US equity futures are higher led by Tech one day after a powerful burst higher in stocks following a weaker than expected CPI. As of 7:00am. S&P futures are up 0.2% extending on Wednesday's 1.8% rally, the best day since the November election; Nasdaq futures rise 0.5%, led by NVDA (+1.5%) and AAPL (+0.6%) after stellar earnings by TSMC and a boost to the company's 2025 CapEx spending budget. Europe’s Stoxx 600 climbed for a third day, with luxury goods maker Richemont soaring 18% after it reported a jump in jewelry sales. Its results lifted an index of European luxury stocks by the most since March 2022. Bond yields are 1-2bp higher after yesterday’s rally; USD is higher. On Commodities, base metals rallied ahead of major China data release tonight. Today, key macro catalysts are Retail Sales (analysts expect a 0.6% MoM print , down from 0.7% prior while the Control Group is expected to print unchanged at 0.4%) and banks earnings (MS and BAC).
Thursday's gains come after the latest core CPI print came in at 0.2%, missing expectations and marking the first step down in six months. The inflation print has helped calm investor fears that the US economy could run too hot, keeping inflation and Treasury yields higher for longer, and possibly forcing the Fed to reverse course on rate cuts.
“Markets had been hit by a ‘Goldilocks-is-gone’ narrative for about a month, but it seems the US inflation data has set us back on course,” said Francois Rimeu, a strategist at Credit Mutuel Asset Management in Paris.
Rimeu sees no real reason for market sentiment to be derailed, noting “global and US growth are holding, the euro zone is sluggish but growing, fiscal stimulus policies are broadly unchallenged and the upcoming earnings season is looking OK.”
Even so, the renewed appetite for risk will be tested in coming days, as the Fed and the Bank of Japan hand down policy decisions, and President-elect Donald Trump takes office. US initial jobless claims and retail sales figures due later Thursday will provide a broader picture of the health of the economy, with economists forecasting retail sales to have slowed slightly last month.
“What we want to see is pretty much a Goldilocks scenario of decent growth in the US but no strong re-acceleration,” said Amelie Derambure, a portfolio manager at Amundi Asset Management. “What we don’t want is something too crazy on the retail sales that would put pressure on the Fed.” Investors are also watching the US earnings season unfold, with reports due from Bank of America and Morgan Stanley, after JPMorgan, Goldman Sachs and others posted blockbuster earnings on Wednesday.
In Europe, the Stoxx 600 extended on Wednesday's gains, rising 0.6%, lifted by the luxury and technology sectors. A double-digit jump in Richemont’s sales reignited optimism for the luxury sector, driving the sector higher. An upbeat outlook by Taiwan Semiconductor Manufacturing Company also boosted sentiment, with ASML Holding rising as much as 4.9%. Here are some of the biggest movers on Thursday:
Earlier, Asian stocks advanced for a third day of gains, fueled by technology shares after softer-than-expected US core inflation bolstered expectations for interest rate cuts by the Federal Reserve. The MSCI Asia Pacific Index climbed as much as 1.2% Thursday, the most in over three weeks. Stocks were in the green across most of the region. Taiwan led gains among Asian markets, with chipmaker TSMC providing the biggest boost after a stellar earnings report.
In FX, the Bloomberg dollar index edged higher, halting a two-day losing streak. The latest lackluster GDP data from Britain underscored the divergence between the US economy and its peers in the developed world, knocking the pound lower against the greenback. The yen firmed, however, on a report that BOJ officials see a good chance of a rate increase next week.
In rates, 10Y TSY yields, which slid 10 basis points after the data, held steady on Thursday as traders fully priced a Fed rate reduction by July, reinstating bets that had been dashed by stronger-than-expected December jobs numbers.
In commodities, there has been subdued trade in the crude complex as prices take a breather from yesterday's surge. Prices this morning have been trundling lower despite the constructive risk tone as DXY attempts to regain some composure and against the backdrop of ongoing geopolitics. Brent Mar trades in an $81.75-82.57/bbl range. There is also mixed trade in the precious metals complex with spot gold and silver continuing to benefit from the US CPI and mixed noise surrounding the Israel-Hamas ceasefire. Spot gold topped $2,700/oz and currently sits within a USD 2,690-2,706/oz range.
