US futures are slightly lower, but holding on to much of yesterday's tech-driven gains, with European bourses and Asian markets mixed ahead of tomorrow's CPI print. At 7:30am ET, both emini S&P500 and Nasdaq 100 futures slipped 0.3%, reversing yesterday's rally. Tech stocks retreated as Oracle dropped 10% after posting slowing cloud sales, while the euro and pound weakened on concern the Europe faces a growing threat of stagflation. Tech will also be the center of attention on Tuesday, with Apple set to unveil a new product lineup including the new iPhone 15, and SoftBank-owned chip designer Arm gearing is set to price the biggest IPO of the year. US Treasuries edged lower, commodities are higher led by base metals with oil trading near its highest level this year before the OPEC monthly report. Gold fell while bitcoin redovered much of yesterday's losses.

In premarket trading, Oracle tumbled 10% after it reported slowing cloud sales growth in the quarter. Analysts said the report failed to live up to high expectations, although they remain positive on the company’s long-term prospects; Morgan Stanley analysts said the results raise questions about the timing of generative AI demand turning into revenue across the broader business. Apple is up 0.20% ahead of the new iPhone 15 reveal. Here are some other notable premarket movers:

• Acelyrin shares sink 58% after the biopharmaceutical company’s lead product, izokibep, did not meet the primary endpoint of a clinical trial of patients with hidradenitis suppurativa, a chronic inflammatory skin condition. Analysts found the miss to be disappointing, with Piper Sandler highlighting the “puzzling” dropout rates.
• RTX shares dip 1.11% as Barclays and RBC Capital Markets downgraded their recommendations on the stock after the aerospace and defense company cut its full-year sales forecast. Meanwhile, Citi reduces its price target on the stock.
• Sight Sciences shares slumped 34% after the glaucoma surgery device maker reduced its revenue outlook as uncertainty about the future of Medicare coverage for its products hurts demand.

After today's Apple event, all eyes will turn to the US CPI report due Wednesday at 830am ET, and the ECB decision on Thursday.  The consumer-price index report Wednesday will provide the latest insight into how much further the Fed may need to go to pull inflation back toward its target. Monthly inflation is expected to surge accelerate to 0.6% in August from 0.2% in July, even as core CPI is seen stable at 0.2%, according to economists’ estimates.

“Markets are gearing up to this week’s main events,” wrote ING Group NV strategists including Benjamin Schroeder. “It is not just about this Thursday’s ECB meeting, but also about crucial data in the US and UK ahead of next week’s respective central bank meetings.”

US consumers’ inflation expectations were mostly stable in August, but households grew more concerned about their finances and more pessimistic about the job market, according to a Fed Bank of New York survey which showed the highest 5-year inflation expectations since the start of 2022.

“If we do see potentially a more sticky inflation number than the 0.6% expected by economists or 0.2% on core, I would expect to see the bond market start to potentially price in another rate hike before the end of the year, potentially as early as November,” Anthony Doyle, head of investment strategy at Firetrail Investments Pty Ltd, said on Bloomberg Television.

In Europe, the Stoxx 50 fell 0.4% with the FTSE 100 outperforming peers, adding 0.4%, DAX lags, dropping 0.5%. Packaging company Smurfit Kappa Group plunged 13% after it announced a deal to combine with WestRock. Here are the most notable European movers:

