Futures reversed earlier losses and traded at session highs as bond yields slid to two-month lows and oil tumbled after Bloomberg reported that the OPEC+ meeting scheduled for this weekend could be delayed amid Saudi dissatisfaction with member production levels. As of 7:40am ET, S&P futures rose 0.24%, trading at 4,562 and Nasdaq futures gained 0.4% as Wall Street headed for one of the best November rallies on record. Nvidia pared a decline in pre-market trading after investors initially reacted coolly to its latest quarterly report; the stock traded in a 6% range last night when its Q4 guidance was in the middle of the whisper range. Microsoft gained about 0.7% as Sam Altman returned to OpenAI after days of drama. The decision to restore him to the world’s best-known artificial intelligence startup marks a victory for biggest backer Microsoft, which worked with fellow investors to reverse Altman’s firing. Treasury yields dipped to two-month lows at 4.37%, while the USD rebounded from its weakest level in almost three months; commodities are under pressure ex-metals; gold remained just over $2000 as bitcoin recovered some of its overnight losses that dragged it below 35,000 following news of the Binance/CZ fine and settlement. News of a temporary halt in fighting between Israel and Hamas failed to ignite broader risk-on sentiment, with investors instead looking to data including mortgage apps, jobless claims, durable- and capital-goods orders and consumer sentiment, for clues on the direction of monetary policy.
In premarket trading, Nvidia shares gained 1% as the chipmaker reported third-quarter results that beat expectations and gave an outlook that was seen as strong but not stellar. The company, a major beneficiary of the AI trade, has climbed more than 240% this year as of its latest close. Analysts were positive on the results and forecast. Other MegaCaps are flat to up small. Farming equipment giant Deere reported its results and missed expectations, sending its shares lower. General Motors gained after the CEO of its troubled self-driving car unit resigned. Here are some other notable premarket movers:
Minutes of the Federal Reserve’s last rates meeting showed policymakers united around a strategy to “proceed carefully” on future interest-rate moves and base any further tightening on progress toward their inflation goal. Swap contracts linked to Fed meetings currently price in around a 25% probability of a first rate cut in March, slightly lower than before publication of the FOMC minutes.
“The fact that markets are considering the potential for rates to be lowered in the first quarter at all does indicate that it’s going to be pretty hard slating for the US dollar at this stage,” Sean Callow, senior currency strategist at Westpac Banking Corp, said on Bloomberg Television. As the Fed’s December meeting approaches, “markets would be looking for a change of language that really dials down the threat of further hikes,” he said.
European stocks also rose, with the Stoxx 600 rising up 0.4%, led by gains in the real estate, telecommunication and technology sectors. Real estate was Europe’s top-performing sector on Wednesday amid broad gains in the region, with bond yields mostly lower. The Stoxx 600 Real Estate Index rises 2% as of 12:50pm in London, with all its components in the green; subindex is trading near levels last seen in March. The technology sector also outperformed as accounting-software maker Sage Group surged after an earnings beat. Steelmaker Thyssenkrupp AG climbed after reporting fourth-quarter results. Kingfisher Plc dropped after the home-improvement retailer lowered profit guidance. Here are the biggest European movers:
Earlier in the session, Asian stocks were mixed, pausing their three-day winning streak, as chip stocks dragged while Chinese tech shares advanced after earnings results. The MSCI Asia Pacific Index was little changed after seeing an early decline of as much as 0.3%. The biggest drags on the gauge were TSMC and Samsung, as semiconductor stocks dropped after Nvidia’s earnings beat estimates but fell short of lofty expectations. Chinese internet stocks such as Alibaba and Tencent advanced after Baidu rose following better-than-expected earnings.
In FX, the Bloomberg Dollar Spot Index rose as much as 0.3% after touching the lowest level since Aug. 31 on Tuesday. The yen is the weakest of the G-10 currencies, falling 0.4% versus the greenback. Most major currencies traded in narrow ranges after minutes of the Federal Reserve’s latest meeting showed policymakers were united around a strategy to “proceed carefully” on future interest-rate moves. “With underlying inflation trending down and the labor market tentatively cooling, we judge the risk of another hike to be small,” Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia, wrote about the Fed policy. “With volatility low and the market pricing a ‘soft landing’ in the US, the US dollar can stay heavy this week”
In rates, Treasury futures near highs of the day with curve flatter as long-end yields are down ~4bp. 10-year TSY yields around 4.362% trailing bunds in the sector by ~1.5bp; long-end-led gains flatten 2s10s spread by 1.5bp on the day, 5s30s by ~1bp. The move is paced by bull-flattening in German bonds, where long-end yields are 4.5bp richer vs Tuesday’s close, outperforming on the curve after 15-year bond sale. Dollar IG issuance slate empty so far; corporate bond sales are expected to remain muted ahead of US Thanksgiving holiday.
