US equity futures were set for a stronger open to close the week after two days of wobbles, with tech stocks outperforming, paring back some of the NVIDIA-induced losses as confidence mounted that the Fed and ECB will cut interest rates in the coming months, after inflation in Europe continued to sink and with today's core PCE expect to confirm a taming of US inflation. As of 730am, S&P futures rose 0.5% while Nasdaq 100 Index added 0.7% as traders waited to see if the Fed's favorite inflation indicator, core PCE, confirms the picture of moderating prices. Europe’s main stock index rallied to a record high as euro-area inflation eased to a three-year low, cementing the case for the ECB to cut rates in September. The dollar was flat and 10Y yields were unchanged around 3.86% as treasuries were poised for their longest monthly winning streak in three years. Gold traded near record highs, oil was flat and bitcoin was also unchanged. Today's macro calendar has Personal Income, Spending and core PCE as well as the UMich consumer sentiment on deck.
In premarket trading, Nvidia edged higher after tumbling 6% the previous day, while other tech names, including Marvell Technology and Dell were boosted by forecast-beating results. Here are some of the other notable premarket movers:
Global stocks are on track for a fourth month of gains, with most data indicating the Fed has achieved a soft-landing, by taming inflation without tipping the economy into recession. While economists expect a slight pick-up in the year-on-year PCE reading later on Friday, that’s not expected to derail prospects for a September rate cut. Bloomberg Economics sees the inflation report reviving talk of a “Goldilocks” economy that allows the Federal Reserve to start cutting rates next month.
“When rates ease, it lifts all boats,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management in Geneva. “Inflation is looking better and economic growth remains decent and that’s the environment we are in.”
No matter today's PCE print, markets expect the Fed to cut rates next month by as much as 50 basis points (but more likely 25bps after yesterday's hot GDP and initial claims reports), and by another half-point by year-end. Ielpo said that for traders watching for monetary-policy clues, the US monthly payrolls report due next week would be even more significant than today’s PCE reading. “Inflation is a done deal so markets are more likely to pay attention to what’s happening to employment and growth,” he added, just don't forget to keep an eye on geopolitics and the price of oil which has resumed its latest ascent and may yet throw a wrench in the Fed's easing plans.
Expectations for central bank easing saw investors pump $20.7 billion into global bond funds this past week, with Treasuries recording the largest inflow since last October, Bank of America said, citing EPFR Global data. Treasuries were on course for their longest monthly winning streak in three years. But the wagers have weighed on the dollar, which edged lower against a basket of currencies and was set for its worst monthly performance this year.
European stocks rise for a fourth session, taking the Stoxx 600 to another record intraday high as euro-area headline and core inflation slowed as expected in August. Real estate and consumer product shares are leading gains while technology is a drag. Here are some of the biggest movers on Friday:
Earlier in the session, Asian equities cruised to a six-week high. Hang Seng Tech Index jumps more than 3% and CSI 300 climbs almost 2%. Japanese, South Korean and Australian indexes all firmly in the green.
In FX, the Bloomberg Dollar Spot Index falls 0.1% but is poised to snap its four-week declining streak ahead of US core PCE data, with it up 0.7% on week. Tthe euro is little changed around $1.1080. USD/JPY rose above 145 after dipping back under following a post-GDP spike on Thursday. GBP/USD hovers above mid 1.31-1.32. AUD/USD consolidates around 0.68. NZD/USD grinds higher but remains below Thursday’s peak of 0.6299.
In rates, treasuries are mixed with the yield curve flatter as US trading gets under way, led by similar price action in UK and German bonds after August euro-area headline and core inflation slowed as expected. Long-end Treasury yields are richer by ~1bp curve with front-end and belly little changed, flattening 5s30s spread; the 10Y TSY yield traded 1bp lower to 3.85%. Long-end German yields richer by more than 2bps on the CPI data and held higher on the day with German 10-year yields down 2bps at 2.26%. UK’s by nearly 5bp, narrowing their curve spreads. Curve-flattening has support from anticipation of buying tied to month-end index rebalancing, which will extend the duration of the Bloomberg Treasury Index by an estimated 0.10 year as securities auctioned during the month are added to it. Also, traders anticipate flows tied to corporate bond offerings next week, a historically heavy issuance period
As noted earlier, treasuries are poised for their longest monthly winning streak in three years as traders look past US data on personal income and expenditure due Friday and prepare for the Federal Reserve to start cutting interest rates. US government bonds returned 1.5% in August through Thursday, set for a fourth month of gains that would be the longest run since July 2021, according to the Bloomberg US Treasury Total Return Index. The gauge has been rallying since the end of April, extending this year’s gain to almost 3%, as investors have grown more confident in the case for lower US borrowing costs.
