After a record-matching 14 weeks of gains in the past 15 pushed the S&P to a new all-time high above 5000 last week on unbridled optimism about eventual Fed rate cuts and easing inflation pushed, S&P futures traded flat and near the top of Friday’s range, as traders paused their relentless buying after That said, the rally in Big Tech that lifted the S&P 500 above 5,000 for the first time on Friday looked set to extend, as Amazon.com. Nvidia Corp. and Tesla ticked higher in premarket trading. Moves beyond those standouts were muted, in S&P 500 and Nasdaq 100 futures trading as well as for US Treasuries and the dollar. Bitcoin traded around $48,000 after almost reaching $49,000 during the weekend on accelerating inflows into various bitcoin ETFs.
In premarket trading, Diamondback Energy shares edged up 1% after the company reached an agreement to buy fellow Texas oil-and-gas producer Endeavor Energy through a $26 billion deal. Bioxcel Therapeutics gained 24% after the company said it received fast track designation from the FDA for a treatment aimed at small cell neuroendocrine prostate cancer. Here are some other notable premarket movers:
The market's next highlights will be Tuesday’s CPI report and follows Friday's historical CPI revisions, which proved to be a non-event. US inflation rate is forecast to have dropped to 2.9% YoY in January from 3.4% the prior month, according to the median economic estimate. That would be the first reading below 3% since March 2021, supporting a disinflationary trend that will determine the scope and timing of Federal Reserve rate cuts.
“As long as we see this gradual progress down, they should be in a position where they can feel confident of wanting to cut,” said Pooja Sriram, US economist at Barclays, referring to Fed policymakers. “It still looks like we are at a place where interest rates are elevated, they could bite into the economy and maybe there is scope for those to start to be pared. There really is no reason to keep rates at these levels for very long,” she added in an interview with Bloomberg TV.
Meanwhile, swaps markets suggest the Fed will carry out just four rate cuts in 2024, down from seven forecast at the end of last year, and only slightly more than the three penciled in by policymakers.
“Market pricing is trying to encourage central banks to get going and start cutting rates. Arguably, the market has been overexuberant in its encouragement recently,” Iain Stealey, international chief investment officer for fixed income at J.P. Morgan Asset Management, wrote in a note to clients. “Employment has remained strong, purchasing managers’ surveys are healthy and economic growth is robust.”
European stocks start the week on the front foot, following another record Wall Street close on Friday. The Stoxx 600 adds 0.4%, led by gains in real estate, consumer product and construction shares while technology shares are the biggest laggards. Here are the biggest movers Monday:
Earlier in the session, Asian stocks were little changed amid muted trading volumes with many markets in the region closed for holidays, as investors look ahead to US inflation data for clues on Federal Reserve policy. The MSCI Asia Pacific excluding Japan Index dipped less than 0.1%, with CSL and Fisher & Paykel among the biggest drags while ANZ Group and Bank Rakyat rose. Markets in Greater China, Japan, South Korea and Singapore were shut. Stocks fell in Australia, New Zealand and the Philippines while shares in Indonesia rose and Indian benchmarks were little changed. With Chinese trading paused for Lunar New Year, cues on the US interest rate trajectory from consumer price figures due Tuesday will be key for regional market sentiment this week.
In FX, the Bloomberg Dollar Spot Index is flat. The Kiwi is the biggest mover among the G-10s, falling 0.4% versus the greenback - it was the biggest gainer on Friday. The yen held near a two-month low reached on Friday following comments from central bankers that the Bank of Japan will take its time raising rates. Japan’s currency has weakened against all its Group-of-10 peers this year.
In rates, Treasuries slightly richer across the curve amid bigger gains in core European rates. 10-year TSY yields are hovering around 4.17% while Bunds and gilts are higher. US yields richer by 1.5bp-2bp across the curve leaving spreads within 1bp of Friday’s close; 10-year around 4.155% trails bunds and gilts in the sector by 2.5bp and 3bp. Bunds led the move after ECB’s Fabio Panetta in weekend comments said the time for interest-rate cuts “is fast approaching.” Monday’s US session has few scheduled events, although corporate issuance slate is expected to be busy ahead of Tuesday’s CPI data. The Dollar issuance slate empty so far, though $30 billion is projected for week, anticipated to be concentrated on Monday ahead of January CPI release Tuesday; Treasury auctions resume Feb. 21 with 20-year bond sale.
In commodities, oil prices decline after the Iranian foreign minister said the war in Gaza could be nearer to a diplomatic solution. WTI drops 0.9% to trade near $76.20. Spot gold falls 0.2%.
Bitcoin (+0.9%) is modestly firmer and holds just beneath USD 48k, while Ethereum is softer on the day
Looking at today's US calendar, we get the January New York Fed 1-year inflation expectations (11am) and monthly budget statement (2pm); ahead this week are CPI, retail sales, industrial production and PPI
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were subdued amid quiet weekend newsflow and mass closures in the region as markets in China, Hong Kong, Taiwan, Japan, South Korea, Singapore, Malaysia & Vietnam were all shut for holiday. ASX 200 declined amid underperformance in healthcare and the commodity-related sectors, with the former the worst-hit amid losses in CSL after top-line results from the Phase 3 trial of its cardiovascular drug failed to meet the primary efficacy endpoint. Nifty 50 was pressured with some of the worst-performing stocks in the index suffering post-earnings.
