Futures are higher led by small caps with tech stocks also mostly higher, as markets start pricing in a Trump presidency following what even Bloomberg admitted was a "disastrous" debate performance by Biden which is making Democrats panic. As of 7:45am ET, S&P and Nasdaq 100 futures rose 0.4%, suggesting this week’s rally on Wall Street is set to continue, with both indexes on course for a third quarter of gains amid expectations that signs of more bad economic growth will give the Fed more room to ease policy this year. That said, not even a looming core PCE which will likely show continued easing in prices (May PCE est 0.0% MoM, down from 0.3%, 2.6% YoY, down from 2.7%) is having an impact on bond yields which are notably higher this morning as is the USD as markets take a long, hard look at what inflation will look like under Trump's tariff-ridden regime (spoiler alert: higher). Commodities are mixed: oil and precious metals are higher; base metals are lower. Today's macro focus will be the May PCE release to access the Goldilocks narrative. Survey expects a 0.1% MoM print vs. 0.2% prior; on YoY basis, survey sees the number dropping to 2.6% survey vs. 2.8% prior).
In premarket trading, Nike shares tumbled 15% after the sneaker maker’s Q1 sales outlook missed Wall Street expectations. Following the print, UBS downgraded its recommendation on the stock to neutral, saying the fundamental trends were much worse than analysts had realized. Morgan Stanley also moved to the sidelines, seeing the catalyst for their prior overweight thesis on the stock as “out of view." Megacap tech are mostly outperforming: NVDA +65bp, AMZN +40bp, AAPL +54bp, GOOG/L +48bp. Here are some other notable premarket movers:
The elephant in the room, of course, was last night catastrophic debate by Joe Biden who ended his presidential campaign in less than 2 hours because as Bloomberg notes, "Biden failed to ameliorate concern about his age in the presidential debate, offering remarks in a hoarse voice and often misspeaking and meandering. A thousand-yard stare on the split screen didn’t help. Donald Trump won the debate, according to 67% of watchers polled by a CNN flash poll. Democrats expressed alarm about Biden’s candidacy, but the president told reporters he intends to stay on the ticket."
And now that the debate is in the history books, traders are scrambling to evaluate what the Trump presidency will look like; conveniently we just published a great primer yesterday.
Attention now turns to the week's final event, the Fed's preferred inflation print, the core PCE. “The fundamental question behind the PCE print is whether there will be at least one rate cut this year,” said Mabrouk Chetouane, head of global market strategy at Natixis Global Asset Management. "If it goes in a way the consensus and the Fed aren’t anticipating, then it will be problematic for equity and bond markets alike."
European stocks pared an early gain, weighed down by a decline in France’s equity benchmark ahead of the weekend’s parliamentary election. Investors pulled the most money out of European equity funds in almost four months in the week through Wednesday, according to a Bank of America Corp. note citing EPFR Global data. France’s CAC 40 index dropped 0.5% to a five-month low, and the nation’s bonds underperformed, with the 10-year yield rising to the highest since November. The main concern for investors is that the new French government will drive the country deeper into debt. “We retain a cautious stance on French financial assets due to the high event risks and the slim chances of meaningful fiscal consolidation, regardless of the election result,” Bank J Safra Sarasin strategists led by Karsten Junius said in a note. L’Oreal SA fell after the French beauty-products maker said it expects slower growth in the overall beauty market this year. Puma SE and JD Sports Fashion Plc declined, tracking Nike’s slump. Nokia Oyj shares rose as much as 4.4% after the Finnish mobile-phone company agreed to buy US-listed optical transmission equipment maker Infinera. Here are the other notable European movers:
Earlier, Asian equities rose, on track for a weekly gain, as the lack of hawkish comments in the US presidential debate offered some respite for Chinese stocks, with traders turning their focus to a key inflation data due Friday. The MSCI Asia Pacific Index gained as much as 0.6%, poised to post its first weekly advance in three. Japan’s Topix index reached its highest level since 1990 due to a rally in financial firms courtesy of the latest plunge in th eyen, while tech heavy-markets such as Taiwan and South Korea also advanced. Hong Kong stock benchmarks recouped early losses and edged away from technical correction territory as traders assessed the debate between President Joe Biden and former President Donald Trump.
In FX, the dollar hovered near an eight-month high, on track for a sixth weekly gain. The greenback initially rose as markets assessed Trump was the victor in the debate. It’s a foretaste of how markets might react to a second Trump presidency, and suggests the US currency could be a major beneficiary. Meanwhile, South Africa’s rand soared 1.5% on renewed optimism the country’s two largest parties are moving closer to a power-sharing deal.
