US futures are higher with bond yields also rising higher in quiet, cautious trade ahead of a barrage of earnings including MSFT and GOOGL later today, as well as central bank announcements tomorrow (the FOMC meeting begins today) and Thursday from the ECB and BOJ. S&P futures were fractionally higher, rising 0.1%, as a surge in Chinese stocks spilled over; Nasdaq 100 futures rose as much as 0.4%, after a weak session Monday, with Microsoft Corp. and Alphabet Inc. due to report their first earnings since artificial-intelligence fever broke out. Shares in both companies were about 0.5% higher in New York pre-market trading as investors waited to see if the results justify the companies’ hefty year-to-date share gains. Treasury yields climbed across the curve, while the dollar and oil both reversed earlier losses; iron ore prices climbed while gold reversed modest gains. Today focus will be on MSFT and GOOGL earnings after the close. On macro, we get Case Shiller, Consumer Confidence and Richmond Fed at 10am ET.
In premarket trading, megacap stocks again lead higher. Shares in General Motors and General Electric gained in premarket trading as both companies raised their earnings guidance, while NXP Semiconductors NV advanced as its results beat expectations. China stock traded in the US rallied after China’s Politburo was far more dovish than expected: HSI and CSI added 4.1% and 2.9% today; FXI closed with a 2.1% gain yesterday. Here are the most notable premarket movers:
Some 48% of the S&P by market cap, or companies with a market value of $16.3 trillion, are reporting earnings this week. Despite stocks trading near 2023 highs, investors seem unwilling to place big bets, given uncertainty over what signals Federal Reserve and European Central Bank policymakers might send, with the Fed’s potential policy path, especially, crucial for global markets.
“Investors are unlikely to feel safe enough to get into the equities water before such an eventful week,” Mizuho International Plc strategists Evelyne Gomez-Liechti and Helen Rodriguez wrote in a note.
Despite the listless mood, hopes have grown that the US economy will be able to escape a sharp recession. That’s lifted the Dow Jones Industrial Average 5% so far this month, as investors price a better outlook for companies making industrial equipment and heavy machinery. That’s put the Dow index in the midst of its longest winning streak in more than six years.
European shares also edged higher, lifted by resources firms such as Anglo American Plc and Rio Tinto Plc that benefited after China's Politburo signaled more support. The Stoxx 600 is up 0.2% after the Hang Seng finished with gains of 4.1%. Mining stocks have outperformed while Adidas and Bayer are all higher post-earnings. Among individual movers, consumer-goods giant Unilever Plc stood out, gaining as much as 5.7% after beating sales estimates, while spirits group Remy Cointreau SA surged after Chinese sales helped it surpass forecasts. European market sentiment was dampened by a euro-area bank lending survey which showed a record plunge in loan demand from the bloc’s companies. Alongside a dismal business outlook reading from Germany, the data raise questions over the ECB’s capacity to hike interest rates much beyond the 25 basis points priced for this Thursday’s meeting. Here are some of the most notable European movers:
Attention is now turning to LVMH, Europe’s biggest company on what it says about Chinese consumer trends in its report later in the day.
Earlier in the session, Asian stocks advanced, lifted by Chinese shares after the country’s top leadership signaled fresh support for the ailing economy, while investors braced for key central bank meetings this week. The MSCI Asia Pacific Index rose as much as 1%, led by material and communication services shares. Most regional markets rallied, with technology and property shares propelling mainland Chinese and Hong Kong benchmarks. Chinese stocks drive Asian equity gains following an ADR rally in New York on Politburo’s pro-growth message. Hang Seng Tech index surges as much as 5.3% and H shares jump more than 4%. The CSI 300 rallied 2.6% - poised for its best day in five months - as developer shares soar the most in seven months.
China’s top leaders on Monday pledged to boost consumption and offer more support for the troubled property sector to help revive a slowing economy. The statement from the Politburo meeting was taken positively by investors, who say the outcome was better than expected. “The Politburo met earlier and was more dovish than expected, promising housing easing, local debt resolution, and a boost to capital markets. It could be a defining moment, akin to October 2018,” Morgan Stanley economists including Robin Xing wrote in a note. “We expect a meaningful growth rebound in 4Q, keeping full-year growth at the government’s target of 5%.”
