US equity futures are higher across the board, amid speculation that a debt deal is taking shape and may be announced as soon as today (whether or not a 0.2% spending cut “deal” is something to be proud about is a different matter) and also thanks to optimism around Nvidia and AI prospects. S&P futures are 0.2% higher, rising to 4,169 and undoing the drop from the previous two days, while Nasdaq futures are up 0.4% amid continued AI-bubble euphoria. Treasury yields are falling, most markedly at the short end, on debt ceiling optimism, while a measure of the dollar is weakening. Commodities are mostly higher led by base metals. Oil prices are set for a weekly gain, climbing higher today. Gold prices are edging higher but still set for their third weekly decline.
In premarket trading, Marvell Technology shares soared 17% after the chipmaker projected AI revenue in fiscal 2024 will “at least double” from a year ago. The company also reported first-quarter adjusted earnings per share that beat estimates and provided second-quarter guidance. Analysts had a positive reaction, increasing price targets on the stock. Meanwhile Nvidia shares were little-changed in US premarket trading, pausing following yesterday’s 24% surge after the chipmaker gave a bullish forecast thanks to surging demand amid an AI boom. Here are some other notable premarket movers:
- Tilray Brands shares plunged 19% in premarket trading after the cannabis producer priced an offering of $150m of unsecured convertible senior notes.
- Gap shares jump 11% in premarket trading after the apparel retailer produced better-than-expected earnings for the first quarter, compared to Wall Street forecasts for a sizable loss for the period. Analysts pointed toward the cost management of the company, with Jefferies saying lower expense on air freight contributed to the better margin and EPS.
- Domo shares dropped 4.9% in postmarket trading after the application software company’s guidance for 2Q revenue missed the average analyst estimate, while analysts flagged the firm’s still-muted growth.
- Workday shares gained 8.5% in extended trading, after the software company narrowed its subscription revenue forecast for the full year and named Zane Rowe as new chief financial officer. Analysts are positive on the report and forecast.
Yesterday, the Nasdaq rallied 2.5%, a 1.9-sigma move, as NVDA surged 24% amid forecast beat; XSD (Semiconductors ETF) added 4.5%. The NDX rally was driven by a narrow leadership as there are only 17 out of 100 companies outperformed the benchmark. On debt ceiling, headlines turned more optimistic as there seems to be a deal emerging, but gaps remains between the two parties. Today, macro focus will be the PCE and Durable Goods release. Optimism was also boosted by reports that a deal is emerging which could include a paltry $10bn spending cut. Today’s macro focus will be on PCE releases and Durable Goods Orders.
“We are in a very hesitant market,” said Ariane Hayate, a fund manager at Edmond de Rothschild Asset Management. The debt ceiling is “a factor that adds up nervousness, but the market isn’t expecting that no solution will be found.”
In Washington, Republican and White House negotiators have narrowed differences in talks over recent days and are moving closer to an agreement to raise the debt limit and cap federal spending for two years, according to people familiar with the matter. However, details agreed to are tentative and a final accord is still not in hand, the people said.
European stocks also rose with chipmakers including ASML Holding NV advancing for a second day. Glencore Plc advanced 2.5% after a report that Viterra unit is in talks to merge with Bunge Ltd., one of the world’s largest crop merchants. The Stoxx 600 was up 0.5% as European mining stocks rose and were among the biggest gainers on the Stoxx 600 regional benchmark as metal prices trim weekly decline, while the sector bounces on technical support and Rio Tinto gets a broker upgrade. Here are the most notable European movers:
- Rio Tinto rallies as much as 4.3% in London after being upgraded to overweight from equal-weight at Morgan Stanley, which says weakness in the mining company’s shares has created an opportunity
- European semiconductor equipment makers rise, extending Thursday’s blistering rally on hopes that adoption of chips used in artificial intelligence computing could accelerate the sector’s future growth
- Faurecia gains as much as 5.7% and Valeo as much as 3.7% after Jefferies upgraded the firms to buy, saying auto suppliers are starting to benefit from a more supportive operating environment
- Atos shares rise as much as 8.8% after the company got a favorable decision in litigation involving Syntel, now part of Atos, in the US, with Oddo calling the judgement “very favorable” at first sight
- Coface jumps as much as 7.8% after reporting earnings that Deutsche Bank says could lead to mid-single-digit consensus upgrades as the French financial services company “continues to demonstrate its quality”
- Asos shares rise as much as 8.9% after the UK online fast fashion retailer announced capital raising plans. The new debt financing and equity raise provide “much needed visibility on liquidity,” Citi analysts say
- Casino shares slump as much as 11% after the debt-laden French retailer said a Paris court decided to open conciliation procedures amid talks with its creditors
- Ninety One falls as much as 2.1% after being downgraded to underperform at Avior, which says the current market environment favors fixed-income instruments over stocks, putting equity performance at risk
Asian stocks traded mixed following the mild positive bias stateside where the tech sector surged on Nvidia’s blockbuster report and with sentiment underpinned by firm US data and progress in debt ceiling talks.
