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Dow Jones Newswires: Bank of Korea raises base rate, tightens policy to curb inflation

South Korea's central bank has raised its base rate for the second time in three months as it seeks to curb accelerating inflation and soaring household debt......»»

Category: topSource: marketwatchNov 24th, 2021

BTFDers Unleashed: Futures, Yields, Oil Jump As Omicron Panic Eases

BTFDers Unleashed: Futures, Yields, Oil Jump As Omicron Panic Eases As expected over the weekend, and as we first noted shortly after electronic markets reopened for trading on Sunday, S&P futures have maintained their overnight gains and have rebounded 0.7% while Nasdaq contracts jumped as much as 1.3% after risk sentiment stabilized following Friday’s carnage and as investors settled in for a few weeks of uncertainty on whether the Omicron variant would derail economic recoveries and the tightening plans of some central banks. Japan led declines in the Asian equity session (which was catching down to Friday's US losses) after the government shut borders to visitors. The region’s reopening stocks such as restaurants, department stores, train operators and travel shares also suffered some losses.  Oil prices bounced $3 a barrel to recoup some of Friday's rout, while the safe haven yen, Swiss franc and 10Y Treasury took a breather after its run higher. Moderna shares jumped as much as 12% in pre-market trading after Chief Medical Officer Paul Burton said he suspects the new omicron coronavirus variant may elude current vaccines, and if so, a reformulated shot could be available early in the new year. Which he would obviously say as his company makes money from making vaccines, even if they are not very efficient. Here are some of the other notable premarket movers today: BioNTech (BNTX US) advanced 5% after it said it’s starting with the first steps of developing a new adapted vaccine, according to statement sent by text. Merck & Co. (MRK US) declined 1.6% after it was downgraded to neutral from buy at Citi, which also opens a negative catalyst watch, with “high probability” the drugmaker will abandon development of its HIV treatment. A selection of small biotechs rise again in U.S. premarket trading amid discussion of the companies in StockTwits and after these names outperformed during Friday’s market rout. Palatin Tech (PTN US) +37%, Biofrontera (BFRI US) +22%, 180 Life Sciences (ATNF US) +19%. Bonds gave back some of their gains, with Treasury futures were down 11 ticks. Like other safe havens, the market had rallied sharply as investors priced in the risk of a slower start to rate hikes from the U.S. Federal Reserve, and less tightening by some other central banks. Needless to say, Omicron is all anyone can talk about: on one hand, authorities have already orchestrated a lot of global panic: Britain called an urgent meeting of G7 health ministers on Monday to discuss developments on the virus, even though the South African doctor who discovered the strain and treated cases said symptoms of Omicron were so far mild. The new variant of concern was found as far afield as Canada and Australia as more countries such as Japan imposed travel restriction to try to seal themselves off. Summarizing the fearmongering dynamic observed, overnight South African health experts - including those who discovered the Omicron variant, said it appears to cause mild symptoms, while the Chinese lapdog organization, WHO, said the variant’s risk is “extremely high”. Investors are trying to work out if the omicron flareup will a relatively brief scare that markets rebound from, or a bigger blow to the global economic recovery. Much remains unanswered about the new strain: South African scientists suggested it’s presenting with mild symptoms so far, though it appears to be more transmissible, but the World Health Organization warned it could fuel future surges of Covid-19 with severe consequences. "There is a lot we don't know about Omicron, but markets have been forced to reassess the global growth outlook until we know more," said Rodrigo Catril, a market strategist at NAB. "Pfizer expects to know within two weeks if Omicron is resistant to its current vaccine, others suggest it may take several weeks. Until then markets are likely to remain jittery." "Despite the irresistible pull of buying-the-dip on tenuous early information on omicron, we are just one negative omicron headline away from going back to where we started,” Jeffrey Halley, a senior market analyst at Oanda, wrote in a note. “Expect plenty of headline-driven whipsaw price action this week.” The emergence of the omicron strain is also complicating monetary policy. Traders have already pushed back the expected timing of a first 25-basis-point rate hike by the Federal Reserve to July from June. Fed Bank of Atlanta President Raphael Bostic played down economic risks from a new variant, saying he’s open to a quicker paring of asset purchases to curb inflation. Fed Chair Jerome Powell and Treasury Secretary Janet Yellen speak before Congress on Tuesday and Wednesday. “We know that central banks can quickly switch to dovish if they need to,” Mahjabeen Zaman, Citigroup senior investment specialist, said on Bloomberg Television. “The liquidity playbook that we have in play right now will continue to support the market.” European stocks rallied their worst drop in more than a year on Friday, with travel and energy stocks leading the advance. The Stoxx 600 rose 0.9% while FTSE 100 futures gain more than 1%, aided by a report that Reliance may bid for BT Group which jumped as much as 9.5% following a report that India’s Reliance Industries may offer to buy U.K. phone company, though it pared the gain after Reliance denied it’s considering a bid. European Central Bank President Christine Lagarde put a brave face on the latest virus scare, saying the euro zone was better equipped to face the economic impact of a new wave of COVID-19 infections or the Omicron variant Japanese shares lead Asian indexes lower after Premier Kishida announces entry ban of all new foreign visitors. Hong Kong’s benchmark Hang Seng Index closed down 0.9% at the lowest level since October 2020, led by Galaxy Entertainment and Meituan. The index followed regional peers lower amid worries about the new Covid variant Omicron. Amid the big movers, Galaxy Entertainment was down 5.4% after police arrested Macau’s junket king, while Meituan falls 7.1% after reporting earnings. In FX, currency markets are stabilizing as the week kicks off yet investors are betting on the possibility of further volatility. The South African rand climbed against the greenback though most emerging-market peers declined along with developing-nation stocks. Turkey’s lira slumped more than 2% after a report at the weekend that President Recep Tayyip Erdogan ordered a probe into foreign currency trades. The Swiss franc, euro and yen retreat while loonie and Aussie top G-10 leaderboard after WTI crude futures rally more than 4%. The Bloomberg Dollar Spot Index hovered after Friday’s drop, and the greenback traded mixed against its Group-of-10 peers; commodity currencies led gains. The euro slipped back below $1.13 and Bunds sold off, yet outperformed Treasuries. The pound was steady against the dollar and rallied against the euro. Australian sovereign bonds pared an opening jump as Treasuries trimmed Friday’s spike amid continuing uncertainty over the fallout from the omicron variant. The Aussie rallied with oil and iron ore. The yen erased an earlier decline as a government announcement on planned border closures starting Tuesday spurred a drop in local equities. The rand strengthens as South African health experts call omicron variant “mild.” In rates, Treasuries were cheaper by 4bp-7bp across the curve in belly-led losses, reversing a portion of Friday’s sharp safe-haven rally as potential economic impact of omicron coronavirus strain continues to be assessed. The Treasury curve bear- steepened and the benchmark 10-year Treasury yield jumped as much as 7 basis points to 1.54%; that unwound some of Friday’s 16 basis-point plunge -- the steepest since March 2020.  Focal points include month-end on Tuesday, November jobs report Friday, and Fed Chair Powell is scheduled to speak Monday afternoon. Treasuries broadly steady since yields gapped higher when Asia session began, leaving 10-year around 1.54%, cheaper by almost 7bp on the day; front-end outperformance steepens 2s10s by ~3bp. Long-end may draw support from potential for month-end buying; Bloomberg Treasury index rebalancing was projected to extend duration by 0.11yr as of Nov. 22 In commodities, oil prices bounced after suffering their largest one-day drop since April 2020 on Friday. "The move all but guarantees the OPEC+ alliance will suspend its scheduled increase for January at its meeting on 2 December," wrote analyst at ANZ in a note. "Such headwinds are the reason it's been only gradually raising output in recent months, despite demand rebounding strongly." Brent rebounded 3.9% to $75.57 a barrel, while U.S. crude rose 4.5% to $71.24. Gold has so far found little in the way of safe haven demand, leaving it stuck at $1,791 an ounce . SGX iron ore rises almost 8% to recoup Friday’s losses. Bitcoin rallied after falling below $54,000 on Friday. Looking at today's calendar, we get October pending home sales, and November Dallas Fed manufacturing activity. We also get a bunch of Fed speakers including Williams, Powell making remarks at the New York Fed innovation event, Fed’s Hassan moderating a panel and Fed’s Bowman discussing central bank and indigenous economies. Market Snapshot S&P 500 futures up 0.6% to 4,625.00 MXAP down 0.9% to 191.79 MXAPJ down 0.4% to 625.06 Nikkei down 1.6% to 28,283.92 Topix down 1.8% to 1,948.48 Hang Seng Index down 0.9% to 23,852.24 Shanghai Composite little changed at 3,562.70 Sensex up 0.4% to 57,307.46 Australia S&P/ASX 200 down 0.5% to 7,239.82 Kospi down 0.9% to 2,909.32 STOXX Europe 600 up 0.7% to 467.47 German 10Y yield little changed at -0.31% Euro down 0.3% to $1.1283 Brent Futures up 3.8% to $75.49/bbl Gold spot up 0.3% to $1,797.11 U.S. Dollar Index up 0.13% to 96.22 Top Overnight News from Bloomberg The omicron variant of Covid-19, first identified in South Africa, has been detected in locations from Australia to the U.K. and Canada, showing the difficulties of curtailing new strains While health experts in South Africa, where omicron was first detected, said it appeared to cause only mild symptoms, the Geneva-based WHO assessed the variant’s risk as “extremely high” and called on member states to test widely. Understanding the new strain will take several days or weeks, the agency said All travelers arriving in the U.K. starting at 4 a.m. on Nov. 30 must take a PCR coronavirus test on or before the second day of their stay and isolate until they receive a negative result. Face coverings will again be mandatory in shops and other indoor settings and on public transport. Booster shots may also be approved for more age groups within days, according to Health Secretary Sajid Javid The economic effects of the successive waves of the Covid pandemic have been less and less damaging, Bank of France Governor Francois Villeroy de Galhau says Italian bonds advance for a third day, as investors shrug off new coronavirus developments over the weekend and stock futures advance, while bunds are little changed ahead of German inflation numbers and a raft of ECB speakers including President Christine Lagarde A European Commission sentiment index fell to 117.5 in November from 118.6 the previous month, data released Monday showed Spanish inflation accelerated to the fastest in nearly three decades in November on rising food prices, underscoring the lingering consequences of supply-chain bottlenecks across Europe. Consumer prices jumped 5.6% Energy prices in Europe surged on Monday after weather forecasts showed colder temperatures for the next two weeks that will lift demand for heating ECB Executive Board member Isabel Schnabel took to the airwaves to reassure her fellow Germans that inflation will slow again, hours before data set to show the fastest pace of price increases since the early 1990s Russia’s ambassador to Washington said more than 50 diplomats and their family members will have to leave the U.S. by mid-2022, in the latest sign of tensions between the former Cold War enemies China sent the biggest sortie of warplanes toward Taiwan in more than seven weeks after a U.S. lawmaker defied a Chinese demand that she abandon a trip to the island A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously and US equity futures rebounded from Friday’s hefty selling (S&P 500 -2.3%) as all focus remained on the Omicron variant after several countries announced restrictions and their first cases of the new variant, although markets took solace from reports that all cases so far from South Africa have been mild. Furthermore, NIH Director Collins was optimistic that current vaccines are likely to protect against the Omicron variant but also noted it was too early to know the answers, while Goldman Sachs doesn’t think the new variant is a sufficient reason to adjust its portfolio citing comments from South Africa’s NICD that the mutation is unlikely to be more malicious and existing vaccines will most likely remain effective at preventing hospitalizations and deaths. ASX 200 (-0.5%) is subdued after Australia registered its first cases of the Omicron variant which involved two people that arrived in Sydney from southern Africa and with the government reviewing its border reopening plans. Nikkei 225 (-1.6%) whipsawed whereby it initially slumped at the open due to the virus fears and currency-related headwinds but then recouped its losses and briefly returned flat as the mood gradually improved, before succumbing to a bout of late selling, and with mixed Retail Sales data adding to the indecision. Hang Seng (-1.0%) and Shanghai Comp. (Unch) weakened with Meituan the worst performer in Hong Kong after posting a quarterly loss and with casino names pressured by a crackdown in which police detained Suncity Group CEO and others after admitting to accusations including illegal cross border gambling. However, the losses in the mainland were cushioned after firm Industrial Profits data over the weekend and with local press noting expectations for China to adopt a more proactive macro policy next year. Finally, 10yr JGBs shrugged off the pullback seen in T-note and Bund futures, with price action kept afloat amid the cautious mood in stocks and the BoJ’s presence in the market for over JPY 900bln of JGBs mostly concentrated in 3yr-10yr maturities. Top Asian News Hong Kong Stocks Slide to 13-Month Low on Fresh Virus Woes Li Auto Loss Narrows as EV Maker Rides Out Supply-Chain Snarls Singapore Adds to Its Gold Pile for the First Time in Decades China Growth Stocks Look Like Havens as Markets Confront Omicron Bourses in Europe are experiencing a mild broad-based rebound (Euro Stoxx 50 +1.0%; Stoxx 600 +0.9%) following Friday's hefty COVID-induced losses. Desks over the weekend have been framing Friday's losses as somewhat overstretched in holiday-thinned liquidity, given how little is known about the Omicron variant itself. The strain will likely remain the market theme as scientists and policymakers factor in this new variant, whilst data from this point forth – including Friday's US labour market report - will likely be passed off as somewhat stale, and headline risk will likely be abundant. Thus far, symptoms from Omicron are seemingly milder than some of its predecessors, although governments and central banks will likely continue to express caution in this period of uncertainty. Back to price action, the momentum of the rebound has lost steam; US equity futures have also been drifting lower since the European cash open – with the RTY (+0.9%) was the laggard in early European trade vs the ES (+0.8%), NQ (+1.0%) and YM (+0.7%). European cash bourses have also been waning off best levels but remain in positive territory. Sectors are mostly in the green, but the breadth of the market has narrowed since the cash open. Travel & Leisure retains the top spot in what seems to be more a reversal of Friday's exaggerated underperformance as opposed to a fundamentally driven rebound – with more nations announcing travel restrictions to stem the spread of the variant. Oil & Gas has also trimmed some of