THE AMERICA ONE NEWS
Jun 4, 2025  |  
0
 | Remer,MN
Sponsor:  QWIKET 
Sponsor:  QWIKET 
Sponsor:  QWIKET: Elevate your fantasy game! Interactive Sports Knowledge.
Sponsor:  QWIKET: Elevate your fantasy game! Interactive Sports Knowledge and Reasoning Support for Fantasy Sports and Betting Enthusiasts.
back  
topic
Zero Hedge
ZeroHedge
20 Jun 2023


NextImg:Futures, Global Markets Drop For Second Day After China Stimulus Disappoints

US equity futures and global markets slipped for a second day following Friday's blow-off top and quad-witching reversal, as part of a global risk-off tone sparked by disappointment after investors were left underwhelmed by the latest reduction in the benchmark lending rates at Chinese banks - though bond yields are higher and USD weaker - as the second-quarter rally met resistance from economic headwinds and signs that positioning is overbought and extremely stretched. As of 7:45am ET, S&P futures were down 0.4% while Nasdaq futures dipped -0.3%. MegaCap tech names led the weakness with almost all in the red pre-mkt. Commodities are weaker, but oil and gold rose, while Bitcoin climbed for a second-straight day.

In premarket trading, US-listed Chinese stocks declined after China’s State Council failed to issue specific support measures and banks offered modest rate cuts, disappointing investors who had counted on more policy stimulus as the country’s economic recovery slows. Alibaba shares are down 2.5%, PDD Holdings -4.1%, JD.com -4%. Here are some other notable premarket movers:

Investors caught between fear of missing out and concerns markets have run too far, too fast are contending with overblown valuations and economic headwinds. Bullish positioning in US equity futures grew last week, taking it to the most extended levels for the S&P 500 and Nasdaq 100 in data going back to 2010, according to Citigroup strategists. The path of US monetary policy is another wild card. Fed Chair Powell will give his semi-annual report to Congress on Wednesday. Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. Investors also await the outcome of policy meetings in Turkey, the UK and Switzerland.

Weekend news report surrounding Blinken's trip to China were generally positive and indicating that US/China may be attempting to hit a reset in their relationship. This holiday-shortened week is lighter in macro data relative to last week; flash PMIs on Friday the key event this week, while Chair Powell's semi-annual testimony before Congress is the main policy highlight. Given the dearth of catalysts and the potential for significant Equity selling due to month-end rebalancing, is now the time for a pullback asks JPMorgan (we will share the answer in a following post).

Mike Riddell, global macro portfolio manager at Allianz Global Investors, warned the full economic impact of the Fed’s aggressive rate increases has yet to come. “It feels like people are worried, but they’re not actually positioned that way,” Riddell said. “The vast majority of all the rate hikes in this cycle have not yet had any effect. But they will hit, and hit hard.”

The Fed decision last week came with forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year. That contrasts with market pricing for some 20 basis points of tightening in the remainder of the year.

"We find it hard to get on board with the current excitement" Morgan Stanley' Michael Wilson wrote in a note Tuesday, repeating what he has said for the duration of what is the best start of the year for the Nasdaq in history, keeping his clients from making huge gains, and ensuring that the market will continue to rise. “If second half growth re-accelerates as expected, then the bullish narrative being used to support equity prices will be proven correct. If not, many investors may be in for a rude awakening.”

European stocks and US futures are on the back foot after investors were left underwhelmed by the latest reduction in the benchmark lending rates at Chinese banks. The Stoxx 600 is down 0.4% and on course for a second day of declines with chemicals leading declines after Lanxess AG slumped as much as 18% on a profit warning, dragging shares of peers including BASF SE lower. Here are some notable European movers:

Earlier in the session, an index of Asia-Pacific shares slumped amid anxiety about Chinese growth and the lack of fresh stimulus from Beijing. Alibaba Group Holding whipsawed before trading about 1.5% lower following the surprise replacement of its chief executive and chairman.

In FX, the Bloomberg Dollar Index is flat while the Japanese yen is the best performer among the G10 currencies, rising 0.2% versus the greenback following some grumbling out of Japanese officials warning that they may intervene in the FX market (they won't). The Aussie dollar is the weakest after some surprisingly dovish RBA minutes.

In rates, treasury futures erased early losses to trade flat. 10Y TSY yields reversed most of the earlier rise which pushed them as high as 3.82%, and were last trading around 3.76% as cash trading resumes following Monday’s public holiday, unchanged from Friday's close;  European government bonds rallied across the board, with the sharpest gains for UK gilts and Swiss notes: bunds and gilts outperformed by 5.5bp and 11bp in the sector; long-end-led weakness steepens 2s10s, 5s30s spreads by ~1bp and ~1.5bp on the day.

