US stocks were set to rise for a second straight day on Wednesday with risk appetite staging a modest comeback amid dismal trading volumes as investors digested the hawkish turn from major central banks over the past week. S&P 500 futures were up 0.5% at 7:30 am ET, while Nasdaq futures gained 0.2%. The dollar reversed earlier losses, while global bonds steadied from the previous day’s selloff as some of the shock following the Bank of Japan’s unexpected increase in its yield trading band ebbed; the US 10Y yield held steady around 3.67%.

On Tuesday, the S&P 500 index snapped a four-day losing streak although the Nasdaq 100 fell for a fifth day in its longest stretch of declines since October, as higher-for-longer interest rates continued to weigh on sentiment. Major US tech and internet stocks are modestly higher on Wednesday, as global bonds steadied from the previous day’s selloff. Bank stocks are also higher in thin premarket trading putting them on track to gain for a second straight day after snapping a four-day losing streak. In corporate news, Core Scientific became the latest crypto company to file for bankruptcy as the industry reckons with a plunge in digital asset prices. Here are the biggest premarket movers:

• Nike shares jump 13% as analysts hiked their price targets after its quarterly sales beat estimates. They said the robust update demonstrated the brand’s strength despite a tough macroeconomic backdrop.
• Tesla shares gain as much as 2.1% after Elon Musk confirmed that he will resign as CEO of social-media firm Twitter when a successor is found and focus on engineering teams, amid worries that the billionaire is spreading himself thin between the companies. Cathie Wood ramped up purchases of Tesla shares in the fourth quarter, despite rising concerns over Musk’s ability to manage businesses
• FedEx shares climb 4.2% after its second-quarter earnings beat analysts’ estimates as price increases and cost cuts offset weakening demand trends.
• Alphabet shares rise as much as 0.9% along with other big tech stocks, with Evercore analysts saying that, while they still see the Google parent as “highly attractive” for long-term investors, they are lowering their estimates and price target amid ongoing weakness in demand for online advertising and cloud computing.
• Starbucks stock declines 0.8% after it was downgraded to hold at Jefferies. The brokerage overall maintains a positive view on the US restaurant and foodservice distribution sector, but turns more selective to reflect greater chance of a recession in 2023, also downgrading Brinker and Red Robin to hold and upgrading Chefs’ Warehouse to buy.
• Adaptive Biotechnologies shares jump 8.2% after the disease-testing instruments maker is upgraded to overweight from neutral at Piper Sandler on broker’s optimism about the company’s minimal residual disease business and potential catalysts in immune medicine in 2023.
• Morgan Stanley analysts led by Vikram Purohit assumed coverage of Halozyme Therapeutics with a recommendation of overweight, citing attractive “defensive properties.”

Dust started to settle on Japan’s shock decision to raise the upper limit of its 10-year bond yield, though the move has set in motion wagers the BOJ will join its peers next year in raising interest rates. Already, surging yields have shrunk the worldwide stock of negative-yielding debt to about $686 billion, from a $18.4 trillion peak reached two years ago. This number is likely to drop further as Japanese two-year yields rose above zero for the first time since 2015 and the 10-year benchmark approached the new upper yield limit, forcing the BOJ to step in with a bond-buying operation. Treasury yields were flat after surging 20 basis points this week.

For Japanese investors, however, the latest policy move may change their calculus for the better. With the yields they can earn on domestic bonds suddenly more attractive, they may look to repatriate some of $3 trillion that Bloomberg data shows is held in foreign equities and debt. “Japanese buyers are already overweight dollar cash and other currencies. They will use it to buy yen and Japanese government bonds as domestic yields rise,” Deutsche Bank strategist George Saravelos told clients, predicting currency markets to see the biggest impact.

In key US news, Ukraine chief comedian and president, Volodymyr Zelenskiy, visits DC today and Joe Biden will unveil almost $2 billion in Ukraine aid. Zelenskiy's first trip abroad since the invasion will include a prime-time address to Congress. His plea for more advanced weapons is set to be answered with a Patriot missile battery, a significant boost in US support.

