US equity futures were flat after closing Friday at a new record high above 5,100 for the first time ever, and gaining for 16 of the past 18 weeks, while European shares extended gains to new all time highs after six weeks of gains, as investors waited for reassurances that central banks are on track to cut interest rates in the coming months. US equity futures traded in a narrow range with S&P futures trading down 0.1% while Nasdaq futures were modestly in the green. NVDA is +1.3% pre-mkt but the rest of Mag7 are flat or down; Apple was down more than 1% after it was hit Monday with a €1.8 billion ($2 billion) penalty from the European Union over an investigation into allegations it shut out music-streaming rivals. SMCI soared 16% after it was added to the S&P 500 index in the latest quarterly weighting change. Treasuries slipped, while commodities are mixed with ags higher and Energy lower; WTI falls below $80 even though OPEC+ extended production cuts through mid-year. Bitcoin topped $65,000, leading traders to bet the cryptocurrency will surpass the record price of almost $69,000, hit during the pandemic. With no US macro data today and only one Fedspeaker, we may see a low volume day as investors await the next batch of data, ISM-Srvcs (tmrw), JOLTS (Weds), Productivity (Thurs), and NFP (Fri). Earnings this week have AVGO and several Consumer/Retailer names which may help clarify the picture on the Consumer.
In US premarket trading, chipmakers continued their ascent, with Western Digital Corp., Micron Technology Inc. and Nvidia Corp. rising more than 1%. Tesla Inc dropped 1.7% on a drop in Chinese auto sales. Cryptocurrency-linked stocks also rallied after Bitcoin breached the $65,000 mark, extending gains to a second consecutive session. Here are some other notable premarket movers:
The S&P 500 has now gained for 16 of the last 18 weeks, a run not seen since 1971, Deutsche Bank analysts pointed out. That rally was fanned further last week by US data that reinforced bets the Federal Reserve would be able to cut rates later this year. The earnings season, meanwhile, showed companies averaging 8% earnings growth.
“Better economic outlook, bullish investor sentiment and some better earnings have supported the equity markets,” Jefferies strategist Mohit Kumar wrote in a note. “Whether it’s the economic outlook or the central bank ‘put’ being back on the table, investors are very positive on risky assets.” While markets have broadly pushed Fed policy-easing expectations to July, from the previously anticipated May, Kumar still expects 75-100 basis points worth of rate cuts this year, according to Bloomberg.
Some hints could come this week from Fed Chair Jerome Powell’s congressional testimony, while the European Central Bank will hold a policy meeting on Thursday. A raft of economic data is also due, including US monthly payrolls figures on Friday.
Europe's Stoxx 600 reversed earlier losses to trade up 0.3% to a new all time high with technology, health care and banks outperforming. Delivery Hero SE rose after announcing the launch of a financing transaction to amend and extend its financing facilities. Here are the biggest movers Monday:
Earlier in the session, Asian stocks gained, lifted by the tech sector, as traders prepared for a slew of central bank events and China’s key political meeting this week. The MSCI Asia Pacific Index rose 0.6%, with chipmakers TSMC and Samsung Electronics among the biggest boosts: the world’s top chipmaker, Taiwan Semiconductor Manufacturing Co., rose to its highest-ever level. Bets that the Federal Reserve will be able to cut rates as soon as June and Dell’s better-than-expected results provided support for tech shares. Taiwan’s Taiex jumped 2%, Korea’s Kospi rose more than 1% and Japan’s Nikkei 225 climbed above the key 40,000 level for the first time ever. The tech gains came on the heels of “the whole AI push again, especially in Taiwan,” said Xin-Yao Ng, an investment director at abrdn. “The AI thematic is very strong at the moment when themes like EV and renewables are facing issues.”
Chinese equities were steady ahead of the National People’s Congress, an annual gathering of the nation’s top officials that may offer trading cues from policy priorities and signals about fiscal stimulus. While recent “national team” buying has put a near-term floor on the market, some investors say more consistent policies and structural reforms are needed for fund flows to meaningfully return.
In FX, the US dollar declined for a second day, in a quiet session with no US economic data due. The Bloomberg Dollar Spot Index is down 0.1% with muted moves across the G-10 currencies. The pound is the best performer, rising 0.2% versus the greenback ahead of the UK budget announcement on Wednesday. Sterling and euro outperformed developed-nation peers while most other currencies were down.