The Dollar IG issuance slate empty so far, with around $15 billion of new issuance expected for holiday- shortened week. Treasury coupon issuance includes $12b 20-year bond reopening Wednesday and $19b 5-year TIPS reopening Thursday. The US session includes two Fed speakers ahead of Fed Chair Powell’s appearance before House Financial Services panel Wednesday.

In commodities, US crude futures edge higher with WTI rising 0.2% to trade near $71.90 despite the rout in China. Spot gold is little changed around $1,953

To the day ahead now, and data releases include US housing starts and building permits for May, along with the June Philadelphia Fed non-manufacturing gauge and German PPI for May. From central banks, we’ll hear from the Fed’s Bullard, Williams and Barr, as well as ECB Vice President de Guindos, and the ECB’s Rehn, Muller, Vujcic and Simkus.

Market Snapshot

Top Overnight News

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly lower with risk appetite subdued in the absence of a lead from Wall St due to the Juneteenth holiday and as markets digested the PBoC’s cuts to its benchmark lending rates. ASX 200 was led higher by gains in the commodity-related sectors and following the RBA Minutes from the June meeting which noted that the arguments were “finely balanced” between a 25bps hike or keeping rates steady at the last meeting, while money markets are currently leaning towards rates being kept unchanged for next month. Nikkei 225 was negative although the losses were stemmed and the index held above the 33,000 level with several major Japanese trading houses dominating the list of best performers after Berkshire Hathaway lifted its stake in five of them. Hang Seng and Shanghai Comp. declined despite the PBoC’s liquidity boost and 10bp cuts to its benchmark Loan Prime Rates. This was widely expected for the 1-year LPR after similar cuts to short-term funding rates but disappointed those anticipating a deeper 15bps cut for the 5-year LPR which is viewed as the reference for mortgages and in turn, weighed on HK-listed mainland developers.

Top Asian News

European bourses are under pressure, Euro Stoxx 50 -0.4%, with broader macro updates somewhat light ahead of more Central Bank speak. Sectors are mainly in the red with Chemicals lagging after a Lanxess profit warning while Health Care outperforms after a favourable Sanofi litigation update. Stateside, futures are softer with pressure picking up as the European morning progresses and the ES moves below 4450, ES -0.4% ahead of Fed speak incl. voters Williams & Barr before Powell on Wednesday/Thursday. Adobe (ADBE) USD 20bln deal to acquire Figma is under threat from EU investigation, according to FT. Lockheed Martin (LMT) has raised concerns to the FTC and US DoD about L3harris' (LXH) acquisition of Aerojet Rocktdyne (AJRD).

Top European News

FX

Fixed Income

Commodities

Geopolitics

US Event Calendar

DB's Jim Reid concludes the overnight wrap

The last 24 hours have been fairly quiet for markets given the US holiday, but bonds and equities were soft yesterday which partly reflects a weaker end to the US session before the long weekend. Nevertheless it was enough to see the STOXX 600 (-1.02%) post its worst start to a week since the turmoil in March. Asian markets are on the softer side as well.

Here in the UK, we experienced the sharpest end of the bond selloff, with yields on 2yr gilts (+14.2bps) closing at a post-2008 high of 5.06%. Likewise, the 10yr gilt yield (+7.9bps) closed at its highest level since the mini-budget turmoil last October at 4.48%, and is now just a few basis points shy of surpassing that milestone too. Remember that 2yr gilt yields have risen by more than 100bps since the massive upside surprise in last month’s CPI print, and that’s been filtering through to the mortgage market. In fact, there were plenty of domestic headlines on the issue well outside the financial press yesterday, since Moneyfacts reported that the average 2yr mortgage rate was now above 6% for the first time since the aftermath of the mini-budget. You’d have to go back to pre-GFC days for the last time mortgage rates were that high before that very brief period last year. This is real stored up potential pain as the slow refinancing wave materialises over the next few quarters.

The latest moves come as investors are still repricing their expectations for the Bank of England base rate, particularly after the very strong employment data last week. One particular milestone from yesterday was that for the first time since the mini-budget turmoil, overnight index swaps were pricing in a 6% base rate as more likely than not by the close, and not just on an intraday basis. This positioning comes ahead of a pivotal few days for UK macro, since we’ll get the May CPI release first thing tomorrow, and then the Bank of England’s latest policy decision on Thursday, where another 25bp hike is widely expected.

