Five Things You Need to Know to Start Your Day: Americas

Good morning. Stocks trading is muted as markets await key earnings and data later in the week. The outlook is souring for oil and the healt [View in browser]( [Bloomberg]( Good morning. Stocks trading is muted as markets await key earnings and data later in the week. The outlook is souring for oil and the health of the Chinese economy. And Skydance Media is set to own Paramount Global, ending a dramatic acquisition contest. Here’s what markets are talking about. — [Morwenna Coniam](. Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Markets await Stocks posted small moves as investors held off making decisions before Nvidia earnings and US inflation data later in the week.[US equity futures were slightly higher]( while European and[UK stocks rose]( led by mining stocks. Trading volumes were low, with activity on most European benchmarks about half of the average level from the past 30 days, while Treasuries and the dollar were also steady. Crude outlook In commodities, oil slid as Wall Street sours on the [outlook for crude next year]( Goldman Sachs and Morgan Stanley have lowered their price forecasts as global supplies increase, including potentially from OPEC+. The two banks now foresee global benchmark Brent averaging less than $80 a barrel in 2025 and both expect the crude market will be in surplus, with prices trending lower over 12 months. A decision by OPEC+ to reverse voluntary supply cuts may mean that the cartel is aiming at “strategically disciplining non-OPEC supply,” Goldman analysts said, while warning that crude prices could undershoot their revised forecasts in a number of scenarios. China in focus In the latest warning to global markets on the [health of the Chinese economy]( Temu-owner PDD Holdings surprised investors with an unusually gloomy outlook. The e-commerce firm, which became a market darling with low-priced goods that helped propel sales and profits during China’s economic downturn, also reported revenue that missed estimates. During a post-earnings briefing, its CEO mentioned at least eight times that revenue and profits must “inevitably” decline as economic growth slows.  Meanwhile, US interest-rate cuts may entice [Chinese companies to sell a $1 trillion pile of dollar-denominated assets]( the US cuts interest rates, a move which could strengthen the yuan by up to 10%, according to Eurizon SLJ Capital. Paramount deal Producer David Ellison’s[ Skydance Media is set to become the new owner]( of Paramount Global after Seagram heir Edgar Bronfman Jr. dropped out, ending one of the industry’s most dramatic acquisition contests. The storied Hollywood studio [said]( it expects to complete the deal with Skydance in the first half of 2025 as it confirmed Bronfman’s retreat late Monday. It also ended its “go-shop” period that allowed it to look for other bidders. Office values Office values in US central business districts have plunged 52% from their highs, with San Francisco, Manhattan and the core areas of Washington and Boston posting some of the biggest price declines among global metropolises since the pandemic. But outer neighborhoods are holding up better or even thriving. Nationally, the drop in values from the peak is 18% in US markets classified as suburban, or areas that are outside the traditional core. And in high-demand neighborhoods such as Century City, investor dollars continue to flow. [You can read more about the divergence in today’s Big Take](. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - Zuckerberg says White House ‘pressured’ Meta to [pull Covid posts]( - Chinese military plane [breaches Japan airspace]( - [Telegram]( billionaire’s rebel streak puts his freedom at risk - How [London’s Olympic legacy]( reshaped the forgotten East End - Macron seeks [centrist French Premier]( after rejecting left And finally, here's what Joe’s interested in this morning The Fed is almost certainly going to start cutting interest rates in September, and generally that's seen as good news for individuals and businesses that seek to borrow money. You know, would-be homebuyers, real estate developers, clean energy companies ([Matt Zeitlin at Heatmap News has a good piece on that here]( and so forth. And of course, all things being equal, yes, the Fed cutting rates does benefit borrowers. But, a few notes of caution. For one thing, borrowing costs have already come down substantially. The average 30-year mortgage was over 8% in late 2023. Today it's under 7%. Of course, one component that goes into the pricing of a mortgage (as well as any other kind of long-term borrowing) is the yield on US Treasuries. The 10-year yield has already come down a lot, from roughly 5% last October to sub-4% today. What's important to bear in mind is that what the Fed controls directly is the overnight cost of funding. What matters to most people and business or individuals is not the overnight cost of funding, but long-term funding costs. And the way to think about long-term funding costs is that the long-term is just a long series of short-terms. So one basic way to think about the yield on a 10-year Treasury is that it reflects what the market believes that short-term rates will average out to over the next 10 years. As for what will determine the average overnight interest rate for the next 10 years... well it's whatever the Fed has to do to keep inflation at 2%. If the rest of this decade is the reverse image of the 2010s, and we keep getting upside inflation surprises, then the Fed may feel that it can't cut rates very deeply while staying consistent to its mandate. As such, the market could continue to price elevated 10-year yields (elevated, at least, relative to pre-Covid levels). If we get a recession, or a productivity boom, or some other sustained disinflationary trend, then of course the market might price lower rates. So ultimately, if you want to see lower rates, it doesn't matter too much if the Fed cuts 25 basis points or 50 or what it does in the next month. What matters is the general trajectory of inflation, for the lower that goes, the lower the Fed can reduce interests. And of course, if the Fed cuts too much, and causes the economy to reaccelerate and heat up again... well then one can easily imagine a scenario where today's rate cuts mean higher yields on long-term Treasuries and higher borrowing costs for firms and individuals going forward. Follow Bloomberg's Joe Weisenthal on X [@TheStalwart]( [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Stay updated by saving our new email address Our email address is changing, which means you’ll be receiving this newsletter from noreply@news.bloomberg.com. 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