US equity futures edged higher and were again on pace to reclaim all time highs (which again is less than 1% away away) on expectations that a slew of labor-market readings this week may support the Federal Reserve’s policy easing. As of 7:40am ET, S&P futures rose 0.25% and were at session highs with tech outperforming and small-caps keeping pace; Nasdaq futs were up 0.4% as all the Mag7 names were higher with Semis outperforming. AMD, INTC, MU, and NVDA all up at least 1% premarket. The S&P had seen three straight days of sliding in overnight trading, to then drift higher post EU close and close unchanged or green; today we start in the green so it will be interesting if in a mirror image we close red. Treasury yields were steady after their largest two-day drop for 2024, erasing an earlier yield gain of 2bps, and potentially aiding USD strength. Commodities are finally rebounding with strength in Energy, Ags, and precious metals. Oil was little changed and Bitcoin topped $70,000. In corporate news, Intel agreed to sell a stake in a venture that controls a plant in Ireland to Apollo Global for $11 billion, while activist investor Elliott is pushing SoftBank to launch a $15 billion buyback. Today’s macro data focus is ISM-Services and ADP.

In premarket trading, Hewlett Packard Enterprise and Crowdstrike were among the best performers after better-than-expected results. Meanwhile, chipmakers Intel, Nvidia and AMD were all quoted up more than 1%. Here are all the notable premarket movers:

3D Systems rises 15% after the 3D printing company won an orthodontics contract.
ASML ADRs rises 3% after the semiconductor firm confirmed it will ship its latest chipmaking machine to TSMC and Samsung this year.
CrowdStrike climbs 11% after the security software company raised its year forecast.
Dollar Tree slips 2% after the retailer reported weaker-than-expected comparable sales for its first quarter and cut its annual EPS forecast.
Hewlett Packard Enterprise surges 14% after the company reported revenue that beat analysts’ estimates on a big jump in sales of servers built to handle artificial intelligence work.
Psychedelic stocks fall after the drug MDMA failed to get backing from US regulatory advisers to treat post-traumatic stress disorder.

Besides the barrage of labor market indicators which saw a disappointing JOLTS report yesterday, the ADP print and ISM Service employment today and the jobs report on Friday, investors will be focused on central banks: the ECB is expected to kick off an interest-rate cutting cycle Thursday, leapfrogging past the Fed; the Bank of Canada is likewise expected to cut rates. Meanwhile, expectations for the Fed’s first full 25 basis-point rate cut are now tilting toward November, a month ahead of earlier expectations, after the Fed’s preferred inflation gauge held steady and measures of manufacturing and spending came in softer than expected.

“We are starting to see labor market slackness, which gives the Fed more flexibility,” Justin Onuekwusi, chief investment officer at St James’s Place Management, said in an interview. “Given we have seen weakaness in labor market data this past week, all eyes will be on this number,” he said of the payrolls data.

European shares also rise a day before the European Central Bank is expected to deliver a 25bps interest-rate cut. Tech, telecom and retailers led the advance in Europe, as Zara owner Inditex SA delivered a stronger-than-expected trading update while banks and food beverages are the biggest laggards. Here are the biggest movers Wednesday:

Inditex shares rise as much as 5.5%, the biggest advance among members of the Europe 600 Index, after the parent of Zara reported better-than-expected first-quarter earnings and offered a trading update for the current period that Jefferies says is “amply ahead”
Voestalpine gains as much as 5.3%, the most in almost six months, with the steel producer’s solid fourth-quarter results and positive guidance outweighing a dividend miss
Smith & Nephew shares rise as much as 4.8%, the most since Feb. 27, after UBS upgraded the medical devices company to buy from neutral, saying the stock is now “cheap and no longer a value trap”
WH Smith shares rise as much as 3.3% after the retailer delivered sales growth in line with expectations, with analysts at RBC pointing to a “reassuring” acceleration in North America that could help improve investor sentiment toward the stock
Clas Ohlson gains as much as 18%, the most since December, after the Swedish retail group’s fourth-quarter earnings impressed, with operating profits well ahead of expectations
Xior Student Housing gains as much as 6.6% after Morgan Stanley starts coverage with an overweight recommendation, describing the company as a “high risk, high reward play” on the student housing sector
Bayer shares rise as much as 2.9% after the company said a $2.25 billion Roundup verdict was reduced to $400 million by a US judge
Centrica’s shares fall as much as 4.6% after the British energy supplier gave a trading update ahead of its AGM, saying that its performance so far has been in line with expectations
Elekta drops as much as 16%, the most since Nov. 2019, after the Swedish medical equipment firm’s results came in below expectations, with Morgan Stanley saying that guidance suggests significant downgrades to consensus
Lectra shares fall as much as 7.7% after American Industrial Partners sold its entire stake in the French company, which makes software and equipment used in the clothing and auto industries for cutting fabric

