After yesterday's market reversal, US equity futures are higher but lacking the strength seen in EU markets. As of 7:50am, S&P and Nasdaq futures are 0.2% higher, with Mag7 stocks mixed and Semis are higher despite NVDA down -63bps and MSFT flat with closely watched earnings after the close. The yield curve is twisting steeper and 10Y yield is 1bps. The dollar is flat and commodities are lower across all 3 complexes. The macro data focus is on JOLTS and Consumer Confidence in what shapes up to be a quiet session ahead of a central bank bonanza that features the BOJ and the Fed tomorrow: both could impact the yield curve though no large moves are expected. The bond market is pricing no moves tomorrow for the Fed but is not pricing a small probability of a 50bps cut in Sept.
In premarket trading, CrowdStrike dropped 4% after a CNBC report about Delta Air Lines hiring attorney David Boies to seek potential damages from the cyber security company and Microsoft following the widespread outage earlier this month. JetBlue Airways gains 4% after saying it will cut $3 billion in capital spending through 2029 and planning other measures to boost pre-tax income by as much as $900 million. Here are some of the other most notable US movers before the opening bell:
An index tracking the so-called Magnificent Seven technology stocks lost almost 9% in the two weeks through July 26 after investors turned skeptical about the scope for returns from investment in artificial intelligence. The gauge rebounded by 1% on Monday with focus turning again to earnings after downbeat results from Tesla and Google last week. After the close, Microsoft reports earnings which will help determine whether megacaps can turn the tide after an underwhelming start to the reporting season. Apple, Meta and Amazon are due to report later this week.
“For anything AI related, we’ve been in the investment phase but now we want to see how it translates in terms of return on investment,” said Lionel Jardin, equity sales trader at Marex in Paris.
Also in focus are central bank decisions from the Bank of Japan and the Fed on Wednesday, followed by the Bank of England a day later. US policymakers are widely expected to keep rates unchanged at a two-decade high, but will signal a move in September as risks grow of imperiling a solid but moderating job market. Swap traders are currently pricing a full cut for the September-meeting and as much as two further reductions before the end of the year. Further clues about the rate path may come from reports on US consumer confidence and jobs openings due later on Tuesday. In Japan, the yen weakened against all its Group-of-10 peers as the BOJ kicked off a two-day policy meeting on speculation that policy tightening would be too slow to dent the appeal of yen-funded carry trades.
Europe’s Stoxx 600 index advanced 0.5% after the euro-area economy expanded more than expected in the second quarter (even as Germany's economy contracted), easing fears about the pace of an economic recovery.
Technology and retail shares leading gains, while mining and food beverage stocks are the biggest laggards; the FTSE 100 underperforms with a 0.5% fall as material names weigh on the broader market. Here are the biggest movers Tuesday:
Earlier, Asian stocks fell as investors trimmed holdings before a number of key central bank decisions in coming days. Chinese shares extended recent losses amid weak sentiment despite the nation’s top leaders signaling more economic support. The MSCI Asia Pacific Index dropped as much as 0.9% before paring declines, with Tencent and TSMC among the biggest drags on tyhe gauge. Stocks in South Korea also fell, while Japanese benchmarks were mixed. The regional measure was on track for its first monthly decline since April. Investors took some money off the table as they braced for monetary policy decisions from the Bank of Japan and Federal Reserve on Wednesday. While traders are on alert for a potential interest-rate hike in Japan, there’s growing expectation for policy easing in the US.
In FX, the Bloomberg Dollar Spot Index is little changed as traders awaited US employment and consumer confidence data for clues on the Federal Reserve’s policy path. The Japanese yen falls for a second day, weakening 0.5% and briefly going beyond 155 per dollar for the first time in a week as the Bank of Japan kicked off a two-day policy meeting. Overnight-indexed swaps priced in a 35% chance that the BOJ will raise its policy rate by 15 basis points this week. The wide interest-rate spread between the US and Japan “should continue to buoy the USD/JPY exchange rate as long as global macro volatility remains restrained,” Alvin Tan, head of Asia foreign-exchange strategy at Royal Bank of Canada in Singapore, wrote in a research note. “We are forecasting USD/JPY rising to 164 by early next year.” The euro is up 0.1% after showing little reaction to a flurry of data from the bloc. Euro-area GDP rose more than expected in the second-quarter despite a surprise contraction in Germany, where state CPI readings point to a steady national print later today.