In commodity markets, oil was steady with WTI trading near $76 a barrel, though the main crude benchmark is set for its first back-to-back monthly loss this year on fears that slowing economic growth, especially in China, will impact demand. Iron ore futures pulled back slightly after jumping by about 10% in 10 days to breach $100 a ton. Spot gold climbs $4 to around $2,525/oz.
Bitcoin is holding steady just above USD 59.5k, whilst Ethereum slips slightly. Elon Musk and Tesla win dismissal of lawsuit claiming they rigged Dogecoin.
The US economic data calendar includes July personal income and spending with PCE price indexes (8:30am), August MNI Chicago PMI (9:45am, several minutes earlier to subscribers) and August final University of Michigan sentiment (10am). Fed speaker slate empty for the session. Meanwhile in the Euro Area, there’s the flash CPI release for August and the unemployment rate from July. We’ll also get German unemployment for August, UK mortgage approvals for July, and Canada’s GDP for Q2. From central banks, we’ll hear from the ECB’s Schnabel, Rehn, Kazaks, Simkus and Muller.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded higher across the board despite a lack of fresh catalysts following a mixed lead from Wall Street, and ahead of US PCE and the US long weekend. ASX 200 remained in a narrow range (8,045.10-8,085.00) but was propped up by its Industrials, Energy, and Gold names. Nikkei 225 traded firmer following a choppy start after August Tokyo core CPI surprisingly ticked higher, whilst the Japanese unemployment rate surprisingly rose. Hang Seng and Shanghai Comp opened with modest gains and eventually soared despite a lack of newsflow, whilst Bloomberg suggested the CSI 300 rallied amid heavy volume. Sentiment in China could've also seen tailwinds from the PBoC yesterday suggesting it will step up counter-cyclical adjustments and will strengthen financial support to the real economy, whilst the mood was further lifted amid Bloomberg reports China reportedly mulls allowing refinancing on USD 5.4tln in mortgages.
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European bourses, Stoxx 600 (+0.3%) began the session with a mixed picture, and traded tentatively on either side of the unchanged mark. As the morning progressed, indices gradually picked up and edged towards session highs. European sectors hold a strong positive bias; Real Estate is found at the top of the pile, alongside Basic Resources. Tech is found at the foot of the pile, paring back the prior day’s advances and accounting for the post-earning losses in NVIDIA. US Equity Futures (ES +0.4%, NQ +0.6%, RTY +0.5%) are entirely in the green, with the NQ outperforming, paring back some of the NVIDIA-induced losses. The docket ahead includes the Fed’s preferred measure of inflation, PCE (July).
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US Event Calendar
DB's Jim Reid concludes the overnight wrap
Risk assets put in a decent performance over the last 24 hours, as solid US data outweighed investors’ disappointment about Nvidia’s latest results. It’s true that the S&P 500 was unchanged on the day, but the index was weighed down by the Magnificent 7 (-0.72%) and the equal-weighted S&P 500 (+0.37%) moved up to a new record, as did the Dow Jones (+0.59%) and Germany’s DAX (+0.69%). So in most places it was a pretty decent performance, and overnight the Hang Seng (+1.76%) is also on track to close at a 7-week high. Other risk assets were on the stronger side, with EUR HY spreads at their tightest level in over a month, whilst oil prices moved higher as well. The main exception were sovereign bonds however, which mostly lost ground as investors dialled back the chance of a 50bp rate cut from the Fed next month.
This positivity was driven by several US data releases that collectively pointed away from a recession, leading to a fresh bout of optimism about the outlook. The key headline came from the Q2 GDP numbers. They were actually the second estimates rather than the original release, but they painted an even more positive story than the first estimate released in late July. For instance, headline GDP was revised up to show an annualised growth rate of +3.0% (vs. +2.8% previous estimate). On a year-on-year basis, that leaves real GDP up +3.1%, so these are very good numbers that really don’t look like a recession. On top of that, the GDP release included downward revisions to PCE inflation in Q2, which is the measure the Fed officially targets. Headline PCE was revised down a tenth to an annualised +2.5% rate, whilst core PCE was also revised down a tenth to +2.8%. So a bit closer to the Fed’s 2% target than we previously thought. Today we’ll get the first look at PCE inflation for the month of July, so one to keep an eye on.
