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American workforce continues to shrink, falls 400k since March after nearly hitting prepandemic levels

Data shows the number of U.S. workers has fallen 400,000 since March after coming close to reaching prepandemic levels, causing businesses to struggle to hire labor......»»

Category: topSource: foxnewsAug 14th, 2022

"Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond

"Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday's shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions. The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge... ... as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression. Alas, so far there is nothing but silence from the Fed - which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout - and as traders await something to break big time across global markets... This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic. — zerohedge (@zerohedge) September 26, 2022 ... this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32. It wasn't just FX and stocks crashing: British bonds also cratered as yields surged to the highest in more than a decade, sparking talk of emergency action by the Bank of England. For one example of the total chaos look no further than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the market now prices in Similar implosions were observed in US TSYs, where the 10Y traded just shy of Friday's mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every possible market. Turning back to stocks, the rout wasn't isolated to just one market and an index of global stocks traded to the lowest since 2020. European equities extended declines after sliding into a bear market on Friday, with mining and energy stocks underperforming as metals and oil fell. “We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday. In premarket trading, major US tech and internet stocks including Apple, Amazon and Microsoft tumbled. Here are some other notable premarket movers: Farfetch (FTCH US) shares fall as much as 4.43% in US premarket trading, after Citi begins coverage of the luxury online retailer with a sell rating, with broker flagging “weak” underlying profitability. Shares of US-listed Macau casinos jump in premarket trading, after Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6% Cryptocurrency-exposed stocks edged higher in premarket trading on Monday as Bitcoin rose above $19,000. Marathon Digital (MARA US) +1.9%, Coinbase (COIN US) +0.4% Keep an eye on Diana Shipping (DSX US) and Safe Bulkers (SB US) as Jefferies downgraded them to hold from buy and lowered dry bulk estimates to reflect the decline in dry bulk charter rates. European shares extended their fall to Dec. 2020 lows; sliding 1% and extending losses as investors priced a major economic shock and recession. The Stoxx 600 Index was down 1% by 10:50am in London, touching its lowest since December 2020, with real estate and banks among the worst performing sectors, while technology shares outperformed. Italy’s FTSE MIB bucked broader European declines to trade little changed, after Giorgia Meloni won a clear majority in Sunday’s election, in line with expectations. Banks and real estate stocks were the worst-performing sectors in Europe on Monday, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the benchmark gauge is 1.1% lower. The bank index decline is led by UK names including Virgin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Virgin Money was today resumed with a hold rating at Berenberg; broker said that the lender is expected to see revenue declines and a sector- lagging return on tangible equity which will affect ability to re-rate. Among real estate stocks, the UK’s Safestore Holdings (-4.2%), Assura (-3.9%) and Derwent London (-3.8%) are among the worst performers; non-index member housebuilders, including Persimmon, Bellway and Taylor Wimpey, are also plunging as the pound’s slump prompts talk of emergency action by the Bank of England. Here are the most notable movers today: The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-day outperformance against the broader Stoxx 600 since early-August, with semiconductor stocks leading gains. Among chip stocks, ASML rose as much as +3.7% after Santander upgraded the stock to neutral from underperform Italy’s FTSE MIB index gains, bucking weaker markets in Europe, after Giorgia Meloni won a clear majority in Sunday’s election. While the outcome was in line with expectations, the fact that the coalition didn’t obtain a super majority needed to change the constitution reassures investors. Telecom Italia rose as much +7.4%, FinecoBank +5.1%, Moncler +4.4% Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the company at the end of 2023, in a move that Jefferies analyst Martin Deboo (buy) sees as a positive development. RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the company at 222p/share in cash, representing a 7.8% premium to an offer WSP made in August. Liberum does not rule out a counterbid. Belimo shares rise as much as 8.5% since the market isn’t fully pricing in its growth outlook, Berenberg says in a note, moving to buy and establishing a Street-high CHF440 target. The stock gains as much as 8.1%, the most since March 2021. Zalando shares rise as much as 4.8% after Citi analyst says they like the long-term investment story, short-term earnings risks are still high. UK Domestics: the most remarkable reaction to Friday’s not-so-mini budget, however, might be in lenders’ shares. The decline in banking stocks reflects investors’ pessimistic view on Britain’s economy. HSBC fell as much as 2.9%; Lloyds -4.3%, NatWest -4.7% and Barclays -3.0%. Virgin Money UK shares drop as much as 10% after Berenberg resumed a hold rating in note, stating that in many ways the UK small banks are “more different than they are alike.” Utilities are the day’s worst-performing European sector. Citi analyst Piotr Dzieciolowski says the EU’s funding for its policy response has so far been insufficient and also expects uncertainty to persist for UK names. United Utilities fell as much as -3.4%, Drax -3.8% Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes, and a gauge of German business confidence deteriorated. Earlier in the session, a rout in Asian stocks extended into Monday as rising concerns about a global recession and weak demand hit the region’s exporters and materials producers. The MSCI Asia Pacific Index declined as much as 2.3% to the lowest since April 2020, dragged lower by TSMC, BHP and Toyota Motor. All but one sector traded lower with materials leading the slump.  South Korean stocks fell the most in the region, with the benchmark tumbling 3% to more than a two-year low. The Korean market’s heavy tech exposure has proven costly amid rising rates and a stronger dollar, with fears that a looming recession may wreak havoc on global demand. Gauges in Hong Kong and China reversed earlier gains as the region’s selloff intensified.   Korea Assets Are Asia’s Biggest Losers on Global Recession Angst “Investor sentiment is again at the stage of extreme fear,” said Lee Kyoung-Min, an analyst at Daishin Investment. “It is becoming solid and clear that Kospi and other global stock markets are on a mid-to-long term downward trend.” Asian stock benchmarks are being buffeted by global headwinds as well as risks of their own. The Federal Reserve’s relentless rate hike campaign is pushing Asian currencies lower and raising the risk of capital outflows, while China’s adherence to Covid Zero is hurting growth in the region’s economic giant.  If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trading after a holiday on Friday. The Philippine stock market was closed Monday as Super Typhoon Noru barreled into the main Luzon island.  Among the key issues investors are watching this week are speeches by central bank officials in US and Europe, including Fed Chair Jerome Powell on Tuesday. Japanese equities tumbled as the market reopened following a three-day weekend, tracking US peers lower after the Fed’s hawkish comments last week deepened fears of a global downturn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toyota Motor contributed the most to the Topix decline, decreasing 3.2% after its monthly production update lagged expectations. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a possibility that inflation will not subside and interest rates will rise further, which the markets will not like,” said Shoji Hirakawa, a chief global strategist at Tokai Tokyo Research. In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and mining shares plummeted. An energy gauge including oil and coal linked securities declined by the most since March 2020.  The New Zealand market was closed for a holiday In India, key stocks gauges plunged to their lowest closing levels in almost two months as the global equity rout continues. The S&P BSE Sensex dropped 1.6% to 57,145.22 in Mumbai to its lowest since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatility in domestic equities is likely to remain elevated this week, pending monthly derivatives expiry on Thursday. Of 30 shares in the Sensex index, 24 fell and 6 advanced. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by utilities and power companies.  The Indian rupee weakened to a new record against the dollar amid surging US Treasury yields. The Reserve Bank of India’s rate-setting panel will announce monetary policy later this week. As noted above, while stocks are ugly, rates are a horrorshow as Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. Treasuries extended losses in a bear flattening move with yields cheaper by up to 10bp across the belly of the curve. US 10-year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flatter by 5bp, dropping as low as -45.4bp in European session; UK yields cheaper by 60bp to 25bp from front- end out to long-end of the curve. The Move comes as market participants brace for accelerated policy tightening from global central banks and headlines such as this: *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER Yields on 2-year gilts are 60bp cheaper heading into early US session, while the pound recovers slightly after reaching a fresh all-time low. US session focus on 2-year auction, while a barrage of Fed speakers are expected for the week. Peripheral spreads widen to Germany with 10y BTP/Bund widening 7bps to 238bps. FX, of course, is a disaster, with the Bloomberg Dollar Spot Index rising a fifth consecutive day as the greenback advanced versus most of its Group-of-10 peers. The pound plunged almost 5% to $1.0350 in Asian trading, the lowest recorded in Bloomberg data going back to 1971, while gilts crashed after the UK government vowed to press ahead with more tax cuts, stoking fears that new fiscal policies will send inflation and debt soaring, triggering emergency rate hikes. The options market signals no respite even as the pound rebounded from a record low hit during the Asia session. The yield on two- year bonds surged more than 55 basis points to 4.51%, while the 10-year yield rose 37 basis points to 4.19%. Money markets price in more than 150 basis points of rate increases by the BoE’s next policy meeting in November The euro steadied after earlier dropping to $0.9554; European bond yields rose; Italian bonds underperformed German peers. Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II. Germany’s IFO business expectations slid to 75.2 in September from 80.3 in August. That’s the lowest since April 2020. Analysts had predicted a drop to 79. An index of current conditions also fell. The Australian and New Zealand dollars pared some losses after earlier touching fresh 2-year lows. Aussie bond yields rose by up to 13bps, led by the front end The yen weakened amid a broadly stronger dollar. Bank of Japan Governor Haruhiko Kuroda said the government’s intervention in the foreign exchange market last week was appropriate given the recent volatility in the yen The currency’s rally is “untenable” for risk assets, according to a note by Morgan Stanley strategists led by Michael Wilson, while Sian Fenner, senior Asia economist for Oxford Economics, said that “It’s a king US dollar...“It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.” In commodities, WTI slides almost 1% to trade near $78/bbl. Spot gold mostly unchanged near $1,643/oz. Bitcoin climbs above $19,000. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week. Looking at today's calendar, we get the September Dallas Fed manufacturing activity index, and the August Chicago Fed national activity index. Central bank speakers include the Fed's Bostic, Collins, Logan and Mester; ECB's Lagarde also speaks as does Nagel, Guindos, Centeno and Panetta speak, BoE's Tenreyro speaks. Market Snapshot S&P 500 futures little changed at 3,706.25 MXAP down 2.0% to 142.24 MXAPJ down 1.4% to 463.08 Nikkei down 2.7% to 26,431.55 Topix down 2.7% to 1,864.28 Hang Seng Index down 0.4% to 17,855.14 Shanghai Composite down 1.2% to 3,051.23 Sensex down 1.2% to 57,378.30 Australia S&P/ASX 200 down 1.6% to 6,469.41 Kospi down 3.0% to 2,220.94 STOXX Europe 600 down 0.2% to 389.70 German 10Y yield little changed at 2.08% Euro little changed at $0.9683 Brent Futures down 0.7% to $85.59/bbl Brent Futures down 0.7% to $85.59/bbl Gold spot up 0.1% to $1,645.98 U.S. Dollar Index little changed at 113.22 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng must do more to reassure the markets about his plans for the economy after a selloff sent the pound crashing to an all-time low against the dollar, said Gerard Lyons, an external adviser to Prime Minister Liz Truss The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers. The UK had $108 billion in foreign currency reserves at the end of August, according to data from the IMF Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling The ECB’s newest policy maker, Boris Vujcic, says “it’s clear that this is the right way to go,” backing this month’s 75-basis point interest-rate hike ECB Vice President Luis de Guindos said the biggest problem facing the continent’s economy is record inflation, which is becoming more broad-based, threatening investment and consumer spending ECB Governing Council member Yannis Stournaras says the central bank must maintain the main principles of gradualism and flexibility, since the problem it faces is different from the one that the US Fed faces China made it more expensive to bet against the yuan in the derivatives market, ramping up support for the currency as it slides toward the weakest level since the 2008 financial crisis A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly negative in a resumption of last week's global stock rout amid the continued surge in the dollar and higher yields, while there was also FX volatility which saw a flash crash in GBP/USD to a record low. ASX 200 was dragged lower amid losses in the commodity-related sectors and with sentiment dampened by the collapse of potential M&A deals involving Ramsay Health-KKR and Link Administration-Dye & Durham. Nikkei 225 underperformed with Mazda Motors among the worst hit as it considers exiting Russian operations. Hang Seng and Shanghai Comp retraced most of their initial losses with Hong Kong underpinned following the scrapping of hotel quarantine policy and with casinos boosted as Macau is to resume tour groups from China, while the property industry benefits after China Construction Bank formed a CNY 30bln housing rental fund and some Twitter sources also circulated that some China state banks were reportedly ordered to buy stocks to contain selling. Top Asian News PBoC injected CNY 42bln via 7-day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection. There were rumours circulating on social media of a coup against Chinese President Xi, although experts and journalists in Beijing dismissed the rumours and said there was no evidence to support them, according to The Print. Philippines Stock Exchange announced a trading suspension for Monday amid a typhoon in the capital, according to Reuters. European bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 -0.5%, as sentiment remains subdued amid recession/inflation concerns. The breakdown features modest outperformance in the FTSE MIB as Italian election results are in-line with expectations. Stateside, futures are lower across the board in-fitting with peers going into a week of Fed speak and inflation data. Top European News UK PM Truss said she is determined to make the special relationship with the US even more special and said she agreed with US President Biden that it is vital to protect the Northern Ireland Good Friday Agreement, while she wants to find a way forward with a negotiated solution with the EU, according to Reuters and a CNN interview. UK PM Truss is to review visa schemes in an attempt to ease UK labour shortages, according to FT. UK Chancellor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour people right across the income scale” amid accusations they mainly help the rich, according to Evening Standard. UK Chancellor Kwarteng said he is focused on growing the economy and the longer term when asked about the market reaction to his statement on Friday. Kwarteng added that he shares ideas with BoE Governor Bailey but added that Bailey is completely independent and Kwarteng is confident the BoE is dealing with inflation, according to Reuters. UK opposition Labour Party leader Starmer said they would reintroduce the top rate of income tax at 45% which the government announced to scrap last week, while he added that they will support the government plan to lower the basic rate of income tax to 19%, according to Reuters. Italy's right-wing bloc is seen winning the national election with 43.3% and centre-left bloc is seen winning 25.4%, according to the first projection by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis. Italy's Meloni said Italians gave clear backing to a centre-right government led by the Brothers of Italy and said the situation is difficult and needs contribution from everyone. It was separately reported that Italy's Democratic Party conceded in the election and said it will be the main opposition force, while Italy's Meloni claimed leadership of the next Italian government, according to Reuters and AFP. FX DXY climbed to a fresh YTD high of 114.58 before paring modestly, but remaining firmer, as GBP in particular lifts off worst levels. Cable succumbed to a flash crash overnight, with GBP/USD hitting an all-time-low around 1.0350 as participants confidence in the economy slips. EUR suffers amid the mentioned USD move but derives relative benefit from GBP, while ECB speakers thus far have added little. Antipodeans and CAD weighed on by broader risk and commodity pressure. Japanese Finance Minister Suzuki said the government and BoJ share views on concerns about a weak JPY, while he added that FX intervention had a certain effect and there is no change to the stance that they will respond to market moves as needed, according to Reuters. PBoC set USD/CNY mid-point at 7.0298 vs exp. 7.0019 (prev. 6.9920) PBoC imposed a 20% risk reserve requirement for FX forward sales from September 28th to rein in yuan weakness. Fixed Income Gilts have retained some composure after slumping over 200ticks at the commencement of trade and have settled around halfway between intraday extremes. EGBs downbeat in sympathy while BTPs marginally lag core-EGB peers as Italian as-expected election results are digested with BTP-Bund only modestly wider as such. Stateside, USTs are pressured in-fitting with peers and also conscious of the week's supply docket getting underway via a 43bln 2yr. Central Banks Fed’s Bostic (2024 voter) said inflation is too high and that they need to do all they can to bring it down and said demand is beginning to shrink which will ultimately pay dividends in inflation levels. Bostic also stated that there are scenarios where they can avoid deep pain but there will likely be some job losses, according to Reuters. BoJ's Kuroda says the BoJ will maintain accommodative monetary conditions to support companies, hopes to support a positive economic cycle, long-term inflation expectations have begun to heighten, via Reuters. Intervention from the MoF is an "appropriate" move, does not think gov't intervention and BoJ policy are contradictory. Amamiya says the domestic economy is picking up, must carefully watch how FX moves affect the economy and prices. BoJ Governor Kuroda says when he stated that BoJ forward guidance will not change for 2-3yrs, did not refer to guidance on keeping short and long-term rates at present of lower levels via Reuters. ECB's de Guindos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the scenario is market by high uncertainty, lower growth and higher inflation. ECB's Panetta says ECB is assessing the potential of distributed ledger technology (DLT) and "the extent to which it could improve our services.". Capital Economics calls for the BoE to "get on the front foot with a big rate hike". Allianz's El-Erian says, on GBP, the fall is about extra tax cuts and Chancellor Kwarteng could recalibrate this. Alternative, would be for the BoE to hike at an emergency meeting. Adding, he would hike by 100bp. BoE publishes key elements of the 2022 annual cyclical scenario stress test; includes a scenario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before gradually reduced to sub-3.5%. Commodities WTI and Brent November futures remain subdued in early European trade following last week’s recession-induced losses. Spot gold trades in tandem with the Buck and sees resistance at around USD 1,650/oz after falling to USD 1,627/oz as a casualty of the Sterling flash crash overnight. LME metals are softer across the board with 3M copper futures having a hard time reclaiming USD +7,500/t status with upside capped by the Buck. Iraq began trial operations at the Karabala oil refinery which has a production capacity of 140k bpd, according to a statement from the Oil Ministry. German Chancellor Scholz signed a strategic agreement with UAE’s President on accelerating energy security and industrial growth, while UAE’s ADNOC signed an agreement with Germany’s RWE which includes ADNOC exporting its first LNG cargo to RWE and will conduct trial shipments of low-carbon ammonia to Germany. Furthermore, Chancellor Scholz said while visiting Doha that he talked with the Emir about LNG deliveries and that they want to achieve further progress, according to Reuters. Germany is preparing a national electricity price cap to be implemented this fall in the scenario the EU falls to agree on a similar move for the entirety of the bloc, via WSJ citing officials. Vitol's CEO said at the Asia Pacific Petroleum Conference that Russian gas supply cuts put enormous strain on supply-demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol's CEO said they are increasing crude exports to Europe this year to replace Russian supplies and are drilling 600 oil wells this year. Anglo American (AAL LN) tightens copper production guidance for Chile to 560k-580k tonnes of copper (prev. 560k-600k tonnes) due to lower throughput at Los Bronces caused by a combination of water restrictions and a change in ore characteristics, via Reuters. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.23, prior 0.27 10:30: Sept. Dallas Fed Manf. Activity, est. -10.0, prior -12.9 Central Banks 10:00: Boston Fed’s Susan Collins Speaks to Boston Chamber of... 12:00: Fed’s Bostic Discusses Income Inequality 12:30: Fed’s Logan Speaks at Banking Conference 16:00: Fed’s Mester Discusses Economic Outlook DB's Jim Reid concludes the overnight wrap I wonder whether any research report has ever been written whilst watching synchronised swimming? Well if not, then you’re reading the first ever as I’m getting a head start on the early morning news by starting this on Sunday evening watching my daughter Maisie do her second session after getting into the local club. Watching this sport is going to take some getting used to after years of watching football, cricket, golf, F1, athletics, rugby... actually.... virtually every sport bar synchronised swimming. I think everyone felt they were swimming in a tsunami of newsflow last week after one of the most incredible macro weeks in recent memory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more variety and was outside of a crisis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields moving higher for the 12th successive day on Friday (the longest steak since data begins in 1976), the BoJ intervening in FX markets for the first time since 1998, and what can only be termed as one of the darker days for sterling assets on record on Friday after a mammoth tax giveaway in what was a mini-budget in name and not by nature. Henry and I put a note out on Friday night (link here) showing that it was the third worst day for Sterling (-3.57%) since Black Wednesday in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the initial covid shock in 2020 (-3.71%) when there was a global flight to dollars. We also show a graph of daily Sterling moves back to 1862 and on that it was the 41st worst day in history spanning 47,000 trading days. Obviously in the long era of fixed FX rates there were the occasional big devaluations which were much bigger than Friday. This morning is Asia it fell around -4.5% at one point (1.0392) which was a record low against the Dollar. It's around -2.78% as I type. This follows a weekend interview where Chancellor Kwarteng suggested that more tax cuts were to come so that certainly was a red rag to markets. Will we hear from the upper echelons of the BoE today? Watch out for any comments, especially at the market open. DB's George Saravelos suggested on Friday that the Bank of England need to do an inter meeting hike to restore policy credibility. There’s also a graph in our note mentioned above showing that Friday was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when sterling was also slumping. So maybe omens here. I suppose the only slight mystery is the timing of the sell-off as the mini-budget in magnitude was broadly in-line with the recent elevated fiscal expectations that had been building. However perhaps it was the unabashed revival of trickle-down economics that had markets a little aghast. It goes against the current economic orthodoxy and the overall zeitgeist of our immediate times. As such there is likely to be concerns of a credibility issue. We are publishing our long-term study today with the title “How we got here, and where we’re going?”. In it we try to put the current macro woes into historical context in an attempt to work out where we’re going. There are quite a few people who have proof-read it on my team and they were all thoroughly depressed at the end. I didn't feel that way writing it but maybe it's a case of starting point perceptions. Anyway, look out for it around the European lunchtime. Overnight in Italy, the right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course to become the nation’s first woman prime minister after exit polls gave it a clear majority. With the full results due later today, she is predicted to win up to 26% of the vote ahead of her closest rival Enrico Letta from the centre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a majority if correct. As I type, the euro is extending its losses against the dollar for the fifth day, its longest streak since April 28, falling as much as -0.5% to 0.9638, albeit being overshadowed by Sterling. For this week we have an array of consumer-driven economic data in the US and some important European inflation prints. We will also get a number of consumer sentiment indicators across the key economies and PMIs from Asia. Away from the data, there are more than 30 central banker appearances across the Fed and the ECB to keep markets busy. Tomorrow also sees referendums in the Russia-annexed Ukrainian territories as the conflict goes into its eight month. Going through the data in more details now. Starting with the US, the PCE and personal income and spending data will be front and centre for markets next week as they gauge the extent of inflationary pressures and the strength of the consumer. The Fed’s preferred inflation gauge, the PCE, due Friday, will be watched for signs of price pressures we saw in last week's CPI report. Our US economists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal. For the other two data points, our team forecasts a +0.1% MoM increase for both income and consumption. Final US Q2 GDP will also be released on Thursday and although DB expect no change to the -0.6% second reading, watch out for the annual benchmark revisions back to Q1 2017. History could be re-written that could have some implications for how we all think about the economy. In other US data, we will also get the consumer confidence index on Tuesday, along with durable goods orders, and inventories data on Wednesday, with the Chicago PMI on Friday. Over in Europe, all eyes will be on September's inflation data, including the Euro Area flash CPI release on Friday. Our economists are expecting the measure to hit a record +9.5%, up from the previous record of +9.1% in August. Other data in the region will include consumer and economic sentiment from Germany, France, Italy and the Eurozone throughout the week. Meanwhile, EU energy ministers will meet again on Friday regarding the emergency intervention amid elevated energy prices. Finally, next week's earnings line up will feature a number of retail bellwethers on Thursday. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which contains many of the key Fed and ECB speakers including Powell and Lagarde. Stock markets across Asia are mostly lower this morning. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are leading the declines. Meanwhile, the Hang Seng (+0.11%) is swinging between gains and losses after rising by +2.45% initially with Chinese shares mixed as the Shanghai Composite (-0.10%) is trading lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are pointing to further losses with contracts on the S&P 500 (-0.49%), NASDAQ 100 (-0.46%) and DAX (-0.33%) all moving lower. Early morning data showed that Japan’s manufacturing sector continued to expand albeit at a slower pace as the latest au Jibun Bank manufacturing PMI slipped to a 20-month low of 51.0 in September from 51.5 in August, pulled lower by high energy and raw material prices that was exacerbated by a weak yen. At the same time, the au Jibun Bank services PMI returned to expansion, recording a level of 51.9 in September from August's 49.5 final reading. Moving on to China, in order to stabilise expectations in the FX market, the People’s Bank of China (PBOC) today raised the risk reserve requirement on foreign exchange forward sales to 20% from 0% beginning September 28 as the yuan faces increasing depreciation pressure, in line with most major currencies amid broad dollar strength. Looking back now on a week that will not be forgotten anytime soon. While there were historic central bank hikes all week, the biggest news came from the fiscal authorities, following the UK’s budget Friday, which had the largest tax cut package since the 1970s. Gilt yields had their largest one-day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we mentioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at helping a plunging currency. The pound fell -3.57% against the US dollar to within a percentage point of the weakest in the post-Bretton Woods 51yr free float era. It was already a busy macro week before the blockbuster budget, where we got more than 500bps of global central bank hikes and a currency intervention from Japan. In terms of the biggest players, the Fed delivered its third consecutive 75bp hike while the BoE delivered its second 50bp hike in a row, with both banks guiding toward yet more tightening, while the BoJ remained the outlier by keeping its accommodative policy in place, which isn’t going to help the yen turnaround even with intervention. When all was said and done, sovereign bonds and equities sold off in size, while yield curves flattened. 2yr Treasuries (+33.4bps, +7.9bps Friday), 2yr Bunds (+38.5bps, +7.2bps Friday), 2yr Gilts (+82.1bps, +44.7bps Friday) reached their highest levels since 2007, 2008, and 2008, respectively, as markets priced in more tightening to overcome inflationary pressures (and in the case of the UK, fiscal expansion). 10yr Treasuries (+23.5bps, -2.9bps Friday) ended the week a touch lower on the day but hit their highest levels since 2011 during the week, while 10yr Bunds (+26.8bps, +5.9bps Friday), and 10yr Gilts (+69.1bps, +33.3bps Friday) hit their highest levels since 2013 and 2011, respectively. The mixture unsurprisingly proved unpalatable to risk assets, driving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated -4.37% on the week and -2.34% on Friday, the worst weekly and daily return since mid-June. The S&P 500 fell -4.65% (-1.75% Friday), returning to bear market territory. The FTSE managed to stay above its YTD lows, but still fell -3.01% on the week, its worst weekly return since mid-June as well, and retreated -1.97% on Friday, the worst daily return since early July. Tyler Durden Mon, 09/26/2022 - 08:08.....»»

Category: blogSource: zerohedge15 hr. 33 min. ago

“Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond

“Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday's shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions. The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge... ... as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression. Alas, so far there is nothing but silence from the Fed - which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout - and as traders await something to break big time across global markets... This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic. — zerohedge (@zerohedge) September 26, 2022 ... this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32. It wasn't just FX and stocks crashing: British bonds also cratered as yields surged to the highest in more than a decade, sparking talk of emergency action by the Bank of England. For one example of the total chaos look no further than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the market now prices in Similar implosions were observed in US TSYs, where the 10Y traded just shy of Friday's mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every possible market. Turning back to stocks, the rout wasn't isolated to just one market and an index of global stocks traded to the lowest since 2020. European equities extended declines after sliding into a bear market on Friday, with mining and energy stocks underperforming as metals and oil fell. “We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday. In premarket trading, major US tech and internet stocks including Apple, Amazon and Microsoft tumbled. Here are some other notable premarket movers: Farfetch (FTCH US) shares fall as much as 4.43% in US premarket trading, after Citi begins coverage of the luxury online retailer with a sell rating, with broker flagging “weak” underlying profitability. Shares of US-listed Macau casinos jump in premarket trading, after Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6% Cryptocurrency-exposed stocks edged higher in premarket trading on Monday as Bitcoin rose above $19,000. Marathon Digital (MARA US) +1.9%, Coinbase (COIN US) +0.4% Keep an eye on Diana Shipping (DSX US) and Safe Bulkers (SB US) as Jefferies downgraded them to hold from buy and lowered dry bulk estimates to reflect the decline in dry bulk charter rates. European shares extended their fall to Dec. 2020 lows; sliding 1% and extending losses as investors priced a major economic shock and recession. The Stoxx 600 Index was down 1% by 10:50am in London, touching its lowest since December 2020, with real estate and banks among the worst performing sectors, while technology shares outperformed. Italy’s FTSE MIB bucked broader European declines to trade little changed, after Giorgia Meloni won a clear majority in Sunday’s election, in line with expectations. Banks and real estate stocks were the worst-performing sectors in Europe on Monday, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the benchmark gauge is 1.1% lower. The bank index decline is led by UK names including Virgin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Virgin Money was today resumed with a hold rating at Berenberg; broker said that the lender is expected to see revenue declines and a sector- lagging return on tangible equity which will affect ability to re-rate. Among real estate stocks, the UK’s Safestore Holdings (-4.2%), Assura (-3.9%) and Derwent London (-3.8%) are among the worst performers; non-index member housebuilders, including Persimmon, Bellway and Taylor Wimpey, are also plunging as the pound’s slump prompts talk of emergency action by the Bank of England. Here are the most notable movers today: The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-day outperformance against the broader Stoxx 600 since early-August, with semiconductor stocks leading gains. Among chip stocks, ASML rose as much as +3.7% after Santander upgraded the stock to neutral from underperform Italy’s FTSE MIB index gains, bucking weaker markets in Europe, after Giorgia Meloni won a clear majority in Sunday’s election. While the outcome was in line with expectations, the fact that the coalition didn’t obtain a super majority needed to change the constitution reassures investors. Telecom Italia rose as much +7.4%, FinecoBank +5.1%, Moncler +4.4% Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the company at the end of 2023, in a move that Jefferies analyst Martin Deboo (buy) sees as a positive development. RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the company at 222p/share in cash, representing a 7.8% premium to an offer WSP made in August. Liberum does not rule out a counterbid. Belimo shares rise as much as 8.5% since the market isn’t fully pricing in its growth outlook, Berenberg says in a note, moving to buy and establishing a Street-high CHF440 target. The stock gains as much as 8.1%, the most since March 2021. Zalando shares rise as much as 4.8% after Citi analyst says they like the long-term investment story, short-term earnings risks are still high. UK Domestics: the most remarkable reaction to Friday’s not-so-mini budget, however, might be in lenders’ shares. The decline in banking stocks reflects investors’ pessimistic view on Britain’s economy. HSBC fell as much as 2.9%; Lloyds -4.3%, NatWest -4.7% and Barclays -3.0%. Virgin Money UK shares drop as much as 10% after Berenberg resumed a hold rating in note, stating that in many ways the UK small banks are “more different than they are alike.” Utilities are the day’s worst-performing European sector. Citi analyst Piotr Dzieciolowski says the EU’s funding for its policy response has so far been insufficient and also expects uncertainty to persist for UK names. United Utilities fell as much as -3.4%, Drax -3.8% Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes, and a gauge of German business confidence deteriorated. Earlier in the session, a rout in Asian stocks extended into Monday as rising concerns about a global recession and weak demand hit the region’s exporters and materials producers. The MSCI Asia Pacific Index declined as much as 2.3% to the lowest since April 2020, dragged lower by TSMC, BHP and Toyota Motor. All but one sector traded lower with materials leading the slump.  South Korean stocks fell the most in the region, with the benchmark tumbling 3% to more than a two-year low. The Korean market’s heavy tech exposure has proven costly amid rising rates and a stronger dollar, with fears that a looming recession may wreak havoc on global demand. Gauges in Hong Kong and China reversed earlier gains as the region’s selloff intensified.   Korea Assets Are Asia’s Biggest Losers on Global Recession Angst “Investor sentiment is again at the stage of extreme fear,” said Lee Kyoung-Min, an analyst at Daishin Investment. “It is becoming solid and clear that Kospi and other global stock markets are on a mid-to-long term downward trend.” Asian stock benchmarks are being buffeted by global headwinds as well as risks of their own. The Federal Reserve’s relentless rate hike campaign is pushing Asian currencies lower and raising the risk of capital outflows, while China’s adherence to Covid Zero is hurting growth in the region’s economic giant.  If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trading after a holiday on Friday. The Philippine stock market was closed Monday as Super Typhoon Noru barreled into the main Luzon island.  Among the key issues investors are watching this week are speeches by central bank officials in US and Europe, including Fed Chair Jerome Powell on Tuesday. Japanese equities tumbled as the market reopened following a three-day weekend, tracking US peers lower after the Fed’s hawkish comments last week deepened fears of a global downturn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toyota Motor contributed the most to the Topix decline, decreasing 3.2% after its monthly production update lagged expectations. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a possibility that inflation will not subside and interest rates will rise further, which the markets will not like,” said Shoji Hirakawa, a chief global strategist at Tokai Tokyo Research. In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and mining shares plummeted. An energy gauge including oil and coal linked securities declined by the most since March 2020.  The New Zealand market was closed for a holiday In India, key stocks gauges plunged to their lowest closing levels in almost two months as the global equity rout continues. The S&P BSE Sensex dropped 1.6% to 57,145.22 in Mumbai to its lowest since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatility in domestic equities is likely to remain elevated this week, pending monthly derivatives expiry on Thursday. Of 30 shares in the Sensex index, 24 fell and 6 advanced. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by utilities and power companies.  The Indian rupee weakened to a new record against the dollar amid surging US Treasury yields. The Reserve Bank of India’s rate-setting panel will announce monetary policy later this week. As noted above, while stocks are ugly, rates are a horrorshow as Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. Treasuries extended losses in a bear flattening move with yields cheaper by up to 10bp across the belly of the curve. US 10-year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flatter by 5bp, dropping as low as -45.4bp in European session; UK yields cheaper by 60bp to 25bp from front- end out to long-end of the curve. The Move comes as market participants brace for accelerated policy tightening from global central banks and headlines such as this: *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER Yields on 2-year gilts are 60bp cheaper heading into early US session, while the pound recovers slightly after reaching a fresh all-time low. US session focus on 2-year auction, while a barrage of Fed speakers are expected for the week. Peripheral spreads widen to Germany with 10y BTP/Bund widening 7bps to 238bps. FX, of course, is a disaster, with the Bloomberg Dollar Spot Index rising a fifth consecutive day as the greenback advanced versus most of its Group-of-10 peers. The pound plunged almost 5% to $1.0350 in Asian trading, the lowest recorded in Bloomberg data going back to 1971, while gilts crashed after the UK government vowed to press ahead with more tax cuts, stoking fears that new fiscal policies will send inflation and debt soaring, triggering emergency rate hikes. The options market signals no respite even as the pound rebounded from a record low hit during the Asia session. The yield on two- year bonds surged more than 55 basis points to 4.51%, while the 10-year yield rose 37 basis points to 4.19%. Money markets price in more than 150 basis points of rate increases by the BoE’s next policy meeting in November The euro steadied after earlier dropping to $0.9554; European bond yields rose; Italian bonds underperformed German peers. Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II. Germany’s IFO business expectations slid to 75.2 in September from 80.3 in August. That’s the lowest since April 2020. Analysts had predicted a drop to 79. An index of current conditions also fell. The Australian and New Zealand dollars pared some losses after earlier touching fresh 2-year lows. Aussie bond yields rose by up to 13bps, led by the front end The yen weakened amid a broadly stronger dollar. Bank of Japan Governor Haruhiko Kuroda said the government’s intervention in the foreign exchange market last week was appropriate given the recent volatility in the yen The currency’s rally is “untenable” for risk assets, according to a note by Morgan Stanley strategists led by Michael Wilson, while Sian Fenner, senior Asia economist for Oxford Economics, said that “It’s a king US dollar...“It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.” In commodities, WTI slides almost 1% to trade near $78/bbl. Spot gold mostly unchanged near $1,643/oz. Bitcoin climbs above $19,000. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week. Looking at today's calendar, we get the September Dallas Fed manufacturing activity index, and the August Chicago Fed national activity index. Central bank speakers include the Fed's Bostic, Collins, Logan and Mester; ECB's Lagarde also speaks as does Nagel, Guindos, Centeno and Panetta speak, BoE's Tenreyro speaks. Market Snapshot S&P 500 futures little changed at 3,706.25 MXAP down 2.0% to 142.24 MXAPJ down 1.4% to 463.08 Nikkei down 2.7% to 26,431.55 Topix down 2.7% to 1,864.28 Hang Seng Index down 0.4% to 17,855.14 Shanghai Composite down 1.2% to 3,051.23 Sensex down 1.2% to 57,378.30 Australia S&P/ASX 200 down 1.6% to 6,469.41 Kospi down 3.0% to 2,220.94 STOXX Europe 600 down 0.2% to 389.70 German 10Y yield little changed at 2.08% Euro little changed at $0.9683 Brent Futures down 0.7% to $85.59/bbl Brent Futures down 0.7% to $85.59/bbl Gold spot up 0.1% to $1,645.98 U.S. Dollar Index little changed at 113.22 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng must do more to reassure the markets about his plans for the economy after a selloff sent the pound crashing to an all-time low against the dollar, said Gerard Lyons, an external adviser to Prime Minister Liz Truss The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers. The UK had $108 billion in foreign currency reserves at the end of August, according to data from the IMF Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling The ECB’s newest policy maker, Boris Vujcic, says “it’s clear that this is the right way to go,” backing this month’s 75-basis point interest-rate hike ECB Vice President Luis de Guindos said the biggest problem facing the continent’s economy is record inflation, which is becoming more broad-based, threatening investment and consumer spending ECB Governing Council member Yannis Stournaras says the central bank must maintain the main principles of gradualism and flexibility, since the problem it faces is different from the one that the US Fed faces China made it more expensive to bet against the yuan in the derivatives market, ramping up support for the currency as it slides toward the weakest level since the 2008 financial crisis A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly negative in a resumption of last week's global stock rout amid the continued surge in the dollar and higher yields, while there was also FX volatility which saw a flash crash in GBP/USD to a record low. ASX 200 was dragged lower amid losses in the commodity-related sectors and with sentiment dampened by the collapse of potential M&A deals involving Ramsay Health-KKR and Link Administration-Dye & Durham. Nikkei 225 underperformed with Mazda Motors among the worst hit as it considers exiting Russian operations. Hang Seng and Shanghai Comp retraced most of their initial losses with Hong Kong underpinned following the scrapping of hotel quarantine policy and with casinos boosted as Macau is to resume tour groups from China, while the property industry benefits after China Construction Bank formed a CNY 30bln housing rental fund and some Twitter sources also circulated that some China state banks were reportedly ordered to buy stocks to contain selling. Top Asian News PBoC injected CNY 42bln via 7-day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection. There were rumours circulating on social media of a coup against Chinese President Xi, although experts and journalists in Beijing dismissed the rumours and said there was no evidence to support them, according to The Print. Philippines Stock Exchange announced a trading suspension for Monday amid a typhoon in the capital, according to Reuters. European bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 -0.5%, as sentiment remains subdued amid recession/inflation concerns. The breakdown features modest outperformance in the FTSE MIB as Italian election results are in-line with expectations. Stateside, futures are lower across the board in-fitting with peers going into a week of Fed speak and inflation data. Top European News UK PM Truss said she is determined to make the special relationship with the US even more special and said she agreed with US President Biden that it is vital to protect the Northern Ireland Good Friday Agreement, while she wants to find a way forward with a negotiated solution with the EU, according to Reuters and a CNN interview. UK PM Truss is to review visa schemes in an attempt to ease UK labour shortages, according to FT. UK Chancellor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour people right across the income scale” amid accusations they mainly help the rich, according to Evening Standard. UK Chancellor Kwarteng said he is focused on growing the economy and the longer term when asked about the market reaction to his statement on Friday. Kwarteng added that he shares ideas with BoE Governor Bailey but added that Bailey is completely independent and Kwarteng is confident the BoE is dealing with inflation, according to Reuters. UK opposition Labour Party leader Starmer said they would reintroduce the top rate of income tax at 45% which the government announced to scrap last week, while he added that they will support the government plan to lower the basic rate of income tax to 19%, according to Reuters. Italy's right-wing bloc is seen winning the national election with 43.3% and centre-left bloc is seen winning 25.4%, according to the first projection by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis. Italy's Meloni said Italians gave clear backing to a centre-right government led by the Brothers of Italy and said the situation is difficult and needs contribution from everyone. It was separately reported that Italy's Democratic Party conceded in the election and said it will be the main opposition force, while Italy's Meloni claimed leadership of the next Italian government, according to Reuters and AFP. FX DXY climbed to a fresh YTD high of 114.58 before paring modestly, but remaining firmer, as GBP in particular lifts off worst levels. Cable succumbed to a flash crash overnight, with GBP/USD hitting an all-time-low around 1.0350 as participants confidence in the economy slips. EUR suffers amid the mentioned USD move but derives relative benefit from GBP, while ECB speakers thus far have added little. Antipodeans and CAD weighed on by broader risk and commodity pressure. Japanese Finance Minister Suzuki said the government and BoJ share views on concerns about a weak JPY, while he added that FX intervention had a certain effect and there is no change to the stance that they will respond to market moves as needed, according to Reuters. PBoC set USD/CNY mid-point at 7.0298 vs exp. 7.0019 (prev. 6.9920) PBoC imposed a 20% risk reserve requirement for FX forward sales from September 28th to rein in yuan weakness. Fixed Income Gilts have retained some composure after slumping over 200ticks at the commencement of trade and have settled around halfway between intraday extremes. EGBs downbeat in sympathy while BTPs marginally lag core-EGB peers as Italian as-expected election results are digested with BTP-Bund only modestly wider as such. Stateside, USTs are pressured in-fitting with peers and also conscious of the week's supply docket getting underway via a 43bln 2yr. Central Banks Fed’s Bostic (2024 voter) said inflation is too high and that they need to do all they can to bring it down and said demand is beginning to shrink which will ultimately pay dividends in inflation levels. Bostic also stated that there are scenarios where they can avoid deep pain but there will likely be some job losses, according to Reuters. BoJ's Kuroda says the BoJ will maintain accommodative monetary conditions to support companies, hopes to support a positive economic cycle, long-term inflation expectations have begun to heighten, via Reuters. Intervention from the MoF is an "appropriate" move, does not think gov't intervention and BoJ policy are contradictory. Amamiya says the domestic economy is picking up, must carefully watch how FX moves affect the economy and prices. BoJ Governor Kuroda says when he stated that BoJ forward guidance will not change for 2-3yrs, did not refer to guidance on keeping short and long-term rates at present of lower levels via Reuters. ECB's de Guindos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the scenario is market by high uncertainty, lower growth and higher inflation. ECB's Panetta says ECB is assessing the potential of distributed ledger technology (DLT) and "the extent to which it could improve our services.". Capital Economics calls for the BoE to "get on the front foot with a big rate hike". Allianz's El-Erian says, on GBP, the fall is about extra tax cuts and Chancellor Kwarteng could recalibrate this. Alternative, would be for the BoE to hike at an emergency meeting. Adding, he would hike by 100bp. BoE publishes key elements of the 2022 annual cyclical scenario stress test; includes a scenario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before gradually reduced to sub-3.5%. Commodities WTI and Brent November futures remain subdued in early European trade following last week’s recession-induced losses. Spot gold trades in tandem with the Buck and sees resistance at around USD 1,650/oz after falling to USD 1,627/oz as a casualty of the Sterling flash crash overnight. LME metals are softer across the board with 3M copper futures having a hard time reclaiming USD +7,500/t status with upside capped by the Buck. Iraq began trial operations at the Karabala oil refinery which has a production capacity of 140k bpd, according to a statement from the Oil Ministry. German Chancellor Scholz signed a strategic agreement with UAE’s President on accelerating energy security and industrial growth, while UAE’s ADNOC signed an agreement with Germany’s RWE which includes ADNOC exporting its first LNG cargo to RWE and will conduct trial shipments of low-carbon ammonia to Germany. Furthermore, Chancellor Scholz said while visiting Doha that he talked with the Emir about LNG deliveries and that they want to achieve further progress, according to Reuters. Germany is preparing a national electricity price cap to be implemented this fall in the scenario the EU falls to agree on a similar move for the entirety of the bloc, via WSJ citing officials. Vitol's CEO said at the Asia Pacific Petroleum Conference that Russian gas supply cuts put enormous strain on supply-demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol's CEO said they are increasing crude exports to Europe this year to replace Russian supplies and are drilling 600 oil wells this year. Anglo American (AAL LN) tightens copper production guidance for Chile to 560k-580k tonnes of copper (prev. 560k-600k tonnes) due to lower throughput at Los Bronces caused by a combination of water restrictions and a change in ore characteristics, via Reuters. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.23, prior 0.27 10:30: Sept. Dallas Fed Manf. Activity, est. -10.0, prior -12.9 Central Banks 10:00: Boston Fed’s Susan Collins Speaks to Boston Chamber of... 12:00: Fed’s Bostic Discusses Income Inequality 12:30: Fed’s Logan Speaks at Banking Conference 16:00: Fed’s Mester Discusses Economic Outlook DB's Jim Reid concludes the overnight wrap I wonder whether any research report has ever been written whilst watching synchronised swimming? Well if not, then you’re reading the first ever as I’m getting a head start on the early morning news by starting this on Sunday evening watching my daughter Maisie do her second session after getting into the local club. Watching this sport is going to take some getting used to after years of watching football, cricket, golf, F1, athletics, rugby... actually.... virtually every sport bar synchronised swimming. I think everyone felt they were swimming in a tsunami of newsflow last week after one of the most incredible macro weeks in recent memory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more variety and was outside of a crisis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields moving higher for the 12th successive day on Friday (the longest steak since data begins in 1976), the BoJ intervening in FX markets for the first time since 1998, and what can only be termed as one of the darker days for sterling assets on record on Friday after a mammoth tax giveaway in what was a mini-budget in name and not by nature. Henry and I put a note out on Friday night (link here) showing that it was the third worst day for Sterling (-3.57%) since Black Wednesday in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the initial covid shock in 2020 (-3.71%) when there was a global flight to dollars. We also show a graph of daily Sterling moves back to 1862 and on that it was the 41st worst day in history spanning 47,000 trading days. Obviously in the long era of fixed FX rates there were the occasional big devaluations which were much bigger than Friday. This morning is Asia it fell around -4.5% at one point (1.0392) which was a record low against the Dollar. It's around -2.78% as I type. This follows a weekend interview where Chancellor Kwarteng suggested that more tax cuts were to come so that certainly was a red rag to markets. Will we hear from the upper echelons of the BoE today? Watch out for any comments, especially at the market open. DB's George Saravelos suggested on Friday that the Bank of England need to do an inter meeting hike to restore policy credibility. There’s also a graph in our note mentioned above showing that Friday was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when sterling was also slumping. So maybe omens here. I suppose the only slight mystery is the timing of the sell-off as the mini-budget in magnitude was broadly in-line with the recent elevated fiscal expectations that had been building. However perhaps it was the unabashed revival of trickle-down economics that had markets a little aghast. It goes against the current economic orthodoxy and the overall zeitgeist of our immediate times. As such there is likely to be concerns of a credibility issue. We are publishing our long-term study today with the title “How we got here, and where we’re going?”. In it we try to put the current macro woes into historical context in an attempt to work out where we’re going. There are quite a few people who have proof-read it on my team and they were all thoroughly depressed at the end. I didn't feel that way writing it but maybe it's a case of starting point perceptions. Anyway, look out for it around the European lunchtime. Overnight in Italy, the right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course to become the nation’s first woman prime minister after exit polls gave it a clear majority. With the full results due later today, she is predicted to win up to 26% of the vote ahead of her closest rival Enrico Letta from the centre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a majority if correct. As I type, the euro is extending its losses against the dollar for the fifth day, its longest streak since April 28, falling as much as -0.5% to 0.9638, albeit being overshadowed by Sterling. For this week we have an array of consumer-driven economic data in the US and some important European inflation prints. We will also get a number of consumer sentiment indicators across the key economies and PMIs from Asia. Away from the data, there are more than 30 central banker appearances across the Fed and the ECB to keep markets busy. Tomorrow also sees referendums in the Russia-annexed Ukrainian territories as the conflict goes into its eight month. Going through the data in more details now. Starting with the US, the PCE and personal income and spending data will be front and centre for markets next week as they gauge the extent of inflationary pressures and the strength of the consumer. The Fed’s preferred inflation gauge, the PCE, due Friday, will be watched for signs of price pressures we saw in last week's CPI report. Our US economists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal. For the other two data points, our team forecasts a +0.1% MoM increase for both income and consumption. Final US Q2 GDP will also be released on Thursday and although DB expect no change to the -0.6% second reading, watch out for the annual benchmark revisions back to Q1 2017. History could be re-written that could have some implications for how we all think about the economy. In other US data, we will also get the consumer confidence index on Tuesday, along with durable goods orders, and inventories data on Wednesday, with the Chicago PMI on Friday. Over in Europe, all eyes will be on September's inflation data, including the Euro Area flash CPI release on Friday. Our economists are expecting the measure to hit a record +9.5%, up from the previous record of +9.1% in August. Other data in the region will include consumer and economic sentiment from Germany, France, Italy and the Eurozone throughout the week. Meanwhile, EU energy ministers will meet again on Friday regarding the emergency intervention amid elevated energy prices. Finally, next week's earnings line up will feature a number of retail bellwethers on Thursday. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which contains many of the key Fed and ECB speakers including Powell and Lagarde. Stock markets across Asia are mostly lower this morning. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are leading the declines. Meanwhile, the Hang Seng (+0.11%) is swinging between gains and losses after rising by +2.45% initially with Chinese shares mixed as the Shanghai Composite (-0.10%) is trading lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are pointing to further losses with contracts on the S&P 500 (-0.49%), NASDAQ 100 (-0.46%) and DAX (-0.33%) all moving lower. Early morning data showed that Japan’s manufacturing sector continued to expand albeit at a slower pace as the latest au Jibun Bank manufacturing PMI slipped to a 20-month low of 51.0 in September from 51.5 in August, pulled lower by high energy and raw material prices that was exacerbated by a weak yen. At the same time, the au Jibun Bank services PMI returned to expansion, recording a level of 51.9 in September from August's 49.5 final reading. Moving on to China, in order to stabilise expectations in the FX market, the People’s Bank of China (PBOC) today raised the risk reserve requirement on foreign exchange forward sales to 20% from 0% beginning September 28 as the yuan faces increasing depreciation pressure, in line with most major currencies amid broad dollar strength. Looking back now on a week that will not be forgotten anytime soon. While there were historic central bank hikes all week, the biggest news came from the fiscal authorities, following the UK’s budget Friday, which had the largest tax cut package since the 1970s. Gilt yields had their largest one-day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we mentioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at helping a plunging currency. The pound fell -3.57% against the US dollar to within a percentage point of the weakest in the post-Bretton Woods 51yr free float era. It was already a busy macro week before the blockbuster budget, where we got more than 500bps of global central bank hikes and a currency intervention from Japan. In terms of the biggest players, the Fed delivered its third consecutive 75bp hike while the BoE delivered its second 50bp hike in a row, with both banks guiding toward yet more tightening, while the BoJ remained the outlier by keeping its accommodative policy in place, which isn’t going to help the yen turnaround even with intervention. When all was said and done, sovereign bonds and equities sold off in size, while yield curves flattened. 2yr Treasuries (+33.4bps, +7.9bps Friday), 2yr Bunds (+38.5bps, +7.2bps Friday), 2yr Gilts (+82.1bps, +44.7bps Friday) reached their highest levels since 2007, 2008, and 2008, respectively, as markets priced in more tightening to overcome inflationary pressures (and in the case of the UK, fiscal expansion). 10yr Treasuries (+23.5bps, -2.9bps Friday) ended the week a touch lower on the day but hit their highest levels since 2011 during the week, while 10yr Bunds (+26.8bps, +5.9bps Friday), and 10yr Gilts (+69.1bps, +33.3bps Friday) hit their highest levels since 2013 and 2011, respectively. The mixture unsurprisingly proved unpalatable to risk assets, driving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated -4.37% on the week and -2.34% on Friday, the worst weekly and daily return since mid-June. The S&P 500 fell -4.65% (-1.75% Friday), returning to bear market territory. The FTSE managed to stay above its YTD lows, but still fell -3.01% on the week, its worst weekly return since mid-June as well, and retreated -1.97% on Friday, the worst daily return since early July. Tyler Durden Mon, 09/26/2022 - 08:08.....»»

