Futures are flat ahead of consumer-sector earnings kicking off today, starting with a miss by Home Depot this morning. As of 8:00am ET, S&P futures were unchanged while Nasdaq futures drop 0.1% as Mag7 names are mostly lower ex-NVDA. Semis are mostly weaker ex-INTC which gained more than 6% on news SoftBank would invest $2 billion in the chipmaker and the US would take a 10% stake. Defensives are slightly outperforming Cyclicals. Europe’s Stoxx 600 rose 0.5% as signs of progress toward a peace settlement in Ukraine lifted sentiment. The dollar nudged lower. Treasuries eked out gains after S&P Global Ratings affirmed its AA+ long-term rating for the US, with the 10-year rate falling one basis point to 4.32%. Commodities are weaker dragged lower by energy despite strength in precious and Ags. BBG flags a trade escalation from Friday where Trump expanded the metals tariffs to more than 400 consumer goods, including baby gear, and there is no exemption for goods already in transit; the article states this impacting $328bn of goods based on 2024 trade levels vs. $191bn before the expansion and is more than 6x levels from 2018. Today’s macro data focus is on housing starts and building permits; XHB has lagged SPX YTD by 138bp but has outperformed the SPX by 912bp over the last month.
In premarket trading, Mag 7 stocks are mostly lower (Nvidia +0.3%, Tesla -0.2%, Microsoft -0.05%, Alphabet -0.2%, Apple -0.2%, Amazon -0.2%, Meta -0.3%).
The global stock rally has stalled as investors await new twist and turns in the Ukraine drama, awaited this Friday's Jackson Hole symposium where Jerome Powell is set to unveil a new policy framework (and usher in a September rate cut), and watched earnings from the biggest US retailers. Money markets are currently betting the Fed will deliver its first rate cut for the year in September, as labor-market weakness outweighs inflation risks, with another move expected before year-end. Oil slipped as traders weighed the outlook for an end to the conflict in Ukraine and a potential future supply increase of Russian crude. Brent fell below $66 a barrel, extending a decline for the month to around 9%.
“With much of it priced in already, equities may need a new catalyst,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. “August through October is seasonally soft, and rising long-term bond yields could tempt investors to pocket recent gains.”
In other corporate news, Nvidia is said to be preparing a more powerful chip for China, according to Reuters. Apple is said to be expanding iPhone production in India as it seeks to lessen its reliance on China for US-bound models, Bloomberg News reported. The company is producing all four iPhone 17 models in India ahead of their debut next month, marking the first time that all new variations will ship from the South Asian country from the get-go. Tesla priced its updated, six-seat Model Y sport utility vehicle in the same range as local rival Li Auto’s extended-range L8 model, to win over middle-class families in China’s hyper-competitive market. Shein is said to be considering moving its base back to China to help sway Beijing authorities to sign off on its plans to go public.
In Europe, the Stoxx 600 climbed 0.6% to its highest level since March after Bloomberg reported US and European officials have started work on a Ukraine’s security plan. That is expected to include a package of guarantees that will open a path to a landmark meeting between presidents Vladimir Putin and Volodymyr Zelenskiy. Sweden’s Ambea and Sweco are among the biggest outperformers, on earnings and a broker upgrade, respectively. Defense stocks drop on Ukraine news, while London- and Warzaw-listed stocks exposed to the war-torn country gain. Here are the biggest movers Tuesday:
Earlier in the session, Asian stocks declined for a second day, with South Korea and Australia leading losses, as markets take a breather after an extended rally. The MSCI Asia Pacific Index fell 0.2%, with Sydney-listed biotech CSL the biggest drag as it posted the worst decline on record after disappointing earnings. Equities also dropped in tech-heavy Hong Kong and Taiwan, while benchmarks advanced in Singapore, Malaysia and Vietnam. A gauge of Chinese equities reversed early gains after notching a record close Monday. Sentiment remains bullish, as gains from institutional money chasing these stocks bolster sentiment toward emerging markets and the broader Asian region. Indian shares also moved higher, on track for a fourth session of gains amid thawing relations with China and expectations of a boost in consumption from planned tax cuts.
In FX, the Bloomberg Dollar Spot Index is flat while the Swedish krona takes top spot among G-10 peers, rising 0.3% against the greenback.
