Futures are higher led by Tech as expectations of Fed rate cuts continued to drive gains, while Treasuries eased after a rally that pushed global bonds into bull-market territory ahead of what is set to be another huge negative benchmark revision to payrolls. As of 8:30am S&P futures are 0.1% higher, while Nasdaq futures gain 0.2% as Mag7 stocks see a muted bid with AVGO/NVDA leading Semis higher. Both Cyclicals and Defensives have caught a bid with Materials buoyed by the Anglo / Teck deal. The yield curve is bear steepening as 10Y yield rise by 2bps to 4.07%; the dollar slid for a third day, with the yen driving advances among major currencies on renewed signals of policy tightening by the Bank of Japan. Commodities are higher with broad-based strength across all 3 complex but notable increases in crude, natgas, coffee, and iron. Today’s macro data focus is on the NFP revision with BBG survey seeing a 700k negative revision to payrolls and the modest beat in the NFIB Small Business Optimism (100.8, vs Exp. 100.5) where the Hiring sub-index has been a leading indicator for future NFP prints.
In premarket trading, Mag 7 stocks post modest gains (Nvidia +0.2%, Tesla +0.2%, Meta +0.4%, Microsoft +0.3%, Amazon -0.09%, Alphabet is flat, Apple -0.4%)..
The S&P 500 and US bonds have been on a tear as traders increasingly stoked bets that the Fed will kick-off rate cuts this month. Despite clear cracks in the labor market, investors are wagering that the economy is still sufficiently robust to power corporate earnings. Swaps are pricing at least four quarter-point cuts by the time Fed Chair Jerome Powell’s term ends in May. Some are betting that this year’s easing cycle could begin with a jumbo half-point cut this month as job-market weakness outweighs lingering inflation concerns.
As we first discussed two weeks ago, Tuesday’s revisions to Bureau of Labor Statistics data for payrolls for the year through March are expected to reinforce the view of a US jobs slowdown. Later this week, the core consumer price index for August is projected to show an increase of 0.3% for a second month in a row, indicating that progress on reducing price pressures has stalled.
The BLS figures “would be a big change in the job market narrative,” ING rates strategists Michiel Tukker and Benjamin Schroeder wrote in a note. This “could fuel questions of why the Fed shouldn’t cut by 50 basis points this month.”
“This is a supportive combination for equity markets,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “We believe that AI demand is still strong and will continue to support earnings in the sector, pushing returns in the sector — and hence overall equity market performance — higher.”
In Europe, the Stoxx 600 posted modest gains as investors looked out for the next steps in France’s battle to repair its finances. Anglo American Plc rallied more than 9% after agreeing to a tie-up with Canada’s Teck Resources Ltd. Bonds weakened across the board. In France, bonds were little changed as President Emmanuel Macron started his search for a premier capable of steering a budget through a deeply fractured National Assembly. The continued lack of common ground has weighed on sentiment, driving up the country’s risk premium.
“No one was expecting a bloodbath on the markets today, it’s clear that the worst-case scenario of snap elections is not taking place, at least right now,” said Vincent Juvyns, chief investment strategist at ING in Brussels. “So at the moment we’re muddling through, but with a spread with Germany that is at levels of the sovereign debt crisis of 2012.”
Earlier in the session, Asian equities advanced, as tech and Chinese property stocks climbed, and investors continued to eye prospects for interest rate cuts by the Federal Reserve. The MSCI Asia Pacific Index rose as much as 0.8% to the highest since February 2021, with TSMC, Alibaba and Tencent among the biggest boosts. Taiwan’s Taiex jumped more than 1% to a fresh record, and Korea’s Kospi touched a new high for the year. Indonesia led decliners after the nation’s finance minister was abruptly removed. “Further Fed rate cut bets are fueling positive sentiment in Asia today, especially in growth areas like tech that will rally in these conditions,” said Nick Twidale, chief market analyst at AT Global Markets in Sydney. “In the near term, we can push higher and test record levels for Asian stocks, but may see some profit-taking across all markets ahead of key US inflation data.” Indonesia’s Jakarta Composite Index slipped as fiscal concerns mounted after after President Prabowo Subianto replaced Sri Mulyani Indrawati as finance minister. While Purbaya Yudhi Sadewa, who is taking over the role, vowed to keep Indonesia fiscally healthy, Indrawati enjoyed widespread respect among global investors.
