Another Day, Another Record High, Another Tech Meltup

Stop us when this starts sounding familiar: futures are – once again – higher, led by tech with small-caps also outperforming following another all-time high, the 36th of 2024, fueled by dovish Powell comments. As of 8:00am ET, S&P futures are up 0.2% to a new all time high, while Nasdaq futures rise 0.3%, also to a new all time high, with premarket gains – once again – led by semis as TSMC sales beat expectations, +40% vs. +35.5% consensus. As a result, all Mag7 names are higher – Tesla is set for a 10th gain in a row – and several large-cap banks are higher, too. Yields on two-year Treasuries traded near a three-month low, reflecting a popular bet that the US yield curve will steepen, although today 10Y yields also dipped, and were down 3bps to 4.27%, aided by expectations for loose fiscal policy. Bond yields are down 2bps and the USD starts the day flat. Commodities are weaker but there is some relief in the Energy complex with both crude/natgas higher. Yesterday’s 3Y auction showed surprising strength, keep an eye on today’s 10Y auction, amid 4x Fed speakers including the 2nd day of Powell’s congressional testimony. JPM predicts that we may see another low volume session ahead of tomorrow’s CPI release; the market is pricing Sep and Dec rate cuts so an inline print keeps that on track.

In premarket trading, Aehr Test Systems shares surged 15% after its fourth-quarter revenue beat estimates. LegalZoom.com tumbled 30% after the legal services company cut its full-year revenue guidance to below consensus estimates. It also named chairman Jeffrey Stibel as CEO, replacing Dan Wernikoff. Here are the other notable premarket movers:

• 3M Co. slips 0.8% after saying CFO Monish Patolawala has resigned to “pursue another opportunity” following the recent appointment of the industrial product company’s chief executive officer, Bill Brown.
• Air Products climbs 2% after Honeywell agreed to buy the company’s LNG unit.
• Illumina rises 3% after the gene-sequencing company said it has acquired Fluent BioSciences – a developer of single-cell technology. Shares of competitor 10X Genomics (TXG), which is in the single-cell space, slump 12% on the news.
• MarineMax climbs 3% after Island Capital Group proposed to buy up to 100% interest in the company’s YMRS business.
• Riskified  falls 7% after Goldman Sachs cut its recommendation to sell.
• Smart Global climbs 6% after the semiconductor device company reported third-quarter results that beat expectations.

The S&P 500 climbed for a sixth consecutive session on Tuesday, its longest winning streak since January. Here are some striking facts from The Market Ear showing just how this bull market rally just won’t end:

1. Megacap Tech is +50% YTD, good for the second best 6-month start in its history. For context, last year was the best 6-month start: +54%
2. NDX higher 8 of the last 9 sessions, good for a quick 5%
3. S&P 500 up the first six days of July. This is officially the second longest win streak ever to start July (’89 had 10).
4. AAPL +18% since WWDC… Its third best 18-session move since Covid
5. Tesla higher for the 10th day in a row
6. The worst day the past two months for the S&P 500 is only 0.74%.
7. Now 345-day streak without a 2% S&P 500 decline

Speaking to lawmakers Tuesday, Powell was careful not to offer a timeline for interest-rate cuts, which investors are now betting will begin in September. Further Congressional testimony by Powell on Wednesday, and key US inflation and jobs data tomorrow, may provide further clues on the policy path.

“We’re in position for curve steepeners,” Nicola Mai, sovereign credit analyst at Pimco, said in an interview with Bloomberg TV. “This year or early next year we should be getting to that disinversion of the curve for a couple of reasons. First of all rates should start to fall. Also I think the long end of the curve is going to remain high on fiscal concerns.”

