Futures are flat with gigatech naturally outperforming into today’s retail sales print where the expectations are for beats to resume after last month's sharp miss. As of 8:00am ET, S&P futures were completely flat, while Nasdaq futures were up for the 7th day in a row as it nudges toward the 20,000 mark, with semi shares higher of course, while Mag7 names are also up small. European stocks rise for a second session as political premium fades while French government bonds drift as investors keep a close eye on political developments. Bond yields are up 1-2 bps across the curve after falling Monday amid a flurry of high-grade corporate bond sales that exceeded $21 billion. A gauge of the dollar was higher with EUR, GBP, and JPY weaker. Commodity markets are mostly lower, but WTI remains above $80/bbl with CTAs now set to buy over $30BN. The macro data focus is on Retail Sales but there is another batch of Fedspeakers; yesterday’s speakers indicated a still strong economy with no consensus among the path of inflation with risks tilted more towards a growth slowdown rather than another inflation spike.
In premarket trading, Broadcom rose 2.4%, putting the stock on track for an eighth consecutive session of gains, a rally that has added more than $200 billion to the stock’s market capitalization. Chegg jumped 20% after the online-education firm announced a cut to its workforce and a growth plan that includes developing a “single platform” with artificial-intelligence tools. Here are some other notable premarket movers:
Optimism over a resilient economy and improving corporate earnings have helped push US equities up about 15% this year. Ahead of Wednesday’s holiday in the US, traders geared up for retail-sales data and a slew of Federal Reserve speakers for more pointers on the potential start of rate cuts.
“The picture being painted is that despite the fading prospects of sizeable interest rate cuts from the Fed this year, the economic outlook remains upbeat and this means that corporate earnings should continue to hold up,” said Stuart Cole, the head macro economist at Equiti Capital UK Ltd. “But everybody - the Fed, the markets, etc. - is in ‘data dependency’ mode, and this sentiment could potentially sour if we get a soft set of retail sales data from the US this afternoon.”
Europe's Stoxx 600 benchmark staged a modest rebound and rose for a second session, up 0.5% last with travel and leisure and banks are the best performing sectors while mining and consumer stocks lag behind. Whitbread Plc rose following a trading update. Danish biotech company Novonesis (Novozymes) B jumped after lifting its outlook for the year. Carrefour SA fell after a report that France’s finance ministry is seeking a €200 million civil fine from the supermarket chain. The CAC 40 adds 0.3% amid lingering concern about political turmoil in France. European stocks have retreated since French President Emmanuel Macron called a snap legislative ballot following a drubbing by Marine Le Pen’s National Rally in the European Parliament elections. The two-round election will conclude on July 7. Here are some of the biggest movers on Tuesday:
“A portion of the recent risk-off moves has been driven by fears of ‘Frexit’ and euro-area breakup. In our view, those fears are overblown, and we would be fading the fear-driven moves,” said Mohit Kumar, a strategist at Jefferies. “We remain positive on risky assets, but would skew our positions more toward the US in view of the coming French elections.”
Asian stocks advanced on Tuesday, led by gains in Japanese equities while chip-related shares followed US peers higher. The MSCI Asia Pacific Index rose as much as 0.8%, on track for its best day in more than a week, with TSMC and Samsung among the biggest contributors. Most markets in the region advanced, with notable gains in Taiwan and South Korea. Australian stocks mostly held gains after the nation’s central bank left its key interest rate unchanged at a 12-year high. Hong Kong equities edged lower. Chip stocks rose after the Philadelphia Semiconductor Index climbed 1.6% to a record high. Locally, TSMC gained after a number of brokers raised their price targets for the Taiwanese foundry. Samsung and SK Hynix advanced on bullishness over AI-related demand for memory.
Investors will keep a close watch on the implications of China’s latest move in its trade tensions with Brussels, after Beijing launched an anti-dumping probe on pork imports from the European Union. That comes as the bloc looks at Chinese subsidies across a range of industries and will impose tariffs on electric car imports from July.
In FX, the Bloomberg Dollar Spot Index inched higher, with economists estimating month-on-month growth in American retail sales rebounded in May; the Swiss franc tops the G-10 FX pile, rising 0.2% against the greenback. The Aussie dollar also edges up after the RBA stood pat on interest rates but revealed they did discuss a hike; the EUR, GBP, and JPY are all weaker. USD/JPY rose 0.2% to 158.11 and back to intervention territory after BOJ governor Ueda said that the reduction in bond buying and a policy rate hike are separate issues.
