Futures are higher across the board as investors shift their focus from macro to micro, following a rollercoaster week that saw stocks slide then reverse higher after a soggy CPI and retail sales print, to close at an all time high and the Dow above 40,000. AI is in focus this week with NVDA earnings on deck, plus we will see a relaunch of sell-side industry conferences. As of 7:30am, S&P futures are up 0.1% and poised to open near record highs on Monday, while Nasdaq futures gained 0.2% as investors looked past the inflation implications of a commodity rally and wagered interest-rate cuts will remain on the cards this year.

Bond yields are down 1-3bps and USD starts the week flat. Iran’s President Ebrahim Raisi was killed in a helicopter crash on Sunday, renewing the debate over who will succeed 85-year old supreme leader Ayatollah Khamenei. Oil fluctuated as the market watched for any fallout from political ructions in one of the world’s major crude producers. Elsewhere in commodities, ags are higher and metals are soaring, while energy – despite the death of Iran’s president – is weaker ex-natgas as the Biden oil trading desk sits on the sell button; precious metals, sugar, and wheat are the standout performers all up at least 1.2%. Copper and Nickel also sharply higher after while gold and copper surged to record highs.

With Bloomberg’s commodity index up almost 5% this month, there are fears of a fresh inflation uptick that could take the shine off equities and bonds. Many investors remain confident, however, that price pressures will continue to ease, allowing  the Federal Reserve, European Central Bank and others to cut rates in the coming months. The macro data focus this relatively quiet week will be on the FOMC Minutes (Weds), Flash PMIs (Thurs), and Durable Goods/Consumer Sentiment (Fri). We also have 16 Fed speakers this week.

In premarket trading, semis are outperforming with SMH +0.6% led by NVDA +1.4%. The Mag 7 are all higher ex-AAPL. NVDA is higher after at least three brokerages, Stifel, Barclays and Baird, raised their price target on the stock (to $1,085, $1,100 and $1,200 from $910, $850, and $1,050 respectively). Johnson Controls International shares jumped 4.4% after Bloomberg reported that Elliott Investment Management had built up a large position in the company, citing people familiar with the matter. Jaguar Health shares plummet 34% after the natural products pharmaceutical company announced a 1-for-60 reverse stock split on Friday.

With much of the macro data in the rearview mirror, traders are now awaiting earnings on Wednesday from AI bellwether Nvidia which has driven a major chunk of this year’s Wall Street gains and comprises 5% of the S&P’s market value.

“Fundamentally, investors are not concerned about the health of the economy,” said Gene Salerno, chief investment officer at SG Kleinwort Hambros Bank Ltd. “I am not too worried about the commodity rally as it’s only one component of inflation and we are seeing other aspects of inflation, such as the froth in the jobs markets, starting to come off.”

The timing of the Fed’s likely pivot to rate cuts has shaped trading across financial markets in recent days. The Dow Jones Industrial Average closed above 40,000 for the first time on Friday, while the S&P 500 has hit a series of record highs. That’s prompted Morgan Stanley strategist Michael Wilson — a prominent Wall Street bear — to turn positive on the stock market and predict further gains, potentially sealing the fate of the rally.

However, a number of policymakers have urged caution over cutting rates, with the ECB’s Martins Kazaks the latest to warn against hasty cuts after the first move in June. Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin all said last week it may take a while for inflation to ease to the 2% target.

In Europe, equities got a boost from record-high prices for copper and gold. The Stoxx Europe 600 Index hovered near a record high, led by mining stocks including Glencore Plc and and KGHM SA. Here are some of the biggest European movers on Monday:

Metsa Board shares rise as much as 7.3% after DNB Markets upgraded the Finnish packaging maker to buy from hold on the prospect of an earnings recovery
Hilton Food Group shares rise as much as 1.7% after the food maker said year-to-date sales were ahead of last year. Analysts welcomed higher volumes
Ryanair slips as much as 1.6% as analysts highlight “cautiously optimistic” commentary from management on summer pricing, seen flat to modestly higher in the peak season
Keywords Studios shares gain as much as 70% after it says EQT Group is in advanced talks to buy it for £25.50 per share
Ubisoft shares rise as much as 4.1% after Cantor Fitzgerald says it’s “now or never” to buy as the company gears up for its strongest game pipeline in recent years
Trainline shares rise as much as 2.5% after analysts at Deutsche Bank started coverage of the online coach and train ticket supplier with a buy rating