Category: blogSource: zerohedge16 hr. 17 min. ago

Futures Flat As Crushing 37bps Curve Inversion Screams Recession

Futures Flat As Crushing 37bps Curve Inversion Screams Recession US futures are mixed on Thursday, first trading in the red, then turning green before moving unchanged, as investors shrugged off growth warnings from the bond market while Taiwan war fears faded further despite drills launched by China overnight. Oil bounced back from the lowest level in almost six months. Contracts on the S&P 500 were flat while Nasdaq futures were modestly green, suggesting the tech-heavy Nasdaq will extend an advance of 19% from its June 16 low on the back of a massive CTA, buyback and retail-driven buying frenzy. In premarket trading, Alibaba gained 3.4% after reporting revenue for the first quarter that beat the average analyst estimate. Adjusted earnings per American depositary receipt also topped expectations. Altice USA shares jumped 5% after the cable television provider reported second-quarter results and announced it received inquiries for its Suddenlink assets. US-listed Chinese tech stocks including JD.com, Pinduoduo and Baidu rise in premarket trading Thursday as Alibaba shares jump 3.9% after reporting better-than-expected revenue in the first quarter. Here are some other notable premarket movers: AMTD Idea (AMTD) shares slump 11.5% putting the Hong-Kong based financial services firm on track to slump for a second straight day after a wild 237% jump earlier this week. Eli Lilly (LLY) falls 2% after the company cut its adjusted earnings per share forecast for the full year. Equinox Gold Corp. (EQX) slides 2.5% after reporting second quarter results that missed consensus analyst estimates for revenue and posted a loss per share, and announced a CEO change. Fastly Inc. (FSLY) shares are down 7% after the infrastructure software company reported second quarter revenue that beat expectations. Gannett Co. Inc. (GCI) shares plunge 5% after the company lowered its full-year revenue and Ebitda outlook, citing “current economic conditions.”. Kohl’s Corp. (KSS) was downgraded to market perform from outperform at Cowen, with analyst Oliver Chen saying a “weakening and inflationary consumer backdrop” could drive EPS downside. Shares decline 3%. Pacific Biosciences (PACB) 2Q results look broadly in line but guidance has been cut significantly, albeit this is not a major surprise, analysts say. Shares down 4% in US premarket trading. Revolve Group Inc. (RVLV) shares are down 13% after the e-commerce fashion company reported quarterly net sales and earnings per share that fell short of analysts’ expectations. Skillz (SKLZ) shares tumble 11.6% after the mobile games platform operator cut its full-year guidance for revenue, with Citi noting that revenue and user metrics disappointed. Under Armour (UAA) is downgraded to neutral from outperform at Baird, which says its view of the athletic-wear retailer’s near-term prospects has “deteriorated materially” over the past two quarters, and faces further pressure from an uncertain macroeconomic environment. The stock declines 0.5% in premarkettrading. Yellow Corp. (YELL) shares jump 37% after the logistics company reported earnings per share for the second quarter that beat the average analyst estimate. So far US stocks have proven resilient to heightened bond market anxiety and an inverted Treasury yield curve flashing warnings on economic risks, as the S&P 500 climbs back toward the highest level in two months ignoring the screaming recession warning from the 2s10s curve which is now 37bps inverted. But a global wave of monetary tightening risks upending those gains. The Bank of England unleashed its first half-point hike since 1995 in an effort to control inflation, joining some 70 other institutions around the world moving rates up in outsized steps. “There’s an intense tug-of-war happening in the economy and markets,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “On one side, you have a narrative that reasonable growth is going to support continued inflation pressure and keep the Fed hiking. The other narrative is that slowing growth is going to ease inflation and allow the Fed to stop hiking.” Meanwhile, US-China tension remains among the uncertainties clouding the outlook. Taiwan braced for the Chinese military to start firing in exercises being held around the island in response to US House Speaker Nancy Pelosi’s visit. Here are the latest headlines surrounding Taiwan/Pelosi: China's Taiwan Affairs Office said the Taiwan issue is not a regional issue but is a China internal affairs issue, while it added that punishment of pro-Taiwan independence diehards and external forces is reasonable and lawful. Taiwan's Defence Ministry said unidentified aircraft which were likely drones, flew above Kinmen Islands on Wednesday night, while the military fired flares to drive away the aircraft, according to Reuters. Taiwan's Defence Ministry said troops will continue to reinforce alertness level and are carrying out daily training as usual, while the military will react appropriately to an enemy situation and safeguard national security and sovereignty, according to Reuters. ASEAN Foreign Ministers are concerned about international and regional volatility and are concerned volatility could lead to a miscalculation, serious confrontation, open conflicts, and unpredictable consequences among major powers, according to Reuters. US House Speaker Pelosi plans to visit an inter-Korean border area jointly controlled by the American-led UN Command and North Korea, according to a South Korean official cited by Reuters. China's PLA has added an additional zone for its military exercise encircling Taiwan starting Thursday, exercises have been extended until Monday at 10:00, via dwnews' Yang citing Taiwan's port authority. Now seven zones around Taiwan. Gains in the Stoxx Europe 600 Index were led by retailers, leisure and technology firms, alongside an advance in shares of Chinese tech companies.  Among individual stock moves, Glencore Plc shares fell as much as 2% as its capital return plans overshadowed solid first-half results. Ubisoft shares surged as much as 21% after Tencent reached out to Ubisoft’s founding Guillemot family and expressed interest in increasing its stake, according to Reuters. Here are the most notable European movers: Rolls-Royce drops as much as 12% in London. Jefferies highlights that 1H adjusted Ebit came in 24% below consensus, is disappointed Civil margin “once stripped of a number of one-offs, remains well below breakeven.” SES shares drop as much as 10%, the most intraday since April 2020, as some analysts raised doubts about a potential combination with Intelsat after the FT reported deal talks between the two companies. Ambu falls as much as 16%, the most intraday since May 6, after the company slashed its organic revenue forecast for the full year and said it will cut about 200 jobs from its global workforce. Lufthansa gains as much as 7.4% after the airline forecast a “significant increase” in earnings in the third quarter compared to the second and provided a clearer outlook for full-year profit, predicting adjusted Ebit of more than EU500m. Next shares climb as much as 3.2% after the UK apparel retailer reported better-than-expected 2Q sales and raised its profit outlook for the year. Adidas shares gain as much as 4.4% after the German sportswear company reported 2Q results that were largely in line with expectations, following last week’s profit warning. Merck KGaA shares rise as much as 1.7% after the German pharmaceutical group’s 2Q report showed stable growth for its Life Science division despite abating Covid-19 tailwinds, with Jefferies saying it sends a “positive message” for the rest of 2022. Earlier in the session, Asian stocks rebounded as easing tensions over Taiwan and overnight gains on the Nasdaq fueled a rally in Chinese tech shares ahead of key earnings reports. The MSCI Asia Pacific Index climbed 0.5%, set for its first gain in three sessions. Alibaba, which is scheduled to release earnings later Thursday, and e-commerce peers Meituan and JD.com helped boost the Hang Seng Tech Index as much as 3.4%, most in more than a month. Other benchmarks in Hong Kong and South Korea’s tech-heavy Kosdaq were among the region’s outperformers.  “Hong Kong stock markets are getting re-rated after seeing the risk-off mood due to Taiwan tensions, as there were no military conflicts,” said Xuehua Cui, a China equity analyst at Meritz Securities in Seoul.  US House Speaker Nancy Pelosi left Taiwan after reaffirming US support for the democratically elected government in Taipei. China responded with trade curbs and military drills.  Elsewhere in Asia, the main Philippine index reached its highest since June 10 on foreign inflows. Asia’s key stock benchmark has rebounded from its July low, but its recent recovery has been lagging behind US peers amid a property crisis in China and heightened geopolitical risks. Japanese equities erased earlier gains and slipped as Toyota announced first-quarter earnings that missed estimates and as investors continue to evaluate corporate earnings both domestically and abroad.  The Topix Index was virtually unchanged at 1,930.73 with Toyota Motor leading declines as of market close Tokyo time, while the Nikkei advanced 0.7% to 27,932.20. Toyota Motor shares dropped during market hours as the automaker reported disappointing first quarter earnings and kept its conservative outlook for the current year. Out of 2,170 shares in the index, 1,198 rose and 849 fell, while 123 were unchanged. “Toyota Motor’s financial results confirmed that the impact of high raw material and fuel prices was strong enough to offset the effects of the weak yen,” said Shuji Hosoi, an analyst at Daiwa Securities. “The fact that the company didn’t change its full-year operating income forecast negatively impacted the markets, which had been expecting an upward revision.” India’s Sensex index snapped a six-session rally, dragged by Reliance Industries and leading lenders, on risk-aversion ahead of a monetary-policy announcement on Friday.  The S&P BSE Sensex fell 0.1% to 58,298.80, in Mumbai, after paring decline of as much as 1.3% in the session. The NSE Nifty 50 Index was flat. Both gauges posted early gains and appeared headed for their longest winning streaks since October 2021, but reversed course.  “The sudden drop in indexes is most likely led by ‘basket selling’ from foreign portfolio investors ahead of the central bank’s rate decision on Friday,” said Abhay Agarwal, a fund manager at Piper Serica Advisors. “Stocks have gained for six straight sessions and investors may want to reap gains ahead of a major policy event.” Reliance Industries fell 1.3%, while State Bank of India and Axis Bank led declines among lenders.  Economists expect the Reserve Bank of India to raise rates for a third consecutive time on Friday but remain divided on the level of the hike aimed at fighting inflation and supporting a weakening currency.  Of 30 shares in the Sensex index, 17 rose and 13 fell. Both of India’s equity benchmarks had gained least 5.5% in previous six sessions driven by $1.7 billion of net purchases by foreigners since the end of June amid signs that inflationary pressures are cooling.  Eight of the 19 sector sub-indexes compiled by BSE Ltd. declined on Thursday. A measure of telecom stocks was the worst performer among the sectoral measures. In FX,  the dollar consolidated as traders awaited US payrolls data due later in the day for clues on the pace of future Federal Reserve rate hikes. Sterling tumbled after the BOE delivered its biggest rate hike in 27 years, pushing rates up by 50bps, however it also warned of a devastating stagflation, hiking its inflation forecast to 13.3% in October even as it predicted a harrowing 5-quarter long recession. In rates, Treasuries were moderately cheaper across the curve - which continues to invert deeply with the 2s10s now -37bps, the biggest yield curve inversion since 2000 as traders increased wagers on Federal Reserve rate hikes ahead of Friday’s US jobs data - as US stock futures added to Wednesday’s gains.  The US 10-year yield dropping to 2.70% as Federal Reserve officials indicated they were resolute on aggressive hikes to cool inflation, dashing market hopes they were ready to embark on a shallower rate path. Treasuries offered little initial reaction to Bank of England decision to hike rates 50bp in an 8-1 vote while warning of a 5 quarter-long recession. Front-end yields cheaper by ~2bp on the day, flattening 2s10s and 5s30s spreads by ~1.5bp and ~0.5bp; 10-year yields around 2.71% trade cheaper by 5bp vs bunds.  European long-end bonds nudged higher. In the UK, focus is on the Bank of England’s rate decision, with a majority of economists anticipating a 50-basis-point hike. In commodities, oil drifted 0.2% lower to trade at the $90 level as investors weighed weaker US gasoline demand and rising inventories against a token supply increase from OPEC+. Spot gold rises roughly $20 to trade near $1,787/oz. Base metals are mixed; LME lead falls 1.1% while LME zinc gains 1.2%. Bitcoin slips back below the USD 23k mark but remains in relative proximity to the level in a tight range. Looking to the day ahead now and we have US June trade balance and Initial Jobless Claims, Germany June factory orders, July construction PMI, UK July new car registrations, construction PMI, Canada June building permits and international merchandise trade. Earnings will include Alibaba, Eli Lilly, Toyota, ICE, ConocoPhillips, Bayer, Glencore, Cigna, Rolls-Royce, adidas, Cheniere, DBS, Apollo, Lyft, Expedia, Deutsche Lufthansa, Warner Bros Discovery, Vertex Pharmaceuticals, DoorDash, Atlassian, Amgen, Block, EOG, Kellogg and AMC. Market Snapshot S&P 500 futures little changed at 4,153.75 STOXX Europe 600 up 0.2% to 439.32 MXAP up 0.4% to 159.68 MXAPJ up 0.6% to 521.36 Nikkei up 0.7% to 27,932.20 Topix little changed at 1,930.73 Hang Seng Index up 2.1% to 20,174.04 Shanghai Composite up 0.8% to 3,189.04 Sensex down 0.6% to 57,993.23 Australia S&P/ASX 200 little changed at 6,974.93 Kospi up 0.5% to 2,473.11 German 10Y yield little changed at 0.89% Euro up 0.1% to $1.0178 Brent Futures little changed at $96.78/bbl Brent Futures little changed at $96.75/bbl Gold spot up 0.4% to $1,773.19 U.S. Dollar Index down 0.13% to 106.37 Top Overnight News from Bloomberg China’s military fired missiles into the sea on Thursday in live-fire military exercises around the island in response to US House Speaker Nancy Pelosi’s visit, even as Taipei played down the impact on flights and shipping. The Bank of England on Thursday is expected to push through the biggest interest-rate increase in 27 years despite growing risks of a recession. European stocks edged higher on Thursday as investors continued to weigh the path of corporate earnings, while attention turned to the Bank of England’s policy decision later in the day. The dollar is close to a 20-year high, despite talk of its inevitable demise. While reluctant to add another article that ends up in traders’ trash cans, current pricing is extreme. Asia’s emerging economies are drawing on large foreign exchange reserves to help prop up their currencies rather than going all-out with interest-rate hikes. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were firmer as the positive momentum rolled over from global peers. ASX 200 was kept afloat by tech after similar outperformance of the sector stateside. Nikkei 225 briefly reclaimed the 28k level amid recent JPY weakness and as the earnings deluge continued. Hang Seng and Shanghai Comp conformed to the heightened risk appetite with firm gains in tech including Alibaba ahead of its earnings and with Hong Kong set to provide HKD 2k in consumption vouchers from Sunday. Top Asian News   China’s Yiwu city will conduct mass testing and China's Sanya city is on lockdown amid a COVID flare-up, according to state media. China Cancels Japan Meeting Over G-7 Criticism of Taiwan Drills SoftBank Raises $22 Billion Through Alibaba Derivatives: FT China State-Backed Builder’s Dollar Bonds Slump as Worries Mount Tiger Global Fund Halves Stake in India Food Platform Zomato Additional Share Sales Break Asia’s Usual Summer Lull: ECM Watch Li Ka-shing’s CK to Sell AMTD Stake After Unit Soars 14,000% European bourses are firmer across the board, Euro Stoxx 50 +0.9%, with the general tone constructive though the FTSE 100 lags pre-BoE amid GBP strength. Stateside, US futures have lifted from initial rangebound action, ES +0.3%, with specific newsflow limited pre-data/Fed speak Top European News Next Raises Profit Outlook as Hot Spell Spurs Fashion Buying French Tech Startup Back Market Said to Start Early IPO Prep Goldman, Bernstein Strategists Say Stocks Rally Can Fizzle Out European Retailers Outperform, Fueled by Zalando Relief Rally Czech Finance Minister Attending Central Bank’s Rate Meeting Credit Agricole’s Investment Bank Drives Earnings Beat FX DXY remains subdued in early European trade following a relatively contained APAC session; fresh session lows are seen heading into the US entrance. GBP/USD and EUR/USD are currently buoyed, but seemingly more as a function of the Dollar with the former gearing up for the BoE. A mixed session thus far for the non-US Dollars, with the Antipodeans leading the charge whilst the Loonie remained suppressed by crude prices. JPY resides as the current G10 laggard with recent Fed rhetoric fuelling a retracement of last week’s USD/JPY downside. Fixed Income Core consolidation after recent rampant upward move, knife-edge BoE looms; Bund Sep'22 towards mid-point of a +100 tick range. USTs are following suit with the yield curve flattening modestly but generally quite contained ahead of Mester (2022 voter, Hawk) who has provided commentary recently. Pre-BoE Gilts are supported, but in narrower parameters than EGB peers, as participants look for clarity on the 25/50bp debate as pricing implies a 90% chance of 50bp and circa. 150bp total by end-2022. Commodities Crude consolidates and moves with broader sentiment post-OPEC & pre-JCPOA. Currently, benchmarks are firmer by circa. USD 1.00bbl and towards the top-end of relatively/comparably narrow ranges. Saudi Arabia OSPs (Sep) vs Oman/Dubai average: Arab Light to Asia at USD +9.80/bbl (exp. 9.80-11.10/bbl), according to Reuters sources. Spot gold is bid and benefitting from a USD pullback that has sent the yellow-metal above the 50-DMA at best; base metals somewhat mixed. US Event Calendar 07:30: July Challenger Job Cuts YoY, prior 58.8% 08:30: June Trade Balance, est. -$80b, prior -$85.5b 08:30: July Initial Jobless Claims, est. 260,000, prior 256,000; Continuing Claims, est. 1.38m, prior 1.36m DB's Jim Reid concludes the overnight wrap One thing we can say for sure is that August hasn’t been dull so far and we’ve only had three days. This is all before the biggest BoE hike for 27 years (50bps) likely today, and then US payrolls tomorrow. Indeed, there have been some remarkable ranges in treasuries so far in the three days of August. In just over 24 hours from mid-afternoon London time on Tuesday, 2yr US yields moved from 2.83% to 3.18%, 5yrs from 2.58% to 2.96% and 10yrs from 2.52% to 2.83%. These all marked the high points as the three closed at 3.07% (+1.4bps on the day), 2.83% (-2.4bps) and 2.71% (-4.5bps) respectively, 11bps to 13bps off their intra-day highs immediately after a strong US services ISM yesterday. This led to a big curve flattening as 2s10s closed c.6bps lower at -36bps. This morning in Asia, treasury yields are pretty much unchanged. If that wasn’t enough, the Nasdaq 100 (+2.73%) surged to finish the day at a level last seen on May 4th leaving a strong S&P 500 (+1.59%) slightly behind. The narratives at the moment are struggling to be consistent though as equities have recently rallied on weaker growth that has been seen as helping to limit how far the Fed can hike. However yesterday equities rallied on stronger economic data regardless of the potential Fed impact. Discretionary (+2.52%), IT (+2.69%) and communications stocks (+2.48%) were the major drivers of the S&P. The broad rally lifted 79% of benchmark’s members with energy (-2.97%) being the only sector to close in the red as oil plummeted. Speaking of which, although the OPEC+ agreed to increase its September output by 100k bpd, way below the July and August increases north of 600k, crude’s short-lived almost +3% gain unwound fairly quickly, with both WTI (-3.87%) and Brent (-3.60%) weaker on lower US gasoline demand as consumers seem to be driving less. Oil is very slightly higher in Asia. In terms of earnings, Moderna (+16%), PayPal (+9.25%) and CVS (+6.3%) were among top performers in the S&P 500 after a combination of upbeat results and perhaps more importantly buy back announcements. Another interesting snippet from this earnings season came when Bloomberg reported that Meta is looking for a potential debut in bond markets. News of debt sales by Apple and Intel already came through earlier this week as well, supporting narratives of resilience in corporate debt markets. Dissecting the data, just before the ISM services was released, we got a slight upward revision for the US services PMI (47.3 vs 47.0) but the real surprise was the ISM services index itself. The print showed an unexpected expansion from 55.3 in June to 56.7 last month, the highest since April, while the median Bloomberg estimate stood at 53.5. The employment index also improved to 49.1 from 47.4 and business activity and new orders indicators were the highest since January, while prices paid plunged from 80.1 to 72.3. Another strong reading came from June factory orders that increased +2.0% (vs +1.2% expected), up from May’s revised reading of +1.8% (from +1.6% previously). This data dovetailed with comments from a list of Fed speakers over the last 24 hours, including Bullard, Daly, Barkin and Kashkari, all saying that the central bank is not close to finishing its work and markets shouldn’t expect a quick reversal to cuts. This all supports our view that the US isn’t in recession yet. As we’ve said many times before we think it’s almost inevitable it does go into one within say 12 months but that we still might need the lagged impact of an aggressive (but necessary) series of rate hikes first to get us there. The risks to this view in terms of an earlier recession would probably be due to a sudden self fulfilling loss of confidence as everyone talks about imminent recession risk, or if financial conditions dramatically collapse. To be fair the latter was very worrying by mid-June but we’ve seen a tremendous loosening since. Over to Asia and the strong gains in US equities are echoing in Asia with all the key markets trading higher. As I type, the Hang Seng (+1.78%) is leading the way across the region helped by gains in Chinese technology companies with shares of Alibaba climbing around +5.0% ahead of its earnings results later today. Elsewhere, the Nikkei (+0.54%), and the Kospi (+0.36%) are trading higher in early trade. Over in Mainland China, the Shanghai Composite (+0.15%) and the CSI (+0.40%) are both trading in the green. Outside of Asia, stock futures in the US are pausing for breath with contracts on the S&P 500 (-0.10%) and NASDAQ 100 (-0.20%) moving slightly lower. Early morning data showed that Australia’s trade balance swelled to a record high of A$17.67bn in June (v/s A$14.0bn expected) from A$15.97bn in May driven by strong prices of key exports from grains to metals and gold. Elsewhere, although Pelosi left Taiwan yesterday without incident, remember that China will start 4 days of military drills today around the island. So be prepared for headlines to come through. Back to yesterday and European shares rallied but missed the main part of the US climb with the STOXX 600 closing with a +0.51% advance for the day after a steady march higher throughout the session. It was an across-the-board rally led by IT (+2.78%), financials (+1.60%) and discretionary (+1.52%) stocks. The few sectors in the red - utilities (-0.94%), healthcare (-0.92%) and communications (-0.35%) - were left behind by a risk-on mood. Speaking of European utilities, it is a sector that has faced challenges not only amid the Russian gas story but also the extreme heat in Europe. Our European economists cover implications of the drought-driven low water levels for the German economy here. As a reminder, it was an important topic back in 2018 but today’s situation with gas supplies reinforces its effect given coal plants’ reliance on waterways for supplies. Linked in, yesterday’s announcement by Uniper about potentially limiting output at a coal plant in Germany sent gas futures in New York up by almost +10%, with contracts holding on to a +7.71% gain by the close of US markets. Other companies depend on water traffic too and water-intensive industries are likely to get affected as well. Earlier this week EDF has warned about potential further nuclear power cuts as river water, used for plant cooling, becomes too warm. Expect this to be an increasingly pertinent and market-moving issue across industries. Diving back into market movements, the bullish sentiment in European stocks was strong enough to overpower surging yields. In Germany the belly of the curve surged, with 5y yields (+7.6bps) racing ahead of both the front end (+6.9bps) and the 10y (+5.6bps) that was mainly upheld by higher breakevens (+6.1bps). While a similar story was seen in France (OATs +3.4bps), Italy stood out with an across the curve decline in yields. 2s10s still flattened as the 2y yield (-1.5ps) fell by less than the 10y (-4.1bps). We should note that US yields rallied 7-8bps after Europe closed. Central banks and yields will be in focus today as well since today’s BoE’s meeting will likely be top of the list in terms of events for European markets and our UK economists expect the Bank to hike by +50bps (taking the Bank Rate to 1.75%). Their full preview is here. This hike would imply the largest single Bank Rate increase since 1995 and come amid the 9.4% CPI print for June, a 40-year high. They also updated their growth outlook for the country yesterday (link here) and now expect the economy to contract in Q4-22 and Q1-23 in a short and mild technical recession. Gilts behaved similar to other European bond markets yesterday, with the 2y yield (+7.1bps) rising by more than the 10y (+4.4bps) but both lagging the 5y (+9.0bps). Staying with Europe and briefly returning to yesterday’s other data releases, Germany’s exports accelerated to +4.5% in June, way ahead of the +1.0% median estimate on Bloomberg’s and May’s revised +1.3% (from -0.5% previously). Imports came in softer than expected, however, slowing to just +0.2% (+1.3% expected). Elsewhere, Eurozone’s retail sales contracted -3.7% yoy in June, missing estimates of -1.7%. The PPI accelerated to a monthly gain of +1.1% in June relative to the prior +0.5% (revised from +0.7%). To the day ahead now and we have US June trade balance, Germany June factory orders, July construction PMI, UK July new car registrations, construction PMI, Canada June building permits and international merchandise trade. Earnings will include Alibaba, Eli Lilly, Toyota, ICE, ConocoPhillips, Bayer, Glencore, Cigna, Rolls-Royce, adidas, Cheniere, DBS, Apollo, Lyft, Expedia, Deutsche Lufthansa, Warner Bros Discovery, Vertex Pharmaceuticals, DoorDash, Atlassian, Amgen, Block, EOG, Kellogg and AMC. Tyler Durden Thu, 08/04/2022 - 08:25.....»»

Category: smallbizSource: nytAug 4th, 2022

Global Markets Slump With Terrified Traders Tracking Pelosi"s Next Move

Global Markets Slump With Terrified Traders Tracking Pelosi's Next Move Forget inflation, stagflation, recession, depression, earnings, Biden locked up in the basement with covid, and everything else: today's it all about whether Nancy Pelosi will start World War 3 when she lands in Taiwan in 3 hours. US stocks were set for a second day of declines as investors hunkered down over the imminent (military) response by China to Pelosi's Taiwan planned visit to Taiwan, along with the risks from weakening economic growth amid hawkish central bank policy. Nasdaq 100 contracts were down 0.7% by 7:30a.m. in New York, while S&P 500 futures fell 0.6% having fallen as much as 1% earlier. 10Y yields are down to 2.55% after hitting 2.51% earlier, while both the dollar and gold are higher. Elsewhere around the world, Europe's Stoxx 600 fell 0.6%, with energy among the few industries bucking the trend after BP hiked its dividend and accelerated share buybacks to the fastest pace yet after profits surged. Asian stocks slid the most in three weeks, with some of the steepest falls in Hong Kong, China and Taiwan. Among notable movers in premarket trading, Pinterest shares jumped 19% after the social-media company reported second-quarter sales and user figures that beat analysts’ estimates, and activist investor Elliott Investment Management confirmed a major stake in the company. US-listed Chinese stocks were on track to fall for a fourth day, which would mark the group’s longest streak of losses since late-June, amid the rising geopolitical tensions. In premarket trading, bank stocks are lower amid rising tensions between the US and China. S&P 500 futures are also lower, falling as much as 0.9%, while the 10-year Treasury yield falls to 2.56%. Cowen Inc. shares gained as much as 7.5% after Toronto-Dominion Bank agreed to buy the US brokerage for $1.3 billion in cash. Meanwhile, KKR’s distributable earnings fell 9% during the second quarter as the alternative-asset manager saw fewer deal exits amid tough market conditions. Here are some other notable premarket movers: Activision Blizzard (ATVI US Equity) falls 0.6% though analysts are positive on the company’s plans to roll out new video game titles after it reported adjusted second-quarter revenue that beat expectations. While the $68.7 billion Microsoft takeover deal remains a focus point, the company is building out a “robust” pipeline, Jefferies said. Arista Networks (ANET US) analysts said that the cloud networking company’s results were “impressive,” especially given supply-chain constraints, with a couple of brokers nudging their targets higher. Arista’s shares rose more than 5% in US after-hours trading on Monday after the company’s revenue guidance for the third quarter beat the average analyst estimate. Avis Budget (CAR US) saw a “big beat” on low Americas fleet costs and strong performance for its international segment, Morgan Stanley says. The rental-car firm’s shares rose 5.5% in US after-hours trading on Monday, after second-quarter profit and revenue beat the average analyst estimate. Snowflake (SNOW US) falls 5.3% after being cut at BTIG to neutral from buy, citing field checks that show a potential slowdown in product revenue growth in the coming quarters. Clarus Corp. (CLAR US) should continue to see “outsized demand” from the “mega-trend” of people seeking the great outdoors, Jefferies says, after the sports gear manufacturer reported second-quarter sales that beat estimates. Clarus’s shares climbed 9% in US postmarket trading on Monday. Cryptocurrency-exposed stocks are lower in US premarket trading as Bitcoin falls for the third consecutive session as global markets and cryptocurrencies remain pressured over deepening US-China tension. Coinbase (COIN US) falls 2.3% while Marathon Digital (MARA US) drops 3.3%. Transocean (RIG US) rises 18% in US premarket trading after 2Q Ebitda beat estimates, with other positives including a new contract and a 2-year extension of a revolver. US-listed Chinese stocks are on track to fall for a fourth day, which would mark the group’s longest streak of losses since end-of-June, amid geopolitical tensions related to House Speaker Nancy Pelosi’s expected visit to Taiwan. Alibaba (BABA) falls 2.5% and Baidu (BIDU US) dips 2.7% ZoomInfo Technologies analysts were positive on the software firm’s raised guidance and improved margins, with Piper Sandler saying the firm is “in a class of its own.” The shares rose more than 11% in US after-hours trading, after closing at $37.73. Pelosi is expected to land in Taiwan on Tuesday, the highest-ranking American politician to visit the island in 25 years, a little after 10pm local time evening in defiance of Chinese threats. China, which regards Taiwan as part of its territory, has vowed an unspecified military response to a visit that risks sparking a crisis between the world’s biggest economies. “There is no way people will want to put on risk right now with this potential boiling point,” said Neil Campling, head of tech, media and telecom research at Mirabaud Securities. The potential ramifications of Pelosi’s planned visit “are huge.” The growing tensions are the latest addition to a myriad of challenges facing equity investors going into the second half of the year. Fears of a US recession as the Federal Reserve tightens policy to tame soaring inflation have weighed on risk assets. US manufacturing activity continued to cool in July, with the data highlighting softer demand for merchandise as the economy struggles for momentum. In the off chance we avoid world war, there will be a shallow recession that could start by the end of the year, according to Rupert Thompson, chief investment officer at Kingswood Holdings. Meanwhile, the market is too optimistic about the path of monetary policy and “the risk is the Fed goes further than the markets are building in in terms of hiking,” Thompson said in an interview with Bloomberg Television. Goldman Sachs strategists also said it was too soon for stock markets to fade the risks of a recession on expectations of a pivot in the Fed’s hawkish policy. On the other hand, JPMorgan strategists said the outlook for US equities is improving for the second half of the year on attractive valuations and as the peak in investor hawkishness has likely passed. “Although the activity outlook remains challenging, we believe that the risk-reward for equities is looking more attractive as we move through the second half,” JPMorgan’s Marko Kolanovic wrote in a note dated Aug. 1. “The phase of bad data being interpreted as good is gaining traction, while the call of peak Federal Reserve hawkishness, peak yields and peak inflation is playing out.” Markets are also bracing for commentary on the US interest-rate outlook from Chicago Fed President Charles Evans and St. Louis Fed President James Bullard. In Europe, tech, financial services and travel are the worst-performing sectors. Euro Stoxx 50 falls 0.8%. FTSE 100 is flat but outperforms peers. Here are some of the biggest European movers today: BP shares rise as much as 4.8% on earnings. The oil major’s quarterly results look strong with an earnings beat, dividend hike and increased buyback all positives, analysts say. OCI rises as much as 8.6%, the most since March, on its latest earnings. Analysts say the results are ahead of expectations and the fertilizer firm’s short-term outlook remains robust. Maersk shares rise as much as 3.7% after the Danish shipping giant boosted its underlying Ebit forecast for the full year. Analysts note the boosted guidance is significantly above consensus estimates. Greggs shares rise as much as 4% after the UK bakery chain reported an increase in 1H sales. The 1H results are “solid,” while the start to 2H is “robust,” according to Goodbody. Delivery Hero shares gain as much as 3.8%. The stock is upgraded to overweight from neutral at JPMorgan, which said many of the negatives that have weighed on the firm are starting to turn. Rotork gains as much as 4%, the most since June 24, after beating analyst expectations for 1H 2022. Shore Capital says the company shows “good momentum” in the report. Credit Suisse shares decline as much as 6.4% after its senior debt was downgraded by Moody’s, and its credit outlook cut by S&P, while Vontobel lowered the PT following “disappointing” 2Q earnings. Travis Perkins shares drop as much as 11%, the most since March 2020. Citi says the builders’ merchant’s results are “slightly weaker than expected,” with RBC noting shortfalls in sales and Ebita. DSM shares drop by as much as 4.9% as Citi notes weak free cash flow after company reported adjusted Ebitda for the second quarter up 5.3% with FY22 guidance unchanged. UK homebuilders fall after house prices in the country posted their smallest increase in at least a year, indicating that the property market is starting to cool, with Crest Nichols dropping as much as 5.2%. Wind-turbine stocks fall in Europe after Spain’s Siemens Gamesa cut sales and margin guidance, with Siemens Energy dropping as much as 6.1%, with Vestas Wind Systems down as much as 4.7%. Earlier in the session, Asian stocks fell as traders braced for a potential escalation of US-China tensions given a possible visit by US House Speaker Nancy Pelosi to Taiwan. The MSCI Asia Pacific Index dropped as much as 1.4%, poised for its worst day in five weeks. All sectors, barring real estate, were lower with chipmaker TSMC and China’s tech stocks among the biggest drags on the regional measure. Pelosi is expected to arrive in Taipei late on Tuesday. Beijing regards Taiwan as part of its territory and has promised “grave consequences” for her trip. Benchmarks in Hong Kong, China and Taiwan were among the laggards in Asia, slipping at least 1.4% each. Japan’s Topix declined as the yen received a boost from safe-haven demand.  还没打就见血了。4400个股票受伤。 Chinese stocks collapsed in the shadow of a looming conflict. 4400 of 4800 stocks hurt. pic.twitter.com/zo66di9W7I — Hao HONG 洪灝, CFA (@HAOHONG_CFA) August 2, 2022 “I do expect a negative feedback loop into China-related equities especially those related to the semiconductor and technology sectors as Pelosi’s potential visit to Taiwan is likely to harden the current frosty US-China tech war,” said Kelvin Wong, analyst at CMC Markets (Singapore). Pelosi’s controversial trip is souring a nascent revival in risk appetite in the region that saw the MSCI Asia gauge rise in July to cap its best month this year. China’s economic slowdown continues to weigh on sentiment, as authorities said this year’s economic growth target of “around 5.5%” should serve as a guidance rather than a hard target.  Japanese equities fell as the yen soared to a two month high over concerns of US-China tensions escalating with US House Speaker Nancy Pelosi expected to visit Taiwan on Tuesday.  The Topix fell 1.8% to 1,925.49 as of the market close, while the Nikkei declined 1.4% to 27,594.73. Toyota Motor Corp. contributed the most to the Topix Index decline, decreasing 2.6%. Out of 2,170 shares in the index, 227 rose and 1,903 fell, while 40 were unchanged. Pelosi would become the highest-ranking American politician to visit Taiwan in 25 years. China views the island as its territory and has warned of consequences if the trip takes place. “The relationship between the US and China was just about to enter into a period of review, with a move from the US to reduce China tariffs,” said Ikuo Mitsui a fund manager at Aizawa Securities. That could change now as a result of Pelosi’s visit, he added Meanwhile, Australia’s S&P/ASX 200 index erased an earlier loss of as much as 0.7% to close 0.1% higher after the Reserve Bank’s widely-expected half-percentage point lift of the cash rate to 1.85%. The index wiped out a loss of as much as 0.7% in early trade. The RBA’s statement was “not as hawkish as anticipated and the lower growth forecast suggests the RBA is aware of both the domestic and international drags on the economy,” said Kerry Craig, global market strategist at JPMorgan.  “We expect the RBA will continue to push interest rates back to a neutral level this year given the successive upgrades to the inflation outlook, but 2023 looks to be a much less eventful year for the RBA,” Craig said.  Banks and consumer discretionary advanced to boost the index, while miners and energy shares declined.   In New Zealand, the S&P/NZX 50 index rose less than 0.1% to 11,532.46. Indian stock indexes are on course to claw back this year’s losses on steady buying by foreigners. The S&P BSE Sensex closed little changed at 58,136.36 in Mumbai, after falling as much as 0.6% earlier in the day. The measure is now just 0.2% away from turning positive for the year. The NSE Nifty Index too is a few ticks away from moving into the green. Nine of the BSE Ltd.’s 19 sector sub-indexes advanced on Tuesday, led by power and utilities companies.  Foreigners bought local shares worth $836.2 million in July, after pulling out a record $33 billion from the Indian equity market since October. July was the first month of net equity purchases by foreign institutional investors, after nine months of outflows. Still, “choppiness would remain high due to the upcoming RBI policy meet outcome and prevailing earnings season,” Ajit Mishra, vice-president for research at Religare Broking Ltd. wrote in a note. “Participants should continue with the buy-on-dips approach.” The Reserve Bank of India is widely expected to raise interest rates for a third straight time on Friday. Of the 33 Nifty companies that have reported results so far, 18 have beaten the consensus view while 15 have trailed. Of the 30 shares in the Sensex index, 16 rose, while 14 fell. IndusInd Bank and Asian Paints were among the key gainers on the Sensex, while Tech Mahindra Ltd. and mortgage lender Housing Development Finance Corp were prominent decliners.  In FX, the Bloomberg dollar spot index rises 0.1%. JPY and CAD are the strongest performers in G-10 FX, NOK and AUD underperforms, after Australia’s central bank hiked rates by 50 basis-points for a third straight month and signaled policy flexibility. USD/JPY dropped as much as 0.9% to 130.41, the lowest since June 3, in the longest streak of daily losses since April 2021. Leveraged accounts are adding to short positions on the pair ahead of Pelosi’s visit, Asia-based FX traders said. In rates, treasuries extended Monday’s rally in early Asia session as 10-year yields dropped as low as 2.514% amid escalating US-China tension over Taiwan. Treasury yields were richer by up to 5bp across long-end of the curve, where 20-year sector continues to outperform ahead of Wednesday’s quarterly refunding announcement, expected to make extra cutbacks to the tenor. US 10-year yields off lows of the day around 2.55%, lagging bunds by 4bp and gilts by 4.5bp. US stock futures slumped given risk adverse backdrop, adding support into Treasuries while bunds outperform as traders scale back ECB rate hike expectations. The yield on the two-year German note, among the most sensitive to rate hikes, fell as low as 0.17%, its lowest since May 16. Gilts also gained across the curve. Bund curve bull-steepens with 2s10s widening ~2 bps. Gilt and Treasury curves mostly bull-flatten. Australian bonds soared after RBA delivered a third- straight 50bp rate hike as expected, but gave itself wriggle room to slow the pace of tightening in the coming months. In commodities, WTI trades within Monday’s range, falling 0.6% to trade around $93, while Brent falls below $100. Spot gold is little changed at $1,779/oz. Base metals are mixed; LME nickel falls 2% while LME zinc gains 0.6%. Bitcoin remains under modest pressure and has incrementally lost the USD 23k mark, but remains comfortably above last-week's USD 20.6k trough. Looking to the day ahead now and there is a relatively short list of economic indicators to watch, including June JOLTS report and total vehicle sales (July) for the US, UK’s July Nationwide house price index and July PMI for Canada. Given the apparent uncertainty about the direction of the Fed in markets, many will be awaiting Fed’s Bullard, Mester and Evans, who will speak throughout the day. And in corporate earnings, it will be a busy day featuring results from BP, Caterpillar, Ferrari, Marriott, KKR, Uber, S&P Global, Occidental Petroleum, Electronic Arts, Gilead Sciences, Advanced Micro Devices, Starbucks, Airbnb, PayPal, Marathon Petroleum. Market Snapshot S&P 500 futures down 0.6% to 4,096.50 STOXX Europe 600 down 0.5% to 435.13 MXAP down 1.3% to 159.73 MXAPJ down 1.3% to 516.82 Nikkei down 1.4% to 27,594.73 Topix down 1.8% to 1,925.49 Hang Seng Index down 2.4% to 19,689.21 Shanghai Composite down 2.3% to 3,186.27 Sensex little changed at 58,120.97 Australia S&P/ASX 200 little changed at 6,998.05 Kospi down 0.5% to 2,439.62 German 10Y yield little changed at 0.74% Euro down 0.3% to $1.0231 Brent Futures down 0.6% to $99.44/bbl Gold spot down 0.1% to $1,770.93 U.S. Dollar Index up 0.15% to 105.61 Top Overnight News from Bloomberg Oil Steadies Before OPEC+ as Traders Weigh Up Market Tightness China Slaps Export Ban on 100 Taiwan Brands Before Pelosi Visit Pozsar Says L-Shaped Recession Is Needed to Conquer Inflation Pelosi’s Taiwan Trip Raises Angst in Global Financial Markets Taiwan Risk Joins Long List of Reasons to Shun China Stocks Biden Says Strike in Kabul Killed a Planner of 9/11 Attacks Biden Team Tries to Blunt China Rage as Pelosi Heads for Taiwan The Best and Worst Airlines for Flight Cancellations GOP Plans to Deploy Obscure Rule as Weapon Against Spending Bill US to Stop TSMC, Intel From Adding Advanced Chip Fabs in China US Anti-Terrorism Operation in Afghanistan Kills Al-Qaeda Leader They Quit Goldman’s Star Trading Team, Then It Raised Alarms Sinema’s Silence on Manchin’s Deal Keeps Everyone Guessing Manchin Side-Deal Seeks to Advance Mountain Valley Pipeline A more detailed look at global markets courtesy of Newsquawk APAC stocks followed suit to the weak performance across global counterparts as tensions simmered amid Pelosi's potential visit to Taiwan. ASX 200 was initially pressured ahead of the RBA rate decision where the central bank hiked by 50bp, as expected, although most of the losses in the index were pared amid a lack of any hawkish surprises in the statement and after the central bank noted it was not on a pre-set path. Nikkei 225 declined amid a slew of earnings and continued unwinding of the JPY depreciation. Hang Seng and Shanghai Comp underperformed due to the ongoing US-China tensions after reports that House Speaker Pelosi will arrive in Taiwan late on Tuesday despite the military threats by China, while losses in Hong Kong were exacerbated by weakness in tech and it was also reported that Chinese leaders said the GDP goal is guidance and not a hard target which doesn't provide much confidence in China's economy. Top Asian News Tourism Jump to Power Thai GDP Growth to Five-Year High in 2023 China in Longest Streak of Liquidity Withdrawals Since February Singapore Says Can Tame Wild Power Market Without State Control India’s Zomato Appoints Four CEOs, to Change Name to Eternal Taiwan Tensions Raise Risks in One of Busiest Shipping Lanes Japan Trading Giants Book $1.7 Billion Russian LNG Impairment     Japan Proposes Record Minimum Wage Hike as Inflation Hits European bourses are pressured as the general tone remains tentative ahead of Pelosi's visit to Taiwan, Euro Stoxx 50 -0.9%; note, FTSE 100 -0.1% notably outperforms following earnings from BP +3.0%. As such, the Energy sector bucks the trend which has the majority in the red and a defensive bias in-play. Stateside, futures are similarly downbeat and have been drifting lower amid the incremental updates to Pelosi and her possible Taiwan arrival time of circa. 14:30BST/09:30ET; ES -1.0%. Apple (AAPL) files final pricing term sheet for four-part notes offering of up to USD 5.5bln, according to a filing. Top European News Ukraine Sees Slow Return of Grain Exports as World Watches Ruble Boosts Raiffeisen’s Russian Unit Despite Credit Halt DSM 2Q Adj. Ebitda Up; Jefferies Sees ‘Muted’ Reaction Credit Suisse Hit by More Rating Downgrades After CEO Reboot Man Group Sees Assets Decline for First Time in Two Years Exodus of Young Germans From Family Nest Is Getting Ever Bigger FX Yen extends winning streak through yet more key levels vs Buck and irrespective of general Greenback recovery on heightened US-China tensions over Taiwan USD/JPY breaches support around 131.35 and probes 130.50 before stalling, but remains sub-131.00 even though the DXY hovers above 105.500 within a 105.030-710 range. Aussie undermined by risk aversion and no hawkish shift by RBA after latest 50bp hike; AUD/USD nearer 0.6900 having climbed to within a few pips of 0.7050 on Monday. Kiwi holds up better with AUD/NZD tailwind awaiting NZ jobs data, NZD/USD hovering just under 0.6300 and cross closer to 1.1000 than 1.1100. Euro and Pound wane after falling fractionally short of round number levels vs Dollar, EUR/USD back under 1.0250 vs 1.0294 at best, Cable pivoting 1.2200 from 1.2293 yesterday. Loonie and Franc rangy after return from Canadian and Swiss market holidays, USD/CAD straddling 1.2850 and USD/CHF rotating around 0.9500. Yuan off lows after slightly firmer PBoC midpoint fix, but awaiting repercussions of Pelosi trip given Chinese warnings about strong reprisals, USD/CNH circa 6.7700 and USD/CNY just below 6.7600 vs 6.7950+ and 6.7800+ respectively. South Africa's Eskom says due to a shortage of generation capacity, Stage Two loadshedding could be implemented at short notice between 16:00-00:00 over the next three days. Fixed Income Taiwan-related risk aversion keeps bonds afloat ahead of relatively light pm agenda before a trio of Fed speakers. Bunds hold above 159.00 within 159.70-158.57 range, Gilts around 119.50 between 119.70-20 parameters and T-note nearer 122-02 peak than 121-17+ trough. UK 2032 supply comfortably twice oversubscribed irrespective of little concession. Commodities WTI Sept and Brent Oct futures trade with both contracts under the USD 100/bbl mark as the participants juggle a myriad of major factors, incl. the JTC commencing shortly. Spot gold is stable and just below the 50-DMA at USD 1793/oz while base metals succumb to the broader tone. A source with knowledge of last month's meeting between President Biden and Saudi King Salman said the Saudis will push OPEC+ to increase oil production at their meeting on Wednesday and that the Saudi King made the assurance to President Biden during their face-to-face meeting July 16th, according to Fox Business's Lawrence. US Senator Manchin "secured a commitment" from President Biden, Senate Majority Leader Schumer and House Speaker Pelosi for completion of the Mountain Valley Pipeline, according to 13NEWS. US Event Calendar July Wards Total Vehicle Sales, est. 13.4m, prior 13m 10:00: June JOLTs Job Openings, est. 11m, prior 11.3m 10:00: Fed’s Evans Hosts Media Breakfast 11:00: NY Fed Releases 2Q Household Debt and Credit Report 13:00: Fed’s Mester Takes Part in Washington Post Live Event 18:45: Fed’s Bullard Speaks to the Money Marketeers DB's Jim Reid concludes the overnight wrap In thin markets, US House Speaker Nancy Pelosi's visit to Taiwan today for meetings tomorrow (as part of her tour of Asia) could be the main event. She's scheduled to land tonight local time which will be mid-morning US time. She'll be the highest ranking US politician to visit in 25 years. Expect some reaction from the Chinese and markets to be nervous. Meanwhile to dial back rising tensions, the White House has urged China to refrain from an aggressive response as speaker Pelosi’s visit does not change the US position toward the island. As the headline confirming her visit was going ahead broke, 10 year US Treasuries immediately fell a handful of basis point from 2.69% (opened at 2.665%) and continued falling to around 2.58% as Europe retired for the day, roughly where it closed (-6.8bps). Breakevens led most of the move. 2 year notes actually held in which inverted the curve a further -6.12bps and to the lowest this cycle at -30.84bps. Remember that August is the best month of the year for fixed income (see my CoTD last week here for more on this) so the month has started off in line with the textbook. This morning 10yr USTs yields have dipped another -3bps to 2.55%, some 14bps lower than when Pelosi stopover was first confirmed 18 hours ago. 2yr yields have slightly out-performed with the curve just back below -30bps again. Lower yields initially helped to lift equities yesterday, with the Nasdaq being up more than a percent at one point before falling with the rest of the market and closing -0.18%. The S&P 500 was -0.28% and dragged lower by energy (-2.17%). The latter came as crude prices moved substantially lower, with WTI losing -4.91% and Brent (-3.97%) dipping below $100 per barrel as well. Growth concerns, partly due to the weekend and yesterday’s data from China, and partly due to the US risk off yesterday, were mainly to blame. These worries filtered through other commodities as well, including industrial metals and agriculture. For the latter, Ukraine’s first grain shipment since the war began was a contributing factor. European gas was a standout, notching a +5.2% gain as the relentless march continues. In an overall risk-off market, staples (+1.21%) were the only sector meaningfully advancing on the day, followed by discretionary (+0.51%) stocks. Meanwhile, real estate (-0.90%), financials (-0.89%) and materials (-0.82%) dragged the index lower. Although yesterday’s earnings stack was light, today’s line up includes BP, Starbucks, Airbnb and PayPal. Asian equity markets opened sharply lower this morning on the fresh geopolitical tensions between the US and China over Taiwan. Across the region, the Hang Seng (-2.96%) is leading losses after yesterday’s data showed that Hong Kong slipped into a technical recession as Q2 GDP shrank by -1.4%, contracting for the second consecutive quarter as global headwinds mount. Mainland China stocks are also sliding with the Shanghai Composite (-2.90%) and CSI (-2.33%) trading deep in the red whilst the Nikkei (-1.59%) is also in negative territory. Elsewhere, the Kospi (-0.77%) is also weak in early trade. Outside of Asia, DMs stock futures point to a lower restart with contracts on the S&P 500 (-0.38%), NASDAQ 100 (-0.40%) and DAX (-0.50%) all turning lower. As we go to print, the RBA board has raised rates by another 50 basis points to 1.85%. Their economic forecasts seem to have been lowered and they have now said monetary policy is "not on a pre-set path" which some are already interpreting as possibly meaning 25bps instead of 50bps at the next meeting. Aussie 10yr yields dropped 7-8bps on the announcement and 10bps on the day. Back to yesterday, and the important US ISM index, on balance, painted a slightly more comforting picture than it could have been – although the index slowed to the lowest since June 2020. The headline came in above the median estimate on Bloomberg (52.8 vs 52.0). We did see a second month in a row of below-50 score for new orders, but a fall in prices paid from 78.5 to 60.0, the lowest since August 2020, offered some respite to fears about price pressures. Similarly, a rise in the employment gauge from 47.3 to 49.9, beating estimates, was also a positive. The manufacturing PMI was revised down a tenth from the preliminary reading which didn't move the needle. JOLTS today will be on my radar given it's been the best measure of US labour market tightness over the past year or so. Also Fed hawks Mester (lunchtime US) and Bullard (after the closing bell) will be speaking today. Turning to Europe, price action across sovereign bond markets was driven by dovish repricing of ECB’s monetary policy, in contrast to the US where the front end held up. A cloudier growth outlook from yesterday’s European data releases helped drive yields lower – retail sales in Germany unexpectedly contracted in June (-1.6% vs estimates of +0.3%) and Italy’s manufacturing PMI slipped below 50 (48.5 vs 49.0 expected). So Bund yields fell -3.8bps, similar to OATs (-3.1bps). The decline was more pronounced in peripheral yields and spreads, with BTPs (-12.9bps) in particular dropping below 3% for the first time since May of this year, perhaps on further follow through from last week's story that the far right party leading the polls aren't planning to break EU budget rules. Spreads have recovered the lost ground from Draghi's resignation announcement now. Weaker economic data overpowered the effect of lower yields and sent European stocks faded into the close after being higher most of the day with the STOXX 600 eventually declining -0.19%. The Italian market outperformed (+0.11%) for the reasons discussed above. Early this morning, data showed that South Korea’s July CPI inflation rate rose to +6.3% y/y, hitting its highest level since November 1998 (v/s +6.0% in June), in line with the market consensus. The strong inflation data comes as the Bank of Korea (BOK) mulls further interest rate hikes at its next policy meeting on August 25. To the day ahead now and there is a relatively short list of economic indicators to watch, including June JOLTS report and total vehicle sales (July) for the US, UK’s July Nationwide house price index and July PMI for Canada. Given the apparent uncertainty about the direction of the Fed in markets, many will be awaiting Fed’s Bullard, Mester and Evans, who will speak throughout the day. And in corporate earnings, it will be a busy day featuring results from BP, Caterpillar, Ferrari, Marriott, KKR, Uber, S&P Global, Occidental Petroleum, Electronic Arts, Gilead Sciences, Advanced Micro Devices, Starbucks, Airbnb, PayPal, Marathon Petroleum. Tyler Durden Tue, 08/02/2022 - 08:05.....»»

Category: personnelSource: nytAug 2nd, 2022

Stocks, Cryptos Tumble To Close Out Catastrophic First-Half

Stocks, Cryptos Tumble To Close Out Catastrophic First-Half It was supposed to be a 7% ramp into month-end on billions in pension fund residual buying. Instead, it ended up being more or less the opposite, with crypto-led liquidations dragging futures and global markets lower, and extending Wednesday losses after central bankers issued warnings on inflation and fueled concern that aggressive policy will end with a hard-landing recession, which increasingly more now see as being 2022 business, an outcome that now appears assured especially after yesterday's disastrous guidance cut from RH, the second in three weeks! Recession fears and inflation woes may be prolonged by today's PCE deflator report. The consumer price gauge favored by the Fed may have picked up to 6.4% last month from 6.3%. Personal income growth probably edged up but Bloomberg Economics highlights an anticipated decline in real personal spending as a major worry. Meanwhile, China’s economy showed further signs of improvement in June with a strong pickup in services and construction, even if the latest Chinese PMI print came slightly below expectations. Also overnight, Russia said it withdrew troops from Ukraine’s Snake Island in the Black Sea after Ukraine said its forces drove Russian troops from the area. In any case, with zero demand from pensions so far (even though the continued selling in stocks and buying in bonds will only make the imabalnce bigger), overnight Nasdaq 100 contracts dropped 1.8% while S&P 500 futures declined 1.3%, and cryptos crumbled, with bitcoin dragged back below $19000 and Ether on the verge of sliding below $1000. The tech-heavy gauge managed to end Wednesday’s trading slightly higher, while the S&P 500 fell for a third straight day. In Europe, the Stoxx Europe 600 Index slid 1.9%. Treasuries gained, the dollar was steady and gold declined and crude oil futures edged lower again. Which brings us to the last trading day of a quarter for the history books: the S&P 500 is set for its biggest 1H decline since 1970 and the Nasdaq 100 since 2002, the height of the dot.com bust. The Stoxx 600 is set for the worst 1H since 2008, the height of the GFC.  Traders have ramped up bets that the global economy will buckle under central bank tightening campaigns -- and that policy makers will eventually backpedal. The bond market shifted to price in a half-point rate cut in the Federal Reserve’s benchmark rate at some point in 2023. On Wednesday, during the annual ECB annual forum, Fed Chair Jerome Powell and his counterparts in Europe and the UK warned inflation is going to be longer lasting. A view that central banks need to act fast on rates because they misjudged inflation has roiled markets this year, with global stocks about to close out their worst quarter since the three months ended March 2020. “Markets are worried about growth as central bankers continue to emphasize that bringing down inflation is their overriding objective, and that it may take time to bring inflation down,” said Esty Dwek, chief investment officer at Flowbank SA. “We still haven’t seen total capitulation in markets, so further downside is possible.” Meanwhile, the cost of insuring European junk bonds against default crossed 600 basis points for the first time in two years on Thursday. And speaking of Europe, stocks are also down over 2% in early trading, with all sectors in the red. DAX and CAC underperform at the margin with autos, consumer discretionary and banking sectors the weakest within the Stoxx 600.  Here are some of the biggest European movers today: Uniper shares slump as much as 23% after the German utility withdrew its outlook and said it was discussing a possible bailout from the German government following Russia’s move to curb natural gas deliveries. SAP sinks as much as 6.5% after Exane BNP Paribas downgraded stock to neutral from outperform, saying it sees risks on demand side in the near term as software spending decisions come under increased scrutiny. Sanofi shares decline as much as 4.5% after the French drugmaker said the FDA placed late-stage clinical trials of tolebrutinib on partial hold in US because of concerns about liver injuries. European semiconductor stocks fell, following peers in the US and Asia lower amid growing concerns that the industry might face a downturn soon as chip stockpiles build. ASML drops as much as 3.4%, Infineon -4.1%, STMicro -3.1% Norsk Hydro shares slide as much as 6% amid metals decline and as DNB cuts the stock to sell from hold, citing concerns about rising aluminum supply. Stainless steel stocks in Europe fall, with Morgan Stanley saying the settlement on the latest ferrochrome benchmark missed its expectations. Outokumpu shares down as much as 6.6%, Aperam -7.2%, Acerinox -4% Saab shares jump as much as 8.4%, after getting an order worth SEK7.3b from the Swedish Defence Materiel Administration for GlobalEye Airborne Early Warning and Control aircraft. Orsted shares rise as much as 2.5%, before paring some of the gains. HSBC raises to buy from hold, saying any further downside for the wind farm operator looks limited. Bunzl shares rise as much as 2.6% after the specialist distribution company said it now expects very good revenue growth in 2022. Grifols shares rise as much as 7.8% after slumping on Wednesday, as the company says that the board isn’t analyzing any capital increase “for the time being.” Earlier in the session, Asian stocks fell for a second day as tech-heavy indexes in Taiwan and South Korea continued to get pummeled amid concerns over the potential for aggressive monetary tightening in the US to rein in inflation.  The MSCI Asia Pacific Index declined as much as 1.2%, dragged down by technology shares including TSMC, Alibaba and Tencent. Taiwan slid more than 2%, while gauges in Japan, South Korea, Australia dropped more than 1%.  Stocks in mainland China rose more than 1% after the economy showed further signs of improvement in June with a strong pickup in services and construction as Covid outbreaks and restrictions were gradually eased. Traders are also watching Chinese President Xi Jinping’s trip to Hong Kong, his first time outside of the mainland since 2020.  Asian stocks are struggling to recover from a May low as the threat of higher US rates outweighs China’s emergence from strict Covid lockdowns and its pledge of stimulus measures. While mainland Chinese stocks led gains globally this month, the rest of the markets in the region -- especially those heavy with technology stocks and exporters -- saw hefty outflows of foreign funds.  “Investors continue to assess recession and also inflation risks,” Marcella Chow, JPMorgan Asset Management’s global market strategist, said in an interview with Bloomberg TV. “This tightening path has actually increased the chance of a slower economic growth going forward and probably has brought forward the recession risks.” Asian stocks are set to post a more than 12% loss this quarter, the worst since the one ended March 2020 during the pandemic-induced global market rout. Japanese stocks declined after the release of China’s data on manufacturing and non-manufacturing PMIs that showed slower than expected improvements.  The Topix Index fell 1.2% to 1,870.82 as of market close Tokyo time, while the Nikkei declined 1.5% to 26,393.04. Sony Group contributed the most to the Topix Index decline, falling 3.4%. Out of 2,170 shares in the index, 531 rose and 1,574 fell, while 65 were unchanged. “Although China is recovering from a lockdown, business sentiment in the manufacturing industry is deteriorating around the world,” said Tomo Kinoshita, global market strategist at Invesco Asset Management China’s Economy Shows Signs of Improvement as Covid Eases. Indian stock indexes posted their biggest quarterly loss since March 2020 as the global equity market stays rattled by high inflation and a weakening outlook for economic growth.  The S&P BSE Sensex ended little changed at 53,018.94 in Mumbai on Thursday, while the NSE Nifty 50 Index dropped 0.1%. The gauges shed more than 9% each in the June quarter, their biggest drop since the outbreak of pandemic shook the global markets in March 2020. The main indexes have fallen for all but one month this year as surging cost pressures forced India’s central bank to raise rates twice and tighten liquidity conditions. The selloff is also partly driven by record foreign outflows of more than $28b this year.  Despite the turmoil in global markets, Indian stocks have underperformed most Asian peers, partly helped by inflows from local institutions, which made net purchases of more than $30b of local stocks. “Investors worry that the latest show of central bank determination to tame inflation will slow economies rapidly,” HDFC Securities analyst Deepak Jasani wrote in a note.  Fourteen of the 19 sector sub-gauges compiled by BSE Ltd. fell Thursday, with metal stocks leading the plunge. The expiry of monthly derivative contracts also weighed on markets. For the June quarter, metal stocks were the worst performers, dropping 31% while information technology gauge fell 22%. Automakers led the three advancing sectors with 11.3% gain. Australian stocks also tumbled, with the S&P/ASX 200 index falling 2% to close at 6,568.10, weighed down by losses in mining, utilities and energy stocks.  In New Zealand, the S&P/NZX 50 index fell 0.8% to 10,868.70 In rates, treasuries advanced, led by the belly of the curve. German bonds surged, led by the short-end and outperforming Treasuries. US yields richer by as much as 5.4bp across front-end and belly of the curve which outperforms, steepening 2s10s, 5s30s by 2bp and 2.8bp; wider bull-steepening move in progress for German curve with yields richer by up to 13.5bp across front-end with 2s10s wider by 3.5bp on the day. US 10-year yields around 3.055%, richer by 3.5bp. Money markets aggressively trimmed ECB tightening bets on relief that French June inflation didn’t come in above the median estimate. Bonds also benefitted from haven buying as stocks slide. Month-end extension flows may continue to support long-end of the Treasuries curve. bunds outperform by 7bp in the sector. IG issuance slate empty so far; Celanese Corp. pushed back plans to issue in euros and dollars, most likely to next week, after deals struggled earlier this week. Focal points of US session include PCE deflator and MNI Chicago PMI.  In FX, the Bloomberg Dollar Spot Index was steady as the greenback traded mixed against its Group-of-10 peers. The yen advanced and Antipodean currencies were steady against the greenback. French inflation quickened to the fastest since the euro was introduced. Steeper increases in energy and food costs drove consumer-price growth to 6.5% in June from 5.8% in May . Sweden’s krona swung to a loss. It briefly advanced earlier after the Riksbank raised its policy rate by 50bps, as expected, signaled faster rate hikes and a quicker trimming of the balance sheet. The pound rose, snapping three days of losses against the dollar. UK household incomes are on their longest downward trend on record, as the nation’s cost of living crisis saps the spending power of British households. Separate figures showed that the current-account deficit widened sharply to £51.7 billion ($63 billion) in the first quarter. The yen rose and the Japan’s bonds inched up. The BOJ kept the amount and frequencies of planned bond purchases unchanged in the July-September period. The Australian dollar reversed a loss after data showed China’s official manufacturing purchasing managers index rose above 50 for the first time since February in a sign of improvement in the world’s second largest economy. Bitcoin is on track for its worst quarter in more than a decade, as more hawkish central banks and a string of high-profile crypto blowups hammer sentiment. The 58% drawdown in the biggest cryptocurrency is the largest since the third quarter of 2011, when Bitcoin was still in its infancy, data compiled by Bloomberg show. In commodities, WTI trades a narrow range, holding below $110. Brent trades either side of $116. Most base metals trade in the red; LME zinc falls 3.1%, underperforming peers. Spot gold falls roughly $3 to trade near $1,814/oz. Bitcoin slumps over 6% before finding support near $19,000. Looking to the day ahead now, data releases include German retail sales for May and unemployment for June, French CPI for June, the Euro Area unemployment rate for May, Canadian GDP for April, whilst the US has personal income and personal spending for May, the weekly initial jobless claims, and the MNI Chicago PMI for June. Market Snapshot S&P 500 futures down 1.2% to 3,775.75 STOXX Europe 600 down 1.8% to 406.18 MXAP down 1.0% to 158.01 MXAPJ down 1.1% to 524.78 Nikkei down 1.5% to 26,393.04 Topix down 1.2% to 1,870.82 Hang Seng Index down 0.6% to 21,859.79 Shanghai Composite up 1.1% to 3,398.62 Sensex up 0.2% to 53,136.59 Australia S&P/ASX 200 down 2.0% to 6,568.06 Kospi down 1.9% to 2,332.64 Gold spot down 0.2% to $1,814.91 US Dollar Index little changed at 105.04 German 10Y yield little changed at 1.42% Euro little changed at $1.0443 Brent Futures down 0.4% to $115.85/bbl Top Overnight News from Bloomberg The surge in the dollar has set Asian currencies on course for their worst quarter since the 1997 financial crisis and created a dilemma for central bankers French Finance Minister Bruno Le Maire said the EU can deliver the global minimum corporate tax with or without the support of Hungary, circumventing Budapest’s veto earlier this month just as the bloc was on the brink of a agreement German unemployment unexpectedly rose, snapping 15 straight months of decline as refugees from the war in Ukraine were included in those searching for work The SNB bought foreign exchange worth 5.7 billion francs ($5.96 billion) in the first quarter of 2022 as the franc sharply appreciated against the euro and briefly touched parity in March The ECB plans to ask the region’s lenders to factor in the economic hit of a potential cut off of Russian gas when considering payouts to shareholders European stocks were poised for their biggest drop in any half-year period since 2008, as investors focused on the prospects for economic slowdown and stubbornly high inflation in the region New Zealand will enter a recession next year that could be deeper than expected, Bank of New Zealand economists said after a survey showed business sentiment continues to slump A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were varied at month-end amid a slew of data releases including mixed Chinese PMIs. ASX 200 was dragged lower by weakness in energy, miners and the top-weighted financials sector. Nikkei 225 declined after disappointing Industrial Production data and with Tokyo raising its virus infection level. Hang Seng and Shanghai Comp. were somewhat mixed with Hong Kong indecisive and the mainland underpinned after the latest Chinese PMI data in which Manufacturing PMI printed below estimates but Non-Manufacturing PMI firmly surpassed forecasts and along with Composite PMI, all returned to expansion territory. Top Asian News NATO Secretary General Stoltenberg said China's growing assertiveness has consequences for the security of allies, while he added China is not our adversary, but we must be clear-eyed about the serious challenges it presents. US blacklisted 5 Chinese firms for allegedly helping Russia in which Connec Electronic, King Pai Technology, Sinno Electronics, Winnine Electronic and World Jetta Logistics were added to the entity list which restricts access to US technology, according to WSJ. Japan's government cut its assessment of industrial production and noted that production is weakening, while it stated that Japan's motor vehicle production declined 8% M/M and that industrial production likely saw the largest impact of Shanghai's COVID-19 lockdown in May, according to Reuters. Tokyo metropolitan government will reportedly increase COVID infections level to the second-highest, according to FNN. It’s been a downbeat session for global equities thus far as sentiment deteriorates further. European bourses are lower across the board, with losses extending during early European hours. European sectors are all in the red but portray a clear defensive bias. Stateside, US equity futures have succumbed to the glum mood, with the NQ narrowly underperforming. Top European News Riksbank hiked its Rate by 50bps to 0.75% as expected, and said the rate will be raised further and it will be close to 2% at the start of 2023. Bank said the balance sheet its to shrink faster than previously flagged, and suggested that policy rate will increase faster if needed. Click here for details. Riksbank's Ingves said inflation over forecast probably not enough for Riksbank to hold extra policy meeting in summer. Ingves added that if the situation requires a 75bps hike, then Riksbank will carry out a 75bps hike. Orsted Gains as HSBC Upgrades With Shares Seen ‘Good Value’ Aston Martin Extends Losses as Carmaker Reportedly Seeking Funds Climate Litigants Look Beyond Big Oil for Their Day in Court Ukraine Latest: Putin Warns NATO on Moving Military to Nordics FX DXY extends on gains above 105.00, but could see more upside on safe haven demand and residual rebalancing flows over fixes - EUR/USD inches towards 1.0400 to the downside. Yen regroups as yields drop and risk sentiment deteriorates to compound corrective price action. Franc unwinds some of its recent outperformance and Loonie lose traction from oil ahead of Canadian GDP. Swedish Crown unable to take advantage of hawkish Riksbank hike in face of risk aversion - Eur/Sek stuck in a rut close to 10.7000. Pound finds some underlying bids into 1.2100 and Kiwi at 0.6200, while Aussie holds above 0.6850 with encouragement from China’s services PMI that also propped the Yuan. Fixed Income Bonds on bull run into month, quarter and half year end - Bunds top 148.00 at best, Gilts approach 113.50 and 10 year T-note just a tick away from 118-00. Debt in demand on safe haven grounds rather than duration as curves steepen on less hawkish/more dovish market pricing. Italian supply comfortably covered to keep BTP futures propped ahead of US PCE data and yet another speech from ECB President Lagarde. Commodities WTI and Brent front-month futures are resilient to the broader risk downturn, and firmer Dollar as OPEC+ member members gear up for what is expected to be a smooth meeting. Spot gold is uneventful but dipped under yesterday's low, with potential support at the 15th June low at USD 1,806.59/oz. Base metals are softer across the board amid the broader risk profile. Dalian and Singapore iron ore futures were on track for quarterly losses. Ship with 7,000 tonnes of grain leaves Ukraine port, according to pro-Russia officials cited by AFP. US Event Calendar 08:30: June Initial Jobless Claims, est. 229,000, prior 229,000 08:30: June Continuing Claims, est. 1.32m, prior 1.32m 08:30: May Personal Income, est. 0.5%, prior 0.4% 08:30: May Personal Spending, est. 0.4%, prior 0.9% 08:30: May Real Personal Spending, est. -0.3%, prior 0.7% 08:30: May PCE Deflator MoM, est. 0.7%, prior 0.2% 08:30: May PCE Deflator YoY, est. 6.4%, prior 6.3% 08:30: May PCE Core Deflator YoY, est. 4.8%, prior 4.9% 08:30: May PCE Core Deflator MoM, est. 0.4%, prior 0.3% 09:45: June MNI Chicago PMI, est. 58.0, prior 60.3 DB's Jim Reid concludes the overnight wrap We’ve just released the results of our monthly EMR survey that we conducted at the start of the week. It makes for some interesting reading, and we’re now at the point where 90% of respondents are expecting a US recession by end-2023, which is up from just 35% in our December survey. That echoes our own economists’ view that we’re going to get a recession in H2 2023, and just shows how sentiment has shifted since the start of the year as central banks have begun hiking rates. When it comes to people’s views on where markets are headed next, most are expecting many of the themes from H1 to continue, with a 72% majority thinking that the S&P 500 is more likely to fall to 3,300 rather than rally to 4,500 from current levels, whilst 60% think that Treasury yields will hit 5% first rather than 1%. Click here to see the full results. When it comes to negative sentiment we’ll have to see what today brings us as we round out the first half of the year, but if everything remains unchanged today we’re currently set to end H1 with the S&P 500 off to its worst H1 since 1970 in total return terms. And there’s been little respite from bonds either, with US Treasuries now down by -9.79% since the start of the year, so it’s been bad news for traditional 60/40 type portfolios. Ultimately, a large reason for that has been investors’ fears that ongoing rate hikes to deal with inflation will end up leading to a recession, and yesterday saw a continuation of that theme, with Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey all reiterating their intentions in a panel at the ECB’s Forum to return inflation back to target. In terms of that panel, there weren’t any major headlines on policy we weren’t already aware of, although there was a collective acknowledgement of the risk that inflation could become entrenched over time and the need to deal with that. Fed Chair Powell described the US economy as in “strong shape”, but one that ultimately requires much tighter financial conditions to bring inflation back to target. Year-end fed funds expectations remained steady in response, down just -0.7bps to 3.45%. However, further out the curve the simmering slower growth narrative continued to grip markets and sent 10yr Treasury yields -8.2bps lower to 3.09%, and the 2s10s another -1.1bps flatter to 4.7bps. In line with a tighter Fed policy path and slower growth, 10yr breakevens drove the move in nominal yields, falling -8.2bps to 2.39%, their lowest levels since January, having entirely erased the gains seen after Russia’s invasion of Ukraine, when it peaked above 3% at one point in April. Along with 2s10s flattening, the Fed’s preferred measure of the near-term risk of recession, the forward spread (the 18m3m – 3m), similarly flattened by -5.7bps, hitting its lowest level in nearly four months at 154bps. And thismorning there’s only been a partial reversal of these trends, with 10yr Treasury yields (+1.3bps) edging back up to 3.10% as we go to press. Over in equities, the S&P 500 bounced around but finished off of its intraday lows with just a -0.07% decline, again with the macro view likely skewed by quarter-end rebalancing of portfolios. The NASDAQ was similarly little changed on the day, falling a mere -0.03%. In terms of the ECB, President Lagarde said on that same panel that she didn’t think “we are going back to that environment of low inflation” that was present before the pandemic. But when it came to the actual data yesterday there was a pretty divergent picture. On the one hand, Spain’s CPI for June surprised significantly on the upside, with the annual inflation rising to +10.0% (vs. +8.7% expected) on the EU’s harmonised measure. But on the other, the report from Germany then surprised some way beneath expectations, coming in at +8.2% on the EU-harmonised measure (vs. +8.8% expected). So mixed messages ahead of the flash CPI print for the entire Euro Area tomorrow. As in the US, there was a significant rally in European sovereign bonds, with yields on 10yr bunds (-10.7bps), OATs (-10.7bps) and BTPs (-16.0bps) all moving lower on the day. Equities also lost significant ground amidst the risk-off tone, and the STOXX 600 shed -0.67% as it caught up with the US losses from the previous session. That risk-off tone was witnessed in credit as well, where iTraxx Crossover widened +21.5bps to a post-pandemic high. At the same time, there were further concerns in Europe on the energy side, with natural gas futures up by +8.06% to a three-month high of €139 per megawatt-hour, which follows a reduction in capacity yesterday at Norway’s Martin Linge field because of a compressor failure. Whilst monetary policy has been the main focus for markets lately, we did get some headlines on the fiscal side yesterday too, with a report from Bloomberg that Senate Democrats were working on an economic package that had smaller tax increases in order to reach a deal with moderate Democratic senator Joe Manchin. For reference, the Democrats only have a majority in the split 50-50 senate thanks to Vice President Harris’ tie-breaking vote, so they need every Democrat Senator on board in order to pass legislation. According to the report, the plan would be worth around $1 trillion, with half allocated to new spending, and the other half cutting the deficit by $500bn over the next decade. Overnight in Asia we’ve seen a mixed market performance overnight. Most indices are trading lower, including the Nikkei (-1.45%) and the Kospi (-0.81%), but Chinese equities have put in a stronger performance after an improvement in China’s PMIs in June, and the CSI 300 (+1.62%) and the Shanghai Comp (+1.31%) have both risen. That came as manufacturing activity expanded for the first time in four months, with the PMI up to 50.2 in June (vs. 50.5 expected) from 49.6 in May. At the same time, the non-manufacturing climbed to 54.7 points in June, up from 47.8 in May, which also marked the first time it’d been above the 50 mark since February. Nevertheless, that positivity among Chinese equities are proving the exception, with equity futures in the US and Europe pointing lower, with those on the S&P 500 (-0.28%) looking forward to a 4th consecutive daily decline as concerns about a recession persist. When it came to other data yesterday, the third estimate of US GDP for Q1 saw growth revised down to an annualised contraction of -1.6% (vs. -1.5% second estimate). Separately, the Euro Area’s M3 money supply grew by +5.6% year-on-year in May (vs. +5.8% expected), which is the slowest pace since February 2020. To the day ahead now, data releases include German retail sales for May and unemployment for June, French CPI for June, the Euro Area unemployment rate for May, Canadian GDP for April, whilst the US has personal income and personal spending for May, the weekly initial jobless claims, and the MNI Chicago PMI for June. Tyler Durden Thu, 06/30/2022 - 07:58.....»»

