{"id":1455592,"date":"2024-02-06T13:14:57","date_gmt":"2024-02-06T18:14:57","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1455592"},"modified":"2024-02-06T13:14:57","modified_gmt":"2024-02-06T18:14:57","slug":"futures-flat-as-interest-rates-grind-higher-after-two-day-surge","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/futures-flat-as-interest-rates-grind-higher-after-two-day-surge\/1455592\/","title":{"rendered":"Futures Flat As Interest Rates Grind Higher After Two-Day Surge"},"content":{"rendered":"

Futures Flat As Interest Rates Grind Higher After Two-Day Surge<\/span><\/p>\n

\n

US index futures traded flat on Tuesday, with European markets fading earlier gains while Chinese stocks surged on fresh hopes of government intervention in markets, as continued euphoria about artificial intelligence lifted the shares of Nvidia though broader indexes drifted. As of 7:50am, S&P 500 futures were little changed to 4,960, as 10-year Treasuries continued their drop, if at a more modest pace, with yields rising 2bps to 4.16% after yields soared about 14 basis points in the previous session and following the biggest 2-day selloff in months. Nasdaq futures were fractionally in the red. The small uptick in Treasuries pushes US 10-year yields down 1bps to 4.15% – they rose almost 28bps in the prior two trading sessions. The dollar and gold were also flat, while oil rebounded after several days of losses.<\/p>\n

<\/a><\/p>\n

\u00a0<\/span>Ten-year Treasuries posted small moves after yields\u00a0soared\u00a0about 28 basis points in the previous two sessions.<\/p>\n

<\/a><\/p>\n

In premarket trading, Palantir surged as much as 20% after giving a higher-than-expected profit outlook on demand for artificial intelligence products.\u00a0 Eli\u00a0Lilly rose 3% after forecasting 2024 sales ahead of Wall Street estimates as the company rolls out Zepbound, its weight-loss shot. Here are the other notable premarket movers:<\/p>\n

Chegg shares dropped 6.6% after the online educational services company\u2019s projections for first-quarter revenue and adjusted Ebitda fell short of consensus expectations.
\n\tCoherent shares jump 9.7% after the maker of optoelectronic components posted second-quarter results that beat expectations, with analyst positive on demand for the company\u2019s AI-related datacom transceivers and potential for growth.
\n\tFMC shares slid 15% after the pesticide maker\u2019s first-quarter and full-year earnings outlook trailed expectations. The company also reported fourth-quarter revenue that missed estimates.
\n\tPalantir Technologies jumped 18% after the software and analysis company reported better-than-expected fourth-quarter results as demand for its artificial intelligence products boosted sales.
\n\tNXP Semi shares rose 2.5% as the chipmaker reported better-than-expected fourth quarter revenue and adjusted EPS. Analysts noted that 4Q results were largely inline, while KeyBanc says that the 1Q forecast weighed down by weakness in auto and industrial segments.
\n\tSymbotic shares slumped 19% after the robotics warehouse automation company\u2019s forecast for second-quarter adjusted Ebitda missed estimates. Additionally, the company reported first-quarter loss per share that was bigger than expected.
\n\tUnited Parcel Service advanced 2.5% after UBS raised its recommendation on the stock to buy from neutral. The broker said upgrade is based on expectations that management will deliver \u201ca strong cost reduction program to support margin expansion and attractive EPS growth.\u201d
\n\tUS-listed Chinese stocks rally across the board in premarket trading Tuesday following a slew of announcements from officials in Beijing aimed at bolstering the stock market. Bloomberg reported that regulators planned to brief President Xi Jinping on the financial market as soon as Tuesday.
\n\tVaronis Systems rose 7.2% after the data security firm\u2019s 4Q results and outlook for full-year recurring revenue beat expectations. The company said its transition to a Software-as-a-Service model should be complete by end-2026, a year ahead of its initial plan, an announcement that led several analysts to nudge up their price targets on the stock.<\/p>\n

After last week’s FOMC which pushed back on a March (and even May) rate cut, a raft of Fed officials are set to speak this week, which may add additional insight into the central bank\u2019s thinking. Strong US economic data has forced traders to reduce their bets on interest rate cuts and Chair Jerome Powell reiterated his wait-and-see approach in an interview on Sunday. While market pricing once made a first quarter-point Fed cut in March look like a near-certainty, those odds have now dwindled to around 10%. The Fed\u2019s\u00a0Loretta Mester\u00a0and\u00a0Patrick Harker\u00a0are due to speak on Tuesday, with\u00a0Adriana Kugler\u00a0and\u00a0Tom Barkin\u00a0slated for the following day.<\/p>\n

