US equity futures are flat as markets took a breather at the end of another "buy-everything" week dominated by speculation about the sustainability of the blistering global equity rally. As of 8:00am ET, S&P 500 were unchanged, with the gauge on track for a modest weekly gain to a new record high despite yesterday's pullback and with the US government shutdown in its second week with no end in sight and the economic data drought depriving investors of guidance (which appears to be bullish). Intel rose in premarket trading after the US government-backed chipmaker introduced new products. Pre-market, Mag 7 are mostly lower; AMZN, TSLA and AAPL are among the major underperformers. Qualcomm declined as China started an antitrust probe into its acquisition of a connected-vehicle technology firm. Overnight headlines/developments in the US were mostly muted as investors continue to watch the US government shutdown, US-China negotiations (China opens antitrust probe into Qualcomm) and Japan’s political developments (Komeito quits ruling coalition; decades-old ruling coalition collapses). Bond yields are 1-4bp lower; USD is lower. Oil is lower; base metals are higher. Gold prices slipped below $4,000/oz, and silver is flirting with $50. The US economic calendar calendar includes October preliminary University of Michigan sentiment (10am) and September federal budget balance (2pm), the latter subject to postponement by government shutdown. Fed speaker slate includes Goolsbee (9:45am) and Musalem (1pm)

In premarket trading, Mag 7 stocks are mixed (Nvidia +0.6%, Tesla +0.3%, Alphabet +0.1%, Meta +0.1%, Microsoft little changed, Apple -0.1%, Amazon -0.3%)

Investors have flocked into everything from stocks to bonds and cryptocurrencies, underscoring resilient risk appetite and pushing global stocks more than 30% from their April lows, leading investors to reassess stretched valuations in the tech sector against the backdrop of easier Federal Reserve policy and a resilient economy. Traders are looking to the upcoming earnings season to gauge whether share prices have run ahead of fundamentals. Equity funds drew $20 billion for the week ended Oct. 8 according to BofA citing EPFR data, with US stocks posting a 4th week of inflows at $14.2 billion. Tech’s significance in index weightings was highlighted by Apollo’s Chief Economist Torsten Slok, who says each worker in the US is putting $2,300 into Mag-7 stocks each year through their 401(k) accounts, on average. Separately Bloomberg echoes what MS warned last week, namely that a surge in trading volume is raising fears that retail’s favorite positions are getting dangerously crowded.

While tech has led the way in the S&P 500’s rebound, other sectors such as electrical equipment makers and construction firms have also benefited from AI spending, broadening the rally, according to Wolf von Rotberg, an equity strategist at Bank J Safra Sarasin. But with the benchmark now at its most expensive in almost 25 years, based on the estimated price-to-earnings ratio, valuations are looking too rich for comfort, he said.

“Even though the AI narrative has been undisrupted lately, we would caution against chasing the market after such a strong rally and at these valuations,” Von Rotberg said.

Meanwhile, as Trump’s standoff with Congress stretches into its second week there’s some hope on the data front: the Bureau of Labor Statistics has recalled staff to compile a key inflation report by month’s end that could help guide the Fed’s next move. 

Overnight, Japan’s governing coalition collapsed Friday, delivering a major blow to new ruling party leader Sanae Takaichi and jolting markets as a key partnership that has contributed to stability in politics for the past quarter century fell apart.

In trade, Trump and Xi Jinping are maneuvering for leverage ahead of their upcoming meeting. China has unveiled sweeping new curbs on its exports of rare earths and other critical materials, and will start collecting port fees on ships owned by American companies and individuals, as well as vessels made in the US.

Next week Q3 earnings begins, and the upcoming earnings season will be keenly watched for validation of the surge in AI-focused technology companies, which has fueled a debate over whether prices are running ahead of fundamentals. In terms of AI, focus will be on ASML’s bookings on Wednesday. 

European stocks are little changed, led by energy companies and miners. France’s CAC 40 index fluctuated as President Emmanuel Macron continued his search for a new prime minister capable of holding together a fragile budget accord among rival lawmakers.  Auto and consumer products shares outperformed, while energy and mining sectors were among the biggest laggards. Stoxx 600 is steady at 571.15 with 233 members down, 347 up, and 20 little changed. Among individual movers in Europe, Stellantis NV gained after the carmaker reported that third-quarter deliveries climbed 13% on surging sales in North America. Here are some of the biggest European movers today:

Earlier in the session, Asian stocks slid, putting the regional benchmark on track for a weekly loss, with Japanese equities leading the declines amid concerns over high valuations in the tech sector. The MSCI Asia Pacific Index fell as much as 0.9%, heading for its third drop in four sessions. Japan’s Topix was the region’s biggest loser, slipping 1.9% after closing at a record on Thursday. Investors are also keenly awaiting the outcome of talks between the ruling party and Komeito regarding the formation of a coalition government. The yen extended gains against the dollar after Japan’s ruling coalition collapsed Friday. Nikkei 225 futures in Singapore fell and Japanese bond futures rose. Chinese equities on the mainland and in Hong Kong also declined, with the chip sector being among the top losers. The CSI 300 Index lost almost 2%, more than erasing its advance from Thursday, when local markets reopened after a week-long break. Meanwhile, South Korean stocks rallied as trading resumed after a string of public holidays, propelling the benchmark Kospi to a record high and taking its advance for this year to more than 50%. Shares of technology heavyweights Samsung Electronics and SK Hynix surged.