Category: blogSource: zerohedgeJun 30th, 2022

Futures Recover Losses After Netflix Disaster; 10Y Real Yields Turn Positive

Futures Recover Losses After Netflix Disaster; 10Y Real Yields Turn Positive US index futures were little changed, trading in a narrow, 20-point range, and erasing earlier declines as a selloff in bonds reversed with investors also focusing on the catastrophic Q1 earnings report from Netflix. Nasdaq 100 Index futures slipped 0.2% by 7:15 a.m. in New York, recovering from an earlier drop of as much as 1.2%; the Nasdaq 100 has erased $1.3 trillion in market value since April 4 as bond yields have been surging on fears of rate hikes. S&P 500 futures also recouped losses to trade little changed around 4,460. Treasuries rallied and 10Y yields dropped to 2.86% after hitting 2.98% yesterday. The dollar dropped for the first time in 4 days after hitting the highest level since July 2020, and gold was flat while bitcoin rose again, hitting $42K. In perhaps the most notable move overnight, US 10-year real yields turned positive for the first time since March 2020, signaling a potential return to the pre-pandemic normal. But that was quickly followed by a global drop in bond yields as investors assessed growth challenges from the Ukraine war and the potential for a peak in inflation. “Real yields matter for equities,” Esty Dwek, chief investment officer at Flowbank SA, said in an interview with Bloomberg Television. “It’s another aspect for the valuation picture that isn’t helping. It shouldn’t be that much of a surprise to see real yields are back closer to zero again. We’re pricing in so much bad news already between inflation and the hikes and war and supply chains.” 10-year Treasurys yield shed 7 basis points in choppy session after as money managers from Bank of America to Nomura indicated the panic over inflation has gone too far: “Our forecasts point to inflation peaking this quarter and falling steadily into 2023,” BofA analysts including Ralph Axel wrote in a note. “We believe this will reduce the panic level around inflation and allow rates to decline.”  Bank of America also said it has turned long on 10-year Treasuries. Elsewhere, Japan's 10-year yield holds at 0.25%, the top of Bank of Japan’s trading band as the central bank resumes massive intervention. Despite the BOJ's dovish commitment to keep rates low, the Japanese yen rebounded from a 13-day slump and gold extended its decline. Going back to stocks, Netflix shares which have a 1.2% weighting in the Nasdaq, sank 27% in premarket trading after the streaming service said it lost customers for the first time in a decade and forecast that the decline will continue. The shares were downgraded at many firms including UBS Group AG, KGI Securities and Piper Sandler. Other streaming stocks including Walt Disney and Roku also slipped. IBM, on the other hand, rose 2.5% after reporting revenue that beat the average analyst estimate on demand for its hybrid-cloud offerings. Analysts acknowledged the strong quarter of revenue performance. A dimmer outlook for corporate earnings as well as the rise in yields have dented demand for risk assets, with investors preferring defensive stocks such as healthcare to growth-linked stocks, which come under greater pressure from higher interest rates. Some other notable premarket movers: Interactive Brokers (IBKR US) shares fell 1.1% in after-market trading as net income missed analysts’ consensus estimates. Still, analysts at Piper Sandler and Jefferies are positive. Omnicom (OMC US) shares jumped 3.7% in postmarket. Its cautious outlook for the rest of the year could bring some positive surprises, according to analysts, after the company’s 1Q revenue beat estimates In Europe, the Stoxx 600 rose 0.8%, led by banking and technology shares while miners underperformed as metals fell, as investors assessed a mixed bag of corporate results and the outlook for France’s presidential-election runoff on Sunday.  There’s a divergence in performance of European stocks; Euro Stoxx 50 rallies 1.2%. FTSE 100 lags, adding 0.4%. Danone SA rose after reporting its fastest sales growth in seven years, and Heineken NV advanced after sales climbed. Here are some of the biggest European movers today: ASML shares rise as much as 8% with analysts saying the semiconductor-equipment group’s earnings show demand remains strong, even if a timing issue meant its outlook missed expectations. Danone shares gain as much as 9% following a French financial newsletter report that rival Lactalis may be interested in buying its businesses and after the producer of Evian reported a surge in bottled water revenue. Just Eat Takeaway shares rise as much as 7.7% after the company gave mixed guidance and said it is considering selling Grubhub. While analysts note the growth looks weak, they highlight the focus on profitability and the strategic review of Grubhub are positives. Vopak shares rise as much as 7.2%, most since March 2020, after the tank terminal operator reported higher revenues and Ebitda for the first quarter. Heineken shares rise as much as 5% after the Dutch brewer reported 1Q organic beer volume that beat analyst expectations and said net revenue (beia) per hectolitre grew 18.3%. Analysts were impressed by the company’s price-mix during the period. Rio Tinto shares fall as much as 3.9%. A production miss for 1Q could prevent the miner’s shares from recovering after recent underperformance, RBC Capital Markets says. Credit Suisse declines as much as 2.8% after the bank said it anticipates a first-quarter loss owing to a hit to revenue from Russia invading Ukraine and an increase in legal provisions. Oxford Biomedica drops as much as 10% after reporting full-year revenue that was below consensus. RBC Capital said reasons for the revenue miss were “unclear,” adding that there was no new business development news. Asian stocks rose as Japanese equities rallied on the back of a weaker yen, which will support exports. Shares in China fell as investors were disappointed by the decision among banks to keep borrowing rates there unchanged. The MSCI Asia Pacific Index gained as much as 0.9% and was poised to snap a three-day losing streak. Japanese exporters including Toyota and Sony helped lead the way, with shares also stronger in Singapore, Malaysia and the Philippines.  “It looks like the cheap yen may continue for a longer period than originally expected,” said Bloomberg Intelligence auto analyst Tatsuo Yoshida. “The weaker yen is good for all Japanese automakers.” China’s benchmarks bucked the uptrend and dipped more than 1%, as lenders maintained their loan rates for a third month despite the central bank’s call for lower borrowing costs to help an economy hurt by Covid-19 and geopolitical headwinds.  China’s rate stall, together with last week’s smaller-than-expected cut in the reserve requirement, has led some investors to believe broad and significant policy easing is unlikely. “Doubts about access to easier funding remain a bugbear despite headline easing,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a note. “Inadvertent restraints on actual lending may mute intended stimulus, revealing risks of ‘too little too late’ stimulus.” In positive news, daily covid cases in Shanghai were in downtrend in recent days and number of communities with more than 100 daily infections fell for three consecutive days, Wu Qianyu, an official with Shanghai’s health commission, says at a briefing. Financial stocks outside of China gained after U.S. 10-year Treasury real yields turned positive for the first time since 2020 as traders continue to bet on a series of aggressive Federal Reserve rate hikes. This may pose more headwinds for Asian tech stocks, which have dragged the broader market lower this year. Japanese equities rose for a second day after the yen weakened against the dollar for a record 13 straight days. Automakers were the biggest boost to the Topix, which climbed 1%. Financials advanced as yields gained. Fast Retailing and SoftBank Group were the largest contributors to a 0.9% gain in the Nikkei 225. The yen strengthened slightly after shedding nearly 6% against the dollar since the start of the month. “It looks like the cheap yen may continue for a longer period than originally expected,” said Bloomberg Intelligence auto analyst Tatsuo Yoshida. “The weaker yen is good for all Japaneseautomakers, “no one loses,” he added. Indian equities snapped their five-day drop as energy companies advanced on expectations of blockbuster earnings, driven by wider refining margins. Software exporters Infosys, Tata Consultancy and lender HDFC Bank bounced back from a slump, triggered by weaker results.  The S&P BSE Sensex gained 1% to 57,037.50 in Mumbai, while the NSE Nifty 50 Index rose 1.1%. The two gauges posted their biggest surge since April 4. Thirteen of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by a gauge of automobile companies. “A series of sharp negative reactions to minor misses in earnings from large caps points to a precarious state of positioning among investors,” according to S. Hariharan, head of sales trading at Emkay Global Financial. He expects corporate commentary on the margin outlook for FY23 to be key to investors’ reaction to other quarterly results, which will be released over the next couple of weeks. The benchmark Sensex lost about 5% in the five sessions through Tuesday, dragged lower by a selloff in software makers, a slump in HDFC Bank and its parent Housing Development Finance Corp. Foreign investors, who have been net sellers of Indian stocks since the start of October, have withdrawn $1.7 billion from local equities this month through April 18. The IMF slashed its world growth forecast by the most since the early months of the Covid-19 pandemic and projected even faster inflation. It expects India’s economy to grow by 8.2% in fiscal 2023 compared with an earlier estimate of 9%. Reliance Industries contributed the most to the Sensex’s gain, increasing 3%. Out of 30 shares in the Sensex index, 20 rose, while 10 fell. In FX, the Bloomberg Dollar Spot Index fell 0.4%, its first drop in four days, after yesterday reaching its highest level since July 2020, as the greenback weakened against all Group-of-10 peers. Scandinavian and Antipodean currencies led gains followed by the yen, which halted a 13-day rout. The euro advanced a second day and bunds extended gains, underperforming euro-area peers as money markets pared ECB tightening wagers. The yen snapped a historic declining streak amid short covering after the currency approached a key level of 130 per dollar. The Bank of Japan stepped in to cap 10-year yields for the first time since late March as it reiterated its ultra loose monetary policy with four days of unscheduled bond buying. The Australian and New Zealand dollars gained as risk sentiment improved after a selloff in Treasuries paused. The Aussie was supported by offshore funds buying into contracting yield spreads with the U.S. and on demand from exporters for hedging at the week’s low, according to FX traders. The pound edged higher against a broadly weaker dollar, but lagged behind the rest of its Group-of-10 peers, with focus on the risks to the U.K. economy. In rates, Treasuries advanced, reversing a portion of Tuesday’s sharp selloff which pushed the 10Y as high as 2.98%, with gains led by belly of the curve amid bull-flattening in core Focal points of U.S. session include Fed speakers and $16b 20-year bond reopening. US yields were richer by ~7bp across belly of the curve, 10-year yields around 2.87% keeping pace with gilts while outperforming bunds, Fed-dated OIS contracts price in around 222bp of rate hikes for the December FOMC meeting vs 213bp priced at Monday’s close; 49bp of hikes remain priced in for the May policy meeting. Japan 10-year yields held at 0.25%, the top of Bank of Japan’s trading band as the central bank resumes massive intervention. Australian and New Zealand bonds post back-to-back declines. Coupon issuance resumes with $16b 20-year bond sale at 1pm New York time; WI yield at around 3.10% sits ~45bp cheaper than March result, which stopped 1.4bp through.  IG dollar issuance slate includes Development Bank of Japan 5Y SOFR, Canada 3Y and ADB 3Y/10Y SOFR; six deals priced almost $19b Tuesday, headlined by financials including JPMorgan and Bank. In commodities, crude futures advance. WTI trades within Tuesday’s range, adding 1.1% to around $103. Brent rises 0.9% to around $108. Most base metals trade in the red; LME lead falls 1.6%, underperforming peers. Spot gold falls roughly $4 to trade near $1,946/oz. Looking at the day ahead now, and data releases include German PPI for March, Euro Area industrial production for February, US existing home sales for march, and Canadian CPI for March. From central banks, we’ll hear from the Fed’s Bostic, Evans and Daly, as well as the ECB’s Rehn and Nagel, whilst the Federal Reserve will be releasing their Beige Book. Earnings releases include Tesla, Procter & Gamble, and Abbott Laboratories. Finally, French President Macron and Marine Le Pen will debate tonight ahead of Sunday’s presidential election. Market Snapshot S&P 500 futures down 0.4% to 4,443.50 STOXX Europe 600 up 0.4% to 458.21 MXAP up 0.5% to 171.88 MXAPJ up 0.2% to 570.00 Nikkei up 0.9% to 27,217.85 Topix up 1.0% to 1,915.15 Hang Seng Index down 0.4% to 20,944.67 Shanghai Composite down 1.3% to 3,151.05 Sensex up 0.9% to 56,945.14 Australia S&P/ASX 200 little changed at 7,569.23 Kospi little changed at 2,718.69 German 10Y yield little changed at 0.88% Euro up 0.3% to $1.0823 Brent Futures up 1.0% to $108.27/bbl Brent Futures up 1.0% to $108.27/bbl Gold spot down 0.3% to $1,943.30 U.S. Dollar Index down 0.28% to 100.67 Top Overnight News from Bloomberg On the surface the yen looks like the perfect well for carry traders to dip into, under pressure from a Bank of Japan determined to keep local yields anchored to the floor even as interest rates around the world push higher. But despite consensus building for further losses -- peers look like better funding options on certain key metrics Almost eight weeks after Vladimir Putin sent troops into Ukraine, with military losses mounting and Russia facing unprecedented international isolation, a small but growing number of senior Kremlin insiders are quietly questioning his decision to go to war French President Emmanuel Macron and nationalist leader Marine le Pen are gearing up for their only live TV debate on Wednesday evening, a high-stakes event just days before the final ballot of the presidential election this weekend China will continue strengthening strategic ties with Russia, a senior diplomat said, showing the relationship remains solid despite growing concerns over war crimes in Vladimir Putin’s war in Ukraine A more detailed look at global markets courtesy of Newsquawk APAC stocks eventually traded mostly positive after the firm handover from the US despite continued upside in yields. ASX 200 was led by the healthcare sector as shares in Ramsay Health Care surged due to a takeover proposal from a KKR-led consortium, but with gains capped by miners after Rio Tinto's lower quarterly iron ore production and shipments. Nikkei 225 was underpinned by the initial currency depreciation and with the BoJ defending its yield cap. Hang Seng and Shanghai Comp were mixed with the mainland subdued after the PBoC defied expectations for a cut to its benchmark lending rates and instead maintained the 1yr and 5yr Loan Prime Rates at 3.70% and 4.60%, respectively. Top Asian News Fed’s Aggressive Rate Hike Plans Jolt Policy in China and Japan BOJ Further Boosts Bond Buying as Yields Advance to Policy Limit Sunac Bondholders Say They Haven’t Received Interest Due Tuesday Regulators Under Pressure to Ease Loan Curbs: Evergrande Update China Buys Cheap Russian Coal as World Shuns Moscow European bourses and US futures were choppy at the commencement of the European session, but, have since derived impetus in relatively quiet newsflow amid multiple earnings and as yields continue to ease; ES Unch. Currently, Euro Stoxx 50 +1.8%, while US futures are little changed on the session but rapidly approaching positive territory ahead of key earnings incl. TSLA. Netflix Inc (NFLX) - Q1 2022 (USD): EPS 3.53 (exp. 2.89), Revenue 7.87bln (exp. 7.93bln), Net Subscriber Additions: -0.2mln (exp. +2.5mln). Q1 UCAN streaming paid net change -640k (exp.+87.5k). Co. lost 640k subscribers in US/Canada, 300k in EMEA, and 350k in LatAm. Co. Said macro factors, including sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID are likely having an impact, via PR Newswire. Click here for the full breakdown. -26% in the pre-market. Chinese Civil Aviation publishes prelim report looking into the China Eastern Airline crash; still recovering and analysing damaged black boxes from the plane: there was no abnormal communication between air crew and air controllers before the aircraft deviated from cruising altitude; no dangerous weather, goods or overdue maintenance. Top European News Le Pen Upset Would Be as Big a Shock to Markets as Brexit Macron and Le Pen Set for High Stakes French Debate Riksbank Governor Leaves Door Open for String of Rate Hikes Danone Gains on Lactalis Takeover Speculation, Evian Rebound Heineken Rises; MS Says Results Were Widely Expected FX: Buck concedes ground to recovering Yen as US Treasury yields recede, USD/JPY over 150 pips below new 20 year high circa 129.42. Yuan on the rocks after PBoC set a soft onshore reference rate and regardless of unchanged LPRs, USD/CNH eyes 6.4500 after breach of 200 DMA. Aussie back in pole position as high betas benefit from Greenback retreat and Kiwi in second spot ahead of NZ CPI data; AUD/USD rebounds through 0.7400 and NZD/USD from under 0.6750. Loonie also bouncing before Canadian inflation metrics, with Usd/Cad closer to 1.2550 than 1.2625, while Euro and Pound are both firmer on 1.0800 and 1.3000 handles respectively as DXY dips below 100.500. Rand shrugs aside mixed SA CPI prints as correction from bull run continues and Gold slips under Usd 1950/oz, USD/ZAR holds above 15.0000. ECB's Kazaks says a rate hike is possible as soon as July this year; ending APP early in Q3 is possible and appropriate; zero is not an a cap for the deposit rate, via Bloomberg. Adds, a gradual approach does not mean a slow approach, do not need to wait for stronger wage growth. Fixed Income: Debt redemption, as futures retrace following tests/probes of cycle lows. Lack of concession not really evident at longer-dated German and UK bond sales, but 20 year US supply may be a separate issue. BoJ ramps up intervention and aims to anchor rather than cap 10 year JGB yield around zero percent, while BoA suggests contra-trend position in 10 year UST to target 2.25% from current levels close to 3.0%. Commodities: Crude benchmarks are firmer on the session in what is more of a consolidation from yesterday's pressured settlement than a concerted effort to move higher, also benefitting from broader equity action. Currently, WTI and Brent reside at the top-end of USD 2/bbl parameters; focus very much on China-COVID, Iran, Libyan supply and Ukraine-Russia developments. US Private Energy Inventory Data (bbls): Crude -4.5mln (exp. +2.5mln), Cushing +0.1mln, Gasoline +2.9mln (exp. -1.0mln), Distillate -1.7mln (exp. -0.8mln). Spot gold/silver are contained at present but have seen bouts of modest pressure, including the loss of the USD 1946.45/oz 21-DMA at worst. US Event Calendar 07:00: April MBA Mortgage Applications, prior -1.3% 10:00: March Existing Home Sales MoM, est. -4.1%, prior -7.2% 10:00: March Home Resales with Condos, est. 5.77m, prior 6.02m 14:00: U.S. Federal Reserve Releases Beige Book Central Bank Speakers 11:25: Fed’s Daly Discusses the Outlook 11:30: Fed’s Evans Discusses the Economic and Policy Outlook 13:00: Fed’s Bostic Discusses Equity in Urban Development DB's Jim Reid concludes the overnight wrap It took me a while to adjust to being back to the office yesterday after two and a half weeks off. No screaming kids, no stealing half their food as I made their meals, and no stepping on endless lego and screaming myself. My team at work are much better behaved, protect their food, and clear up after playing with their toys. Talking of lego, the first day of the holiday was spent in a snow blizzard at LEGOLAND and the last day in shorts and t-shirt on a family bike ride on the Thames. No I haven't been off for that long just a typical April in the UK. When I left you, I was in constant agony due to sciatica in my back and a knee that was very fragile post surgery. On my last day I had a back injection that I wasn't that hopeful about as three previous ones hadn't done anything. However after a second opinion and a new consultant, this injection hit the spot and my sciatica has completely gone and I'm just back to the long-standing normal wear and tear related back stiffness. The consultant can't tell me how long it'll last so Reformer Pilates starts next week. My knee is slowly getting better via some overuse flare ups. So until the next time, I'm in as good a shape as I have been for quite some time! It's hard to guage how good a shape the market is in at the moment as there are lots of conflicting forces. Since I've been off global yields have exploded higher, the US yield curve has resteepened notably and risk is a bit softer. As regular readers know I think a late 2023/early 2024 US recession is likely in this first proper boom and bust cycle for over 40 years. However we're still in some kind of boom phase and I've been trying not to get too bearish too early. While I was off, I published our latest credit spread forecasts and having met our earlier year widening targets, we've moved more neutral for the rest of the year. However into year end 2023, we now have a very big widening of spreads in the forecasts to reflect the likely recession. See the report here. Also while I've been off, the House View is now also that we'll get a US recession at a similar point which as far as I can see is the first Wall Street bank to officially predict this. See the World Outlook here for more. On the steepening I don't have a strong view but ultimately I think 2 year yields will probably have to rise again at some point after a recent pause as the risks are skewed to the Fed having to move faster than the market expects. The long end is complicated by QT but generally I suspect the curve will be fairly flat or inverted for most of the next few months. Coming back after my holidays and the long Easter weekend, the bond market sell-off resumed yesterday with yields climbing to fresh highs. In fact, the losses for Treasuries so far in April now stand at -2.95% on a total return basis, just outperforming the -3.04% decline in March that itself was the worst monthly performance since January 2009, back when the US economy started emerging from the worst phase of the GFC. Elsewhere the US yield curve flattened for the first time in six sessions, with 2yr yields climbing +14.4bps to 2.59%, their highest level since early 2019. Yields on 10yr Treasuries rose +8.3bps to 2.94%, a level unseen since late 2018, on another day marked by heightened rates volatility. Meanwhile 30yr yields breached 3.00% intraday for the first time since early 2019, climbing +5.4bps. And what was also noticeable was the continued rise in real yields, with the 10yr real yield closing at -0.009% yesterday, and briefly trading in positive territory for the first time since March 2020 in early trading this morning. Bear in mind that the 10yr real yield has surged roughly 110bps in around 6 weeks, and since we’ve been able to calculate real yields using TIPS, the only faster moves over such a short time period have been during the GFC and a remarkable 2-week period in March 2020 around the initial Covid-19 wave. On the other hand, as I pointed out in my CoTD yesterday (link here), the 10yr real yield based on spot inflation is currently around -5.6%, so still incredibly negative. The latest moves come ahead of the Fed’s next decision two weeks from now, where futures are placing the odds of a 50bp hike at over 100% now. We’ve been talking about 50bps for some time, and we’d probably have had one last month had it not been for Russia’s invasion of Ukraine, but it would still be a historic moment if it happens, since the last 50bp hike was all the way back in 2000. Nevertheless, we could be about to see a whole run of them, with our economists pencilling in 50bp hikes at the next 3 meetings, whilst St Louis Fed President Bullard (the only dissenting vote at the last meeting who wanted 50bps) said on Monday night that he wouldn’t even rule out a 75bps hike, which probably gave some fuel to the subsequent front end selloff. The bond selloff also took hold in Europe yesterday, where yields on 10yr bunds (+6.9ps), 10yr OATs (+5.0bps) and BTPs (+6.2bps) all hit fresh multi-year highs. Indeed, those on 10yr bunds (0.91%) were at their highest level since 2015, having staged an astonishing turnaround since they closed in negative territory as recently as March 7. Rising inflation expectations have been a driving theme behind this, and yesterday we saw the 5y5y forward inflation swap for the Euro Area close above 2.4%, which is the first time that’s happened in almost a decade, and just shows how investor confidence in the idea of “transitory” inflation is becoming increasingly subdued given that metric is looking at the 5-10 year horizon. Those moves higher in inflation expectations came in spite of the fact that European natural gas prices fell to their lowest level since Russia’s invasion of Ukraine began yesterday. By the close, they’d fallen -1.94% to €93.77/MWh, whilst Brent crude oil prices were down -5.22% to $107.25/bbl. In Asia, oil prices are a touch higher, with Brent futures +0.82% higher as we go to press. Whilst bonds sold off significantly on both sides of the Atlantic, equities put in a much more divergent performance, with the US seeing significant advances just as Europe sold off. By the close of trade, the S&P 500 (+1.61%) had posted its best day in more than a month, as part of a broad-based advance that left 446 companies in the index higher on the day, the most gainers in a month. Tech stocks outperformed in spite of the rise in yields, with the NASDAQ (+2.15%) and the FANG+ index (+1.81%) posting solid advances, and the small-cap Russell 2000 (+2.04%) also outperformed. In Europe however, the STOXX 600 shed -0.77%, with others including the DAX (-0.07%), the CAC 40 (-0.83%) and the FTSE 100 (-0.20%) also losing ground. The S&P was higher despite a day of mixed earnings. Of the ten companies reporting during trading yesterday, only 4 beat both sales and earnings expectations. After hours, Netflix was the main story, losing subscribers for the first quarter in over a decade and forecasting further declines this quarter, which sent the stock as much as -24% lower in after hours trading. It’s 2 bad earnings releases in a row for the world’s largest streaming service, who saw their stock dip -21.79% the day after their fourth quarter earnings in January. Asian equity markets are mixed this morning as the People’s Bank of China (PBOC) defied market expectations by keeping its benchmark lending rates steady. In mainland China, the Shanghai Composite (-0.21%) and the CSI (-0.43%) are lagging on the news. Bucking the trend is the Nikkei (+0.57%) and the Hang Seng (+0.66%). Outside of Asia, stock futures are indicating a negative start in the US with contracts on the S&P 500 (-0.35%) and Nasdaq (-0.75%) both trading in the red partly due to the Netflix earnings miss. Separately, the Bank of Japan (BOJ) reiterated its commitment to purchase an unlimited amount of 10-yr Japanese Government Bonds (JGBs) at 0.25% to contain yields, underscoring its desire for ultra-loose monetary settings, in contrast to the global move in a more hawkish direction. The yen has moved slightly higher (+0.3%) after depreciating for 13 straight days, a streak which hasn’t been matched since the US left the gold standard in the early 70s and effectively brought the global free floating exchange rate regime into being. The pace and magnitude of the depreciation has brought some expressions of consternation from Japanese officials, but no official intervention. The reality is, it would be extraordinarily difficult to credibly support the currency at the same time as maintaining strict control of the yield curve. 10yr JGBs continue to trade just beneath the important 0.25% level. Over in France, we’re now just 4 days away from the French presidential election run-off on Sunday, and tonight will see President Macron face off against Marine Le Pen in a live TV debate. Whilst that will be an important moment, recent days have seen a slight widening in Macron’s poll lead that has also coincided with signs of an easing in market stress, with the spread of French 10yr yields over bunds coming down to its lowest level since the start of the month yesterday, at 46.7bps. In terms of yesterday’s polls, Macron was ahead of Le Pen by 56-44 (Opinionway), 56.5-43.5 (Ipsos), and 55-54 (Ifop), putting his lead beyond the margin of error in all of them. Elsewhere, the IMF released their latest World Economic Outlook yesterday, in which they downgraded their estimates for global growth in light of Russia’s invasion of Ukraine. They now see global growth in both 2022 and 2023 at +3.6%, down from estimates in January of +4.4% in 2022 and +3.8% in 2023. Unsurprisingly it was Russia that saw the biggest downgrades, but they were broadly shared across the advanced and emerging market economies, whilst inflation was revised up at the same time. Otherwise on the data side, US housing starts grew at an annualised rate of 1.793m in March (vs. 1.74m expected), which is their highest level since 2006. Building permits also rose to an annualised rate of 1.873m (vs. 1.82m expected), albeit this was still beneath its post-GFC high reached in January. To the day ahead now, and data releases include German PPI for March, Euro Area industrial production for February, US existing home sales for march, and Canadian CPI for March. From central banks, we’ll hear from the Fed’s Bostic, Evans and Daly, as well as the ECB’s Rehn and Nagel, whilst the Federal Reserve will be releasing their Beige Book. Earnings releases include Tesla, Procter & Gamble, and Abbott Laboratories. Finally, French President Macron and Marine Le Pen will debate tonight ahead of Sunday’s presidential election. Tyler Durden Wed, 04/20/2022 - 08:02.....»»

Category: blogSource: zerohedgeApr 20th, 2022

Futures Rebound From Two-Day Plunge As Yield And Oil Rise

Futures Rebound From Two-Day Plunge As Yield And Oil Rise U.S. index futures edged higher, along with European shares, after the sharpest two-day drop in almost a month, as investors digested Federal Reserve’s hawkish path and were jerked higher by a fleeting moment of Ukraine ceasefire hope when Emini futures initially spiked to session highs on the following Reuters headline: RUSSIAN FOREIGN MINISTER SAYS UKRAINE PRESENTED A NEW DRAFT AGREEMENT TO RUSSIA ON WEDNESDAY - IFX ... only to reverse the entire move two minutes later when the following headline hit: LAVROV: UKRAINE PROPOSALS ON CRIMEA, DONBAS UNACCEPTABLE: IFX Mini hiccup aside, S&P futures were about 0.1% higher at 4,481 while Nasdaq futures gained 0.5% to 14,574, signaling an end to a selloff in the underlying index that erased $850 billion in market value over two days.  Ten-year Treasury yields were flat around 2.61%, the dollar extended its rally to a sixth day, the longest streak in almost 10 months, and oil rebounded from yestereday's IEA reserve release-driven plunge. Markets are showing signs of recovery after a selloff brought on by hawkish Fed minutes in which the central bank laid out a long-awaited plan to shrink their balance sheet by about $95BN per month or more than $1 trillion a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades. “The FOMC minutes gave the clarity that every investors was looking for,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “The US 2-10 year spread is back in the positive after having slipped below zero, but the recession threat is real, keeping the investor mood sour as the Fed pulls back support.” “The Fed delivered what most market watchers were looking for, with details around the pace and composition of the balance sheet runoff,” said Janus Henderson global bond PM Jason England. Along with recent hawkish comments from Fed officials, the minutes showed “the Fed has pivoted from a gradual approach to tightening monetary policy to now moving more rapidly toward a neutral stance,” he said. In premarket trading, HP shares were up 13% after Warren Buffett’s Berkshire Hathaway bought an 11% stake worth $4.2 billion in the laptop maker valued at more than $4.2 billion. SoFi shares declined 5.1% in premarket after the fintech firm gave new guidance as the U.S. government extended the pause on student-loan payments. Other notable premarket overs include: Levi Strauss & Co. (LEVI US) gains 5.5% in premarket trading after it said revenue during the most recent quarter increased 22% to $1.6 billion. Wells Fargo said comments about a strong first quarter and good momentum in March should help dispel investor concerns, at least in the near term. Wayfair (W US) falls 4.4% in premarket trading after Wells Fargo downgrades to underweight from equal weight in sector note turning more cautious on housing-impacted retailers. SoFi (SOFI US) drops 5.1% in premarket trading as Morgan Stanley cuts its 2022 Ebitda estimate by $42m to $100m after the fintech firm gave new guidance as the U.S. government extended the pause on student-loan payments. Sprinklr’s fourth- quarter results were a positive, though the most impressive point was the software company’s guidance, Barclays analysts led by Raimo Lenschow write in a note. The shares rose 4.7% in postmarket trading on Wednesday. Vapotherm (VAPO US) falls 23% in premarket trading after the respiratory-device company reported preliminary quarterly revenue that fell short of analysts’ estimates and withdrew its annual guidance. In Europe, the Stoxx 600 added 0.7%, boosted by a rally in shares of Atlantia SpA, the billionaire Benettons’ highway and airport group. Atlantia added 10% in Italian trading after a non-binding bid from Global Infrastructure Partners and Brookfield Asset Management Inc. European healthcare and chemical stocks outperformed, while energy and miners declined. IBEX outperformed, adding 1.5%, FTSE 100 lags, dropping 0.1%. Health care, chemicals and travel are the strongest performing sectors. The energy sector was in the red, dragging the U.K.’s benchmark FTSE 100 down, as Shell’s $4-$5BN hit from its withdrawal from Russia weighed on oil producers. The statement from the London-based giant shows that, despite a surge in oil and gas prices, Russia’s invasion of Ukraine has upended the supermajors’ plans and left them scrambling to adapt to historic shifts in energy markets. Here are the most notable European premarket movers: Atlantia shares rise as much as 12%, extending yesterday’s gains, after a Bloomberg report that the motorway and airport company could become the target of a bidding war. Electrolux advances as much as 5.8% after announcing a positive non- recurring item of $70.5m in 1Q. Euronav shares gain as much as 12% on news of a potential stock-for-stock combination with Frontline to create a tanker company with a market capitalization of more than $4.2b. Daetwyler shares jump as much as 6% after it announced the acquisition of U.S. electrical connector seals company QSR, with Baader saying the deal may benefit earnings from day one. 888 shares surge as much as 31% after the gambling company announced a share placement to pay for its now-cheaper acquisition of William Hill’s international assets, with analysts reacting positively. Verbio shares surge to a record high after Hauck & Aufhauser lifts its PT on the biodiesel manufacturer by almost 33% ahead of what the broker expects to be “another outstanding quarter.” European basic resources and energy shares decline, lagging all other sectors, as commodity prices start to pull back, with Anglo American, Rio Tinto and Glencore all posting declines. PageGroup and other staffing companies fall after Jefferies lowers EPS estimates across the sector and takes a “more risk-off approach” in note, downgrading PageGroup in the process. Countryside shares sank as the home developer forecast a decline in profit after conducting a review of its business following a dispute with an activist investor. TI Fluid Systems falls as much as 12% after Jefferies downgraded the automotive parts maker to hold from buy, saying conditions faced by the company are among the most difficult in its coverage. Earlier in the session, Asian stocks slid to a three-week low as traders feared a rapid rise in U.S. interest rates and aggressive scale-back of the Federal Reserve’s bond holdings could stymie growth and hurt earnings. The MSCI Asia Pacific Index lost as much as 1.4% on Thursday, with tech shares leading the losses in many countries, after minutes of the Fed’s March meeting showed plans to shrink its balance sheet by more than $1 trillion a year. The fall came after the Asian benchmark slumped 1.5% on Wednesday following similarly hawkish comments from Fed Governor Lael Brainard. Worries that hawkish policy tightening by the Fed may cool the world’s largest economy or even tip it into a recession are hitting equities broadly across Asia. Stocks in China also buckled, even as the state council renewed its pledge to use monetary policy tools at an “appropriate time” and consider other measures to boost consumption, according to the readout from a meeting of the State Council chaired by Premier Li Keqiang on Wednesday. “The Fed is telling us that the party is over. It is saying it will take away the punch bowl,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “This will have a serious impact on all risk assets.” Fujito saw tech shares with rich valuations as the most vulnerable, adding that investors will be trying to seek shelter in utilities and defensive stocks. The MSCI Asia Pacific Information Technology Index fell about 2%.  Benchmarks in Japan and South Korea underperformed other Asian peers, while gauges in Australia and India posted smaller declines on Thursday.   For April, the MSCI Asia is now down more than 2% on top of a slump of almost 7% last quarter -- the most since the first three months of 2020 -- amid concern about the war in Ukraine, higher rates and inflation.  Japanese equities fell by the most in almost four weeks, deepening declines in tandem with U.S. peers amid concerns over the Federal Reserve’s plans to tighten monetary policy. Electronics makers and service providers were the biggest drags the Topix, which dropped 1.6%, in its third day of decline. Tokyo Electron and Fast Retailing were the largest contributors to a 1.7% loss in the Nikkei 225.  Minutes from the latest Federal Reserve meeting showed the U.S. central bank is prepared to raise rates sharply and reduce its balance sheet to cool the economy. Indian stocks dropped with peers across Asia as the weekly expiry of derivative contracts weighed on the market.  The S&P BSE Sensex slipped for a third session, dropping 1% to 59,034.95, its biggest fall since March 21. The NSE Nifty 50 Index slipped 0.9%. HDFC Bank retreated 2.2%, while Reliance Industries declined 1.8%. Seventeen of 30 shares on the Sensex traded lower.  Fifteen of 19 sectoral sub-indexes compiled by BSE Ltd. declined, led by a gauge of oil & gas stocks. The Fed’s plan to prune its near $9 trillion balance sheet, which was swollen by pandemic-era bond purchases, points to more volatility in global markets. Locally, the nation’s central bank will likely raise its inflation outlook to reflect costlier oil while leaving borrowing costs steady in its policy decision on Friday. “U.S. Fed’s hawkish stance has raised concerns of steeper interest rate hikes going ahead,” Kotak Securities analyst Shrikant Chouhan said. He sees volatility in global crude oil prices leading to profit taking in Reliance Industries and other energy stocks. The S&P/ASX 200 index fell 0.6% to close at 7,442.80, retreating alongside global peers after the Federal Reserve outlined plans to trim its balance sheet by more than $1 trillion a year while raising interest rates. Life360 was the biggest laggard as tech stocks dropped. Magellan Financial was the top performer after its funds under management update showed a slowdown in net outflows. In New Zealand, the S&P/NZX 50 index was little changed at 12,075.91 In FX, the Bloomberg dollar spot index is near flat, handing back earlier gains that saw it at a three-week high. RUB leads gains in EMFX. In rates, the treasuries curve extends steepening counter-trend as front-end and belly yields retreat further from Wednesday’s YTD highs while long-end cheapens slightly. Yields richer by up to 3bp across front-end of the curve, steepening 2s10s by ~3bp with 10-year little changed near 2.60%; bunds and gilts keep pace. Bund, Treasury and gilt curves all bull steepen. Meanwhile commodity markets continue to be whipsawed by disruptions sparked by Russia’s war in Ukraine and efforts to curb raw-material costs. WTI crude climbed toward $98 a barrel, paring a slump that was triggered by the International Energy Agency’s decision to deploy 60 million barrels from emergency stockpiles. WTI added 1.4% to trade near $98. Brent rises 1.5% to over $102. Most base metals trade in the red; LME nickel falls 2.3%, underperforming peers. Spot gold is little changed at $1,926/oz. Raw materials could surge by as much 40% -- taking them far into record territory -- should investors boost their allocation to commodities at a time of rising inflation, according to JPMorgan. In crypto, bitcoin is pressured and towards the low-end of a range that continues to drift from the USD 45k mark. Meta (FB) is exploring a virtual currency for the metaverse, according to the FT. U.S. economic data slate includes initial jobless claims (8:30am) and February consumer credit (3pm). Fed speakers scheduled include Bullard (9am) and Bostic (2pm). U.S. session highlights include speech and Q&A by St. Louis Fed’s Bullard --who dissented from March FOMC decision in favor of a bigger rate increase -- at 9am ET.  Other central bank speakers include Bostic and Evans, as well as the BoE’s Pill. We’ll also get the minutes from the ECB’s March meeting, along with remarks from the Fed’s Bullard, Market Snapshot S&P 500 futures little changed at 4,476.75 MXAP down 1.4% to 176.33 MXAPJ down 1.4% to 584.33 Nikkei down 1.7% to 26,888.57 Topix down 1.6% to 1,892.90 Hang Seng Index down 1.2% to 21,808.98 Shanghai Composite down 1.4% to 3,236.70 Sensex down 0.7% to 59,191.33 Australia S&P/ASX 200 down 0.6% to 7,442.83 Kospi down 1.4% to 2,695.86 Brent Futures little changed at $101.14/bbl Gold spot up 0.1% to $1,928.10 U.S. Dollar Index little changed at 99.69     Top Overnight News from Bloomberg ECB President Christine Lagarde said she tested positive for Covid-19, adding that her symptoms are “reasonably mild” and that there won’t be any impact on the operations of her institution Surging U.S. real yields suggest bond traders believe the Federal Reserve can get a grip on inflation, but are likely to put further pressure on stocks and precious metals German Economy Minister Robert Habeck said the nation has already cut its reliance on Russian coal by at least half in the past month and won’t stand in the way of a European Union ban on imports of the fuel from the country In the days after the Ukraine war began, the ruble’s collapse was a potent symbol of Russia’s newfound financial isolation. Now, the ruble has surged all the way back to where it was before Putin invaded Ukraine Hungary kept its effective key interest rate unchanged at the highest level in the European Union after the forint plunged on the bloc’s announcement that it is triggering a process that may block the country’s aid funds China signaled it will step up monetary stimulus for the economy, acknowledging that domestic and global risks are now bigger than previously expected Bank of Japan board member Asahi Noguchi says it’s vital to continue with monetary easing as it will take some time before the possibility of shrinking stimulus comes into sight. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded lower throughout most of the session as the downbeat mood reverberated from Wall Street. ASX 200 was dragged lower by its tech sector following a similar sectoral performance in the West. Nikkei 225 was hit by losses across its energy, mining and manufacturing names. KOSPI conformed to the global losses whilst Samsung Electronics (-0.3%) failed to benefit from better-thanexpected prelim earnings. Hang Seng and Shanghai Comp were choppy and initially swung between gains and losses before stabilising in the red. Samsung Electronics (005930 KS) - Prelim Q1 (KRW) Revenue 77tln (exp. 75.7tln), Operating Profit 14.1tln (exp. 13.3tln), via Reuters Top Asian News Suspected Chinese Hackers Collect Intel From India’s Grid SoftBank Tripled Share Buybacks to $1 Billion in March Thailand Mulls Easing Covid Test Rules for Overseas Visitors Japan to Release 15m Barrels From Oil Reserves: Kyodo European bourses are firmer across the board and back in proximity to post-cash open levels after initial strength waned in choppy price action, Euro Stoxx 50 +0.7%. US futures have been relatively in-fitting with European peers, though the NQ, +0.5%, is the modest outperformer as yields take a breather from their recent surge. China's Shanghai City is to cap the load factor of international flights by foreign airlines at 40% (prev. 75%), according to Reuters sources; effective from April 11th until month-end. Top European News Turkey Transfers Khashoggi Case to Saudi Arabia to Improve Ties Shunned Oil Piling Up Off China as Virus Outbreak Worsens EU Full Ban on Russia Coal to Be Delayed Until Mid-August: Rtrs Yellen Says U.S. Would Use Sanctions If China Invaded Taiwan FX: Greenback sets marginal new YTD best after hawkish FOMC minutes reveal tight call between 25 bp and 50 bp lift-off plus large cap balance sheet reduction, DXY up to 99.823, thus far. Albeit, the DXY has waned from best levels and turns flat ahead of the arrival of US participants as yields continue to pare Euro eyeing option expiries for support ahead of ECB minutes following loss of 1.0900 handle vs Dollar; EUR/USD down below Fib at 1.0895. Aussie unwinds more RBA inspired upside as trade surplus narrows on zero export balance; AUD/USD around 0.7475 vs circa 0.7661 only yesterday. Yen benefits from retreat in yields rather than BoJ rhetoric reaffirming ultra easy policy and merits of a weaker currency, USD/JPY capped below 124.00. Commodities: Crude benchmarks consolidate near WTD lows after reserve release pressure; specifically, near lows of USD 95.43/bbl and USD 100.13/bbl for WTI and Brent. Updates elsewhere have been slim, and focused on China's Shanghai City from a demand-side perspective amidst ongoing Ukraine-Russia developments; albeit, nothing fundamentally new in terms of negotiations. China is to strictly control new production capacity in the oil refining industry, according to the industry ministry Gas flows via Yamal-Europe pipeline resume westward, according to Gascade data. Spot gold/silver are contained and the yellow metal is once again capped by USD 1930/oz and LME Copper has failed to benefit from the equity pickup. US Event Calendar 08:30: April Initial Jobless Claims, est. 200,000, prior 202,000; Continuing Claims, est. 1.3m, prior 1.31m 15:00: Feb. Consumer Credit, est. $18.1b, prior $6.84b Central Bank Speakers 09:00: Fed’s Bullard Discusses the Economy and Monetary Policy 14:00: Fed’s Bostic and Evans Discuss Inclusive Employment 16:05: cancelled: Fed’s Williams Makes Closing Remarks DB's Henry Allen concludes the overnight wrap We might be less than a week into Q2, but based on how markets are performing it’s shaping up to be very similar to Q1 thus far, with yesterday seeing another bond selloff and significant declines for global equities as markets gear up for the fastest monetary tightening we’ve seen in decades. Indeed, it seems to be progressively dawning on investors that this cycle of hikes is going to be very different to the one we saw from 2015, when even at its fastest in 2018, the Fed still only hiked rates by 100bps in a single year. As Jim has written, if we could erase the post-GFC cycle from people’s memory banks, there’s a case that markets would be pricing 300-400bps this year given where inflation is right now, not least given we saw hikes on that scale in the late-80s and from 1994 with inflation at much lower levels than it is at the minute. Given the rapid expected tightening (as well as the negative shock of Russia’s invasion of Ukraine), it’s worth noting that DB Research’s new World Outlook came out on Tuesday, (link here), where we downgraded our global growth forecasts and are now forecasting a US recession by the end of next year as our baseline. We also got a look into the Fed’s outlook yesterday with the release of the March FOMC minutes, where it looks like they would have hiked by 50bps in March were it not for the Russian invasion, and they are ready to entertain 50bps hikes going forward. The markets got the message, and upgraded the probability of a 50bp hike at the next meeting in early May to 85%. The other big takeaway from the minutes were details around QT, which they signalled would start in May, in line with recent Fed speakers. The FOMC noted the balance sheet would rundown at a pace of $60bn Treasuries and $35bn MBS a month once QT hits terminal velocity, which should be by July if the minutes are to be believed. Markets digested the news, with Treasury yields more or less in line with their pre-minute levels into the close after declining modestly in the New York afternoon. With the pace of the runoff now set, the focus will turn to who buys the securities with the Fed stepping away and when the Fed has to stop QT. Alongside the minutes, remarks from a number of officials yesterday helped to reiterate the point that policy will become tighter this year. Philadelphia Fed President Harker said that he expected “a series of deliberate, methodical hikes as the year continues”, whilst on the question of whether to move by 50bps, Richmond Fed President Barkin said that the FOMC “could certainly do that again if it is necessary to prevent inflation expectations from unanchoring”. With all said and done, sovereign bond yields moved up to fresh highs on both sides of the Atlantic, with those on 10yr Treasuries up +5.1bps to 2.598%, which was its highest closing level since 2019, albeit some way beneath its intraday high of 2.656% shortly before noon in London, and this morning they have fallen a further -1.5bps to 2.583%. That increase yesterday was entirely driven by a rise in real yields, which rose +7.3bps to -0.24%, their highest level since March 2020, whilst a rally at the short end of the curve meant the 2s10s slope steepened for a 3rd day running, heading up to 12.2bps by the close. Those declines in shorter-dated yields came as futures actually took out a bit of Fed tightening from 2022, modestly reducing the expected number of additional hikes this year from 220bps in the previous session to 217bps by the close. Over in Europe there were similar moves, with sovereign bond yields reaching fresh highs before paring back some of that increase towards the close. Yields on 10yr bunds (+3.3bps), OATs (+3.1bps) and BTPs (+3.8ps) all closed at multi-year records, although a key difference with US Treasuries were that the rise in European yields yesterday were driven by higher inflation expectations rather than real rates. In fact the 10yr German breakeven hit 2.81%, its highest in the data series that starts back in 2009, whilst the Italian 10yr breakeven hit 2.63%, its highest since 2008. As on Tuesday, the selloff in bonds went hand in hand with further declines in equities, and by the close the S&P 500 (-0.97%) and Europe’s STOXX 600 (-1.53%) had both lost ground as well, with cyclical sectors leading the declines. Tech stocks in particular were an underperformer once again, and the NASDAQ (-2.22%) and the FANG+ index (-3.46%) both struggled again, bringing their declines over the last 2 sessions to -4.43% and -6.63% respectively. Amidst the equity declines, the VIX index of volatility rose +1.1pts yesterday to 22.1pts, taking it up to its highest level in 2 weeks. Overnight in Asia, equities have very much followed that retreat on Wall Street as monetary tightening remained in focus. Among the main indices, the Nikkei (-2.00%) is leading the moves lower, whilst the Kospi (-1.42%), Hang Seng (-1.04%), Shanghai Composite (-0.99%), and the CSI (-0.78%) are also trading in negative territory. Separately, we heard from China’s State Council yesterday that they would use monetary policy at an “appropriate time”, as they acknowledged downward pressures on the economy. Looking forward, stock futures in the US are pointing to further declines today, with contracts on the S&P 500 (-0.37%) and Nasdaq 100 (-0.33%) both lower following those Fed minutes. In terms of the latest on Ukraine, the EU continued to edge towards a fresh sanctions package, although that wasn’t finalised yesterday as had initially been suggested, with Reuters reporting that technical issues needed to be addressed like whether the ban on Russian coal would affect existing contracts. The report said that diplomats were optimistic about achieving a compromise today, so we could potentially see some news on that later, whilst in his speech to the European Parliament yesterday, European Council President Charles Michel also said that “I believe that measures on oil and even on gas will also be needed sooner or later.” Otherwise on sanctions, the US imposed further measures, including full blocking sanctions on Sberbank and Alfa Bank, along with a prohibition on new investment in Russia. The various decisions came amidst a further decline in oil prices yesterday, with Brent crude down -5.22% to $101.07/bbl, its lowest closing level in 3 weeks. That was supported by confirmation that the International Energy Agency would release 60m barrels of crude, on top of the Biden Administration’s release from the Strategic Petroleum Reserve. Brent has recovered somewhat this morning however, up +1.85% to $102.94/bbl. Turning to the French presidential election, we’re now just 3 days away from the first round on Sunday, and the polls have continued to tighten between President Macron and his main challenger Marine Le Pen. Yesterday’s polls for the second round runoff put Macron ahead of Le Pen by 54%-46% (Ipsos), 53-47% (Opinionway), and 52.5%-47.5% (Ifop), which are all much tighter than the 66%-34% margin in the 2017 election. French assets have continued to underperform against this backdrop, with the CAC 40 equity index (-2.21%) seeing a weaker performance than the broader STOXX 600 (-1.53%) for a 6th consecutive session. On yesterday’s data, the Euro Area PPI reading for February came in at a year-on-year rate of +31.4% (vs. 31.6% expected), which is the fastest pace since the formation of the single currency. Separately, German factory orders contracted by a larger than expected -2.2% in February (vs. -0.3% expected). To the day ahead now, and data releases include German industrial production and Euro Area retail sales for February, along with the weekly initial jobless claims from the US. Meanwhile from central banks, we’ll get the minutes from the ECB’s March meeting, along with remarks from the Fed’s Bullard, Bostic and Evans, as well as the BoE’s Pill. Tyler Durden Thu, 04/07/2022 - 07:49.....»»

