OPENING CALL
Stock futures and benchmark bond yields dipped on Tuesday ahead of comments from Jerome Powell and as traders awaited the first of several reports this week on the U.S. labor market.
The dip in Treasury yields comes after the 10-year note on Monday rose to its highest in about a month, as traders shrugged off softer-than-expected manufacturing data and expressed concerns about a likely Donald Trump victory in November's presidential election.
Investors are wary that wider government deficits are likely whoever wins the election, but with former president leading in the polls, the market is also concerned that his proposed imposition of 10% duties on all imports and minimum 60% tariffs on Chinese goods will stoke inflation, making bonds less attractive.
"The TV debate against Biden and the Supreme Court's verdict...that a [former] president can only be tried for crimes he committed 'outside of his official responsibilities', are working in Trump's favor," DWS said.
"...suffice to say that markets believe a second Trump term will be inflationary and will thus lead to higher 10-year rates," DWS added.
Attention will turn back to monetary policy on Tuesday as investors wait to see what Powell has to say when he takes part in a panel discussion with Christine Lagarde at 9:30am.
The jobs opening report will be published at 10am, the first of a raft of labor data this week which will culminate with Friday's nonfarm payrolls numbers.
"This Friday's jobs report is the main risk for bond bulls, but projections are for rates to begin a very steep slide this month...this number very well could miss and allow for rates to start to pull back," Fundstrat said.
Premarket Movers
Chewy rose 1.1%. Shares rose as much as 20% in Monday's session after Roaring Kitty, disclosed a 6.6% stake in the company, but closed with a decline of 6.6%.
Norwegian Cruise Line fell 0.7% and Carnival declined 1.2%. Shares of the cruise companies were the leading decliners in the S&P 500 on Monday as Hurricane Beryl made landfall in the Caribbean. The hurricane early Tuesday strengthened to a Category 5 storm.
Shares of Nvidia were down 1.2%. The stock closed with a gain of 0.6% on Monday, snapping a two-session losing streak. A Reuters report on Monday said Nvidia, the dominant maker of graphics-processing units for powering artificial-intelligence technology, would be charged by the French antitrust regulator for allegedly anticompetitive practices.
Paramount Global was up 4.6% after The New York Times reported that IAC, the internet and media holding company run by Barry Diller, was exploring a bid to take control of the entertainment company. The Times, citing four people with knowledge of the matter, said IAC, has signed nondisclosure agreements with National Amusements, Paramount's controlling shareholder.
Tesla was down 1.2% ahead of the expected release Tuesday of the electric-vehicle maker's second-quarter deliveries. Analysts estimates Tesla will report deliveries of 436,000 vehicles in the period, down from 466,000 vehicles a year earlier. The stock closed Monday with a gain of 6.1%.
Postmarket Movers
Roadzen reported record revenue for the fiscal year ended March 31. Shares rose 62%.
U.S. Energy said it acquired the Wavetech Helium assets, targeting helium production across Montana's Kevin Dome structure. Shares rose 15%.
Versus Systems said it named Curtis Wolfe as interim chief executive officer and Juan Carlos Barrera as acting chairman following the collective resignations of its CEO, finance chief and chair of the board. Shares rose 33%.
Watch For:
Job Openings & Labor Turnover Survey for May; Canada Manufacturing PMI for June
Today's Headlines/Must Reads:
- Biden Campaign Tries to Reassure Donors, Touts Post-Debate Cash Haul
- Trump Rallies the Base After Immunity Ruling and Debate
- Satellite Images Show Expansion of Suspected Chinese Spy Bases in Cuba
MARKET WRAPS
Forex:
ING said the dollar is at risk of falling if Jerome Powell points to slowing inflation in a speech at the Sintra Forum in Portugal, while data could show another decline in job openings.
"There has been a tendency from Powell to be a bit more optimistic than the FOMC consensus on disinflation, and we think there are some downside risks for the dollar ahead of today's speech."
Saxo Bank said the dollar could fall in the third quarter if U.S. economic weakness broadens but declines should be limited.
November's election could prompt the Federal Reserve to signal interest-rate cuts at any signs of economic weakness, Saxo Bank added.
Pressure on the dollar should be tempered, however, by relatively high U.S. yields and safe-haven demand.
"The dollar's high yield remains a supportive factor, with the rate cut cycle expected to start slowly unless the U.S. economy faces a credit event," Saxo Bank said.
