US Futures extended yesterday’s rally after the Senate passed a bill late on Thursday to raise the debt ceiling and prevent a US default, with risk-on sentiment getting a boost following the sharpest rally in Chinese stocks for three months amid Bloomberg reports that China is mulling a new stimulus package to support the property market after existing policies failed to sustain a rebound in the ailing sector.
At 7:45am, S&P futures rose 0.5% to 4249, while the Nasdaq rose by 0.6% and was set for a sixth straight weekly advance. Europe’s Stoxx Europe 600 index followed Asian benchmarks higher, with luxury-goods makers LVMH and Richemont among the leading gainers after the China stimulus report. Treasury yields were little changed, diverging from higher rates in Europe and the UK. Oil and bitcoin both gained more than 1%, while gold was little changed after three days of gains.
In premarket trading, US-listed Chinese stocks extended a rally after Bloomberg News reported that regulators are considering a new basket of measures to boost the property market. Broadcom shares fell as the chipmaker remains mired in a broader slowdown. While the company talked up the potential boost from artificial intelligence, it wasn’t enough to sustain recent gains for the stock, which jumped nearly 30% last month. Dell Technologies also fell after the personal-computer maker gave a lukewarm sales outlook indicating that a recovery may take a bit longer than expected as it continues to struggle to sell PCs, particularly to consumers. Here are some other notable premarket movers:
Tech giants are still driving most of the stock market’s advance, with Apple nearing a record and Nvidia. climbing more than 5% Thursday; both were set for more gains today. The sector attracted record inflows last week, Bank of America said. Aside from the obsession for anything AI-related that drove megacaps up 17% in May, the industry also got a boost from wagers the Fed will stop raising interest rates.
Late on Thursday, the Senate voted 63-36 to pass the US debt ceiling bill, which sends it to President Biden's desk. Biden said he wants to thank Senate leaders Schumer and McConnell for quickly passing the debt ceiling bill and noted that the bipartisan agreement is a big win for the economy, while he looks forward to signing the bill ASAP and directly addressing Americans on Friday. The White House announced that President Biden is to deliver an address on averting a default and the bipartisan budget agreement according to Reuters.
Today, all eyes will be on the NFP print at 8:30am (see our preview here). Consensus expects NFP to print 195k with the whisper number higher at 225k (vs. 253k prior) and the Unemp rate to rise to 3.5%, vs. 3.4% prior; focus also on average hourly earnings data which is expected to rise 0.3% MoM. Traders are betting that the jobs report will show enough moderation in the pace of hiring to allow the Fed to pause its tightening cycle, helping sustain the rally. Dovish comments from Fed officials supported this view: Fed Bank of Philadelphia President Patrick Harker said “we should at least skip this meeting in terms of an increase,” and his St. Louis counterpart James Bullard said interest rates may already be sufficiently restrictive to bring down inflation.
“The more pertinent Fed speakers have suggested a June pause is more likely and I don’t think non-farms payrolls should change that view meaningfully,” said James Athey, investment director at Abrdn. “Therefore I think the risks are skewed to a dovish disappointment this afternoon.”
According to Goldman trading desk, a print sub 100k likely hits the tape by ~100bps and a print north of 375k hits the tape by 25 – 50bps.
In Europe, the Stoxx Europe 600 index was up 1% and on course for back-to-back gains for the first time in two weeks, following Asian benchmarks higher, with luxury-goods makers LVMH and Richemont among the leading gainers after Bloomberg reported that China is considering new stimulus measures. Miners and energy companies climbed as crude oil and industrial metals rebounded. Among individual movers in Europe, sportswear makers Puma SE and Adidas AG rose more than 4% each after Lululemon Athletica Inc.’s robust results. Dechra Pharmaceuticals Plc jumped after EQT AB made a firm offer for the UK veterinary drugmaker. Embattled Swedish landlord SBB soared as it attracted interest from investors including Brookfield Asset Management. Here are some other notable movers.
The MSCI Asia-Pacific Index jumped as much as 2.1% Friday, poised for its biggest weekly advance since late January as Chinese tech stocks fuel big gains in Hong Kong benchmarks. Biggest contributors to gauge’s climb are Tencent and Alibaba, which jump more than 5% each. Hang Seng Tech Index spikes as much as 5.7%; other Hang Seng benchmarks rally at least 4% Shares in Japan, Australia, China advanced while South Korea’s Kospi index was headed for bull market territory following a gain of more than 20% from a low in September. Hong Kong’s Hang Seng index rose more than 3%, pulling the benchmark back from the brink of a bear market following concerns about Chinese growth.