Treasuries eked out gains after S&P Global Ratings affirmed its AA+ long-term rating for the US, with the 10-year rate falling one basis point to 4.32%. Treasury auctions resume Wednesday with $16 billion 20-year new issue; an $8 billion 30-year TIPS reopening is slated for Thursday.
In commodities, Brent crude futures fell 1% to near $66 a barrel extending a decline for the month to around 9%, as traders weighed the outlook for an end to the conflict in Ukraine and a potential future supply increase of Russian crude. European natural gas futures are down 0.4%.
Looking at today's calendar, the data slate includes July housing starts and building permits (8:30am New York time). Fed speaker slate includes Governor Bowman (10am and 2:10pm).
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APAC stocks traded mixed following the ultimately flat performance stateside amid a lack of fresh macro catalysts, as focus centred on geopolitical updates and amid cautiousness ahead of Powell's speech at Jackson Hole on Friday. ASX 200 pulled back from record highs with heavy losses in healthcare as CSL shares fell by a double-digit percentage after the announcement to spin-off its flu vaccine business and cut 15% of its workforce, while tech was at the other end of the spectrum and miners also gained post-BHP earnings despite the mining giant reporting a 26% drop in FY underlying profit. Nikkei 225 swung between gains and losses after failing to sustain the initial upward momentum that had lifted the index to a fresh record high. Hang Seng and Shanghai Comp kept afloat following a firm liquidity effort by the PBoC which injected CNY 580bln through its 7-day reverse repo operation, while there were also comments on Monday by Chinese Premier Li who said the nation should consolidate and expand the positive trend in the economy, as well as stabilise market expectations and should continue to stimulate consumption potential.
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European bourses (STOXX 600 +0.4%) opened modestly firmer across the board, with cautious optimism stemming from the recent US President Trump/Ukrainian President Zelensky/EU Leaders meeting. On that, Trump described it as a very good meeting, while he also called Russian President Putin to begin arrangements for a Putin-Zelensky meeting, which would be followed by a trilateral meeting with Trump. Reportedly, security agreements were discussed; on territorial developments, Zelensky suggested it would be a discussion between Ukraine and Russia. As the morning progressed, stocks have gradually climbed higher and currently sit at highs. European sectors hold a positive bias, but the breadth of the market is fairly narrow. Consumer Products takes the top spot, joined closely by Basic Resources and Retail; nothing really company-specific is driving the upside in these sectors, but largely benefiting from the slightly positive risk tone.
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DB's Jim Reid concludes the overnight wrap
Geopolitical headlines continued to dominate yesterday, as Ukrainian President Zelenskiy and several other European leaders met President Trump at the White House. The main news is that Trump is now seeking to arrange a meeting between Putin and Zelenskiy, and he posted afterwards on Truth Social that he called Putin and “began the arrangements for a meeting” between the two. Zelenskiy said he was ready for these talks, but the Kremlin hasn’t committed to such a meeting yet, with Putin’s aide Ushakov making more ambiguous comments last night that they had “discussed the idea of raising the level of Russia’s and Ukraine’s representatives”.
The other major topic in yesterday’s talks were security guarantees for Ukraine, with Trump posting afterwards that “Guarantees would be provided by the various European Countries, with a coordination with the United States of America.” Zelenskiy called the US promises “a major step forward” and added that security guarantees for Ukraine could be formalised on paper within the next 10 days. That call for progress was echoed by others, and NATO Secretary General Rutte said that “Today was really about security guarantees, US getting more involved there, and all the details to be hammered out over the coming days”. Separately, the FT reported that to help secure those security guarantees, Ukraine had offered to buy $100bn of American weapons financed by Europe.
However, there were some differences between the US and the European countries. For instance, Trump said that a ceasefire was not needed to negotiate a resolution but France’s President Macron and Germany’s Chancellor Merz favouring a ceasefire before further talks. Zelenskiy said Ukraine would not insist on a ceasefire as a pre-condition for talks. But overall the meetings struck a constructive tone and we saw positive comments from European leaders following the meeting, with the UK’s Prime Minister Starmer saying he was “very pleased” with the outcomes.
The talks didn’t deliver decisive progress, but DB’s Peter Sidorov published a note this morning (link here) where he says that this marks the start of serious talks, with the prospect for peace better than they were earlier in the year. Nevertheless, there are still major obstacles in his view – most notably in terms of the gap over territorial issues and on agreeing credible security guarantees for Ukraine that would also be accepted by Moscow.