• Elon Musk confirmed he'll step down as CEO after he finds a successor, though he plans to retain control over the engineering teams. Musk said Twitter was on course to have negative cash flow of $3 billion before recent cost-cutting measures. It's now poised to post revenue of $3 billion, next year, he said, and should reach cash flow breakeven too.  
• Sam Bankman-Fried will be flown to the US from the Bahamas today to face criminal charges linked to the FTX implosion. He'll be escorted by FBI agents on a private plane, a person familiar said. His legal team is in talks with prosecutors about a possible bail deal, which could include home detention or electronic monitoring, the NYT reported.

While December is traditionally a good month for stock performance, with the S&P 500 index gaining 1.2% on average over the past 30 years and declining just 14 times over the past 50 years, this December is proving to be an exception, and is set to be one of the worst final months of the year for the US benchmark since 1957, as pressure from hawkish central banks and recession risks weigh on the gauge. The S&P 500 has dropped about 6% this month — on par with the losses it sustained in December 2002; only December 2018’s 9% decline was bigger.

“When we look at the equity market response to these incremental monetary policy moves, it always strains belief that we should see future repricing of equity market on the back of what are relatively small central bank moves — even the ECB move,  said Wouter Sturkenboom, Northern Trust Asset Management chief investment strategist for EMEA & APAC. “We were a little surprised the US equity market responded as strongly as it did.”

Global bond yields surged this week after the Bank of Japan unexpectedly increased its yield trading band. The moved followed a surprisingly hawkish tone from the European Central Bank last week. With the 2Y JGB yield rising above 0%, the stock of negative yielding debt is about to drop to zero.

“Even if questions remain about where the Federal Reserve will finally drive borrowing rates, a lot of the 2022 bearish leverages have been already priced-in and we expect stock markets to stabilise following this year’s sell-off,” said Pierre Veyret, technical analyst at ActivTrades. “That said, investors will need further evidence of Fed chairman Jerome Powell’s economic “soft landing” to drive equities to new highs.”

European stocks followed US futures and rebounded from a six-week low with all sectors rising as low average volumes show holiday trading pattern is materializing. In Europe, retailers, real estate and energy are the strongest performing sectors. Euro Stoxx 50 rises 0.9%. S&P futures and Nasdaq contracts rise 0.5% each. Here are some of the biggest European movers today:

• Tremor International shares rise as much as 11% after a Sky News report that the digital-ad company is exploring a sale and is working with Goldman Sachs bankers to solicit interest.
• Interparfums shares rise as much as 8% to their highest since March after the French perfume maker announced a deal to develop and market all perfume and cosmetics lines under the Lacoste brand.
• Philips shares rise as much as 5.5% after the Dutch maker of medical devices provided an encouraging update on tests to assess the safety of its DreamStation sleep-therapy devices.
• Adidas and Puma shares gain more than 9% after Nike’s robust quarterly sales update that beat expectations in all regions except for China.
• Avio plunges as much as 11% after the Italian space company said an anomaly occurred on the VV22 satellite-launch flight, leading to the loss of the mission.
• Billerud falls as much as 5.4%, extending losses into a third day, after DNB cut its recommendation to hold from buy, seeing “tailwinds turning into headwinds” with higher cost inflation and “evidence of softer prices.”

Earlier in the session, Asian stocks headed for a fifth session of declines, as traders assessed adjustments to monetary policy in Japan and a jump in Covid cases in China. The MSCI Asia Pacific Index was little changed after moving between a gain of 0.4% and a loss of 0.3%. While industrial and tech shares weighed on the gauge, Australian miners provided support on higher gold prices. Japanese banks gained after the Bank of Japan doubled its yield cap on Tuesday, although benchmarks fell.

