Rise and shine everyone.

US Equity Futures continue to remain under pressure as yields keep inching higher. Tuesday’s bond auctions set things in motion, pushing the 10Y above the 4.5% mark which, as we’ve been saying is not great for equities. When yields are driven by economic growth, equities can still rally but, yields driven by inflation and higher Fed policy put pressure on stocks and we see defensives start to do better than cyclicals.

Asian markets also closed lower across the board, with Japan’s 10Y JGB yield hitting another cycle high, hitting 1.1%. Higher yields in Japan could also be pulling away some demand from USTs although the impact is likely to be quite minimal at this stage. Tokyo CPI and China’s NBS PMI are tonight for the US; and early morning for Asia tomorrow.

Today’s focus will be the second estimate for Q1 GDP growth numbers in the US.. and more importantly the quarterly PCE prices ahead of tomorrow’s PCE Inflation release.

We’re also at month-end but, according to GS, the pension rebalancing is very small with only $9B in equities for sale. CTAs however, have $2.2B to buy this week while Corporate Buybacks are averaging about $5B/day which should keep flows positive.

US yields are pulling back this morning, alongside the US Dollar index. Positioning is still net long in the USD but, declining. Oil and Gold are flat while copper pulls back.

Euro Area Unemployment today and Inflation tomorrow

It’s a big day for Europe as well tomorrow with EA inflation numbers to be released ahead of the ECB meeting next week. We’re seeing higher readings from some of the countries:

• German inflation numbers are marginally higher than last month (2.4% YoY vs. 2.2% prior) but are in line with estimates.

• Spain posted higher headline inflation at 3.6% YoY vs. 3.3% prior, slightly below consensus.

• Italy and France report on Thursday, with the Euro Area numbers.

The Euro Area unemployment rate hit a record low of 6.4% in April 2024, down from 6.5% in the previous five months, and below market forecasts of 6.5%. The number of unemployed dropped by 100,000 to 10.998 million. Youth unemployment (under 25) decreased to 14.1% from 14.3% in March. Spain had the highest unemployment at 11.7%, followed by France at 7.3% and Italy at 6.9%, while Germany had the lowest at 3.2%. A year earlier, the rate was 6.5%.

The EA consensus forecast for tomorrow’s reading is 2.5% for Headline (vs 2.4% prior) and 2.8% for Core (vs 2.7% prior). So, there’s some indication that we may be seeing hotter inflation data come in. Last week, negotiated wages for the EA also come in higher, at 4.69% for Q1, 2024, vs. 4.45% for Q4, 2023. Sticky core inflation has been an important consideration for the ECB but, it’s unlikely to deter the first cut next week. But, it may very well dictate the path easing will take.

Consumer Earnings look mixed

We've got a bunch of earnings results coming in this morning, and they don’t look great.

• Best Buy (BBY) missed on revenues but reaffirmed guidance. Enterprise comparable sales came in at 6.1%. The expectation was that AI would start a PC refresh cycle but, price headwinds may be weighing on the consumer.

• Dollar General (DG) posted marginally better results beating earnings and reporting revenues in line. They also reaffirmed guidance. The stock is giving up some of its early gains after the results.

• Foot Locker (FL) beat EPS estimates and reported revenues inline, reaffirming guidance. However, revenues fell -2.8% YoY, and SSS decreased -1.8%. Looks like Mary Dillon still has some work to do. But, the market is taking this well. The stock is up +15% on the news.

• Burlington Stores (BURL) - another beat on EPS estimates but inline revenue. They guided to Q2 revenues below estimates. They’ve raised EPS guidance for 2024 but lowered revenue guidance, so they’re banking on a margin expansion vs. more sales.

• Finally, Kohl’s (KSS) missed on EPS and on revenues. SSS decreased -4.4% and EPS guidance came in below estimates. But, they are as well, seeing margin expansion.

Quote of the Day

Fed’s Bostic (hawk, voter) stated that the path to 2% inflation was not assured but the Fed remained vigilant: Believed the Q4 might be the time when Fed can reduce rates.

Charts of the Day

We also got Money Supply and Loans data for the Euro Area, and we’re now seeing a positive trend forming, after reflecting higher. We still remain far from pre-pandemic levels though.

Video of the Week

Calendar

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)