S&P Futures At Daily Record High Because RAM And World Peace

US futures are trading at new all-time highs following Tuesday’s record-setting rally (when the S&P hit a new record high on negative breadth as is now the norm) , bolstered by a growing chorus of Wall Street bulls: Goldman lifts its S&P 500 target, while Barclays strategists say investors still have capacity to chase the rally, while the memory bubble just keeps raging as the market value of Korea's SK Hynix sailed above the trillion-dollar mark just one day after fellow chip maker Micron did the same. As of 8:00am, S&P 500 futures are up 0.3% while Nasdaq 100 contracts are rising 0.4%. And speaking of Micron, after soaring more than 20% on Tuesday, MU shares shares are up another up another 5% in premarket because why not, and point to a continuation of the bubble in memory-chip stocks; Semis are also bid (SOXX +2%); cyclicals are set for another positive session led by Discretionary, Industrials, and Materials. In Defensives, both HC and Staples are positive but underperforming SPX. European and Asian stocks also climb as broader risk sentiment is underpinned by a pullback in oil prices on the now daily optimism that the US and Iran will reach a peace deal. US yields are down 1-2bps even with the Bloomberg Dollar Spot index up to session highs. Brent crude futures for July are down 3% to around $96.70 a barrel. Ags are weaker, with Metals being pulled lower, too while precious metals tumble. Today's economic data slate includes weekly ADP employment change (8:15am), May Richmond Fed manufacturing index (10am) and May Dallas Fed services activity (10:30am). Fed speaker slate includes Cook (3:55pm), Jefferson (8pm) and Goolsbee (10:25pm).

In premarket trading, Mag 7 stocks are mixed early Wednesday (Alphabet -0.5%, Nvidia +0.4%, Apple +0.1%, Tesla +1.6%, Amazon +0.02%, Microsoft -0.5%, Meta -0.5%)

Box (BOX) shares are down 2% after the software company’s first-quarter results were largely in line with expectations. Analysts noted an impact from foreign-exchange issues
Shares in rocket, space and satellite communications companies (LUNR +17%, RDW +20%, ASTS +6.1%) are rallying in premarket trading Wednesday, set to extend recent gains. The sector has advanced since SpaceX filed publicly for what stands to be the largest-ever initial public offering.
Shares in semiconductor and chip equipment companies (POWI +7.0%, SMTC +5.4%, MRVL +5.7%) are rising again as the breakneck surge in the sector intensifies, sending the market capitalizations of SK Hynix and Micron Technology above $1 trillion.
Verra Mobility (VRRM) shares tumble 43% after the mobility software company cut full-year adjusted EPS guidance below analyst estimates and said Avis Budget had terminated its contract, prompting at least three analyst downgrades.
Zscaler (ZS) shares sink 22% after the security software company gave a fourth-quarter revenue forecast that was weaker than expected. Evercore downgrades the stock, noting slowing net new customers.

In other corporate news, Samsung Electronics union members voted in favor of a compensation deal, staving off a strike that threatened to disrupt global chip supply. They will get over $300,000 as part of the deal. And China is said to have been slow-walking approval of Airbus plane deliveries to signal impatience with how long European regulators are taking to certify Chinese-made aircraft. In AI news, ByteDance is planning to sharply increase its capital spending this year and next in a bid to lead the Chinese AI market and challenge the top US players abroad. Software companies and their private equity investors will face mounting strains as debt redemptions swell in coming years, according to Canadian investment manager CI GAM.

“Given the capex plans of the AI hyperscalers, there’s no reason to think that the rally is about to end,” said Fares Hendi, a portfolio manager at Societe de Gestion Prevoir in Paris. “If there’s a breakthrough between the US and Iran, the trend could accelerate, with investors buying back their shorts.”

With no overnight news from the Middle East, optimism that the US and Iran are nearing a deal to fully reopen the Strait of Hormuz pushed Brent down 2.6% to around $97 a barrel as traders grew less concerned about an energy-driven spike in inflation. Sentiment was further boosted by the batshit insane meltup in Korea (just two stocks technically) which has made the Nasdaq bubble of 1999 look like amateur hour. Strategists at Goldman joined peers at Morgan Stanley and Deutsche Bank in seeing a 17% return for the S&P 500 Index this year. Earnings growth powered by the AI boom will drive further gains in stocks, the Goldman team led by Ben Snider said, as they increased their year-end target for the US benchmark to 8,000 points, ditching a previous forecast of 7,600.