Friday's losses as oil prices see a modest rebound relative to Friday's slump. On the other end of the spectrum, Healthcare sees mild losses as COVID-related names take a mild breather, although Moderna (+9.1% pre-market) gains ahead of the US open after its Chief Medical Officer suggested a new vaccine for the variant could be ready early next year. Meanwhile, Autos & Parts reside as the current laggard amid several bearish updates, including a Y/Y drop in German car exports - due to the chip shortage and supply bottlenecks – factors which the Daimler Truck CEO suggested will lead to billions of Euros in losses. Furthermore, auto supbt.aplier provider Faurecia (-5.9%) trades at the foot of the Stoxx 600 after slashing guidance – again a function of the chip shortage. In terms of Monday M&A, BT (+4.7%) shares opened higher by almost 10% following source reports in Indian press suggesting Reliance Industries is gearing up for a takeover approach of BT – reports that were subsequently rebuffed. Top European News U.K. Mortgage Approvals Fall to 67,199 in Oct. Vs. Est. 70,000 Johnson Matthey Rises on Report of Battery Talks With Tata Gazprom Reports Record Third-Quarter Profit Amid Gas Surge Omicron’s Spread Fuels Search for Answers as WHO Sounds Warning In FX, the Buck has bounced from Friday’s pullback lows on a mixture of short covering, consolidation and a somewhat more hopeful prognosis of SA’s new coronavirus strand compared to very early perceptions prompted by reports that the latest mutation would be even worse than the Delta variant. In DXY terms, a base above 96.000 is forming within a 93.366-144 band amidst a rebound in US Treasury yields and re-steepening along the curve following comments from Fed’s Bostic indicating a willingness to back faster QE tapering. Ahead, pending home sales and Dallas Fed business manufacturing along with more Fed rhetoric from Williams and chair Powell on the eve of month end. AUD/CAD/NZD - No surprise to see the high beta and risk sensitive currencies take advantage of the somewhat calmer conditions plus a recovery in crude and other commodities that were decimated by the prospect of depressed demand due to the aforementioned Omicron outbreak. The Aussie is back over 0.7150 vs its US counterpart, the Loonie has pared back losses from sub-1.2750 with assistance from WTI’s recovery to top Usd 72/brl vs a Usd 67.40 trough on November 26 and the Kiwi is hovering above 0.6800 even though RBNZ chief economist Ha has warned that a pause in OCR tightening could occur if the fresh COVID-19 wave proves to be a ‘game-changer’. JPY/EUR - The major laggards as sentiment stabilses, with the Yen midway between 112.99-113.88 parameters and hardly helped by mixed Japanese retail sales data, while the Euro has retreated below 1.1300 where 1.7 bn option expiry interest resides and a key Fib level just under the round number irrespective of strong German state inflation reports and encouraging pan Eurozone sentiment indicators, as more nations batten down the hatches to stem the spread of SA’s virus that has shown up in parts of the bloc. GBP/CHF - Both narrowly divergent vs the Dollar, as Cable retains 1.3300+ status against the backdrop of retreating Gilt and Short Sterling futures even though UK consumer credit, mortgage lending and approvals are rather conflicting, while the Franc pivots 0.9250 and meanders from 1.0426 to 1.0453 against the Euro after the latest weekly update on Swiss bank sight deposits showing no sign of official intervention. However, Usd/Chf may veer towards 1.1 bn option expiries at the 0.9275 strike if risk appetite continues to improve ahead of KoF on Tuesday and monthly reserves data. SCANDI/EM - Although Brent has bounced to the benefit of the Nok, Sek outperformance has ensued in wake of an upgrade to final Swedish Q3 GDP, while the Cnh and Cny are deriving support via a rise in Chinese industrial profits on a y/y basis and the Zar is breathing a sigh of relief on the aforementioned ‘better’ virus updates/assessments from SA on balance. Conversely, the Try is back under pressure post-a deterioration in Turkish economic sentiment vs smaller trade deficit as investors look forward to CPI at the end of the week. Meanwhile, Turkish President Erdogan provides no reprieve for the Lira as he once again defending his unorthodox view that higher interest rates lead to higher inflation. In commodities, WTI and Brent front-month futures consolidate following an overnight rebound – with WTI Jan back on a USD 71/bbl handle and Brent Feb just under USD 75/bbl – albeit still some way off from Friday's best levels which saw the former's high above USD 78/bbl and the latter's best north of USD 81/bbl. The week is packed with risks to the oil complex, including the resumption of Iranian nuclear talks (slated at 13:00GMT/08:00EST today) and the OPEC+ monthly confab. In terms of the former, little is expected in terms of progress unless the US agrees to adhere to Tehran's demand – which at this point seems unlikely. Tehran continues to seek the removal of US sanctions alongside assurances that the US will not withdraw from the deal. "The assertion that the US must 'change its approach if it wants progress' sets a challenging tone", Citi's analysts said, and the bank also expects parties to demand full access to Iranian nuclear facilities for verification of compliance. Further, the IAEA Chief met with Iranian officials last week; although concrete progress was sparse, the overall tone of the meeting was one of progress. "We remain of the opinion that additional Iranian supplies are unlikely to reach the market before the second half of 2022 at the earliest," Citi said. Meanwhile, reports suggested the US and allies have been debating a "Plan B" if talks were to collapse. NBC News – citing European diplomats, former US officials and experts – suggested that options included: 1) a skinny nuclear deal, 2) ramp up sanctions, 3) Launching operations to sabotage Iranian nuclear advances, 4) Military strikes, 5) persuading China to halt Iranian oil imports, albeit Iran and China recently signed a 25yr deal. Over to OPEC+, a rescheduling (in light of the Omicron variant) sees the OPEC and JTC meeting now on the 1st December, followed by the JMMC and OPEC+ on the 2nd. Sources on Friday suggested that members are leaning towards a pause in the planned monthly output, although Russian Deputy PM Novak hit the wires today and suggested there is no need for urgent measures in the oil market. Markets will likely be tested, and expectations massaged with several sources heading into the meeting later this week. Elsewhere, spot gold trades sideways just under the USD 1,800/oz and above a cluster of DMAs, including the 50 (1,790.60/oz), 200 (1,791.30/oz) and 100 (1,792.80/oz) awaiting the next catalyst. Over to base metals, LME copper recoups some of Friday's lost ground, with traders also citing the underlying demand emanating from the EV revolution. US Event Calendar 10am: Oct. Pending Home Sales YoY, prior -7.2% 10am: Oct. Pending Home Sales (MoM), est. 0.8%, prior -2.3% 10:30am: Nov. Dallas Fed Manf. Activity, est. 17.0, prior 14.6 Central Bank speakers: 3pm: Fed’s Williams gives opening remarks at NY Innovation Center 3:05pm: Powell Makes Opening Remarks at New York Fed Innovation Event 3:15pm: Fed’s Hassan moderates panel introducing NY Innovation Center 5:05pm: Fed’s Bowman Discusses Central bank and Indigenous Economies DB's Jim Reid concludes the overnight wrap Last night Henry in my team put out a Q&A looking at what we know about Omicron (link here) as many risk assets put in their worst performance of the year on Friday after it exploded into view. The main reason for the widespread concern is the incredibly high number of mutations, with 32 on the spike protein specifically, which is the part of the virus that allows it to enter human cells. That’s much more than we’ve seen for previous variants, and raises the prospect it could be a more transmissible version of the virus, although scientists are still assessing this. South Africa is clearly where it has been discovered (not necessarily originated from) and where it has been spreading most. The fact that’s it’s become the dominant strain there in just two weeks hints at its higher level of contagiousness. However the read through to elsewhere is tough as the country has only fully vaccinated 24% of its population, relative to at least 68% in most of the larger developed countries bar the US which languishes at 58%. It could still prove less deadly (as virus variants over time mostly are) but if it is more contagious that could offset this and it could still cause similar healthcare issues, especially if vaccines are less protective. On the other hand the South African doctor who first alerted authorities to the unusual symptoms that have now been found to have been caused by Omicron, was on numerous media platforms over the weekend suggesting that the patients she has seen with it were exhausted but generally had mild symptoms. However she also said her patients were from a healthy cohort so we can’t relax too much on this. However as South African cases rise we will get a lot of clues from hospitalisation data even if only 6% of the country is over 65s. My personal view is that we’ll get a lot of information quite quickly around how bad this variant is. The reports over the weekend that numerous cases of Omicron have already been discovered around the world, suggests it’s probably more widespread than people think already. So we will likely soon learn whether these patients present with more severe illness and we’ll also learn of their vaccination status before any official study is out. The only caveat would be that until elderly patients have been exposed in enough scale we won’t be able to rule out the more negative scenarios. Before all that the level of restrictions have been significantly ramped up over the weekend in many countries. Henry discusses this in his note but one very significant one is that ALL travellers coming into (or back to) the UK will have to self isolate until they get a negative PCR test. This sort of thing will dramatically reduce travel, especially short business trips. Overnight Japan have effectively banned ALL foreign visitors. I appreciate its dangerous to be positive on covid at the moment but you only have to look at the UK for signs that boosters are doing a great job. Cases in the elderly population continue to collapse as the roll out progresses well and overall deaths have dropped nearly 20% over the last week to 121 (7-day average) - a tenth of where they were at the peak even though cases have recently been 80-90% of their peak levels. If Europe are just lagging the UK on boosters rather than anything more structural, most countries should be able to control the current wave all things being equal. However Omicron could make things less equal but it would be a huge surprise if vaccines made no impact. Stocks in Asia are trading cautiously but remember that the US and Europe sold off more aggressively after Asia closed on Friday. So the lack of major damage is insightful. The Nikkei (-0.02%), Shanghai Composite (-0.14%), CSI (-0.22%), KOSPI (-0.47%) and Hang Seng (-0.68%) are only slightly lower. Treasury yields, oil, and equity futures are all rising in Asia. US treasury yields are up 4-6bps across the curve, Oil is c.+4.5% higher, while the ZAR is +1.31%. Equity futures are trading higher with the S&P 500 (+0.71%) and DAX (+0.84%) futures in the green. In terms of looking ahead, we may be heading into December this week but there’s still an incredibly eventful period ahead on the market calendar even outside of Omicron. We have payrolls on Friday which could still have a big impact on what the Fed do at their important December 15 FOMC and especially on whether they accelerate the taper. Wednesday (Manufacturing) and Friday (Services) see the latest global PMIs which will as ever be closely watched even if people will suggest that the latest virus surge and now Omicron variant may make it backward looking. Elsewhere in the Euro Area, we’ll get the flash CPI estimate for November tomorrow (France and Italy on the same day with Germany today), and we’ll hear from Fed Chair Powell as he testifies (with Mrs Yellen) before congressional committees tomorrow and Wednesday. There’s lots of other Fed speakers this week (ahead of their blackout from this coming weekend) and last week there was a definite shift towards a faster taper bias, even amongst the doves on the committee with Daly being the most important potential convert. Fed speakers this week might though have to balance the emergence of the new variant with the obvious point that without it the Fed is a fair bit behind the curve. Importantly but lurking in the background, Friday is also the US funding deadline before another government shutdown. History would suggest a tense last minute deal but it’s tough to predict. Recapping last week now and the emergence of the new variant reshaped the whole week even if ahead of this, continued case growth across Europe prompted renewed lockdown measures and travel bans across the continent. Risk sentiment clearly plummeted on Friday. The S&P 500 fell -2.27%, the biggest drop since October 2020, while the Stoxx 600 fell -3.67%, the biggest one-day decline since the original Covid-induced risk off in March 2020. The S&P 500 was -2.20% lower last week, while the Stoxx 600 was down -4.53% on the week. 10yr treasury, bund, and gilt yields declined -16.1bps, -8.7bps, and -14.5bps, undoing the inflation and policy response-driven selloff from earlier in the week. The drop in 10yr treasury and gilt yields were the biggest one-day declines since the original Covid-driven rally in March 2020, while the drop in bund yields was the largest since April 2020. 10yr treasury, bund, and gilt yields ended the week -7.3bps lower, +0.7bps higher, and -5.4bps lower, respectively. Measures of inflation compensation declined due to the anticipated hit to global demand, with 10yr breakevens in the US and Germany -6.8bps and -8.8bps lower Friday, along with Brent and WTI futures declining -11.55% and -13.06%, respectively. Investors pushed back the anticipated timing of rate hikes. As it stands, the first full Fed hike is just about priced for July, and 2 hikes are priced for 2022. This follows a hawkish tone from even the most dovish FOMC members and the November FOMC minutes last week. The prevailing sentiment was the FOMC was preparing to accelerate their asset purchase taper at the December meeting to enable inflation-fighting rate hikes earlier in 2022. Understanding the impact of the new variant will be crucial for interpreting the Fed’s reaction function, though. The impact may not be so obvious; while a new variant would certainly hurt global demand and portend more policy accommodation, it will also likely prompt more virus-avoiding behaviour in the labour market, preventing workers from returning to pre-Covid levels. Whether the Fed decides to accommodate these sidelined workers for longer, or to re-think what constitutes full employment in a Covid world should inform your view on whether they accelerate tapering in December. It feels like a lifetime ago but last week also saw President Biden nominate Chair Powell to head the Fed for another term, and for Governor Brainard to serve as Vice Chair. The announcement led to a selloff in rates as the more dovish Brainard did not land the head job. In Germany, the center-left SPD, Greens, and liberal FDP agreed to a full coalition deal. The traffic-light coalition agreed to restore the debt break in 2023, after being suspended during the pandemic, and to raise the minimum wage to €12 per hour. The SPD’s Olaf Scholz will assume the Chancellorship. The US, China, India, Japan, South Korea, and UK announced releases of strategic petroleum reserves. Oil prices were higher following the announcement, in part because releases were smaller than anticipated but, as mentioned, prices dropped precipitously on Friday on the global demand impact of the new Covid variant. The ECB released the minutes of the October Governing Council meeting, where officials stressed the need to maintain optionality in their policy setting. They acknowledged growing upside risks to inflation but stressed the importance of not overreacting in setting policy as they see how inflation scenarios might unfold. Tyler Durden Mon, 11/29/2021 - 08:01.....»»