In FX, the Bloomberg Dollar Spot Index is down 0.2%. The Japanese yen rose 0.8% against the greenback, taking USD/JPY firmly below 147 after Bloomberg reported Bank of Japan officials are of the view that it may be possible to raise interest rates again this year regardless of domestic political instability. The Aussie dollar also outperforms, rising 0.4% as it benefits from higher iron ore prices.
In rates, treasuries declined, pushing US 10-year yields up 2 bps to 4.06%. Gilts and bunds are also in the red. French 10-year borrowing costs did rise above Italy’s for the first time, although this was down to technical reasons.
In commodities, Oil rose for a second day as investors weighed the prospect for softening demand after Saudi Arabia cut pricing for most of its grades. WTI crude futures rise 1% to near $62.90 a barrel. Spot gold is up almost $20 and flirting with a record. Iron ore climbed for a sixth day and headed for its highest close in more than six months on expectations that Chinese demand will gather momentum. Bitcoin rises 1% to around $113,000.
Looking to the day ahead now, and data releases include French industrial production for July, the US NFIB small business optimism for August, and there’s the preliminary benchmark revision for US payrolls. From central banks, we’ll hear from the ECB’s Nagel and Villeroy, and BoE Deputy Governor Breeden.
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APAC stocks traded mixed as the region failed to fully sustain the mildly positive handover from Wall St, with price action contained amid light fresh catalysts and as participants looked ahead to upcoming events, including inflation data scheduled in the next couple of days. ASX 200 was dragged lower with notable weakness in Energy, Industrials, Real Estate and Financials, with sentiment also not helped by a deterioration in consumer confidence and mixed business surveys. Nikkei 225 initially rallied above the 44,000 levels to print a fresh record high, but then gradually faded its gains as political uncertainty lingered. Hang Seng and Shanghai Comp were mixed with the Hong Kong benchmark led higher by outperformance in real estate and tech, with the former helped as China's MIIT pledged to accelerate breakthroughs in high-performance chip technology. Conversely, the mainland lagged amid lingering global frictions with EU officials reportedly discussing potential sanctions on China and other parties for the purchase of Russian energy, while Chinese President Xi recently took aim at a 'certain country' increasing trade war risks.
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European bourses (STOXX 600 U/C) opened modestly firmer across the board, but now display a mixed picture, though with nothing really behind the slip in sentiment. European sectors opened with a strong positive bias, but as sentiment slipped, sectors are now mixed. Basic Resources tops the pile, boosted by gains in Anglo American (+10%); the Co. and Teck Resources (+10.3% pre-market) have merged to create a USD 50bln mining giant; the merger is expected to yield USD 800mln in annual synergies. Elsewhere, Banks and Media complete the top three; for the latter, UMG (+2.2%) boosts the sector after receiving a broker upgrade.
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DB's Jim Reid concludes the overnight wrap
The dominant theme in the markets over the past 24 hours has been the continued global bond rally. This has helped ease pressure on the latest French political crisis, which culminated last night in the government losing its confidence vote by 364 to 194. With the defeat having been widely anticipated, the market reaction was muted. But had the fixed income sell-off from earlier last week persisted, the outcome might have triggered a very different response.
According to President Macron’s office, he will nominate a new PM in the coming days. The new PM would then have to find a way to pass a budget for next year. With the far-right National Rally and the far-left France Unbowed calling for snap elections, this would likely require a PM that can keep the centre-left Socialists from voting against the budget, as well as keeping the current centre-right coalition on board. Yesterday’s result implied some cracks within the latter, with the 194 votes for the outgoing government being less than the 210 if all of Bayrou’s allies had voted in favour. Still, the overall sense is that both the centre-right and centre-left face incentives to avoid snap elections, and 10yr OAT-Bund spreads tightened slightly (-2.0bps) ahead of yesterday‘s vote. In a note last night, our economists discuss the key next steps to watch, including on the upcoming budget process (see here). There will be a lot of noise around France over the next few days as tomorrow brings a social media launched day of nationwide protest aimed at bringing the country to a standstill, Friday brings an update from Fitch, and a week on Thursday we have a union-organised day of regional and national strikes. So, a lot going on.