Category: blogSource: zerohedgeApr 7th, 2022

Futures Flat On Last Day Of Dismal Quarter, Oil Tumbles As Biden Preps Massive SPR Release

Futures Flat On Last Day Of Dismal Quarter, Oil Tumbles As Biden Preps Massive SPR Release US equity futures were muted and flat on the last trading day of the month and quarter, fading a modest overnight gain as the underlying index headed for its first quarterly decline in two years on worries about surging inflation, hawkish monetary policy and an economic slowdown. Contracts on the S&P 500 were down 0.1% at 730 a.m. ET while Dow futures were little changed and Nasdaq 100 futures rose 0.2%, while European stocks fell, heading for the first quarterly decline since 2020. Asian equities retreated on lackluster Chinese PMI data and regulatory concerns. Treasuries held gains with the 10Y yield dropping to 2.31% (from 2.50% earlier this week when the 2s10s inverted) and the dollar ticked up against almost all G-10 peers. Fed watchers will be focused on the PCE deflator, which may have sped up in February. The big overnight action was in oil, which plunged following the news late on Wednesday that the White House was (again) mulling a plan to release roughly a million barrels a day from reserves to combat crashing Democrat approval rating ahead of the midterms as a result of soaring gasoline prices coupled with supply shortages in response to US sanctions of Russia. The proposal, which includes 180 million barrels being freed over several months, may help the market rebalance this year but won't solve a structural deficit, Goldman said. The reserve release news came just hours ahead of an OPEC+ supply meeting, where the cartel is expected to stick with its strategy of a modest output boost in May. Equities globally are poised for their worst quarter since the early days of the pandemic on concerns about tightening monetary policy, red-hot inflation and a looming recession. While stocks remained resilient to the historic rout in bond markets this month, some strategists see little room for them to rally this year, partly as high costs threaten corporate profits. French inflation accelerated more than expected to reach another record, following unexpectedly high readings on Wednesday from Germany and Spain. “Our base case now is for only modest upside for stocks,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, adding that he expects the S&P 500 to end the year at 4,700, about 2% higher than current levels. He also trimmed his estimate for global earnings growth to 8% from 10% for 2022. “Aside from quarter-end considerations, oil is very much the center of attention,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors. Still, “all the usual suspects are still in play, keeping the market in check, including the specter of the Fed pursuing an aggressive path of monetary policy normalization over the coming months.” Elsewhere, officials from Ukraine and Russia are set to resume talks via video conference on Friday, according to a Ukrainian negotiator, though there was no immediate confirmation from Moscow. Friday’s video discussions between Ukraine and Russia would follow in-person talks this week in Turkey that didn’t produce a short-term cease-fire or major progress toward a broader peace deal. Ukraine’s negotiator said the hope was to have enough agreed on paper in another week to be able to move toward a meeting between President Vladimir Putin and President Volodymyr Zelenskiy. Going back to the US market, shares in big U.S. energy companies slumped in premarket trading along with crude prices drop (Exxon Mobil -1.9% and Chevron -1.5% premarket, Occidental Petroleum -2.6%, Gran Tierra Energy -3.1%, Imperial Petroleum -3.8%, Camber Energy -4.3%). Bank stocks are also lower putting them on track to fall for a second straight day as the U.S. 10-year yield falls to 2.31%. Goldman Sachs warned that stagflation could make bank stocks less profitable. U.S.-listed Chinese stocks slipped in premarket trading as Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges. Russian equities advanced as the nation partly lifted the short-selling ban on local stocks on Thursday, removing one of the measures that helped limit the declines in the market after a record long shutdown. Other notable premarket movers include: Vipshop ADRs (VIPS US) rise 8.4% in premarket trading after the Chinese online retailer announces a $1b share buyback plan. Robinhood Markets (HOOD US) shares rise 1.4% in U.S. premarket trading, set to extend the previous day’s 24% gains after the online brokerage announced plans to expand the trading day by four hours, while Morgan Stanley begins coverage of the stock with an equal-weight rating. Energy companies decline in premarket trading as crude prices drop. The U.S. is considering tapping its reserves again in a potentially massive release aimed at managing inflation and supply shortages. Exxon Mobil (XOM US) -1.9%, Chevron -1.5% (CVX US). U.S.-listed Chinese stocks are heading for a lower open after Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges. Alibaba (BABA US) fell 1.7% in premarket, while its e-commerce rival JD.com (JD US) lost 2.8%. Advanced Micro Devices (AMD US) shares fall 1.3% in U.S. premarket trading, after the semiconductor maker is downgraded to equal- weight from overweight at Barclays, which says that the growth story “needs a pause.”. IZEA Worldwide (IZEA US) shares surge 27% in U.S. premarket trading after the influencer marketing company reported fourth-quarter earnings and saw total revenue increase 62% to a record of $10.3m. In Europe, the Stoxx 600 reversed initial gains and dropped 0.3%, the Euro Stoxx 50 fell 0.2%, and other major indexes trade flat to slightly lower with retailers, telecoms and energy the worst performing sectors. Retail and telecom stocks led declines while utilities and insurance sectors outperformed. Some notable premarket movers: Brewin Dolphin shares rise as much as 62% and trade slightly below the agreed bid for the firm from RBC Wealth Management. The transaction, being carried out at a high premium, highlights the attractiveness of the U.K. wealth sector, analysts say. Orpea shares climb to their highest level in almost 2 months after Societe Generale says that allegations of mistreatment at its facilities are likely to have “limited” financial impact. Fresenius SE shares rise as much as 3.3% on news that the company’s Kabi intravenous drug unit has bought a majority stake in mAbxience SL and acquired Ivenix. Pernod Ricard shares rise as much as 2.6% as Citi says 3Q sales are likely to beat expectations, also lifting its which lifts EPS estimates and PT, as well as opening a positive catalyst watch. Tate & Lyle shares gain as much as 3.7% after saying it would buy Quantum Hi-Tech, a prebiotic dietary fiber business in China. The deal enhances Tate & Lyle’s portfolio, Goodbody says. Pearson shares rise as much as 3.5%, rebounding from Wednesday’s losses after private equity firm Apollo Global Management said it won’t make an offer for the education publisher. Earlier in the session, Chinese data and regulatory concerns weighed on Asia stocks. China's NBS manufacturing PMI declined to 49.5 in March from 50.2 in February, missing estimates, likely due to Covid-related restrictions and geopolitical tensions. The output sub-index in the NBS manufacturing PMI survey fell by 0.9 points in March, and the new orders sub-index fell by 1.9 points. The NBS non-manufacturing PMI fell to 48.4 in March from 51.6 in February, also missing expectations, and entirely driven by the decline of services sector due to recent Covid outbreaks in multiple provinces. Separately, Bloomberg reported that Chinese authorities are considering a plan to raise several hundred billion yuan for a new fund to backstop troubled financial firms. Asian stocks retreated after a two-day advance, as the U.S. securities regulator’s tough stance on a potential delisting of Chinese firms and weak China manufacturing data worried investors.  The MSCI Asia Pacific Index declined as much as 0.8%, and was poised to finish its worst quarterly performance in two years, with Taiwan Semiconductor Manufacturing and Tencent among the biggest drags. Benchmarks in Hong Kong and China underperformed regional peers. Japanese equities headed for a second day of declines while Australia stocks retreated after seven straight day of gains in response to a stimulatory federal budget.  The U.S. Securities and Exchange Commission’s chief said Chinese firms need to fully comply with audit requirements in order to stay on American exchanges. Meantime, China’s manufacturing contracted in March, underscoring the growing toll of lockdowns. Investors are also watching how a tumble in oil prices can alleviate inflation risks and affect corporate earnings.  “If you look at the PMIs there’s an obvious explanation for why PMIs are weak, which is China pursuing zero-Covid strategy,” Kieran Calder, head of Asia Equity Research at Union Bancaire Privee, said in an interview with Bloomberg Television. “The reality of Covid-19 versus the response in China, the mismatch is too strong right now and I think that’s the biggest worry for us.”  For the quarter, Asian stocks were poised for nearly a 7% loss, the worst performance since early 2020 when the emergence of the pandemic shocked investors. Investors had to grapple with a U.S. rate hike, a war in Ukraine and continued regulatory risks out of China, which caused huge volatility Japanese equities fell for a second day following a rally in the yen. Electronics makers and banks were the biggest drags on the Topix, which fell 1.1%. Recruit and SoftBank were the largest contributors to a 0.7% loss in the Nikkei 225. The yen was little changed after gaining 1.6% against the dollar over the previous two sessions. Both key gauges still capped their first monthly gains of the year. The Nikkei 225 rose 4.9% in March, the most since November 2020, while the Topix climbed 3.2% on the month. India’s benchmark equity index clocked its best monthly advance since August, as buying by local funds amid war-induced volatility supported sentiment. The S&P BSE Sensex fell 0.2% to 58,568.51 in Mumbai, trimming its gain for March to 4.1%. The NSE Nifty 50 Index also slipped 0.2% on Thursday. Stocks swung between gains and losses several times during the day ahead of the expiry of monthly derivative contracts Thursday. Institutional investors in India have bought $5 billion worth of shares this month, while foreign investors are set to extend their selling to a sixth consecutive month. Reliance Industries Ltd. was the biggest drag on the 30-share Sensex, which saw an equal number of shares closing up and down. Twelve of the 19 sectoral indexes compiled by BSE Ltd. gained, led by a gauge of telecom stocks. S&P BSE Healthcare Index was the worst performing sub-index.   “Markets took a breather on a monthly expiry day and ended the last day of the financial year on a flat note,” said Ajit Mishra, vice president of research at Religare Broking Ltd. “We reiterate our positive yet cautious stance citing lingering geopolitical tension between Russia-Ukraine and its impact on the global markets.” In rates, Treasuries extended this week’s rally with yields richer by up to 5bp across belly of the curve, which continues to outperform vs wings. Wider bull-steepening move grips bunds and gilts, as central-bank rate-hike premium is pared. Oil futures are sharply lower, weighing on energy stocks, following reports that Biden is considering a massive release of crude from U.S. reserves to fight inflation. The 10-year yield was around 2.31%, richer by ~4bp vs Wednesday’s close, underperforming bunds in the sector by ~4bp while keeping pace with gilts. Long-end swap spreads are sharply tighter, with 30- year dropping as low as -19.5bp. Euro-area, bonds extended their advance as money markets pare central bank tightening wagers. French bonds underperformed bunds as EU-harmonized CPI rose 5.1% from a year ago in March -- the most since the data series began in 1997 -- and above the 4.9% median estimate in a Bloomberg survey of economists.  The belly of the German curve richened 6-7bps, leading gains. Peripheral spreads are mixed: Italy tightens, Portugal and Spain widen to core. Money markets trim rate hike pricing. Japanese government bonds extended their advance as the central bank’s aggressive bond purchases this week reassured players that an excessive rise in yields won’t be tolerated. Yen was little changed in choppy trade. Bank of Japan’s offer to buy an unlimited amount of 10-year government bonds at fixed yields recorded no takeup, the central bank said. In FX, Bloomberg dollar spot index snapped two days of losses after rebounding in early European session; the dollar advanced versus all of its Group-of-10 peers and commodity currencies were the worst performers. The euro gave up earlier gains after earlier touching a four-week high versus the greenback. Norway’s krone slumped by as much as 1.6% versus the greenback after the central bank announced a ramp-up of FX purchases on behalf of the government. The pound declined for a third day against the euro, touching its weakest level versus the common currency since Dec. 23. A report from the British Retail Consortium gave another glimpse into the cost-of-living crisis, showing prices in U.K. shops rose in March at the fastest annual pace since September 2011. Japan’s factory output eked out its first gain in three months in February, offering only a tepid sign of resilience amid fears the economy has slipped back into reverse. Production inched up 0.1% from the previous month. The Australian dollar declined against most of its Group-of-10 peers as oil prices tumbled on news that the Biden administration is weighing a massive release of crude from U.S. reserves. Sales of Aussie back into euro have seen option-related Australian dollar bids attached to large option strikes get filled, according to Asia-based currency traders In commodities, crude futures hold Asia’s losses triggered by reports that the White House may make an announcement on the U.S. oil reserve release as soon as Thursday. WTI drops over $6.50 near $101.10. European natural gas faded an initial drop after Germany signaled Russia is softening its demand for ruble payments. Precious metals and much of the base metals complex traded heavy. Looking to the day ahead now, data releases include German retail sales for February and unemployment for March, French and Italian CPI for March, and the Euro Area unemployment rate for February. From the US, there’s also February’s personal income and personal spending, the weekly initial jobless claims, and the MNI Chicago PMI for March. Otherwise, central bank speakers include ECB Vice President de Guindos, Chief Economist Lane, and New York Fed President Williams. Market Snapshot S&P 500 futures up 0.1% to 4,601.75 STOXX Europe 600 down 0.2% to 459.49 MXAP down 0.7% to 180.37 MXAPJ down 0.6% to 591.98 Nikkei down 0.7% to 27,821.43 Topix down 1.1% to 1,946.40 Hang Seng Index down 1.1% to 21,996.85 Shanghai Composite down 0.4% to 3,252.20 Sensex down 0.2% to 58,590.32 Australia S&P/ASX 200 down 0.2% to 7,499.59 Kospi up 0.4% to 2,757.65 German 10Y yield little changed at 0.62% Euro down 0.3% to $1.1130 Brent Futures down 3.6% to $109.40/bbl Gold spot down 0.4% to $1,924.94 U.S. Dollar Index up 0.24% to 98.03 Top Overnight News from Bloomberg The Biden administration is weighing a plan to release roughly a million barrels of oil a day from U.S. reserves, for several months, to combat rising gasoline prices and supply shortages following Russia’s invasion of Ukraine, according to people familiar with the matter Bank of Japan Governor Haruhiko Kuroda is determined to stick with targeting long-term bond yields near zero, even as it leaves him increasingly at variance with global peers and propels a depreciating exchange rate The yen has taken a beating in recent weeks but technicals suggest that it may be on the road to a recovery. Japan’s currency may rebound to 116 per dollar in the coming months after sliding as low as 125.09 on Monday, the weakest in almost seven years, an analysis by Bloomberg shows Russian President Vladimir Putin said that European buyers could continue making gas payments in euros, according to a German readout of a call he had with Chancellor Olaf Scholz Russian government bondholders would be left with no viable path to recover their money if the country defaults, according to one of the top global lawyers in sovereign debt litigation Hungary kept its key interest rate unchanged after the forint staged the second-biggest emerging-market currency rally this week, relieving pressure on policy makers to deliver more monetary tightening China’s cabinet vowed to stabilize the economy and called on officials to avoid measures that harm market expectations as the government struggles to control Covid outbreaks across the country including in the financial center of Shanghai For the first time in more than a decade, China’s yield advantage over Treasuries may be erased. The yield spread between the benchmark bonds of the world’s two biggest debt markets has narrowed to around 40 basis points from 150 a year ago, well below the People’s Bank of China’s “comfortable” range Australia will invest more to find new buyers for its exports in an effort to ease trade dependence on China, its treasurer said, in the face of “economic coercion” from Beijing that shows little sign of abating A more detailed look at global markets courtesy of Newsquawk Asia=Pac stocks traded cautiously at month-end following the weak lead from the US due to increased Russia-Ukraine scepticism and as the region digested disappointing Chinese PMI data. ASX 200 was kept afloat by outperformance in the mining and materials industries although upside was capped as the tech sector suffered from profit-taking and with energy hit by a drop in oil prices. Nikkei 225 traded indecisively amid a choppy currency and after Industrial Production data missed forecasts. Hang Seng and were subdued following the weak Chinese PMI data and with the mood inShanghai Comp. stocks not helped by the US SEC chief casting doubt regarding an imminent deal to avert a delisting of Chinese stocks. Top Asian News Thirteen-Hour Power Cuts Get Sri Lanka to Shorten Stock Trading Effissimo Would Tender Toshiba Shares in Event of Bain Bid BOJ Looks Ready for a Victory Lap With Yields on the Retreat BOJ Boosts Bond Buying in April-to-June Quarter European equities (Eurostoxx 50 -0.3%) kicked the final trading session of the month off on the front foot before drifting towards the unchanged mark. Sectors in Europe exhibit a mostly positive tilt with airline names cheering the declines in the energy space as the Energy sector suffers. The biggest laggard in the region is the retail section following a disappointing Q1 update from H&M (-8%). Futures in the US are modestly firmer as the NQ (+0.5%) marginally outpaces the ES (+0.1%) with inflation set to continue to remain in focus today, with the release of US PCE metrics for March; core PCE is seen rising to 5.5% Y/Y Top European News Iron Ore Futures Advance as Outlook for Demand Brightens Sorrell’s S4 Capital Audit Delay No Longer Down to Covid EU Commission Confirms Raids in Germany’s Natural Gas Sector Pearson Shares Rebound; Barclays Sees a ‘Resilient Business’ In FX, Dollar finds its feet as month, quarter and fiscal year end approach, albeit with a helping hand from others - DXY back on the 98.000 handle, narrowly. Commodity currencies reverse course alongside underlying prices, with crude crushed on reports of US SPR and IEA opening reserve taps - Usd-Cad rebounds through 1.2500 after sliding to new y-t-d low sub-1.2450 only yesterday. Yen choppy amidst residual repatriation flows and more BoJ action to cap JGB yields - Usd/Jpy circa 122.00 within a 122.45-121.35 range. Euro fades into 1.1200 vs Buck again as option expiries and tech resistance impinge, but Aussie  may derive traction from expiry interest at 0.7500 - EURUSD now eyeing support at 1.1100 after tripping stops. In commodities, WTI and Brent remain firmly on the backfoot in the wake of reports suggesting that the Biden administration is considering a 'massive' SPR release. The news has sent May’22 WTI and Jun’22 Brent to respective lows of USD 100.53/bbl and USD 107.39/bbl to leave them a few dollars above their weekly lows of USD 98.44/bbl and USD 102.19/bbl respectively. US President Biden's administration is considering a 'massive' release of oil to combat inflation and may release up to 1mln bpd for months from the strategic reserve in which the total release could be 180mln , according to Bloomberg.bbls Goldman Sachs says a potentially large SPR release would ease the situation but wouldn't resolve the structural deficit in the oil market. Says adjustments for SPR release, Iran supply delays would lower H2 22 Brent forecast by USD 15, to USD 120/bbl - still above market forwards. US President Biden will deliver remarks today at 13:30EDT/18:30BST regarding the administration's actions to reduce gas prices in the US, according to the White House. It was also reported that the US mulls permitting, according to Reuters sources.summertime sales of higher ethanol blends of gasoline to ease pump prices IEA called an emergency ministerial meeting for Friday, according to the Australian Energy Minister's office. It was later reported that , according to New Zealand'sIEA countries are to decide on a collective oil release Energy Minister's office OPEC+ JTC replaced IEA reports with Wood Mackenzie and Rystad Energy as secondary sources to assess crude oil output and conformity, according to sources cited by Reuters. In fixed income, bonds on track to see out extremely bearish month, quarter and end to FY on a firmer note. Curves more even after wild swings between flattening, inversion and steepening.BoJ ramps efforts to maintain YCC via a mostly larger JGB buying remit for Q2. US Event Calendar 08:30: March Initial Jobless Claims, est. 196,000, prior 187,000 08:30: Feb. Personal Income, est. 0.5%, prior 0% 08:30: Feb. Personal Spending, est. 0.5%, prior 2.1%; Real Personal Spending, est. -0.2%, prior 1.5% 08:30: Feb. PCE Deflator MoM, est. 0.6%, prior 0.6%; PCE Deflator YoY, est. 6.4%, prior 6.1% 08:30: Feb. PCE Core Deflator MoM, est. 0.4%, prior 0.5%; YoY, est. 5.5%, prior 5.2% 09:45: March MNI Chicago PMI, est. 57.0, prior 56.3 DB's Jim Reid concludes the overnight wrap After a great deal of optimism in markets on Tuesday following the Russia-Ukraine negotiations in Turkey, the last 24 hours have proven to be much more negative as investor hopes for a de-escalation in Ukraine were dampened by more gloomy comments on the war from both sides. From Russia, the Kremlin spokesman Dmitry Peskov said that they hadn’t seen a breakthrough in the talks, whilst Ukrainian President Zelensky said that “Russia is deploying new forces on our terrain to try to continue destroying us”, and NATO leaders continued to strike a sceptical tone. Indeed, it was reported by Dow Jones that the European Commission was considering new sanctions against additional Russian banks, and UK Prime Minister Johnson said that the UK was “looking at going up a gear” in its support to Ukraine. President Biden expressed similar sentiments, pledging $500 million of additional aid to Ukraine in a call with President Zelensky. Against this backdrop, oil prices rose again for the first time this week, with Brent Crude up +2.92% to $113.45/bbl, but there’s been a sharp turnaround overnight on the back of news that the US are planning a major release from their reserves, with Bloomberg reporting it would be a million barrels a day over several months. Biden is due to speak about efforts to lower prices at 1:30pm Eastern, so all eyes will be on that, and overnight we’ve seen Brent Crude prices come down by -4.54% to $108.30/bbl, more than reversing their gains from the previous session. However, European natural gas (+9.77%) rose for a third consecutive session to €118.97/MWh, which is its highest closing level in nearly 3 weeks. That occurred amidst a continued dispute about Russian gas payments, which President Putin wants paid for in rubles, but which multiple European countries have rejected as a breach of contract. In response, Germany’s economy minister Robert Habeck activated the “early warning phase” of an emergency law, which could eventually lead to gas rationing if supplies fall short. With Russia’s invasion having lasted for over 5 weeks now, we’re increasingly seeing the impact reflected in the official inflation numbers, and yesterday’s releases out of Europe gave fresh life to the bond selloff. In terms of the numbers, German inflation rose to +7.6% in March on the EU-harmonised measure, which was up from +5.5% back in February and some way above the +6.8% reading expected by the consensus. It was the same story in Spain, where inflation rose to +9.8% (up from +7.6% in February), which will heighten interest in tomorrow’s flash release for the entire Euro Area. In turn, that’s led to growing expectations of ECB rate hikes this year, with a total of 63bps being priced in by the December meeting, which is the most we’ve seen to date. On top of that, more than 30bps are even being priced in by the September meeting, which surpasses their pre-invasion peak. Given the strong inflation numbers and the prospect of a more aggressive ECB, European bonds sold off across most of the continent, with yields on 10yr bunds (+1.3bps), OATs (+2.3bps) and BTPs (+1.3bps) all hitting fresh multi-year highs. Furthermore, the 2yr German yield (+5.6bps) closed in positive territory for the first time since 2014, having briefly got there on an intraday basis during the previous session. Unsurprisingly, the latest rise in yields was driven by higher inflation breakevens rather than real rates, and the 10yr German breakeven surged another +6.0bps to 2.71%, its highest level in data available back to 2009, whilst the Italian breakeven rose +4.0bps to 2.53%, its highest level since 2008. Even as European bonds were selling off once again, it was the reverse story in the United States, where Treasuries recovered somewhat yesterday as we come to the end of one of their worst quarterly performances in decades. Yields on 10yr Treasuries fell -4.6bps to 2.35%, whilst yield curves remained incredibly flat; the 2s10s curve steepened marginally by +1.3bps to 3.6bps, avoiding another inversion, and this morning is up another +0.3bps to 3.9bps. In terms of other developments this morning, Asian equity markets have followed Wall Street’s lead overnight with the Nikkei (-0.18%), Hang Seng (-0.59%), Shanghai Composite (-0.14%), CSI (-0.26%) all losing ground, though the Kospi (+0.54%) is the exception to this pattern. The weakness in Asian gauges has come amidst declines in the PMI data, with China’s manufacturing PMI down to 49.5, and the non-manufacturing PMI down to 48.4. For reference, that’s the first time that both readings have been below the 50-mark that separates expansion from contraction since February 2020, and comes as multiple cities are undergoing further lockdowns in response to the current Covid outbreak. Additionally, a slide in Chinese tech stocks is weighing on sentiment after the US Securities and Exchange Commission added Hong Kong listed Baidu Inc. to its long list of companies potentially facing delisting from US exchanges. Outside of Asia, stock futures in the US and Europe are pointing to a more positive start, with contracts on the S&P 500 (+0.28%), Nasdaq (+0.56%) and DAX (+0.59%) all trading higher. Those equity declines overnight in Asia follow a broader decline in risk appetite yesterday given the more negative geopolitical developments, and both the S&P 500 (-0.63%) and Europe’s STOXX 600 (-0.41%) unwound some of their gains from the previous day. More cyclical industries underperformed in general, whilst the German DAX (-1.45%) also put in a weaker performance relative to the other main European indices. The VIX Index of volatility (+0.43pts) also ticked up to 19.33pts, after closing at to its lowest level since Russia’s invasion of Ukraine on Tuesday. In France, we’re now just 10 days away from the first round of the presidential election, and there are continued signs of a narrowing in the polls, albeit with President Macron still in the lead. In terms of yesterday’s polls (from Opinionway, Harris, Ipsos, Ifop and Elabe), all of them pointed to a repeat of the second-round contest from 2017, with the first-round polling putting President Macron in first place followed by Marine Le Pen in second. That said, they’re also implying a noticeably tighter result in the second round than Macron’s 66%-34% victory against Le Pen in 2017. Looking through the numbers, the second round estimates ranged from a 55%-45% Macron victory (from Opinionway and Ipsos), to a 52.5%-47.5% Macron victory (from Elabe). Finally on yesterday’s other data, the ADP’s report of private payrolls from the US showed growth of +455k in March (vs. +450k expected). That comes ahead of tomorrow’s jobs report, where our US economists are expecting nonfarm payrolls to have grown by +400k, with the unemployment rate ticking down to a post-pandemic low of 3.7%. To the day ahead now, and data releases include German retail sales for February and unemployment for March, French and Italian CPI for March, and the Euro Area unemployment rate for February. From the US, there’s also February’s personal income and personal spending, the weekly initial jobless claims, and the MNI Chicago PMI for March. Otherwise, central bank speakers include ECB Vice President de Guindos, Chief Economist Lane, and New York Fed President Williams. Tyler Durden Thu, 03/31/2022 - 07:56.....»»

Category: blogSource: zerohedgeMar 31st, 2022

Futures Tread Water With Traders Spooked By Spike In Yields

Futures Tread Water With Traders Spooked By Spike In Yields After futures rose to a new all time high during the Tuesday overnight session, the mood has been decided more muted after yesterday's sharp rates-driven tech selloff, and on Wednesday U.S. futures were mixed and Nasdaq contracts slumped as investors once again contemplated the effect of expected rate hikes on tech stocks with lofty valuations while waiting for the release of Federal Reserve minutes at 2pm today. At 730am, Nasdaq 100 futures traded 0.3% lower amid caution over the impact of higher yields on equity valuations, S&P 500 Index futures were down 0.1%, while Europe’s Stoxx 600 gauge traded near a record high. The dollar weakened, as did bitcoin, while Brent crude rose back over $80. “The sharp rise in U.S. yields this week has sparked a move from growth to value,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific. “Wall Street went looking for the winners in an inflationary environment and as a result, loaded up on the Dow Jones at the expense of the Nasdaq.” Concerns related to the pandemic deepened as Hong Kong restricted dining-in, closed bars and gyms and banned flights from eight countries including the U.S. and the U.K. to slow the spread of the omicron variant. Meanwhile, a selloff in technology stocks extended to Asia, where the Hang Seng Tech Index tumbled as much as 4.2%, sending the gauge toward a six-year low. Traders are now caught in a quandary over deepening fears on global growth combined with a faster tightening by the Federal Reserve. “Earlier we thought that rate hikes wouldn’t be on the table until mid-2022 but the Fed seems to have worked up a consensus to taper faster and hike sooner rather than later,” Steve Englander, head of global G-10 FX research at Standard Chartered, said in a note. “But we don’t think inflation dynamics will support continued hiking. We suspect the biggest driver of asset markets will be when inflation and Covid fears begin to ebb.” Data on Tuesday showed mixed signs on U.S. inflation. Prices paid by manufacturers in December came in sharply lower than expected. However, figures showing a faster U.S. job quit rate added to concerns over wage inflation. With 4.5 million Americans leaving their jobs in November, compared with 10.6 million available positions, the odds increased the Fed will struggle to influence the employment numbers increasingly dictated by social reasons. The data came before Friday’s monthly report from the Labor Department, currently forecast to show 420,000 job additions in December. In premarket trading, tech giants Tesla, Nvidia and Advanced Micro Devices were among the worst performers. Pfizer advanced in New York premarket trading after BofA Global Research recommended the stock. Shares of Chinese companies listed in the U.S. extended their decline after Tencent cut its stake in gaming and e-commerce company Sea, triggering concerns of similar actions at other firms amid Beijing’s regulatory crackdown on the technology sector. Alibaba (BABA US) falls 1.2%, Didi (DIDI US) -1.8%. Here are the other notable premarket movers: Shares in electric vehicle makers fall in U.S. premarket trading, set to extend Tuesday’s losses, amid signs of deepening competition in the sector. Tesla (TSLA US) slips 1.1%, Rivian (RIVN US) -0.6%. Beyond Meat (BYND US) shares jump 8.9% premarket following a CNBC report that Yum! Brands’ KFC will launch fried chicken made with the company’s meat substitute. Recent selloff in Pinterest (PINS US) shares presents an attractive risk/reward, with opportunities for the social media company largely unchanged, Piper Sandler writes in note as it upgrades to overweight. Stock gains 2.3% in premarket trading. Senseonics Holdings (SENS US) shares rise 15% premarket after the medical technology company said it expects a U.S. Food and Drug Administration decision in weeks on an updated diabetes- monitoring system. MillerKnoll (MLKN US) shares were down 3.1% in postmarket trading Tuesday after reporting fiscal 2Q top and bottom line results that missed analysts’ estimates. Annexon (ANNX US) was down 23% postmarket Tuesday after results were released from an experimental therapy for a fatal movement disorder called Huntington’s disease. Three patients in the 28- person trial discontinued treatment due to drug-related side- effects. Wejo Group (WEJO US) shares are up 34% premarket after the company said it’s developing the Wejo Neural Edge platform to enable intelligent handling of data from vehicles at scale. Smart Global (SGH US) falls 6% postmarket Tuesday after the computing memory maker forecast earnings per share for the second quarter. The low end of that forecast missed the average analyst estimate. Beyond Meat (BYND) shares surge premarket after CNBC KFC launch report UBS cut the recommendation on Adobe Inc. (ADBE US) to neutral from buy, citing concerns over the software company’s 2022 growth prospects. Shares down 2% in premarket trading. Oncternal Therapeutics (ONCT US) shares climb 5.1% premarket after saying it reached consensus with the FDA on the design and major details of the phase 3 superiority study ZILO-301 to treat mantle cell lymphoma. In Europe, the energy, chemicals and car industries led the Stoxx Europe 600 Index up 0.2% to near an all-time high set on Tuesday. The Euro Stoxx 50 rises as much as 0.6%, DAX outperforms. FTSE 100 lags but rises off the lows to trade up 0.2%. Nestle dropped 2.4%, slipping from a record, after Jefferies cut the Swiss food giant to underperform. Utilities were the worst-performing sector in Europe on Wednesday as cyclical areas of the market are favored over defensives, while Uniper and Fortum fall following news of a loan agreement.  Other decliners include RWE (-2.4%), Endesa (2.1%), Verbund (-1.3%), NatGrid (-1.2%), Centrica (-1.2%). Earlier in the session, technology shares led a decline in Asian equity markets, with investors concerned about the prospects of higher interest rates and Tencent’s continued sale of assets. The MSCI Asia Pacific Index fell as much as 0.6%, the most in two weeks, dragged down by Tencent and Meituan. The rout in U.S. tech spilled over to Asia, where the Hang Seng Tech Index plunged 4.6%, the most since July, following Tencent’s stake cut in Singapore’s Sea. Declines in tech and other sectors in Hong Kong widened after the city tightened rules to curb the spread of the omicron variant. Most Asian indexes fell on Wednesday, with Japan an exception among major markets as automakers offered support. The outlook for tighter monetary policy in the U.S. and higher Treasury yields weighed on the region’s technology shares, prompting a rotation from growth to value stocks.   Read: China Tech Selloff Deepens as Tencent Sale Spooks Traders Asian equities have underperformed U.S. and European peers amid slower recoveries and vaccination rates in the past year. With omicron rapidly gaining a foothold in Asia, there is a risk of “any further restriction measures, which could cloud the services sector outlook, along with disruption to supply chains,” said Jun Rong Yeap, a strategist at IG Asia Pte.  Philippine stocks gained as trading resumed following a one-day halt due to a systems glitch. North Korea appeared to have launched its first ballistic missile in about two months, just days after leader Kim Jong Un indicated that returning to stalled nuclear talks with the U.S. was a low priority for him in the coming year. India’s key equity gauges posted their longest run of advances in more than two moths, driven by a rally in financial stocks on hopes of revival in lending on the back of capex spending in the country. The S&P BSE Sensex rose 0.6% to 60,223.15 in Mumbai, its highest since Nov. 16, while the NSE Nifty 50 Index advanced 0.7%. Both benchmarks stretched their winning run to a fourth day, the longest since Oct. 18. All but six of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by a gauge of banking firms. “I believe from an uncertain, volatile environment, the Nifty is now headed for a directional move,” Sahaj Agrawal, a head of derivative research at Kotak Securities, writes in a note. The Nifty 50 crossed a significant barrier of the 17,800 level and is now expected to trade at 19,000-19,500 level in the medium term, Agrawal added. HDFC Bank contributed the most to the Sensex’s gain, increasing 2.4%. Out of 30 shares in the Sensex, 18 rose, while 12 fell In FX, Bloomberg Dollar Spot index slpped 0.2% back toward Tuesday’s lows, falling as the greenback was weaker against most of its Group-of-10 peers, SEK and JPY are the best performers in G-10, CAD underperforms. Scandinavian currencies and the yen led gains, though most G-10 currencies were trading in narrow ranges. Australia’s dollar reversed an Asia-session loss in European trading. The yen rebounded from a five-year low as investors trimmed short positions on the haven currency and amid a decline in Asian stock markets. Treasuries were generally flat in overnight trading, with the curve flatter into early U.S. session as long-end outperforms, partially unwinding a two-day selloff to start the year with Tuesday witnessing a late block sale in ultra-bond futures. 10-year yields traded as high as 1.650% ahead of the US open after being mostly flat around 1.645%; yields were richer by up to 2bp across long-end of the curve while little change from front-end out to belly, flattening 2s10s, 5s30s spreads by 0.5bp and 1.8bp; gilts outperformed in the sector by half basis point. Focus expected to continue on IG issuance, which has impacted the market in the past couple of days, and in U.S. afternoon session FOMC minutes will be released. IG dollar issuance slate includes EIB $5B 5-year SOFR and Reliance Ind. 10Y/30Y/40Y; thirteen borrowers priced $23.1b across 30 tranches Tuesday, making it the largest single day volume for U.S. high-grade corporate bonds since first week of September. European peripheral spreads widen to core. 30y Italy lags peers, widening ~2bps to Germany with order books above EU43b at the long 30y syndication. Ten-year yields shot up 8bps in New Zealand as its markets reopened following the New Year holiday. Aussie yields advanced 4bps. A 10-year sale in Japan drew a bid-cover ratio of 3.46. In commodities, crude futures were range-bound with WTI near just below $77, Brent nearer $80 after OPEC+ agreed to revive more halted production as the outlook for global oil markets improved, with demand largely withstanding the new coronavirus variant. Spot gold puts in a small upside move out of Asia’s tight range to trade near $1,820/oz. Base metals are mixed. LME nickel lags, dropping over 2%; LME aluminum and lead are up ~0.8%.  Looking at the day ahead, data releases include the December services and composite PMIs from the Euro Area, Italy, France, Germany and the US. On top of that, there’s the ADP’s December report of private payrolls from the US, the preliminary December CPI report from Italy, and December’s consumer confidence reading from France. Separately from the Federal Reserve, we’ll get the minutes of the December FOMC meeting. Market Snapshot S&P 500 futures little changed at 4,783.25 MXAP down 0.4% to 193.71 MXAPJ down 0.9% to 626.67 Nikkei up 0.1% to 29,332.16 Topix up 0.4% to 2,039.27 Hang Seng Index down 1.6% to 22,907.25 Shanghai Composite down 1.0% to 3,595.18 Sensex up 0.7% to 60,300.47 Australia S&P/ASX 200 down 0.3% to 7,565.85 Kospi down 1.2% to 2,953.97 STOXX Europe 600 up 0.1% to 494.52 German 10Y yield little changed at -0.09% Euro up 0.2% to $1.1304 Brent Futures down 0.4% to $79.72/bbl Gold spot up 0.3% to $1,819.73 U.S. Dollar Index down 0.13% to 96.13 Top Overnight News from Bloomberg The U.S. yield curve’s most dramatic steepening in more than three months has little to do with traders turning more optimistic on the economy or betting on a more aggressive timetable for raising interest rates The surge in euro-area inflation that surprised policy makers in recent months is close to its peak, according to European Central Bank Governing Council member Francois Villeroy de Galhau Some Bank of Japan officials say it’s likely the central bank will discuss the possible ditching of a long-held view that price risks are mainly on the downward side at a policy meeting this month, according to people familiar with the matter Turkish authorities are keeping tabs on investors who are buying large amounts of foreign currency and asked banks to deter their clients from using the spot market for hedging-related trades as they struggle to contain the lira’s slide Italy is trying to lock in historically low financing costs at the start of a year where inflationary and political pressures could spell an end to super easy borrowing conditions North Korea appears to have launched its first ballistic missile in about two months, after leader Kim Jong Un indicated he was more interested in bolstering his arsenal than returning to stalled nuclear talks with the U.S. A More detailed breakdown of overnight news from Newsquawk Asia-Pac equities traded mostly in the red following the mixed handover from Wall Street, where the US majors maintained a cyclical bias and the NDX bore the brunt of another sizeable Treasury curve bear-steepener. Overnight, US equity futures resumed trade with mild losses and have since been subdued, with participants now gearing up for the FOMC minutes (full Newsquawk preview available in the Research Suite) ahead of Friday’s US jobs report and several scheduled Fed speakers. In APAC, the ASX 200 (-0.3%) was pressured by its tech sector, although the upside in financials cushioned some losses. The Nikkei 225 (+0.1%) was kept afloat by the recent JPY weakness, whilst Sony Group rose some 4% after its chairman announced EV ambitions. The KOSPI (-1.2%) was dealt a blow as North Korea fired a projectile that appeared to be a ballistic missile, but this landed outside of Japan’s Exclusive Economic Zone (EEZ). The Hang Seng (-1.6%) saw its losses accelerate with the Hang Seng Tech Index tumbling over 4% as the sector tackled headwinds from Wall Street alongside domestic crackdowns. China Huarong Asset Management slumped over 50% as it resumed trade following a nine-month halt after its financial failure. The Shanghai Comp. (-1.0%) conformed to the mostly negative tone after again seeing a hefty liquidity drain by the PBoC. In the debt complex, the US T-note futures held a mild upside bias since the resumption of trade, and the US curve was somewhat steady. Participants also highlighted large short-covering heading into yesterday’s US close ahead of the FOMC minutes. Top Asian News Asian Stocks Slide as Surging Yields Squeeze Technology Sector China’s Growth Forecast Cut by CICC Amid Covid Outbreaks BOJ Is Said to Discuss Changing Long-Held View on Price Risks Gold Holds Gain With Fed Rate Hikes and Treasury Yields in Focus European equities (Stoxx 600 +0.1%) trade mixed in what has been a relatively quiet session thus far with the final readings of Eurozone services and composite PMIs providing little in the way of fresh impetus for prices. The handover from the APAC region was predominantly a soft one with Chinese bourses lagging once again with the Hang Seng Tech Index tumbling over 4% as the sector tackled headwinds from Wall Street alongside domestic crackdowns. Meanwhile, the Shanghai Comp. (-1%) conformed to the mostly negative tone after again seeing a hefty liquidity drain by the PBoC. Stateside, the ES and RTY are flat whilst the NQ lags once again after yesterday bearing the brunt of another sizeable treasury curve bear-steepener. In terms of house views, analysts at Barclays expect “2022 to be a more normal yet positive year for equities, looking for high single-digit upside and a broader leadership”. Barclays adds that it remains “pro-cyclical (Industrials, Autos, Leisure, reopening plays and Energy OW), and prefer Value to Growth”. Elsewhere, analysts at Citi stated that “monetary tightening may push up longer-dated nominal/real bond yields, threatening highly rated sectors such as IT or Luxury Goods. Alternatively, higher yields could help traditional value trades such as UK equities and Pan-European Financials”. Sectors in Europe are mostly higher, with auto names leading as Renault (+3.4%) sits at the top of the CAC, whilst Stellantis (+0.6%) has seen some support following the announcement that it is planning for a full battery-electric portfolio by 2028. Elsewhere, support has also been seen for Chemicals, Oil & Gas and Banking names with the latter continuing to be supported by the current favourable yield environment. To the downside, Food and Beverage is the clear laggard amid losses in Nestle (-2.6%) following a broker downgrade at Jefferies. Ocado (+5.5%) sits at the top of the Stoxx 600 after being upgraded to buy at Berenberg with analysts expecting the Co. to sign further deals with new and existing grocery e-commerce partners this year. Finally, Uniper (-2.4%) sits near the bottom of the Stoxx 600 after securing credit facilities totalling EUR 10bln from Fortum and KfW. Top European News U.K. Weighs Dropping Covid Test Mandate for Arriving Travelers German Energy Giant Uniper Gets $11 Billion for Margin Calls European Gas Extends Rally as Russian Shipments Remain Curbed Italian Inflation Hits Highest in More Than a Decade on Energy In FX, notwithstanding Tuesday’s somewhat mixed US manufacturing ISM survey and relatively hawkish remarks from Fed’s Kashkari, the week (and year) in terms of data and events really begins today with the release of ADP as a guide for NFP and minutes of the December FOMC that confirmed a faster pace of tapering and more hawkish dot plots. As such, it may not be surprising to see the Buck meandering broadly and index settling into a range inside yesterday’s parameters with less impetus from Treasuries that have flipped from a severe if not extreme bear-steepening incline. Looking at DXY price action in more detail, 96.337 marks the top and 96.053 the bottom at present, and from a purely technical perspective, 96.098 remains significant as a key Fib retracement level. JPY/EUR/AUD/GBP/NZD - All taking advantage of the aforementioned Greenback fade, and with the Yen more eager than others to claw back lost ground given recent underperformance. Hence, Usd/Jpy has retreated further from multi-year highs and through 116.00 to expose more downside potential irrespective of latest reports via newswire sources suggesting the BoJ is expected to slightly revise higher its inflation forecast for the next fiscal year and downgrade the GDP outlook for the year ending in March. Similarly, the Euro is having another look above 1.1300 even though EZ services and composite PMIs were mostly below consensus or preliminary readings and German new car registrations fell sharply, while the Aussie is retesting resistance around 0.7250 and its 50 DMA with some assistance from firm copper prices, Cable remains underpinned near 1.3550 and the 100 DMA and the Kiwi is holding mainly above 0.6800 in the face of stronger Aud/Nzd headwinds. Indeed, the cross is approaching 1.0650 in contrast to Eur/Gbp that is showing signs of changing course following several bounces off circa 0.8333 that equates to 1.2000 as a reciprocal. CHF/CAD - The Franc and Loonie appear a bit less eager to pounce on their US peer’s retrenchment, as the former pivots 0.9150 and latter straddles 1.2700 amidst a downturn in crude pre-Canadian building permits and new house prices. SCANDI/EM - Little sign of any fallout from a slowdown in Sweden’s services PMI as overall risk sentiment remains supportive for the Sek either side of 10.2600 vs the Eur, but the Nok is veering back down towards 10.0000 in line with slippage in Brent from Usd 80+/brl peaks reached on Tuesday. Elsewhere, the Zar is shrugging off a sub-50 SA PMI as Gold strengthens its grip on the Usd 1800/oz handle and the Cnh/Cny are still underpinned after another PBoC liquidity drain and firmer than previous midpoint fix on hopes that cash injections might be forthcoming through open market operations into the banking system from the second half of January to meet rising demand for cash, according to China's Securities Journal. Conversely, the Try has not derived any real comfort from comments by Turkey’s Finance Minister underscoring its shift away from orthodox policies, or insistence that budget discipline will not be compromised. In commodities, crude benchmarks are currently little changed but have been somewhat choppy within a range shy of USD 1/bbl in European hours, in-spite of limited fresh newsflow occurring. For reference, WTI and Brent reside within USD 77.26-76.53/bbl and USD 80.25-79.56/bbl parameters respectively. Updates for the complex so far include Cascade data reporting that gas flows via the Russian Yamal-Europe pipeline in an eastward direction have reduced. As a reminder, the pipeline drew scrutiny in the run up to the holiday period given reverse mode action, an undertaking the Kremlin described as ‘operational’ and due to a lack of requests being placed. Separately, last nights private inventories were a larger than expected draw, however, the internals all printed builds which surpassed expectations. Today’s EIA release is similar expected to show a headline draw and builds amongst the internals. Elsewhere, and more broadly, geopolitics remain in focus with Reuters sources reporting that a rocket attack has hit a military base in proximity to the Baghdad airport which hosts US forces. Moving to metals, spot gold and silver are once again fairly contained though the yellow metal retains the upside it derived around this point yesterday, hovering just below the USD 1820/oz mark. US Event Calendar 7am: Dec. MBA Mortgage Applications -5.6%, prior -0.6% 8:15am: Dec. ADP Employment Change, est. 410,000, prior 534,000 9:45am: Dec. Markit US Composite PMI, prior 56.9 9:45am: Dec. Markit US Services PMI, est. 57.5, prior 57.5 2pm: Dec. FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap As you may have seen from my CoTD yesterday all I got for Xmas this year was Omicron, alongside my wife and two of our three kids (we didn’t test Bronte). On Xmas Day I was cooking a late Xmas dinner and I suddenly started to have a slightly lumpy throat and felt a bit tired. Given I’d had a couple of glasses of red wine I thought it might be a case of Bordeaux-2015. However a LFT and PCR test the next day confirmed Covid-19. I had a couple of days of being a bit tired, sneezing and being sniffly. After that I was 100% physically (outside a of bad back, knee and shoulder but I can’t blame that on covid) but am still sniffly today. I’m also still testing positive on a LFT even if I’m out of isolation which tells me testing to get out of isolation early only likely works if you’re completely asymptomatic. My wife was similar to me symptom wise. Maybe slightly worse but she gets flu badly when it arrives and this was nothing like that. The two kids had no real symptoms unless being extremely annoying is one. Indeed spending 10 days cooped up with them in very wet conditions (ie garden activity limited) was very challenging. Although I came out of isolation straight to my home office that was still a very welcome change of scenery yesterday. The covid numbers are absolutely incredible and beyond my wildest imagination a month ago. Yesterday the UK reported c.219k new cases, France c.272k and the US 1.08 million. While these are alarming numbers it’s equally impressive that where the data is available, patients on mechanical ventilation have hardly budged and hospitalisations, while rising, are so far a decent level below precious peaks. Omicron has seen big enough case numbers now for long enough that even though we’ve had another big boost in cases these past few days, there’s nothing to suggest that the central thesis shouldn’t be anything other than a major decoupling between cases and fatalities. See the chart immediately below of global cases for the exponential recent rise but the still subdued levels of deaths. Clearly there is a lag but enough time has passed that suggests the decoupling will continue to be sizeable. It seems the main problem over the next few weeks is the huge number of people self isolating as the variant rips through populations. This will massively burden health services and likely various other industries. However hopefully this latest wave can accelerate the end game for the pandemic and move us towards endemicity faster. Famous last words perhaps but this variant is likely milder, is outcompeting all the others, and our defences are much, much better than they have been (vaccines, immunity, boosters, other therapeutic treatments). Indeed, President Biden directed his team to double the amount of Pfizer’s anti-covid pill Paxlovid they order; he called the pill a game changer. So a difficult few weeks ahead undoubtedly but hopefully light at the end of the tunnel for many countries. Prime Minister Boris Johnson noted yesterday that Britain can ride out the current Omicron wave without implementing any stricter measures, suggesting that learning to live with the virus is becoming the official policy stance in the UK. The head scratcher is what countries with zero-covid strategies will do faced with the current set up. If we’ve learnt anything from the last two years of covid it is that there is almost no way of avoiding it. Will a milder variant change such a stance? Markets seem to have started the year with covid concerns on the back burner as day 2 of 2022 was a lighter version of the buoyant day 1 even if US equities dipped a little led by a big under-performance from the NASDAQ (-1.33%), as tech stocks got hit by higher discount rates with the long end continuing to sell off to start the year. Elsewhere the Dow Jones (+0.59%) and Europe’s STOXX 600 (+0.82%) both climbed to new records, with cyclical sectors generally outperforming once again. Interestingly the STOXX Travel & Leisure index rose a further +3.11% yesterday, having already surpassed its pre-Omicron level. As discussed the notable exception to yesterday’s rally were tech stocks, with a number of megacap tech stocks significantly underperforming amidst a continued rise in Treasury yields, and the rotation towards cyclical stocks as investors take the message we’ll be living with rather than attempting to defeat Covid. The weakness among that group meant that the FANG+ index fell -1.68% yesterday, with every one of the 10 companies in the index moving lower, and that weakness in turn meant that the S&P 500 (-0.06%) came slightly off its record high from the previous session. Showing the tech imbalance though was the fact that the equal weight S&P 500 was +0.82% and 335 of the index rose on the day. So it was a reflation day overall. Staying with the theme, the significant rise in treasury yields we saw on Monday extended further yesterday, with the 10yr yield up another +1.9bps to 1.65%. That means the 10yr yield is up by +13.7bps over the last 2 sessions, marking its biggest increase over 2 consecutive sessions since last September. Those moves have also coincided with a notable steepening in the yield curve, which is good news if you value it as a recessionary indicator, with the 2s10s curve +11.3bps to +88.7bps over the last 2 sessions, again marking its biggest 2-day steepening since last September Those moves higher for Treasury yields were entirely driven by a rise in real yields, with the 10yr real yield moving back above the -1% mark. Conversely, inflation breakevens fell back across the board, with the 10yr breakeven declining more than -7.0bps from an intraday peak of 2.67%, the highest level in more than six weeks, which tempered some of the increase in nominal yields. The decline in breakevens was aided by the release of the ISM manufacturing reading for December, since the prices paid reading fell to 68.2, some way beneath the 79.3 reading that the consensus had been expecting. In fact, that’s the biggest monthly drop in the prices paid measure in over a decade, and leaves it at its lowest level since November 2020. Otherwise, the headline reading did disappoint relative to the consensus at 58.7 (vs. 60.0 expected), but the employment component was above expectations at 54.2 (vs. 53.6 expected), which is its highest level in 8 months and some promising news ahead of this Friday’s jobs report. Staying with US employment, the number of US job openings fell to 10.562m in November (vs. 11.079m expected), but the number of people quitting their job hit a record high of 4.5m. That pushed the quits rate back to its record of 3.0% and just shows that the labour market continues to remain very tight with employees struggling to hire the staff needed. This has been our favourite indicator of the labour market over the last few quarters and it continues to keep to the same trend. Back to bonds and Europe saw a much more subdued movement in sovereign bond yields, although gilts were the exception as the 10yr yield surged +11.7bps as it caught up following the previous day’s public holiday in the UK. Elsewhere however, yields on bunds (-0.2bps), OATs (-1.1bps) and BTPs (+0.9bps) all saw fairly modest moves. Also of interest ahead of tonight’s Fed minutes, there was a story from the Wall Street Journal late yesterday that said Fed officials are considering whether to reduce their bond holdings, and thus beginning QT, in short order. Last cycle, the Fed kept the size of its balance sheet flat for three years after the end of QE by reinvesting maturing proceeds before starting QT. This iteration of QE is set to end in March, so any move towards balance sheet rolloff would be a much quicker tightening than last cycle, which the article suggested was a real possibility. As this cycle has taught us time and again, it is moving much faster than historical precedent, so don’t rely on prior timelines. Balance sheet policy and the timing of any QT will be a major focus in tonight’s minutes, along with any signals for the timing of liftoff and path of subsequent rate hikes. Overnight in Asia markets are trading mostly lower with the KOSPI (-1.45%), Hang Seng (-0.85%), Shanghai Composite (-0.81%) and CSI (-0.67%) dragged down largely by IT stocks while the Nikkei (+0.07%) is holding up better. In China, Tencent cut its stake in a Singapore based company yesterday by selling $ 4 billion worth shares amidst China's regulatory crackdown with investors concerned they will do more. This has helped push the Hang Seng Tech Index towards its lowest close since its inception in July 2020 with Tencent and companies it invested in losing heavily. Moving on, Japan is bringing forward booster doses for the elderly while maintaining border controls in an effort to contain Omicron. Futures are indicating a weaker start in DM markets with the S&P 500 (-0.25%) and DAX (-0.11%) both tracking their Asian peers. Oil prices continued their ascent yesterday, with Brent Crude (+1.20%) hitting its highest level since the Omicron variant first emerged on the scene. Those moves came as the OPEC+ group agreed that they would go ahead with the increase in output in February of 400k barrels per day. And the strength we saw in commodities more broadly last year has also continued to persist into 2022, with copper prices (+1.12%) hitting a 2-month high, whilst soybean prices (+2.49%) hit a 4-month high. Looking at yesterday’s other data, German unemployment fell by -23k in December (vs. -15k expected), leaving the level of unemployment at a post-pandemic low of 2.405m in December. Finally, the preliminary French CPI reading for December came in slightly beneath expectations on the EU-harmomised measure, at 3.4% (vs. 3.5% expected). To the day ahead now, and data releases include the December services and composite PMIs from the Euro Area, Italy, France, Germany and the US. On top of that, there’s the ADP’s December report of private payrolls from the US, the preliminary December CPI report from Italy, and December’s consumer confidence reading from France. Separately from the Federal Reserve, we’ll get the minutes of the December FOMC meeting. Tyler Durden Wed, 01/05/2022 - 08:07.....»»