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European bourses, Stoxx600 (+0.4%), are generally firmer, with the exception of the FTSE 100 (-0.3%), which is hampered by losses in AstraZeneca (-2.2%) after PT cuts. European sectors are almost entirely in the green; Consumer Products and Services is propped up by a Tod's (+16.9%) bid, which has lifted Luxury. Healthcare is hampered by AstraZeneca, as mentioned. US equity futures (ES U/C, NQ +0.1%, RTY +0.3%) are trading around flat with the ES continuing to hold above the 5k mark. Slight outperformance in the RTY, extending on Friday's strength.
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Geopolitics: Middle East
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US event calendar
Central Bank Speakers
DB's Jim Reid concludes the overnight wrap
After the US election campaign threw up renewed conversations about NATO over the weekend, note that we have a call next week (Thursday 22nd at 14:30 GMT) on "Themes and Trade Ideas for US Election Scenarios". Register here to take part.
On another topical theme, Karthik Nagalingam in my Credit team has just put out a note this morning on how $IG banks can continue to outperform despite CRE risks. Much of the $IG bank universe has a fairly low concentration in CRE exposure. See the piece here for more details.
Welcome to Valentines' week and a reminder that you have two days to prepare the right gift. My wife instigated the "we're not bothering getting each other anything this year are we?" conversation last night. While I said "no that's fine" I'm now wondering whether that was a double bluff. The stress!
Has the sharp inflation falls of the last few quarters been a double bluff? We'll find out a bit more this week with US CPI tomorrow the obvious focal point. Elsewhere in the US the main highlights will be the NY Fed 1yr inflation expectations (today), Retail Sales/Industrial Production/Factory Orders (Thursday), housing data through the week, and the University of Michigan consumer survey (Friday). There is also plenty of Fed speak that you can see, alongside the other global highlights, in the week ahead calendar at the end as usual. Today sees three Fed speakers; Bowman (hawk), Barker (neutral) and Kashkari (hawk).
In Europe, UK inflation on Wednesday will be a highlight and will be preceded by UK employment numbers tomorrow and followed by Retail Sales on Friday. On the continent, the German ZEW survey is out tomorrow, with Eurozone Q4 GDP on Wednesday. In Asia we have Chinese New Year which will keep things quiet but Japanese Q1 GDP (Wednesday) might be of note with the end of NIRP potentially on the horizon. This is the same day as the election in Indonesia.
With regards to US CPI tomorrow our economists' preview here suggest that with seasonally adjusted gas prices down almost -2.5% from December, they expect headline CPI (+0.15% forecast vs. +0.23% previously, consensus +0.2%) to undershoot core (+0.27% vs. +0.28%, consensus +0.3%). This would equate to core YoY CPI inflation falling two-tenths to 3.7%, while that for headline would fall by four-tenths to 2.9% (both in line with consensus). The three-month annualised rate would rise two-tenths to 3.5% while the six-month annualised rate would tick up a tenth to 3.3% largely due to base effects. PPI on Friday is also important as some of the subcomponents inform forecasts for the core PCE and an hour or so later the inflation expectations in the UoM consumer survey will round up the big week for US inflation.
It really is quiet this morning with most markets either shut for Chinese New Year or National Day in Japan. Half-term season also kicks off in Europe today so this might not be the most active week unless CPI shatters the silence. US stock futures are pretty flat.
Recapping last week now and we saw a further breakdown of the positive bond-equity correlation that had been in place between the QRA in August and early this year. This came after fresh evidence of a robust US economy helped push equities up but saw fixed income sell off. In fact, in equities it was another week for record breaking, as the S&P 500 hit another all-time high, finishing Friday above the 5000 level for the first time. This was thanks to a +1.37% gain over the week (and +0.57% on Friday), the fifth consecutive week of gains for the index and the 14th out of last 15 weeks.
But the rally was still relatively concentrated. The equal-weighted S&P 500 increased a more modest +0.47% (+0.15% on Friday) and it was the IT sector (+1.50% in the S&P), including the Magnificent Seven (+2.98%), that drove last week’s rally again. Semiconductors were the most prominent outperformer, as the Philadelphia Semiconductor Index jumped +5.32% (and +1.99% on Friday) following strong results from chipmaker ARM and an announcement by Nvidia that it was in talks with top AI firm OpenAI on designing specialised chips. US regional banks recovered on Friday, with the regional banking KBW index up +1.85% (but still -1.31% lower on the week) as New York Community Bank rose by +16.9% on news that its management had bought additional shares. That said, NYCB was -18.9% lower on the week, drawing further attention to turmoil in the CRE market. The STOXX 600 rose a more modest +0.19% last week (and -0.09% on Friday).
With data pointing to a more robust US economy, investors reduced expectations of rate cuts in 2024, driving the expected rate for the December meeting up +12.1bps last week (and +3.5bps on Friday), to 4.20%. It was a similar story in Europe, as investors dialled back expectations of ECB cuts by -13.0bps (-4.1bps on Friday) as comments from central bank speakers pointed to caution on the timing and pace of rate cuts. Adding to the lingering inflation concerns, Brent crude oil prices surged +6.28% to $82.19/bbl (and +0.69% on Friday) after Israel rejected a ceasefire offer from Hamas, with news that the US may be looking to strengthen enforcement of sanctions against Iranian oil adding to the upside.
Against this backdrop, 10yr yields rose +15.4bps last week, and 2yr yields by +11.6bps. There was a brief relief rally in yields on Friday following the tame US CPI revisions, but this then reversed with the 10yr finishing the day up +2.1bps to 4.18%, its joint highest close since the December FOMC meeting. 10yr bund yields rose +14.0bps (and +2.7bps on Friday).
Let's see what CPI brings this week.