Futures Drop On DOJ's Google Crackdown, China Plunge

US equity futures are lower on news that the DOJ is considering a breakup of Alphabet’s Google search engine, in what would be a historic antitrust crackdown on Big Tech; Europe was flat while Asian markets slumped after Chinese A-shares suffered their biggest one-day plunge since February 2020 as investors are getting restless and demand stimulus actions from Beijing instead of just more words. As of 8:00am ET, S&P and Nasdaq futures are down 0.1%, but off session lows, with megacap tech stocks mixed: NVDA rises 1.4%, while Alphabet shares fell about 1.5% after the US Justice Department said it’s considering asking a federal judge to force Alphabet’s Google search engine to sell off parts of its business. Yields remain largely unchanged, the 10Y TSY yielding 4.03%, while the US Dollar rises. Oil prices failed to rebound, and slid to session lows, down 0.5% despite nervousness around Israel response and anticipation on China stimulus. Outside US, China finance ministry unveiled a press conference plan on Saturday; New Zealand Central Bank surprisingly cut 50bp.

In premarket trading, Boeing slid 1% after S&P said the company could be downgraded to junk; Boeing also said negotiations to end an almost monthlong strike collapsed. Alphabet slipped about 1% after the US Justice Department told a federal judge it’s considering recommending that Google be forced to sell off parts of its operations. Here are some other notable premarket movers:

• Astera Labs jumps 12% after the company introduced a new portfolio of switches for AI workloads. Morgan Stanley views this as a reason to buy the stock.
• Crinetics Pharmaceuticals declines 2% as the drug developer offers $400 million in shares via Leerink Partners and Morgan Stanley.
• Helen of Troy rises 14% after the consumer products company behind Hydro Flask water bottles reported second-quarter net sales and adjusted earnings per share that exceeded Wall Street projections.
• Zeta Global gains about 4% on an agreement to buy email marketing platform LiveIntent for $250 million in cash and stock plus a potential earnout.

While fears of antitrust crackdowns on Big Tech have been around for a while, the prospect of an actual breakup push is weighing on sentiment, said Kevin Thozet, a member of the investment committee at French asset manager Carmignac. However, he downplayed the eventual impact, because “at the end of the day, when we are looking at individual values of those separate business lines within Google, investors could be better off.”

Meanwhile, investors are monitoring clues on the outlook for interest rates. The 10-year US Treasury yield hovered above the key 4% level after diminished expectations for interest-rate cuts triggered a run of selling in previous days. The latest speeches from Fed Vice Chair Philip Jefferson and Atlanta Fed chief Raphael Bostic pointed to a measured approach.

Carmignac’s Thozet is among those expecting the Fed to slow the rate-cutting pace after September’s 50 basis-point move, as “the probability of a recession on the one hand is falling and probability of no landing is increasing.”

Globally, however, rate-setters are turning more dovish. A European Central Bank rate cut next week is very probable, Governing Council member Francois Villeroy de Galhau said. New Zealand cut rates by half a percentage point, stepping up the pace of easing, while India’s central bank opened the door for its first cut in four years.

In Europe, the Stoxx 600 index was flat despite Chinese stocks listed onshore suffering their biggest drop in more than four years. Real estate and automobile shares gained, while banks and travel stocks are the biggest laggards. Among individual movers, luxury goods firm Kering SA jumped as much as 1.3% on the news of a new CEO for its Gucci brand, while renewable energy companies were lifted by an International Energy Agency report predicting massive growth in renewable power capacity. Here are the most notable European movers:

• Continental shares gain as much as 6.3% after the German tiremaker held a pre-close call that reassured analysts about its earnings outlook, amid gloomier profit warnings in the sector
• Mondi shares gain as much as 4.3%, the most in over three months, after the paper and packaging company agreed to buy a variety of assets in Western Europe from Schumacher Packaging at an enterprise value of €634 million
• United Utilities is the best performer on the Stoxx 600 utilities index on Wednesday, climbing as much as 2.8% after RBC upgraded to outperform, switching its preferences  within the UK water sector
• Kering advances as much as 2.1% after the company named Stefano Cantino as the new CEO of its Gucci label. The ex-Louis Vuitton exec’s appointment is a positive, though he has “a lot of work to do” to turn around the luxury brand, analysts say
• Lonza shares advance as much as 1.7%, best performer in the Swiss Market Index on Wednesday morning, after Goldman Sachs initiated coverage on the drug ingredients maker with a buy recommendation
• Redcare Pharmacy shares gain as much as 2.6% after Deutsche Bank raised the online pharmacy’s price target to a new Street high, saying the electronic prescribing ramp-up is showing good growth in Germany in 3Q
• CMC Markets shares rise as much as 7.5%, most since June, after the online trading and spread-betting platform said it returned to profit in the first half of the financial year
• ING Groep drops as much as 3.8% and is the worst performer in the Stoxx 600 banks index on Wednesday after Deutsche Bank downgraded to hold, removing its buy rating from the lender for the first time in eight years
• Zealand Pharma slips as much as 4.5% after the Danish biotech company said it got a Complete Response Letter from the US FDA in relation to its new drug application for dasiglucagon for the prevention and treatment of hypoglycemia in pediatric patients with congenital hyperinsulinism

Earlier in the session, Asian stocks were dragged lower by Chinese shares, which tumbled on growing skepticism over Beijing’s stimulus plans and soft economic data. The MSCI Asia Pacific Index fell as much as 0.6%, declining for a second session, led by Chinese tech names including Tencent Holdings Ltd. and Alibaba Group Holding Ltd. The onshore benchmark CSI 300 Index slumped 7.1%, the most since February 2020, while Chinese stocks listed in Hong Kong also fell. Chinese equities are coming under pressure as investors reassess the outlook for the country’s recovery after a key policy meeting Tuesday yielded little fresh stimulus and holiday-spending data underwhelmed. While the gauges pared declines after the Ministry of Finance said it would hold a Saturday briefing on fiscal policy, selling soon resumed as traders doubted there will be a major spending boost.

“The market’s cautious reaction suggests investors might be waiting for more than just announcements - they want actual fiscal action,” said Billy Leung, an investment strategist at Global X Management. “If the MOF doesn’t deliver solid details, the market could stay volatile.”

In FX, the Bloomberg Dollar Spot Index is up 0.1%, rising for an eighth straight day and set for its longest winning streak since April 2022 as traders priced less US monetary easing. The kiwi dollar is the weakest of the G-10 currencies, falling 0.9% against the greenback to its lowest in seven weeks after the RBNZ stepped up their easing pace with a 50 bps interest rate cut. USD/JPY rises 0.3% to 148.60. Traders will be watching now for minutes from last month’s Fed meeting, later on Wednesday, while US inflation data is due Thursday.

In rates, treasuries dropped after plying narrow ranges during Asia session and European morning. 7- to 30-year yields are about 2bp cheaper on the day with 10-year around 4.03%, lagging bunds and gilts by ~2bp in the sector. Curve spreads, though steeper, remain within 2bp of Tuesday’s close ahead of a busy day of Fed speak and US inflation data on Thursday. Bunds and gilts outperform with more Treasury auctions on deck: $39b 10-year reopening at 1pm New York time and $22b 30-year reopening Thursday. Also Wednesday, six Fed officials have scheduled appearances.

In commodities, oil prices advance, with WTI rising 1% to $74.30. Spot gold falls $4 to $2,617/oz.

Looking at today's calendar,  we get August wholesale inventories at 10am. Fed speakers scheduled include Bostic (8am), Logan (9:15am), Goolsbee (10:30am), Jefferson (12:30pm), Collins (5:30pm) and Daly (6pm), and minutes of FOMC’s September meeting are due out at 2pm.

Market Snapshot

• S&P 500 futures down 0.3% to 5,783.50
• STOXX Europe 600 little changed at 517.05
• MXAP down 0.2% to 191.61
• MXAPJ down 0.4% to 608.47
• Nikkei up 0.9% to 39,277.96
• Topix up 0.3% to 2,707.24
• Hang Seng Index down 1.4% to 20,637.24
• Shanghai Composite down 6.6% to 3,258.86
• Sensex up 0.4% to 81,945.46
• Australia S&P/ASX 200 up 0.1% to 8,187.38
• Kospi down 0.6% to 2,594.36
• German 10Y yield little changed at 2.24%
• Euro down 0.2% to $1.0958
• Brent Futures up 0.8% to $77.76/bbl
• Gold spot down 0.2% to $2,616.79
• US Dollar Index up 0.13% to 102.68