“We are in the midst of something very structural and huge — the AI CapEx theme — and it’d be very dangerous to stand against it,” said Lilian Chovin, head of asset allocation at Coutts. In other words, just put a blindfold on and buy.

Meanwhile, the momentum behind the AI trade continued, with investors betting that chipmakers will capture an outsized share of global capital spending even as millions of furious workers are fired and eager to burn down every data center they see. Adding to the insanity, BBVA strategists said it could be a good time to sell US equity volatility, noting short vol portfolios have the strongest overall forward signal compared to other risk premia strategies. Since 1990, VIX has tended to drop in June and July, before rising again in August and September, according to data compiled by Bloomberg. Let's just ignore that whole other "sell in May" calendar thingy. Meanwhile, the excess capital chasing AI assets is creating a liquidity overhang and driving up risk for investors, notes GGL Capital’s founder Gigi Luk.

Shares in semiconductor and chip equipment companies are rising again as the surge in the sector intensifies, sending the market capitalizations of SK Hynix and Micron Technology above $1 trillion

With bullish sentiment running high, the European Central Bank said that financial markets are in danger of a sudden and significant correction, warning that investors are downplaying a range of threats from the Iran war to fiscal pressures.

The “question is how soon, or whether we will go back to a pre-conflict situation with regard to Hormuz, and that’s where we are cautious,” said Chovin. “The disruption to commodities will remain fairly high even if a deal is made.”

European stocks are also climbing as broader risk sentiment is underpinned by a pullback in oil prices on optimism that the US and Iran will reach a peace deal. The Stoxx 600 is up 0.3% with autos leading gains after data showed a third consecutive rise in European car sales, while energy stocks lagged. Here are some of the biggest movers Wednesday:

Akzo Nobel rose as much as 17%, the most since 2017, after the company said that on May 1 it rejected a conditional and non-binding proposal from Nippon Paint Holdings Co and The Sherwin-Williams Company
Cohort shares rose as much as 15%, the most in 10 months, after the UK defense tech firm issued a trading update which showed revenue and profit ahead of expectations
Pets at Home shares reverse initial losses to rise as much as 5.2% after the retailer posted in-line profits for FY26 and highlighted continued growth in its Retail arm, which analysts say shows that a turnaround plan is gathering momentum
Hollywood Bowl rose as much as 10%, the most since Feb. 2021, after first-half results that analysts said reinforced the investment case for the bowling-center operator
MPC Container Ships advanced as much as 9.1%, reaching the highest since November 2024, after releasing first-quarter results which DNB Carnegie sees as strong
Hansa Biopharma shares rose as much as 8.3% after the Swedish company said the primary objective of a post-authorization efficacy study for its desensitization treatment Idefirix for kidney transplant patients was met
CD Projekt gained as much as 3.5% in early trading in Warsaw after Poland’s biggest computer-game maker invited fans to a “special anniversary stream” for The Witcher 3: Blood and Wine
Naturgy shares fell as much as 4.7% after CVC Capital Partners divested its 13.8% stake in the Spanish utility after eight years as a key investor
Flow Traders shares fell as much as 11%, the most since Oct. 30, after ING cut the Dutch electronic trading firm to sell from hold, saying its market share has continued to erode despite higher trading capital
Rusta fell as much as 6.3%, to the lowest since March, after Danske Bank cut its recommendation on the Swedish discount retailer to hold from buy
Reinet Investments was the worst-performing stock in Johannesburg, declining as much as 10%, the most since March 2020, after the firm said full-year 2026 net asset value declined 4.5% from the previous comparable period