Category: blogSource: zerohedgeJan 5th, 2022

Futures Rebound Fizzles On Slowing iPhone Demand, Omicron Fears

Futures Rebound Fizzles On Slowing iPhone Demand, Omicron Fears U.S. index futures regained some ground alongside Asian markets while European stocks slumped to session lows in a delayed response to yesterday's late Omicron-driven US selloff, as markets remained volatile following the biggest two-day plunge in more than a year, spurred by concern about the omicron coronavirus variant and Federal Reserve tightening. Investors await data for unemployment claims, as well as earnings from companies including Dollar General and Kroger. Tech is the weakest sector, dropping in sympathy after Apple warned its suppliers of slowing iPhone demand. Nasdaq futures pared earlier gains of up to 0.8% to trade down 0.1% while S&P futures are only 0.2% higher after rising as much as 0.9%. While the knee-jerk reaction of stock investors may “continue to be to take profits before the end of the year,” there is “plenty of liquidity available to drive stock prices higher as dip-buyers enter the market,” Ed Yardeni wrote in a note. The U.S. economy grew at a modest to moderate pace through mid-November, while price hikes were widespread amid supply-chain disruptions and labor shortages, the Federal Reserve said in its Beige Book survey Tuesday. Cruise-ship operator Carnival jumped 3.8% in premarket trading, while Pfizer and Moderna fell as the World Health Organization said that existing vaccines will likely protect against severe cases of the variant. Boeing contracts gained 3.4% after a report that the flagship 737 Max aircraft has regained airworthiness approval in China. With lots of uncertainty surrounding the pandemic and Fed policy, the size of potential market swings is still considerable.  Here are some other notable premarket movers today: Apple (AAPL US) shares fell 1.8% in premarket trading after the iPhone maker was said to tell suppliers that demand for its flagship product has slowed. Wall Street analysts, however, remained bullish. U.S. stocks tied to former President Donald Trump rise in premarket trading following a report his media group is in talks to raise new financing. Digital World Acquisition (DWAC US) +24%, Phunware (PHUN US) +38%. Katapult (KPLT US) shares sink 14% in premarket after the financial technology firm said its gross originations over a two-month period were lower than 2020 levels. Vir (VIR US) shares jump 8.1% in premarket trading after its Covid-19 antibody treatment, co-developed with Glaxo, looked to be effective against the new omicron variant in early testing. Snowflake (SNOW US) is up 17% premarket following quarterly results that impressed analysts, though some raise questions over the data software company’s valuation. CrowdStrike (CRWD US) shares jumped 5.1% in premarket after it boosted its revenue forecast for the full year. Square’s (SQ US) shares are 0.4% higher premarket. Corporate name change to Block Inc. indicates “a symbolic rebirth,” according to Barclays as it shows a broader set of possibilities than those of a pure payments company. Okta’s (OKTA US) shares advanced in postmarket trading. 3Q results show the cybersecurity company is well- positioned to deliver growth, even if some analysts say its guidance looks conservative and that its growth was not as strong as in prior quarters. The Omicron variant also hurt risk appetite, making the safe-haven bonds more attractive to investors, pushing yields down - although yields picked up again in early European trading. Volatility in equity markets as measured by the Vix hit its highest since February on Wednesday, before easing on Thursday, but remained well above this year’s average and almost twice as high as a month ago. Investors are braced for volatility to continue through December, stirred by tightening central-bank policies to fight inflation just as the omicron variant complicates the outlook for the pandemic recovery. The recent market turmoil may offer investors a chance to position for a trend reversal in reopening and commodity trades, according to JPMorgan Chase & Co. "Investors will need to maintain their calm during a period of uncertainty until the scientific data give a clearer picture of which scenario we face," said Mark Haefele, chief investment officer at UBS Global Wealth Management in Zurich. “This, in turn, will help shape the reaction of central bankers." Also weighing on stock markets, and flattening the U.S. yield curve, were remarks by Federal Reserve Chair Jerome Powell, who said that he would consider a faster end to the Fed's bond-buying programme, which could open the door to earlier interest rate hikes. In his second day of testimony in Congress on Wednesday, Powell reiterated that the U.S. central bank needs to be ready to respond to the possibility that inflation does not recede in the second half of next year. read more "In this past what we’ve seen is central banks using COVID as an excuse to remain dovish, and what we're seeing is central banks turn hawkish despite rising concerns around COVID, so it is a bit of a shift in communication," said Mohammed Kazmi, portfolio manager at UBP.  That said, the market is now so oversold, this is where we usually see aggressive dip-buying. In Europe, tech companies were the worst performers after Apple warned its component suppliers of slowing demand for its iPhone 13, the news dragged index heavyweight ASML Holding NV more than 4%. Meanwhile, travel shares were among the worst performers as the omicron variant continued to pop upin countries around the world, including the U.S., Norway, Ireland and South Korea. The Euro Stoxx 50 dropped as much as 1.7% while the Stoxx 600 Index fell 1.5%, extending declines to trade at a session low, with all sectors in the red and led lower by technology and travel stocks. The Stoxx 600 Technology Index slumped as much as 3.9%, the most in two months. Vifor Pharma surged by a record 18% following a report that Australia’s CSL is in advanced talks to acquire Swiss drugmaker. Here are some of the biggest European movers today: Vifor Pharma shares rise as much as 18% on a report that Australia’s CSL is in advanced talks to acquire the Swiss-based drug maker and developer while working with BofA on a A$4 billion funding package. Argenx jumps as much as 9.5% after Kepler Cheuvreux upgrades the stock to buy, saying the biotech company is on the brink of launching its first commercial product. Duerr gains as much as 7.2%, most since Aug. 10, after Deutsche Bank upgrades to buy and sets aa Street-high PT of EU60 for the German engineering company, citing the digitalization of the industry. Daily Mail & General Trust rises as much as 3.9% after Rothermere Continuation raised its bid for all DMGT’s Class A shares by 5.9% to 270p a share in cash. Klarabo surges as much as 54% as shares start trading on Nasdaq Stockholm after the Swedish property company raised SEK750m in an IPO. Eurofins Scientific declines for a fourth session, falling as much as 3.2%, as Goldman Sachs downgrades the company to neutral from buy “following strong outperformance YTD.” Deliveroo drops as much as 6.4% after an offering of 17.6m shares by CEO Will Shu and CFO Adam Miller at a price of 278p a share, representing a 4.2% discount to the last close. M&S falls as much as 3.4% after UBS cut its rating to neutral from buy, citing limited upside to its new price target as well as “little room for meaningful upgrades.” Earlier in the session, Asian stocks erased an earlier loss to trade slightly up, as traders continued to assess the potential impact of the omicron virus strain and the Federal Reserve’s efforts to keep inflation in check.  The MSCI Asia Pacific Index rose 0.2% after falling 0.4% in the morning. South Korea led regional gains, helped by large-cap chipmakers, while Japan was among the worst performers after the government dropped a plan for a blanket halt to all new incoming flight reservations. Asia’s equity benchmark is still down about 4% so far this year after rebounding in the past two sessions from a one-year low reached earlier this week. Despite the region’s underperformance against the U.S. and Europe, cheap valuations and foreign-investor positioning have prompted brokerages including Credit Suisse Group AG and Nomura Securities Co. Ltd. to turn bullish on Asia’s prospects next year. “Equity markets continue to play omicron tennis and traders looking for short-term direction should just wait for the next virus headline and then act accordingly,” said Jeffrey Halley, a senior market analyst at Oanda Corp. “Volatility, and not market direction, will be the winner this week.” Chinese technology shares including Alibaba Group Holding slid after Beijing was said to be planning to close a loophole used by the sector to go public abroad, fueling concern over existing overseas listings. Japanese equities declined, following U.S. peers lower after the first American case of the omicron coronavirus variant was confirmed. Electronics makers and telecoms were the biggest drags on the Topix, which fell 0.5%. SoftBank Group and TDK were the largest contributors to a 0.7% loss in the Nikkei 225.  The S&P 500 posted its worst two-day selloff since October 2020 after the first U.S. case of the new strain was reported. Federal Reserve Chair Jerome Powell reiterated that officials should consider a quicker reduction of monetary stimulus amid elevated inflation. “Truth is, there’s probably a lot of people who are wanting to buy stocks at some point,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “But, with omicron still an unknown, people are responding sensitively to news development, and that’s keeping them from buying.” India’s benchmark equity index climbed for a second day, led by software exporters, on an improving economic outlook and as investors grabbed some beaten-down stocks after recent declines. The S&P BSE Sensex Index rose 1.4% to close at 58,461.29 in Mumbai, the biggest advance since Nov. 1. Its two-day gains increased to 2.5%, the most since Aug. 31. The NSE Nifty 50 Index also surged by a similar magnitude. All of the 19 sector sub-indexes compiled by BSE Ltd. were up, led by a gauge of utilities companies. “India underperformed the global markets in recent weeks. Investors are now going for value buying in stocks at lower levels,” said A. K. Prabhakar, head of research at IDBI Capital Market Services. The Sensex gained in three of the past four sessions after plunging 2.9% on Friday, the biggest drop since April. The rally, however, is in contrast to most global peers which are witnessing volatility on worries over the spread of the omicron variant. High frequency indicators in India, such as tax collection and manufacturing activities, have shown robust growth in recent months, while the country’s economy expanded 8.4% in the quarter ended in September, according to an official data release on Tuesday. Mortgage lender HDFC contributed the most to the Sensex’s gain, increasing 3.9%. Out of 30 shares in the index, 27 rose and three fell. In rates, trading has been relatively quiet as bunds and gilts bull steepen a touch with risk offered, while cash TSYs bear flatten, cheapening ~5bps across the curve.Treasuries retraced part of yesterday’s rally that sent the benchmark 30-year rate to the lowest since early January. A large buyer of 5-year U.S. Treasury options targets the yield dropping around 17bps. 5s10s, 5s30s spreads flattened by ~1bp and ~2bp to multimonth lows; 10-year yields around 1.43%, cheaper by more than 3bp on the day while bunds and gilt yields are richer by ~1bp. Front-end and belly of the curve underperform vs long-end, while bunds and gilts outperform Treasuries. With little economic data slated, speeches by several Fed officials are main focal points. Peripheral spreads tighten with 10y Spain outperforming after well received auctions, albeit with a small size on offer. U.S. economic data slate includes November Challenger job cuts (7:30am) and initial jobless claims (8:30am) In FX, the Bloomberg Dollar Spot Index fell to a day low in the European session and the greenback traded mixed versus its Group-of-10 peers as most crosses consolidated in recent ranges. Two-week implied volatility in the major currencies trades in the green Thursday as it now captures the next policy decisions by the world’s major central banks. Euro- dollar on the tenor rises by as much as 138 basis points to touch 8.22%, highest in a year; the relative premium, however, remains below parity as realized has risen to levels unseen since August 2020. The pound rose along with some other risk- sensitive currencies following the British currency’s three-day slump against the dollar. Long-end gilts underperformed, leading to some steepening of the curve. The yen fell for the first day in three while the Swiss franc fell a second day. The Hungarian forint rose to almost a three-week high after the central bank in Budapest raised the one-week deposit rate by 20 basis points to 3.10%. Economists in a Bloomberg survey were evenly split in predicting a 10 or 20 basis point increase. The Turkish lira resumed its slump after President Recep Tayyip Erdogan abruptly replaced his finance minister amid deepening rifts in the administration over aggressive interest-rate cuts that have undermined the currency and fueled inflation. Poland’s central bank Governor Adam Glapinski sent the zloty to a three-week high against the euro on Thursday with his changed rhetoric on inflation, which he no longer sees as transitory after prices surged at the fastest pace in more than two decades. Currency market volatility also rose, with euro-dollar one-month volatility gauges below Monday's one-year peak but still at elevate levels . "Liquidity in some areas of the market is still quite poor as people grapple with this news and as we head towards year-end, a lot of it is really liquidity driven, which is leading to some volatility," said UBP's Kazmi. "Even in the most liquid market of the U.S. treasury market we've seen some fairly large moves on very little newsflow at times." In commodities, crude futures extend Asia’s gains. WTI adds 2.2% near $67, Brent near $70.50 ahead of today’s OPEC+ meeting. Spot gold finds support near Tuesday’s, recovering somewhat to trade near $1,774/oz. Base metals are mixed: LME aluminum drops as much as 1.1%, nickel, zinc and tin hold in the green Looking at the day ahead now, and central bank speakers include the Fed’s Quarles, Bostic, Daly and Barkin, as well as the ECB’s Panetta. Data releases include the Euro Area unemployment rate and PPI inflation for October, while there’s also the weekly initial jobless claims. Lastly, the OPEC+ group will be meeting. Market Snapshot S&P 500 futures up 0.7% to 4,540.25 STOXX Europe 600 down 1.0% to 466.37 MXAP up 0.2% to 192.07 MXAPJ up 0.7% to 629.36 Nikkei down 0.7% to 27,753.37 Topix down 0.5% to 1,926.37 Hang Seng Index up 0.5% to 23,788.93 Shanghai Composite little changed at 3,573.84 Sensex up 1.3% to 58,436.52 Australia S&P/ASX 200 down 0.1% to 7,225.18 Kospi up 1.6% to 2,945.27 Brent Futures up 2.4% to $70.53/bbl Gold spot down 0.6% to $1,771.73 U.S. Dollar Index little changed at 96.03 German 10Y yield little changed at -0.35% Euro little changed at $1.1320 Top Overnight News from Bloomberg Federal Reserve Bank of Cleveland President Loretta Mester said she’s “very open” to scaling back the Fed’s asset purchases at a faster pace so it can raise interest rates a couple of times next year if needed A United Nations gauge of global food prices rose 1.2% last month, threatening to make it more expensive for households to put a meal on the table. It’s more evidence of inflation soaring in the world’s largest economies and may make it even harder for the poorest nations to import food, worsening a hunger crisis Germany is poised to clamp down on people who aren’t vaccinated against Covid-19 and drastically curtail social contacts to ease pressure on increasingly stretched hospitals Some investors buffeted by concerns about tighter monetary policy are turning their sights to China’s battered junk bonds, given they offer some of the biggest yield buffers anywhere in global credit markets Pfizer Inc. says data on how well its Covid-19 vaccine protects against the omicron variant should be available within two to three weeks, an executive said GlaxoSmithKline Plc said its Covid-19 antibody treatment looks to be effective against the new omicron variant in early testing A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded tentatively following the declines on Wall St where all major indices extended on losses and selling was exacerbated on confirmation of the first Omicron case in the US, while the Asia-Pac region also contended with its own pandemic concerns. ASX 200 (-0.2%) was subdued amid heavy losses in the tech sector and with a surge of infections in Victoria state, although downside in the index was cushioned amid inline Retail Sales and Trade Balance, as well as M&A optimism after Woolworths made a non-binding indicative proposal for Australian Pharmaceutical Industries. Nikkei 225 (-0.7%) weakened after the government instructed airlines to halt inbound flight bookings for a month due to fears of the new variant and with auto names also pressured by declines in monthly sales amid the chip supply crunch. KOSPI (+1.6%) showed resilience amid expectations for lawmakers to pass a record budget today and recouped opening losses despite the record increase in daily infections and confirmation of its first Omicron cases, while the index also shrugged off the highest CPI reading in a decade which effectively supports the case for further rate increases by the BoK. Hang Seng (+0.6%) and Shanghai Comp. (-0.1%) were choppy following another liquidity drain by the PBoC and with tech pressured in Hong Kong as Alibaba shares extended on declines after recently slipping to a 4-year low in its US listing. Beijing regulatory tightening also provided a headwind as initial reports suggested China is to crack down on loopholes used by tech firms for foreign IPOs, although this was later refuted by China, and the CBIRC is planning stricter regulations on major shareholders of banks and insurance companies, as well as confirmed it will better regulate connected transactions of banks. Finally, 10yr JGBs were higher as prices tracked gains in global counterparts and amid the risk aversion in Japan, although prices are off intraday highs after hitting resistance during a brief incursion to the 152.00 level and despite the marginally improved metrics from 10yr JGB auction. Top Asian News Asia Stocks Swing as Investors Weigh Omicron Impact, Fed Views Apple Tells Suppliers IPhone Demand Slowing as Holidays Near Moody’s Cuts China Property Sales View on Financing Difficulties Faith in Singapore Leaders Hit by Record Covid Wave, Poll Shows Bourses across Europe have held onto losses seen at the cash open (Euro Stoxx 50 -1.4%; Stoxx -1.2%), as the region plays catchup to the downside seen on Wall Street – seemingly sparked by a concoction of hawkish Fed rhetoric and the discovery of the Omicron variant in the US. Nonetheless, US equity futures are firmer across the board but to varying degrees – with the cyclical RTY (+1.1%) and the NQ (+0.3%) the current laggard. European futures ahead of the cash open saw some mild fleeting impetus on reports GlaxoSmithKline's (-0.3%) COVID treatment Sotrovimab retains its activity against Omicron variant, and the UK MHRA simultaneously approved the use of Sotrovimab – but caveated that it is too early to know whether Omicron has any impact on effectiveness. Conversely, brief risk-off crept into the market following commentary from a South African Scientist who warned the country is seeing an exponential rise in new COVID cases with a predominance of Omicron variant across the country – with the variant causing the fastest ever community transmission - but expects fewer active cases and hospitalisations this wave. Back to Europe, Euro indices see broad-based losses whilst the downside in the FTSE 100 (-0.7%) is less severe amid support from its heavyweight Oil & Gas sector – the outperforming sector in the region. Delving deeper, sectors see no overarching theme nor bias – Food & Beverages, Autos and Banks are towards the top of the bunch, whilst Tech, Telecoms, and Travel &Leisure. Tech is predominantly weighed on by reports that Apple (-2% pre-market) reportedly told iPhone component suppliers that demand slowed down. As such ASML (-5.0%), STMicroelectronics (-4.4%) and Infineon (-3.6%) reside among the biggest losers in the Stoxx 600. Deliveroo (-5.3%) is softer following an offering of almost 18mln at a discount to yesterday's close. In terms of market commentary, Morgan Stanley believes that inflation will remain high over the next few months, in turn supporting commodities, financials and some cyclical sectors. The bank identifies beneficiaries including EDF (-1.5%), Engie (-1.2%), SSE (-0.2%), Legrand (-1.3%), Tesco (-0.5%), BT (-0.8%), Michelin (-1.6%) and Sika (-0.9%). Top European News Shell Kicks Off First Wave of Buybacks From Permian Sale Omicron Threatens to Prolong Pain in Bid to Vaccinate the World Apple, Suppliers Drop Premarket After Report Demand Slowed Valeo, Gestamp Gain After Barclays Raises to Overweight In FX, currency markets are still in a state of flux, or limbo bar a few exceptions, and the Greenback is gyrating against major peers awaiting the next major event that could provide clearer direction and a more decisive range break. Thursday’s agenda offers some scope on that front via US initial jobless claims and a host of Fed speakers, but in truth NFP tomorrow is probably more likely to be influential even though chair Powell has effectively given the green light to fast-track tapering from December. In the interim, the index continues to keep a relatively short leash around 96.000, and is holding within 96.138-95.895 confines so far today. JPY/CHF - Although risk considerations look supportive for the Yen, on paper, UST-JGB/Fed-BoJ differentials coupled with technical impulses are keeping Usd/Jpy buoyant on the 113.00 handle, with additional demand said to have come from Japanese exporters overnight. However, the headline pair may run into offers/resistance circa 113.50 and any breach could be capped by decent option expiry interest spanning 113.60-75 (1.5 bn). Similarly, the Franc has slipped back below 0.9200 on yield and Swiss/US Central Bank policy stances plus near term outlooks, and hardly helped by a slowdown in retail sales. GBP/CAD/NZD - All firmer vs their US counterpart, though again well within recent admittedly wide ranges, and the Pound perhaps more attuned to Eur/Gbp fluctuations as the cross retreats to retest 0.8500 and Cable rebounds to have another look at 1.3300 where a fairly big option expiry resides (850 mn). Indeed, Sterling has largely shrugged off the latest BoE Monthly Decision Maker Panel release that in truth did not deliver any clues on what is set to be another knife-edge MPC gathering in December. Elsewhere, the Loonie is straddling 1.2800 with eyes on WTI crude ahead of Canadian jobs data on Friday and the Kiwi is hovering above 0.6800 after weaker NZ Q3 terms of trade were offset to some extent by favourable Aud/Nzd headwinds. AUD/EUR - Both narrowly mixed against US Dollar, with the Aussie pivoting 0.7100 in wake of roughly in line trade and retail sales data overnight, but wary about the latest virus outbreak in the state of Victoria, while the Euro is sitting somewhat uncomfortably on the 1.1300 handle amidst softer EGB yields and heightened uncertainty about what the ECB might or might not do in December on the QE guidance front. In commodities, WTI and Brent front-month futures are firmer intraday as traders gear up for the JMMC and OPEC+ confabs at 12:00GMT and 13:00GMT, respectively. The jury is still split on what the final decision could be, but the case for OPEC+ to pause the planned monthly relaxation of output curbs by 400k BPD has been strengthening against the backdrop of Omicron coupled with the coordinated SPR releases (an updating Rolling Headline is available on the Newsquawk headline feed). As expected, OPEC sources have been testing the waters in the run-up, whilst yesterday's JTC/OPEC meetings largely surrounded the successor to the Secretary-General position. Oil market price action will likely be centred around OPEC+ today in the absence of any macro shocks. WTI Jan resides around USD 66.50/bbl (vs low USD 65.41/bbl) whilst Brent Feb briefly topped USD 70/bbl (vs low USD 68.73/bbl). Elsewhere, spot gold has eased further from the USD 1,800/oz after failing to sustain a break above the 50, 100 and 200 DMAs which have all converged to USD 1,791/oz today. LME copper is on the backfoot amid the cautious risk sentiment, with the red metal back under USD 9,500/t but off overnight lows. US Event Calendar 7:30am: Nov. Challenger Job Cuts -77.0% YoY, prior -71.7% 8:30am: Nov. Initial Jobless Claims, est. 240,000, prior 199,000; 8:30am: Nov. Continuing Claims, est. 2m, prior 2.05m 9:45am: Nov. Langer Consumer Comfort, prior 52.2 DB's Jim Reid concludes the overnight wrap With investors remaining on tenterhooks to find out some definitive information on the Omicron variant, yesterday saw markets continue to see-saw for a 4th day running. Following one of the biggest sell-offs of the year on Friday, we then had a partial bounceback on Monday, another bout of fears on Tuesday (not helped by the prospect of faster tapering), and yesterday saw another rally back before risk sentiment turned sharply later in the day as an initial case of the Omicron variant was discovered in the US. You can get some idea of this by the fact that Europe’s STOXX 600 (+1.71%) posted its best daily performance since May, whereas the S&P 500 moved from an intraday high where it had been up +1.88%, before shedding all those gains and more to close -1.18% lower. In fact, that decline means the S&P has now lost over -3% in the last two sessions, marking its worst 2-day performance in over a year, and this heightened volatility saw the VIX index close back above 30 for the first time since early February. In terms of developments about Omicron, we’re still in a waiting game for some concrete stats, but there was positive news early on from the World Health Organization’s chief scientist, who said that they think vaccines “will still protect against severe disease as they have against the other variants”. On the other hand, there was further negative news out of South Africa, as the country reported 8,561 infections over the previous day, with a positivity rate of 16.5%. That’s up from 4,373 cases the day before, and 2,273 the day before that, so all eyes will be on whether this trend continues, and also on what that means for hospitalisation and death rates over the days ahead. Against this backdrop, calls for fresh restrictions mounted across a range of countries, particularly on the travel side. In the US, it’s been reported already by the Washington Post that President Biden could today announce stricter testing requirements for arriving travellers. Meanwhile, France is moving to require non-EU arrivals to show a negative test before arrival, irrespective of their vaccination status. The EU Commission further said that member states should conduct daily reviews of essential travel restrictions, and Commission President von der Leyen also said that the EU should discuss the topic of mandatory vaccinations. There was also a Bloomberg report that German Chancellor Merkel would recommend mandatory vaccinations from February 2022, according to a Chancellery paper that they’d obtained. That came as Slovakia sought to incentivise vaccination uptake among older citizens, with the cabinet backing a €500 hospitality voucher for residents over 60 who’ve been vaccinated. As on Tuesday, the other main headlines yesterday were provided by Fed Chair Powell, who re-emphasised his more hawkish rhetoric around inflation before the House Financial Services Committee. Notably he said that “We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent”, though yields on 2yr Treasuries (-1.4bps) already had the shift in stance priced in. New York Fed President Williams echoed that view in an interview, noting it would be germane to discuss and decide whether it was appropriate to accelerate the pace of tapering at the December FOMC. 10yr yields (-4.1bps) continued their decline, predominantly driven by the turn in sentiment following the negative Omicron headlines. That latest round of curve flattening left the 2s10s slope at its flattest level since early January around the time of the Georgia Senate race that ushered in the prospect of much larger fiscal stimulus. In terms of markets elsewhere, strong data releases helped to support risk appetite earlier in yesterday’s session, with investors also looking forward to tomorrow’s US jobs report for November that will be an important one ahead of the Fed’s decision in less than a couple of weeks’ time. The ISM manufacturing release for November saw the headline number come in roughly as expected at 61.1 (vs. 61.2 expected), and also included a rise in both the new orders (61.5) and the employment (53.3) components relative to last month. Separately, the ADP’s report of private payrolls for November likewise came in around expectations, with a +534k gain (vs. +526k expected). Staying on the US, one thing to keep an eye out over the next 24 hours will be any news on a government shutdown, with funding currently set to run out by the weekend as it stands. The headlines yesterday weren’t promising for those hoping for an uneventful, tidy resolution, as Politico indicated that some Congressional Republicans would not agree to an expedited process to fund the government should certain vaccine mandates remain in place. An expedited process is necessary to avoid a government shutdown at the end of the week, so one to watch. After the incredibly divergent equity performances in the US and Europe, we’ve seen a much more mixed performance in Asia overnight, with the KOSPI (+1.09%), Hang Seng (+0.23%), and CSI (+0.23%) all advancing, whereas the Shanghai Composite (-0.05%) and the Nikkei (-0.60%) are trading lower. In terms of the latest on Omicron, authorities in South Korea confirmed five cases, which came as the country also reported that CPI in November rose to its fastest since December 2011, at +3.7% (vs +3.1% expected). Separately in China, 53 local Covid-19 cases were reported in Inner Mongolia, whilst Harbin province reported 3 local cases. Looking forward, futures are indicating a positive start in the US with those on the S&P 500 (+0.64%) pointing higher. Back in Europe, sovereign bonds lost ground yesterday, and yields on 10yr bunds (+0.5bps), OATs (+1.1bps) and BTPs (+4.2bps) continued to move higher. Interestingly, there was a continued widening in peripheral spreads, with the gap between both Italian and Spanish 10yr yields over bunds reaching their biggest level in over a year, at 135bps and 77bps, respectively. Another factor to keep an eye on in Europe is another round of increases in natural gas prices, with futures up +3.42% to their highest level since mid-October yesterday. Lastly on the data front, the main other story was the release of the manufacturing PMIs from around the world. We’d already had the flash readings from a number of the key economies, so they weren’t too surprising, but the Euro Area came in at 58.4 (vs. flash 58.6), Germany came in at 57.4 (vs. flash 57.6), and the UK came in at 58.1 (vs. flash 58.2). One country that saw a decent upward revision was France, with the final number at 55.9 (vs. flash 54.6), which marks an end to 5 successive monthly declines in the French manufacturing PMI. One other release were German retail sales for October, which unexpectedly fell -0.3% (vs. +0.9% expected). To the day ahead now, and central bank speakers include the Fed’s Quarles, Bostic, Daly and Barkin, as well as the ECB’s Panetta. Data releases include the Euro Area unemployment rate and PPI inflation for October, while there’s also the weekly initial jobless claims. Lastly, the OPEC+ group will be meeting. Tyler Durden Thu, 12/02/2021 - 07:57.....»»

Category: dealsSource: nytDec 2nd, 2021

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices The nausea-inducing rollercoaster in the stock market continued on Thursday, when US index futures continued their violent Wednesday reversal - the biggest since March - and surged with Nasdaq futures up more than 1%, hitting a session high, as Chinese technology stocks rebounded from a record low, investors embraced progress on the debt-ceiling impasse in Washington, a dip in oil prices eased worries of higher inflation and concerns eased about the European energy crisis fueled a risk-on mood. At 7:30am ET, S&P futures were up 44 points or 1.00% and Dow futures were up 267 points or 0.78%. Oil tumbled as much as $2, dragging breakevens and nominal yields lower, while the dollar dipped and bitcoin traded around $54,000. Wednesday's reversal started after Mitch McConnell on Wednesday floated a plan to support an extension of the federal debt ceiling into December, potentially heading off a historic default, a proposal which Democrats have reportedly agreed to after Senate Majority Leader Chuck Schumer suggested an agreement would be in place by this morning. While the deal is good news for markets worried about an imminent default, it only kicks the can to December when the drama and brinksmanship may run again. Markets have been rocked in the past month by worries about the global energy crisis, elevated inflation, reduced stimulus and slower growth. Meanwhile, the prospect of a deal to boost the U.S. debt limit into December is easing concern over political bickering, while Friday’s payrolls report may shed light on the the Federal Reserve’s timeline to cut bond purchases. “We have several things that we are watching right now -- certainly the debt ceiling is one of them and that’s been contributing to the recent volatility,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “But we look for these 5% corrections to add money to the equity markets.” Tech and FAAMG stocks including Apple (AAPL US +1%), Nvidia (NVDA +2%), Microsoft (MSFT US +0.9%), Tesla (TSLA US 0.8%) led the charge in premarket trading amid a dip in 10-year Treasury yields on Thursday, helped by a slide in energy prices on the back of Putin's Wednesday announcement that Russia could ramp up nat gas deliveries to Europe, something it still has clearly not done. Perhaps sensing that not all is at Putin said, after plunging on Wednesday UK nat gas futures (NBP) from 407p/therm to a low of 209, prices have ominously started to rise again. As oil fell, energy stocks including Chevron, Exxon Mobil and APA led declines with falls between 0.6% and 2.1%. Here are some of the other big movers today: Twitter (TWTR US) shares rise 2% in U.S. premarket trading after it agreed to sell MoPub to AppLovin for $1.05 billion in cash Levi Strauss (LEVI US) rises 4% in U.S. premarket trading after it boosted its adjusted earnings per share forecast for the full year; the guidance beat the average analyst estimate NRX Pharmaceuticals (NRXP US) drops in U.S. premarket trading after Relief Therapeutics sued the company, alleging breach of a collaboration pact Osmotica Pharmaceuticals (OSMT US) declined 28% in premarket trading after launching an offering of shares Rocket Lab USA (RKLB US) shares rose in Wednesday postmarket trading after the company announced it has been selected to launch NASA’s Advanced Composite Solar Sail System, or ACS3, on the Electron launch vehicle U.S. Silica Holdings (SLCA US) rose 7% Wednesday postmarket after it started a review of strategic alternatives for its Industrial & Specialty Products segment, including a potential sale or separation Global Blood Therapeutics (GBT US) climbed 2.6% in Wednesday after hours trading while Sage Therapeutics (SAGE US) dropped 3.9% after Jefferies analyst Akash Tewari kicked off his biotech sector coverage On the geopolitical front, a senior U.S. official said President Joe Biden’s plans to meet virtually with his Chinese counterpart before the end of the year. Tensions are escalating between the two countries, with U.S. Secretary of State Antony Blinken criticizing China’s recent military maneuvers around Taiwan. European equities rebounded, with the Stoxx 600 index surging as much as 1.3% boosted by news that the European Central Bank was said to be studying a new bond-buying program as emergency programs are phased out. Also boosting sentiment on Thursday, ECB Governing Council member Yannis Stournaras said that investors shouldn’t expect premature interest-rate increases from the central bank. Here are some of the biggest European movers today: Iberdrola shares rise as much as 6.8% after an upgrade at BofA, and as Spanish utilities climbed following a report that the Ministry for Ecological Transition may suspend or modify the mechanism that reduces the income received by hydroelectric, nuclear and some renewables in relation to gas prices. Hermes shares climb as much as 3.8%, the most since February, after HSBC says “there isn’t much to worry about” from a possible slowdown in mainland China or questions over trend sustainability in the U.S. Edenred shares gain as much as 5.2%, their best day since Nov. 9, after HSBC upgrades the voucher company to buy from hold, saying that Edenred, along with Experian, offers faster recurring revenue growth than the rest of the business services sector. Valeo shares gain as much as 4.9% and is Thursday’s best performer in the Stoxx 600 Automobiles & Parts index; Citi raised to neutral from sell as broker updated its model ahead of 3Q results. Sika shares rise as much as 4.2% after company confirms 2021 guidance, which Baader said was helpful amid market concerns of sequentially declining margins due to rising raw material prices. Centrica shares rise as much as 3.6% as Morgan Stanley upgrades Centrica to overweight from equalweight, saying the utility provider will add market share as smaller U.K. companies fail due to the spike in wholesale energy prices. Earlier in the session, Asian stocks rallied, boosted by a rebound in Hong Kong-listed technology shares and optimism over the progress made toward a U.S. debt-ceiling accord. The MSCI Asia Pacific Index climbed as much as 1.3%, on track for its biggest jump since Aug. 24. Alibaba, Tencent and Meituan were among the biggest contributors to the benchmark’s advance. Equity gauges in Hong Kong and Taiwan led a broad regional gain, while Japan’s Nikkei 225 also rebounded from its longest losing run since 2009. Thursday’s rally in Asia came after U.S. stocks closed higher overnight on a possible deal to boost the debt ceiling into December. Focus now shifts to the reopening of mainland China markets on Friday following the Golden Week holiday, and also the U.S. nonfarm payrolls report due that day. READ: China Tech Gauge Posts Best Day Since August After Touching Lows “Risk off sentiment has persisted due to a number of negative factors, but worry over some of these issues has been alleviated for the near term,” said Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “One is that concern over stagflation has abated, with oil prices pulling back.” Sentiment toward risks assets was also supported as a senior U.S. official said President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year. Of note, holders of Evergrande-guaranteed Jumbo Fortune bonds have yet to receive payment; the holders next step would be to request payment from Evergrande. The maturity of the bond in question was Sunday October 3rd, with a Monday October 4th effective due data, though the bond does have a five-day grace period only in the event that payment failure is due to an administrative/technical error. Australia's S&P/ASX 200 index rose 0.7% to close at 7,256.70. All subgauges finished the day higher, with the exception of energy stocks as Asian peers tumbled with a retreat in crude oil prices.  Collins Foods was among the top performers after the company signed an agreement to become KFC’s corporate franchisee in the Netherlands. Whitehaven tumbled, dropping the most for a session since June 17.  In New Zealand, the S&P/NZX 50 index fell 0.5% to 13,104.61. Oil extended its decline from a seven-year high as U.S. stockpiles grew more than expected, and European natural gas prices tumbled on signals from Russia it may increase supplies to the continent. The yield on the U.S. 10-year Treasury was 1.526%, little changed on the day after erasing a 2.4bp increase; bunds outperformed by ~1.5bp, gilts by less than 1bp; long-end outperformance flattened 2s10s, 5s30s by ~0.5bp each. Treasuries pared losses during European morning as fuel prices ebbed and stocks gained. Bunds and gilts outperform while Treasuries curve flattens with long-end yields slightly richer on the day. WTI oil futures are lower after Russia’s offer to ease Europe’s energy crunch. Negotiations on a short-term increase to U.S. debt-ceiling continue.    In FX, the Bloomberg Dollar Spot Index was little changed and the greenback was weaker against most Group-of-10 peers, though moves were confined to relatively tight ranges. The U.S. jobs report Friday is the key risk for markets this week as a strong print could boost the dollar. Options traders see a strong chance that the euro manages to stay above a key technical support, at least on a closing basis. Risk sensitive currencies such as the Australian and New Zealand dollars as well as Sweden’s krona led G-10 gains, while Norway’s currency was the worst performer as European natural gas and power prices tumbled early Thursday after signals from Russia it may increase supplies to the continent. The pound gained against a broadly weaker dollar as concerns over the U.K. petrol crisis eased and focus turned to Bank of England policy. A warning shot buried deep in the BoE’s policy documents two weeks ago indicating that interest rates could rise as early as this year suddenly is becoming a more distinct possibility. Australia’s 10-year bonds rose for the first time in two weeks as sentiment was bolstered by a short-term deal involving the U.S. debt ceiling. The yen steadied amid a recovery in risk sentiment as stocks edged higher. Bond futures rose as a debt auction encouraged players to cautiously buy the dip. Looking ahead, investors will be looked forward to the release of weekly jobless claims data, likely showing 348,000 Americans filed claims for state unemployment benefits last week compared with 362,000 in the prior week. The ADP National Employment Report on Wednesday showed private payrolls increased by 568,000 jobs last month. Economists polled by Reuters had forecast a rise of 428,000 jobs. This comes ahead of the more comprehensive non-farm payrolls data due on Friday. It is expected to cement the case for the Fed’s slowing of asset purchases. We'll also get the latest August consumer credit print. From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang. Market Snapshot S&P 500 futures up 1% to 4,395.5 STOXX Europe 600 up 1.03% to 455.96 MXAP up 1.2% to 193.71 MXAPJ up 1.8% to 633.78 Nikkei up 0.5% to 27,678.21 Topix down 0.1% to 1,939.62 Hang Seng Index up 3.1% to 24,701.73 Shanghai Composite up 0.9% to 3,568.17 Sensex up 1.2% to 59,872.01 Australia S&P/ASX 200 up 0.7% to 7,256.66 Kospi up 1.8% to 2,959.46 Brent Futures down 1.8% to $79.64/bbl Gold spot up 0.0% to $1,762.96 U.S. Dollar Index little changed at 94.19 German 10Y yield fell 0.6 bps to -0.188% Euro little changed at $1.1563 Top Overnight News from Bloomberg Democrats signaled they would take up Senate Republican leader Mitch McConnell’s offer to raise the U.S. debt ceiling into December, alleviating the immediate risk of a default but raising the prospect of another bruising political fight near the end of the year The European Central Bank is studying a new bond-buying program to prevent any market turmoil when emergency purchases get phased out next year, according to officials familiar with the matter Market expectations for interest-rate hikes “are not in accordance with our new forward guidance,” ECB Governing Council member Yannis Stournaras said in an interview with Bloomberg Television Creditors have yet to receive repayment of a dollar bond they say is guaranteed by China Evergrande Group and one of its units, in what could be the firm’s first major miss on maturing notes since regulators urged the developer to avoid a near-term default Boris Johnson’s plan to overhaul the U.K. economy is a 10-year project he wants to see out as prime minister, according to a senior official. The time frame, which has not been disclosed publicly, illustrates the scale of Johnson’s gamble that British voters will accept a long period of what he regards as shock therapy to redefine Britain The U.K.’s surge in inflation has boosted the cost of investment-grade borrowing in sterling to the most since June 2020. The average yield on the corporate notes climbed just past 2%, according to a Bloomberg index A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded positively as the region took impetus from the mostly positive close in the US where the major indices spent the prior session clawing back opening losses, with sentiment supported amid a potential Biden-Xi virtual meeting this year, and hopes of a compromise on the debt ceiling after Senate Republican Leader McConnell offered a short-term debt limit extension to December. The ASX 200 (+0.7%) was led higher by strength in the tech sector and with risk appetite also helped by the announcement to begin easing restrictions in New South Wales from next Monday. The Nikkei 225 (+0.5%) attempted to reclaim the 28k level with advances spearheaded by tech and amid reports Tokyo is to lower its virus warning from the current top level. The Hang Seng (+3.1%) was the biggest gainer owing to strength in tech and property stocks, with Evergrande shareholder Chinese Estates surging in Hong Kong after a proposal from Solar Bright to take it private. Reports also noted that the US and China reportedly reached an agreement in principle for a Biden-Xi virtual meeting before year-end and with yesterday’s talks in Zurich between senior officials said to be more meaningful and constructive than other recent exchanges. Finally, 10yr JGBs retraced some of the prior day’s after-hours rebound with haven demand hampered by the upside in stocks and after the recent choppy mood in T-notes, while the latest enhanced liquidity auction for longer-dated JGBs resulted in a weaker bid-to-cover. Top Asian News Vietnam Faces Worker Exodus From Factory Hub for Gap, Nike, Puma Japan’s New Finance Minister Stresses FX Stability Is Vital Korea Lures Haven Seekers With Bonds Sold at Lowest Spread Africa’s Free-Trade Area to Get $7 Billion in Support From AfDB Bourses in Europe hold onto the gains seen at the cash open (Euro Stoxx 50 +1.5%; Stoxx 600 +1.1%) following on from an upbeat APAC handover, albeit the upside momentum took a pause shortly after the cash open. US equity futures are also firmer across the board but to a slightly lesser extent, with the tech-laden NQ (+1.0%) getting a boost from a pullback in yields and outperforming its ES (+0.7%), RTY (+0.6%) and YM (+0.6%). The constructive tone comes amid some positive vibes out of the States, and on a geopolitical note, with US Senate Minority Leader McConnell offered a short-term debt ceiling extension to December whilst US and China reached an agreement in principle for a Biden-Xi virtual meeting before the end of the year. Euro-bourses portray broad-based gains whilst the UK's FTSE 100 (+1.0%) narrowly lags the Euro Stoxx benchmarks, weighed on by its heavyweight energy and healthcare sectors, which currently reside at the foot of the bunch. Further, BoE's Chief Economist Pill also hit the wires today and suggested that the balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated. Broader sectors initially opened with an anti-defensive bias (ex-energy), although the configuration since then has turned into more of a mixed picture, although Basic Resource and Autos still reside towards the top. Individual movers are somewhat scarce in what is seemingly a macro-driven day thus far. Miners top the charts on the last day of the Chinese Golden Week Holiday, with base metal prices also on the front foot in anticipation of demand from the nation – with Antofagasta (+5.1%), Anglo American (+4.2%) among the top gainers, whist Teamviewer (-8.2%) is again at the foot of the Stoxx 600 in a continuation of the losses seen after its guidance cut yesterday. Ubisoft (-5.1%) are also softer, potentially on a bad reception for its latest Ghost Recon game announcement. Top European News ECB’s Stournaras Reckons Investor Rate-Hike Bets Are Unwarranted Shell Flags Financial Impact of Gas Market Swings, Hurricane Johnson’s Plans for Economy Signal Ambitions for Decade in Power U.K. Grid Bids to Calm Market Saying Winter Gas Supply Is Enough In FX, the latest upturn in broad risk sentiment as the pendulum continues to swing one way then the other on alternate days, has given the Aussie a fillip along with news that COVID-19 restrictions in NSW remain on track for being eased by October 11, according to the state’s new Premier. Aud/Usd is eyeing 0.7300 in response to the above and a softer Greenback, while the Aud/Nzd cross is securing a firmer footing above 1.0500 in wake of a slender rise in AIG’s services index and ahead of the latest RBA FSR. Conversely, the Pound is relatively contained vs the Buck having probed 1.3600 when the DXY backed off further from Wednesday’s w-t-d peak to a 94.102 low and has retreated through 0.8500 against the Euro amidst unsubstantiated reports about less hawkish leaning remarks from a member of the BoE’s MPC. In short, the word is that Broadbent has downplayed the prospects of any fireworks in November via a rate hike, but on the flip-side new chief economist Pill delivered a hawkish assessment of the inflation situation in the UK when responding to a TSC questionnaire (see 10.18BST post on the Headline Feed for bullets and a link to his answers in full). Back to the Dollar index, challenger lay-offs are due and will provide another NFP guide before claims and commentary from Fed’s Mester, while from a technical perspective there is near term support just below 94.000 and resistance a fraction shy of 94.500, at 93.983 (yesterday’s low) and the aforementioned midweek session best (94.448 vs the 94.283 intraday high, so far). NZD - Notwithstanding the negative cross flows noted above, the Kiwi is also taking advantage of more constructive external and general factors to secure a firmer grip of the 0.6900 handle vs its US counterpart, but remains rather deflated post-RBNZ on cautious guidance in terms of further tightening. EUR/CHF/CAD/JPY - All narrowly mixed against their US peer and mostly well within recent ranges as the Euro reclaims 1.1500+ status in the run up to ECB minutes, the Franc consolidates off sub-0.9300 lows following dips in Swiss jobless rates, the Loonie weighs up WTI crude’s further loss of momentum against the Greenback’s retreat between 1.2600-1.2563 parameters awaiting Canada’s Ivey PMIs and a speech from BoC Governor Macklem, and the Yen retains an underlying recovery bid within 111.53-23 confines before a raft of Japanese data. Note, little reaction to comments from Japanese Finance Minister, when asked about recent Jpy weakening, as he simply said that currency stability is important, so is closely watching FX developments, but did not comment on current levels. In commodities, WTI and Brent front month futures are on the backfoot, in part amid the post-Putin losses across the Nat Gas space, with the UK ICE future dropping some 20% in early trade. This has also provided further headwinds to the crude complex, which itself tackles its own bearish omens. WTI underperforms Brent amid reports that the US was mulling a Strategic Petroleum Reserve (SPR) release and did not rule out an export ban. Desks have offered their thoughts on the development. Goldman Sachs says a US SPR release would likely be of up to 60mln barrels, only representing a USD 3/bbl downside to the year-end USD 90/bbl Brent forecast and stated that relief would only be transitory given structural deficits the market will face from 2023 onwards. GS notes that any larger price impact that further hampers US shale activity would lead to elevated US nat gas prices in 2022, and an export ban would lead to significant disruption within the US oil market, likely bullish retail fuel price impact. RBC, meanwhile, believes that these comments were to incentivise OPEC+ to further open the taps after the producers opted to maintain a plan to hike output 400k BPD/m. On that note, sources noted that the OPEC+ decision against a larger supply hike at Monday's meeting was partly driven by concern that demand and prices could weaken – this would be in-fitting with sources back in July, which suggested that demand could weaken early 2022. The downside for crude prices was exacerbated as Brent Dec fell under USD 80/bbl to a low of near 79.00/bbl (vs 81.14/bbl), whilst WTI Nov briefly lost USD 75/bbl (vs high 77.23/bbl). Prices have trimmed some losses since. Metals in comparison have been less interesting; spot gold is flat and only modestly widened its overnight range to the current 1,756-66 range, whilst spot silver remains north of USD 22.50/bbl. Elsewhere, the risk tone has aided copper prices, with LME copper still north of USD 9,000/t, whilst some also cite supply concerns as a key mining road in Peru (second-largest copper producer) was blocked, with the indigenous community planning to continue the blockade indefinitely, according to a local leader. It is also worth noting that Chinese markets will return tomorrow from their Golden Week holiday. US Event Calendar 7:30am: Sept. Challenger Job Cuts YoY, prior -86.4% 8:30am: Oct. Initial Jobless Claims, est. 348,000, prior 362,000; Continuing Claims, est. 2.76m, prior 2.8m 9:45am: Oct. Langer Consumer Comfort, prior 54.7 11:45am: Fed’s Mester Takes Part in Panel on Inflation Dynamics 3pm: Aug. Consumer Credit, est. $17.5b, prior $17b DB's Jim Reid concludes the overnight wrap On the survey, given how fascinating markets are at the moment I think the results of this month’s edition will be especially interesting. However the irony is that when things are busy less people tend to fill it in as they are more pressed for time. So if you can try to spare 3-4 minutes your help would be much appreciated. Many thanks. It was a wild session for markets yesterday, with multiple asset classes swinging between gains and losses as investors sought to grapple with the extent of inflationary pressures and potential shock to growth. However US equities closed out in positive territory and at the highs as the news on the debt ceiling became more positive after Europe went home. Before this equities had lost ground throughout the London afternoon, with the S&P 500 down nearly -1.3% at one point with Europe’s STOXX 600 closing -1.03% lower. Cyclical sectors led the European underperformance, although it was a fairly broad-based decline. However after Europe went home – or closed their laptops in many cases – the positive debt ceiling developments saw risk sentiment improve throughout the rest of New York session. The S&P rallied to finish +0.41% and is now slightly up on the week, as defensive sectors such as utilities (+1.53%) and consumer staples (+1.00%) led the index while US cyclicals fell back like their European counterparts. Small cap stocks didn’t enjoy as much of a boost as the Russell 2000 ended the day -0.60% lower, while the megacap tech NYFANG+ index gained +0.82%. Risk sentiment improved following reports that Senate Minority Leader Mitch McConnell was willing to negotiate with Democrats to resolve the debt ceiling impasse and allow Democrats to raise the ceiling until December. This means President Biden and Congressional Democrats would be able to finish their fiscal spending package – now estimated at around $1.9-2.2 trillion – and include a further debt ceiling raise into one large reconciliation package near year-end. Senate Majority Leader Schumer has not publicly addressed the deal yet, but Democrats have signaled that they’ll accept the deal, although they’ve also indicated they’d still like to pass the longer-term debt ceiling bill under regular order in a bipartisan manner when the time came near year-end. Interestingly, if we did see the ceiling extended until December, this would put another deadline that month, since the government funding extension only went through to December 3, so we could have yet another round of multiple congressional negotiations in just a few weeks’ time. The news of a Republican offer coincided with President Biden’s virtual meeting with industry leaders, where the President implored them to join him in pressuring legislators to raise the debt limit. Treasury Secretary Yellen also attended the meeting, and re-emphasised her estimate for the so-called “drop dead date” to be October 18. Potentially at risk Treasury bills maturing shortly thereafter rallied a few basis points, signaling investors took yesterday afternoon’s debt ceiling developments as positive and credible. This was a far cry from where markets opened the London session as turmoil again gripped the gas market. UK and European natural gas futures both surged around +40% to reach an intraday high shortly after the open. However, energy markets went into reverse following comments from Russian President Putin that the country was set to supply more gas to Europe and help stabilise energy markets, with European futures erasing those earlier gains to actually end the day down -6.75%, with their UK counterpart similarly reversing course to close -6.96% too. The U.K. future traded in a stunning 255 to 408 price range on the day. We shouldn’t get ahead of ourselves here though, since even with the latest reversal, prices are still up by more than five-fold since the start of the year, and this astonishing increase over recent weeks has attracted attention from policymakers across the world as governments look to step in and protect consumers and industry. In the EU, the Energy Commissioner, Kadri Simson, said that the price shock was “hurting our citizens, in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure. … There is no question that we need to take policy measures”. However, the potential response appeared to differ across the continent. French President Macron said that more energy capacity was required, of which renewables and nuclear would be key elements, while Italian PM Draghi said that joint EU gas purchases had wide support. However, Hungarian PM Orban took the opportunity to blame the European Commission, saying that the Green Deal’s regulations were “indirect taxation”, which shows how these price spikes could create greater resistance to green measures moving forward. Elsewhere, blame was also cast on carbon speculators, with Spanish environment minister Rodriguez saying that “We don’t want to be hostages of external financial investors”, and outside the EU, Serbian President Vucic said that his country could ban power exports if there were further issues, which just shows how energy has the potential to become a big geopolitical issue this winter. Those declines in natural gas prices were echoed across the energy complex, with both Brent Crude (-1.79%) and WTI (-1.90%) oil prices subsiding from their multi-year highs the previous day, just as coal also fell -10.20%. In turn, that served to alleviate some of the concerns about building price pressures and helped measures of longer-term inflation expectations decline across the board. Indeed by the close, the 10yr breakeven in the US had come down -1.4bps, and the equivalent measures in Germany (-4.6bps), Italy (-6.1bps) and the UK (-4.2bps) had likewise seen declines of their own. In spite of those moves for inflation expectations, this proved little consolation for European sovereign bonds as higher real rates put them under continued pressure, even if yields had pared back some of their gains from the morning. Yields on 10yr bunds (+0.6bps), OATs (+0.9bps) and BTPs (+3.2bps) were all at their highest levels in 3 months, whilst those on Polish 10yr debt were up +13.7bps after the central bank there unexpectedly became the latest to raise rates, with the 40bps hike to 0.5% marking the first increase since 2012. However, for the US it was a different story, with yields on 10yr Treasuries down -0.5bps to 1.521%, having peaked at 1.57% earlier in the London morning. There was a late story in Europe that could bear watching in the coming weeks as Bloomberg reported that the ECB is studying a new bond-buying tool that could help ease market volatility if a “taper tantrum”-esque move were to happen when the PEPP purchases end in March. The plan would reportedly target purchases selectively if there were to be a larger selloff in more heavily indebted economies, which differs from the existing programs that buys debt in relation to the size of each member’s economy. Asian stocks overnight have performed strongly, with the Hang Seng (+2.28%), Nikkei (+1.68%) and KOSPI (+1.61%) all advancing after the positive news on the debt-ceiling, as well on news that US President Biden was set to meeting with Chinese President Xi by the end of the year. All the indices were lifted by the IT and consumer discretionary sectors, and the Hang Seng Tech index has rebounded by +3.29% this morning. Separately, Evergrande-related news has been subsiding in recent days, but China Estates, a company controlled by a backer of Evergrande, rose 30% after the company disclosed an offer to take it private for $245mn. Otherwise, US futures are pointing to a positive start later, with those on the S&P 500 (+0.50%) and DAX (+1.19%) both advancing. Turning to Germany, exploratory talks will be commencing today between the centre-left SPD, the Greens and the Liberal FDP, who together would make up a so-called “traffic-light” coalition. That marks a boost for the SPD, who beat the CDU/CSU bloc into first place in the September 26 election, although CDU leader Armin Laschet said that his party were “still ready to hold talks”. However, the CDU/CSU have faced internal tensions after they slumped to their worst-ever election result, whilst a Forsa poll out on Tuesday said that 53% of voters wanted a traffic-light coalition, versus just 22% who favoured the Jamaica option led by the CDU/CSU. So momentum seems clearly behind the traffic light option for now. Looking at yesterday’s data, in the US the ADP’s report at private payrolls came in at an unexpectedly strong +568k (vs. +430k expected), which is the highest in their series for 3 months and comes ahead of tomorrow’s US jobs report. However in Germany, factory orders in August fell by -7.7% (vs. -2.2% expected) amidst various supply issues. To the day ahead now, and data releases include German industrial production and Italian retail sales for August, whilst in the US we’ve got the weekly initial jobless claims and August’s consumer credit.From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang. Tyler Durden Thu, 10/07/2021 - 07:57.....»»

Category: blogSource: zerohedgeOct 7th, 2021

21 Investing Myths That Just Aren’t True

With all of humanity’s collective knowledge available at our fingertips, you’d think investing myths would have disappeared by now. Q3 2021 hedge fund letters, conferences and more Yet they persist, largely because too many people consider money a “taboo” subject and avoid talking about it. Many of us also never question these assumptions, so we […] With all of humanity’s collective knowledge available at our fingertips, you’d think investing myths would have disappeared by now. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Walter Schloss Series in PDF Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Yet they persist, largely because too many people consider money a “taboo” subject and avoid talking about it. Many of us also never question these assumptions, so we don’t bother running a quick web search in the first place. These persistent investing myths cost you money though, in a very real sense. Once you move past these myths, a wider world of investing opportunities open up for you. Myth: You Can Time the Market to Earn Higher Returns When it comes to new investors learning how to invest their money one of the biggest myths is that you can time the market and earn better returns. To profitably time the market, you need to get it right twice. You need to buy at or near the bottom of the market, just as it turns upward. Then you need to sell at or near the top of the market, just as it prepares to plunge. The most experienced, best-informed professionals can’t do this predictably. If they can’t do it, you certainly can’t. Imagine you’re standing on the sidelines, telling yourself that you’ll invest “once the market drops.” But the market continues to rise for the next year or two before its next dip. When the dip does come, its low point might still cost more than today’s price. And that’s assuming you were able to buy at the low point, which you almost certainly won’t time properly. In the meantime, you’ve missed out on years of passive income from dividends or rents, or interest. Rather than trying to time the market, practice dollar-cost averaging. While it sounds complicated, it simply involves investing a set amount every month into the same diversified investments, based on what your budget allows for each month. You ignore timing and just mimic the broader upward trend, to earn better returns in the long run. Myth: You Need a Lot of Money to Start Investing A common myth that many people assume is investing a little bit of money doesn’t make sense. They think that investing $5 a month is pointless so they never even bother to start. That couldn’t be further from the truth. And it leads to wasted opportunities to save and invest over time. The truth is, investing a small amount of money can grow into large sums of money. Jon Dulin, owner of MoneySmartGuides, offers this example: “Let’s say you are 25 years old and invest $20 a month for 25 years. During this time you earn an average 8% return — nothing spectacular, just average returns. “At the end of 25 years, your $20 monthly investment has grown to nearly $19,000. If that doesn’t sound impressive, consider that your measly $20 each month could help your child or grandchild pay for college. Or it could pay for a family reunion vacation that you have on a tropical island. “If you instead keep the money invested for another 25 years, when you reach age 75, you’ll have close to $149,000. This can cover several years’ worth of living expenses during retirement.” Don’t make the mistake of assuming a small amount of money is a waste of time. Thanks to compounding, your money will grow into far larger sums over time. Literally anyone can get started even with little capital. Take the first step now and start investing any excess money you have, regardless of the amount. Read more: Invest in Art like the Ultra Wealthy Without Spending Millions Myth: I’m Too Young (or Too Old) to Start Investing The sooner you start and the longer you keep the money invested, the more it will grow. At an 8% return, you’d have to invest $5,467 each month to reach $1 million in 10 years. But it only takes $287 invested each month to reach $1 million in 40 years. That means that even people working for minimum wage can become millionaires if they invest consistently over time. On the other end of the spectrum, some older adults look at those numbers and despair, wondering why they should bother investing at all. But that’s the price of delaying: you need to save and invest more each month to reach the same goal. As the proverb goes, the best time to plant a tree was 20 years ago. The second best time is now. Start investing today with what you have, and let compounding work its magic for you. Read more: Don’t Miss These 12 Stocks Pay Monthly Dividends Myth: It Takes Decades to Save Enough to Retire In personal finance, the concept of “financial independence” means being able to cover your living expenses with passive income from investments. To make your day job optional, in other words, allowing you to retire if you like. It takes hard work and an enormous savings rate, of course. If you plod along with a 10-15% savings rate, then yes, it will take you decades to save enough to retire. My wife and I got serious about financial independence at 37, three years ago. We’re on track to reach financial independence within the next two or three years, in our early  40s. How? With a savings rate of 60-65% of our annual income and aggressive investing. Neither of us earns a huge salary either, but we still enjoy a comfortable lifestyle with plenty of international travel. We can save so much of our income because we house hack for free housing, avoid owning a car by living in a walkable area, and get full health insurance through my wife’s job. Nor are we alone. Read up on the FIRE movement (financial independence, retire early) to see how thousands of other people are achieving fast early retirement. Myth: Popular Companies Make Better Stock Picks The idea that popular companies make for good stocks sounds appealing on its surface. After all, if a company is popular, it’s probably growing its business. But the popularity and even the quality of a business only tell half the story. The other side is the price you pay for it. “Imagine someone approached you with two offers,” illustrates Ben Reynolds of Sure Dividend. “The first offer is to buy a $100 bill for $150. The second offer is to buy a $1 bill for $0.50. We all know the $100 bill is worth much more than the $1 bill… But any rational person would rather buy $1 for $0.50 than $100 for $150.” Two Warren Buffett quotes sum this up nicely: “For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.” “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” The reason it is difficult to do well investing in popular stocks is because they tend to be overvalued. Everyone already “knows” the business is going to be wildly successful, and that’s baked into the price. If there’s any hiccup in results, the price is likely to decline significantly. Also, as evidenced by the GameStop fiasco, amateur traders can make a significant impact on popular investments. Just because something is popular doesn’t make it a good investment. Read more:  Discover these 19 Blue Chip Dividend Stocks Myth: You Need to Spend Time Researching Stocks or Frequently Trading Many people believe that it takes a lot of time to research stock and make frequent trades to make money, resulting in people leaving their investments with a professional or relying on expensive mutual funds. But individual investors don’t need expensive investment advisors or managed mutual funds (more on them shortly). “For most retail investors, utilizing low-cost passive index ETFs is the easiest and cheapest approach,” explains Bob Lai of Tawcan.com. “These index ETFs track a special index, like the S&P 500 or the NASDAQ Composite Index. Because of index-tracking nature, you get to own all the stocks listed in that index.” There’s no need to spend time determining the earning trend of companies like Apple, Facebook, Amazon, or Pfizer because you own them all. By owning all these stocks in the index ETFs, you are also not making frequent trades. Counterintuitively, frequent trades generally lead to lower returns. Think of your investment portfolio like a bar of soap: the more you touch it, the smaller it gets. Read more: Related read: Diversify Your Portfolio With These Top 10 International ETFs Myth: Expensive Managed Mutual Funds Outperform Passive Index Funds Experienced, professional investors with the best data available to them still can’t pick stocks or time the market better than passive index funds. Need proof? Over the last 15 years, nearly 90% of managed mutual funds underperformed compared to their respective benchmark index. “The best investment strategy would be to invest in index funds of stocks or bonds that track an entire segment of the market — so you don’t have to worry about which specific security will give you the best return over short investing periods,” offers Kelan Kline, cofounder of The Savvy Couple. “My personal favorite low cost broad market index fund is Vanguard’s VTSAX.” Myth: Only the Wealthy Can Hire Investment Advisors A survey from JPMorgan Chase found that 42% of people who aren’t investing are staying out because they don’t think they have enough to invest. On some level, this isn’t surprising. After all, historically people had to work with private wealth managers who require $100,000 or more. Even many popular index funds required a minimum of $10,000 to get started, just 20 years ago. “That is changing with algorithm-driven investment tools such as robo-advisors,” says Jeremy Biberdorf of ModestMoney.com. “In many cases, robo-advisors have no minimum investment and allow you to invest for a small fee. Even investing a small amount every year can make a big difference.” Robo-advisors also won’t run off with your money or engage in insider trading. Many investors let their guard down and trust human investment advisors without doing any due diligence on them, especially when referred to them by friends of family members. “This makes investors vulnerable to conflicting advice in even the best-case scenarios. In the worst-case scenarios, they are easy prey for scammers. That’s why I call this blind faith in financial professionals the worst investment advice I hear everywhere,” explains Chris Mamula of Can I Retire Yet?. Read more: Can I Retire at 62 With 400k In My 401(k)? Myth: Bonds Are Inherently Safer than Other Asset Classes Bonds offer one type of safety — but leave you exposed to other types of risk. When an investor buys a bond from the US Government or most municipalities, there’s little risk of the borrower defaulting. So investors can sleep at night knowing that as long as they hold that bond, they’ll probably receive their modest interest payments. But bond values gyrate on the secondary market just like stock prices. Investors who plan to sell their bonds rather than hold them can find themselves with paper that’s gone down in value, not up. Which says nothing of the corroding effect of inflation on bond interest payments. When inflation runs at 3% in a year, a bond paying 3% interest-only generates a 0% real return. That in turn means that bonds may not actually protect retirees against running out of money before they die. Sure, the stock market is volatile, but in the long term, it generates an average return of 10% per year. At a 4% withdrawal rate, investors will see their stock portfolio go up in value rather than down, in most years. Even conservative income stock investing, such as in dividend kings, can yield 3-4% in dividends alone, on top of share price growth. But bonds paying paltry 3-4% interest will cause a slow decay in your nest egg. None of that means that you should never invest in bonds. But every investor should understand all the risks — not just the risk of default. Myth: Options Trading is Risky For many, selling options is a risky business.  And strategies such as Iron Condors add to the complexity.   “However, when managed correctly, options trading can be a handy addition to an overall portfolio”, explains Gavin McMaster of IQ Financial Services, LLC. An iron condor is a delta-neutral option strategy that consists of both call options, and put options.  The strategy works if the underlying stock stays within a specific range during the course of the trade. The key with iron condors is trading an appropriate position size (never risk your whole account on an iron condor) and knowing how to manage them. Here are a few quick tips to reduce the risks with iron condors: Never risk more than 2-3% of your account size on any one trade Close the trade before the stock breaks through one of the short strikes Avoid earnings announcements Have one or two adjustment strategies ready in case the trade moves against you Focus on stocks and ETF’s with a high IV Rank “While iron condors can be risky if you don’t know what you are doing, using appropriate position sizing and risk management rules can reduce the risks”, adds McMaster.  Generating income from iron condors can be a superb way to increase the returns on your portfolio. Myth: Pay Off Your Student Loans Before Buying a Home Paying off student loans before buying a home is a common misconception. While there is no “one size fits all approach,” many people believe their student loan debt will prohibit them from purchasing a home, however, this isn’t always the case. “For example, doctors and dentists often carry large amounts of student debt, and typically have relatively high debt to income ratios. Therefore, exploring a Physician Mortgage, which allows individuals to carry more debt, may be a better fit than a traditional mortgage”, explains Kaitlin Walsh-Epstein with Laurel Road. For those nonhealthcare professionals looking to purchase a home while managing high outstanding student loan balances, refinancing their student loans can be a good option. By refinancing to a longer-term mortgage, the borrower may lower their monthly payments. However, this may also increase the total interest paid over the life of the loan. “Refinancing to a shorter-term mortgage may increase the borrower’s monthly payments, but may lower the total interest paid over the life of the loan.”, adds Walsh-Epstein. Questions to consider: What is your current student loan interest rate? (Calculate the true cost over the life of your loan) What are mortgage interest rates and are they projected to go up or down?  (Currently mortgage rates are low) Do you pay rent each month and if so, how will your rent payment compare to a mortgage payment?  (As well as carrying costs of owning a home) Is the home (or real estate) projected to appreciate in value? The first step is to review and understand your credit score, student loan terms, and financial goals. Working towards making payments to lower your overall debt will help to raise your credit score, yet again increasing your chances of getting into your dream home faster! Myth: The “Rule of 100” In the 20th Century, investment advisors droned out the same advice to most clients: “Subtract your age from 100, and that’s the percent of your portfolio that should be invested in stocks.” They pushed clients to move their money into bonds instead, as they grew older. A sound strategy — back when Treasury bonds paid 15% interest. This century has seen perpetual low-interest rates, and bonds have offered poor returns compared to stocks. This says nothing of the fact that people are living and working longer, so they both have more risk tolerance and need their nest eggs to last longer. Today, investment advisors tend to instead advise subtracting your age from 110 or 120 instead, if they bother issuing such generic advice at all. Everyone has their own unique risk tolerance and needs; as a real estate investor, I can earn safer, higher returns from real estate than bonds, so I avoid bonds altogether. A high earner nearing retirement might appreciate the tax benefits and security of municipal bonds and tailor their portfolio accordingly. Be careful of anyone peddling such a broad rule of thumb as the “Rule of 100.” Read more: Find Expert Tax Preparers Now! Myth: You Must Pay Off All Debt Before Investing There are plenty of great reasons to pay off consumer debt early. You earn an effective return equal to the interest rate, and it’s a guaranteed return on your money when you use it to pay off debt early. Mark Patrick of Financial Pilgrimage explains it like this: “Our family even went so far to pay down our mortgage debt despite record low-interest rates. With that said, throughout the entire process we invested in our retirement accounts, such as our 401(k) account. The benefits are just too good to pass up. “The company that I work for provides a 401k match of up to 6% plus an additional 1% that every employee receives regardless. Therefore, if I contributed 6% of my salary to my 401(k) I would receive an additional 7% in contributions from my employer. I was more than doubling my money right away! “If you decide to wait to pay down all of your consumer debt instead of starting to invest for your retirement you’ll miss out on years of compound interest. Compound interest is one of the most powerful forces in personal finance. The earlier you can get started, the better. For example, if someone invests $5,000 per year from age 25 to 35 and then never invests another dollar, they would likely have more money at age 65 than someone that invests the same amount every month from age 35 to 65. “While I am a huge proponent of paying down debt, it shouldn’t come at the expense of forgoing investing. Especially when you want that money to grow until retirement. Try to find the balance between paying down debt and investing. We certainly could have paid down our debt faster if we decided not to invest throughout the process, but after 15 years in the workforce I’m sure glad we didn’t. Those dollars invested early on have compounded into much larger amounts over the years. Read more: Should you Pay off Debt or Save for Retirement Myth: You Should Pay Off Your Student Loans Before Buying a Home It might make more sense to pay off student loans before buying a house. Or it might not. Ultimately it depends on your goals, your housing market, your loan interest rates, and your other finances. For example, you might live in a housing market where it’s cheaper to rent than own a home. In that case, it makes sense to pay off your student loans rather than rush into buying. Alternatively, if you plan on buying a duplex and house hacking, and thereby eliminating your housing payment, it probably makes more sense to buy. Just think about how much faster you could pay off your student loans, with no housing payment! Think holistically about how owning versus renting for another year or two would affect your finances. Don’t rush into buying a home — but don’t avoid it without deep analysis, either. Myth: Buying Is Always Better than Renting Despite having owned dozens of properties as a real estate investor, I live in a rental apartment. In some markets, renting makes more sense than buying. Look no further than San Francisco, where the median home price is $1,504,311, but the median rent for a three-bedroom home is $4,567. After adding in property taxes and homeowners insurance, it would cost roughly double the monthly payment to buy a median home as rent, despite all the perennial complaints by San Francisco tenants. And that says nothing of maintenance and repair costs, which average thousands of dollars each year for the typical homeowner. Renters don’t have to pay those costs or do that labor. They delegate them to the landlord. Nor do renters need the fiscal discipline to budget money each month for those irregular, but inevitable expenses. Not everyone has that discipline, and they’re better off with the steady, predictable housing cost of monthly rent. Finally, renting allows flexibility. Tenants can sign a month-to-month lease agreement and move out with a few weeks’ notice. Homeowners don’t have the flexibility; it takes months to sell a home, and typically tens of thousands in closing costs. Myth: Your Home Is an Investment Buyers love to delude themselves that they’re buying an “investment” rather than spending money on shelter. It helps them justify overspending on the biggest, fanciest house they can possibly afford. But make no mistake: housing falls under the “Expenses” category in your budget, not the “Investments” category. It costs you money every month, rather than generating it. House hacking marks a notable exception however, since your home helps you avoid a housing payment. Sure, real estate often goes up in value. So do baseball cards, but that doesn’t justify hobbyists spending as much as they possibly can on them, while patting themselves on the back for their wise “investments.” By all means, invest in real estate. But do it by buying true investment properties, or REITs, or real estate crowdfunding investments. The more you spend on housing, the less you can put toward true investments. Read more: House Hacking – 18 Ways to Never Pay Rent Again Myth: You Should Put the Bare Minimum Down When You Buy a Home Making the bare minimum down payment often enables buyers to overspend on housing. They end up overleveraging themselves, mortgaged to the hilt with an enormous monthly payment and little money left to actually furnish the place, or to enjoy any social life. It also leaves homeowners vulnerable to becoming upside-down on their home, owing more than the home is worth. At that point, they become prisoners in their own homes, unable to sell without the lender’s permission. They end up stuck there until the housing market either improves or they pay their loan balance down enough to be able to afford seller closing costs without coming out of pocket. While it sounds nice to put down next to nothing on a home, look at the bigger picture. If you spend far less on a home than you can afford, then a low down payment can serve you well. But if you’re straining against the limits of your budget, beware of putting every last penny into a tiny down payment with a huge monthly bill. Myth: You Should Put Down as Much as Possible on a Home The common wisdom was once to put down as much as possible when you buy a home, and 20% at the very least. However, this locks up a good portion of the money that could be growing at a faster rate with other investments. “Putting down less than 20% does increase the monthly mortgage payment due to the higher interest rate and PMI (private mortgage insurance),” explains Andy Kolodgie of The House Guys. “However, you should compare your expected returns on that extra down payment if you were to invest it elsewhere, to the annual savings on your mortgage. For example, investing in stocks and bonds could allow you to earn more money while providing the added benefit of easy liquidity. “A lesson learned from the 2008 mortgage crisis was you can’t eat equity in your home. During the recession, it was nearly impossible to refinance the equity out of any home, as home prices dropped below most people’s mortgage balance. Putting less than 20% down to stay more liquid and investing in alternative assets diversifies your portfolio, keeping buyers more risk-averse.” Again, look holistically at your personal finances. As you near retirement, it makes more sense to play conservatively with a larger down payment to avoid PMI and reduce your monthly mortgage bill. For younger borrowers looking to buy a first home, it often makes more sense to put down 3-10%, and invest their other cash more aggressively in the stock market or other assets with high return potential. Myth: You Need 6-12 Months’ Living Expenses in an Emergency Fund To hear the pundits crying from their soapboxes, we all need at least a year’s worth of living expenses parked in a savings account in cash to protect us from a financial apocalypse. And some people do. But not everyone. Those with either irregular incomes, irregular expenses, or both do need a deep cash cushion. For example, as an entrepreneur, there have been months where I didn’t earn enough to take a personal distribution for myself from the company, so I earned $0 in personal income those months. Someone like me does need 6-12 months’ worth of living expenses saved in an emergency fund. Salaried employees with safe jobs at stable employers don’t need as much cash in an emergency fund. That goes doubly if they live a predictable middle-class lifestyle with the same expenses month in and month out. They may only need 2-3 months’ expenses set aside in cash. I go a step further with my emergency fund and think of it as tiered levels of defenses, like a medieval castle. The first level comprises cash savings — you can tap it if you need it. I also keep several unused credit cards with low-interest rates, that I can also draw on in a pinch. Then I keep several low-volatility, short-term investments that I can also turn to if needed. All of which means I don’t actually need 6-12 months’ living expenses in cash after all. Myth: More Education Inherently Means a Higher Income From a statistical standpoint, education level correlates strongly with income. People with college degrees earn more than those with high school diplomas on average, and those with advanced degrees earn a higher average income still. On a personal level, it often doesn’t work out that way. I have plenty of friends and family members with advanced degrees, and most of them earn modest, middle-income salaries. Salaries with ceilings, and little room for advancement beyond their specialized niche. I can’t tell you how many teachers I know with several master’s degrees, who earn little or nothing more than their colleagues with bachelor’s degrees. In fact, my friends and family with the highest incomes all stopped at bachelor’s degrees and while some got high-paying jobs, others went into business in some capacity. This doesn’t mean you shouldn’t pursue an advanced degree if it’s required for your dream job. By all means, pursue your passion. But don’t assume that an advanced degree inherently means an advanced salary. Read more: How to Make $100k/yr As A Brand Ambassador Myth: Gold Offers the Best Hedge Against Inflation Many investors flock to gold when they fear inflation. But historically, gold often performs badly during times of high inflation. From 1980-1984, for instance, gold lost around 10% in value, even as inflation raged at a 6.5% annual rate. Historically repeated itself in the late 1980s as well. Gold actually works best as a hedge against a weakening currency — compared to other world currencies. When investors think the US dollar is about to crumble in value compared to the euro, pound, or yen, that marks a good moment to grab some gold. But investors more generally worried about inflation should consider better hedges against it. Real estate offers an excellent hedge against inflation, for example. It has inherent value: people will pay the going rate, regardless of the value of the currency. The same goes for commodities like food staples; no one stops eating just because inflation surges. Most professional investment advisors recommend holding no more than 5% of your portfolio in precious metals, if that. I personally own none, preferring to invest in stocks, real estate, and the occasional speculative gamble such as cryptocurrency. Article By G. Brian Davis, The Financially Independent Millennial Updated on Oct 5, 2021, 5:10 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 5th, 2021

