US equity futures pointed to modest gains, led by tech stocks - following Monday's 38bps drop which was the worst Monday since early December and the second worst Monday since last June - as investors looked ahead to economic data and commentary from Federal Reserve speakers in coming days for clues on the outlook for interest rates. As of 8:00am ET, S&P 500 futures rose 0.1% while Nasdaq 100 contracts added 0.3%. Europe’s Stoxx 600 index was also flat, hovering near its all-time high. Two-year notes led gains as Treasuries rose, retracing some of Monday’s drop. The dollar slipped, oil dipped and bitcoin soared above $57,000. It's a busy day for economic data, which includes January durable goods orders (8:30am), Case-Shiller home prices (9am), consumer confidence, Richmond Fed and Dallas Fed.
In premarket trading, cryptocurrency-linked stocks rise after Bitcoin’s price reached the $57,000 level for the first time since late 2021 (Cleanspark (CLSK) +16%, Coinbase (COIN) +6, Marathon Digital (MARA) +12%). Hess shares dropped premarket after Chevron said its $53BN acquisition of Hess faces potential disruption as rivals ExxonMobil and CNOOC claim pre-emptive rights over Chevron's stake in a crucial Guyana oil project (the largest oil discovery in a decade). Discussions are ongoing, but failure to resolve this could jeopardise the Hess takeover, Chevron said.
Macy’s shares were volatile after it said it plans to close 150 unproductive locations as the department-store chain seeks to fight off a pair of activist firms seeking to buy the company. Zoom shares jumped 13% in US premarket trading after the video-conferencing software company’s guidance for adjusted earnings per share was stronger than expected. Additionally, Zoom also said its board approved a buyback program. Here are some other notable premarket movers:
Readings on the US economy are in sharp focus this week, with the Fed’s favored inflation gauge due on Thursday grabbing the most attention. Markets have already dialed back expectations for early and rapid Fed easing after hotter-than-expected data on jobs and price gains, pushing out bets on a first cut to June or July.
“We have always been in the camp that the Fed is unlikely to move as quickly as the market was pricing and data for the first couple of months will only confirm that the first cut will be pushed into the third quarter,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual Wealth Management Co.
In response to some arguments that stocks are in another tech bubble, Citigroup strategists said they don’t regard the US equity market as being in a bubble like that of 1999-2000, and suggested the rally could spread to other sectors. Valuation multiples for stocks are well below 2000 levels and, while cash flow expectations around tech companies have increased, forecasts for other industry groups aren’t stretched. That supports the case for broader equity gains.
“We argue that ‘bubble’ is the wrong term to describe the current market setup,” the Citigroup team led by Scott Chronert wrote. “Rather, the recent rally puts pressure on fundamentals to deliver.”
Elsewhere, Bitcoin climbed, rising briefly beyond $57,000 for the first time since late 2021, supported by investor demand through exchange-traded funds as well as further purchases by MicroStrategy Inc.
European stocks were little changed, with mining and autos & parts shares leading gains, while personal care and media stocks are the biggest laggards; drinkmakers’ stocks rose as earnings from Aperol-maker Davide Campari-Milano exceed analyst forecasts. The moves followed sharp drops over the past year for beverage manufacturers amid worries about destocking and consumers turning to cheaper alternatives. Campari gained as much as 7.5% while Remy Cointreau (+2.2%), Pernod Ricard (+1.8%), Diageo (+1.6%) also rise. Here are the biggest movers Tuesday:
Earlier in the session, Asian stocks declined in the absence of fresh catalysts to drive the regional benchmark’s longest stretch of weekly gains in more than a year, with shares in Japan and Hong Kong reversing earlier advances. The MSCI Asia Pacific Index fell 0.2%, reversing a rise of as much as 0.3%, with losses in technology stocks weighing on the index. Japan’s benchmarks, reversed an early advance, while stocks also fell in Korea, Taiwan and Singapore. Mainland and Hong Kong-listed Chinese shares declined, extending Monday’s slide, as attention shifts to next week’s NPC meet. Hong Kong’s benchmark dropped ahead of the budget announcement on Wednesday.
Japan’s two-year yield climbed to the highest since 2011 after stronger-than-expected inflation data boosted bets the central bank will end its negative-interest-rate policy in coming months. Traders increased the probability of Bank of Japan exiting its negative rate policy by April to about 82%, up from 78% on Monday, according to swaps data compiled by Bloomberg. The yen strengthened against the dollar.
