US equity futures are again lower, although well off session lows, with small caps leading and tech stocks lagging as concerns over whether Democrats will push the US into a government shutdown over the weekend added to uncertainty around the outlook for the economy. As of 8:00am, S&P futures contracts fell 0.4%, in an extremely illiquid and volatile session, after gains on Wednesday spurred by a softer-than-expected inflation print. Nasdaq futures dropped 0.5%, with most Mag7 names lower; weak earnings hit software firm Adobe and clothing retailer American Eagle in premarket trading, Intel jumped as much as 11% after the chipmaker named a new chief executive officer. Senate Minority Leader Chuck Schumer said Wednesday that Democrats would not provide the necessary votes to pass the Republican plan to avert a shutdown. The yield curve is seeing yields rise in longer-dated bonds by 1-2bps. USD is flat while cmdtys are under pressure, though Ags are stronger. The market seems a bit more resilient to headline risk as macro fundamentals return to focus ahead of next week's Fed meeting. Today's macro data focus is on PPI to see if yesterday's CPI (and PCE mapping) are intact ahead of tmrw's Univ of Mich sentiment update.
In premarket trading, Intel shares jump 11% after the chipmaker named Lip-Bu Tan as its CEO. Tan is signaling that he'll stick with his predecessor Pat Gelsinger's plan to make chips for other companies, even as he vows to learn from past mistakes. On the other end, Adobe shares slumped 4.6% after the maker of software for creative professionals gave an outlook thatwas mixed relative to expectations. While analysts are generally positive, Evercore wrote that the report wasn't strong enough to change the narrative around the stock. Here are some other notable movers:
The previous day's CPI reading "has reinvigorated belief in the declining inflation narrative," said Daniel Murray, CEO of EFG Asset Management in Zurich. Investors are now awaiting readings on US wholesale inflation and initial jobless claims, with price growth seen moderating to 0.3% last month.
Recent weeks have seen a slew of Wall Street banks including Goldman Sachs Group Inc. and Citigroup Inc. cut their forecasts for the S&P 500, predicting a hit from the slowing economy. Yardeni Research added to that bearish chorus, noting that Trump's tariff policies have heightened the risk of stagflation. Still, some strategists think a bottom for US stocks is "probably" here, with JPMorgan Chase & Co. saying the worst of the correction may be over, with credit markets indicating a lower risk of a recession.
Meanwhile Treasury yields shrugged off the cooler inflation data to edge higher, with investors focusing on the effect higher tariffs could have on prices in the coming months. The Federal Reserve, which meets next week, has already signaled it will take a wait-and-see approach before cutting interest rates further.
European equities erased a gain of 0.5%, as earlier gains in health care, consumer product and insurance stocks were promptly reversed after Trump threatened the EU with 200% tariffs on alcohol products, and as concerns about trade persist after President Donald Trump said the US would respond to the European Union's countermeasures to his tariffs on steel and aluminum. Poland's Allegro leads gains, while Deilveroo and HelloFresh fall. European truckmakers slip after US regulators signaled they would dial back emissions standards, potentially derailing purchases of new trucks. Here are the biggest movers Thursday:
Earlier in the session, Asian equities fell amid a broad risk-off mood, as traders largely looked past weaker-than-expected US inflation data. The MSCI Asia Pacific Index dropped as much as 0.5%, reversing a gain of as much as 0.6%. TSMC was the biggest drag on the gauge, with Taiwan's benchmark the region's biggest decliner as the central bank warned of currency risks from stock outflows. Sentiment turned sour as worries mounted about the health of the world's largest economy amid on-again, off-again trade policies and geopolitical tensions. The regional gauge is down about 1.8% this week. "The general sense is that the world is not in a good place. There's uncertainty everywhere and nobody wants to put on risk," said Vey-Sern Ling, a managing director at Union Bancaire Privee. "I think economic uncertainties in the US caused by Trump's policies will be a constant worry."
In FX, the Bloomberg Dollar Spot Index rises 0.1%. The yen is off its best levels but still the top G-10 FX performer against the greenback. The Swedish krona is the weakest with a 0.7% drop, closely followed by the Antipodean currencies.
