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Friday, March 29, 2024

Futures Rise As Tech Rebounds, Tesla Rout Draws Dip Buyers

US stock futures edged higher on Wednesday alongside European bourses, as a selloff in tech was set to pause following a drop on the Nasdaq in the previous session, with Tesla shares erasing earlier declines as dip-buyers returned to the stock after a seven-day losing streak. Nasdaq 100 futures rose 0.3% at 7:45 a.m. in New York, reversing earlier losses, while S&P eminis were up 0.3%. Treasury yields ticked lower as a global bond selloff eased, and a gauge of the dollar slipped.

Tesla’s brutal 11% plunge on Tuesday following a report of a plan to temporarily halt production at its China factory – which is odd since that will merely result in more output once China reemerges from its final covid lockdown, this time with natural immunity – rekindled worries about growth prospects for the broader technology industry. The shares erased a drop of over 4% in premarket trading to trade higher by 2%, after seven days of declines.

Similarly, Apple shares rose modestly in premarket trading after closing at their lowest level since June 2021 amid concerns over iPhone supply in the key holiday period. Here are some other notable premarket movers:

  • Jounce Therapeutics jumpedas much as 95% after drugmaker Gilead agreed to acquire all remaining rights to potential first-in-class immunotherapy GS-1811.
  • Prison operators CoreCivic and GEO Group drop after the US Supreme Court ordered pandemic-era border restrictions to remain in effect.

Reports that China would drop quarantine requirements for inbound visitors and begin issuing passports and Hong Kong travel permits to mainland residents may be a boost for the global economy, but they’re also raising concern about inflation pressures which could prompt the Federal Reserve to maintain tight monetary policy for long to keep inflation in check once China fully reopens.

“The stronger the positive impact on growth from Chinese reopening, the faster the global inflation, and the faster the global inflation the more aggressive the central bank actions will be,” Swissquote Bank analyst Ipek Ozkardeskaya wrote in a note.  Fears that interest rates might rise further than expected are adding pressure on technology stocks which typically suffer during monetary tightening cycles and are among the biggest stock-market losers of 2022.

The cautious mood has killed hopes for a Sasnta rally in the last trading week of 2022 after a brutal year for financial markets. Global equities have lost a fifth of their value, the largest decline since 2008 on an annual basis, and an index of global bonds has slumped 16%. The dollar has surged 7% and the US 10-year yield has jumped to above 3.80% from just 1.5% at the end of 2021.

“We may get a pivot later on next year from the Fed where they actually start cutting rates, but that’s going to happen when the situation is going to become much more dire than it is now,” Matt Maley, chief market strategist for Miller Tabak + Co., said on Bloomberg TV. “If we just have this slow grind lower, the Fed’s going to keep interest rates at high levels even if they stop raising rates in any kind of way.”

In Europe, the Stoxx 600 index advanced, led by basic-resources companies as prices for industrial metals including copper climbed. Most European bonds gained, with Germany’s 10-year yield falling more than five basis points, after hitting 2.524% yesterday, the highest in over 11 years.

Asian stocks dropped, dragged by losses in technology shares, pausing a two-day gain spurred by China’s border reopening. Hong Kong equities jumped in a catch-up rally after holidays. The MSCI Asia Pacific Index pared most of its earlier losses of as much as 0.6%. Chipmakers Samsung and TSMC were the biggest drivers of the loss. South Korea led declines in the region with the benchmark Kospi sinking more than 2% as Samsung and other key stocks traded without rights to the next dividend. Tesla-related shares including battery suppliers fell after the EV maker sank amid plans to temporarily halt Chinese production. 

Hong Kong stocks defied the broader decline in the region, with the Hang Seng surging as much as 2.6% as investors reacted to China’s removal of tourism barriers. Benchmarks of mainland shares posted drops after climbing for two days. “There are expectations that China’s normalization would work as a buffer to the global economy,” Han Jiyoung, an analyst at Kiwoom Securities, wrote in a note. “Markets will become increasingly sensitive to the actual demand recovery in China and how much it could push up inflation.” The key MSCI Asia stock gauge is poised for a December loss of 0.3% after a 15% jump in November. The index is on course for its worst year since 2008 with a 19% drop, in line with an index of global equities.