Top Overnight News

• Hurricane Milton churned toward Florida’s west coast as a Category 5 storm and is expected to make landfall overnight. The NHC forecasts a storm surge into Tampa Bay as high as 15 feet. BBG
• The Justice Department submitted a filing that presented a federal court with a range of potential options—from conduct restrictions to a breakup—aimed at ending what a judge said was Google’s unlawful monopoly in search. The filing said the government is considering a “full range of tools” to restore competition, including “structural” changes to Google’s business that would prevent it from using products such as its Chrome browser or Android operating system to advantage Google’s engine search. WSJ
• China’s finance ministry announced plans for a media briefing on Saturday, sparking hope for fresh fiscal stimulus announcements. WSJ
• China consumer spending over the recent Golden Week holiday was relatively subdued, underscoring the need for government stimulus. CNBC
• India’s central bank left rates unchanged, as expected, but shifted its forward guidance in a dovish direction (the policy bias is now neutral). WSJ
• Greece’s central bank governor says the ECB should slash “highly restrictive” rates as inflation will likely be back to target by H1:25. FT
• Couche-Tard boosted its offer for Seven & I to 7 trillion yen ($47.2 billion) last month, people familiar said. That’s a 20% premium to the prior — rejected — offer and the company’s stock price from yesterday. BBG
• Rio Tinto agreed to buy Arcadium in an all-cash deal that values it at $6.7 billion, a 90% premium to its Oct. 4 closing price. BBG
• Fed Vice Chair Jefferson said the Fed rate cut recalibrated policy to maintain the strength of the labour market and noted that economic growth is solid, inflation has eased substantially, and the labour market has noticeably cooled. Jefferson said he will watch the incoming data, evolving outlook, and balance of risks in considering additional policy rate adjustments and his approach to policymaking is to make decisions meeting by meeting. Furthermore, he said the Fed has not changed its approach to monetary policy and is always thinking about the balance of risks, as well as noted the size of the September rate cut was timely and that the Fed's rate cut was neither proactive nor reactive: BBG
• Fed's Collins (2025 voter) said further rate cuts are likely needed, and future action is to be data-driven, while she added that September Fed forecasts predicted 50bps of cuts into year-end. Furthermore, Collins is more confident of inflation being on a durable path of ebbing and said core inflation has moderated but is still elevated: Barron's

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed and initially took impetus from the positive performance on Wall St where the major indices were led higher amid a tech rally, although Chinese stocks clouded over sentiment following the recent stimulus-related disappointment. ASX 200 eked marginal gains as strength in tech and telecoms offset the losses in the commodity-related industries. Nikkei 225 was underpinned at the open and climbed back above the 39,000 level but with gains capped by a lack of drivers. Hang Seng and Shanghai Comp were mixed as the Hong Kong benchmark fluctuated between gains and losses, with a late boost derived from reports China's Finance Ministry is to hold a press briefing on fiscal policy and economic development on October 12th. The mainland was pressured after the recent stimulus-related disappointment and amid China's ongoing trade frictions with the EU and US.

Top Asian News

• China's Finance Ministry is to hold a press briefing on fiscal policy and economic development on October 12th at 10:00 local time (03:00BST/22:00EDT), while it will introduce details of intensifying fiscal policy adjustment.
• China's Finance Ministry says they are to continue policy coordination with the PBoC and keep stable development of the bond market. To provide appropriate market conditions for PBoC treasury bond trading. Ministry and PBoC agree that treasury bond trading improves the monetary policy toolkit and improves liquidity management.
• RBNZ cut the OCR by 50bps to 4.75%, as expected, while it stated that New Zealand is now in a position of excess capacity and that low import prices have assisted disinflation. RBNZ noted that the Committee assessed annual consumer price inflation within its 1-3% target and it was appropriate to cut the OCR by 50bps to achieve and maintain low and stable inflation. RBNZ Minutes stated the Committee confirmed future changes to the OCR would depend on its evolving assessment of the economy and noted the OCR of 4.75% is still restrictive and leaves monetary policy well-placed to deal with any near-term surprises. Furthermore, the Committee discussed the respective benefits of a 25bps cut versus a 50bps cut in the OCR and stated that a 50bps cut at this time is most consistent with the mandate of maintaining low and stable inflation, while it added the economic environment provides scope to further ease the level of monetary policy restrictiveness.
• RBI kept the Repurchase Rate unchanged at 6.50%, as expected via a 5-1 vote (prev. 4-2) and it unanimously voted to switch its stance to neutral (prev. remaining focused on the withdrawal of accommodation), while Governor Das stated that macroeconomic parameters of inflation and growth are well balanced although the moderation in headline inflation is expected to reverse in September and remain elevated in the near term. Das also noted that the growth story remains intact, and prospects of private consumption look bright but added that there is difficulty in navigating the last mile of disinflation and significant risks to inflation still stare at them.
• TSMC (2330 TW) Q3 (TWD): Revenue 759.69bln (exp. 750.36bln)