Against that backdrop, there hasn’t been a big market reaction in response to the talks. European equity futures are up a bit overnight, with those on the Euro STOXX 50 up +0.15%, whilst DAX futures are up +0.12%. Brent crude oil prices are also down -0.66% this morning to $66.16/bbl, but that follows a +1.14% increase yesterday which occurred as the prospects of a ceasefire appeared to diminish. So overall, the meetings haven’t led to an obvious shift in market pricing, although European equity futures are outperforming their US peers this morning, with those on the S&P 500 down -0.18%.
Meanwhile in Asian markets overnight, we haven’t seen many big moves for equities across the major indices. In Japan, the Nikkei (-0.15%) has slipped back a bit, which comes amidst weak demand at a 20yr bond auction that’s reminded investors about ongoing fiscal concerns. Bond yields have moved higher overnight as well, with the 10yr Japanese yield up +3.4bps to 1.59%. Meanwhile in South Korea, the KOSPI (-0.51%) has also lost ground for a second day running, falling to its lowest level in over two weeks. But there’s been a stronger performance for Chinese equities, with the Shanghai Comp (+0.30%) on track for its highest close since 2015, whilst the CSI 300 (+0.13%) is on course for its highest close since October.
Before the various geopolitical developments, there were some interesting moves in US Treasury markets yesterday as well, driven by growing doubts about how quickly the Fed would end up cutting rates over the months ahead. Those moves continued the trend which began last Thursday, back when the US PPI release showed producer prices rising at the fastest monthly pace since March 2022. And importantly, those concerns have lingered over recent days, given that inflation is still above the Fed’s target and expected to remain there given the tariff impact that’s filtering through. Moreover, broader measures of financial conditions are still fairly accommodative, and US IG spreads closed at their tightest since 1998 on Friday, where they remained after yesterday’s session as well.
That line of thinking meant that futures dialled back their expectations for Fed rate cuts this year. For instance, the amount of cuts priced in by the December meeting was down -1.4bps on the day to 53bps. So that’s down from 64bps last Wednesday before we had the PPI report, which demonstrates the scepticism about the Fed’s ability to rapidly cut rates at the next few meetings. In turn, that helped to drive a rise in Treasury yields across the curve, with the 2yr yield up +1.3bps to 3.76%, whilst the 10yr yield was up +1.5bps to 4.33%. There was also some fresh curve steepening, with the 5s30s curve up +0.5bps yesterday to its steepest since late-2021, at 108.5bps.
Meanwhile in the UK, there was a similar selloff for gilts as investors dialled back their expectations for rate cuts from the Bank of England. Indeed, a rate cut by the December meeting was down to just a 54% probability by the close, and at one point it fell to just 45%, so for market pricing at least, another rate cut this year was seen as unlikely. As with Treasuries, that helped to drive yields higher across the curve, and the 30yr gilt yield (+4.7bps) ended the day at a post-1998 high of 5.61%, whilst the 10yr yield (+4.1bps) rose to its highest since May, at 4.74%. However, it was a different story in the rest of Europe, with yields moving lower across the continent. So yields on 10yr bunds (-2.5bps), OATs (-2.1bps) and BTPs (-3.3bps) all moved lower, whilst the 30yr German yield (-1.1bps) moved off of its post-2011 high from Friday as well.
Equities also put in a subdued performance, with the S&P 500 (-0.01%) narrowly losing ground for a second day running. The Magnificent 7 (-0.16%) saw a modest decline while Intel (-3.66%) was the second-worst performer in the S&P amid reports that the Trump administration was in discussions to take a 10% stake in the company. And overnight we then heard that SoftBank agreed to buy $2bn of Intel stock at a small discount to the last closing price. More broadly, matters weren’t helped by the more hawkish rates re-pricing, and weak data further dampened sentiment, as the NAHB’s housing market index unexpectedly fell to 32 in August (vs. 34 expected). However, there were some brighter spots, and the small-cap Russell 2000 (+0.35%) posted a steady advance. And over in Europe, the STOXX 600 (+0.08%) just about inched up to its highest level in nearly three months.
To the day ahead now, and data releases include US housing starts and building permits for July, along with Canada’s CPI for July. Otherwise from central banks, we’ll hear from the Fed’s Bowman, and earnings releases include Home Depot.