US Futures, Global Markets Storm Higher, Eye All-Time Highs

US equity futures pointed to even more gains on the last day of trading, leaving the S&P 500 set for a third weekly rise — the longest run since February. The rally was given fresh legs yesterday by more earnings optimism coupled with disappointing economic data – this time the highest initial jobless claims since last August – that supported the case for Fed rate cuts, but the real test will come with a key US inflation print next week (where we laid out a case for why as OER catches down to real-time rates, CPI may print a big miss).  As of 8:00am, S&P 500 futures higher by 0.3% after the index closed less than 1% away from its all-time high, with Nasdaq futures rising 0.4%. European stocks are up 0.9% set for a new record high with Asian stocks also gaining. Treasuries and the dollar were flat; earlier on Friday, the yuan weakened on the news that Biden’s administration is poised to unveil a sweeping decision on new China tariffs as soon as next week, with the measures expected to focus on industries such as electric vehicles, batteries and solar cells, with existing levies largely being maintained. The macro slate includes May preliminary University of Michigan sentiment and April monthly budget statement.

In premarket trading, 3M Co. rose 1.2% in premarket trading after HSBC raised its recommendation to buy from hold. The bank notes the company’s earnings showed nascent signs of an “inflection in growth and margin gains from restructuring” at the manufacturing giant. Akamai fell 10% after its forecast for adjusted earnings per share for the second quarter missed the average analyst estimate. Analysts note weakness in the infrastructure software company’s content-delivery network business. Here are some other notable premarket movers:

• Bumble rises 3.1% as BofA upgrades the online dating company to buy from neutral on both valuation and upside to growth.
• CRH gains 4.3% after what the analysts see as a positive start with performance driven by pricing, early-season activity and favorable weather in important markets, despite lower volumes in Europe.
• Dutch Bros gains 2.6% after Cowen raises the drive-thru coffee chain’s rating to buy from hold, expecting that 2024 will be a “beat & raise year.”
• Ginkgo Bioworks slumps 11% after the genetic engineering company cut its revenue forecast for the full year, following first-quarter sales that fell short of Wall Street’s expectations. The miss and outlook cut triggered a downgrade at William Blair.
• JFrog drops 12% as the software development company’s earnings report failed to impress investors after this year’s rally. The results could prompt questions around the timing and potential contribution from AI-led workloads, which didn’t appear to have much effect this quarter, Bloomberg Intelligence analyst Sunil Rajgopal wrote in a research note.
• MacroGenics sinks 68% after the drug developer reported five deaths in a mid-stage trial of its investigative therapy for prostate cancer. Analysts downgraded their ratings on the stock as confidence in the firm’s program takes a hit following the safety data.
• Natera rises as much as 20% after boosting its revenue guidance for the full year.
• Novavax surges as much as 217% after the vaccine maker signed a licensing agreement with Sanofi that includes commercializing a combined Covid-19 and flu shot.
• Progyny drops 25% after it reported first quarter revenue below average analyst estimates and cut revenue guidance for the full year. KeyBanc analysts downgraded the fertility benefits management company to sector weight from overweight, writing that they “are becoming weary” as more questions arise on visibility into revenue and customer trends.
• SoundHound AI rises 15% after the voice AI software company reported first-quarter revenue that beat expectations and gave a revenue outlook range for the full year that met the average analyst estimate.
• Sweetgreen climbs 19% after the salad restaurant chain’s revenue topped estimates and it boosted its same-store sales forecast for the full year.
• Unity Software falls as much as 4.2% after the video-game software development company reported an 8% drop in first-quarter revenue. Analysts say the shares will remain rangebound until the company’s new CEO crystallizes his own strategy.
• Yelp drops 4.1% after it adjusted Ebitda guidance for the full year and missed the average analyst estimate. Macro headwinds for restaurants and growing competition from delivery platforms could also pressure the online review company’s revenue, according to Jefferies analysts.