Earlier, Asian stocks were mixed with Indian equities leading gains in the region, while the markets in Japan and Indonesia slid. Indian stocks outperformed as an alliance partner of Prime Minister Narendra Modi’s party affirmed support to form a coalition government. The Nifty 50 Index rose more than 2%, recouping some of Tuesday’s loss when the gauge fell the most in four years.  As a result, the MSCI Asia Pacific Index pared most of its losses after dropping as much as 0.5%. TSMC, Tencent and Samsung provided main support, while Toyota and Hitachi were among the biggest drags on the gauge.

In FX, the Bloomberg Dollar Spot Index is little changed while the yen was the worst-performing currency as it tumbles, falling 0.8% against the greenback toward 156.20, as carry trades reassert themselves and after a surprisingly weak print in Japanese wage growth prompted fears the BOJ may not get to further tightening of monetary conditions. The Swiss franc is also slightly lower.

USD/JPY rose as much as 0.9% to 156.30; yen led G-10 losses against the dollar after a key measure of Japanese wage growth rose less than forecast
USD/CAD inched up 0.1% to as high as 1.3691 ahead of the Bank of Canada’s rate decision; most analysts anticipate a cut and traders are bracing for further weakness in the Canadian dollar

In rates, treasuries gain, extending some of Tuesday’s post-JOLTS rally, with US 10-year yields dropping 1bp to 4.32%. Gilts underperform bunds and Treasuries across the curve.

Oil prices hold losses near a four-month low with WTI near $73.30 as oil halts the recent slide, rising around 0.3%. Spot gold rises $6 to around $2,333/oz. Most base metals trade in the red.

Bitcoin continues to gain and currently holds above USD 70k as Bitcoin ETF’s continue to take focus.

Looking at today’s US calendar, economic data includes May ADP employment change (8:15am), S&P Global services PMI (9:45am) and ISM services index (10am), Fed officials remain in blackout ahead of the June 12 FOMC policy announcement. Finally, we will have earnings from Dollar Tree and Lululemon.

Market Snapshot

S&P 500 futures up 0.1% to 5,310.00
STOXX Europe 600 up 0.5% to 519.53
MXAP little changed at 178.67
MXAPJ up 1.1% to 556.50
Nikkei down 0.9% to 38,490.17
Topix down 1.4% to 2,748.22
Hang Seng Index down 0.1% to 18,424.96
Shanghai Composite down 0.8% to 3,065.40
Sensex up 2.8% to 74,071.83
Australia S&P/ASX 200 up 0.4% to 7,769.00
Kospi up 1.0% to 2,689.50
German 10Y yield little changed at 2.54%
Euro little changed at $1.0874
Brent Futures up 0.3% to $77.73/bbl
Gold spot up 0.3% to $2,333.82
US Dollar Index up 0.17% to 104.29