Other Asian markets are narrowly mixed: Japanese stocks traded in a narrow range as investors awaited policy decisions from the Federal Reserve and the Bank of Japan. The Fed is expected to further raise interest rates, while the BOJ is projected to stand pat as it waits for sustainable inflation. Kospi nudged higher while the ASX 200 was positive with the index led by gains in the mining and energy sectors amid recent strength in underlying commodity prices owing to the Chinese stimulus hopes. Key stock gauges in India closed flat on Tuesday while small and mid-sized companies continued their rally to new peaks as ongoing earnings season unfolds. The S&P BSE Sensex was little changed at 66,355.71 in Mumbai, while the NSE Nifty 50 Index was also flat at 19,680.60. BSE Ltd.’s small- and mid-cap stocks rallied more than 0.3% each.
In FX, the Bloomberg’s Dollar Spot Index traded in the red, on track to snap five sessions of gains, while the euro touched a two-week high against the greenback after China signaled renewed support for its struggling economy.
In rates, treasury yields are higher by 2bp-3bp across the curve as the Bloomberg Dollar Spot Index falls 0.1%; 2s10s curve is optically steeper after switch to new 2-year note sold at auction Monday. The new 2-year trades around 4.87% after drawing 4.823% in the auction, highest yield for an auction of the tenor since 2007. Still, vs the 10-year at 3.89% its 98bp spread is tighter than the old 2-year note’s; the higher-yielding old 2-year traded nearly 106bp cheap to the 10- year Monday. Bunds are in the red although they briefly pared declines after German IFO missed expectations. German 10-year yields are up 2bps. Auction cycle continues with $43b 5-year. Apart from new 2-year, benchmark yields are highest since July 12 as wagers that the Fed will raise rates again this year after an expected quarter-point hike at the meeting that concludes Wednesday have increased somewhat. Ahead of auction at 1pm New York time, WI 5-year yield at around 4.15% is higher than 5-year auction stops since October; last month’s drew 4.019%.
Commodity prices were mostly on the rise after Chinese leaders used this week’s Politburo meeting to flag more aid to the economy. Oil prices held near three-month highs, with brent futures trading near $83 while copper and steel-making staple iron ore both rose, given their importance for China’s property sector. US-listed Chinese stocks also extended their rally in premarket trading.
In Crypto, Binance and CEO Zhao are planning to seek a dismissal of the CFTC complaint, according to Bloomberg. Crypto exchange Kraken says it is investigating reports that some clients are experiencing funding delays. UK Information Commission will examine Worldcoin (WDC), a project by OpenAI CEO Sam Altman, according to a spokesperson cited by CoinDesk.
Looking ahead, the US economic calendar includes July Philadelphia Fed non- manufacturing activity at 8:30am, May FHFA house price index and S&P CoreLogic home prices at 9am, and July Conference Board consumer confidence and Richmond Fed manufacturing at 10am; Fed speakers are in self-imposed quiet period ahead of Wednesday’s rate decision
Market Snapshot
Top Overnight News
- US national security officials are scrutinizing an Abu Dhabi sovereign wealth fund’s planned $3bn takeover of New York-based Fortress Investment Group amid concerns in Washington over the United Arab Emirates’ ties to China. FT
- Unilever reported higher than expected underlying sales growth in the first half of the year driven by continued price rises, but sales volumes were flat as the cost of living crisis squeezed consumers. The company said “we have passed peak inflation”, adding that it had moderated its price rises. Prices rose 9.4 per cent in the first half, compared to 13.3 per cent in the fourth quarter of 2022. FT
- The slow pace of Ukraine’s counteroffensive against entrenched Russian invaders is dimming hopes that negotiations for an end to the fighting could come this year and raising the specter of an open-ended conflict, according to Western officials. WSJ
- Corporate loan demand in the euro area fell the most on record in the second quarter as rate hikes started to bite, an ECB survey showed. Demand for mortgages and other consumer borrowing declined, and lenders expect more tightening to come. Germany is probably still stuck in a recession, Ifo's head said, as its business outlook worsened in July. BBG
- Chipmakers warned that shortages of technicians, engineers and computer scientists are threatening US plans for rapid expansion of the sector. About 115,000 new jobs are expected by 2030 but current graduation rates imply more than half may remain unfilled, an industry body said. BBG
- McCarthy says House probes into the foreign business activities of the Biden family rose to the level of an impeachment inquiry. The Hill
- DeSantis is no longer Trump’s main rival as the Florida governor’s campaign continues to falter. London Times
- The FDIC hit out at some US banks for incorrectly reporting the amount of their uninsured deposits, after dozens of lenders restated their figures downward earlier this year. The regulator said banks were wrong to exclude deposits that were collateralized by pledged assets. The level of uninsured deposits at banks came into focus after the collapse of SVB and Signature Bank. BBG
- General Motors has raised its guidance for the second time this year, citing strong customer demand. The Detroit carmaker predicted it will earn between $12bn and $14bn this year, having raised the bar in April when it said it would bring in $12.5bn at most. FT
- US data surprises have been positive in the last couple of months, while European and China data have undershot...
