Stock futures are higher again as traders stay positive on the upcoming US earnings season, ignore the government shutdown (though federal unions are suing to prevent the furloughs from being converted into RIFs) and get a boost from the latest political shock in Japan where pro-stimulus Sanae Takaichi was picked as the next PM (shocking markets and sending the Nikkei soaring and the yen crashing) as well as the latest chip deal out of Nvidia and AMD. As of 8:00am ET, S&P futures are up 0.3%, on pace for a new record high after the index gained more than 1% last week, with Nasdaq futs up 0.8% boosted by a 20% gain in AMD which soared after signing a chip deal with OpenAI that could generate tens of billions of dollars in new revenue. Tesla rose after teasing a product announcement. Comerica surged after Fifth Third Bancorp agreed to buy the financial services firm in a $10.9 billion deal. There was international drama: a surprise win for pro-stimulus lawmaker Sanae Takaichi in a ruling party leadership vote sent the yen and long-term bonds tumbling and equities surging to all-time highs; Japanese banking stocks underperformed. Meanwhile major European markets are all lower with France sliding more than 1% after French PM Sebastien Lecornu resigned, just a day after President Emmanuel Macron named a new cabinet that was broadly criticized. following the surprise resignation of its PM. In FX, the USD was poised for its strongest day since late Aug as USDJPY soared more than +2% and EURUSD tumbled -65bp after the French PM resigned after just 3 weeks. The yield curve is twisting steeper around the 2Y. In commodities, all 3 complexes are higher with WTI, natgas, and precious metals outperforming. The US economic calendar slate is blank for Monday, with all eyes on the govt shutdown in DC. The calendar this week is light due to the shutdown, with focus shifting to a long list of Fed speakers. Policymakers last week gave commentary around service inflation, a big contribution to stubbornly high CPI readings. Read more in our weekly review.
In premarket trading, Mag 7 stocks are mostly higher (Tesla +2%, Nvidia -2.2%, Alphabet +0.3%, Microsoft +0.6%, Apple +0.5%, Amazon +0.6%, Meta +0.3%)
In corporate news, Nvidia’s major server production partner, Hon Hai Precision, reported 11% growth in quarterly sales, signaling healthy demand for chips and servers needed to develop AI. Boeing is said to be guiding suppliers that 737 Max output could reach a 42-jet monthly tempo as early as October, and laying the groundwork for more manufacturing ramp-ups next year.
Tech stocks led gains in premarket trading. AMD soared more than 20% after signing a deal with OpenAI to roll out AI infrastructure in a pact the chipmaker said could generate tens of billions of dollars in new revenue. The two signed a definitive agreement for OpenAI to deploy 6 gigawatts of AMD graphics processing units over multiple years, the companies said Monday in a statement. AMD also gave OpenAI a warrant for as many as 160 million shares which will vest as milestones are achieved. Those targets require AMD’s stock price to continue to increase in value and future exercise points include a tranche tied to a share price of $600. AMD shares closed Friday at $164.67. AMD shares jumped as much as 28% to $211.18 in early trading, which would represent their biggest intraday gain in more than nine years if the rally holds when markets open. Nvidia erased earlier gains and was down 1.4%.
US companies are set to enjoy a better-than-expected earnings season as a robust economy and a solid outlook for artificial intelligence have left estimates looking too low, according to Goldman Sachs strategists. The team led by David Kostin also expect the Mag 7 group of technology heavyweights to beat expectations.
A number of private-sector indicators out last week pointed to a sluggish US labor market and moderation in demand, without raising alarm bells on the outlook for economic growth. That’s left traders confident the Fed will deliver another quarter-point cut in October, allowing them to look past the US government shutdown and the threat of firing federal workers.
“The base-case scenario remains one of slow but steady growth, continued disinflation, and a gradual rate-cutting cycle by the Fed toward year-end,” said Linh Tran, a market analyst at XS.com. “Against this backdrop, the S&P 500 is expected to maintain a measured upward trajectory, supported by improving corporate earnings, stable valuations, and persistent institutional inflows.”
There doesn’t seem to be an imminent end to the funding impasse in sight, and escalation is possible if Trump follows through on his threat to fire — rather than furlough — federal workers. Unions made an emergency request on Saturday night asking a US judge to immediately block any mass firings by the administration during the shutdown while they press a legal challenge.
In other assets, political turmoil and fiscal concerns in numerous countries are leading to a so-called “debasement trade,” boosting Bitcoin and gold to all-time highs while major currencies drop. Oil gained after OPEC+ agreed on Sunday to raise production by a modest amount, staving off fears of a super-sized increase.
Elsewhere, European stocks dipped, with France’s CAC 40 benchmark plunging as much as 2.1% after the sudden resignation of Prime Minister Lecornu raised the likelihood of snap legislative elections. Bonds fell and the euro weakened. French lenders Societe Generale SA, Credit Agricole SA and BNP Paribas SA led declines in the Stoxx Europe 600 index as the nation’s 10-year yield jumped. Prime Minister Sebastien Lecornu resigned just a day after President Emmanuel Macron named a new cabinet, deepening the country’s political crisis. Here are some of the biggest European movers today:
Lecornu’s departure comes after his two predecessors were felled by the same problem: having to pass a budget through a fractured parliament that included unpopular spending cuts and tax increases needed to rein in the largest deficit in the euro area. That’s raising uncertainty about the outlook for the region’s second-largest economy.