In rates, treasuries dip ahead of US producer price data, with US 10-year yields rising ~2 bp to 4.33%; treasury futures drifted lower as US trading begins after plying narrow ranges during Asia session and London morning, lifting cash yields by 1bp-3bp across maturities and steepening the curve. US 10-year yields around 4.33% are ~2bp cheaper on the day near session high with bunds in the sector lagging by an additional 1bp. Treasury curve spreads are steeper, 2s10s by ~1.5bp day's high. Bunds have bigger losses as European stocks pare losses. This week's Treasury auction cycle concludes with $22b 30-year reopening at 1pm New York time; Wednesday's 10-year note auction stopped through by 0.5bp. WI 30-year yield at around 4.662% is ~9bp richer than February's auction result. Focal points of US session include February PPI, weekly jobless claims data and 30-year bond supply.
In commodities, oil prices decline, with WTI falling 0.5% to $67.30 a barrel. Spot gold rises $10 to around $2,944/oz with prices rising toward record highs as several banks predicted further gains for the haven asset amid the escalation in global trade tensions. Bitcoin is steady just above $83,000.
The US economic data calendar includes February PPI and jobless claims (8:30am) and 4Q household change in net worth (12pm). Fed officials are in external communications blackout ahead of March 19 policy announcement
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were subdued as risk appetite soured despite the mostly positive handover from Wall St where sentiment was underpinned after softer-than-expected CPI data but with the upside capped as concerns lingered. ASX 200 was dragged lower by consumer stocks, energy and financials, with the consumer sector pressured as electricity bills are to jump as much as 9% in a cost-of-living blow following the energy regulator's price ruling. Nikkei 225 initially outperformed and briefly reclaimed the 37,000 level before wiping out the gains. Hang Seng and Shanghai Comp gradually deteriorated following a tepid PBoC liquidity operation and with participants unfulfilled by the lack of policy action so far by the central bank post-NPC, while reports that Hong Kong is mulling reducing thresholds for purchasing the most expensive stocks did little to spur a bid.
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European bourses (STOXX 600 +0.3%) opened mostly lower, but sentiment has improved as the morning progressed to display a modestly positive picture in Europe. European sectors are mixed, and holds a slight defensive bias; Telecoms is towards the top of the pile, joined closely by Healthcare, which is propped up by Novo Nordisk (+3%); the Co. benefits from a broker upgrade at Kepler and as it bounces back from recent losses. Autos sits at the foot of the pile, with no clear driver but with tariff uncertainty still at the forefront of traders minds.
Standby for an exciting special announcement from DB Research this morning. No its not me stepping down and spending more time with my family. That would be far too stressful and unaffordable.
Ahead of our exciting new announcement, the market selloff has finally begun to stabilise over the last 24 hours, with the S&P 500 (+0.49%) posting a recovery that kept it clear of correction territory for now. However the next hurdle is a potential US government shutdown this Saturday if not enough moderate Democrats vote for the Republican stopgap funding bill in the Senate ahead of the weekend. We will see if a deal can be made. The uncertainty has perhaps helped S&P (-0.57%) and Nasdaq (-0.87%) futures to give up their gains from yesterday so we will see how this story plays out.
Before this, the softer-than-expected US CPI print had dominated, reassuring investors that the Fed would still have the space to cut rates if required. But even with the weaker inflation print, the rally faded as the day progressed. There was still a lot of concern about ongoing tariffs, particularly after various retaliatory measures were announced against the United States. So that meant the S&P gave up the bulk of its initial +1.26% move straight after the open, closing at +0.49%, with nearly two thirds of S&P 500 constituents lower on the day and a lot of other risk assets still struggling to gain traction.
In terms of that CPI release, the February numbers were the mirror image of the previous month, as both headline and core CPI surprised on the downside. For instance, headline CPI fell to just +0.22% on the month (vs. +0.3% expected), which pushed the year-on-year rate down to +2.8% (vs. +2.9% expected). That monthly print was the weakest since August, and it meant the 3m annualised rate finally moved down to +4.3%, ending a run of 6 consecutive increases in the measure. Meanwhile for core CPI, there was also a decent story, with the monthly number at +0.23% (vs. +0.3% expected), which pushed the year-on-year rate down to +3.1% (vs. +3.2% expected). You can see our US economists' full CPI recap here.
