the US close, but in the meantime, investors were focused on several Fed speakers yesterday, who sounded cautious on the prospect for near-term rate cuts. For instance, Fed Governor Waller said that “in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.” In addition, he said that “We’re not seeing anything right now that looks like staying here for three or four months is going to cause the economy to go off a cliff”. Later on, that message was back up by other speakers, and Vice Chair for Supervision Barr said that “We need to sit tight where we are for longer than we previously thought”. So the comments all added to the sense that any rate cuts (if they happen at all) would be later in the year.
But even as Fed speakers were in no hurry to cut rates, several other developments meant that sovereign bonds still rallied on both sides of the Atlantic. First, we had the Canadian CPI release for April, where inflation slowed to +2.7% year-on-year, in line with expectations. That helped to bolster expectations that the Bank of Canada would cut rates at their next meeting, and overnight index swaps moved up the chance of a June cut to 64%, up from 43% the previous day. Secondly, there was a fresh decline in oil prices, with Brent crude down by -0.99% on the day to $82.88/bbl, and overnight it’s fallen a further -0.68% to $82.32/bbl. And third, we also heard from ECB President Lagarde, who said that “there is a strong likelihood” of a move in June, and that “I’m really confident that we have inflation under control”.
Overall, that meant y ields on 10yr Treasuries fell -3.2bps to 4.41%, whilst Canadian government bonds outperformed, with their 10yr yield down -5.0bps on the day. That was echoed in Europe, where yields on 10yr bunds (-3.0bps), OATs (-2.4bps) and BTPs (-1.8bps) also moved lower. And here in the UK, 10yr gilts were down -3.9bps, which comes ahead of the UK CPI data for April, which is out shortly after we go to press this morning.
For equities however, there was a more divergent performance yesterday on either side of the Atlantic. In the US, the S&P 500 (+0.25%) managed to advance for a 3rd consecutive day to a new record, surpassing its previous closing peak last Wednesday. That was supported by a +1.04% advance to a new record for the Magnificent 7, which was led by a +6.66% gain for Tesla . On the other hand, small-cap stocks struggled, with the Russell 2000 down -0.20%. Meanwhile in Europe, the STOXX 600 (-0.18%) also fell back, alongside losses for the FTSE 100 (-0.09%), the CAC 40 (-0.67%) and the DAX (-0.22%).
That divergence has continued in Asian markets overnight, with losses for the Nikkei (-0.64%), alongside modest gains for the Hang Seng (+0.18%), the CSI 300 (+0.07%), the Shanghai Comp (+0.02%) and the KOSPI (+0.18%). And looking forward, US equity futures are flat this morning, with those on the S&P 500 up just +0.02%.
Elsewhere overnight, the Reserve Bank of New Zealand left interest rates unchanged at 5.5%. However, there were some hawkish elements to the decision, as Governor Orr said raising rates was a “real consideration” at the meeting, and their new forecasts suggest rate cuts will now happen later in 2025 than before. In turn, the New Zealand Dollar has strengthened by +0.43% against the US Dollar this morning, and yields on 10yr New Zealand government bonds are up +3.5bps, with the 2yr yield up +7.0bps.
Finally, there were several interesting commodity moves yesterday, alongside the decline in oil prices. In particular, month ahead TTF natural gas prices in Europe rose +4.13% to EUR 33.01/MWh, with futures for next winter approaching EUR 40/MWh, their highest level since the start of year. Asian LNG prices similarly reached their highest levels since December. So a potential sign of inflationary pressures ahead. The latest moves follow the news of a bankruptcy for an LNG contractor in the US, which added to fears of tighter global LNG supplies at a time of solid restocking demand for LNG in both Asia and Europe. Meanwhile on the food side, wheat prices reached their highest level since August (up by over 25% since mid-April). And finally in metals, copper (+0.62% yesterday) posted another record high, extending its YTD gain to +31.58%.
To the day ahead now, and the main highlight will be Nvidia’s earnings after the close. Otherwise, data releases include the UK CPI print for April and US existing home sales for April. Finally, we’ll get the FOMC minutes from the May meeting, and hear from ECB President Lagarde, BoE Deputy Governor Breeden, and the Fed’s Goolsbee.