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly higher amid a rally in Chinese stocks after the Politburo’s support pledges, although gains for the rest of the region were capped after soft global PMIs and with some cautiousness heading into risk events. ASX 200 was positive with the index led by gains in the mining and energy sectors amid recent strength in underlying commodity prices owing to the Chinese stimulus hopes. Nikkei 225 lagged as speculation remained rife regarding this week’s BoJ meeting with source reports noting the central bank is to consider a large increase in its 2023 inflation outlook and could raise its forecast to around 2.5%. Hang Seng and Shanghai Comp were boosted with gains led by a surge in property and tech stocks after the Politburo’s support pledges which lifted the Hang Seng Tech Index by around 5%, while the Hang Seng Mainland Properties Index rose by a double-digit percentage from early on as the Politburo’s statement omitted the language that homes are not for speculation.
Top Asian News
European bourses are managing to eke out marginal gains, Euro Stoxx 50 +0.1%, with macro drivers downbeat since the APAC upside seen on Chinese stimulus. Mining names outperform given Politburo stimulus while Unilever +5.0% is supporting the FTSE 100 and AEX post-earnings; on that point, European heavyweight LVMH reports after the Paris close. Stateside, futures are in the green but only modestly so with specific drivers somewhat light ahead of tomorrow's FOMC and with numerous large-cap earnings due in- and after-hours today; ES +0.1%.
Top European News
FX
Fixed Income
Commodities
Geopolitics
US event calendar
DB's Jim reid concludes the overnight wrap
Sentiment has been a bit more negative than markets over the last 24 hours, as weak data from the flash PMIs for July was a bit worrying. However, DM equities just about shrugged it off and US bonds sold off after a weak 2yr Treasury auction, and traded in completely the opposite direction to the way European bonds did after the weak PMIs. The Chinese stimulus announcement yesterday has turned momentum overnight in their bourses, with Chinese real estate stocks up c.+7%, reducing YTD losses to c.-13.7%, so there’s some interesting global push/pull factors going on at the moment. Markets are now awaiting this week’s round of central bank decisions, multiple data releases, and a raft of earnings over the rest of the week.
As you'll see in the day ahead, there's lots to look forward to today including earnings from Microsoft and Alphabet after the bell; however, the one I'm most intrigued about is the latest quarterly ECB bank lending survey. The last survey, conducted in the weeks after the March banking stress, saw our aggregate indicator of BLS credit conditions decline to its weakest since the GFC amid a sharp fall in demand for loans and tightening credit standards. Banks did expect a partial rebound in credit conditions in Q2 so we'll see if that materialised. It's tough to disentangle recent shocks (energy spike and regional bank/Credit Suisse crisis) and their recovery, from the cyclical (400bps of hikes in a year). As well as a steer on Europe it might also give us clues as to the all important Fed SLOOS next week.
Back to those flash PMI numbers, it became clear things were surprising on the downside from the get-go in the European session. For instance, the French composite PMI hit a 32-month low of 46.6 (vs. 47.7 expected), whilst the manufacturing PMI hit a 38-month low of 44.5 (vs. 46.0 expected). Then in Germany, the composite PMI fell to an 8-month low of 48.3 (vs. 49.8 expected), with the manufacturing PMI diving deeper into contractionary territory, falling to a 38-month low of 38.8 (vs. 41.0 expected). That was then followed up by the Euro Area-wide numbers, where the composite PMI also hit an 8-month low of 48.9 (vs. 49.6 expected).