Futures Slide, Nasdaq Plunges As Yields Surge And Oil Tops $80

Futures Slide, Nasdaq Plunges As Yields Surge And Oil Tops $80 For much of 2021, a vocal contingent of market bulls had claimed that there is no way the broader market could sell off as long as the gigacap tech "general" refused to drop. Well, it looks like that day is finally upon us because this morning US equity futures are sliding again, continuing their Monday drop as yields from the US to Germany again, the 10Y TSY rising as high as 1.55%, driven to an extent by Fed tapering fears but mostly by the surge in oil which has pushed Brent above $80, the highest price since late 2018. The dollar gained amid the deteriorating global supply crunch from oil to semiconductors. The surge in oil sparked a new round of stagflation fears, sending Nasdaq futures down 240 points or 1.3% as the yield on the benchmark 10-year U.S. Treasury climbed sharply. S&P 500 and Dow Jones futures also retreated, with spoos sliding below 4,400 as to a session low of 4,390. Rising bond yields prompted a shift from growth to cyclical stocks in the United States, in a move that analysts expect could become more permanent after a prolonged period of supressed bond yields. The premarket selloff was led by semiconductor stocks which tracked similar falls for European peers, as a rising 10-year Treasury yield puts pressure on the tech sector. Applied Materials Inc. led a slump in chip stocks in New York premarket trading while Nvidia was down 2.6%, AMD -2.1%, Applied Materials -2.9%, Micron -1.6%. Meanwhile retail trader favorite meme stock Naked Brand Group, an underwear and swimwear retailer, rises again after having surged 40% in the past two trading sessions after Chairman Justin Davis-Rice said in a letter to shareholders that he believes the company has found a “disruptive” potential acquisition in the clean technology sector. Frequency Electronics also soared after being awarded a contract by the Office of Naval Research to develop an atomic clock. Chinese stocks listed in the U.S. were mixed and semiconductor stocks declined. Here are some of the other notable U.S. movers today: iPower (IPW US) shares rise as much as 61% in U.S. premarket trading after the online hydroponics equipment retailer posted 4Q and FY21 earnings Alibaba (BABA US) rises 2.5% in U.S. premarket trading after the company’s shares listed in Hong Kong rose, adding to the Hang Seng Tech Index’s gains Frequency Electronics (FEIM US) soars 20% in U.S. premarket trading after being awarded a contract by the Office of Naval Research to develop an atomic clock Concentrix (CNXC) jumped 5.9% in Monday after hours trading after setting its first dividend payment and buyback program since being spun off from from Synnex in December Brookdale Senior Living (BKD US) shares fell in extended trading on Monday after announcing a $200 million convertible bond offering Altimmune (ALT US) rose as much as 4.2% in Monday postmarket trading on plans to announce results for an early stage study of ALT-801 in overweight people on Tuesday Ziopharm Oncology (ZIOP US) fell in extended trading after company said it cut about 60 positions, or a more than 50% reduction in personnel, to extend its cash runway into 1H 2023 Montrose Environmental Group (MEG US) was down 2.8% Monday postmarket after offering shares via JPMorgan, BofA Securities, William Blair The main catalyst for the stock selloff was the continued drop in Treasurys which sent the 10-year Treasury rising as high as 1.55% while shorter-dated rates surged toward pre-pandemic levels. This in turn was driven by the relentless meltup in commodities: overnight Brent roared above $80 a barrel - on its way to Goldman's revised $90 price target - on louder signs that demand is running ahead of supply and depleting inventories as the world finds itself in an unprecedented energy crisis. The international crude benchmark extended a recent run of gains to hit the highest since October 2018, while West Texas Intermediate also climbed. Oil’s latest upswing has come with a flurry of bullish price predictions from banks and traders, forecasts for surging demand this winter, and speculation the industry isn’t investing enough to maintain supplies. The jump to $80 also is adding inflationary pressure to the global economy at a time when prices of energy commodities are soaring. European natural gas, carbon permits and power rose to fresh records Tuesday, with little sign of the rally slowing. As Bloomberg notes, traders have begun reassessing valuations amid multiplying global risks, while Fed officials have communicated increasingly hawkish signals in recent days as supply-chain bottlenecks threaten to keep inflation elevated. China’s growth slowdown which saw Goldman lower its q/q Q3 GDP forecast to a flat 0.0%, and a debt crisis in the nation’s property market.have also fueled the risk-off shift. "Central bankers have set out how they want to normalize monetary policy for some time,” Chris Iggo, chief investment officer for core investments at AXA Investment Managers, said in a note. “That process could start soon. The realization of this has the potential to provoke some volatility in rates and equities." Elsewhere, European stocks also declined with the Stoxx Europe 600 dragged down most by technology shares. Europe’s Stoxx Tech Index drops as much as 2.8% to a five-week low after falling 1.5% on Monday having previously touched its highest level since 2000 earlier in the month. Single-stock downgrades also weighed. Stocks which performed particularly well this year are among the biggest fallers, with chip equipment makers BE Semi -4.6% and ASML -4.4%, and chipmaker Nordic Semi down 4.2%. Among other laggards, Logitech drops as much as 8.5% after being downgraded to underweight at Morgan Stanley. Earlier in the session, Asian stocks fell for the first time in four days as declines in technology names overshadowed a rally in energy shares.  The MSCI Asia Pacific Index dropped as much as 0.7%, with a jump in U.S. Treasury yields weighing on richly-valued tech stocks. That’s even as the region’s oil and gas shares climbed amid signs of a global energy crunch. Chipmakers Taiwan Semiconductor Manufacturing and Samsung Electronics were the biggest drags on the Asian benchmark. “The climb in yields led to the selling of growth stocks that have been strong, with investors rotating into names that are sensitive to business cycles - not unlike what happened in U.S. equities,” said Shutaro Yasuda, an analyst at Tokai Tokyo Research Center.  Asian equities have been recovering after being whipsawed by concerns over any fallout from China Evergrande Group’s debt troubles. As worries over the distressed property developer abate, the pace of rise in Treasury yields and global inflation data are being closely watched for clues on the U.S. Federal Reserve’s policy stance. Australia’s equity benchmark was among the biggest losers in Asia Tuesday, dragged down by losses in mining and healthcare stocks. Still, broad-based gains in oil explorers and refiners helped mitigate the Asian market’s retreat. In South Korea, importers and distributors of liquefied petroleum gas and liquefied natural gas rallied as the price of natural gas jumped. The future of Evergrande is being forensically scrutinized by investors after the company last Friday did not meet a deadline to make an interest payment to offshore bond holders. Evergrande has 30 days to make the payment before it falls into default and Shenzen authorities are now investigating the company's wealth management unit. Without making reference to Evergrande, the People's Bank of China (PBOC) said Monday in a statement posted to its website that it would "safeguard the legitimate rights of housing consumers". Widening power shortages in China, meanwhile, halted production at a number of factories including suppliers to Apple Inc and Tesla Inc and are expected to hit the country's manufacturing sector and associated supply chains. Analysts cautioned the ongoing blackouts could affect the country's listed industrial stocks. "What we see in China with the developers and the blackouts is going to be a negative weight on the Asian markets," Tai Hui, JPMorgan Asset Management's Asian chief market strategist told Reuters. "Most people are trying to work out the potential contagion effect with Evergrande and how far and wide it could go. We keep monitoring the policy response and we have started to see some shift towards supporting homebuyers which is what we have been expecting." In rates, as noted above, the selloff in Treasuries gathered pace in Asia, early Europe session leaving yields cheaper by 3.5bp to 5.5bp across the curve with 20s and 30s extending above 2% and 10-year through 1.50%. Treasury 10-year yields traded around 1.53%, cheaper by 4.5bp on the day after topping at 1.55%, highest since mid-June; in front- and belly, 2- and 5-year yields remain near cheapest levels in at least 18 months; in 10-year sector, gilts lag by 3bp vs. Treasuries while German yields are narrowly richer. Gilts underperformed further, where long-end yields are cheaper by up to 7.5bp on the day. Treasury futures volumes over Asia, early European session were at more than twice usual levels, with most activity seen in 10-year note contract; eurodollar futures volumes were also well above recent average. With recent aggressive move higher in yields, threat of convexity hedging has exacerbated moves as rate hike premium continues to filter into the curve after last week’s FOMC. Auctions conclude Tuesday with 7-year note sale, while busy Fed speaker slate includes Fed Chair Powell. In FX, the Bloomberg dollar index reached the highest level in more than a month as rising energy costs drove up Treasury yields for a fourth session. The dollar gained against all its peers; Japan’s currency slid for a fifth day against the greenback before a speech Tuesday from Fed Chair Jerome Powell who will say inflation is elevated and is likely to remain so in coming months, according to prepared remarks. Treasury two-year yields rose to the highest since March 2020. “Dollar-yen saw the clearest expression of Treasury yield increases and we attributed this divergence to the surge in energy prices,” says Christopher Wong, senior foreign-exchange strategist at Malayan Banking in Singapore. U.S. natural gas futures soared to their highest since February 2014 on concern over tight inventories. Brent oil topped $80 a barrel amid signs demand is outrunning supply. The euro slipped to hit its lowest level since Aug. 20, nearing the year-to-date low of $1.1664. The Treasury yield curve bear steepened; euro curves followed suit, with the yield on U.K. 10-year notes soaring past 1% for the first time since March 2020 on the prospects for Bank of England policy tightening. In commodities, Crude futures extend Asia’s gains. WTI rises as much as 1.6% to highs of $76.67 before stalling. Brent holds above $80. Spot gold trades around last week’s lows near $1,740/oz. Base metals are mixed: LME aluminum outperforming, rising as much as 1.1%; nickel and copper are in the red. Looking at the day ahead, one of the main highlights will be the appearance of Fed Chair Powell, and Treasury Secretary Yellen at the Senate Banking Committee. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Schnabel, Panetta and Kazimir, along with the BoE’s Mann and the Fed’s Evans, Bowman and Bostic. US data highlights include the US Conference Board’s consumer confidence indicator for September and the FHFA house price index for July. Market Snapshot S&P 500 futures down 0.7% to 4,403.50 STOXX Europe 600 down 1.2% to 456.83 MXAP down 0.4% to 200.06 MXAPJ down 0.4% to 641.05 Nikkei down 0.2% to 30,183.96 Topix down 0.3% to 2,081.77 Hang Seng Index up 1.2% to 24,500.39 Shanghai Composite up 0.5% to 3,602.22 Sensex down 1.4% to 59,209.94 Australia S&P/ASX 200 down 1.5% to 7,275.55 Kospi down 1.1% to 3,097.92 Brent Futures up 0.8% to $80.15/bbl Gold spot down 0.4% to $1,742.61 U.S. Dollar Index up 0.20% to 93.57 German 10Y yield rose 2.7 bps to -0.196% Euro down 0.1% to $1.1681 Top Overnight News from Bloomberg Chinese authorities are striving to signal to traders that whatever happens to China Evergrande Group, its debt crisis won’t spiral out of control or derail the economy Brent oil roared above $80 a barrel, the latest milestone in a global energy crisis, on signs that demand is running ahead of supply and depleting inventories As the dust settles on Germany’s election, control over the finances of Europe’s largest economy could fall to a 42-year-old former tech entrepreneur who wants to lower taxes and tighten spending Wells Fargo agreed to pay $37 million in penalties and forfeiture to settle U.S. claims that it overcharged almost 800 commercial customers that used its foreign exchange services, the latest in a series of scandals at the bank A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mixed following on from a Wall Street lead where value outperformed growth and tech suffered as yields rose. ASX 200 (-1.5%) was the laggard with losses in healthcare, gold miners and tech frontrunning the declines which dragged the index beneath 7300. Nikkei 225 (-0.2%) was lacklustre and briefly approached 30k to the downside but then bounced off worse levels amid a softer currency, while the KOSPI (-1.1%) also declined following a suspected North Korean ballistic missile launch and with a recent South Korean court order to sell seized Mitsubishi Heavy assets as compensation for wartime forced labour, threatening a flare up of tensions between Japan and South Korea. Hang Seng (+1.2%) and Shanghai Comp. (+0.5%) were underpinned after the PBoC continued to inject liquidity ahead of the approaching National Day holidays and with Hong Kong led higher by strength in property names after the PBoC stated it will safeguard legitimate rights and interests of housing consumers which also provided Evergrande-related stocks further reprieve from their recent sell-off. Finally, 10yr JGBs retreated on spillover selling from T-notes after yields rose on the back of further Fed taper rhetoric and with prices not helped by the uninspiring 2yr and 5yr auctions stateside, while weaker results at the 40yr JGB auction also provided a headwind for prices. Top Asian News Top-Performing Global Luxury Stock Seen Cooling After 680% Gain China Power Price Hike Sought Amid Supply Crunch: Energy Update Macau Evacuates Airport Quarantine Hotel After Outbreak Iron Ore Dips Again as China Power Crisis Adds to Steel Curbs Bourses in Europe extended on the losses seen at the cash open and trade lower across the board (Euro Stoxx 50 -1.7%; Stoxx 600 -1.7%) as sentiment retreated from a mixed APAC handover as month-end looms alongside tier 1 data and a slew of central bank speakers. US equity futures have also succumbed to the mood in Europe alongside the surge in global yields – which takes its toll on the NQ (-1.5%) vs the ES (-0.8%), YM (-0.4%) and RTY (-0.3%). From a more technical standpoint, ESZ1 fell under its 50 DMA (4,431) and tested the 4,400 level to the downside, whilst NQZ1 briefly fell under 15k and the YMZ1 inches towards its 100 DMA (34,489). Back to Europe, the FTSE 100 (-0.4%) sees losses to a lesser extent vs its European peers as energy prices and yields keep the index oil giants and banks supported – with some of the top gainers including Shell (+2.8%), BP (+2.1%). Sectors in Europe are predominantly in the red, but Oil & Gas buck the trend. Sectors also portray more of a defensive bias, whilst the downside sees Tech, Real Estate, and Travel & Leisure at the foot of the bunch, with the former hit by the rise in yields, which sees the US 10yr further above 1.50%, the 20yr above 2.00% and the UK 10yr hitting 1.00% for the first time since March 2020. In terms of individual movers, Smiths Group (+3.8%) is at the top of the Stoxx 600 following encouraging earnings. ING (+0.3%) holds onto gains after sources noted SocGen's (-0.6%) interest in ING's retail banking arm. Finally, chip-maker ASM International (-3.5%) has succumbed to the broader tech weakness despite upping its guidance and announcing capacity expansion by early 2023. Top European News U.K. 10-Year Yield Rises Past 1% for First Time Since March 2020 Goldman’s Petershill Unit Valued at $5.5 Billion in U.K. IPO Go-Ahead Sinks as U.K. Takes Over Southeastern Rail Franchise Hedge Funds and Private Equity Are Targeting European Soccer In FX, It took a while for the index to breach resistance ahead of 93.500, but when US Treasuries resumed their bear-steepening run and the intensity of the moves in futures and cash picked up pace the break beyond the half round number was relatively quick and decisive. Indeed, the DXY duly surpassed its post-FOMC peak (93.526) and a prior recent high from August 19 (93.587) on the way to reaching 93.619 amidst almost all round Dollar gains, as 5, 10, 20 and 30 year yields all rallied through or further above psychological levels (such as 1%, 1.5% and 2% in the case of the latter two maturities). However, petro and a few other commodity currencies are displaying varying degrees of resilience in the face of general Greenback strength that is compounded by buy signals for September 30 rebalancing on spot month, quarter and half fy end. Ahead, trade data, consumer confidence, more regional Fed surveys, speakers and the 7 year auction. NZD/CHF/JPY/AUD - The Kiwi was already losing altitude above 0.7000 vs its US counterpart and 1.0400 against the Aussie on Monday, so the deeper retreat is hardly surprising to circa 0.6975 and 1.0415 awaiting some independent impetus that may come via NZ building consents tomorrow. Meanwhile, the Franc has recoiled towards 0.9300 in advance of comments from SNB’s Maechler and the Yen continues to suffer on the aforementioned rampant yield and steeper curve trajectory on top of a more pronounced 1+ sd portfolio hedge selling requirement vs the Buck, with Usd/Jpy meandering midway between 110.94-111.42 parameters irrespective of renewed risk aversion due to same bond rout dynamic. Back down under, Aud/Usd has faded from around 0.7311 to the low 0.7260 area, though holding up a bit better in wake of not quite as weak as forecast final retail sales overnight. CAD/EUR/GBP - All softer against their US rival, but the Loonie putting up a decent fight with ongoing help from WTI crude that has now topped Usd 76.50/brl, and Usd/Cad also has decent option expiry interest to keep an eye on given 1.2 bn rolling off at 1.2615 and an even heftier 3 bn at 1.2675 compared to current extremes spanning 1.2693-1.2652. Elsewhere, the Euro has lost its battle to stay afloat of multiple sub-1.1700 lows even though EGBs are tumbling alongside USTs and the same goes for Sterling in relation to the 1.3700 handle irrespective of the 10 year Gilt touching 1% for the first time since March 2020. SCANDI/EM - Brent’s advances on Usd 80 brl have been offset to an extent by soft Norwegian retail sales data, as the Nok pares more of its post-Norges Bank gains, while the Sek looks somewhat caught between stalls following a recovery in Swedish consumption, but big swing in trade balance from surplus to larger deficit. However, the Try is taking no delight from the costlier price of oil or remarks from Turkey’s Deputy Finance Minister contending that interest rates can move lower by reducing the current account and budget deficits, or conceding that Dollarisation is a problem and steps need to be taken to enhance confidence in the Lira. Conversely, the Cnh and Cny are still holding a firm line following another net injection of 2 week funds from the PBoC and the Governor saying that China will lengthen the period for the implementation of normal monetary policy, adding that it has conditions to keep a normal and upward yield curve, as it sees no need to purchase assets at present. In commodities, WTI and Brent futures have extended on the gains seen during APAC hours, which saw the Brent November contract topping USD 80/bbl, albeit the volume and open interest has migrated to the December contract – which topped out just before the USD 80/bbl mark. WTI November meanwhile advanced past the USD 76/bbl mark to a current peak at USD 76.67/bbl (vs low USD 75.21/bbl). Desks have been attributing the leg higher to tight supply – with the UK fuel situation further deteriorating amid a shortage of drivers coupled with panic buying. It's worth bearing in mind that the demand side of the equation has also seen supportive, with the US announcing the lifting of international travel curbs recently alongside the economic resilience to the Delta variant heading into the winter period. Traders would also be keeping an eye on the electricity situation in China, which in theory would provide tailwinds for diesel demand via generators, although this could be offset by a slowdown in economic activity due to power outages. There has also been growing noise for OPEC+ to hike output beyond the monthly plan of 400k BPD, with some African nations also struggling to ramp up production due to maintenance issues and lack of investments. Ministers recently noted that the plan would be maintained at next week's confab. As a reminder, the OPEC World Oil Outlook is set to be released at 13:30BST/08:30EDT, although the findings may be stale given the recent developments in crude dynamics. Major banks have also provided commentary on Brent following Goldman Sachs' bullish call recently, with Barclays upping its forecast for both benchmarks due to supply deficits, whilst Morgan Stanley maintained its forecast but suggested that the USD 85/bbl Brent scenario clearly exists. MS also noted that oil inventories continue to draw at high rates and suggest that the market is more undersupplied than generally perceived; the analysts see the market undersupplied into 2022 amid its expectation for further OPEC discipline. Nat gas also remains in focus, with prices +11% at one point, whilst Russia's Kremlin said Russia remains the safeguard of natural gas to Europe and Gazprom is ready to discuss new gas supply contracts with increased volumes to meet rising European demand. It's also worth being aware of the increasing likelihood of state intervention at these levels as nations attempt to save or at least cushion consumers and company margins. Elsewhere, precious metals are under pressure as the Buck remains buoyant, with spot gold still under USD 1,750/oz as it inches closer to the 11th August low of USD 1,722/oz. Spot silver remains within recent ranges above USD 22/oz. Overnight Chinese nickel and tin prices extended losses with traders citing subdued demand, whilst coking coal and coke futures leapt on tight supply. US Event Calendar 8:30am: Aug. Advance Goods Trade Balance, est. -$87.3b, prior -$86.4b, revised -$86.8b 8:30am: Aug. Retail Inventories MoM, est. 0.5%, prior 0.4%; Wholesale Inventories MoM, est. 0.8%, prior 0.6% 9am: July S&P CS Composite-20 YoY, est. 20.00%, prior 19.08% 9am: July S&P/CS 20 City MoM SA, est. 1.70%, prior 1.77% 9am: July FHFA House Price Index MoM, est. 1.5%, prior 1.6% 10am: Sept. Conf. Board Consumer Confidence, est. 115.0, prior 113.8 Expectations, prior 91.4 Present Situation, prior 147.3 10am: Sept. Richmond Fed Index, est. 10, prior 9 Central Bank Speakers 9am: Fed’s Evans Makes Welcome Remarks at Payments Conference 10am: Powell and Yellen Appear Before Senate Banking Panel 1:40pm: Fed’s Bowman Speaks at Community Bank Event 3pm: Fed’s Bostic Discusses the Economic Outlook 7pm: Fed’s Bullard Discusses U.S. Economy and Monetary Policy DB's Jim Reid concludes the overnight wrap What a difference a week makes. You hardly hear the word Evergrande now. We asked in a flash poll last week whether we would still be talking about it in a month or whether it would be a distant memory by then. Maybe we should have narrowed the time frame to a week! We’ve quickly moved on to rate hikes and rising bond yields as the topic de jour. A further rise in the Bloomberg Commodity Spot Index (+1.87%) to a fresh high for the decade helped reinforce the move. Indeed, sovereign bond yields moved higher once again yesterday amidst a sharp rise in inflation expectations, with those on 10yr Treasury yields rising +3.6bps to 1.487%, their highest level in over 3 months. Meanwhile the 2yr yield rose +0.8bps to 0.278%, its highest level since the pandemic began, which comes on the back of last week’s Fed meeting that prompted investors to price in an initial rate hike from the Fed by the end of 2022. The moves in Treasury yields were almost entirely driven by higher inflation breakevens, with 10yr breakevens up +3.7bps. That echoed similar moves in Europe, where the German 10yr breakeven (+4.7bps) hit a post-2013 high of 1.653%, and their Italian counterparts (+3.9bps) hit a post-2011 high. The biggest move was in the UK however, where the 10yr breakeven (+13.2bps) reached its highest level since 2008, which comes amidst a continued fuel shortage in the country, alongside another rise in UK natural gas futures, which were up +8.20% yesterday to £190/therm, exceeding the previous closing peak set a week earlier. We were waiting for the wind to blow in this country to get alternatives back on stream and boy did it blow yesterday but with no impact yet on gas prices. Lower real rates dampened the rise in yields across the continent, though yields on 10yr bunds (+0.5bps), OATs (+0.9bps), BTPs (+1.3bps) and gilts (+2.7bps) had all moved higher by the close of trade. Those spikes in commodity prices were evident more broadly yesterday, with energy prices in particular seeing a major increase. Brent crude oil prices were up +1.84% to $79.53/bbl, marking their highest closing level since late-2018, and this morning in trading they have now exceeded the $80/bbl mark with a further +0.94% increase. It was much the same story for WTI (+1.99%), which closed at $75.45/bbl, which was its own highest closing level since 2018 too. And those pressures in UK natural gas prices we mentioned above were seen across Europe more broadly, where futures were up +8.92%. With yields moving higher and inflationary pressures growing stronger, tech stocks struggled significantly yesterday, with the NASDAQ down -0.52%. The megacap tech FANG+ index fell -0.15% on the day, but was initially down as much as -1.7% in early trading. The NASDAQ underperformed the S&P 500, which was only down -0.28%, but that masked significant sectoral divergences, with interest-sensitive growth stocks struggling, just as cyclicals more broadly posted fresh gains. More specifically, energy (+3.43%), bank (+2.29%) and autos (+2.19%) led the S&P, while biotech (-1.65%) and software (-1.39%) shares were among the largest laggards. European equities were also pretty subdued, with the STOXX 600 down -0.19%, though the DAX was up +0.27% following the results of the German election, which removed the tail risk outcome of a more left-wing coalition featuring the SPD, the Greens and Die Linke. Staying on the political scene, we are now less than 72 hours away from a potential US government shutdown as it stands. As was expected, Republicans in the Senate blocked the House-passed measure to fund the government for another 2 months and raise the debt ceiling for 2 years. While Democrats have not put forward their alternative strategy if Republicans refuse to vote to lift the debt ceiling, their only option would be to attach it to the budget reconciliation plan that currently makes up much of the Biden economic agenda. In an effort to keep all party members on board, Speaker Pelosi moved the vote on the $550bn bipartisan infrastructure bill to Thursday in order to give all sides more time to finish the larger budget bill and pass both together. It is a going to be a very busy Thursday, since Congress will have to also pass the funding bill that day. Republicans and Democrats already agree on a funding bill to keep the government open that does not include the debt ceiling increase so it is just a matter of how exactly the debt ceiling provision goes through without a Republican Senate vote. Overnight in Asia, equity indices are seeing a mixed performance. On the one hand, most of the region including the Nikkei (-0.24%) and KOSPI (-0.80%) are trading lower as investors begin to price in tighter monetary policy from the Fed. However, the Hang Seng (+1.50%), Shanghai Composite (+0.53%) and CSI (0.38%) have all advanced after the People’s Bank of China said that they would ensure a “healthy property market”. Looking forward, US equity futures are pointing to little change, with those on the S&P 500 down just -0.05%, and 10yr Treasury yields have risen +1.9bps this morning to trade above 1.50% again. Back to the German election, where the aftermath yesterday saw various party leaders assess the results and stake their claims to participate in a new coalition. As a reminder, the SPD came in first place with 25.7%, but the CDU/CSU weren’t far behind on 24.1%, making it mathematically possible for either to form a government in a coalition with the Greens and the FDP. The SPD’s chancellor candidate, Finance Minister Olaf Scholz, appealed for the Greens and FDP to join him in forming a government, and told the media that he wanted to form a coalition before Christmas. Meanwhile Green co-leader Robert Habeck said that “Of course there is a certain priority for talks with the SPD and the FDP”, but said that this didn’t mean they wouldn’t speak with the CDU/CSU either. As the SPD were calling for an alliance, the tone sounded more negative from the CDU’s leadership, even though Armin Laschet said that he had not given up on the idea of forming a government. Notably, Laschet said that no party was able to draw a clear mandate from the result, including the SPD, and this echoed remarks from the CSU leader Markus Söder, who said that the conservatives had no mandate to form a government, though they could “make an offer out of a sense of responsibility for the country.” Meanwhile, attention will turn to the FDP and the Greens to see which way they’re leaning when it comes to forming a government. FDP leader Lindner said that he would hold preliminary talks with the Greens, after which they would be open to invitations from either the SPD or the CDU/CSU for further discussions. Back on the UK, there was an interesting speech from BoE Governor Bailey yesterday, where he echoed the line from the MPC minutes last week, saying that “all of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainable over the medium-term”. However, he also said that their view was that “the price pressures will be transient”, and that “monetary policy will not increase the supply of semi-conductor chips … nor will it produce more HGV drivers.” He then further added that tighter policy “could make things worse in this situation by putting more downward pressure on a weakening recovery of the economy”. So a bit of a mixed message of backing rate hike expectations but warning about its impact on growth. Over in the US we heard from a host of Fed speakers with Governor Brainard saying that while “employment is still a bit short of the mark” of “substantial further progress”, she expects that the labour market will recover enough to start tapering asset purchases soon. Separately on the inflation debate, Minneapolis Fed President Kashkari argued that this year’s pickup in US inflation has been a byproduct of the supply disruptions associated with Covid and that policy makers should not react to it just yet. He cited the need to get US employment back up as the Fed’s “highest priority”. New York Fed President Williams agreed with his colleague, saying that “this process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede.” And Chicago Fed President Evans is even worried about downside inflation risks, as he is " more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much.” Lastly, news came out yesterday that Boston Fed President Rosengren will retire this week due to health concerns. He was due to step down in June regardless as there is a mandatory retirement age of 65. Dallas Fed President Kaplan also announced his retirement yesterday, which will take effect October 8th. Both officials have drawn scrutiny in recent days stemming from their recent disclosure of trading activity over the last year, though the activity did not violate the Fed’s ethics code even as Fed Chair Powell announced an official review of those rules. The Boston Fed President will be a voting member on the FOMC next year, and the Dallas Fed President in 2023. Running through yesterday’s data, the preliminary reading for US durable goods orders in August showed growth of +1.8% (vs. +0.7% expected), and the previous month was also revised up to show growth of +0.5% (vs. -0.1% previously). Meanwhile core capital goods orders grew by +0.5% (vs. +0.4% expected), and the previous month’s growth was revised up two-tenths. Finally, the Dallas Fed’s manufacturing activity index for September came in at 4.6 (vs. 11.0 expected) – its lowest reading since July 2020. To the day ahead now, and one of the main highlights will be the appearance of Fed Chair Powell, and Treasury Secretary Yellen at the Senate Banking Committee. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Schnabel, Panetta and Kazimir, along with the BoE’s Mann and the Fed’s Evans, Bowman and Bostic. US data highlights include the US Conference Board’s consumer confidence indicator for September and the FHFA house price index for July. Tyler Durden Tue, 09/28/2021 - 07:52.....»»

Category: blogSource: zerohedgeSep 28th, 2021

Futures Crash, Stocks At 2022 Lows; Yields, Dollar Explode As UK Stimulus Plan Sparks Global Market Panic

Futures Crash, Stocks At 2022 Lows; Yields, Dollar Explode As UK Stimulus Plan Sparks Global Market Panic One week after stocks suffered their biggest drop since June, futures are in freefall on Friday with the dollar soaring to the now default daily record high... ... 10Y yields exploding higher, surging more than 10bps so far today... ... in what appears to be the latest bond market flash smash which has pushed 10Y yields to the highest level since 2010... ... and S&P futures plunging over 1.4%, and the S&P set to open at a fresh 2022 low... ... with futures set to drop nearly 5% (or more) for a 2nd consecutive week, and down 5 of the past 6 weeks! Besides the soaring dollar, two other drivers contributed to today's widespread market panic: first, the shocking UK mini budget saw the country's new administration slash tax rates by the most since 1970s at a time when the country is about to enter recession and is battling with runaway inflation which crashed UK bonds and sent the pound tumbling to a 37 year low as markets priced in a more aggressive pace of tightening to offset the government’s growth plan, second, traders also freaked out over a Goldman research report which slashed the bank's S&P price-target to just 3,600 from 4,300, making the bank one of the biggest bears on Wall Street. In premarket trading, Costco shares declined 3.3% as analysts flagged that volatility may remain high for the company’s shares. Analysts mostly welcomed its report of modest improvements in inflation and supply chains. here are the other notable premarket movers: AMD shares dropped 1.5% in premarket trading as Morgan Stanley trimmed price target to $95 from $102, citing a worsening PC end market and headwinds on the client business, including a collapse in gaming GPUs. Tritium DCFC shares jumped 4% in postmarket trading, following six straight losing sessions, after the maker of electric-vehicle chargers reported sales orders of $203 million for fiscal year ended June 30, and revenue of $86 million. CalAmp gained 3% postmarket after the maker of tracking devices posted fiscal 2Q revenue that beat estimates. DocuSign edged higher in postmarket trading after announcing that the board of directors has hired Allan Thygesen as Chief Executive Officer. Europe's Stoxx 600 dropped more than 1%, declining 20% from January record high, set to enter a new bear market. Energy, miners and real estate are the worst-performing sectors amid broad-based declines.  Here are the most notable European movers: Credit Suisse shares declined as much as 9.4% to a record low for a second day running, even as the bank denied a report that it was considering an exit from its US operations Ericsson falls as much as 6.1% to 2-year lows after a Radio Sweden report saying the communications equipment maker continued to send products to Russia after saying deliveries had been suspended Energy is among the worst-performing sectors on Europe’s Stoxx 600 index on Friday, with the subindex falling as much as 2.6% to the lowest since July 27 as oil heads for a fourth weekly loss European warehouse firms slide after Barclays issued a review on the sector, cutting target prices on average by 20%, downgrading Tritax Big Box REIT and Warehouses De Pauw to underweight Bureau Veritas falls as much as 5% after Oddo cuts to underperform, saying the valuation gap with peers and recent stock performance seems to leave more downside than upside in relative terms Nordic Semiconductor shares rise after DNB said it had found a component from the firm in the latest version of Apple’s AirPods Pro earphones which were released today. Varta, meanwhile drops as much as 13% after DNB found batteries from its rival Samsung in the new earphones UK homebuilders, retailers and banks get a boost as Chancellor of the Exchequer Kwasi Kwarteng announces several tax relief measures, with much of the sector trimming earlier losses As reported earlier, UK stocks, bonds and the cable all plunged as traders ramped up their bets on Bank of England rate hikes, betting on a 50% chance of a 100-basis-point increase from the central bank at its next rate decision in November, as the government set out its most radical package of debt-financed tax cuts since 1972 and the Debt Management Office increased its gilt sales plan more than expected.  “The markets will do what they will,” said Chancellor of the Exchequer Kwasi Kwarteng, when challenged in parliament on the mayhem in markets. The European Central Bank will also forge ahead with increases in borrowing costs, according to Governing Council member Martins Kazaks, even as recession risks rise across the continent. Earlier in the session, Asian stocks fell, with investors continuing to flee riskier assets as Treasury yields surged following the Fed’s rate hike that increased recession fears. The MSCI Asia Pacific Excluding Japan Index slipped as much as 1.6% while the broader MSCI Asia Pacific Index was on course for its sixth weekly retreat, the longest losing streak since May. TSMC and Tencent were the biggest drags on both gauges as the tech sector led declines.  All markets in the region dropped, with several hitting grim milestones. Hong Kong’s Hang Seng Index fell to the lowest in more than a decade, while South Korea’s Kospi finished at its lowest since Oct. 2020. Australia’s benchmark fell nearly 2% as the country resumed trading after a holiday. Japan was closed.  “The intense tightening by the Federal Reserve to go all-out against inflation heightened fears that it could destroy demand and cause a recession,” said Han Jiyoung, an analyst at Kiwoom Securities in Seoul.    The MSCI Asia Pacific Index has lost about a third of its value from a 2021 peak as the Fed’s rate-hike campaign and the strengthening US dollar prompted an exodus of funds from emerging markets. China’s regulatory crackdowns and its strict Covid lockdown policies have also weighed on sentiment.   Hong Kong stocks ended in the red even as the city scrapped hotel quarantine for inbound travelers, the most substantial move yet in the city’s push to revive its status as a global financial center. “It’s optimistic to think a recession can be avoided and in our opinion any chance of a soft landing has evaporated,” said George Brown, an economist at Schroders. “We believe a recession will be needed to bring inflation under control.” In rates, the yield on 10- year Treasuries exploded higher as bonds briefly flash crashed, sending the 10Y yields as low as 3.82% in a bear-flattening move that lifted front-end yields more than 10bp; 2-year and 3-year yields peak above 4.25% with all tenors reaching multiyear highs. Move follows soaring gilt yields where belly of the UK curve is cheaper by 50bp on the day into early US session, while the UK pound drops to a fresh 27-year low as mounting fiscal stimulus threatens to undermine Bank of England’s control on inflation. US yields are cheaper by 12bp to 5bp across the curve with front-end led losses flattening 2s10s by 3.5bp, 5s30s by 7.5bp on the day; 10-year yields around 3.80%, outperforming gilts by ~20bp in the sector.  In FX, the dollar rallied broadly, hitting a new all-time high against a currency basket and pushing the euro to a 20-year low wjhile the pound plunged to a fresh 35 year low just above 1.10 after the new UK government unveiled a massive fiscal stimulus plan to boost economic growth, which is sure to send inflation soaring even higher and force the BOE to do even more QT and so on. Safe-haven demand also boosted the greenback amid more signs of a slowing Chinese economy, which raised concerns about the outlook for global economic growth.   Broad dollar strength pushed the Bloomberg Dollar Spot Index as much as 0.6% higher, hitting its highest on record going back to 2005 The euro fell as much as 0.9% to 0.9751, its weakest level since 2002. The single currency extended losses after sizable stop-loss orders were triggered below 0.9800 and 0.9780, a Europe-based trader says. Options-related bids at $0.9750 and $0.9700 were seen offering near-term support. The pound sank more than 2% to 1.105, a 35-year low, pushing the Bloomberg UK Pound Index to its a lifetime high. The UK currency trimmed losses as the UK government announced a massive fiscal stimulus plan to boost economic growth. China’s onshore yuan is headed for the worst weekly fall versus the dollar since April. The yuan weakened the most among Asian currencies on Friday as traders continued to test the PBOC’s tolerance for a weaker yuan after Japan intervened to support the yen for the first time since 1998. “For the USD to weaken meaningfully, the Fed has to get more concerned about growth than inflation-and we are not there yet.” Bank of America analysts write in a note. It adds that, for the euro to start appreciating, “the ECB needs not only to act, but also to communicate forcefully.” In commodities, WTI drops more than 2% lower to trade just above $80, a level where OPEC+ production cuts are expected. Spot gold falls roughly $9 to trade near $1,662/oz. Spot silver loses 1.1% near $19. Looking to the day ahead now, data releases include the September flash PMIs for Europe and the US. Otherwise, central bank speakers include Fed Chair Powell, as well as the ECB’s Kazaks and Nagel. Remember the Italian election on Sunday. Market Snapshot S&P 500 futures down 0.5% to 3,752.25 MXAP down 1.2% to 145.59 MXAPJ down 1.6% to 470.98 Nikkei down 0.6% to 27,153.83 Topix down 0.2% to 1,916.12 Hang Seng Index down 1.2% to 17,933.27 Shanghai Composite down 0.7% to 3,088.37 Sensex down 1.6% to 58,191.14 Australia S&P/ASX 200 down 1.9% to 6,574.73 Kospi down 1.8% to 2,290.00 STOXX Europe 600 down 0.9% to 396.36 German 10Y yield little changed at 1.93% Euro down 0.8% to $0.9756 Brent Futures down 1.9% to $88.75/bbl Gold spot down 0.4% to $1,664.46 U.S. Dollar Index up 0.60% to 112.03 Top Overnight News from Bloomberg BofA Says Cash is King as Investor Pessimism Hits 2008-Era High Goldman Slashes S&P 500 Target Citing Higher Fed Rates Path UK Sets Out Biggest Tax Cuts Since 1988 to Boost Economic Growth Era of Inflation Has Ended -- for Asset Prices on Wall Street Oil Set for Fourth Weekly Loss With Rate Hikes Darkening Outlook Goldman to BofA Throw in the Towel on a Year-End Rally in Europe Treasury Selloff Drives SOFR Spread Toward Record One-Day Drop Wall Street’s Top Banks Are Backing Oil to Stage a Recovery Nasdaq Increases Scrutiny of Small-Cap IPOs After Big Swings Japan Has a Pile of Dollars It Can Tap Before Selling Treasuries Chinese Money Pours Into Offshore Debt After Rare Yield Reversal China Compares Taiwan Independence Push to Charging Rhino China’s Most Locked-Down City Shows Perils of Endless Covid Zero Crypto Outperforms Stocks for a Change as Correlation Breaks Raytheon Beats Lockheed, Boeing on $1 Billion Hypersonic Job Zelle Emerges as Lawmakers’ Surprise Foe at Bank Hearings Alex Jones Renews ‘Deep State’ Claim at Defamation Trial It’s Every Nation for Itself as Dollar Batters Global Currencies Nikola Investor Lost $160,000 on Milton’s Hype, He Tells Jury FedEx to Cut Costs, Hike Rates in Battle Against Flagging Demand With Shelters Overflowing, NYC to Put Up Tents for Migrants Senior-Care Provider Cano Health Said to Weigh Sale Banks Dust Off Lockdown Plans to Beat Possible Power Blackouts A more detailed look at global markets courtesy of Newsquawk Asian stocks were negative in the aftermath of the rush of global central bank rate hikes during 'Super Thursday' and with risk appetite not helped by the absence of participants in Japan for the Autumnal Equinox Day. ASX 200 was heavily pressured on return from yesterday’s national day of mourning closure and took its first opportunity to react to the hawkish FOMC with the tech and consumer-related sectors the worst hit. KOSPI declined with the recent flurry of central bank rate hikes adding to the arguments for the BoK to continue on its hiking cycle as South Korean officials look to avert one-sided currency moves. Hang Seng and Shanghai Comp slightly deteriorated throughout the session as the early support from reports regarding Hong Kong and Macau potentially easing restrictions for arrivals gradually waned, while US audit watchdog officials recently arrived in Hong Kong for audit inspections as firms seek to avoid delisting from US exchanges. Top Asian News White House Indo-Pacific coordinator said China clearly has ambitions in the Pacific which have caused concerns among Pacific Island leaders, according to Reuters. Hong Kong will announce today the end of mandatory hotel quarantine for overseas arrivals, according to SCMP. Japan PM Kishida said excessive yen movement repeatedly caused by speculation cannot be overlooked and they will take action should there be any excessive volatility in the yen, according to Reuters. Yuan Weakens to Near Trading Band Limit as Pressure Mounts China Junk Debt Ends Longest Rally of Year as Distress Mounts Times China Told Bondholders It Hasn’t Paid Interest Due Thurs Peak Pessimism Setting in for Chinese Stocks Ahead of Congress Iron Ore Fluctuates as China Steel Hub Tangshan Lifts Lockdowns JPM Analysts Liken UK Bank Deposit Speculation to Windfall Tax European bourses are pressured across the board after the Flash PMI releases for the region indicate a contraction; Euro Stoxx 50 -1.5% Pressure that was exacerbated, particularly in the UK, on the mini-Budget and subsequent Gilt/BoE pricing, despite the measures being designed to stimulate the economy. Stateside, futures are lower in sympathy and continuing APAC performance awaiting their own PMI metrics and Fed commentary. Top European News ECB's Kazaks says they will continue to hike rates, via Bloomberg; adds, faster Fed hikes have weakened the EUR. His choice for the October ECB hike is either 50bps or 75bps. UK COVID-19 hospitalisations rose 17% in a week which is the first significant increase since July and is sparking fears of a new wave, according to The Telegraph. Credit Suisse Hits Fresh Low; Denies Report of Looming US Exit UK Probably in Recession as Pound’s Weakness Boosts Inflation UK Bonds Plunge as Debt Office Plans More Sales Than Expected VW Warns of Production Shift From Germany Over Gas Shortage Ericsson Governance Worries Mount After Russia Sales Debacle European Watchdog Backs New Trading Halts for Energy Market FX DXY has surged to a fresh 112.3+ peak to the detriment of peers across the board with the Yuan taking the strain. GBP dented post-PMIs/budget despite initial support from BoE pricing as the USD's surge continues. Amidst this, EUR has been hit on the flash-PMIs and accompanying commentary around recession fears and a resurgence in price pressures. Fixed Income Gilts decimated to sub-99.00 from the 102.30 region in wake of the budget and accompanying fund consideration and potential inflationary implications Action that has sparked a surge in BoE pricing with markets now implying a 50/50 chance of a 100bp increase in November. More broadly, EGBs and USTs are dragged down in tandem though seem to have reached a 'floor' ahead of the afternoon's events. Commodities Crude benchmarks are pressured by pronounced USD strength and risk action amid recessionary fears. Additionally, participants are attentive to potential weekend developments with EU member states set to discuss Russian sanctions. Russian President Putin spoke to Saudi Crown Prince MBS and discussed the question of coordination to ensure stability in the oil market, while they praised efforts within the OPEC+ framework and confirmed the intention to continue sticking to existing agreements, according to Reuters. Metals dented across the board by the USD with base metals in particular hit amid broader sentiment with LME Copper slipping below USD 7.5k/T. US event calendar 09:45: Sept. S&P Global US Composite PMI, est. 46.1, prior 44.6 09:45: Sept. S&P Global US Services PMI, est. 45.5, prior 43.7 09:45: Sept. S&P Global US Manufacturing PM, est. 51.0, prior 51.5 DB's Jim Reid concludes the overnight wrap It's a bit of a broken record at the moment as markets have again been reeling over the last 24 hours, with another major selloff for bonds and equities taking place after central bankers showed no sign of letting up on their campaign of rate hikes to tackle inflation. The hawkish Fed decision on Wednesday set the backdrop for the slump, but that was compounded by further hikes yesterday in the UK, Switzerland, Norway, South Africa, Indonesia and the Philippines. Inturn, that led investors to expect an even more aggressive pace of rate hikes over the months ahead, with current market pricing for each of the Fed, ECB and the BoE indicating that a 75bps hike at the next meeting is now considered the most likely outcome for all three. In terms of those market moves, equities lost ground across the board as the prospect that tighter monetary policy would trigger recessions moved increasingly into view. The S&P displayed a lot of volatility into the close, ultimately falling -0.84% and moving deeper into bear market territory and on track for its worst annual performance since 2008. Under the hood, sector performance had a consistent macro story, where there was an outperformance in defensives (health care led the way up +0.51%) and an underperformance in cyclicals (discretionary lagged at -2.16%). In Europe the losses were even more severe as they finally got to react to the Fed’s announcement the previous evening, with the STOXX 600 (-2.09%) actually falling beneath its July lows to close at levels unseen in over 20 months. It's fascinating that there's hardly been any wider mention of the Italian election this Sunday even with the centre-right populists ahead in the polls. There are much bigger things to worry about to be fair and it seems that there is limited political appetite in Italy at the moment to deviate too far from EU fiscal rules. See here for our economists' preview. The declines mentioned above for equities were just as dramatic for sovereign bonds, with yields on 10yr Treasuries surging by +18.4bps to a post-2011 high of 3.71%. That was primarily driven by a rise in real yields, which similarly hit a high for the decade at 1.30%. We did get some positive data on the weekly initial jobless claims, which came in at 213k (vs. 217k expected) for the week ending September 17, and the previous week was revised down -5k. But that just compounded the selloff, since the fact that claims are on a firmly downward trend was seen as giving the Fed even more space to hike rates over the coming months without worrying about a sharp rise in unemployment. Those expectations of additional rate hikes were evident among Fed funds futures, which moved towards the more hawkish FOMC dot plot, with the rate implied by December 2023 up +10.0bps on the day to 4.33%. Over in Europe it was much the same story, with yields on 10yr bunds (+7.2bps), OATs (+7.8bps) and BTPs (+3.9bps) seeing fresh rises. Gilts were the biggest underperformer however, with 10yr yields up +18.1bps after the Bank of England hiked by 50bps for a second consecutive meeting, taking Bank Rate up to 2.25%. The decision was a 3-way split among policymakers, with 5 of the 9 MPC members in favour of the 50bp hike, 3 members wanting a larger 75bps move, and 1 wanting a smaller 25bps hike. They also voted (unanimously) to reduce the stock of gilts by £80bn over the next 12 months. Our UK economist sees this decision as slightly hawkish (link here), and sees the BoE as having opened the door for a larger rate hike in November. As a result, he now expects that the MPC will deliver a 75bps hike at the next meeting, although this is a very close call, with the terminal rate still reaching 4% in this hiking cycle. Staying on the UK, it’s also an important day on the fiscal side as new Chancellor Kwasi Kwarteng will be unveiling the government’s Growth Plan in the House of Commons this morning. Ahead of that, we got confirmation yesterday that the 1.25pp increase in National Insurance (a payrolls tax) is going to be reversed from 6 November. Otherwise, it’s been widely reported that they’ll confirm that corporation tax will remain frozen at 19%, rather than increasing to 25% as had been planned, and recent days have also seen press speculation about a potential cut to stamp duty (the home purchase tax). Our UK economist has a preview of the event here. On oil, the EU is apparently working on a new effort to impose a price cap on Russian oil in response to President Putin’s escalation and partial mobilisation announcement yesterday. However, the plan will still face hurdles given the dire energy situation in Europe and the need to arrive at an unanimous decision. Elsewhere, the Nigerian oil minister echoed previous remarks from other cartel members by saying OPEC may need to cut output if prices fell more. Brent crude prices were +0.70% higher, after being as much as +3.31% higher intraday but are back roughly to where they were 24 hours ago this morning in Asia. Looking elsewhere, there was plenty of other monetary action to digest after Japan intervened to support the Yen for the first time since 1998. That came shortly after the BoJ’s latest decision we mentioned in yesterday’s edition, which saw the yen weaken above 145 per US Dollar initially, before the intervention led to a sharp pullback that saw the yen close at 142.39. Confirmation came from Masato Kanda, Japan’s top currency official, who said that “The government is concerned about excessive moves in the foreign exchange markets, and we took decisive action just now”. In a statement from the US Treasury, a spokesperson said that “We understand Japan’s action, which it states aims to reduce recent heighted volatility of the yen.” George Saravelos writes here that the intervention is unlikely to work and could lead to an unnecessary loss of reserves and credibility. Asian equity markets are limping towards a sixth weekly loss this morning. The Kospi (-1.59%) is the largest underperformer across the region mirroring Wall Street losses overnight followed by the Shanghai Composite (-1.08%), CSI (-0.96%) and the Hang Seng (-0.91%). Elsewhere, markets in Japan are closed for a holiday with no trading of cash Treasuries in the Asian trading hours. US stock futures are pointing to further declines today with those on the S&P 500 (-0.17%) and NASDAQ 100 (-0.28%) both down. Early morning data from Australia showed that the flash manufacturing PMI rose slightly to 53.9 in September from 53.8 in August while the services PMI came in at 50.4 compared to 50.2 in August. In other news, Japan is ending its Covid-19 restrictions and opening the door back up to mass tourism in a move to revive the nation’s tourism industry as the Covid pandemic recedes. The new policies will come into effect on October 11. In terms of yesterday’s other data, sentiment wasn’t helped after the European Commission’s consumer confidence indicator for the Euro Area fell to a record low of -28.8 in September on the preliminary reading. Bear in mind that series covers both Covid and the GFC so that’s a seriously negative print. Over in the US, the Kansas City Fed’s manufacturing index fell to 1 in September (vs. 5 expected), marking its lowest level since July 2020. To the day ahead now, and data releases include the September flash PMIs for Europe and the US. Otherwise, central bank speakers include Fed Chair Powell, as well as the ECB’s Kazaks and Nagel. Remember the Italian election on Sunday. Tyler Durden Fri, 09/23/2022 - 08:03.....»»

