US equity futures and European bourses trade lower as bond yields rise 2-3bps across the curve as Treasury yields rose ahead of the Fed's policy meeting next week and ahead of today's ECB rate cut (preview here). As of 8:00am ET, S&P futures are down 0.2% and Nasdaq futures slide 0.4% after disappointing guidance by Adobe sent the stock tumbling, even though pre-mkt, Mag7 names are mostly higher led by GOOG/TSLA, but Tech overall is lagging after the Nasdaq set a new ATH yesterday. Both indexes made strong gains on Wednesday, when an in-line US inflation print cemented swap markets’ expectations of a a quarter-point rate cut at the Fed’s Dec. 17-18 meeting. The USD is weaker and commodities are mostly bid led by energy, Ags, and base metals. Banks are weaker despite positive reports at an industry conference. Today’s macro focus is on PPI (Core exp. 0.2% MoM, 3.2% YoY) and Jobless Claims (exp. 220K).
In premarket trading, Adobe tumbled 11% after giving a disappointing annual sales outlook, underscoring anxieties that the software company may lose business to emerging artificial intelligence-based startups.
Next up we get the European Central Bank, which is expected to lower policy rates by a quarter-point, following on from the Swiss National Bank’s surprising 50 basis-point reduction earlier in the day. With an ECB cut, its fourth this year, already baked in, traders will wait for clues from rate-setters on the extent of loosening needed in this cycle.
“We anticipate a dovish 25-basis-point rate cut, alongside signals of flexibility on future adjustments,” said Mohamad Al-Saraf, an FX and rates analyst at Danske Bank. “Post-decision communication will be pivotal, given divisions within the Governing Council.” Ahead of the ECB, the euro firmed as much as 0.7% against the Swiss franc, while Switzerland’s stocks and bonds climbed immediately after the rate cut, which aims to prevent further franc gains and stop an inflation undershoot.
The ECB cut will be the latest of this week’s moves towards more policy easing by major central banks. Prior to the Swiss rate cut, Canada lowered its policy rates by a half point, Australia hinted it’s moving toward cuts and China vowed to deliver rate cuts. Japan, however, signaled it’s in no hurry to hike rates.
Traders are also waiting for US producer inflation numbers due later Thursday, alongside the weekly jobless claims print for further clues on prices and the health of the economy. Analysts at Brown Brothers Harriman noted that still-elevated price pressures “argue for a shallow Fed easing cycle.”
Among individual stock movers, software firm Adobe Inc. dropped more than 10% in US premarket trading after a weaker-than-expected full-year forecast, while Uber Technologies Inc. was lifted by upbeat management comments at an industry conference.
European stocks are little changed as losses in retail and health care shares are offset by gains in autos and energy. Luxury goods firm Brunello Cucinelli SpA rallied after an increased revenue growth forecast. Luxury stocks were broadly firmer alongside other China-exposed sectors such as miners, after the country’s commerce ministry said it’s open to trade talks with the US. Here are the biggest movers Thursday:
Earlier in the session, Asian stocks rose, driven by gains in tech shares after benign US inflation backed the case for a Federal Reserve rate cut next week. The MSCI Asia Pacific Index jumped as much as 1.1%, the most in a week. Major contributors to the gauge’s rise included TSMC, Tencent and Samsung Electronics. A sub-gauge of information technology shares gained as much as 1.8%. The advance tracks a rally on Wall Street, where the tech-heavy Nasdaq 100 Index jumped 1.9% to a record high. Also of focus in the region is whether China will release details on the outcome of a key economic meeting that’s expected to conclude Thursday. Benchmarks in Hong Kong rose more than 1% on bets for stronger stimulus. Japanese equities closed higher for a fourth consecutive day, supported by the yen’s recent weakness. Bloomberg News reported that Bank of Japan officials see little cost to waiting before raising interest rates. Shares in South Korea jumped on expectations that President Yoon Suk Yeol may get impeached in a parliament vote this weekend for his failed martial law bid. Some market watchers have been saying that his ouster will ease political uncertainty and help stabilize sentiment.
“We are yet to be convinced to go overweight in Chinese equities, largely because we have not really seen a meaningful pick up in domestic demand,” Dayeon Hong, a multi-asset portfolio manager at Shinhan Asset Management Co. in Seoul, said in a Bloomberg TV interview. She added that China may see more upside potential in growth next year if boosted by “moderately loose” monetary policy and proactive fiscal policy.