- The Shanghai Comp. was subdued amid the closure of Hong Kong markets and Stock Connect trade but with the downside cushioned after the meeting between the US and China’s commerce chiefs where concerns were raised about recent actions taken against US companies in China, as well as US chip policy and export curbs
- Japan’s Nikkei 225 outperformed and reclaimed the 31,000 level with the index lifted by recent currency weakness and mostly softer-than-expected Tokyo CPI, while tech stocks benefitted from the ripple effect which stemmed from the rally in US counterparts.
- Australia’s ASX 200 was indecisive with price action rangebound and risk sentiment contained by disappointing Retail Sales data.
- Indian stocks were the best performers among major Asian markets this week, even as investors awaited the outcome of ongoing negotiations to raise the US debt ceiling. The S&P BSE Sensex rose 1% to 62,501.69 in Mumbai, while the NSE Nifty 50 Index advanced by the same magnitude. The Sensex gained 1.3% this week, while the Nifty climbed 1.6%. The advance has mainly been supported by information technology, pharmaceuticals and consumer staple firms. Investors kept a close eye on US debt-ceiling talks. Republican and White House negotiators are making progress toward a deal to raise the debt limit. Strategists warn that any break down in negotiations could have serious implications for global economic growth.
In FX, the Bloomberg Dollar Spot Index is also lower by 0.2%, snapping a four-day run of gains; it is on course to end the week in positive territory, posting its third straight week of gains. The Swedish krona is the best performer among the G-10’s. The Bloomberg Dollar Spot Index edged down 0.2%, USD/JPY slipped 0.3% on easing Treasury yields and as Japan’s 10-year breakeven inflation rate hit an eight-year high.
In rates, Treasuries are richer across the curve with gains led by front-end, steepening spreads from Thursday’s close. US session focus includes a flood of economic data, headed by PCE deflator at 8:30am New York. US yields richer by up to 5bp across front-end of the curve with 2s10s, 5s30s spreads flatter by 1bp and 1.5bp on the day; 10- year yields around 3.78%, richer by 4bp on the day with bunds lagging by 1.5bp in the sector. The two-year Treasury yield slipped 4bps to 4.49%, pulling back from a two-month high around 4.55% hit the previous day. Markets are pricing in 23 basis points of Fed tightening in July, down 3 basis points from Thursday but still reflecting the likelihood of a 25 basis point hike in two months’ time; Boston Fed President Collins on Thursday said the central bank may have reached, or be approaching, the point at which it can pause interest-rate increases
In commodities, crude futures advance with WTI rising 0.5% to trade near $72.20. Spot gold adds 0.6% to around $1,953. Bitcoin falls 0.2%
Looking to the day ahead now, and data releases from the US include PCE inflation for April, along with personal income and personal spending for April, preliminary durable goods orders for April, and the University of Michigan’s final consumer sentiment index for May. Meanwhile in Europe, there’s UK retail sales for April. Otherwise from central banks, we’ll hear from the ECB’s Lane and Vujcic.
- S&P 500 futures down 0.3% to 4,170
- MXAP up 0.5% to 159.93
- MXAPJ up 0.7% to 506.87
- Nikkei up 0.4% to 30,916.31
- Topix little changed at 2,145.84
- Hang Seng Index down 1.9% to 18,746.92
- Shanghai Composite up 0.4% to 3,212.50
- Sensex up 0.8% to 62,392.17
- Australia S&P/ASX 200 up 0.2% to 7,154.76
- Kospi up 0.2% to 2,558.81
- STOXX Europe 600 up 0.3% to 457.36
- German 10Y yield little changed at 2.52%
- Euro little changed at $1.0729
- Brent Futures little changed at $76.23/bbl
- Gold spot up 0.6% to $1,953.26
- U.S. Dollar Index down 0.15% to 104.09
Top Overnight News from Bloomberg
- European stocks rose and Treasury yields ticked lower on signs that US negotiators are moving closer to striking a debt deal.