European bourses, Stoxx 600 (U/C) are mixed, in what has been a choppy session thus far; indices opened around flat, and have traded indecisively on either side of the unchanged mark. European sectors are generally firmer, albeit with the breadth of the market fairly narrow vs initially opening with a slight defensive bias. Optimised Personal Care is towards the top of the pile, alongside Media whilst Banks and Tech lag. US Equity Futures (ES -0.1%, NQ -0.2%, RTY -0.3%) are very modestly in the red, taking a breather from the gains seen in the prior session; some of the pressure could be attributed to the Google antitrust case. In recent trade, futures have been edging off worst levels. US Justice Department outlines potential remedies in Alphabet's (GOOGL) Google antitrust case with the US said to be weighing a Google breakup as a remedy in monopoly case, according to Bloomberg. Says it will respond to the DoJ's ultimate proposals as the Co. makes its case in court next year, while it is concerned the DoJ is already signalling requests that go far beyond the specific legal issues in this case.

Top European News

• UK Chancellor Reeves is pushing ahead with plans to borrow billions of pounds extra for infrastructure investment despite concerns about an increasing cost of UK government debt, with Reeves likely to free up GBP 10bln-20bln worth of borrowing room for capital investment by excluding the losses incurred by the state from the BoE's previous asset purchase programs when calculating debt, according to The Guardian.
• ECB's Stournaras sees the case for two more rate cuts in the Eurozone this year and further easing in 2025, while he said inflation could be on track to meet the ECB's target in H1 2025, according to FT.
• ECB's Villeroy says a decrease in ECB rates is "very likely" and will not be the last; French economy is resilient, via Bloomberg.
• ECB's Kazimir says he is not worried about the ECB undershooting the 2% goal; not as convinced as media reports on an October cut. Key information will be available in December.
• EU is to robustly challenge at the WTO level the announced imposition of provisional anti-dumping measures by China on imports of Brandy from the EU and is to assess all possibilities to offer appropriate support to EU producers from situations of market disturbance, or threat thereof.
• Banks are reportedly pushing the UK to soften its approach to deferred bonuses/clawbacks, via Bloomberg citing sources.

FX

• USD is broadly stronger vs. peers after indecisive sessions on Monday and Tuesday. DXY has climbed to a 102.70 peak with focus on a potential test of 103; not breached since 16tth August. FOMC Minutes and a slew of speakers are due.
• EUR is softer vs. the USD after a marginal session of gains yesterday, which saw the pair advance to a peak at 1.0996. Interim support kicks in via the 100DMA at 1.0932.
• GBP is softer vs. the broadly firmer USD and flat vs. the EUR. Cable has slipped below its 50DMA at 1.3088 printing a trough at 1.3056.
• JPY is marginally softer vs. the USD with not a great deal of fresh macro drivers to guide the pair. Ahead of the 150 mark, interim resistance is provided by the recent peak at 149.12 set on Monday.
• NZD is the standout laggard across the majors after the RBNZ delivered a 50bps rate cut as expected whilst signalling the likelihood of further easing to come. AUD/USD have been stemmed by the rise in the AUD/NZD which vaulted to its highest level since July 31st. Furthermore, markets continue to focus on Chinese easing measures with the Finance Ministry set to hold a briefing on 12th October.