In FX, the Bloomberg dollar index steadied as China set a stronger yuan fixing, a day after the currency weakened following a Reuters report that a depreciation was being considered. The euro adds a few pips ahead of the ECB decision where a 25-bp interest rate cut is widely expected. Most economists also saw the Swiss National Bank delivering a quarter-point reduction but policymakers opted for a larger 50-bp move, sending the franc to the bottom of the G-10 FX leader board with 0.2% fall against the dollar. The Aussie dollar is still the best performer, rising 0.8% after solid jobs data prompted traders to pare their rate cut bets.
In rates, treasury futures are near session lows in early US dealing as concession continues to build for $22 billion 30-year bond auction at 1pm New York time. Treasuries fell for a fourth day, pushing US 10-year yields up 3 bps to 4.30%. European government bonds also decline, led by Italy. Other factors include crude oil extending its weekly climb and a curve-steepening selloff in gilts. ECB rate decision at 8:15am is expected to be a quarter-point rate cut, following a surprise 50bp cut by the SNB. US yields are 2.5bp to 3bp higher across maturities, with the 10-year around 4.3%, outperforming gilts by roughly 1bp in the sector; US curve spreads are little changed on the day. Week’s Treasury auction cycle concludes with the 30-year bond reopening; demand was strong for Wednesday’s 10-year note sale , which stopped through by 1.7bp.
In commodities, oil prices are off the highs after the IEA said markets still face a glut next year despite the recent OPEC+ decision. WTI rises 0.2% to $70.40. Spot gold falls $5. Bitcoin rises back above $100,000.
Today's US economic data calendar includes November PPI and weekly jobless claims (8:30am) and 3Q household change in net worth (12pm).
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks eventually mimicked the sentiment on Wall Street and traded mostly higher following a slow start to the session and despite a lack of macro news flow. ASX 200 saw its earlier gains hampered after a strong Aussie jobs report which followed the dovish RBA yesterday, in which Governor Bullock said the Board will be watching all data including employment. Nikkei 225 reclaimed the 40,000 level for the first time since mid-October with gains driven by the Industrial and IT sectors, although at one point, the upside was capped by the firmer JPY. Hang Seng and Shanghai Comp were somewhat lethargic at the start, but momentum picked up, although there was little notable reaction seen on reports that US President-elect Trump invited Chinese President Xi to attend his inauguration next month, whilst it was not clear whether Xi has accepted the invitation. Participants now await the outcome of the Central Economic Work Conference.
Top Asian News
European bourses began the session entirely in the green, albeit modestly so. As the morning progressed, some indices slipped into negative territory to display a slightly more mixed picture in Europe. European sectors began the session with a strong positive bias, but in a turn of fortunes now display a mostly negative picture. Autos lead, followed by Energy/Basic Resources; the pair lifted by gains in the underlying. Retail is the clear underperformer, continuing the pressure seen in the prior session. US equity futures are very modestly on the backfoot, with the NQ paring back some of the hefty gains seen in the prior session.
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FX
Brazil Central Bank
Fixed Income
Commodities
Geopolitics: Middle East
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US Event Calendar
DB's Jim Reid concludes the overnight wrap
Markets put in a decent performance yesterday, as the US CPI report came in broadly as expected, which was seen as giving the all-clear for the Fed to cut rates next week. That meant futures dialled up the likelihood of a 25bp rate cut to 99% by the close. And on top of that, the S&P 500 (+0.82%) ended the session just a whisker beneath its all-time high, with the Magnificent 7 (+3.08%) powering forward to a new record.
In terms of the details of that CPI print, the monthly headline and core CPI readings were both at +0.31% in November. So that was basically in line with the +0.3% print the consensus was expecting. So even though inflation was still running a bit too fast for the Fed to be comfortable, markets were relieved that it wasn’t an even higher number that would prevent the Fed cutting rates next week. After all, core CPI has now been running at +0.3% for four consecutive months, and the 3-month annualised rate for core CPI ticked up to +3.7%, so this isn’t just a case of one strong print. And in turn, that’s led to growing concern that inflation is becoming sticky above target, even if we’re not seeing the really high numbers of a couple of years ago. For the year-on-year numbers, the latest release meant headline CPI ticked up to +2.7%, whilst the core CPI print was steady at 3.3%, where it’s been for the last three months now.
Admittedly, one piece of good news was that shelter and services inflation moderated, and those are fairly sticky categories, even if this decline was offset by stronger goods prices. But even though Treasury yields fell by several basis points after the CPI print, lingering inflation concerns saw this move reverse later on. For instance, 10yr yields closed near the session highs (+4.5bps to 4.27%), rising for a third consecutive day despite a solid 10yr auction.
