US equity futures are higher, extending yesterday's gains, while the global bond rout is put on hold for the time being as traders boost wagers on a faster pace of US interest-rate cuts ahead of Friday’s pivotal jobs report. As of 8:00am ET, S&P futures are 0.1% higher, pointing to a back-to-back advance, and Nasdaq futures gain 0.25%, with Mag 7s mostly higher premarket as AMZN and TSLA add 1.3% and 1.4%, respectively. Advances were stronger in Europe, where the Stoxx 600 strengthened 0.6% and French bonds led gains across the board. Treasuries extended gains, with the yield on 10-year notes falling two basis points to 4.19% while the USD is higher. Commodities are mostly lower; oil -1.2%; gold -0.6%. Overnight, not a lot of major headlines in the US as investors are waiting for the 2x major catalysts this week (Broadcom earnings today after the close, and NFP tomorrow). Today we get the ADP Employment report at 8:15am ET (68k survey vs 104k prevsious) and ISM Services at 10am ET today (50.9 survey vs. 50.1 prior).
In premarket trading, Mag 7 stocks are mostly higher (Amazon +1.6%, Tesla +1.1%, Nvidia -0.7%, Meta +1.8%, Apple -0.3%, Microsoft -0.1%, Alphabet -0.7%).
Calm is returning to markets after days of shifts in stocks and bonds that were driven by concerns over stretched valuations and government finances. As data continue to highlight softness in the labor market, swaps show traders are nearly fully pricing in a quarter-point rate cut this month and broadly split on the likelihood of another in October.
Until Wednesday, most traders saw a second cut only by December.
“September’s cut is a given but we don’t have any strong convictions going forward,” said Fabien Benchetrit, head of target allocation for France and southern Europe at BNP Paribas Asset Management. “As for equities, we’re on the lookout for opportunities and we would look for a temporary weakness to reinforce our positions.”
Economists project about 75,000 jobs were added in August, based on the median of a Bloomberg survey, while the jobless rate is seen at 4.3%. Four straight months of sub-100,000 payrolls growth would mark the weakest such stretch since the onset of the pandemic in 2020. Ahead of Friday’s data, the ADP Research report on Thursday showed even slower private payroll growth in August, with jobs rising just 54K, below the 68K expectation, and down from 106K the previous month. Weekly initial jobless claims are seen little changed from the week before.
In separate figures, hiring plans fell to the weakest level for any August on record and intended job cuts mounted, according to outplacement firm Challenger, Gray & Christmas.
“I think at this point, it’s clear that the labor market is slightly cooling down,” said Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank. “The market is now pricing a 97% chance of the Fed cut. What could change that potentially is if we have very strong inflation data, but we’re not seeing that yet.”
Elsewhere, Wall Street strategists say investors are increasingly uneasy about the Fed’s independence as President Donald Trump pressures the central bank for rate cuts and seeks greater influence over its leadership. Market positioning across stocks, bonds and gold indicates investors are bracing for a potential pickup in inflation following Trump’s nomination of close adviser Stephen Miran to the Fed and his move to oust Governor Lisa Cook, JPMorgan strategists said. Meanwhile, Goldman analysts warned that mounting doubts over US institutional credibility pose “significant tail risks,” including the risk of a surge in the price of gold... supposedly much more than the one already observed.
In Europe the Stoxx 600 strengthened 0.4%, rising for a second day as investors welcomed a further pullback in longer-dated European government bond yields. Retail and media stocks are outperforming while the travel and leisure sector is one of the few decliners as budget airlines including EasyJet and Ryanair drop after a profit warning from Jet2. Here are some of the biggest movers on Thursday:
Earlier in the session, in Asia, a selloff in Chinese stocks deepened on a Bloomberg report that regulators may move to cool a rally that has added $1.2 trillion since August. Still, Asian stocks were set to snap a two-day losing streak, led by financials, as investors returned to risk assets after US jobs data boosted Fed rate-cut bets. Chinese benchmarks declined. The MSCI Asia Pacific Index gained rose 0.2%, supported by Commonwealth Bank of Australia and Mitsubishi UFJ Financial Group. SoftBank Group and Sony Group were also among key advancers. Japan led regional gains, with benchmarks in South Korea and India also moving higher. In China, stocks plunged after Bloomberg reported that regulators are muling cooling measures for the market on concerns over the speed of the recent rally. The country has also started imposing duties on additional US optical fiber imports after a months-long investigation. Benchmarks in Hong Kong and the mainland dropped more than 1%. Meanwhile, shares in India got a lift after policymakers announced a range of consumption tax cuts to boost local demand.
In FX, the Bloomberg Dollar Spot Index is up 0.1%. The Norwegian krone leads declines among G-10 peers against the greenback, falling 0.6%. The Swiss franc falls 0.1% with little reaction seen after headline CPI matched expectations.