The inflation report “is adding to speculation that the BOJ will end negative-rate policy as early as March and is serving as a selling catalyst for bonds,” said Kazuya Fujiwara, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. The data underscores persistent inflationary pressures, he said.
In FX, the Bloomberg Dollar Spot Index drops as much as 0.2% before paring losses to 0.1% while the yen stood atop the G-10 FX leader board, rising 0.3% versus the greenback after Japanese CPI topped estimates and pushed two-year JGB yields to the highest since 2011. The greenback also lagged the Australian dollar, though outperformed others incuding Sweden’s krona.
In rates, treasuries held small gains across the curve after being led higher by bunds and gilts after data showed inflation in UK stores slowed to the lowest level since March 2022. 10-year US TSY yields were around 4.26%, about ~2bps lower on the day, with bunds and gilts outperforming by 0.5bp and 2bp in the sector; gilts, richer by 3bp-4bp on the day, lead gains in core European rates as BOE rate cuts are more aggressively priced. Supply remains the main theme, with $42 billion 7-year note auction at 1pm and another heavy slate of new corporate bonds anticipated after $27 billion was priced Monday. The week's coupon issuance concludes with today's 7-year note auction, and follows small tails for 2- and 5-year notes Monday; the WI 7-year yield near 4.30% is about 19bp cheaper than January’s, which tailed by 0.3bp. The dollar IG credit issuance slate includes a handful of deals already; 18 names priced $27b across 37 tranches Monday on order books that were three times oversubscribed according to Bloomberg, spreads compressed nearly 25bps across execution and attrition rates climbed. Another busy session is is expected Tuesday, before critical inflation data later this week.
In commodities, oil steadied after Monday’s gains as pockets of strength in physical markets supported wider sentiment; WTI trade near $77.60 while Brent was at $82.40. Iron ore gained after Monday’s hefty loss, as market watchers looked for signs China’s approaching construction season will bolster demand after costs of the raw material dropped. Spot gold is up 0.2%.
Bitcoin surged more than 4%, hitting a fresh two-year high and rose above $57,000, extending on the sharp gains seen on Monday, with the latest ETF inflows confirming that retail interest continues to surge.
Looking at today's calendar, US economic data includes January durably goods orders (8:30am), 4Q house price purchase index, December FHFA house price index and S&P CoreLogic Case-Shiller home prices (9am), February Richmond Fed manufacturing index, consumer confidence, and Richmond Fed business conditions (10am) and Dallas Fed services activity (10:30am). Fed speakers scheduled include Barr at 9:05am.
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APAC stocks traded mixed after the lacklustre handover from the US as markets braced for looming risk events. ASX 200 was choppy as strength in the consumer sector was partially offset by weakness in miners. Nikkei 225 printed fresh record highs before reversing the advances as participants digested the latest CPI data. Hang Seng and Shanghai Comp. were mixed with the mainland mildly positive after the PBoC injected liquidity and with China said to consider approving additional REITs to support consumption.
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European bourses are modestly firmer having picked up a touch in limited newsflow after an uneventful open, Euro Stoxx 50 +0.3%. Breadth overall fairly narrow, though the likes of the DAX 40 +0.4% have begun to extend modestly higher. Sectors mixed with no clear theme or bias though Basic Resource names outperform while Morgan Stanley lifted Semiconductors to Overweight (prev. Neutral). Auto names, in Germany in particular, are modestly firmer after Monday's pressure. Stateside, futures remain near the unchanged mark but with a slight positive bias, ES +0.1%, in-fitting with initial action in European trade but yet to experience the modest uptick seen since in European peers. Newsflow thus far limited, updates around MSFT, HES, CVX among others.
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DB's Jim Reid concludes the overnight wrap
Its been a pretty quiet start to the week in equities but with the S&P 500 (-0.38%) seeing a late minor sell-off and with Chinese equities rising this morning on speculation that the authorities bought a notable amount of domestic shares in recent weeks. Yields rising across the board has been the main source of interest though. In the process the amount of cuts priced in by the Fed’s December meeting is now the lowest since mid-November, at 79bps, around half the amount expected at the start of the year. Meanwhile, yields on 2yr Treasuries (+2.8bps) closed at 4.72%, their highest level since the Fed’s December meeting, and overnight 2yr Japanese yields have edged up to their highest since 2011 after Japanese inflation beat expectations.
