One day after closing at the lowest level in more than a month, US equity futures have rebounded led by small-caps with tech names also in the green (NVDA +2.4%, META +2.0%, AMZN +1.2%, AAPL +97bp, GOOG/L +72bp). As of 8am ET, S&P futures are 0.8% higher while Nasdaq futs gain 1.1%, suggesting the underlying indexes will pare their weekly slump. Europe’s Stoxx 600 benchmark rose 0.5%. Treasuries and the dollar were little changed.. Bond yields are unchanged ahead of today's core PCE print which is expected to show further easing in inflation. The USD is flat. Commodities are mixed: oil is lower while base metals/gold are higher. Today the key macro focus will be July's core PCE which consensus sees dipping to 2.5% YoY vs. 2.6% prior.
In premarket trading, all the mega cap tech names are higher led by NVDA +2.4% (META +2.0%, AMZN +1.2%, AAPL +97bp, GOOG/L +72bp). 3M jumped 6% after the company raised its full-year profit forecast in a sign of progress as its new chief executive officer looks to reinvigorate the iconic manufacturer after a lengthy period of turmoil. Here are some other notable premarket movers:
Dip-buyers are finally stepping back into stocks on Friday, a sign that the selloff which took the S&P 500 down almost 2% this week may be starting to ease. High-flying tech shares have been hammered the hardest in recent days amid a broader market retreat as concerns mounted over the scope for a US economic slowdown.
“Everything AI has been sold off,” said Kamil Dimmich, a partner at London-based North of South Capital. “Some of it is definitely justified, but for some stocks there may be opportunities for the longer term investor.”
Traders are now awaiting personal spending data which is expected to show inflation coming closer to the Fed’s target, which would give officials room to cut interest rates. Core PCE inflation is likely to be near 2% on a three-month annualized basis, Bloomberg Economics predict. That said, a soft landing for the US economy could slip away if noisy data delay a rate cut beyond September, according to Bloomberg Opinion columnist Mohamed A. El-Erian.
“We certainly think there is a danger that the Fed is reacting slowly,” given the low US savings rate, said Nick Rees, a foreign-exchange analyst at Monex Europe.
Still, “we doubt today’s data will change many minds on the FOMC. We don’t think the Fed has seen enough yet to cut rates next week,” he said.
Europe's Stoxx 600 rises 0.4%, with all major markets higher, as a frenetic week of earnings is wrapping up and investors are waiting for the Fed’s inflation update. Consumer products and mining stocks lead the gains, while chemicals and food and beverage stocks are among the few sectors in the red. Among indivdual stocks, Birkin bag-maker Hermes gains as the group’s sales figures exceeded estimates, while Nestle extends losses after downgrades at Deutsche Bank and Berenberg. Here are the most notable European movers:
Earlier in the session Asian stocks fell, set to cap a second-straight weekly decline, with heavyweight TSMC sliding as investors continued to rotate out of overheated AI trades while awaiting for key US inflation data. The MSCI Asia Pacific Index declined as much as 0.5%, to its lowest level in more than five weeks, with a gauge of tech stocks the biggest drag. Taiwan dropped the most in the region as trading resumed after disruptions caused by a typhoon. The slide offset gains in Australia, South Korea and India. Chinese shares were mixed.
In FX, the Bloomberg Dollar Spot Index is little changed; the Japanese yen falls 0.2% against the dollar, pushing USD/JPY up to ~154.20. The Swiss franc also falls 0.2%.
In rates, treasuries are steady ahead of US core PCE data for June, with US 10-year yields flat at 4.24%. Yields are mixed on the week with curve steeper as short end benefited from increased conviction on Fed rate cuts this year. Curve spreads slightly wider on the day after 2s10s, 5s30s reached least-inverted or steepest levels since May 2023 on Thursday but failed to sustain the moves and ended at flatter (or more deeply inverted) levels. Bunds underperform gilts and Treasuries across the curve.
In commodities, oil prices decline, with WTI falling 0.4% to near $78 a barrel. Spot gold rises $8 to around $2,372/oz. Most base metals trade in the green. Bitcoin climbs above USD 67k, with Ethereum also finding its footing and now holding around USD 3.2k.
