Futures Drop Led By Tech Ahead Of PCE Data

US equity futures are lower after closing at a new all time high, dragged by tech stocks as traders cut risk ahead of today’s core PCE data that may test expectations for the pace of Fed rate cuts. As of 8:00am ET, S&P futures are down 0.3% and Nasdaq futures fell 0.5%: in premarket trading, Alphabet dropped 1.2% leading losses among the Magnificent Seven giants; Nvidia shares extended their premarket decline to over 1%, after the Wall Street Journal reported Alibaba had created a new AI chip. Dell slumped more than 6% after reporting slower sales of artificial intelligence servers. Europe’s Stoxx 600 also dropped 0.4% while bond markets weakened across the board amid ongoing political turmoil in France. US Treasuries fell, with the yield on 30-year notes rising three basis points to 4.90% while the dollar gained 0.2%, putting it on track to snap a run of three weekly losses. Attention today will be on the July personal income/spending which includes the Fed’s favorite core PCE data; we also get the advance goods trade balance and wholesale inventories (8:30am), August MNI Chicago PMI (9:45am, several minutes earlier to subscribers), August final University of Michigan sentiment (10am) and Kansas City Fed services activity (11am).

In premarket trading, Mag 7 stocks: are all lower (Microsoft -0.1%, Alphabet -1%, Apple -0.2%, Amazon -0.3%, Meta Platforms -0.6%, Tesla -0.4%, Nvidia -0.9%).

• Affirm Holdings (AFRM) climbs 15% after the financial technology company reported fourth-quarter results that beat expectations and gave an outlook that is seen as strong.
• Alibaba Group ADRs (BABA) rise 3% after the company reported a surge in revenue from China’s AI boom, helping offset a surprise drop in profit tied to a worsening battle with Meituan and JD.com Inc. in internet commerce.
• Ambarella (AMBA) jumps 18% after the US semiconductor device maker beat revenue and EPS estimates and increased its fiscal 2026 revenue growth estimate. Analysts note strong AI momentum.
• Caterpillar (CAT) falls 3% after the industrial giant warned that it faces a larger-than-anticipated tariff headwind of as much as $1.8 billion this year.
• Celsius Holdings Inc. (CELH) rises 9% after PepsiCo Inc. increased its stake in the energy-drink maker.
• Dell Technologies Inc. (DELL) falls 6% after the company booked fewer sales of artificial intelligence servers than in the previous three months and reported profit margins that fell short of analysts’ estimates.
• Elastic (ESTC) rises 16% after the software company reported first-quarter results that beat expectations and raised its full-year forecast.
• Marvell Technology (MRVL) falls 13% after reporting data center revenue for the second quarter that missed the average analyst estimate.
• NeoGenomics (NEO) rises 4% after saying a US district court ruled in its favor, invalidating all of Natera’s asserted patent claims and clearing the way for broader commercialization of its RaDaR ST assay.
• Petco (WOOF) jumps 22% after the US pet food maker gave 3Q guidance that topped expectations and nudged up its outlook for 2026.
• SentinelOne (S) gains 8% after the software company raised its revenue forecast for the year. Analysts note that results were boosted by strong annual recurring revenues.
• Ulta Beauty (ULTA) climbs 3% after the cosmetics retailer boosted its comparable sales forecast for the full year.

Friday’s stock market weakness casts a shadow heading into what is historically the toughest month for US equities. The S&P 500 has declined in September 56% of the time, with an average drop of 1.17%, according to Bank of America’s Paul Ciana, citing data back to 1927.

“Some profit-taking is healthy as the AI theme has been playing out for some time,” said François Rimeu, senior strategist at Credit Mutuel Asset Management in Paris. As for economic data, “if the labor market is really heating up, then that could lead to some repricing.”

Friday’s personal consumption expenditures report comes a week after Fed Chair Jerome Powell’s dovish tilt at Jackson Hole bolstered bets on the first rate cut of the year next month. Still, doubts linger over what follows that move, with inflation stuck above target. Swaps are pricing two quarter-point cuts this year and another two by June. The report is expected to show core PCE, the Fed’s preferred gauge for tracking inflation, rising 2.9% in July from the year before, the fastest pace in five months. Policymakers will have to balance higher price pressures with data next week that’s expected to show a rise in unemployment.