Asian stocks rose, headed for a seventh-straight day of gains, as China’s latest property-rescue measures and expectations for global interest-rate cuts buoyed sentiment. The MSCI Asia Pacific Index climbed as much as 0.7%, led by mining stocks on a strong rally in metal prices. Key indexes in Japan led advances around the region, with notable increases also in South Korea and Australia. Chinese shares gained after Beijing unveiled a policy package to bolster the slumping housing market, even as concerns linger that the measures may be too small.

In FX, the dollar is little changed as traders paid close attention to a string of Federal Reserve speakers this week to gauge the US central bank’s policy outlook. The Bloomberg Dollar Spot Index was steady after last week’s 0.7% drop. Fed officials including Chairman Jerome Powell, Raphael Bostic, Michael Barr, Christopher Waller, Philip Jefferson, Loretta Mester, Tom Barkin, John Williams and Austan Goolsbee are due to speak this week.

“Following the soft US CPI data last week, investors have re-factored in about 50 basis points worth of rate cuts by the Fed by year end,” said David Forrester, senior FX strategist at Credit Agricole CIB in Singapore. So Fed officials’ remarks this week will be important, and the risk of mispring is supporting the dollar, he added.

In rates, treasuries traded in a narrow overnight range with yields within a basis point of Friday’s close across the curve into the early US session. US 10-year yields around 4.42%, little changed on the day, with bunds and gilts lagging by 0.5bp and 1.5bp in the sector. Slight lag in long-end Treasuries steepens 5s30s spread by almost 1bp on the day. US sales this week include $16b 20-year bonds Wednesday and $16b 10-year TIPS reopening Thursday.

In commodities, copper surged to its highest-ever level, lifting futures on the London Metal Exchange above $11,000 for the first time. Spot gold surges to an all-time high, climbing as much as 1.4% to hit $2,450.07/oz as the death of Iranian President Ebrahim Raisi in a helicopter raised concerns of fresh tensions in the Middle East, offering the haven metal a boost. Oddly enough, crude prices actually dropped despite the latest chaos in the middle east, having risen 10% so far this year, as Biden does everything to prevent an oil and gasoline price spike ahead of the elections.

Bitcoin rises again, trading just above $67k, whilst Ethereum posts mild gains and holds just above $3.1k.

Looking at today’s calendar, there is no US economic data this session; this week includes FOMC meeting minutes, manufacturing and services PMIs, new home sales, durable goods orders and University of Michigan sentiment. Fed officials’ scheduled speeches include Bostic (7:30am, 8:45am, 7pm), Barr, Waller (9am), Jefferson (10:30am), and Mester (2pm)

Market Snapshot

S&P 500 futures little up 0.1% at 5,336.75
STOXX Europe 600 up 0.1% to 523.59
MXAP up 0.4% to 182.58
MXAPJ up 0.3% to 572.14
Nikkei up 0.7% to 39,069.68
Topix up 0.8% to 2,768.04
Hang Seng Index up 0.4% to 19,636.22
Shanghai Composite up 0.5% to 3,171.15
Sensex up 0.1% to 74,005.94
Australia S&P/ASX 200 up 0.6% to 7,863.66
Kospi up 0.6% to 2,742.14
German 10Y yield little changed at 2.53%
Euro little changed at $1.0873
Brent Futures up 0.1% to $84.09/bbl
Gold spot up 1.0% to $2,439.46
US Dollar Index little changed at 104.48