Looking at today's caendar, US economic data calendar includes June personal income and spending with PCE price indexes (8:30am), July final University of Michigan sentiment index (10am) and July Kansas City Fed services activity (11am) Fed officials have no scheduled appearances until after the next FOMC meeting ends July 31.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly higher as risk sentiment in Asia improved with markets finding some composure following the recent sell-off and with some encouragement from stronger-than-expected US GDP data. ASX 200 was led higher by outperformance in the commodity, materials, real estate and energy-related sectors. Nikkei 225 was choppy and briefly rose above 38,000 following mostly softer-than-expected Tokyo CPI. Hang Seng and Shanghai Comp. were varied with the former rangebound as it strived to stay above the 17,000 level, while the mainlained remained lacklustre amid lingering slowdown concerns despite another increased PBoC liquidity effort.
Top Asian News
European bourses, Stoxx 600 (+0.6%) opened the session mixed and on either side of the unchanged mark, though sentiment picked up as the session progressed and generally reside near session highs. European sectors hold a positive bias; Consumer Products takes the top spot, propped by post-earning strength in Luxury name Hermes (+3.9%). Basic Resources and Energy are benefiting from strength in underlying metal prices. Chemicals is found near the foot of the pile, after BASF (-2.7%) and Wacker Chemie (-2.1%) both reported weak earnings. US equity futures (ES +0.6%, NQ +0.9%, RTY +1.9%) are entirely in the green, with the NQ and ES regaining their composure after being the subject of heavy selling pressure amid the recent rotation play, which has seen the RTY outperform in the past week. Focus today is on the US PCE at 08:30 EDT / 13:30 BST.
Top European News
FX
Fixed Income
Commodities
Geopolitics - Middle East
Geopolitics - Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
The family are going camping for the weekend today without me. This is a mums and kids trip with Dads not invited which is a blessing as my view on camping is that I haven't worked hard for nearly three decades to voluntarily sleep on grass and mud with a bad back. I would normally pack this weekend of freedom with golf but annoyingly I have yet another trapped nerve (neck and elbow) and have lost sensation in my two outer fingers. Yesterday I had about my 30th career MRI scan. All advise on anyone who has come out the other side for such a complaint greatfully received.
Scanning the market rather than my injuries, it's been a rather wild ride over the past 24 hours with a risk-off tone ultimately dominating as the S&P 500 (-0.51%) fell for the sixth time in seven sessions even if futures are making a decent amount of this back in Asia overnight. Equities had initially looked on course for a decent rebound yesterday but slumped later on as the rotation trade away from tech mega caps again took hold. The Mag-7 (-1.06% yesterday) is now down nearly -13% since its record high on July 10, with the small cap Russell 2000 (+1.26%) outperforming it by a remarkable 24pp over this period. Meanwhile, bonds rallied with the 10yr Treasury yield down -4.3bps to 4.24% as rate cut hopes continued to inch higher despite a solid set of US data.
That included a decent Q2 US GDP report, which showed growth was running at an annualised +2.8% in Q2 (vs. +2.0% expected), up from the +1.4% pace in Q1. This pushed back on a building narrative of recent days, which basically implied that the US economy was about to turn sharply lower, and that the Fed needed to cut rates swiftly to prevent that. Indeed, the details from the report were also pretty good, as final sales to private domestic purchasers (which Chair Powell has cited as a good signal of underlying demand) were up by +2.6% for a second consecutive quarter. So it wasn’t as though a good headline number was masking weakness
underneath.
There were also other less dovish data elements. For instance, the GDP release showed that core PCE inflation was running at +2.9% in Q2 (vs. +2.7% expected). So unless there are revisions to April/May, this would imply a hotter than previously expected June number when released today. This will be an important print. Meanwhile, weekly initial jobless claims were down to 235k in the week ending July 20 (vs. 238k expected), and continuing claims were down to 1.851m (vs. 1.868m expected) over the week ending July 13.
