US stock futures are set for a fifth straight session in the green, as US equity funds benefited from their first inflows since the Liberation Day shock, and with 6000 in the S&P now less than a 100 points away. As of 8:00am, S&P 500 futures were up 0.3% after the index closed up 4.5% for the week on Thursday as the latest economic data spurred speculation the Fed will cut interest rates twice this year. Nasdaq futures gained 0.4% with Mag 7 leading (TSLA (+1.1%), GOOGL (+0.9%), and NVDA (+0.7%) are outperforming). The powerful rally this week has pushed the tech-heavy equity benchmark into overbought territory, while the S&P closed Thursday at the highest level since February. Europe’s benchmark Stoxx 600 gauge also gained, heading for a fifth weekly advance. The dollar weakened for a second session against major peers, while the yen and Swiss franc gained, and the 10-year Treasury yield was lower after declining 10 basis points Thursday as traders priced in more Fed cuts: bond yields are lower, with 2-, 5-, 10-, and 30-year yields down by 3.09bp, 3.7bp, 3.5bp, and 2.6bp respectively. Commodities are mostly lower, led by gold while oil reversed earlier losses. Overnight headlines were largely quiet. Today, we will receive University of Michigan Sentiment survey data, where consensus expects a modest bounce (to 53.5 vs. 52.2 prior).
In premarket trading, Mag 7 stocks are mostly higher with the exception of Meta after an equal-weighted gauge of the group fell over 1% on Thursday (Alphabet +1.5%, Tesla +1.1%, Nvidia +0.9%, Amazon +0.4%, Microsoft little changed, Apple +0.1%, Meta Platforms -0.1%). Charter Communications (CHTR) gains 9.4% after agreeing to merge with Cox Communications in a deal that values Cox at an enterprise value of about $34.5 billion. Vistra (VST) is up 5.1% after it said it executed a definitive agreement to acquire seven modern natural gas generation facilities from Lotus Infrastructure Partners for $1.9 billion. Here are some other notable premarket movers:
One month after the nevertrump media hyperventilated about the "US exceptionalism" trade dying, US equities are back in favor following the de-escalation of trade tensions between the US and China. Stocks are now trading like last month’s rout never happened, even though uncertainty remains about the effect of tariffs on the US economy and the direction that the global trade war will take in the coming months. Bank of America's Michael Hartnett said weekly US equity inflows resumed at $19.8 billion for the first time since Liberation Day. Meanwhile, stocks haven’t been getting rewarded for earnings beats: firms that topped expectations in the first quarter reports saw their share prices rise by less than usual, according to JPMorgan strategists. Meanwhile, Federal Reserve Bank of Atlanta President Raphael Bostic said he expects the US economy to slow this year but not fall into recession.
“For now, we believe that the path of least resistance is still higher for risky assets,” said Mohit Kumar, chief economist and strategist at Jefferies International. “We would start turning a bit more cautious around June/July when we expect the hard data start weakening.”
Thursday afternoon brought a deluge of 13F filings, which showed hedge funds adding healthcare exposure and cutting tech over the first three months of the year. Michael Burry’s Scion Asset Management liquidated almost its entire listed equity portfolio in the first quarter. Meanwhile, Warren Buffett’s Berkshire Hathaway trimmed its holdings of financials stocks.
Traders are also watching negotiations around the US budget with its promise of large tax cuts and the potential impact that will have on the fiscal deficit.
Elsewhere, Japan’s economy shrank for the first time in a year as the surging yen crushed exports, illustrating its vulnerability even before sustaining the impact of Trump’s tariff measures. Paradoxically, the yen gained 0.2% on Friday to trade around 145 per dollar even as Bank of Japan official Toyoaki Nakamura, the most dovish board member, warned against hurrying to raise the benchmark interest rate.
Europe’s benchmark Stoxx 600 gauge also gained, heading for a fifth weekly advance as cooling global trade tensions improve investor sentiment and corporate earnings season comes in better than expected. Health care and food and beverage sectors outperform. Among single stocks Richemont rises after reporting a rise in full year sales. Here are the most notable European movers:
Earlier in the session, Asian stocks traded in a narrow range as the rally sparked by US-China trade talks continued to cool and earnings from Chinese e-commerce giant Alibaba underwhelmed. The MSCI Asia Pacific Index swung between a gain of as much as 0.3% and loss of 0.2%. NetEase was the biggest contributor to the gains, after the China-based video-game company reported first-quarter results that beat expectations. Meanwhile, Alibaba was among the major drags, after its quarterly revenue missed estimates and cloud business disappointed. Key indexes dropped in mainland China, Hong Kong and India, while benchmarks rose in Australia and Taiwan. Goldman Sachs strategists raised their 3-month and 12-month targets for the MSCI Asia Pacific ex-Japan Index to 610 and 660, respectively, from 570 and 620, expecting “moderately higher” returns for the region thanks to improved earnings growth amid a better-than-expected outcome to US-China trade talks.
