The global stock rally faltered as US equity futures were unchanged for the second day in a row this morning and trading right on top of the "gamma gravity" level of 5350, where as discussed yesterday there is a record $10 billion dealer long gamma pile up which has made the market "stuck" at the strike price.
As of 7:30am ET, S&P futures are down -0.1%, at session lows after trading in a narrow range all night. Nasdaq futures are a mirror image, trading about 0.1% higher as Mega tech names outperform: GOOGL +27bp, NVDA +13bp, AAPL +12bps. Bond yields are 1-2bp higher this morning, with the OIS forwards sees ~60% prob. of first cut in September. Commodities are mixed: oil/ags are slightly higher this morning reversing an earlier loss. The Bloomberg dollar gauge eased. All eyes on NFP today (preview here): both Goldman (165K) and JPM (150k) are below the Street median estimate of 180k, which suggests we beat.
In premarket trading, GameStop tumbled after surging as high as $67.5 after hours yesterday when the company confirmed that the latest meltup was another manipulative grift when it filed to sell up to 75 million shares. Tech names outperformed: Micron and Intel rose while tech giants gained (GOOGL +27bp, NVDA +13bp, AAPL +12bps). Here are some other notable premarket movers:
With traders wary of placing big bets either way ahead of the payrolls report, global stocks are on track to snap a two-week losing stretch. Rate-cut expectations have escalated in the past week, encouraged by a slew of weaker-than-forecast US data, as well as easing by the Bank of Canada and ECB. A Bloomberg gauge of global government bonds posted its longest rising streak since November.
“All focus on the payrolls and the potential aftermath,” said Michael Brown, senior strategist at Pepperstone Group Ltd. “A number that’s bang in line with expectations will reaffirm where current market pricing is for Fed cuts and could give the market the fuel it needs to keep moving higher.”
As previewed earlier, Friday’s report is expected to show the US added 180,000 jobs in May, slightly more than in April, with the unemployment rate seen holding steady. Swap markets are pricing a full Fed rate cut by November, with a strong likelihood of one in September. In its preview, Goldman's trading desk wrote that the set up into the print remains favorable for stocks ("I have goldilocks zone in the low 100s as stocks continue to cheer for a palatable slowdown"), and provided the following trading framework:
Meanwhile, as bond yields drop and as rate-cut bets build, investors are pouring money into stocks, with US equity funds getting $4.6 billion in a seventh week of inflows, BofA's Michael Hartnett said, although the strategist warned a Fed rate cut may not be entirely good news, calling it the “first hint of trouble.” Chances of a hard landing could increase if the market grows more confident of lower borrowing costs, he added.
European stocks and bonds fall after several ECB policymakers offered wary assessments of the possibility of future interest-rate cuts. The move lower extended after the ECB’s preferred measure of pay showed acceleration at the start of 2024. The Stoxx 600 is down 0.4% with technology and retail stocks the biggest outperformers, while property and insurance stocks lagged, given the ECB’s signal that it wouldn’t rush additional rate cuts. Here are the biggest movers Friday;
Earlier, Asian stocks gained, set for their best week in three weeks, as a rally in South Korean shares tempered losses in most other markets. The MSCI Asia Pacific Index rose as much as 0.4%. South Korean equities were among the biggest advancers on the regional gauge after the market reopened from a holiday. The country’s stock markets were supported by foreign buying of local chipmakers. Indian shares also climbed, as the central bank held its benchmark interest rate while tweaking growth projection higher. Chinese stocks declined for the third straight session, with stronger-than-expected exports for May failing to boost sentiment. There are also concerns that a growing backlash among trade partners would dent overseas demand even as consumer spending remained weak at home.
While “we are constructive on Asia markets,” the second half has risks including a stronger dollar, geopolitical uncertainty and possible volatility around the US elections, Timothy Moe, an Asia equity strategist at Goldman Sachs Group Inc., told Bloomberg TV.
