US equity futures reversed earlier losses and were modestly in the green with small-caps leading and Tech lagging, following the partial retracement from yesterday and weaker Semis earnings last night. As of 7:30am, S&P futures are up 0.1%, while Nasdaq futs are 0.1% in the red with Mag7 stocks mostly flat/up ex-NVDA which is -80bps, lower with most other Semis names after disappointing earnings from NXP Semi which dropped 9% in premarket after giving a third-quarter revenue forecast that was weaker than expected. Reports after the close from GOOG/TSLA/TXN are important for the Tech trade. Bond yields are lower, USD is flat, and commodities are weaker though WTI is higher. Macro data is primarily regional activity indicators ahead of tomorrow's Flash PMIs. There is a 2Y bond auction today; rates traders are looking for a modest concession.
In premarket trading, NXP Semiconductors shares dropped 7.9%, after the semiconductor device company gave a third-quarter revenue forecast that was weaker than expected. Wiz turned down an up-to-$23 billion takeover bid from Alphabet, sticking instead with an IPO plan. General Electric climbed in premarket trading after reporting an increase in second-quarter profit. Here are some other notable premarket movers:
Companies representing 29% of the S&P 500’s market value are due to report this week with Tesla and Alphabet the first of the Mag7 to post earnings this quarter. Analysts will be looking for details of Tesla’s robotaxi service, while Google parent Alphabet is expected to see a sales boost from its cloud unit. With valuations among technology firms still high after last week’s retreat, investors are looking for more evidence that their businesses are on track and the euphoria around artificial intelligence is justified.
“The earnings season is now shifting gear,” said Andrea Tueni, head of sales trading at Saxo Banque France. “This will be this week’s focus before inflation on Friday. I don’t see a repricing of the ‘Trump trade’ taking place just yet.”
About 16% of the companies in the S&P 500 have reported so far, and most have beaten earnings-per-share expectations. Analysts are predicting that index earnings grew 9% in the second quarter from a year earlier, but much of this depends on mega cap tech names. At the same time, US election developments remain front and center, with Kamala Harris now having more than enough pledged delegates to clinch the Democratic presidential nomination. On the data front, US readings on the economy are due later in the week as well as the Federal Reserve’s preferred inflation gauge.
In Europe, the Stoxx 600 Index was 0.6% higher as German software firm SAP SE rose the most since January and Swiss computer accessories maker Logitech International SA jumped. Here are some other notable movers:
In Asia, stocks gained, tracking an advance on Wall Street overnight, driven by a rebound in technology shares before earnings season kicks off in earnest. The MSCI Asia Pacific Index rose as much as 0.8%, snapping three days of losses, with TSMC and Samsung among the biggest boosts. Taiwan’s Taiex led gains among regional benchmarks, rising 2.8%, its biggest gain in more than five months. The advance followed a gain in the S&P 500 on Monday, ahead of results from Tesla and Alphabet. Concerns over geopolitical tensions and the sustainability of the AI rally had helped drive a rotation into laggards last week. Meanwhile, a sense of some calmness returned to the US election after Joe Biden’s withdrawal.
In FX, the Bloomberg Dollar Spot Index is little changed while the yen tops the G-10 FX leaderboard for a second day, rising 0.7% against the greenback ahead of the Bank of Japan policy meeting next week as traders look set to trim their carry positions during the summer holiday season. Some Bank of Japan officials are open to raising rates at the July meeting while others see weakness in consumer spending complicating their decision, according to people familiar with the matter.
In rates, treasuries climb, with US 10-year yields falling 2bps to 4.23% and trailing larger advances for gilts and most euro-zone bond markets. The yield curve is flatter as front end lags ahead of $69b 2-year note auction at 1pm New York time, first of three coupon auctions this week. WI 2-year yield at 4.465% is lower than 2Y auction stops since January following rally from April’s YTD yield highs fueled mainly by improving inflation trend. Treasury auction cycle also includes 5- and 7-year notes over next two days, the last coupon auctions of the May-July financing quarter, with August-to-October plans scheduled to be unveiled July 31.
In commodities, oil prices advance, with WTI rising 0.3% to trade near $78.60 a barrel. Spot gold rises $9 to around $2,405/oz.
Looking at today's calendar, US economic data calendar includes the July Philadelphia Fed National Activity Index (8:30am), July Richmond Fed Manufacturing Index and June existing home sales (10am). Fed members scheduled to speak before the next FOMC meeting begins July 30 — a period during which a self-imposed quiet period is customary — include only Governor Bowman and Dallas Fed President Logan on July 24, both at an event on Texas community partnerships
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APAC stocks were mixed and only partially sustained the momentum from the tech-led rebound on Wall St ahead of key data releases and big-tech earnings as sentiment clouded by ongoing China woes. ASX 200 was underpinned with tech stocks inspired by the outperformance of the sector stateside, while energy suffered due to recent declines in oil prices and with pressure in Woodside Energy after a mixed quarterly update. Nikkei 225 boosted at the open although has since pared the majority of the gains amid a firmer currency and after a recent source report suggested indecision regarding rates at next week’s BoJ meeting. Hang Seng and Shanghai Comp. were subdued in which the latter remained the laggard as the PBoC’s recent short-term funding rate cuts and liquidity boost via 7-day reverse repos, left the market wanting more.
