US equity futures are flat into tomorrow's CPI/Retail Sales print with PPI the major macro data point today, while Fed Chair Powell also speaks. Futures are flat after also closing unchanged yesterday when the return of the meme stonk mania sent GME and AMC soaring, and hammered L/S hedge funds, whose short books exploded, leading to P&L carnage across the board and widespread degrossing which however did not impact index prices. As of 6:30am, S&P and Nasdaq futures were unchanged. Bond yields are down 1-2bps as the yield curve bull steepens. The USD is flat and commodities are mixed with Ags lagging. Meme Stock Mania returned yesterday with GME +74% and AMC +78%, though Bitcoin was only +3%; As JPM's Andrew Tyler asks this morning "has the Retail investor reactivated and do they support Mag7?"
“Markets this morning are in extremely quiet mood ahead of tomorrow’s US consumer price index data that’s going to come out and shake things up or not,” said Kit Juckes, chief FX strategist at Societe Generale SA. “Sentiment about what the Fed’s going to do, sentiment about a lot of markets, will be determined by core CPI.”
The Stoxx Europe 600 index was little changed, hovering near a record high, as gains in auto and consumer product shares offset losses in travel and insurance names. Shares in Anglo American Plc fell after the London-based miner outlined a major shake-up to fend of a takeover approach from BHP Group, with analysts citing execution risks. Delivery Hero SE soared as much as 22% after selling its Taiwan business. A revenue beat by Tencent Holdings Ltd. pushed the stock of its largest shareholder, Prosus NV, higher. Here are the most notable European movers:
Earlier in the session, Asian stocks traded in a narrow range as investors awaited crucial US inflation data. A rally in Hong Kong stocks stalled ahead of key technology sector earnings due later Tuesday. The MSCI Asia Pacific Index swung between gains and losses of as much as 0.2%. TSMC and Alibaba rose, while AIA and Tokyo Marine fell. Shares in Hong Kong and mainland China closed lower ahead of major earnings. A gauge of Chinese tech companies jumped as much as 2.3% before paring much of the gains. Tech is “expected to be a bright spot amid this earnings season that has been lackluster thus far,” said Marvin Chen, an analyst at Bloomberg Intelligence in Hong Kong.
In FX, the Bloomberg Dollar Spot Index inched up for the third straight day, supported ahead of US producer price data due later Tuesday. Investors also awaited speeches by Federal Reserve President Jerome Powell and Board of Governors member Lisa Cook to see if they offer any additional hints into when US interest rate cuts will start. Markets are bracing for US CPI data due on Wednesday for more steer into whether the Fed will begin easing in September, in line with market pricing.
In rates, Treasuries edge up ahead of US inflation data, with US 10-year yields falling 1bps to 4.48%. UK government bonds have pulled back from session highs having rallied after Bank of England Chief Economist Huw Pill suggested a summer interest-rate cut is in play. UK 10-year yields fall 1bp to 4.16%. His comments also weighed on the pound which is among the weakest of the G-10 currencies, falling 0.2% against the greenback after showing little reaction to UK jobs figures released earlier.
In commodities, oil prices gained before the release of OPEC’s market outlook, with WTI trading near $79.10. Industrial metals including nickel and copper climbed, while gold was steady after Monday’s decline of more than 1%. Spot gold rises 0.5% to around $2,347/oz.
To the day ahead, and central bank speakers include Fed Chair Powell, the Fed’s Cook, the ECB’s Knot and BoE chief economist Pill. US data releases include PPI inflation for April, along with the NFIB’s small business optimism index. Otherwise, we’ll get UK unemployment for March and the German ZEW survey for May.
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APAC stocks lacked firm conviction after the indecisive performance in the US ahead of key events. ASX 200 was dragged lower by weakness in real estate and consumer staples ahead of the federal budget announcement, while Australian Treasurer Chalmers had previously cautioned against expectations for a welfare 'cash splash'. Nikkei 225 was choppy amid a weaker currency, mixed earnings releases and relatively in-line PPI data. Hang Seng & Shanghai Comp were initially boosted at the open with strength in tech and real estate although the Hong Kong benchmark eventually faded most of the gains, while sentiment was dampened in the mainland amid the threat of looming US tariffs which are expected to be unveiled today, while developer default concerns also lingered after Agile Group missed a coupon payment and flagged an inability to fulfil all payment obligations.
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European bourses, Stoxx600 (+0.1%) are mixed and lack any firm direction, continuing the indecisive performance in APAC trade overnight. European sectors hold little bias with the breadth of the market fairly narrow. Autos is found at the top of the pile, building on the prior day’s gains, whilst Travel & Leisure is weighed on by Flutter (-2.5%) post-earnings. US Equity Futures (ES U/C, NQ +0.1%, RTY +0.1%) are mostly and modestly firmer, with trade tentative ahead of today’s PPI. Elsewhere, the White House says US President Biden is directing US Trade Representative to increase tariffs on USD 18bln of imports from China (in-fitting with recent reports).
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DB's Jim Reid concludes the overnight news
The start of this week has seen a holding pattern ahead of potentially more exciting times to come over the next couple of days. The S&P 500 (-0.02%) and 10yr Treasury yields (-1.0bps) didn't move much. Unless you've been living on Mars, you'll know that we have the US PPI release today, followed by the CPI tomorrow. You'll also likely be fully aware that the first three months of the year all had fairly strong inflation, and all beating expectations, so this is an important week.