Category: dealsSource: nytNov 29th, 2021

Futures Slide On Renewed China Slowdown, Rate Hike Fears

Futures Slide On Renewed China Slowdown, Rate Hike Fears US equity futures and world shares drifted lower following poor Chinese macro data which saw the country's GDP slide to a weaker than expected 4.9%, and as surging energy prices and inflation reinforced bets that central banks will be forced to react to rising inflation and hike rates faster than expected. Calls by China’s President Xi Jinping on Friday to make progress on a long-awaited property tax to help reduce wealth gaps also soured the mood. With WTI crude rising to a seven-year high, and Brent back over $85, investors remain concerned that living costs will be driven higher. The economic recovery also remains uneven with China’s gross domestic product slowing more than expected in the third quarter, increasing aversion to riskier assets. The dollar rose against all of its Group-of-10 peers as concerns about an acceleration in inflation damped risk appetite, while bircoin traded above $61K and just shy of an all time high ahead of the launch of the Proshares Bitcoin ETF on Tuesday. An MSCI gauge of global stocks was down 0.1% by 0808 GMT as losses in Asia and a weak open in Europe erased part of the gains seen last week on a strong start to the earnings season. U.S. stock futures were also lower with S&P 500 e-minis last down 0.2%, while Dow and Nasdaq e-minis were both down 0.3%. China’s gross domestic product grew 4.9% in the July-September quarter from a year earlier, its weakest pace since the third quarter of 2020. The world’s second-largest economy is grappling with power shortages, supply bottlenecks, sporadic COVID-19 outbreaks and debt problems in its property sector. Additionally, industrial output and fixed investment also missed expectations, while retail sales beat modestly (more here). Not even the latest attempt by China to ease Evergrande contagion fears was enough to offset worries about China's economy: on Sunday, PBOC Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group. Because of course he will say that. Oil prices extended a recent rally amid a global energy shortage with U.S. crude touching a seven-year high while Brent was set to surpass its 2018 highs just above $86, as Russia kept a tight grip on Europe’s energy market, opting against sending more natural gas to the continent even after President Vladimir Putin said he was prepared to boost supplies. “The lingering energy crisis, while benefiting miners and other oil & gas related stocks, is otherwise weighing on the overall sentiment,” said ActivTrades’ Pierre Veyret. Investors will stay focused on macro news this week with major Chinese and U.S. releases as well as new monetary policy talks from Jerome Powell, he said. Investors continue to grapple with worries that energy shortages and supply-chain disruptions will drive up living costs in most economies. At the same time, the recovery remains patchy and central bankers are inching closer to paring back stimulus. U.S. consumer sentiment fell unexpectedly in early October, but retail sales advanced. “We are starting to see some cracks in the transitory narrative that we’ve been hearing for quite some time,” Meera Pandit, global market strategist at J.P. Morgan Asset Management, said on Bloomberg Radio. “Rates will continue to ground higher from where we are. But I don’t think from a Fed perspective, when you think about the short end of the curve, that they are going to move much earlier than 2023. They are going to be a little bit more patient than the market expects right now.” And then there were rates: the global bond selloff gathered pace, with U.K. yields surging after Bank of England Governor Andrew Bailey warned on the need to respond to price pressures. Rate-hike bets have also picked up in the U.S., Australia and New Zealand, where inflation accelerated to the fastest pace in 10 years. Ten-year Treasury yields extended a climb , rising as high as 1.62%. Mohammed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg columnist, said investors should prepare for increased market volatility if the Federal Reserve pulls back on stimulus measures set in motion by the Covid-19 pandemic. On the other side of the argument, Goldman's flow trading desk said odds of a November meltup are rising as a result of a relentless appetite for stocks and an upcoming surge in stock buybacks. In any case, Virgin Galactic Holdings Inc. shares fell 3% in U.S. premarket, extending losses from Friday that came after the firm pushed back the start of commercial flights further into next year after rescheduling a test flight. Here are some of the other notable U.S. pre-movers today: Baidu (BIDU US) shares erased earlier losses and climbed as much as 4.3% in Hong Kong, as China debates rules to make hundreds of millions of articles on Tencent’s WeChat messaging app available via search engines like Baidu’s. Crypto-related stocks in action as Bitcoin leaps as much as 5.3% and is just shy of a fresh six- month high. Riot Blockchain (RIOT US), Marathon Digital (MARA US) and Coinbase (COIN US) are all up Tesla (TSLA US) shares rise 0.2% in premarket trading Monday, poised for 50% rally from a March 8 low, ahead of its third-quarter results on Wednesday Dynavax (DVAX US) shares rise as much as 10% in U.S. pretrading hours after the biopharmaceutical company announced that Valneva reported the trial of inactivated, adjuvanted Covid-19 vaccine candidate VLA2001 met its co-primary endpoints Disney (DIS US) drops in premarket trading after Barclays downgrades to equal-weight as the company faces a “tough” task to get to its long-term streaming subscription guidance NetApp (NTAP US) slips 2.2% in premarket trading after Goldman Sachs analyst Rod Hall cut the recommendation on NetApp Inc. to sell from neutral European stocks traded on the back foot from the open, with the benchmark Stoxx 600 Index down 0.4%, led by losses in retail stocks. The Euro Stoxx 50 dropped as much as 0.9%, FTSE 100 outperforms slightly. Mining stocks were among Europe's only gainers thanks to the ongoing metals rally: the Stoxx Europe 600 basic resources sub-index climbs for a third day for the first time since early September as the record rally of base metals is extended. The gauge rose 0.6%, outperforming main benchmark which trades 0.4% lower. Notable movers: Glencore +1.2%; BHP +1%; Norsk Hydro +2.5%; ArcelorMittal +0.9% Rio Tinto +0.3%. Offsetting these gains, European luxury stocks slipped after a Chinese Communist Party journal published a speech of President Xi Jinping that includes advancing legislation on property taxes. Here are some of the biggest European movers today: Playtech shares rise as much as 59% in London after the British gambling software developer agreed to be bought by Australia’s Aristocrat for $3.7 billion. Valneva SE shares rise as much as 42% as its experimental Covid-19 vaccine elicited better immunity than AstraZeneca Plc’s shot in a clinical trial that will pave the way for regulatory submissions. Shares of hydraulics manufacturer Concentric rise as much as 14%, the most since April 2020, after Danske Bank upgraded the stock to buy from hold, calling the company a strong performer in a difficult market. THG shares jump as much 12%, most since May 11, after founder and CEO Matthew Moulding confirmed his intention to cancel his special share rights. The removal of the special share points to the e-commerce company’s “willingness to engage on shareholder concerns,” according to Jefferies. Rational AG shares rise as much as 6.1%, the most since Aug. 5, after the German kitchen machinery maker is upgraded to buy from hold at Berenberg, which considers the shares “inexpensive” despite stretched multiples. Atrium European Real Estate share rises as much as 7.6% to the highest since March 2020 after controlling shareholder Gazit Globe raises the offer price to EU3.63 per Atrium share from EU3.35. Earlier in the session, Asian equities fell, putting them on track to snap a three-day rally, as China’s economic growth slowed and prospects of higher bond yields weighed on some tech shares. The MSCI Asia Pacific Index fell as much as 0.4%, with tech and consumer staples shares setting the pace for declines. TSMC and Sony Group were among the biggest drags. Official data showed that China’s economy weakened in the third quarter amid tighter restrictions on the property market and China Evergrande Group’s debt crisis. For Asia stock traders, the concerns about China are adding to persistent inflation worries and energy shortages, which are sending bond yields higher. While inflation worries are “alive and well,” Asian markets will be predominantly focused on China data today, Jeffrey Halley, senior market analyst at Oanda Asia Pacific, wrote in a note. The weak data print “will lift expectations of an imminent PBOC RRR rate cut,” he added. China’s benchmark underperformed as the country explored property- and consumption tax-related changes and international funds sold shares of Kweichow Moutai Co., the country’s largest stock by market value. Tencent, Meituan and Alibaba pared losses prompted by the Chinese government saying it will introduce more regulations on the tech sector. China is considering asking media companies from Tencent Holdings Ltd. to ByteDance Ltd. to let rivals access and display their content in search results, according to people familiar with the matter. India’s Sensex index bucked the regional trend and is on track to rise for the seventh day, the longest such streak since January, helped by easy money. Japanese equities declined, paring last week’s rally, weighed down by losses in electronics makers. The Topix dipped 0.2%, following a 3.2% gain last week. The Nikkei 225 fell 0.2%, with M3 Inc. and KDDI the biggest drags. Almost 30% of respondents to a Kyodo weekend poll said they plan to vote for the ruling Liberal Democratic Party in the proportional representation section of Japan’s Oct. 31 election. U.K. rates steal the limelight amid a violent selloff that saw 2y gilt yields rise as much as 17bps to trade close to 0.75%. Weekend comments from BOE’s Bailey triggered a snap lower in short-sterling futures and bear-flattening across the gilt curve. MPC-dated OIS rates price in ~20bps of hiking by the November meeting. Bunds and Treasuries follow gitls lower, peripheral spreads widen to core with Italy underperforming. Australian stocks closed higher as miners and banks advanced. The S&P/ASX 200 index rose 0.3% to close at 7,381.10, led by miners and banks. Nickel Mines surged after a subsidiary signed a limonite ore supply agreement with PT Huayue Nickel Cobalt. Domino’s was among the worst performers, closing at its lowest since Aug. 17. In New Zealand, the S&P/NZX 50 index fell 0.1% to 12,998.51. In FX, the Bloomberg Dollar Spot Index advanced as the dollar traded higher versus all of its Group-of-10 peers Traders pulled forward rate- hike bets after BoE governor Bailey said the central bank “will have to act” on inflation. U.K. money markets now see 36 basis points of BoE rate increases in December and are pricing 15 basis points of tightening next month. Traders are also now betting the BoE’s key rate will rise to 1% by August, from 0.1% currently. The euro struggled to recover after falling below the $1.16 handle in the Asian session; money markets are betting the ECB will hike the deposit rate to -0.4% in September as expectations for global central-bank policy tightening gather pace. Resilience in the spot market and a divergence with rate differentials in the past sessions has resulted in a flatter volatility skew for the euro. Commodity-linked currencies such as the Australian dollar and the Norwegian krone underperformed after Chinese data including third-quarter growth and September factory output trailed economists’ estimates. The kiwi rose to a one-month high versus the dollar, before giving up gains, and New Zealand’s bond yields rose across the curve after 3Q annual inflation rate surged, beating estimates. The yen steadied around a three-year low as U.S. yields extended their rise in Asian trading; the Japanese currency still held up best against the dollar among G-10 currencies, after performing worst last week. In rates, treasuries were under pressure led by belly of the curve as rate-hike premium continues to increase in global interest rates. Yields, though off session highs, remain cheaper by nearly 5bp in 5-year sector; 2s5s30s fly topped at -12.5bp, cheapest since 2018; 10-year is up 2.8bp around 1.60% vs 3.4bp increase for U.K. 10-year. Belly-led losses flattened U.S. 5s30s by as much as 5.4bp to tightest since April 2020 at around 86.1bp; U.K. 5s30s curve is flatter by ~8bp after its 5-year yield rose as much as 14bp. Gilts led the move, with U.K. 2-year yield climbing as much as 16.8bp to highest since May 2019 as money markets priced in more policy tightening after Governor Andrew Bailey said the Bank of England “will have to act” on inflation. With latest moves, U.S. swaps market prices in two Fed hikes by the end of 2022. In commodities, WTI rose 1%, trading just off session highs near $83.20; Brent holds above $85. Spot gold drifts lower near $1,762/oz. Most base metals are in the green with LME lead and tin outperforming. Looking at today's calendar, we have industrial production, US September industrial production, capacity utilisation, October NAHB housing market index. Fed speakers include Quarles, Kashkari. Market Snapshot S&P 500 futures down 0.2% to 4,451.75 STOXX Europe 600 down -1.6% to 467.76 MXAP down 0.2% to 198.11 MXAPJ little changed at 650.02 Nikkei down 0.1% to 29,025.46 Topix down 0.2% to 2,019.23 Hang Seng Index up 0.3% to 25,409.75 Shanghai Composite down 0.1% to 3,568.14 Sensex up 1.0% to 61,918.22 Australia S&P/ASX 200 up 0.3% to 7,381.07 Kospi down 0.3% to 3,006.68 Brent Futures up 0.9% to $85.65/bbl Gold spot down 0.3% to $1,762.70 U.S. Dollar Index up 0.17% to 94.10 German 10Y yield rose 3.5 bps to -0.132% Euro down 0.1% to $1.1586 Brent Futures up 0.9% to $85.65/bbl Top Overnight News from Bloomberg Germany’s prospective ruling coalition is targeting about 500 billion euros ($580 billion) in spending over the coming decade to address climate change and will seek loopholes in constitutional debt rules to raise the financing The ECB is exploring raising its limit on purchases of debt issued by international bodies such as the European Union from the current cap of 10%, the Financial Times reported, citing four ECB governing council members The ECB should keep some of the flexibility embedded in its pandemic bond-buying program for post-crisis stimulus measures, Governing Council member Ignazio Visco said People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously after disappointing Chinese GDP and Industrial Production data, while inflationary concerns lingered after the recent firmer than expected US Retail Sales data, a continued rally in oil prices and with New Zealand CPI at a decade high. Nonetheless, the ASX 200 (+0.1%) bucked the trend on reopening optimism with curbs in New South Wales to be further eased after having fully vaccinated 80% of the adult population and with the Victoria state capital of Melbourne set to lift its stay-at-home orders this week. Furthermore, the gains in the index were led by outperformance in the top-weighted financials sector, as well as strength in most mining names aside from gold miners after the precious metal’s retreat from the USD 1800/oz level. Nikkei 225 (-0.3%) was subdued after a pause in the recent advances for USD/JPY and with criticism of Japan after PM Kishida sent an offering to the controversial war shrine which sparked anger from both China and South Korea. Hang Seng (-0.5%) and Shanghai Comp. (-0.4%) were subdued after Chinese Q3 GDP data missed expectations with Y/Y growth at 4.9% vs exp. 5.2% and Industrial Production for September fell short of estimates at 3.1% vs exp. 4.5%, while the beat on Retail Sales at 4.4% vs exp. 3.3% provided little consolation. There was plenty of focus on China’s property sector with PBoC Governor Yi noting authorities can contain risks posed to the Chinese economy and financial system from the struggles of Evergrande, and with its unit is said to make onshore debt payments due tomorrow. However, attention remains on October 23rd which is the end of the grace period for its first payment miss that would officially place the Co. in default and it was also reported on Friday that China Properties Group defaulted on notes worth USD 226mln. Finally, 