European stocks extend losses, as the Stoxx 600 drops 0.4% hitting its lowest level in over two weeks with financial stocks leading losses. All 20 sectors are in the red. UK banks dropped after a think tank said Chancellor of the Exchequer Rachel Reeves could raise billions of pounds of revenue through a windfall tax on commercial banks. Defense stocks advanced after German Chancellor Friedrich Merz said a meeting between the Russian and Ukrainian presidents is unlikely to happen. Here are the biggest movers Friday:

• European defense stocks are rising on Friday after German Chancellor Friedrich Merz said a meeting between the Russian and Ukrainian presidents is unlikely to happen
• Lotus Bakeries shares rise as much as 6.5% as BofA upgrades its rating on the maker of Biscoff cookies to buy from neutral with a €10,500 target price, and adds the stock to its SMID cap Europe Best Ideas list
• Brunello Cucinelli shares rise to the highest in about a month after the luxury fashion company reported strong operating income for the first half-year. Analysts foresee limited tariff risk
• Schaeffler gains as much as 4.5%, climbing to the highest since June 2024, as Citi upgrades to buy from neutral ahead of the automotive supplier’s forthcoming capital markets day
• UK bank stocks slide after a think tank says Chancellor of the Exchequer Rachel Reeves could raise billions of pounds of revenue by imposing a windfall tax on commercial lenders
• Ayvens drops as much as 3.7% on a downgrade to neutral at Citi, which now sees a fairly balanced risk-reward for the car leasing company following a strong rally in the shares over the past year
• CD Projekt drop as much as 3.4% as mounting development costs and uncertainty on timeline of forthcoming productions cast shadow on 2Q earnings beat
• Pernod Ricard shares drop as much as 4.3% after analysts poured cold water on the optimism stemming from the spirit maker’s earnings beat on Thursday
• Elekta shares drop as much as 6.2%, reversing earlier gains, after the firm reported first-quarter results. Citigroup analysts flagged the lack of order growth acceleration, while Barclays noted revenue will be under pressure in the second quarter

Earlier in the session, Asian stocks traded little changed, with a rally in Chinese equities offset by losses in Japan amid profit taking.  The MSCI Asia Pacific Index edged 0.1% lower, with Contemporary Amperex Technology and Suzhou TFC Optical Communication among the biggest gainers. China Taiping Insurance Holdings was among the laggards after its lackluster earnings.  Chinese stocks continued to march higher, partly as investor sentiment stayed high ahead of a military parade on Sept. 3 to mark the 80th anniversary of the end of World War II. Meantime, optimism around solid state batteries also supported gains in the broad market. Shares of CATL, a Chinese battery maker, soared on revenue hopes following an earnings report from a supplier. China’s onshore benchmark CSI 300 Index rose 0.7% to its highest level since 2022. The Hang Seng China Enterprises Index advanced as much as 1.3%. Elsewhere, Japanese stocks fell on profit-taking before the release of personal-consumption-expenditure data in the US. Selling spread across a broad range of sectors, hitting exporters such as makers of electronics and cars, as well as banks and insurers.

In FX, the Bloomberg Dollar Spot Index rises 0.1%. The pound is the weakest of the G-10 currencies, falling 0.4% against the greenback. Currency traders are also pointing to the potential for further dollar weakness next month, particularly as Trump escalates his attacks on the Fed into uncharted territory. The greenback is poised to resume its streak of monthly losses after posting a gain in July, its first of the year.

“There are long-term implications from the US administration’s recent actions,” wrote Jayati Bharadwaj, head of FX strategy at TD Securities. “This chips away at the USD’s safe haven status.”

In rates, treasuries slip, with longer-dated maturities leading the slide, and 10-year yields rising 2 bps to 4.22%. European government bonds also fall, though Bunds didn’t show much immediate reaction to mixed regional euro-area inflation data.

In commodities, spot gold is down $10. WTI crude futures drop 0.5% to near $64.30 a barrel. Bitcoin falls 2% and below $110,000. 

Today’s economic data slate includes July personal income/spending (including PCE price indexes), advance goods trade balance and wholesale inventories (8:30am), August MNI Chicago PMI (9:45am, several minutes earlier to subscribers), August final University of Michigan sentiment (10am) and Kansas City Fed services activity (11am). Fed speaker slate empty for the session. The first hearing in Lisa Cook’s lawsuit against Trump is set for 10am ET.