The rebound in stocks found fresh momentum from very poor US unemployment claims Thursday, which backed the case for rate cuts before next week’s key US inflation print. Meanwhile, so-called value and cyclical sectors are helping to broaden out a rally that had been fueled by tech giants. Traders will be watching for hints on the timing of policy easing from Fed officials including Michelle Bowman and Neel Kashkari before next week’s CPI data.

“A rally of the laggards is our key allocation call, and so far, we’re witnessing signs that it’s happening,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “For this to persist, the market needs to maintain a delicate balance — a sweet spot where the job market remains mildly soft and earnings growth continues.”

European stocks are set for their best week since the end of January on a slew of better-than-expected earnings reports and growing confidence that interest rate cuts are still possible this year. The Stoxx 600 rises 0.9% to a record high with mining, utility and construction shares leading gains. Here are the biggest European movers:

• Enel shares rise as much as 3.5% after 1Q earnings came in materially above expectations, de-risking the utility firm’s full-year outlook and suggesting it could deliver the top end of its guidance.
• Munich Re shares rise as much as 2.6% after BofA lifts its rating on the company to buy from neutral in a note citing “underappreciated earnings strength.”
• Legrand shares advance as much as 3.3% to highest since January 2022 after Citi double-upgrades to buy from sell.
• EDP shares climb as much as 4.6% after the company said investment will decelerate in 2024-2026 as it focuses on “top projects.”
• IAG shares climb as much as 1.8% after the airline group posted a operating profit beat for the first quarter, driven by ongoing recovery in leisure traffic and the timing of Easter.
• Fluidra shares gains as much as 5.5% after JPMorgan upgrades the Spanish pool maker to overweight from neutral.
• Iveco shares rise as much as 7.1% following its first-quarter results, which Morgan Stanley says represent a positive start to the year for the Italian commercial vehicle maker.
• CCC shares jump as much as 19% after the Polish fashion retailer reported strong 1Q preliminary earnings with a 39% beat on Ebitda.
• Dino Polska shares drop as much as 4.4% after it reported further erosion of Ebidta margin, reflecting an ongoing price war in the Polish food retail market.
• Rightmove shares fall as much as 5.3%. The online property portal reiterated its revenue and margin guidance after tweaking other targets.
• Getinge shares drop as much as 9.7%, the most in more than three months, following a US FDA letter to health care providers expressing safety and quality concerns about some of the Swedish medical technology firm’s cardiovascular devices.
• BFF Bank shares plunge as much as 32%, the most on record, after Bank of Italy ordered a temporary halt on profit distribution and expansion abroad as a result of a probe into the Italian specialty finance company.

Asian stocks tracked the gains in the US where a rise in initial jobless claims spurred a dovish reaction. Hang Seng & Shanghai Comp traded mixed with Hong Kong stocks surging on reports China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via the Stock Connect, while the mainland faded its initial gains with the US reportedly set to impose tariffs on China EVs and key sectors after a review which could be announced as soon as next week. Nikkei 225 rallied at the open but then slipped from intraday highs with participants reflecting on Household Spending data, US-China and tensions and amid a busy day of earnings releases for Japan. ASX 200 was led by energy, telecoms and financials but with gains capped amid mixed consumer stocks.

In FX, the Bloomberg Dollar Spot Index steadied and Treasury yields were little changed across the curve as traders awaited commentary from several Fed officals; Sterling rose after a much stronger than expected UK GDP print, which saw the country emerge from recession, provided a modicum of support to the pound which is up 0.1% against the dollar. The Norwegian krone tops the G-10 FX pile, rising 0.3% after CPI topped estimates.