10yr JGBs were lower amid spillover selling from T-notes which were pressured after the recent stronger than expected Retail Sales data and higher oil prices boosted the inflation outlook, with demand for JGBs is also hampered amid the absence of BoJ purchases in the market today. Top Asian News Tesla Shares Roaring Back, Set for 50% Gain From March Lows Kishida’s Offering to Japan War Shrine Angers Neighbors Baidu Jumps as China Said to Weigh More Access to WeChat Content AirAsia X Proposes Paying Creditors 0.5% of $8 Billion Owed European equities (Eurostoxx 50 -0.7%; Stoxx 600 -0.4%) have kicked the week off on the backfoot as market participants digest disappointing Chinese GDP metrics, a continued rally in energy prices and subsequent inflationary concerns which has seen markets price in more aggressive tightening paths for major global central banks. Overnight, Chinese Q3 GDP data missed expectations with Y/Y growth at 4.9% vs exp. 5.2% and Industrial Production for September fell short of estimates at 3.1% vs exp. 4.5%, while the beat on Retail Sales at 4.4% vs exp. 3.3% provided little consolation. Stateside, index futures have conformed to the downbeat tone with the ES softer to the tune of -0.3%, whilst the RTY narrowly lags with losses of 0.4%. In a note this morning, JP Morgan has flagged that investor sentiment remains that “the upcoming reporting season will be challenging, given the combination of the activity slowdown, significant supply distortions impacting volumes, and the energy price acceleration that is seen to be hurting profit margins and consumer disposable incomes”. That said, the Bank is of the view that investors are likely braced for such disappointments. In Europe, sectors are mostly lower with Retail names lagging post-Chinese GDP as Kering (accounts for 28.7% of the Stoxx 600 Retail sector) sits at the foot of the CAC with losses of 3.2%; other laggards include LVMH (-2.7%) and Hermes (-2.3%). To the upside, Banking names are firmer and benefitting from the more favourable yield environment, whilst Basic Resources and Oil & Gas names are being supported by price action in their respective underlying commodities. In terms of individual movers, THG (+7.6%) sits at the top of the Stoxx 600 after confirming that it intends to move its listing to the 'premium segment' of the LSE in 2022; as part of this, CEO & Executive Chairman Moulding will surrender his 'founders share' next year. Finally, Umicore (-4.5%) sits at the foot of the Stoxx 600 after cutting its FY21 adj. EBIT outlook. Top European News Traders Ramp Up U.K. Rate-Hike Bets on Bailey Inflation Warning Nordea Equity Research Hires Pareto Analyst for Tech Team ECB’s Visco Says Flexible Policy Should Remain Part of Toolkit Scholz Coalition Eyes $580 Billion in Spending on German Reboot In FX, the broader Dollar and index has waned off its 94.174 pre-European cash open high but remains underpinned above 94.000 by risk aversion and firmer yields, with the US 10yr cash now hovering around 1.60%. Stateside, US President Biden confirmed that the reconciliation package will likely be less than USD 3.5trln, although this was widely expected in recent weeks. Aside from that, the Greenback awaits further catalysts but until then will likely derive its impetus from the yield and risk environment. From a tech standpoint, a breach of 94.000 to the downside could see a test of the 21 DMA (93.865) – which has proven to provide some support over the last two trading sessions, with Friday and Thursday’s lows at 93.847 and 93.759 respectively. The upside meanwhile sees the YTD high at 94.563, printed on the 12th of Oct. CNH - The offshore is relatively flat on the day in a contained 6.4265-4387 range following a set of overall downbeat Chinese activity metrics. GDP growth momentum waned more than expected whilst industrial production was lower than expected, largely impacted by the electricity crisis and local COVID outbreaks during Q3. Retail sales meanwhile rebounded more than expected – albeit due to reopening effects, with inflation a concern heading forward. The Chinese National Bureau of Stats later hit the wires suggesting that major economic data are seen in reasonable ranges from Q1-Q3. The PBoC governor meanwhile downplayed the current risks of spillover from default fears. AUD, NZD, CAD - The overall cautiousness across the market has pressured high-betas. The AUD fails to glean support from the firmer base metal prices and the surge in coal prices overnight, with overall downbeat Chinese data proving to be headwinds for the antipodean. The NZD is more cushioned as inflation topped forecasts and reinforced the RBNZ’s hawkishness, whilst AUD/NZD remains capped at around 1.0500. AUD/USD fell back under its 100 DMA (0.7409) from a 0.7437 peak, whilst NZD/USD hovers around 0.7050 (vs high 0.7100), with the 100 DMA at 0.7021. The Loonie narrowly lags as a pullback in oil adds further headwinds. USD/CAD aims for a firmer footing above 1.2400 from a 1.2348 base. EUR, GBP- The single currency and Sterling are relatively flat on the day and within tight ranges of 1.1572-1.1605 and 1.3720-65 respectively. The latter was unreactive to weekend commentary from the BoE governor, sounding cautious over rising inflation but ultimately labelling it temporary, although suggesting that monetary policy may have to step in if risks materialise. From a Brexit standpoint, nothing major to report in the runup to negotiations on the Northern Ireland protocol. Across the Channel, FT sources suggested that four ECB GC members would support upping the PSPP share of APP from the current 10% - with the plan to be discussed across two meetings next month and requiring a majority from the 25 members. All-in-all, the EUR was unswayed ahead of a plethora of ECB speakers during the week and as the clock ticks down to flash PMIs on Friday. JPY, CHF - The traditional safe-havens have fallen victim to the firmer Buck, with USD/JPY extending on gains north of 114.00 as it inches closer towards 114.50 – which also matches some highs dating back to 2017. The Swiss Franc is among the laggards after USD/CHF rebounded from its 50 DMA (0.9214) as it heads back towards 0.9300, with the weekly Sight deposits also seeing W/W increases. In commodities, WTI and Brent front-month futures have drifted from best levels as the cautious risk tone weighs on prices, but nonetheless, the complex remains overall firmer with the former within a USD 82.55-83.06 range and the latter in a 84.93-85.31 intraday parameter. Fresh catalysts remain quiet for the complex, while there were some comments over the weekend from Iraq's Oil Ministry which noted that prices above USD 80/bbl are a positive indicator. Elsewhere on the supply-side, Iran is to resume nuclear negotiations on October 21, an Iranian lawmaker said Sunday, although it is unclear how far talks will go as the US and Iran affirm their stances. It is also worth noting that a fire was reported at Kuwait's Mina al-Ahmadi (346k BPD) refinery, but refining and export operations are unaffected. UK nat gas futures meanwhile are relatively flat in a tight range, although prices remain elevated on either side of GBP 2.5/Thm. Elsewhere, spot gold and silver trade sideways amid a lack of catalysts, although the firmer found some support at 1,760/oz - matching its 21 DMA. Over to base metals, LME copper remains supported around USD 10,250/t. Overnight, Shanghai zinc and Zhengzhou coal hit a record high and limit up respectively, with some citing supply constraints. US Event Calendar 9:15am: Sept. Industrial Production MoM, est. 0.2%, prior 0.4%; Capacity Utilization, est. 76.5%, prior 76.4% Manufacturing (SIC) Production, est. 0.1%, prior 0.2% 10am: Oct. NAHB Housing Market Index, est. 75, prior 76 2:15pm: Fed’s Kashkari Discusses Improving Financial Inclusion 4pm: Aug. Total Net TIC Flows, prior $126b DB's Jim Reid concludes the overnight wrap Straight to China this morning where the monthly data dump has just landed. GDP expanded in Q3 by +4.9% on a year-on-year basis, which is a touch below the +5.0% consensus expectation and a shift down from the +7.9% expansion back in Q2. That’s come as their economy has faced multiple headwinds, ranging from the property market crisis with the issues surrounding Evergrande group and other developers, an energy crisis that’s forced factories to curb output, alongside a number of Covid-19 outbreaks that have led to tight restrictions as they seek to eliminate the virus from circulating domestically. Industrial production for September also came in beneath expectations with a +3.1% year-on-year expansion (vs. +3.8% expected), though retail sales outperformed in the same month with +4.4% year-on-year growth (vs. +3.5% expected), and the jobless rate also fell back to 4.9% (vs. 5.1% expected). That data release alongside continued concerns over inflation has sent Asian markets lower this morning, with the Shanghai Composite (-0.35%), Hang Seng (-0.36%), CSI (-1.40%) KOSPI (-0.01%), and the Nikkei (-0.16%) all trading lower. Speaking of inflation, there’ve also been fresh upward moves in commodity prices overnight, with WTI up a further +1.58% this morning to follow up a run of 8 successive weekly moves higher, which takes it to another post-2014 high, whilst Brent crude is also up +1.14%. Furthermore, data overnight has shown that New Zealand’s CPI surged to a 10-year high of +4.9% in Q3, which was some way above the +4.2% expected. Looking forward, equity futures in the US are pointing lower, with those on the S&P 500 down -0.11%. Another interesting weekend story comes again from the Bank of England, which seems to be using the weekends of late to prime the markets for imminent rate hikes. Governor Bailey yesterday said inflation “will last longer and it will of course get into the annual numbers for longer as a consequence… That raises for central banks the fear and concern of embedded expectations. That’s why we, at the Bank of England have signalled, and this is another signal, that we will have to act. But of course that action comes in our monetary policy meetings.” It’s difficult to get much more explicit than this and it’ll be interesting to see if we get even more priced into the very immediate front end this morning. For now, sterling has seen little change, weakening -0.13% against the US dollar, but markets were already pricing in an initial +15bps move up to 0.25% by the end of the year before the speech. Now the big China data is out of the way we’ll have to wait until Friday for the main releases of the week, namely the global flash PMIs. Outside of that, there’s plenty of Fedspeak as they approach the blackout period at the weekend ahead of their November 3rd meeting where they’re expected to announce the much discussed taper. On top of this, earnings season will ramp up further, with 78 companies in the S&P 500 reporting. Early season positive earnings across the board have definitely helped sentiment over the last few days. 18 out of 19 that reported last week beat expectations across varying sectors. As examples, freight firm JB Hunt climbed around 9% after beating, Alcoa over 15% and Goldman Sachs nearly 4%. So much for inflation squeezing margins. My view remains that we’re still seeing “growthflation” and not “stagflation”, particularly in the US even if there are obvious risks to growth. For now, there is still a buffer before we should get really worried. On the back of the decent earnings, the S&P 500 had its best week since July last week and is now only less than -1.5% off its record high from early September. Given that earnings season has made a difference the 78 companies in the S&P 500 and 58 from the Stoxx 600 will be important for sentiment this week. In terms of the highlights, tomorrow we’ll get reports from Johnson & Johnson, Procter & Gamble, Netflix, Philip Morris International and BNY Mellon. Then on Wednesday, releases include Tesla, ASML, Verizon Communications, Abbott Laboratories, NextEra Energy and IBM. On Thursday, there’s Intel, Danaher, AT&T, Union Pacific and Barclays. Lastly on Friday, well hear from Honeywell and American Express. It’ll also be worth watching out for the latest inflation data, with CPI releases for September from the UK, Canada (both Wednesday) and Japan (Friday). The UK is by far and away the most interesting given the recent pressures and likely imminent rate hike. This month is likely to be a bit of calm before the future storm though as expectations are broadly similar to last month. Given the recent rise in energy prices, this won’t last though. In terms of the main US data, today’s industrial production (consensus +0.2% vs. +0.4% previously) will be a window into supply-chain disruptions, particularly in the auto sector. Outside of that, you’ll see in the day-by-day week ahead guide at the end that there’s a bit of US housing data to be unveiled (NAHB today, housing starts and permits tomorrow). Housing was actually the most interesting part of the US CPI last week as rental inflation came in very strong, with primary rents and owners’ equivalent rent growing at the fastest pace since 2001 and 2006, respectively. The strength was regionalised (mainly in the South) but this push from recent housing market buoyancy into CPI, via rents, has been a big theme of ours in recent months. The models that my colleague Francis Yared has suggest that we could be at comfortably above 4% inflation on this measure by next year given the lags in the model. Rents and owners’ equivalent rent makes up around a third of US CPI. So will a third of US inflation be above 4% consistently next year before we even get to all the other things? Moving to Germany, formal coalition negotiations are set to commence soon between the SPD, the Greens and the FDP. They reached an agreement on Friday with some preliminary policies that will form the basis for talks, including the maintenance of the constitutional debt brake, a pledge not to raise taxes or impose new ones, along with an increase in the minimum wage to €12 per hour. There are also a number of environmental measures, including a faster shift away from coal that will be complete by 2030. The Green Party voted in favour of entering the formal negotiations over the weekend, with the SPD agreeing on Friday, and the FDP is expected to approve the talks today. Reviewing last week now and strong earnings, along with the rather precipitous decline in long-end real yields drove the S&P 500 +1.82% higher over the week (+0.75% Friday), while the STOXX 600 gained +2.65% (+0.74% Friday). No major sector ended the week lower in Europe, while only communications (-0.52%) were down in the U.S. Interest rate sensitive sectors were among the outperformers in each jurisdiction. The 2s10s yield curve twist flattened -11.7bps over the week, as investors brought forward the timing of an increase to the Fed’s policy rate, driving the 2-year +7.8bps higher (+3.5 bps Friday), whilst the 10-year declined -4.2 bps (+6.0bps Friday). This is consistent with our US econ team bringing forward their call for the Fed lift-off to late 2022. Markets are actually pricing in a 50/50 likelihood of a hike by June. Particularly notable was the decline in long-end real yields, with 10yr real yields finishing the week -9.5bps lower, and at one point closed beneath the -1.00% mark for the first time in a month. Hence breakevens were up +5.4bps to 2.565%, leaving them right around their year-to-date highs last reached in May. The curve flattening trend was a global one last week, with 2-year gilts yields up +3.7bps whilst the 10-year fell -5.2bps. The bund curve flattened mildly as well, with 2-year bunds increasing +2.6 bps and the 10-year -1.6 bps. 10-year breakevens increased +7.9 bps in the UK, and +7.3 bps in Germany, which marks the highest reading since 2008 in the UK and the highest in Germany since 2013. The increases in inflation compensation were matched by commodities. WTI and Brent futures increased +3.69% and +3.00%, respectively last week, whilst metals also posted strong gains, with copper up +10.62% and aluminium +6.93% higher on the week. On the data front, September retail sales were much stronger than expectations, with the prior month’s components being revised higher across the board as well. The University of Michigan consumer survey saw sentiment and 5yr inflation expectations dip, while year ahead inflation expectations inched up to 4.8%. Friday’s strong data brought a brief reprieve from the curve flattening exhibited the rest of the week. Tyler Durden Mon, 10/18/2021 - 07:41.....»»