In rates, treasuries fall, with US 10-year yields rising 2bps to 4.20%, underperforming core European rates. Treasury yields were cheaper by 2bp to 3bp across the curve with spreads broadly within 1bp of Friday’s close; 10-year yields trade around 4.21% with bunds and gilts outperforming by 3bp and 2bp in the sector. 2s10s and 5s30s spreads, little changed on the day, remain inside Friday’s sharp steepening ranges.Monday’s US session is expected to include at least 10 corporate bond offerings, while economic data slate is empty. Key labor-market indicators later this week include February jobs report Friday. The US IG dollar issuance slate empty so far, though syndicate desks are calling for roughly $30b of new IG sales this week and $130b in March
In commodities, oil prices are flat, with WTI trading near $79.90 after OPEC+ extended its oil supply cutbacks to the middle of the year. Spot gold is little changed.
Bitcoin continued to climb higher and rose more than 3% above 65,000, now just $4K away from a new all time high; price action which has lifted Crypto stocks such as Coinbase and Riot. Chinese state media warned against cryptocurrency trading as domestic interest surges amid the bitcoin rally, according to SCMP.
Looking at today's calendar, the US economic data slate is empty for the session; ahead this week are S&P Global US services PMI, factory orders, ISM services, ADP employment, JOLTS and jobs report. Fed speakers scheduled include Harker at 11am; Barr, Powell, Daly, Kashkari, Mester and Williams are scheduled to appear later this week
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APAC stocks traded mixed amid a tentative mood ahead of an event-packed week. ASX 200 lacked conviction amid varied data releases and despite initially printing a fresh record high. Nikkei 225 resumed its uptrend and climbed above the 40,000 level for the first time. KOSPI outperformed as it played catch up on its return from a 3-day weekend. Hang Seng and Shanghai Comp. were choppy with an early lacklustre mood after the PBoC's liquidity drain, while China begins its Two Sessions meeting with the focus on the NPC tomorrow including Premier Li's first government work report and the official GDP target.
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European bourses, Stoxx600 (+0.1%) began the session on a mixed footing and currently trade on either side of the unchanged mark in what has been a catalyst-thin morning. Sectors are mostly lower; Tech takes the top spot, seemingly benefitting from broad-base optimism within the sector. Basic Resources is hampered by the softer risk tone in Chinese trade overnight. US Equity Futures (ES -0.1%, NQ +0.1%, RTY +0.2%) are firmer, though trading with little direction ahead of a quiet docket on Monday. The RTY outperforms, lifted by gains in SMCI (+12.2%) and in tandem with strength in Bitcoin. Attention this week will be on appearances from Fed Chair Powell, the ECB and the US NFP report on Friday.
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DB's Jim Reid concludes the overnight wrap
We're currently on a run that you may not see again in your lifetimes. The S&P 500 last week completed a run of 16 positive weeks out of the last 18 for first time since 1971. If this carries on for another week it'll be 17 out of 19 for the first time since 1964. A remarkable and relentless period of performance.
If the run survives this week it will have navigated a number of big events ending with US payrolls on Friday. Before that we have the US services ISM, China's Caixin services PMI, the start of China's National People's Congress, alongside Super Tuesday in the US presidential race tomorrow. Wednesday sees the latest JOLTS data, the BoC meeting, the UK budget and Powell's first congressional testimony of the week. Thursday has the latest ECB meeting. Biden's state of the union address, and Powell's second testimony. Friday has a fair bit of European data alongside payrolls, including German PPI and Industrial Production.
Let's briefly review a few of these highlights now starting with payrolls. Our economists and consensus expect +200k against +353k last month with private payrolls at +175k (consensus +160k) versus +317k last month. Winter storms in February bring a lot of uncertainty to the reading as does the fact that January saw a low response rate versus long-term averages so revisions could be sizeable.
Before that we'll hear from many Fed speakers (see the week ahead calendar at the end for them all) including Chair Powell's testimonies to the House Financial Services Committee and the Senate Banking Committee on Wednesday and Thursday, respectively. He will likely stick to the January FOMC script but the market always seem to get something new out of these appearances which include a lot of congressional Q&A. He may receive plenty of questions about the balance sheet and DB's Matt Luzzetti co-authored an important academic paper on Friday, discussed on releases by both Governor Waller and Dallas Fed President Logan, called "Quantitative Tightening Around the Globe: What Have We Learned?".