In FX, the Bloomberg Dollar Spot Index fell as much as 0.2%, declining for the second straight day; it is on track to end the week 0.1% higher; the yen and Swiss franc among the beneficiaries.
In rates, the 10-year Treasury yield was lower after declining 10 basis points Thursday as traders added bets on Fed rate cuts; treasuries are richer across the curve with futures adding to Thursday’s gains and 10-year yields dropping back to 4.405% and near 100-DMA. US yields richer by 2bp to 3bp across the curve with spreads broadly within a basis point of Thursday close; in the 10-year sector bunds and gilts outperform Treasuries by 2.5bp and 1.5bp so far on the day.
In commodities, gold fell to extend its weekly loss as demand for haven assets waned. Oil prices declined after Iran’s foreign minister cast doubts on the status of US-Iran nuclear talks.
Looking at today's US data calendar, key events includes April housing starts/building permits, import/export price index, May New York services business activity (8:30am), University of Michigan sentiment (10am) and March TIC flows (4pm). Fed speaker slate includes Daly at 9:40pm
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed after the recent soft US data releases spurred Fed rate cut bets, while participants also digested weak data from Japan and earnings reports. ASX 200 was led by strength in miners and outperformance of gold producers after the recent rally in the precious metal. Nikkei 225 initially retreated amid recent currency strength and after GDP data for Q1 showed a steeper-than-expected contraction in Japan's economy, although the index gradually recovered and returned to flat territory as USD/JPY regained some composure and with the weak data effectively narrowing the scope for the BoJ to resume normalisation. Hang Seng and Shanghai Comp declined with sentiment dampened by earnings releases after Alibaba's results underwhelmed which pressured its Chinese blue-chip tech and ecommerce peers such as Tencent, Meituan and JD.com.
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European bourses (STOXX 600 +0.6%) opened modestly firmer across the board, and have traded with an upward bias this morning. European sectors hold a strong positive bias, with only a handful of industries in negative territory. Healthcare takes the top spot, with gains in the sector seemingly broad based. In terms of stock specific stories, Sanofi (+2.2%) gains after it received FDA orphan designation for treating sickle cell disease. Bayer (+3.5%) benefits from an FT report which suggested it is seeking a Roundup settlement.
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DB's Jim Reid concludes the overnight wrap
Markets continued to advance over the last 24 hours, as weak US inflation data and lower oil prices raised expectations that the Fed would still cut rates this year. By the close, that meant the S&P 500 (+0.41%) had posted a 4th consecutive gain, which now brings its advance since the April low to +18.75%. In fact, the index isn’t far away from a +20% gain that would mark the technical definition of a bull market, and futures this morning are pointing to another modest gain. So it’s been an astonishing turnaround from where we were just over a month ago at the height of the tariff uncertainty.
There were several factors driving the rally, but a critically important one was the US PPI data for April. It showed inflation pressures were much softer than expected, with headline PPI down -0.5% on the month (vs. +0.2% expected). So that marked the biggest monthly decline in producer prices since April 2020 and the Covid lockdowns, and it pushed the year-on-year reading down to +2.4% (vs. +2.5% expected). Core PPI was also softer than expected, with the measure excluding food energy and trade down -0.1% on the month (vs. +0.3% expected), which was the first negative print since April 2020. It also helped broader inflation expectations to move lower, and the US 10yr inflation swap fell -4.7bps on the day to 2.50%, marking its biggest decline in over a month.
With investors feeling less concerned about inflation, they then dialled up their expectations for Fed rate cuts in response. For instance, the amount priced in by December up +7.1bps on the day to 56bps. And in turn, that contributed to a large rally in Treasury yields across the curve, with the 2yr yield (-9.0bps) falling back to 3.96%, whilst the 10yr yield (-10.5bps) fell to 4.43%.