Nevertheless, when it comes to the Fed, the CPI print left little doubt among investors that another rate cut will happen next week. Indeed, futures moved up the likelihood of a cut from 86% right before the CPI came out to 99% by the close. It’s true that inflation is still too fast for their liking, but last week’s jobs report also saw a fresh rise in the unemployment rate, so our US economists think that will still enable them to cut next week.
Looking forward, central banks will stay in the spotlight today, as the ECB are announcing their latest policy decision at 13:15 London time. They’re widely expected to cut their deposit rate by another 25bps, taking it down to 3%, and that would bring their total rate cuts to 100bps since they began in June. Our European economists are also looking for a 25bp cut today, and they expect the doves and hawks to compromise on a mildly dovish evolution in communications. For next year, they then see the ECB continuing to cut by 25bps per meeting in H1, followed by quarterly 25bp cuts in H2, leaving the deposit rate at 1.5% by end-2025. See their full preview here for more details.
Ahead of the ECB, European assets put in a strong performance yesterday. At the front-end, bond yields fell across the continent, with French, Italian and Spanish 2yr yields falling to their lowest levels since 2022. And while 10yr bund yields inched up (+0.7bps), both the Italian and Spanish 10yr spreads over bunds reached their tightest level in three years yesterday, at 106bps and 63bps, respectively. Equities put in a decent performance too, with the STOXX 600 (+0.28%) clawing back some of the previous day’s losses as the DAX (+0.34%), CAC 40 (+0.39%) and FTSE 100 (+0.26%) all advanced.
For US equities, it was another day of the tech mega caps dominating. Four of the Magnificent 7 posted new record highs, namely Alphabet (+5.52%), Amazon (+2.32%), Meta (+2.16%) and Tesla (+5.93%). And Broadcom (+6.63%) surged after a report that it was working on an AI chip with Apple. That saw the S&P 500 (+0.82%) close less than 0.1% beneath its all-time high, even though the equal-weighted version of the index is still over -2% beneath its record.
Elsewhere yesterday, the Bank of Canada delivered a 50bp rate cut that took their policy rate down to 3.25%. That’s the second 50bp cut in a row they’ve delivered, but they sounded more cautious about future cuts, saying in their statement that “we will be evaluating the need for further reductions in the policy rate one decision at a time.” That saw the 10yr Canadian yield move +6.7bps higher to 3.08%.
Meanwhile in Germany, the election process started to get under way yesterday, as Chancellor Scholz requested a confidence vote next Monday in the Bundestag. It follows the collapse of the federal coalition last month, when Scholz sacked the finance minister Christian Lindner, who leads the FDP. Once the government loses the vote of no confidence, Scholz can then request an election from the President, which is planned for February 23.
Overnight in Asia, those strong gains on Wall Street have continued across the board, with global markets hopeful about another Fed rate cut. Most of the major indices have posted a decent gain, including the Nikkei (+1.28%), the Hang Seng (+1.31%), the CSI 300 (+0.59%), the Shanghai Comp (+0.50%) and the KOSPI (+1.22%). The only notable exception to that is Australia’s S&P/ASX 200 (-0.28%), which follows a very strong employment report for November that’s led markets to dial back the likelihood of rate cuts from the RBA. It showed the unemployment rate unexpectedly falling to 3.9% (vs. 4.2% expected), and Australia’s government bond yield is up +8.0bps overnight in response, and the Australian Dollar has strengthened by +0.73% against the US Dollar. Looking forward, US equity futures are pointing a bit lower this morning, with those on the S&P 500 down -0.13%, whilst the 10yr Treasury (+1.2bps) is up to 4.28% overnight.
Separately in the FX space, yesterday saw the Japanese yen weaken after Bloomberg reported that Bank of Japan officials saw little cost of waiting to hike rates. The report suggested that even if they waited until January or longer, they only saw a low risk of inflation overshooting. Following the report, investors further dialled back the likelihood of a December rate hike, and the Japanese Yen ended the session -0.32% weaker against the US Dollar, where it remains unchanged this morning. In the meantime, China’s offshore yuan weakened -0.29% yesterday, which followed a Reuters report that policymakers were considering allowing the currency to depreciate as a response to any trade war with the US.
To the day ahead now, and the main highlight will be the ECB’s latest policy decision, along with President Lagarde’s subsequent press conference. In terms of data, we’ll also get the US PPI for November and the weekly initial jobless claims.