\u201cWary sentiment from central bankers, cautious about stubborn inflation, may hold back gains again on Wall Street<\/strong>,\u201d said\u00a0Susannah Streeter, head of money and markets at Hargreaves Lansdown. \u201cPolicymakers still want to keep a tighter rein on demand, so high borrowing costs are likely to linger for longer.\u201d<\/p>\n

European stocks and US futures\u00a0surrendered\u00a0earlier gains while bond markets steadied after the biggest two-day selloff in months. The Stoxx 600 is little changed, with energy and bank shares among the best performers.\u00a0 The energy sector outperforms as BP rallies after beating profit estimates and accelerating its share buybacks. Infineon falls after guiding for lower-than-expected revenue this year and UBS drops after reporting a slightly worse-than-expected fourth-quarter loss. Here are the most notable European movers:<\/p>\n

Shares in\u00a0BP\u00a0rise as much as 6.9% to the highest since November after fourth-quarter profit beat estimates and the oil major announced an accelerated buyback program. The plan to repurchase $1.75 billion of shares each quarter in the first half of the year is a \u201cwelcome positive,\u201d RBC says.
\n\tShares in\u00a0BE Semiconductor\u00a0gain as much as 4.6% to an intraday record, after Exane initiates coverage with an outperform rating and a Street-high price target, describing the chip packaging equipment maker as a \u201cfuture AI enabler.\u201d
\n\tShares in\u00a0MorphoSys\u00a0jump as much as 16% to \u20ac66.58 in Frankfurt after Novartis agreed to buy the German biotech for \u20ac68 per share. The shares closed 36% higher on Monday after a Reuters report about the deal, which was confirmed after the close. Analysts say the deal fits in with Novartis\u2019 strategy and expect a smooth integration. Novartis shares rise as much as 0.9%.
\n\tShares in\u00a0Aurubis\u00a0rise as much as 5.6%, erasing earlier losses after the German metals company reported results, with Baader seeing long-term positives after a difficult year. Analysts highlighted uncertainty around management succession.
\n\tShares in\u00a0Demant\u00a0gain as much as 9.2% after the Danish hearing-aid and audio-equipment maker provided an outlook for 2024 and said it will undertake a strategic review of its communications business. A sale of this asset could unlock value for shareholders, according to Jefferies analysts.
\n\tShares in\u00a0UBS\u00a0decline as much as 3.4% after the Swiss lender\u2019s fourth-quarter earnings miss disappointed analysts, even as it announced a better-than-expected dividend. The bank said it will resume share buybacks this year.
\n\tShares in\u00a0Nordic Semiconductor\u00a0tumble as much as 23%, the most since 2018, after giving a first-quarter revenue forecast that was much weaker than expected. The company cited continued inventory corrections, yet Morgan Stanley analysts say the firm\u2019s outlook, which is more pessimistic than peers, raises questions over its competitive footing.
\n\tShares in\u00a0LVMH\u00a0slip as much as 0.9% as the luxury-goods maker is downgraded to hold from buy at HSBC, with analysts saying that, while the shares have seen a \u201cwell-deserved\u201d post-results squeeze, sales growth in the first half is still expected to be muted.
\n\tShares in\u00a0Infineon\u00a0fall as much as 3% after the chipmaker reduced full-year guidance, noting a slowdown of demand for automotive chips outside of China and a delayed recovery in some other segments.
\n\tShares in\u00a0Alfa Laval\u00a0decline as much as 4.2%, the most since March and the biggest drop in Stockholm\u2019s OMX 30 benchmark, after the Swedish industrial equipment firm reported disappointing 4Q figures, including a miss on earnings per share.<\/p>\n

The\u00a0biggest\u00a0market moves were in Asia which advanced to head for their highest in three weeks, after Chinese equities soared on speculation authorities are planning more forceful efforts to end the rout. <\/strong>Regulators plan to brief President Xi Jinping on the market as soon as Tuesday.\u00a0 The\u00a0Hang Seng China Enterprises Index\u00a0jumped almost 5%, while a broader\u00a0gauge\u00a0of emerging market equities headed for its biggest advance this year. \u201cWhile the bounce today is strong and certainly welcome, investors will probably want more concrete actions to be taken by policy makers,\u201d <\/strong>said\u00a0Eugene Leow, fixed income strategist at Dbs Bank Ltd. \u201cSentiment on Chinese assets has been in the doldrums for some time.\u201d<\/p>\n