• AB Foods gain as much as 5.4% after the Primark owner reported fourth-quarter comparable sales growth of 8% for the clothing-retail business. Morgan Stanley analysts said the results show top-line resilience for Primark, while Shore Capital plans to increase its estimates.
• HelloFresh shares climb as much as 8.3% after JPMorgan placed the meal-kit maker on positive catalyst watch following meetings with company management, saying it is “ready to beat.”
• Jet2 shares rise as much as 4.9% after Morgan Stanley adds to the clean sweep of positive ratings on the company, starting coverage at overweight based on a continued supportive package holiday market outlook.
• Smurfit Kappa shares fall as much as 13% after the packaging firm agreed on the terms of a merger with WestRock, just a week after disclosing talks to combine. Analysts note the premium paid for WestRock is higher than investors anticipated.
• Campari shares fall as much as 6.1% in Milan after the company said Bob Kunze-Concewitz has decided to retire as CEO, effective as of April 2024, according to a statement.
• PolyPeptide slumps as much as 8.3% after the Swiss biotechnology company gets downgraded to sell from neutral at Citigroup, which cited operational issues as a drag on profitability.
• Dowlais shares fall as much as 6.3%, the most since July 11, after the co. reported 1H23 earnings that revealed uncertainty around possible US strikes affecting its 2H23 demand and kept its FY outlook unchanged.
• Fevertree shares decline as much as 7.1% after the high-end tonic maker reported first-half sales and earnings that missed estimates and lowered Ebitda guidance for the year. Analysts were encouraged by the 2024 margin outlook, though the miss to profit expectations weighed.
• Pepco shares drop as much as 5.2% after discount retailer reported sudden departure of CEO Trevor Masters and cut its Ebitda guidance due to weaker sales, even after previously signaling consumer recovery in its key markets in East Europe.
• Keywords Studios shares fall as much as 6.4%, dropping to the lowest intraday level since April 2020, after the video-game industry services firm reported first-half adjusted pretax profit that missed estimates. Jefferies and Shore Capital noted that writer and actor strikes in the US were a headwind.

Stocks in Asia fluctuated and Chinese shares were back in the red. The MSCI Asia Pacific Index rose as much as 0.3%, with Toyota and TSMC the biggest boosts. Hong Kong shares erased losses following a report that distressed developer Country Garden got approval to extend repayment on its yuan bonds. Chinese gains triggered by news on Country Garden Holdings, which secured payment extension approval from its bondholders, were not enough to keep the positive sentiment going for long.  With Chinese equities still struggling even after a slew of recent market-support measures, regional investors await retail sales and factory data due Friday for signs of recovery in the economy. China’s underperformance has held the MSCI Asia gauge to a gain of 4% this year while the S&P 500 Index has climbed 17%. “In the near term, we need to see more policy actions and data turning more positive” in order to see more reallocations to Chinese equities, Nupur Gupta, a portfolio manager at Eastspring Investments, said in an interview with Bloomberg TV.

• Australia's ASX 200 was lacklustre amid weakness in energy, tech and financials, with trade also contained after a somewhat mixed business survey and weaker consumer sentiment data.
• Japan's Nikkei 225 gained amid strength in automakers and with SoftBank among the early leaders after its Arm unit IPO was oversubscribed by 10 times although price action was choppy and the index nearly pared all of its gains before revisiting session highs.
• Indian stocks opened higher, while South Korean shares fell amid losses in chip and EV battery names.

In FX, the Bloomberg Dollar Spot Index edged up 0.2%, recovering from a 0.7% slide - the biggest in two months - while the yen resumed its fall. The yuan was little changed after China’s central bank set its daily fixing rate at below 7.20 versus the dollar, another sign that it won’t tolerate excessive yuan weakness. The euro and the pound both traded around 0.3% lower against the dollar. UK wage growth held at a record high in the three months through July, a sign of persistent inflation that will keep pressure on the Bank of England to raise interest rates again. Investor confidence in Germany’s economy improved for a second month, while lingering at a level that will do little to dispel intensifying concerns over the country’s status as Europe’s growth laggard.

In rates, US Treasury yields remained within 1bp of Monday’s closing levels, with 10-year yields at 4.285% ahead of $35 billion reopening auction at 1pm New York time, as the front-end underperforms, slightly flattening 2s10s. . Demand was soft for Monday’s 3-year sale. Gilts outperformed after UK labor market data showed signs of cooling, while bunds trade marginally cheaper vs Treasuries. Dollar IG issuance slate contains a handful of names, including Slovenia 10Y benchmark, and another busy day is expected ahead of CPI and PPI due Wednesday and Thursday; eleven names priced almost $11b Monday, with at least one borrower electing to stand down. Today's 10-year note auction is poised to draw the highest yield since 2007, as did the 3-year, which tailed by around 1bp; cycle concludes with $20b 30-year reopening Wednesday

In commodities, WTI trades within Monday’s range, adding 0.9% to trade near $88. Most base metals trade in the red; LME nickel falls 2.2%, underperforming peers. Spot gold falls roughly $3 to trade near $1,920/oz.