In commodities, oil tumbled after Bloomberg reported the OPEC+ talks scheduled for this weekend could be delayed. Saudi Arabia is said to have expressed dissatisfaction with other members about their oil production levels. The worry is that Riyadh might reverse its unilateral 1 million barrel-a-day curb if its counterparts don’t contribute further to the supply reductions. WTI falls ~2.2% to trade near $76 and Brent is also down over 2%. Spot gold rises 0.1%.
Looking to the day ahead now, in terms of data releases we have the US October durable goods orders, initial jobless claims and Eurozone November consumer confidence. Earnings releases include Deere, and there is a general election in the Netherlands and the UK Chancellor Hunt delivers the Autumn Statement.
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APAC stocks traded mixed following the weak handover from the US where sentiment was dampened amid soft data and pre-Thanksgiving positioning, while the latest FOMC minutes were uneventful and had little effect on price action. Furthermore, participants digested the latest geopolitical developments including North Korea’s satellite launch and the agreement between Israel and Hamas for a four-day pause of the fighting in Gaza and a hostages-prisoners swap. ASX 200 was rangebound as losses in tech and consumer sectors were counterbalanced by resilience in defensives, while Westpac Leading Index also showed a slight contraction. Nikkei 225 was the outperformer and clawed back initial losses in an early turnaround despite the government cutting its view on the overall economy for the first time since January. KOSPI was pressured following the satellite launch by North Korea which plans to launch additional spy satellites. Hang Seng and Shanghai Comp were cautious with price action rangebound amid a lack of fresh macro drivers from China although the Hong Kong benchmark was cushioned by strength in Baidu post-earnings.
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European bourses are in the green, Euro Stoxx 50 +0.4%, in what has been a choppy but ultimately rangebound session ahead of key US data before Thanksgiving commences. Sectors are primarily firmer, with the exception of Banks and Energy as European yields slip and energy benchmarks slump. Stateside, futures are treading water with volumes thin ahead of US IJC which coincides with the Payroll survey period, ES +0.1%. Nvidia (NVDA) - Q3 adj. EPS 4.02 (exp. 3.37), Q3 revenue USD 18.12bln (exp. 16.18bln). The chipmaker settled 1.75% lower after hours after initially falling as much as 6.3%; its Q3 results topped expectations, though it warned China sales would decline in Q4; Bloomberg suggested that the results "failed to satisfy the loftier expectations of shareholders who have bet heavily on an artificial intelligence boom.". -0.4% in pre-market trade. Deere & Co (DE) Q3 2023 (USD): EPS 8.26 (exp. 7.47), Revenue USD 15.42bln (exp. 13.58bln). Full-year 2024 earnings forecast to be 7.75-8.25bln (exp. 9.33bln), as volumes return to mid-cyclelevels. . -4.4% in pre-market trade
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DB's Jim Reid concludes the overnight wrap
Although the overwhelming bulk of Q3 earnings season is now firmly in the rear view mirror with 95% of the S&P 500 and 92% of Stoxx 600 companies having reported, last night saw one last major hurrah with Nvidia's Q3 release. The semiconductor producer beat analysts' estimates on revenue ($18.1bn vs 16.1bn estimated), with stronger-than-expected revenues across data centers, gaming, professional visualization, while just missing in autos. However the stock fell in after-market trading (-1.5%) even as Q4 sales forecast were also above market expectations. Expectations may have simply been highly stretched for a stock that is up over 240% YTD. There hasn’t been much impact on US stock futures with the S&P 500 (-0.03%) and NASDAQ 100 (-0.14%) just a touch lower. Literally as we press send on this, Bloomberg has reported that a deal has been brokered for Sam Altman to return to OpenAI. We'll see the full story later.
The other major story overnight is that a four day pause in the Israeli/Hamas conflict has been agreed in return for the release of some Israel hostages and the same for some Palestinian prisoners. Markets haven't really reacted as it has moved on from the conflict in terms of it being a big market mover. The agreement also doesn't mean that the hostilities are over. It's an important development nonetheless.
Today will slow down very rapidly as the New York lunchtime approaches as planes, trains and automobiles are sequested for the annual US Thanksgiving getaway. We wish our American readers a sumptuous celebration. Ahead of that we have a squeezed data dump in the US. Initial jobless claims are interesting for two reasons. First this week corresponds to payroll survey week and secondly payrolls have been edging higher over the last month. Indeed the +236k our economists expect would be nearly +10% above the survey week from the previous payroll report. So one to watch. Durable goods will also be interesting with payback expected after a strong couple of months. Also in the US watch for the University of Michigan inflation expectations series within the consumer sentiment final read. The initial print for 5-10 year expectations were at 3.2% the highest since 2011. The final reading is often revised lower but if not this will be unwelcomed news for the Fed.
