US equity futures are higher with both Tech and small-caps outperforming, while the dollar is lower even as yields are higher from Wednesday's close. As of 7:50am, S&P futures were 0.3% higher and Nasdaq futs rose 0.4%, boosted by Powell’s comments that recent inflation figures did not “materially change” the overall picture while the latest ISM Services print was far less inflationary than the ISM Manufacturing print, in fact bizarrely so. In Europe, major markets are also all higher as part of a global risk-on tone. Bond yields are +1-2 bps, even as Bloomberg’s dollar index extended its slide for a third day, following its biggest one-day fall in nearly four weeks. In commodities, energy is a tad lower with Brent trading just below $90, metals are mixed, and Ags are stronger; copper - which as we noted previously could be the first "AI commodity" is the notable outperformer. Today’s macro data focus is on jobless claims but likely will be ignored with the jobs report tomorrow; we also get seven Fed speakers today.
In premarket trading, all Mag 7 names are higher ex-GOOG, which surprised markets with news that it was launching a premium, AI-powered version of search, something which virtually nobody would pay for. Chipmakers such as Micron and AMD advanced, as analysts saw limited impact on the semiconductor market from Taiwan’s recent earthquake. Taiwan Semiconductor, which supplies chips to Apple Inc. and Nvidia Corp., said there was “no damage to critical tools.” Here are some other notable premarket movers:
While stocks reversed from two days of losses on Wednesday, jitters remained as a blowout reading for March private payrolls hinted at the possibility of a similarly strong number for the monthly non-farm payrolls print on Friday. Swap markets still price less than three rate cuts for 2024, and see only a 56% chance of the easing cycle starting in June. Inflation fears are also being fanned by strength in commodity prices, with Brent oil futures approaching five-month highs after OPEC+ confirmed plans to continue tightening crude supply. Copper rose to a 14-month peak and gold is trading near record highs above $2,300 per ounce.
Optimism was also tempered by Atlanta President Raphael Bostic forecasting only one rate cut this year, which would be in the fourth quarter. A raft of other rate-setters, including the Richmond Fed’s Thomas Barkin and Cleveland Fed President Loretta Mester, are due to speak later on Thursday. Euro-area bond yields, meanwhile, slid on expectations the European Central Bank will kick off policy easing on June 6 and cut rates three more times by year-end.
"I think Powell wants to get the process started in terms of the cutting cycle,” said Jamie Niven, senior portfolio manager at Candriam. “We’ve seen some strong data in the last few days, but I don’t think it’s absurd for them to cut from quite restricted territory.”
European stocks also edged up: the Stoxx 600 index rose 0.1%, as mining and auto shares led European equity gains, with copper miners Rio Tinto Plc and Antofagasta Plc rising sharply. Among other movers, Volvo Car AB jumped as much as 6% after reporting a 25% jump in vehicle sales. Regional bond yields are all lower with multiple curves bull flattening. Eurozone PMI-Srvcs and Composite had upside surprises as PPI printed more dovishly, with both MoM and YoY PPI reflecting deflationary levels.
Earlier in the session, Asian stocks rose, rebounding from Wednesday’s selloff, led by rallies in Japan and South Korea with markets shut for holidays in Greater China. The MSCI Asia Pacific Index rose as much as 0.9%, the most in two weeks, with financials and industrials providing the biggest boosts. Markets in China, Hong Kong and Taiwan were closed. Samsung and SK Hynix boosted South Korean benchmarks as halts at DRAM plants in Taiwan due to Wednesday’s earthquake were seeing firming up prices. A Bloomberg gauge of Asian chipmakers climbed, poised to cap a third week of gains.
In FX, the Bloomberg Dollar Spot Index falls 0.1%. The Swiss franc is the weakest of the G-10 currencies, falling 0.4% versus the greenback after CPI unexpectedly slowed in March.
In rates, treasuries are slightly cheaper across the curve, spreads within 1bp of Wednesday’s closing levels. Treasury yields cheaper by up to 1.5bp across intermediates, with 10-year around 4.36%; bunds and gilts outperform by 3bp and 4bp in the sector Regional bond yields are all lower with multiple curves bull flattening: European rates outperform after euro-area PMI and PPI data and long-end supply from Spain and France. US session has several Fed speakers and data including weekly jobless claims, with March jobs report ahead Friday.
In commodities, oil prices are little changed, with WTI trading near $85.40. Spot gold falls 0.3%.
Bitcoin is a touch firmer and at the top-end of the session's range around USD 66k.
Looking at today's calendar, the economic data slate includes March Challenger job cuts (the number of job cuts was the highest since January 2023), and the February trade balance and jobless claims (8:30am); Fed speaker slate includes Harker (10am), Barkin (12:15pm), Goolsbee (12:45pm), Mester and Kashkari (2pm), Musalem (7:20pm) and Kugler (7:30pm)
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APAC stocks traded higher as sentiment picked up from the choppy mood and mixed data releases stateside, despite thinned conditions with markets across Greater China shut for the Qingming Festival. ASX 200 was led by strength in gold miners after the precious metal rose above USD 2,300/oz for the first time. Nikkei 225 outperformed and spent most of the session above the 40,000 level with the help of a predominantly weaker currency. KOSPI was boosted by tech strength with Samsung underpinned ahead of its preliminary earnings results on Friday with its profit seen to rise to the largest in six quarters on higher chip prices, while SK Hynix was lifted amid plans to invest USD 3.9bln to build an Indiana plant.