Asian stocks jumped as investors boosted demand for the region’s chipmakers during the artificial intelligence boom, while sentiment remained broadly positive on prospects for a US-Iran peace deal. The MSCI Asia Pacific Index climbed as much as 1.7% to a fresh record. The gauge is headed for a fifth-straight session of gains, which would mark its longest win streak since February. South Korea’s Kospi surged 2.3%, leading advancers in the region, while Taiwan’s benchmark climbed 1.7%. Extended tech optimism pushed SK Hynix’s market value to more than $1 trillion, following Micron Technology’s climb to that level on Tuesday in the US. Meanwhile, oil slipped on optimism that the US and Iran will reach a peace deal despite fresh hostilities. Elsewhere in Asia, Chinese stocks in Hong Kong fell, weighed down by losses in tech heavyweights including Xiaomi. Markets in Singapore, Philippines, Indonesia and Malaysia were closed for holidays.

In FX,the dollar was little changed on the day as one of the biggest trends in the FX market faces significant pressure. AUD/NZD, which has risen more than 15% since April 2025, is set to drop by the most in a year due to rate-differentials repricing; the pair drops as much as 1% to 1.2157, after rising earlier to its highest level since April 2013 at 1.2288 The RBNZ left interest rates unchanged as expected but signaled it will most likely need to raise them soon, while Australia’s headline CPI data for April was lower than expected, spurring traders to dial back expectations for RBA rate hikes this year. “No surprise in the unchanged RBNZ OCR, but the uplift to the implied OCR track, plus the fact three members voted for an immediate hike, gives this a bullish hue, with a 8 July hike now seen much more likely than not,” said Ray Attrill, head of FX strategy at National Australia Bank

In rates, treasuries hold slight gains with futures just off session highs and yields richer by 1bp to 2bp across the curve. US 10-year yield near 4.47% is 1bp lower on the day, trailing UK counterpart by about 3bp and German by less than 1bp; curve spreads are little changed, 5s30s near 85bp and 2s10s around 44bp. Gilts outperform Treasuries, supported by further oil-price declines on hopes that the US and Iran will reach a peace deal despite fresh hostilities. IG dollar issuance slate includes a handful of names already. Ten deals were priced Tuesday totaling $12.9 billion. Issuers paid less than 1bp in new issue concessions on deals that were 4.6 times covered, and at least one issuer stood down. US session includes $70 billion 5-year note auction at 1pm New York time, which follows Tuesday’s 2-year which stopped on the screws (WI 5-year yield near 4.16% is about 20bp cheaper than last month’s, which tailed by 0.5bp) and three scheduled Fed speakers.

In commodities, WTI crude oil futures are down almost 4%. Brent crude futures for July are down 3.5% to around $96 a barrel. Gold tumbled more than 3% as it is now used to fund the memory bubble.

Today's economic data slate includes weekly ADP employment change (8:15am), May Richmond Fed manufacturing index (10am) and May Dallas Fed services activity (10:30am). Fed speaker slate includes Cook (3:55pm), Jefferson (8pm) and Goolsbee (10:25pm).

Market Snapshot

Top Overnight News

Hong Kong banks are increasing scrutiny of mainland Chinese clients. Some major lenders suspended the opening of investment and wealth management accounts for mainland residents. BBG
Taiwan prosecutors suspect Nvidia chips were smuggled to China via Japan. BBG
Australia’s consumer-price growth slowed in April following a temporary fuel tax cut, but stayed high enough to keep the door open to further rate increases by the central bank. The consumer-price index rose 4.2% over the 12 months through April, down from 4.6% for the year through March. WSJ
The Reserve Bank of New Zealand maintained the official cash rate at 2.25% for the third meeting in a row, as it weighs the threat to the South Pacific economy from higher prices of everything from motor fuels to freight against the damping effect rising inflation can have on demand. WSJ
Ukraine has a six-month window in which to seize the battlefield initiative from Russia and strengthen its hand for peace talks, a senior commander told Reuters, predicting a "turning point" was imminent after more than four years of war. RTRS
Russia is stuck on the Ukrainian battlefield and lashing out with massive strikes on Kyiv. The growing fear in European capitals is that President Vladimir Putin will try next to reshuffle the cards by expanding the conflict to Europe. WSJ
SK Hynix and Micron each topped $1 trillion in value for the first time as investors continued to bet on the AI boom. BBG
US Customs said about $20.6 billion in tariff refunds is headed to importers filing claims through its new web portal. However, earlier refund processing values were far lower than previously thought. BBG
Goldman raised its S&P price target from 7600 to 8000: "continued earnings growth should drive continued equity market upside. We expect the S&P 500 will rise by 6% to our revised year-end target of 8000. Our previous target was 7600. The increased return forecast reflects increased estimates for S&P 500 earnings following an exceptionally strong Q1 reporting season. We raise our S&P 500 EPS forecasts to $340 (+24% year/year) in 2026 and $385 (+13%) in 2027. The beneficiaries of AI infrastructure investment will account for roughly half of S&P 500 EPS growth this year." Goldman