Moves across the region were driven by thin trading into year-end, with benchmarks in China and Hong Kong inching back from a two-day fall. In addition, a surge in Covid infections in China has affected trading desks. India stocks led losses in the region. Looking ahead, traders will keep an eye on US consumption data out Thursday. “With the recent Federal Reserve meeting bringing about an upward revision in US core PCE forecasts in 2023, the data will be looked upon to reflect the pace at which pricing pressures moderate,” Jun Rong Yeap, market strategist at IG Asia, wrote in a note

Japanese stocks fell for a fifth day after the Bank of Japan doubled its cap on 10-year yields, sparking a jump in the yen. The Topix fell 0.6% to close at 1,893.32, while the Nikkei declined 0.7% to 26,387.72. The yen retreated slightly against the dollar after surging almost 4% Tuesday. Toyota Motor Corp. contributed the most to the Topix decline, decreasing 2%. Out of 2,163 stocks in the index, 452 rose and 1,631 fell, while 80 were unchanged.  Prospects of higher yields pushed the Topix Banks Index up 2.6%, adding to the gauge’s jump of more than 5% on Tuesday. The measure was the biggest gainer among the benchmark’s industry groups while automakers, real estate and tech extended declines. “The effects of the BOJ’s surprise move are still lingering,” said Shogo Maekawa, chief global strategist at JPMorgan Asset Management. “While banking and insurance stocks continue to rise, sectors like real estate that are negatively impacted by rising interest rates, and stocks exposed to the strong yen are falling.”

India stocks fell to a one-month low, erasing early gains, as risk-off mood weighed on the domestic market. The S&P BSE Sensex fell 1% to 61,067.24, the lowest since Nov. 10, while the NSE Nifty 50 Index declined by a similar measure.  Investor sentiment is worsening due to global concerns, including Bank of Japan’s surprise hawkish tilt, and rising Covid cases in China, said Jayesh Bhanushali, assistant vice president at IIFL Securities. Foreign investors have been adding fresh short positions in index futures and “there is panic in the market as global economic outlook is bleak,” he said. India’s health minister held a review meeting to look into the country’s covid situation, and has asked officials to stay alert. Of the BSE Ltd.’s 19 sectoral gauges, all but 2 fell, with an index of healthcare-related stocks rising 2.3%. Reliance Industries Ltd. contributed the most to the index’s decline, decreasing 1.4%. 

In FX, the Bloomberg Dollar Spot reversed earlier losses and gain  modestly as most Group-of-10 peers were steady against the greenback, with the exception of the pound and the New Zealand dollar. NZD and GBP are the weakest performers in G-10 FX, NOK and AUD outperform. Yen trades around 131.80 per dollar.

• The pound underperformed most of its G-10 peers as data released Wednesday showed UK government borrowing surged in November. The budget deficit stood at £22 billion ($26.8 billion) –- the highest monthly total in records stretching back to 1993 and almost triple the £8.1 billion reading a year ago. UK business confidence rose at the fastest rate in 20 months as labor market pressures showed signs of easing, the festive trading period exceeded expectations and businesses became more optimistic about the outlook for the economy
• Japan’s longer-dated benchmark bond yields extended yesterday’s surge and the 10-year yield climbed toward the central bank’s new 0.5% cap as speculation deepened that the BOJ will push forward with policy normalization. The yen steadied near the strongest level in more than four months against the dollar

In rates, treasuries are slightly richer across the curve with gains led by front-end, extending steepening momentum of 2s10s, 5s30s spreads which trade through Tuesday highs. The 2-year Treasury yield shed 3bps while longer segment of the curve was steady, making the 2-10-year segment the steepest in five weeks. 10-year yields were around 3.68%, flat vs. Tuesday's close and outperforming gilts by 2.5bp — bunds trade broadly inline; front-end outperformance steepens 2s10s, 5s30s spreads by 1.8bp and 2.8bp on the day with 5s30s topping through -2bp and widest since Dec. 1. Bund yields steadied after the jump in longer dated global yields yesterday following the BOJ’s surprise tweak to its yield curve control. The Italian curve bull-steepened as yields fell 6-8bps. Gilts underperformed USTs and bunds at the 10-year mark. Peripheral spreads tighten to Germany with 10y BTP/Bund narrowing 6.1bps to 210.6bps.

