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New highs as retail eyed, Europe calms

Traders work on the floor of the NYSE in New York

A look at the day ahead in U.S. and global markets from Mike Dolan

Tech-led Wall Street stocks have sailed to new records again this week, with Tuesday expected to see retail sales return to growth and as nervy European markets calmed for a second day.

The relentless outperformance of U.S. tech megacaps on the artificial intelligence theme now has the Nasdaq nearing 20% gains for the year to date, outstripping the S&P500 by more than 4% - while the equal-weighted S&P index is only up a relatively meagre 3.3% for 2024.

The buoyancy of the wider economy, however, is expected to be underscored later on Tuesday as retail and industry updates for May are expected to show activity expanding again after a flat April.


The New York Fed's 'Empire State' business survey on Monday also showed an improvement this month - even as prices paid by firms and employment readings eased back.

The picture supports the Federal Reserve's indication of just one interest rate cut this year - and futures markets are scaling back their expectations of two moves, with pricing of full-year Fed easing ticking down to 44 basis points.

"If all of it happens to be as forecasted, I think one rate cut would be appropriate by year's end," Philadelphia Fed President Patrick Harker said on Monday.

A torrent of Fed speakers fill today's diary and will reveal whether Harker's colleagues tally with that take.

With a 20-year bond auction due on Tuesday, U.S. Treasury yields have firmed up again as a result - giving back more of last week's slide on encouraging May disinflation news. Ten-year yields nudged back above 4.30% earlier and the dollar firmed again.

Part of the reversal of Treasury yields may be down to a calming of sovereign debt tensions in the euro zone, with French government yield premia easing back for the second day and euro zone equities ticking higher.

Although nominal French debt yields rose only modestly after last week's shock snap election announcement, the spread over Germany widened to the highest since 2017 amid a dash for relative safety in German bunds.

But as French election campaign got underway ahead of the first round of assembly elections on June 30, there's more of a 'wait and see' mood this week as the myriad of potential outcomes get assessed and the European Central Bank's reaction function was eyed.

Still-punchy euro zone wage growth has elicited a more cautious ECB stance about when a second rate cut may come this year.

But while the ECB played down any possible direct action to stabilise its bond markets, economists have pointed to the risk that a sizeable hit to French banks' stock prices due to the political uncertainty could have knock-on bank credit growth and build pressure for more easing rather than bond intervention per se.


Stocks in Asia were higher, meantime, helped largely by the tech-related ebullience around the world.

But the cautious global central banking tone was evident around the region.

The Reserve Bank of Australia left its key interest rates at a 12-year high of 4.35% for a fifth straight meeting, but emphasised the need to be vigilant on inflation.

In a hawkish twist, the central bank said it debated whether to raise interest rates again at the meeting. A rate cut there is now not fully priced until April or May next year.

The Australian dollar, however, held steady.

Dollar/yen, meantime, continued to nudge higher even as Bank of Japan Governor Kazuo Ueda said the central bank could raise interest rates next month depending on economic data available at the time.

Back on Wall St, AI-infused Apple, Nvidia and Microsoft continued to jockey for the role of the world's most valuable company.

In individual company news, Apple said late on Monday said it will discontinue its "buy now, pay later" service in the United States as it launches a new loan program.

Users will be able to access instalment loans offered through credit, debit cards and lenders when checking out with Apple Pay, starting later this year, the company said in a statement.

On the other side of the spectrum, U.S. electric vehicle maker Fisker filed for bankruptcy protection, looking to sell its assets and restructure its debt, after succumbing to rapid cash burn to deliver its "Ocean" SUVs in the United States and Europe.

Key developments that should provide more direction to U.S. markets later on Tuesday:

* US May retail sales, May industrial production, April business/retail inventories, April TIC data on Treasury holdings

* Federal Reserve Board Governor Adriana Kugler, Fed Governor Lisa Cook, Boston Fed President Susan Collins, Dallas Fed chief Lorie Logan, St. Louis Fed boss Alberto Musalem, Richmond Fed President Thomas Barkin and Chicago Fed chief Austan Goolsbee all speak

* U.S. Treasury auctions 20-year bonds

(Editing by Bernadette Baum)