• USD/NOK dropped 0.3% to 10.8155 as the Norwegian krone led G-10 gains against the dollar; Norway’s underlying inflation rate fell less than analysts expected last month
• AUD/USD fell as much as 0.3% to 0.6599, while NZD/USD dipped as much as 0.3% to 0.6014, on a report that the US is poised to unveil a sweeping decision on China tariffs
• GBP/USD inched up as much as 0.1% to 1.2541, after data showed the UK economy bounced back from a shallow recession

In rates, treasuries are little changed with futures holding Thursday’s advance, underpinned by gains for gilts following UK data raft including GDP, manufacturing and industrial production. US yields are within 1bp of Thursday’s closing levels, 10-year around 4.46%, with gilts and bunds outperforming by 2bp and 3bp in the sector; curve spreads likewise little changed, 2s10s holding Thursday’s flattening move. Gilts have rallied despite stronger-than-expected UK GDP figures, with UK 10-year yields falling 3bps to 4.11%.

In commodities, Oil prices advance, with WTI rising 0.6% to trade near $79.80 a barrel and near the week’s high. Spot gold climbs 1.1% to around $2,372/oz.

Looking at today’s calendar, the US economic data slate includes May preliminary University of Michigan sentiment (10am New York time) and April monthly budget statement (2pm). Fed officials’ scheduled speeches include Bowman (9am), Logan (10am), Kashkari (10am, 2:15pm), Goolsbee (12:45pm, 2:15pm) and Barr (1:30pm)

Market Snapshot

• S&P 500 futures up 0.3% to 5,254.00
• STOXX Europe 600 up 0.7% to 520.47
• MXAP up 0.8% to 177.68
• MXAPJ up 0.9% to 554.50
• Nikkei up 0.4% to 38,229.11
• Topix up 0.5% to 2,728.21
• Hang Seng Index up 2.3% to 18,963.68
• Shanghai Composite little changed at 3,154.55
• Sensex up 0.2% to 72,580.19
• Australia S&P/ASX 200 up 0.4% to 7,748.96
• Kospi up 0.6% to 2,727.63
• German 10Y yield little changed at 2.46%
• Euro little changed at $1.0783
• Brent Futures up 0.2% to $84.02/bbl
• Gold spot up 0.9% to $2,367.89
• US Dollar Index little changed at 105.23

Top Overnight News

• Stocks rallied on earnings optimism and US data that supported the case for interest-rate cuts. A raft of Federal Reserve speakers are slated for Friday as traders await a key US inflation print next week.
• President Joe Biden’s administration is poised to unveil a sweeping decision on China tariffs as soon as next week, one that’s expected to target key strategic sectors while rejecting the across-the-board hikes sought by Donald Trump, people familiar with the matter said.
• Britain bounced back strongly from a shallow recession, providing some relief for Prime Minister Rishi Sunak who has so far struggled to deliver on his promise to grow the economy.
• Money managers are piling into the European Union’s bonds in anticipation of a major shift in their status that would open up the bloc’s debt to a bigger pool of investors.
• JPMorgan Chase & Co. is on track to include India in its emerging market debt index from June with most of its clients ready to trade despite some “teething issues,” according to the firm’s global head of index research.
• China CPCA said China sold 1.55mln passenger cars in April, -5.8% Y/Y; Tesla (TSLA) exported 30,746 China-made vehicles in Apr
• US Treasury Secretary Yellen said inflation has come down substantially but is not where it needs to be, according to a Marketplace interview.
• White House is poised to nominate Kristin Johnson to fill a top role at the Treasury overseeing banks, according to Bloomberg citing sources.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks mostly tracked the gains in the US where a rise in initial jobless claims spurred a dovish reaction. ASX 200 was led by energy, telecoms and financials but with gains capped amid mixed consumer stocks. Nikkei 225 rallied at the open but then slipped from intraday highs with participants reflecting on Household Spending data, US-China and tensions and amid a busy day of earnings releases for Japan. Hang Seng & Shanghai Comp traded mixed with Hong Kong stocks surging on reports China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via the Stock Connect, while the mainland faded its initial gains with the US reportedly set to impose tariffs on China EVs and key sectors after a review which could be announced as soon as next week.