Fixed Income

• USTs are firmer but with upside relatively modest in nature though, with USTs shy of Tuesday’s and Monday’s respective highs of 112-24 and 112-28+. FOMC Minutes and a slew of Fed speakers are due.
• Bunds are firmer to the tune of 15 ticks and holding just shy of Tuesday’s 133.80 high, which is also just below Monday’s 134.03 peak. ECB speak today has had little impact on the complex, despite interesting commentary from Kazaks who noted that he is not as convinced as media reports on an October cut. The Bund auction passed with little issue.
• Gilts are largely following peers, but did see some modest pressure following the UK Gilt auction, but downside which ultimately proved fleeting. Gilts currently around 96.82 after initially going as low as 96.65 following the auction.
• UK sells GBP 3.75bln 4.25% 2034 Gilt: b/c 3.25x (prev. 2.84x), average yield 4.17% (prev. 3.757%), tail 0.9bps (prev. 1.3bps).
• Germany sells EUR 0.408bln vs exp. EUR 0.5bln 0.00% 2036 and EUR 0.846bln vs exp. EUR 1bln 2.60% 2041 Bund.
• Bond investors have to wait as long as a year to transfer investments from their account on the Treasury (TreasuryDirect) to a brokerage, via WSJ citing sources.

Commodities

• Crude is firmer attempting to pare back the hefty declines seen in the prior session; focus today is on any geopolitical updates out of the Middle East and as Hurricane Milton is expected to make landfall on the Gulf coast of Florida later on Wednesday. Brent Dec resides in a USD 77.21-77.99/bbl parameter.
• Subdued trade across the precious metals complex with some desks citing profit-taking in the absence of a geopolitical escalation yet, although an Israeli attack on Iran is looming. Spot gold currently sits in a USD 2,609.24-2,624.37/oz range.
• Base metals are flat with a downward bias following yesterday's sizeable losses induced by the disappointing Chinese NDRC press conference. 3M LME copper trades closer to the bottom end of a USD 9,719.50-9,855.50/t range.
• NHC says Hurricane Milton is forecast to make landfall on the Gulf coast of Florida later on Wednesday, as a dangerous Major Hurricane.
• US private inventory data (bbls): Crude +10.9mln (exp. +2.0mln), Distillate -2.6mln (exp. -1.9mln), Gasoline -0.6mln (exp. -1.1mln), Cushing +1.4mln.
• Japanese aluminium premium for the October-December shipment has been set at USD 175/T, +1.7% Q/Q, via Reuters citing sources.
• India Steel Secretary says steel demand will be more than previously predicted; green steel will be the way forward.
• Carlyle Group Chief Strategy Office Jeff Currie says demand dynamic is oil supportive; says oil should be trading in the USD 80/bbl range, via Bloomberg TV.
• Russia's idle primary oil refining capacity has been revised up 67% in October, to 4.0mln/T.

Geopolitics: Middle East

• "Dozens of Iranian lawmakers wrote to the country’s Supreme National Security Council calling for urgent action towards developing nuclear weapons as Israeli threats rise in the region", according to Al Jazeera.
• Iran has told Gulf Arab states that it would be unacceptable if they allowed the use of their airspace or military bases against Iran, and warned any such move would draw a response, according to a senior Iranian official cited by Reuters
• Israeli PM Netanyahu confirmed that Israel took out Nasrallah's successor, while it was separately reported that PM Netanyahu summoned ministers for security consultations on Tuesday evening.
• Israeli PM Netanyahu had set two conditions for Defence Minister Galant to travel to the US and refused to approve the trip to Washington that had been planned for Tuesday night until he receives a phone call with President Biden and the Israeli cabinet approves the response to Iran's missile attack, according to Axios sources.
• Israeli senior official said they are going to respond to the Iranian attack and there is no question about it but will not do it in a way that will start an all-out war with Iran, according to Axios. It was also reported that Israeli officials cited by Washington Post said that the country is preparing a significant military response to Iran's attack.
• Israeli officials stated that Israel is capable of harming Iran but the possibility of its response requires coordination with the US, while Defence Minister Galant and security leaders push to strike Iran militarily and have already submitted the plans to the political leadership.
• Israel's Channel 12 reported that Washington and Arab countries are discussing with Tehran a proposal for a ceasefire on all fronts except Gaza which would be conditional on Hezbollah's withdrawal to northern Litani and the dismantling of military structure near the border, according to Sky News Arabia.
• White House said the US continues to have discussions with Israel on its response to the Iranian attack. It was separately reported that the White House said despite the fighting, they are working with Israel and Lebanon to define a process for a return to ceasefire negotiations,according to Asharq News
• US officials cited by NBC do not believe that Israel has made a final decision on the details of the response to Iran and discussions with Tel Aviv included Washington providing intelligence support or even launching air strikes. However, Washington has not decided on any action despite its intention to support Israel's right to defend itself and Israel did not inform Washington of plans to retaliate against Iran.
• US officials feared that Israel will implement its response to Iran during the planned Israeli Defence Minister Gallant's visit to Washington although the visit has since been postponed.
• Islamic Resistance in Iraq said it attacked with drones a vital target in the north of the occupied territories, according to Al Jazeera.
• North Korea's army said it is to completely cut off roads and railways connected to South Korea from October 9th, according to KCNA.