Looking at the fixed income moves in detail, bonds gained across Europe with yields on 10yr bunds (-1.9ps), OATs (-4.0bps), BTPs (-3.3bps) and Gilts (-4.0bps) all moving lower. Treasury yields also moved lower across the curve, with the 2yr yield (-2.3bps) down to its lowest since September 2022, at just 3.49%. The 30yr Treasury yield (-6.7bps) hit a 4-month low of 4.69%. So that helped ease fears about the fiscal situation and means we’re a long way from where things stood last Wednesday, back when the 30yr yield was just a whisker beneath 5%.
The main driver was a continuation of the sentiment post payrolls with increasing confidence of rate cuts dominating the landscape. It's almost as if CPI on Thursday doesn't matter. On inflation, the NY Fed 1-yr inflation expectation series inched up from 3.1% to 3.2% yesterday. However, the consumer expectation series showed that expectations of finding a new job fell to its lowest reading since that series began back in 2013. So that chimed with Friday’s jobs report, where the unemployment rate hit its highest in nearly 4 years, at 4.3%.
All that led to mounting confidence that the Fed would soon be cutting rates, with a growing probability placed on back-to-back rate cuts at the remaining three meetings this year. Indeed, the amount of cuts priced by December’s meeting went up +3.0bps on the day to 72bps by the close. So that would be just shy of the 75bps required to fully price in a rate cut at each meeting, and it’s the most rate cuts priced for 2025 since early May, back when there were still genuine recession fears swirling in the aftermath of Liberation Day. Another beneficiary were gold prices (+1.37%), as the prospect of more rate cuts saw them surge to a fresh record of $3,636/oz. It's up a further +0.34% higher overnight.
This narrative of labor market weakness could well get further support today, as the Bureau of Labor Statistics are releasing their preliminary benchmark revision for payrolls at 10:00 Eastern Time. Basically, they do a big revision of the payroll numbers each year to benchmark it against the Quarterly Census of Employment and Wages (QCEW). And although the final numbers don’t get published until March 2026, they announce the preliminary revisions beforehand, which will give us a better sense of how those are likely to move. In terms of today’s announcement, our US economists write that the latest QCEW from Q4 2024 suggests that the average monthly payroll gains over April 2024-March 2025 could be revised down by roughly 50-60k, from a starting point of 146k. So that would imply a lot less momentum in the labour market in the period running up to Liberation Day. But bear in mind this revision only goes up to March 2025, so whatever happens today, it isn’t going to add to our sense of where the labour market is right now. Note that Bessent suggested the annual revision might be around 800k, when speaking over the weekend. This averages 66.6k per month if his number is to be taken literally rather than just an approximate level for the press.
For equities, the rate cutting narrative outweighed fears about an economic slowdown. So that led to a decent advance on both sides of the Atlantic, with the S&P 500 (+0.21%) closing less than a tenth of a percent from its record high, while the NASDAQ (+0.45%) hit a record high of its own. That said, defensive sectors struggled, leaving the equal-weighted S&P 500 (-0.04%) marginally lower. Meanwhile in Europe, the STOXX 600 (+0.52%) moved higher, and France’s CAC 40 (+0.78%) put in a decent performance too ahead of the result of the confidence vote.
Asian equity markets are mostly higher this morning. Across the region, the KOSPI (+1.11%) is leading gains, rallying for the sixth day, while the Hang Seng (+0.80%) is also trading notably higher, hitting its highest level since late 2021 despite paring gains above 1.5% earlier. Meanwhile, the Nikkei (+0.11%) has also surrendered larger gains, dropping over a percentage point from its morning highs. Elsewhere, the S&P/ASX 200 (-0.60%), the CSI (-0.41%) and the Shanghai Composite (-0.30%) are bucking the regional trend. S&P 500 (+0.14%) and NASDAQ 100 (+0.17%) futures are trading slightly higher.
To the day ahead now, and data releases include French industrial production for July, the US NFIB small business optimism for August, and there’s the preliminary benchmark revision for US payrolls. From central banks, we’ll hear from the ECB’s Nagel and Villeroy, and BoE Deputy Governor Breeden.