Market Snapshot

• S&P 500 mini -0.3%
• Nasdaq 100 mini -0.5%
• Russell 2000 mini -0.3%
• Stoxx Europe 600 -0.6%
• DAX -0.6%, CAC 40 -0.6%
• 10-year Treasury yield +2 basis points at 4.23%
• VIX +0.2 points at 14.61
• Bloomberg Dollar Index +0.1% at 1202.63
• euro little changed at $1.1679
• WTI crude -0.8% at $64.1/barrel

Top Overnight News

• FHFA Director Pulte sent a new criminal referral against Fed’s Cook
• The Trump administration plans to expand national-security tariffs on steel, aluminum and a variety of other industries in coming months in hopes of redirecting production in these sectors to the U.S. and thwarting potential legal threats in the trade war. WSJ
• The EU must be prepared to walk away from a trade deal with the US if Trump acts on his threats to target the bloc unless it waters down its digital legislation, Brussels’ competition tsar Teres Ribera said. FT
• The Fed’s Christopher Waller again said he would support a quarter-point rate cut next month and signaled more easing over the next three to six months. Waller said he does not believe a bigger September cut is needed unless the August jobs report shows substantial weakening and inflation stays well contained, while Waller added that he wanted a rate cut in July and feels more strongly about it now. BBG
• US VP Vance said interest rates are too high and the Fed is not doing its job: Fox News
• Russian oil exports to India are set to rise further in Sept as New Delhi defies the White House. RTRS
• Alibaba posted a 3% drop in operating profit after an escalating price-based battle with Meituan and JD.com hurt margins. Separately, Alibaba developed a new chip compatible with the Nvidia platform, meaning engineers can repurpose programs they wrote for Nvidia chips. BBG
• Tokyo’s inflation rate excluding fresh food slowed to 2.5% in August as expected, but remained above the BOJ’s target. The unemployment rate unexpectedly fell. BBG
• Vladimir Putin will meet Xi Jinping and Narendra Modi at a summit in Tianjin, China, this weekend to discuss energy ties. BBG
• CPIs from France, Italy, and Spain come in a bit cooler than anticipated in Aug at +0.8% Y/Y, +1.7%, and +2.7% Y/Y, respectively, although German regional CPIs accelerated in Aug vs. Jul. WSJ
• U.S. companies have an unwelcome message for inflation-weary consumers: Prices are going up. Companies from Hormel to Ace Hardware forecast prices rising as the costs of Trump’s tariffs are passed on to consumers. Inflation has eased in recent months, but job growth has also slowed, and there are signs shoppers worry that tariffs could further increase prices. WSJ
• HFs have aggressively net bought EM stocks so far in August, led by Chinese equities, EM EMEA, and to a lesser extent Taiwan, while EM Latin America has seen little net activity. Despite this month’s large net buying, Net allocation in Chinese equities does not look extended and is inline with 5-year average. Goldman Prime

Trade/Tariffs

• Canada does not expect US President Trump to drop all his tariffs on the country, according to officials cited by FT.
• Brazil’s Vice President Alckmin said they plan to end negotiations for a complementary trade agreement with Mexico next June and plan to sign a complementary trade agreement with Mexico in August 2026.
• Japanese trade negotiator Akazawa said he will visit the US as soon as necessary arrangements have been made, while he added that he may need to visit the US at least one more time before a presidential executive order is issued.
• Indian Trade Minister says India is to look to new markets, including Australia; India is considering steps to boost domestic demand and support exporters hit by unilateral action by a country; India is taking steps to diversify exports.
• China increases soybean purchases from Argentina and Uruguay due to ongoing US trade tensions, according to Reuters sources; says China has yet to book US soybean imports for Q4

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were ultimately mixed heading into month-end and as participants digested a slew of data and earnings. ASX 200 traded rangebound as strength in tech and energy was offset by losses in real estate, healthcare, industrials and financials, while stock headlines in Australia continued to be dominated by a busy earnings slate. Nikkei 225 weakened after a slew of data releases, which were ultimately mixed, although Industrial Production and Retail Sales disappointed. Hang Seng and Shanghai Comp gained following another substantial liquidity injection by the PBoC of around CNY 783bln and with Beijing authorities recently vowing support measures, while the spotlight is also on incoming earnings, including from Alibaba and Chinese banks.