Top Overnight News

Iranian President Ebrahim Raisi was killed in a helicopter crash on Sunday, depriving Supreme Leader Ayatollah Ali Khamenei of a longtime ally as Tehran angles for regional dominance through armed militias that are fighting the U.S. and Israel. Raisi’s death was announced early Monday, after state television reported Sunday afternoon that a helicopter carrying him and Foreign Minister Hossein Amir-Abdollahian had made a landing” in northwestern Iran. WSJ
China has signaled it will retaliate against trade barriers introduced by the US and the EU as it launched an anti-dumping probe into chemical imports. The Ministry of Commerce announced on Sunday that it is probing imports of polyoxymethylene copolymer, a thermoplastic widely used in the consumer electronics and automotive industries, from the EU, the US, Japan and Taiwan. FT
Japanese companies agree to wage increases of 5.58% at the annual talks that concluded in March, the biggest jump in decades. Speculation rises that the BOJ could be forced to hike sooner than anticipated due to persistent JPY weakness. Nikkei
A St Petersburg court has seized over €700mn of assets belonging to three western banks — UniCredit, Deutsche Bank and Commerzbank — according to court documents. The seizure is one of the biggest moves against western lenders since Moscow’s invasion of Ukraine prompted most international lenders to withdraw or wind down their businesses in Russia. It comes after the European Central Bank told Eurozone lenders with operations in the country to speed up their exit plans. FT
ECB’s Martins Kazaks warns markets against assuming a rapid succession of cuts after the June meeting. BBG
The US and Saudi Arabia are “very, very close” on a landmark security agreement and could go ahead with a bilateral deal given the intractable issue of Gaza and a Palestinian state. NYT
G7 countries warming to a plan that would extend tens of billions of dollars in aid to Ukraine via a loan that will be paid back by profits earned from seized Russian assets (the money would be disbursed prior to the US election in Nov). FT
Bank capital rule proposals from the Fed are set to be eased significantly – the original B3 endgame plan would have mandated a 20% capital increase, but now the number will likely to be half as much. WSJ
Apple is preparing to unveil a partnership w/OpenAI at WWDC next month that will bring ChatGPT to the next version of iOS, and OpenAI is now “racing to ensure it has the capacity” to accommodate the massive influx of new users. BBG
Revisions to consensus 2024 EPS estimates have been better than usual due to upward guidance from the largest firms. Bottom-up consensus since 1985 has cut annual EPS by a median of 4% each year. Analysts YTD have lowered 2024 EPS estimates for the S&P 493 by 2% but lifted estimates for the Magnificent 7 by 8%, so the aggregate 2024 S&P 500 EPS forecast has been flat: Goldman

A more detailed look at global markets courtesy of Newsquawk

APAC stocks began the week on the front foot despite last Friday’s indecisive performance on Wall St where the major indices traded sideways but remained near record levels, while there was also a lack of fresh macro developments over the weekend. ASX 200 was led by outperformance in miners after gold and copper prices climbed to fresh record levels. Nikkei 225 surged above the 39,000 level with the index unfazed by the mild uptick in yields and absence of fresh drivers. Hang Seng and Shanghai Comp conformed to the positive mood but with gains capped in the mainland amid lingering frictions after China

Top Asian News

Chinese Loan Prime Rate 1Y (May) 3.45% vs. Exp. 3.45% (Prev. 3.45%)
Chinese Loan Prime Rate 5Y (May) 3.95% vs. Exp. 3.95% (Prev. 3.95%)
China MOFCOM announced symbolic sanctions against Boeing Defense, Space & Security, General Atomics Aeronautical Systems Inc. and General Dynamics Land Systems Inc. which were added to China’s “unreliable entity” list for providing weapons to Taiwan.
China’s Mofcom launched an anti-dumping probe into polyoxymethylene copolymers (used in electronics and cars) from the EU, US, Taiwan and Japan, according to FT.
Taiwan’s President Lai was sworn in and called on China to stop threatening Taiwan politically and militarily, while he called on Taiwan and China to take on the global responsibility of maintaining peace and stability in the region. President Lai said they seek peace but cannot have illusions and must work together with democratic countries to form deterrence and avoid war, as well as noted that Taiwan will maintain the status quo and cannot make any concessions on democracy and freedom.
South Korea plans to partially lift the short-selling ban in June, according to Yonhap.
BoJ survey finds many firms say they can no longer hire enough workers if they curb wages and more firms are starting to pass on rising labour costs to sales prices.
Chinese financial market regulators will meet Europe funds this week to attract investments, according to Bloomberg. Vice head of CSRC will meet investors from Wednesday, along with PBoC senior officials, according to Bloomberg

European bourses (Stoxx 600 +0.1%) are modestly firmer, though with price action contained in what has been a catalyst-thin session thus far. European sectors are mostly firmer; Basic Resources and Energy reside as the standout outperformers amid price action in underlying commodities. Except for those two, the breadth of the market is narrow with no overarching theme or bias. US equity futures (ES -0.1%, NQ -0.3%, RTY -0.5%) are trading sideways and around the flat mark ahead of a slew of Fed speakers.