Bitcoin has rebounded from Monday's weakness, rising back over $26L after tumbling to a $24.9k low rumors of forced FTX liquidations.

Looking to the quiet day ahead, data releases include UK employment data for July, the German ZEW survey for September, and in the US we also get the NFIB small business optimism index for August, which came in at 91.3, just below the 91.5 expected and down from 91.9. The SEC's Gensler testifies at Senate Banking Committee at 10.00 a.m. New York time. Apple is expected to launch an India-assembled iPhone 15 with a USB-C port at 1.00 p.m. Arm bankers plan to stop taking orders for the IPO by Tuesday afternoon. The Google antitrust trial begins in Washington D.C. On Wednesday, US inflation data for August is out at 1.30 p.m. time along with mortgage applications data at noon.

Market Snapshot

• S&P 500 futures down 0.3% to 4,478.25
• MXAP up 0.1% to 162.00
• MXAPJ down 0.1% to 503.65
• Nikkei up 1.0% to 32,776.37
• Topix up 0.8% to 2,379.91
• Hang Seng Index down 0.4% to 18,025.89
• Shanghai Composite down 0.2% to 3,137.06
• Sensex little changed at 67,162.91
• Australia S&P/ASX 200 up 0.2% to 7,206.85
• Kospi down 0.8% to 2,536.58
• STOXX Europe 600 little changed at 456.50
• German 10Y yield little changed at 2.62%
• Euro down 0.3% to $1.0721
• Brent Futures up 0.5% to $91.06/bbl
• Gold spot down 0.1% to $1,921.00
• U.S. Dollar Index up 0.17% to 104.75

Top Overnight News

• Tech stocks were in retreat as Oracle Corp. posted slowing cloud sales, while the euro and pound weakened on concern the Europe faces a growing threat of stagflation.
• The European Central Bank’s decision is a cliffhanger for investors, but even participants in the meeting have no inkling of the likely outcome, according to people familiar with the matter.
• The new Cold War is a business opportunity, and Mexico looks better placed than almost any other country to seize it.
• The global economy is shifting toward a higher-for-longer period for interest rates, making the coming flurry of monetary decisions across the developed world pivotal in mapping out that plateau.
• Apple Inc.’s biggest day of the year has arrived, and the company is set to unveil updated versions of its iPhone, smartwatch and AirPods.
• Arm Holdings Ltd.’s initial public offering is already oversubscribed by 10 times and bankers plan to stop taking orders by Tuesday afternoon, according to people familiar with the matter.
• The luxury armored train carrying North Korean leader Kim Jong Un crossed into Russia ahead of a summit with President Vladimir Putin that the US said would focus on supplying weapons for Moscow’s war on Ukraine.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed with the region tentative in the absence of any fresh macro catalysts and with participants bracing for the US CPI data due midweek. ASX 200 was lacklustre amid weakness in energy, tech and financials, with trade also contained after a somewhat mixed business survey and weaker consumer sentiment data. Nikkei 225 gained amid strength in automakers and with SoftBank among the early leaders after its Arm unit IPO was oversubscribed by 10 times although price action was choppy and the index nearly pared all of its gains before revisiti ng session highs. Hang Seng and Shanghai Comp traded ultimately flat with early downside cushioned following the PBoC's liquidity effort and after Country Garden Holdings received approval to extend 6 onshore bond repayments by 3 years.

Top Asian News

• Country Garden Holdings (2007 HK) received approval to extend 6 onshore bond repayments by 3 years and it delayed the voting deadline on two bond payment extensions to Tuesday evening.
• New Zealand pre-election economic and fiscal update sees 2023/24 operating balance before gains and losses at NZD -11.4B (Budget forecast NZD -7.6bln), while it sees net at 43.6% of GDP (Budget forecast 43.1%) and expects to return to an OBEGAL surplus in 2026/2027 (Budget forecast of 2025/26).
• Several Chinese banks have reportedly said that regulators as of this year no longer require them to report the proportion of property loans/mortgages in total loans, via Xinhua; indicating a relaxation of restrictions on property financing.