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European bourses, Stoxx 600 (+0.4%), are mostly but modestly higher, in what has been a choppy session thus far. European sectors hold a negative bias; Tech takes the top spot, propped up by post-earning strength in SAP (+5%), but chip names are lower, following poor NXP (-9% pre-market) results. Basic Resources is hampered by underlying weakness in the metals complex, whilst Autos lags after Porsche AG cut guidance. US equity futures (ES -0.2%, NQ -0.3%, RTY +0.1%) are mixed, with the NQ underperforming, giving back some of the hefty advances seen in the prior session, and with Tech sentiment hit following NXP results. Citi Global Equity Strategy: Upgrades UK to Neutral rating. Upgrades Telecoms sector to Overweight. Downgrades Industrials to Neutral from Overweight. Upgrades Consumer Staples to Neutral. Downgrades Emerging Markets to Underweight. Downgrades Basic Resources Sector to Underweight from Neutral.
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DB's Jim Reid concludes the overnight wrap
Markets began to stabilise again yesterday, with the Magnificent 7 (+2.33%) leading the recovery after a 4-day slump last week. The moves came as earnings season is about to ramp up, with Tesla (+5.15%) and Alphabet (+2.26%) set to be the first of the Mag 7 to announce results after the US close today. We’ll have to wait to see what those bring, but the optimism spread across markets ahead of that, helping the S&P 500 (+1.08%) and STOXX 600 (+0.93%) post their best sessions since early June and claw back some of their recent losses.
When it came to yesterday’s headlines, the main story was of course the reaction to President Biden’s withdrawal from the US election. Vice President Harris has continued to cement her position as the Democratic frontrunner, and according to an unofficial tally by the Associated Press, she now has pledged support above the 1,976 delegates she will need to secure the nomination. These delegates don't have to vote for her at the convention but it would take an extraordinary set of circumstances for someone to come from nowhere and challenge her, especially with all realistic alternative candidates pretty much coming out and backing Harris.
As we look forward to November, the main question is really what the polls look like from here. Clearly there’ve been several hypothetical polls up to now with Vice President Harris as the Democratic nominee, and they’ve shown her trailing Trump by around 2pts in the RealClearPolitics average. But those hypothetical polls can often turn out differently when presented with the reality, while the read across to the state level polling adds another challenge. So it’ll be fascinating to see if the state of the race meaningfully changes once we do get some fresh polls over the coming week, and whether Harris can narrow or even overturn Trump’s margins in the swing states that will determine the Electoral College. For now at least, the average of betting odds on RealClearPolitics gives Trump a 59% chance, slightly down from its peak of 66% on July 15, shortly after the assassination attempt.
For markets, the reaction was mainly focused on a few specific assets, and it basically led to a partial reversal of the “Trump trade” that was evident last week. Although not everything behaved as you would have expected. In essence, the perception is that Biden’s withdrawal makes it more likely that the Democrats will keep control of the White House, and the Republicans are less likely to get the full sweep that would also see them win both chambers of Congress, so making Trump’s policies marginally less likely to be implemented. This theme saw a better day for assets that might do better under a Democratic administration, such as solar energy firms including Sunrun SolarEdge Technologies (+2.37%) and SunPower (+5.37%). Meanwhile in the FX space, the Mexican Peso (+0.76%) strengthened against the US Dollar, and was one of the top-performing global currencies yesterday.
Overall, while there were some clear moves in specific assets, it was difficult to detect a broader move to price in any political outcomes across equities and bonds. One classic “Trump trade” has been a curve steepening. While this saw some reversal early in yesterday’s session, with the 2s10s curve trading 3bps flatter intra-day, by the close it was actually +1.0bps steeper at -26.7bps. This came as a rise in yields around the European close sent yields higher across the curve, leaving the 2yr yield up +0.5bps at 4.52%, and the 10yr yield up +1.4bps at 4.25%. However in Asia this morning, yields on 10yr USTs are -1.6bps lower as we go to print. Over in Europe, yields on 10yr bunds (+2.7bps), OATs (+1.5bps) and gilts (+3.7bps) all moved higher.
Whilst bonds were losing ground, equities did have a much better day, with the Magnificent 7 (+2.33%) leading the way. That helped the NASDAQ (+1.58%) to outperform as well, with the S&P 500 (+1.08%) lagging behind both. However, energy stocks came off badly, with those in the S&P 500 down -0.72%. That comes after energy stocks outperformed the broader S&P by 4% last week (+2.02% vs - 1.97%) amid the Trump rotation trade but it wasn’t helped yesterday by a fresh decline in oil prices as WTI crude closed below $80/bbl for the first time in over a month (-0.44% to $79.78/bbl). Back in Europe, equities generally followed a similar pattern, albeit with larger gains, and there were decent advances for the STOXX 600 (+0.93%), the DAX (+1.29%) and the CAC 40 (+1.16%).
In Asia the Nikkei (+0.20%), KOPSI (+0.35%) and the S&P/ASX 200 (+0.63%) are higher but with Chinese markets are underperforming on continued disappointment following the Third Plenum and also concern over the rationale for the PBOC’s surprise interest rate cut yesterday. In terms of specific moves, the CSI (-1.04%) is leading losses with the Shanghai Composite (-0.59%) and the Hang Seng (-0.10%) also edging lower. S&P 500 (-0.21%) and NASDAQ 100 (-0.35%) futures are also drifting lower.
To the day ahead now, and data releases include US existing home sales for June, the Richmond Fed’s manufacturing index for July, and the European Commission’s preliminary consumer confidence indicator for the Euro Area in July. From central banks, we’ll hear from the ECB’s Lane. And today’s earnings releases include Alphabet, Tesla, Visa, Coca-Cola, General Electric and General Motors.