Top European News

ECB’s Kazaks said the rate-cutting process must be cautious and gradual; will look at the data again after June’s meeting; June meeting is quite likely to be the start of ECB rate cuts.
BoE’s Broadbent said direct effect on inflation of the pandemic and the war have now faded; now left with the more persistent, second-round effects of that earlier surge on domestic inflation; possible Bank Rate could be cut some time over the summer.
Rightmove said asking prices for UK homes hit a record high in the four weeks to mid-May although the pace of increase was the slowest YTD.

FX

USD is flat vs. peers in what has been a quiet weekend/session of newsflow thus far. DXY is currently towards the bottom end of Friday’s 104.39-79 range.
EUR/USD is unable to launch a test of 1.09 after advancing as high as 1.0894 last week. 1.09 hasn’t been breached since 21st March, where 1.0942 was the high that day.
Flat trade for the GBP vs. the USD and EUR. Cable kissed Friday’s monthly peak at 1.2711 earlier in the session but was unable to break above it in quiet trade.
For once, USD/JPY is hugging the unchanged mark which is testament to how quiet trading conditions have been today. As it stands, the pair is contained within Friday’s 155.24-97 parameters.
Antipodeans are both broadly steady vs. the USD in quiet newsflow. AUD/USD is holding just below the 0.67 mark with an overnight peak of 0.6709, which is just shy of last Thursday’s peak at 0.6714.
PBoC set USD/CNY mid-point at 7.1042 vs exp. 7.2162 (prev. 7.1045)

Fixed Income

Horizontal trade for USTs amid quiet newsflow and a sparse calendar. The back-end of last week saw profit-taking on the CPI/retail sales induced gains earlier in the week.
Bunds are softer on the session, in a continuation of the downside seen since last Thursday. Traders are mindful of a potential improvement in upcoming PMI metrics. Currently at 130.63, and a far cry from last week’s 132.11 peak.
Gilts: Similar price action to its German counterpart with the Jun’24 Gilt contract extending on the downside seen since last week. Currently holding around 97.83, and well off last week’s 98.76.

Commodities

Crude was choppy for much of the European morning, before succumbing to selling pressure, taking the complex into the red with a lack of clear geopolitical catalyst. Although with little follow through, much of today’s focus has been on the death of the Iranian President and Foreign Minister, due to a weather-related helicopter crash. Brent near session lows at around USD 83.85/bbl.
Precious metals are mostly firmer with focus on spot silver and spot gold, with the latter notching a fresh record high overnight as it zeroes in on the USD 2,050/oz mark; XAU hit a peak at USD 2,450/oz (vs low USD 2,414.72/oz) overnight before stabilising around USD 2,435/oz.
Base metals are firmer across the board with APAC focus on industrial metals, namely copper and iron following China’s recent property support efforts. Iron ore prices hit their highest level in three months while 3M LME copper hit record highs.
Iraqi PM said there is no progress in talks with oil companies to resume exports from Kurdistan to Turkey, according to Reuters.
Libya began operating the new pipeline from its North Hamada oilfield with the initial transfer capacity expected at 2k bpd, according to the National Oil Corporation cited by Reuters.
Ukrainian intelligence sources said the SBU and military drones struck an oil refinery and airfield in Russia’s southern Krasnodar region in an overnight attack, according to Reuters.