Top Asian News

• China state planner spokesperson said they are aware that household consumption capability and confidence need to be improved, and aware that company competition has intensified. The spokesperson added that China will study further increasing support from the central government to reduce funding pressure for local governments for people’s livelihood projects and will investigate dumping cases, misleading promotions, and improve governance of disorderly competition. Furthermore, China is to push for reducing R&D costs for AI innovation and will innovate methods to subsidise AI product purchases.
• Chinese Foreign Minister Wang Yi held a phone call with Brazil’s Foreign Minister and said China is willing to strengthen strategic mutual trust with Brazil and strengthen mutual support, while he added that China is willing to strengthen coordination with Brazil and work with BRICS countries to resist unilateralism and bullying.
• Industrial and Commercial Bank (1398 HK) H1 (CNY): Net Income 168.1bln (prev. 171.1bln Y/Y), NII 313.6bln (prev. 314bln Y/Y).
• Agricultural Bank of China (601288 CN) H1 (CNY): net 139.94bln (+2.7% Y/Y), net fee income 51.44bln.
• Bank of Communications (3328 HK) H1 (CNY): Net Income 46bln, NII 85.3bln.
• Bank of China (601988 CH) H1 (CNY): Net Income 117.59bln, -0.9% Y/Y, NIM 214.81bln.
• TSMC (TSM) reportedly plans major supply chain overhaul, targeting high-margin and China-exposed suppliers, according to DigiTimes Asia.
• Alibaba (BABA) Q1 2025 (USD): Revenue 34.6bln (exp. 34.3bln), EPS 2.06 (exp. 2.13); notes new highs in monthly active customers and daily order volume; to increase cloud adoption for AI. Alibaba (BABA) has developed a new AI chip to help fill China’s void, according to WSJ sources.

European bourses began the session on the back foot despite stateside gains on Thursday. A slew of European data points had little impact on price action, which held a negative bias throughout the day. European sectors began the session mixed, though sectors have since slipped nearly entirely in the red as the risk tone deteriorated. Energy and Industrials prove resilient to the downbeat tone, with German Chancellor’s remarks on Thursday helping defence stocks. Merz said there would be no meeting between Russian President Putin and Ukrainian President Zelensky. Banks are the clear underperformers after the think-tank IPPR, recommended the Treasury should hit commercial banks with a new windfall tax on profits to raise up to GBP 8bln.
US equity futures are trading lower but faring better than stocks across the Atlantic. NQ underperforms following outperformance on Thursday, while ES and RTY are a little more resilient into PCE, the latter outperforms.

Top European News

• ECB SCE: Consumers keep inflation expectations stable 1yr: 2.6% (prev. 2.6%). 3yr: 2.5% (prev. 2.4%). 5yr: 2.1% (prev. 2.1%).
• ECB’s de Guindos says “The US-EU trade agreement was the best outcome achievable among a series of difficult negotiations for Europe. In other words, it can be seen as the lesser evil.”, via Econostream X
• German Job Agency Head says the nation has reached a bottoming out of the Labour market.

