OPENING CALL
Stock futures and bond yields nudged higher on Friday in cautious premarket trading as investors waited for inflation data crucial to the Federal Reserve's thinking.
"Our U.S. economists think that core PCE should increase by +0.17%, based on the CPI and PPI data that we've already got," Deutsche Bank said.
"In turn, that would cut the year-on-year rate to 2.63%, the lowest in over three years. So that would be very promising news from the Fed's perspective, but it's clear they remain cautious given the inflation spike we had back in Q1 of this year."
Markets are pricing in an 89.7% probability the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on July 31.
The chances of at least a 25 basis point rate cut by the subsequent meeting in September is priced at 64.1%, up from 45.8% a month ago.
Premarket Movers
Accolade fell 26% after the company's guidance for its fiscal second quarter and year missed analysts' expectations.
Infinera rose 19% after Nokia reached an agreement to buy the maker of optical telecom equipment for $2.3 billion.
Nike reported fiscal fourth-quarter earnings that topped analysts' estimates but revenue and first-quarter guidance missed forecasts, sending shares down 14%. Shares of Foot Locker fell 5%.
Walgreens Boots Alliance was down 1%, a day after the drugstore chain fell 22% when it unveiled plans that could lead to the closure of thousands of underperforming stores and reduced its fiscal-year earnings guidance.
Postmarket Movers
Carisma Therapeutics disclosed the nomination of a first-development candidate under its collaboration with Moderna, triggering a $2 million payment to Carisma. Shares rose 64%.
Watch For:
Personal Income and Outlays for May; Chicago Business Barometer-ISM-Chicago Business Survey-Chicago PMI for June; U. Michigan Final Consumer Survey for June; Canada GDP for April
Today's Headlines/Must Reads:
- AI Frenzy Propels Stocks to Monster First Half
- Biden's Disastrous Night Stands to Alter Course of the Election
- Biden's Debate Performance Against Trump Rekindles Questions About Fitness for Office
MARKET WRAPS
Forex:
A poor performance in Thursday's U.S. presidential debate by Joe Biden and a better one by Donald Trump lifted the dollar, although gains were limited due to the risk of weaker U.S. PCE inflation data at 1230 GMT, ING said.
A CNN poll saw 67% award victory to Trump in the debate, ING said.
"We see a potential Trump administration as more positive for the dollar both via looser fiscal policy and also via a more aggressive trade/tariff environment," ING said.
The euro edged lower against the dollar ahead of the first round of French elections on Sunday, and Swissquote Bank said it's likely to fall further before the weekly close, potentially dropping below $1.0660.
"Many investors will probably choose to go into the French election weekend without a positive exposure to the euro given that Marine Le Pen's National Rally is seen securing one vote out of three, and that's not the outcome that the market is happy with," Swissquote Bank said.
Bonds:
SEB Research said Treasury yields will remain data-driven in the months ahead, but 10-year yields are likely to end the year near current levels.
"We reiterate that if [the PCE] data softens in line with our expectations, yields may temporarily undershoot to levels that are likely to be unsustainable if a soft landing is prospectively confirmed."
SEB's base case is for the 10-year Treasury yield to be trading near its current level at the end of 2024.
The cost of insuring Treasury bonds against default using credit default swaps was unchanged after the presidential debate.
"The first presidential debate...was low in substance but further raised concerns about the health of the incumbent president," UniCredit said.
Recently, the one-year credit default swap and five-year credit default swap were unchanged at 22 basis points and 38bps respectively. Credit default swaps in major U.S. banks were also little changed.
The eurozone bond market remains in a wait-and-see mode ahead of the first round of French legislative elections on Sunday, prioritizing macroeconomic developments for now, Societe Generale Research said.
"Macroeconomic developments and ECB expectations are, for now, only playing a secondary role, and neither the Sintra symposium nor the flash CPI release is likely to change this picture."
The European Central Bank forum on central banking in Sintra, Portugal, is scheduled for July 1-3.
Energy:
Oil prices were rising on hopes the Federal Reserve will soon start cutting interest rates, while tensions at the Israel-Lebanon border continued to keep markets on edge, raising risks of supply disruptions in the region.
Metals:
Gold prices ticked higher supported by the latest U.S. jobless claims figures suggesting a softening labor market, and continued political unease.
"Safe haven demand has emerged in recent weeks amid the challenging political backdrop. Upcoming elections in France, the U.K. and the U.S. are raising concerns of policy shifts," ANZ Research said.