Geopolitics: Middle East

A helicopter carrying Iranian President Raisi and Foreign Minister Amir-Abdollahian crashed due to adverse weather conditions, according to state TV. Iran’s Supreme Leader Khamenei reassured Iranians the country’s management would not be affected by the incident and that no disruption would occur in Iran’s state affairs, while it was later confirmed that all passengers including President Raisi were killed in the crash.
Israel said it is not involved the death of Iranian president Raisi, according to an Israeli official cited by Reuters.
Israel’s Gallant tells US advisor Sullivan that “we are committed to broadening the Rafah ground operation”
Israel’s Gantz demanded that the war cabinet agree to a six-point plan for the Gaza conflict by June 8th which should lay out a post-war vision for Gaza governance and equitable Israeli military conscription. Furthermore, Gantz warned his party would quit the emergency coalition government if Israeli PM Netanyahu does not meet expectations, according to Reuters.
White House National Security Adviser Sullivan discussed with Israelis methods to ensure the defeat of Hamas while minimising harm to civilians, while Sullivan reiterated US President Biden’s longstanding position on Rafah and proposed a series of concrete measures to ensure more aid flows into Gaza. Furthermore, Sullivan held constructive meetings in Saudi Arabia and briefed Israeli PM Netanyahu on the Saudi meetings and the potential that may now be available for Israel and the Palestinians, according to Reuters citing the White House.
US Central Command said Houthis launched an anti-ship ballistic missile into the Red Sea and struck M/T Wind which is a Panamanian-flagged, Greek-owned oil tanker which caused flooding and resulted in a loss of propulsion and steering. However, the crew was able to restore propulsion and steering, and there were no casualties reported, according to Reuters.

Geopolitics: Other

Ukrainian forces destroyed a Russian Black Sea fleet minesweeper, according to the Ukrainian navy.
Russia’s Defence Ministry said Russian forces took control of Starytsia in Ukraine’s Kharkiv region, according to TASS. In relevant news, Russia’s Defence Ministry said Russia shot down US ATACMS missiles and drones Ukraine used to attack Russian regions overnight, according to Reuters.
North Korea said it would reconsider measures necessary for improving the overall nuclear deterrence posture after the recent US subcritical nuclear test, while it added that the US subcritical nuclear test fuels an international nuclear arms race, according to KCNA.

US Event Calendar

Nothing scheduled

Central Bank speakers

07:30: Fed’s Bostic on Bloomberg TV
08:45: Fed’s Bostic Gives Welcome Remarks
09:00: Fed’s Barr Gives Keynote Remarks, Q&A
09:00: Fed’s Waller Gives Welcoming Remarks
10:30: Fed’s Jefferson Speaks on Economic Outlook, Housing
14:00: Fed’s Mester on Bloomberg TV
19:00: Fed’s Bostic Moderates Keynote Remarks

DB’s Jim Reid concludes the overnight wrap

I’m off to the West Coast this morning. San Fran that is, not Cornwall. It was a very emotional weekend. My twins had their first-ever cricket match at 6 and Jürgen Klopp managed his last game for Liverpool. I’m not one for tears but the latter was an emotional watch. My wife said the only time she’s ever seen me cry is due to sport. Tough to argue with that.

It will be a quieter week ahead for global macro with perhaps the most interesting event of the week being Nvidia’s earnings on Wednesday. The company always reports a couple of weeks after the main stretch of US earnings season is over so it will act as a potent “digestif” to Q1 reporting. Remember this time last year the mainstream AI frenzy began around the time of Nvidia’s results where the company climbed over 20% on results day and has now tripled in value over 12 months.

Staying in the US, the FOMC minutes on Wednesday are likely to be the main economic event. However, it’s tough to see how it will contain much new material especially as since the meeting we have seen CPI and PPI. Perhaps the busy week for Fedspeak will prove more interesting. Vice Chair Jefferson today and Governor Waller tomorrow are early week highlights with the rest in our day-by-day week ahead at the end as usual. Lagarde and the BoE Bailey speak tomorrow.

In terms of US data, notable releases include durable goods orders (DB forecast +0.5% in April vs +2.6% in March) and the final reading of the University of Michigan’s survey on Friday, as well as housing market data throughout the week. For the UoM survey, inflation expectations will be a highlight as the preliminary reading showed short- and longer-term expectations edging up. The survey is currently transitioning from 100% phone to 100% web-based responses over a 4-month period. So strange or inconsistent readings are possible.

The global flash PMIs on Thursday will be a highlight alongside UK inflation on Wednesday and retail sales and consumer confidence on Friday. Our UK economist previews the inflation data here and expects the headline to drop to around 2.2% YoY, 18 months after peaking at 11.1%. He sees core CPI at 3.6% and services at 5.4%, both also down. He sees risks to the headline projection as skewed to the downside. Canada’s CPI is also out tomorrow.