Top Overnight News

Treasury Secretary Yellen said the Treasury never tries to time the market in debt management. She added the issuance of Treasury Bills is in line with historical averages. Market participants believe that short-term rates will come down. She said short-term bill issuance is in line with recommendations from the TBAC. Yellen said there is nothing about issuing short-term debt that creates a ‘sugar high’ for the economy, according to Reuters.
A group backed by BlackRock (BLK) and Citadel Securities is planning to start a new national stock exchange in Texas, according to WSJ.
Nike has cut staff in its European HQ as part of a multiyear cost-cutting plan, according to Bloomberg.
Bridgewater’s Dalio says Chinese assets are attractively priced, Bridgewater has done well operating in the region over the past five years.
Dollar Tree (DLTR) is exploring the sale of Family Dollar, according to WSJ
Bond traders are tilting dovish again, piling into wagers that would benefit from a faster pace of Federal Reserve interest rate cuts as Treasuries rally.
Japanese workers’ base pay jumped by the largest margin since 1994 in a sign that corporate pledges to offer wage increases are starting to take effect, though market players appeared unconvinced over the strength of the trend.
Donald Trump asked the New York judge presiding over his hush-money trial to lift his gag order in the case, arguing that the basis for limiting what the former president could say “no longer exists” after the jury convicted him of 34 felonies last week.
Hedge funds are backpedaling on yen option trades with a sudden spate of bullish bets on the currency, according to market participants.
Indian Prime Minister Narendra Modi is gearing up for coalition talks after his party lost its majority in parliament, forcing him to rely on allies to form a government for the first time since he stormed to power a decade ago.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed as the cautious mood from Wall Street reverberated into Asia-Pacific, with macro newsflow overnight on the lighter side. ASX 200 was modestly firmer with defensive sectors among the better performers, whilst lagging sectors include gold names, mining stocks, and energy companies. Little immediate reaction was seen on commentary from RBA Governor Bullock and the softer-than-expected Q1 GDP report. Nikkei 225 was the regional laggard and dipped under the 38,500 mark with mining and industrial firms among the losers, whilst autos continued to feel the woes of the latest safety scandal in the country. Hang Seng and Shanghai Comp varied with the former propped up by auto stocks after some firms were permitted to test out advanced levels of autonomous driving. Mainland markets shrugged off the improvement in Caixin Services PMI which also noted “China’s economy is generally stable and remains on the road to recovery.”

Top Asian News

Some Chinese AI chip firms are reportedly designing less powerful processors to retain access to TSMC (TSM /2330 TT) production in the face of US sanctions, according to Reuters sources.
RBA Governor Bullock expected Q1 GDP growth to be quite low; the economy is weak and that is showing up in consumption; not ruling anything in or out on policy. Looking for a soft landing for the economy. Inflation is coming down but only slowly. The board won’t hesitate to act on rates if inflation does not come down as expected. Still judges inflation risks as balanced. Q2 inflation data will be important for monetary policy, not the single most important thing.
PBoC injected CNY 2bln via 7-day reverse repos with the rate at 1.80%.
Fitch affirmed India at BBB-, outlook Stable.
Fitch lowers 2024 China new home sales forecast, expects it to decline by 15-20% to CNY 8.3-8.8tln.
Foxconn (2317 TT) May Revenue +22.1%; due to higher than expected demand from AI servers, current visibility for Q2 is expected to beat expectations.
China May Retail Car Sales -3% Y/Y, via PCA cited by Bloomberg

European bourses, Stoxx600 (+0.4%) are modestly firmer across the board, attempting to reclaim some of the losses seen in the prior session. European sectors hold a strong positive bias, with Tech topping the index alongside Retail, with the latter lifted by post-earning strength in Inditex (+5.5%). Banks are slightly in the red. US Equity Futures (ES +0.1%, NQ +0.3%, RTY +0.2%) are very modestly firmer and contained within a tight range ahead of US ADP and ISM Services. Barclays European Equity Strategy: Upgrades Consumer Staples to Marketweight from Overweight Upgrades Real Estate to Overweight. Upgrades Retail to Overweight. Cuts Energy to Underweight. Cuts Autos to Underweight.

Top European News

ECB’s Kazimir says inflation is on a good trajectory and the ECB is approaching its first interest rate cut. Note, these comments are being made in the ECB’s quiet period.
YouGov/Sky News Snap Debate Poll: PM Sunak won the first head-to-head election debate (Sunak 51%, Starmer 49%). Snap YouGov poll of 1,657 viewers reveals how people feel each party leader performed, and who they think came across best.