European bourses are diverging slightly and generally struggling for direction with newsflow light ahead of the week's risk events, Euro Stoxx 50 -0.3%. The breakdown has the DAX 40 lagging following after-market earnings from ORCL -9.1% in pre-market trade which in turn is weighing on heavyweight SAP -2.7%. As such, Tech is the laggard among European sectors while Telecom and Retail names see some relative outperformance. Stateside, futures are incrementally lower across the board with tech in focus given Oracle and as we await the AAPL, +0.2% pre-market, event; ES -0.2%, NQ -0.3%

Top European News

• BoE's Breeden agrees with the MPC that the risks to inflation around the August forecasts are to the upside; expects inflation to be around the 2% target in two years. Sees balances risks to growth an unemployment in both directions. UK economic activity is weak. Breeden replaces Cunliffe on the MPC from November 1st.
• German Ifo residential construction survey (Aug): Crisis intensified in August, number of Co's reporting cancelled projects at a new high. Click here for more detail.
• Germany's ZEW says experts are even more pessimistic about the current economic situation in Germany vs August. More positive economic expectations for Germany are accompanied by significantly optimistic outlook for development on the international stock market, in part due to stable interest rates in EZ and US. Experts expect a further easing of interest rate policy in China.

FX

• Buck finds its feet after a rocky start to the week, DXY towards the top of 104.820-430 range.
• Sterling stumbles on weak UK labour market metrics alongside strong headline average earnings, Cable retreats from 1.2530 towards 1.2460
• Euro shrugs off mixed German ZEW survey as VDMA and Ifo deliver bleak outlook updates, EUR/USD closer to base of 1.0713-68 parameters
• Kiwi undermined by downgrades to NZ fiscal projections, NZD/USD heavy on 0.5900 handle
• Yen keeps afloat of 147.00 vs Greenback as a Fib supplements psychological support
• PBoC set USD/CNY mid-point at 7.1986 vs exp. 7.2859 (prev. 7.2148)

Fixed Income

• Bonds bid, but off peaks after solid bounces from Monday lows.
• Bunds topped out at 130.99 within a range down to 130.60.
• Gilts reached 94.97 from 94.27 and outperformed on the back of weak components in the UK jobs report.
• T-note straddled parity between 109-28/23 confines awaiting US CPI tomorrow
• DMO's 2051 linker and Germany's Schatz tap both well received ahead of USD 35bln 10 year US refunding leg

Commodities

• WTI and Brent futures are somewhat choppy within tight ranges amid quiet newsflow this European morning and ahead of key risk events including US CPI on Wednesday, the ECB decision on Thursday, and Chinese activity data on Friday.
• Dutch TTF remains supported with modest intraday gains as the Australian LNG strike and the extended maintenance at Norwegian fields keep prices underpinned.
• Spot gold is softer intraday amid the firmer Dollar, but the yellow metal remains within yesterday’s ranges and trades on either side of its 200 DMA (USD 1,920.03/oz today) after finding support at the 21 DMA (USD 1,916.41/oz today) yesterday.
• Base metals see modest softness amid the broader Dollar strength and cautious trade across stocks, although Singapore iron ore futures hit over five-month highs with analysts citing better-than-expected Chinese loans data and pre-holiday stocking ahead of the Chinese mid-Autumn festival at the end of the month.
• The Australia union said it is to oppose Chevron's (CVX) intractable bargaining application and it wants industrial action to continue until it secures a union-negotiated deal at Australian LNG facilities, according to Reuters.
• Western Australia State Government says they have no current plans to engage with the Fair Work Commission in the Chevron (CVX) dispute, at this stage there has been no disruption to Western Australia's domestic gas supply.
• Kazakhstan's Karachaganak gas condensate field is undergoing maintenance on September 11-15th, output will be reduced by 27k tonnes, according to the Energy Minister.
• China is looking to buy LNG again in latest risk to the global gas market's delicate balance, according to Bloomberg sources; Unipec released a tender to purchase more than a dozen shipments for this winter, in addition to deliveries through the end-2024.
• India imposed anti-dumping duty on some Chinese steel for five years.

