For the third day in a row, futures have gone nowhere in the overnight session, and are flat as a pancake with yields also barely changed and holding on to their sharp move higher from the previous day when they surged 14bps; the USD was down, commodities are mixed with oil outperforming again, and crypto and gold staged a modest rebound. At 8:00am ET, emini S&P futures were unchanged at 4,275 while Nasdaq futs were just fractionally in the green after the index yesterday posted its worst decline since April; concern that central banks will keep driving interest rates higher sent tech stocks in Europe to one of the worst performances among industries, with ASML Holding NV as the biggest drag on the Stoxx 600.

In premarket trading, GameStop plunged 18% after firing its chief executive and reporting sales that fell short of estimates. Manchester United is set to extend gains, after rising as much as 5.6% in premarket trading, as Qatar’s Sheikh Jassim submitted his fifth takeover offer for Premier League team. Here are some other notable premarket movers:

• Smartsheet shares fell as much as 18% in premarket trading, after the software company reported its first-quarter results and gave an outlook. Analysts noted a weaker-than-expected billings forecast as a potential point of concern. If losses hold, Smartsheet will be set for its biggest fall since Sept. 3, 2020.
• HashiCorp falls 23% after the infrastructure software company cut its full-year revenue forecast. Despite the beats in the first quarter, analysts were focused on the reduced guidance for FY24, with Piper Sandler saying it raises questions on sales execution issues.
• Rent the Runway shares fall as much as 11% in premarket trading after the clothing rental company gave a weaker-than-expected second-quarter sales outlook, hurt by a reduction in promotions to attract subscribers. The firm confirmed full-year guidance but stressed that its target hinges on a sales recovery in the second half, making the stock a “show-me story” amid macro uncertainties, according to Wells Fargo.
• Semtech shares soar as much as 29% in premarket trading after the semiconductor and internet-of-things company eked out positive 1Q earnings thanks to cost controls. Outgoing CEO Mohan Maheswaran said during a conference call that core operations probably have found a bottom in the previous quarter, with 2Q set for an improvement. Analysts say a strategy update by the new CEO Paul Pickle could serve as a key catalyst for the stock.
• Trip.com shares advance over 4% in premarket trading after the online travel agent reported first-quarter revenue that beat estimates. Analysts said the results were solid, noting that revenue was above pre-pandemic levels.
• Privia Health and eXp World Holdings (EXPI US) jumped in postmarket trading after S&P Dow Jones Indices said they would replace Heska and Ruth’s Hospitality Group in the S&P SmallCap 600 Index.
• Signet Jewelers tumbles 9% after slashing its fiscal year projections for sales and profit, citing slowing trends, including a softer-than-expected Mother’s Day.
• Torrid Holdings slumps 11% after cutting its full-year projections for net sales and adjusted Ebitda. Telsey Advisory Group downgrades the apparel retailer to market perform from outperform, also citing weaker-than-expected sales and gross margin in the fiscal first quarter.
• Clothing company Oxford Industries tumbles 7% postmarket after the owner of the Tommy Bahama brand cut its profit and sales guidance for the full year

Yesterday, Russell 2000 was the clear standout as the +RTY/-NDX had another 3-sigma move (as discussed here), retracing the move since May 10.

Technology stocks, the most rate sensitive of all equities, have been feeling the pinch as investors consider the possibility that the Fed isn’t finished with its own tightening. Two major central banks this week — the Bank of Canada and the Reserve Bank of Australia — unexpectedly raised rates to bring inflation under control. Sure enough, the US yield curve reacted to the surprise Bank of Canada rate hike; the hike comes after skipping 2 meetings. The bond market is pricing ~80% chance of a 25bps hike by the July 26 meeting. Yields on two-year US Treasuries are hovering near 4.5%, the highest since March, although well below the 5.07% seen before banking turmoil gripped markets back then.

“The key thing to remember is that the fight against inflation isn’t over,” Helen Jewell, EMEA deputy CIO of BlackRock Fundamental Equities, said in an interview with Bloomberg Television. “We’re seeing the stickiness in inflation and concerns coming through from a rate hike perspective.”

Megacap tech companies have powered the S&P 500 to the brink of a bull market, before rate worries prompted Wednesday’s pullback. Policy decisions are due from the Fed and the ECB next week, with the Fed signaling it may pause rate hikes in June before resuming them later. The big question facing markets right now is whether the Fed decides to raise rates next Wednesday or holds after 10 straight increases, Deutsche Bank AG strategists including Jim Reid wrote in a note. Traders have boosted wagers on Fed rate increases, with swaps close to pricing in a quarter-point hike for the July meeting.