The MSCI Asia Pacific Index rose as much as 0.8% amid news on measures in China to stem the stock rout,\u00a0 including tightening trading restrictions on domestic institutional investors and some offshore units \u2014 as well as a Bloomberg report that regulators in China plan to update the top leadership on market conditions and policy initiatives as soon as Tuesday.
\nThe Hang Seng Index gained the most since July, and the CSI 300 advanced the most since November 2022. Central Huijin Investment, a key unit of the nation\u2019s sovereign wealth fund, vowed to continue purchasing exchange-traded funds.<\/p>\n

\u201cHuijin\u2019s purchase will guide and encourage more funds to buy and also confirms the market speculation on more state buying recently,\u201d said Zhou Nan, investment director at Long Hui Fund Management. \u201cThere\u2019s very limited room for further slide, but the market may continue to fluctuate before the bottom can be solidified,\u201d he said.<\/p>\n

In FX, the Bloomberg Dollar Spot Index is unchanged; front-end risk reversals in the Bloomberg Dollar Spot index closed at the highest level since Nov. 13 on Monday as traders turned focus to next week\u2019s US CPI data. The Aussie tops the G-10 FX pile, rising 0.2% versus the greenback after the RBA\u00a0left\u00a0interest rates on hold and said further hikes could not be ruled out.\u00a0 The AUDUSD rose as much as 0.6% 0.6521 to erase week-to-date losses. Leveraged buying kicked in as rate differentials to US yields were seen contracting post the decision, traders said. \u201cWhat worries me most, is that we don\u2019t manage to bring inflation back down to target without collateral damage, more damage in the labor market that we\u2019d like,\u201d RBA Governor Michele Bullock said at a press conference following the decision.<\/p>\n

In rates, the treasuries curve edged steeper with yields narrowly mixed and front-end outperforming slightly on the day.\u00a0 US yields richer by 1bp-2bp across front-end of the curve with long-end yields slightly cheaper on the day, steepening 2s10s, 5s30s spreads by 1bp-2bp vs Monday\u2019s close; the 10-year yield is higher by 2bps at 4.1675% <\/strong>in a narrow daily range after climbing 28bp over past two sessions, outperforms bunds and gilts in the sector by 2.5bp and 1bp. Gilts underpinned in London session following strong demand for UK green bonds. Treasury auctions resume at 1pm with $54b 3-year note sale, followed by $42b 10-year and $25b 30-year new issues Wednesday and Thursday. WI 3-year yield at ~4.228% is around 12bp cheaper than January\u2019s stop-out, which stopped through by 1.1bps. US session features several Fed speakers and start of Treasury auction cycle with 3-year note sale. \u00a0<\/p>\n

Oil prices are close to flat, with WTI trading near $72.80. Spot gold is also little moved on the day at around $2,024.<\/p>\n

Bitcoin holds above the USD 43k mark, and Ethereum (+2.2%) continues to outperform, taking the coin above USD 2.3k.<\/p>\n

Looking to the day ahead now, the US econ calendar is empty while data releases in Europe include German factory orders and Euro Area retail sales for December, the German and UK construction PMIs for January, and the ECB\u2019s Consumer Expectations Survey for December. Otherwise, central bank speakers include the Fed\u2019s Mester, Kashkari and Collins. And today\u2019s earnings releases include Ford.<\/p>\n

Market Snapshot <\/strong><\/p>\n

S&P 500 futures little changed at 4,966.25
\n\tSTOXX Europe 600 up 0.2% to 484.75
\n\tGerman 10Y yield little changed at 2.32%
\n\tEuro little changed at $1.0744
\n\tMXAP up 0.7% to 166.94
\n\tMXAPJ up 1.3% to 511.39
\n\tNikkei down 0.5% to 36,160.66
\n\tTopix down 0.7% to 2,539.25
\n\tHang Seng Index up 4.0% to 16,136.87
\n\tShanghai Composite up 3.2% to 2,789.49
\n\tSensex up 0.6% to 72,177.50
\n\tAustralia S&P\/ASX 200 down 0.6% to 7,581.58
\n\tKospi down 0.6% to 2,576.20
\n\tBrent Futures down 0.3% to $77.79\/bbl
\n\tGold spot down 0.0% to $2,024.56
\n\tUS Dollar Index little changed at 104.41<\/p>\n