In Europe, the Stoxx 600 adds 0.5%, led by gains in real estate, travel and telecommunication. Here are the most notable premarket movers: 

• Kongsberg jumps as much as 10%, hitting a record high, after the Norwegian defense and aerospace group reported 2Q earnings which DNB praised as a “broad-based beat”
• Technip Energies rises as much as 5.9% after analysts at Morgan Stanley raised their price target on the engineering and technology company by around 10%
• Hapag-Lloyd gains as much as 7.8%, the most in a month, after the German shipper updated its FY guidance. Analysts say the move was expected following an extended surge in shipping rates
• Porsche rises as much as 4.7% after the luxury carmaker hosted a pre-close call with analysts on Tuesday. Oddo said comments on the call provided optimism for the firm’s upcoming 2Q results
• Jeronimo Martins jumps as much as 5.4% to a one-month high after UBS double upgraded the food retailer to buy, expecting to see an inflection in sales growth and margins
• Enagas shares gain as much as 5.7% after the Spanish gas utility reached an agreement to sell its 30.2% stake in Tallgrass Energy to Blackstone Infrastructure Partners for $1.1 billion
• Volkswagen falls as much as 2.3% after the German carmaker issued a profit warning, though analysts saw a silver lining in the effort to close a production site
• European miners slide for a fourth day, with iron ore declining amid a wave of negative signals from China, while copper drops again as investors weigh the demand outlook from the country
• Impax shares drop as much as 14% after the UK asset manager reported net outflows of £1.89 billion for the quarter, prompting analysts at Peel Hunt to lower their price target
• AAK drops as much as 3.6% after ABG Sundal Collier downgrades its rating on the Swedish specialty oils firms, citing valuation after the company closed at a record high on Tuesday
• Barratt Developments slips as much as 3.1% after the housebuilder’s FY25 outlook disappointed the markets. Jefferies says this highlights the need for it to complete its proposed merger with Redrow

Earlier, Asian stocks edged higher as major markets saw mixed moves following Federal Reserve Chairman Jerome Powell’s testimony to Congress. The MSCI Asia Pacific Index traded in a tight range Wednesday, up 0.1% as of 5:09 p.m. in Hong Kong. TSMC was the largest contributor to the advance as its second quarter sales figures exceeded expectations. Japanese stocks gained as investors weighed the Bank of Japan’s next move, while Singapore shares closed at a six-year high. Benchmarks in Hong Kong and mainland China reversed earlier gains. A high-profile gathering of China’s top leaders next week will be keenly watched for the winners and losers in the country’s stocks as the latest inflation readings pointed to persistent deflationary pressure.

In FX, the Bloomberg Dollar Spot Index is little changed. The New Zealand dollar underperforms G-10 FX, falling 0.9% against the dollar after the Reserve Bank toned down its hawkish rhetoric, suggesting it could ease monetary policy sooner than previously signaled. The Norwegian krone nurses a similar drop after underlying inflation fell to the lowest level in more than two years.

In rates, treasuries edge higher and hold curve-flattening gains, with long-end yields richer by around 2.5bp on the day, amid a bigger bull-flattening move in European bonds. The 10-year yield trades around 4.27%, more than 2bp richer on the day, trailing German and UK counterparts by 3bp and 4bp. 2s10s and 5s30s spreads are tighter by ~1bp, unwinding a portion of Tuesday’s curve-steepening move. Bunds, gilts and French OATs outperform comparable US bonds across the curve. The US session features a 10-year note reopening as well as Fed Chair Powell’s testimony to the House Financial Services Committee following his Senate testimony Tuesday. The week’s Treasury auction cycle continues at 1pm New York time with $39b 10-year reopening and concludes Thursday with $22b 30-year reopening. Tuesday’s 3-year sale drew strong demand, stopping through by 0.8bp. The When Issued 10-year yield at ~4.27% is ~17bp richer than June’s auction, which stopped through by 2bp.

Oil prices advance, with WTI rising 0.4% to near $81.70 as concerns about Chinese demand and continued uncertainty over the timeline for Fed rate cuts clashed with signs of another inventory draw in the US. Copper and iron ore declined, while gold rose $9 to around $2,373/oz.