Safe-haven dollar demand should persist ahead of the U.S. election, while investors' long dollar positioning--or bets on it rising--is now less stretched, it added.
The euro initially rose after the first round of French elections in the expectation the National Rally wouldn't form a majority despite winning the most votes, but it could struggle due to uncertainty ahead of the second round, ING said.
"We doubt there will be significant extra support for the common currency given the open questions ahead of the second round on Sunday 7 July," ING said.
The final result remains highly uncertain and there remains a risk of the far-right securing a majority, ING analysis shows.
UOB Global Economics & Markets Research said USD/JPY is likely to extend gains, based on the weekly chart.
USD/JPY's break above 160.00 last week indicates that the currency pair will probably continue to rise, UOB said, noting the next significant resistance level is at 163.00. For the currency pair to maintain its uptrend, it mustn't break below key support in the 154.75-155.60 area, UOB said, adding that this support area is set to rise in the coming weeks.
Bonds:
TD Securities has entered a long position in 10-year Treasurys at a 4.479% yield, targeting 4% on a strategic horizon, and with a stop-loss at 4.75%.
The new trade comes as 10-year Treasurys erased much of their 28 basis point gain in June, a move likely aided by rising expectations of a Republican sweep in November, which could push deficits higher, TD said.
While rates could remain choppy as investors wait for key data, TD sees a psychological resistance around 4.5% as expectations for Federal Reserve rate cuts have not changed significantly.
"The main risk to this trade is inflation remaining sticky for longer, which may delay the timing of the first rate cut."
French government bonds look strongly priced for a hung parliament in France, Citi Research said.
Nonetheless, it suggests caution while waiting for opinion polls conducted after the withdrawal of third-place candidates are over by Tuesday evening.
Energy:
Oil futures edged higher as demand is expected to ramp up in the U.S. ahead of the Fourth of July holiday and as concerns mount over Hurricane Beryl.
The American Automobile Association expects to see a record number of drivers this week, forecasting travel over the Fourth of July will rise 5.2% on year.
At the same time, Hurricane Beryl isn't expected to affect operations in the Gulf of Mexico immediately, but could cause disruptions later in the week, Swissquote Bank said.
Price risks remain tilted to the upside, it added.
Steelmaking Coal
It might take some time for the impact of Anglo American's Grosvenor mine suspension to be reflected in steelmaking coal prices , Morgan Stanley said.
Prices have been soft recently due to a seasonal lull in the market. "But we would expect a months-long outage on a mine that accounts for 1.5% of the HCC [hard coking coal] export market to move the dial."
Metals:
Metal prices were mixed, with small falls for gold and copper.
Gold might be in a period of consolidation, but with the prospect of U.S. interest rate cuts in the second half inviting back ETF investors, higher prices are likely by the year-end, Saxo Bank said.
Copper reached a record high earlier this year and while current soft demand in China points to timing being off, the long-term outlook points to higher prices, Saxo Bank said.
Commodity Flows
JPMorgan Global Commodities Research said traders are pulling back their exposure in commodities.
Global flows fell to $136.9 billion through the week ended June 28, a 3.8% slide. It continues a steady fall in the amount of money flowing through commodities since May.
TODAY'S TOP HEADLINES
Boeing Calls Time on the Great American Outsourcing
Spirit AeroSystems is going full circle, from part of Boeing to independent supplier and back to part of Boeing. It is the perfect example of a realization dawning on corporate America: Perhaps outsourcing isn't all it was once cracked up to be.
On Monday, Boeing said it would buy the Wichita-based aircraft-fuselage maker in an all-stock deal valuing it at $37.25 per share, a 13% premium over last week's closing price. It seems like a good deal for Spirit's investors, who have suffered a 53% negative total return since the end of 2019-worse than Boeing's negative 42%.
Airbus Wins $24 Billion Jet Order From Cebu Air
Asian budget airline operator Cebu Air signed a preliminary deal to buy up to 152 Airbus jets valued at $24 billion in what it said was the largest aircraft order in Philippine history.
The Philippine airline, which operates under the name Cebu Pacific, said Tuesday that the deal covered firm orders to buy up to 102 A321neo jets, plus purchase rights for 50 A320neo jets.
Liontown, LG Energy Consider Lithium Refinery That Could Help Feed U.S. Battery Demand
(MORE TO FOLLOW) Dow Jones Newswires
07-02-24 0616ET