Geopolitics

• US President Biden's administration is close to approving long-range missiles including ATACMS or GMLRS both armed with cluster bombs for Ukraine, while these missiles would give Kyiv the ability to cause significant damage deeper within Russia-occupied territory, according to Reuters citing four US officials.
• US Secretary of State Blinken confirmed they exercised a waiver to allow the transfer of USD 6bln from South Korea to Qatar as part of a US-Iran prisoner swap, according to Reuters.
• North Korean leader Kim left Pyongyang on Sunday to visit Russia and his train arrived at Khasan Station in Russia's far east, while the White House urged North Korea not to provide weapons to Russia.
• Kremlin spokesman said Russian President Putin and North Korean leader Kim will discuss bilateral ties and seek to build good, mutually beneficial relations, while a spokesman also stated that Russia is not interested in Washington's warnings on Moscow's contact with North Korea.
• No separate meeting between Russian and North Korea defence ministers planned, via Ifax citing Russia's Peskov; Russian President Putin and North Korean Leader Kim to meet in the "coming days".
• Russian President Putin says FSB captured Ukrainian saboteurs who sought to damage our nuclear power station; Saboteurs were instructed by British services; that is worrying and consequences could be serious.
• Taiwan's Ministry of Defence 2023 National Defence Report stated that China's military intimidation and intrusions are a new normal and China is using grey-zone tactics to change the status quo.

US Event Calendar

• 06:00: Aug. Small Business Optimism 91.3, est. 91.5, prior 91.9
• 10:00: Income, Poverty and Health Insurance report: 2022

DB's Jim Reid concludes the overnight wrap

Welcome to my annual day of being seduced into buying a new iPhone that I don't really need but desperately want. Apple launch their new product suite today which actually is a potential macro mover. It goes alongside the annual "buy a new golf driver I don't really need" day usually in the Spring. However, I'm nearly 50 and I've only ever owned two cars, so allow me these extravagances.

As I type this on a dull old iPhone 14, markets are mostly awaiting tomorrow’s all-important US CPI print. As we wait, the most interesting moves over the last 24 hours have been the dollar putting in one of its worst daily performances in the past two months and Tesla climbing over 10% to be up +122% YTD but actually almost -10% YoY. Timing is everything. There was also a fresh sell-off for bonds as speculation about rate hikes and inflation gathered pace. But, on the other hand, risk assets did quite well, with the S&P 500 (+0.67%) recovering from last week’s declines, helped by tech and Tesla.

The bond sell-off carried on from the overnight moves before Monday's Western market open after BoJ Governor Ueda’s comments over the weekend (that we discussed yesterday along with our revised BoJ call - link here) that then spread globally. In Japan, yields on 10yr JGBs had already closed at a post-2014 high of 0.70% (0.713% this morning) but we then saw yields on 10yr Treasuries up +2.5bps to 4.29%, which was their highest closing level in nearly 3 weeks. It was a similar story in Europe too, with yields on 10yr bunds (+2.9bps), OATs (+3.2bps) and BTPs (+4.8bps) all rising. Interestingly, markets are continuing to price in a growing likelihood that the ECB will deliver a hike on Thursday, with overnight index swaps now giving it a 41% probability, up from a low of 23% on 1 September, the day after the August euro area inflation print. The last time there was as much doubt about an ECB decision was back in March after SVB’s collapse, although back then the question was more between 25bps vs 50bps rather than no hike at all.

When it came to the bond sell-off, 10yr gilts (+4.9bps) saw the largest increase in yields, which followed comments from the BoE’s Mann, the most hawkish member of the MPC. She said that her preference was to tighten further, and that to “pause or to hold the policy rate lower for longer risks inflation becoming more deeply embedded”. And she added further that “holding rates constant at the current level risks enabling further inflation persistence”. For now, markets continue to price in a 79% likelihood of another BoE hike next week, which would take the policy rate up to 5.5%. As an aside, our rates strategist Francis Yared wrote a piece here suggesting that central banks should be erring on the side of doing too much rather than too little. It’s worth a read after the recent Table Mountain talk.