In rates, Treasuries held small gains as US trading gets underway Tuesday. Yields are lower by less than 1bp, with the 10Y yield dropping to 4.17%, and with curve spreads little changed; 2s10s, 5s30s reached least-inverted or steepest levels since May 2023 last week amid declines for US stock benchmarks and increased expectations for Fed rate cuts. German 10-year yields rise 1bps to 2.37%. The Stoxx 600 rises 0.3%, led by gains in technology shares. Treasury coupon auctions resume Aug. 6, with Treasury set to unveil August-to-October issuance plans Wednesday at 8:30am; Treasury officials in May said they anticipated steady note and bond auction sizes for “at least the next several quarters,” but strategists say increases are unavoidable thereafter.
In commodities, oil prices decline, with WTI falling 0.2% to trade near $75.70. Spot gold rises 0.2%. Commodities have erased all of their gains this year as a challenging outlook in China, combined with a selloff in US natural gas and losses in foodstuffs, have weighed on raw materials.
Crypto is mixed with Bitcoin under modest pressure after the weekend’s gains continued on Monday following on from Trump’s bullish commentary. Though, the downside thus far is somewhat limited with BTC currently between USD 66-67k.
Looking at today's calendar, US economic data calendar includes May FHFA house price index and S&P CoreLogin home prices (9am), June JOLTS job openings and July Conference Board consumer confidence (10am) and July Dallas Fed services activity (10:30am). Fed officials have no scheduled appearances until after this week’s FOMC meeting ending Wednesday
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A more detailed look at global markets courtesy of Newqsuawk
APAC stocks were mostly pressured following the mixed performance stateside and with markets cautious as this week's major risk events drew closer. ASX 200 was dragged lower amid underperformance in mining stocks after several quarterly production updates and with heavy losses in Fortescue after an investor sought to offload as much as AUD 1.9bln of shares, while a much wider-than-expected contraction in building approvals added to the glum mood. Nikkei 225 retreated amid cautiousness as the BoJ kick-started its two-day policy meeting where it will decide on taper plans and is expected to mull lifting its policy rate by 15bps to around 0.25%. Hang Seng and Shanghai Comp. conformed to the broad negative mood in which the former tested the 17,000 level to the downside with notable weakness seen in consumer, energy and tech stocks, while the mainland was subdued with Chinese official PMI data also due tomorrow.
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A mostly firmer start to the session, Euro Stoxx 50 +0.5%, with sentiment on a better footing than APAC counterparts as earnings take the spotlight ahead of this week's risk events. Sectors have no overarching theme/bias with Autos strong and rebounding from recent pressure, Tech supported by ASML while Basic Resources have been dented by benchmark action. Breakdown dictated by earnings/data; DAX 40 +0.4% firmer but stalling after a soft Flash German GDP print and amid growing pressure in Heidelberg Materials post-earnings. FTSE 100 lags given pressure in mining and most banking names, though BP +2.2% and Standard Chartered +5.5% are strong post-earnings while Diageo -9.0% slips after warning of persisting challenges. Stateside, a modest positive bias remains in play into JOLTS and then earnings; ES +0.2% & NQ +0.2%. Stateside earnings docket has MSFT, AMD, MRK, PFE & PG.
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US Event calendar
DB's Jim Reid concludes the overnight wrap
As we swelter here in London with insect bite marks building up a diversified portfolio on my body, markets are wilting a touch at the moment with Asia lower overnight and with the S&P 500 (+0.08%) just about managing to eke out a marginal gain last night after the last two weeks of declines, while bonds mostly posted modest gains. We did see a reverse rotation back into tech away from small caps as we'll detail below. That all comes as investors face some crucial days ahead, with an array of major earnings announcements, data releases, and central bank decisions all happening that will be critical for the market narrative. That begins in earnest today, as we’ve got Microsoft’s results after the US close, along with the German and Spanish CPI prints for July, and the JOLTS report of job openings from the US. So plenty to keep us occupied as we build up to the BoJ and FOMC decision tomorrow and three additional Mag-7 earnings releases with Meta tomorrow and Amazon and Apple on Thursday.