In commodities, WTI drifts 1.1% higher to trade near $77, rising for a third session. Spot gold falls roughly $5 to trade near $1,813/oz. Iron ore rose for a second day as China’s abrupt Covid Zero reversal and a steady stream of supportive policies improved the likelihood of a recovery in the housing sector. Amyris is among the most active resources stocks in premarket trading, gaining 2%. 

To the day ahead now, and data releases include the US Conference Board’s consumer confidence reading for December, as well as November’s existing home sales and the Canadian CPI reading for November. A 20-year bond auction is scheduled for 1pm New York. Finally, we get the latest earnings from Micron Technology.

Market Snapshot

• S&P 500 futures up 0.4% to 3,865.00
• STOXX Europe 600 up 0.9% to 427.80
• MXAP little changed at 155.41
• MXAPJ up 0.2% to 502.40
• Nikkei down 0.7% to 26,387.72
• Topix down 0.6% to 1,893.32
• Hang Seng Index up 0.3% to 19,160.49
• Shanghai Composite down 0.2% to 3,068.41
• Sensex down 1.0% to 61,089.36
• Australia S&P/ASX 200 up 1.3% to 7,115.09
• Kospi down 0.2% to 2,328.95
• German 10Y yield little changed at 2.29%
• Euro little changed at $1.0626
• Brent Futures up 1.1% to $80.84/bbl
• Gold spot down 0.1% to $1,815.26
• U.S. Dollar Index little changed at 103.98

Top Overnight News from Bloomberg

• In a span of 18 hours last week, years of rigid intransigence from the European Union’s two most rebellious nations started to break. First Hungary and then Poland agreed to fix their democracies’ shortcomings in exchange for gaining access to billions of euros of the bloc’s funds. If they make good on those promises, it will also be a testament to the new-found powers of the bond market
• The Russian exodus triggered by Vladimir Putin’s invasion of Ukraine has put the currencies of former Soviet republics at the top of global rankings this year. Georgia and Armenia in the Caucasus mountains, as well as Tajikistan in Central Asia, are among the best performers against the US dollar after tens of thousands of Russian citizens settled there since February, bringing the equivalent of billions of dollars in savings with them
• The BOJ’s shock decision to tweak its yield-curve control ceiling has boosted policy-normalization bets, fueled expectations for higher and more volatile yields and may also damp demand for US Treasuries
• Japan’s investors are fleeing Treasuries at an unprecedented pace, and central bank Governor Haruhiko Kuroda’s policy shift may reinforce the trend which is bringing a global era of negative yields closer to an end
• BOJ Governor Haruhiko Kuroda is facing mounting criticism over his latest shock policy decision, with several prominent economists calling it a blow to BOJ credibility and traders rushing to test the central bank’s new red line on bond yields
• The BOJ’s policy adjustments could be the first step toward an exit from its decade-long aggressive monetary easing, according to Takatoshi Ito, a contender to succeed Governor Haruhiko Kuroda
• China’s broad budget deficit hit a record so far this year, showing how damaging the now abandoned Covid Zero policy and the ongoing housing slump have been to the economy and to the government’s finances

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed following a mostly positive lead from Wall Street and with news flow on the quieter side. ASX 200 outperformed and was lifted by gains across gold miners after the yellow metal topped USD 1,800/oz. Nikkei 225 remained pressured by the recent JPY strengthening, whilst the region overlooked reports that Japan maintained its overall economic view in December. Hang Seng and Shanghai Comp gave up earlier gains but remained within tight parameters