The bullish sentiment emerged amid reports that China is working on a new basket of measures to support the property market after existing policies failed to sustain a rebound in the ailing sector, Bloomberg reported Friday. The yuan extended gains and crude oil rose along with industrial metals. An index of emerging-market stocks soared the most since January.
In FX, the Bloomberg Dollar Spot Index eased for a second day as traders are betting that the monthly US jobs report will show enough moderation in the pace of hiring to allow the Fed to pause its tightening cycle. Money markets now assign a three-in- four chance of a 25 basis-point hike next month. Supporting that view, Fed Bank of Philadelphia President Patrick Harker said “we should at least skip this meeting in terms of an increase,” and his St. Louis counterpart James Bullard said interest rates may already be sufficiently restrictive to bring down inflation. Dollar weakness also gained traction after a report that China is working on a new basket of measures to support its property market.
In rates, treasuries were slightly cheaper across the curve as S&P 500 futures gain; Treasury yields cheaper by 0.5bp to 2bp across the curve with 2s10s, 5s30s spreads steeper by 1bp and 0.5bp as front-end slightly outperforms; 10-year yields around 3.61% with bunds, gilts cheaper by 3bp and 1bp in the sector. US session focus switches to data, with the May jobs report scheduled for 8:30am New York.
In commodities, crude futures advance with WTI rising 1.9% to trade near $71.45. Spot gold is little changed around $1,980. Bitcoin rises 1%
Looking to the day ahead now, and the main highlight will be the US jobs report for May. Otherwise, data releases include French industrial production for April. And from central banks, we’ll hear from the ECB’s Vasle.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded higher as the region took impetus from Wall St where the S&P 500 and Nasdaq climbed to 9-month highs amid debt ceiling optimism, falling labour costs and dovish Fed commentary. ASX 200 was positive with the index led higher by the mining sector and after the Australian Fair Work Commission raised the minimum wage by 5.75%, although gains were capped by weakness in financials and after recent upward revisions to banks’ forecasts on the RBA’s peak rate. Nikkei 225 was underpinned amid comments from BoJ Governor Ueda who stuck to the dovish script, with SoftBank among the biggest gainers following a buy rating from Jefferies and as the Co. benefits from the recent AI tech bid in the build-up to the ARM IPO. Hang Seng and Shanghai Comp. conformed to the broad upbeat mood with Hong Kong significantly outperforming amid a rally in property and tech.
Top Asian News
Top European News
Debt Ceiling news
FX
Fixed Income
Commodities
Geopolitics
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Markets recovered their poise over the last 24 hours, with the S&P 500 (+0.99%) closing at a 9-month high. That’s been driven by several factors, including the passage of the debt ceiling deal through Congress, the prospect that the Fed might finally pause their rate hikes at the next meeting, along with further signs that inflation is still falling. All this meant that June kicked off with a decent cross-asset rally, and sovereign bonds and commodities also moved higher after a fairly rough performance back in May.
The next test for markets will come with today’s US jobs report, which is one of the last big data releases ahead of the Fed’s next decision on June 14. For what it’s worth, markets have been consistently taken by surprise by the jobs report over recent months, and the last 13 in a row have all seen the initial release for nonfarm payrolls beat the Bloomberg consensus forecast on the day. In terms of what to expect, our US economists are looking for a +200k increase in payrolls (vs. +195k consensus), so slightly above consensus once again. In turn, that would see the unemployment rate tick up a tenth to 3.5%, having come in at a 53-year low of 3.39% last month if you look to two decimal places. See more from our US economists here.
Ahead of that jobs report, yesterday brought a collection of robust data releases on the US labour market. First, the ADP’s report of private payrolls rose by +278k in May (vs. +170k expected), which was above every economist’s forecast on Bloomberg. Second, the weekly initial jobless claims came in at 232k over the week ending May 27 (vs. 235k expected), which took the 4-week moving average down to an 11-week low of 229.5k. And third, although the latest ISM manufacturing reading remained in contractionary territory at 46.9 (vs. 47.0 expected), the employment component ticked up to a 9-month high of 51.4. This good news wasn’t just confined to the US either, since the Euro Area unemployment rate fell to its lowest since the formation of the single currency in April, at 6.5%.