- Republican and White House negotiators are nearing a deal to raise the debt limit and cap federal spending for two years, according to people familiar with the matter, as time grows short to avert a catastrophic US default
- With investor attention on the US sovereign credit rating rising as the federal government gets ever closer to running out of cash, Moody’s Investors Service says that a mid-June payment of interest on Treasuries will be critical for maintaining the top, AAA grade.
- Germany has been Europe’s economic engine for decades, pulling the region through one crisis after another. But that resilience is breaking down, and it spells danger for the whole continent.
- In 2020, just after George Floyd’s murder in the US, one of the most senior Black professionals in the City of London, KPMG UK Partner and Vice-Chair Richard Iferenta, appealed to CEOs and chairpeople of the business community “to stamp out racism of all forms.” Three years later, he has yet to see the change and ambition he asked for.
- Morgan Stanley is letting go of at least six managing directors, including some key China bankers, as part of broader job cuts in Asia where dealmaking has been stymied by growing China-US tensions and tepid economic growth.
- Barclays Plc lost three senior investment bankers including John Miller, all of whom are joining Jefferies Financial Group Inc., according to people with knowledge of the matter.
A more detailed look at global markets courtesy of Newsquawk
European bourses began the session on the front foot but have since pulled back from best levels and now see a mixed picture, Euro Stoxx 50 -0.1%. Sectors in Europe are mixed (vs a mostly positive open). Basic Resources outperform as base metals claw back some recent losses, with Tech the next best performer as NVIDIA’s surge continues to reverberate globally. The downside meanwhile consists of Utilities, Telecoms, and Banks. US equity futures traded horizontally overnight but saw a slight uptick shortly after the cash open, in tandem with Europe, but have since pulled back; ES -0.1%.
Top European News
- UK ministers look to reshape the pensions lifeboat fund to provide a boost to business, according to FT.
- ECB’s Lane on “How quickly will inflation return to target?” – reiterates guidance from the 4th May ECB Meeting.
- There is no sense of certainty in the terminal rate; uncertainty in models is high; some upside risks to wage growth.
- ECB’s Vujcic says inflation momentum is still persistent and it is questionable that we will be able to get to 2% in the next two years.
- Riksbank’s Breman says increasing asset sales is something we could think about if we see the crown continuing to weaken. Adds, increasing asset sales is something we should think about, doesn’t need to be next meeting.
APAC stocks traded mixed following the mild positive bias stateside where the tech sector surged on Nvidia’s blockbuster report and with sentiment underpinned by firm US data and progress in debt ceiling talks. ASX 200 was indecisive with price action rangebound and risk sentiment contained by disappointing Retail Sales
data. Nikkei 225 outperformed and reclaimed the 31,000 level with the index lifted by recent currency weakness and mostly softer-than-expected Tokyo CPI, while tech stocks benefitted from the ripple effect which stemmed from the rally in US counterparts. Shanghai Comp. was subdued amid the closure of Hong Kong markets and Stock Connect trade but with the downside cushioned after the meeting between the US and China’s commerce chiefs where concerns were raised about recent actions taken against US companies in China, as well as US chip policy and export curbs
Top Asian News
- US Commerce Secretary Raimondo met with Chinese Commerce Minister Wang in Washington and raised concerns about the recent spate of Chinese actions taken against US companies in China.
- Furthermore, China’s MOFCOM said Wang and Raimondo agreed to keep communication on trade concerns and that China expressed concerns on US chip policy and export curbs, while the meeting was candid and constructive, according to Reuters.
- China’s top server makers asked suppliers to suspend shipments of modules containing chips made by Micron (MU) following Beijing’s partial ban on Micron products, according to SCMP.
- The broader Dollar and index have pulled back from overnight highs. mostly amid the strength in G10 counterparts.
- The non-US Dollars are firmer against the Dollar to varying degrees, AUD/USD outperforms as base metals rebound.
- Sterling resides as one of today’s outperformers on the back of the stronger-than-expected Retail Sales data (+0. 5% M/M vs exp. 0.3%), coupled with hawkish commentary from BoE’s Haskel yesterday.
- The SEK stands as the current G10 outperformer with strength seen amid hawkish commentary from Riksbank Deputy Governor Bremen.