Top Overnight News<\/strong><\/p>\n

European stocks rose, bolstered by strong results from BP Plc, while global bond markets steadied after the biggest two-day selloff in months.
\n\tAustralia\u2019s central bank kept interest rates unchanged and signaled further tightening remains possible, joining global peers in pushing back against expectations for near-term easing and sending the currency and bond yields higher.
\n\tAnticipation is mounting for more forceful Chinese government efforts to end the nation\u2019s stock rout, with regulators planning to brief President Xi Jinping on the market as soon as Tuesday.
\n\tReliable sources of liquidity are at the top of traders\u2019 minds as they brace for another year of turbulence, according to a JPMorgan Chase & Co. electronic trading survey.<\/p>\n

A more detailed look at global markets courtesy of Newsuqawk<\/p>\n

APAC stocks were somewhat mixed as Chinese market stabilisation efforts offset the early headwinds from Wall Street where yields climbed to YTD highs after hot ISM Services data and recent hawkish Fed rhetoric. <\/strong>ASX 200 declined with weakness in tech and real estate amid rising yields, while attention was also on the RBA which maintained its rates as expected and reiterated its hawkish rhetoric. Nikkei 225 was subdued after disappointing household spending and soft wage data but with the downside cushioned amid a slew of earnings releases. Hang Seng and Shanghai Comp outperformed with sentiment boosted by China’s latest market stabilisation efforts including reports China’s sovereign fund will further increase ETF holdings, while the CSRC also encouraged listed firms to buy back more shares to inject more capital into the A-share market.<\/p>\n

Top Asian News<\/em><\/p>\n

China’s securities regulator said it encourages listed firms to buy back more shares to inject more capital into the A-share market and make every effort to maintain stable market operations, while it will guide institutional investors to increase stock investment.\u00a0Furthermore, it was later reported that\u00a0Chinese President Xi is set to discuss China’s stock market with regulators.
\n\tChinese sovereign wealth fund CIC’s unit Central Huijin said it fully recognises A-shares’ allocation value and increased ETF holdings recently, while it will continue to increase holding size,\u00a0according to Bloomberg.
\n\tUS President Biden’s administration sent five senior Treasury officials to Beijing this week for economic talks including on subsidies and China’s “non-market” policies that are ending excess industrial capacity,\u00a0according to a Treasury official cited by Reuters.
\n\tRBA kept rates unchanged at 4.35%, as expected, while it reiterated that the board remains resolute in its determination to return inflation to the target and that a further increase in interest rates cannot be ruled out.\u00a0RBA also repeated that\u00a0returning inflation to the target within a reasonable timeframe remains the board’s highest priority and although it noted that inflation continued to ease in the December quarter, it added that inflation remains high at 4.1%.\u00a0Furthermore, it stated the\u00a0Board needs to be confident that inflation is moving sustainably towards the target range and said that inflation is still weighing on people\u2019s real incomes\u00a0and household consumption growth is weak, as is dwelling investment.\u00a0RBA’s quarterly Statement on Monetary Policy lowered the forecasts for inflation and GDP, while it noted that risks to the outlook are balanced and stated the level of demand is still above the economy’s capacity to supply, creating price pressures.
\n\tRBA Governor Bullock said at the press conference that the situation is more back to normal than during the pandemic and that everyone is focused on inflation, while she added there is still more work to do and still a little way to go to get inflation down.\u00a0Furthermore, she stated that\u00a0risk remains that inflation expectations drift further and they are not ruling anything in or out on policy, while they need to be convinced on inflation before thinking of cutting rates.
\n\tBoJ is on track for a policy shift by April, via Reuters citing sources; assisted by wage outlook. Piece adds that the BoJ is laying the groundwork to end NIRP by April and overhaul other policy framework areas, but likely to go slow on subsequent action<\/p>\n

European bourses are mixed, having initially traded entirely in the green taking impetus from positive Chinese trade overnight; the FTSE 100 outperforms post-BP (+5.9%) earnings. <\/strong>European sectors are mixed; Energy is the clear outperformer propped up by strength in Energy after BP\u2019s strong results. To the downside, Utilities is hampered by a broker downgrade at RWE (-1.1%) and UBS (-2.9%) numbers are weighing on Financials. US equity futures (ES -0.1%, NQ +0.2%, RTY -0.4%) are mixed with outperformance in the NQ lifted by improved sentiment within the Tech sector and as NVDA (+1.4%) looks to breach the USD 700\/shr level for the first time.<\/p>\n