Those movements in the bond market occurred alongside some interesting shifts in the FX space. In particular, the Japanese Yen surged +0.93% against the US Dollar, which came as investors priced in a growing likelihood of a policy shift from the BoJ. This morning the Yen (-0.03%) is slightly lower. And there was also a significant appreciation in the Chinese Yuan (+0.74%), which followed comments from the People’s Bank of China, which said in a statement that FX market participants should “resolutely avoid behaviors that disturb market orders such as conducting speculative trades.”. The dollar index had been on course for its worst performance in nearly two months yesterday, though it ended the day a smidgen shy of this mark, down -0.50% (which marked its first decline in eight sessions). It is fairly flat this morning.

There wasn’t much data to speak of yesterday, but the New York Fed’s latest Survey of Consumer Expectations offered some interesting findings that added to signs of a weakening economy. For instance, the mean probability of losing one’s job over the next 12 months rose to 13.8% in August, which was the highest since April 2021. There were also signs of tightening credit availability, since the share saying that credit was “much harder” or “somewhat harder” to obtain credit than a year ago rose to 59.8%, which is the highest since the series began over a decade ago. In the meantime, the inflation expectations series were broadly steady, with 1yr inflation expectations ticking up a tenth to 3.6%. On the topic of risks to the US economy, our economists yesterday published a note updating their recession probability models. See here for more.

Despite the broader moves in markets, equities managed to put in a resilient performance yesterday, with the S&P 500 advancing +0.67%. That was supported by a large gain for Tesla (+10.09%), which was the top performer in the entire S&P yesterday on the back of a big broker upgrade. This helped drive the outperformance from the NASDAQ (+1.14%) and the FANG+ Index (+2.07%). To narrow down the tech rally even further we are going to start quoting the “Magnificent Seven” performance regularly in the EMR. They rose +2.71% yesterday buoyed by Tesla with only Nvidia down (-0.86%).

Talking of tech, last week, Bloomberg reported that Huawei and China’s top chipmaker, SMIC, have surprised the market by building an advanced 7nm (N+2) chip and installing it in the latest Huawei smartphone. This is the most recent development in what has become known as the US-China high tech decoupling. In their latest chartbook, my team members Marion Laboure and Cassidy Ainsworth-Grace explore how this tech decoupling began, the cost of a full global technological decoupling, and break down the ten technologies most at risk of decoupling. See here for more.

Back in Europe, the STOXX 600 (+0.34%), the DAX (+0.36%) and the FTSE 100 (+0.25%) all rose. Unlike the US, European tech stocks underperformed on a broadly positive day that saw 69% of the STOXX 600 constituents post a gain.

Asian equity markets are relatively quiet overnight. As I check my screens, the Nikkei (+0.61%) is outperforming the region with the CSI (+0.03%) and the Shanghai Composite (+0.04%) trading a tad higher while the KOSPI (-0.52%) is trading in negative territory. The Hang Seng (-0.01%) is flat but has come back from over -1% down near the open. Country Garden got creditor approval to extend the duration of 6 onshore bonds which has helped lift its shares by 10% and turn the property sector from around -2% to nearly +3%. S&P 500 (-0.12%) and NASDAQ 100 (-0.09%) futures are inching lower.

There wasn’t much other data of note yesterday, but the European Commission downgraded its growth forecast for the Euro Area in 2023 and 2024 by three-tenths in both years. That now leaves its forecasts at +0.8% this year and +1.3% in 2024. For inflation, it sees a slightly lower figure this year at +5.6%, down two-tenths, but the 2024 projection has been raised a tenth to +2.9%. Elsewhere, Italian industrial production fell by a larger-than-expected -0.7% in July (vs. -0.3% expected).

To the day ahead now, and data releases include UK employment data for July, the German ZEW survey for September, and in the US there’s the NFIB’s small business optimism index for August.