Futures are lower amid fresh underperformance of tech. If the premarket weakness persists, the S&P 500 is set to break a historic weekly run of gains as the AI trade takes another leg lower this time driven by the cartoonish Kospi index, with investors also expecting payrolls data to affirm that interest rates will stay higher for longer (full payrolls preview here). As of 8:00am ET, S&P futures are down 0.5% while Nasdaq futures slide 1% as chipmakers fall and big tech stocks are lower too, following on from a slump in South Korea’s Kospi. All Mag 7 names are all lower in premarket trading except for MSFT (+0.4%); NVDA fell -1.3%, a continuation of yesterday’s underperformance post AVGO earnings. On news flow, headlines were mostly muted this morning; after yesterday’s non-tech led rebound, we saw more negative sentiment this morning with all three indices lower during the pre-market session. Bond yields are flat to lower, the 10Y yield trading unchanged at 4.47% lower; the USD is also lower. WTI crude fell -0.2% to $92.86; both base and precious metals are lower while the bitcoin mauling shows no signs of ending. Today, the key focus is NFP; see our full preview here. 

In premarket trading, Mag 7 stocks are mostly lower (Nvidia -1.3%, Microsoft +0.4%, Tesla +0.1%, Apple -0.1%, Alphabet -0.4%, Amazon -0.2%, Meta -0.2%, Nvidia -1.3%)

Stocks are pulling back for a second day after Broadcom’s outlook for chip sales fell short of high expectations, raising questions over whether the rally in the AI trade had run too hard. The lack of progress toward a deal in the Middle East has also stoked worries that oil prices will remain elevated for some time. 

"Following a period of upward revisions to earnings expectations across the sector, investors are taking a more selective approach to new information and guidance updates,” said Tomás García-Purriños, senior asset allocation strategist at Santander Asset Management. “We would view the recent weakness primarily as profit-taking and consolidation after a strong run.”

The chase for tech stocks took a further knock after S&P Dow Jones Indices said it would keep its eligibility criteria for benchmarks such as the S&P 500, rejecting proposals that would’ve allowed mega-caps to gain entry more quickly after going public. The decision means companies such as SpaceX, Anthropic PBC and OpenAI would have to wait at least a year for inclusion in the US benchmark after their debut. Fast inclusion in the S&P 500 would’ve led to about $14 billion in forced passive buying for SpaceX.

Friday’s jobs data will likely show a solid increase in payroll numbers, up 88K (if down from 115K in April), suggesting the strong March and April reports reflected underlying momentum rather than just a rebound from earlier weakness, according to Bloomberg Economics. Our preview can be found here. The report may not offer strong direction for stock markets, as a focus on signs of price pressures is keeping investors to expect a rate hike as soon as December. Goldman noted that the implied move of 47 basis points is much lower than the average realized move over the past year, and the lowest since Dec 24. 

“Employment figures should not move the needle unless there is a major surprise,” said Roberto Scholtes, head of strategy at Singular Bank. “Instead, the key variables to watch are 10- and 30-year Treasury yields, which are hovering around the 4.5% and 5% ‘pain threshold’ levels.”

Europe’s Stoxx 600 is brushing broader losses off and edging higher, as losses for tech stocks and miners are offset by gains for consumer names.Here are the biggest movers Friday:

Asian equities slid for a second day, dragged down by losses in technology hardware shares as enthusiasm for the artificial intelligence trade cools. The MSCI Asia Pacific Index fell as much as 2.3% before paring some of its declines. Heavyweight chipmakers Samsung and SK Hynix were the biggest drags. South Korea’s Kospi led losses around the region, tumbling over 5%. For the week, the regional measure was down about 1.3%. Stocks in Indonesia extended this week’s slump, heading for the lowest close since November 2020. Global tech stocks fell after a weaker-than-expected outlook from US chipmaker Broadcom, indicating investors are nervous about sustainability of the AI rally. Meanwhile a lack of progress in talks between the US and Iran threatened to keep oil prices elevated, raising inflation concerns.

In FX, The Bloomberg Dollar Spot Index is down 0.2%, while the euro is holding its gain despite a downward revision to first-quarter GDP growth, entirely due to a contraction in Ireland. EUR/USD rose 0.2% to 1.1637. USD/JPY inched 0.1% lower to 159.86: Japan Finance Minister Satsuki Katayama reiterated that the government stands ready to respond appropriately to currency moves at any time. USD/CAD fell 0.2% to 1.3880:Friday’s data will include change in nonfarm payrolls, unemployment rate for the US and unemployment rate, net change in employment for Canada as well

In rates, treasuries are mixed ahead of the May jobs report at 8:30am New York time, with oil prices little changed as traders await signs of progress in US-Iran peace talks.US yields remain within a basis point of Thursday’s closing levels with the 10-year near 4.47%. Gilts in the sector outperform slightly while bunds lag by around 1bp. US curve spreads are marginally steeper on the day. WTI crude oil futures down 0.2% underpin Treasuries, while Nasdaq 100 futures are off nearly 1% as tech stocks falter.

