Global markets and US equity futures rose as investors awaited the annual BLS payrolls revisions - where as many as 1 million jobs can be eliminated - due at 10am ET, as well as the FOMC meeting minutes for further clues on interest rate cuts. US equity futures pointed to small moves at the Wall Street open as Europe’s Stoxx 600 edged 0.2% higher amid thin volumes while Asian stocks snapped a 3-day winning spree. As of 7:45am S&P futures were up 0.2% at 5,629 having fully recovered from the early August swoon; Nasdaq futures also gained 0.2%. The yield on 10-year Treasuries was steady at 3.81%, while the dollar paused a three-day run of declines. Oil was flat, halting the recent rout.
In premarket trading, technology stocks dipped on concerns over the country’s consumption outlook, Walmart’s planned sale of its stake in JD.com Inc. and poor earnings from key players including Kuaishou Technology. JD.com ADRs dropped 7% after Walmart raised about $3.6 billion by selling its stake in the Chinese e-commerce firm. Macy’s fell 7% after slightly missing analysts’ estimates for its quarterly revenue and lowering its outlook for sales during the rest of the year, while Target rose 12% after ending a string of sales declines in the 2Q, citing improved discretionary spending. Here are some other notable premarket movers:
Today's main event is the annual payrolls revision where Goldman and Wells Fargo economists expect the government’s preliminary benchmark revisions on Wednesday to show payrolls growth in the year through March was at least 600,000 weaker than currently estimated. While JPMorgan forecasters see a decline of about 360,000, Goldman indicates it could be as large as a million. Investors will also be watching the latest FOMC minutes for further clues on the Fed's September rate cut.
Beyond today's FOMC minutes, anticipation is mounting before Fed Chair Jerome Powell’s Jackson Hole speech at the end of the week that could decide whether the market rebound has further to run. As traders look to Wednesday’s payrolls revisions, there’s concern signs of excessive weakness will revive fears the Fed is behind the curve on lowering rates.
“Given that the US labor market is at the center of the Fed’s policy, the publication is of unusually high interest,” said Amanda Sundstrom, interim chief strategist for Norway at SEB AB. “A large downward revision in the number of new jobs created could add new fuel to concerns that the Fed has waited too long to cut interest rates.”
A lot of Fed-related negatives appear to be priced in already as the US rates market prices in almost 100 basis points of cuts this year, he said. Gold held steady near a record high after the dollar’s recent run of losses. A weaker greenback typically aids gold as it is priced in the US currency.
European stocks make modest but broad gains as miners outperform. Basic resources is the strongest-performing sector, while energy is the biggest laggard. The Stoxx 600 Europe index is up 0.4% near session highs. Here are some of the biggest European movers on Wednesday:
Meanwhile, stocks in Asia snapped a three-day winning streak, dragged down by Chinese stocks in Hong Kong. The MSCI Asia Pacific Index dropped as much as 0.7%, after gaining nearly 4% over the previous three sessions. The biggest contributors to the gauge’s slide included TSMC, Commonwealth Bank and JD.com. Hong Kong was among the worst-performing markets in the region, with JD.com leading a rout in the tech sector on Walmart’s sale of its stake in the Chinese e-commerce company. Kuaishou Technology also tumbled, after reporting mixed earnings.
In FX, the dollar rises 0.1%, snapping a three-day decline. The Japanese yen is the weakest of the G-10 currencies, falling 0.5% against the greenback. British pound holds above $1.30. Rate-cut bets have driven a bout of dollar weakness, but the US currency halted the slide on Wednesday on speculation the drop may be overdone. “The dollar selloff is taking a breather given the speed of recent losses,” said Valentin Marinov, a Credit Agricole strategist in London.
In rates, treasuries are slightly cheaper across the curve, erasing a portion of Tuesday’s gains, as investors look ahead to the release at 10am New York time of revisions to US labor-market data. US session also includes 20-year bond auction at 1pm. Treasury yields cheaper by about 2bps across the curve with 10-year around 3.81%; bunds in the sector trade keep pace with Treasuries while gilts outperform by around 1bp. Most curve spreads are within 1bp of Tuesday’s close, which saw 2s10s steepen as additional Fed easing was priced into swaps; around 97bp remains priced in over the year’s three remaining policy meetings. Treasury issuance resumes at 1pm with $16 billion 20-year new-issue auction; WI yield is around 4.180%, 28.6bp richer than last month’s sale.
