US equity futures and global markets were mixed, while bond yields rose as the Treasury prepared to auction a record $42 billion in 10-year bonds that may indicate if a recent selloff was overdone. As of 7:50am ET, S&P futures rose 0.2%, reversing earlier losses and trading near session highs...
... trading in lock step with sentiment surrounding the latest troubled regional bank, NY Community Bancorp, which tumbled by 16% overnight to the lowest since 1997 after it was downgraded to junk before rebounding more than 10% after announcing it hired Flagstar bank's Alessandro Dinello as executive chairman.
In premarket trading, Ford rallied 6% after reporting fourth quarter results that soundly beat expectations and forecast higher profits in 2024. Other automakers are up: General Motors (GM) +1%, Stellantis (STLA) +2%. Snap crashed 30% after yet another terrible company in which the parent company of the Snapchat app reported disappointing revenue in the holiday quarter. Pinterest (PINS) falls in sympathy, -4%. Here are some other notable premarket movers:
US Treasury yields rose ahead of the sale on Wednesday, with the 10-year yield hovering around 4.10%. The latest auction comes after a sale of three—year notes saw stronger-than-expected demand. Treasuries steadied after strong economic data triggered a two-day slump and market bets on the speed of Fed rate cuts were dialed back. Central bank officials kept to their cautious tone on Tuesday, indicating that more progress is needed on inflation though rate reductions may be possible later in the year.
“The sale should go well given the sizable yield concession that has been factored in following the selloff,” said Marc Ostwald, chief economist & global strategist at ADM Investor Services Int. Ltd. “It would only impact markets if the take-up is weak. Central bank speakers are very much in focus.”
European stocks and US futures trade in narrow ranges as investors wait for the next batch of Fed speakers later on Wednesday. Auto shares outperformed in Europe as Ford rallies ~6% in the premarket after 4Q profit topped estimates. Meanwhile, shares of European lenders including Deutsche Bank declined on Wednesday amid renewed fears over exposure to the commercial real estate market. The Stoxx 600 Banks Index slipped 0.7%, underperforming the broader market, with declines led by Deutsche Bank, Bawag, Intesa Sanpaolo and Commerzbank. State-owned German lender Deutsche Pfandbriefbank also fell, extending Tuesday’s slump. German banking regulator BaFin said Wednesday that it is monitoring turmoil in the commercial real estate market, while Deutsche Pfandbriefbank, or PBB, said in a statement today that it increased risk provisioning in 4Q in light of persistent weakness of real estate markets. Bonds in PBB and some other real estate-focused German lenders have been slumping this week after Bloomberg reported that Morgan Stanley analysts recommended clients sell senior bonds issued by PBB because of its exposure to the CRE market in the US.
Earlier in the session, the Asian rally slowed as Hong Kong shares dipped amid doubts over the potency of Beijing’s measures to stabilize the market. Volatility is likely to be elevated as Chinese markets are closed for a weeklong Lunar New Year holiday starting Friday. The MSCI Asia Pacific Index rose as much as 0.9% to the highest level since Jan. 2, as traders ignored cautious remarks from a number of Federal Reserve officials. Toyota, AIA Group and Samsung were among the biggest contributors as the regional benchmark advanced for a second day. Key gauges rose more than 1% in South Korea, Singapore and the Philippines.
In FX, the Bloomberg Dollar Spot Index drifted as the market awaited fresh trading impetus from Fed speakers. The Kiwi dollar led gains against the greenback, while the franc and yen fell. The term structure in USD/JPY shows relatively low demand for long-gamma exposure in the front-end, which picks up when the two-month tenor comes in, as that captures the BOJ and Fed March meetings.
In rates, US Treasuries traded lower ahead of the sale on Wednesday, with the 10-year yield rising to 4.12%. Gilts are nursing larger declines after the BOE’s Breeden signaled she’s likely to wait before cutting rates. Her comments also look to have helped the pound, which is the best performer among the G-10 currencies, rising 0.3% versus the greenback.
In commodities, oil prices advance, with WTI rising 0.6% to trade near $73.80 after two days of gains as geopolitical risk in the Middle East was partially offset by a report showing stockpiles expanding in the US. Spot gold fell 0.1%.
Looking to the the day ahead now, European data releases include German industrial production and Italian retail sales for December, while in the US we get the trade balance for December. From central banks, we’ll hear from the Fed’s Harker, Kugler, Collins, Barkin and Bowman, as well as BoE Deputy Governor Breeden and the ECB’s Muller. Finally, earnings releases include PayPal, Walt Disney and Uber.
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Asia-Pacific stocks were mostly positive after a decline in global yields and further Chinese support efforts. ASX 200 gained with the index led by outperformance in mining and property sectors amid lower yields. Nikkei 225 was indecisive amid a slew of earnings and with the BoJ reportedly on track for a policy shift by April. Hang Seng and Shanghai Comp were mixed despite early momentum following the latest support efforts from China which were targeted at real estate financing and new energy vehicles. Nonetheless, Chinese stocks gradually faded some of their initial gains and the Hong Kong benchmark ultimately turned negative.