Looking at today’s calendar, US economic data slate includes May wholesale inventories at 10am. Powell testifies before the House Financial Services Committee at 10am in Washington. Goolsbee and Bowman (2:30pm) and Cook (7:30pm) are also slated to speak

Market Snapshot

• S&P 500 futures up 0.1% to 5,637.25
• STOXX Europe 600 up 0.3% to 513.22
• MXAP little changed at 185.08
• MXAPJ down 0.2% to 577.60
• Nikkei up 0.6% to 41,831.99
• Topix up 0.5% to 2,909.20
• Hang Seng Index down 0.3% to 17,471.67
• Shanghai Composite down 0.7% to 2,939.36
• Sensex down 0.9% to 79,635.35
• Australia S&P/ASX 200 down 0.2% to 7,816.81
• Kospi little changed at 2,867.99
• German 10Y yield -4.6bps at 2.53%
• Euro little changed at $1.0815
• Brent Futures down 0.1% to $84.56/bbl
• Gold spot up 0.4% to $2,373.43
• US Dollar Index little changed at 105.14

Top Overnight News

• China’s CPI cools by more than anticipated in June, coming in at +0.2% (vs. the Street +0.4% and down from +0.3% in May), while the PPI was inline at -0.8% (up modestly from -1.4% in May). RTRS
• The Reserve Bank of New Zealand held its official cash rate steady at 5.50% on Wednesday, staying in what central bank Gov. Adrian Orr likes to call watch-worry-and-wait mode. Still, the RBNZ’s cautious narrative softened somewhat amid an admission that inflation pressures are starting to ease. WSJ
• Russia is unlikely to make significant territorial gains in Ukraine in the coming months as its poorly trained forces struggle to break through Ukrainian defenses that are now reinforced with Western munitions, U.S. officials say. NYT
• Saudi Arabia privately hinted earlier this year it might sell some European debt holdings if the Group of Seven decided to seize almost $300 billion of Russia’s frozen assets, people familiar with the matter said. CNN
• George Stephanopoulos, the ABC news anchor who recently interviewed President Biden about his fitness for the presidential race, was caught on camera Tuesday indicating that he doesn’t think Biden can serve another four years. WaPo
• Biden delivered one of his strongest recent public appearances on Tues during remarks at the NATO summit, although the world will be watching the press conf. he plans to hold on Thursday. CNN
• Having spent the last week and a half in various stages of private panic and public skepticism about Mr. Biden’s viability as a candidate and whispering among themselves about what the best way to push him aside might be — a strongly worded letter? a White House meeting? a high-level intervention? — top Democrats on Tuesday settled on a strategy many of them conceded could be disastrous: They would do nothing, at least for now. NYT
• Microsoft and Apple relinquished the chance to be observers on OpenAI’s board in a surprise decision that underscores growing scrutiny from antitrust regulators over the relationship between Big Tech and AI. BBG
• Apple saw big PC unit growth in Q2 (+20.8%) while HPQ (HP Inc.) rose 1.8% and DELL (Dell) dipped 2.4%. IDC

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed following the indecisive performance stateside where the major indices finished rangebound after Fed Chair Powell largely stuck to the script and refrained from providing any signals on the timing of future policy action. ASX 200 was mildly pressured amid underperformance in the heavy industry sectors. Nikkei 225 swung between gains and losses despite initially printing fresh intraday record highs. Hang Seng and Shanghai Comp. diverged with the former kept afloat by outperformance among tech names such as Baidu, JD, Meituan & Alibaba, while the mainland conformed to the mostly downbeat mood after softer-than-expected Chinese CPI data and several companies also flagged losses for H1.