Japanese stocks fell, following US peers lower, amid growing fears over global inflationary pressure stoked by China’s reopening.  The Topix Index dropped 0.1% to 1,909.02 as of the market close in Tokyo, while the Nikkei declined 0.4% to 26,340.50. SoftBank Group contributed the most to the Topix’s loss, decreasing 1.5%. Out of 2,162 stocks in the index, 947 rose and 1,076 fell, while 139 were unchanged. “If China reopens, the focus will be on the increased demand for energy and goods, which might lead to concerns around inflation and further monetary tightening,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management.

In FX, the Bloomberg Dollar Spot Index was little changed in mixed trading. The Australian and New Zealand dollars led Group-of-10 gains while Japan’s yen and Norway’s krone slid. The yen declined for a second day after a Bank of Japan board member said it should continue with monetary easing, while the central bank offered to buy more bonds to cap rising yields. USD/JPY rose 0.5% to 134.17 following Tuesday’s 0.5% gain. End of month flows by Japanese companies and some real-money demand for dollars is starting to emerge, according to Asia-based FX traders.

In rates, treasury yields were mixed in early US trading with curve modestly flatter as long end outperforms. 10-year yields are lower by ~4bp at 3.80%, but near the highest since mid- November and just above 50-DMA level; most euro-zone 10-year yields are lower by 4bp-5bp on the day after leading Tuesday’s global bond selloff. The final coupon auction cycle of the year continues with $43BN 5-year note sale at 1pm New York time; Tuesday’s 2-year stopped through after a selloff into the bidding deadline. UK yields are higher as market reopens after extended holiday. 5s30s curve is flatter by ~1.3bp on the day ahead of 5Y note auction. Bonds in Asia are mostly lower, spurred by a drop in US Treasuries overnight as well as inflation concerns from China’s reopening. Bank of Japan conducted an unscheduled bond-buying operations. 

In commodities, oil dipped amid thin liquidity as investors weighed the fallout from a Russian ban on exports to buyers that adhere to a price cap. West Texas Intermediate crude fell 0.3% to $79.27 a barrel. Iron ore surged to its highest since early August, while copper gained in New York as China’s rollback of pandemic curbs boosted prospects for commodities demand in 2023. Gold futures fell 0.7% to $1,811.20 an ounce.

It is a slow news day with just the Richmond Fed report on deck (exp. -10, down from -9) and Pending Home Sales.

Market Snapshot

  • S&P 500 futures little changed at 3,855.25
  • STOXX Europe 600 little changed at 428.17
  • MXAP down 0.2% to 155.94
  • MXAPJ little changed at 507.94
  • Nikkei down 0.4% to 26,340.50
  • Topix little changed at 1,909.02
  • Hang Seng Index up 1.6% to 19,898.91
  • Shanghai Composite down 0.3% to 3,087.40
  • Sensex little changed at 60,914.68
  • Australia S&P/ASX 200 down 0.3% to 7,086.41
  • Kospi down 2.2% to 2,280.45
  • German 10Y yield little changed at 2.48%
  • Euro little changed at $1.0638
  • Brent Futures down 0.7% to $83.73/bbl
  • Brent Futures down 0.7% to $83.76/bbl
  • Gold spot down 0.7% to $1,800.97
  • U.S. Dollar Index little changed at 104.27

Top Overnight News from Bloomberg

  • The Bank of Japan’s shock move to double its yield cap was aimed at keeping stimulus on tap, not at changing the trajectory of policy, according to a summary of opinions from the December meeting that contributed to a weakening of the yen Wednesday
  • Stocks in Europe struggled for direction along with US equity futures as news of further moves by China to reopen its economy failed to lift investor sentiment in the final week of a dismal year for markets
  • Hong Kong will end some of its last major Covid rules, scrapping gathering limits to vaccination checks and testing for travelers, in a sweeping overhaul of policies aimed at reviving its reputation as a global financial center
  • Nations across the globe are implementing or considering measures to test or restrict travelers from China as the country of 1.4 billion abandons its Covid Zero policy and prepares to reopen borders in early January

US Event Calendar

  • 10:00: Dec. Richmond Fed Index, est. -10, prior -9
  • 10:00: Nov. Pending Home Sales YoY, prior -36.7%
  • 10:00: Nov. Pending Home Sales (MoM), est. -1.0%, prior -4.6%

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