“While we still expect the Fed to skip the June meeting, this week’s policy decision which expressed more concern over persistent inflation risks makes us more wary,” said Lee Hardman, a strategist at MUFG Bank. “The hawkish policy updates from the RBA and BOC have injected fresh upward momentum into global yields.”

European tech stocks underperformed on concerns over the potential for central banks to keep raising interest rates. Stoxx 600 is steady with autos and banks outperforming. FTSE MIB outperforms peers, adding 0.7%; FTSE 100 lags, dropping 0.2%. Here are the most notable movers today:

• Evotec jumps as much as 9.1% after the German biotech was upgraded to buy by Citi, which also hiked its price target on the stock, calling it the “Tesla of biologics manufacturing”
• Orsted jumps as much as 6.3% as the lack of need for additional equity provides relief for the stock, according to Citi. The firm said late Wednesday it’s on track to outperform previous financial targets
• Wizz Air gains as much as 5.4% in London after the low-cost airline forecast net income for FY24 that exceeded estimates, with analysts saying the outlook outweighs the weaker FY23 figures
• Europe’s Stoxx 600 basic resources and energy subsectors led gains in the broader benchmark on Thursday as iron ore rises for a seventh day, on signs of Chinese government efforts to revive the economy
• Lottomatica gains as much as 5.1% after the gambling company was initiated with buy-equivalent ratings at six brokers, following its May 3 IPO. Analysts note the company’s leading position in Italy
• Clarkson rises as much as 5.9% after J.P. Morgan analyst Sam Bland raised the recommendation on the shipping company to overweight from neutral saying it’s heading in the right direction
• FirstGroup shares soar as much as 21% after the British transport company reported full-year revenue that beat estimates. Analysts noted the strength in the company’s bus margins
• RWS Holdings shares jump as much as 13% after the patent translations company gave a half-year update and said that it expects to see growth accelerate in the second half of the year
• Just Eat Takeaway shares drop as much as 3.7%, the worst performer in the Stoxx 600 Technology Index, after Bryan Garnier cut its rating to sell amid declines in market share and customer orders
• SBB falls as much as 12% after the beleaguered Swedish landlord saw its credit rating downgraded in two steps to BB- from BB+ by S&P Global Rating, pulling it deeper into junk territory

Earlier in the session, Asian shares ticked lower as investors boost bets that the Federal Reserve may continue to raise interest rates and keep them at elevated levels for longer, while the yen strengthened after data showing Japan’s economy grew faster than expected in the first quarter. The MSCI Asia Pacific Index dropped as much as 0.8%, dragged by info tech and communication services shares. Tech stocks including TSMC, Tencent and Samsung Electronics were among the biggest contributors to the gauge’s decline. Most markets in the region traded lower with Taiwan being the worst performer. Benchmarks in the region dropped for a second day after the Bank of Canada unexpectedly resumed hiking its rates, stoking concerns for a further tightening by the Federal Reserve. The move comes after a surprising hike earlier in the week by Australia’s central bank. Meanwhile, Chinese equities in Hong Kong snapped a four-day winning streak following disappointing export data. This has raised hopes for more stimulus measures from the government. 

• Hang Seng and Shanghai Comp. were lacklustre amid the ongoing growth concerns surrounding the world’s second-largest economy although the losses stemmed after China's Big 4 banks reduced their deposit rates following calls from the government to help bolster the economy.
• Nikkei 225 was initially choppy but eventually retreated firmly beneath the 32,000 level despite the stronger-than-expected upward revisions to Japan's Q1 GDP.
• ASX 200 traded rangebound as gains in the commodity-related sectors were offset by underperformance in property and tech, while softer trade data from Australia added to the non-committal mood.

“If there are pressures that are too negative in the domestic economy, I really believe the government will come in with support measures but in a much more, I would say, delicate way” than what was seen earlier, Virginie Maisonneuve, global chief investment officer for equities at Allianz Global Investors, said in an interview with Bloomberg Television. Investors are also awaiting data on foreign buying of Japanese stocks due later this afternoon, given the recent market strength in the world’s third-largest economy

In FX, the Bloomberg dollar spot index fell 0.2%. SEK and CHF are the weakest performers in G-10 FX, NZD and AUD outperform. The Turkish lira continued its merry disintegration.