In FX, the Bloomberg Dollar Spot Index is down 0.1% after a four-day gain. The yen rises 0.2% against the dollar, pulling USD/JPY back below 153 after talks between LDP chief Takaichi and junior partner Komeito leader Saito collapsed. Elsewhere, the Argentine peso rebounded after the US rushed to stabilize the country’s economy, offering $20 billion in financing and carrying out a rare intervention in currency markets after weeks of sharp declines.

In rates, treasuries hold long-end-led gains in early US session, underpinned by a bigger curve-flattening advance in UK bond market. French bonds also gain, with President Emmanuel Macron expected to name a new prime minister by end of day.  US yields are 1.5bp-3.5bp richer across the curve with 2s10s flatter by nearly 2bp, 5s30s by about 1bp; 10-year is lower by 3bp near 4.11% with gilts outperforming by an additional 1bp in the sector. Also supporting Treasuries, WTI crude oil futures are down 1.2% on cautious optimism about easing tensions in the Middle East and the outlook for supply. European government bonds also advance with another slight narrowing of the OAT-bund spread. Still, the MSCI Asia Pacific is down 0.6% this week. It climbed in four of the previous five weeks. Indian stocks extended gains, with the NSE Nifty 50 index on track for its best week since June, as foreign investors turned net buyers of local shares in recent sessions.

In commodities, spot gold rises back to around $4,000/oz while silver jumps 2.5% and above $50/oz. WTI crude futures fall 0.7% to $61 a barrel.

Today's US economic calendar includes October preliminary University of Michigan sentiment (10am) and September federal budget balance (2pm), the latter subject to postponement by government shutdown. Fed speaker slate includes Goolsbee (9:45am) and Musalem (1pm)

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A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly lower following the negative handover from Wall Street, where the stock market and gold prices pulled back from record levels, while the KOSPI outperformed against its regional counterparts on return from its extended holiday. ASX 200 lacked direction amid quiet catalysts and as weakness in the mining and materials sectors offset the strength in tech and financials. Nikkei 225 retreated following the firmer-than-expected PPI data, although participants also digested earnings updates, including from index heavyweight Fast Retailing, which was the biggest gainer after it reported a double-digit percentage increase in 6-month net. Hang Seng and Shanghai Comp conformed to the downbeat mood as trade frictions resurfaced following China's announcement of export controls on rare earth and items related to lithium batteries, while US President Trump commented that maybe they will have to stop importing massive amounts from China. US equity futures eked marginal gains in a frail attempt to nurse some of the  prior day's losses. European equity futures indicate an uneventful/subdued cash market open with Euro Stoxx 50 futures -0.1% after the cash market closed with losses of 0.4% on Thursday.

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DB's Jim Reid concludes the overnight wrap

Markets have struggled for momentum over the last 24 hours, as investors question how long this rally can persist, whilst concern grew about an extended government shutdown in the US. So that’s meant equities saw a modest pullback, with the S&P 500 (-0.28%) and Europe’s STOXX 600 (-0.43%) both coming off their record highs, alongside even bigger declines in Asia overnight. This pattern was clear across multiple asset classes, as 10yr Treasury yields (+2.1bps) moved up to 4.138%, and US HY spreads (+9bps) saw their biggest daily jump in over a month, which signalled a bit more caution after the relentless run in recent weeks. Even gold prices (-1.61%) lost ground after their own surge recently, slipping back beneath the $4,000/oz mark to close at $3,977/oz.

Of course, the mood music hasn’t been helped by the government shutdown, which is now entering its 10th day. And the fear is that the longer it lasts, the worse the economic impact will be, as increasing numbers of workers miss paychecks from here. So even if they end up getting back pay like in previous shutdowns, there’s still a near-term impact. In terms of the latest, there are no signs yet of a compromise emerging between Republicans and Democrats, and expectations for a near-term resolution are continuing to decline. Indeed, the Polymarket odds of the shutdown ending before October 15 are down to just 8%.