FX

DXY is continuing to inch higher after briefly printing a 103 handle on Tuesday. 104.32 is the high watermark for today which is in close proximity to Tuesday’s 104.33 peak.
EUR/USD is back on a 1.08 handle after venturing as high as 1.0916 yesterday. For now, the pair is managing to hold above Tuesday’s 1.0858 low with ING of the view that the pair’s “neutral range” could be between 1.0850-1.09.
GBP is marginally firmer vs. the USD and EUR in quiet newsflow with last night’s general election debate not having any follow-through given it is unlikely to reverse the polls. Cable remains tucked within Tuesday’s 1.2743-1.2818 range.
USD/JPY is markedly higher and reversing a bulk of Tuesday’s selling which brought the pair as low as 154.44. Next upside level for the pair is Tuesday’s best at 156.48.
Antipodeans remain resilient amid the recent Dollar advances helped by the recovery in risk sentiment. AUD has shrugged off the disappointing growth figures overnight. NZD/USD also firmer but ran into resistance just below the 0.62 mark.
CAD is steady vs. the USD ahead of an expected rate reduction by the BoC (market pricing 77% probability of a cut). USD/CAD is currently tucked within yesterday’s 1.3619-99 range.
PBoC set USD/CNY mid-point at 7.1097 vs exp. 7.2418 (prev. 7.1083)

Fixed Income

USTs are slightly softer in a breather from this week’s upside ahead of US ISM Services and ADP National Employment. Treasuries are currently holding around the low of 109-26+ with no follow-through from the morning’s European/UK data points.
Bunds are also incrementally softer and holding around the 131.00 mark. There was no real follow-through from the PMIs despite final EZ figure showing a slight easing of inflationary pressures in the service sector; fleeting upside on a robust 2030 tap.
Gilt price action is in-fitting with peers, though has pulled back slightly more than EGBs. PMIs passed without reaction and was little changed to a well received UK auction; currently holding around 97.33.
UK sells GBP 4bln 3.75% 2027 Gilt: b/c 3.27x (prev. 3.68x), average yield 4.505% (prev. 4.204%) & tail 0.6bps (prev. 0.3bps)
Germany sells EUR 2.442bln vs exp. EUR 3bln 2.40% 2030 Bund: b/c 2.6x (prev. 2.10x), average yield 2.55% (prev. 2.30%) & retention 18.6% (prev. 18.00%)

Commodities

Crude is modestly firmer in what has been a choppy session for the complex; initially taking a breather from the hefty WTD pressure post-OPEC/demand concerns but with price action choppy at times. Brent currently holding around USD 77.60/bbl.
Precious metals are essentially flat, though have been attempting to nudge into the green but not making any real ground as the USD picks up and yields have an upward bias.
Base metals are mixed, continuing the similar price action seen in APAC trade overnight.
US Private Energy Inventory Data: Crude +4.05mln (exp. -2.3mln), Cushing +0.983mln, Distillates +4.03mln (exp. +2.5mln), Gasoline +1.98mln (exp. +2mln).
US Energy Secretary Granholm said the global oil market is well stocked and feels comfortable that there will be no huge increase in oil and gas prices in the ‘next short while’. The US could boost the rate of replenishing the Strategic Petroleum Reserve as maintenance work at two sites winds down. Work at SPR will be finished by the end of year. Creating a Strategic Resilience Reserve for stockpiles of critical minerals with allies to help energy transition is a good idea. US talking with allies on critical minerals production, stockpile goals, could release details ‘soon’. Granholm said even OPEC countries recognize there is only so much they can do to manipulate oil prices. Granholm said ‘We should all be concerned’ about oil industry consolidation. The US aims to complete the LNG export review in Q1 2025. She doesn’t expect permitting a pause to damage US competitiveness in the global LNG market.
UAE’s ADNOC set July Murban crude OSP at USD 83.93/bbl (prev. USD 89.14/bbl in June).
Aluminium name Novelis has postponed its IPO due to market conditions; Novelis will continue to evaluate the timing of the offering in the future, according to PR Newswire.