In rates, Treasuries are slightly cheaper across the curve. US yields cheaper by 1bp-2bp across the curve with 7-year sector underperforming, widening 5s7s10s fly by 1.5bp on the day; 10- year yields around 3.81%, cheaper by 1.5bp on the day with gilts underperforming by 3bp in the sector. Gilts underperform bunds and Treasuries, and lead core European rates lower with 30-year UK cheaper by more than 5bp on the day, while euro money markets cement bets on a 25bp ECB rate hike next week. US session includes weekly jobless claims data.

In commodities, WTI trades within Wednesday’s range, falling 0.4% to near $72.21. Spot gold rises roughly $8 to trade near $1,948/oz

To the day ahead now, it’s an incredibly quiet one on the calendar, with one of the few highlights being the US weekly initial jobless claims.

Market Snapshot

• S&P 500 futures little changed at 4,277.50
• MXAP down 0.3% to 163.31
• MXAPJ little changed at 516.75
• Nikkei down 0.9% to 31,641.27
• Topix down 0.7% to 2,191.50
• Hang Seng Index up 0.2% to 19,299.18
• Shanghai Composite up 0.5% to 3,213.59
• Sensex little changed at 63,141.77
• Australia S&P/ASX 200 down 0.3% to 7,099.66
• Kospi down 0.2% to 2,610.85
• STOXX Europe 600 little changed at 461.00
• German 10Y yield little changed at 2.45%
• Euro up 0.2% to $1.0718
• Brent Futures little changed at $76.97/bbl
• Gold spot up 0.4% to $1,947.72
• U.S. Dollar Index down 0.18% to 103.91

Top Overnight News

• US futures slipped and Treasuries held their sharp move from the previous session, after a surprise Bank of Canada rate increase led traders to reassess the risks from stubborn inflation.
• Global bonds are slumping after two shock interest-rate hikes this week served traders a reality check that central banks are far from done fighting inflation.
• After dominating bonds and equities investing for years, BlackRock Inc. is looking to become a one- stop destination for clients in private markets, a more lucrative area of finance.
• Most Europeans consider China a key economic partner despite seeing limits to the relationship, according to a survey that comes as the bloc tries to find a safe way to engage with Beijing.
• China’s economic recovery showed further signs of weakening in May, clouding the outlook for the rest of the year and fueling calls for more central bank stimulus.

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly subdued following the mixed handover from Wall St where tech underperformed as global yields climbed after the surprise BoC rate hike. ASX 200 traded rangebound as gains in the commodity-related sectors were offset by underperformance in property and tech, while softer trade data from Australia added to the non-committal mood. Nikkei 225 was initially choppy but eventually retreated firmly beneath the 32,000 level despite the stronger-than-expected upward revisions to Japan's Q1 GDP. Hang Seng and Shanghai Comp. were lacklustre amid the ongoing growth concerns surrounding the world’s second- largest economy although the losses stemmed after China's Big 4 banks reduced their deposit rates following calls from the government to help bolster the economy.

Top Asian News

• China National Financial Regulation Administration head Li said they will continue to support Shanghai as a financial centre and that China's economy is continuing its recovery, while the domestic economy is showing resilience and dynamism. Li added that they will step up support for high-tech sectors and comprehensively improve financial regulation, as well as improve private firms' financing environment, according to Reuters.
• China securities regulator chairman said they will support technology innovation in a more precise and effective manner, while they will further promote long-term capital to invest in equities and promote product innovation to support bond, equity and M&A financing, according to Reuters.
• RBI kept the key Repo Rate unchanged at 6.50%, as expected, with the decision on rates made unanimously and it also maintained the policy stance of remaining focused on the withdrawal of accommodation through a 5-1 vote. RBI Governor Das said the path ahead is now somewhat clearer and uncertainty on the horizon is comparatively less, while he added the MPC will remain vigilant on the evolving situation and growth outlook. Das also said they will take further action promptly and headline inflation is still above target and that being within the tolerance band is not enough.

European bourses are mixed/flat with newsflow limited and the region alongside broader assets largely struggling for direction into a sparse docket. Sectors are mixed overall; Basic Resources outperform as metals lift slightly and on a Rio Tinto upgrade while Tech and Healthcare names lag. Stateside, futures paint a similar picture but feature incremental underperformance in the NQ and outperformance in RTY which continues its recent strength amid a rotation into small caps. Tesla (TSLA) is asking several Chinese supply chain companies to build factories in Mexico to replicate a Giga Shanghai and its supply chain system there, according to a report cited by CnEVPost. Meta (META) voluntary child protection appears not to work, according to EU's Bretton via a Reuters exclusive; calls on CEO to explain and take immediate action.