On top of the GDP release, yesterday also brought the weekly initial jobless claims, which were basically in line with expectations at 231k over the week ending August 24 (vs. 232k expected). That wasn’t a shock, but it helped to bring down the 4-week moving average as well, which now stands at a two-month low of 231.5k. So again, that’s another release pointing away from a recession, with the weekly claims looking in better shape than they did at the end of July.
With all that data in hand, the general perception was that the economy was doing better than thought, and that a larger 50bp cut from the Fed was now less likely. Indeed, futures lowered the chance of a 50bp move in September from 36% to 32%. And the number of cuts priced in by December also came down from 103bps to 100bps. In turn, that led to a selloff across US Treasuries, with the 2yr yield up +2.9bps to 3.90%, whilst the 10yr yield was up +2.6bps to 3.86%.
For equities, the stronger data initially pushed the S&P 500 nearly 1% higher intra-day, but those gains were pared back and the index ended the day unchanged. Even so, the overall performance still leaned on the positive side, with more than two thirds of the S&P 500 higher on the day, and the equal-weighted version of the index (+0.37%) actually hitting a new record. That came amid gains for more cyclical sectors including financials (+0.85%) and industrials (+0.70%), while energy stocks (+1.26%) led the way as oil prices rallied, with Brent crude up +1.64% to $79.94/bbl. The small cap Russell 2000 (+0.66%) also posted a solid gain. On the downside, the NASDAQ (-0.23%) and the Magnificent 7 (-0.72%) retreated, mostly due to a -6.38% loss for Nvidia after its results the previous evening. To be fair, 5 of the Magnificent 7 were higher on the day, but it is notable how the weakness among the Mag-7 group (which is now -11.7% beneath its peak) has been holding back the overall S&P 500 (-1.3% beneath its peak) from new all-time highs.
In Europe, the main story came on the inflation side, as the initial flash CPI releases came in softer than expected. In particular, Germany’s CPI fell to +2.0% on the EU-harmonised measure, which was the lowest since March 2021, and also beneath the +2.2% reading expected. Similarly in Spain, harmonised CPI was down to a one-year low of +2.4% (vs. +2.5% expected). So that added to investors’ confidence that the ECB were set to keep cutting rates over the coming months, with rising expectations that they might move to a more regular pace of cuts where they happen at every meeting, rather than every other meeting. In light of those releases, European sovereign bonds outperformed US Treasuries. Front-end yields declined, with those on 2yr German yields down -2.9bps, while 10yr yields saw only modest increases for bunds (+1.3bps), OATs (+0.5bps) and BTPs (+0.8bps).
It was a very strong day for European equities as well, with the STOXX 600 (+0.76%) closing just -0.03% beneath its all-time high from May. Tech stocks led the gains, and the advance was seen across the continent, with the DAX (+0.69%) closing at an all-time high, and other indices including the FTSE 100 (+0.43%) and the CAC 40 (+0.84%) posting gains.
Overnight in Asia, the positive sentiment among investors has continued, with gains across all the major indices. In Japan, both the Nikkei (+0.48%) and the TOPIX (+0.45%) are on track for their highest closing levels so far in August, moving past the turmoil from earlier in the month. Elsewhere, the Hang Seng (+1.76%), the CSI 300 (+1.72%) and the Shanghai Comp (+1.34%) have posted very strong gains, and the KOSPI is also up +0.59%. In the meantime, US equity futures are also pointing higher, with those on the S&P 500 up +0.16% this morning.
On the data side, we’ve had several releases from Japan overnight, including the Tokyo CPI reading for August. That showed CPI was stronger than expected at +2.6% year-on-year (vs. +2.3% expected), whilst the core measures were also above consensus. That said, the activity data in Japan was a bit weaker than expected, with retail sales only up +0.2% on the month in July (vs. +0.4% expected), whilst industrial production was only up +2.8% (vs. +3.5% expected). Moreover, the jobless rate ticked up to 2.7% in July (vs. 2.5% expected), which is the highest since March 2023.
To the day ahead now, and data releases from the US include the PCE inflation data for July, along with the University of Michigan’s final consumer sentiment index for August. Meanwhile in the Euro Area, there’s the flash CPI release for August and the unemployment rate from July. We’ll also get German unemployment for August, UK mortgage approvals for July, and Canada’s GDP for Q2. From central banks, we’ll hear from the ECB’s Schnabel, Rehn, Kazaks, Simkus and Muller.