TODAY'S TOP HEADLINES
Tractor Supply Retreats From DEI Amid Conservative Backlash
Tractor Supply, a rural retailer that is known for selling animal feed and workwear, said it is done with corporate diversity and many environmental efforts, a striking reversal as more companies face criticism of these initiatives from conservative activists.
The company on Thursday said it is eliminating all jobs focused on diversity, equity and inclusion and withdrawing its carbon-emissions goals. The Brentwood, Tenn.-based retailer also said it is retiring its DEI goals and would stop sponsoring pride festivals for the LGBTQ community and voting campaigns ahead of the presidential election.
Private-Equity Exit Wave Surges Past the Permian Basin Oil Patch
EnCap Investments' $2.55 billion sale of oil-and-gas assets in Utah's Uinta Basin shows that a wave of private-equity exit deals in the U.S. oil patch has washed beyond the more popular Permian Basin in Texas and New Mexico.
EnCap-backed energy company XCL Resources is selling an 80% interest in its Uinta assets to publicly traded strategic buyer SM Energy for $2.04 billion, while Northern Oil and Gas would pick up the remaining 20% for $510 million, according to Denver-based SM Energy. The assets include about 37,200 net acres with a daily output of 38,000 barrels of crude and 390 locations to drill new wells. EnCap first backed XCL Resources in 2018.
Insurers Warn Standardizing Cyber Policies Could Limit Future Coverage
Insurers told a congressional hearing Thursday that they need the flexibility to determine what they will and won't cover under cyber policies, saying they are still trying to understand the risks associated with cyberattacks.
The House Committee on Homeland Security's subcommittee on cybersecurity and infrastructure protection held the hearing to explore how cyber insurance is being used by critical-infrastructure operators, amid warnings of hacking efforts from China and Russia.
Japan Will Take Appropriate Action Against Excessive Yen Moves, Finance Minister Says
TOKYO-Japan's Finance Minister Shunichi Suzuki said the government would take appropriate action against excessive yen moves, although he declined to comment on whether he thinks the recent weakening of the yen is excessive.
"I am deeply concerned about the effects of rapid and one-sided moves in the foreign exchange market on the economy," Suzuki said at a news conference Friday. He added the yen's credibility has remained unhurt.
Iran Election Pits Engagement With West Against More Confrontation
Iran's presidential election on Friday will decide not only who leads a country increasingly antagonistic to the West but also help shape succession plans for the next supreme leader and indicate whether Iranians are giving up on their system of Islamic governance.
The election pits a reformist candidate leading in the polls, Masoud Pezeshkian, who favors re-engaging with the West, against several hard-liners who want to deepen Iran's relationships with Russia and China, fortify its alliance of anti-Israel militias and forge ahead with its nuclear program. There is no clear favorite, and there would be a runoff between the two top vote-getters if no one wins a majority.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
None Scheduled
Economic Calendar (ET):
0830 Apr GDP
Stocks to Watch:
Tecsys 4Q EPS C$0.02; 4Q Rev C$44M; Sees FY25 Revenue Up 7%-9%
Market Insight:
Warning to All Central Banks in Australian, Canadian CPI Data
0415 GMT - Recent developments in Canada and Australia should remind markets that one lower inflation reading doesn't establish a trend, prompting central banks to stay alert about inflation and potentially delay interest-rate cuts as long as the economy doesn't show significant signs of slowing, Saxo's head of fixed-income strategy Althea Spinozzi says.
Further U.S. bond gains depend on the Fed's interest-rate cutting cycle, which may be limited unless there is a significant slowdown in inflation and growth, she adds. That is why, despite expectations of rate cuts this year, long-term bond yields in Canada, Australia and the U.S. have all risen, Spinozzi adds.
Expected Major Events for Friday
01:00/JPN: May Steel Imports & Exports Statistics
04:30/JPN: May Preliminary Report on Petroleum Statistics
05:00/JPN: May Housing Starts
05:00/JPN: May Construction Orders
06:00/GER: May Foreign trade price indices
06:00/UK: 1Q Balance of Payments
06:00/UK: 1Q Business investment revised results
06:00/UK: 1Q UK quarterly national accounts
06:45/FRA: May Housing starts
06:45/FRA: May Household consumption expenditure in manufactured goods
06:45/FRA: May PPI
06:45/FRA: Jun Provisional CPI
07:55/GER: Jun Labour market statistics (incl unemployment)
(MORE TO FOLLOW) Dow Jones Newswires
06-28-24 0616ET