Talking of the Fed, the last FOMC minutes release last night were very similar to the Fed Chair’s remarks at the press conference. There was a unanimous decision to “proceed carefully” and that further tightening could be needed if inflation were to be persistent. Notably, the minutes showed that “ participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing .” The FOMC saw aggregate demand moderating “in the face of tighter financial and credit conditions, and labor markets were reaching a better balance " On QT, some participants noted that the balance sheet runoff could continue even after fed fund policy eased. During a discussion on financial conditions the staff noted that valuations in equities, housing, and CRE were high. While the FOMC did make note of how much financial conditions were tightened by long-end yields rising sharply, they also acknowledged that those might not persist which could affect the path of monetary policy. The market did not have a large reaction to the minutes, having heard most of this from Fed speakers in the last 2 weeks.
In terms of markets it was a quiet day before Nvidia's release with the S&P 500 slipping -0.20% from its highest level since August. This halted a five-day rally for the index, as the information technology (-0.83%), real estate (-0.47%), and consumer discretionary (-0.38%) sectors underperformed. The tech-heavy NASDAQ fell back -0.59%, likewise breaking a streak of five days of consecutive gains. Ahead of Nvidia’s earnings release, the semiconductor and semiconductor equipment sector underperformed, down -1.44% following a poor Q1 outlook from Analog Devices (-1.40%). Nvidia itself also underperformed, falling -0.92%. The FANG+ index of megacap stocks fell back -0.41 %. The STOXX 600 slipped a more modest -0.09%.
The US Treasury curve steepened a touch, helped by slightly weak data that reinforced the more dovish Fed narrative at the moment. Existing home sales in October were below expectations, at 3.79m (vs 3.90m expected), down -4.1% month-on-month (vs -1.5% expected). The second tier Chicago Fed national activity index for October surprised to the downside at -0.49 (vs 0.00 expected), driven by a decline in production-related indicators. The auto strike could have had an impact. The Philadelphia Fed non-manufacturing activity did improve though, to -11.0 in November, from -20.3 last month .
Against this backdrop, the Fed funds rate priced in for the December 2024 meeting fell -2.6bps 4.41%, with 92.5bps of cuts now priced in for 2024. Futures have also now raised the chance of a March rate cut to 25.6%. 2yr yields fell -3.9bps, while 10yr yields fell -2.7bps, leading to a small +1.2bps steepening in the 2s10s curve to -48.3bps, up slightly from its lowest level since the end of September. Overnight 10yr yields are back up +2.3bps.
In Europe, ECB officials once again cautioned about the expectation of rate cuts. The ECB’s Simkus warned “expectations on ECB rate cuts are too optimistic”, and ECB President Lagarde also stated it was “not the time to start declaring victory on inflation”. But markets were unphased, as they instead added to expectations of ECB rate cuts, with an additional +3.0bps of rate cuts priced in for December 2024. This brings the total of expected cuts through 2024 to 98.5bps. 10yr German bund yields fell -4.5bps to their lowest level since the beginning of September. Yields on OATS also fell -4.5bps despite warnings from EU officials that France was at risk of breaching EU fiscal guidance. Across the channel, the BoE’s Bailey emphasised yesterday the market has put “too much weight on current data” as a “case [remains] for rate pause for extended period”. Despite the pushback, 10yr gilt yields fell -4.7bps on the day. Watch out for the UK Autumn Statement today which is basically a mini budget.
Briefly, over in Canada, core CPI came in below expectations at 3.5% (vs 3.6% expected). This further adds to the recent global dovish narrative. Headline inflation decelerated to 3.1% year-on-year as expected. There is now a near zero probability of an additional hike in this cycle priced into Canadian overnight index swaps.
In Asia this morning there is a little weakness led by mainland Chinese stocks as the CSI (-0.52%) and the Shanghai Composite (-0.29%) are both falling with tech and industrial companies among the laggards. Meanwhile, the Hang Seng (-0.13%) and the KOSPI (-0.32%) are also losing ground while the Nikkei (+0.32%) is bucking the trend so far.
Finally, to the day ahead now, in terms of data releases we have the US October durable goods orders, initial jobless claims and Eurozone November consumer confidence. Earnings releases include Deere, and there is a general election in the Netherlands and the UK Chancellor Hunt delivers the Autumn Statement.