- PBoC set USD/CNY mid-point at 7.0760 vs exp. 7.0752 (prev. 7.0529)
- Core benchmarks are mixed with USTs bid as the risk tone slips while EGBs/Gilts are softer, but directionally infitting.
- EGBs and Gilts were initially weighed on by strong UK Retail data which adds to the factors in-favour of further BoE tightening.
- Though, market pricing for the BoE hasn’t altered significantly from the post-CPI pricing of 100bp of tightening by end-2023.
- Stateside, yields are lower across the curve and towards troughs given the above benchmark pricing
- WTI and Brent futures are relatively flat on either side of the unchanged mark following the downside yesterday, which was due to a concoction of weak German GDP data and comments from Russia Deputy PM Novak.
- Spot gold has firmed in the European morning as the DXY pulled back, while the yellow metal also found support near its 100 DMA (USD 1,934.86/oz) in APAC hours.
- Base metals are firmer across the board following the losses seen throughout the majority of this week.
- India weather office says El Nino seen emerging during monsoon season.
- Japan is to place additional sanctions against Russia in which it will freeze the assets of 78 groups and 17 individuals in Russia as part of new sanctions, according to a government bulletin. Furthermore, Chief Cabinet Secretary Matsuno said Japan is to ban providing construction and engineering services in Russia, while they condemned Russia’s plan to deploy tactical nuclear weapons to Belarus as it intensifies the situation around Ukraine, according to Reuters.
- Regarding Sweden’s NATO accession, Sweden said Turkish President Erdogan’s demands are impossible to meet as Sweden has not received a list of relevant individuals from Turkey, according to a senior Swedish official cited by WSJ.
DB’s Jim Reid concludes the overnight wrap
After some rough sessions earlier in the week, the newsflow has been a lot more positive for markets over the last 24 hours. First, there’s now some more optimism again around the debt ceiling, particularly after comments from Speaker McCarthy suggested that a deal was near, and that he would be staying in town over the long weekend to work on a deal. Second, tech stocks saw a big outperformance thanks to excitement surrounding AI, which followed Nvidia’s positive outlook from the previous day. And third, US economic data yesterday ran ahead of expectations, thus helping to ease fears about an imminent recession. But with all this newfound optimism, investors are once again dialling up their expectations for future rate hikes, and sovereign bonds saw a decent selloff in response. In the meantime, the gains for equities were actually very narrow and solely driven by the large tech stocks.
Starting with the debt ceiling, we still don’t have a deal yet, but the latest developments yesterday raised hopes that an agreement can be reached ahead of the deadline (whenever that actually is). Shortly after the US open, markets reacted to comments from Speaker McCarthy, who said “I thought we made some progress” in the discussions on Wednesday. Furthermore, he said “I don’t think everybody is going to be happy at the end of the day”, which was seen as laying the groundwork for any potential compromise, and hence positive for the likelihood of reaching a deal. Last night it was reported by Reuters that the two sides were just $70bn apart on discretionary spending levels, with the overall deal likely smaller in scope than what was first reported. While there was no deal when the sides went home, the tone from the top from Speaker McCarthy and President Biden is more encouraging than earlier this week. After the US close the Treasury disclosed their cash balances had fallen to $49.5bn, down from $76.5bn the day earlier and $140bn on May 12, so the clock is indeed ticking.
With that more positive backdrop to the talks, there were clear signs of market stress starting to ease again. For instance, the yield on the T-bill maturing on June 8 (so close to the potential X-date) came down by -32.4bps on the day to 6.48%, and it was a similar story for other bills around the X-date. Those moves were also in the opposite direction to the broader move toward higher yields yesterday, which further demonstrates how the debt limit was driving those moves. However, even with the growing optimism from yesterday, it’s worth noting that yields on bills around the X-date are trading with a 6 handle, which shows how investors are still wanting a premium to hold the Treasuries that might be affected by a potential default.
Just as better news was coming through on the debt ceiling, we also had a decent round of releases on the US economy that further supported risk appetite. One was the weekly initial jobless claims, which came in at 229k over the week ending May 20 (vs. 245k expected), and we also heard that the state of Massachusetts had downwardly revised three months of data due to fraudulent applications. Alongside that, it turned out that growth in Q1 was stronger than initially thought, having been revised up to a +1.3% annualised rate (vs. 1.1% previously), whilst core PCE inflation was revised up to +5.0% (vs. +4.9% previously).