Top Asian News

• RBNZ kept the OCR unchanged at 5.50% as expected, while it noted that the Committee agreed that the OCR will need to remain restrictive and the extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures. RBNZ said some domestically generated price pressures remain strong but there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions. Furthermore, it noted that the appropriate stance of monetary policy was discussed and the Committee is confident that inflation will return to within its 1%-3% target range over the second half of 2024.
• China’s MOFCOM is to investigate EU trade barriers following the probe on Chinese firms, investigation to occur between 10th July to 10th January 2025, can be extended to April

European bourses, Stoxx 600 (+0.3%) are modestly in the green, paring back some of the hefty losses seen in the prior session. European sectors hold a slight positive bias, though with the breadth of the market fairly narrow. Real Estate tops the pile, whilst Basic Resources is subdued by broader weakness in the metals complex, following the softer than expected Chinese inflation data. US Equity Futures (ES +0.1%, NQ +0.3%, RTY +0.3%) are modestly firmer, with the ES & NQ sitting at session highs, whilst the RTY remains within recent ranges. TSMC (2330 TW) June (TWD): Sales 207.87bln (May’s 229.6bln). Q2: 673.5bln (exp. 654.27bln)

Top European News

• Starmer Says Ukraine Can Use UK Missiles to Strike Inside Russia
• ECB’s Vujcic Proposed for New Term as Croatian Central-Bank Head
• UK Hospital Hack Raises Kidney Patients’ Heart Failure Risk
• European Shares Rise as Wall Street Hits Record, Powell in Focus

FX

• DXY is holding above the 105 mark within yesterday’s 104.95-105.20 range. Powell’s comments on Tuesday had little follow-through to the USD and this will likely remain the case when he appears before the House today, ahead of CPI on Thursday.
• Steady trade for the EUR with EUR/USD stuck within yesterday’s 1.0805-33 range with markets not currently looking to test support at the 1.08 mark which also coincides with the 200DMA.
• Cable is currently holding around the 1.28 mark and respecting yesterday’s 1.2777-1.2825 range. GBP remains elevated in the context of greater political certainty and hawkish comments from Haskel on Monday.
• USD/JPY is back onto a 161 handle, having chopped and changed around the 161 mark in recent trading sessions.
• NZD the laggard across the majors amid less hawkish language from the RBNZ alongside its widely-expected decision to stand pat on rates.
• USD/CNH is moving ever closer to the 7.30 mark in the wake of soft inflation metrics overnight and as the PBoC fixing edges gradually higher.
• PBoC set USD/CNY mid-point at 7.1342 vs exp. 7.2711 (prev. 7.1310).

Fixed Income

• USTs are very modestly firmer, up to a 110-17 peak with Tuesday’s 110-18 and Monday’s 110-20+ highs in close proximity. Fed Chair Powell will appear before the House, though is unlikely to deviate much from commentary provided yesterday.
• Bunds hold a bullish bias, emerging early in the European morning, having traded relatively contained overnight. Thus far, Bunds have been as high as 131.38, eclipsing Tuesday’s 131.31 best.
• Gilt price action is in-fitting with Bunds; boosted to above the 98.00 mark to a 98.23 peak, similarly to Bunds, this eclipses Tuesday’s best but stalls before Monday’s 98.27 high.
• Germany sells EUR 1.75bln vs exp. EUR 2bln 1.00% 2038 and 0.00% 2036 Bund.

Commodities

• Crude was initially subdued, with prices heading lower following the softer than expected Chinese inflation metrics. However, prices then began to climb around the time a security source suggested 3 additional teams of the Israeli ground forces are ready in the Northern Command, according to Al Arabiya. Brent September futures fell to a USD 84/bbl vs current levels at USD 84.90/bbl.
• Precious metals are modestly firmer across the board but with the ranges relatively narrow, with mild outperformance seen in silver prices which attempt another move towards USD 31/oz.
• Base metals are lower across the board amid the ongoing weakness in Chinese markets coupled with sub-forecast Chinese CPI and continued deflationary PPI.
• US Private Inventory Data (bbls): Crude -1.9mln (exp. -1.3mln), Distillate +2.3mln (exp. +0.8mln), Gasoline -3.0mln (exp. -0.6mln), Cushing -1.2mln.
• Magnitude 6.7 earthquake occurred south of Africa, around 2.1km away from Western Cape, South Africa, via USGS

