S&P Futures Slip With Focus on U.S. ADP Jobs Report and Warsh’s Remarks

September S&P 500 E-Mini futures (ESU26) are down -0.27% this morning, starting the third quarter on a cautious note as investors await remarks from Federal Reserve Chairman Kevin Warsh and a new round of U.S. economic data at a time when bets on Fed rate hikes are ramping up.

The price of WTI crude fell over -1% on Wednesday after Bloomberg reported that U.S. negotiators Steve Witkoff and Jared Kushner held constructive talks in Qatar and that progress was being made in technical discussions with Iran. AFP reported that talks between U.S. and Iranian officials through mediators are continuing on Wednesday, though Witkoff and Kushner are not participating. Oil prices initially rose after Iran and Qatar said Tehran would meet with mediators rather than top U.S. envoys in Doha. Meanwhile, The Wall Street Journal reported on Tuesday that U.S. President Donald Trump considered returning to all-out war with Iran but opted to continue diplomatic talks for now.

In yesterday’s trading session, Wall Street’s major indexes closed higher, with the S&P 500 and Nasdaq 100 notching 1-week highs. Chip and AI infrastructure stocks rallied, with SanDisk (SNDK) jumping over +10% to lead gainers in the S&P 500 and Nasdaq 100 and KLA Corp. (KLAC) surging more than +8%. Also, AeroVironment (AVAV) climbed over +18% after the drone and defense technology provider posted better-than-expected FQ4 results. In addition, Air Products and Chemicals (APD) rose more than +8% after the world’s largest hydrogen supplier abandoned plans to develop a multibillion-dollar clean energy project in Louisiana. On the bearish side, Concentrix (CNXC) plunged over -11% after the AI-powered customer experience platform reported downbeat FQ2 results and cut its full-year guidance.

Economic data released on Tuesday were positive for equities, showing continued strength in both the labor market and consumer sentiment. The U.S. JOLTS job openings unexpectedly rose to a 2-year high of 7.594 million in May, stronger than expectations of 7.280 million. Also, the U.S. Conference Board’s consumer confidence index rose to 91.2 in June, though it came in below expectations of 94.4. In addition, the U.S. April S&P/CS HPI Composite - 20 n.s.a. rose +1.1% y/y, stronger than expectations of +0.9% y/y. Finally, the U.S. Chicago PMI fell to 56.7 in June, a smaller decline than expectations of 55.7.

“The low-hire, low-fire job market freeze is starting to thaw. If job growth holds steady in the second half of the year, the unemployment rate should fall, providing a further boost to consumer sentiment,” said Bill Adams at Fifth Third Commercial Bank.

Cleveland Fed President Beth Hammack said on Tuesday that if higher inflation trends persist, the Fed may need to raise interest rates to bring inflation back to target, citing strong consumer spending and short-term inflationary pressures from the AI data center buildout.

Meanwhile, U.S. rate futures have priced in a 66.3% chance of no rate change and a 33.7% chance of a 25 basis point rate hike at the Fed’s monetary policy committee meeting later this month.

Today, investors will focus on remarks from Fed Chairman Kevin Warsh, who is set to discuss monetary policy at the European Central Bank’s annual forum in Sintra, Portugal. Mr. Warsh will speak on a panel with his counterparts from the Eurozone, Canada, and the U.K. Market participants will closely scrutinize Warsh’s remarks for any clues on the interest-rate outlook.

On the economic data front, investors will keep a close eye on the U.S. ADP private payrolls report, which is set to be released in a couple of hours. Economists, on average, forecast that the June ADP Nonfarm Employment Change will stand at 118K, compared to 122K in May.

The U.S. ISM Manufacturing PMI and S&P Global Manufacturing PMI will also be in focus today. Economists expect the June ISM manufacturing index to be 53.8 and the S&P Global manufacturing PMI to be 55.7, compared to the previous month’s values of 54.0 and 55.1, respectively.

U.S. Construction Spending data will be released today. Economists project May ​construction spending to rise +0.1% m/m after the +0.4% m/m gain a month earlier.

The EIA’s weekly crude oil inventories report will be released today as well. Economists expect this figure to be -2.9 million barrels, compared to last week’s value of -6.1 million barrels.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.47%, down -0.06%.

The Euro Stoxx 50 Index is down -0.12% this morning, kicking off the third quarter on a muted note. Media stocks underperformed on Wednesday, while defense stocks climbed. Technology stocks edged higher, a day after the STOXX tech index posted its strongest quarterly performance since late 2001. Preliminary data from Eurostat released on Wednesday showed that the Eurozone’s annual inflation rate slowed much more than expected in June as energy prices cooled, further easing pressure on the European Central Bank to raise interest rates again. Separately, a survey showed that Eurozone manufacturing output completed its strongest quarter since early 2022, with easing cost pressures providing relief to factories even though weak export demand partly slowed overall activity growth in June to its weakest pace since February. “A further rise in manufacturing output in June adds to signs of encouraging resilience in the Eurozone economy,” said Chris Williamson at S&P Global Market Intelligence. Meanwhile, ECB Vice-President Boris Vujcic said on Wednesday that the central bank is likely to wait for more data, including updated macroeconomic forecasts at its September meeting, before deciding on its next interest-rate move. Investor focus now shifts to the ECB’s Sintra conference, where Fed Chairman Warsh and ECB President Christine Lagarde are set to speak on a panel. In corporate news, Saab AB (SAABB.S.DX) rose over +3% after securing a contract to deliver 16 Gripen E fighter aircraft to Ukraine in a deal worth 24.6 billion Swedish crowns ($2.54 billion).