If the shutdown does persist into next week, we won’t get the CPI release on Wednesday, which will leave us increasingly uncertain about the US economy. Interestingly though, Bloomberg reported yesterday that the Bureau of Labor Statistics had recalled staff in the shutdown to prepare the September CPI release, according to a Labor Department official who knew about the matter. The report said they were directed to complete it for release by the end of the month. So if it were released, that would mean it could be used for the annual cost-of-living adjustment (COLA) for recipients of Social Security, which takes the Q3 CPI numbers. Another important date is the Fed’s next decision on October 29, so depending on the timing of any release and the shutdown’s progress, this could mean the CPI might be available then too.

For now at least, this lack of data means we’re flying blind to some extent on the US economy, and we still don’t have the September payrolls report that was meant to come out a week ago. However, one release to keep an eye on today will be the University of Michigan’s preliminary consumer sentiment index for October. It’s historically seen a meaningful drop around government shutdowns, and our US economists expect a meaningful five-point decline this month to 50.1. Remember that the last shutdown in 2018-19 went on for a record 35 days, and it’s clear from Polymarket that even if people think an October conclusion is still the most likely, the prospect of it rolling into November is being considered a serious one now.

This backdrop saw US equities slip back from their record high on Wednesday, with the S&P 500 (-0.28%) and the NASDAQ (-0.08%) both posting modest declines. 74% of S&P 500 constituents were down on the day as the selloff was relatively widespread. To be fair, it wasn’t all bad news, and the Magnificent 7 (+0.05%) moved up a little thanks to advances from Meta (+2.18%) and Nvidia (+1.83%). However, it would have been an even worse day without that support from the Mag 7, and the equal-weighted S&P 500 fell -0.42%, which is its worst performance in two weeks. Meanwhile, US Treasuries struggled to gain traction across the curve, with the 2yr yield (+1.2bps) rising to 3.59%, whilst the 10yr yield (+2.1bps) reached 4.138%. And this was seen in credit too, with US HY spreads (+9bps) and IG spreads (+2bps) seeing their biggest jump in over a month.

Over in Europe, French assets continued to stabilise yesterday from their losses at the start of the week, and President Macron is set to appoint a new PM by the end of today. Clearly, that new PM is still going to face a National Assembly that’s fractured between divergent political groups, just as the recent PMs have also faced. However, the speculation about a fresh legislative election has abated, which has helped to remove one potential source of near-term uncertainty for investors. In turn, that meant the Franco-German 10yr spread tightened for a second day to 82bps. And that’s been echoed for equities too, where the CAC 40 (-0.23%) outpaced the Europe-wide STOXX 600 (-0.43%) for a third day running. Indeed, it was a contrast with the more negative mood elsewhere, and Italy’s FTSE MIB (-1.59%) posted its biggest fall in a month after Ferrari (-15.41%) plunged following its forecast that disappointed investors.

Otherwise in Europe, we did get the ECB’s accounts from its September meeting, which cemented investors’ conviction that the ECB is now done with rate cuts. So that helped yields to move higher across the continent, with an increase for 10yr bunds (+2.5bps), OATs (+1.0bps) and BTPs (+3.2bps). That also came amidst a fresh package of reforms from the German coalition government, which includes tighter restrictions on social welfare payments, changes to the pension system, and purchase incentives for electric cars.

Elsewhere, Brent crude oil prices (-1.55%) fell back to $65.22/bbl yesterday. In part, that was down to the broader risk-off tone, but the prospect of lower tensions in the Middle East also helped. Overnight, that trend has continued as well, with Brent crude down another -0.40% to $64.96/bbl, which comes as Israeli PM Netanyahu’s office said that the cabinet had approved the framework of the hostage deal. Interestingly, gold prices (-1.61%) also fell back from the previous day’s record to $3,977/oz, losing ground after a +4% run over Monday-Wednesday, and that trend has similarly continued overnight, with a further -0.42% decline.

This more negative theme has continued into Asia this morning, with equity losses across the region, including for the Nikkei (-1.01%), the Hang Seng (-1.14%), the CSI 300 (-1.25%) and the Shanghai Comp (-0.51%). Over in Japan, we also got the news that PPI inflation was stronger than expected in September, remaining at +2.7% (vs. +2.5% expected). So that’s seen 10yr government bond yields (+0.7bps) rise to another post-2008 high of 1.69%, whilst the yen has strengthened a bit to 152.78 per dollar. That came as the new LDP leader Sanae Takaichi said in an interview that “I have no intention of triggering an excessively weak yen.” However, there have been some brighter spots overnight, with South Korea’s KOSPI (+1.35%) on track for a new record, whilst futures on the S&P 500 are up +0.11%.

To the day ahead now, and in the US we’ll get the University of Michigan’s October survey, along with Italy’s industrial production for August and Canada’s employment report for September. Otherwise, Fed speakers today include Goolsbee and Musalem.

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