


Like yesterday, US futures and global stocks are higher again led by NVDA (+1.8%) and TSLA (+3.9%) ahead of the chipmaker's earnings tomorrow where the market is pricing in a +/- 10% swing. Unlike yesterday, when we saw the 10Y yield jump to a 16 year high, bonds are rallying even as the US Dollar sells off again for the third consecutive day buoying commodities where metals and Ags are pushing the group higher with WTI flat. As of 7:45am ET, S&P emini futures are up 0.5%, while Nasdaq 100 futs rose 0.7% amid outperformance by tech shares ahead to Nvidia earnings on Wednesday; Europe’s Stoxx 600 Index was on track for its biggest gain in nearly a month. Today with get the latest New Home Sales data and Regional Fed activity updates (Philly, Richmond) while on the micro front with have several consumer earnings releases including BJ, DKS, LOW, and M.
In premarket trading, Nvidia added 1.6% after a more than 8% jump on Monday buoyed tech stocks. Activision Blizzard rose 1.1% as Microsoft’s $69 billion acquisition of the firm got a fresh chance at winning approval from UK regulators after the tech giant submitted a substantially different deal. SoftBank’s semiconductor unit Arm filed for what is set to be this year’s largest US initial public offering. Here are some other notable premarket movers:
Stocks are bouncing after three weeks of losses, with investors focusing on Big Tech and Federal Reserve Chair Jerome Powell’s speech due Friday at the Jackson Hole Economic Policy Symposium. Bonds pared some of Monday’s slump, when the yield on 10-year inflation-protected Treasuries pushed beyond 2% for the first time since 2009.
Recent data underscoring the resilience of the US economy has supported the case for a soft landing, said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. “This creates an environment in which tech stocks are better able to prosper, and that wider optimism is spreading throughout global markets.”
Meanwhile, investors are seeking clues on the trajectory of US monetary policy after Fed officials last month lifted rates to a range of 5.25% to 5.5%, the highest level in 22 years. Over 80% of those polled in Bloomberg’s latest Markets Live Pulse survey said Powell’s Jackson Hole speech will reinforce the message of a hawkish hold: “Each incremental hike that they have from here just raises the risk that we have a much sharper slowdown in 2024 and perhaps even a recession,” Lori Heinel, chief investment officer at State Street Global Advisors, said on Bloomberg Television. “So as long as inflation remains contained, we think that they will take a pause here.”
In Europe, the Stoxx 600 is up 1%, its largest daily increase in over three weeks. In the UK, the FTSE 100 Index snapped its longest losing streak since July 2019. A late surge in Chinese shares boosted sentiment in Asia, with key mainland equity indexes rebounding from oversold levels. Here are some notable movers:
Earlier in the session, Asian equities snapped a seven-day losing streak, as regional tech firms followed their US peers higher. The MSCI Asia Pacific Index gained as much as 0.8%, led by technology and financial shares.
While China’s economic woes and surging US Treasury yields are keeping sentiment in check, traders will be keeping an eye on a key speech by the Fed later in the week for any signs of economic strength in the US and the trend on elevated interest rates.
In FX, the Bloomberg Dollar Spot Index is down 0.2%, in on track to post its fourth consecutive daily decline; the Japanese yen is among the best-performing G-10 currencies, rising 0.4% versus the greenback.
In rates, Treasury 10-year yields were 3bps lower at 4.31% after topping through 4.36% in early Asia session; Bunds and gilts have followed suit, with gilts outperforming by 3.5bp in the sector. Japan’s 10-year yield climbed 2bps to 0.67%, the highest since 2014. Treasury futures are higher on the day, paring a portion of Monday’s losses which saw 10-year yields push to new multiyear highs. US yields richer by 1.5bp to 3bp across the curve with the 2s10s spread flatter by 2bp on the day — belly outperforms, tightening 2s5s30s fly by 2.5bp vs. Monday close. US 5-year yields topped just short of 4.5% in the early Asia selloff, re-testing the October high of 4.504%. Yields richened over Asia and early London sessions and are lower by up to 3bp into early US trading. No strong catalyst, although core European rates are outperforming, notably gilts where yields are up to 8bp richer in front-end.
