US equity futures reverse earlier losses and trade near session highs, with small cap/Russell outperformance pointing to a further potential squeeze in high-beta names as investors monitor talks between the US and China in London to defuse tensions over rare-earth minerals and advanced technology. As of 8:00AM, S&P futures rose 0.2% after the main gauge broke through the 6,000 level for the first time since February at the end of last week. Nasdaq 100 futs gained 0.1%, with Mag7 names mixed premarket, Semis are higher, and cyclicals poised to outperform Defensives. Chinese shares trading in Hong Kong entered a bull market. European stocks barely budged, while a gauge for emerging-market equities was set for its highest close in more than three years. Bond yields are lower, and USD is weaker as commodities are led by Energy and precious metals; silver continues to close the gap to gold, although today it is platinum and palladium's turn to shine. Today’s focus is the US/China trade mtg in London: overnight, HK and HSTECH performed well into the summit. Macro data prints include NY Fed’s 1-year inflation expectations (3.63% prior print) which could affect the yield curve as the Fed is in its blackout window.
In premarket trading, Mag 7 were mostly higher with the exception of Tesla which isdown 2.3% after Baird downgraded the stock to neutral, noting that the recent share price rally followed a fundamentally poor quarter for the EV maker. Other names traded flat to up: Nvidia +0.4%, Apple +0.6%, Alphabet +0.6%, Amazon +0.4%, Meta Platforms +0.04%, Microsoft -0.1%. Warner Bros Discovery (WBD) rose 4% after saying it will separate the company into two publicly traded businesses, splitting its streaming and studios business and its TV networks operations by the middle of next year. Here are some other notable premarket movers:
As if the past two months never happened, the S&P is nearing all-time highs after shaking off the volatility that followed President Donald Trump’s sweeping tariff announcements in early April. Still, traders are searching for catalysts for sustained advances, as the full economic impact of the trade war has yet to fully manifest and key trade-related questions remain unresolved.
“We will break to new highs eventually,” Keith Lerner, co-chief investment officer at Truist Advisory Services, told Bloomberg TV. “The market is dealing with uncertainty around tariffs, it matters but it’s not the only thing that matters. Technology is back at the forefront.”
At a time when global investors are pushing back against long-term government debt, a $22 billion auction of 30-year bonds on Thursday is bound to be one of Wall Street’s most anticipated events this week. Traders will also focus on Wednesday’s US inflation report for May. Consumers probably saw a slightly faster pace of price increases as companies gradually pass along higher import duties, according to a Bloomberg survey of economists.
“In May, when the 30-year went above 5%, we have seen buyers buying the dip,” Vasiliki Pachatouridi, head of BlackRock’s iShares fixed-income product strategy for EMEA, told Bloomberg TV. “We are underweight the long end of the curve, but there are people out there that still see value in US Treasuries at the right price.”
In Europe, the Stoxx 600 is little changed as stocks tread water with gains in real estate, leisure and travel being offset by losses in technology and banks. The DAX falls 0.5% as SAP shares provide a notable drag on the index. Among individual movers, Alphawave advances after Qualcomm agreed to buy the semiconductor company for about $2.4 billion in cash. Markets in Denmark, Switzerland, Turkey, Hungary and Norway are closed for a holiday. Here are the most notable European movers:
In FX, the dollar dropped 0.3%, pushing the currency to fresh two-year lows. New Zealand, Australian dollars led G10 gains; NZD/USD rose 0.8% to 0.6063, AUD/USD rose 0.6% to 0.6532; Australian financial market was closed on holiday. GBP/USD rose 0.3% to 1.3572, EUR/USD rose 0.3% to 1.1426. USD/JPY fell 0.5% to 144.07 before recouping losses to rise back to 144.50.
In rates, treasury yields are slightly lower across the curve, unwinding a small portion of Friday’s steep losses caused by May jobs report, ahead of the sale of 3-, 10- and 30-year Treasuries later this week. US front-end yields are richer by about 2bp, outperforming longer maturities and steepening 5s30s curve by about 1bp; 10-year around 4.49% is about 1bp lower on the day, German counterpart about 2bp lower. Italian government bonds are leading gains in European debt, with Italian 10-year borrowing costs falling 6 bps and further narrowing the spread with Germany to around 92 bps. Treasury auctions include $58 billion 3-year new issue Tuesday and $39 billion 10-year and $22 billion 30-year reopenings Wednesday and Thursday. This week’s focal points include May CPI data on Wednesday and Treasury auction cycle starting Tuesday. Fed officials are in an external communications blackout ahead of the June 18 policy announcement.
In commodities, spot gold rises $8 to around $3,318/oz, while platinum breaks out to multi-year highs. Oil prices are steady with WTI near $64.60 a barrel.