FX

• DXY is choppy after softening on Thursday alongside a lower yield environment and despite the several encouraging data releases stateside, including the upward revisions to headline US GDP and GDP Sales for Q2, while Core PCE Prices were revised lower and jobless claims fell. DXY currently resides in a narrow 97.85-98.04 parameter at the time of writing, with the 50 DMA seen at 95.58.
• EUR/USD gradually eased back from Thursday’s peak, with the single currency thwarted by resistance near the 1.1700 level. In terms of data this morning, German retail sales fell by -1.5% M/M in July (exp. -0.4%), which saw a tick higher in Bund futures, while German import prices fell by -0.4% M/M in July (exp. -0.3%). French prelim HICP printed 0.8% Y/Y in August (exp. 0.9%, prev. 0.9%), resulting in fleeting EUR downside; Spain’s HICP printed 2.7% Y/Y (exp. 2.7%, prev. 2.7%), but notable that the Core Spanish CPI saw an uptick to 2.4% from 2.3% – little EUR movement. Back to Germany, state CPIs printed in line with what is expected from the mainland metric at 13:00 BST – an uptick in the Y/Y and a downtick in the M/M. Furthermore, ECB SCE saw consumers keep inflation expectations stable. EUR/USD resides in the 1.1657-1.1682 range at the time of writing after briefly dipping under its 50 DMA 1.1661.
• JPY lacks direction as participants digested several data releases from Japan, which were ultimately mixed, whilst macro newsflow remained light in the European morning. The mixed bag of data releases included Tokyo CPI, which mostly matched estimates, and the Unemployment Rate surprisingly declined, although Industrial Production and Retail Sales disappointed. USD/JPY trades on either side of its 50 DMA (146.99) in a current 146.77-147.19 range.
• GBP/USD fell further below the 1.3500 focal point, with Sterling lagging despite light pertinent catalysts for the UK, although there were reports yesterday that PM Starmer plans a cabinet shake-up and is expected to appoint a new economic advisor ahead of the Autumn Budget. Some focus also on the UK think tank IPPR (widely described as left-wing), which recommended that Chancellor Rachel Reeves impose a windfall tax on commercial banks to reclaim profits earned from taxpayer-backed deposits at the Bank of England. A senior banker, speaking with the FT, said, “Politically it is an easy target… No one likes banks, they are seen as a whipping boy for the government”.
• Antipodeans remained afloat after recent advances, and as the PBoC continued to strengthen the yuan reference rate setting.

Fixed Income

• USTs are lower by a handful of ticks in what has been a quiet and rangebound trade overnight. Currently trading in a 112-13+ to 112-18+ range, as traders now turn their attention to the US PCE later today at 13:30 BST/08:30 EDT. Headline PCE is expected to rise by +0.2% M/M (prev. +0.3%), with the annual rate unchanged at 2.6% Y/Y; the core PCE rate is seen rising +0.3% M/M (prev. 0.3%).
• Bunds are ever so slightly on the back foot, as European traders finally have some key data to digest, by way of Retail Sales/inflation metrics. Nonetheless, moves have been relatively contained so far. German Retail Sales sparked some modest upticks in Bunds and then took another leg higher on the softer-than-expected French inflation metrics – high for the day at 129.77. No real move on German Unemployment or Spanish/Italian/German State CPIs.
• Gilts are also trading on the back foot and are marginally underperforming vs peers. Currently trading in a 90.61 to 90.75 range; from a yield perspective, UK 10y is currently trading around 4.72%, still a little off the touted “danger zone” of 4.80% for the Chancellor’s budget. On that, a UK think tank IPPR (widely described as left-wing) recommended that Chancellor Rachel Reeves impose a windfall tax on commercial banks to reclaim profits earned from taxpayer-backed deposits at the Bank of England. A senior banker, speaking with the FT, said, “Politically it is an easy target… No one likes banks; they are seen as a whipping boy for the government”.

Commodities

• Crude futures are taking a breather after gaining yesterday, owing to geopolitics on what was otherwise a choppy performance, with the benchmarks rising on Thursday as German Chancellor Merz said there will be no meeting between Russian President Putin and Ukrainian President Zelensky. b currently resides in a 64.03-64.41/bbl range while Brent sits in a USD 68.03-68.39/bbl range.
• Spot gold faded some of the prior day’s advances after ascending above USD 3,400/oz amid a softer dollar and yields.
• Mixed trade across base metals amid a choppy dollar and tentative mood across markets. 3M LME copper resides in a USD 9,839.00-9,924.00/t.

Geopolitics: Middle East

• Iran’s Foreign Minister Araghchi said France, Germany and the UK have no legal jurisdiction to trigger automatic re-imposition of sanctions on Iran, while he added Iran is ready to resume diplomatic negotiations over its nuclear program, provided that other parties demonstrate seriousness and goodwill. Furthermore, he said in a letter to the EU foreign policy chief that any E3 efforts to revive UN Security Council resolutions that were terminated under Resolution 2231 are invalid and ineffective.
• Deputy Russian UN Envoy said E3 move on Iran at UN has no legal bearing and does not think the Security Council should act on the E3 move, while Russia and China have not yet requested a UN Security Council vote on their draft resolution.