Outside of the Euro Area the picture was a bit brighter, but to be frank it still wasn’t great. In the US, the composite PMI fell to a 5-month low of 52.0 (vs. 53.0 expected), which added to the signs from other indicators that the economy is decelerating. Likewise in the UK, the composite PMI hit a 6-month low of 50.7 (vs. 52.3 expected). So in both cases the composite PMI was still above the 50-mark that separates expansion from contraction, but the numbers were weaker than expected.
Those prints led to a decent sovereign bond rally across Europe, with yields on 10yr bunds (-4.9bps), OATs (-4.7bps) and BTPs (-4.6bps) all moving lower. In part, that was because of growing doubts that the ECB would deliver another hike in September after their move this week. For example, expectations of a second hike by September were down from 65% on Friday to 58% by the close yesterday, so it’s becoming increasingly balanced in terms of market pricing.
For US Treasuries however, it was a somewhat different story ahead of the Fed’s decision tomorrow. 2yr yields were up an impressive +7.7bps to 4.92% given the global data. The sell-off accelerated after the European close as we saw a $42bn auction of 2-year notes issued at 4.823%, the highest interest rate since 2007. The move in the 10yr was more moderate, with a +3.5bps sell-off to 3.87%. Higher inflation breakevens drove things, with the 10yr breakeven up +4.7bps to 2.40%, marking its highest level since SVB’s collapse in early March. The bond sell-off came as investors raised their Fed funds expectations, with the December 2024 pricing up +11.0bps on Monday to 4.145%.
That shift in inflation expectations came against the backdrop of significant commodity price moves yesterday. For instance, wheat (+8.60%) hit a 5-month high, following a Russian attack in Ukrainian ports of Reni and Izmail on the Danube river, which have been used for grain exports. Other agricultural goods have also been affected, with corn (+5.97%) and soybeans (+1.62%) both rising in trading yesterday. Energy prices also moved higher, with Brent crude oil prices (+2.06%) at a 3-month high of $82.74/bbl, while WTI oil prices (+2.17% to $78.74/bbl) outperformed following news of a refinery outage in the US. In aggregate, it’s clear that we’re experiencing one of the strongest commodity advances of the last year now.
Those commodity price moves were helpful for energy stocks, which lifted a broader rally across several equity indices. Among others, the S&P 500 rose +0.40% to close just shy of its 15-month high last week. And there was a particular milestone for the Dow Jones (+0.52%), which rose for an 11th consecutive session for the first time since February 2017. That run of advances in 2017 lasted for 12 consecutive sessions, so another positive day today would match that. And if there were a 13th gain tomorrow, that would match a record last set in January 1987. Meanwhile in Europe, the STOXX 600 (+0.06%) still posted a very modest gain despite the disappointing PMI data.
In other economic news on Monday, we got a readout from a key economic policy meeting of China’s Politburo, which showed an increased focus on the “new difficulties and challenges” facing the economy. The meeting did not offer immediate stimulus measures but our China economists see the meeting as setting an encouraging tone for stronger policy easing down the road. See their reaction note here for more details.
Asian equity markets are mostly higher this morning as a result. The Hang Seng (+3.17%) is leading gains buoyed by locally-listed Chinese stocks while the CSI (+2.49%) and the Shanghai Composite (+1.87%) are also trading sharply higher with property leading the gains. Elsewhere, the KOSPI (+0.09%) is swinging between gains and losses with the Nikkei (-0.43%) bucking the regional trend. US stock futures are fairly flat.
Early morning data showed that South Korea’s seasonally adjusted GDP expanded +0.6% in April-June on a quarterly basis (v/s +0.5% expected) following a +0.3% increase in the preceding three months, despite a decline in exports.
To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence measure and the Richmond Fed’s manufacturing index for July. Alongside that, there’s the FHFA house price index for May. Over in Germany, there’s the Ifo business climate indicator for July. From central banks, we’ll get the Euro Area bank lending survey. Finally, today’s earnings releases include Microsoft, Alphabet, Visa, General Motors, General Electric and Spotify