Top Asian News

• China reported zero new COVID deaths in the mainland on Dec 20th vs five a day earlier; reported 3,101 new COVID cases in the mainland on Dec 20th vs 2,722 a day earlier.
• "China will no longer take measures to isolate people from overseas and go to isolation facilities from January 3, 2023" according to HKSTV; "The policy optimized to 0+3 also means that China will fully open up from 2023 in the new year."
• China's Foreign Ministry says, on their plan to improve quarantine for overseas travellers, they will provide more convenience when appropriate.
• PBoC injected CNY 19bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 141bln via 14-day reverse repos with the rate maintained at 2.15%; daily net injection CNY 158bln.
• China State Planner is holding a meeting to study measures to deal with excessive hog price decline, according to Reuters.
• Japanese Foreign Minister Hayashi is to delay his trip to China to late-January or later, according to TV Asahi.
• Japan maintained its overall economic view in December; the economy is recovering moderately, said Japan needs to pay close attention to China's COVID situation, via Reuters.
• Japanese Economy Minister Goto acknowledged that the BoJ's Tuesday decision was not meant to be a tweak or exit from monetary policy, according to Reuters.
• IMF said the BoJ's YCC tweak is "a sensible step", according to Reuters.
• Japanese government to set assumed interest rate at a record low of 1.1% for compilation of FY23/24 budget, according to Reuters sources.
• South Korean Finance Minister sees 2023 GDP growth at 1.6% (vs 2022 estimate of 2.5%) and 2023 CPI growth at 3.5% (vs 2022 estimate of 5.1%), according to Reuters.

European bourses have eked out a marginal extension of their initial upside, Euro Stoxx 50 +0.9%, with both newsflow and the schedule ahead sparse. Sectors are firmer across the board, with outperformance in Retail post-Nike and in Real Estate after recent pronounced pressure. Stateside, futures are similarly bid, ES +0.6%, with specific ex-corporate updates focused on gov't funding & Ukraine. FedEx (FDX) Q2 23 (USD): Adj. EPS 3.18 (exp. 2.80), Revenue 22.8bln (exp. 23.7bln). FY23 capex view cut by 400mln to 5.9bln. Cost reduction initiatives accelerated, identifies additional 1bln above Sept. forecast. Weak profit guidance.
Nike Inc (NKE) Q3 2022 (USD): EPS 0.85 (exp. 0.65), Revenue 13.32bln (exp. 12.57bln). North America 5.83bln (exp. 5.35bln). Greater China 1.79bln (1.81bln). Executive expects FY revenue to grow in the low teens in constant currency (prev. low double-digit growth); expects around 700bps of FX headwinds. Executive says North American Black Friday and Cyber Week performance set highs for demand and traffic; in Greater China, demand grew mid-teens outpacing the sports industry.

Top European News

• Interparfums Jumps to March Highs After Lacoste License Deal
• Tremor International Jumps After Sky Report It’s Exploring Sale
• Shell Says Exports Resume at Prelude LNG Plant in Australia
• Greece’s Gas Grid Eyes Links to New LNG Facilities, CEO Says
• Russia and Iran Are Building a Trade Route That Defies Sanctions

Geopolitics

• Naval exercises of Russia and China with practical rocket and artillery firing will start in the East China Sea on Wednesday, according to Interfax.
• IAEA Chief Grossi is to visit Russia on Thursday, according to a Russian diplomat.

FX

• DXY has managed to attain an incremental foothold at 104.00, with peers generally contained in tight ranges given the limited newsflow.
• However, NZD is the stand-out laggard and below 0.63 after poor domestic data.
• JPY has finally run out of impetus and USD/JPY has paused for breath towards the lower-end of 131.51-132.36 parameters.
• EUR, CHF and CAD all reside in sub 50-pip ranges at present.
• While GBP is marginally softer after the ONS reported the highest borrowing requirement for November on record.
• PBoC set USD/CNY mid-point at 6.9650 vs exp. 6.9644 (prev. 6.9861)

Fixed Income

• An early recovery bounce has seemingly run out of steam ahead of US 20yr supply, with Bunds and Gilts fading from respective 136.00+ and 101.50+ peaks.
• Stateside, USTs are directionally in-fitting and similarly contained pre-supply, the curve is steepening slightly but with yields mixed.
• BoJ unscheduled operation: offered to buy JPY 100bln in 3-5yr JGBs and JPY 100bln in 5-10yr JGBs, according to Reuters.