Looking at today's calendar, we have April wholesale inventories (10am) and May NY Fed 1-year inflation expectations (11am). Also ahead this week are May CPI. PPI and the grotesquely laughable University of Michigan sentiment (of democrats).
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly higher following last Friday's gains on Wall St, but with trade somewhat quietened amid the holiday closure in Australia and as participants digested mixed Chinese data. Nikkei 225 reclaimed the 38,000 level after last week's currency weakness and with upward revisions to Japanese GDP data. Hang Seng and Shanghai Comp gained amid some trade-related optimism with officials from the US and China set to meet in London today, although the gains in the mainland are capped as participants also digested key data releases which showed a continued deflation and mostly softer trade data.
Top Asian News
European bourses (STOXX600 -0.1%) are broadly modestly lower across the board and with price action fairly muted, given parts of Europe are off today on account of Whit Monday. European sectors mixed and with the breadth of the market exceptionally narrow, given the holiday-thinned conditions for some parts of Europe. Real Estate leads given the relatively lower yield environment in Europe; Travel & Leisure follows closely behind.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
This morning we've just published our latest annual default study, a document I first published in 1999. Over the years, it has evolved into a framework for presenting our structural, multi-year view on the default outlook. For over a decade until 2022, that structural view held that—aside from cyclical spikes—we were living in an ultra-low default environment. This was driven by factors such as low nominal and real yields, aggressive monetary intervention (e.g., QE), and a persistent global savings glut.
However, our 2022 edition marked a turning point. We argued that the ultra-low default world was ending, as inflation and term premia were pushing nominal and real yields structurally higher. While we haven’t yet seen a cyclical spike in defaults—largely due to the avoidance of a US recession—there are clear signs that higher-for-longer funding costs, especially in the U.S., are taking a toll. Leveraged loan issuer-weighted default rates are not far off COVID-era levels, and issuer-weighted defaults in the B and CCC rating buckets are now running above their post-2004 averages, even after two years of solid economic growth. In short, regardless of the cyclical backdrop, we believe the ultra-low default era that characterised much of this study’s first 25 years is now behind us.
After leading this report since its inception, I’ve handed the reins to Steve Caprio and his team, who have compiled this year’s edition. While the authorship has changed, the structural conclusions remain consistent. Marrying these with a cyclical view, Steve’s team projects that US spec-grade default rates should decline modestly from 4.7% today to 4.4% by year-end 2025, before rising again to an above consensus 4.8% by Q2 2026—with potential upside risk toward 5–5.5%. While Europe’s outlook is more benign, the region will not be immune to the structural shift underway. See the full report here including all the usual charts and tables showing how credit spreads compare to that required to compensate for default risk.
The highlight this week will be US CPI on Wednesday and a resumption of trade talks between the US and China today in London. Bessent, Lutnick and Greer are set to meet Chinese representatives at the meeting today. So it's all the big guns from the US administration. The monthly 30-yr UST auction on Thursday will also be a heavy focus with all the attention on the long-end in recent weeks. There's a 10yr auction the day before as well. So a good test of demand as the fiscal bill meanders its way through Congress. Before we preview the CPI release the other main highlights this week are the NY Fed 1-yr inflation expectations today; US NFIB small business optimism, UK employment data and Danish and Norwegian CPI tomorrow; that CPI, the 10yr UST auction and the UK Spending Review on Wednesday; US PPI, US jobless claims, UK monthly GDP, the 30yr UST auction and my birthday on Thursday; and the UoM consumer sentiment (including inflation expectations) on Friday. A fuller day-by-day diary of events is at the end as usual.
With regards to US CPI, our US economists expect weak seasonally adjusted gas prices to again keep the headline rate (+0.20% forecast vs. +0.22% previous) gain below that of core (+0.31% vs. +0.24%). This should help the YoY rate for both headline and core to rise two-tenths to 2.5% and 3.0%, respectively. Shorter-term trends for core would be mixed with the three-month annualised rate rising by three-tenths to 2.4% while the six-month rate would remain steady at 3.0%. Our economists do expect tariffs to begin to impact core goods prices, especially in categories like household furnishings and supplies where we saw potential preliminary tariff impacts in the April data. On the services side, our economists will be most attuned to the volatile categories like lodging away and airline fares that have been a meaningful drag of late. For PPI the following day, our economists expect a +0.27% increase in May which would reduce the YoY rate by a couple of tenths. As ever, how the subcomponents that feed into core PCE come out will be the most interesting part of the release. Note that the Fed are now on media blackout ahead of next Wednesday's (18th) FOMC.
