After storming higher last week, culminating with their 15th ascent in the past 17 weeks...
... US equity futures indicated a pause for stocks which trade at their all-time highs as investors geared up for a busy week of data, including the Fed’s preferred measure of inflation, the core PCE. As of 8:00am, futures on the S&P 500 and the Nasdaq 100 were fractionally in the red after Wall Street’s record-breaking rally stalled at the end of last week, weighed down by profit taking in megacap tech stocks. Treasuries climb, pushing 10-year yields down by 1bps to 4.24% while the dollar ticked lower.
In premarket trading, Berkshire Hathaway rose as much as 5.5% on track for a record high following its weekend earnings update, setting Warren Buffett’s conglomerate on course for a market value even closer to $1 trillion. Here are some other notable premarket movers:
Investor focus this week shifts from earnings to a slate of economic data, including Thursday’s core PCE price index, which is closely watched by the Fed for inflation hints. Q4 US GDP numbers are also due Wednesday, while traders will track comments from a host of central bank officials for clues on the path for interest rates.
“There is a lot of economic data coming in this week, which will be more decisive for whether investors will stay in a risk-on mood,” said Tatjana Puhan, chief investment officer at Copernicus Wealth Management. “We should factor in the possibility that if the US economy remains strong for a few more months and US corporate earnings as well, we should see at least in the US market a further potential for positive momentum.”
On the outlook for equities, strategists at Goldman Sachs said stock markets have room to extend gains beyond their record highs if the economic outlook remains upbeat and investors pour money into recent laggards. The S&P 500’s run to an all-time peak has left investor positioning “extremely” concentrated in the so-called Magnificent Seven, the team led by Cecilia Mariotti wrote in a note. While that does create the risk of a pullback, there’s also “space for bullish sentiment and positioning to be further supported, especially if we start seeing a more meaningful rotation out of cash and into risky assets and laggards within equities,” Goldman wrote.
Meanwhile, as we first reported, the latest Goldman prime figures showed that after piling into tech stocks in the weeks before Nvidia’s earnings, hedge funds are now cashing out and selling at the fastest pace in seven months. Professional managers offloaded their positions for four straight sessions last week, including Thursday, the day after Nvidia posted results. The intensity of the selling ranks in the 98th percentile of the past five years. The data suggests traders are booking profits on their tech wagers after a six-week buying streak and putting that extra cash into less volatile stocks, such as consumer staples. Companies that make household products saw the most net buying in 10 weeks, according to Goldman’s prime brokerage (more here).
European stocks fell after closing at a record high on Friday. The Stoxx 600 is down 0.3%, led by declines in mining shares as iron ore prices drop to the lowest since October; financial services and insurance stocks are the biggest outperformers. Rio Tinto Plc and Anglo American Plc led declines in basic resources amid concerns over Chinese demand. Shares in UK homebuilders dropped after Britain’s top antitrust enforcer opened an investigation to probe potential information sharing between companies. Here are the most notable movers:
Earlier in the session, Asian equities traded in a narrow range, as the ongoing rally in Japanese shares helped offset declines in South Korea and China. The MSCI Asia Pacific Index gained as much as 0.4% before paring much of the advance, with Toyota among the biggest boosts while Tencent weighed on the gauge. Japan’s Nikkei 225 extended its climb after reaching a record-high last week, helped by gains in trading houses after Warren Buffett’s positive comments on the sector’s shareholder-friendly policies. Last week’s rally in Chinese stocks came to a halt, with the mainland benchmark CSI 300 Index on track to snap it longest winning streak since 2018 as investors booked profits. Korean stocks fell as the nation’s much-hyped “Corporate Value-up Program” aimed at improving governance standards and valuations was launched without concrete details or an enforcement plan.
“We are still in the early innings, so let’s see if the government releases more details in other dimensions outside what the Korea Exchange can do,” said Homin Lee, senior macro strategist at Lombard Odier. “As in Japan’s case, it takes time to convince investors that you are changing decades-old corporate governance culture.”
In rates, treasuries are back to little changed as US session gets underway after paring gains. The 10-year yield trades 1bp lower at 4.234% vs session low 4.215%; bunds lag by around 2bp in the sector while gilts keep pace; curve spreads broadly remain within 1bp of Friday’s close. The week’s auction cycle, compressed and accelerated for Feb. 29 settlement, begins with $63b 2-year note at 11:30am followed by $64b 5-year note at 1pm, both record sizes; it ends Tuesday with $42b 7-year note. As Bloomberg notes, while US rates stand to benefit this week from month-end rebalancing into bonds following outperformance by equities, Monday’s session includes 2- and 5-year note auctions and a potentially heavy corporate new-issue calendar. Several Fed speakers are slated this week. IG credit issuance slate includes HSBC and SMFG offerings; about $60b is expected this week, and monthly haul stands at nearly $138 billion price, setting the stage for a second straight monthly gross issuance record to fall this year.
In FX, the Bloomberg Dollar Spot Index edged lower, with Sweden’s krona and the euro leading gains against the greenback. The kiwi is the biggest mover among the G-10 currencies, falling 0.4% versus the greenback ahead of the RBNZ interest rate decision on Wednesday; the NZD fell against all Group-of-10 currencies as traders weighed the nation’s monetary policy outlook. NZD/USD dropped as much as 0.6% to 0.6162 as traders pared bullish positions on the kiwi versus the Australian dollar and the greenback ahead of the central bank’s monetary policy decision on Wednesday, according to Asia-based FX traders.
In commodities, oil prices declined again with WTI falling 0.4% to trade near $76.20. Spot gold is little changed around $2,035/oz.
Bitcoin is a touch firmer on the session after eclipsing USD 51k but is yet to convincingly move much higher with specifics light and general newsflow limited. Ethereum shot above $3100 over the weekend, hitting a fresh two year high.
The US economic data calendar includes January new home sales at 10am and February Dallas Fed manufacturing activity at 10:30am; later this week are durable goods orders, consumer confidence, 4Q GDP revision, personal income/spending and ISM manufacturing. Fed speakers for Monday include Schmid at 7:40pm; Barr, Bostic, Collins, Williams, Goolsbee, Mester, Williams, Waller and Kugler are slated to appear later this week.
Market Snapshot
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly subdued amid a lack of fresh catalysts ahead of month-end and this week's key data releases including the Fed's preferred inflation gauge, while weekend macro newsflow was light and dominated by geopolitical commentary. ASX 200 finished flat after failing to sustain its early gains with price action indecisive amid a slew of earnings. Nikkei 225 outperformed on its return from the long weekend and extended on record levels. Hang Seng and Shanghai Comp. marginally declined with weakness seen in Hong Kong consumer stocks, while the mainland was also pressured amid ongoing frictions after China's MOFCOM slammed the latest USTR report on China's WTO compliance.
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European bourses are a touch softer, Stoxx 600 -0.3%, following a similar APAC handover as newsflow remains light on broader macro themes despite a handful of interesting equity-specific developments. Sectors have a similar negative tilt, Basic Resource & Energy names lag given benchmark pricing. Housing names within the UK are lagging after the commencement of a CMA investigation into the market. DAX 40, +0.2%, the relative outperformer and in close proximity to record levels for both cash and future at 17443 & 17487 respectively. Stateside, futures are essentially flat ES -0.1%, with some modest underperformance in the RTY -0.3%; weekend focus on Berkshire Hathaway numbers/commentary around "limited future growth prospects, citing scare transformative deals".
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Geopolitics: Middle East
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DB's Jim Reid concludes the overnight wrap