Geopolitics: Middle East

• „Security source for Al-Arabiya: 3 additional teams of the Israeli ground forces are ready in the Northern Command”, according to Al Arabiya; „The Israeli General Staff is ready with the air and naval arms”.
• „IRGC commander: If necessary, we will take practical and direct steps and support the resistance forces in the region”, according to Al Jazeera.
• Israeli military said its air force struck a Hezbollah target in the Janta area of central Lebanon, according to Reuters.
• Israel’s Channel 12 cited the Minister of Culture who stated they are ready to make concessions to conclude the hostage deal and there is a strong desire among the majority of the members of the government and the PM to pass the deal. However, the minister added that they tell Hamas they will not retreat until they achieve their goals and will strengthen military power in Gaza, according to Al Jazeera.

Geopolitics: Other

• Ukrainian President Zelensky said America’s leaders must be strong and uncompromising in defending Ukraine’s democracy against Russian President Putin, while he urged international leaders to aid Ukraine and not to wait for the US election in November.
• US President Biden said at the NATO Summit that Ukraine will be able to stop Russian President Putin and stand up to him, while they are committed to supporting Ukraine. Furthermore, Biden said the US and its allies will provide Ukraine with five additional strategic air defence systems and they intend to provide Ukraine with dozens of tactical air defence systems in the coming months.
• NATO Secretary General Stoltenberg said their support for Ukraine comes with costs and risks and there are no risk-free options in war. Stoltenberg said a Russian victory would embolden Iran, North Korea, and China which all want NATO to fail, while he added that the outcome of the Ukraine war will shape global security for decades to come.
• Saudi Arabia’s Ministry of Finance denied the threat of selling European bonds and maintained that the relationship with G7 and others is mutually respected, according to source via social media platform X.
• US’ new envoy to Taiwan, Raymond Greene, said “First of all, and the most important thing, the U.S. will strongly support Taiwan’s self-defense capabilities,”, via AP.

US Event Calendar

• 07:00: July MBA Mortgage Applications, prior -2.6%
• 10:00: May Wholesale Trade Sales MoM, est. 0.3%, prior 0.1%
• 10:00: May Wholesale Inventories MoM, est. 0.6%, prior 0.6%

Central Bank Speakers

• 10:00: Fed’s Powell Testifies to House Financial Services
• 14:30: Fed’s Goolsbee, Bowman Give Opening Remarks at Childcare Event
• 19:30: Fed’s Cook Speaks on Global Inflation, Monetary Policy

DB’s Jim Reid concludes the overnight wrap

After a lot of resilience through increasingly challenging macro news of late, markets were under a bit more pressure yesterday, which seems strange to say when the S&P 500 (+0.07%) edged up to a 36th all-time high for the year. The Mag-7 (+0.91%) dragged the index up yet again, but most US stocks were lower and French assets saw a sharp decline amidst the ongoing political gridlock, which meant the CAC 40 (-1.56%) saw its worst move in over three weeks while the Franco-German 10yr spread rose by +3.8bps. That went alongside broader declines for sovereign bonds, as there was disappointment that Fed Chair Powell didn’t sound more dovish in his congressional testimony, particularly given the uptick in the unemployment rate last week.

Overall, Powell’s tone was a fairly balanced one, and he reiterated the Fed’s message that they needed “greater confidence” that inflation was moving back towards target. Nevertheless, he also explicitly said in his statement that “elevated inflation is not the only risk we face”, pointing out that keeping policy too restrictive “could unduly weaken economic activity and employment” and that “labor-market conditions have now cooled considerably”. So there was an acknowledgement of the risk of staying on hold too long.