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European bourses are modestly in the green after a relatively flat/directionless cash open, Euro Stoxx 50 +0.1%; modest post-open upside emerged after revisions to the Final EZ PMIs where Composite returned to expansion. Sectors do not have any overarching theme or bias present; basic resources outperform given base metal prices. Stateside, ES +0.3%, futures are tilting higher in tandem with European futures into another session dominated by Fed appearances alongside weekly IJC data before attention focuses on Friday's payrolls.
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DB's Jim Reid concludes the overnight wrap
Markets recovered their poise over the last 24 hours, as investors were relieved after Fed Chair Powell stuck to his recent views on the economic outlook. In his remarks yesterday, he said that recent data didn’t “materially change the overall picture” and that on inflation “it is too soon to say whether the recent readings represent more than just a bump.” In addition, he reiterated that if “the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.” So that all helped to validate market pricing, which still expects 71bps of rate cuts from the Fed by the December meeting.
Those comments from Powell supported US Treasuries, and the 2yr yield fell -1.7bps on the day as investors maintained their confidence that rate cuts were still on the agenda this year. The 10yr yield was near flat yesterday (-0.2bps) at 4.35%, but that was actually a sharp decline from earlier in the session, when it hit an intraday peak for 2024 of 4.43%, and overnight there’s only been a modest +1.8bps move back up to 4.37%. That turnaround was partly due to Powell’s remarks, but was also because of the ISM services print for March, which unexpectedly fell to 51.4 (vs. 52.8 expected). And encouragingly on inflation, the prices paid component fell to 53.4 (vs. 58.4 expected), its lowest since March 2020. That contrasted with the upside surprise in the ISM manufacturing on Monday, and combined with Powell’s comments, the release helped to push back against some of the more hawkish narratives over the last couple of sessions.
But even as investors found reassurance from Powell’s speech, it had been a very different story earlier in the day. That was particularly the case after the A DP’s report of private payrolls for March came out, which rose to 184k (vs. 150k expected), and February’s number was revised up by +15k. So that was a fresh sign that the labour market was in good shape ahead of tomorrow’s US jobs report, and it was that release which pushed the 10yr yield up to its intraday peak for 2024 so far. Moreover, it’s worth noting that yesterday saw fresh signs of concern about inflation, as oil prices closed at their highest levels since October. For instance, Brent crude was up +0.48% to $89.35/bbl, whilst WTI was up +0.33% to $85.43/bbl. In fact, Brent crude prices were just shy of $90/bbl at their intraday peak, having briefly traded at $89.99/bbl. That’s also filtering through into consumer prices as well, and the AAA’s daily average of US gasoline prices was up to $3.549/gallon as of Tuesday, which is also its highest since October. Meanwhile, Brent crude prices (+0.30%) continue to move higher overnight, and are currently at $89.62/bbl.
Of course, some of Powell’s comments could be interpreted in a more hawkish light. Among others, he said that “the job of sustainably restoring 2 percent inflation is not yet done”, and that “ We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent.” But for now at least, investors are still pricing in a 64% chance of a rate cut by June, so that’s considered the most likely timing for an initial rate cut. And ultimately, there’s still several important data releases between now and June that will help determine the decision, including tomorrow’s jobs report for March, along with the CPI release next week. Indeed, we’ve seen how expectations for rate cuts have shifted a lot already this year, and up until early February, investors were still pricing in a strong probability of a cut in March.
Over in the Euro Area, the prospect of ECB rate cuts this year got fresh support from developments yesterday. In particular, the flash CPI print for March saw headline CPI fall to +2.4% (vs. +2.5% expected), whilst core CPI fell to +2.9% (vs. +3.0% expected), which is its lowest since February 2022. Alongside that, we also heard from Spanish central bank governor De Cos, who said “I think that today my central scenario is that June could actually be the first reduction in interest rates”. That backdrop saw yields on 10yr bunds (-0.3bps) and OATs (-1.4bps) fall back, and those on 10yr gilts saw a larger -3.0bps decline. In terms of rate cut expectations, overnight index swaps are now pricing in 76bps of ECB cuts by the December meeting, which is more than the 71bps currently priced in by Fed Funds futures.
As investors continued to anticipate rate cuts this year, that helped to stabilise equities after two weak sessions at the start of the week. The S&P 500 (+0.11%) posted a marginal gain, helped by some of the more cyclical sectors as well as tech stocks. Both the NASDAQ (+0.23%) and the Magnificent 7 (+0.49%) outperformed, and there was also a recovery among small-cap stocks, with the Russell 2000 (+0.54%) paring back some of its losses from the start of the week. Amid the underperformers, chipmaker Intel fell -8.22% after announcing a weaker outlook for its factory network. Meanwhile in Europe, the STOXX 600 was up +0.29%, and there were also gains for the DAX (+0.46%) and the CAC 40 (+0.29%). Separately, the prospect of rate cuts meant that gold prices (+0.85%) closed at an all-time high in nominal terms of $2,300/oz.
Overnight in Asia, it’s been a quieter session this morning given markets are on holiday in China. But in general, the more positive tone has continued, with the Nikkei (+1.63%), the KOSPI (+1.06%) and the S&P/ASX 200 (+0.45%) all advancing. That’s evident among US and European equity futures too, with those on the S&P 500 (+0.27%) and the STOXX 50 (+0.12%) both pointing towards further gains. Alongside that, data showed that Australia’s composite PMI for March moved up to 53.3, marking its highest level since April 2022.
To the day ahead now, and data releases from the US include the weekly initial jobless claims and the February trade balance. Meanwhile in Europe, there’s the final services and composite PMIs for March, along with Euro Area PPI for February. Otherwise, central bank speakers include the Fed’s Harker, Barkin, Goolsbee, Mester, Kashkari, Musalem and Kugler. And we’ll get the ECB’s account of their March meeting.