US futures edged fractionally higher to start the week with small-caps outperforming as last week's rally, when euphoric investors bought stocks after Fed Chair Jerome Powell's dovish tilt at Jackson Hole, fizzled. As of 8:00am ET, S&P 500 futures gained 0.1% while and Nasdaq 100 futures turned red after both indexes notched gains of more than 1% on Friday when Powell's J-Hole speech cemented the case for an interest-rate cut next month; the debate has now shifted to the size of the cut and what that would say about the state of the economy. Pre-market, NVDA which reports earnings this week, was up about 1% leading both Mag7 and Semis higher. Bond yields reversed losses and rose 3 bps tracking the nearly 3% spike in oil after Israel launched a pre-emptive strike involving 100 warplanes on Hezbollah in Lebanon and declared a 48-hour state of emergency while Libya's Eastern government said on Monday morning it will stop all oil production and export. The yen erased all gains after earlier rising to its strongest level since January as it took reacted to the rise in US yields; the dollar edged up while gold held near a record high. Bitcoin touched $65,000 for the first time in about three weeks. The macro data focus is on Durable/Cap Goods but NVDA earnings on Weds is the key event. Powell's dovish Jackson Hole speech should give a tailwind to risk assets this week.
In premarket trading, Guardant Health slipped 3% after filing an open-market agreement to sell as much as $400 million in shares via Jefferies. SolarEdge Technologies gained 4% after Zvi Lando stepped down as CEO. Here are the other notable premarket movers:
Positioning for lower US borrowing costs rippled through financial markets after Fed Powell said that the "time has come" to pivot to monetary easing. Traders added to bets on a half-point of rate cuts in September - but a reduction of that magnitude could signal the economy is heading for a hard landing, tempering demand for stocks.
"If you have to cut rates faster, that also suggests that the economy is doing less well," Eleanor Taylor Jolidon, co-head of Swiss and global equities at Union Bancaire Privee, said on Bloomberg TV. "A 50 basis-point cut would be reflection of that weaker data that we saw at the end of July that did somewhat spook the market."
Fears of escalating conflict in the Middle East prompted some haven buying after an Israeli strike on Hezbollah targets in southern Lebanon. Crude oil advanced almost 3%. The yen gained for a second day to its strongest level since January, but then started tracking rising US yields which moved in tandem with oil, and the USDJPY is now at session highs, almost 100 pips off the lows.
Europe's Stoxx 600 index was little changed, with trading volumes less than half of the average as UK markets are closed for a holiday. Germany's business outlook held at its lowest level since February, highlighting the gloom once again engulfing Europe's biggest economy after an early-year rebound fizzled out, but some assistance may be on the way on interest rates. After first lowering borrowing costs in June, the European Central Bank has signaled another move is likely in September. Here are the biggest movers Monday:
The MSCI Asia Pacific Index advances for third day, with Hong Kong and Australia leading regional winners. Hang Seng climbs about 0.8% as tech stocks resume gains. Shanghai Composite remains broadly unchanged. Japanese stocks underperformed as the yen strengthens to below 144-handle against the dollar. Elsewhere, the People's Bank of China left the rate on its one-year policy loans, or the medium-term lending facility, at 2.3%, after a slashing the rate by 20 basis points in July. The decision underscores Beijing's cautious approach in supporting the economy, even as China reported a rare contraction in bank loans amid weak demand. The PBOC has been walking a fine line of stimulating growth and cooling a government-bond buying spree to limit financial risks in recent months.
In FX, the Bloomberg dollar index rose 0.1% after it slumped the most in nine months on Friday. Aussie and kiwi are at the bottom of G-10 currency scoreboard. USD/JPY rose 0.2%, paring earlier decline of 0.6% to 143.45, the lowest since Aug. 5 after Powell said the "time has come" for the Fed to lower benchmark rates from their two-decade high, his clearest signal yet that long-awaited rate cuts are imminent. One-month risk reversals in EUR/USD rallied to 38 basis points, the most bullish sentiment for the common currency since Dec. 2020
In rates, the 10-year Treasury yield reversed an earlier drop to rise 2bps to 3.812%, tracking the sharp spike in oil prices. Most euro-zone 10-year yields are higher by ~2bp on the day after Germany's IFO business confidence index fell less than expected; UK markets are closed for a bank holiday. The Australian curve bull steepens with 3-year yield down 6bps. JGB futures remain stronger in line with Friday's post-Powell Treasury rally. Treasury auctions ahead this week include $69b 2-year Tuesday, $70b 5-year Wednesday (a possible unscheduled reopening) and $44b 7-year Thursday
In commodities, oil surged almost 3% as the Middle East braced for escalating conflict after an Israeli strike on Hezbollah targets in southern Lebanon. Cease-fire negotiations were held in Cairo and are set to continue, AP said. Separately, Libya's eastern-based government said it will stop all oil production and exports. Gold extended a rally above $2,500 an ounce, and was trading near all time highs of $2,525. Iron ore extended a rebound with China's huge inventories of the material continuing to draw down, in a tentative sign that a period of severe oversupply is starting to ease.
Looking at today's calendar, the US economic calendar includes July preliminary durable goods orders (8:30am) and August Dallas Fed manufacturing activity (10:30am). Fed speakers scheduled include San Francisco Fed President Dale (2pm)
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APAC stocks kicked off the week mixed following the gains on Wall Street after Fed Chair Powell's dovish pivot, whilst the weekend was packed with geopolitics in which the heavy fires between Israel and Hezbollah resulted in no civilian casualties, but both sides expressed no appetite for further escalation. ASX 200 traded firm with the index underpinned by Real Estate, Tech, and Energy, although further upside was limited by the losses in Healthcare - the underperforming sector. Nikkei 225 was pressured by the recent JPY strength following the Fed Chair's dovish comments after the BoJ Governor's hawkish remarks on Friday, in which Powell's speech ultimately resulted in a weaker Dollar and lower US bond yields. Auto stocks fell with Yamaha Motors sliding after reports Yamaha Corp was to sell a 1.7% stake in Yamaha Motors. Hang Seng and Shanghai Comp. were mixed with Hong Kong bolstered by its Real Estate sector, whilst the mainland was subdued in a tight range after the PBoC conducted its delayed MLF with a maintained rate at 2.30%. US equity futures were mostly subdued at the resumption of trade with contracts taking a breather after Friday's Powell-induced gains. Ultimately, price action was flat and horizontal overnight. (ES -0.1%)
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European bourses have kicked the week off with marginal losses, Euro Stoxx 50 -0.1%. Sectors are mixed with no overarching theme; Tech is the incremental laggard as we count down to Nvidia numbers later in the week. DAX 40 -0.2% is the incremental laggard; German Ifo release was better-than-feared but was a poor set of data and keeps stagnation/recessionary talk alive. Stateside, futures are a touch higher with specifics light as participants digest Jackson Hole and prepare for NVDA and PCE this week before Payrolls next week, ES +0.2% & NQ +0.2%.
By Zerohedge.com
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