With much to look forward to, the one event that did happen yesterday was the latest QRA borrowing estimates from the US Treasury. The borrowing estimate for Q3 was revised down from $847bn to $740bn, effectively in line with our US rates strategists’ expectations (here), while the Q4 borrowing estimate ($565bn) was slightly above their expectation. In any case, this did little to move markets unlike the shock of a big increase in supply this time last year. Longer dated yields rallied by a touch over 1bp on the announcement, with 10yr yields falling -2.0bps on the day. By contrast, 2yr yields ended the day +1.7bps higher at 4.40%.
Earlier in Europe, sovereign bond yields had seen more significant declines, driven by mounting anticipation that the ECB would cut rates several times over the year ahead. That was very clear from the front end of the curve, where yields on 2yr German debt were down -1.5bps to 2.58%, their lowest level since February. And here in the UK, the 2yr gilt yield fell -4.1bps to 3.84% after some weaker than expected data, which is the lowest it’s been since May 2023. So there’s a growing expectation that global central banks are increasingly moving towards a synchronised easing pattern, and that was echoed at the long end of the curve, where yields on 10yr bunds (-5.0bps), OATs (-4.5bps) and BTPs (-5.1bps) were also lower.
One trend that’s boosted the rate cut speculation has been ongoing declines in commodity prices, which are proving to be a very helpful tailwind on inflation. Indeed, yesterday saw Bloomberg’s Commodity Spot Index (-0.58%) hit its lowest level since March. That comes as metals prices have seen significant declines, with copper (-1.04%) falling for the 10th time in the last 11 sessions yesterday. Oil prices fell back yesterday as well, despite the fears of growing tensions in the Middle East, and Brent crude was down -1.66% to a 7-week low of $79.78/bbl. This morning in Asia, Brent crude prices are a further -0.51% lower.
As all that was going on, equities had muted days on both sides of the Atlantic, with the S&P 500 (+0.08%) eking out a marginal gain, while Europe’s STOXX 600 (- 0.20%) fell back. The notable theme was a reversal of the recent rotation trade, with the small cap Russell 2000 down -1.09%, while the Magnificent 7 (+1.01%) posted a second consecutive gain thanks to a rebound from Tesla (+5.60%). On the earnings front there wasn’t much happening yesterday (the bulk are coming today through to Thursday), but McDonald’s reported their first year-on-year decline in comparable sales since 2020 during the pandemic, so that offered another sign of potential consumer weakness that’s been showing up in other reports. That said, their share price was up +3.74%, and it was a good day for the restaurants subcomponent in the S&P 500 (+2.80%), with all 6 companies moving higher on the day. Meanwhile, energy stocks (-0.87%) led on the downside amid the decline in oil.
Here in the UK, the new Labour government made several fiscal announcements yesterday, including £5.5bn of savings over 2024-25, and £8.1bn for 2025-26. Some of that total included announcements already made, including the ending of the agreement with Rwanda on migration, but it also included new ones, including that Winter Fuel Payments would no longer be universal for the elderly, and that previous plans for reforms to adult social care charging would no longer go ahead. Looking forward, Chancellor Reeves also confirmed that the governments’ first Budget would take place on October 30. The announcements came as speculation mounted that the BoE might deliver their first rate cut of this cycle at their meeting this week, with investors dialling up the probability to 54%, up from 50% on Friday. That followed a weak batch of data yesterday, with the CBI’s retail sales volume survey falling to -43 (vs. -10 expected), whilst mortgage approvals were at 60.0k in June (vs. 60.3k xpected).
Asian markets are mostly trading lower this morning reversing much of the positive start to the week yesterday. Across the region, Chinese equities are underperforming with the Hang Seng (-1.10%) leading losses while the CSI (- 0.85%) and the Shanghai Composite (-0.59%) are also edging lower. Elsewhere, the KOSPI (-1.03%) and the Nikkei (-0.29%) are also trading in the red. S&P 500 (-0.25%) and NASDAQ 100 (-0.43%) futures are also moving lower.
Early morning data showed that Japan’s jobless rate dropped to 2.5% in June (v/s +2.6% expected) from a level of +2.6% in the previous month. Meanwhile, the jobs-to-applicants ratio slipped to 1.23 in June from 1.24 in May
To the day ahead now, and data highlights include the Euro Area Q2 GDP reading and the German CPI print for July. Meanwhile in the US, we’ll get the JOLTS job openings for June, the Conference Board’s consumer confidence for July, and the FHFA’s house price index for May. Finally, earnings releases include Microsoft, Starbucks, Pfizer and PayPal.