Category: worldSource: nytOct 18th, 2021

Futures Reverse Losses Ahead Of Key CPI Report

Futures Reverse Losses Ahead Of Key CPI Report For the second day in a row, an overnight slump in equity futures sparked by concerns about iPhone sales (with Bloomberg reporting at the close on Tuesday that iPhone 13 production target may be cut by 10mm units due to chip shortages) and driven be more weakness out of China was rescued thanks to aggressive buying around the European open. At 800 a.m. ET, Dow e-minis were up 35 points, or 0.1%, S&P 500 e-minis were up 10.25 points, or 0.24%, and Nasdaq 100 e-minis were up 58.50 points, or 0.4% ahead of the CPI report due at 830am ET. 10Y yields dipped to 1.566%, the dollar was lower and Brent crude dropped below $83. JPMorgan rose as much as 0.8% in premarket trading after the firm’s merger advisory business reported its best quarterly profit. On the other end, Apple dropped 1% lower in premarket trading, a day after Bloomberg reported that the technology giant is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units due to prolonged chip shortages. Here are some of the biggest U.S. movers today: Suppliers Skyworks Solutions (SWKS US), Qorvo (ORVO) and Cirrus Logic (CRUS US) slipped Tuesday postmarket Koss (KOSS US) shares jump 23% in U.S. premarket trading in an extension of Tuesday’s surge after tech giant Apple was rebuffed in two patent challenges against the headphones and speakers firm Qualcomm (QCOM US) shares were up 2.7% in U.S. premarket trading after it announced a $10.0 billion stock buyback International Paper (IP US) in focus after its board authorized a program to acquire up to $2b of the company’s common stock; cut quarterly dividend by 5c per share Smart Global (SGH US) shares rose 2% Tuesday postmarket after it reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate Wayfair (W US) shares slide 1.8% in thin premarket trading after the stock gets tactical downgrade to hold at Jefferies Plug Power (PLUG US) gains 4.9% in premarket trading after Morgan Stanley upgrades the fuel cell systems company to overweight, saying in note that it’s “particularly well positioned” to be a leader in the hydrogen economy Wall Street ended lower in choppy trading on Tuesday, as investors grew jittery in the run-up to earnings amid worries about supply chain problems and higher prices affecting businesses emerging from the pandemic. As we noted last night, the S&P 500 has gone 27 straight days without rallying to a fresh high, the longest such stretch since last September, signaling some fatigue in the dip-buying that pushed the market up from drops earlier this year. Focus now turn to inflation data, due at 0830 a.m. ET, which will cement the imminent arrival of the Fed's taper.  "A strong inflation will only reinforce the expectation that the Fed would start tapering its bond purchases by next month, that's already priced in," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. "Yet, a too strong figure could boost expectations of an earlier rate hike from the Fed and that is not necessarily fully priced in." The minutes of the Federal Reserve's September policy meeting, due later in the day, will also be scrutinized for signals that the days of crisis-era policy were numbered. Most European equities reverse small opening losses and were last up about 0.5%, as news that German software giant SAP increased its revenue forecast led tech stocks higher. DAX gained 0.7% with tech, retail and travel names leading. FTSE 100, FTSE MIB and IBEX remained in the red. Here are some of the biggest European movers today: Entra shares gain as much as 10% after Balder increases its stake and says it intends to submit a mandatory offer. Spie jumps as much as 10%, the biggest intraday gain in more than a year, after the French company pulled out of the process to buy Engie’s Equans services unit. Man Group rises as much as 8.3% after the world’s largest publicly traded hedge fund announced quarterly record inflows. 3Q21 net inflows were a “clear beat” and confirm pipeline strength, Morgan Stanley said in a note. Barratt Developments climbs as much as 6.3%, with analysts saying the U.K. homebuilder’s update shows current trading is improving. Recticel climbs 15% to its highest level in more than 20 years as the stock resumes trading after the company announced plans to sell its foams unit to Carpenter Co. Bossard Holding rises as much as 9.1% to a record high after the company reported 3Q earnings that ZKB said show strong growth. Sartorius gains as much as 5.9% after Kepler Cheuvreux upgrades to hold from sell and raises its price target, saying it expects “impressive earnings growth” to continue for the lab equipment company. SAP jumps as much as 5% after the German software giant increased its revenue forecast owing to accelerating cloud sales. Just Eat Takeaway slides as much as 5.8% in Amsterdam to the lowest since March 2020 after a 3Q trading update. Analysts flagged disappointing orders as pandemic restrictions eased, and an underwhelming performance in the online food delivery firm’s U.S. market. Earlier in the session, Asian stocks posted a modest advance as investors awaited key inflation data out of the U.S. and Hong Kong closed its equity market because of typhoon Kompasu. The MSCI Asia Pacific Index rose 0.2% after fluctuating between gains and losses, with chip and electronics manufacturers sliding amid concerns over memory chip supply-chain issues and Apple’s iPhone 13 production targets. Hong Kong’s $6.3 trillion market was shut as strong winds and rain hit the financial hub.  “Broader supply tightness continues to be a real issue across a number of end markets,” Morgan Stanley analysts including Katy L. Huberty wrote in a note. The most significant iPhone production bottleneck stems from a “shortage of camera modules for the iPhone 13 Pro/Pro Max due to low utilization rates at a Sharp factory in southern Vietnam,” they added. Wednesday’s direction-less trading illustrated the uncertainty in Asian markets as traders reassess earnings forecasts to factor in inflation and supply chain concerns. U.S. consumer price index figures and FOMC minutes due overnight may move shares. Southeast Asian indexes rose thanks to their cyclical exposure. Singapore’s stock gauge was the top performer in the region, rising to its highest in about two months, before the the nation’s central bank decides on monetary policy on Thursday. Japanese stocks fell for a second day as electronics makers declined amid worries about memory chip supply-chain issues and concerns over Apple’s iPhone 13 production targets.  The Topix index fell 0.4% to 1,973.83 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.3% to 28,140.28. Toyota Motor Corp. contributed the most to the Topix’s loss, decreasing 1.3%. Out of 2,181 shares in the index, 608 rose and 1,489 fell, while 84 were unchanged. Japanese Apple suppliers such as TDK, Murata and Taiyo Yuden slid. The U.S. company is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units as prolonged chip shortages hit its flagship product, according to people with knowledge of the matter Australian stocks closed lower as banks and miners weighed on the index. The S&P/ASX 200 index fell 0.1% to close at 7,272.50, dragged down by banks and miners as iron ore extended its decline. All other subgauges edged higher. a2 Milk surged after its peer Bubs Australia reported growing China sales and pointed to a better outlook for daigou channels. Bank of Queensland tumbled after its earnings release. In New Zealand, the S&P/NZX 50 index rose 0.2% to 13,025.18. In rates, Treasuries extended Tuesday’s bull-flattening gains, led by gilts and, to a lesser extent, bunds. Treasuries were richer by ~2bps across the long-end of the curve, flattening 5s30s by about that much; U.K. 30-year yield is down nearly 7bp, with same curve flatter by ~6bp. Long-end gilts outperform in a broad-based bull flattening move that pushed 30y gilt yields down ~7bps back near 1.38%. Peripheral spreads widen slightly to Germany. Cash USTs bull flatten but trade cheaper by ~2bps across the back end to both bunds and gilt ahead of today’s CPI release. In FX, the Bloomberg Dollar Spot Index fell by as much as 0.2% and the greenback weakened against all of its Group-of-10 peers; the Treasury curve flattened, mainly via falling yields in the long- end, The euro advanced to trade at around $1.1550 and the Bund yield curve flattened, with German bonds outperforming Treasuries. The euro’s volatility skew versus the dollar shows investors remain bearish the common currency as policy divergence between the Federal Reserve and the European Central Bank remains for now. The pound advanced with traders shrugging off the U.K.’s weaker-than-expected economic growth performance in August. Australia’s sovereign yield curve flattened for a second day while the currency underperformed its New Zealand peer amid a drop in iron ore prices. The yen steadied after four days of declines. In commodities, crude futures hold a narrow range with WTI near $80, Brent dipping slightly below $83. Spot gold pops back toward Tuesday’s best levels near $1,770/oz. Base metals are in the green with most of the complex up at least 1%. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for September, while today will also see the most recent FOMC meeting minutes released. Other data releases include UK GDP for August and Euro Area industrial production for August. Central bank speakers include BoE Deputy Governor Cunliffe, the ECB’s Visco and the Fed’s Brainard. Finally, earnings releases include JPMorgan Chase, BlackRock and Delta Air Lines. Market Snapshot S&P 500 futures up 0.1% to 4,346.25 STOXX Europe 600 up 0.4% to 459.04 MXAP up 0.2% to 194.60 MXAPJ up 0.4% to 638.16 Nikkei down 0.3% to 28,140.28 Topix down 0.4% to 1,973.83 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite up 0.4% to 3,561.76 Sensex up 0.8% to 60,782.71 Australia S&P/ASX 200 down 0.1% to 7,272.54 Kospi up 1.0% to 2,944.41 Brent Futures down 0.4% to $83.12/bbl Gold spot up 0.5% to $1,768.13 U.S. Dollar Index down 0.23% to 94.30 German 10Y yield fell 4.2 bps to -0.127% Euro little changed at $1.1553 Brent Futures down 0.4% to $83.12/bbl Top Overnight News from Bloomberg Vladimir Putin wants to press the EU to rewrite some of the rules of its gas market after years of ignoring Moscow’s concerns, to tilt them away from spot-pricing toward long-term contracts favored by Russia’s state run Gazprom, according to two people with knowledge of the matter. Russia is also seeking rapid certification of the controversial Nord Stream 2 pipeline to Germany to boost gas deliveries, they said. Federal Reserve Vice Chairman for Supervision Randal Quarles will be removed from his role as the main watchdog of Wall Street lenders after his title officially expires this week. The EU will offer a new package of concessions to the U.K. that would ease trade barriers in Northern Ireland, as the two sides prepare for a new round of contentious Brexit negotiations. U.K. Chancellor of the Exchequer Rishi Sunak is on course to raise taxes and cut spending to control the budget deficit, while BoE Governor Andrew Bailey has warned interest rates are likely to rise in the coming months to curb a rapid surge in prices. Together, those moves would mark a simultaneous major tightening of both policy levers just months after the biggest recession in a century -- an unprecedented move since the BoE gained independence in 1997. Peter Kazimir, a member of the ECB’s Governing Council, was charged with bribery in Slovakia. Kazimir, who heads the country’s central bank, rejected the allegations A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mixed following the choppy performance stateside with global risk appetite cautious amid the rate hike bets in US and heading into key events including US CPI and FOMC Minutes, while there were also mild headwinds for US equity futures after the closing bell on reports that Apple is set to reduce output of iPhones by 10mln from what was initially planned amid the chip shortage. ASX 200 (unch.) was little changed as gains in gold miners, energy and tech were offset by losses in financials and the broader mining sector, with softer Westpac Consumer Confidence also limiting upside in the index. Nikkei 225 (-0.3%) was pressured at the open as participants digested mixed Machinery Orders data which showed the largest M/M contraction since February 2018 and prompted the government to cut its assessment on machinery orders, although the benchmark index gradually retraced most its losses after finding support around the 28k level and amid the recent favourable currency moves. Shanghai Comp. (+0.4%) also declined as participants digested mixed Chinese trade data in which exports topped estimates but imports disappointed and with Hong Kong markets kept shut due to a typhoon warning. Finally, 10yr JGBs were steady with price action contained after the curve flattening stateside and tentative mood heading to upcoming risk events, although prices were kept afloat amid the BoJ’s purchases in the market for around JPY 1tln of JGBs predominantly focused on 1-3yr and 5-10yr maturities. Top Asian News Gold Edges Higher on Weaker Dollar Before U.S. Inflation Report RBA Rate Hike Expectations Too Aggressive, TD Ameritrade Says LG Electronics Has Series of Stock-Target Cuts After Profit Miss The mood across European stocks has improved from the subdued cash open (Euro Stoxx 50 +0.5%; Stoxx 600 +0.3%) despite a distinct lack of newsflow and heading into the official start of US earnings season, US CPI and FOMC minutes. US equity futures have also nursed earlier losses and trade in modest positive territory across the board, with the NQ (+0.5%) narrowly outperforming owing to the intraday fall in yields, alongside the sectorial outperformance seen in European tech amid tech giant SAP (+4.7%) upgrading its full FY outlook, reflecting the strong business performance which is expected to continue to accelerate cloud revenue growth. As such, the DAX 40 (+0.7%) outperformed since the cash open, whilst the FTSE 100 (-0.2%) is weighed on by underperformance in its heavyweight Banking and Basic Resources sectors amid a decline in yields and hefty losses in iron ore prices. Elsewhere, the CAC 40 (+0.3%) is buoyed by LMVH (+2.0%) after the luxury name topped revenue forecasts and subsequently lifted the Retail sector in tandem. Overall, sectors are mixed with no clear bias. In terms of individual movers, Volkswagen (+3.5%) was bolstered amid Handelsblatt reports in which the Co was said to be cutting some 30k jobs as costs are too high vs competitors, whilst separate sources suggested the automaker is said to be mulling spinning off its Battery Cell and charging unit. Chipmakers meanwhile see mixed fortunes in the aftermath of sources which suggested Apple (-0.7% pre-market) is said to be slashing output amid the chip crunch. Top European News The Hut Shares Swing as Strategy Day Feeds Investor Concern U.K. Economy Grows Less Than Expected as Services Disappoint Man Group Gets $5.3 Billion to Lift Assets to Another Record Jeff Ubben and Singapore’s GIC Back $830 Million Fertiglobe IPO In FX, the Dollar looks somewhat deflated or jaded after yesterday’s exertions when it carved out several fresh 2021 highs against rival currencies and a new record peak vs the increasingly beleaguered Turkish Lira. In index terms, a bout of profit taking, consolidation and position paring seems to have prompted a pull-back from 94.563 into a marginally lower 94.533-246 range awaiting potentially pivotal US inflation data, more Fed rhetoric and FOMC minutes from the last policy meeting that may provide more clues or clarity about prospects for near term tapering. NZD/GBP - Both taking advantage of the Greenback’s aforementioned loss of momentum, but also deriving impetus from favourable crosswinds closer to home as the Kiwi briefly revisited 0.6950+ terrain and Aud/Nzd retreats quite sharply from 1.0600+, while Cable has rebounded through 1.3600 again as Eur/Gbp retests support south of 0.8480 yet again, or 1.1800 as a reciprocal. From a fundamental perspective, Nzd/Usd may also be gleaning leverage from the more forward-looking Activity Outlook component of ANZ’s preliminary business survey for October rather than a decline in sentiment, and Sterling could be content with reported concessions from the EU on NI customs in an effort to resolve the Protocol impasse. EUR/CAD/AUD/CHF - Also reclaiming some lost ground against the Buck, with the Euro rebounding from around 1.1525 to circa 1.1560, though not technically stable until closer to 1.1600 having faded ahead of the round number on several occasions in the last week. Meanwhile, the Loonie is straddling 1.2450 in keeping with WTI crude on the Usd 80/brl handle, the Aussie is pivoting 0.7350, but capped in wake of a dip in Westpac consumer confidence, and the Franc is rotating either side of 0.9300. JPY - The Yen seems rather reluctant to get too carried away by the Dollar’s demise or join the broad retracement given so many false dawns of late before further depreciation and a continuation of its losing streak. Indeed, the latest recovery has stalled around 113.35 and Usd/Jpy appears firmly underpinned following significantly weaker than expected Japanese m/m machinery orders overnight. SCANDI/EM - Not much upside in the Sek via firmer Swedish money market inflation expectations and perhaps due to the fact that actual CPI data preceded the latest survey and topped consensus, but the Cnh and Cny are firmer on the back of China’s much wider than forecast trade surplus that was bloated by exports exceeding estimates by some distance in contrast to imports. Elsewhere, further hawkish guidance for the Czk as CNB’s Benda contends that high inflation warrants relatively rapid tightening, but the Try has not derived a lot of support from reports that Turkey is in talks to secure extra gas supplies to meet demand this winter, according to a Minister, and perhaps due to more sabre-rattling from the Foreign Ministry over Syria with accusations aimed at the US and Russia. In commodities, WTI and Brent front-month futures see another choppy session within recent and elevated levels – with the former around USD 80.50/bbl (80.79-79.87/bbl) and the latter around 83.35/bbl (83.50-82.65/bbl range). The complex saw some downside in conjunction with jawboning from the Iraqi Energy Minster, who state oil price is unlikely to increase further, whilst at the same time, the Gazprom CEO suggested that the oil market is overheated. Nonetheless, prices saw a rebound from those lows heading into the US inflation figure, whilst the OPEC MOMR is scheduled for 12:00BST/07:00EDT. Although the release will not likely sway prices amidst the myriad of risk events on the docket, it will offer a peek into OPEC's current thinking on the market. As a reminder, the weekly Private Inventory report will be released tonight, with the DoE's slated for tomorrow on account of Monday's Columbus Day holiday. Gas prices, meanwhile, are relatively stable. Russia's Kremlin noted gas supplies have increased to their maximum possible levels, whilst Gazprom is sticking to its contractual obligations, and there can be no gas supplies beyond those obligations. Over to metals, spot gold and silver move in tandem with the receding Buck, with spot gold inching closer towards its 50 DMA at 1,776/oz (vs low 1,759.50/oz). In terms of base metals, LME copper has regained a footing above USD 9,500/t as stocks grind higher. Conversely, iron ore and rebar futures overnight fell some 6%, with overnight headlines suggesting that China has required steel mills to cut winter output. Further from the supply side, Nyrstar is to limit European smelter output by up to 50% due to energy costs. Nyrstar has a market-leading position in zinc and lead. LME zinc hit the highest levels since March 2018 following the headlines US Event Calendar 8:30am: Sept. CPI YoY, est. 5.3%, prior 5.3%; MoM, est. 0.3%, prior 0.3% 8:30am: Sept. CPI Ex Food and Energy YoY, est. 4.0%, prior 4.0%; MoM, est. 0.2%, prior 0.1% 8:30am: Sept. Real Avg Weekly Earnings YoY, prior -0.9%, revised -1.4% 2pm: Sept. FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap So tonight it’s my first ever “live” parents evening and then James Bond via Wagamama. Given my daughter (6) is the eldest in her year and the twins (4) the youngest (plus additional youth for being premature), I’m expecting my daughter to be at least above average but for my boys to only just about be vaguely aware of what’s going on around them. Poor things. For those reading yesterday, the Cameo video of Nadia Comanenci went down a storm, especially when she mentioned our kids’ names, but the fact that there was no birthday cake wasn’t as popular. So I played a very complicated, defence splitting 80 yard through ball but missed an open goal. Anyway ahead of Bond tonight, with all this inflation about I’m half expecting him to be known as 008 going forward. The next installment of the US prices saga will be seen today with US CPI at 13:30 London time. This is an important one, since it’s the last CPI number the Fed will have ahead of their next policy decision just 3 weeks from now, where investors are awaiting a potential announcement on tapering asset purchases. Interestingly the August reading last month was the first time so far this year that the month-on-month measure was actually beneath the consensus expectation on Bloomberg, with the +0.3% growth being the slowest since January. Famous last words but this report might not be the most interesting since it may be a bit backward looking given WTI oil is up c.7.5% in October alone. In addition, used cars were up +5.4% in September after falling in late summer. So given the 2-3 month lag for this to filter through into the CPI we won’t be getting the full picture today. I loved the fact from his speech last night that the Fed’s Bostic has introduced a “transitory” swear jar in his office. More on the Fedspeak later. In terms of what to expect this time around though, our US economists are forecasting month-on-month growth of +0.41% in the headline CPI, and +0.27% for core, which would take the year-on-year rates to +5.4% for headline and +4.1% for core. Ahead of this, inflation expectations softened late in the day as Fed officials were on the hawkish side. The US 10yr breakeven dropped -1.9bps to 2.49% after trading at 2.527% earlier in the session. This is still the 3rd highest closing level since May, and remains only 7bps off its post-2013 closing high. Earlier, inflation expectations continued to climb in Europe, where the 5y5y forward inflation swap hit a post-2015 high of 1.84%. Also on inflation, the New York Fed released their latest Survey of Consumer Expectations later in the European session, which showed that 1-year ahead inflation expectations were now at +5.3%, which is the highest level since the survey began in 2013, whilst 3-year ahead expectations were now at +4.2%, which was also a high for the series. The late rally in US breakevens, coupled with lower real yields (-1.6bps) meant that the 10yr Treasury yield ended the session down -3.5bps at 1.577% - their biggest one day drop in just over 3 weeks. There was a decent flattening of the yield curve, with the 2yr yield up +2.0bps to 0.34%, its highest level since the pandemic began as the market priced in more near-term Fed rate hikes. In the Euro Area it was a very different story however, with 10yr yields rising to their highest level in months, including among bunds (+3.5bps), OATs (+2.9bps) and BTPs (+1.0bps). That rise in the 10yr bund yield left it at -0.09%, taking it above its recent peak earlier this year to its highest closing level since May 2019. Interestingly gilts (-4.0bps) massively out-performed after having aggressively sold off for the last week or so. Against this backdrop, equity markets struggled for direction as they awaited the CPI reading and the start of the US Q3 earnings season today. By the close of trade, the S&P 500 (-0.24%) and the STOXX 600 (-0.07%) had both posted modest losses as they awaited the next catalyst. Defensive sectors were the outperformers on both sides of the Atlantic. Real estate (+1.34%) and utilities (+0.67%) were among the best performing US stocks, though some notable “reopening” industries outperformed as well including airlines (+0.83%), hotels & leisure (+0.51%). News came out after the US close regarding the global chip shortage, with Bloomberg reporting that Apple, who are one of the largest buyers of chips, would revise down their iPhone 13 production targets for 2021 by 10 million units. Recent rumblings from chip producers suggest that the problems are expected to persist, which will make central bank decisions even more complicated over the coming weeks as they grapple with increasing supply-side constraints that push up inflation whilst threatening to undermine the recovery. Speaking of central bankers, Vice Chair Clarida echoed his previous remarks and other communications from the so-called “core” of the FOMC that the current bout of inflation would prove largely transitory and that underlying trend inflation was hovering close to 2%, while admitting that risks were tilted towards higher inflation. Atlanta Fed President Bostic took a much harder line though, noting that price pressures were expanding beyond the pandemic-impacted sectors, and measures of inflation expectations were creeping higher. Specifically, he said, “it is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply-chain disruptions — will not be brief.” His ‘transitory swear word jar’ for his office was considerably more full by the end of his speech. As highlighted above, while President Bostic spoke US 10yr breakevens dropped -2bps and then continued declining through the New York afternoon. In what is likely to be Clarida’s last consequential decision on monetary policy before his term expires, he noted it may soon be time to start a tapering program that ends in the middle of next year, in line with our US economics team’s call for a November taper announcement. In that vein, our US economists have updated their forecasts for rate hikes yesterday, and now see liftoff taking place in December 2022, followed by 3 rate increases in each of 2023 and 2024. That comes in light of supply disruptions lifting inflation, a likely rise in inflation expectations (which are sensitive to oil prices), and measures of labour market slack continuing to outperform. For those interested, you can read a more in-depth discussion of this here. Turning to commodities, yesterday saw a stabilisation in prices after the rapid gains on Monday, with WTI (+0.15%) and Brent Crude (-0.27%) oil prices seeing only modest movements either way, whilst iron ore prices in Singapore were down -3.45%. That said it wasn’t entirely bad news for the asset class, with Chinese coal futures (+4.45%) hitting fresh records, just as aluminium prices on the London Metal Exchange (+0.13%) eked out another gain to hit a new post-2008 high. Overnight in Asia, equity markets are seeing a mixed performance with the KOSPI (+1.24%) posting decent gains, whereas the CSI (-0.06%), Nikkei (-0.22%) and Shanghai Composite (-0.69%) have all lost ground. The KOSPI’s strength came about on the back of a decent jobs report, with South Korea adding +671k relative to a year earlier, the most since March 2014. The Hong Kong Exchange is closed however due to the impact of typhoon Kompasu. Separately, coal futures in China are up another +8.00% this morning, so no sign of those price pressures abating just yet following recent floods. Meanwhile, US equity futures are pointing to little change later on, with those on the S&P 500 down -0.12%. Here in Europe, we had some fresh Brexit headlines after the UK’s Brexit minister, David Frost, said that the Northern Ireland Protocol “is not working” and was not protecting the Good Friday Agreement. He said that he was sharing a new amended Protocol with the EU, which comes ahead of the release of the EU’s own proposals on the issue today. But Frost also said that “if we are going to get a solution we must, collectively, deliver significant change”, and that Article 16 which allows either side to take unilateral safeguard measures could be used “if necessary”. Elsewhere yesterday, the IMF marginally downgraded their global growth forecast for this year, now seeing +5.9% growth in 2021 (vs. +6.0% in July), whilst their 2022 forecast was maintained at +4.9%. This masked some serious differences between countries however, with the US downgraded to +6.0% in 2021 (vs. +7.0% in July), whereas Italy’s was upgraded to +5.8% (vs. +4.9% in July). On inflation they said that risks were skewed to the upside, and upgraded their forecasts for the advanced economies to +2.8% in 2021, and to +2.3% in 2022. Looking at yesterday’s data, US job openings declined in August for the first time this year, falling to 10.439m (vs. 10.954m expected). But the quits rate hit a record of 2.9%, well above its pre-Covid levels of 2.3-2.4%. Here in the UK, data showed the number of payroll employees rose by +207k in September, while the unemployment rate for the three months to August fell to 4.5%, in line with expectations. And in a further sign of supply-side issues, the number of job vacancies in the three months to September hit a record high of 1.102m. Separately in Germany, the ZEW survey results came in beneath expectations, with the current situation declining to 21.6 (vs. 28.0 expected), whilst expectations fell to 22.3 (vs. 23.5 expected), its lowest level since March 2020. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for September, while today will also see the most recent FOMC meeting minutes released. Other data releases include UK GDP for August and Euro Area industrial production for August. Central bank speakers include BoE Deputy Governor Cunliffe, the ECB’s Visco and the Fed’s Brainard. Finally, earnings releases include JPMorgan Chase, BlackRock and Delta Air Lines. Tyler Durden Wed, 10/13/2021 - 08:13.....»»

