US equity futures are unchanged, as they struggle for direction ahead of Friday’s payrolls report, following a series of data releases that offered mixed signals on the health of the economy. As of 8:00am, S&P futures are flat, having traded on either side of the unchanged line during the overnight session and followed a slurry of weak macro data releases which saw Wednesday's gains erase and recover, with the S&P ultimately ending the day flat. Nasdaq 100 futs are down 0.1% with Mag 7 stocks mostly higher except for TSLA (-1.6%). Stocks and bonds in Europe gained ahead of the ECB's expected 8th consecutive interest rate cut. The yield on 10-year US Treasuries steadied as Wednesday’s bond rally faded. The dollar reversed earlier losses even as gold surged to briefly top $3400. Commodities are mostly mixed with notable outperformance in silver (+3.1%). News flow since yesterday’s close has been largely muted: headlines continue to focus on trade negotiation development, particularly implication on rare earth curbs (BBG and CNBC) and upcoming Trump-Xi call.
In premarket trading, the Mag 7 stocks are mixed (Alphabet +1.3%, Amazon +0.7%, Meta +0.2%, Microsoft 0%, Tesla -2.6%, Nvidia -0.5%, Apple -0.3%). Broadcom shares rise 1% in premarket ahead of earnings due after the bell. Chewy shares (CHWY) are down 2.4% premarket after Jefferies analyst Kaumil Gajrawala cut the recommendation on the online retailer of pet products to hold from buy, writing that valuation appears “primed” for a first-quarter beat and raise that’s unlikely to happen. Dollar Tree Inc. shares (DLTR) are up 1.6% in premarket trading, after JPMorgan upgraded the discount retailer to overweight from neutral. Here are some other notable movers:
The wild swings in stocks that were sparked by the Trump administration’s tariff announcements in April — and subsequent rebound — have given way to more subdued daily moves in recent weeks. The US benchmark has remained largely flat since mid-May as traders assess the impact of the trade war on economic activity.
Friday’s jobs report is expected to show that growth in nonfarm payrolls slowed and the unemployment rate remained steady. While the figures would chime with Wednesday data that showed a contraction in US services and a deceleration in private hiring, separate data earlier in the week unexpectedly showed a fairly broad advance in US job openings.
“Consensus is for lower job creation,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “I think there must be a big surprise to the downside for volatility to increase.”
Some investors are warning that the current period of relative market calm could once again give way to volatility, as uncertainty lingers over the outcome of trade negotiations between the US and its biggest trading partners — and the full economic impact remains unclear.
“Our bias remains to sell any rallies” in US bonds, said Mohit Kumar, chief European strategist at Jefferies International. “We are concerned over the fiscal deficits and the willingness of the rest of the world to continue financing US fiscal deficits.”
The European Central Bank is set to cut rates for an eighth time later on Thursday. Another reduction is expected in September, when trade talks with the US should have concluded and fresh forecasts will reveal the full implications of the tariffs. And speaking of Europe, the Stoxx 600 is up 0.4%, rising for a third day ahead of a widely anticipated interest-rate cut by the European Central Bank. European stocks were on track for the highest close in more than two weeks. Technology, construction and health care stocks are leading gains while travel and retail provide a drag. Here are the biggest European movers:
Earlier in the session, Asian stocks edged higher, as South Korean shares extended a rally on hopes of improved corporate governance under the new president. The MSCI Asia Pacific Index rose as much as 0.4%, heading for its highest level in more than three years. Korea’s Kospi Index jumped 1.5% after the ruling party said it will propose a revision to Commercial Act again, a key step in improving corporate governance. Benchmarks in Hong Kong and Taiwan also gained, with US economic data starting to soften and supporting the case for an interest-rate cut by the Federal Reserve. Japanese shares fell. Demand at the country’s 30-year bond auction was weaker than the average over the past year. The regional benchmark’s gain in recent weeks is in tandem with global peers, which closed at a record high Wednesday on expectations that the worst of higher tariffs may be over. Still, uncertainty remains high around the progress of US-China trade talks, with Chinese leader Xi Jinping making clear that a phone call doesn’t come without a price. That’s even as Trump is seeking a personal discussion with Beijing to prevent further escalation in trade tensions.