Looking to the day ahead, US data releases include retail sales for November and the weekly initial jobless claims. We also got the UK GDP reading for November which came in weaker than expected and sent the pound sliding. From central banks, we’ll get the ECB’s account of their December meeting, and hear from the ECB’s Panetta. Earnings releases include Bank of America and Morgan Stanley. Finally in the political sphere, the US Senate will hold Scott Bessent’s nomination hearing to become Treasury Secretary.
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APAC stocks traded mostly higher as the region took impetus from the rally on Wall St in the aftermath of the soft-leaning US CPI data which boosted Fed rate cut bets and saw money market pricing of cuts for this year return to around pre-NFP levels. ASX 200 advanced at the open with outperformance in tech and financials although miners lagged with Rio Tinto shares indecisive after its quarterly update. Nikkei 225 gained but was well off today's best levels amid a firmer currency and the risk of a potential BoJ rate hike next week.
Hang Seng and Shanghai Comp were choppy and initially boosted after the PBoC continued with its liquidity efforts and with analysts suggesting the PBoC could lower RRR ahead of the Chinese New Year later this month, although the gains in the mainland were then pared amid lingering trade frictions after the US strengthened restrictions on advanced computing semiconductors to prevent diversion to China. Indices then resumed to the upside heading into the European open.
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European bourses (Stoxx 600 +0.6%) opened on a strong footing, and have remained at session highs throughout the European morning – continuing the momentum seen in APAC trade overnight, and as sentiment is lifted following strong Luxury/Tech updates. European sectors hold a strong positive bias, with sentiment lifted by positive catalysts within the Luxury and Tech industries. Starting with Luxury; Richemont (+15%) soars after it reported extremely strong Q3 results, lifting heavyweight LVMH (+9.1%). As for Tech; chip-giants such ASML (+3.1%) and ASM International (+3.7%) both gain today, ollowing strong TSMC results (TSM +5% in pre-mkt trade).
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DB's Jim Reid concludes the overnight wrap
Wherever you were around the world yesterday, I’m sure you could hear the huge collective sigh of relief from financial markets as downside inflation surprises from the US and the UK allowed us to step back from the recent one-way trade on inflation and bond yields. In turn, this triggered a massive bond rally, which saw the 10yr Treasury yield (-13.9bps) post its biggest decline since August, whilst 10yr gilt yields (-15.9bps) saw their biggest decline since December 2023. But the rally wasn’t just isolated to bond markets, as a strong set of earnings releases added to the upbeat tone. So with all said and done, the S&P 500 (+1.83%) posted its strongest daily performance since it reacted to Trump’s victory in early November, moving back into positive territory for 2025.
We’ll start with the US CPI release, as that really was the main swing factor notwithstanding the earlier global boost from lower UK CPI numbers. For markets, the main headline was that core US CPI fell to a monthly +0.2% pace in December (vs. +0.3% expected), so the year-on-year rate ticked down a tenth to +3.2%. Although in a trillion dollar plus sliding doors moment, it was interesting the YoY core inflation was 0.002 percentage points away from staying at 3.3% as it came in at 3.248%.
However the +0.2% December number (+0.225% unrounded) followed four consecutive months with a core CPI reading of +0.3%, so this led to excitement that the Fed would perhaps feel more confident cutting rates. Indeed, the amount of cuts priced in by the December meeting was up +9.8bps on the day to 39bps. And Treasury yields plummeted across the curve, with the 2yr yield (-10.3bps) down to 4.26%, and the 30yr yield (-9.5bps) down to 4.88%. For context though 2, 5, 10 and 30 year yields are still +2.2bps, +6.5bps, +8.4bps and +9.8bps YTD respectively.
However, for all the market excitement yesterday, it wasn’t actually a great inflation report by several measures. In fact, the headline CPI print was actually at a 10-month high of +0.39%, and it didn’t see a downside surprise like the core print. Moreover, there are growing signs that this stickiness isn’t just a blip, as the 3m annualised rate of CPI reached an 8-month high of +3.9%, so that’s not where the Fed would normally be comfortable cutting rates. Plus it’s worth bearing in mind that this report is covering December, and we’re soon about to face the potential impact from tariffs, whilst Bloomberg’s Commodity Spot Index (+1.40%) just hit its highest level since January 2023. Henry put out a note yesterday on how several global inflation risks are coalescing as we move past the new year.