Those moves got further momentum from the latest decline in oil prices, which added to the sense that inflationary pressures were easing. The move followed comments from President Trump, who said “I think we’re getting close to maybe doing a deal” with Iran. Moreover, Trump posted an NBC news story citing a top Iranian official that Iran would sign a nuclear deal in exchange for lifting economic sanctions. So the newsflow led to growing expectations that oil supply could rise, and Brent crude fell another -2.36% on the day to $64.53/bbl.
The fall in yields came despite comments from Fed Chair Powell yesterday, who indicated that the Fed were reconsidering the language on average inflation targeting in their latest review. For reference, in 2020 they changed their approach to permit a period of inflation above the 2% target, if it followed a period of inflation running beneath target, so that was a significant shift. However, the potential to move back off that again was seen in a hawkish light, as it implied less tolerance for higher inflation in the future, and Treasury yields briefly spiked as the headlines came through.
Nevertheless, the Powell comments weren’t enough to counteract the broader rally, and there was also relief yesterday that the US data continued to point away from a recession. For instance, the weekly initial jobless claims remained at 229k over the week ending May 10 (vs. 228k expected), so still in their recent range and not signalling a sharper deterioration. In the meantime, the retail sales data showed modest growth of +0.1% in April (vs. unch expected), which was a slowdown from March, but still not the contractionary territory that might be expected in an outright recession. And with the latest data in hand, the Atlanta Fed’s GDPNow estimate for Q2 moved up to an annualised +2.5% pace.
That environment proved to be a strong one for equities on both sides of the Atlantic, with the S&P 500 up +0.41% on the day. The advance was reasonably broad-based, with 75% of the index moving higher. Defensive sectors outperformed, with utilities (+2.12%) and consumer staples (+2.00%) leading the gains for the S&P 500. By contrast, the Magnificent 7 (-1.09%) ended a run of 5 consecutive gains. Within the Mag-7, Meta fell -2.35% following a WSJ report that it was delaying the rollout of a flagship AI model. In terms of other individual moves, Walmart (-0.50%) lost ground after their earnings, and they warned that prices would go up as a result of the tariffs. And Cisco Systems gained +4.85% following their own earnings after the previous day’s close.
Earlier in Europe, bond markets had also rallied on hopes for weaker inflation, and yields on 10yr bunds (-7.7bps), OATs (-8.5bps) and gilts (-5.2bps) all moved lower. There were similar gains for equities, with the STOXX 600 (+0.56%) closing at a 7-week high, alongside a fresh record for the DAX (+0.72%). That positivity was reinforced by strong UK GDP numbers, with Q1 growth running at a quarterly +0.7% pace (vs. +0.6% expected), and the FTSE 100 (+0.57%) closed above its Liberation Day level for the first time.
Overnight in Asia however, the tone has generally been more negative, with several of the major indices losing ground. Sentiment hasn’t been helped by Japan’s Q1 GDP reading, which showed a larger-than-expected contraction, with the economy shrinking at an annualised -0.7% pace in Q1 (vs. -0.3% expected). So that raised fears about how resilient the economy was, particularly given those numbers were before the Liberation Day announcement in April. Against that backdrop, Japan’s Nikkei fell -0.28%, and elsewhere there’ve been losses for the Hang Seng (-0.76%), the CSI 300 (-0.57%) and the Shanghai Comp (-0.52%). That said, there have been some gains, including South Korea’s KOSPI (+0.19%), and Australia’s S&P/ASX 200 (+0.57%).
Looking forward, the planned US budget reconciliation bill will remain in focus today. Politico reported yesterday evening that today’s planned procedural vote in the House Budget Committee may be in peril due to opposition from fiscally hawkish Republicans to the CBO’s scoring of the bill, and proposed delays to Medicaid cuts. Yesterday our US economists published a report (see here) analysing the details of the tax bill released this week, which they see putting the US on course for a 6.5% of GDP fiscal deficit in the coming years.
In geopolitics, it’s also worth keeping an eye on today’s talks between Russian and Ukrainian officials in Istanbul. These mark the first direct talks since spring 2022, but with Moscow sending a relatively low-level delegation, no immediate progress is expected. Trump claimed yesterday that “nothing’s going to happen” in terms of resolving the war in Ukraine until he and Putin meet.
To the rest of the day ahead, data releases include the University of Michigan’s preliminary consumer sentiment index for May, along with April’s building permits, housing starts, and the import and export price indices. In the Euro Area, we’ll get the March trade balance. And from central banks, speakers include the Fed’s Barkin, the ECB’s Lane, and the BOE’s Lombardelli.