Top European News<\/em><\/p>\n

Barclays noted that UK January consumer spending rose 3.1% Y\/Y with more consumers shopping online due to cold weather,\u00a0while consumer confidence about personal finances was at the highest since November 2021.
\n\tECB’s de Cos\u00a0says is confident that inflation is returning to the 2% target
\n\tECB Consumer Inflation Expectations survey (Dec)\u00a0– 12-months ahead 3.2% (prev. 3.5%); 3-year ahead 2.5% (prev. 2.4%). Economic growth expectations for the next 12 months remained unchanged at -1.3%<\/p>\n

FX<\/strong><\/p>\n

Dollar<\/strong>\u00a0remains at elevated levels after a combination of NFP, hawkish Fed speak and strong ISM sent the DXY to a YTD peak at 104.60 yesterday.\u00a0DXY<\/strong>\u00a0remains above its 100DMA at 104.21, though not much in the way of upside until 105.
\n\tEUR<\/strong>\u00a0still in a downtrend since late-Dec; currently remains in place after the pair took out its 100DMA to the downside yesterday at 1.0783 and printed a YTD trough at 1.0723.
\n\tThe\u00a0JPY<\/strong>\u00a0is relatively steady vs. the\u00a0USD<\/strong>\u00a0after advancing to a fresh YTD peak yesterday at 148.89. Fate of the pair will ultimately depend on the relative Fed vs. BoJ policy path.
\n\tAUD<\/strong>\u00a0is the G10 outperformer following the “hawkish hold” from the RBA and strong Chinese equity performance overnight. That being said, it was unable to maintain 0.65+ status with yesterday’s YTD trough of 0.6486 in close proximity.
\n\tPBoC set USD\/CNY mid-point at 7.1082 vs exp. 7.2057 (prev. 7.1070).<\/strong><\/p>\n

Fixed Income<\/strong><\/p>\n

USTs<\/strong>\u00a0are a touch firmer, though has been edging off best levels throughout the European morning. Yields are lower across the curve with modest bull-flattening; the docket for today includes supply (3yr) and Fed speak from Mester, Collins, Harker & Kashkari, trough for today at 110-26.
\n\tBunds<\/strong>\u00a0are a touch firmer as the complex generally rebounds from the post-NFP\/Powell\/corporate-supply induced pressure of Monday’s session. Thus far, broader macro drivers are relatively limited with the complex unreactive to German Industrial data and an ECB survey.
\n\tGilts<\/strong>\u00a0is the modest outperformer, though this follows recent underperformance as BoE expectations have been subject to a more hawkish re-pricing.
\n\tSpain<\/strong>\u00a0has started the 30yr syndicated bond sales with EUR 50bln in initial demand, according to the lead manager.<\/p>\n

Commodities<\/strong><\/p>\n

Crude<\/strong>\u00a0is modestly firmer, having initially started the session on a softer footing, with overall specifics light for the complex; currently, Brent holds just above USD 78\/bbl.
\n\tSpot\u00a0gold<\/strong>\u00a0is around flat and unable to benefit from the modest pullback in the Dollar and lower yield environment; resides just under the 21-DMA at USD 2029\/oz, 50-DMA above at USD 2034\/oz.
\n\tBase metals<\/strong>\u00a0are bid, deriving support from the firmer APAC handover given the strength seen in China from support measures into the Lunar New Year celebration period.
\n\tCiti:<\/strong>\u00a0TTF prices could average USD 8.5\/MMBTU in Q1 (circa. EUR 27\/MWh), but then surpass USD 10\/MMBTU during Q2.
\n\tPetrobras CEO said the Co. will expand refining capacity by 25% in four years,<\/strong>\u00a0according to Reuters.<\/p>\n