The most interesting thing around the ECB meeting will be the updated staff forecasts where downgrades might not be as severe as they could have been a couple of months ago including to inflation where the flash print lasts week was ahead of consensus. So there is now unlikely to be any great urgency to cut and our economists have now pushed back their first cut to June from April. See their preview note here where they detail this and everything else you'd want to know about the meeting.
In politics, tomorrow sees 'Super Tuesday', when 16 states and territories will be holding primary elections. It perhaps lacks a bit of razzmatazz this year as a Trump vs. Biden rematch looks the overwhelmingly most likely outcome outside of an event removed from the results of the primaries. Perhaps the most interesting thing to learn is whether pollsters are accurately gauging Mr Trump's actual support levels as a guide to more national trends/predictions for November.
Moving on to Asia, in Japan, there will be several appearances by BoJ speakers including Governor Ueda tomorrow. In China, the main event will be the National People's Congress starting tomorrow. Our economists have an overview here and point to several key announcements to watch, including the 2024 growth target, the fiscal stance for 2024 and property sector policy.
Staying with Asia, markets have started the week mostly on the positive side led by the KOSPI (+1.30%) after being closed on Friday. The Nikkei (+0.58%) is currently trading above 40,000 for the first time in history. Elsewhere, the CSI (+0.15%) and the Shanghai Composite (+0.22%) are edging higher ahead of the important political meeting this week. The Hang Seng (-0.06%) and the S&P/ASX 200 (-0.14%) are slightly weaker alongside S&P 500 (-0.11%) futures. 2yr (+1.45bps) and 10yr UST (+1.36 bps) yields are slightly higher, trading at 4.55% and 4.19%, respectively.
Brent futures (+0.16%) are slightly higher at $83.68/bbl after OPEC+ members agreed over the weekend to extend voluntary crude supply cuts of 2.2 million barrels per day (mbpd) until the end of second quarter to support the "stability and balance of oil markets". This was as expected.
Recapping last week now, and markets were given fresh impetus after the US PCE inflation report was in line with expectations, after some fears had built up of an even stronger print. The S&P 500 gained +0.95% last week (and +0.80% on Friday), meaning the index has now recorded positive weekly gains for 16 out of the last 18 weeks, the first time since 1971. Talking of milestones, the Russell 2000 reached its highest level since April 2022, jumping +2.96% on the week (and +1.05% on Friday), so the rally was fairly broad. But it was tech stocks that led Friday’s sizeable rally, with the Magnificent 7 up +1.27% (+1.74% over the week). A strong earnings beat by Dell Technologies (+31.62% Friday) lifted semiconductor stocks (+4.29%) and saw Nvidia (+4.00%) move above $2trn market cap for the first time.
European equities enjoyed a more modest performance last week, with the STOXX 600 near flat (+0.07%) despite a +0.60% rise on Friday. But the German DAX was a standout, as the index shot up to a new all-time after rising +1.81% (and +0.32% on Friday).
Friday’s equity strength came despite the downside surprise in the US February manufacturing ISM (at 47.8 vs 49.5 expected). That said, it may have helped markets by increasing expectations of rate cuts, with the amount of Fed cuts expected by December rising +9.4bps last week to 92bps (+6.6bps on Friday). This supported a rally in sovereign bonds with yields on 2yr Treasuries slipping -16.0bps (and -8.8bps on Friday). 10yr Treasury yields fell by -6.7bps (and -6.9bps on Friday).
Meanwhile in Europe, flash inflation for February came in hotter-than-expected. Headline HICP slowed to 2.6% year-on-year (just above the 2.5% expected), while core saw a larger upside surprise at 3.1% (vs 2.9% expected). Against this backdrop, investors pared back expectations of ECB rate cuts, with the rate priced in for June rising +5.2bps to 23.2bps (+0.2bps on Friday). This marks the first week since October that less than 25bps of cuts have been priced by June. 10yr bund yields rose +5.1bps (+0.2bps on Friday).
In commodities, WTI crude rose to its highest level since October after gaining +2.19% on Friday to $79.97/bbl (+4.55% week-on-week), ahead of OPEC+’s production decision early this month. Last but not least, Friday was a remarkable day for alternative stores of value as gold (+1.89% to $2,083/oz) closed at an all-time high, whilst Bitcoin (+1.89% to $61,921) closed at a two-year high.