With all that positive news coming through, it means that markets are putting increasing weight on the prospect of another rate hike from the Federal Reserve. By the close, futures had raised the chances of a June hike up to 54%, which is the first time since SVB’s collapse back in March, so it’s a prospect that investors are taking more and more seriously. At the same time, there’s been growing speculation that the Fed might skip a hike in June and move again in July, which means that if you look at the chances that we’ve had a hike by July, they’re now up to a very strong 94% probability. That’s a big shift from where we were after the Fed’s last meeting at the start of the month, when the consensus view was that they were done hiking, and the next move was more likely to be a cut than a hike.
As markets priced in more rate hikes, sovereign bonds sold off across the board once again. In the US, yields on 10yr Treasuries (+7.6bps) hit a post-SVB high of 3.817%, having now risen for 9 of the last 10 sessions. And the 10yr real yield (+7.9bps) closed above 1.5% for the first time since the SVB turmoil as well. In Europe yields were set to close lower than they did before a late comment from ECB board member Knot (a noted hawk) who said that rate hikes were needed over the next two months, that he was “open-minded” about September, and finally that the market pricing of rates cuts is “overly optimistic”. This resulted in yields on 10yr bunds (+5.0bps), OATs (+5.0bps) and BTPs (+5.9bps) all moving higher after being close to finishing just higher than unchanged. Overnight swap pricing is still nearly fully pricing in the next two hikes (97% for June and 80% for July ), while the chance of a rate cut in February of next year is now the lowest it has been in 3 weeks.
But it was gilts that saw the biggest declines once again, with the 10yr yield (+16.0bps) closing at 4.37%, which isn’t far off its closing high just after the September mini-budget, when it reached 4.50%. That comes as our UK economist has updated his call for the BoE, where he now thinks we’ll get another three 25bp hikes that take us up to a terminal rate of 5.25%. See his latest call here.
For equities, there were several factors at play yesterday, and the S&P 500 (+0.88%) ultimately ended the day in positive territory. But it’s worth stressing that this was down to incredible strength among tech stocks, with only just over 40% of the index actually ending the day in positive territory. In fact, on an industry basis, semiconductors were up +11.0% and software was up +3.6%, with transports the next best at +1.2%. 15 of the 24 other industries were lower on the day. So clearly tech outperformance was the big story with the NASDAQ recovering +1.71% after declining over the last couple of days. Nvidia (+24.37%) was one of the biggest outperformers, and was single-handedly responsible for most of the NASDAQ’s gains. In addition, the company’s strength meant that the FANG+ Index (+2.51%) extended its YTD gains to +55.19%. Elsewhere, the Philadelphia Stock Exchange Semiconductor Index was up +6.81%, and individual companies like Advanced Micro Devices surged +11.13%. Marvell kept the semi’s ball rolling after hours by reporting better-than-expected results and forecasting AI-related revenues to at least double for this fiscal year. Their stock was +16.74% higher after the close.
Overnight in Asia, the Nikkei 225 (+0.62%) and the Kospi (+0.17%) are advancing just as the Shanghai Composite (-0.14%) lags. Some of the gains continue to be driven by AI sentiment – IT is the best-performing sector in the Topix and companies like TSMC (+4.05%) and SK Hynix (+5.51%) are rallying further on Marvell’s earnings. In terms of economic data in the region, the Tokyo CPI slowed to 3.2% from 3.5% YoY, coming in below estimates of 3.4%. The yen has strengthened +0.23% against the dollar. In terms of US assets, Marvell’s $42bn market cap has done little to lift Nasdaq futures (-0.18%), with the S&P 500 (-0.18%) contracts also falling. Meanwhile, Treasury yields are down by at least 1bps across most of the curve.
In Germany, there was another round of weak data yesterday, as their Q1 GDP number was revised to show a -0.3% contraction, rather than a flat reading as initially thought. Given that the economy saw a -0.5% contraction in Q4, that means there were two consecutive contractions that meet the technical definition of a recession. So assuming the data isn’t revised further in future, it turns out there was a winter recession amidst the energy shock, despite hopes the country might have just about managed to avoid one.
To the day ahead now, and data releases from the US include PCE inflation for April, along with personal income and personal spending for April, preliminary durable goods orders for April, and the University of Michigan’s final consumer sentiment index for May. Meanwhile in Europe, there’s UK retail sales for April. Otherwise from central banks, we’ll hear from the ECB’s Lane and Vujcic.