US Event Calendar

• 07:00: Oct. MBA Mortgage Applications -5.1%, prior -1.3%
• 10:00: Aug. Wholesale Trade Sales MoM, est. 0.4%, prior 1.1%
• 10:00: Aug. Wholesale Inventories MoM, est. 0.2%, prior 0.2%
• 14:00: Sept. FOMC Meeting Minutes

Central Bank speakers

• 08:00: Fed’s Bostic Gives Welcome Remarks
• 09:15: Fed’s Logan Speaks at Houston Energy Conference
• 10:30: Fed’s Goolsbee Gives Opening Remarks at Payments Conference
• 12:30: Fed’s Jefferson Speaks on Discount Window
• 17:30: Fed’s Collins Speaks at Worcester Event
• 18:00: Fed’s Daly Speaks in Moderated Conversation

DB's Jim Reid concludes the overnight wrap

While I've been away in Berlin for a couple of days my 9-yr old daughter Maisie has been on her first ever residential trip away with school. When I spoke to my wife last night she said that she was missing her so much as she was like a good friend to her. I said what about missing me!? She said "well that's different". Such is life. One thing we can be in agreement on though is that when the twin boys do the same trip next year, the peace and quiet will outweigh any missing them feelings.

While I've been travelling, the week has started off a bit all over the place and markets have put in another varied performance over the last 24 hours, with sharp differences across regions and asset classes. On the one hand, several risk assets did quite well, with the S&P 500 (+0.97%) closing in on its all-time high again, driven by a strong performance for the Magnificent 7 (+1.71%). However, China-exposed stocks have slumped thanks to disappointment over the scale of China’s stimulus, or at least the lack of detail provided so far, which also helped to drive a sharp downturn in oil prices, even as geopolitical risks remained high.

Those geopolitical risks stayed front and centre yesterday, as investors waited to see what form Israel’s response against Iran might take. Amir Ohana, the speaker of the Knesset, said yesterday that “discussions are still taking place at the highest levels regarding the outline of the response — but it will be significant, and it will come”. In turn, Iran have also warned that they would respond to any attack, with foreign minister Abbas Araghchi saying yesterday that “We advise Israel not to test our will”. So there are still significant fears about how the current situation could escalate. Later on, there was renewed uncertainty over future steps by Israel as the US Pentagon confirmed that a planned visit to Washington by Israel’s defence minister Yoav Gallant had been postponed. Bloomberg and other outlets reported that this came due to last-minute objections to the trip by Israel’s PM Netanyahu.

The latter news caused a decent spike in oil intra-day but the overall market tone was still one of a moderation in geopolitical risk pricing, in part following earlier comments by Hezbollah’s deputy leader that it backed efforts by Lebanon’s officials to reach a ceasefire. This saw Brent crude (-4.28%) fall back to $77.47/bbl, whilst WTI (-4.63%) posted its biggest daily decline of 2024. So that ends a run of five consecutive daily gains, in which oil prices saw their largest increase over 5 sessions since Russia’s invasion of Ukraine began in early 2022. Broader volatility also fell back, with the VIX index coming down -1.22pts to 21.42pts.
Those oil price declines were also driven by disappointment at the scale of China’s stimulus, which had already led to a slump in Chinese equities yesterday. That was echoed across a broader range of commodities too, mainly because of concern about Chinese demand, meaning that industrial metals put in a weak performance, with copper (-2.41%) seeing its biggest daily loss in over a month. Indeed, Bloomberg’s Commodity Spot Index (-1.58%) suffered its worst daily performance since June, albeit after a significant advance in the last month as US recession risks have eased and the geopolitical situation in the Middle East escalated.