It was a similar story earlier in Europe yesterday with yields then rising steadily all day, even before ECB President Lagarde comments to the European Parliament just before the European equity close. These remarks showed ongoing patience, suggesting that the ECB “needs to be confident that [the current disinflationary process] will lead us sustainably to our 2% target”. Overall her comments were not that different to the last ECB statement and the yield rise was mostly done for the day before she spoke.
By the close 10yr bunds (+7.7bps), OATs (+8.3bps) and BTPs (+9.1bps) all posted significant yield increases, effectively reversing Friday’s rally (-7.8bps for 10yr bunds). And at the front end of the curve, the 2yr German yield (+6.9bps) closed at 2.92%, its highest level since November. The likelihood of an ECB cut by the April meeting was down 6pp to 27%, which is the lowest since late September.
Over in the US, the 10yr yield ended the day up +3.1bps at 4.28%, whilst the 2yr yield ended the day up +2.8bps at 4.72%, its highest level so far this year. Bonds reversed some of their decline late in the session, perhaps as equities dipped, with the 10yr yield having been more than 5bps higher on the day shortly after 2yr and 5yr Treasury auctions, which saw decent investor demand but with bonds being issued a touch above the pre-sale yields.
The day’s yield rises occurred alongside some decent second-order data releases, with the UK CBI’s retail sales volume survey at a 10-month high of -7 (vs. -31 expected and up from a 3-year low of -50 in January). Later the Dallas Fed’s manufacturing index was up to -11.3 in February (vs. -15.0 exp.). US new home sales came in at an annualised pace of 661k in January, below the 684k expected but their highest level in three months as December was revised down from 664k to 651k.
It's an interesting week for equities as the recent run is starting to get into once in a couple of generation territory. The S&P 500 has now posted 15 weekly gains in the last 17 for the first time since 1989. Moreover, if we get another positive week this week, then it would be 16 out of 18 weeks for the first time since 1971, and it would also be a joint record since the index’s formation. So even though there’s been lots of positive catalysts, from lower inflation to excitement about AI, it’s actually very unusual to see the sort of sustained rally that’s occurred over the last few months. For more info, Henry put out some charts on the current rally in his Mapping Markets publication yesterday (link here).
As we started a new week equities struggled to maintain their spectacular recent momentum, with the S&P 500 -0.38% lower on Monday. The NASDAQ declined a marginal -0.13%, while the Magnificent 7 were down -0.39%, dragged lower by a -4.44% decline for Alphabet amid concerns over recent missteps with its AI model. Small-cap stocks were the strongest performers, with the Russell 2000 up +0.61%. Over in Europe the picture was more negative though, with the STOXX 600 down -0.37% as it fell back from its all-time high on Friday. Even so, it wasn’t all bad news there, as the DAX (+0.02%) eked out a new record, and Euro HY spreads reaching their tightest level in over two years.
In Asia the KOSPI (-0.42%), Hang Seng (-0.36%) and Nikkei (-0.12%) are all slightly lower. Elsewhere, Chinese stocks are bucking the trend with the CSI (+0.35%) and the Shanghai Composite (+0.51%) higher after reports on Bloomberg of state buying in recent weeks. US stock futures are slightly lower as I type.
Coming back to Japan, inflation slowed less than expected in January, rising +2.2% y/y (vs. +1.9% expected) even if down from the previous month’s +2.6%. The +2.0% increase in core consumer prices was slower than the 2.3% increase in December and a tenth above expectations. Core-core was two-tenths above expectations at 3.5% from 3.7% last month. As mentioned at the top, yields on 2yr JGBs Japanese (+1.0bps) have hit their highest level since 2011, trading at 0.165% as we go to print. As a result, The likelihood of BOJ exiting its negative rate policy by April has risen to about 81%, up from yesterday’s 78%.
To the day ahead now, and US data releases include the Conference Board’s consumer confidence for February, the Richmond Fed’s manufacturing index for February, preliminary durable goods orders for January, and the FHFA house price index for December. Meanwhile in the Euro Area, there’s the M3 money supply for January. From central banks, we’ll hear from Fed Vice Chair for Supervision Barr, the ECB’s Elderson, and BoE Deputy Governor Ramsden. Lastly in US politics, there are Republican and Democratic primaries taking place in Michigan.