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European equities are generally lower and have been edging lower since the open; the FTSE MIB remains firmer with banks assisted by gains in BMPS (+5.6%). European sectors are mixed; Autos hold the top spot, with several names benefitting from strong Ford (+6%) earnings after-hours. Meanwhile, China’s MOFCOM has issued guidelines to support the EV industry. Optimised Personal Care is hampered by Sainsbury’s (-3.6%) after its trading update. US equity futures (ES U/C, NQ +0.1%, RTY -0.5%) meander the unchanged mark, with underperformance in the Russell and investors jittery after Moody’s downgraded New York Community Bancorp (-9.3% pre-market) to junk status of Ba2.
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DB's Jim Reid concludes the overnight wrap
The market has had a lot thrown at it (positive and negative) over the last week, but the last 24 hours have felt like a pause in proceedings ahead of some very important US inflation data coming up. In the last week alone we've had 25% of the S&P 500 report across 5 “Mag 7” stocks, Meta see the largest single day gain in dollar terms of any stock in history, New York Community Bank fall over -60%, US Regional Banks fall more than -10%, payrolls unexpectedly go into orbit, and 10yr USTs having their 6th largest 2-day yield increase in the last decade. So a fair amount to keep up with.
For yesterday, the S&P 500 (+0.23%) posted a modest gain while 10yr yields rallied back -5.8bps after the aggressive 2-day sell-off Friday and Monday. The next major planned events are perhaps the 10yr Treasury auction today and then US CPI revisions on Friday, followed by the January CPI release next Tuesday. Last year, the revisions showed that i nflation had fallen less aggressively in the second half of 2022 which influenced rate cut pricing at the time so one to watch.
Even though US equities were subdued in aggregate, beneath the surface there was some reversal of recent trends, with the Russell 2000 (+0.85%) posting a sizeable advance and rebound from a weak 2024 to date (-3.62%), whereas the FANG+ index (-0.52%) lost ground for a second day running (but +9.31% YTD). There were further sharp losses for New York Community Bancorp (-22.2%), which closed at its lowest level since 1997, whilst the KRW Regional Banking Index fell a further -1.41%.
After the closing bell, Moody's downgraded New York Community Bancorp's long-term debt rating by two notches from Baa3 to Ba2 and into HY territory. It remains on watch negative. Its shares fell another -15% after the bell. So certainly one to watch today. This story doesn't feel like it's over in terms of wider market attention by a long stretch.
By contrast in Europe, there was a much more upbeat session, with the STOXX 600 (+0.63%) closing at a two-year high and Germany’s DAX (+0.76%) also reaching a new all-time high.
Fed speakers were a big focus yesterday. First up, Cleveland Fed President Mester struck a cautious tone, saying that “It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%”. Minneapolis Fed President Kashkari noted that “there’s been very good news” on inflation though “we’re not all the way there yet”. In the evening, Philadelphia Fed President Harker struck an optimistic tone, saying that the Fed’s approach “has put us on the path to a soft landing” although he did not comment on rate cut prospects.
The comments did little to prevent a partial recovery from the sharp rates sell-off seen over the two previous sessions. Investors dialled up the chance of a rate cut by March from 16% on Monday to 20% by the close. And looking at the year as a whole, the number of rate cuts priced by the December meeting moved up to 122bps, +8.9bps from Monday. That helped Treasury yields fell back again, with the 10yr yield down -5.8bps to 4.10%. Overnight, yields are another basis point lower.
Over in Europe it was a similar story, and investors raised the expected number of ECB cuts this year to 133bps, up +8.2bps on the day. That helped yields fall across the continent, with those on 10yr bunds (-2.3bps), OATs (-1.6bps) and BTPs (-2.9bps) all moving lower. But it was gilts that saw the largest outperformance, with the 10yr yield down -5.8bps to 3.94%, which marked a reversal from its underperformance the previous day. The ECB Schnabel has warned against cutting rates too soon in the FT today so we'll see if that gets traction. Her views are already known.
In Asia, mainland Chinese stocks are extending this week's gains with the CSI (+0.45%) and the Shanghai Composite (+0.91%) higher on stimulus and stabilisation expectations. However, the momentum looks slightly weaker in Hong Kong as the Hang Seng (-0.07%) is slightly lower after an opening gain of +1.5%. Elsewhere, the KOSPI (+0.98%) and S&P/ASX 200 (+0.48%) are trading higher while the Nikkei (-0.51%) is lower. US futures are largely unchanged. .
Looking at yesterday’s other data, Euro Area inflation expectations were mixed in December, according to the ECB’s Consumer Expectations Survey. On the one hand, 1yr expectations were down to 3.2%, but 3yr expectations were up to +2.5%. Separately in Germany, factory orders expanded by +8.9% in December (vs. -0.2% expected), but the construction PMI fell to 36.3 in January. The factory orders ex large orders series was -2.2% which wasn't so great and more in line with the weak economy.
To the day ahead now, and data releases include German industrial production and Italian retail sales for December, along with the US trade balance for December. From central banks, we’ll hear from the Fed’s Harker, Kugler, Collins, Barkin and Bowman, as well as BoE Deputy Governor Breeden and the ECB’s Muller. Finally, earnings releases include PayPal, Walt Disney and Uber.