Ahead of May jobs report, Fed-dated OIS contracts price in around 17bp of tightening by year-end and fully price in a 25bp hike by the March FOMC meeting. Into the data, Thursday’s activity in Treasury options was active and mixed in direction, while SOFR options flows largely consisted of position liquidation and adjustment, as traders looked reduce risk.

In commodities, Brent edged lower to around $94.80 a barrel. 

Cryptocurrencies are under sustained selling pressure, heading for a sixth straight day of losses. Sentiment is hurt by Middle East tensions, expectations of higher U.S. rates, ETF outflows, and Strategy’s reported bitcoin sales for the first time since 2022. Bitcoin falls 2% to $62,292, Ether drops 5.8% to $1,669, and Solana declines 4.1% to $66.20, all near multi-month or multi-year lows.

Today's US economic data calendar includes May jobs report (8:30am) and April consumer credit (3pm). Fed speaker slate empty for the session. External communications blackout commences Saturday ahead of the June 17 policy announcement

Market Snapshot

Top Overnight News

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly lower with the region subdued by recent tech-related pressure, and despite the predominantly positive handover from Wall St, where healthcare helped boost the Dow to a record high. ASX 200 declined as the losses in the mining, materials and resources sectors overshadowed the outperformance in health care. Nikkei 225 retreated amid tech selling but with the index off today's worst levels after bouncing off a floor beneath the 66,000 level, while data was mostly encouraging as Household Spending and Labour Cash Earnings topped forecasts, which effectively supports the argument for a BoJ rate hike this month. Hang Seng and Shanghai Comp were mixed with Hong Kong pressured after the recent efforts to tighten cross-border capital outflows, including banks suspending opening Hong Kong bank accounts for mainland clients that could be used for overseas investments, while the mainland is marginally positive after the PBoC resumed open market operations.

Top Asian News

European bourses (STOXX 600 +0.2) start the last trading session of the week mixed, with the breadth of performance narrow. Global tech continues to sell off, after Broadcom's AI chip revenue fell short of expectations, weighing on indices that are heavily weighted with tech names (AEX -0.1%, EuroStoxx 50 -0.1%). Sectors point to a neutral bias. Retail (+1.5%) and Media (+1.5%) outperform, while Technology (-1.6%) and Basic Resources (-1.8%) are the clear laggards.

Top European News

FX

Central Banks

Fixed Income

Commodities

Trade/Tariffs

Geopolitics: Middle East

Geopolitics: Ukraine

Geopolitics: Other

US Event Calendar

DB's Jim Reid concludes the overnight wrap

As we hit another payrolls Friday in the US, Asian markets are seeing some decent sized tech losses in what seems to be a hangover from Wednesday night's Broadcom results where forecasts weren't as elevated as some of the more optimistic predictions hoped. The KOSPI is down -5.02% with the Nikkei -1.27% lower. The latter is also influenced by the increasing view that the Bank of Japan will have to raise rates over the coming year. The meeting on the 16th of this month now sees a 96% probability of a hike according to futures. In our World Outlook our economist forecast a hike a quarter over the next year. This is more hawkish than the consensus.

The Hang Seng (-0.84%) is also trading lower on tech losses with the ASX -0.63%. S&P 500 (-0.59%) and NASDAQ 100 (-1.07%) futures are also weak for this time of the day. Bucking the trend is the Shanghai Composite (+0.43%). European stock futures are only down just over a tenth of a percent given their low tech weighting.  

Early morning data revealed that Japan’s real wages rose by +1.9% in April (compared to +1.7% anticipated) y/y, contributing to a smaller-than-expected decline in household spending. Average nominal wages, or total cash earnings, increased by +3.5% year-on-year (against +3.1% expected). This figure represents the fastest wage growth since December 2024, following a revised increase of +3.1% in March. The April data marks the first instance in over 34 years where wage growth has surpassed 3% for three consecutive months. In a separate report, Japan’s household spending decreased by -0.5% year-on-year in April, a less severe decline than the expected drop of -1.5%, following a -2.9% decrease in the previous month. This decline has extended the trend of falling consumer spending to five consecutive months.