These themes were also evident across Europe, since investors grew in confidence that the ECB would deliver another hike after July in September, which if realised would take their deposit rate up to 4%. In part, that was thanks to remarks from Isabel Schnabel of the ECB’s Executive Board, who gave a speech titled “The risks of stubborn inflation”, where she said they should “err on the side of doing too much rather than too little”. There was less conviction elsewhere from other members of the Governing Council, but none were ruling out the possibility of a September hike either. For instance, chief economist Lane said that “September is so far away, let’s see in September”. Otherwise, Slovakia’s Kazimir said that September was “open and it remains to be seen what will be done”, and Lithuania’s Simkus said it was “still too early” to make a judgement on that meeting.

This backdrop led to a fresh selloff in European sovereign debt, with yields on 10yr bunds (+4.3bps), OATs (+5.8bps) and BTPs (+8.6bps) all moving higher on the day. And at the front-end of the curve, we also saw the 2yr German yield (+3.5bps) hit a post-SVB high of 3.13%. But all this news of higher rates served to knock equities back, with the major indices all losing ground across the continent. For example, the STOXX 600 (-1.02%) lost a decent amount of ground, whilst it was much the same story for the DAX (-0.96%), the CAC 40 (-1.01%) and the FTSE MIB (-0.39%).

In overnight trading, S&P 500 (-0.23%) and NASDAQ 100 (-0.21%) futures are inching lower after the holiday, with yields on 10yr USTs (+3.31bps) moving higher and trading at 3.79% after being closed yesterday. Fed funds futures have also moved in a slightly more hawkish direction since Friday’s close with the rate priced in for the December meeting up another couple of basis points to what would be a post-SVB closing high of 5.22%.

Asian equity markets are also declining this morning with the global risk softness. The People’s Bank of China (PBOC) have slightly added to the weaker sentiment as they have delivered a smaller Loan Prime Rate (LPR) cut than expected despite deepening struggle in housing market. They cut the 1yr and 5yr loan prime rates by 10 basis points to 3.55% and 4.2% respectively, with the market expecting the latter, a key benchmark for mortgages, to be cut 15bps. Nevertheless they have eased these for the first time in 10 months as the country’s post-pandemic rebound is stalling. The move came after monetary policymakers cut two other key rates last week while injecting billions into financial markets and contrasting China with their peers in the West.

As I check my screens, the Hang Seng (-1.50%) is leading losses with the Nikkei (-0.62%) and the KOSPI (-0.17%) also trading in the red. Elsewhere, in mainland China, the Shanghai Composite (-0.18%) is trading on a negative footing with the CSI (-0.03%) just below flat.

There was plenty happening on the geopolitical scene yesterday, since US Secretary of State Blinken met with Chinese President Xi on his visit to Beijing. The fact the two met was seen as a positive sign, and Blinken said to reporters after that “My hope and expectation is we’ll have better communications, better engagement going forward”. Blinken will now be travelling to London for the Ukraine Recovery Conference, which will feature appearances from European Commission President Von der Leyen, as well as UK PM Sunak.

Staying on politics, today will also see the European Commission present its economic security strategy, which comes ahead of next week’s summit of EU leaders in Brussels. This is a topic that’s risen up the agenda over the last couple of years, particularly given the issues caused by Europe’s dependence on Russian gas and growing US-China tensions. For those interested in more, our research colleagues in Frankfurt have just published a pack running through the EU Green Deal Industrial Plan (link here). It’s a great primer on the topic

Another European story of interest that could have important implications for the German economy has been the declining water level on the Rhine recently, which is beneath seasonal averages again. Indeed, data for the measured water level at Kaub showed it down to 1.27m yesterday evening, albeit that’s still well above the lows around 30cm from last August that led to major disruption. Our colleagues in the German economics team have argued that if we get to the lows of last year, that could impair the economic recovery, which they’re already expecting to be very modest anyway (link here)

Finally on the data side, there wasn’t much of note, but the main release was the NAHB’s housing market index from the US. That rose for a 6th consecutive month in June to 55 (vs. 51 expected), which is steadily reversing a run of 12 consecutive declines over the entirety of 2022.

To the day ahead now, and data releases include US housing starts and building permits for May, along with German PPI for May. From central banks, we’ll hear from the Fed’s Bullard, Williams and Barr, as well as ECB Vice President de Guindos, and the ECB’s Rehn, Muller, Vujcic and Simkus.