Top European News

• US President Biden vetoed the lawmaker resolution against his student loan plan, according to Reuters.
• US federal prosecutors notified former President Trump that he is a target of a special counsel investigation over classified documents, according to ABC citing sources.

FX

• Dollar drifts ahead of US jobless claims, as DXY fades above 104.000 within 104.070-103.810 range.
• Aussie and Kiwi derive most from the latest Buck downturn, with AUD/USD and NZD/USD elevated above 0.6650 and around 0.6050 respectively.
• Loonie straddles 1.3350 vs Greenback post-BoC hike and pre-commentary from Beaudry before Canadian jobs on Friday.
• Euro and Yen firmer against Dollar around 1.0700 and 140.00 handles, but wary of very large option expiries nearby.
• Lira continues to collapse with no respite insight this side of 23.5000 vs Dollar.
• PBoC set USD/CNY mid-point at 7.1280 vs exp. 7.1282 (prev. 7.1196)
• PBoC Vice Governor said they have confidence, conditions and the capacity to maintain stable operations of the FX market, while the FX market, yuan market expectations and cross-border capital flows are relatively stable. Furthermore, the official stated as the Fed nears the end of its rate hike cycle, USD strength is hardly sustainable and the external impact on the yuan is expected to weaken, according to Reuters.

Fixed Income

• Debt still waning and after hawkish Central Bank turns, Bunds regained some poise after dipping below 133.00, but bounce curtailed bang on 133.50.
• Gilts lag within 95.94-61 range and T-note mostly sub-par between 113-07+/112-30 bounds pre-US jobless claims and Quarterly Refunding announcement.
• Orders for the new 4yr BTP Valore retail bond reach EUR 15bln since the commencement of the offer.

Commodities

• Crude benchmarks have spent the morning choppy but within particularly narrow parameters of sub-USD 1.00/bbl with specific newsflow exceptionally light and markets generally quiet ahead of US IJC during Fed blackout.
• Specifically, WTI and Brent are holding at the lower end of USD 72.07-72.88/bbl and USD 76.44-77.29/bbl parameters which themselves are well within the ranges of yesterday and by extension the more pronounced movement of last week.
• Spot gold is firmer but remains capped by the USD 1950/oz level with the 10-DMA just above at USD 1954/oz. To the downside, the sessions trough dipped just below the 100-DMA at USD 1940/oz; the current low is USD 1939/oz.
• Base metals are more of the same, with the main benchmarks rangebound and around familiar levels and following suit to the broader risk tone.

Crypto

• Bitcoin is essentially unchanged, in very narrow parameters and moving in-situ with broader asset classes in very quiet newsflow.
• G20 emerging nations are reportedly concerned that widespread use of stablecoins could threaten their monetary policy and as such are after stricter regulation, via CoinDesk citing officials.

Geopolitics

• Taiwan Defence Ministry said 37 Chinese aircraft entered Taiwan's air defence zone starting Thursday morning and some of the aircraft flew into the western Pacific, while Taiwan sent an aircraft to keep watch, according to Reuters.
• IAEA's Gross intends to rotate inspectors at the Zaporizhzhia nuclear plant next week, plans need to be agreed with Ukraine and Russia.

US Event Calendar

• 08:30: May Continuing Claims, est. 1.8m, prior 1.8m
• 08:30: June Initial Jobless Claims, est. 235,000, prior 232,000
• 10:00: April Wholesale Trade Sales MoM, est. 0.9%, prior -2.1%
• 10:00: April Wholesale Inventories MoM, est. -0.2%, prior -0.2%
• 12:00: 1Q US Household Change in Net Worth, prior $2.93t

DB's Jim Reid concludes the overnight wrap

With less than a week to go until the Fed’s next decision, yesterday offered another hawkish surprise for markets after the Bank of Canada delivered an unexpected 25bp rate hike. Now that might be just one central bank, but it comes on the back of a similar surprise hike from the Reserve Bank of Australia the previous day, so investors are starting to see a pattern emerging here and there was a significant bond selloff as a result. The latest developments have also run against the prevailing narrative that central banks are on the verge of pausing their rate hikes, particularly given Canada was one of the first to formally signal a pause back in January. The big question now is whether the Fed might follow up with a hike of their own next Wednesday, or whether they’ll finally keep rates on hold after 10 consecutive increases.