Geopolitics: Middle East

Israeli military chief of staff said Israel is prepared to shift offense along the Northern border with Lebanon, nearing a decision point.
“Israeli tanks penetrate downtown Rafah for the first time since the start of the Israeli invasion of the area”, according to Sky News Arabia.
Israel Ministry of Defense said it has signed an agreement with the US government for a third squadron of F-35 stealth aircraft for the Israeli Air Force, according to Reuters.
US military said in the past 24 hours, Iranian-backed Houthis launched two anti-ship ballistic missiles (ASBM) from Houthi-controlled areas of Yemen into the Red Sea

Geopolitics: Other

White House said US President Biden will attend the G7 leaders summit in Apulia, Italy on June 13-14. They will advance efforts to make use of Russia’s immobilised sovereign assets to help Ukraine.
Taiwan Defence Ministry said in the past 24 hours, 26 Chinese Air Force planes were detected operating around Taiwan.
China Maritime Safety Administration said they are to shut an area in the Northern Yellow Sea from June 5-7 due to planned live firing.

US Event Calendar

07:00: May MBA Mortgage Applications -5.2%, prior -5.7%
08:15: May ADP Employment Change, est. 175,000, prior 192,000
09:45: May S&P Global US Services PMI, est. 54.8, prior 54.8
May S&P Global US Composite PMI, est. 54.2, prior 54.4

10:00: May ISM Services Index, est. 51.0, prior 49.4
May ISM Services New Orders, est. 53.2, prior 52.2
May ISM Services Employment, est. 47.2, prior 45.9
May ISM Services Prices Paid, est. 59.0, prior 59.2

DB’s Jim Reid concludes the overnight wrap

The last week has proved to be a real challenge for markets to work out whether weaker US data is good or bad news for equities. This marks a bit of a change as in recent months both good and bad data were used as a justification for a rally. It does seem we’ve moved to a more nuanced debate. However before we get too excited about a possible change in emphasis, the S&P 500 is only down -0.25% since returning to trading after Memorial Day last Monday and keeps on bouncing off the weaker data inspired intra-day lows of the last week.

This trend continued yesterday following the April JOLTS report which encouraged another notable fixed income rally with 10yr Treasury yields (-6.3bps) falling for a fourth consecutive session. The combined -28.6bp drop over that time period is the largest such fall in yields since Mid-December. Until the last 100 minutes of US trading equities were lower but another late rally helped edge the S&P 500 (+0.15 %) higher.

In terms of the details of the JOLTS report, the openings rate came in beneath expectations at 8.06mn (vs 8.35mn expected), falling to its lowest level since February 2021. So a clear indicator of a cooling US labour market, with labour demand continuing to moderate. This also follows on from a series of generally weaker US data over the past few days.

Elsewhere in the report, the ratio of openings to unemployed workers fell to its lowest level since July 2021, to 1.2, as the labour market slackened further in April. The private sector quits rate, which measures the number of people who voluntarily leave their job, came in at 2.4%, with the previous month also revised up to 2.4%. The revision confirms the series has been flatlining since the end of 2023, at its lowest level since 2020. In terms of other data, we also had US factory orders for April, which surprised a little to the upside at 0.7% (vs 0.6% expected). But this still marked a deceleration from 1.6% last month.

Against this backdrop, markets raised their expectations for Fed rate cuts this year. For example, the number of Fed cuts expected by year-end rose for the fifth consecutive day, up +3.9bps. Supporting the prospect of more rate cuts was another fall in oil prices, which brought further relief to inflation fears. Brent crude fell -1.07% to $77.52/bbl, the 5th consecutive decline in prices and the lowest level since February. WTI crude similarly fell -1.31% to $73.25/bbl. In turn, the chance of additional rate cuts supported US Treasuries, as 2yr yields fell -3.8bps, whilst the 10yr yield slipped -6.3bps to 4.326% (4.34% overnight). From here, the next major catalyst will be the US employment report on Friday.

In Europe, the major data point of the day was German unemployment, which jumped +25k (vs +7k expected). The increase helped contribute to investors dialling up the expected number of ECB cuts through to year-end by +2.6bps. Off the back of this, German 10yr bunds rallied, with yields falling -4.6bps. Yields on OATs (-3.9bps) and BTPs (-1.3bps) also declined.

Moving on to more details on equities, the -0.5% mid-session decline followed by a late rally was typical of the last few days with the index closing +0.15% higher. The underperformers were largely the energy (-0.97%) and materials (-1.22%) sectors driven by lower commodity prices. The rebound was led by Telecoms (+1.89%), Real Estate (+0.95%) and Consumer Staples (+0.93%). The NASDAQ likewise rebounded to finish at +0.17%. The second half bounce back was not that broad-based, as the Russell 2000 index of small cap stocks underperformed, falling -1.25%. Elsewhere, other global equities were generally on the backfoot. The STOXX 600 retreated -0.54%, whilst the MSCI EM index underperformed after falling -0.66%.

