"Stocks stop panicking after policymakers start panicking"
- Bank of America's Michael Hartnett
US equity futures are higher on US/EU trade optimism as well as global bond yield stabilization after the BOJ is reportedly looking to reduce domestic bond vol following last week's historic selloff which led to record losses on Japanese life insurers and other financial firms. As of 8:00am, S&P futures are up 1.5%, and Nasdaq futures gain 1.6% after Trump said he would extend the deadline for the European Union to face 50% tariffs until July 9; Stocks look like an ‘Everything Rally’ led by TMT in premarket trading with multiple Mag7 names are up more than 2% including NVDA +2.8% ahead of earnings tomorrow, buoying Semis, and Cyclicals over Defensives. The yield curve is bull flattening amid USD strengthening, perhaps setting the stage for US outperformance. 30Y yields fell six basis points to move below 5% as Japanese long-end bond yields plunged after reports that Japan’s finance ministry asked market participants for their views on the appropriate amount of debt issuance, suggesting Japan's MOF is looking to bring calm to a market where relentless selling had pushed yields to record highs and left demand for fresh supply floundering. The dollar rose 0.3%, setting the currency on track for its biggest gain in more than two weeks. Today’s macro data focus in Durable/Cap Goods, Housing Prices, and Consumer Confidence with the critical catalyst being tomorrow’s NVDA print.
In premarket trading, Magnificent Seven stock after all well in the green (Tesla +2.2%, Nvidia +2.5%, Meta +1.9%, Amazon +1.6%, Alphabet +1.5%, Apple +1.6%, Microsoft +1.1%). Gold mining stocks including Newmont (NEM) are lower, following peers in the rest of the world as gold extends a slide on weakening demand for haven assets (Barrick Mining -1.9%; Newmont -2.5%). Trump Media (DJT) surged 11% after the Financial Times reported that the company plans to raise $2 billion in equity and $1 billion via convertible bonds to buy cryptocurrencies. Nuclear stocks are set to extend a rally into a second day after President Donald Trump signed orders aimed at reviving US leadership in nuclear power Friday (Constellation Energy +2.4%, Nano Nuclear Energy +2.7%). Here are some other notable premarket movers
The big move overnight came from Japan's bond market where the yield on Japan’s 40-year debt fell about 25 basis points after Reuters reported that Japan’s finance ministry asked market participants for their views on the appropriate amount of debt issuance. The move suggested Japan's MOF is finally panicking and hoping to bring calm to a market where relentless selling had pushed yields to record highs and left demand for fresh supply floundering.
“That potential lower issuance is giving Treasuries a nice helping hand,” said Michael Brown, strategist at Pepperstone Group in London. “For those seeking to buy long-term debt, lower Japanese government-bond supply could force them into the Treasury complex.”
US Treasuries have come under pressure in recent weeks as President Donald Trump’s signature tax legislation and a Moody’s Ratings downgrade put the spotlight on rising debt issuance and a ballooning budget deficit. The dollar has also been hit as shifting US policies and the global trade war weighed on demand for American assets. The unpredictabililty of Trump’s tariff moves will continue to weigh on the greenback, said Kenneth Broux, a strategist at Societe Generale. The dollar has declined more than 7% this year against a basket of currencies, despite Tuesday’s gains.
“When you see these patterns of escalation, de-escalation, sleep, repeat, it’s not going to give investors a lot of confidence about what the administration is trying to do,” Broux said. “There’s still the conversations about the re-balancing from US assets. That’s a multi-week, multi-month process.”
The Stoxx 600 rises 0.6%, led by gains in travel, technology and industrial names. Germany’s DAX index also trades at a record high. Here are the top European movers:
Earlier in the session, Asian equities slipped after reaching a fresh seven-month high on Monday, weighed down by losses in technology shares. The MSCI Asia Pacific Index fell as much as 0.4%, with TSMC, Samsung Electronics and ICICI Bank among the biggest drags. Benchmark gauges dropped in Taiwan, India and mainland China, while Japanese and Hong Kong shares advanced. An index of region’s tech stocks slumped as much as 1.2% to the lowest since May 14. Asian equities have been outperforming on a continued inflow of institutional funds given the weakening of the dollar and concerns over US policymaking. The MSCI regional benchmark is on pace to beat a gauge of global equities for the fourth month in a row, the longest such streak since 2017.