Category: blogSource: zerohedgeOct 13th, 2021

Is It Time For Eurozone Banks To Start Worrying About Turkey Again?

Is It Time For Eurozone Banks To Start Worrying About Turkey Again? Authored by Nick Corbishley via NakedCapitalism.com, The ECB has already warned once about the potential impact a plummeting lira could have on Euro Area banks heavily exposed to Turkey’s economy. Turkey is in the grip of another big wave of its multiyear currency crisis. The value of the lira against the dollar has plunged by almost 40% so far this year, making it the worst performing emerging market currency. The currency is currently trading at just over 13 units to the dollar, compared to 7.44 in January and 3.78 at the start of 2018. On just one day this month (Nov 23), the currency plunged almost 20% before recovering slightly. The main cause of the collapse was the Central Bank of the Republic of Turkey’s decision to reduce interest rates for the third time since September, despite a slumping lira and surging inflation. Contagion Risks Luxury watches have a reputation for holding value. eBay created a best-in-class platform to match bona fide buyers with a network of sellers. Whether you are looking for a statement piece or entering the watch investment game- eBay has you covered. Read more. At the height of the last big wave of Turkey’s ongoing crisis, in August 2018, the European Central Bank issued a warning about the potential impact the plummeting lira could have on Euro Area banks heavily exposed to Turkey’s economy via large amounts in loans — much of them in euros — through banks they acquired in Turkey. The central bank was worried that Turkish borrowers might not be hedged against the lira’s weakness and would begin to default on foreign currency loans, which accounted for 40% of the Turkish banking sector’s assets. In the end, the contagion risks were largely contained. Many Turkish banks ended up agreeing to restructure the debts of their corporate clients, particularly the large ones. At the same time, the Erdogan government used state-owned lenders to bail out millions of cash-strapped consumers by restructuring their consumer loans, many of them foreign denominated, and credit card debt.   But concerns are once again on the rise about European banks’ exposure to Turkey. On Friday, as those concerns commingled with fears about the potential threat posed by the new omicron variant of Covid-19, Europe’s worst-affected stocks included the four banks most exposed to Turkey: Spain’s BBVA, whose shares fell 7.3% on the day, Italy’s Unicredit (-6.9%), France’s BNP Paribas (-5.9%) and the Dutch ING (-7.3%). The collapsing lira is almost certain to fuel even higher inflation in Turkey. In October, consumer price inflation in the country was already at an eye-watering 20%. That’s still not as high as the 25% peak registered in 2018, but it is likely to go a lot higher as the lira weakens. As prices soar, further eroding the savings and incomes of many Turks, so too will the risk of social and political unrest. Another cause for concern is that a weaker lira will make it even harder for businesses already battered by the fallout of the virus crisis to repay their foreign-denominated debts. The one silver lining for Turkey’s economy is that the crumbling lira has boosted exports while making imports prohibitively expensive for many people. Even before the currency’s latest rout, Turkey registered two straight months of current account surpluses in August and September — a rare feat for a country so heavily dependent on imports. Meanwhile, Erdogan, who maintains de facto control of Turkey’s central bank, continues to dig in his heels over interest rate policy, as the Guardian reports: […] Recep Tayyip Erdoğan’s declaration of an “economic war of independence” has pitched him against many in his own party and the country’s technocrats who fear an inflation rate running at 20% will create further bouts of social unrest. “Some people who wanted to convey the opinion to the president that a different policy should be followed were not successful in this,” a senior official in the ruling AK party told Reuters, requesting anonymity. Three central bank governors who stood against Erdoğan’s demand for lower interest rates have been sacked since mid-2019, leaving the way clear for the governor since March, Şahap Kavcıoğlu, to bring down the base rate in three separate cuts from 19% to 15%. Reduced Exposure Spanish banks have by far the highest loan exposure to Turkey, with just under $63 billion of loans outstanding, followed by France ($26 billion), Germany ($14 billion) and Italy ($6 billion), according to recent data from the Bank of International Settlements. The good news for the ECB is that some Eurozone banks with large-scale operations in Turkey have pared back their exposure to the country, or at least not added to it, since 2018. Italian megabank Unicredit has sold down its stake in the commercial bank Yapi Kredi from 40% in 2018 to around 20% today. Under a strategy aimed at offloading non-core assets, the bank’s current business plan envisages achieving zero contribution from Yapi by the end of 2023. Nonetheless Yapi Kredi will still contribute around 5% of group earnings in 2021, according to estimates by Citi analysts. French giant BNP Paribas operates various businesses in Turkey, from retail banking to leasing and insurance through a string of subsidiaries. But the country accounts for a low single-digit contribution to BNP profits, according to Jeffries. What’s more, BNP claims that most of its Turkish business is self-financed. Another European bank with operations in Turkey is the Dutch group ING but its exposure is also limited. In 2020 it generated a total income of 420 million euros in the country, making it the Dutch bank’s third biggest market outside Europe after the United States and Australia. Assets in Turkey stood at around 7.3 billion euros in 2020, or less than 1% out of a total of 937 billion euros. Bucking the Trend There is one big exception to this trend: Spain’s second largest lender, BBVA. In 2020, Turkey was BBVA’s third largest market after Mexico and Spain, providing €563 million of net attributable profit, up 41% from 2019. That represents 14.3% of BBVA profits, excluding the corporate centre. Until two weeks ago, BBVA owned just under 50% of Turkey’s second largest private bank, Garanti, for which it had paid €6.9 billion in incremental purchases beginning in 2010. Since then the Lira has done nothing but fall. Garanti’s market cap as of two weeks ago, converted into euros, was €3.7 billion (it is now €3.3 billion). BBVA’s 49.85% stake in it was worth €1.85 billion. In other words, BBVA had lost 73% of its investment. But instead of cutting back its exposure to Turkey, BBVA has doubled it. Flush with cash after selling its U.S. subsidiary to PNC last year, BBVA announced two weeks ago — just days before Turkey’s central bank cut interest rates for the third time, triggering the lira’s worst daily collapse in 20 years — plans to buy the rest of Garanti for the price of TL12.20 per share. The move amounts to a massive gamble Turkey’s Erodgan-dominated economy and has found little favour among investors. Since the day of the purchase BBVA’s shares have fallen almost 20% while Garanti’s are now below the takeover price. “It was our best investment option,” said BBVA’s CEO, Onur Genç, on in an investor call on Monday aimed at allaying shareholders’ concerns. The Spanish lender sees its purchase of Garanti as a long-term proposition that cements its position in a high-growth market it already knows well — and what’s more at a bargain price! Genç, himself of Turkish descent, said even the recent decline of the lira, which has decimated Garanti’s market value, was beneficial to BBVA since it meant that its offer price for Garanti, converted into euros, has fallen from €2.25 billion on the day BBVA announced its offer, to €1.8 billion today. At the same time, the amount of capital committed has fallen from €1.4 billion to €1.2 billion. But while the collapsing lira may mean that BBVA is getting a cheaper and cheaper deal as each day goes by, it could still end up paying dearly. As a Reuters Breaking Views article cross-posted in El País points out, the crisis could hurt Garanti in two ways: First, a weaker lira makes it harder for borrowers to service dollar-denominated debt, increasing the risk of defaults. Garanti has reduced its foreign currency exposure much faster than other banks, but at $11.6 billion (€ 10.3 billion), it is still almost a third of total loans. Second, the unorthodox monetary easing raises the prospect of a sharp rise in rates at some point in the future. That would reduce loan margins, as deposits instantly become more expensive while loans take longer to appreciate. But BBVA’s CEO is for the moment nonplussed, or at least appears to be. “Since the beginning,” he said, “we have been aware of the risks and have controlled for them in multiple ways.” One prime example is the way BBVA has set up its global business to limit the spread of financial wildfires from Turkey or other emerging markets to the wider group, as a Bloomberg article recently pointed out (comment in parenthesis my own): As a legacy from the Argentine debt crisis of the late 1990s, the bank uses a model of self-sufficient subsidiaries, which insulates other units if one of its businesses runs into trouble. That means that if Garanti were to start failing, it could be liquidated or restructured without affecting the rest of the group. In a worst case, BBVA would risk the value of its equity stake in Garanti — currently just under $4 billion. In other words, BBVA would simply walk away from the smouldering wreckage as well as Turkey as a whole — at least in theory. The one thing the Bloomberg article doesn’t mention is that BBVA’s silo-based damage control system has never been properly road tested before. Tyler Durden Wed, 12/01/2021 - 06:30.....»»