Before these overnight moves, markets stabilised yesterday amidst growing hopes for some sort of US-Iran deal. So Brent crude oil prices (-2.84%) fell back to $95.03/bbl, reversing course after three consecutive gains, which in turn helped to ease fears about a stagflationary shock. As a result, markets followed the usual pattern of the last three months, where lower oil prices meant bond yields also fell back, with investors pricing in a more dovish path for central banks too. Meanwhile, equities recovered, including the S&P 500 (+0.41%), although it wasn’t all good news for risk assets yesterday, with Bitcoin (-2.06%) falling to its lowest level since early February, at $63,575.  

In terms of the latest from the Middle East, there wasn’t much in the way of fresh news. However, oil prices saw a clear move lower after Trump issued a post criticising the vote in the House of Representatives against the Iran conflict. That was because Trump’s post said the vote was “right in the middle of my final negotiations to end the War”. So that suggested talks were still happening and a deal might be near. Oil prices did rebound a bit during the US session as Lebanon’s Hezbollah militia rejected the US-brokered ceasefire, but overall this didn’t derail the more optimistic mood following the ceasefire announcement by Israel and the Lebanese government the previous evening.

And investors also priced out the chance of a longer conflict, with the 6-month Brent future (-2.15%) also falling to $85.04/bbl. So that helped to ease concerns about inflation, with the 1yr US inflation swap (-9.2bps) falling to 3.09%, whilst the 1yr Euro inflation swap (-5.5bps) fell to 2.99%.

With easing fears around inflation, markets dialled back the chance of a rate hike from the Federal Reserve this year. Indeed, the probability of a hike by December was down to 68% by the close, having been at 81% the previous day. Moreover, those dovish expectations got further support from some weaker US data, with the weekly initial jobless claims rising to their highest since early February. They hit 225k in the week ending May 30 (vs. 215k expected), and even though the Memorial Day holiday could have created volatility, the 4-week moving average also reached a 3-month high of 214.75k. So the release leant against the more positive US data in recent days, and it helped Treasury yields to decline across the curve. For instance, the 2yr yield (-3.8bps) fell back to 4.04%, whilst the 10yr yield (-2.1bps) fell back to 4.47%, roughly where we are this morning as I type.  

Looking forward, US data will stay in the spotlight today, as we’ll get the May jobs report at 13:30 London time. This will be an important one for the Fed, as the strong labour market data of recent weeks has fuelled the speculation about a potential rate hike. Indeed, we’ve just had back-to-back payrolls above +100k in March and April, which is the first time that’s happened since 2024. And so long as the labour market stays in decent shape, that will keep the focus on the inflation side of the Fed’s mandate, which has moved increasingly above target given the energy shock. In terms of today’s report, our US economists expect payrolls to come in at +50k (consensus +88k), with the unemployment rate remaining at 4.3%. So if realised, that would be a slowdown from the last couple of months, but would still mark 3 consecutive positive readings for the first time in a year. Our economists' lower than consensus forecast is not necessarily a structural story, more a slowdown in some sectors that have recently seen outsized gains. Our economists have been more optimistic on the labour market than their peers in recent months.

Ahead of that, US equities also regained momentum before this morning's futures sell-off, with the S&P 500 (+0.41%) paring back the previous day’s losses and still looking to post a 10th consecutive weekly increase for the first time since 1985. We are at +0.06% so far this week but futures are lower so we'll see what happens. 

Most constituents in the index put in a solid performance yesterday, with 363 advancers – the most since April – and with the equal-weighted S&P 500 (+0.79%) rising to an all-time high. Chipmakers were the major exception to that, and Broadcom (-12.59%) was the second-biggest decliner in the index after their earnings the previous day. That included a forecast for AI chip revenue that was beneath expectations, which led to broader concerns around the sector. The Philly semiconductor index fell by -2.15% but it did recover from as much as -6.29% down early in the session. And the broader tech mood wasn’t as negative, with six of the Mag-7 (+1.06%) moving higher.  

Earlier in Europe, markets had put in a positive session across bonds and equities, benefiting from the fall in oil prices and being less exposed to semiconductor stocks. So the STOXX 600 (+0.52%) put in a decent performance, alongside gains for the DAX (+0.60%), the CAC 40 (+1.15%) and the FTSE MIB (+0.27%). Moreover, European rates rallied too, with yields on 10yr bunds (-1.0bps), OATs (-1.5bps) and BTPs (-1.8bps) all falling.

Looking at the day ahead, data releases include the US jobs report for May, French industrial production for April, and the third release of Q1 GDP for the Euro Area. Central bank speakers include BoE Governor Bailey and the BoE’s Dhingra.