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were predominantly higher following the mostly positive lead from Wall Street, where the S&P 500 and Nasdaq printed fresh record highs amid outperformance in tech, while markets remain hopeful of a US-Iran agreement despite the recent limited US 'self-defence' strikes. ASX 200 eked mild gains with strength seen in tech and miners, but with the upside capped by losses in the top-weighted financial sector, while participants also digested softer-than-expected headline inflation. Nikkei 225 rose to a fresh record high above the 66,000 level as tech stocks continued to underpin the index, and with Services PPI data printing softer-than-expected. KOSPI outperformed and posted a new all-time high as SK Hynix rallied to surpass the USD 1tln market cap milestone, while Samsung Electronics was also boosted after union workers voted to accept the pay agreement. Hang Seng and Shanghai Comp lagged following weak earnings results from Xiaomi, which reported a 43% drop in adjusted net in Q1 and with China expanding overseas travel curbs to its top AI talent in private firms, while there were also comments from USTR Greer that China expects a certain level of US tariffs we agreed to and that US tariffs on Chinese goods will likely
always be higher than for other countries.

Top Asian News

Australian Inflation Rate MM (Apr) 0.4% vs. Exp. 0.6% (Prev. 1.1%).
Australian Inflation Rate YY (Apr) 4.2% vs. Exp. 4.4% (Prev. 4.6%).
Australian RBA Trimmed Mean CPI MM (Apr) 0.3% vs. Exp. 0.3% (Prev. 0.3%).
Australian RBA Trimmed Mean CPI YY (Apr) 3.4% vs. Exp. 3.4% (Prev. 3.3%).
Chinese Industrial Profits (YTD) YY (Apr) Y/Y 18.2% (Prev. 15.5%).
Japanese Services PPI YY (Apr) 3.0% vs Exp. 3.3% (Prev. 3.1%).

European bourses (STOXX 600 +0.4) start Wednesday trade broadly in the green, with the IBEX 35 (+0.8%) outperforming. Geopolitical newsflow has been light, with no response coming from Iran after Tehran stated that the US had violated a ceasefire by striking targets near the contested Strait of Hormuz. More recently, Iranian Deputy Security Secretary said indirect contacts between the US and Iran continue, and Iran is not discussing the fate of its enriched uranium stockpiles with the US. Sectors have a positive tilt. Autos is the clear outperformer, after new-vehicle registrations rose to 1.15mln, +7% M/M. Car sales climbed for the third consecutive month, with EV deliveries rising 38%. Consumer Products & Services and Retail also printed decent gains. At the bottom of the pile lies Energy and Utilities, with UK names lower after Ofgem raised the energy price cap to 13%.

Top European News

UK PM Starmer is poised to unveil a multi-billion-pound package to boost the UK defence industry and armed forces next week, which is expected to be backed by GBP 18bln of government funding, according to The i Paper.
France signalled that the EU could allow UK-made vehicles to qualify for “Made in Europe” subsidies, according to FT.
Germany's Council of Economic Experts forecasts 2027 economic growth 0.8%, and sees 2026 GDP +0.5% vs +0.9% in November.
Spainʼs anticorruption police has raided the headquarters of Spanish PM Sánchezʼs Socialist Party in Madrid, Politico reported. The raid was to obtain evidence for an ongoing probe into the alleged illegal financing of the countryʼs ruling party. - Hungaryʼs government spokesman said technical talks with the EU are underway on multiple EU funding issues, while a meeting between the Hungarian PM and European Commission President has not yet been scheduled.