In FX, the Bloomberg Dollar Spot Index was little changed with focus on the US non-farm payrolls data, which is expected to show a steady unemployment rate and 180k jobs added in May, according to a Bloomberg survey of economists
In rates, Treasuries dipped ahead of the jobs report, with US 10-year yields rising 1bps to 4.30%. German 10-year yields rise 3bps to 2.58%.
In commodity markets, gold prices fell after the People’s Bank of China said it hadn’t added to its bullion holdings last month, pausing an 18-month long buying spree that lifted the precious metal to record highs. Brent crude futures edged up, but were set for a third weekly loss. Spot gold fell ~$37 to around $2,338 after data showed the Chinese central bank halted gold purchases in May.
Today's focus will be on the payrolls report at 8:30am; data also includes April wholesale trade sales (10am), 1Q household change in net worth (12pm) and April consumer credit (3pm). Fed officials are expected to refrain from commenting until after their June 12 policy announcement
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APAC stocks traded mixed in cautious and tentative trade and macro newsflow on the quieter side ahead of the US jobs report. ASX 200 was kept afloat by gains in gold miners, alongside Resources and Materials names. while Real Estate and Healthcare lagged. Nikkei 225 was subdued following softer-than-expected household spending data. On an index level, gains in Pharma and Mining failed to counter the downside from Banking and Autos, with the latter continuing to feel the woes from its domestic safety scandal. Hang Seng and Shanghai Comp both dipped into the red after opening modestly firmer, whilst CATL shares tumbled some 7% after US lawmakers said Chinese EV battery manufacturers rely on forced labour and should be blocked from importing goods into the US. No reaction was seen on the Chinese trade data.
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European bourses, Stoxx 600 (-0.2%) began the session on a tentative footing, in what was initially directionless trade. However, as the morning progressed, sentiment quickly waned and stocks trundled lower to session lows, where they currently reside. European sectors hold a negative bias, and with the breadth of the market fairly narrow. Tech takes the spot, continuing to build on the past week’s outperformance. Real Estate is found at the foot of the pile after Morgan Stanley downgraded Vonovia (-3.7%) and Leg Immobilien (-3.8%). US Equity Futures (ES U/C, NQ +0.1%, RTY U/C) are mixed and with trade tentative ahead of today’s US employment report, where expectations are for the headline to tick higher to 185k from 175k.
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DB's Jim Reid concludes the overnight wrap
For markets, it was another day of milestones yesterday, with the ECB becoming the latest central bank to cut rates this cycle. They announced a 25bp cut in their deposit rate to 3.75%, which is the first cut they’ve delivered since 2019. And even though the tone was a bit hawkish in several respects, it now makes them the fourth G10 central bank to have cut rates, after Canada, Sweden and Switzerland . In turn, the move has cemented the idea that the global monetary policy cycle is moving towards an easing mode, with investors expecting further cuts on the horizon. So it marks a big shift from much of the last couple of years, when central banks were rapidly hiking rates to try to bring down inflation.
In terms of the ECB’s decision, the rate cut itself was widely expected, so didn’t come as much surprise to markets. But there were several aspects of the decision that leant in a hawkish direction. For instance, they took out the line from the last statement that “ it would be appropriate to reduce the current level of monetary policy restriction ” if their confidence grew that inflation was returning to target. Moreover, they actually upgraded their inflation forecasts, with 2024 revised up by two-tenths to 2.5%, and 2025 also up two-tenths to 2.2%. On top of that, in the press conference President Lagarde said, “Are we today moving into a dialing back phase? I wouldn’t volunteer that”. So investors grew more sceptical that this would kick off a rapid series of rate cuts.
The rate cut was supported by all but one of the ECB’s Governing Council and our European economists observe that garnering the support of most hawks came at the cost of a clear signal on the direction of travel. An implicit easing bias persists, but recent data did not give the ECB the collective confidence to present the move as the first in a series of cuts. Our economists maintain a baseline view of two more rate cuts this year (in September and December), but with a September cut not being a done deal. See their full reaction here.
