US equity futures are flat as the yield curve sees slight steepening; for once, the US is not benefiting from the risk-on rally seen in EU/APAC. As of 8:00am ET, S&P futures are fractionally in the green reversing earlier losses as traders await a busy line-up of Fed speakers and data releases after the index notched its 54th closing high of the year on Monday; Nasdaq 100 futures are down 0.1% even though Mag7 names are mostly higher in the premarket and Semis are bid. The USD is lower as the commodity complex catches a bid; WTI, silver, and sugar the outperformers; earlier Bloomberg reported China moved to restrict exports of rare earth metals to the US used in high-tech/military applications (gallium, germanium, antimony, and other superhard materials). Today’s macro focus will be on JOLTS and Vehicle Sales.
In premarket trading, Zscaler shares fall as much as 8.0% after the security software company gave a forecast for adjusted second-quarter earnings that missed expectations. Here are some other notable premarket movers
Anglogold Ashanti shares rise 3.7% after RBC Capital Markets upgraded the mining company to outperform from sector perform.
The notable macro events this week include Friday’s payrolls report, which is expected to show hiring bounced back in November, preceded by Fed Chair Jerome Powell’s scheduled participation in a moderated discussion on Wednesday. Swaps are pricing a more than 70% chance of a quarter-point rate cut at the Fed's Dec. 17-18 meeting.
“The market still expects the Fed will cut rates,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said on Bloomberg Television. “We will see when the employment data comes through on Friday how brave you have to be. But I think the bias is still there and the market thinks there is still room to do that, given the overall picture.”
Elsewhere, Citi strategists said short sellers are capitulating as the S&P 500 keeps hitting record highs and is set for its best year since 2021, while positioning on European stocks remains bearish, further widening the gap between the two markets. According to Citi's Chris Montagu, investor positioning in S&P 500 futures is “completely one-sided,” and is “setting new highs for a fourth consecutive week and increasingly the hold-out shorts are capitulating."
Indeed, appetite for US equities has shown no sign of abating this year. The S&P 500 has surged 27%, powered by technology shares and a broad preference for US assets. The rally extended after the election of Donald Trump raised hopes of tax cuts and deregulation. By contrast, positioning on Euro Stoxx 50 futures remains net bearish while ETF outflows are accelerating. Investors are shunning the region’s stocks amid sluggish economic and earnings growth and political instability in France and Germany.
Much attention right now remains focused on Paris, where the government faces a vote of no confidence on Wednesday. French far-right leader Marine Le Pen is expected to join forces with a left-wing coalition to topple Michel Barnier’s administration.
And speaking of Europe, stocks there rose, with the Stoxx 600 up 0.4%, as a rally for technology stocks drove a fourth straight day of gains for the benchmark, helping investors look past political risks in France. French stocks traded in line with their European peers on Tuesday, but the crisis has weighed on the CAC 40, causing it to trail neighboring markets like Germany, where the DAX Index rose above 20,000 points for the first time in its history. Here are the biggest movers Tuesday:
Earlier in the session, Asian stocks rose, on course for a third-straight daily gain, as semiconductor-related shares rallied after the US announced fresh curbs on technology exports to China. The MSCI Asia Pacific Index rose as much as 1.2%, with chip stocks TSMC and Tokyo Electron among the biggest boosts. Key benchmarks gained more than 1% in South Korea, Japan and Taiwan after the US unveiled measures to limit China’s access to crucial tech but stopped short of earlier proposals. Chinese stocks also reversed earlier losses after news that the country’s top leaders plan to start a key annual economic work conference next Wednesday to map out growth targets and stimulus plans for 2025.
In FX, a drop in the dollar gives relief to G-10 currencies, barring the yen, with a 0.3% decline to around 149.80/USD; the euro rises 0.3%, partly due to dollar weakness, while the CAC 40 climbs 0.6%.
In rates, treasuries are mixed in early US session with the curve steeper as long-end losses lift 30-year yields by ~2bp, steepening 2s10s and 5s30s spreads to day’s wides. US front-end yields are slightly richer on the day, widening 2s10s, 5s30s spreads by 1bp-2bp; 10-year yields around 4.21%, rising 2bps from Monday's close, and outperforming bunds in the sector by 1.5bp, trails OATs outperforming by 2.5bp. In European bond markets, Germany’s is under pressure while France outperforms; French 10-year bonds are steady after a no-confidence vote was set for Wednesday, with the yield spread to comparable German debt hovering around 85 basis points. OAT-bund spread that widened the most in six months Monday is slightly narrower. German bonds underperform gilts and Treasuries across the curve, with yields rising most at the front end. Peripheral spreads tighten to Germany.