Alongside those positive signals on the labour market, markets also received some good news on inflation too. In the Euro Area, the flash CPI estimate for May fell to a 15-month low of +6.1% (vs. +6.3% expected), and core inflation was down for a second month running to +5.3% (vs. +5.5% expected). And in the US, the prices paid component of the manufacturing ISM was far beneath expectations at 44.2 (vs. 52.3 expected).
Markets then got some further momentum by fresh support for the Fed pausing their cycle of rate hikes at the next meeting. That came from Philadelphia Fed President Harker, who said that “we should at least skip this (June) meeting in terms of an increase” and that “we are close to the point where we can hold rates in place”. As a result, investors further dialled back the chances of a June rate hike, which were down to 23% by yesterday’s close, having been as high as 69% at the close last Friday. We did hear from St Louis Fed President Bullard as well, one of the hawks on the committee, who published an updated analysis suggesting that policy rates are “now at the low end of what is arguably sufficiently restrictive”.
Those various good news stories lay the foundation for a decent rally, with US Treasuries rallying as investors became less concerned that the Fed would continue to hike aggressively. Yields on 10yr Treasuries were down -4.8bps to 3.595%, and the movement was driven by real yields which fell -4.9bps on the day. For Europe there was also a decline in yields, with those on 10yr bunds (-3.3bps), OATs (-3.8bps) and BTPs (-7.0bps) all moving lower. But that was driven by inflation expectations, particularly since natural gas prices hit a 2-year low yesterday at just €23.10/MWh, which builds on their astonishing run of declines since the turn of the year.
This backdrop proved very positive for equities too, and the S&P 500 (+0.99%) hit a 9-month high. Indeed, the index is just shy of being up +10% on a YTD basis, which is remarkable when you consider that the equal-weighted S&P is still down -0.68% since the start of the year, so this is still an incredibly narrow rally. Once again, tech stocks were a big driver, and the NASDAQ advanced +1.28% to now be up more than +25% YTD, whilst the FANG+ Index (+2.03%) is now up more than +64% YTD. And over in Europe, the STOXX 600 (+0.78%) recovered from its 2-month low the previous day, with larger gains for the DAX (+1.21%) and the FTSE MIB (+2.01%).
The optimistic mood has continued overnight, partly thanks to the news that the US Senate had passed the debt ceiling deal in a 63-36 vote, which follows the vote in the House of Representatives the previous day. The bill will now be sent for President Biden’s signature, who said in a statement that “I look forward to signing this bill into law as soon as possible”. So that takes the threat of a near-term default off the table again, and Biden is expected to speak from the Oval Office at 7pm Eastern Time.
In light of the various good news stories, Asian equities have seen strong gains overnight, with advances for the Hang Seng (+3.66%), the Nikkei (+1.39%), the CSI 300 (+1.29%), the KOSPI (+1.03%), and the Shanghai Comp (+0.76%). The advance is also evident among US equity futures, with those on the S&P 500 up +0.18% overnight, following the index reaching a 9-month high the previous day. The risk-on moves have also seen Treasuries pare back their gains, with the 10yr yield up +1.9bps overnight to 3.61%, whilst Brent Crude oil prices (+0.58%) are up to $74.41/bbl.
In other news yesterday, we got the accounts of the ECB’s May meeting, which highlighted the ECB’s hawkish bias. On core inflation “the latest developments were broadly seen as worrisome”, and “members concurred that further tightening was needed”. See more from our European economists here. The accounts came as President Lagarde herself said in a speech that “There is no clear evidence that underlying inflation has peaked”. Against this backdrop, investors are still expecting a further 25bp hike as the most likely outcome at the next ECB meeting on June 15, which if realised would take the deposit rate up to 3.5%.
When it came to yesterday’s other data, UK mortgage approvals fell to 48.7k in April (vs. 53.5k expected). Otherwise, the final manufacturing PMIs for May showed a similar picture to the flash readings. The Euro Area print was revised up two-tenths to 44.8, the UK print was revised up two-tenths to 47.1, and the US was revised down a tenth to 48.4.
To the day ahead now, and the main highlight will be the US jobs report for May. Otherwise, data releases include French industrial production for April. And from central banks, we’ll hear from the ECB’s Vasle.