When it came to the Bank of Canada, they announced they were taking their overnight rate up to a post-2001 high of 4.75%, and their statement said that that “excess demand in the economy looks to be more persistent than anticipated”. In light of this, they wrote that “concerns have increased that CPI inflation could get stuck materially above the 2% target”, and they said they were hiking since “monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target.” Looking forward, they didn’t provide too much of a steer on future policy, but markets then moved to price in a further hike in July as the most likely outcome.

That surprise rate hike sparked a big selloff among sovereign bonds. Unsurprisingly, Canada was at the epicentre of this, and their 10yr government bond yield was up +16.3bps on the day to their highest level since early March. That was echoed among US Treasuries, where the 10yr yield (+13.5bps) rose to 3.80%, and the 2yr yield (+7.8bps) hit a post-SVB high of 4.56%. There was a strong rise in real yields too, with the 2yr real yield (+9.2bps) closing at a post-GFC high yesterday of 2.49%, and the 10yr real yield (+11.7bps) closing at a post-SVB high of 1.59%. So it’s clear that investors are pricing in the prospect of higher rates for longer.

When it comes to next week’s Fed decision, it’s hard to get a firm steer on things given that officials are now in their blackout period ahead of the meeting. Nevertheless, the decision from the Bank of Canada meant that futures moved to price in a 35% chance of a hike, up from 19% as of close on Tuesday. At the same time, investors also grew more sceptical that the Fed would end up cutting rates this year at all, with the rate priced in by the December meeting up to a post-SVB high at 5.03%. Bear in mind that after the Fed’s last meeting in May, that rate expected in December was priced at 4.18%. So in just over a month, we’ve had around 85bps of expected cuts for this year taken out of market pricing.

This selloff was evident in Europe as well, with yields on 10yr bunds (+8.3bps), OATs (+9.4bps) and BTPs (+15.1bps) all moving higher. That came as ECB speakers continued to signal another rate hike next week. For instance, Isabel Schnabel of the Executive Board said that “we have more ground to cover” in an interview with De Tijd that was conducted last week but released yesterday. Along these lines, Ireland’s Makhlouf said that “more work is needed from monetary policy in the short run” and the Netherlands’ Knot said that he was “not yet convinced that the current tightening is sufficient”. All this meant markets priced in more rate hikes over the rest of the year, with the rate priced in for the December meeting up +4.0bps on the day.

This backdrop meant that equities struggled, and the S&P 500 (-0.38%) saw a pullback that took it further away from bull market territory. For once, tech stocks actually underperformed, and the NASDAQ (-1.29%) came off its one-year high from the previous day, whilst the FANG+ index (-2.91%) saw even larger declines. On the other hand, energy stocks were the biggest outperformer, having been aided by a rebound in commodity prices over recent days. Indeed, Brent Crude closed up +0.87% to $76.95/bbl, marking its highest level in 8 trading sessions. Otherwise in Europe it was much the same story, and the STOXX 600 (-0.19%) posted a small decline.

Broadly speaking, this pattern has continued overnight in Asia, with some fresh momentum after data revisions showed that Japan’s Q1 GDP growth was faster than initially thought. Specifically, growth was revised up to an annualised rate of +2.7%, which was above the initial +1.6% estimate, as well as economists’ expectations of a +1.9% reading. That’s meant that bonds have continued to lose ground across the region, and yields on 10yr Australian (+15.0bps) and New Zealand (+12.1bps) government debt have seen some strong increases this morning. The major equity indices have experienced losses too, with the Nikkei (-0.96%), the KOSPI (-0.64%), the Hang Seng (-0.39%) and the Shanghai Comp (-0.12%) all falling back. The main exception is the CSI 300 (+0.09%) which has posted modest gains. Looking forward, US and European equities futures are pointing towards more losses today as well, with those on the S&P 500 currently down -0.18%.

There was little in the way of economic data yesterday. German industrial production saw a small rebound in April (+0.3% mom vs +0.6% expected) but with the March decline revised upward (from -3.4% to -2.1%). The OECD published their latest economic outlook, with a view that global growth would come in at 2.7% this year, before picking up slightly to 2.9% in 2024.

To the day ahead now, it’s an incredibly quiet one on the calendar, with one of the few highlights being the US weekly initial jobless claims.