“Markets likely extrapolated today’s debate outcome to the actual election outcome in November,” said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. “Trump’s policies are likely to add to inflationary pressures and escalate trade tensions, thereby supporting US interest rates and the safe-haven US dollar.”
In rates, Treasuries retreated, paring gains from the prior session, when lackluster US economic data reinforced speculation the Federal Reserve will cut interest rates this year to prevent a bigger slowdown in the economy. Economists expect the Fed’s preferred inflation gauge, the core PCE Price Index, slowed to an annualized rate 2.6% last month from 2.8%. That would be the lowest reading since March 2021, though it remains above the central bank’s goal for 2% inflation. French bonds also drop, underperforming their German counterparts and widening the 10-year yield spread by 2bps to around 84bps. French, Spanish and Italian EU harmonized CPI rose inline with estimates and prompted little reaction.
In commodities, oil prices advance, with WTI rising 1% to trade near $82.60 a barrel. Spot gold is steady around $2,328/oz.
Looking at today's calendar, the US economic data slate includes May personal income/spending, PCE price index (8:30am), June MNI Chicago PMI (9:45am), University of Michigan sentiment (10am) and Kansas City Fed services activity (11am). Fed speakers scheduled for the session include Daly (8:40am, 12:40pm) and Bowman (12pm
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly higher heading to month-, quarter-, and half-year end following the positive bias stateside but with gains capped as participants digest a slew of data and await the Fed's preferred inflation gauge. ASX 200 was led higher by tech strength but with upside limited by weakness in miners and materials. Nikkei 225 benefitted from recent currency weakness, while there was also a slew of data releases including mostly firmer-than-expected Tokyo inflation and a return to growth in Industrial Production. Hang Seng and Shanghai Comp. were positive in tandem with the gains in regional peers with catalysts light although there were comments from President Xi who reaffirmed the China opening up message.
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European bourses, Stoxx 600 (+0.3%) are mostly firmer, taking positive leads from a strong APAC session; price action in Europe has been choppy thus far. European sectors are mixed; Energy takes the spot, benefiting from the gains in the underlying crude complex. Consumer Products & Services is the clear laggard, with the likes of Puma (-2.5%) hit following poor Nike results. US Equity Futures (ES +0.2%, NQ +0.4%, RTY +0.6%) are entirely in the green, ahead of US PCE. Nike (-12%) has sunk in the pre-market after it reported a beat on EPS, a miss on Revenue, noted that quarterly sales will fall 10% and warned on weakness in China.
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DB's Jim Reid concludes the overnight wrap
We go to press this morning just after the first US presidential debate of the election between Joe Biden and Donald Trump. The general consensus among pundits is that Trump had the better performance, and a CNN flash poll of registered voters watching the debate found viewers thought Trump won by a 67%-33% margin. There are just two debates scheduled in this campaign, with the second on September 10, ahead of the election on November 5. Going into the debate, the national polls were neck-and-neck, and Trump only had a 0.2pt lead in FiveThirtyEight’s polling average, so it’ll be interesting to see if the debate affects that.
Staying on politics, it’s going to be an important weekend for markets ahead, as the first round of the French legislative election is taking place on Sunday. Clearly we won’t know the full results until the second round on July 7, but it will offer a better sense of the likely outcomes in terms of who can reach a majority, if anyone. As it stands, the latest Ifop poll yesterday showed Marine Le Pen’s National Rally on 36%, ahead of the left-wing alliance on 29%, and President Macron’s centrist group on 21%. In terms of seats projected in the National Assembly, that poll suggests the National Rally and its allies would end up with 220-260 seats, falling short of the 289 necessary for a majority. Alongside that, the left-wing alliance would get 180-210 seats, and President Macron’s group would be on 75-110. As a reminder, my team published a two-part guide to the French elections running through the situation and the implications for Europe (links here and here).
Ahead of Sunday’s first round vote, French assets have continued to lose ground, with the 10yr Franco-German spread closing above the 80bp mark for the first time since 2012. And in absolute terms, the 10yr French OAT was up +3.8bps to 3.26%, which is its highest level since November. That came as Germany’s finance minister Lindner said that “A strong intervention by the ECB would raise some economic and constitutional questions”. Equities also fell back, with the CAC 40 down -1.03%, meaning it’s now less than 0.4% above its low point a couple of weeks ago.
