OPENING CALL
Anxiety over inflationary pressures and the future interest-rate path continue to set the tone for markets, with stock futures and benchmark Treasury yields little changed on Friday.
Investors will gain more clarity at 8:30 a.m. ET, when the Federal Reserve's preferred inflation gauge, the personal-consumption expenditures price index, is due. Core PCE, which excludes volatile food and energy prices, is expected to have climbed 2.7% from a year earlier, representing a slight easing from March.
"While the steady pathway of disinflation has taken this metric down from 4.8% to 2.8% in the space of a year, there are still considerable questions over what it would take for the Fed to start cutting interest rates," Scope Markets said.
Over in Europe, fresh data showed core inflation accelerated in May. The European Central Bank is expected to start cutting rates next week, but stickier-than-expected inflation could force it to slow down the pace of further cuts.
Premarket Movers
Fiscal third-quarter earnings at Costco topped expectations and same-store sales in the quarter rose 6.6%. E-commerce comparable sales jumped 21%. Shares were down 1.6%.
Dell Technologies stock fell 14% after the company discussed emerging pressure on margins. Chief Financial Officer Yvonne McGill told Barron's the company expects some margin pressure in the current quarter from both intensifying competition for business from large enterprise customers, and an inflationary cost environment, including higher NAND and DRAM memory prices.
Gap rose 21% after first-quarter same-store sales jumped 3%, better than analysts' projections. Gap also raised its outlook for the fiscal year ending in February.
Marvell Technology posted first-quarter revenue of $1.16 billion, down 12% from a year earlier, but higher than estimates of $1.15 billion. The stock declined 5.8%.
MongoDB was 25% lower after the data service provider issued disappointing guidance for the second quarter and fiscal year.
Nordstrom reported a wider-than-expected first-quarter loss and shares were down 7.3%.
PagerDuty posted mixed first-quarter results, though billings were better than expected. The stock was up 8.8%.
Salesforce was down 0.2%. The stock dropped almost 20% on Thursday, after the cloud-based software company missed first-quarter revenue expectations and issued disappointing guidance.
SentinelOne declined 13% after the cybersecurity company reduced its revenue revenue outlook for the fiscal year.
Trump Media & Technology was down 9% after the former president was found guilty on all 34 counts of falsifying business records in a hush-money trial.
Ulta Beauty was up 7.1% even after the cosmetics retailer reduced fiscal-year guidance.
Zscaler reported better-than-expected first-quarter revenue, calculated billings and adjusted earnings. Shares rose 17%.
Postmarket Movers
Ambarella's CEO said the company was seeing early signs of AI proliferating at the network edge, which it expects to lead to revenue growth. Shares rose 17%.
Watch For:
Personal Income and Outlays for April; Chicago Business Barometer - ISM-Chicago Business Survey - Chicago PMI for May; Canada GDP for March; Speech by Raphael Bostic
Today's Headlines/Must Reads:
- Central Banks Struggle To Get Consumers' Attention in Inflation Fight
- Commercial-Property Meltdown Clobbers Pension Funds
- Bill Ackman Eyes IPO of Pershing Square
- China's Strategy to Use Factories to Revive Growth Begins to Show Cracks
MARKET WRAPS
Forex:
The dollar traded roughly in the middle of this week's range as investors await core PCE inflation data for April for further clues on when interest rates could be cut.
"Where the actual release lands will determine whether we are entering a new chapter for the Fed disinflation story or whether it remains trapped in the wreckage of sticky inflation," ING said.
Weak data could push the DXY dollar index below support at 104.35-104.40, potentially ending this year's bull trend for the dollar; and a strong reading could lift it towards 105.30-105.50, ING added.
Bonds:
Scope Ratings said Treasurys should maintain their status as a global risk-free asset in the near to medium term, but the need to finance the growing U.S. deficit might coincide with softening demand for Treasurys, increasing the risk premium the government pays.
"Over the longer run, the status of Treasurys as the benchmark global risk-free asset is also likely to be affected by the outcome of this year's elections," Scope said.
The scenario of a second Trump presidency might lead to a more-adversarial U.S. approach to trading relations and accelerate de-dollarisation which would see a parallel shift from Treasurys to other safe assets, it said.