Commodities

• A contained session for the crude complex, with the benchmarks within sub-USD 2/bbl parameters in limited newsflow.
• A modest extension to fresh peaks occurred in proximity to commentary from the Russian Defence Ministry that oil tanks were destroyed in Kharvic, Ukraine.
• US Private Inventories (bbls): Crude -3.1mln (exp. -1.7mln), Cushing +0.84mln, Gasoline +4.5mln (exp. +2.1mln). Distillate +0.828mln (exp. +0.3mln).
• Indonesia is to ban the export of bauxite from June 2023; a move to encourage the development of onshore bauxite processing, according to the Indonesian President, according to Reuters.
• Russia decreased oil exports by 11% M/M between Dec 1-20th, according to Kommersant.
• India has imposed anti-dumping duty on stainless steel tubes and pipe imports from China for five years, according to a government notification.
• Spot gold is little changed overall but has experienced some very modest pressure as the DXY continues to scramble for a foothold at 104.00 and broader equity/crude upside advances somewhat from initial levels.

US Event Calendar

• 07:00: Dec. MBA Mortgage Applications, prior 3.2%
• 08:30: 3Q Current Account Balance, est. -$222b, prior -$251.1b
• 10:00: Dec. Conf. Board Consumer Confidence, est. 101.0, prior 100.2
  • Expectations, prior 75.4
  • Present Situation, prior 137.4
• 10:00: Nov. Existing Home Sales MoM, est. -5.2%, prior -5.9%

DB's Jim Reid concludes the overnight wrap

If there's anyone still out there, hopefully your hearts will be slightly warmed by the Christmas miracle we've had at home. My 7-year-old daughter Maisie, who has been battling a very rare hip disease called Perthes for over 2 years, went for her 4-monthly scan and check up on Monday. The X-ray showed that her hip ball was now in the process of regrowing and after 14 months of being in a wheelchair, and after a major operation, is now allowed to start walking and running again. My wife was in tears as she rung me from the hospital, and I must admit I did shed at least one tear too. She is still not allowed to jump until the regrowth stage develops further but that's academic relative to the main news. We'll have to wait and see how close to normal she'll be as she goes through her childhood. The best case is probably a relatively normal life until she needs hip replacement at some point as an adult. Given I need two new knees that's not the end of the world. Despite 14 months in a wheelchair, she's so far outperforming the average of kids with this condition, and we can only think her love of swimming has helped as this is the only activity she could do. She's been going 3-4 times a week for a year now. If she hated swimming we would probably be in a far worse position now. So a lovely Christmas present for all the family. The only drawback is that arguments in the car over the last 14 months have been reduced as having accessible parking rights have allowed us to park in big easy-to-get-in spaces. Now we'll have to go back to tight spaces again and a lot of shouting at each other as opinions differ as to whether the other person is parking well or not.

Just as we were driving home for Christmas, the BoJ news that Henry brought you yesterday has continued to reverberate around financial markets over the last 24 hours. The biggest move was that the Japanese Yen saw its largest daily gain of the 21st century so far against the US Dollar, with a +3.93% move higher that’s unrivalled since 1998. The yen is now trading at 132.22 per dollar, which is somewhat off its peak of 130.58 yesterday afternoon, but still a very large gain having been above 137 prior to the BoJ’s announcement. Japanese equities are also continuing to struggle, with the Nikkei underperforming other indices in Asia this morning with a -0.68% decline, whilst yields have climbed further overnight, with the 10yr Japanese government bond yield up +7.1bps to 0.48%.

As a reminder, the big surprise was the change in the yield curve control policy, which has a target for the 10yr JGB yield to remain around zero. Previously, the BoJ committed to keeping that yield within a band of 0.25 percentage points either side of zero, and would conduct purchases as necessary to keep it in that range. But yesterday that band was doubled to 0.5 percentage points either side, removing the effective cap on yields that had kept them from moving above the 0.25% mark. Adrian Cox, Henry Allen and our chief Japan economist Kentaro Koyama have this morning put out the latest in our "101 series", aimed at explaining specialist topics to generalists, on the yield curve control move. See it here.

