US equity futures are higher with tech leading once again, thanks to results from Netflix which beat lofty expectations and sent its stock to all time highs. As of 8:00am, S&P futures were up 0.2% to 5,900 while Nasdaq futures gained 0.5%, with most MegaCap Tech named higher: NVDA +1.2%, AAPL +1.1%, and NFLX jumped 6% post earnings beat. Bond yields are mixed and USD is lower; 2-, 5-, 10-year yields are 0.45bp lower, 0.23bp higher, and 0.6bp higher, respectively. Commodities are mixed with oil higher, base metals lower, and precious metals higher after China macro data beat estimates but reaffirmed the downward trend of China's economy. Today, the key macro focus will be housing data (Housing Start and Building Permit), as well as AXP and PG earnings.
In premarket trading, Netflix shares rose 6.5% after the streaming company reported third-quarter results that beat expectations on key metrics, including subscriber additions. It also gave a forecast that is seen as positive. However, Phillip Securities downgraded its rating, flagging valuation concerns on the back of the recent stock rally. Apple rose as data showed China sales of its latest iPhone increased 20% in the first three weeks compared with the 2023 model. Here are some other notable premarket movers:
Treasuries steadied from their heavy selling after a batch of strong data on the US economy Thursday recast expectations for interest-rate cuts. Much stronger than expected retail sales - driven entirely by record seasonal adjustments - underscored how consumer spending continues to power the American economy, lessening the urgency for the Federal Reserve to unwind restrictive rate policy. One beneficiary of the improving US economic narrative has been small-cap stocks. The Russell 2000 index is close to reclaiming a 2024 high as weakening inflation spurs bets the Fed has room to cut rates, albeit not by as much as previously thought.
Small caps are also getting a boost from the so-called Trump Trade, according to BofA strategist Michael Hartnett who echoed Stanley Druckenmiller saying there are signs investors are positioning for presidential victory by Donald Trump, moving into banks, small-cap stocks and the dollar, assets that rallied in November 2016 in the wake of his last successful run. Bitcoin, another favored Trump Trade, also closed in on a fresh record, while gold traded at a record high above $2700.
A broadening out of the stock rally beyond tech megacaps would be a development that Gene Salerno, chief investment officer at SG Kleinwort Hambros Ltd. said he’d welcome. “It’s something frankly we’ve wanted to see for some time,” he said.
In Europe, the Stoxx 600 climbs 0.3%, with mining and technology leading gains, while media and personal care, drug and grocery-store stocks lag. Here are the biggest movers Friday:
Asian equities also rose, snapping a four-day losing streak, with China's CSI 300 rallying 3.6% as a slew of PBOC statements reignited optimism over policy support as stimulus hopes had recently faded. The MSCI Asia Pacific index climbed as much as 1.3%, its best day in three weeks, with TSMC the biggest boost as it jumped to a record high after raising its sales target. Chinese stocks in mainland and Hong Kong surged following comments by President Xi Jinping on boosting technology development and the central bank reignited optimism over policy support. The People’s Bank of China launched a specialized re-lending facility for share buybacks, while data showed China’s economy slowed in the third quarter, though less than expected. The nation’s equities have struggled, entering correction territory this week, as investors await details of promised stimulus
In rates, treasuries are narrowly mixed with yields off session highs and the curve slightly steeper after limited price action during Asia session and European morning. US 10-year yields rise 2bps around 4.11% with bunds outperforming by 2bp in the sector. Front-out outperformance steepens US 2s10s spread by around 1bp on the day. Gilts fall while the pound adds 0.2% as UK retail sales topped estimates. German short-end bonds caught a bid after Reuters reported some ECB governors wanted to drop a pledge to keep policy tight at Thursday’s meeting; German 2s10s widens 2.2bp with 2-year Bunds outperform Treasuries, as a faster pace of ECB interest-rate cuts has been priced into swaps since Thursday’s policy decision; ECB OIS contract prices in around 30bp of easing for the December policy meeting, following Thursday’s 25bp rate cut. Within euro-zone, Italian bonds outperform. US session includes four Fed speakers.
In FX, the Bloomberg Dollar Spot Index falls 0.2%, down for the first day in five; gauge still set for third week higher. US data include Sept. housing starts, building permits
In commodities, oil prices are steady, with WTI trading near $70.70 a barrel. Spot gold adds $20, topping $2,700 for the first time amid ongoing tensions in the Middle East.
Looking at today's calendar, US economic data includes September housing starts and building permits (8:30am). Fed members scheduled to speak include Bostic (9:30am, 12:30pm), Kashkari (10:20am) and Waller (12:10pm).