Geopolitics: Ukraine

• European leaders are said to be mulling a 40-kilometre buffer zone between the Russian and Ukrainian frontlines as part of a peace deal, according to POLITICO. Officials disagree how deep the actual zone could be and it’s unclear Kyiv would accept the plan as it would likely come with territorial concessions. The US is seemingly not involved in these discussions. French and British forces will likely make up the core of the foreign troop presence.
• Russia says Western proposals for Ukraine security are aimed at containing Russia and drawing Ukraine into NATO’s orbit Russia says this will increase risk of military conflict. Russia says there must be one concept of security guarantees, reflecting Russia’s concerns. Russia says West is trying to turn Ukraine into a ‘strategic provocateur’ on its border.

Geopolitics: Other

• Venezuela’s UN envoy said Venezuela complained in a letter to UN chief Guterres about a US naval build up, while the envoy added that the US naval deployment violates the UN charter and Venezuela does not constitute a threat to anyone. Furthermore, the envoy said the real threat to regional stability is the US military and nuclear weapons presence in the Caribbean. It was later reported that Venezuela’s President Maduro said there’s no way the US can enter Venezuela, and that Venezuela has support from China, Russia, and India.

US Event Calendar

• 8:30 am: Jul Personal Income, est. 0.4%, prior 0.3%
• 8:30 am: Jul Personal Spending, est. 0.5%, prior 0.3%
• 8:30 am: Jul Real Personal Spending, est. 0.3%, prior 0.1%
• 8:30 am: Jul PCE Price Index MoM, est. 0.2%, prior 0.3%
• 8:30 am: Jul PCE Price Index YoY, est. 2.6%, prior 2.6%
• 8:30 am: Jul Core PCE Price Index MoM, est. 0.3%, prior 0.3%
• 8:30 am: Jul Core PCE Price Index YoY, est. 2.9%, prior 2.8%
• 8:30 am: Jul P Wholesale Inventories MoM, est. 0.14%, prior 0.1%
• 9:45 am: Aug MNI Chicago PMI, est. 46, prior 47.1
• 10:00 am: Aug F U. of Mich. Sentiment, est. 58.6, prior 58.6

DB’s Jim Reid concludes the overnight wrap

Markets put in another decent performance yesterday, with the S&P 500 (+0.32%) at a new record as positive data reassured investors about the near-term outlook. But even as equities hit new highs, investors remain heavily focused on the Federal Reserve’s independence, and today there’s going to be an emergency hearing about Lisa Cook’s position on the Board of Governors that’s due to start at 10am EST. So this is going to be critically important for markets, as her removal would give President Trump the opportunity to refashion the Board of Governors in a more dovish direction.

In terms of the latest on the case, yesterday we got confirmation that Cook would be suing Trump to block his move to oust her, and the lawsuit also requested the courts to issue an injunction that would allow Cook to remain in her post as governor while litigation is ongoing. So that would be a bit like what happened with the tariffs, where the courts said they could still remain in place as the appeal moves through the courts. Therefore, even if the overall case takes some time to reach a final verdict as the appeal moves through the courts, the injunction decision will have important implications for the Fed in the coming weeks and months.

For now at least, it doesn’t appear that markets are pricing in much chance of Cook being forced out. In fact, if we look at Polymarket, it suggests there’s a 79% chance that Cook will still be voting at the next FOMC meeting in mid-September. And earlier this week, when Trump published his letter removing her, long-end Treasury yields were pretty unreactive in the circumstances. Indeed, the 30yr yield is still within the 4.8%-5% range it’s broadly been in for much of the last 3 months, and yesterday we saw a flattening in the Treasury yield curve that unwound some of the moves from earlier this week as concern grew about the Fed’s independence. So the 2yr yield (+2.0bps) rose to 3.63%, the 10yr yield (-3.0bps) fell to 4.20%, and the 30yr yield (-4.6bps) fell to 4.87%. For more info on the implications, our US economists published a note earlier this week (link here) on what Cook’s removal could mean.

Speaking of the Fed, we also heard from Governor Waller after the US close, who was one of the two Governors who dissented in favour of a rate cut at the last meeting in July. He struck a dovish tone, and the speech was titled “Let’s Get On with It”, in reference to cutting rates. He even floated the idea of a cut bigger than 25bps, saying that even though “I don’t believe that a cut of larger than 25 basis points is needed in September”, that could change if the next jobs report “points to a substantially weakening economy and inflation remains well contained.”

