Futures Trim Gains After Dismal Outlook From Home Depot

US futures are slightly higher, although well off session highs following disappointing guidance from Home Depot while rising tension in the Middle East weighed on risk appetite. Tech leads modest gains as we receive the first batch of the week’s macro data today when PPI drops at 830am ET. As of 7:45am ET, S&P futures are 0.2% higher, paring a gain of 0.5%, after yesterday’s flat close on Wall Street; Nasdaq futs are up 0.3% with NVDA rising 1.5% as Mag7 are all higher and Semis catch a bid, following yesterday’s outperformance. European markets are lower even as Asian stocks erased last week’s sharp declines led by a bounce in Japan thanks to a drop in the yen. Bond yields are 1-2bps higher which is boosting the USD. Commodities are mostly lower with WTI reversing losses to trade around $80 and Brent at $82 as the US sees an Iranian attack against Israel as increasingly likely; Ags/Precious metals are under pressure. Fed’s Bostic speaks today, and disappointing earnings from HS may shape the market narrative. Tomorrow’s CPI and Thurs’ Retail Sales are the key catalysts.

In premarket trading, Home Depot falls 2% after the company beat lowered its same store sales forecast to a decline of 3-4% for the year, signaling that it expects consumer spending to remain soft in the coming months. Said otherwise, HD expects business to get worse in the second half of the year, which is hardly an endorsement for the strength of the US consumer. Tencent Music Entertainment plunged 6% after reporting results that showed paying users for social entertainment missing estimates. Here are some other notable premarket movers:

• Dell Technologies shares climb 2.4% after being raised to equal-weight from underweight at Barclays. The bank noted that there’s less downside to the stock as much of the AI hype “has now been washed out of the share price.”
• Baxter rises less than 1% after funds managed by global investment firm Carlyle agreed to buy the company’s kidney care segment for $3.8 billion.
• Huya gains 7% as the board declared a special cash dividend.
• On Holding slips 5% after the sneaker maker maintained its annual adjusted Ebitda forecast, despite the metric topping the consensus estimate for the second quarter.
• Pacira BioSciences falls 3% after Truist downgraded the stock to sell from buy, saying a generic Exparel entry is imminent following a court ruling that canceled the drug’s patent.
• Paysafe gains 10% after boosting its revenue forecast for the full year.
• Rumble rises 4% after the video-network platform reported second-quarter results, with revenue topping estimates.

After last week’s turmoil, markets are focusing on Wednesday’s US CPI report, which may help determine whether the Fed has room to secure a soft landing for the economy. The recent rally in crude oil prices also puts the spotlight on producer-price numbers later Tuesday, as an indicator of pipeline inflationary risks. But first, there is the PPI report on deck at 830am today: economists expect core PPI to rose 0.2% last month from June, when it gained 0.4%, while the headline print is also expected to gain 0.2%.

“The US producer price index for July will give an early indication of price pressures in the month ahead of the consumer price index,” Kristina Clifton, a senior currency strategist at Commonwealth Bank of Australia, wrote in a note. “Any hints from the PPI of soft inflationary pressures in July can cause financial markets to double down on large interest rate cuts this year from the FOMC” and weigh on USD, she said.

Traders are also monitoring events in the Middle East after the US said an Iranian attack on Israel could be imminent. The implications were underscored by Fitch Ratings’ move to downgrade Israel’s sovereign debt by one notch, to A from A+, while keeping a negative outlook and citing “continued war” and geopolitical risks.

“One could argue that equity is still in recovery mode after last week’s shakeout, and holding out from really putting money to work until we get the key US data this week,” said Chris Weston, head of research at Pepperstone Group Ltd. “Pricing US growth is still the main game in town.”

The Stoxx Europe 600 erased an early advance after the ZEW gauge of German investor expectations tumbled more than economists expected (from 41.8 to 19.2, exp. 32.0). Here are the most notable European movers:

• Gaztransport & Technigaz again has a clean sweep of positive analyst ratings after Berenberg moves back to a buy after five months with a hold rating, saying the pullback in the stock looks overdone. The shares gain as much as 5.4%.
• Swissquote gains as much as 6.8%, hitting the highest in more than a month, after releasing first-half earnings which ZKB sees as positive even though guidance for the full year continues to be slightly below estimates.
• Galderma shares rise as much as 3%, making them the biggest gainer in the Stoxx 600 Health Care Index, after the US Food and Drug Administration approved the Swiss dermatology company’s Nemluvio for the treatment of adults with prurigo nodularis, a skin disease.
• PolyPeptide rises as much as 15%, extending its winning streak to a fifth day, after the Swiss biotech firm slightly lifts 2024 guidance and outlines target to double 2023’s reported revenue level by 2028.
• Bilfinger shares climb as high as 6.6%, the most in six months, after the industrial services company reported faster growth in sales and earnings than expected during the second quarter, according to analysts at Oddo BHF as they nudged up their price target on the stock.
• Valneva shares trade 4.3% higher after the French vaccine developer forecast “substantially lower cash burn” in the second half. The stock pared a gain of as much as 11%.
• Henkel shares gain 0.3% after results from the German home products maker contained few surprises after its pre-release in July. RBC praised the firm’s 1H gross margin growth.
• Tecan shares slump as much as 18%, the most since September 2004, after the Swiss laboratory-equipment maker reported weaker-than-expected results for the first half and cut its outlook for 2024.
• Grifols shares dropped as much as 5.7%, worst performing stock on Spain’s IBEX 35, on a report that Brookfield, which is considering a joint takeover offer, found accounting irregularities in its due diligence.
• Brenntag shares fall as much as 2% after the German chemicals distributor’s second quarter results were what Morgan Stanley called mixed, highlighting lowered guidance and softer messaging from the company.
• Dowlais shares plunge as much as 17% to a record low, before paring the drop to trade 3% lower, after the automotive engineering company signaled its full year results will be below expectations, according to analysts.
• Genuit Group falls as much as 5.3%, the biggest drop since June last year, after the plastic piping company suffered from soft demand and reported lower revenue and profits in the first half. Analysts note the challenging backdrop, but were impressed Genuit has grown margins and see an eventual recovery panning out next year.

Earlier in the session, Asian stocks climbed Tuesday, with a regional benchmark reclaiming levels seen before the historic August 5 selloff, as equities in Japan extended their rebound on return from a holiday. The MSCI Asia Pacific Index climbed as much as 1.2%, headed for a third-straight day of gains. Japan’s Topix jumped nearly 3% as a weaker yen was seen providing support for exporters, while benchmarks in China and South Korea also gained. Industrials and information technology were the top-performing sectors on the regional gauge. The continuation of a rebound in Japan is helping all of Asia, said Andrew Jackson, head of Japan equity strategy at Ortus Advisors Pte in Singapore. “Japan is the only market that really matters” right now, he added.

The key Asian stock gauge plunged 6.1% last Monday to mark its worst day since 2008 as fears of a deeper US economic slowdown, an extended rout in Japanese equities and a rotation away from heavyweight tech shares weighed on the market. Many investors bullish on Japan, which commands the highest weighting in the MSCI Asia gauge, have said that the recent selloff in the nation’s stocks provides a fresh reason to buy what has been one of 2024’s hottest trades.

In China, regulators told commercial banks in the Jiangxi province not to settle their purchases of government bonds, taking some of the most extreme measures yet to cool a market rally that has alarmed Beijing. The crackdown is beginning to take a toll on corporate debt markets, as the average yield for one-year corporate yuan bonds with AA ratings — typically considered junk debt in the onshore market — saw the largest jump since December 2022.

In FX, the Bloomberg Dollar Spot Index was little changed. The British pound gained and the FTSE 100 index underperformed Europe’s benchmark after data showed UK unemployment unexpectedly fell in the second quarter, complicating the Bank of England’s shift to lower interest rates.

Treasury 10-year yields erased an earlier gain to slide to a session low of 3.89%, down 1bp on the session, while US spreads also trade near prior day closing levels.  Treasuries were rangebound over Asia, early London session as investors stay sidelined ahead of PPI data due 8:30am New York and then CPI print due Wednesday. Bunds marginally outperform Treasuries and gilts into the US session while S&P futures give up early gains to trade back to near unchanged on the day. Ahead of PPI data, Fed-dated swaps are still pricing in around 100bp of rate cuts for the year with approximately 36bp of cut premium priced into the Sept. 18 meeting

In commodities, WTI trades within Monday’s range, snapping a five-day streak of gains with a 0.3% decline to near $79.8. Most base metals trade in the red. Spot gold falls roughly $12 to trade near $2,460/oz.

Today’s US calendar includes only July PPI at 8:30am. CPI print is due Wednesday, Fed speakers scheduled for the session include Bostic at 1:15pm

Market Snapshot

• S&P 500 futures up 0.2 to 5,381
• MXAP up 1.1% to 177.48
• MXAPJ up 0.1% to 556.52
• Nikkei up 3.4% to 36,232.51
• Topix up 2.8% to 2,553.55
• Hang Seng Index up 0.4% to 17,174.06
• Shanghai Composite up 0.3% to 2,867.95
• Sensex down 0.8% to 79,001.72
• Australia S&P/ASX 200 up 0.2% to 7,826.84
• Kospi up 0.1% to 2,621.50
• STOXX Europe 600 little changed at 499.36
• German 10Y yield little changed at 2.23%
• Euro little changed at $1.0921
• Brent Futures down 0.5% to $81.85/bbl
• Gold spot down 0.5% to $2,461.45
• US Dollar Index little changed at 103.21