In rates, treasuries dip ahead of retail sales and a busy day for Fedspeak. US 10-year yields rise 2bps to 4.30% broadly in line with German counterpart while French outperforms by ~3bp. Gilts yields are richer on the day with the curve flatter. French government bonds drift as investors keep a close eye on political developments. OATs are slightly outperforming their German counterparts, tightening the 10-year spread by 2bps to ~77bps. Gilts are steady. US session includes several Fed speakers, May retail sales data and 20-year bond auction. Coupon issuance resumes with $13b 20-year bond reopening at 1pm; WI 20-year yield at around 4.540% is 9.5bp richer than last month’s auction, which stopped through by 0.2bp
In commodities, oil held the biggest advance in a week Monday as risk-on sentiment in wider markets countered a mixed outlook for crude. Brent last traded around $84.25 and erasing an earlier loss. Copper rose from its lowest close since mid-April. Spot gold falls ~$7 to around $2,312/oz.
Looking at today's economic calendar, we will get the June New York Fed services business activity, May retail sales (8:30am), May industrial production (9:15am), April business inventories (10am) and April TIC flows (4pm). Fed officials scheduled to speak include Barkin (10am), Collins (11:40am, 4:40pm), Logan and Kugler (1pm), Musalem (1:20pm) and Goolsbee (2pm)
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A more detailed look at global markets
APAC stocks took impetus from the gains in the US where the S&P 500 and the Nasdaq notched record highs once again despite the lack of any major fresh macros drivers and as a deluge of Fed rhetoric looms. ASX 200 was underpinned with financials and defensives front-running the broad advances seen across sectors, while attention turned to the RBA decision where the central bank provided no surprises and kept the Cash Rate target unchanged at 4.35%. Nikkei 225 recovered some of the prior day's notable losses amid the rising tide across global equity markets and was unfazed by the latest comments from BoJ Governor Ueda who suggested the potential for a July rate hike depending on the data. Hang Seng and Shanghai Comp. were ultimately mixed as the Hong Kong benchmark later deteriorated after failing to sustain the 18,000 level, while the mainland conformed to the positive mood after the PBoC upped its liquidity efforts.
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European bourses, Stoxx 600 (+0.2%) began the session entirely in the green, taking impetus from a positive APAC session overnight, continuing the strength seen in the US on Monday. Since, stocks have slipped off best levels though remain modestly firmer. European sectors are mostly in the green, and hold a risk on bias, with Travel & Leisure topping the pile, whilst Consumer Products lags. US Equity Futures (ES U/C, NQ +0.1%, RTY -0.3% are mixed, taking a breather from the prior day’s strength which saw the S&P 500 and the Nasdaq notch record highs once again.
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Geopolitics: Middle East
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US Event Calendar
DB's Jim Reid concludes the overnight wrap
Risk assets put in a stronger performance over the last 24 hours, with the S&P 500 (+0.77%) advancing to yet another record high, while European markets also stabilised after last week’s slump. That included France’s CAC 40 (+0.91%), which posted a recovery following its worst weekly performance in over two years, and sovereign bond spreads also narrowed across Europe. But even as risk assets managed to recover, the risk-on tone meant that sovereign bonds lost ground again, and comments from central bank officials meant investors dialled back the amount of rate cuts they expected over the rest of the year.
In terms of the situation in France, the Franco-German 10yr spread finally tightened again yesterday, having risen every single day over the previous week. By the close, it was down by -2.8bps, and alongside that, the Euro strengthened by +0.29% against the US Dollar. Equities also recovered, despite some weakness in the middle of the day, and the CAC 40 was supported by an outperformance among financials. That included AXA (+1.87%), BNP Paribas (+1.25%) and Société Générale (+1.17%), all of whom had experienced double-digit losses last week. And when it came to the politics, a poll out from Ifop yesterday showed that Marine Le Pen’s RN party was on 33% for the first round on June 30, the left-wing New Popular Front was in second place on 28%, and President Macron’s group was on 18%.