Whilst that was going on, investors grew more optimistic on the outlook thanks to a decent batch of US data yesterday. First, we had the second estimate of Q2 GDP, which showed the US economy grew at an annualised rate of +3.3% in Q2, above the +3.0% rate on the initial estimate. While this comes after a -0.5% decline in Q1, it still leaves average growth during the first half of the year not too far below trend, which our economists see at just above 2%. Second, there was also a little bit of reassurance on the inflation side, as headline PCE inflation was revised down to +2.0% in Q2 (vs. +2.1% before), whilst core PCE was unchanged at +2.5%. And third, the more recent data was also positive, as the weekly jobless claims for the week ending August 23 fell to 229k (vs. 230k expected), and the continuing claims for the previous week also fell to 1.954m (vs. 1.966m expected). So that all helped to bolster risk appetite and dampen fears about a US downturn. Looking forward, the focus today will be on the PCE inflation numbers for July, which are the Fed’s target measure.

Against that backdrop, US equities put in a decent performance, with the S&P 500 (+0.32%) posting a third consecutive gain to move up to a fresh record. Tech stocks led the way, and the NASDAQ posted a stronger +0.53% advance, although Nvidia (-0.79%) fell back after its earnings release the previous day, which showed an ongoing deceleration in revenue growth. Meanwhile, European equities put in a more subdued performance, with the STOXX 600 (-0.20%) losing ground, with UK equities underperforming as the FTSE 100 fell -0.42%. The mood in Europe wasn’t helped by an unexpected decline in Eurostat’s economic sentiment index for the Euro Area in August, which fell to 95.2 (vs 96.0 expected).

Over in France however, yesterday saw an ongoing stabilisation in the country’s assets. In particular, their sovereign bonds outperformed, and 10yr OAT yields fell -4.1bps, which meant that the 10yr Franco-German spread tightened to 78bps, falling back from its 7-month high on Wednesday. We also saw France’s 10yr bonds slightly outperform Italy’s, where yields fell by a smaller -3.6bps. So that meant the gap between Italy and France’s 10yr yield widened slightly to 6bps, having reached its tightest level since 2003 earlier in the week. Meanwhile, that flattening in the Treasury curve was also echoed in Europe, with 2yr German yields up +1.8bps, whilst the 10yr yield fell -0.7bps.

That uptick in front-end yields was supported by the accounts of the ECB’s July meeting, which added to the sense that they had reached the terminal rate now. For example, it said that “keeping interest rates unchanged was seen as a robust approach to managing shocks and two-sided inflation risks across a wide range of plausible scenarios.” They didn’t rule out further policy action, but the Governing Council seemed comfortable with waiting for more information to justify a cut. And on the theme of European inflation, we’ll get flash CPI prints for August from major Euro area countries today, including Germany, France, Spain and Italy, ahead of the Euro Area-wide number on Tuesday. Our European economists expect headline HICP at 2.1% yoy for the Euro Area (previously 2.0%), and you can see more in their preview here. 

Overnight in Asia, Chinese equities have continued to advance, with the CSI 300 (+0.58%) on course for its highest closing level since July 2022, whilst the Shanghai Comp is also up +0.16%. However, it’s been a more negative story elsewhere, the Japan’s Nikkei (-0.24%) and South Korea’s KOSPI (-0.21%) have both lost ground this morning. In Japan, that follows an underwhelming batch of activity data this morning, with retail sales down -1.6% in July (vs. -0.2% expected), whilst industrial production also fell -1.6% (vs. -1.1% expected). Admittedly, there was a deceleration in the Tokyo CPI for August, but that was in line with expectations so wasn’t really a positive surprise, with the headline rate down three-tenths to +2.6%. Looking forward, US equity futures are also slightly negative, with those on the S&P 500 down -0.12%.

To the day ahead now, and in addition to July PCE inflation, we’ll also get US personal income, personal spending, and the advance goods trade balance. In Europe, we’ll get the ECB’s July consumer expectations survey, Germany’s August CPI, unemployment claims and July retail sales, and CPI readings from France and Italy as well.