In FX, the Bloomberg Dollar Spot Index is unchanged. The Japanese yen is the weakest of the G-10 currencies, falling 0.3% against the greenback. The kiwi tops the leader board with a 0.4% gain. The euro traded steady after advancing more than 10% against the dollar year-to-date.
In rates, treasuries are mixed with gains only seen at the longer end of the curve. US 30-year yields fall 2 bps to 4.86%. European government bonds advance across all maturities, with UK and German 10-year yields falling 3-4 bps each. Japanese government bonds rose after an auction of 30-year debt was better than many investors had feared. Still, a bid-to-cover ratio of 2.92 at the offering pointed to a general lack of appetite for longer-maturity debt.
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In commodities, oil prices are steady with WTI near $63 a barrel. Spot gold rises $12 to around $3,385/oz. Silver rises 3% and above $35/oz for the time since 2012.
Looking to the day ahead, and the main highlight will be the ECB’s latest policy decision and President Lagarde’s subsequent press conference. Otherwise, we’ll hear from the Fed’s Kugler, Harker and Schmid, BoE Deputy Governor Breeden, and the BoE’s Greene. Data releases from the UK include the weekly initial jobless claims and the April trade balance. Meanwhile in Europe, there’s German factory orders for April, and the May construction PMIs for Germany and the UK.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mixed after the choppy performance in US where markets digested disappointing data and a drop in yields. ASX 200 struggled for direction following mixed data including the latest trade figures and household spending for Australia. Nikkei 225 retreated amid headwinds from recent currency strength and following softer-than-expected Labour Earnings. Hang Seng and Shanghai Comp were somewhat varied as tech and property names led the outperformance in Hong Kong, while the mainland was contained following mixed Caixin PMI data and as participants wait and see if a Trump-Xi call will materialise this week.
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European bourses (STOXX 600 +0.4%) opened on either side of the unchanged mark, but soon after the cash open, indices caught a bid to depict a mostly positive environment. Nothing behind the move higher, but it occurred alongside a pick-up in US equity futures. Indices are currently trading at highs. Focus now turns to the ECB, where a 25bps cut is widely expected. European sectors are mixed, with the breadth of the market fairly narrow today. Construction takes the top spot, joined closely by Tech and then Healthcare. Travel & Leisure sits at the foot of the pile, with the downside stemming from very poor FY results from Wizz Air (-22%).
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DB's Jim Reid concludes the overnight wrap
Markets put in a strong performance yesterday, after a weak batch of US data led to a massive rally for US Treasuries, which in turn supported risk assets. So investors became a lot more confident that the Fed would still cut rates this year, and the 10yr Treasury yield fell -10.0bps on the day to 4.36%. That decline in yields had the double benefit of easing financial conditions, whilst also relaxing fears about the fiscal situation. So equities held up despite the underwhelming data, with the S&P 500 (+0.01%) narrowly reaching a 3-month high. Indeed, the index is now up +19.83% since its closing low after Liberation Day, leaving it just shy of the 20% mark that would mark the technical start of a bull market.
Of course, even with the rally, the data still raised fears that the US economy lost steam into May. That started off with the ADP’s report of private payrolls, which was the softest in over two years, at just +37k (vs. +114k expected). And shortly after that, we had the ISM services index, which fell to 49.9 (vs. 52.0 expected), and the details from the report weren’t great either. For instance, the new orders component slumped to a two-year low of 46.4, whilst the prices paid indicator surged to 68.7, the highest since 2022.
Nevertheless, investors weren’t too alarmed by these data prints, as the numbers weren’t so bad as to revive fears about a recession. Indeed, it’s worth noting that the ISM services index had a big move lower back in December 2022, at a time when the Fed were aggressively hiking rates, which was then followed up by a strong recovery the following month. So in general, investors were reluctant to over-interpret one day’s data, not least given the big test is coming tomorrow with the US jobs report. Moreover, there was a more positive signal from the final US composite PMI for May, which was revised up from the flash reading to 53.0.
In terms of the market reaction, both the ADP and the ISM services prints led investors to price in more rate cuts this year, with clear moves in response to the two prints. In fact by the close, futures were pricing in 58bps of rate cuts by the Fed’s December meeting, up +8.0bps on the day, and the highest number in over three weeks. And there’s growing confidence that we’ll see the first rate cut by September, with futures now almost fully pricing (97%) one by that meeting. Given the additional rate cuts being priced, that triggered a major surge for US Treasuries yesterday. So at the front end, the 2yr yield was down -8.5bps on the day to 3.87%. And for the 30yr yield, the -10.3bps move was actually the biggest daily decline since February, pushing the yield down to 4.88%. Only a small amount of that rally has unwound this morning, with the 10yr yield up +0.6bps, and the 30yr yield up +0.5bps.