This hawkish leaning was echoed in markets, and sovereign bond yields rose across the Euro Area after yesterday’s decision. By the close, yields on 10yr bunds (+3.8bps), OATs (+4.3bps) and BTPs (+4.7bps) had all moved higher, and the Euro also strengthened after the decision, ending the day up +0.17% at $1.088. Looking forward, overnight index swaps see a July cut as in the balance, with a 38% chance of a cut priced in as we go to press this morning. But a cut by September is still seen as more likely than not, with the chance of a cut by that meeting at 91%.
Looking forward, attention will now turn to the US jobs report for May, which comes at an important point ahead of the Fed’s decision on Wednesday. This report could see an important milestone, as i f the unemployment rate stays beneath 4%, then it would mark the longest stretch of sub-4% unemployment for the US since the early 1950s, at 28 months. Indeed, we pointed out several parallels with the early 1950s earlier this week (link here), including a strong performance for risk assets, a temporary burst of inflation, and heightened geopolitical risks.
When it comes to today’s report, our US economists are looking for nonfarm payrolls to come in at +200k, which would be an uptick from April, when nonfarm payrolls growth was at a 6-month low of +175k. Otherwise, they see the unemployment rate holding steady at 3.9%, and average hourly earnings ticking back up a tenth to +0.3%. See their full preview and how to sign up to their webinar afterwards here.
Ahead of the jobs report, the US weekly initial jobless claims were a bit weaker than expected yesterday, rising to 229k over the week ending June 1 (vs. 220k expected). That’s a 4-week high, but some of the other economic news was more positive. Indeed, the Atlanta Fed’s GDPNow estimate for Q2 was upgraded again to an annualised rate of 2.6%. We also had data yesterday showing the US trade deficit was a bit smaller than expected in April, at $74.6bn (vs. $76.5bn expected), even if the number was still the highest since October 2022.
US equities saw little change against that backdrop, with the S&P 500 (-0.02%) narrowly ending a run of four consecutive gains and coming off of its record high the previous day. Small-caps underperformed, with the Russell 2000 down -0.70%, whereas the Magnificent 7 saw a slight gain (+0.19%) that left it at another all-time high. European equities posted a relatively stronger performance though, with the STOXX 600 (+0.66%) closing just shy of its record high from mid-May. In the meantime, US Treasuries posted marginal losses with the 10yr yield up +1.2bps to 4.29%, whilst the 10yr real yield (+2.9bps) ticked back up above 2% again. Overnight that trend has continued, with the 10yr Treasury yield up a further +1.0bps to 4.30% as we go to press.
In the commodity space, oil prices continued to recover some of the c. 5% decline seen earlier in the week after the weekend’s OPEC+ agreement to begin phasing out production cuts from October. Brent crude was up +1.86% to $79.87/bbl, its largest daily advance since March, supported by comments from OPEC+ ministers that production changes could be paused or reversed if needed. That trend has continued overnight, with Brent crude up another +0.20% to $80.03/bbl.
Overnight in Asia, equity markets have put in a mixed performance as investors focus on the upcoming US jobs report. Several indices have lost ground, including the Nikkei (-0.19%), the Shanghai Comp (-0.23%), the Hang Seng (-0.42%), and the CSI 300 (-0.72%). However, the KOSPI (+0.94%) has advanced after returning from a public holiday, and US equity futures are also pointing in a positive direction, with those on the S&P 500 up +0.10%. Separately, data showed that China’s exports grew by more than expected in May, with a year-on-year increase of +7.6% (vs. +5.7% expected). Imports also grew by less than expected, with a year-on-year growth increase of +1.8% (vs. +4.3% expected).
To the day ahead now, and data releases include the US jobs report for May and German industrial production for April. From central banks, we’ll hear from ECB President Lagarde, and the ECB’s Nagel, Simkus, Holzmann, Schnabel and Centeno, along with the Fed’s Cook.