US stock futures erased gains of as much as 0.3% following another parade of modest China stimuli as investors monitored the outlook for interest rates ahead of key inflation and jobs data later this week, with the Federal Reserve’s data dependence in firmly mind. Contracts on the Nasdaq 100 and S&P 500 traded flat by 7:30 a.m. in New York after gaining as much as 0.4% and 0.3%, respectively. In Europe, the Stoxx 600 rises for a second day while Asian stocks closed at the highest level in two weeks, as Chinese equities extended their gains following the country’s market-boosting measures. A fall in Treasury yields also helped sentiment. Treasury yields and the dollar were steady; the USDJPY rose to 146.97, the highest level since November, and a red line for imminent BOJ intervention.
In premarket trading, retailer Best Buy climbed 3.3% ahead of its second-quarter earnings report, while Verizon and AT&T rose after Citigroup upgraded the stocks to buy, saying it sees a more constructive investment case for large-cap telecommunications firms. Here are some other notable premarket movers:
Despite modest gains so far in the final week of August, global stocks are on track for their worst month in almost a year as policy makers remain determined to stifle inflation. Economic reports are assuming even more importance than usual after Federal Reserve Chair Jerome Powell reiterated at Jackson Hole last week that the central bank is ready to raise rates further if the data suggests that is appropriate.
“August has been a challenging month for markets, with investor sentiment cautiously picking up again,” said Victoria Scholar, head of investment at Interactive Investor. “Focus will be on key economic data from the US this week, with hopes that this will fuel expectations that the economy stateside is heading for a soft landing.”
While it's a bumper week for data releases, including payrolls and GDP, today traders will be monitoring the latest job openings and US consumer confidence data. Other reports this week include US employment growth, the core PCE deflator and August’s payrolls and wages data. Euro-area inflation readings will be in focus this week as well.
Miners led an advance in the Stoxx Europe 600 index after China signaled further measures to support its economy. NN Group NV jumped as much as 11% after the financial-services company reported results that beat analysts’ expectations. European bonds gained, with the German 10-year yield falling three basis points to 2.54%. UK stocks outperformed when they reopened after Monday’s holiday. Here are the biggest European movers:
Earlier in the session, Asian stocks rose 0.8%, climbing for the second day to the highest level in two weeks, as Chinese equities extended their gains following the country’s market-boosting measures. The Hang Seng Index extended its increase into a second day and China’s stocks outperformed, with the Hang Seng China Enterprises Index rising more than 2%. Chinese internet firms Tencent and Alibaba provided the biggest support to the gauge, with a measure of tech firms listed in Hong Kong rising as much as 3%.
In its latest stimulus step, China is poised to cut interest rates on trillions of yuan of outstanding home mortgages for the first time since the global financial crisis, as policymakers dig deeper into their toolkit to shore up growth in the world’s second-largest economy.
“If policy measures continue to be unveiled in the coming weeks, the market narrative may shift from ‘too little, too late’ to a more confident stance as policymakers regain credibility,” UBS Global Wealth Management strategists including Solita Marcelli and Mark Haefele wrote in a note.
In rates, Treasury futures were lower in early US session, paring small gains amassed during Asia session and London morning. US 10-year yield around 4.22%, 2bps cheaper on the day, outperforming gilts in the sector while trailing bunds, stronger following German 5-year note auction. The week's coupon auction cycle concludes with $36b 7-year note sale, following decent demand for Monday’s 2- and 5-year notes.
In FX, the Bloomberg Dollar Spot Index rose to 1244, strengthening against EUR, GBP and CHF, and especially the yen, with the USDJPY surging above 147 for the first time since Nov 2022 and guaranteeing that a BOJ intervention is now inevitable. Meanwhile looking at the BBDXY, Sean Callow, strategist at Westpac Banking said that a move in the index toward 1250 “is still achievable over multi-days or week, but will probably require substantial upside surprises on both NFP and CPI.” The British pound edged higher after the slowest increase in grocery bills in almost a year drove down inflation in shops in August, relieving some of the pressure on the Bank of England to keep raising interest rate hikes.
In commodities, oil climbed toward $81 per barrel as traders waited for the next set of clues on the outlook for crude demand in the US and China. Gold was little changed.
Looking at today's calendar, we get the August Conference Board consumer confidence read (116.0 survey vs. 117.0 prior), July's JOLTS job openings (exp. down to 9.5MM from 9.588MM), and the June FHFA house price index; FDIC will propose new guideline for regional banks today; 7yr auction at 1pm.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded with an upward bias following the positive lead from Wall Street, with little in terms of fresh catalysts to dictate price action heading into month-end. ASX 200 was supported by its gold, mining, and materials sectors but with the gains modest intraday, with the upside hampered by the index’s IT and Healthcare sectors. Nikkei 225 was caged after opening higher, with the index supported by its machinery sector, while Toyota shares waned after reports it is to suspend operations at all of its 14 Japanese assembly plants amid system failures. Hang Seng and Shanghai Comp saw another session in the green, with the gains in the former more pronounced as index heavyweights are again buoyed by the recent stock support measures.