Not helping sentiment was a dramatic turnaround in India as Exit Polls over the weekend proved to be very inaccurate. They suggested Modi’s NDA coalition would get 355-380 out of the 543 seats with his own BJP party on course for around 327 seats. 272 is needed for a majority. The final count is that his party looks set for 240 seats (losing their own majority from 2019’s 303 seats) and the coalition 292 (down from 353 in 2019). While Modi can still form the government if his alliance sticks together, it provides a much more uncertain environment than was anticipated as we woke up on Monday. As a result Indian equities had their worst performance in 4 years with the Nifty 50 falling -5.93% yesterday after bouncing +3.25% to an all-time high on Monday. This morning it is slightly higher as I type early in the session. Last night our economist published an initial reaction (see here) to the surprise result, one that he doesn’t see derailing India’s impressive growth prospects.

Elsewhere in Asia, there is a divergent trend in equities this morning. As I check my screens, the KOSPI (+1.08%) is leading gains across the region with the Hang Seng (+0.34%) and the S&P/ASX 200 (+0.36%) also edging higher. Chinese stocks are mixed though with the CSI (+0.03%) swinging between gains and losses while the Shanghai Composite (-0.30%) is lower. However, the Nikkei (-0.80%) is bucking the regional trend albeit trimming its opening losses as stronger wage data spurred fears of tighter monetary policy from the BoJ. S&P 500 (+0.18%) and NASDAQ 100 (+0.31%) futures are higher.

Early morning data showed that China’s Caixin services PMI accelerated at the fastest pace in 10 months jumping from 52.5 in April to 54.0 in May on improving local and overseas demand. However, the private survey data contrasted with official PMI data released last week, which showed that services sector activity grew at a slower pace in May than April. Moving to Japan, real cash earnings declined -0.7% y/y in April (v/s -0.9% expected), notching a record streak of 25 consecutive monthly declines. It followed a revised -2.1% drop in the preceding month. On the brighter side, labour cash earnings rose at the fastest pace in 10 months, increasing +2.1% y/y in April (v/s +1.8% expected) as against an upwardly revised +1.0% rise in March.

Elsewhere Australia’s first quarter 2024 GDP growth slowed to just +0.1% (v/s +0.2% expected) and slower than the revised +0.3% pace for the final three months of 2023. On an annual basis, the economy expanded +1.1% with markets expecting it to slow to +1.2% from a growth of +1.5% in the December quarter. Yields on 10yr Australian government bonds initially fell -9.76bps (half domestic and half a global story) before settling -6.7bps lower at 4.23% as we go to print.

It’s a huge week (past and present) for elections and tomorrow the European Parliamentary Elections start. We’ll preview the implications later in the week. Also of note was the -6.01% fall in the Mexican index on Monday that was followed by a +3.24% rebound yesterday. The peso fell -3.82% on Monday and then fell a further -0.97% yesterday. The overall decline is on concerns that the landslide victory for the ruling party may increase state influence on the economy. See DB’s review of the implications from the election results here.

Briefly back on commodities, oil prices were not alone in recording a fall yesterday. Copper prices pulled back -2.80% to $453.70/lb, and now officially erasing all its May gains (-11.4% from the peak). The fall comes as global inventories rise, with the Shanghai Futures Exchange recording its highest level of stockpiles since 2020. Elsewhere after a +5.23% surge on Monday following disruption to Norwegian supply, European natural gas retreated yesterday, falling -6.16% to EUR33.80/MWh following reports the outage is expected to be short-lived.

Now to the day ahead, and data releases include the US May ADP report and ISM services, the UK May new car registrations, official reserves changes, France April industrial production, Italy May services PMI, Eurozone April PPI, Canada Q1 labour productivity and the May services PMI. In terms of central banks, we have the Bank of Canada decision. Finally, we will have earnings from Dollar Tree and Lululemon.