Top Asian News

• US is set to impose tariffs on China EVs and key sectors after its Section 301 review as early as next week, according to Bloomberg.
• China is unlikely to lift home purchase restrictions completely, according to CCTV.
• Honda (7267 JT) FY (JPY): Pretax profit 1.64tln, +86.7% Y/Y, Op. Profit 1.38tln, +77% Y/Y; says it will buy back of up to 3.7% of own shares worth JPY 300bln.
• Earthquake felt in Taiwan’s capital Taipei; magnitude 5.7, via EMSC.
• China Auto Industry CPCA says market sluggishness was worse than expected while some automakers still derived to produce and resulted in rising inventories at dealerships

European bourses, Stoxx600 (+0.7%) are entirely in the green, taking the lead from a mostly positive APAC session. Both the FTSE 100 and the DAX 40 made fresh ATHs today. European sectors hold a strong positive tilt, with the exception of Autos and Media, with the former continuing the losses seen in the prior session. Utilities takes the top spot, lifted by post-earning strength in Enel (+3.6%) and EDP (+2.5%). US Equity Futures (ES +0.3%, NQ +0.3%, RTY +0.4%) are entirely in the green, albeit modestly so, attempting to build on yesterday’s advances.

Top European News

• UBS expects the BoE to start cutting interest rates in June (prev. expected Aug)
• Over one in two firms with Germany’s residential construction sector reported a lack of orders in April, via Ifo; 55.2% (prev. 56.2%) reported this

FX

• Steady trade for the USD after yesterday’s data-induced losses dragged DXY to a low of 105.20. Uni. of Michigan is the main data highlight but is very much in the shadow of next week’s CPI print. If DXY trundles lower once again, support ahead of the 105 mark comes via the 7th May low at 105.03.
• EUR is steady vs. the USD with EZ drivers once again lacking in today’s session. EUR/USD made an incremental high at 1.0786 but catalysts today for a push beyond 1.08 are not obvious. ECB Minutes due at 12:30 BST / 07:30 EDT.
• GBP is the marginal best performer across the majors following hotter-than-expected UK GDP metrics which sent GBP/USD higher from 1.2519 to a 1.2540 peak before running into resistance at the 200DMA.
• USD/JPY’s ascent has once again continued after a brief blip yesterday in a week that has seen jawboning from officials fail to stop the rot. The next inflection point will likely be US CPI data.
• Antipodeans are both marginally softer vs. the USD after benefitting yesterday from the dollar’s post-data selling pressure. AUD/USD remains on a 0.66 handle in quiet newsflow with the monthly high at 0.6647.
• NOK: A slightly hotter than expected CPI which has sparked some modest NOK strength, sending EUR/NOK lower from 11.6940 to 1.6820.
• PBoC set USD/CNY mid-point at 7.1011 vs exp. 7.2102 (prev. 7.1028).
• CNB Minutes (May): Easing process could be paused/terminated at any point at still restrictive levels. Holub & Frait mentioned the possibility of 75bp of easing, ultimately went for 50bp

Fixed Income

• USTs are flat with specifics light thus far though the docket ahead is packed with multiple Fed speakers. USTs are holding at 109-03+ matching yesterday’s auction-driven high but still a handful of ticks shy of the WTD peak at 109-09.
• Gilts gapped higher by 15 ticks despite hawkish direction from the strong UK GDP numbers earlier in the morning. Upside which has continued and extended to a 98.29 fresh WTD high as markets digest the BoE beginning to thread-the-needle to a first cut in the near term.
• Bunds are bid but to a slightly lesser degree than Gilts with specifics light thus far. Upside which has paused at a 131.40 peak shy of 131.63-86 from earlier in the week.
• Italy sells EUR 9.25bln vs exp. EUR 7.5-9.25bln 2.95% 2027, 1.10% 2027, 3.45% 2031, 5.00% 2040, 2.15% 2072 BTP.
• Orders for Italy’s BTP Valore reach EUR 11bln (circa. EUR 10bln on Thursday). Books close at 12:00BST