Fed officials welcomed the inflation print but remained cautious on the path ahead. New York Fed President Williams said that “The process of disinflation remains in train. But we are still not at our 2% goal”. Richmond Fed President Barkin similarly noted that “inflation is coming down toward target” but that “we need to be restrictive to seal the final mile”. So despite the excitement in markets, there’s no obvious reason for the Fed to cut at their next meeting in a couple of weeks, particularly when you consider the strength in last week's jobs report, where payrolls hit a 9-month high. If they do hold, that would end a run of three consecutive rate cuts that’s delivered a total of 100bps of cuts. That said, the downside surprise in the core print meant that markets saw a H1 rate cut as more likely than they did 24 hours ago, with the probability of a rate cut by June priced at 91%, up from 68% the previous day.
When it came to equities, the decline in bond yields unleashed a significant rally, with the S&P 500 up +1.83% on the day. The rally got further support from the start of earnings season as well, with several US financials rallying after their results, including Citigroup (+6.49%), Goldman Sachs (+6.02%) and BlackRock (+5.19%). JPMorgan had to be content with a +1.97% gain. Beyond this, it was the cyclicals that led a broad move higher, with the Magnificent 7 (+3.72%) posting its strongest day in the last month. Meanwhile in Europe, there were similar gains for the STOXX 600 (+1.33%), which posted its biggest daily advance since September.
That bond rally was a global phenomenon yesterday, and here in the UK, 10yr gilt yields (-15.9bps) saw their biggest decline since December 2023. That outperformance was thanks to a downside surprise in the UK’s own CPI reading, which fell to +2.5% in December (vs. +2.6% expected). And the details were also pretty good, as core CPI surprised on the downside at +3.2% (vs. +3.4% expected), along with services CPI at +4.4% (vs. +4.8% expected). So that cemented the view that the Bank of England were still on track to cut rates at their next meeting, and investors dialled up the likelihood of a February cut from 64% to 90% by the close.
Sovereign bonds rallied across the rest of Europe too, with yields on 10yr bunds (-9.1bps), OATs (-11.7bps) and BTPs (-14.5bps) all moving lower. That was primarily driven by the downside surprises in US and UK inflation, but we also found out that the German economy contracted by -0.2% over 2024 as expected, marking a second consecutive annual contraction for the first time since 2002-03.
Elsewhere, oil prices reached 5-month highs yesterday, with Brent crude moving above $82/bbl where it remains this morning. This came amid ongoing supply concerns as EIA data showed US crude inventories at their lowest since April 2022, while the International Energy Agency warned that new US sanctions announced last week could “significantly disrupt Russian oil supply”. Yesterday’s rise in oil prices came even amid news that after 15 months of war Israel and Hamas had agreed a ceasefire deal that will come into effect on Sunday.
Overnight in Asia, the Japanese Yen has seen another strong performance after Bloomberg reported that Bank of Japan officials saw a good chance of a rate hike next week, unless the start of Trump’s presidency led to any negative surprises. So the yen is currently trading at 156.05 per US Dollar, which is its strongest in nearly a month.
Elsewhere in the region, there’s been a mixed performance across the major equity markets. In South Korea, the KOSPI (+1.06%) has posted a strong gain, as has Australia’s S&P/ASX 200 (+1.38%). But the gains haven’t been as large elsewhere, with the Hang Seng (+0.49%) and the Nikkei (+0.25%) posting smaller advances, alongside losses for the Shanghai Comp (-0.19%) and the CSI 300 (-0.36%). Looking forward, US equity futures are basically flat, with those on the S&P 500 down -0.02% this morning.
To the day ahead now, and US data releases include retail sales for November and the weekly initial jobless claims. Elsewhere, we’ll also get the UK GDP reading for November. From central banks, we’ll get the ECB’s account of their December meeting, and hear from the ECB’s Panetta. Earnings releases include Bank of America and Morgan Stanley. Finally in the political sphere, the US Senate will hold Scott Bessent’s nomination hearing to become Treasury Secretary.