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A more detailed look at global markets courtesy of newsquawk
APAC stocks followed suit to the mixed performance stateside as the region digested further support measures from the PBoC and a slew of Chinese data including mixed Q3 GDP, better-than-expected activity data and a further decline in House Prices. ASX 200 pulled back from recent record highs with Utilities, Consumer Discretionary and Tech leading the downturn seen across nearly all sectors. Nikkei 225 was indecisive around the 39,000 level with the upside capped following firmer-than-expected inflation. Hang Seng and Shanghai Comp outperformed but with gyrations seen as participants reflected on the slew of key data from China and with the large banks reducing interest rates on deposits by 25bps. However, sentiment was eventually lifted after comments from PBoC Governor Pan who reiterated that they could cut RRR further this year and noted expectations for a 20bps-25bps reduction in the Loan Prime Rates on Monday. Furthermore, it was initially reported that Pan announced the 7-day reverse repo rates would be lowered by 20bps and the interest rate on the Medium-term Lending Facility could be reduced by 30bps depending on market liquidity, although a major newswire later corrected this headline to state that Pan actually commented that the 7-day reverse repo rates and medium-term lending rates had already been lowered by 20bps and 30bps, respectively.
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European bourses began the session mostly lower but this quickly began more of a mixed picture, Euro Stoxx 50 +0.5%; main theme is China strength which has driven strength in Autos, Basic Resources & Luxury names. FTSE 100 -0.2% is the modest laggard following stronger-than-expected Retail Sales which prompted strength in Sterling and weighed on exporters. Stateside, futures are in the green in relatively quiet trade, ES +0.2%; NQ +0.5% outperforms given Netflix +5% in pre-market trade after their earnings which topped estimates, driven by a 35% increase in ad-tier memberships. Apple (AAPL) iPhone 16 sales reportedly up 20% compared to iPhone 15, via Bloomberg; Pro & Pro Max sales +44% Y/Y
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DB's Jim Reid concludes the overnight wrap
Yikes! No sooner as it was back to school, we now have 2 weeks of half-term to survive at home after today. The normal course of events is that my wife is keen to spend time with them on day one but by day two, when I get home from work, she's reached the end of her tether. Feels like time for an emergency business trip.
From back-to-school to back-to-back for the ECB yesterday for the first time this cycle. Meanwhile, markets priced out the likelihood of the Fed doing the same at every meeting over the next few months. As such, the key theme of the day was stronger US data bringing renewed pressure on bonds, with 10yr Treasury yields rising +7.8bps as real yields reached their highest level since August. This led to some loss of momentum for the S&P 500 (-0.02%), though the index had seen a new intra-day record high early in the session. The latest ECB rate cut still supported risk markets in Europe, while the Dow Jones (+0.37%) posted at a new record high of its own and US IG spreads closed at their tightest level since 2005.
The main catalyst for the day's market moves was another batch of upbeat US data, which dampened any immediate fears about a potential recession. For instance, the weekly initial jobless claims fell to 241k (vs. 259k expected) in the week ending October 12, coming off their recent high of 260k last week. The rates reaction to last week's spike was always a bit odd given we all knew about the potential impact of the recent storms. In addition, the latest retail sales data also surprised on the upside with growth of +0.4% in September (vs. +0.3% expected). So it added to the trend whereby September data has kept surprising on the upside, including the jobs report and the CPI print. As such, it feels a far cry from the recession fears of the summer, and also from the 260bps of Fed cuts priced in by the end of 2025 shortly before the September FOMC. That's now at +198bps including the 50bps we've already had. Cementing the current strong nature of the data, the latest Atlanta Fed’s GDPNow is pointing towards annualised growth of 3.4% in Q3.
In terms of near-term Fed expectations, futures are now only pricing in 84bps of cuts by the March 2025 meeting, down -4.9bps from the previous day. That’s equivalent to 3.3 cuts at the upcoming four meetings, so market pricing suggests it’s more likely than not that the Fed will pause their cuts for at least one meeting over the next six months. And with investors dialling back the likelihood of rate cuts, Treasury yields moved significantly higher, with the 10yr yield up +7.8bps on the day to 4.09%. Higher yields saw the dollar index (+0.23%) rise for the 12th time in 14 sessions, to its highest level since August 1.
Over in Europe, it was a bit of a different story, as the ECB delivered a 25bp cut in their deposit rate, taking it down to 3.25%. The move was widely expected, but it’s the first back-to-back rate cut of this cycle, as they previously moved at a quarterly pace in June and then September. Indeed, there was some fresh momentum in that direction just a few hours beforehand, as the September CPI print for the Euro Area was revised down by a tenth to +1.7%.