Scope also said the challenges of dealing with structurally rising debt and gradual de-dollarization, which might both accelerate after this year's presidential election, constitute growing pressure points for the sovereign credit rating of the U.S.
"Growing fiscal and institutional risks represent core challenges for the sovereign credit ratings of the U.S., underpinning our long-held view of why it is no longer the benchmark AAA-rated, risk-free borrower, " Scope said.
"Growing fiscal and institutional risks represent core challenges for the sovereign credit ratings of the U.S., underpinning our long-held view of why it is no longer the benchmark AAA-rated, risk-free borrower, " Scope said.
Eurozone government bond yields will remain at the mercy of Treasurys and long-dated yields could potentially rise even as the European Central Bank is set to cut rates next week, SEB Research said.
"The upcoming ECB rate cutting cycle may well be the first since the birth of the euro in which long rates increase despite policy rate cuts."
That is due to the continuing reduction of securities held by the European Central Bank, structural bond supply pressure and exceptionally depressed long rates at the inception of the rate cutting cycle, SEB said.
Societe Generale Research said as the European Central Bank prepares to ease its monetary policy, the Federal Reserve is sticking to 'higher for longer,' supporting a further widening of U.S. versus euro bond yields.
"But the policy path from here on out for both central banks is still far from certain, as they strive to strike a balance in the economy."
Price action in global bonds shows a lack of conviction on the trajectory for policy or long-end bond yields, and two-side risks should keep them in a range, SocGen said.
Energy:
Oil prices extended their recent losses following an unexpected build in U.S. gasoline inventories and disappointing factory activity in China.
U.S. commercial crude oil stocks fell last week, but gasoline and distillate inventories rose above expectations, raising some concerns about fuel demand.
Meanwhile, China's manufacturing activity unexpectedly fell in May, suggesting further pressure on the country's economy.
Traders now await OPEC+'s decision on output curbs on Sunday.
Metals:
Base metals and gold were lower after U.S. GDP data indicated slower than initially estimated growth in the first quarter.
"Copper led the base metals sector lower as profit taking accelerated," ANZ Research said.
Aluminum's decline was offset by the prospect of future supply cuts in China after the country tightened capacity limits on refineries, it added.
TODAY'S TOP HEADLINES
China Securities Regulator Fines Evergrande and Founder $586 Million
A Chinese regulator has followed through on a decision to fine China Evergrande Group and the company's founder about $586 million for alleged financial misconduct, dealing the former property giant another blow as it navigates liquidation proceedings.
The China Securities Regulatory Commission said Friday that it will fine China Evergrande 4.175 billion yuan ($579.5 million) for what it described as fraudulent financial statements.
American Express Zooms Ahead as Gen Z Gets Hooked on Card Rewards
A decade ago it was common to ask if younger Americans were falling out of love with plastic. The reasons offered were many: They had seen their parents deal with card debt; they didn't care about frequent-flier miles; and they had new alternatives like buy-now-pay-later loans.
One company saddled with that baggage was American Express. Amex's then-chief executive acknowledged that its 2015 financial performance was "disappointing." The stock's forward price-to-earnings ratio fell to under 10 times in early 2016, an unusually low level for the company.
Google Refines AI Search Overviews After Odd Results
Google is refining the use of artificial-intelligence overviews in response to search queries after some odd results, weeks after it started rolling out AI-powered answers to U.S. users.
The Alphabet unit was prompted to pull back on the new feature after users reported strange and incorrect answers, such as promoting rock consumption for health benefits and using glue to keep cheese sticking to pizza.
Boeing Sets Its Own Quality Targets Under Pact With FAA
The Federal Aviation Administration said Boeing has crafted performance goals that the agency will use to determine whether the jet maker's efforts to improve quality are succeeding.
Boeing on Thursday formally submitted a plan to the U.S. air-safety agency, which has increased its scrutiny on the jet maker after a fuselage panel blew off a 737 MAX during an Alaska Airlines flight in January.
Apple Supplier STMicroelectronics to Build $5.4 Billion Chip Plant in Italy
STMicroelectronics is planning a new chip-manufacturing plant in Italy for an investment of around 5 billion euros ($5.42 billion) that will come with some state support, as the chip maker jockeys for position in the semiconductor market's recovery.
(MORE TO FOLLOW) Dow Jones Newswires
05-31-24 0625ET