Commodities

• Crude benchmarks in the green but only modestly so as markets await an update to the Israel-Hamas situation after hostage negotiations ended and Israel pledged to continued with its operation in Rafah. Brent July off best levels and currently resides around USD 84.20/bbl.
• Precious metals are supported and seemingly benefitting from the modestly bullish tone for fixed income thus far. XAU up to a USD 2370/oz peak thus far, eclipsing the 21-DMA of USD 2337/oz with ease and bringing USD 2400/oz and then USD 2431/oz into view.
• Base metals are firmer, lifted by the broader risk tone and somewhat softer Dollar; though Aluminium is the standout laggard after a sizeable LME stock update of +424k (prev. -2.75k).
• Saudi’s crude oil supply to China to fall by 5.8mln/bbl in June vs May, via Reuters citing sources.
• LME Stocks: Aluminium +424k (prev. -2.75k)

Geopolitics

• Israeli PM Netanyahu said they have destroyed 20 of Hamas’s 24 battalions so far and hopes he and US President Biden can overcome disagreements, while he added that they have to defeat Hamas in Rafah.
• Israel’s army reportedly carried out bombing operations on buildings east of Rafah in the southern Gaza Strip, according to Al Jazeera.
• US State Department said Secretary of State Blinken confirmed to his Egyptian counterpart US President Biden’s “clear” position not to support the Rafah operation, according to Al Arabiya.
• US Secretary of State Blinken is expected to submit Israel conduct report to Congress today and is expected to criticise Israel but say it isn’t breaking weapons terms, according to Axios.
• Group of 20 US Senators introduced a bill that would restrict funding to the UN or any organisation that gives the Palestinian Authority higher than observer status, according to Asharq News.

US Event Calendar

• 10:00: May U. of Mich. Sentiment, est. 76.2, prior 77.2
• 10:00: May U. of Mich. Current Conditions, est. 79.0, prior 79.0
• 10:00: May U. of Mich. Expectations, est. 75.0, prior 76.0
• 10:00: May U. of Mich. 1 Yr Inflation, est. 3.2%, prior 3.2%
• 10:00: May U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
• 14:00: April Monthly Budget Statement, est. $250b, prior $176.2b

Central Bank Speakers

• 09:00: Fed’s Bowman Speaks on Financial Stability Risks
• 10:00: Fed’s Logan Participates in Moderated Q&A
• 10:00: Fed’s Kashkari Participates in Q&A
• 12:45: Fed’s Goolsbee Speaks in Moderated Q&A
• 13:30: Fed’s Barr Gives Commencement Speech
• 14:15: Fed’s Kashkari, Goolsbee on CNBC

DB’s Jim Reid concludes the overnight wrap

Risk assets posted further gains yesterday, thanks to growing confidence that central banks would still cut rates this year. In part, that was because of the weekly initial jobless claims in the US, which hit an 8-month high and added to fears that the labour market was cooling further. But alongside that, the Bank of England announced their latest policy decision, where Governor Bailey said it was “ likely that we will need to cut bank rate over the coming quarters ”. So this all cemented the theme that global monetary policy was heading towards a less restrictive stance, not least after the Riksbank’s rate cut earlier in the week. The next hurdle will be the US inflation numbers for April next week, but so far this month at least, investors have moved to expect a more dovish stance of monetary policy than they thought would happen at the end of April.

This trend was very helpful for equities, with several European indices up to new records yesterday, including the STOXX 600 (+0.19%), the FTSE 100 (+0.33%) and the DAX (+1.02%). Indeed, it marked a 5th consecutive advance for all three indices, and it leaves the DAX on track for its best weekly performance since November, having risen by +3.81% since the start of this week. Meanwhile in the US, the S&P 500 (+0.51%) was up to a 5-week high, and the index remains on track for a third consecutive weekly gain for the first time since February. On top of that, it’s also been the strongest performance for the S&P 500 over 6 sessions so far this year, having advanced by +3.90% since its recent low on May 1. The gains for the S&P 500 were broad-based with 10 of 11 industry groups higher on the day, and came even as the Magnificent 7 (-0.07%) was weighed down by losses for Nvidia (-1.84%) and Tesla (-1.57%).