“We do see a slowdown coming in China,” likely in the second half, Jun Bei Liu, co-founder and lead portfolio manager at Ten Cap Investment, told Bloomberg TV. While consumer businesses should do well, “we’re just a little bit cautious” given weakness in housing and as the latest stimulus has yet to take effect.
In rates, Japanese government bonds lead a global long-end rally after Reuters reported the country’s finance ministry has asked market participants for their views on the appropriate amount of government debt issuance. Japan’s 30-year bond yield slid as much as 22 basis points, while comparable US Treasury yields drop 7 bps at 4.97%; UK and German 30-year borrowing costs fall 5 bps each. Bonds rose across Europe as well, where weaker-than-expected French inflation offered an additional boost. European equities climbed 0.5%.
In FX, the Bloomberg Dollar Spot Index rises 0.3% while the yen is the weakest of the G-10 currencies, falling 0.7% against the greenback to near 144.
Oil prices edge higher ahead of an OPEC+ meeting on supply policy. WTI climbs 0.4% to $61.80 a barrel. Spot gold falls $45 to around $3,300/oz.
Looking at today's calendar, US economic data includes April durable goods orders (8:30am), March FHFA house price index, 1Q house price purchase index, March S&P CoreLogic house prices (9am), May consumer confidence (10am) and Dallas Fed manufacturing activity (10:30am). Fed speaker slate includes Barkin (9:30am) and Williams (8pm)
Market Snapshot
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Tariffs/ Trade
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed with price action relatively rangebound amid a lack of major fresh catalysts and in the absence of a lead from Wall St owing to Memorial Day. ASX 200 edged marginally higher as strength in tech, energy and financials atoned for the underperformance in the mining and resources sectors. Nikkei 225 was subdued amid a firmer currency and after BoJ Governor Ueda reiterated the central bank's policy normalisation rhetoric, although the downside was stemmed following a lack of deviation in Services PPI data, which matched the prior reading, and as long-end JGB yields declined. Hang Seng and Shanghai Comp were lacklustre with price action in Hong Kong choppy and with the mainland constrained as focus turned to earnings releases and despite a slight acceleration in Chinese Industrial Profits, while a firm PBoC liquidity operation also failed to inspire.
Top Asian News
European bourses (STOXX 600 +0.5%) opened incrementally firmer, but sentiment improved in tandem with a pick-up in US equity futures. Indices currently reside at session highs. European sectors hold a strong positive bias, with only a handful of industries residing in the red. Financials take the top spot, joined closely by Travel & Leisure and then Industrials. The latter buoyed by continued strength in Defence names, following Trump’s hawkish remarks on Putin following Russia’s large-scale attack on Ukraine over the weekend.
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FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
Central Bank Speakers
DB's Jim Reid concludes the overnight wrap
Given that the UK and US were on holiday yesterday, today's edition will include a week ahead and a review of last week as well as discuss a quiet session in Europe yesterday and Asia overnight. This week is half-term in the UK so activity could be a bit slower which could have been a problem if we were still facing the June 1st 50% tariff deadline for the EU, but yet again we saw a deadline delay over the weekend back to the original July 9th date after a positive call between Trump and EC President von der Leyen. The Stoxx 600 (+0.99%) made up for Friday's fall (-0.93%) after the delay but even Friday's fall showed that markets are getting more accustomed to Trump's threats and now partly assume the full threat won't immediately materialise. There is certainly fear fatigue. Interestingly the dollar hasn't rallied since the news on Friday and has instead edged lower. Investors are seemingly of the view that continued aggressive tariff headlines chip away at investors desire to hold US assets. 10yr European bond markets rallied 1-3bps yesterday with 30yr yields 2-5bps lower.
