US EARLY MORNING: Index futures stablise after Monday slide; GS banking conference in focus

SNAPSHOT: After Monday’s slide following hawkish ISM Services data, the S&P 500 relinquished its 200dma, falling to the psychological 4,000 mark, and that is roughly where futures have been trading overnight (3998-4014 parameters in European hours). While the strong ISM data is seen to give the Fed the greenlight to continue its hawkish brand of monetary policy, many argued that the bar for the central bank to deviate from that path was high anyway, and ultimately, pricing for the Fed’s December meeting and expectations of the terminal rate were ultimately little changed on the day (still around a 90% chance of a 50bps rate hike next week, and the FFR target peak is still expected to be around the 5% mark). While Treasury yields picked up sharply on Monday, they have been giving back some of that upside overnight, as a cautious risk tone lends a bid to major fixed income; yields are lower across the curve by around 2bps or so. There are not a lot of US-specific macro catalysts before next week’s CPI and FOMC meetings, and that could leave the focus on technicals, positioning, as well as catalysts in other jurisdictions.

BANKS: That said, the banking sector might provide some impetus today, with the Goldman Sachs' financials conference getting underway; some noted the weak tone of financials on Monday – the macro tone contributed much here, but many are still fearful that banks could give a glum outlook. Traders will be attentive to any commentary around the future path of earnings, provisions for losses, as well as commentary on net interest income and net interest margins, as Treasury yields back-off recent highs. Additionally, any comments on the health of the consumer ahead of the key holiday spending season, particularly as credit card delinquencies and charge-off rates have been ticking up as the Fed normalises monetary policy and lifts interest rates sharply.

POSITIONING: Looking at the recent equity rally, Citi said positioning flows were weak last week as markets continued to grind higher, which implies only limited investor conviction behind the recent rally. "S&P futures positioning remains neutral, whereas Nasdaq remains bearish and near unchanged from the week before," Citi says, "overall gross positioning is below average for US indices, and the recent rise has left legacy short positions further in loss with continuing risk of a squeeze." Investors are relatively bearish Nasdaq and EuroStoxx and continue to be a little more bullish European Banks, DAX, FTSE.

DAY AHEAD: US international trade data for October is due, along with the weekly RedBook data (week ending Dec. 3rd). Canadians will see the release of the Ivery PMI and trade balance data for November and October, respectively. Although there is not much on the docket for the day, the EU Finance Ministers meetings are likely to generate some fiscal commentary. The API will release its gauge of weekly energy inventories after the US close. Our full day ahead calendar can be accessed here.

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06 Dec 2022 - 09:21- Research Sheet- Source: Newsquawk

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