In rates, treasury futures hold small gains in early US session, with yields richer by 2bp-3bp, following similar price action in European bonds. Long-end gilts outperform, flattening the UK yield curve. Economic data calendar provides main focal points of US session, including ADP employment and ISM services index. US 10-year, about 2bp richer on the day near session low, slightly underperforms bunds and gilts in the sector; curve spreads are narrowly mixed, broadly within 1bp of Wednesday’s closing levels. German, French and UK 30-year borrowing costs are down some 5 bps each. Treasuries also gain, with the US 30-year yields down 2 bps to 4.88%.
In commodities, spot gold drops $20. Oil prices fall for a second day, with WTI down 1.2% to $63.20 a barrel. Bitcoin falls 1.2%.
Today's US economic data slate includes August Challenger job cuts (7:30am), August ADP employment change (8:15am), 2Q final nonfarm productivity and unit labor costs, weekly jobless claims and July trade balance (8:30am), August final S&P Global US services PMI (9:45am) and August ISM services index (10am). Fed speaker slate includes New York Fed’s Williams (12:05pm) and Chicago Fed’s Goolsbee (7pm)
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks followed suit to the mixed performance stateside, where tech and communications outperformed following the Google antitrust ruling, and participants digested dovish data and Fed rhetoric. ASX 200 advanced with the gains led higher by outperformance in the top-weighted financial sector and with tech stocks inspired by US counterparts. Nikkei 225 outperformed despite light catalysts, although Japan's trade negotiator Akazawa is scheduled to visit the US from today, while he noted that administrative issues have been resolved and will continue to push for a presidential order for what has been agreed on tariffs. Hang Seng and Shanghai Comp were pressured following a report that China is said to consider curbs on stock speculation to foster steady gains, while US-China frictions resurfaced following US President Trump's comments during the Victory Day parade and with China announcing anti-dumping duties on optical fibre from the US.
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European bourses (STOXX 600 +0.3%) opened mixed and traded tentatively on either side of the unchanged mark, before sentiment improved a little to now show a mostly positive picture. European sectors opened mixed but now hold a slight positive bias. Travel & Leisure is found right at the foot of the pile, and is the clear underperformer today. Downside which has been driven by Jet2 (-14%), after the Co. provided an awful trading update, where it now sees EBIT at the lower end of its guided range. Healthcare also sits towards the foot of the pile, giving back some of the prior day’s losses, but also following an update from Sanofi (-8.7%); the Co. announced that amlitelimab met all primary and key secondary endpoints in the COAST 1 phase 3 study. Though analysts highlight that the efficacy of the drug did not meet expectations.
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DB's Jim Reid concludes the overnight wrap
The global bond selloff finally paused for breath yesterday, as weak US data meant investors ramped up their expectations for Fed rate cuts this year. The main catalyst was the JOLTS report for July, which showed that job openings fell to a 10-month low and exacerbated fears about a labour market slowdown. So that pushed the 2yr Treasury yield (-2.2bps) to 3.62%, whilst the 30yr yield (-6.5bps) saw an even bigger decline to 4.90%. Moreover, any fall in yields is going to ease some concern about the fiscal situation, which gave risk assets a lift as well on both sides of the Atlantic. So equities put in a decent performance, with the S&P 500 (+0.51%) moving back within 1% of its record high from last Thursday.
Perhaps the most interesting data today will be the prices paid components in the US ISM services release. As you'll see on page 41 in our pack it has a very good record of leading CPI. Last month it climbed to 69.9 which if you took at face value from the graph predicts over 5% US CPI in the coming months. Now clearly that's highly unlikely, as the prices paid is more prone to spikes than CPI, but it shows where the momentum and risks are for now. So markets do need to see this mean revert lower soon.
Back to yesterday, and it had been quite a different story at the start of the day, as right after the European open, the US 30yr yield moved within a whisker of 5% again, reaching an intraday peak of 4.9997%, a full 10bps above its closing level. But those moves then unwound, as several data releases started to come in more softly than expected. That began in Europe, where the final services and composite PMIs for August mostly saw downward revisions. For instance, the German services PMI was revised down to 49.3 (vs. flash 50.1), putting it back in contractionary territory, whilst the Euro Area services PMI came down as well to 50.5 (vs. flash at 50.7).
Those moves then got further momentum during the US session, where weak data and somewhat dovish Fed commentary pushed the rally on. Most dovish was Governor Waller, who voted for a rate cut at the most recent meeting. He reiterated his expectation that the Fed should cut at the next meeting and favoured multiple cuts over the next few months. In addition to the JOLTS release, his labour market concerns got some support from the Fed’s latest Beige Book which saw seven of the twelve Fed districts report that “firms were hesitant to hire workers because of weaker demand or uncertainty”. Separately, St Louis Fed President Musalem said he expected the labour market “to gradually cool and remain near full employment with risks tilted to the downside”. And Atlanta Fed President Bostic said that he still only favoured one cut this year, but suggested that September could be in play if economic data weakened from here.