Earnings<\/strong><\/p>\n

NXP Semiconductors NV (NXPI)<\/strong>\u00a0– Q4 2023 (USD): Adj. EPS 3.71 (exp. 3.65), Revenue 3.42bln (exp. 3.39bln). Co. said it is navigating a soft landing by managing what is in its control, especially limiting over shipment of products to customers. Sees Q1 Adj. EPS USD 2.97-3.38 (exp. 3.17). Sees Q1 revenue USD 3.03bln-3.23bln (exp. 3.17bln). (Newswires)\u00a0Shares +2.8% pre-market
\n\tPalantir (PLTR)<\/strong>\u00a0– Q4 23 (USD): Adj. EPS 0.08 (exp. 0.08), revenue 608mln (exp. 602mln). Q124 revenue view 612-616mln (exp. 617mln). FY revenue view 2.652-2.668bln (exp. 2.66bln). Said demand for large language models from commercial institutions in the US continued to be “unrelenting,” and it is focussed on the rollout of its AI; adds momentum with AI product is now significantly contributing to new revenue and new customers. Sees Q1 revenue between USD 612-616mln (exp. 617mln), Q1 operating income seen at USD 198mln (exp. 171mln); for the FY, revenue seen between USD 2.652-2.668bln (exp. 2.66bln), and operating income seen between USD 834-850mln (exp. 760mln). (Newswires)\u00a0Shares +18.4% pre-market
\n\tSemiconductors<\/strong>\u00a0– US Commerce Secretary Raimondo said the US will announce several more semiconductor chips funding announcements over the next six to eight weeks, adding that there was no artificial timeline, adding that the US will award funds as quick as possible.
\n\tBP (BP\/ LN)<\/strong>\u00a0– Q4 (USD): EPS 0.18 (exp. 0.15), adj. EBITDA 10.56bln (exp. 9.2bln), Profit 0.4bln (prev. 4.9bln), adj. for inventory holding losses of 1.2bln and adverse 1.5bln impact. USD 1.75bln buyback & dividend of USD 0.07270\/shr, +10% Q\/Q for Q1. USD 3.5bln buyback in H1 2024, plans buybacks of at least USD 14bln through 2025. Q1 Guidance: Upstream production higher vs Q4. Customer business: expects seasonally lower volumes across most businesses and the absence of one-off positive effects from Q4. Expects fuels margins to remain sensitive to movements in cost of supply. Products: expects a significantly lower level of refinery turnaround activity vs Q4. “expects lower industry refining margins, with a larger reduction in realized margins due to narrower North American heavy crude oil differentials.” 2024 Guidance: Reported and underlying upstream production to be slightly higher vs 2023. Customers: expects continued growth from convenience. Products: lower level of industry refining margins, with realized margins impacted by narrower North American heavy crude oil differentials and for “refinery turnaround activity to have a similar impact on both throughput and financial performance compared to 2023, with phasing of activity in 2024 heavily weighted towards the second half.” Gulf of Mexico oil spill payments to be around 1.2bln pre-tax, incl. 1.1bln to be paid in Q2. In other news, Whiting, Indiana refinery (435k BPD) is continuing assessment following a power outage, according to Reuters. (Reuters\/Newswires)\u00a0Shares +5.4% in European trade
\n\tInfineon (IFX GY)<\/strong>\u00a0– Q1 (EUR): EPS 0.44 (exp. 0.46), Revenue 3.7bln (exp. 3.83bln).\u00a0Cuts outlook citing market environment outside automotive remains weak and does not expect noticeable recovery in demand until H2’24<\/strong>. Guides Q2 Revenue approx. 3.6bln (exp. 4.1bln). Segment result margin approx. 18%.\u00a0Provides FY24 Guidance<\/strong>: Cuts FY24 Revenue 15.5-16.5bln (exp. 18.2bln, prev. guidance 16.5-17.5bln), adj. gross margin “low to mid 40s %” (prev. guidance 45%), adj. FCF 1.8bln (prev. guidance 2.2bln). (Newswires)\u00a0Shares -3.0% in European trade<\/p>\n

Geopolitics<\/strong><\/p>\n

US Central Command said its forces conducted a strike in self-defence against two Houthi explosive uncrewed surface vehicles,<\/strong>\u00a0according to Reuters.
\n\tYemen’s Houthis says they targets one US and one British ship with naval missiles<\/strong>, via group’s spokesperson<\/p>\n

US Event Calendar<\/strong><\/p>\n

Nothing major scheduled<\/p>\n

Central bank speakers<\/strong><\/p>\n

12:00: Fed\u2019s Mester Speaks on Economic Outlook
\n\t13:00: Fed\u2019s Kashkari Participates in Moderated Discussion
\n\t14:00: Fed\u2019s Collins Delivers Opening Remarks at Labor Market Confere
\n\t19:00: Fed\u2019s Harker Speaks on Fed\u2019s Role in Economy<\/p>\n