In commodities, oil climbed ahead of an OPEC+ supply meeting on Thursday, with the market supported by hopes China’s leadership will approve more stimulus at a major meeting next week. WTI trades within Monday’s range, adding 0.9% to around $68.73. Spot gold rises roughly $6 to trade near $2,645/oz. Spot silver gains 1.6% near $31.
Looking at today's US economic data calendar, we get the October JOLTS job openings at 10am. Fed speaker slate includes Daly (12:15pm), Kugler (12:35pm), Goolsbee (1:30pm, 3:45pm)
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly positive as the region took impetus from the fresh record highs seen in the S&P 500 and the Nasdaq. ASX 200 rose to a fresh record high with advances led higher by healthcare, tech and consumer discretionary. Nikkei 225 outperformed and reclaimed the 39,000 level with tech companies benefitting from further US export controls on China as restrictions related to advanced chips could spur a scramble for China to secure legacy-generation chip tools. Hang Seng and Shanghai Comp traded indecisively after the US unveiled a new package of chip export controls against China.
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European bourses began the European session mostly in the positive territory, and sentiment continued to improve as the morning progressed, to display a sea of green in Europe. European sectors hold a strong positive bias, with only a handful of industries in negative territory. The top of the pile is populated by Banks, Travel & Leisure and Tech. The latter is buoyed by gains in heavy-weight ASML (+2.1%) after the Co. noted that the impact of export restrictions will fall within its existing outlook and will not have a direct material impact on business in 2024. Real Estate is the laggard. US equity futures are essentially flat and trading on either side of the unchanged mark, and unable to benefit from the positive momentum seen across the pond. RBC S&P 500 outlook: raises Communication Services to Overweight from Marketweight; cuts Healthcare to Marketweight from Overweight; cuts Materials to Marketweight from Overweight. China's Auto Industry Body says Tesla (TSLA) sold 78,856 China made vehicles in Nov. (82,000 Y/Y).
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Fed speakers
DB's Jim Reid concludes the overnight wrap
Morning from Zurich where the DB Outlook roadshows roll on. There were lots of questions yesterday about the latest French situation as it became apparent that a French government collapse was increasingly likely. The situation went back and forth as the day went on, but ultimately, Marine Le Pen’s National Rally announced that they would support a motion of no confidence in the government of PM Michel Barnier. So along with the left-wing parties who are also backing the no-confidence motion, they have a majority in the National Assembly capable of bringing the government down, and this has led to a pretty serious market reaction. In fact, the Franco-German 10yr spread (+7.5bps) hit its widest level since 2012 yesterday, which was just before Mario Draghi pledged to do “whatever it takes” to save the euro. And the euro itself weakened by -0.75% against the US Dollar, marking its biggest daily decline since the week of Trump’s victory in the US election.
In terms of how the situation evolved yesterday, the prospects for the French government had looked pretty weak from the get-go. Indeed, the National Rally’s President Jordan Bardella said on RTL radio that “The National Rally will activate the censure vote unless of course there is a last minute miracle”. But around lunchtime, it was confirmed by the government that there’d be no change to the medication reimbursement system. So that pointed to a potential compromise with the National Rally’s demands, and the spread began to tighten again as it looked as though the government might survive. However, shortly after, Barnier announced that he’d push through the budget using special constitutional powers without a vote. So that saw the announcement of a no-confidence motion, which Marine Le Pen said she’d back after their demands weren’t met.
In terms of what happens next, we’re in territory that hasn’t been seen in a long time, as the last successful no-confidence motion was in 1962. That vote is likely to take place this week, possibly as soon as Wednesday, and assuming it’s successful, that would force the government’s resignation. In the short term, the government can remain in office as a caretaker government. But snap elections can’t happen again until the summer, as the French Constitution requires a one-year wait until another dissolution can take place, meaning that isn’t an option. So President Macron would have to propose a new PM, which could in theory be Barnier again, but there’s no reason to think a new government would be any more stable, given how fractured the National Assembly is. In terms of passing a budget, lawmakers could approve a special law authorising the government to collect existing taxes, and after that the government could allocate public spending by decree. However, this would only permit public spending that was part of the 2024 budget, rather than additional expenditures.
