US futures are slightly higher, although well off session highs following disappointing guidance from Home Depot while rising tension in the Middle East weighed on risk appetite. Tech leads modest gains as we receive the first batch of the week's macro data today when PPI drops at 830am ET. As of 7:45am ET, S&P futures are 0.2% higher, paring a gain of 0.5%, after yesterday’s flat close on Wall Street; Nasdaq futs are up 0.3% with NVDA rising 1.5% as Mag7 are all higher and Semis catch a bid, following yesterday’s outperformance. European markets are lower even as Asian stocks erased last week’s sharp declines led by a bounce in Japan thanks to a drop in the yen. Bond yields are 1-2bps higher which is boosting the USD. Commodities are mostly lower with WTI reversing losses to trade around $80 and Brent at $82 as the US sees an Iranian attack against Israel as increasingly likely; Ags/Precious metals are under pressure. Fed’s Bostic speaks today, and disappointing earnings from HS may shape the market narrative. Tomorrow’s CPI and Thurs’ Retail Sales are the key catalysts.
In premarket trading, Home Depot falls 2% after the company beat lowered its same store sales forecast to a decline of 3-4% for the year, signaling that it expects consumer spending to remain soft in the coming months. Said otherwise, HD expects business to get worse in the second half of the year, which is hardly an endorsement for the strength of the US consumer. Tencent Music Entertainment plunged 6% after reporting results that showed paying users for social entertainment missing estimates. Here are some other notable premarket movers:
After last week’s turmoil, markets are focusing on Wednesday’s US CPI report, which may help determine whether the Fed has room to secure a soft landing for the economy. The recent rally in crude oil prices also puts the spotlight on producer-price numbers later Tuesday, as an indicator of pipeline inflationary risks. But first, there is the PPI report on deck at 830am today: economists expect core PPI to rose 0.2% last month from June, when it gained 0.4%, while the headline print is also expected to gain 0.2%.
“The US producer price index for July will give an early indication of price pressures in the month ahead of the consumer price index,” Kristina Clifton, a senior currency strategist at Commonwealth Bank of Australia, wrote in a note. “Any hints from the PPI of soft inflationary pressures in July can cause financial markets to double down on large interest rate cuts this year from the FOMC” and weigh on USD, she said.
Traders are also monitoring events in the Middle East after the US said an Iranian attack on Israel could be imminent. The implications were underscored by Fitch Ratings’ move to downgrade Israel’s sovereign debt by one notch, to A from A+, while keeping a negative outlook and citing “continued war” and geopolitical risks.
“One could argue that equity is still in recovery mode after last week’s shakeout, and holding out from really putting money to work until we get the key US data this week,” said Chris Weston, head of research at Pepperstone Group Ltd. “Pricing US growth is still the main game in town.”
The Stoxx Europe 600 erased an early advance after the ZEW gauge of German investor expectations tumbled more than economists expected (from 41.8 to 19.2, exp. 32.0). Here are the most notable European movers:
Earlier in the session, Asian stocks climbed Tuesday, with a regional benchmark reclaiming levels seen before the historic August 5 selloff, as equities in Japan extended their rebound on return from a holiday. The MSCI Asia Pacific Index climbed as much as 1.2%, headed for a third-straight day of gains. Japan’s Topix jumped nearly 3% as a weaker yen was seen providing support for exporters, while benchmarks in China and South Korea also gained. Industrials and information technology were the top-performing sectors on the regional gauge. The continuation of a rebound in Japan is helping all of Asia, said Andrew Jackson, head of Japan equity strategy at Ortus Advisors Pte in Singapore. “Japan is the only market that really matters” right now, he added.
The key Asian stock gauge plunged 6.1% last Monday to mark its worst day since 2008 as fears of a deeper US economic slowdown, an extended rout in Japanese equities and a rotation away from heavyweight tech shares weighed on the market. Many investors bullish on Japan, which commands the highest weighting in the MSCI Asia gauge, have said that the recent selloff in the nation’s stocks provides a fresh reason to buy what has been one of 2024’s hottest trades.
In China, regulators told commercial banks in the Jiangxi province not to settle their purchases of government bonds, taking some of the most extreme measures yet to cool a market rally that has alarmed Beijing. The crackdown is beginning to take a toll on corporate debt markets, as the average yield for one-year corporate yuan bonds with AA ratings — typically considered junk debt in the onshore market — saw the largest jump since December 2022.
In FX, the Bloomberg Dollar Spot Index was little changed. The British pound gained and the FTSE 100 index underperformed Europe’s benchmark after data showed UK unemployment unexpectedly fell in the second quarter, complicating the Bank of England’s shift to lower interest rates.
Treasury 10-year yields erased an earlier gain to slide to a session low of 3.89%, down 1bp on the session, while US spreads also trade near prior day closing levels. Treasuries were rangebound over Asia, early London session as investors stay sidelined ahead of PPI data due 8:30am New York and then CPI print due Wednesday. Bunds marginally outperform Treasuries and gilts into the US session while S&P futures give up early gains to trade back to near unchanged on the day. Ahead of PPI data, Fed-dated swaps are still pricing in around 100bp of rate cuts for the year with approximately 36bp of cut premium priced into the Sept. 18 meeting
In commodities, WTI trades within Monday’s range, snapping a five-day streak of gains with a 0.3% decline to near $79.8. Most base metals trade in the red. Spot gold falls roughly $12 to trade near $2,460/oz.
Today's US calendar includes only July PPI at 8:30am. CPI print is due Wednesday, Fed speakers scheduled for the session include Bostic at 1:15pm
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APAC stocks followed suit to the mixed lead from the US ahead of key data and as markets continue to brace for Iran's retaliation. ASX 200 traded indecisively after mixed data releases and as gains in financials, real estate and the commodity-related sectors were counterbalanced by losses in tech, telecoms and defensives. Nikkei 225 surged on return from the long weekend and reclaimed the 36,000 status after returning to last week's pre-turmoil levels. Hang Seng and Shanghai Comp. were indecisive with the former supported in energy stocks after yesterday's oil rally, while the mainland index oscillated between gains and losses in a tight range owing to the lack of fresh macro drivers.
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European bourses, Stoxx 600 (+0.1%) started the session entirely in the green but succumed to some early morning pressure, which has since pared in recent trade; as it stands, indices are generally in the green. European sectors are mixed, having initially opened with a positive bias. Travel & Leisure is found at the foot of the pile, hampered by the recent advances in oil prices. Basic Resources also lags amid the weakness in the metals complex. US Equity Futures (ES +0.3%, NQ +0.5%, RTY +0.2%) are modestly firmer as traders remain mindful of today’s US PPI figures, ahead of CPI tomorrow. Firms have reportedly started testing Huawei's new Ascend 910C chips, according to WSJ sources; Huawei in talks to secure tens of thousands of chips; framed as a "challenge" to Nvidia (NVDA) on AI hardware.
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