Category: blogSource: zerohedgeSep 23rd, 2022

Futures, Bitcoin Crater As Yields And Dollar Surge

Futures, Bitcoin Crater As Yields And Dollar Surge After a dismal week for risk assets, which saw equities drop the most since June 17, global markets and US equity futures are tumbling in another extremely illiquid session (Japan and UK are both closed, the latter for the state funeral of QE2) as the realization sparked by Fedex that the world is in a global recession, is starting to finally seep through. Add to that Wednesday's 75bps rate hike by the Fed (which however is more than priced in by now) as well as the previously discussed start of the buyback blackout period, and CTAs and pensions becoming forced sellers with investor sentiment that can at best be described as pervasive record doom and gloom, and it becomes clear why this week could be an even bigger bloodbath for stocks. And sure enough, Nasdaq contracts have tumbled 1.2% as S&P futures are down 1.0%... ...the dollar is back into record territory, with rumors of a new imminent plaza accord growing louder by the day... ... 10Y yields are just shy of 3.50%, hitting a new post-2011 high this morning... ... which in turn is hammering European and Asian markets, as oil plunges in response to the fresh highs in the dollar. In permarket trading, tech shares are lower and poised to extend last week’s decline, as investors expect the Fed to deliver a 75bps rate hike when it meets on Wednesday, putting pressure on pricier growth stocks. Tesla (TSLA US) -1.4%, Google (GOOGL US) -1.2%. Here are some other notable premarket movers: Marathon Digital (MARA US) plunged as much as 8.4% in premarket trading on Monday alongside other cryptocurrency- related stocks, after Bitcoin dropped toward the lowest level since 2020 on monetary tightening concerns. US-listed Chinese stocks edged lower in premarket trading Monday after Chinese stocks listed in Hong Kong dropped, putting them on track to enter bear-market territory. Alibaba (BABA US) -1.5%, Nio (NIO US) -1.6%. FOXO Technologies (FOXO US) surges in premarket trading after tumbling 52% on its debut on Friday via its combination with special purpose acquisition company Delwinds Insurance Acquisition Corp. Take-Two Interactive Software Inc. (TTWO US) falls 6.5% in US premarket trading Monday after a hacker published pre-release footage from development of Grand Theft Auto VI, its most anticipated video game. In addition to the startling FedEx warning which sent the stock crashing by the most on record, investors also face potential volatility from policy decisions this week by the Bank of England, the Bank of Japan and a host of other central banks. The British pound sank to its weakest level against the dollar since 1985 on Friday and the yen remains under pressure, though it has backed off from just below the key 145 level versus the dollar. “The aggressive tightening of policy in the coming 4-6 months, not just in the US but globally, increases the risk of a recession next year,” said Maria Landeborn, a senior strategist at Danske Bank A/S. “We expect uncertainty will remain high surrounding inflation, rates and the overall economy, which is negative for market sentiment and risk assets.” With the Fed poised to hike 75bps (and perhaps even 100bps) and keep rising until it hits 4.50%, top Wall Street strategists see mounting risks for US earnings and equity valuations. Both Morgan Stanley’s Michael J. Wilson and Goldman Sachs Group Inc.’s David J. Kostin said headwinds to profitability are building, highlighting tighter monetary policy and pressure on company margins. In Europe, the Stoxx 50 fell 0.9% with Spain' IBEX outperforming, dropping just 0.3%, CAC 40 lags, dropping 1.1%. Energy, financial services and real estate are the worst performing sectors. Rate-sensitive European real estate shares are among the worst-performing in Europe in Monday trading, with the region’s equity market dropping further after seeing the biggest weekly decline in three months, as investors await a Federal Reserve monetary policy meeting this week.  Here are some of the biggest European movers today: Porsche Automobil Holding advances; Volkswagen AG said it’s looking to raise as much as EU9.4 billion from the IPO of its sports-car maker in what could be Europe’s largest listing in more than a decade European energy stocks fall, making them the worst-performing sector in Europe on Monday, as oil prices dipped, erasing earlier gains, with the Stoxx 600 Energy index declining 1.8% European real estate shares are among the worst- performing in Europe in Monday trading, with the region’s equity market dropping as investors await a Federal Reserve monetary policy meeting this week TF1 and M6 slumped after the French TV companies called off a planned combination because of objections from the country’s antitrust regulator; also today, Oddo cut TF1 to neutral Valneva falls as much as 16% after the French vaccines maker said it will terminate a Covid-19 vaccine collaboration with IDT Biologika, agreeing to pay as much as EU36.2 million in cash. Earlier in the session, Asian equities fell, poised for a fifth session of decline, as the dollar strengthened ahead of the Federal Reserve’s meeting this week. The MSCI Asia Pacific ex-Japan index erased early gains and fell as much as 0.8%, dragged by consumer discretionary and tech shares. Benchmarks in Hong Kong and South Korea were among the worst performers in the region. Japan’s market was shut for a holiday. The dollar’s gains put pressure on regional currencies, and stocks tumbled in the Philippines, Malaysia and Vietnam. Traders are watching the Federal Open Market Committee’s interest-rate decision on Wednesday for signals on further policy tightening, pricing in a 75-basis-point hike. The Hang Seng China Enterprises Index fell more than 1%, taking its losses from a June 28 peak to just short of 20%, which will mark the start of a bear market. Mainland China stocks traded little changed Monday as megacity Chengdu exited a lockdown. MSCI’s broadest Asia Pacific stock gauge has clocked five consecutive weeks of losses as investors factor in higher US interest rates and a strong dollar. Optimism over any easing of China’s Covid-Zero stance after the party congress in October is also waning. “Unless the Fed is done with rate hikes, the US dollar bull market is not over yet,” Lim Say Boon, chief investment strategist at CGS-CIMB Securities wrote in a note. In Australia, The t&P/ASX 200 index fell 0.3% to close at 6,719.90, the lowest since July 19, dragged by losses in health care and energy shares.  In New Zealand, the S&P/NZX 50 index fell 0.4% to 11,531.99. The nation’s economic outlook is sound, despite increasing domestic and international turbulence, S&P said in a statement Stocks in India snapped three days of declines, helped by a rally in consumer and auto firms on expectations of a boost in demand during the upcoming festive season. The S&P BSE Sensex rose 0.5% to 59,141.23 in Mumbai, while the NSE Nifty 50 Index also gained by a similar magnitude. Out of 30 shares in the Sensex index, 20 rose and 10 fell. A gauge of fast-moving consumer-goods makers was the best performer among 19 sectoral sub-indexes compiled by BSE Ltd. Most stocks across Asia declined ahead of key rate decisions by various central banks, including the US Federal Reserve. A higher-than-expected inflation in the US has raised expectations of another 75-basis-point hike when Fed policymakers meet on Wednesday. Housing Development Finance Corp contributed the most to the Sensex’s gains, increasing 1.5%.  In rates, Treasuries re-opened with yields cheaper by up to 5.5bp across front end of the curve in a bear flattening move. Into the weakness 10-year yields top at 3.506% and cheapest levels since June 2011. Cash market was closed overnight as UK observes a day of mourning for Queen Elizabeth II and Japan is out on holiday. Treasury yields 3.5bp to 5.5bp cheaper across the curve with long end outperforming slightly, flattening 2s10s, 5s30s spreads by 0.5bp and 1bp on the day. IG dollar issuance slate empty so far; up to $20b expected for the week with Monday and Tuesday potentially busy ahead of Wednesday FOMC. Latest CFTC positioning data shows hedge fund net short in two-year note futures, biggest since June 2021. Bund yields climb some 3bps across the curve. Australia’s bonds rose for the first time in four days. Yields fell 3-5bps across the curve. In FX, the dollar strengthens against all FX majors; euro trades below parity while cable trades at around 1.13/USD and the yen slides near 143.43/USD. UK observes a day of mourning for Queen Elizabeth II. Some more details: The Bloomberg Dollar Spot Index advanced 0.3% as the greenback strengthened against all Group-of-10 peers. Risk-sensitive Scandinavian and Antipodean currencies were the worst performers. Treasury futures eased, sending yields a few basis points higher The euro gave up an Asia session gain to drop for the first time in four days, yet momentum in options is less bearish across all tenors compared to a week ago. German bonds inched lower, with yields rising 3-4 bps, ahead of ECB speakers today The Swiss franc and the yen held up best against wide dollar gains. Hedge funds ramped up bearish yen bets to a three-month high on expectations Japan would languish in a world where developed market peers are racing to hike interest rates The yuan fell even as the People’s Bank of China fixed the currency at 6.9396 per dollar, 647 pips stronger than the average estimate in a Bloomberg survey of analysts and traders, the widest difference on record since Bloomberg started the survey in 2018 In commodities, WTI drifts 1.3% lower to trade near $83.98. Oil futures have resumed the sell-off, in part amid the cautious risk tone/firmer Dollar. Nord Stream AG says it cannot confirm nominations for the Nord Stream 1 gas pipeline on Monday. Kuwait produces more than 2.8mln bpd and has plans to increase oil output whenever the market needs it, while Kuwait currently produces 650mln cubic feet of gas per day and plans to raise it to 1bln cubic feet, according to Kuwaiti Petroleum Corporation’s CEO, cited by Reuters. Spot gold falls roughly $10 to trade near $1,665/oz. European natural gas futures fall again to their lowest level in almost two months. Bitcoin extends decline to $18k-level as broad crypto selloff continues. Bitcoin remained under pressure sub-USD 18,500. Ethereum extended on losses under USD 1,300. It's a busy week on the macro front, but Monday will be quiet with just the September NAHB housing market index on deck in the US. We also get the Eurozone July construction output, Canada August industrial product and raw materials prices. Market Snapshot S&P 500 futures down 0.8% to 3,861.00 STOXX Europe 600 down 0.7% MXAP down 0.5% to 149.48 MXAPJ down 0.6% to 487.97 Nikkei down 1.1% to 27,567.65 Topix down 0.6% to 1,938.56 Hang Seng Index down 1.0% to 18,565.97 Shanghai Composite down 0.3% to 3,115.60 Sensex up 0.6% to 59,203.12 Australia S&P/ASX 200 down 0.3% to 6,719.92 Kospi down 1.1% to 2,355.66 German 10Y yield up 3 bps to 1.78% Euro down 0.4% to $0.9978 Brent futures down 0.9% to $90.53/bbl Gold spot down 0.7% to $1,663.72 U.S. Dollar Index up 0.3% to 110.05 Top Overnight News from Bloomberg Federal Reserve officials are on track to raise interest rates by 75 basis points for the third consecutive meeting this week and signal they’re heading above 4% and will then go on hold Investors bracing for another jumbo Federal Reserve interest-rate hike are focused on a few key trades: betting on deeper inversion in the US yield curve, further losses in stocks and a stronger dollar The risk of a euro-area recession has reached its highest level since July 2020 as concerns grow that a winter energy squeeze will cause a slump in economic activity. Economists polled by Bloomberg now put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey European Central Bank interest rates will need to rise a lot more to get inflation under control, Bundesbank President Joachim Nagel said over the weekend The Chinese megacity of Chengdu exited its lockdown on Monday, with 21 million people allowed to leave their homes and resume most aspects of normal life for the first time since Sept. 1, provided they’re tested regularly for Covid-19 A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly subdued with the region lacking firm direction amid holiday-quietened conditions and with participants cautious ahead of this week’s slew of central bank policy decisions including from the FOMC, BoE and BoJ. ASX 200 was indecisive after gains in the mining industry were offset by underperformance in tech and defensives, with risk appetite also contained amid further calls for the RBA to hike by 50bps next month. Nikkei 225 was closed due to a domestic holiday. Hang Seng and Shanghai Comp declined with the Hong Kong benchmark pressured by losses in tech and pharmaceuticals, while the mainland was also subdued despite the cities of Chengdu and Dalian lifting lockdowns and the PBoC conducting 14-day reverse repos for the first time since January at a lower rate. Nonetheless, the injection was likely due to the upcoming National Day holidays and the rate cut was not much of a surprise after a similar cut in the 7-day reverse repo rate last month, while geopolitical concerns also lingered following comments from US President Biden that US forces would defend Taiwan in the event of a Chinese invasion. Top Asian News China’s Chengdu lifted the lockdown for the entire city and Dalian will also lift the citywide lockdown effective this Monday, according to Bloomberg. China NDRC is seeking to promote an acceleration of the recovery in domestic consumption and speed up the injection of funds to start project construction ASAP. NDRC said the foundation of the economic recovery is still weak despite positive changes in main economic indicators and that external environment for utilising foreign capital is increasingly complex and severe, while it added there remains some factors affecting foreign investment confidence. UBS cut its China 2022 GDP growth forecast to 2.7% from 3.0% due to a weak Q3 recovery, according to Bloomberg. China’s Global Times stated that economists urged US regulators to serve market fairness and not let their work be trained with political factors as they are about to begin reviewing audit files of Chinese companies. US tsunami warning system issued a tsunami threat in Taiwan on Sunday morning following a magnitude 7.2 earthquake. Japan’s weather agency issued a special typhoon warning for the Kagoshima prefecture in southern Japan on Saturday, according to Reuters. It was later reported that the typhoon made landfall and millions were told to evacuate homes, according to FT. The subdued tone seen across a holiday-thinned APAC session reverberated into Europe, with UK markets closed due to the funeral of Queen Elizabeth II. European cash bourses are lower across the board but off worst levels. European sectors are mostly lower with no overarching theme. US equity futures are softer in tandem with their European counterparts with relatively broad-based losses seen across the main December contracts. Top European News UK PM Truss will conduct a bilateral meeting with US President Biden at the UN General Assembly on Wednesday instead of meeting in Downing Street on Sunday, according to a statement cited by Reuters. UK PM Truss agreed with Irish PM Martin that an opportunity exists for the UK and the EU for a negotiated Brexit resolution to the Northern Ireland protocol, according to RTE. UK PM Truss’s chief of staff Fullbrook said he is cooperating with the FBI regarding an investigation into a Conservative Party donor charged with illegally providing campaign donations to a former Puerto Rico governor, although Fullbrook denied any wrongdoing, according to FT. ECB’s Lane said there will probably be several more rate hikes this year and early next year, while he noted signs that inflation will come down but not just yet and said that a recession cannot be ruled out, according to Reuters. ECB’s Nagel said the ECB are ‘a good way off’ from where rates should be and rates will need to rise a lot more to get inflation under control, although is confident that inflation rates will fall after a tough winter, according to Bloomberg. EU is set to withhold EUR 7.5bln of funding from Hungary due to rule of law violations regarding corruption in awarding public contracts, according to FT. EU may ask companies to expand or repurpose production lines, according to European Commission emergency powers to avert supply crisis Geopolitics US President Biden warned Russian President Putin against changing the face of the war by using tactical nuclear or chemical weapons in Ukraine, while he also stated that Ukraine is not losing the war and is making progress in some areas, according to an interview on CBS’s 60 Minutes. Furthermore, President Biden said he warned Chinese President Xi of an investment chill and that it would be a gigantic mistake if China violates sanctions on Russia but noted that there has been no indication that Beijing has provided weapons to Moscow for its invasion of Ukraine. US Joint Chief of Staff chairman General Milley said during a visit to a military base in Poland that it is still unclear how Russia will react to the battlefield setbacks in Ukraine and now is the time for increased vigilance and preparedness, according to Reuters. IAEA said one of the Zaporizhzhia nuclear power plant’s regular external power lines has been repaired and the plant is receiving electricity directly from the national grid, while it added that although there has not been any recent shelling at or near the plant, it continues to occur in the wider area, according to Reuters. Russia and China have agreed on further cooperating on defence with a focus on joint exercises, according to Interfax cited Russian Security Council. US President Biden said US forces would defend Taiwan in the event of a Chinese invasion, according to Reuters. Taiwan said China continued its military activities around the island and that it detected 20 Chinese aircraft and 5 Chinese ships operating around Taiwan on Saturday, according to Reuters. FX The Dollar regrouped and regained a bid on a combination of technical and positional factors; DXY topped 110.00 but remains shy of Friday's best. EUR/USD retreated back under parity, GBP/USD under 1.1400 from a 1.1442 peak. USD/JPY grinds upwards and briefly topped 143.50, whilst antipodeans are the G10 laggards. Fixed Income Bonds have extended to the downside after waning from best levels earlier or overnight. Bunds are off a deeper 142.43 Eurex trough and the US 10-year T-note is nearer the base of its 114-12+/114-25+ range. Commodities WTI and Brent futures have resumed the sell-off, in part amid the cautious risk tone/firmer Dollar. Nord Stream AG says it cannot confirm nominations for the Nord Stream 1 gas pipeline on Monday. Kuwait produces more than 2.8mln bpd and has plans to increase oil output whenever the market needs it, while Kuwait currently produces 650mln cubic feet of gas per day and plans to raise it to 1bln cubic feet, according to Kuwaiti Petroleum Corporation’s CEO, cited by Reuters. Spot gold has been under pressure as the Dollar gained traction, whilst CME copper is softer amid the risk tone Chinese copper tycoon He Jinbi’s Maike Metals International is reportedly suffering a liquidity crisis that threatens his empire which handles one of every four tons of copper imported into China, according to Bloomberg. US Event Calendar 10:00: Sept. NAHB Housing Market Index, est. 47, prior 49 DB's Jim Reid concludes the overnight wrap A packed week will kick off with a quiet, solemn, start, as the UK is closed for the Queen’s funeral. Japan is also out on holiday. Looking forward, the postponed BoE meeting will nudge its way into an already packed central bank meeting schedule which includes the BoJ, SNB, Riksbank, Norgesbank, and of course, the Fed. Suffice to say, monetary policy will be in focus this week. On the Fed, market pricing glided toward Matt Luzzetti’s expectations (full FOMC preview here) that the Fed will deliver a 75bp hike next week, having decayed from last week’s peaks after the stronger than expected CPI data. Much closer to consensus PPI and University of Michigan inflation expectations data helped bring pricing back from the peaks, let alone no press reports seemingly confirming pricing one way or another (finishing the week at 79.8bps priced). Regardless, some premium of a 100bp move will probably stay priced in for Wednesday, either on the off chance of some late blackout-period guidance. Beyond the rate move itself, the new SEP should show unemployment ticking higher, moving farther from a soft-landing forecast. Luzzetti and co. expect the dots will show unemployment ratcheting to 4.5%. The September FOMC also adds another year to the SEP, so we will get figures for 2025, showing how steep a hiking cycle, how deep any recession, and how quick the subsequent recovery policymakers are expecting if their preferred policy path is realized. On the BoE, our economists expect (full preview here) the MPC to vote for a second consecutive 50bp hike, albeit along divisive lines, with dissents favouring both a 25bp and a 75bp move likely surfacing. On the balance sheet, the MPC should confirm the start of gilt sales from later on this month, totaling GBP 10bn per quarter. Our economists expect the BoE’s terminal rate will be 4%, reached in May of next year, which is a 150bp upgrade over their old forecast. The Bank of Japan also meets, where our economist expects (full preview here) the BoJ to remain the DM outlier by maintaining an easy policy stance, while agreeing to end their special pandemic funds-supplying operation as scheduled at the end of the month. The policy divergence will continue to weigh on a yen which is around its weakest levels versus the dollar since the early 90s, but our economists do not expect that augurs intervention, as fundamentals are driving the weakening and reduce the chance any intervention is effective. Geopolitical risks will remain in focus, where the Ukraine war is most front-and-center. Elsewhere, a few conflagrations have broken out in former USSR states which individually may not be macro moving events, but are something to keep an eye on if symptomatic of something broader. Finally, an ever-looming potential issue, President Biden said in an interview with 60 minutes that the US would defend Taiwan if invaded, even as he downplayed the claim as not official US policy. Overnight in Asia equity markets are trading in negative territory at the start of the week after the US equities ended in the red on Friday. The Kospi (-0.98%) is the largest underperformer across the region followed by the Hang Seng (-0.88%). Over in mainland China, the Shanghai Composite (-0.22%) is trading lower while the CSI (-0.11%) is swinging between gains and losses. Elsewhere, as mentioned, markets in Japan are closed for a holiday with no trading in Treasuries until the US session. In overnight trading, US stock futures are pointing to further losses with contracts on the S&P 500 (-0.27%) and NASDAQ 100 (-0.50%) both edging lower. A quick recap of last week, which was a reliable microcosm of the major macro stories over the year, namely the war in Ukraine and the central bank battle over inflation. Ukraine’s successful counter-offensive stoked some optimism early in the week, optimism which faded from risk assets (along with the tightening in global policy paths, more below) as the pathway to peace and an end to the war were not any clearer. That was ossified on Friday with President Putin giving a press conference where he warned about escalating the conflict in so many words. Global equity indices retreated over the week, with the STOXX 600 down -2.89% (-1.58% Friday), the DAX -2.65% lower (-1.66% Friday), and the CAC down -2.17% (-1.31% Friday). Banks proved one bright spot in European equities given the rate selloff, with the Euro Banks index gaining +2.90% despite pulling back -1.88% on Friday. US equities underperformed given the salience of steeper Fed policy post CPI, with the S&P 500 pulling back -4.77% (-0.72% Friday) and the NASDAQ down -5.48% (-0.90% Friday), the worst weekly return for both since mid-June. The EU’s unveiling of measures to curtail energy price pressures, combined with some national-level efforts, drove European natural gas futures -9.82% lower to close the week at EUR 186.75, the first time they’ve ended a week below EUR 200 since the end of July. For rates, the main event was the above-consensus US CPI data, which saw a repricing of global policy paths steeper, with 2yr Treasuries gaining +31.1bps (+0.3bps Friday) and 2yr Bunds +20.6bps higher (-0.7bps Friday). Curves flattened in both jurisdictions given the harder-landing implications of such a steep policy path, with 10yr Treasuries up +14.0bps (flat Friday) and Bunds up +5.8bps (-1.4bps Friday). It also coincided with terminal rates pricing higher, where the market is expecting fed funds rates to get up just shy of 4.4% in the spring of next year, albeit below our revised in-house call of terminal closer to 5%. Tyler Durden Mon, 09/19/2022 - 07:32.....»»

Category: personnelSource: nytSep 19th, 2022

Futures Surge, Dollar Crumbles Ahead Of Pivotal CPI Print

Futures Surge, Dollar Crumbles Ahead Of Pivotal CPI Print US futures extended their gains for fifth consecutive day - their longest winning streak since July - rising ahead of today's "pivotal" CPI data. Futures on the S&P 500 and Nasdaq 100 gained 0.7% at 7:45 a.m. in New York ahead of the data that’s due at 8:30 a.m. The underlying gauges advanced Monday for a fourth straight day amid hopes that inflation will show further signs of cooling with the headline print actually declining for the first time in two years, before the Fed’s decision on interest rates next week. Treasury yields dipped while the Bloomberg dollar index extended its recent decline, sliding 0.3% to a two week low as traders bet that US inflation is near peaking, therefore challenging the dollar-dominance narrative, in the process pushing oil and bitcoin higher. In premarket trading, tech giants including Apple and Microsoft climbed. Satellite-imaging company Planet Labs shares gained as much as 12% in US premarket session after raising full year forecasts for both revenue and adjusted gross margin. Oracle shares rose 1.9% as analysts are positive on the company’s 1Q top-line growth amid accelerating cloud revenue expansion. More bearish commentators, however, highlight a drop in operating margin as the integration of health records provider Cerner pushes up costs. Here are some other notable premarket movers: Rent the Runway (RENT US) shares slump 23% in premarket trading after reporting a drop in subscribers in the second-quarter and announcing a restructuring of the company. Dow (DOW US) shares declined 0.7% in premarket trading as Jefferies downgraded the stock to hold, saying that it is likely to be range-bound in the near term, with downside risk as rising interest rates further hit customer confidence. Peloton (PTON US) shares may be in focus as Citi analysts say that the departure of the company’s founders, including Executive Chairman John Foley, completes the organizational changes at Peloton and should improve its free cash flow picture. Keep an eye on Innovid (CTV US) shares as Morgan Stanley initiates coverage with an underweight rating, saying that the company has good positioning in connected TV, but the stock appears to be “more than fully valued”. Previewing the CPI (our full preview here), UBS chief economist Paul Donovan writes that while US August consumer price inflation is due "Consumer prices do not measure the cost of living. Fantasy numbers in US CPI calculation further divorce this price measure from the cost of living. However, the Fed’s June policy error elevated the importance of consumer price inflation. Disinflation and deflation in durable goods, the longest period of gasoline price deflation for years, and some evidence of squeezing profit margins all suggest a lower reading." “It’s way to early to expect the Fed to react to the fact that we’re past peak inflation,” Nannette Hechler-Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, told Bloomberg TV. “When you look at S&P 500 we have seen very big support levels from a technical point of view, so I can very well envisage that volatility takes us down to these levels once the market finally realizes the Fed will not cut rates as early as 2023.” The government’s report is expected to show that consumer inflation increased 8.1% in August from the same month last year, down from 8.5% in July yet still historically elevated. The figures aren’t likely to sway the Fed’s September decision, with traders almost fully expecting another 75-basis-point increase next week, taking their cue from officials supporting that view. Still, solid signs of peaking inflation can affect the US central bank’s policy in later meetings. “With a lot of US policymakers calling for a front-loading approach, the odds appear to favor a 75 basis-point move if markets are to be convinced the US central bank is serious about driving inflation lower on a ‘sustainable basis'," said Michael Hewson, chief market analyst at CMC Markets UK. That “means today’s inflation numbers may not be terribly instructive.” Meanwhile, JPMorgan permabullish strategists Marko Kolanovic and Nikolaos Panigirtzoglou said a soft landing is becoming the more likely scenario for the global economy, which will continue to provide tailwinds for risky assets. As a reminder, Marko has said to buy the dip pretty much every single week in 2022. Recent data pointing to moderating inflation and wage pressures, rebounding growth and stabilizing consumer confidence suggest the world will avoid a recession, they said. Not confirming their optimism,  a Bank of America survey showed investors are fleeing equities en masse amid the specter of a recession, with allocations to stocks at record lows and cash exposure at all-time highs. “The fact is that two consecutive reports showing a sharp deceleration combined with last month’s goldilocks jobs report will be a really encouraging sign and could trigger a broader risk rebound in the markets,” said Craig Erlam, a senior market analyst at Oanda Europe Ltd. “It may not be enough to tip the Fed balance in favor of a more modest 50 basis point rate hike next week but it may slow the pace of tightening thereafter.” In Europe, corporate news helped buoy the Stoxx Europe 600 index, with UBS Group AG rising after raising its dividend and share-buyback target, and Bayer AG jumping more than 2% after starting the search for a new chief executive. Retailers and grocers pared some of their recent rally after Ocado Group Plc said inflation and energy costs will weigh on profit. The FTSE MIB outperformed peers, adding 0.3%. Utilities, consumer products and miners are the strongest performing sectors.  Earlier in the session, Asian stocks extended their recent rally as several markets returned from holidays, and as traders awaited a key US inflation data release due later Tuesday. The MSCI Asia Pacific Index rose as much as 0.7%, poised for a fourth-straight day of gains, driven by technology shares. South Korean stocks led advances among regional benchmarks in a catch-up rally following a four-day weekend. The US CPI report is expected to show a mixed picture, hinting that inflation may have peaked but remained elevated. This could provide more clues to the Federal Reserve’s rate decision next week, with traders currently expecting another 75-basis-point increase. “Further pushback from the Fed could be likely but for now, with the Fed blackout period in place, market bulls may be hoping to see underperformance in the upcoming inflation data,” Jun Rong Yeap, a market strategist at IG Asia Pte, wrote in a note. How to trade dollar, bonds or equities ahead of the Fed decision? This week’s MLIV Pulse survey asks about the best trades going into the FOMC meeting. Please click here to share your views anonymously. Chinese equities edged higher as traders returned from a holiday. President Xi Jinping plans to travel to Central Asia this week in what would be his first trip abroad since the Covid pandemic began. Shares in Hong Kong fell. Japanese equities rose for a fourth day, driven by optimism that inflation is close to the peak as investors await US CPI data to be announced late Tuesday.  The Topix Index rose 0.3% to 1,986.57 as of market close Tokyo time, while the Nikkei advanced 0.3% to 28,614.63. Nintendo Co. contributed the most to the Topix Index gain, increasing 5.5%. Out of 2,169 stocks in the index, 1,126 rose and 903 fell, while 140 were unchanged. “Consumer surveys released by the New York Fed show that inflation expectations have receded, supporting stock prices to some extent,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. In Australia, the S&P/ASX 200 index rose 0.7% to close at 7,009.70, boosted by gains in banks and mining shares. The benchmark reached the highest level since Aug. 26.  Ramsay Health Care tumbled more than 10% after a consortium led by KKR & Co. indicated it won’t improve the terms of a takeover proposal, indicating the end of a A$20.1 billion ($14 billion) pursuit. In New Zealand, the S&P/NZX 50 index fell 0.4% to 11,762.15 Key equity gauges in India advanced for fourth consecutive session to edge closer to peaks seen in October as shares in the heavily weighted finance sector rebound following the resumption of inflows from foreigners. The S&P BSE Sensex gained 0.8% to 60,571.08 in Mumbai, while the NSE Nifty 50 Index rose by a similar measure. Both gauges are less than 3% short of their record highs after climbing more than 14% since the end of June. The rally in stocks comes despite surging consumer prices in the country. Retail inflation accelerated to 7% in August, slightly above the consensus estimate, data released Monday evening showed. Foreign investors have net bought more than $8 billion of local equities since end of June, with a large proportion going into shares of financial firms.  “The current market buoyancy globally, including in India, is based on the expectation that inflation has peaked along with softening crude prices,” said Naveen Kulkarni, chief investment officer of Axis Securities’ PMS business. With the onset of winter, investors should watch energy prices in Europe and the US, which can re-ignite inflation, he added.  HDFC Bank Ltd contributed the most to the Sensex’s gain, increasing 1.3%. Out of 30 shares in the benchmark index, 24 rose and 6 fell. In FX, the Bloomberg Dollar Spot Index extended its recent losses, and after hitting an all time high at the start of the month, fell to a two-week low as the greenback weakened against all of its Group-of-10 peers apart from the Norwegian krone. CAD and NZD were the weakest performers in G-10 FX, SEK and JPY outperform. The euro rose a third day, to touch a day high of 1.0155 versus the greenback. European bonds traded mostly lower. German yields rose up to 4bps as they underperformed Italian bonds and with both countries tapping the market today The Norwegian krone posted a small drop versus the euro after a key survey of business sentiment by Norges Bank showed that the economy faces worsening prospects amid a “sharp” rise in prices. The yen reversed an Asia-session loss while the Australian and New Zealand dollars swung between modest gains and losses In fixed income, Treasuries held gains into early US session, having pared most of Monday afternoon’s slide that followed weak 10-year note auction. US yields are richer by 4bp-5bp across the curve; the long-end lags, steepening 5s30s by about 1bp. The 10-year yield eased 4bps to near 3.31%. Bunds 10-year yield is up 1bp to around 1.66% and gilts 10-year yield is little changed. Treasuries outperform bunds and gilts as stock futures reach highest levels this month. The US auction cycle concludes with $18b 30-year bond reopening at 1pm. WI 30-year yield around 3.475% is above auction stops since 2014 and ~37bp cheaper than August’s, which tailed by 1.1bp. IG dollar issuance slate empty so far; Monday saw eight borrowers price $11.7b; activity expected to be lighter Tuesday with focus on August inflation data. Focal points of US session include CPI inflation and 30-year bond auction; Monday’s 3-year sale also tailed.   In commodities, WTI and Brent are firmer intraday as a function of the receding Dollar, but traders are wary of short-term upward moves as China continues with strings of lockdowns. WTI trades within Monday’s range, adding 1.1% to near $88.71. Spot gold trades on either side of the flat mark in the run-up to US CPI, under its 50 and 21 DMAs at 1,740.82/oz and USD 1,731.05/oz respectively. Base metals are mostly firmer amid the weaker Buck and upside across stocks. Bitcoin trades on either side of USD 22,500, whilst Ethereum pulled back after reaching levels close to 1,800. Looking to the day ahead, along with August CPI in the US, American data will include NFIB Small Business optimism (came in at 91.8, higher than the 90.8 expeected) and average hourly earnings, German and Eurozone ZEW survey results, UK August jobless claims, July average weekly earnings, and unemployment rate, Japanese August PPI, and Italian 2Q unemployment rate. Market Snapshot S&P 500 futures up 0.5% to 4,129.25 STOXX Europe 600 up 0.3% to 429.10 MXAP up 0.5% to 156.38 MXAPJ up 0.6% to 513.28 Nikkei up 0.3% to 28,614.63 Topix up 0.3% to 1,986.57 Hang Seng Index down 0.2% to 19,326.86 Shanghai Composite little changed at 3,263.80 Sensex up 0.8% to 60,577.61 Australia S&P/ASX 200 up 0.6% to 7,009.69 Kospi up 2.7% to 2,449.54 Gold spot down 0.1% to $1,723.41 U.S. Dollar Index down 0.22% to 108.09 German 10Y yield little changed at 1.67% Euro up 0.2% to $1.0140 Top Overnight News from Bloomberg Pacific Investment Management Co. is advocating a radical solution to fix the liquidity woes plaguing the world of bonds: The entire $23.7 trillion Treasury market should move to a model where investors can transact directly with each other -- reducing their unhealthy dependence on balance-sheet-constrained banks The euro is up by almost 3% from two-decade lows hit a week ago against the dollar, and option markets suggest the rally has more room to run. The bet is that US consumer price data due later Tuesday will show inflation is near peaking, therefore challenging the dollar-dominance narrative. That view is behind the greenback’s recent retreat versus its major peers Germany is set to use a fund created to help companies cope with the economic hit from the pandemic to provide loan guarantees for struggling energy firms, according to a person familiar with the plan. The volume of loan guarantees available would be around 67 billion euros ($68 billion) China’s Premier Li Keqiang called for more policies to drive up consumption in the economy as latest figures show a further plunge in travel and spending over a three-day public holiday amid tight Covid controls For the better part of a decade, a US hedge-fund manager who has never even set foot in China has been patiently betting that the yuan will stage a massive collapse, one so deep that its value could be cut in half It’s not a common sight for euro overnight volatility to trade above 20% on non-central bank decision days. Yet this is what investors face this morning as everyone is on the lookout for the release of the US inflation report Britain’s unemployment rate fell to the lowest since 1974 as more people dropped out of the workforce, fanning upward pressure on wages. The government said 3.6% of adults were out of work and looking for jobs in the three months through July, lower than the 3.8% pace in the previous months. Economists had expected no change Secretary of State Antony Blinken said it was ‘unlikely’ the US and Iran would reach a new nuclear deal anytime soon, adding to Western officials’ downbeat assessment over the prospects for reviving an accord that President Donald Trump abandoned in 2018 Japan has more firepower in its foreign exchange reserves than it did the last time it intervened in markets to support its currency, though a unilateral move is seen as unlikely to succeed without US support A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded positive after the advances in global peers including on Wall St. where sentiment was helped by slowing inflation expectations, although gains were capped ahead of US CPI data and amid further China COVID woes. ASX 200 reclaimed the 7,000 level with advances led by the commodity-related sectors and with the risk tone also helped by an improvement in business and consumer sentiment data. Nikkei 225 marginally gained amid hopes of further supportive measures with Japan to potentially implement a nationwide travel incentive this month. Hang Seng and Shanghai Comp were slightly firmer but with upside contained after fresh COVID restrictions including in Sanhe near Beijing and with Shijiazhuang city in Hebei also locking down a district due to coronavirus. Top Asian News Emmys for Netflix’s Squid Game Boost ‘K-Drama’ Stocks in Seoul Fosun Chief Says Many Overseas Units Resilient Amid Pandemic Holders of Fosun’s 2b Yuan Bond Request Early Repayment in Full Netflix’s Megahit ‘Squid Game’ Wins Top Emmy Awards Woodford Administrator Faces Possible £306 Million Hit, UK Says European bourses tread water with modest gains following a relatively mixed APAC lead. European sectors are mostly higher with no overarching theme or bias. Stateside, futures are edging higher in early European trade with a broad-based performance seen across the ES, NQ, YM, and RTY. Top European News UK Chancellor Kwarteng told Treasury officials to adapt to a new approach focused on boosting GDP to 2.5%, the long-term average pre-GFC, ahead of the mini-Budget announcement next week which includes tax cuts and increased borrowing, according to FT. UK and EU are reportedly seeking to avoid a September 15th legal deadline over ‘grace periods’ becoming a flashpoint in talks, according to officials from both sides cited by the FT. The EU is delaying plans to cut the use of pesticides amid food production fears and subsequent price increases as a result, according to the FT. UK's Felixstowe port has received notice from union of further strike action from 27th Sept to 5th Oct; collective bargaining process has been exhausted - no prospect of an agreement being reached with union. EU Commission President is to call another energy meeting by end-September, according to the Spanish Energy Minister, according Reuters. German Economy Ministry report says early indicators and polls point to a rising number of insolvencies in H2, but there is no 'insolvency wave' in sight, via Reuters. EU is reportedly mulling a EUR 180-200 price cap from lower-cost sources (vs guided EUR 200); eyes taking 33% of extra profits from fossil fuel companies, according to Bloomberg sources. Ocado Plummets as Shoppers Cut Back and Energy Costs Bite Mercedes-Benz Wins Dismissal of German Climate Lawsuit Some 17 Million in Europe Got Long Covid in First Pandemic Years FX DXY is softer and trades on either side of 108.00, ahead of yesterday's 107.80 low and the 50 DMA at 107.52. EUR/USD faded at 1.0160 with decent option expiry interest between 1.0170-80 (1.21bn). The JPY continued its correction to almost 142.00 against the Greenback, irrespective of mixed Japanese PPI prints. Fixed Income Choppy and divergent price action in debt futures as EZ bonds digest decent auction results from Germany and Italy. Gilts regroup after underperformance on the back of better than expected UK data. Bunds are holding above 144.00 having fallen to a marginal new Eurex low at 143.86 US Treasuries are firmer across the board pre-US CPI, irrespective of Monday’s poorly received 3 and 10 year offerings. Commodities WTI and Brent are firmer intraday as a function of the receding Dollar, but traders are wary of short-term upward moves as China continues with strings of lockdowns. Spot gold trades on either side of the flat mark in the run-up to US CPI, under its 50 and 21 DMAs at 1,740.82/oz and USD 1,731.05/oz respectively Base metals are mostly firmer amid the weaker Buck and upside across stocks. Crypto Bitcoin trades on either side of USD 22,500, whilst Ethereum pulled back after reaching levels close to 1,800. US Event Calendar 06:00: Aug. SMALL BUSINESS OPTIMISM, 91.8, est. 90.8, prior 89.9 08:30: Aug. Real Avg Hourly Earning YoY, prior -3.0% 08:30: Aug. CPI Ex Food and Energy MoM, est. 0.3%, prior 0.3% 08:30: Aug. CPI Core Index SA, est. 296.250, prior 295.275 08:30: Aug. CPI Index NSA, est. 295.588, prior 296.276 08:30: Aug. CPI Ex Food and Energy YoY, est. 6.1%, prior 5.9% 08:30: Aug. CPI YoY, est. 8.1%, prior 8.5% 08:30: Aug. Real Avg Weekly Earnings YoY, prior -3.6% 08:30: Aug. CPI MoM, est. -0.1%, prior 0% 14:00: Aug. Monthly Budget Statement, est. -$217b, prior -$170.6b DB's Jim Reid concludes the overnight wrap It’s that time again. US CPI will clearly be the major focus today and could shape next week’s FOMC and the rest of the month’s trading. Or, of course, it could be a damp squib but I’m sure they’ll be something in it to move markets. Our economists are expecting a slight decline in the headline number, (-0.09% MoM) but for core to pick up (+0.30%). On a YoY basis, headline CPI should fall five-tenths to 8.0% while core should increase a tenth to 6.0%. With the market pricing a near certainty of a 75bp move next week (now at 73.4bps), that profile above won’t be enough to meaningfully reduce chances of a 75bp hike, and markets will turn to this Friday’s inflation expectations data as the last hurdle to clear before the Fed delivers (barring any late breaking news stories to the contrary). On that front, the New York Fed’s 3-year inflation expectations measure fell to its lowest level in 2 years yesterday, clocking in at 2.8% in August from 3.2% in July. For context, it’s retreated from a high of 4.2% in October of last year. Uncertainty remains near record highs, though, which will continue to give policymakers pause even as the 75th and 25th percentile of survey responses have also fallen. Ahead of CPI, the S&P 500 rallied (+1.06% and a 5-day rally for the first time since late-January/early-February) alongside the global risk complex, led by energy and big tech stocks, with the NASDAQ outperforming, up +1.27%. Apple (+3.85%) led the way in the first full trading day since their new iPhone went on sale on Friday. Orders have been strong so far. I upgrade every year but this time I decided not to.... until one minute before the virtual shop opened for the new products. As with every year I got seduced. While European sovereign curves rallied and flattened, the Treasury curve steepened, and yields climbed ahead of today’s inflation data. 2yr yields climbed +1.5bps while 10yr yields were +4.8bps higher, but some +9.8bps higher than their lunchtime lows. Much of that was after the Europe close as 10yr Bunds and BTP rallied -4.4bps and -5.7bps, respectively. One theory for the US yield sell-off was the fact that yesterday brought the first batch of US Treasury coupon auctions since the Fed doubled the size of their monthly QT runoff, with yields marching higher after both the 3yr and 10yr auction, as the market has to absorb additional collateral. There’s been a partial pullback in Asia this morning with yields on 10yr USTs down -2.12bps to 3.34%. The initial risk appetite yesterday was led by Europe, as most of the early focus was on the news we discussed 24 hours ago, namely Ukraine’s successful counter-offensive operation over the weekend. Risk sentiment enjoyed a boost, with the Euro also having its best day against the US dollar in a month, appreciating +0.80%. The wider implications of this success are still up for debate though. In particular, it seems like this pushes out the timeline on any potential peace talks, as Ukraine will be emboldened to double down on their red lines. In that vein, the Kremlin said yesterday there were no prospects for talks at the moment. On the downside, this potentially raises the spectre of escalation as well, whether it’s on the battlefield via unconventional weapons or a mass mobilisation from Russia, or on the economic front with Russia applying more pressure through natural gas markets through the remaining pipeline to Europe. European natural gas futures were trading in line with the broader risk sentiment yesterday though, rather than on potential tail risk scenarios, falling another -8.0%, closing below EUR 200 for the first time in a month. We peaked at EUR 342 eleven days ago, so down -44.23% since then. As hinted, European equities rallied strongly, with the STOXX 600 climbing +1.76%, the DAX +2.40% higher, and the CAC increasing +1.95%. Sticking with the theme of the war and energy, a draft EU proposal, to be officially unveiled this week, included mandatory power cut targets, bringing the bloc closer to rationing. The draft also includes a levy on extra profits at energy producers used to fund relief to consumers. These are still merely draft proposals, which would ultimately need member state buy-in to be implemented, so the negotiation process may wind up watering down the proposal. Nevertheless, as mentioned, natural gas futures fell on the news, with German and French power prices also falling -8.10% and -3.60%, respectively. The UK’s own energy support plan that we’ve recently covered is due to take effect come October. Whilst US CPI out later today will gain the lion’s share of attention over the near term, the UK has its own CPI print out tomorrow, as well. Our economists are expecting headline inflation to stay put at 10.1% yoy and core to increase to 6.4% yoy. With the new Energy Price Guarantee program in place, they’re lowering their peak forecast for CPI from 14% to 10.5%. Asian equity markets are firmly in the green while extending a global rally this morning on optimism that inflation is peaking. Across the region, the Kospi (+2.56%) is leading gains with the CSI (+0.70%), the Shanghai Composite (+0.33%) and the Hang Seng (+0.44%) catching up after reopening following a public holiday. Elsewhere, the Nikkei (+0.16%) is trading in positive territory in early trade. In overnight trading, US stock futures are pointing to slightly higher with the S&P 500 (+0.11%) and NASDAQ 100 (+0.10%). Early morning data indicated that pipeline prices in Japan appear to have stabilised as factory gate inflation (+9.0% y/y) in August remained unchanged (vs +9.4% in June), albeit a tenth above expectations. Looking at the data, the decline in global oil prices seems to have led the way despite the weakening in the Japanese yen. Oil prices are slightly lower in early Asian trade with Brent crude futures -0.18% at $93.83/bbl as China’s harsh zero-Covid policy continues to negatively impact the demand from the world’s top oil importer. To the day ahead, along with August CPI in the US, American data will include NFIB Small Business optimism and average hourly earnings, German and Eurozone ZEW survey results, UK August jobless claims, July average weekly earnings, and unemployment rate, Japanese August PPI, and Italian 2Q unemployment rate. Tyler Durden Tue, 09/13/2022 - 07:58.....»»

Category: blogSource: zerohedgeSep 13th, 2022

3 Non Ferrous Metal Mining Stocks to Watch Despite Industry Woes

With uncertainties surrounding the global economy denting commodity prices, the near-term prospects of the Zacks Mining - Non Ferrous industry look downbeat at the moment. Stocks like FCX, LEU and FCUUF are worth keeping an eye on, backed by their potential. The prospects of the Zacks Mining - Non Ferrous industry look bleak at the moment as apprehensions about slowing demand and economic activity already affected commodity prices lately. Additionally, the industry players are grappling with inflated input costs, labor shortages and supply-chain issues.Against this backdrop, we suggest keeping a close eye on companies like Freeport-McMoRan Inc. FCX, Centrus Energy LEU and Fission Uranium FCUUF. These are poised to gain from their endeavors to build reserves and control costs while investing in technology and improving production efficiency.About the IndustryThe Zacks Mining - Non Ferrous industry comprises companies that produce non-ferrous metals, including copper, gold, silver, cobalt, molybdenum, zinc, aluminum and uranium. These metals are utilized by various industries including aerospace, automotive, packaging, construction, machinery, electronics, transportation, jewelry, chemical and nuclear energy. Mining is a long, complex and capital-intensive process. Significant exploration and development to evaluate the size of the deposit followed by assessment of ways to extract and process the ore efficiently, safely and responsibly precede actual mining. The miners continually search for opportunities to grow their reserves and resources through targeted near-mine exploration and business development. They strive to upgrade and improve the quality of their existing assets, internally and through acquisitions.What's Shaping the Future of Mining-Non Ferrous Industry?Fears of an Economic Slowdown Weighing on Commodity Prices: Copper prices declined lately amid the uncertainties surrounding the global economy as new coronavirus restrictions in China dwindled demand for the red metal, hurting prices. Prices were decreased by the Russia-Ukraine situation, a spike in energy costs and low global inventories. A slowdown in China’s economy and credit tightening may reduce spending on infrastructure and construction projects in the country that might further shrink demand for copper. Zinc prices also bore the brunt of worries about weak demand as COVID-19 lockdowns in China stoked concerns over a global recession. Silver prices have also been negatively impacted this year so far, weighed down by the stronger US dollar, rising interest rates and sluggish growth. Gold prices also felt the pressure of a rallying dollar and Treasury yields as a robust U.S. services sector report reinforced expectations that the Federal Reserve will likely raise interest rates. However, Uranium prices have gained owing to rising demand for clean energy.Cost Control & Innovation to Increase Efficiency: The industry has been facing a shortage of skilled workforce to date, which hiked wages. Labor-related disputes can be damaging to production and revenues. The industry players are grappling with escalating production costs, including electricity, water and materials as well as higher freight expenses and supply-chain issues. Since the industry cannot control the prices of its products, it focuses on improving sales volume, increasing operating cash flow and lowering unit net cash costs. The industry participants are opting for alternate energy sources to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies. Impending Demand and Supply Imbalance: The industry players are currently dealing with depleting resources, declining supply in old mines and lack of new mines. Development projects are inherently risky and capital-intensive. Demand for non-ferrous metals will remain high in the future given their wide usage in primary sectors, including transportation, electricity, construction, telecommunication, energy, information technology and materials. The plan to overhaul and upgrade the nation’s infrastructure and promote green policies per the U.S. Infrastructure Investment and Jobs Act will require a huge amount of non-ferrous metals. While demand remains strong, there will be an eventual deficit in metal supply, leading to a situation that will bolster metal prices. This, in turn, will favor the industry in the long haul.Zacks Industry Rank Indicates Weak ProspectsThe group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. The Zacks Mining - Non Ferrous industry, a 13-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #243, which places it in the bottom 4% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. So far this year, the industry’s earnings estimate for the current year has gone down 32%.Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture. Industry Lags S&P 500 & SectorThe Zacks Mining- Non Ferrous Industry has underperformed its own sector and the Zacks S&P 500 composite over the past 12 months. The stocks in this industry have collectively lost 40.7% in the past year compared with the Zacks Basic Materials sector decline of 20.6%. The S&P 500 has dipped 7.3% in the said time frame.One-Year Price Performance Industry's Current ValuationBased on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 8.14X compared with the S&P 500’s 19.92X. The Basic Materials sector’s trailing 12-month EV/EBITDA is at 6.28X. This is shown in the charts below.Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)Over the last five years, the industry traded as high as 8.88X and as low as 4.80X, with the median being at 6.46X. 3 Mining-Non Ferrous Stocks to Keep an Eye onFreeport-McMoRan: FCX’s exploration activities near existing mines, which are focused on expanding reserves, will drive growth. Freeport-McMoRan will benefit from an ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. Cerro Verde's expanded operations benefit from cost efficiencies, and large-scale and long-lived reserves.  It is assessing a large-scale milling operation at El Abra to process additional sulfide material. The expansion at Morenci also increased milling rates. Further, Freeport identified a significant resource at the Lone Star project in eastern Arizona. The project is completed and is on track to produce more than 200 million pounds of copper annually. Freeport-McMoRan is also ramping up underground production at Grasberg in Indonesia, resulting in a spike in milling rates. Focus on cost management and reduction of debt levels is commendable.Based in Phoenix, AZ, Freeport-McMoRan is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining copper concentrates. FCX has a trailing four-quarter earnings surprise of 2.8%, on average. It has a long-term estimated earnings growth rate of 29%. FCX currently carries a Zacks Rank #3 (Hold). Shares of FCX have declined 22.7% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Price: FCXCentrus Energy: LEU’s order book is at around $1 billion, with multi-year contracts, which poises it well for growth. Prices in the global uranium enrichment market have gained significantly so far in 2022, enabling Centrus Energy make long-term sales at higher prices and margins. In the first half of 2022, LEU secured more than $135 million of new sales contracts and commitments.  It is uniquely positioned to meet growing demand for U.S.-origin Low-Enriched Uranium and High-Assay, Low-Enriched Uranium (HALEU).  Being the only company in the United States licensed to produce HALEU, Centrus Energy has an edge over its peers. LEU continues to meet all milestones under the HALEU contract with the U.S Department of Energy to date. It recently completed conceptual design for a commercial-scale HALEU cascade that will have 120 centrifuges and a much larger output than the 16-centrifuge demonstration cascade. Each 120-machine commercial cascade could produce approximately 6 metric tons of HALEU, annually. Subject to the availability of funding, Centrus Energy has the capability to expand HALEU production at the Piketon facility and also produce Low-Enriched Uranium for the existing reactors. Backed by these developments, the stock has gained 41% over the past year.Headquartered in Bethesda, MD, Centrus Energy is a globally recognized supplier of Low-Enriched Uranium (LEU) fuel. The Zacks Consensus Estimate for fiscal 2022 earnings has been stable over the past 60 days at $3.39 per share. LEU has a trailing four-quarter earnings surprise of 3,872%, on average. The stock currently carries a Zacks Rank of 3.Price: LEUFission Uranium: Earlier this year, FCUUF repaid the remaining $7 million balance of its secured credit facility and is now completely debt and lien free. Fission Uranium continues to advance its high-grade, near surface Patterson Lake South Property uranium project in Saskatchewan, Canada on schedule. The Patterson Lake South Property is host to the class-leading Triple R uranium deposit. FCUUF achieved multiple feasibility study milestones, including completion of field work for geotechnical, hydrogeological and metallurgical purposes. Additionally, detailed engineering studies and planning of the proposed mine design are now in progress and are well advanced.This Kelowna, Canada-based company acquires, explores and develops uranium resource properties in Canada. The Zacks Consensus Estimate for fiscal 2022 earnings has been steady over the past 60 days. Shares of this presently Zacks #3 Ranked player have declined 12.7% in  a year’s time.Price: FCUUF Want to Know the #1 Semiconductor Stock for 2022? Few people know how promising the semiconductor market is. Over the last couple of years, disruptions to the supply chain have caused shortages in several industries. The absence of one single semiconductor can stop all operations in certain industries. This year, companies that create and produce this essential material will have incredible pricing power. For a limited time, Zacks is revealing the top semiconductor stock for 2022. You'll find it in our new Special Report, One Semiconductor Stock Stands to Gain the Most. Today, it's yours free with no obligation.>>Give me access to my free special report.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report FreeportMcMoRan Inc. (FCX): Free Stock Analysis Report Fission Uranium Corp. (FCUUF): Free Stock Analysis Report Centrus Energy Corp. (LEU): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 7th, 2022