In commodities, oil prices advance, with WTI rising 0.4% to trade near $73.50. Gold held steady at $2,512/oz near a record high after the dollar’s recent run of losses. A weaker greenback typically aids gold as it is priced in the US currency.
Bitcoin is steady and holds just beneath USD 60k; Ethereum briefly topped USD 2.6k, but has since slipped below the level. Mt.Gox transferred USD 75mln in Bitcoin to BitStamp, according to Arkham cited by Block Pro.
Looking at today's calendar, US economic data calendar only includes the BLS payroll revisions which will be closely watched to see just how many jobs are wiped out from the historical record. The Fed speaker slate is empty with the July FOMC meeting minutes release at 2pm.
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A more detailed look at global markets courtesy of newsquawk
APAC stocks were subdued following the lacklustre performance stateside where the major indices traded sideways and finished with mild losses amid the absence of macro drivers ahead of the FOMC Minutes. ASX 200 declined amid a deluge of earnings with underperformance in energy following a retreat in oil prices and with Santos shares pressured after it reported an 18% drop in H1 underlying profit. Nikkei 225 slumped at the open amid pressure from recent currency strength but is off worst levels. Hang Seng and Shanghai Comp. retreated with the former ragged lower by tech weakness as JD.com suffered a double-digit drop after reports Walmart is seeking to offload its USD 3.5bln stake in the Co. However, the losses in the mainland are limited following the PBoC's firm liquidity effort.
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European bourses, Stoxx 600 (+0.2%) are mostly firmer, in contrast to a largely subdued APAC session overnight. European sectors are mixed and with the breadth of the market fairly narrow. Basic Resources takes the top spot, benefiting from gains in underlying metals prices. Energy is found at the foot of the pile, hampered by losses in the crude complex. US Equity Futures (ES U/C, NQ U/C, RTY +0.3%) are flat/firmer, finding its footing following the modest pressure seen in the prior session. There are two notable releases on the docket for today; US Payrolls Revisions and the FOMC Minutes thereafter.
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Fixed Income
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Geopolitics - Middle East
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DB's Jim Reid concludes the overnight wrap
After a significant rally for risk assets, the market advance finally came to a halt over the last 24 hours, with the S&P 500 (-0.20%) falling back after its longest run of gains so far this year. There wasn’t an obvious catalyst, and the index was little changed on the day, but it was always going to be tough to sustain such a long run of gains, and several risks are now coming into focus again. In particular, today will bring the preliminary benchmark revision to US nonfarm payrolls, and given the recent jobs report, there’s quite a bit of concern this will show a weaker labour market than previously thought.
The revisions are happening because each year, the payroll numbers are benchmarked against the Quarterly Census of Employment and Wages (QCEW) for March. At the last QCEW, employment growth through end 2023 was running at +1.5%, which was beneath the +2.0% year-on-year growth in nonfarm payrolls. So that points to a downward revision in the payroll numbers. However, the important thing to note, whatever the numbers show today, is that these revisions would only affect the numbers up to the March payrolls, and don’t cover the job gains since. And ultimately, it’s those more recent numbers that really matter for the Fed and the pace of any future rate cuts.
With those revisions in focus, a more risk-off tone prevailed yesterday, and investors moved to raise the probability that the Fed will start cutting rates with a 50bp move in September. Indeed by the close, futures had increased the likelihood of a 50bp cut to 34%, up from 24% the previous day. That narrative also got a further boost from the latest Canadian CPI data, which showed that core inflation was weaker than expected in July. Specifically, the median core measure was down to +2.4% (vs. +2.5% expected), and the trim core measure was down to +2.7% (vs. +2.8% expected). In turn, that led to growing confidence that the Bank of Canada were on course to deliver another rate cut in September, and yields on 10yr Canadian government bonds were down -5.8bps.