In Germany, PPI tomorrow and the breakdown of Q1 GDP on Friday, are likely the main events in mainland Europe. In Asia, the national CPI in Japan on Friday is the main release. Our Chief Japan economist expects core inflation ex. fresh food to be up 2.2% YoY (2.6% in March) and core-core ex. fresh food and energy up 2.5% (+2.9%), both rising +0.1% on a seasonally-adjusted MoM basis.

Asian equity markets are advancing this morning tracking Friday’s gain on Wall Street and maintaining some momentum after Beijing’s measures to stimulate the nation’s beleaguered property sector at the end of last week. Across the region, the Nikkei (+1.11%) is leading gains with the KOSPI (+0.59%), the Hang Seng (+0.26%), the Shanghai Composite (+0.38%) and the CSI (+0.20%) all also edging higher. S&P 500 (+0.14%) and NASDAQ 100 (+0.19%) futures are also ticking higher.

Coming back to China, the PBoC held its one-year loan prime rate (LPR) unchanged at 3.45% as expected while the five-year rate, a reference for mortgages, was also kept intact at 3.95%. Elsewhere, yields on the 10yr JGBs touched a high of 0.975% for the first time since 2013 before settling at 0.972% (+3bps) as I type amid expectations that the BOJ will trim its bond buyin at its regular operations to support the struggling yen.

Meanwhile, investors will again keep an eye on the Middle East after a helicopter carrying Iranian President Ebrahim Raisi crashed amid heavy fog in northern Iran . Official reports have now said that the President and Foreign Minister are amongst those dead.

Recapping last week now and it was another strong one for equities. The S&P 500 was up +1.54% in a fourth consecutive weekly increase (+0.12% Friday), its longest winning streak since February. The most notable milestone of the week came very late in Friday’s session as the Dow Jones index closed above the 40,000 level for the first time (+0.34% on Friday).

Renewed tech optimism supported outperformance for the NASDAQ (+2.11% over the week, despite -0.07% on Friday) but the equity gains were broad-based with the small cap Russell 2000 up +1.74% over the week. Global equities saw mixed gains, as Europe’s STOXX 600 clocked a +0.42% rise (-0.13% on Friday) while the MSCI EM index was up +2.63% (+0.11% on Friday).

Briefly on meme stocks, GameStop finished the week up +27.2%. That is despite substantial losses on Friday (-19.7%) following an announcement of plans for the firm to sell up to 45 million shares. They started the week at a price of just under $17.5, before more than tripling to just over $60 at their peak early Tuesday and then slumping back at $22.2 at the end of week. The meme-stock rally also petered out elsewhere. For example, AMC Entertainment fell -5.17% on Friday, although was still up +51.2% from last Monday’s open.

The broader strength in US equities was initially helped by investors increasing the amount of rate cuts they were expecting this year following the slight downside surprise in the headline April US CPI print on Wednesday. That said, this trade saw some retracement in the latter half of the week, with the amount of Fed cuts expected by year-end rising from 41bps at the start of the week to 52bps on Wednesday, before falling back to 44bps by Friday’s close. That retracement was greater for the ECB, with investors trimming the number of cuts expected by December by -5.3bps on Friday to 67bps from a peak of 75bps on Wednesday (and 69bps a week earlier).

This pattern also resulted in somewhat different sovereign bond moves on either side of the Atlantic. Yields on 10yr and 2yr Treasuries fell -7.5bps and -4.1bps respectively over the week, despite a sell-off on Friday (+4.6bps and +3.0bps respectively). Over in Europe, yields on 10yr bunds traded flat on the week (-0.1bps) with a sell off on Friday (+5.6bps) reversing earlier gains.

Lastly, in commodities, gold recorded a second consecutive week of gains, with a +2.32% increase (+1.39% on Friday) leaving it at another all-time high of $2,415/oz. In oil, prices recovered from two-month lows helped along by falling US inventories. Brent crude rose +1.44% to $83.98/bbl (+0.85% on Friday), and WTI rose +2.30% to $80.06/bbl (+1.05% on Friday).