Category: blogSource: zerohedgeDec 1st, 2021

The Euro"s Death Wish

The Euro's Death Wish Authored by Alasdair Macleod via GoldMoney.com, Last week’s Goldmoney article explained the Fed’s increasing commitment to dollar hyperinflation. This week’s article examines the additional issues facing the euro and the Eurozone. More nakedly than is evidenced by other major central banks, the ECB through its system of satellite national central banks is now almost solely committed to financing national government debts and smothering over the consequences. The result is a commercial banking system both highly leveraged and burdened with overvalued government debt secured only by an implied ECB guarantee. The failings of this statist control system have been covered up by a pass-the-parcel any collateral goes €10 trillion plus repo market, which with the TARGET2 settlement system has concealed the progressive accumulation of private sector bad debts ever since the first Eurozone crisis hit Spain in 2012. These distortions can only continue so long as interest rates are suppressed beneath the zero bound. But rising interest rates globally are now a certainty — only officially unrecognised by central bankers — so there can only be two major consequences. First, the inevitable Eurozone economic recession (now being given an extra push through renewed covid restrictions) will send debt-burdened government deficits which are already high soaring, requiring an accelerated pace of inflationary financing by the ECB. And second, the collapse of the bloated repo market, which is to be avoided at all costs, will almost certainly be triggered. This article attempts to clarify these issues. It is hardly surprising that for the ECB raising interest rates is not an option. Therefore, the recent weakness of the euro on the foreign exchanges marks only the start of a threat to the euro system, the outcome of which will be decided by the markets, not the ECB. Introduction The euro, as it is said of the camel, was designed by a committee. Unlike the ship of the desert the euro and its institutions will not survive — we can say that with increasing certainty considering current developments. Instead of evolving as demanded by its users, the euro has become even more of a state control mechanism than the other major currencies, with the exception, perhaps, of China’s renminbi. But for all its faults, the Chinese state at least pays attention to the economic demands of its citizens to guide it in its management of the currency. The commissars in Brussels along with national politicians seem to be blind to the social and economic consequences of drifting into totalitarianism, where people are forced into new lockdowns and in some cases are being forced into mandatory covid vaccinations. The ECB in Frankfurt has also ignored the economic consequences of its actions and has just two priorities intact from its inception: to finance member governments by inflationary means and to suppress or ignore all evidence of the consequences. The ECB’s founding was not auspicious. Before monetary union socialistic France relied on inflationary financing of government spending while Germany did not. The French state was interventionist while Germany fostered its mittelstand with sound money. The compromise was that the ECB would be in Frankfurt (the locational credibility argument won the day) while its first true president, after Wim Duisenberg oversaw its establishment and cut short his presidency, would be French: Jean-Claude Trichet. Membership qualifications for the Eurozone were set out in the Maastricht treaty, and then promptly ignored to let in Italy. They were ignored again to let in Greece, which in terms of ease of doing business ranked lower than both Jamaica and Columbia at the time. And now the Maastricht rules are ignored by everyone. Following the establishment of the ECB the EU made no attempt to tackle the divergence between fiscally responsible Germany with similarly conservative northern states, and the spendthrift southern PIGS. Indeed, many claimed a virtue in that Germany’s savings could be deployed for the benefit of investment in less advanced member nations, a belief insufficiently addressed by the Germans at the time. The ECB presided over the rapidly expanding balance sheets of the major banks which in the early days of the euro made them fortunes arbitraging between Germany’s and the PIGs’ converging bond yields. The ECB was seemingly oblivious to the rapid balance sheet expansion with which came risks spiralling out of control. To be fair, the ECB was not the only major central bank unaware of what was happening on the banking scene ahead of the great financial crisis, but that does not absolve it from responsibility. The ECB and its banking regulator (the European Banking Authority — EBA) has done nothing since the Lehman failure to reduce banking risk. Figure 1 shows current leverages for the Eurozone’s global systemically important banks, the G-SIBs. Doubtless, there are other lesser Eurozone banks with even higher balance sheet ratios, the failure of any of which threatens the Eurosystem itself. Even these numbers don’t tell the whole story. Most of the credit expansion has been into government debt aided and abetted by Basel regulations, which rank government debt as the least risky balance sheet asset, irrespective whether it is German or Italian. Throughout the PIGS, private sector bad debts have been rated as “performing” by national regulators so that they can be used as collateral against loans and repurchase agreements, depositing them into the amorphous TARGET2 settlement system and upon other unwary counterparties. Figure 2 shows the growth of M1 narrow money, which has admittedly not been as dramatic as in the US dollar’s M1. But the translation of bank lending into circulating currency in the Eurozone is by way of government borrowing without stimulation cheques. It is still progressing, Cantillon-like, through the monetary statistics. And they will almost certainly increase substantially further on the back of the ongoing covid pandemic, as state spending rises, tax revenues fall, and budget deficits soar. Bear in mind that the new covid lockdowns currently being implemented will knock the recent anaemic recovery firmly on the head and drive the Eurozone into a new slump. There can be no doubt that M1 for the euro area is set to increase significantly from here, particularly since the ECB is now nakedly a machine for inflationary financing. In the US’s case, rising interest rates, which the Fed is keen to avoid, will undermine the US stock market with knock-on economic effects. In the Eurozone, rising interest rates will undermine spendthrift governments and the entire commercial banking system. Government debt creation out of control The table below shows government spending for leading Eurozone states as a proportion of their GDP last year, ranked from highest government spending to GDP to lowest (column 1). The US is included for comparison. Some of the increase in government spending relative to their economies was due to significant falls in GDP, and some of it due to increased spending. The current year has seen a recovery in GDP, which will have not yet led to a general improvement in tax revenues, beyond sales taxes. And now, much of Europe faces new covid restrictions and lockdowns which are emasculating any hopes of stabilising government debt levels. The final column in the table adjusts government debt to show it relative to the tax base, which is the productive private sector upon which all government spending, including borrowing costs and much of inflationary financing, depends. This is a more important measure than the commonly quoted debt to GDP ratios in the second column. The sensitivity to and importance of maintaining tax income becomes readily apparent and informs us that government debt to private sector GDP is potentially catastrophic. As well as the private sectors’ own tax burden, through their taxes and currency debasement they are having to support far larger obligations than generally realised. Productive citizens who don’t feel they are on a treadmill going ever faster for no purpose are lacking awareness. These are the dynamics of national debt traps which only miss one element to trigger them: rising interest rates. Instead, they are being heavily suppressed by the ECB’s deposit rate of minus 0.5%. The market is so distorted that the nominal yield on France’s 5-year bond is minus 0.45%. In other words, a nation with a national debt that is so high as to be impossible to stabilise without the necessary political will to do so is being paid to borrow. Greece’s 5-year bond yields a paltry 0.48% and Italy’s 0.25%. Welcome to the mad, mad world of Eurozone government finances. The ECB’s policy failure It is therefore unsurprising that the ECB is resisting interest rate increases despite producer and consumer price inflation taking off. Consumer price inflation across the Eurozone is most recently recorded at 4.1%, making the real yield on Germany’s 5-year bond minus 4.67%. But Germany’s producer prices for October rose 18.4% compared with a year ago. There can be no doubt that producer prices will feed into consumer prices, and that rising consumer prices have much further to go, fuelled by the acceleration of currency debasement in recent years. Therefore, in real terms, not only are negative rates already increasing, but they will go even further into record territory due to rising producer and consumer prices. It is also the consequence of all major central banks’ accelerated expansion of their base currencies, particularly since March 2020. Unless it abandons the euro to its fate on the foreign exchanges altogether, the ECB will be forced to raise its deposit rate very soon, to offset the euro’s depreciation. And given the sheer scale of previous monetary expansion, which is driving its loss of purchasing power, euro interest rates will have to rise considerably to have any stabilising effect. But even if they increased only into modestly positive territory, the ECB would have to quicken the pace of its monetary creation just to keep Eurozone member governments afloat. The foreign exchanges will quickly recognise the situation, punishing the euro if the ECB fails to raise rates and punishing it if it does. But it won’t be limited to cross rates against other currencies, which to varying degrees face similar dilemmas, but measured against prices for commodities and essential products. Arguably, the euro’s rerating on the foreign exchanges has already commenced. The ECB is being forced into an impossible situation of its own making. Bond yields have started to rise or become less negative, threatening to bankrupt the whole Eurozone network as the trend continues, and inflicting mark-to-market losses on highly leveraged commercial banks invested in government bonds. Furthermore, the Euro system’s network of national central banks is like a basket of rotten apples. It is the consequence not just of a flawed system, but of policies first introduced to rescue Spain from soaring bond yields in 2012. That was when Mario Draghi, the ECB’s President at the time said he was ready to do whatever it takes to save the euro, adding, “Believe me, it will be enough”. It was then and its demise was deferred. The threat of intervention was enough to drive Spanish bond yields down (currently minus 0.24% on the 5-year bond!) and is probably behind the complacent thinking in the ECB to this day. But as the other bookend to Draghi’s promise to deploy bond purchasing programmes, Lagarde’s current intervention policy is of necessity far larger and more destabilising. And then there is the market problem: the ECB now acts as if it can ignore it for ever. It wasn’t always like this. The euro started with the promise of being a far more stable currency replacement for national currencies, particularly the Italian lira, the Spanish peseta, the French franc, and the Greek drachma. But the first president of the ECB, Wim Duisenberg, resigned halfway during his term to make way for Jean-Claude Trichet, who was a French statist from the École Nationale d’Administration and a career civil servant. His was a political appointment, promoted by the French on a mixture of nationalism and a determination to neutralise the sound money advocates in Germany. To be fair to Trichet, he resisted some of the more overt pressures for inflationism. But then things had not yet started to go wrong on his watch. Following Trichet, the ECB has pursued increasingly inflationist policies. Unlike the Bundesbank which closely monitored the money supply and paid attention to little else, the ECB adopted a wide range of economic indicators, allowing it to shift its focus from money to employment, confidence polls, long-term interest rates, output measures and others, allowing a fully flexible attitude to money. The ECB is now intensely political, masquerading as an independent monetary institution. But there is no question that it is subservient to Brussels and whose primary purpose is to ensure Eurozone governments’ profligate spending is always financed; “whatever it takes”. The private sector is now a distant irrelevance, only an alternative source of government revenue to inflation, the delegated responsibility of compliant national central banks, who take their orders from the economically remote ECB. It is an arrangement that will eventually collapse through currency debasement and economic breakdown. Prices rising to multiples of the official CPI target and the necessary abandonment by the ECB of the euro in the foreign exchanges in favour of interest rate suppression now threaten the ability of the ECB to finance in perpetuity increasing government deficits. The ECB, TARGET2 and the repo market Figure 3 shows how the Eurozone’s central bank balance sheets have grown since the great financial crisis. The growth has virtually matched that of the Fed, increasing to $9.7 trillion equivalent against the Fed’s $8.5 trillion, but from a base about $700bn higher. While they are reflected in central bank assets, TARGET2 imbalances are an additional complication, which are shown in the Osnabrück University chart reproduced in Figure 4. Points to note are that Germany is owed €1,067bn. The ECB collectively owes the national central banks (NCBs) €364bn. Italy owes €519bn, Spain €487bn and Portugal €82bn. The effect of the ECB deficit, which arises from bond purchases conducted on its behalf by the national central banks, is to artificially reduce the TARGET2 balances of debtors in the system to the extent the ECB has bought their government bonds and not paid the relevant national central bank for them. The combined debts of Italy and Spain to the other national central banks is about €1 trillion. In theory, these imbalances should not exist. The fact that they do and that from 2015 they have been increasing is due partly to accumulating bad debts, particularly in Portugal, Italy, Greece, and Spain. Local regulators are incentivised to declare non-performing bank loans as performing, so that they can be used as collateral for repurchase agreements with the local central bank and other counterparties. This has the effect of reducing non-performing loans at the national level, encouraging the view that there is no bad debt problem. But much of it has merely been removed from national banking systems and lost in both the euro system and the wider repo market. Demand for collateral against which to obtain liquidity has led to significant monetary expansion, with the repo market acting not as a marginal liquidity management tool as is the case in other banking systems, but as an accumulating supply of raw money. This is shown in Figure 4, which is the result of an ICMA survey of 58 leading institutions in the euro system. The total for this form of short-term financing grew to €8.31 trillion in outstanding contracts by December 2019. The collateral includes everything from government bonds and bills to pre-packaged commercial bank debt. According to the ICMA survey, double counting, whereby repos are offset by reverse repos, is minimal. This is important when one considers that a reverse repo is the other side of a repo, so that with repos being additional to the reverse repos recorded, the sum of the two is a valid measure of the size of the market outstanding. The value of repos transacted with central banks as part of official monetary policy operations were not included in the survey and continue to be “very substantial”. But repos with central banks in the ordinary course of financing are included. Today, even excluding central bank repos connected with monetary policy operations, this figure probably exceeds €10 trillion, allowing for the underlying growth in this market and when one includes participants beyond the 58 dealers in the survey. An interesting driver of this market is negative interest rates, which means that the repayment of the cash side of a repo (and of a reverse repo) can be less than its initial payment. By tapping into central bank cash through a repo it gives a commercial bank a guaranteed return. This must be one reason that the repo market in euros has grown to be considerably larger than it is in the US. This consideration raises the question as to the consequences of the ECB’s deposit rate being forced back into positive territory. It is likely to substantially reduce a source of balance sheet funding for commercial banks as repos from national central banks no longer offer negative rate funding. They would then be forced to sell balance sheet assets, which would drive all negative bond yields into positive territory, and higher. Furthermore, the contraction of bank credit implied by the withdrawal of repo finance will almost certainly have the knock-on effect of triggering a widespread banking liquidity crisis in a banking cohort with such high balance sheet gearing. There is a further issue over collateral quality. While the US Fed only accepts very high-quality securities as repo collateral, with the Eurozone’s national banks and the ECB almost anything is accepted — it had to be when Greece and other PIGS were bailed out. High quality debt represents most of the repo collateral and commercial banks can take it back onto their balance sheets. But the hidden bailouts of Italian banks by taking dodgy loans off their books could not continue to this day without them being posted as repo collateral rolled into the TARGET2 system and into the wider commercial repo network. The result is that the repos that will not be renewed by commercial counterparties are those whose collateral is bad or doubtful. We have no knowledge how much is involved. But given the incentive for national regulators to have deemed them creditworthy so that they could act as repo collateral, the amounts will be considerable. Having accepted this dodgy collateral, national central banks will be unable to reject them for fear of triggering a banking crisis in their own jurisdictions. Furthermore, they are likely to be forced to accept additional repo collateral rejected by commercial counterparties. In short, in the bloated repo market there are the makings of the next Eurozone banking crisis. The numbers are far larger than the central banking system’s capital. And the tide will rapidly ebb on them with rising interest rates. Inflation and interest rate outlook Starting with input prices, the commodity tracker in Figure 6 illustrates the rise in commodity and energy prices in euros, ever since the US Fed went “all in” in early 2020. To these inputs we can add soaring shipping costs, logistical disruption, and labour shortages — in effect all the problems seen in other jurisdictions. Additionally, this article demonstrates that not only is the ECB determined not to raise interest rates, but it simply cannot afford to. Being on the edge of a combined government funding crisis and with a possible collapse in the repo market taking out the banking system, the ECB is paralyzed with fear. That being so, we can expect further weakness in the euro exchange rate. And the commodity tracker in Figure 6 shows that when commodity prices break out above their current consolidation phase, they will likely push alarmingly higher in euros at least. The ECB’s dilemma over choosing inflationary financing or saving the currency is about to get considerably worse. And for probable confirmation of mounting fear over the situation in Frankfurt, look no further than the resignation of the President of the Bundesbank, who has asked the Federal President to dismiss him early for personal reasons. It was all very polite, but a high-flying, sound money man such as Jens Weidmann is unlikely to just want to spend more time with his family. That he can no longer act as a restraint on the ECB’s inflationism is clear, and more than any outsider he will be acutely aware of the coming crisis. Let us hope that Weidmann will be available to pick up the pieces and reintroduce a gold-backed mark.   Tyler Durden Sun, 11/28/2021 - 07:00.....»»