DXY trades within a relatively narrow 99.04-99.14 range amid a lack of major geopolitical updates and drivers, as participants look for a more definitive direction with regard to the mediation efforts to end the US-Iran war. The index remains tucked within yesterdayʼs 98.98-99.25 range. Earlier, modest downticks coincided with comments from Fedʼs Kashkari, who said it is too early to predict the timing of the next Fed action when asked about market pricing for an October rate hike.
Kiwi is the best performing G10 currency following the RBNZ's hawkish hold, in which it kept the OCR unchanged, but stated the OCR will most likely need to increase sooner and by more than envisaged in the February MPS. NZD/USD reside in a 0.5833-0.5885 range. AUD/USD was hit by softer-than-expected inflation. AUD/USD and AUD/NZD reside towards the bottom of 0.7136-0.7180 and 1.2143-1.2287 range, respectively.
Other G10s are largely flat vs the USD. CAD is subdued by oil prices, JPY saw softer-than-expected Services PPI data and comments from BoJ Governor Ueda, who warned that energy shocks may become more persistent. EUR overlooked further hawkish ECB commentary, whilst GBP was unreactive to the Ofgemʼs expected energy price cap rise.

Central Banks

RBNZ kept the OCR at 2.25%, as expected, while it stated the committee remains focused on ensuring that increased costs do not lead to elevated inflation over the medium term, and the OCR will most likely need to increase sooner and by more than envisaged in the February Monetary Policy Statement. RBNZ said the pace of OCR increases will depend on the relative influence of persistent wage- and price-setting behaviour versus weaker economic activity on medium-term inflation pressures. Furthermore, the central bank's latest rate projections were increased with the OCR now seen at 2.51% in September 2026 (prev. 2.28%), 3.07% in June 2027 (prev. 2.62%), and at 3.11% in September 2027 (prev. 2.71%).
RBNZ Minutes revealed that three committee members (Breman, Silk, Conway) voted to leave the OCR on hold and three members (Hansen, Gourley, Gai) voted for a 25bp hike, resulting in the chairperson having the casting vote, meaning the OCR remained on hold at 2.25%. It was also stated that the committee remains focused on bringing medium-term inflation back to target and expects that OCR increases will be required this year, while all committee members agreed that increasing the OCR at upcoming meetings would likely be necessary to ensure higher near-term inflation does not feed through to higher medium-term inflation.
RBNZ Governor Breman said in the post-meeting press conference that all members agreed on the path for rates and the difference was on timing, while she added that OCR increases are likely at the coming meetings and depend on data.
Furthermore, she said even if the Gulf conflict stops now, they still see inflation effects ahead, but cannot completely rule out anything on rates and stated that the current OCR is still a little bit on the accommodative side.
Fedʼs Kashkari (2026 voter) said it is too early to predict the timing of the next Fed action when asked about market pricing for an October rate hike. On the mandate, Kashkari said the US inflation risk is currently higher than labour-market deterioration risk, though both must be monitored.
BoJ Governor Ueda said supply shocks loom large in everyone's mind and they are not new but have become more frequent. He warned that energy shocks may become more persistent and that central banks should not look at oil prices in isolation.
On inflation expectations, Ueda said that If inflation expectations are already high and wages are accelerating, the risk of second-round effects is large, however, if expectations are very low and wages are stagnant, even a large cost shock may not raise underlying inflation.