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European bourses are in the green, Euro Stoxx 50 +0.4%, after a constructive open with catalysts light at the time. Following the open, both cash and futures pared some of this move before reverting back towards initial bests on subsequent Chinese source reports. FTSE 100 +1.5% outperforms as it plays catch up to gains elsewhere on Monday's UK Bank Holiday. As mentioned, sentiment saw some modest upside on the sources with ADRs for Chinese stocks seeing upside. Within Europe, sectors are all in the green featuring outperformance in Basic Resources given benchmark and above factors, Real Estate is firmer after pressure in Monday's session while Tech has made its way into the green despite initial marginal pressure. Stateside, futures are in the green though only modestly so with the ES and NQ posting gains of circa. +0.1%; upside which began before the Chinese rate reports, but has picked up further since those aired. Agricultural Bank of China (1288 HK) - H1 (CNY): net profit 133.234bln vs. prev. 128.945bln, net interest income 290.421bln vs. prev. 300.219bln, NIM 1.66%
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DB's Jim Reid concludes the overnight wrap
As the UK returns from the holiday weekend, it’s clear that markets have taken last week’s speeches at Jackson Hole in their stride. That will come as a relief to many, since last year saw the S&P 500 plunge -3.37% on the day of Powell’s hawkish remarks, and we also had a relentless bond selloff that continued into late-October. But this time around, the S&P 500 has advanced on Friday (+0.67%) and again yesterday (+0.63%), just as yields on 10yr Treasuries have kept falling after last week’s highs to trade at 4.19% this morning.
In several respects, Powell’s speech on Friday had quite a few hawkish lines in it. For instance, he reiterated that inflation “remains too high”, and that the Fed was “prepared to raise rates further if appropriate”. He also said that they would be keeping policy “at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” But on the dovish side, he also acknowledged that inflation had moved lower, and pointed out that there was uncertainty about monetary policy lags. Indeed, Powell said that “there may be significant further drag in the pipeline” from those lags, and he weighed up that there were risks from tightening too little and tightening too much. So it was quite a different tone to last year, when it was abundantly clear that Powell’s message was that the Fed wasn’t about to let-up on inflation.
The most obvious takeaway from this year’s speech is that markets now consider another hike this year as increasingly likely, with futures pricing in a 67% chance of a hike by November. That’s been reflected in front-end yields, with the 2yr Treasury yield closing at a post-2007 high of 5.08% on Friday. Furthermore, the 3m T-bill yield rose to another post-2001 high yesterday of 5.484%. In the meantime, the recent pattern of rate cuts being pushed into the future has continued, and the first full 25bp cut now isn’t priced in until the June 2024 meeting.
Over at the ECB, the debate is also continuing about whether there’ll be another hike at their meeting in two weeks’ time. Currently, markets are considering the decision to be finely balanced, with a 42% chance of a move priced in. This is up from 34% on Friday, as markets took a slightly hawkish interpretation to the lack of a reaction in ECB commentary to last week’s underwhelming PMIs. In her own speech at Jackson Hole, President Lagarde avoided giving a clear signal as well, focusing instead on structural shifts such as changing labour markets, geopolitical divisions and the energy transition. Meanwhile, yesterday saw Austria’s Holzmann push for another hike next month, saying that if “there aren’t any big surprises, I see a case for pushing on with rate increases without taking a pause.”
Looking forward, the question of whether we get more hikes will partly be determined by this week’s data, with several important releases coming up. In the US, the main highlight will be the jobs report on Friday, where our US economists expect nonfarm payrolls to have slowed further to +150k in August. That would be the slowest growth since December 2020, and they see that pushing the unemployment rate up a tenth to 3.6%. One category we’ve been following closely is Temporary Help Services, because that has traditionally been a strong leading indicator in previous cycles, turning down ahead of the overall number. It’s fallen for 6 months in a row now, so one to keep an eye on.
Staying on the US, an important release today will be the JOLTS report for July, which has been closely followed by the Fed to see if the tightness in the labour market is easing. Recent months have seen job openings come down to a 2-year low, albeit to a point that’s still well above pre-pandemic levels. The quits rate will also be an important measure in that release as well, since that’s strongly correlated with wage growth. Otherwise this week, look out for the July PCE inflation report on Thursday, which is the Fed’s preferred measure, along with the ISM manufacturing report for August on Friday, which will be out 90 minutes after the jobs report.
Over in the Euro Area, the main focus will be the flash CPI reading for August, which is out on Thursday. Our European economists see the headline print coming in at +5.5% year-on-year, up two-tenths from July, and they see core inflation at +5.4%. So both headline and core would still be more than twice the ECB’s 2% target, hence there’s still pressure for further rate hikes. Tomorrow we should get an initial indication of where the number might be from the country releases in Germany and Spain. At the same time, we found out yesterday that the Euro Area M3 money supply had seen an annual contraction for the first time since 2010, with a -0.4% year-on-year decline in June. So a fresh sign of how the ECB’s rapid monetary tightening is having an effect.
With all that to look forward to, markets put in a solid performance yesterday, with both the S&P 500 (+0.63%) and Europe’s STOXX 600 (+0.89%) posting steady gains. This makes it the first time in August that the S&P 500 managed to post two consecutive rises (after +0.67% on Friday). It was a similar story for sovereign bonds as well, with yields on 10yr Treasuries coming down -3.3bps to 4.20%. Yields on 10yr bunds were virtually unchanged at +0.2bps, while OAT (-0.4bps) and BTP (-1.9bps) yields saw a slight decline.
That positive mood has continued overnight in Asia, with solid gains for the major indices. Since we weren’t around yesterday, it’s worth mentioning that China announced on Sunday that there would be a cut in the stamp duty on stock trades from 0.1% to 0.05%. That helped trigger an initial surge in the CSI 300 of +5.46% on Monday, although the index pared back those gains through the session to only close up +1.17%. And this morning those gains have continued, with the CSI 300 up another +1.45%.
Other indices across the region seen a consistently positive performance this morning as well, with gains for the Hang Seng (+2.02%), the Shanghai Comp (+1.39%), the Nikkei (+0.31%) and the KOSPI (+0.22%). That’s extended to the US, where futures on the S&P 500 are up another +0.08% this morning. The main negative signal overnight has come from Japan, where the unemployment rate unexpectedly rose to 2.7% in July (vs. 2.5% expected), whilst the jobs-to-applicants ratio slipped further to 1.29.