But despite Powell’s comments, Treasury yields initially moved higher across the curve. In large part, that was because of hopes that Powell would be even more dovish, and it’s worth noting that markets were already pricing more easing than the Fed had signalled in their June dot plot. For instance, the median dot had pointed to just one rate cut this year, but futures were fully pricing in two rate cuts before Powell’s testimony and this was little changed on the day (-0.4bps at 50bps). Treasury yields were a few bps higher intraday as Powell spoke, but began to turn lower around the end of his testimony. The 2yr yield ended the session -0.3bps lower at 4.63%, with the reversal also helped by a solid 3yr Treasury auction that saw $58bn of bonds issued 0.8bps below the pre-sale yield. Still, the 10yr yield closed +1.7bps higher on the day at 4.30%.

Aside from monetary policy, one other comment from Powell was around the new Basel proposals on bank capital, where Powell said that they had “ made quite a bit of progress and are very close to agreeing the substance of those changes ”. That came as Reuters reported yesterday that the Fed was considering a change to the GSIB surcharge that global systemically important banks have to hold.

Over in Europe, political risk remained the prominent theme yesterday, with France no closer to forming a government. It isn’t clear how a government can be formed given the split between three major groups in the National Assembly, and even the largest group (the left-wing alliance) are more than 100 seats away from an overall majority. That backdrop has seen French equities decline further, with the CAC 40 (-1.56%) down for a 3rd consecutive day, alongside fresh losses for BNP Paribas (-2.35%) and Société Générale (-2.22%). Indeed, it means the CAC 40 is now only just above its recent low on June 28 ahead of the first round vote, and the index is only a little more than 1% away from entering technical correction territory, having shed almost -9% since its recent peak back in mid-May. Sovereign bonds also struggled, with yields on 10yr OATs (+7.8bps), Bunds (+4.6bps) and BTPs (+5.4bps) all rising.

Equities followed a similar pattern across Europe, although the losses weren’t quite as large as France. That included the STOXX 600 (-0.90%), the DAX (-1.28%) and the FTSE 100 (-0.66%). But over in the US there was a stronger performance that left the S&P 500 (+0.07%) at another record high, and it was also the index’s 6th consecutive advance for the first time since January. That was driven by the Magnificent 7 (+0.91%), with a weaker tone more broadly. Indeed, 60% of the S&P 500 were down on the day, while the small-cap Russell 2000 (-0.45%) was almost back into negative territory on a YTD basis.

Overnight in Asia, equity markets have remained fairly steady overnight, with no major moves in either direction. Looking at some of the major indices, the Hang Seng (+0.27%) is up a bit, whilst the CSI 300 (+0.01%), the KOSPI (-0.03%) and the Nikkei (-0.04%) have seen little change, and the Shanghai Comp (-0.33%) has fallen. That comes against the backdrop of China’s latest inflation data for June, which showed that deflationary pressures are still present. For instance, the PPI remained in deflationary territory, falling -0.8% year-on-year as expected, whilst the CPI was up just +0.2% (vs. +0.4% expected). Looking forward, US equity futures are pointing to further gains, with those on the S&P 500 (+0.04%) and the NASDAQ 100 (+0.14%) both up this morning.

Elsewhere overnight, the Reserve Bank of New Zealand left its Official Cash rate unchanged at 5.5%, in line with expectations. However, there were some dovish aspects, and the meeting summary said that “ A range of business and consumer surveys, and higher frequency spending and credit data, all point to declining activity.” In turn, the New Zealand Dollar has weakened against other major currencies, and is down -0.57% against the US Dollar this morning, and its 10yr government bond yield is down -4.9bps.

To the day ahead now, and we’ll hear from Fed Chair Powell again at the House Financial Services Committee today. Otherwise, central bank speakers include the Fed’s Goolsbee, Bowman and Cook, Bundesbank President Nagel, and the BoE’s Pill and Mann. Finally, data releases include Italy’s industrial production for May.