Futures Rebound After Thursday Rout As Rate Cut Expectations Fade

Summary

After Thursday's market rout, US equity futures and treasuries staged a modest rebound on Friday. The S&P 500 and Nasdaq 100 futures rose 0.3%, led by premarket gains at Micron, Microchip Technology and Advanced Micro Devices. Europe’s Stoxx 600 index slipped 0.4%, playing catch-up with Wednesday’s Wall Street drop, which was the biggest this month.

Market Movements

In premarket trading, Apple shares ticked 0.7% higher after the technology firm’s price target is raised to a Street-high view of $275 from $250 at Wedbush. Tesla was flat after a report that Elon Musk’s SpaceX has initiated discussions about selling existing shares at a price that could value the company at roughly $200 billion. The market mood turned more sombre after stronger-than-expected US business activity data forced traders to push back rate-cut expectations by a month. The change put Bloomberg’s dollar index on track for its biggest weekly gain since early April, while rate-sensitive Treasury two-year yields traded just off the three-week highs above 4.95% hit on Thursday.

Analyst Opinions

“What we have is this repricing of rate cuts,” said Kenneth Broux, a strategist at Societe Generale. “Two-year yields are again within touching distance of 5%, so the debate on whether US yields have peaked is still alive.” For now, profits at larger US companies appear resilient to the higher-for-longer rates backdrop, offering encouragement to equity bulls.

European Stocks

European stocks followed their US and Asian counterparts lower after traders pushed back expectations of Fed interest rate cuts. The Stoxx 600 fell 0.5% with almost all subindexes in the red, with only retail and auto stocks rising. The tech sector leads declines, breaking a two-day advance fueled by sentiment around Nvidia.

FX and Rates

In FX, the Bloomberg Dollar Spot Index was headed for its first drop in five days, but still on track to post its best weekly gain since April 12. In rates, Treasuries edge higher, with US 10-year yields falling 1bp to 4.47%.

Commodities and Crypto

In commodities, oil prices decline, with WTI falling 0.9% to trade near $76.20. Spot gold rises 0.5%. In crypto, Bitcoin is modestly softer and holds just above $67k, while Ethereum trades around $3.7k after the SEC approved plans from NYSE, CBOE and Nasdaq for the listing of spot Ethereum ETFs.

Closing Thoughts

The market's reaction to the recent data releases and the shift in rate cut expectations highlight the sensitivity of the current market environment. It will be interesting to see how these dynamics play out in the coming weeks. What are your thoughts on these developments? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing which is everyday at 6pm.