The likelihood of an imminent government collapse immediately led to fresh losses among French assets. For instance, the 10yr Franco-German spread ended the day at 88.1bps, the widest since 2012. Indeed, it also meant that the French 10yr yield (2.918%) closed only just below the Greek 10yr yield (2.927%), which just goes to show how investors’ assessment of sovereign risk has shifted over the last decade. For equities, the CAC 40 did manage to eke out a +0.02% gain, but that made it the worst performer of the big European indices, well behind the STOXX 600 that posted a +0.66% advance. Banks were hit in particular, with fresh losses for Société Générale (-2.61%), BNP Paribas (-1.24%) and Crédit Agricole (-0.87%), which built on their declines of the last two weeks.
Unlike the Euro crisis, there were no obvious signs of broader contagion to other countries yesterday. In fact, the 10yr Italian yield (-1.0bps) actually fell to a two-year low of 3.266%, and Spain’s 10yr yield (-2.4bps) fell to 2.768%, its lowest level in almost two years as well. Moreover, the push into safe assets meant yields on 10yr bunds (-5.4bps) saw the biggest declines, falling to its lowest since January at 2.034%. In the UK, the spread of 10yr gilt yields over bunds hit its widest since Liz Truss was PM, closing at 221.5bps yesterday. Matters weren’t helped there after the final UK manufacturing PMI for November was revised down six-tenths from the flash reading to 48.0, which is the weakest it’s been since February. So it continues the recent run where UK data has kept underwhelming expectations.
Outside of Europe, markets actually put in a decent performance yesterday, with the S&P 500 (+0.24%) moving up to yet another record high. One supportive factor was an upside surprise in the ISM manufacturing for November, which came in at 48.4 (vs. 47.5 expected). So even though it was still in contractionary territory, it was the strongest since June, and the new orders subcomponent (50.4) was in expansionary territory for the first time since March. That’s lifted up other growth estimates as well, with the Atlanta Fed’s GDPNow tracker for Q4 pointing to an annualised pace of +3.2%, which is its highest level to date.
That equity rally was led by further strength among big tech stocks, and the NASDAQ (+0.97%) and Magnificent 7 (+1.41%) moved up to record highs of their own. So it was a fairly narrow rally over the last 24 hours, and the equal-weighted S&P 500 actually saw a decent fall of -0.27%, moving off the all-time high it achieved last Friday.
In the meantime, US Treasury yields inched higher, with the 2yr yield up +2.9bps to 4.18%, whilst the 10yr yield rose +2.1bps to 4.19% (4.21% this morning). So that just about pushed the 2s10s curve back into inversion territory. The weakness on the 2yr might be pointing to a higher terminal rate, but investors yesterday priced in a greater chance of a rate cut this month. The chance of a cut closed at 76%, up 10pp from Friday, and the highest we have observed since US CPI data was released over 2 weeks ago. The uptick came after Fed Governor Waller spoke at the American Institute for Economic Research (AIER) Monetary Conference in Washington, D.C. last night. He said that “I am leaning toward continuing the work we have started in returning monetary policy to a more neutral setting,” signaling further cuts ahead, while adding that “an additional cut at our next meeting will not dramatically change the stance of monetary policy and allow ample scope to later slow the pace of rate cuts, if needed.” On the path of inflation he noted, “I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren't pressing on the brake pedal quite as hard.”
In Asia the Nikkei (+2.24%) is trading sharply higher and is leading gains in the region while the KOSPI (+1.75%) is also trading noticeably higher with the S&P/ASX 200 (+0.75%) also trading in positive territory. Elsewhere, Chinese stocks are mixed with the Hang Seng (+0.08%) slight up but with the Shanghai Composite (-0.86%) turning sharply lower as I type. US equity futures are flat. seeing slight gains while the CSI (-0.02%) is struggling to gain traction in early trade.
In FX, the Chinese yuan (-0.25%) is weakening for the third consecutive day, trading at a one-year low of 7.2913 against the dollar despite PBOC’s efforts to support sentiment as the central bank has been setting stronger-than-expected fixes since November.
To the day ahead now, and central bank speakers include the ECB’s Cipollone and Panetta, along with the Fed’s Kugler and Goolsbee. Otherwise, US data releases include the JOLTS report of job openings for October.