While the ECB lowered rates, they didn’t pre-commit to any future moves, with the statement maintaining the language that they would “keep policy rates sufficiently restrictive for as long as necessary”, and “continue to follow a data-dependent and meeting-by-meeting approach”. At the same time, President Lagarde acknowledged the recent weakening in activity and noted that there were “probably more downside risks” on inflation. Our European economists (see their reaction here) see yesterday’s meeting as signaling a pivot to an accelerated easing cycle and they continue to expect back-to-back 25bp cuts until policy rates reach the midpoint of the 2.00-2.50% neutral range. However, they highlight the significant uncertainties, which are mostly to the downside. A potential trade war, the impact of and response to weak competitiveness, the degree of labour hoarding and the path of oil prices could all play a role in determining the path of ECB policy. They see the risks tilted towards the ECB cutting faster and further than the baseline, with a 50bp cut in December a real possibility. There is a fair bit of water to flow under the bridge until then though, especially when in data-dependent mode.
By the close, overnight swaps pricing had significantly increased the likelihood of a 50bp rate cut at the ECB’s December meeting, with 2yr bund yields falling by -2.3bps. However, further out the curve yields on 10yr bunds (+2.5bps) and OATs (+2.0bps) actually moved slightly higher. And there was a notable milestone for the Italian 10yr spread over German bunds, which reached its tightest level since November 2021, at just 120bps.
When it came to equities, it was a mixed day, with the S&P 500 trading +0.6% higher at the open following the stronger data but then losing ground to close -0.02% lower on the day. The moves were pretty subdued in aggregate, with none of the 11 major S&P sector groups moving by more than 1%. Gains for financial and energy stocks lifted the Dow Jones (+0.37%) to a new all-time high, while the rate-sensitive utilities sector (-0.93%) led the declines within the S&P 500. The NASDAQ (+0.04%) and the Magnificent 7 (+0.01%) were little changed, while the small-cap Russell 2000 (-0.25%) saw a modest underperformance, coming off its strongest level since November 2021. Nvidia rose +3.31% on the back of strong results by TSMC whose own shares are up +4.83% in Asia this morning after initially jumping as much as +6.0%, and in-turn hitting a record high.
Meanwhile, Netflix was up by +5% in after-hours trading, as its Q3 results exceeded subscriber and earnings estimates. Prior to this, the equity mood was clearly positive in Europe, closing before the late US dip, with the STOXX 600 up +0.83%, alongside an outperformance for the CAC 40 (+1.22%).
Elsewhere, there were several geopolitical headlines yesterday, as Israel said that Hamas leader Yahya Sinwar was announced to have been killed in Gaza. Sinwar’s death follows last month’s strike which killed Hassan Nasrallah, the leader of Hezbollah, and it comes as Israel is still considering how to respond to Iran’s strikes earlier this month. Brent crude oil prices (+0.31%) moved slightly higher yesterday to $74.45/bbl. The signs that investors were seeking out safe havens were more visible for gold (+0.71%), with a further +0.64% move overnight, and hitting an all-time high in nominal terms of $2,709.85/oz.
Asian equity markets are mostly trading higher this morning following China’s better-than-expected GDP data. The Hang Seng (+1.10%) is leading gains with the CSI (+0.77%) and the Shanghai Composite (+0.67%) also trading in positive territory. Elsewhere, the Nikkei (+0.38%) is also seeing gains while the KOSPI (-0.54%) and the S&P/ASX 200 (-1.10%) are lower. US stock futures and Treasuries have hardly moved.
Coming back to China, the economy expanded +4.6% in the July-September quarter, its slowest pace since early 2023 but a touch above the Bloomberg consensus forecast of a +4.5% increase and less than the previous quarter’s +4.7%. On a QoQ basis, the economy expanded +0.9% in the third quarter, compared with a downwardly revised +0.5% growth in Q2, and below forecast of 1.0%. Industrial production and retail sales saw a decent beat but this data is all pre-stimulus. It perhaps suggests that economy momentum wasn't deteriorating further before this though.
Separately, Japan's core inflation slowed in September (+2.4% y/y) for the first time in five months due to the rollout of energy subsidies and compared with market expectations for a +2.3% gain and easing from +2.8% in August.
Looking at yesterday’s other data, US industrial production was broadly in line with expectations, seeing a -0.3% contraction in September (vs. -0.2% expected). Otherwise, the NAHB’s housing market index was up to 43 in October (vs. 42 expected), moving higher for a second consecutive month.
To the day ahead now, and data releases include UK retail sales for September, along with US housing starts and building permits for September. Central bank speakers include the Fed’s Bostic, Kashkari and Waller. And today’s earnings releases include Procter & Gamble and American Express.