Top Overnight News

• European stocks rose, tracking gains in Asia, as investors awaited US price data for guidance on the Federal Reserve’s policy path.
• Chinese authorities are going to extraordinary lengths to tighten their grip on the world’s third-largest government bond market.
• UK unemployment fell unexpectedly after companies stepped up hiring, a sign of underlying strength in the economy that complicates the Bank of England’s shift toward lower interest rates.
• The US believes an Iranian attack against Israel has grown even more likely and may come as soon as this week, officials said, as allied leaders sought to head off all-out war and the Pentagon deployed more forces to the region.
• Within the moneyed circles of the Middle East, there’s increasing talk of a shifting power dynamic in the upper echelons of high finance. Apollo, Blackstone and other big money managers are reshaping longstanding practices to win part of the $4 trillion in Gulf sovereign wealth.
• MSCI Inc. continues to cull China stocks from its indexes, setting the stage for a further drop in the nation’s share of a key emerging-market benchmark.
• Oil declined after a five-day advance, with a likely escalation in the Middle East conflict offset by signs of weakening global demand growth.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks followed suit to the mixed lead from the US ahead of key data and as markets continue to brace for Iran’s retaliation. ASX 200 traded indecisively after mixed data releases and as gains in financials, real estate and the commodity-related sectors were counterbalanced by losses in tech, telecoms and defensives. Nikkei 225 surged on return from the long weekend and reclaimed the 36,000 status after returning to last week’s pre-turmoil levels. Hang Seng and Shanghai Comp. were indecisive with the former supported in energy stocks after yesterday’s oil rally, while the mainland index oscillated between gains and losses in a tight range owing to the lack of fresh macro drivers.

Top Asian news

• China’s Vice Premier Liu called for efforts to minimise damage to agricultural production caused by torrential rains and flooding, as well as urged efforts to improve the agricultural sector’s capacity for disaster prevention and mitigation. China’s Vice Premier also said they need to step up financial support for the restoration of agricultural production, according to Xinhua.
• China’s Hesai is to be removed from the US Defence Department blacklist, according to FT.
• Japan’s parliament is to hold a special session at the Lower House committee on August 23rd to discuss the BoJ rate hike, while BoJ Governor Ueda is likely to be asked to attend the special session, according to sources cited by Reuters.
• China M2 (July): 6.3% (exp. 6.1%); Total Social Financing (CNY) 770bln (exp. 1.1tln)

European bourses, Stoxx 600 (+0.1%) started the session entirely in the green but succumed to some early morning pressure, which has since pared in recent trade; as it stands, indices are generally in the green. European sectors are mixed, having initially opened with a positive bias. Travel & Leisure is found at the foot of the pile, hampered by the recent advances in oil prices. Basic Resources also lags amid the weakness in the metals complex. US Equity Futures (ES +0.3%, NQ +0.5%, RTY +0.2%) are modestly firmer as traders remain mindful of today’s US PPI figures, ahead of CPI tomorrow. Firms have reportedly started testing Huawei’s new Ascend 910C chips, according to WSJ sources; Huawei in talks to secure tens of thousands of chips; framed as a “challenge” to Nvidia (NVDA) on AI hardware.

Top European news

• European Gas Prices Fall as Russia Flows Take Steam Out of Rally
• Fortnox Sinks to January-Low After CEO Tommy Eklund Leaves
• Meta Faces Legal Challenge From Polish Billionaire Over Fake Ads
• UK’s Ofgem Approves £3.4 Billion Electricity ‘Superhighway’
• Grifols Drops on Report Brookfield Found Accounting Issues
• UK Reviews Early Data Releases Traders Say Spur Volatility

Fx

• DXY is a touch firmer (within a 103.08-27 range) with the USD showing a mixed performance vs. peers (softer vs. risk currencies/firmer vs. havens). Today’s focus for the greenback will fall upon PPI metrics, albeit any reaction may tempered somewhat by the fact that CPI is due out tomorrow.
• EUR is softer vs. the USD with a disappointing German ZEW release adding to the woes for the region’s outlook. EUR/USD is managing to hold above yesterday’s 1.0910 low.
• GBP was given a boost by UK jobs metrics which saw an unexpected fall in the unemployment rate, albeit, the usual data reliability caveats apply. BoE pricing points to a 66% chance of an unchanged rate in September.
• USD is edging gains vs. JPY with the dollar firmer vs. havens alongside gains in stocks. For now, USD/JPY is respecting yesterday’s 146.41-148.22 range.
• Antipodeans are both benefitting vs. the USD with the Dollar currently losing out to cyclical fx currencies.
• PBoC set USD/CNY mid-point at 7.1479 vs exp. 7.1760 (prev. 7.1458)