Fixed Income

Global fixed benchmarks continue to take impetus from the price action seen across the energy complex, with yields softer across the curve as WTI and Brent prints losses of c. 3.0%. Geopolitical updates have been light thus far, with commentary out of Iran continuing to reiterate its stance on the Strait of Hormuz, “management of the Strait of Hormuz is a precondition that cannot be negotiated,” while the Iranian Supreme Leader advisor stated that the real guarantor of any agreement with the US is the Strait of Hormuz.
USTs gain by a handful of ticks, trading at the upper end of its 109-27 to 110-01+ range.
Bunds are higher by some 20 ticks, and further extending beyond the 126 handle (126.10-126.27 range). In terms of commentary, ECBʼs Stournaras said a June hike is likely, which is in line with recent rhetoric by policymakers. The Bank also released its financial stability review, in which it stated that financial markets are in danger of a sudden and significant correction, with asset prices looking stretched by historical standards. However, no reaction was seen in the Bund complex.
Gilts outperform with gains of c. 50 ticks as it nears the 89 handle. In yield terms, the 10yr has slipped back below 4.85%, it remains a fair way from the April 17th low of 4.73%. In comparison to its German counterpart, it has already breached the low. UniCredit remains cautious on UK debt, highlighting 3 reasons: 1) political uncertainty, 2) inflationary pressure well above BoEʼs target, and 3) weakening macro fundamentals.
Germany sells EUR 1.550bln vs exp. EUR 2bln 2.60% 2041 and 2.90% 2056 Bund.
UK sells GBP 4bln 4.125% 2033 Treasury Gilt: b/c 3.38x (prev. 3.30x), average yield 4.550% (prev. 4.507%), tail 0.2bps (prev. 0.2bps).
Japan sells JPY 300bln in 40-year JGBs; b/c 2.70x (prev. 2.54x), highest accepted yield 3.840% (prev. 3.600%).

Commodities

Crude futures are on a softer footing with little in terms of escalatory headlines on the US-Iran front, and with no “hot response” from Iran over USʼ “self-defence” strike earlier in the week. Furthermore, mediation efforts are seemingly ongoing, but funds and Hormuz management remain sticking points. That being said, an official in the Iranian Revolutionary Guard said the likelihood of renewing war with the United States is "slim", but warned that "the armed forces are lying in wait with full magazines".
Nonetheless, crude futures are on a grind lower with WTI Jul towards the lower end of a USD 89.64-93.69/bbl range, next eyeing the Monday low of 89.41/bbl. Brent Aug dipped under yesterdayʼs low and currently resides in a USD 92.87-96.45/bbl range ahead of Mondayʼs USD 93.21/bbl trough.
Elsewhere, spot gold and silver remain softer despite the pullback in crude as inflationary concerns remain on tradersʼ minds, with the RBNZʼs hawkish hold overnight also not helping sentiment across the space. Spot gold fell under USD 4,500/oz to reside towards the lower end of a USD 4,476-4,528/oz parameter.
Base metals are mixed/mostly lower as inflation concerns remain heightened, and with large buyer China also seeing a subdued performance overnight. 3M LME copper trades flat within a narrow USD 13.61k-13.85k/t range, awaiting the next macro impulse
UK's energy regulator Ofgem announces 13% increase in energy price cap for 1 July to 30 September 2026 (as expected), citing higher wholesale gas prices due to Middle East. conflict

Geopolitics

The IDF and US CENTCOM remain on high alert amid the possibility of a deal being failed to be reached and that US President Trump could order military action, according to journalist Stein as coordination between the US and Israel continue.
Iranian Deputy Security Secretary said indirect contacts between the US and Iran continue, Interfax reported. Iran is not discussing the fate of its enriched uranium stockpiles with the US while Tehran is negotiating with Oman over a new mechanism of passage through Hormuz.
Iranian Foreign Ministry spokesperson said Iran and the United States have not yet reached an agreement on unblocking the Strait of Hormuz, Nour News reported.
Iranian lawmaker Boroujerdi said in the draft agreement between Iran and the United States, it was agreed that Washington would commit to a comprehensive ceasefire for 60 days, including Lebanon, Al Mayadeen reported. The draft also included the release of a large part of Iranʼs frozen assets and the lifting of the naval blockade are among the other requirements of this agreement.
An official in the Iranian Revolutionary Guard said the likelihood of renewing war with the United States is "slim", Al Arabiya Business reported, however, adds that "the armed forces are lying in wait with full magazines."
Iran said management of the Strait of Hormuz is a precondition that cannot be negotiated, while the advisor to the Iranian Supreme Leader said the real guarantor of any agreement with the United States is the Strait of Hormuz, Al Jazeera reported.
The advisor added that documents and signatures alone cannot guarantee any deal.
There is a decisive US message to Israel to ban targeting Beirut, Sky News Arabia reported quoting Channel 12. "Washington fears that strikes in Beirut could derail negotiations with Iran and expand the scope of escalation in Lebanon."
Israeli PM Netanyahu said Israel are not limited to operating in Beirut, but have been operating there recently. The Israeli Defence Minister added that Israel is currently in a complex situation with the US, and no one will stop Israel from defending itself.
Israel's Channel 12 reported the assassination of Hamas military wing commander Muhammad Awda.
Israel conducted strikes on various towns in southern Lebanon, and explosions were reported in Lebanon's capital, Beirut, and its suburbs, while Israel's military reported sirens sounding in several areas of northern Israel after launches were identified from Lebanon.