That dovish narrative was evident elsewhere, as Sweden’s Riksbank had already cut their policy rate yesterday morning by 25bps to 3.5%. The move was in line with expectations, but they also said in their statement that if the inflation outlook was unchanged, then “the policy rate can be cut two or three more times this year.” That’s their second rate cut this year, and it adds to the signs that the global monetary policy cycle has now turned, with most of the major central banks now either cutting rates or moving closer towards cuts (with the notable exception of the Bank of Japan).
All these developments supported a sizeable bond rally on both sides of the Atlantic. In the US, it saw the 10yr Treasury yield fall by -6.4bps to 3.81%, and the 30yr yield (-6.2bps) fell to a YTD low of 4.06%. That marked the largest decline for both since the July payrolls release on August 2 and leaves the 10yr yield not far away from its recent closing low of 3.79% on August 5. And with investors dialling up the likelihood of a 50bp cut, the 2yr yield came down by an even larger -8.2bps to 3.99%. That helped the US Dollar to weaken further, pushing the dollar index (-0.44%) to its lowest level since December. Meanwhile in Europe, yields on 10yr bunds (-3.2bps), OATs (-2.4bps) and BTPs (-2.3bps) all saw a smaller decline, whilst the Euro closed at its highest level so far this year, at $1.1130.
When it came to equities, the relentless rally over recent sessions finally ran out of steam, and the S&P 500 (-0.20%) had a small decline. On a sectoral basis, the biggest underperformer were energy stocks (-2.65%), which lost ground as oil prices fell for the 5th time in the last 6 sessions, and Brent crude (-0.59%) closed at a two-week low of $77.20/bbl. The Magnificent 7 (-0.33%) were weighed down by a -2.12% decline for Nvidia, which also saw the Philadelphia Semiconductor Index fall -1.33% on the day. There were also broader elements of softness, with the equal weighted S&P 500 down -0.42% and the small-cap Russell 2000 (-1.17%) underperforming.
That weakness was clear amongst other risk assets, and the VIX Index of volatility (+1.23pts) ticked up to 15.88pts, ending a run of 5 consecutive declines. Similarly, US IG spreads were up +2bps to 97bps, which is their biggest daily move wider in the last two weeks, whilst US HY spreads widened by +6bps to 318bps. Over in Europe it was much the same story, with the DAX (-0.35%) finally ending a run of 10 consecutive daily gains, and the broader STOXX 600 (-0.45%) also lost ground.
Many of those themes have continued in Asian markets overnight, with losses across the major equity indices. In Hong Kong, the Hang Seng (-0.95%) is the biggest underperformer, having been pulled lower by JD.com (-10.25%). That comes as several outlets including Bloomberg have said that Walmart are selling their stake in the firm. Other indices also fell back, with losses for the Shanghai Comp (-0.39%), the CSI 300 (-0.10%), the Nikkei (-0.33%) and the KOSPI (-0.05%). However, US and European equity futures are now pointing to gains, with those on the S&P 500 (+0.12%) and the STOXX 50 (+0.14%) both higher this morning.
Overnight, we’ve also had the latest data on Japan’s trade balance, which showed that export growth accelerated up to +10.3% year-on-year (vs. +11.5% expected), whilst imports were up by +16.6% (vs. +14.6% expected), which is the fastest growth for imports since January 2023. Yesterday however, there wasn’t much data of note, although the final release for Euro Area inflation in July was confirmed at +2.6%, in line with the flash estimate. Similarly, the core inflation reading was unchanged at +2.9%. In Germany, we had the latest PPI reading for July, which came in at -0.8% year-on-year as expected. It was also the highest reading since June 2023, after falling as low as -9.1% in September 2023.
To the day ahead now, and data releases include the UK public finances for July, whilst in the US, the Bureau of Labor Statistics will release the preliminary estimate of the annual benchmark revision to payrolls. From central banks, we’ll get the minutes from the FOMC’s July meeting and hear from the ECB’s Panetta. Finally, today’s earnings releases include Target.