Eurozone’s Manufacturing PMI, Eurozone’s CPI (preliminary) and Eurozone’s Core CPI (preliminary) data were released today.

Eurozone’s June Manufacturing PMI came in at 51.4, stronger than expectations of 51.3.

Eurozone’s June CPI rose +2.8% y/y, weaker than expectations of +3.0% y/y.

Eurozone’s June Core CPI rose +2.4% y/y, weaker than expectations of +2.5% y/y.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.44%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.59%.

China’s Shanghai Composite Index closed higher today, buoyed by solid factory activity data and President Xi Jinping reaffirming his commitment to “high-quality development.” Technology stocks advanced on Wednesday, continuing their outperformance over traditional sectors and reflecting the economy’s two-speed growth. A private survey released on Wednesday showed that China’s manufacturing sector grew for a seventh consecutive month in June, capping its strongest quarter since late 2020. “Overall, the manufacturing sector maintained a steady expansion in June, supported by sustained new order growth, easing cost pressures and improved labor market conditions,” said Yao Yu, founder of RatingDog. Meanwhile, President Xi pledged on Wednesday to “steadily promote high-quality development,” referring to sustainable, innovation-driven growth. His remarks helped bolster investor confidence, particularly in the tech and advanced manufacturing sectors. In corporate news, Cambricon Technologies slid over -6% after the AI chip company warned of intensifying competition and rising raw material costs, shedding its 1 trillion yuan market cap just a day after reaching the milestone.

The Chinese June RatingDog Manufacturing PMI stood at 51.7, weaker than expectations of 51.9.

Japan’s Nikkei 225 Stock Index closed higher today, tracking a tech-led rally on Wall Street overnight. Chip and other AI-related stocks outperformed on Wednesday. Leading semiconductor silicon wafer supplier Sumco surged over +17%, while capacitor and electronic components maker Taiyo Yuden climbed more than +12%. However, the Nikkei pared earlier gains of as much as 2.7% as fresh obstacles in U.S.-Iran peace negotiations prompted investors to lock in some profits. The Bank of Japan’s Tankan survey released on Wednesday showed that Japanese business sentiment climbed to an 8-year high and corporate inflation expectations jumped to record levels in the second quarter, underscoring the economy’s resilience amid the Middle East conflict. The Tankan survey will be among the factors shaping the BOJ’s quarterly growth and inflation forecasts due next month, which will provide insight into the timing of its next interest-rate hike. Capital Economics’ Marcel Thieliant said that the survey strengthened the case for faster BOJ rate hikes. Meanwhile, the yen fell to a new 40-year low against the dollar on Wednesday, leaving traders on high alert for potential currency intervention by the Japanese government. Elsewhere, Japanese government bond yields rose on Wednesday as a weaker yen and concerns over fiscal expansion dampened sentiment. In corporate news, Kawasaki Heavy Industries slumped over -7% after Reuters reported that the company was finalizing plans to raise about 200 billion yen ($1.23 billion) through a share sale and convertible bonds to finance capital spending. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed down -11.80% to 33.78.

The Japanese Tankan Large Manufacturers Index stood at 22 in the second quarter, stronger than expectations of 16.

The Japanese Tankan Large Non-Manufacturers Index came in at 37 in the second quarter, stronger than expectations of 36.

The Japanese June S&P Global Manufacturing PMI was revised lower to 54.8 from the preliminary reading of 54.9.

The Japanese June Household Confidence arrived at 33.8, weaker than expectations of 34.1.

Pre-Market U.S. Stock Movers

Chip and AI infrastructure stocks retreated in pre-market trading, with Sandisk (SNDK) falling over -4% and Marvell Technology (MRVL) dropping more than -2%.

Nike (NKE) slid over -3% in pre-market trading after the athletic apparel giant provided a cautious outlook and warned of heightened consumer anxiety.

Shutterstock (SSTK) cratered more than -30% in pre-market trading after Getty Images called off the merger deal between the two companies.

Salesforce (CRM) gained over +4% in pre-market trading after Guggenheim upgraded the stock to Buy from Neutral with a $228 price target.

SpaceX (SPCX) rose more than +2% in pre-market trading after Wedbush initiated coverage of the stock with a Buy rating and a $190 price target.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - July 1st

General Mills (GIS), FactSet Research Systems (FDS), MSC Industrial Direct Co. (MSM), UniFirst (UNF), The Greenbrier Companies (GBX).