US Event Calendar

7:00 am: United States May 22 MBA Mortgage Applications, prior -2.3%
10:00 am: United States May Richmond Fed Manufact. Index, est. 4, prior 3
4:00 am: United States Fed’s Logan Speaks in Panel Discussion
3:55 pm: United States Fed’s Cook Speaks on AI, the Economy and Financial System
8:00 pm: United States Fed’s Jefferson Speaks on Panel
10:25 pm: United States Fed’s Goolsbee Participates in Panel

DB's Jim Reid concludes the overnight wrap

The record breaking heatwave continues here in the UK even if today promises to be a bit cooler. I fear health and safety has gone a little crazy though as my twins’ half term cricket camp has been cancelled this morning because of risk of extreme heat. At the time it's on this morning the forecast is for 23 degrees Celsius, some 10 degrees cooler than yesterday. Cricket might become an endangered sport at this rate.

The heat has returned to the tech market overnight with the KOSPI (+3.65%) now up just under +98% YTD with SK Hynix (up over +13%) surpassing a trillion dollar of market cap and being up over 1000% in the last 12 months now. Also passing a trillion dollars was Micron Technology (+19.3%) in last night's US session as memory chip fever continues.

This has helped global sentiment mostly hold up over the past 24 hours, even as lingering questions over the prospects for a US-Iran deal led Brent crude (+3.58%) to pare back about half of Monday’s decline. Still, the increased Iran deal optimism from the weekend combined with renewed AI bullishness meant that the S&P 500 (+0.61%) reached a new record high as US markets returned from the long weekend.
On Iran, we’ve seen little definitive news flow this week, leaving a sense that a deal might not yet be as imminent as hoped over the weekend. However it seems talks remain on track despite the targeted US strikes we mentioned yesterday. Iran’s Tasnim news agency reported that Tehran wants half of its $24bn in frozen assets to be released upon reaching a deal, with the topic in focus during the visit by Iran’s chief negotiator Ghalibaf to Qatar, which ended yesterday. From the US side, Secretary of State Marco Rubio said that “it’ll take a few days” to agree specific language in the draft agreement, emphasising the US demand for the Strait of Hormuz “to be open, unimpeded, without tolls”. There was also some immediate uncertainty over Hormuz, with the WSJ reporting that the US Navy was now assisting vessels through the strait but US Central Command later denying that it has restarted escorting ships.

As discussed at the top, this backdrop saw oil markets trim some of Monday’s optimism that a deal could be imminent, and Brent crude (+3.58%) reversed about half of Monday’s -7.15% decline. Brent is back down -1.57% at $98.02/bbl this morning though, leaving it around $5.50 below Friday’s close ($103.54).

Even with lingering questions, the Iran deal optimism coming out of the weekend was sufficient to push the S&P 500 (+0.61%) to a new record high, extending its YTD gain to +9.84%, The rally was also boosted by renewed optimism around chipmakers, with the Philly semiconductor index surging +5.53% and the Nasdaq up +1.19%. This was led by Micron (+19.3%) as we discussed earlier and is now up an astonishing +859% over the past year. Other cyclical sectors also advanced, though the breadth of the gains was fairly narrow with just over half of the S&P 500 constituents lower on the day.