Still, viewed across the day as a whole, there was no reversal of Fed easing hopes with some probability of either a move next week or a cut of more than 25bps by the September FOMC with markets pricing in 28.6bps of cuts by then as of yesterday’s close (+0.8bps on the day before). For what it’s worth, the first rate cuts in 2001 and 2007 were both 50bps, although both of those came in the context of imminent recessions. By contrast, when the last cutting cycle began in 2019, the Fed delivered three 25bp moves, until Covid hit in 2020 when they slashed rates more aggressively.
The fact that markets ended the day pricing more cuts perhaps reflects the tightening in financial conditions we’ve seen over the last week, with Bloomberg’s index of US financial conditions falling to its least accommodative level of 2024 so far.
That said the GDP print did cause some intra-day repricing as markets started more dovishly with 31bps of YE 2024 Fed cuts priced in pre-data. The 2yr yield also traded as low as 4.34% early on, its lowest level since early February, but was ultimately unchanged on the day at 4.43% by the close. The long end of the curve did rally on the day, as the 10yr yield fell -4.3bps to 4.24%, while the 30yr yield was down -5.9bps. So there was a decent curve flattening that took the 2s10s back to -19.2bps, which marked a reversal from earlier in the session when it had got as steep as -11.3bps.
For equities, it was a similarly volatile day. They started the day on the backfoot, but the S&P 500 then rallied to as much as +1.2% intra-day before giving up the gains to close -0.51% down. With the rotation theme dominating as mentioned at the top, the headline S&P decline came even as 58% of its constituents were higher on the day, with the equal-weighted version up +0.11%. There was also sizeable sectoral divergence, with energy (+1.47%) and industrials (+0.76%) stocks posting decent gains but information technology (-1.14%) and communications services (-1.86%) slumping. The heightened volatility was little helped by the ongoing earnings season, with notable movers including a -18.36% decline for Ford which had its worst session since the GFC.
Over in Europe, the major indices were all lower, which in large part reflected a catchup to the previous day’s selloff. Indeed, the STOXX 600 was down -0.72% on
the day, but that was actually a decent recovery from earlier in the session, when it had been down -1.66%. Europe did close just before the US market peaked for he day. The earlier mood wasn’t helped by some disappointing data releases that added to concerns over the health of the European growth cycle. In particular, the Ifo’s business climate indicator from Germany fell to 87.0 (vs. 89.0 expected), which was its third consecutive monthly decline, and the lowest reading since February. And in France, the INSEE business confidence (94 vs 99 expected) fell to its lowest level since February 2021, just before the Covid vaccine rollout.
In turn, this led investors to dial up their expectations for ECB rate cuts. By yesterday’s close, 53bps of cuts were priced by year end (+3.1bps on the day) and 111bps by the June 2025 meeting (+9.0bps). In turn, that helped sovereign bond yields to fall across the continent, with those on 10yr bunds (-2.6bps), OATs (-
2.9bps) and BTPs (-1.7bps) all moving lower.
Overnight, Asian equity markets are mostly recovering after their worst session since mid-April while shrugging off overnight weakness on Wall Street. Across the region, the KOSPI (+0.77%) is leading gains with the Nikkei (+0.50%) also edging higher. Elsewhere, the Hang Seng (+0.05%) and the CSI (+0.06%) are swinging between gains and losses while the Shanghai Composite (-0.19%) is slightly lower. S&P 500 (+0.39%) and NASDAQ 100 (+0. 45%) futures are rebounding again.
Early morning data showed that Japan’s Tokyo CPI core (excluding food) increased from +2.1% y/y to +2.2% y/y in July, in-line with market expectations and marking the third consecutive month of re-acceleration following a dip to +1.6% y/y in April. The data comes as speculation mounts that the BoJ will hike rates next week. Meanwhile, the Japanese yen (+0.08%) has stabilised near a 12-week high of 153.79 against the dollar.
To the day ahead now, and data releases include the US PCE inflation reading for June, along with personal income and personal spending. There’s also the University of Michigan’s final consumer sentiment index for July. From central banks, we’ll get the ECB’s Consumer Expectations Survey for June.