In commodities, crude futures decline, with WTI falling 0.2% to trade near $80.60. Spot gold rises 0.4%.
To the day ahead now, and US data releases include existing home sales for July, and the Richmond Fed’s manufacturing index for August. We’ll also get the UK’s public finances for July. From central banks, we’ll hear from the Fed’s Barkin, Goolsbee and Bowman. In the geopolitical space, the three day BRICS summit gets under way in South Africa. Finally, today’s earnings releases include Lowe’s.
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A more detailed looka t global markets courtesy of Newsquawk
APAC stocks traded mixed following a similar performance stateside where tech rallied but the gains in the broader market were capped amid further upside in global yields; however, as the session progressed a bounce was seen in Chinese equities, in a similar fashion to previous sessions. ASX 200 was rangebound amid a slew of earnings releases including a drop in profits for mining giant BHP. Nikkei 225 was underpinned as tech names in the Asia-Pac region took inspiration from US peers and with SoftBank among the notable performers after its Arm unit filed for a US IPO. Hang Seng and Shanghai Comp were initially indecisive as participants digested the latest support efforts from Premier Li and the State Council, as well as the PBoC’s net liquidity drain. Action which became markedly more constructive as European players entered the fray and the tech strength from Wall St continued; though, the positive move occurred despite an absence of fresh catalysts at the time.
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European bourses are in the green, Euro Stoxx 50 +1.4%, as the US tech-rally reverberates into European trade alongside a late doors recovery in Chinese trade. As such, Tech remains the outperforming sector. Followed by Basic Resources given base metal performance in tandem with commentary from BHP post-earnings. Stateside, futures are in the green but with magnitudes less pronounced given they have already reacted to the US-led tech turnaround, ES +0.3%, NQ +0.5%; ahead, Richmond Fed and a handful of speakers feature. Forthcoming iPhone models from Apple (AAPL) will be more costly, via DigiTimes citing industry sources which are less optimistic about shipments for the year. Baidu Inc (BIDU) Q2 2023 (USD): Adj. EPS 3.11 (exp. 2.32), Revenue 4.70 (exp. 4.62bln). Says it is well positioned to capitalize on opportunities arising from generative AI and LLM. Lowe's Companies Inc (LOW) Q2 2023 (USD): EPS 4.56 (exp. 4.49), Revenue 24.956bln (exp. 24.99bln). Affirms FY23 outlook, Quarterly comp sales -1.6% (exp. -2.36%)
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DB's Jim Reid concludes the overnight wrap
After a run of 5 consecutive weekly declines, the relentless bond selloff showed no sign of letting up yesterday as we move closer to Jackson Hole later this week. Several new milestones were reached over the last 24 hours, and the biggest was that the 10yr Treasury yield hit a new high for this cycle, breaking through the previous intraday peak of 4.335% back on October 21 last year. By the close yesterday, it was up +8.3bps to 4.338%, where it remains this morning, and at its peak overnight it even got as high as 4.362%. Those trends have been evident throughout the world, and overnight we’ve also seen the yield on 10yr Japanese government bonds reach its highest level since 2014, at 0.66%.
With investors continuing to expect higher rates for longer, this period feels increasingly reminiscent of the early 2010s in reverse. Back then after the GFC, policy rates had been slashed to zero by central banks, but there was always the expectation that rate hikes were never too far away. Yet in reality, they kept being pushed out year after year. Today, it feels like the same process is happening again, except with rate cuts this time, which are also being pushed out ever further into the future. For instance, the first rate cut from the Fed is now priced in for May 2024, but that timing has continued to move into the distance. Indeed, back in March at the height of the SVB turmoil, investors were pricing in that rate cuts would already have begun by now.