The large slide in Treasury yields had the added benefit of reassuring investors about the fiscal situation, which had been in growing focus as the 30yr yield hovered around the 5% mark. So even with the weak economic data, risk assets held up reasonably well with the S&P 500 (+0.01%) narrowly posting a 3-month high in a session that saw the lowest daily trading range for the index since mid-February. The S&P 500 now stands just -2.82% beneath its all-time high in February, although futures this morning aren’t suggesting much momentum, with those on the S&P 500 down -0.05%.
Meanwhile in Europe, there were consistent gains, with the STOXX 600 (+0.47%) advancing for a second day. There was some support from the final PMI numbers, with the Euro Area composite revised up from the flash reading to 50.2 (vs. flash 49.5). So that meant it was no longer beneath the 50-mark pointing towards a contraction. Over in Germany, the DAX (+0.77%) even hit a fresh record, which came as the cabinet approved a new package of corporate tax breaks. For sovereign bonds, there was a steadier performance across the continent, with yields on 10yr bunds (+0.1bps), OATs (+1.3bps) and BTPs (-0.3bps) seeing modest movements.
Yesterday also brought headlines in the geopolitical sphere, although markets weren’t too reactive to the various stories. Before the European open, President Trump said that President Xi was “VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!” So that led to a very modest slide in US equity futures. Meanwhile, Trump also posted about a conversation with Russian President Putin, which he said was “not a conversation that will lead to immediate Peace.” Otherwise on the trade front, there were positive noises from the US-EU trade negotiations. EU trade commissioner Maroš Šefčovič tweeted that “We’re advancing in the right direction at pace – and staying in close contact to maintain the momentum.” Similarly, US trade representative Jamieson Greer said that “I am pleased that negotiations are advancing quickly”.
Overnight in Asia we’ve seen a pretty mixed performance from the major equity indices. In Japan, the Nikkei is down -0.46%, which follows a weak auction of 30yr debt, where there was the weakest demand since 2023. However, bond markets haven’t reacted badly, with the 30yr yield coming down -6.6bps this morning. By contrast, South Korea’s KOSPI (+1.05%) has built on yesterday’s +2.66% gain, with the index currently on track to close at its highest level since mid-July. Otherwise, the Hang Seng (+0.42%) is on track for a third consecutive advance, whilst the CSI 300 (+0.07%) and the Shanghai Comp (+0.08%) have also posted modest gains this morning.
Looking forward, central banks will be in the spotlight today, as the ECB are announcing their latest policy decision at 13:15 London time. It’s widely expected that they’ll deliver another 25bp rate cut, taking their deposit rate down to 2%. However, after a succession of consecutive cuts, there’s more doubt on what happens after this meeting into year-end, as this cut would take them broadly into the middle of the neutral range. In their preview (link here), our European economists expect the ECB to keep the meeting-by-meeting, data-dependent approach to setting policy. However, they think getting the hawks to support a June cut might require a hint of conditional patience, including an implicit willingness to pause at the next meeting in July and wait until September.
Staying on central banks, the Bank of Canada left their policy rate on hold at 2.75% yesterday, in line with expectations. Afterwards, Governor Macklem said “there was a clear consensus to hold policy unchanged as we gain more information”. And in future, he said “members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued US tariffs and uncertainty, and cost pressures on inflation are contained.” By the close, the Canadian dollar had strengthened +0.31% against the US Dollar to its strongest level since early October. However, that was mainly a function of US dollar weakness, with the US Dollar weakening against every other G10 currency yesterday after the weaker US data.
To the day ahead, and the main highlight will be the ECB’s latest policy decision and President Lagarde’s subsequent press conference. Otherwise, we’ll hear from the Fed’s Kugler, Harker and Schmid, BoE Deputy Governor Breeden, and the BoE’s Greene. Data releases from the UK include the weekly initial jobless claims and the April trade balance. Meanwhile in Europe, there’s German factory orders for April, and the May construction PMIs for Germany and the UK.