Fixed Income

• USTs are essentially unchanged and awaiting PPI before Wednesday’s US CPI for insight into PCE at the end of the month, a figure which is scheduled for the week after the Jackson Hole symposium. Into the release, USTs are in a narrow 113-04 to 113-11+ band.
• Bunds are firmer but ultimately rangebound, continuing the holiday-thinned action seen on Monday. ZEW was particularly poor, with the strongest decline of expectations reported for two years, sparking a modest uptick in Bunds to re-approach their earlier 134.65 peak. No real reaction to subsequent Schatz supply.
• Gilts gapped slightly higher at the open to 99.82 from a 99.72 close on Monday, despite a hawkish reaction seen in the Pound following the release. Benchmarks did pull back off these levels ahead of the regions supply, but caught another bid following the robust auction but also in tandem with Bunds, which benefited from the dire German ZEW metrics. Gilts are now back towards their 99.88 peak.
• UK sells GBP 3bln 3.75% 2038 Gilt: b/c 3.28x (prev. 3.42x), average yield 4.131% (prev. 4.314%) & tail 0.1bps (prev. 0.1bps)
• Germany sells EUR 4.038bln vs exp. EUR 5bln 2.70% 2026 Schatz: b/c 2.1x (prev. 2.0x), average yield 2.38% (prev. 2.73%) and retention 19.24% (prev. 18.08%)

Commodities

• Crude is slightly subdued intraday but holding onto a bulk of yesterday’s gains amid geopolitical uncertainty. Two major risks include the threat of a retaliation against Israel from Iran and Lebanon, whilst Ukraine’s gains inside Russia could lead to increased tensions between the West and Moscow. Brent trades towards the upper end of a USD 81.50-82/bbl parameter (vs 82.40/bbl high yesterday).
• Precious metals trade lower amid the rising Dollar and as newsflow remains light thus far, with participants awaiting potential geopolitical escalations before or after US CPI tomorrow.
• Base metals trade lower across the board amid the cautious risk tone coupled with the firmer Dollar.
• US Department of Energy said the US seeks to buy 6mln bbls of oil to help replenish the SPR.
• IEA OMR: Maintains 2024 world oil demand growth forecast unchanged at 970k BPD; cuts 2025 forecast by 30k BPD; says weak growth in China now significantly drags on global gains – Chinese oil demand contracted for the third straight month. OPEC+ cuts are tightening physical markets. For now, supply is struggling to keep pace with peak summer demand – tipping the market into a deficit. Global observed oil inventories fell by 26.2mln bbls in June after four months of builds. US summer driving season set to be strongest since the pandemic.
• Workers at BHP’s Escondida copper mine in Chile will begin strike action, according to the union.

Geopolitics: Middle East

• Israeli forces stormed the city of Nablus in the northern West Bank from the Al-Tur military checkpoint, according to Al Jazeera.
• Source close to Hezbollah said Iran expressed concern that Israel and the US may strike its nuclear program and fears they will use the outbreak of any large-scale conflict as a pretext to neutralise Iran’s nuclear deterrence, according to a report by The Washington Post.
• US and Israeli officials said their assessment was that the Iranian attack wouldn’t happen on Monday night, while President Biden’s top Middle East adviser will travel to Cairo for talks on security arrangements along the Egypt-Gaza border which is critical for a hostage deal, according to Axios’s Ravid.
• US State Department said Secretary of State Blinken discussed in a call with his Turkish counterpart the importance of Hamas’s return to negotiations in the middle of this month, while Blinken stressed the importance of completing the framework agreement for an immediate and permanent ceasefire in Gaza and the release of hostages, according to Al Jazeera.
• FBI was reportedly investigating suspected hacking attempts by Iran in the Biden and Trump campaigns, according to Reuters and The Washington Post.
• “Israeli Army Radio: Israel told allies that it would respond to any Iranian attack by hitting targets in the heart of Iran”, according to Al Jazeera.
• “Hamas will participate in the round of negotiations expected next Thursday”, according to Sky News Arabia citing CNN sources

Geopolitics: Russia

• Russia’s Intelligence Service suggest Ukrainian President Zelensky is taking steps that threaten escalation far beyond Ukraine, via Ria.

US Event Calendar

• 06:00: July SMALL BUSINESS OPTIMISM 93.7, est. 91.5, prior 91.5
• 08:30: July PPI Ex Food, Energy, Trade YoY, prior 3.1%
• 08:30: July PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0%
• 08:30: July PPI Ex Food and Energy YoY, est. 2.6%, prior 3.0%
• 08:30: July PPI Final Demand YoY, est. 2.3%, prior 2.6%
• 08:30: July PPI Ex Food and Energy MoM, est. 0.2%, prior 0.4%
• 08:30: July PPI Final Demand MoM, est. 0.2%, prior 0.2%