It's not clear that the Fed will have learnt too much more than they already knew from Friday's payrolls data. May headline (+139k vs. 147k) and private (140k vs. 146k) payrolls were slightly above the 126k consensus but -95k of net revisions to the two previous months softened the beat. Our economists point out that we now have very stable private sector hiring trends over the past three (133k), six (146k) and twelve (122k) months. However they also point out the narrow breadth in job growth as health care / social assistance (+78k) and leisure / hospitality (+48k) continued to drive the majority of private sector job gains in May and have accounted for 75% of private job growth over the past twelve months. See our economists US employment chart book here that came out after the report on Friday for much more. Staying on employment there will be increased attention on claims this week given the recent tick up. It's not clear whether its seasonals or evidence that there is some real time slipping in employment trends.
Asian equity markets are building on Friday’s gains on Wall Street driven by optimism surrounding high-level trade discussions between China and the United States scheduled for later today. The lack of major weakness in payrolls is also helping. Across the region, the KOSPI (+1.51%) is outpacing its regional peers, extending last week’s rally after the Liberal Party won the presidential election. The Nikkei (+1.05%) is also strong after a positive revision in Q1 GDP data. Elsewhere, the Hang Seng (+1.02%) is also trading noticeably higher, driven by gains in technology shares, particularly following Meta's weekend announcement of plans to invest $10 billion in startup Scale AI, which focuses on data labeling to support the expansion of AI models as part of its broader AI development strategy. Elsewhere, Chinese stocks are more subdued after soft inflation data (more below), with the CSI (+0.22%) and the Shanghai Composite (+0.23%) both underperforming. S&P 500 (-0.22%) and NASDAQ 100 (-0.25%) futures are reversing some of Friday's gains though.
Coming back to China, consumer prices have decreased for the fourth consecutive month in May, registering a decline of -0.1% y/y (compared to an expected -0.2% and -0.1% in April). This trend might suggest that Beijing's stimulus measures have not yet been sufficient to enhance domestic consumption amid ongoing trade tensions. Furthermore, deflationary pressures are intensifying on some measures as the PPI fell by -3.3% year-on-year in May, surpassing the expected -3.2% and marking the most significant drop in nearly two years, exceeding April’s decline of -2.7%.
Interestingly Chinese exports to the US fell -34.4% in May whilst rising 11% to the RoW, showing that exports didn't recover that well to the US after the trade truce and also that China are finding other avenues to export goods.
In FX, the Japanese yen (+0.25%) is strengthening, trading at 144.49 against the dollar, recovering after two days of losses in response to an upward revision of Japan's Q1 GDP figures. 30yr JGBs are +4bps higher.
Recapping last week now and the risk-on move continued as the news of further US-China talks and a decent US jobs report boosted investor optimism. So that helped to outweigh the weak data from earlier in the week, and meant the S&P 500 rose +1.50% (+1.03% Friday), whilst Europe’s STOXX 600 was up +0.91% (+0.32% Friday). In fact, the Friday move took the S&P into technical bull market territory, having now gained +20.42% since its closing low on April 8. The jobs report contrasted with the ADP report on Wednesday, which hit a two-year low, as well as the contractionary ISM services print. And even though nonfarm payrolls saw downward revisions of -95k to the previous two months, those were mostly in March, before Liberation Day occurred.
The jobs report meant investors priced out the likelihood of Fed rate cuts this year, with just 44bps now priced in by December, down -10.6bps on the week (-9.4bps Friday). That’s the fewest cuts priced since February (we'd priced 60bps immediately after the weak claims data the day before), and it triggered a significant flattening in the US Treasury curve. For instance, the 2yr Treasury yield was up +13.9bps (+11.6bps Friday) to 4.04%, whilst the 30yr yield was only up +3.7bps (+9.0bps Friday) to 4.97%. The 10-year Treasury yield also rose +10.5bps (+11.5bps Friday) to 4.51%. Similar movements were echoed in Europe, as the 10-year Bund yield ended the week up +7.4bps (-0.6bps) at 2.57%. That also came as ECB President Lagarde indicated on Thursday that they were approaching the end of their easing cycle.
Elsewhere, oil prices performed strongly last week, as OPEC+ announced a production increase of 411,000 barrels per day, which was less than some had expected. This led to a rally in crude oil, with WTI posting its biggest weekly gain of 2025, up +6.23% (+1.91% Friday) to $64.58/bbl, whilst Brent crude was up +4.02% (+1.73% Friday) to $66.47/bbl.
Meanwhile, US credit spreads ended the week tighter, with IG tightening -3bps (-3bps Friday) to 85bps, its tightest in 3 months. And HY spreads tightened -15bps (-9bps Friday) to 300bps. European sovereign bond spreads also tightened, with the 10yr Italian-German spread down -5.4bps (-1.8bps Friday) to just 93bps, the tightest since February 2021.