DB’s Jim Reid concludes the overnight wrap<\/strong><\/p>\n

Morning from breakfast now at Heathrow, lunch in Brussels and dinner in Paris. As I type from a very windy airport (always nice as you’re boarding a plane) the bond market sell-off is easing a bit in Asia but it’s generally been a tough 48 hours for rates. That continued yesterday as a bunch of hawkish headlines meant investors priced out the probabilities of rate cuts this year. I n part, that was because markets were catching up to Fed Chair Powell\u2019s \u201960 Minutes\u2019 interview over the weekend that we discussed yesterday, which didn\u2019t signal much hurry to cut rates. But on top of that, we got some hawkish comments from Minneapolis Fed President Kashkari, whilst the ISM services index also surprised on the upside, with a significant jump in the prices paid component. So there was plenty of fresh momentum behind the selloff. Indeed, since the jobs report on Friday, the 10yr Treasury yield has risen by +27.8bps, which is the biggest 2-day jump since June 2022, back when the Fed suddenly geared up to hike by 75bps for the first time since the 1990s. So we shouldn’t underestimate the moves or the volatility.<\/p>\n

In terms of those drivers, the first (to briefly echo comments from yesterday) was the \u201860 Minutes\u2019 interview, where Powell said that the \u201cdanger of moving too soon is that the job\u2019s not quite done\u201d. Moreover, the interview was recorded before the jobs report came out, so it\u2019s reasonable to assume that things may have got a bit more hawkish since. That meant Treasuries had already got the day off to a rocky start, but that was then cemented by a blog post from Minneapolis Fed President Kashkari. He said that \u201c It is possible, at least during the post-pandemic recovery period, that the policy stance that represents neutral has increased.\u201d And in turn, he wrote that \u201cgives the FOMC time to assess upcoming economic data before starting to lower the federal funds rate\u201d. So that echoes remarks from other officials, which suggests they\u2019re not in a rush to start rate cuts.<\/p>\n

Aside from the hawkish remarks, the latest round of data gave the selloff a further push, as the ISM services index surprised on the upside at 53.4 (vs. 52.0 expected). And significantly, the prices paid subcomponent surged to an 11-month high of 64.0 (vs. 56.7 expected), which added a warning that inflationary pressures are still around. So that will be concerning to the Fed, particularly since Powell commented that inflation was still yet to hit their target on a 12-month basis.<\/p>\n

Later in the day we also got some more positive data from the Fed Senior Loan Officer’s survey (SLOOS). This showed the recent sharp tightening of credit conditions moderating in Q4, with credit standards for commercial & industrial loans tightening at their slowest pace in seven quarters. Credit conditions remain tight but the downside risks for activity suggested by the SLOOS are easing.<\/p>\n

On the topic of greater US economic optimism, our US economists released an updated outlook overnight. The key change is that they no longer expect a mild recession to emerge during H1-24 and now foresee 2024 real GDP growth at a solid 1.9% (Q4\/Q4). They continue to anticipate that the first rate cut will come in June but that the Fed will only cut rates by 100bps this year. See their full report here.<\/p>\n

With the upbeat macro backdrop in mind, investors dialled back their expectations for rate cuts this year, adding to the moves after the jobs report on Friday. For instance by the close, futures were pricing in just a 17% chance of a March cut, the lowest in over two months. And looking at the year as a whole, only 113bps of cuts were priced in by the December meeting, which is the lowest so far in 2024, and a reduction of -11.6bps relative to Friday and down from 168bps at the peak on January 12. So it\u2019s clear that markets are now anticipating a significantly more hawkish profile over the months ahead, with roughly 4-5 cuts priced in for 2024, down from 6-7 just over three weeks ago.<\/p>\n

Given the combination of hawkish comments, strong data, and fewer cuts being priced, it was a bleak day for sovereign bonds. US Treasuries were at the forefront of that, with the 10yr yield up +13.7bps to 4.16%. And it meant the 2-day increase now stands at +27.8bps, the largest since June 2022. Meanwhile at the front-end, the 2yr yield rose another +10.8bps to 4.47%, bringing the 2-day increase up to +26.9bps, which is the largest since last March shortly after the regional banking turmoil. Both 2 and 10yr yields are rallying back 3-4bps in Asia though. Before that overnight rally the US rates sell-off boosted the dollar, with the broad dollar index (+0.51% yesterday after +0.85% Friday) seeing its strongest 2-day rally since this time last year. It’s only off a tenth of a percent in Asia this morning.<\/p>\n