The BoJ’s announcement served as the catalyst for a fresh selloff globally, with sovereign bonds slumping across the world. That’s because the BoJ’s decision has several broader implications. For instance, if it does mark the start of a move away from ultra-loose monetary policy in Japan, then that could see Japanese investors shed their foreign bond-holdings in favour of domestic ones that now attract a higher yield. Indeed, yesterday’s decision prompted growing speculation that we could see a BoJ rate hike at some point in 2023. And if the prospect of that still seems absurd, just remember it was only last December that ECB President Lagarde said “it is very unlikely that we will raise interest rates in the year 2022”, and they’ve since done 250bps worth of hikes. We’ve also seen a big reduction in the quantity of global debt with a negative yield following the BoJ’s move, with Bloomberg’s index down to $686bn yesterday, which is down from $14tn only a year ago, and a peak above $18tn in late-2020.

In terms of what happens now, our chief Japan economist Kentaro is of the view (link here) that the uptrend in underlying inflation and the upcoming change of leadership at the BoJ (Governor Kuroda’s term ends early next year) mean that there’s certainly the possibility of another policy revision. A key factor will be the shunto wage talks in the spring, where a wage hike of over 3% could trigger a further move towards policy normalisation. Our main scenario at present looks for a withdrawal of YCC in Q3 2023 on the assumption of high wage growth. In the meantime, our rates strategists have written about the implications for their views (link here).

Yields spiked across the globe after the move with those on 10yr Treasuries up +9.8bps to 3.68%, and this morning they’ve risen a further +2.6bps to +3.71% as we go to print. The rise in yields was most pronounced at the long-end of the curve, meaning that the 2s10s steepened +9.8bps yesterday to -57.7bps, which is the first time in over a month it’s closed above -60bps. Meanwhile in Europe, it was the 5th day running that sovereign bonds lost ground, with yields on 10yr bunds (+10.1bps), OATs (+12.1bps) and BTPs (+9.4bps) all seeing sizeable increases once again. French bonds have been a favourite of Japanese investors so that might explain the relative weakness.

For equities there was a less consistent pattern, with a number of the major indices swinging between gains and losses throughout the day. By the close the S&P 500 (+0.10%) was up for the first time in the last 5 sessions. Energy (+1.52%) was the best performing industry yesterday, with Media (+0.83%) and Materials (+0.65%) also performing. The NASDAQ was marginally better than unchanged (+0.01%), breaking a 4-day slide of its own, whilst the VIX volatility index fell -1.0pt on the day to 21.5 as the entire volatility curve fell back. Meanwhile in Asia overnight, Japanese equities are underperforming as mentioned at the top, but elsewhere we’ve seen a similar pattern to the US of modest gains and losses, including for the CSI 300 (+0.05%), the Hang Seng (+0.23%), the Shanghai Comp (-0.19%) and the Kospi (-0.18%). In Europe the performance was more negative however, with the US afternoon rally coming after Europe had closed, and leaving the STOXX 600 down -0.40%.

There were two major off-cycle earnings announcements after the US close with FedEx (+4.8% in after-mkt trading) beating analysts’ estimates, as price increases and cost savings counteracted declines in package volumes. The company projected lower costs, but also lower demand over the next fiscal year. At the same time, Nike (+12.8% in after-mkt trading) rose sharply as high quarterly sales and gross margins overcame another quarter of inventory buildup. While margins have been compressed by inventories, they have not been less than initially feared. As we look toward next year, the build of inventories is a key area of concerns for retailers as demand slows. Helped by those earnings, US equities futures are extending their gains with contracts on the S&P 500 up +0.47% this morning.

Looking at yesterday’s data, there was a bit of respite on the inflation side, with German PPI in November falling to +28.2% year-on-year (vs. +31.1% expected), which is its lowest level since February. Over in the US, data on housing starts showed a modest decline in November to an annualised rate of 1.427m (vs. 1.4m expected), with building permits seeing a much sharper decline to an annualised 1.342m (vs. 1.48m expected). There was weakness in both single family and multi-family housing permits but excluding the pandemic period, single family permits were at their weakest levels since 2016.

To the day ahead now, and data releases include the US Conference Board’s consumer confidence reading for December, as well as November’s existing home sales and the Canadian CPI reading for November. Finally, earnings releases include Micron Technology.