“Alongside this political uncertainty/crisis, one can expect an economic one (sentiment is likely to deteriorate) given the uncertainty surrounding the wide budget deficit,” said Stephane Ekolo, a strategist at TFS Derivatives. “Banks and financials overall are likely in this uncertainty to be under pressure.”
Earlier in the session, Asian stocks rose, headed for a sixth-straight daily gain, led by Japan after a surprise leadership victory for pro-stimulus lawmaker Sanae Takaichi. That offset losses in Hong Kong, while a number of markets were shut. The MSCI Asia Pacific Index climbed as much as 0.4%, poised for a new all-time high. Japan’s Nikkei 225 jumped as much as 4.6% to a record, with exporters getting a boost from a weaker yen. Chinese tech stocks slumped in Hong Kong after big recent gains. Volumes were thin amid holidays in mainland China, Taiwan and South Korea. Poised to become Japan’s next prime minister after winning the ruling LDP’s leadership election, Takaichi is seen as positive for stocks due to her pro-growth plans and opposition to Bank of Japan tightening. Shares of defense firms including Mitsubishi Heavy and tech companies such as Advantest gained Monday on speculation they’ll benefit from government spending. Elsewhere in Asia, investors are awaiting central bank decisions later this week in New Zealand, Thailand and the Philippines. China’s markets will reopen Thursday following the Golden Week holiday.
In FX, the Bloomberg Dollar Spot Index rose as much as 0.6%, on track for its best daily performance since late July; USDJPY jumped as much as 2% to a two-month high of 150.44; the yen fell against all its major peers on speculation Takaichi’s victory in the ruling LDP’s leadership election on the weekend makes further BOJ hikes less likely. The EURUSD tumbled -65bp after the French PM resigned after just 3 weeks.
In rates, Treasuries hold curve-steepening losses that accumulated overnight amid a spike in Japanese long-end yields after Sanae Takaichi’s surprise victory to lead the ruling party. The result stoked concerns that her pro-stimulus stance will lead to increased debt issuance. French bonds also sold off after President Emmanuel Macron’s appointment of a continuity cabinet drew backlash. In the US, equities continue to look past the US government shutdown in its sixth day and the threat of firing federal workers. In the US, yields are 1bp-4.5bp cheaper across tenors with the 10-year around 4.16%; France bonds underperform bunds and Treasuries after Sebastien Lecornu resigned Monday, a day after Macron named a new cabinet. Treasury auctions resume Tuesday with $58 billion 3-year notes, followed by $39 billion 10-year and $22 billion 30-year reopenings Wednesday and Thursday
In commoditis, spot gold is up $55 after notching another record high. Bitcoin climbs 1% after surpassing its previous record on Sunday. WTI crude futures rise 1.7% after OPEC+ agreed to raise production by a modest amount.
The US economic calendar slate, though blank for Monday, remains subject to delays from the ongoing government shutdown. Fed speaker slate includes Kansas City Fed’s Schmid at 5pm, speaking on the economic outlook and monetary policy. The calendar this week is light due to the shutdown, with focus shifting to a long list of Fed speakers. Policymakers last week gave commentary around service inflation, a big contribution to stubbornly high CPI readings.
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APAC stocks began the week mixed amid several holiday closures throughout the week and the ongoing US government shutdown, while Japanese markets rallied on hopes of fiscal loosening and a delay to BoJ policy normalisation following Sanae Takaichi's LDP leadership victory, which sets her on course to become Japan's first female PM. ASX 200 failed to sustain early marginal gains and retreated to back beneath the 9,000 level as losses in tech, healthcare, and the consumer sectors offset the strength in the commodity-related industries. Nikkei 225 rallied to fresh record highs above the 48,000 level as the JPY weakened amid expectations of fiscal support and a potential delay to BoJ policy normalisation after the LDP leadership election victory by Abe-protege Takaichi. Hang Seng declined amid the absence of mainland participants for most of the week due to the National Day 'Golden Week' holiday and with underperformance in casino stocks following the recent flooding from Typhoon Matmo.
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European bourses (-0.2%) opened mostly and modestly in the red, but then took a leg lower following news that French PM Lecornu resigned - this downside has since pared a touch. The CAC 40 currently trades towards session lows and down by around 1.9%. At present, it is unclear why the PM decided to resign, but it comes after recent cabinet appointments received criticism from opposing parties. The outgoing PM is currently on the wires, and we remain attentive for any reasoning for his decision – thereafter, the spotlight shifts to Macron to see if he a) decides to appoint a new PM, b) calls legislative elections, c) resigns – though in the past he has made it clear that he intends to see out his term. The National Rally said, "Macron must now choose: dissolution or resignation", via France 24. European sectors hold a negative bias, with only a handful of industries managing to hold in the green. Energy tops the pile, with names boosted by strength in underlying oil prices. Telecoms follows in second spot, with Technology completing the top three. For the latter, ASML (+1.4%) received a PT upgrade at HSBC, now sees EUR 1,018 (prev. 809, currently 893). To the downside, French banks have slipped on the heightening political instability.
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