Speaking of the Fed, we might get a better sense of the outlook today, as the Senate Banking Committee are holding the nomination hearing for Stephen Miran, who Trump has nominated to replace Adriana Kugler on the Fed’s Board of Governors. The administration are trying to get him confirmed in time for the next FOMC meeting on September 16-17. But from a market point of view, it’ll be interesting to hear senators’ questioning of Miran’s views on Fed independence as Trump seeks to reshape the makeup of the Fed’s Board and influence it to cut rates. In prepared opening remarks released yesterday ahead of the hearing, Miran says that “Independence of monetary policy is a critical element” of the Fed’s success and that “I intend to preserve that independence”. As it stands, the Republicans hold a majority in the Senate, so Miran doesn’t need any Democratic votes to be confirmed, and he was confirmed to his current position as CEA Chair by a 53-46 vote with all Republicans in support.
The topic of Governor Cook’s attempted dismissal also stayed in the headlines, with Republican Senator Thom Tillis, who’s a potential swing vote in the Senate Banking Committee on any Fed nominee, saying that he would not consider any nominee to replace Cook until the courts determined the legality of Trump’s move to fire her.
Otherwise, the bond rally got its main push from that JOLTS report yesterday, which showed the US labour market was a bit softer than expected. Notably, the number of job openings fell to a 10-month low of 7.181m (vs. 7.380m expected). So that confirmed the message from the underwhelming July jobs report, and it added to fears that the labour market was softening more significantly. Indeed, it backed up the message from Fed Chair Powell’s Jackson Hole speech that the “downside risks to employment are rising”. That meant investors moved to price in more Fed rate cuts for the months ahead, with a 25bps September rate cut now 100% priced as I type. And in turn, yields moved lower across the Treasury curve yesterday, with the 2yr down -2.2bps to 3.62%, whilst the 10yr was down -4.4bps to 4.22%, a level it's settling at in overnight trading.
Over in Europe, sovereign bonds followed a pretty similar pattern, with yields moving lower across the continent. To some extent, the moves fed upon themselves, as markets moved from a vicious circle to a virtuous one where lower yields helped to ease fears about debt sustainability and helped yields fall further. So by the close, yields on 10yr bunds (-4.6bps), OATs (-4.2bps), BTPs (-6.2bps) and gilts (-5.2bps) had all moved lower. But even with that rally, there’s still a fair amount of nervousness before Monday’s confidence vote in the French National Assembly, with the Franco-German 10yr spread closing back above 80bps again.
For equities, lower bond yields provided a decent tailwind as concerns eased about the fiscal position. So that led to a rally on both sides of the Atlantic, with the S&P 500 up +0.51%, whilst Europe’s STOXX 600 rose +0.66%. In the US, tech stocks provided a big lift that meant the Magnificent 7 surged +2.20%, aided by a very strong performance for Alphabet (+9.14%) that made it the strongest performer in the entire S&P 500. That followed the news after the previous day’s US close, that we discussed yesterday, that Google had avoided a breakup and won’t have to sell its Chrome browser.
In the commodity space, gold rose +0.74% to a new record high of $3,559/oz but has given up these gains this morning in Asia. Meanwhile, oil prices fell after Reuters reported that OPEC+ will consider further raising oil production at a meeting this Sunday, with WTI crude seeing its biggest decline in over a month (-2.47% to $63.97/bbl). Oil is extending these declines in Asia, down another -0.7%.
In Asia there is a major divide between Chinese stocks and the rest. Chinese markets are underperforming, with the CSI down by -2.47%, the Shanghai Composite declining by -1.97%, and the Hang Seng falling by -1.21%. This decline follows a report from Bloomberg indicating that China's financial regulators are contemplating measures to limit stock market speculation due to concerns regarding the rapid pace of a $1.2 trillion rally that began in early August.
Outside of China, sentiment is much more upbeat, likely helped by the global bond rally over the past 12-24 hours. The Nikkei is up +1.52%, leading the gains, while the Topix has also increased by +0.93%. Elsewhere, the S&P/ASX 200 has climbed by +0.95%, recovering from significant losses in the previous session, after robust GDP data tempered some expectations for further interest rate reductions by the RBA. Meanwhile, the KOSPI has edged up +0.13%, marking its third consecutive session of gains following positive GDP figures released earlier in the week. S&P 500 (+0.14%) and NASDAQ 100 (+0.18%) futures are also edging up. 10 and 30yr JGB yields are -1.5bps and -3.3bps lower respectively after a 30 year auction that saw demand broadly in line with its two year average.
Early morning data revealed that Australia’s trade surplus surged to A$7.31 billion in July, (vs. A$4.90 billion expected), the highest level since February 2024. It follows an increase from the revised surplus of A$5.37 billion recorded in June.
Looking at the day ahead, data releases in Europe include Euro Area retail sales for July, whilst in the US we’ll get the ADP’s report of private payrolls for August, the weekly initial jobless claims and the ISM services for August. From central banks, we’ll hear from the Fed’s Williams and Goolsbee, and the ECB’s Cipollone. Finally, the Senate Banking Committee will hold the nomination hearing for Stephen Miran to join the Fed’s Board of Governors.