Futures Flat In Muted End To Turbulent Week With All Eyes On Payrolls

Futures Flat In Muted End To Turbulent Week With All Eyes On Payrolls US futures dropped on Friday, ending a third straight week of declines, as investors eyed a key jobs report that will be pivotal for this month’s Fed rate hike decision. S&P futures fell 0.2% at 730 a.m. ET, with the underlying cash index down 2.2% this week. Nasdaq 100 futures fell 0.3%, with the tech-heavy index down 2.6% in the previous four days. The dollar index slipped from a record high and the euro strengthened. 10Y yield traded slightly lower, at 3.25%, following yesterday's spike. In pre-market trading, Lululemon jumped 10% after raising its full-year outlook. Meanwhile, Bed Bath & Beyond fell as much as 6%, putting the home-goods retailer on track for a weekly loss following its survival plan earlier in the week.  Analysts raise PTs on the stock, though some flag higher inventory levels as a note of bearishness. Here are other notable movers: Procept BioRobotics (PRCT US) initiated at overweight by Wells Fargo, highlighting the potential of the company’s AquaBeam Robotic System, a therapy for prostate gland enlargement JPMorgan cuts its ratings on Dow and LyondellBasell (LYB US) to neutral from overweight, saying the petrochemicals companies are “probably not the best places to put new money to work.” Shares in Addentax (ATXG US), a Chinese garment-maker, drop as much as 40% in US premarket trading, set to extend yesterday’s 95% plunge into a second day. US semiconductor- related stocks could be active on Friday after Broadcom gave a robust sales forecast for the current quarter, calming worries that spending on infrastructure is slowing The outlook for stocks has soured since mid-August after traders ramped up bets that the Fed will continue its aggressive monetary tightening, hurting the economy in the process. The S&P 500 has erased $2 trillion in market capitalization in the past five days, and has given up half of its gains made in the summer rally. Meanwhile, tech stocks have succumbed to rising rates, which are a headwind to the expensive growth sector. “We don’t have a lot of reasons to be bullish in this type of environment for the next couple of weeks and months,” Meera Pandit, global market strategist at JPMorgan Asset Management, said on Bloomberg Television. “Yet when we think about the longer term perspective and the longer term investor, these are the types of level that can be fruitful in the long run.” US stocks had outflows of $6.1 billion in the week to Aug. 31 - the biggest exodus in 10 weeks - according to a Bank of America's Michael Hartnett, adding that investors expect  “fast inflation shock, slow recession shock” as nominal growth continues to be boosted by surging consumer prices, fiscal stimulus, large household savings and the impact of the war in Ukraine. Next up on investor minds is the August jobs report in under an hour, which is expected to show healthy payrolls growth following a stronger-than-expected US manufacturing report. This is how Goldman traders framed what to expect (full preview here): "we are still in a bad is good and vice versa set up for US stocks as Fed has made it clear that they want to see some froth exit the labor market in tandem with cooling inflation: i) Strong print here will clearly make 75bps much more likely on 9/21; ii) Inline print of 300k(ish) will keep pressure on this tape...anything close to last month’s shocking print of 528k would lead to real risk unwind into the wknd (I think at least a 200bp sell off). iii) Sweet spot for stocks tomorrow is a 0 – 100k headline reading...should get a 100+bp rally for S&P in this scenario after this recent drawdown. If we happen to get a negative number an even sharper rally", and the pivot will be right back on the Q1 calendar. “The risk of having another additional 75-basis-points hike is high and also to have a big rally on the real rates” depending on the outcome of the jobs report, said Claudia Panseri, a global equity strategist at UBS Global Wealth Management. “Volatility in the equity market will remain quite high until the picture on inflation becomes more clear than it is right now,” she told Bloomberg Television. In Europe, the Euro 50 rose 0.9%, with Germany's DAX outperforming peers, adding 1.5%, IBEX lags, rising 0.2%. Autos, financial services and energy are the strongest-performing sectors. Here are the biggest Europen movers: Nokia shares are up as much as 1.4% on Friday, adding to a weekly gain and outperforming the wider markets decline as the communications company will join the Euro Stoxx 50 benchmark Ashmore shares gain as much as 5.5%, reversing a small decline at the open, with Panmure Gordon upgrading the emerging markets fund manager to buy from hold following its FY results Smith & Nephew rises as much as 4.9%, extending a weekly gain. RBC says investors are viewing stock’s “historically low valuation” against orthopedic peers as a “buying opportunity.” Segro and Tritax Big Box gain 2.5% and 2.2%, respectively, after Shore Capital upgrades the REITs, saying downside risks for Segro are “fairly priced,” and the risk- reward balance for Tritax is more even UK homebuilders fall and are among the worst performers in the Stoxx 600 after HSBC cut its ratings on seven stocks, saying the UK is on the “cusp of a housing downturn” Sectra shares are down as much as 6.6% after the Swedish medical technology company presented its latest earnings, which included a drop in operating profit Alliance Pharma falls as much 11%, most since July, as the UK’s competition watchdog seeks to disqualify seven of the firm’s directors, including CEO Peter Butterfield Proximus falls to fresh record low, declining as much as 4.3% after Morgan Stanley resumes at underweight in note citing structural market headwinds and an unsupportive valuation Kofola CeskoSlovensko shares drop 2.5% after rising costs prompted the Czech producer of soft beverages to reduce its dividend proposal and rein in guidance Compleo Charging Solutions falls as much as 4% after Berenberg downgrades to hold and lowers its price target by 80%, citing resignation of the company’s co-founder Checrallah Kachouh Earlier in the session, Asian stocks fell, on course for their worst week in more than two months, as the dollar hit a new high amid worries about the Federal Reserve’s aggressive rate-hike path and as lockdowns continued in China.  The MSCI Asia Pacific Index declined as much as 0.7%, set for a weekly loss of nearly 4%. TSMC and other tech stocks contributed the most to the benchmark’s drop as Treasury yields climbed, sending the Bloomberg Dollar Spot Index to a record high.  Equity gauges in Hong Kong led declines in the region, dragged by the banking and tech sectors. Meanwhile, shares in Japan fell as the yen slipped to a 24-year-low against the dollar.  Fresh lockdowns in China are also weighing on sentiment, putting the Asian stock benchmark on track for its third-straight weekly decline. The sell-off reflects broad concerns of an economic slowdown amid weaker manufacturing data in the region’s major tech exporters. “Dollar momentum sees no sign of breaking,” Saxo Capital Markets strategists including Redmond Wong wrote in a note. “Fresh Covid lockdowns in China, in particular, the full lockdown of Chengdu and extended restriction in Shenzhen, have caused some demand concerns.”  Investors will keep a keen eye on the US August jobs report due later Friday to gauge the Fed’s next move in its September meeting.  While weak sentiment has kept Asian shares hovering near their two-year lows, hedge-fund giant Man Group said Asian stocks are set to outshine peers next year. The investment firm is betting on defensive stocks in India and Southeast Asia, Andrew Swan, Man GLG’s head of Asia ex-Japan equities, said in an interview Japanese stocks fell as investors awaited key US employment figures and assessed the yen’s decline to a 24-year low against the dollar. The Topix Index dropped 0.3% to 1,930.17 as of the market close in Tokyo, while the Nikkei 225 was virtually unchanged at 27,650.84. Sony Group contributed the most to the Topix’s decline, decreasing 1.1%. Out of 2,169 stocks in the index, 738 rose and 1,307 fell, while 124 were unchanged. “The US jobs report won’t be very positive no matter what’s out,” said Tatsushi Maeno, a senior strategist at Okasan Asset Management. “If it’s strong, the FOMC will lean toward a 0.75% rate hike and on the other hand, if it’s weak, there could be talk of a recession." India’s benchmark equities index closed slightly higher, after swinging between gains and losses several times throughout the session, as investors tried to gauge the impact of the US Federal Reserve’s hawkish stance in a week marked by volatility.     The S&P BSE Sensex rose 0.1% to 58,803.33 in Mumbai, but ended lower for a second consecutive week. The NSE Nifty 50 Index was little change on Friday. Housing Development Finance Corp and HDFC Bank provided the biggest support to the Sensex, which saw 19 of its 30 member stocks ending lower.  Thirteen of the 19 sector indexes compiled by BSE Ltd. declined, led by a measure of oil and gas companies.  “The effect of Jackson Hole is still revolving across financial markets, with a soaring dollar and falling equities as the main themes,” Prashanth Tapse, an analyst at Mehta Securities, wrote in a note.  In FX, the greenback fell against all of its Group-of-10 peers except the yen. The euro rose a fourth day in five against the greenback, to edge above parity. The pound languished near the lowest since March 2020 versus the dollar. Investors awaited the results of a vote to choose the country’s next prime minister on Monday, with expected winner Liz Truss aiming to cut taxes and increase borrowing. The Norwegian krone outperformed, and rebounded from a six-week low versus the greenback, amid a recovery in oil prices before an OPEC+ meeting on supply at which Saudi Arabia could push for output cuts. The yen weakened past 140 per dollar after a slight rally in Asian trading faded. In rates, treasuries were little changed while European bonds slipped. The 10-year Treasury yield held steady near 3.26%; while gilts 10-year yield is up 2.6bps around 2.90% and bunds 10-year yield is up 2bps to 1.58%. In commodities, WTI crude futures rebound 3% to around $89, within Thursday’s range; oil pared gains after news that the Group of Seven most industrialized countries is poised to agree to introduce a price cap for global purchases of Russian oil, while Russia looks set to resume gas supplies through its key pipeline. Gold rose $6 to around $1,704.  Meanwhile, zinc headed for its biggest weekly loss in over a decade on concern Chinese demand will be hamstrung by new virus restrictions. Bitcoin has reclaimed the USD 20k mark but the upward move is yet to gain any real traction amid the broader contained price action. Looking to the day ahead now, the main highlight will be the US jobs report for August. Otherwise on the data side, there’s US factory orders for July and Euro Area PPI for July. Market Snapshot S&P 500 futures little changed at 3,969.25 Gold spot up 0.4% to $1,704.52 MXAP down 0.5% to 154.28 MXAPJ down 0.5% to 506.44 Nikkei little changed at 27,650.84 Topix down 0.3% to 1,930.17 Hang Seng Index down 0.7% to 19,452.09 Shanghai Composite little changed at 3,186.48 Sensex up 0.4% to 59,025.66 Australia S&P/ASX 200 down 0.2% to 6,828.71 Kospi down 0.3% to 2,409.41 STOXX Europe 600 up 0.7% to 410.47 German 10Y yield little changed at 1.58% Euro up 0.3% to $0.9980 U.S. Dollar Index down 0.25% to 109.42 Top Overnight News from Bloomberg Under pressure from central bankers determined to quash inflation even at the cost of a recession, global bonds slumped into their first bear market in a generation. The Bloomberg Global Aggregate Total Return Index of government and investment-grade corporate bonds has fallen more than 20% from its 2021 peak, the biggest drawdown since its inception in 1990 The ECB remains behind the curve on tackling record euro- zone inflation and will have to act more forcefully than previously envisaged to wrest control of prices, according to a survey of economists Consumers’ expectations for inflation in three years rose to 3% in July from 2.8% in June, European Central Bank says in statement summarizing the results of its monthly survey. Russia looks set to resume gas supplies through its key pipeline to Europe, a relief for markets even as fears persist about more halts this winter. Grid data indicate that flows will resume on Saturday at 20% of capacity as planned German exports and imports both fell in July as surging prices and the war in Ukraine threaten to send Europe’s largest economy into a recession. The trade surplus shrank to 5.4 billion euros ($5.4 billion) from 6.2 billion euros in June, as exports dropped by 2.1% and imports by 1.5% A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were indecisive with price action relatively rangebound after the mixed lead from the US and with the region lacking firm commitment as participants await the upcoming US NFP jobs data. ASX 200 was lacklustre as earnings releases quietened and with strength in financials offset by losses across the commodity-related sectors. Nikkei 225 traded subdued amid underperformance in large industrials although losses in the index were stemmed by retailers after several reported strong August sales. Hang Seng and Shanghai Comp were mixed as Hong Kong underperformed amid notable losses in developers and with the mainland choppy but ultimately kept afloat after the PBoC recently cut rates on its Standing Lending Facility by 10bps from August 15th and after several officials pledged measures. Top Asian News PBoC official Ruan said monetary policy is to further improve cross-cyclical adjustments and maintain stable and moderate credit development, while they will keep liquidity reasonably ample. PBoC will also better coordinate structural and aggregate policy tools but will avoid flood-like stimulus and keep prices stable. Furthermore, the PBoC said China has not taken excessive monetary policy stimulus since the pandemic, leaving room for subsequent policy adjustments and that balanced consumer prices also create favourable conditions for monetary policy adjustments, according to Reuters. PBoC adviser Wang said banks need to increase financial support for infrastructure and that infrastructure is restricted by local government debt levels, while Wang added that they need to ensure property companies' financing needs are met, according to Reuters. China's securities regulator official said they will promote new legislation for overseas listings and will implement the China-US audit agreement, as well as continue strengthening communication with foreign institutional investors, according to Reuters. China's banking regulator official said they will steadily resolve the risks faced by small and medium-sized financial institutions, while they will improve monitoring and disposal of debt risks of large companies, according to Reuters. Japanese Finance Minister Suzuki said it is important for currencies to move stably reflecting economic fundamentals, while he noted that recent FX moves are big and they will take appropriate action on FX if necessary. Suzuki also stated that they are watching FX with a sense of urgency and will brief the media after the G7 finance ministers meeting tonight. European bourses are firmer across the board as hawkish yield action in the EZ has eased from yesterday's recent peaks, Euro Stoxx 50 +0.8%. Stateside, futures are contained and flat with all focus on the NFP report. Alphabet's Google (GOOG) is planning to accept the use of third-party payment services on its smartphone app in national such as Japan and India but not the US, according to the Nikkei Top European News British Chambers of Commerce said the UK is already in the midst of a recession and it expects the UK economy to decline for two more periods following the contraction in Q2, while it also sees inflation to reach 14% later this year EU warned UK Foreign Secretary Truss against triggering Article 16 and said they will refuse to engage in serious talks on reforms to the post-Brexit deal unless she takes the “loaded gun” of unilateral legislation off the table German Economy Gets Another Growth Warning as Trade Volumes Drop Russian Gas Link Set to Restart as Traders Weigh Further Halts ECB Says Consumers Now See Inflation in Three Years at 3% A Hot Jobs Report Could Send Bitcoin to $15,000, Hedge Fund Says Citi Favors Bets on 75Bps Hikes at Each of Next Two ECB Meetings FX DXY's overnight pullback has picked up pace in early European hours. The EUR stands as the best performer alongside reports that Nord Stream 1 flows are expected to resume on Saturday. Non-US dollars are all modestly firmer to varying degrees, whilst JPY fails to benefit from the dollar weakness. Yuan shrugged off another notably firmer-than-expected CNY fixing overnight. Fixed Income Comparably contained session overall thus far though Bunds are holding at the lower end of a 85 tick range in limited newsflow pre-NFP. Currently, the Bund low is circa. 10 ticks above 147.00, with yesterday’s 146.78 trough in focus and then 145.97/87 thereafter. Gilts and USTs are very similar thus far in that both benchmarks are essentially unchanged. Commodities WTI Oct and Brent Nov futures are firmer on the day amid a softer Dollar and narrowing prospects of an imminent Iranian Nuclear deal. Spot gold edges higher as the Dollar remains weak, with the yellow metal back on a 1,700/oz+. Base metals are mixed LME copper softer around the USD 7,500/t. US Event Calendar 08:30: Aug. Change in Nonfarm Payrolls, est. 298,000, prior 528,000 Change in Private Payrolls, est. 300,000, prior 471,000 Change in Manufact. Payrolls, est. 15,000, prior 30,000 Unemployment Rate, est. 3.5%, prior 3.5% Labor Force Participation Rate, est. 62.2%, prior 62.1% Underemployment Rate, prior 6.7% Average Hourly Earnings YoY, est. 5.3%, prior 5.2% Average Hourly Earnings MoM, est. 0.4%, prior 0.5% Average Weekly Hours All Emplo, est. 34.6, prior 34.6 10:00: July Durable Goods Orders, est. 0%, prior 0%; July -Less Transportation, est. 0.3%, prior 0.3% 10:00: July Factory Orders, est. 0.2%, prior 2.0% 10:00: July Cap Goods Orders Nondef Ex Air, prior 0.4% 10:00: July Factory Orders Ex Trans, est. 0.4%, prior 1.4% DB's Jim Reid concludes the overnight wrap If I'm not here on Monday it's not impossible that I've been eaten by a snake or a small crocodile, or poisoned by a tarantula. For our twins' 5th birthday party this weekend we've hired a professional reptile handler to come round and show 30-40 overexcitable kids some interesting animals. If I'm not eaten or bitten I'm a bit worried he won't do the full register on the way out and I'll be left with a huge lizard hiding in my bed. All I can say is that for my 5th birthday party we just had pin the tail on the donkey and a few stale sandwiches. Life was so much simpler then. Markets are pretty complicated at the moment with investors not being quite able to decide whether the newsflow was bad or good yesterday for risk assets. We went to both extremes with the US rallying back into positive territory by the close (S&P 500 +0.30% having been -1.23% just after Europe logged off). As the US starts it's day a bit later we'll have a fresh payroll print to throw into the mix which could be the swing factor between 50 and 75bps at the September Fed meeting. Last month’s strong print ratcheted up expectations that the Fed could hike by 75bps for a third meeting in a row, and markets are still pricing that as the more likely outcome than 50bps, with futures now pricing in +67.7bps worth of hikes. In terms of what to expect today, our US economists are looking for +300k growth in nonfarm payrolls, which should be enough to keep the unemployment rate at its current 3.5%. Ahead of that, the US labour market data we got yesterday was pretty good, continuing the run of decent releases over recent days. Initial jobless claims for the week through August 27 unexpectedly fell back to 232k (vs. 248k expected), and the previous week was also revised down by -6k. That’s the third week in a row that the jobless claims have fallen, marking a change from the mostly upward trend we’ve seen since late March. On top of that, the ISM manufacturing release also surpassed expectations, remaining at 52.8 (vs. 51.9 expected), with the employment component at a 5-month high of 54.2 (vs. 49.5 expected). Treasuries lost significant ground on the day, even before the data, with the 2yr yield rising +1bps to hit another post-2007 high of 3.50%, whilst the 10yr yield rose +6bps to 3.25%. The moves were driven by higher real yields across the curve, with the 5yr real yield hitting a 3-year high of 0.849%. It was a similar story in Europe too, where yields on 10yr bunds (+2.2bps), OATs (+2.5bps) and BTPs (+3.3bps) rose. Those European moves came as investors grew increasingly confident that the ECB would hike by 75bps at some point this year, which was aided by the latest data that showed Euro Area unemployment fell to a new low of 6.6% in July. That’s the lowest level since the single currency’s formation, and means that the latest data is showing that the Euro Area simultaneously has the highest inflation and the lowest unemployment of its existence. As discussed at the top, US equities turned round late in the session with the Nasdaq nearly making it back into the green (-0.26%) as well as the S&P after being -2.28% at 6pm London time. This was too late to save the European session as the STOXX 600 (-1.80%) took a significant hit. Sentiment was pretty downbeat from the outset after the lockdown of the Chinese city of Chengdu (population 21m) risked further disruption to supply chains and global economic demand. That said, the energy situation continued to develop in a positive direction, with German power prices for next year coming down by a further -9.11% to €523.40 per megawatt-hour. In fact they have halved since their intraday peak on Monday when they hit €1050, which just shows how amazingly volatile this market is right now. The EU is considering various interventions to deal with the current turmoil, including price caps and windfall taxes, and Commission President Von der Leyen is set to outline the measures in her State of the Union address on September 14. Staying on commodities, the decline in oil prices continued yesterday thanks to fears of further Chinese lockdowns and hawkish central banks. Brent crude was down -4.28% to $92.36/bbl, which is a substantial decline since its closing level on Monday of $105.09/bbl. As we go to print, crude oil prices are showing some recovery with Brent futures +1.91% higher at $94.12/bbl. There was a similar negative pattern among industrial metals, with copper (-2.96%) down for a 5th day running on the back of those same fears about demand. Meanwhile in the precious metal space, gold (-0.79%) slipped below $1700/oz, while hitting its lowest since July intraday as markets priced higher interest rates, thus raising the opportunity cost of holding a non-interest-bearing asset. Over in the FX space, a number of new milestones were reached yesterday, most notably a rise in the dollar index (+0.91%) to levels not seen since 2002. The greenback was supported yesterday by the strong data that added to expectations the Fed would keep hiking into next year, although the reverse picture was that the Euro fell back beneath parity against the dollar, and the Japanese yen fell to 140 per dollar for the first time since 1998. In Asia’ morning trade, the Japanese yen further weakened, touching 140.26 per US dollar. Here in the UK, sterling also fell just beneath the $1.15 mark in trading for the first time since March 2020. In Asia this morning, the Nikkei (-0.21%), the Hang Seng (-0.58%), and the CSI (-0.20%) are trading lower with the Shanghai Composite (+0.28%) bucking the trend. Elsewhere, the Kospi (+0.04%) is struggling to gain traction after South Korea’s headline inflation slowed after six months of accelerating (more below). Moving ahead, US stock futures are fairly flat with contracts on the S&P 500 (-0.08%) and NASDAQ 100 (-0.04%) treading water. Early morning data showed that Korea’s inflation eased to +5.7% y/y in August (v/s +6.1% expected) from +6.3% in July as energy prices eased. MoM prices dropped -0.1% in August (v/s +0.3% expected) after rising +0.5% in the prior month thus providing some comfort to the Bank of Korea (BoK) in its yearlong tightening cycle. Rounding off yesterday's data, there was plenty to digest from the global manufacturing PMIs, although they mostly confirmed the picture from the flash readings we’d already got. In the Euro Area, the reading came in at 49.6 (vs. flash 49.7), and the US had a 51.5 reading (vs. flash 51.3). The UK had a stronger revision up to 47.3 (vs. flash 46), but it was still in contractionary territory and the lowest since May 2020. Elsewhere, German retail sales grew by +1.9% (vs. -0.1% expected). To the day ahead now, and the main highlight will be the US jobs report for August. Otherwise on the data side, there’s US factory orders for July and Euro Area PPI for July.   Tyler Durden Fri, 09/02/2022 - 07:52.....»»

Category: blogSource: zerohedgeSep 2nd, 2022

Futures Jump As China Adds Fresh 1 Trillion Yuan Stimulus; J-Hole Forum Begins

Futures Jump As China Adds Fresh 1 Trillion Yuan Stimulus; J-Hole Forum Begins Futures jumped overnight after China revealed its latest massive stimulus (which however is still woefully insufficient to prop up the country's crashing housing sector) steadied nerves in the anxious wait for Jerome Powell's key speech at 8am tomorrow, where the only question is will it be even more hawkish than the market expects, or will it meet expectations, and send dollar and yields tumbling and stocks soaring. Shortly after 2am ET, China stepped up its economic stimulus with a further 1 trillion yuan ($146 billion) of funding largely focused on infrastructure spending, support that analysts quickly agreed won’t go far enough to counter the damage from repeated Covid lockdowns and a property market slump.  The State Council, China’s Cabinet, outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from previously unused quotas. However, as has been the case for the past 2 years with Beijing's drip-drip stimulus, economists were downbeat on the measures, while financial markets were muted. The yield on 10-year government bonds rose 2 basis points to 2.65%. China’s CSI 300 Index of stocks rose as much as 0.6% before paring gains to trade up 0.3% as of 2:28 p.m. local time. A similar reaction was observed in US futures which initially spiked by nearly 30 points, reaching a high of 4187.5 before fading most of the gains; emini futures traded +0.6%, or 25 points higher, at 7:30am  ET, while Nasdaq futures were up 0.85%.  Emerging-market stocks also rallied the most in two weeks on the Chinese stimulus news, only to see gains fade. Treasury yields and a dollar gauge dipped, while the crypto space rose on China's stimulus. The Chinese-inspired gains failed to stick as traders expect markets to remain volatile as they look to Powell’s comments due Friday at the Jackson Hole meeting for clues on the pace of US monetary tightening. Fed officials in the run-up to Jackson Hole have been clear they see more monetary tightening ahead, a message that’s eroded a bounce in stocks and bonds from mid-June troughs. The tension in markets is whether those assets will continue to head back toward the lows of the year. “Powell is likely to push back on premature expectations of a dovish pivot, reiterating the focus on the fight against high inflation,” said Silvia Dall’Angelo, a senior economist at Federated Hermes Ltd. “Whether markets take him seriously amid an increasingly gloomy outlook for the global economy is yet to be seen.” In premarket trading, Chinese stocks in the US rallied amid recent positivity over Beijing boosting stimulus with a further 1 trillion yuan of funding, and as the country takes measures to shore up its currency. Tesla shares rose 2% as the electric-vehicle maker’s 3-for-1 stock split takes effect, confirming US markets remain dominated by idiots. Snowflake shares soared ~17% in premarket trading after the infrastructure software company reported second-quarter revenue that beat expectations and raised its full-year forecast for product revenue. On the other end, Nvidia shares slide ~4% in premarket trading after the chipmaker, which preannounced a month ago and gave a dire forecast, did it again and gave a third- quarter revenue forecast that was below expectations as demand for chips used in gaming computers slipped. Other notable premarket movers: Salesforce (CRM US) shares are down 6.6% in premarket trading after the application- software company reported second-quarter results that beat expectations but lowered its full-year forecast. Analysts note that the company’s forecast is being hit by FX headwinds and delays in closing large deals. Teladoc Health (TDOC US) shares climb 5% in premarket trading after Amazon says it will close its primary care and telehealth service by the end of the year. Bed Bath & Beyond (BBBY US) shares rose as much as 6% in US premarket trading before turning lower. The fluctuation follows a report that the home furnishings retailer is nearing a $375 million loan deal with Sixth Street Partners. Kinetik (KNTK US) initiated with an equal-weight recommendation and Street-high price target at Morgan Stanley, which says the midstream services company offers an “attractively positioned set of Permian midstream assets run by a growth-oriented management team.” NetApp (NTAP US) shares were up ~4% in extended trading after the computer hardware company reported first-quarter results that beat expectations and affirmed its forecast. Analysts note the company continues to see broad-based demand strength, despite supply challenges and FX headwinds. In Europe, the Stoxx 50 rose 0.3%, paring an earlier advance amid mixed economic data from the region’s biggest economy. Energy and basic resources stocks were the biggest gainers, with retailers underperforming. Sovereign bonds across Europe gained led by short-end bonds. IBEX outperforms, adding 0.6%, FTSE MIB lags, adding 0.1%. In fixed income, short-end bonds lead the move. Here are some of the biggest European movers today: Harbour Energy shares jump as much as 13%, the most since November 2020, as analysts applaud an increased buyback and strong cash flows. Jefferies says 1H results “beat on all metrics” Ambu rises as much as 11% on its latest earnings, which were in-line with figures released on Aug. 3. Handelsbanken sees a “no drama” report and DNB highlights a positive free cash flow Rentokil gains as much as 2.7% after JPMorgan put the pest control company on a positive catalyst watch as the closing date for the Terminix acquisition nears Hunting rises as much as 19% after the company posted better-than-expected profitability, while the outlook for the rest of 2022 and 2023 is positive Yara gains as much as 2.8% as Citi flags rising demand for fertilizers. Yara earlier said it would cut production, citing record gas prices Tessenderlo climbs as much as 8.1% to a level last seen in April after the Belgian chemicals company raised annual guidance again and said it sees adjusted Ebitda for the year rising 15% to 20% Komax rises as much as 5% after Credit Suisse raises the wire processing machines maker to outperform, seeing its recent merger with Schleuniger as highly- accretive Elekta falls as much as 11%  after the firm presented its latest earnings. Jefferies noted a “disappointing” drop in order intake, while Handelsbanken flags a soft outlook Baloise drops as much as 7.6%, hitting the lowest since March, after the Swiss financial services firm reported solid, “yet unspectacular” results, according to Vontobel Daetwyler falls as much as 6.3%, the most since May, as Credit Suisse cut its price target on the rubber components and seals maker following its results in the prior session Grafton declines as much as 5.4% after reporting 1H profit that missed expectations. The company said the weakness was due to hot weather in the UK and less construction activity Earlier in the session, Asian stocks rebounded strongly after a five-day loss to head for their biggest advance since the end of May, boosted by a late surge in Hong Kong shares. The MSCI Asia Pacific Index climbed as much as 1.6% late in the Asian day, with Hong Kong-listed Chinese tech stocks like Alibaba and Tencent being the biggest contributors to its gain. The gauge’s increase earlier in the session was driven by export-heavy markets like Korea and Taiwan as the dollar weakened. The Hang Seng Index surged 3.6%, the most since April 29, leading the late regional rebound that some traders attributed to short-covering ahead of a key speech by Federal Reserve Chair Jerome Powell at the Jackson Hole conference. The morning trading session in Hong Kong was suspended due to a tropical storm warning. The amount of bearish bets against Hong Kong stocks rose to levels that could trigger a surge in share prices as traders rush to close out their positions, according to quantitative analysts at Morgan Stanley. A gauge of Chinese tech names listed in the financial hub soared 6%. It is still down about 25% this year. Markets have been edgy ahead of Powell’s speech, with the MSCI Asia gauge losing 3.1% in the last five sessions. Thursday’s move looks like “pre-positioning,” said Justin Tang, the head of Asian research at United First Partners. “Investors are taking positions on expectations” of a less hawkish commentary from Powell, he said. Chinese stocks on the mainland also rose as the nation stepped up measures to bolster growth with a further 1 trillion yuan ($146 billion) of stimulus. South Korean shares gained on foreign buying even after the nation’s central bank raised its key interest rate by 25 basis points, while Taiwanese stocks also climbed. “It may be a combination of risk-on sentiment across the region heading into Jackson Hole and the China support measures,” said Marvin Chen, a strategist with Bloomberg Intelligence. “Growth, tech and offshore-listed China stocks are leading gains suggesting that Fed meeting may be playing a bigger role in the late-day move.” Japanese equities advanced, with the Nikkei 225 posting its first gain in six sessions, as the market looked ahead to remarks Friday from Fed Chair Jerome Powell at the Jackson Hole meeting. The Nikkei rose 0.6% to close at 28,479.01, while the Topix added 0.5% to 1,976.60. Daiichi Sankyo Co. contributed the most to the Topix gain, increasing 4.6%. Out of 2,170 shares in the index, 1,445 rose and 597 fell, while 128 were unchanged. “Investors will continue to take a wait-and-see stance until after the speech by Chairman Powell scheduled for the 26th,” said Takashi Ito, a senior strategist at Nomura Securities. “After a round of buying, there is a possibility that there will be a small drop.”  Australia,'s S&P/ASX 200 index rose 0.7% to close at 7,048.10, driven by gains in banks and mining shares. The materials sub-gauge rallied to its highest level since June 16, amid advances in iron ore prices.  Uranium company Paladin was the top performer, surging after Japan said it is planning a dramatic shift back to nuclear power more than a decade on from the Fukushima disaster. City Chic was the biggest decliner after it flagged an uncertain outlook.  In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,627.14 In FX, the Bloomberg Dollar Spot Index fell as the greenback weakened against all of its Group-of-10 peers. The Aussie led G-10 gains, jumping as much as 1.1% against the greenback as traders turned more optimistic after China announced fresh economic stimulus with a further $146 billion of funding largely focused on infrastructure spending. Australia’s dollar outperformed the kiwi after New Zealand reported disappointing retail sales data. The euro rose to briefly trade above parity against the dollar. Germany’s economy proved more resilient than initially thought in the second quarter, growing 0.1% despite surging inflation and the war in Ukraine; the initial reading was 0%. Separately, German Aug. Ifo business confidence came in at 88.5 vs est. 86.8. The gauge of business expectations for the next six months inched down to 80.3 from 80.4, but better than forecast 79.0. Yen rose on flows-driven trade amid a decline in US yields and general dollar weakness during Asian hours In rates, Treasury futures were off session highs into the early US session, although yields remained richer by 1bp-2bp across the curve, following wider gains across UK gilts where 10s rally as much as 7bp on the day. US 10-year yields around 3.09%, richer by ~1bp on the day with bunds and gilts outperforming by 2bp and 5bp in the sector; curves steady with gains seen across maturities. US auctions conclude with 7-year note sale at 1pm New York time. European bonds advanced in a rally that was led by Italian bonds. Gilts outperform USTs and bunds; gilts 2-year yields drop ~10bps to 2.81%. USTs push higher, led by the belly.  Bunds 2-year yield down about 5.5bps to 0.85%. Peripheral spreads tighten to Germany with 10y BTP/Bund narrowing 5.1bps to 225.7bps.  Benchmark 10-year JGB yield climbed to its highest in more than a month. The yield on China’s 10-year government bonds rises the most since June 27 after the State Council outlined a 19-point policy package to stimulate the economy. The 10-year yield advanced 3bps to 2.66% while the 30-year note yield gained 3bps to 3.14%. Bitcoin is essentially unchanged but closer to the top-end of circa. USD 500 parameters that reside well within the USD 21k area. WTI jerked drifts 0.4% higher to around $95 after the WSJ reported that the OPEC president is open to cutting oil production. Most base metals trade in the green; LME copper rises 1.4%, outperforming peers. Spot gold rises roughly $13 to trade near $1,764/oz.  Natural gas has surged to fresh highs, intensifying an energy crisis that threatens the euro-area economy and hence the global outlook. Looking at the day ahead, data releases from the US include the weekly initial jobless claims, the second estimate of Q2 GDP and the Kansas City Fed’s manufacturing activity in index. In Germany there’s also the Ifo Institute’s business climate indicator for August. Otherwise from central banks, we’ll get the account of the ECB’s July meeting. Market Snapshot S&P 500 futures up 0.9% to 4,179.50 STOXX Europe 600 up 0.7% to 435.05 MXAP up 1.6% to 160.34 MXAPJ up 2.0% to 523.18 Nikkei up 0.6% to 28,479.01 Topix up 0.5% to 1,976.60 Hang Seng Index up 3.6% to 19,968.38 Shanghai Composite up 1.0% to 3,246.25 Sensex up 0.5% to 59,385.35 Australia S&P/ASX 200 up 0.7% to 7,048.13 Kospi up 1.2% to 2,477.26 German 10Y yield little changed at 1.35% Euro up 0.4% to $1.0004 Gold spot up 0.8% to $1,765.17 U.S. Dollar Index down 0.45% to 108.18 Top overnight news from Bloomberg China stepped up its economic stimulus with a further 1 trillion yuan ($146 billion) of funding largely focused on infrastructure spending, support that likely won’t go far enough to counter the damage from repeated Covid lockdowns and a property market slump As the countdown to the Jackson Hole symposium begins, an abrupt shift has taken place in the options market. When trading got underway in Asia on Thursday, investors had to pay more for options which benefit when dollar-yen rises. Just a few hours later, the premium had shifted in favor of options that benefit when the currency pair falls European natural gas extended its blistering rally as the worst supply crunch in decades boosts pressure on politicians to do more to rescue industries and households. Benchmark futures jumped as much as 8.1%, after closing at a record on Wednesday The good news is that Ukraine’s crucial grain is leaving its ports again. The bad news is that farmland lost to the war and weak local prices are threatening its next wheat harvest Climate change is having a “clear impact” on inflation in the euro area, ECB President Christine Lagarde said in an interview The current state of the economy and prices doesn’t allow the Bank of Japan’s easing bias to be shifted to neutral, board member Toyoaki Nakamura tells reporters A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks took impetus from the positive handover from Wall St but with gains capped as attention remained on the looming Jackson Hole Symposium. ASX 200 was led higher by commodity stocks after the recent upside in energy and precious metals. Nikkei 225 was underpinned as the government mulled a further loosening of COVID rules and is expected to extend local travel incentives through next month. Shanghai Comp was initially choppy amid the absence of Stock Connect flows after morning trade in Hong Kong was cancelled, although the mood gradually improved with Hong Kong opening for the afternoon session after the storm signal 8 was dropped and following the recent support pledges by China. Top Asian News Chinese Industry Ministry says will accelerate research and development of new types of batteries including sodium-ion batters and hydrogen energy storage batteries; will improve supply capabilities of key resources including lithium, nickel, cobalt and platinum. Some of China's sate-backed financial firms are said to be pushing back on calls to support the Chinese property sector amid the exposure risk on their balance sheets, according to sources cited by Reuters. BoK hiked its base rate by 25bps to 2.50%, as expected, with the decision unanimous. BoK said inflation will remain high for the time being and export growth is to slow, while Governor Rhee said strong inflation could last longer than previously seen. Furthermore, Rhee noted that policies will continue to be inflation-focused for a while and said there will be no change in the 25bps rate increase stance for the foreseeable future. China Human Resources Ministry official said they will focus on expanding jobs and will promote fiscal, monetary and industrial policies to support job market stabilisation, according to Reuters. European bourses are essentially unchanged, Euro Stoxx 50 -0.1%, as an initial pronounced foray higher around the cash open that occurred without driver has dissipated since. Fresh drivers have been slim with the German Ifo release sparking a brief extension on initial gains of circa. 50 points in Euro Stoxx 50, for instance. Stateside, futures remain modestly firmer but are similarly off best levels, ES +0.5%, ahead of Jackson Hole beginning today (Powell on Friday). Top European News ECB's Lagarde says "we can no longer rely exclusively on the projections provided by our models – they have repeatedly had to be revised upwards over these past two years.". Private Jet Shortage Hits English Football’s Pre-Match Prep Veolia Must Sell 3 Businesses to Complete Suez Deal, UK Says Germany Aug. IFO Business Confidence Index 88.5; Est. 86.8 London’s Stock Market Misery Grows as Delistings Add to IPO Woes Commodities WTI and Brent October contracts consolidated in the early hours following a session of gains yesterday. Spot gold is edging higher in tandem with the decline in the Dollar, with the yellow metal approaching its 50 and 21 DMAs. Base metal futures are mostly firmer amid the softer Dollar, with 3M LME copper making its way further above USD 8,000/t. Caspian Pipeline Consortium says the SPM-3 inspection has completed, mooring point is fine to work, via Reuters. Italian government to update emergency plan for gas next week; will not announce gas rationing plan for now, according to Reuters citing government sources; to include tougher measures in case of further cut or stop of Russian gas flows. German Network Regulator VP says is on right track with gas storage but more must be done; will reach 85% storage by October 1st Fixed Income Core benchmarks have derived a pronounced upward bias, despite pronounced pressure alongside initial equity strength and post-Ifo. Pressure which has dissipated and given way to modest across the board strength with Bunds eyeing 151.00, Gilts above 111.00 and USTs firmer by 4 ticks. Yield dynamics are mixed and are modestly off earlier WTD peaks given the above action, US 7yr due, Central Banks ECB's Lagarde says "we can no longer rely exclusively on the projections provided by our models – they have repeatedly had to be revised upwards over these past two years.". BoJ Board Member Nakamura says JPY has weakened significantly so far this year, high volatility has had big impact on Japan's economy; premature to tweak the BoJ's dovish guidance now, there are pros and cons to soft JPY, therefore will watch carefully but there is not much the BoJ can do as moves are driven by changes in US economy. South Korean Presidential Office says closely monitoring forex markets, will take timely measures to stabilise the market. Fed's Bostic (2024 Voter) says he has not decided whether a 50bp or 75bp increase is appropriate in September, at this point it is a coin toss, via WSJ. Key employment and inflation reports are due prior to the meeting, if data remains strong and inflation clearly doesn't soften then it may make the case for another 75bp move. Too soon to say the inflation surge has peaked, some hopeful signs. Cautioned that expectations the Fed could reverse course in short-order and reduce rates fairly soon is misguided. Upbeat on the economic outlook. US Event Calendar 08:30: 2Q GDP Annualized QoQ, est. -0.7%, prior -0.9% Personal Consumption, est. 1.5%, prior 1.0% GDP Price Index, est. 8.7%, prior 8.7% PCE Core QoQ, est. 4.4%, prior 4.4% 08:30: Aug. Initial Jobless Claims, est. 252,000, prior 250,000 Continuing Claims, est. 1.44m, prior 1.44m 11:00: Aug. Kansas City Fed Manf. Activity, est. 10, prior 13 DB's Jim Reid concludes the overnight wrap It’s been an eventful 24 hours for markets, with sovereign bonds selling off again as investors keep ratcheting up their expectations for central bank rate hikes over the months ahead. Fed Chair Powell’s speech at Jackson Hole tomorrow could throw some more light on how far they’ll go, but the rise in yields has shown no sign of relenting ahead of that, not least since the energy situation in Europe keeps getting worse. In turn, that’s adding to fears that “peak inflation” might not actually have arrived yet for some countries, whilst policymakers are about to face some unenviable choices as they grapple with the worst stagflation we’ve seen in decades. In terms of the specific moves yesterday, European natural gas futures (+8.59%) settled at another record high of €292 per megawatt-hour amidst growing supply concerns as we head towards the winter months. That wasn’t helped by the news after the European close the previous day, as Freeport LNG said that their natural gas terminal in Texas wouldn’t restart until early to mid-November, having previously been aiming for October. In addition, there’s also the usual Russian supply issues of late to contend with, and there are serious worries that flows through the Nord Stream pipeline might not resume at all following maintenance for three days from August 31. There wasn’t much respite to be found elsewhere either, as German power prices for next year hit a fresh record of their own at €643 per megawatt-hour. With these supply shocks continuing to fester, investors moved to price in an increasingly aggressive response from central banks. In fact for the ECB, the hikes now priced in for 2022 are the most rapid we’ve seen to date, with an additional +133bps priced by year-end on top of the +50bps we already had in July. And looking further out, overnight index swaps are pricing in +194bps of hikes by June 2023 relative to today, which is up by +9.1bps on the day before. So it was little surprise that sovereign bonds lost ground across the continent, with yields on 10yr bunds (+5.2bps), OATs (+6.8bps) and BTPs (+3.5bps) all moving higher. Here in the UK those moves were even more pronounced, with gilts underperforming European sovereigns for a 7th consecutive session. That continues a pattern we’ve seen since the release of the stronger-than-expected UK CPI print last week, as investors have also moved to price in faster rate hikes from the Bank of England. Unlike their continental counterparts however, gilt yields are now at multi-year highs once again, with the 10yr gilt yield (+12.2bps) closing at its highest level since 2014, at 2.69%. Furthermore, the 2s10s curve in the UK flattened a further -9.7bps, leaving it deeper in inversion territory than at any time since 2008. Over in the US, all attention is on what Fed Chair Powell might say tomorrow at the Jackson Hole symposium in Wyoming. Nevertheless, the performance for Treasuries echoed what happened in Europe, with 10yr yields up +5.8bps on the day to 3.10%, which is their highest level since late June. They’ve remained fairly stable around those levels overnight too, coming down just -0.9bps. Given the US faces a more favourable situation on the energy side, the moves in central bank pricing weren’t as pronounced as in Europe yesterday. But the peak rate priced in by Fed funds futures for March 2023 still rose +3.5bps on the day as investors continued to adjust their policy expectations closer towards the more hawkish rhetoric from FOMC officials. Equities weren’t too affected by those developments on the rates side yesterday, with the S&P 500 (+0.29%) paring back its initial losses to end a run of 3 consecutive declines. Tech stocks were a big outperformer, with the FANG+ index (+0.96%) of megacap tech stocks seeing sizeable gains, while the NASDAQ (+0.41%) also put in a decent performance. A number of European indices did lose ground on the day however, including the UK’s FTSE 100 (-0.22%) and Spain’s IBEX 35 (-0.35%), although the broader STOXX 600 did manage to advance +0.16%. That trend from the US has continued in Asian markets overnight, where equities are broadly trading higher. One supportive factor has been a further package of measures from China’s State Council that includes 1 trillion yuan focused largely on infrastructure spending. That’s bolstered the Shanghai Composite (+0.41%) and the CSI (+0.13%), although both are lagging the Nikkei (+0.56%) and the Kospi (+0.89%). The latter has seen strong gains after the Bank of Korea only hiked rates by 25bps overnight, marking a step down from the 50bps hike at the July meeting, yet the South Korean Won has still strengthened +0.43% against the US Dollar this morning. The Bank of Korea also moved their forecasts in a stagflationary direction, raising their inflation projection for this year to 5.2%, and cutting their growth forecast to 2.6%. Looking forward, US and European equity futures are pointing towards additional gains today, with those on the S&P 500 up +0.35%. Back on the energy scene, another notable trend over the last week has been a decent recovery in oil prices, with Brent Crude (+1.0%) closing at its highest level so far this month, at $101.22/bbl. And this morning it’s seen further gains as well, up +0.56% to $101.79/bbl. Bear in mind that early last week it had closed at $92.34/bbl, so that’s a recovery of just over +10% since that point. That echoes the recovery we’ve seen in commodities more broadly over recent weeks as well, with Bloomberg’s Commodity Spot Index (+0.67%) closing at a 2-month high yesterday. Separately, we heard from President Biden yesterday, who announced student debt relief of up to $10,000 for those with an individual income of less than $125,000. For Pell Grant recipients, the relief would be up to $20,000. Furthermore, the current pause on federal student loan repayments is being extended again through the rest of 2022, taking that beyond the mid-term elections in November. Speaking of the midterms, there are signs that the Democrats’ political fortunes are continuing to rise after they won the special election for New York’s 19th congressional district, which had been a closely watched swing race. In addition, FiveThirtyEight’s forecast for the Senate now gives the Democrats a 64% chance of retaining control, their highest number to date. For the House, their model puts them at a 22% chance of retaining control. On the data side yesterday we had a mixed set of releases from the US. On the positive side, the preliminary reading for core capital goods orders in July showed a +0.4% gain (vs. +0.3% expected), and the previous month also saw an upward revision of two-tenths to +0.9%. Durable goods orders were unchanged (vs. +0.8% expected), although excluding transportation they were up +0.3% (vs. +0.2% expected). Finally, pending home sales fell -1.0% to their lowest level since April 2020. That was better than the -2.6% decline expected, but if you exclude April 2020 during the lockdowns then you’ve got to go back to September 2011 to find a lower reading for that index, which echoes the decline in various housing indicators we’ve seen recently. To the day ahead now, and data releases from the US include the weekly initial jobless claims, the second estimate of Q2 GDP and the Kansas City Fed’s manufacturing activity in index. In Germany there’s also the Ifo Institute’s business climate indicator for August. Otherwise from central banks, we’ll get the account of the ECB’s July meeting. Tyler Durden Thu, 08/25/2022 - 08:04.....»»

Category: blogSource: zerohedgeAug 25th, 2022

Futures Tumble After UK Double-Digit Inflation Shock Sparks Surge In Yields

Futures Tumble After UK Double-Digit Inflation Shock Sparks Surge In Yields Futures were grinding gingerly higher, perhaps celebrating the end of the Cheney family's presence in Congress, and looked set to re-test Michael Hartnett bearish target of 4,328 on the S&P (which marked the peak of yesterday's meltup before a waterfall slide lower when spoos got to within half a point of the bogey), when algos and the few remaining carbon-based traders got a stark reminder that central banks will keep hammering risk assets after the UK reported a blistering CPI print, which at a double digit 10.1% was not only higher than the highest forecast, but was the highest in 40 years. The print appeared to shock markets out of their month-long levitating complacency, and yields - both in the UK and the US - spiked... ... and with yields surging, futures had no choice but to notice and after trading at session highs just before the UK CPI print, they have since tumbled more than 40 points and were last down 0.85% or 37 points to 4,271. Nasdaq 100 futures retreated 0.9% signaling a selloff in technology names will continue. The dollar rose as investors awaited the minutes of the Fed’s last policy meeting for clues on policy makers’ sensitivity to weaker economic data. In US premarket trading, retail giant Target slumped 4% after reporting earnings that missed expectations despite still predicting a rebound. Applied Materials and PayPal dropped at least 1.3%. Tech stocks are the forefront of the growing pessimism over equity valuations on the back of Fed rate increases. The S&P 500 had posted a small gain on Tuesday, aided by earnings reports from retailers Walmart Inc. and Home Depot. Here are some of the other biggest U.S. movers today: Manchester United (MANU US) rises as much as 17% in US premarket trading before trimming most of the gains, after Tesla CEO Elon Musk said he was buying the English football club but later added that he was joking. Hill International (HIL US) shares rise 61% in premarket trading hours after it announced Global Infrastructure Solutions will commence an all-cash tender offer for $2.85/share in cash, representing a premium of 63% to the last closing price. BioNTech (BNTX US) was initiated with a market perform recommendation at Cowen, which expects demand for Covid-19 vaccines to mirror annual flu trends as the pandemic enters its endemic phase. Bed Bath & Beyond (BBBY US) shares surge 20% in premarket trading, putting the stock on track for its sixth day of gains. The home-goods company has helped reinvigorate a wave of meme stock buying Agilent (A US) saw its price target boosted at brokers as analysts say the scientific testing equipment maker’s results were strong thanks to growth in biopharma and a recovery in China, while the company’s guidance was on the conservative side. Shares rose . Jefferies initiated coverage of Waldencast Plc (WALD US) class A with a buy recommendation as analyst Stephanie Wissink sees 29% upside potential. Sea Ltd. (SE US) ADRs slipped as much as 2.1% in US premarket trading, extending Tuesday’s declines, as Morgan Stanley cut its PT on expectations of slowing growth at the Shopee owner’s e-commerce business in the third quarter. Weber (WEBR US) downgraded to sell from neutral at Citi, which says there are too many concerns to remain on the sidelines, including a decline in point-of-sale traffic and macro factors like inflation weighing on consumer demand In the past two months, US stocks rallied on signs of peaking inflation and an earnings-reporting season that saw four out of five companies meeting or beating estimates. Boosted by relentless systematic (CTA) buying and retail-driven short squeezes, as well as a surge in buybacks, stocks recovered more than 50% of the bear market retracement. Yet, continuing rate hikes and the likelihood of a recession in the world’s largest economy are weighing on sentiment. Meanwhile, concern is growing that Fed rate setters will remain focused on the fight against inflation rather than supporting growth. “We expect the FOMC minutes to have a hawkish tilt,” Carol Kong, strategist at Commonwealth Bank of Australia Ltd., wrote in a note. “We would not be surprised if the minutes show the FOMC considered a 100 basis-point increase in July.” In Europe, the Stoxx 600 fell after a strong start amid signs the continent’s energy crisis is worsening. Benchmark natural-gas futures jumped as much as 5.1% on expectations the hot weather will boost demand for cooling. In the UK, consumer-price growth jumped to 10.1%, sending gilts tumbling. Real estate, retailers and miners are the worst performing sectors. The Stoxx 600 Real Estate Index declined 2%, making it the worst-performing sector in the wider European market, as focus turned to UK inflation that soared to double digits for the first time in four decades and also to today's FOMC minutes. German and Swedish names almost exclusively account for the 10 biggest decliners. TAG Immobilien drops 5.4%, Wallenstam is down 4.7%, Castellum falls 4% and LEG Immobilien declines 3.3%. The sector tumbles on rising bond yields, with 10y Bund yield up 11bps, and dwindling demand for Swedish real estate amid rising rates. Earlier on Wednesday, stocks rose in Asia amid speculation that China may deploy more stimulus to shore up its ailing economy while Japanese exporters were boosted by a weaker yen. After a string of weak data driven by a property-sector slump and Covid curbs, China’s Premier Li Keqiang asked local officials from six key provinces that account for 40% of the economy to bolster pro-growth measures. The MSCI Asia Pacific Index advanced as much as 0.8%, with consumer-discretionary and industrial stocks such as Japanese automakers Toyota and Honda among the leaders on Wednesday. The benchmark Topix erased its year-to-date loss. Chinese food-delivery platform Meituan also rebounded after dropping more than 9% in the previous session on a Reuters report that Tencent may divest its stake in the firm. Chinese stocks erased declines early in the day, as investors hoped for more economic stimulus after a surprise rate cut on Monday failed to excite the market. Premier Li Keqiang has asked local officials from six key provinces that account for about 40% of the country’s economy to bolster pro-growth measures. “I believe policymakers have the tools to prevent a hard landing if needed,” Kristina Hooper, chief global market strategist at Invesco, said in a note. “I find investors are overly pessimistic about Chinese stocks -- which means there is the potential for positive surprise.” Asia’s stock benchmark is trading at mid-June levels as traders attempt to determine the trajectory of interest-rate hikes and economic growth globally -- as well as the impact of China’s property crisis and Covid policies. Meanwhile, minutes of the US Federal Reserve’s July policy meeting, out later Wednesday, will be carefully parsed. New Zealand stocks closed little changed as the country’s central bank raised interest rates by a half percentage point for a fourth-straight meeting. Australia's S&P/ASX 200 index rose 0.3% to close at 7,127.70, supported by materials and consumer discretionary stocks. South Korea’s benchmark missed out on the rally across Asian equities, as losses by large-cap exporters weighed on the measure In FX, the Bloomberg Dollar Spot Index rose as the dollar gained versus most of its Group-of-10 peers. The pound was the best G-10 performer while gilts slumped, led by the short end and sending 2-year yields to their highest level since 2008, after UK inflation accelerated more than expected in July. The yield curve inverted the most since the financial crisis as traders ratcheted up bets on BOE rate hikes in money markets, wagering on 200 more basis points of hikes by May. The euro traded in a narrow range against the dollar while the region’s bonds slumped, led by the front end. Scandinavian currencies recovered some early European session losses while the aussie, kiwi and yen extended their slide in thin trading. EUR/NOK one-day volatility touched a 15.12% high before paring ahead of Norges Bank’s meeting Thursday where it may have to raise rates by a bigger margin than indicated in June given Norway’s inflation exceeded forecasts for a fourth straight month, hitting a new 34-year high. Consumer sentiment in Norway fell to the lowest level since data began in 1992, according to Finance Norway. New Zealand’s dollar and bond yields both rose in response to the Reserve Bank hiking rates by 50bps, while flagging concern about labor market pressures and consequent wage inflation; the currency subsequently gave up gains in early European trading. The Aussie slumped after data showing the nation’s wages advanced at less than half the pace of inflation in the three months through June, backing the Reserve Bank’s move to give itself more flexibility on interest rates. In rates, treasuries held losses incurred during European morning as gilt yields climbed after UK inflation rose more than forecast. US 10-year around 2.87% is 6.5bp cheaper on the day vs ~13bp for UK 10-year; UK curve aggressively bear-flattened following inflation data, with long-end yields rising about 10bp. Front-end UK yields remain cheaper by ~20bp, off session highs, leading a global government bond selloff. US yields are higher on the day by by 4bp-7bp; focal points of US session are 20-year bond auction and FOMC minutes release an hour later. Treasury auctions resume with $15b 20-year bond sale at 1pm ET; WI 20-year yield at around 3.35% is ~7bp richer than July’s sale, which stopped 2.7bp through the WI level. In commodities, oil fluctuated between gains and losses, and was in sight of a more than six-month low -- reflecting lingering worries about a tough economic outlook amid high inflation and tightening monetary policy.  Spot gold is little changed at $1,774/oz Looking at the day ahead, the FOMC minutes from July will be the main highlight, and the other central bank speaker will be Fed Governor Bowman. Otherwise, earnings releases include Target, Lowe’s and Cisco Systems, and data releases include US retail sales and UK CPI for July. Market Snapshot S&P 500 futures down 0.3% to 4,293.00 STOXX Europe 600 little changed at 443.30 MXAP up 0.5% to 163.48 MXAPJ up 0.2% to 530.38 Nikkei up 1.2% to 29,222.77 Topix up 1.3% to 2,006.99 Hang Seng Index up 0.5% to 19,922.45 Shanghai Composite up 0.4% to 3,292.53 Sensex up 0.5% to 60,168.83 Australia S&P/ASX 200 up 0.3% to 7,127.68 Kospi down 0.7% to 2,516.47 German 10Y yield little changed at 1.06% Euro little changed at $1.0178 Gold spot down 0.0% to $1,775.21 U.S. Dollar Index little changed at 106.50 Top Overnight News from Bloomberg More market prognosticators are alighting on the idea of benchmark Treasury yields sliding to 2% if the US succumbs to a recession. That’s an out-of-consensus call, compared with Bloomberg estimates of about a 3% level by the end of this year and similar levels through 2023. But it’s a sign of how growth worries are forcing a rethink in some quarters The euro-area economy grew slightly less than initially estimated in the second quarter as signs continue to emerge that momentum is unraveling. Output rose 0.6% from the previous three months between April and June, compared with a preliminary reading of 0.7%, Eurostat said Wednesday Egypt became a prime destination for hot money by tethering its currency and boasting the world’s highest interest rates when adjusted for inflation Norway’s $1.3 trillion sovereign wealth fund, the world’s largest, posted its biggest loss since the pandemic as rate hikes, surging inflation and Russia’s invasion of Ukraine spurred volatility. It lost an equivalent of $174 billion in the six months through June, or 14.4% A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks just about shrugged off the choppy lead from the US where markets were tentative amid mixed data signals and strong retailer earnings, but with gains capped overnight ahead of the FOMC Minutes and as participants digested another 50bps rate hike by the RBNZ. ASX 200 swung between gains and losses with the index indecisive amid a slew of earnings and with strength in the consumer sectors offset by underperformance in tech, energy and healthcare. Nikkei 225 climbed above the 29,000 level with the index unfazed by mixed data releases in which Machinery Orders disappointed although both Exports and Imports topped forecasts. Hang Seng and Shanghai Comp were somewhat varied with Hong Kong led higher by tech amid plenty of attention on Meituan after reports its largest shareholder Tencent could reduce all or the bulk of its shares in the Co. which a Tencent executive later refuted, while the mainland was less decisive amid headwinds from the ongoing COVID situation and with power restrictions disrupting activity in Sichuan, although reports also noted that Chinese Premier Li told top provincial officials that they must have a sense of urgency to consolidate the economic recovery and reiterated to step up macro policies. Top Asian News RBNZ hiked the OCR by 50bps to 3.00%, as expected, while it stated that conditions need to continue to tighten and they agreed that maintaining the current pace of tightening remains the best means. RBNZ also agreed that further increases in the OCR were required to meet the remit objective and that domestic inflationary pressures had increased since May. Furthermore, the RBNZ raised its projections for the OCR and inflation with the OCR seen at 3.69% in Dec. 2022 (prev. 3.41%) and at 4.1% for both Sept. 2023 and Dec. 2023 (prev. 3.95%), while it sees annual CPI at 4.1% by Sept. 2023 (prev. 3.0%). RBNZ Governor Orr stated at the press conference that they are not forecasting a recession but expected below-potential growth amid subdued consumer spending. Governor Orr also stated that they did not discuss a 75bps rate hike today and that 50bps moves have been orderly and sufficient, while he added that getting rates to 4% would buy comfort for the policy committee and that a Cash Rate of around 4% is unambiguously above neutral and sufficient to meet the inflation mandate. Chongqing, China is to curb power use for eight days for industry. China’s Infrastructure Boom Gets Swamped by Property Woes Tencent 2Q Revenue Misses Estimates Hong Kong Denies Democracy Advocates Security Law Jury Trial UN Expert Says Xinjiang Forced Labor Claims ‘Reasonable’ Singapore’s COE Category B Bidding Hits New Record Delayed Deals Add to Floundering Singapore IPO Market: ECM Watch European bourses have dipped from initial mixed/flat performance and are modestly into negative territory, Euro Stoxx 50 -0.5%. Stateside, futures are under similar pressure awaiting fresh corporate updates and the July FOMC Minutes, ES -0.6%. Fresh drivers relatively limited throughout the session with known themes in play and focus on upcoming risk events; stocks also suffering on further hawkish yield action. Lowe's Companies Inc (LOW) Q1 2023 (USD): EPS 4.68 (exp. 4.58), Revenue 27.47 (exp. 28.12bln); expect FY22 total & comp. sales at bottom-end of outlook range, Operating Income and Diluted EPS at top-end. Target Corp (TGT) Q1 2023 (USD): EPS 0.39 (exp. 0.72), Revenue 26.0bln (exp. 26.04bln); current trends support prior guidance. Top European News German Gas to Last Less Than 3 Months if Russia Cuts Supply European Gas Surges Again as Higher Demand Compounds Supply Pain Entain Falls; Citi Views Fine Negatively but Notes Steps by Firm UK Inflation Hits Double Digits for the First Time in 40 Years Crypto.com Receives Registration as UK Cryptoasset Provider FX Greenback underpinned ahead of US retail sales data and FOMC minutes, DXY holds tight around 106.500. Pound pegged back after spike in wake of stronger than expected UK inflation metrics, Cable hovers circa 1.2100 after fade into 1.2150. Kiwi retreats following knee jerk rise on the back of hawkish RBNZ hike, NZD/USD near 0.6300 from 0.6380+ overnight peak. Aussie undermined by marginally softer than anticipated wage prices and lower RBA tightening bets in response, AUD/USD well under 0.7000 vs 0.7026 at one stage. Yen weaker as yield differentials widen again, but Euro cushioned by more pronounced EGB reversal vs USTs, USD/JPY probes 21 DMA just below 135.00, EUR/USD bounces from around 1.0150 towards 1.0200. Loonie and Nokkie soft amidst latest slippage in oil, USD/CAD closer to 1.2900 than 1.2800, EUR/NOK nudging 9.8600 within 9.8215-9.8740 range. Fixed Income Debt retracement ongoing and gathering pace ahead of Wednesday's key risk events. Bunds now closer to 154.00 than 156.00 and 157.00 only yesterday, Gilts not far from 114.50 vs almost 116.00 and 117.00+ earlier this week and T-note sub-119-00 vs 119-31 at best on Monday. Sonia strip hit hardest as markets price in aggressive BoE hikes in response to UK inflation data toppy already elevated expectations. Commodities Crude benchmarks are currently little changed overall, having recovered from a bout of initial pressure; newsflow thin awaiting fresh JCPOA developments Spot gold is little changed overall but with a slight negative bias as the USD remains resilient and outpaces the yellow metal as the haven of choice. Aluminium is the clear outperformer amid updates from Norsk Hydro that they are shutting production at their Slovalco site (175k/T year) by end-September, due to elevated energy prices. OPEC Sec Gen says he sees a likelihood of an oil-supply squeeze this year, open for dialogue with the US. Still bullish on oil demand for 2022. Too soon to call the outcome of the September 5th gathering. Spare capacity at around the 2-3mln BPD mark, "running on thin ice". US Private Inventory Data (bbls): Crude -0.4mln (exp. -0.3mln), Cushing +0.3mln, Gasoline -4.5mln (exp. -1.1mln), Distillates -0.8mln (exp. +0.4mln). Shell (SHEL LN) announced it is to shut its Gulf of Mexico Odyssey and Delta crude pipelines for two weeks in September for maintenance, according to Reuters. Uniper (UN01 GY) says the energy supply situation in Europe is far from easing and gas supply in winter remains "extremely challenging". China sets the second batch of the 2022 rare earth mining output quota at 109.2k/T, via Industry Ministry; smelting/separation quota 104.8k/T. Geopolitics China's military is to partake in a military exercise in Russia, their participation has nothing to do with the international situation. Taiwan's Defence Ministry says they have detected 21 Chinese aircraft and five ships around Taiwan on Wednesday, via Reuters. Iran is calling on the US to free jailed Iranian's, says they are prepared for prisoner swaps, via Fars. US Event Calendar 07:00: Aug. MBA Mortgage Applications, prior 0.2% 08:30: July Retail Sales Advance MoM, est. 0.1%, prior 1.0% 08:30: July Retail Sales Ex Auto MoM, est. -0.1%, prior 1.0% 08:30: July Retail Sales Control Group, est. 0.6%, prior 0.8% 10:00: June Business Inventories, est. 1.4%, prior 1.4% 14:00: July FOMC Meeting Minutes DB's Tim Wessel concludes the overnight wrap Starting in Europe, where the looming energy crisis remains at the forefront. An update from our team, who just published the fourth edition of their indispensable gas monitor (link here), where they note the surprisingly fast rebuild of German gas storage, driven by reductions in industrial activity, reduces the risk that rationing may become reality this winter. Many more insights within, so do read the full piece for analysis spanning scenarios. Keep in mind, that while gas may be available, it is set to come at a higher clearing price, which manifest itself in markets yesterday where European natural gas futures rose a further +2.64% to €226 per megawatt-hour, just shy of their closing record at €227 in March. But, that’s still well beneath their intraday high from March, where at one point they traded at €345. Further, one-year German power futures increased +6.30%, breaching €500 for the first time, closing at €507. Germany is weighing consumer relief measures in light of climbing consumer prices and also announced that planned nuclear facility closures would be “temporarily” postponed. The upward energy price pressure and attenuated (albeit, not eliminated) risk of rationing pushed European sovereign yields higher. 10yr German bunds climbed +7.1bps to 0.97%, while 10yr OATs kept the pace, increasing +7.4bps. 10yr BTPs increased +15.9bps, widening sovereign spreads, while high yield crossover spreads widened +10.2bps in the credit space. Equities were resilient, however, with the STOXX 600 posting a +0.16% gain after flitting around a narrow range all day. Regional indices were also robust to climbing energy prices, with the DAX up +0.68% and the CAC +0.34% higher. In the States the S&P 500 registered a modest +0.19% gain, with the NASDAQ mirroring the index, falling -0.19%. Retail shares drove the S&P on the day, with the two consumer sectors both gaining more than +1%, following strong earnings reports from Wal Mart and Home Depot. Treasury yields also climbed, but the story was the further flattening in the curve. 2yr yields were +7.5bps higher while 10yr yields managed to increase just +1.6bps, leaving 2s10s at its second most negative close of the cycle at -46bps. 10yr yields are another basis point higher this morning. A hodgepodge of data painted a mixed picture. Housing permits beat expectations (+1674k vs. +1640k) while starts (+1446k vs. +1527k) fell to their slowest pace since February 2021. However, under the hood, even permits weren’t necessarily as strong as first glance, as single family permits fell -4.3% with gains in multifamily pushing the aggregate higher. Indeed, year-over-year, single family permits have now fallen -11.7% while multifamily permits are +23.5% higher. So the single family housing market continues to feel the impact of Fed tightening. Meanwhile, industrial production climbed +0.6% month-over-month (vs. +0.3%), with capacity utilization hitting its highest level since 2008 at 80.3%. Drifting north of the border, Canadian inflation slowed to 7.6% YoY in July in line with estimates, while the average of core measures climbed to a record 5.3%. Bank of Canada Governor Macklem penned an opinion piece saying that while it looks like inflation may have peaked, “the bad news is that inflation will likely remain too high for some time.” In turn, Canadian OIS rates by December climbed +16.2bps. In other data, the expectations component of the German ZEW survey fell to -55.3, its lowest level since October 2008 at the depths of the GFC. In the UK, regular pay (excluding bonuses) fell by -3.0% in real terms over the year to April-June 2022, its fastest decline on record. On the Iranian nuclear deal, EU negotiators reportedly found Iran’s response constructive, though Iran still had some concerns. Notably, Iran is looking for guarantees that if a future US administration withdraws from the JCPOA the US will "have to pay a price”, seeking insulation from the vagaries of representative democracy. Asian equity markets are trading higher after Wall Street’s solid performance overnight. The Nikkei (+0.76%) is leading gains across the region with the Hang Seng (+0.57%), the Shanghai Composite (+0.23%) and the CSI (+0.51%) all rebounding from its opening losses this morning. US futures are struggling to gain traction this morning with the S&P 500 (-0.02%) and NASDAQ 100 (-0.09%) trading just below flat. The Reserve Bank of New Zealand lifted its official cash rate (OCR) for the fourth consecutive time by an expected +50bps to 3%, a seven-year high, while bringing forward the estimate of future rate increases. The central bank expects the OCR will reach 3.69% at the end of this year and expects it to peak at 4.1% in March 2023, higher and sooner than previously forecast. Early morning data coming out from Japan showed that exports rose +19.0% y/y in July (v/s +17.6% expected) posting 17 straight months of gains while imports advanced +47.2% (v/s +45.5% expected) driven by global fuel inflation and a weakening yen. With the imports outweighing exports, the nation reported trade deficit for the 14th consecutive month, swelling to -2.13 trillion yen in July (v/s -1.91 trillion yen expected) compared to a revised deficit of -1.95 trillion yen in June. In terms of the day ahead, the FOMC minutes from July will be the main highlight, and the other central bank speaker will be Fed Governor Bowman. Otherwise, earnings releases include Target, Lowe’s and Cisco Systems, and data releases include US retail sales and UK CPI for July. Tyler Durden Wed, 08/17/2022 - 07:55.....»»

Category: dealsSource: nytAug 17th, 2022