Elsewhere in Asia, the Nikkei (+0.71%) is higher along with the ASX (+0.28%) but the Hang Seng (-0.85%), the CSI (-0.72%), and the Shanghai Composite (-1.11%) are lower. US equity futures are fairly flat.

Returning to Australia, CPI inflation increased by +4.2% year-on-year in April, which is softer than the anticipated +4.4% and also represents a decrease from the +4.6% rise observed in the previous month. However, underlying inflation, as indicated by the trimmed mean CPI, has remained sticky, rising to +3.4% in April from +3.3% in March and in line with expectations. The probability of a hike by the August meeting has edged down a few basis points to around 43% as I type.

Turning to rates, US Treasuries also gained yesterday, with 10yr yields falling -7.3bps to 4.49% and another -1.6bps lower overnight. And 2yr yields (-9.0bps) saw their biggest decline since February, as investors’ expectations for Fed hikes eased. A hike is now 66% priced by December, down from 95% on Friday. On the topic of Fed expectations, our US economists published a short note yesterday discussing what different Iran scenarios – a peace deal, continued muddle through and re-escalation – might mean for Fed policy (see here).

In continental Europe, sovereign bonds saw a modest sell-off on Tuesday following the strong rally on Monday. The yield on 10yr bunds rose +3.3bps to 2.98%, with OATs (+3.2bps) and BTPs (+4.8bps) also higher. In additional to oil moving higher, the rise in EGB yields was supported by hawkish comments from ECB’s Schnabel. She suggested that the ECB should hike rates in June even if the US-Iran conflict “ended today”, saying that “given the size and persistence of the shock, looking through is no longer an option”. By contrast, ECB Chief Economist Lane avoided pre-committing to any decision, while noting the likely “further upward adjustment to the inflation forecast in June” and expectations of “indirect effects beyond energy prices”. Those Schnabel comments meant that pricing of a June ECB hike rose from 77% to 91%, though the 60bp of hikes priced by year-end (+8.2bps yesterday) are well below the 74bps priced this time last week.

European equities lost ground, with the Stoxx 600 (-0.57%), DAX (-0.80%), CAC (-1.03%) and FTSEMIB (-0.64%) reversing around half of Monday’s strong gains. The FTSE 100 (+0.24%) here in the UK was the exception as it caught up to Monday’s rally, with 10yr gilts (-2.2bps) also outperforming continental counterparts after being closed on Monday.

In monetary policy action, the Reserve Bank of New Zealand (RBNZ) maintained the official cash rate at 2.25%, while indicating that future increases in rates may be necessary sooner and to a greater extent than previously anticipated, owing to rising inflationary pressures from escalating energy costs. At the same time, the central bank cautioned that inflation could reach a peak of 4.3% later this year, an increase from the +3.1% recorded in the March quarter, as the conflict in the Middle East drives up fuel and petrochemical prices, despite a slowdown in economic growth. Following this announcement, the New Zealand dollar has risen by as much as +0.74% as investors adjusted their expectations for forthcoming rate hikes.

In terms of yesterday’s data, May consumer confidence in the US edged lower but outperformed expectations (93.1 vs 92.0 expected) as last month’s reading was revised up from 92.8 to 93.8. While assessment of the present situation deteriorated, expectations unexpectedly ticked up to a 5-month high of 74.4 (vs 71.9 expected). So overall this Conference Board data was more upbeat than the historic lows seen in the University of Michigan consumer survey last Friday. Second-tier data was more varied, with the Dallas Fed manufacturing outlook ticking up to a 10-month high but with the Philadelphia Fed services survey unexpectedly deteriorating (-23.6 vs -13.0 expected). And the S&P Case-Shiller house prices index fell for a second month running in March (-0.16% MoM vs -0.10% expected), continuing to lose the momentum it had gained late last year.

Turning to the day ahead, US data include the May Richmond Fed survey and Dallas Fed services activity. In Europe, we get France May consumer confidence and EU April new car registrations. Fed speakers include Kashkari, Logan and Cook while the ECB will release its latest Financial Stability Review. The slowing earnings season includes releases from Marvell, Salesforce, Synopsys and Snowflake.

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