That China news meant that equities in the US and Europe with China exposure also performed very poorly. For instance, the NASDAQ Golden Dragon China Index (made up of companies traded in the US who do a majority of their business in China) slumped by -6.85% yesterday, which was its worst daily performance since October 2022. A similar pattern was clear in Europe, where the CAC 40 (-0.72%) was one of the weakest European indices given its concentration of luxury goods firms. Meanwhile in Germany, the DAX fell -0.20%, with several automakers leading the decline given their exposure to China as well, and the STOXX 600 was down -0.55%.

By contrast, US equities posted renewed gains, with the S&P 500 (+0.97%) ending the day just two tenths of a percent from its all-time high on September 30. That was primarily driven by the Magnificent 7 (+1.71%), with the moves in the two indices near mirror images of Monday’s declines (-0.96% and -1.86%). All of the Mag-7 were higher on the day, with Nvidia (+4.05%) extending its 5-day gain to +13.58%. On the other hand the small-cap Russell 2000 (+0.09%) posted only a minor advance, while energy (-2.63%) and materials (-0.37%) sectors within the S&P 500 declined amid the reversal in commodities.

For rates it was a quieter day, but ultimately most sovereign bonds rallied, as the commodity price declines helped to ease concerns about inflationary pressures. For instance, the US 10yr yield was down -1.4bps to 4.01%, but that was entirely driven by lower inflation breakevens, as the 10yr real rate was actually up +1.1bps to 1.73%. Meanwhile at the front end, the 2yr yield came down -3.7bps to 3.96%. In Europe, there were similar modest gains, with yields on 10yr bunds (-1.2bps), OATs (-1.4bps) and BTPs (-2.8bps) all moving lower.

These bond gains came even as near-term pricing of Fed and ECB rate cuts was flat to slightly lower on the day amid some cautious commentary. The Fed’s Collins noted that “a careful, data-based approach to policy normalization will be appropriate”, suggesting that further large cuts are unlikely as things stand. A similar tone was visible from ECB’s Centeno who said “we have to be cautious — maintain gradualism in decisions”. So one of the of the most dovish ECB voices alluding to a high bar for more aggressive cuts. Later in the evening, Bundesbank’s Nagel commented that a Trump victory in the US election could lead to US policy shifts that “could lead to noticeable losses in growth” and “also bring inflation risks for the euro area and Germany”.

In Asia Chinese markets are continuing to reverse from their post holiday opening highs yesterday with the CSI down -6.95% and the Shanghai Composite falling -5.30%. The Hang Seng is also down -1.74%, extending its losses after the worst drop (-9.41%) since 2008 the previous day. In contrast, the Nikkei is up +0.62% and the S&P/ASX 200 has gained +0.11%. South Korean markets are closed for a public holiday. S&P 500 (-0.16%) and NASDAQ 100 (-0.25%) futures are lower with Google under pressure given the DoJ pronouncements overnight that the company may be forced to be broken up in the continued antitrust case around their online search monopoly.

In monetary policy news, the Reserve Bank of New Zealand has cut interest rates by 0.5 percentage points, lowering the Official Cash Rate from 5.25% to 4.75%. This marks the central bank’s second consecutive reduction, following a quarter-point cut in August. Following the decision, the New Zealand dollar has weakened by - 0.86%, trading at 0.6086 against the US dollar, as the RBNZ expressed a cautious outlook on the economy, suggesting the possibility of further cuts.

There wasn’t much data again yesterday, although German industrial production did grow by a stronger-than-expected +2.9% in August (vs. +0.8% expected). Otherwise, the US trade deficit for August came in at $70.4bn (vs. $70.5bn expected). Finally, the Atlanta Fed’s latest estimate for Q3 GDP in the US now stands at 3.2% following yesterday’s update.

To the day ahead now, and we’ll get the minutes from the September FOMC meeting, and also hear from plenty of central bank speakers, including Fed Vice Chair Jefferson, the fed’s Bostic, Logan, Goolsbee, Collins and Daly, along with the ECB’s Elderson and Villeroy. Data releases include the German trade balance for August.