Yesterday’s moves for US Treasuries were echoed in other markets, with yields on 10yr bunds (+7.5bps), OATs (+7.0bps) and BTPs (+6.9bps) seeing significant moves of their own. And similarly, investors grew more sceptical about the chance of ECB cuts happening soon, with the probability of a cut by the April meeting down to 68%, having been at 75% on Friday. So there\u2019s a growing sense that the major central banks might wait until later in Q2, if not beyond, before they feel confident adjusting their policy rates.<\/p>\n

The prospect of fewer rate cuts meant that equities struggled as well. The S&P 500 (-0.32%) came off its record high on Friday. While the S&P did partially recover after trading -0.8% down early in the session, the decline was broad with 83% of its constituents lower on the day. In keeping with a theme from this year, it was small-cap stocks that suffered in particular, with the Russell 2000 down -1.30%, whilst the equal-weighted S&P 500 (-0.86%) was back into negative territory for 2024 so far. There were continued losses for regional banks as well, with the KBW Regional Bank Index (-1.85%) seeing all 47 members lose ground. That included a further loss for New York Community Bancorp (-10.6%), which followed the news from Fitch Ratings after Friday\u2019s close that they were downgrading NYCB to BBB- from BBB. Chipmakers were the notable outperformer, with the Philadelphia semiconductor index up +1.18%, led by a +4.77% gain for Nvidia. However, this did not translate into broader tech gains, with the Magnificent 7 down -0.24%. Over in Europe, the STOXX 600 (-0.05%) posted a marginal decline.<\/p>\n

Chinese stocks have been rallying hard overnight, especially just before we go to print as measures continue to be rolled out to halt the recent slump. In addition it’s being reported that the Chinese securities regulator is preparing a report on the stock market for President Xi which perhaps helps explain the seriousness of the situation. In fast markets the Hang Seng (+3.3%), the CSI (+2.6%) and the Shanghai Composite (+2.3%) are all higher. Other Asian markets are a bit lower with the Nikkei (-0.32%), the KOSPI (-0.70%) and the ASX (-0.69%) down with Aussie markets reacting to the RBA leaving rates unchanged but with a comment that further hikes couldn’t be ruled out even if the tone is towards the next move being a cut.<\/p>\n

The central bank in its statement highlighted that inflation remains too high despite it falling in recent months. It would still consider more rate increases if price pressures remained sticky. Following the decision, the Aussie rose +0.49%, to trade at 0.652 versus the dollar. Meanwhile, the RBA has slightly lowered its near-term inflation forecasts, expecting it to be within its 2% to 3% target band at 2.8% by the end of 2025, before achieving the midpoint of the band by around mid-2026.<\/p>\n

In early morning data, household spending in Japan dipped more than expected in December, falling 2.5% y\/y compared with the -2.1% estimate as against a -2.9% prior drop. Also, real wages fell for a 21st straight month though at a slower pace, declining -1.9% y\/y in December (v\/s -1.5% expected), compared to a revised decline of -2.5% in the previous month.<\/p>\n

Looking at yesterday\u2019s other data, we did get the final services and composite PMIs from around the world. In the Euro Area, the final January composite PMI was in line with the flash reading, at 47.9. But in the UK there was an upgrade to 52.9 (vs. flash 52.5), whilst in the US there was a downgrade to 52.0 (vs. flash 52.3). Separately, we also heard that Euro Area PPI was at -10.6% in December.<\/p>\n

To the day ahead now, and data releases include German factory orders and Euro Area retail sales for December, the German and UK construction PMIs for January, and the ECB\u2019s Consumer Expectations Survey for December. Otherwise, central bank speakers include the Fed\u2019s Mester, Kashkari and Collins. And today\u2019s earnings releases include Ford.<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nTue, 02\/06\/2024 – 08:14<\/span><\/p>\n

\u200bRead More<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Futures Flat As Interest Rates Grind Higher After Two-Day Surge US index futures traded flat on Tuesday, with European markets fading earlier gains while Chinese…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1455592","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1455592","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1455592"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1455592\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1455592"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1455592"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1455592"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}