That jobless claims data was the initial catalyst for the advance yesterday, and up until that point, S&P 500 futures had actually been in negative territory. The release showed that initial jobless claims were up to 231k (vs. 212k expected) in the week ending May 4, which was their highest level since late-August, and above every economist’s estimate on Bloomberg. But even though the data was weaker than expected, it meant investors grew more confident that the Fed would still cut rates this year, as it added to recent prints suggesting the labour market could be cooling. For instance, last week’s data showed job openings were down to a 3-year low in March, whilst the broader U6 measure of unemployment (which includes the underemployed and those marginally attached to the labour force) rose to its highest in over two years in April, at 7.4%.

But even with the uptick in jobless claims, this isn’t necessarily a leading indicator of a downturn. For instance, there was a previous spike last year, which pushed the 4-week average above 250k by late-June. But after that, the numbers came down again shortly afterwards, and there wasn’t a notable rise in the unemployment rate. And for the time being at least, the smoother 4-week average is still only at 215k, so it’s important to bear in mind that lots of other indicators are still looking more positive, and the Atlanta Fed’s GDPNow indicator is suggesting that Q2 growth will come in at an annualised +4.2% rate.

This belief in future rate cuts was supported by the Bank of England’s latest decision as well. The main headline was that they kept rates unchanged at 5.25%, in line with expectations. But unlike the March meeting, when the vote was 8-1 to keep rates on hold, there was now a 7-2 split after Deputy Governor Ramsden also voted for a cut. Moreover, there was an additional line in the statement, which said that the committee would “consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding.” Then in the press conference, Governor Bailey said that a cut at the next meeting in June was “neither ruled out nor a fait accompli ”, and he suggested that the reductions in bank rate could be “possibly more so than currently priced into market rates”. There are two more CPI prints coming out ahead of the BoE’s next decision, so those will be in focus ahead of that, and this morning we’ve also got the Q1 GDP release shortly after we go to press.

Overall, the decision and these comments led investors to price in a growing probability of a rate cut by the next BoE meeting in June, with overnight index swaps raising the chance from 55% the previous day to 60% by the close. Front-end gilts also rallied on the prospect of faster rate cuts, with the 2yr yield coming down by -5.7bps. 10yr gilts did lose a bit of ground, with yields up +0.2bps, but that was actually an outperformance relative to the rest of Europe, where yields on 10yr bunds (+3.3bps), OATs (+4.3bps) and BTPs (+3.7bps) all saw larger moves higher.

Meanwhile in the US, Treasuries outperformed after the jobless claims data led futures to dial up the likelihood of rate cuts this year. For instance, 46bps of cuts were priced in by the December meeting at the close, up +1.9bps relative to the previous day. In turn, the 2yr yield was down -2.1bps to 4.82%. And 10yr yields were down -4.1bps to 4.45%, with long-dated Treasuries supported by a solid 30yr auction that saw the highest direct bidder share since July.

Overnight in Asia, this strength for risk assets has broadly continued, with the Hang Seng (+1.74%) rising to its highest level in almost nine months, whilst the Nikkei (+0.24%) and the KOSPI (+0.60%) have also advanced. The exception to this has been in mainland China, where the CSI 300 (-0.28%) and the Shanghai Comp (-0.22%) have both lost ground, which comes as a Bloomberg report said that the US would announce new tariffs on China. The report cited people who said an announcement was scheduled for Tuesday, and there would be a focus on strategic sectors including electric vehicles. Elsewhere, US equity futures are also positive this morning, with those on the S&P 500 up +0.09%.

To the day ahead now, and data releases include the UK GDP reading for Q1, Italian industrial production for March, Canadian employment for April, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for May. From central banks, we’ll hear from the Fed’s Bowman, Logan, Kashkari, Goolsbee and Barr, the ECB’s Cipollone and Elderson, and the BoE’s Pill and Dhingra. We’ll also get the account from the ECB’s April meeting.