As discussed, the release immediately led to a surge in US equity futures, as investors hoped it would keep the Fed on course to cut rates this year. However, that initial positivity began to tail off as the market focus returned back to tariffs, and whether that might lead to a fresh rebound in the inflation numbers. Indeed, yesterday saw Canada retaliate against the latest US steel and aluminium tariffs, announcing tariffs on around C$30bn of US products, targeting steel and aluminium as well. And that followed on from the EU's own announcement yesterday morning, who proposed countermeasures covering €26bn of American goods, which would come into force over April. So collectively, the fear is that this ratchet could be increasingly hard to climb down from over the months ahead. Amidst a visit to Ireland, Trump himself continued to make comments implying that tariffs would go up, saying that the US would respond to the EU countermeasures, that he wasn't happy with the EU and that April 2 would be a very big day, when he's planning to impose reciprocal tariffs. He also referred to Ireland's large pharmaceuticals trade surplus against the US. Remember as well that Trump has said he considers VAT to be like a tariff, so that could seriously affect a lot of European countries.
With all that in hand, the S&P 500 (+0.49%) ultimately ended the day higher, but that was mainly thanks to a strong bounceback for the Magnificent 7 (+2.27%), which put in their best daily performance in six weeks. Indeed, the recovery was a pretty narrow one, with most constituents in the S&P moving lower on the day (65%), which left the equal-weighted index down -0.46%, while the Dow Jones fell -0.20%. Small-cap stocks also lagged, with the Russell 2000 only up +0.14%. But despite the caveats, the moves took the S&P further away from the -10% threshold that would mark a technical correction, leaving it -8.87% beneath its peak, while moderating volatility saw the VIX index (-2.69pts to 24.23) post its biggest decline of the year so far.
The modest risk-on tone meant that US Treasuries struggled yesterday, despite the softer-than-expected CPI print. So yields rose across the curve, with the 2yr yield (+4.5bps) up to 3.99%, whilst the 10yr yield (+3.2bps) moved up to 4.31%, its highest level in two weeks before dipping back to 4.295% in Asia this morning. In addition, the equity recovery also helped alleviate fears that the US was heading into recession, and investors dialled back their expectations for Fed rate cuts this year, despite the softer CPI print. So by the close, the rate priced in for the December meeting had actually moved up +5.7bps on the day, with futures only pricing in 70bps of cuts this year.
Over in Europe, the narrative was more consistently positive yesterday, with the STOXX 600 (+0.81%) ending a run of 4 consecutive declines, whilst the DAX saw a larger +1.56% gain. For what it's worth, that's now the 8th consecutive session where the DAX has moved by at least 1% in either direction, and if we get a 9th today, it would be the first time that's happened since the pandemic turmoil of H1 2020. Bond yields also came off their recent highs, with yields on 10yr bunds (-1.9bps), OATs (-3.4bps) and BTPs (-2.3bps) all moving lower. And there was a fresh tightening in sovereign bond spreads too, with the Franco-German 10yr spread down to 67.6bps, which is the tightest it's been since July. Today sees a debate in the reconvened outgoing Bundestag which kicks off the constitutional process leading us to potentially see the largest domestic fiscal stimulus since at least German reunification. See our economists' note "Crunchtime in the Bundestag" previewing this.
Otherwise yesterday, the Bank of Canada delivered a 25bp rate cut in their latest policy decision, taking their overnight rate down to 2.75%, in line with expectations. Their statement acknowledged the ongoing trade war, saying that "heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada." The Canadian dollar strengthened by +0.45% against the US Dollar yesterday, making it the strongest-performing G10 currency, and the statement acknowledged that they would need to assess "the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs."
Asian equity markets are lower overnight with the Hang Seng (-1.42%) leading losses and heading for its fifth successive loss while the CSI (-0.58%) and the Shanghai Composite (-0.75%) are also trading lower alongside the KOSPI (-0.38%) and the S&P/ASX 200 (-0.48%). The Nikkei (+0.07%) is clinging on to gains after a larger earlier rally.
To the day ahead now, and US data releases include PPI inflation for February and the weekly initial jobless claims. Meanwhile in the Euro Area, we'll get industrial production for January. Otherwise, central bank speakers include ECB Vice President de Guindos, and the ECB's Rehn, Vujcic, Makhlouf, Holzmann, Villeroy and Nagel.