With increasing attention on the first round vote, we also heard from some ECB policymakers on the situation, although they didn’t seem too perturbed by the recent moves. For instance, ECB President Lagarde said that “ We are attentive to the good functioning of financial markets, and I think that today in any case we’re continuing to be attentive, but it’s limited to that.” Elsewhere, chief economist Lane said that this was “a repricing” and said it was not in “the world of disorderly market dynamics.” For more from DB Research on the developments in France, yesterday saw Chief European economist Mark Wall look at what this could mean from an economic and policy perspective (link here), while I took a look at some of the broader market takeaways (link here). Our rates strategists have also written about the OAT-bund spread (link here).
When it comes to the ECB, investors also got a reminder that they may not be in a hurry to cut rates rapidly, despite the turmoil in markets last week. For instance, chief economist Lane pointed out that the ECB wouldn’t know much more by the time of its July meeting, and Croatia’s Vujcic said that “July is always an option, but much more data will be available in September. Everything is open at that meeting”. That backdrop and the stabilisation in French assets saw investors very slightly dial back their expectations for ECB rate cuts, with the amount priced in by the December meeting falling by -0.3bps on the day to 43bps. Alongside that, yields on 10yr bunds (+5.3bps), OATs (+2.5bps) and BTPs (+1.5bps) all moved higher as well.
Over in the US, Treasuries saw an even larger selloff, with the 10yr yield up +6.0bps on the day to 4.28%. That came amidst some better-than-expected data, with the Empire State manufacturing survey up to a four-month high of -6.0 in June (vs. 10.0 expected). A sizeable amount of corporate issuance on Monday, which tends to lead to increased hedging activity, may have also contributed to the rise in yields. The data flow will continue today, as we’ve got retail sales, industrial production and capacity utilisation for May, so that will give us a better sense of economic performance into the middle of Q2. However, yields have reversed course overnight, with the 10yr Treasury yield (-1.4bps) back down to 4.27%.
In the meantime, the rally in US equities showed no sign of abating yesterday, as the S&P 500 (+0.77%) closed at an all-time high for the fifth time in six sessions (and for the 30th time this year), taking itsYTD gains to +14.75%. The advance was once again led by tech stocks, with the Magnificent 7 (+1.16%) extending its YTD gains to +36.47%. Broadcom (+5.41%) and Tesla (+5.30%) were two of the three top performers in the S&P 500 on the day. The equity rally was fairly broad, with the equal-weighted S&P 500 up +0.66% yesterday. But the equal-weighted index is still only up +4.04% YTD, so there’s a gap of more than ten percentage points with the market-cap weighted index, while the Russell 2000 is still in the red on a YTD basis (-0.25% despite a +0.79% gain yesterday). For European equities, it was France that led the way, and Italy’s FTSE MIB (+0.74%) also put in a solid performance. However, the broader STOXX 600 was only up +0.09%.
In the commodity space, oil prices extended last week’s advance, with Brent (+1.97% to $84.25/bbl) and WTI (+2.40% to $80.33/bbl) crude closing the session at their highest levels since April.
Overnight, the Reserve Bank of Australia left their policy rate unchanged at 4.35%, in line with expectations. Their statement acknowledged ongoing inflationary pressures, saying that labour market conditions “ remain tighter than is consistent with sustained full employment and inflation at target ”, whilst it said wage growth was “still above the level that can be sustained given trend productivity growth.” Later on, they kept their options open for policy, saying that “the Board is not ruling anything in or out”. Yields on 10yr Australian government bonds are just over a basis point higher since the decision was announced, and are currently up +3.2bps on the day to 4.14%.
Elsewhere overnight, markets in Asia have put in a strong performance, following the lead from Wall Street. That includes gains for the Nikkei (+0.90%), the KOSPI (+0.79%), the Shanghai Comp (+0.36%) and CSI 300 (+0.27%), although the Hang Seng (-0.18%) has fallen back. Looking forward, US equity futures are basically flat this morning, with those on the S&P 500 only down -0.02%.
To the day ahead now, and data releases include US retail sales, industrial production and capacity utilization for May, along with the German ZEW survey for June. From central banks, we’ll hear from the Fed’s Barkin, Collins, Logan, Kugler, Musalem and Goolsbee, ECB Vice President de Guindos, and the ECB’s Knot, Vujcic, Cipollone and Villeroy.