That scepticism about rate cuts was increasingly evident from futures markets yesterday. By the close, investors were pricing in a 49% chance that the Fed would deliver another rate hike by the November meeting, which is the highest probability of another hike since the last meeting in late July. And looking further out, the rate priced in for the Fed’s December 2024 meeting was also up +8.4bps to 4.36%, which marked another new high for this cycle.
In turn, those moves helped spur a fresh selloff for sovereign bonds, with US Treasuries leading the way. The shift happened across the curve. The 2yr yield (+5.8bps to 5.0006%) closed above 5% for just the third time since 2007 (the other two were in March just before SVB’s collapse), whilst the 30yr yield (+7.1bps) hit a post-2011 high of 4.45%. At the same time, there were also some significant new milestones for real yields, with the 10yr real yield (+4.1bps) trading above 2% for the first time since 2009, before ending the session at 1.98%.
As that was happening, there was another source of inflationary pressures from European natural gas prices (+12.01%), which closed above €40 per megawatt-hour for the first time since mid-June. That comes as LNG workers at a key facility in Australia could go on strike from early September if a pay agreement isn’t reached. That has the potential to affect 10% of global LNG exports, and while Europe does not receive LNG from Australia, it will increase competition for shipments from elsewhere. Europe is still in a much better position than last year however, since gas storage is currently 91% full, which is above the 77% mark at the same point in 2022. Furthermore, prices are still only a sixth of their levels back then. That said, the move still marks a decent uptick from their levels at the end of July, when they closed at €28.37 per megawatt-hour, and risks adding to inflationary pressures once again.
That backdrop and the US Treasury selloff meant that European yields moved higher across the continent. For example, yields on 10yr bunds (+8.2bps) reversed the bulk of their decline on Friday, and there was a similar move across the continent, with yields on 10yr OATs (+7.6bps) and BTPs (+8.2bps) moving higher as well. However, one difference to the last 4 weeks was that gilts outperformed other European sovereigns, and the 10yr yield was only up +5.4bps to 4.72%. Even so, the 10yr real yield (+5.1bps) still closed at its highest level since the mini-budget turmoil, at 0.94%.
Despite the ongoing rise in yields, equities held their ground and the S&P 500 ended its run of four consecutive decline with a +0.69% gain. That was driven by a big turnaround after Europe went home, since the index had been in negative territory earlier in the session. However, the sectoral moves were pretty divergent, with only 45% of the index's constituents up on the day. Tech stocks saw a large outperformance that helped the NASDAQ (+1.56%) and the FANG+ index (+2.84%) record their strongest gains since late July. Chipmaker Nvidia (+8.47%) led the tech gains ahead of its results tomorrow. But elsewhere, the small-cap Russell 2000 was down -0.18%, whilst the KBW Bank Index (-0.27%) fell for a 6th consecutive session for the first time since the market turmoil in March. Meanwhile in Europe, the Stoxx 600 (+0.05%) closed narrowly in positive territory.
That positive momentum has mostly continued in Asia overnight, with advances for the Nikkei (+0.75%) and the KOSPI (+0.40%). In China however, equity markets are continuing to struggle, with the Shanghai Comp (-0.24%) and the CSI 300 (-0.32%) both losing ground. Indeed, the CSI 300 is currently on track to close at its lowest level in 9 months. That said, the Hang Seng (+0.16%) is currently set to end a run of 7 consecutive declines, which would end its longest run of declines since November 2021. Looking ahead, futures are pointing to modest losses in today’s session, with those on the S&P 500 down -0.07%.
There wasn’t much in the way of economic data yesterday, but we did get the German PPI inflation reading for July. That showed PPI was now down by -6.0% year-on-year (vs. -5.1% expected), which is the first time it’s been in deflationary territory since November 2020.
To the day ahead now, and US data releases include existing home sales for July, and the Richmond Fed’s manufacturing index for August. We’ll also get the UK’s public finances for July. From central banks, we’ll hear from the Fed’s Barkin, Goolsbee and Bowman. In the geopolitical space, the three day BRICS summit gets under way in South Africa. Finally, today’s earnings releases include Lowe’s.