If you're looking for a little bit of excitement then Japanese yields are edging to decade plus yield highs overnight on concerns the BoJ will cut bond purchases again at its next regular operation on Friday. Yields on 10yr JGBs increased +2.5bps to 0.965%, its highest in more than a decade while yields on 20yr JGBs touched a high of 1.77%, the most since 2013 before settling at 1.759% as we go to print. 30yr yields hit their highest since 2011, trading at 2.038% as I type. The speculation being that smaller purchases are being planned to help the ailing Yen which has been drifting back down over the last week or so post what is thought to have been two bouts of intervention. So one to watch.
Back to those upcoming US inflation prints and the mood music ahead of them has been a little worrying, as data on inflation expectations showed a further uptick. That came via the New York Fed’s latest Survey of Consumer Expectations, where 1yr inflation expectations were up from 3.0% to 3.3% in April, marking its highest level in 5 months. Moreover, that follows on the heels of the University of Michigan’s survey last Friday, where inflation expectations also surprised on the upside, so there’ve been several pieces of news pointing in that direction. To be fair, the 3yr NY measure did fall a tenth to 2.8%, but the 5yr measure ticked up two-tenths to 2.8%, so it was a mixed bag at the longer time horizons. Separately, there were some labour market indicators that pointed in a weaker direction, with the mean probability of finding a job in the next 3 months (if one’s job was lost today) falling to a 3-year low of 50.9%.
For the April PPI release today, our economists expect headline PPI to come in at a monthly +0.4% pace. That would be an uptick from the +0.2% pace in March, but the focus for our economists will be on those components that feed into the core PCE deflator, which are health care services, portfolio management and domestic airfares. So those are the categories to keep an eye on, since they feed into the PCE measure that the Fed officially targets.
Ahead of that, we did hear from Fed Vice Chair Jefferson, who reflected the cautious tone of the FOMC about future rate cuts. For instance, he said that they “continue to look for additional evidence that inflation is going to return to our 2% target. And until we have that, I think it is appropriate to keep the policy rate in restrictive territory.” So there wasn’t much to move the dial on market expectations, with the number of cuts priced in by the December meeting little changed at 41bps yesterday. Later today, we’ll hear from Fed Chair Powell as well, who’s speaking at an event with the ECB’s Knot.
We’ll have to see what happens today, but for now at least, the S&P 500 (-0.02%) barely budged, which still leaves the index just 0.6% beneath its all-time high from the end of March. It was a similar story in Europe as well, where the STOXX 600 (+0.02%) narrowly eked out another all-time high. Tech outperformance saw modest gains for the NASDAQ (+0.29%) and the Magnificent 7 (+0.28%), with the latter ending a run of four consecutive declines. But the mood was slightly negative otherwise, with 9 of the 11 S&P 500 sector groups down on the day.
Perhaps the most notable equity story of the day was a + 74.4% rise for Gamestop . This followed a post on X (after a long dormant period) by Keith Hill, who gained notoriety during the 2021 meme-stock frenzy under the moniker “Roaring Kitty”. Some of the other heavily shorted stocks also saw sizeable gains, with the high short interest basket within the Russell 3000 up as much as +6.7% intra-day (+4.55% by the close). To refresh your memory GameStop went above 10 in January 2021. Two weeks later at the height of the frenzy it was trading at nearly 90. Since then it's steadily and consistently fallen back to a low of 10 three weeks ago. Last night it closed above 30 again. Let's see if that speculative craze is going to be reignited.
For sovereign bonds, there was also a subdued performance yesterday, with little major movements in either direction yesterday. Indeed, US Treasuries saw one of the larger moves of the day, with the 10yr yield down -1.0bps to 4.49%. The 10yr yield had traded nearly -4bps down on the day early in the US session but then saw a gradual increase, helped along by the NY Fed inflation expectations release. The bond moves were even smaller moves in Europe, where yields on 10yr bunds (-0.7bps), OATs (-0.5bps) and BTPs (+0.7bps) all moved by less than a basis point.
In the commodity space, oil prices recovered, with Brent up +0.77% to $83.43/bbl after falling to an 8-week low on Friday. Meanwhile, copper posted another 2-year high, up +2.36% on the day and extending its year-to-date gain to +23.5%.
In Asia, Chinese stocks are trading slightly lower with the CSI (-0.15%), Hang Sang (-0.05%) and Shanghai Composite (-0.08%) all seeing minor losses. However, the Hang Seng Tech index (+1.10%) is bucking the trend powered by a rally in Chinese tech stocks with Alibaba and Tencent Holdings reporting earnings later today. Elsewhere, the KOSPI (-0.09%) is also struggling to gain traction whilst the Nikkei (+0.05%) is trading just above flat. US equity futures are very slightly lower.
To the day ahead, and central bank speakers include Fed Chair Powell, the Fed’s Cook, the ECB’s Knot and BoE chief economist Pill. US data releases include PPI inflation for April, along with the NFIB’s small business optimism index. Otherwise, we’ll get UK unemployment for March and the German ZEW survey for May.