The French election is likely to be the main focus by Monday, but before we get to that, today will bring several important inflation numbers. In particular, we’ve got the US PCE inflation report for May, which is the measure that the Fed officially target, and hence is closely followed in markets. Our US economists think that core PCE should increase by +0.17%, based on the CPI and PPI data that we’ve already got. In turn, that would cut the year-on-year rate to 2.63%, the lowest in over three years. So that would be very promising news from the Fed’s perspective, but it’s clear they remain cautious given the inflation spike we had back in Q1 of this year. Indeed, that was echoed by Atlanta Fed President Bostic, who said that “It’s going to be a much longer experience and that’s why I’m preaching patience”.
US Treasuries rallied ahead of that release, as we got another batch of underwhelming data, which is increasingly becoming a theme of late. For instance, the continuing jobless claims rose to 1.839m in the week ending June 15 (vs. 1.828m expected), which is their highest level since November 2021. Alongside that, the weekly initial jobless claims over the week ending June 22 came in at 233k (vs. 235k expected). That was a bit lower than last week, but it still pushed the 4-week moving average up to 236k, which is the highest it’s been since September. That adds to several metrics suggesting that the labour market could be weakening, not least given the unemployment rate was up to 4.0% in the May jobs report. So evidence of loosening in the labour market even if there are enough one-offs in the data to give it a pass for the moment. Staying with the weaker data theme, core capital goods orders for May disappointed, falling -0.6% (vs. +0.1% expected), while a gauge of pending home sales fell to its lowest level since the start of the series in 2001. The Atlanta Fed’s GDPNow estimate for Q2 was cut to an annualised rate of +2.7% yesterday, having been at +3.0% previously. This is still decent but US data is increasingly surprising on the downside, so economic momentum still seems to be rolling over a bit, albeit from high levels.
That backdrop cemented investors’ conviction that the Fed would cut rates by the end of the year, with the amount of cuts priced in by the December meeting up +2.0bps to 45bps. In turn, that meant 10yr Treasury yields fell -4.3bps to 4.29%, and the 2yr yield was also down -3.5bps to 4.71%. Over in Europe, yields were steadier for the most part, with the 10yr bund yield down just -0.3bps. However, the consistent theme was wider spreads, with yields on French OATs (+3.8bps) and Italian BTPs (+3.3bps) both seeing larger moves.
For equities, there was a similar divergence on either side of the Atlantic. In the US, that saw the S&P 500 (+0.09%) close just shy of its all-time high, with the Magnificent 7 (+0.41%) closing at a new record. Nvidia (-1.91%) underperformed again, weighed down after underwhelming projections from chipmaker Micron (-7.12%) the previous evening. Elsewhere, the small cap Russell 2000 rose +1.00%, moving back into the green for 2024 with a +0.56% YTD advance (vs. a +14.95% gain for the S&P 500). Meanwhile in Europe, the STOXX 600 (-0.43%) lost ground for a third consecutive session, with more pronounced losses among southern European countries, including the FTSE MIB (-1.06%) and the IBEX 35 (-0.72%).
Overnight in Asia, the Japanese Yen has continued to weaken, and is currently trading at 161.07 per US Dollar, which would be its highest closing level since 1986. In the meantime, equities have continued to advance, with gains for the Nikkei (+0.76%), the CSI 300 (+0.64%), the Shanghai Comp (+0.98%), the Hang Seng (+0.56%) and the KOSPI (+0.26%). In addition, the TOPIX (+0.72%) is currently on course to close at its highest level since 1990. Looking forward, US equity futures are also pointing higher, with those on the S&P 500 up +0.23%.
In other political news, Ursula von der Leyen was nominated by EU leaders for a second term as President of the European Commission. That was part of an agreement that saw former Portuguese PM Antonio Costa chosen as President of the European Council, and Estonia’s PM Kaja Kallas as the EU’s High Representative for Foreign Affairs and Security Policy. However, Von der Leyen will still need to win a majority of votes in the new European Parliament, which is held by secret ballot, and in 2019 she only exceeded that by nine votes. The High Representative also needs agreement from the President-elect of the European Commission, and later on the entire Commission as a whole (including the President, High Representative and other commissioners) face a vote of consent in the European Parliament.
Finally we also saw the third estimate of US Q1 GDP just as we hit the end of Q2 for markets today. This release had a few revisions. On the bright side, the Q1 reading was revised up a tenth, and now shows growth at an annualised +1.4%. However, both headline and core PCE were revised up a tenth as well, with core PCE inflation now seen at an annualised +3.7% in Q1.
To the day ahead now, and data releases from the US PCE inflation reading for May, the Canadian GDP report for April, the flash CPI releases for June from France and Italy, along with German unemployment for June. From central banks, we’ll hear from the Fed’s Barkin, Bowman and Daly, along with the ECB’s Villeroy.