In Asia, S&P (+0.90) and NASDAQ (+0.96%) futures are notably stronger than Friday's close while 10yr and 30yr US Treasuries have rallied -3.0bps and -4.3bps after yesterday's holiday. In Japan 10 and 30 year yields are -5.6bps and -16.4bps lower with a further few basis points of this rally coming just as we go to print as a Reuters story has quoted sources at the MoF suggesting a trimming of ultra-long issuance after the recent rout. There is a 40yr auction tomorrow. This all comes after a very weak 20yr auction this time last week so things have moved fast at the Japanese long end over the last several days. The Yen (+0.29%) is strengthening, trading at 142.43 against the dollar after the BOJ Governor Kazuo Ueda signaled potential further interest rate hikes in response to rising inflation. This has also helped to lower yields at the long-end this morning.
Asian stock markets are generally trading lower in a fairly quiet session so far. As I check my screens, the KOSPI (-0.60%), the CSI (-0.56%), the Shanghai Composite (-0.33%), the Hang Seng (-0.18%) and the Nikkei (-0.18%) are all slipping. The People’s Bank of China (PBOC) yesterday directed its largest banks to increase the proportion of yuan used in international trade transactions, a move aimed at promoting the currency's use amidst ongoing trade tensions.
As we move through the rest of the week, Nvidia’s earnings tomorrow night might be the most interesting single event. Its rallied around +40% from the lows but has been range trading (in a big range) for a year now after an exponential upmove in the two prior years. In the macro world, inflation will be the key theme, with US PCE (Friday), preliminary May CPIs for Europe through the week and the Tokyo CPI (Friday). Consumer confidence indicators will also be out in the US and Germany (today), and Japan (Thursday). Elsewhere the highlights are US Durable Goods today, German unemployment, Australian CPI and the latest FOMC minutes tomorrow, the second reading of Q2 US GDP and US claims on Thursday are some of the other main highlights.
Recapping last week even if it feels a long time ago now writing this on a Tuesday morning. Markets had a rougher time as investors grew more concerned about the US debt trajectory, whilst trade fears also returned after Trump threatened a fresh round of tariffs. That was clear right from the start of the week, as markets reacted to the news of Moody’s credit rating downgrade for the United States. But even after the downgrade, the fiscal situation remained top of the agenda, as the House of Representatives narrowly voted in favour of the latest tax bill. That would extend the tax cuts from Trump’s first term and raise the debt ceiling by $4tn, so it offered markets a fresh reminder about the scale of US deficits. Indeed, on an intraday basis the US 30yr yield got as high as 5.15% on Thursday, something we haven’t seen since October 2023, and a level we haven't closed at since 2007.
Then on Friday, markets took a further hit after Trump threatened to place a 50% tariff on the EU from June 1. He said that the EU had “been very difficult to deal with”, and that the “discussions with them are going nowhere!” So that immediately led to a fresh risk-off move, with equities ending the week lower right across the world. In fact, the S&P 500’s weekly decline of -2.61% (-0.67% Friday) was the biggest since the week of Liberation Day. Meanwhile in Europe, the STOXX 600 ended a run of 5 consecutive weekly gains, falling -0.75% (-0.93% Friday). Obviously the weekend delay has helped market recoup some of last week's (and all of Friday's) losses.
Whilst equities were losing ground, it was also a tough week for sovereign bonds thanks to the fiscal concerns, particularly at the long end of the curve. For instance, the 30yr Treasury yield was up +9.3bps last week (+0.2bps Friday) to 5.04%. That was echoed elsewhere, with the German 30yr yield up +4.9bps to 3.08%, whilst Japan’s was up +6.1bps to 3.02% before this morning's big rally. Sovereign bonds at shorter maturities performed much better, with the 2yr Treasury yield down -0.8bps to 3.99%, whilst the 10yr yield was up by a smaller +3.3bps to 4.51%. And in Germany, the 10yr bund yield fell -2.3bps last week to 2.57%, ending a run of 3 consecutive weekly increases.
Several of those moves were exacerbated by the latest data releases. For instance, there were strong inflation reports in the UK, Canada and Japan last week. And in Europe, the flash PMIs for May were weaker than expected, adding to the signs that the economy had lost some momentum after Liberation Day. For instance, the Euro Area composite PMI fell to 49.5, which is the first sub-50 reading since December. So risk assets struggled across the board, with Brent crude oil prices down -0.96% (+0.53% Friday) to $64.78/bbl. And US HY credit spreads widened after a run of 6 consecutive weeks of tightening, moving up +25bps last week (+7bps Friday) to 330bps.