Category: blogSource: zerohedgeNov 28th, 2021

Black Friday Turns Red On "Terrible News" - Global Markets Crater On "Nu Variant" Panic

Black Friday Turns Red On "Terrible News" - Global Markets Crater On "Nu Variant" Panic The Friday after thanksgiving is called black Friday because that's when retailers finally turn profitable for the year. Not so much for market, however, because this morning it's red as far as the eye can see. The culprit: the same one we discussed late last night - the emergence of a new coronavirus strain detected in South Africa, known as B.1.1.529, which reportedly carries an "extremely high number" of mutations and is “clearly very different” from previous incarnations, which may drive further waves of disease by evading the body’s defenses according to South African scientists, and soon, Anthony Fauci. British authorities think it is the most significant variant to date and have hurried to impose travel restrictions on southern Africa, as did Japan, the Czech Republic and Italy on Friday. The European Union also said it aimed to halt air travel from the region. "Markets have been quite complacent about the pandemic for a while, partly because economies have been able to withstand the impact of selective lockdown measures. But we can see from the new emergency brakes on air travel that there will be ramifications for the price of oil," said Chris Scicluna, head of economic research at Daiwa. As a result, what was initially just a 1% drop in US index futures, has since escalated to a plunge of as much as 2% with eminis dropping the most since September, at one point dropping below 4,600 after closing on Wednesday above 4,700 as a post-Thanksgiving selloff spread across global markets amid mounting concerns the new B.1.1.529 coronavirus variant - which today will be officially called by the Greek lettter Nu - could derail the global economic recovery.  Russell 2000 contracts sank as much as 5.4%. Technology shares may be caught in the net too as Nasdaq 100 futures slid. The VIX increased as much as 9.4 vols to 28, it's biggest jump since January. It was last seen up 7.4 points, or the biggest increase since February. Adding to the pain, there is nothing on today's macro calendar and the US market closes early which will reduce already dismal liquidity even more, exacerbating some of the moves throughout the session. Headlines are likely to center on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically, as well as which countries "find" the Nu variant. Amid the panicked flight to safety, 10Y TSY yields tumbled as traders slashed bets on monetary tightening by the Federal Reserve (just hours after Goldman predicted that the Fed would double the pace of its taper and hike 3 times in 2022, oops) ... ... as did oil amid fears new covid lockdowns will lead to a collapse in crude demand (they will also certainly force OPEC+ to put on pause their plans to keep hiking output by 400K every month). Paradoxically, even cryptos are tumbling, which is surprising since even the dumbest algos should realize by now that a new covid outbreak means more dovish central banks, no tightening, and if nothing else, more QE and more liquidity which is precisely what cryptos need to break out to new all time highs. Cruise ship operator Carnival slumped 9.1% in premarket trading and Boeing slid 5.8% as travel companies tumbled worldwide. Stay-at-home stocks such as Zoom Video rallied.  Didi Global shares fell after Chinese regulators reportedly asked the ride-hailing giant to delist from U.S. bourses. Here are some of the other big premarket movers: Airlines and other travel stocks slumped in premarket trading on growing concern about a new Covid-19 variant identified in southern Africa. The European Union is proposing to halt air travel from several countries in the area and the U.K. will temporarily ban flights from the region. United Airlines (UAL US) fell 8.9%, Delta Air (DAL US) -7.9%, American Airlines (AAL US) -6.7%; cruiseline-operator Carnival (CCL US) -12%; hotelier Marriott (MAR US) -6.1%; lodging company Airbnb (ABNB US) -6.9%. Stay-at-home stocks that benefit from higher demand in lockdowns rose in premarket, with Zoom Video (ZM US) gaining 8.5% and fitness equipment group Peloton (PTON US) +4.7%. Vaccine stocks surged in premarket, while Pfizer and BioNTech got an added boost after their coronavirus shot won European Union backing for expanded use in children. Moderna (MRNA US) rose 8.8%, Novavax (NVAX US) +6.2%, Pfizer (PFE US) +5.1%, BioNTech (BNTX US) +6.4%. Small biotech stocks gained in premarket as investors sought havens. Ocugen (OCGN US) added 22%, Vir Biotechnology (VIR US) +7.8%, Sorrento Therapeutics (SRNE US) +5%. Cryptocurrency-exposed stocks fell as Bitcoin dropped as investors dumped risk assets. Marathon Digital (MARA US) declined 9%, Riot Blockchain (RIOT US) -8.8%, Coinbase (COIN US) -4.6%. Didi Global (DIDI US) declined 6% in premarket after Chinese regulators were said to have asked the ride-hailing giant to delist from U.S. bourses. Selecta Biosciences (SELB US) dropped 13% in Wednesday’s postmarket ahead of Thursday’s Thanksgiving closure, after saying the U.S. FDA placed a clinical hold on a trial. Quotient Technology (QUOT US) gained 3.9% in Wednesday’s postmarket on news that a board member bought $150,000 of shares. What happens next will matter and so, all eyes are on the opening bell for the U.S. markets, set to return from the holiday for a shortened trading session. Tumbling futures and a soaring VIX signaled that the rout in Asia and Europe won’t spare New York equities, while lack of liquidity will only make the pain worse. The Japanese yen emerged as the main haven currency of the day, with the dollar languishing. “Every trader in New York will be rushing to the office now,” said Salm-Salm & Partner portfolio manager Frederik Hildner, adding that news of the new variant could mean the end of the inflation and tapering debate. The worsening pandemic poses a dilemma for central banks that are preparing to tighten monetary policy to curb elevated price pressures, according to Ipek Ozkardeskaya, senior analyst at Swissquote. “It’s terrible news,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said in emailed comments. “The new Covid variant could hit the economic recovery, but this time, the central banks won’t have enough margin to act. They can’t fight inflation and boost growth at the same time. They have to choose.” “We now have a new Covid variant that’s ‘very’ different from the ones we knew so far, a rising inflation, and a market bubble,” she said.  “The only encouraging news is the easing oil prices, which could tame the inflationary pressures and give more time to the central banks before pulling back support.” In the meantime, the World Health Organization and scientists in South Africa were said to be working “at lightning speed” to ascertain how quickly the B.1.1.529 variant can spread and whether it’s resistant to vaccines. The new threat adds to the wall of worry investors are already contending with in the form of elevated inflation, monetary tightening and slowing growth. In Europe, the Stoxx 600 index headed for the biggest drop in 13 months plunging 2.7%; travel and banking industries led the Stoxx Europe 600 Index down as much as 3.7%, the biggest intraday drop since June 2020. Airbus slumped 8.6% in Paris and British Airways owner IAG tumbled 12% in London, while food-delivery stocks gained.  Here are some of the biggest European movers today: Stay-at-home stocks and Covid testing firms such as TeamViewer and DiaSorin are among the biggest gainers as worries over a new Covid variant send the Stoxx 600 tumbling on lockdown fears TeamViewer and DiaSorin rise as much as 6% and 7%, respectively On the down side, travel and leisure stocks plunge, with the likes of IAG, Lufthansa and Carnival posting double- digit falls IAG drops as much as 21% Software AG shares rise as much as 9.5% after Bloomberg reported that the firm is exploring strategic options, including a potential sale, with Morgan Stanley saying the company’s biggest headwinds are behind it. Evolution gains as much as 4.6%, recouping part of Thursday’s 16% plunge, with Bank of America saying the share price’s “crazy time” amounts to a good buying opportunity. Skistar rises as much as 3.7%, bucking steep declines for travel and leisure stocks, after Handelsbanken upgraded the stock, saying bookings for the Scandinavian ski resort operator are “set to surge.” Telecom Italia climbs as much as 2.8% following a Bloomberg report that private equity firms KKR and CVC are considering teaming up on a bid for the company. ING Groep falls as much as 11% after Goldman Sachs analyst Jean-Francois Neuez cut his recommendation to neutral from buy. Getlink drops as much as 6% as French fishermen start protests aimed at stepping up pressure on the U.K. in a post-Brexit fishing dispute. Earlier in the session, MSCI's index of Asian shares outside Japan fell 2.2%, its sharpest drop since August. Casino and beverage shares were hammered in Hong Kong, while travel stocks dropped in Sydney and Tokyo. Japan's Nikkei skidded 2.5% and S&P 500 futures were last down 1.8%. Giles Coghlan, chief currency analyst at HYCM, a brokerage, said the closure of the U.S. market for the Thanksgiving holiday on Thursday had exacerbated moves. "We need to see how transmissible this variant is, is it able to evade the vaccines - this is crucial," Coghlan said. "I expect this story to drag on for a few days until scientists have a better understanding of it." Indian stocks plunged as the detection of a new coronavirus strain rattled investor sentiment globally, raising concerns over a likely setback to the nascent economic recovery.  The S&P BSE Sensex lost 2.9%, the most since mid-April, to 57,107.15 in Mumbai, taking its loss this week to 4.2%, the biggest weekly drop since January. The NSE Nifty 50 Index declined by a similar magnitude on Friday. Reliance Industries was the biggest drag on both measures and declined 3.2%.  “There is fear of this new variant spreading to other countries which might again derail the global economy,” said Hemang Jani, head of equity strategy at Motilal Oswal Financial Services Ltd.   Of the 30 shares in the Sensex index, 26 fell and 4 gained. All but one of 19 sub-indexes compiled by BSE Ltd. retreated, led by a index of realty companies. The S&P BSE Healthcare index was the only sub-index to gain, surging 1.2%. While researchers are yet to determine whether the new virus variant is more transmissible or lethal than previous ones, authorities around the world have been quick to act. The European Union, U.K., Israel, and Singapore placed emergency curbs on passengers from South Africa and the surrounding region. Travel stocks were among the hardest hit. InterGlobe Aviation Ltd. fell 8.9%, Spicejet Ltd. slipped 6.7% and Indian Hotels Co. Ltd. plunged 11.2%, the most since March 2020.  “Nervousness on the new variant of coronavirus and expectations of the U.S. Fed increasing the pace of tapering have led to recent market weakness,” Amit Gupta, fund manager for portfolio management services at ICICI Securities Ltd. said. “This trend may take some time to recover as the WHO meeting on the new mutant variant impact and hospitalization rates in US and Europe will be watched by the market very closely.” Crude oil to emerging markets completed this picture of mayhem. In rates, fixed income was firmly bid as Treasuries extended their advance led by the belly of the curve, outperforming bunds, while money markets pared rate-hike bets amid fears that a new coronavirus strain may spread globally, slowing economic growth. Cash Treasuries outperformed, richening 12-14bps across the short end, with Thursday’s closure exacerbating the optics. As shown above, 10Y Treasury yields shed as much as 10 basis points while the Japanese yen jumped the most since investors’ March 2020 rush for safety. Yields across the curve are lower by more than 8bp at long end, 13bp-15bp out to the 7-year point, moves that if sustained would be the largest since at least March 2020 and in some cases since 2009. Short-term interest rate futures downgraded the odds of Fed rate increases. Gilts richened 10-11bps across the curve, outperforming bunds by 4-5bps. Peripheral and semi-core spreads widen. In FX, JPY and CHF top the G-10 scoreboard with havens typically bid. In FX, the Bloomberg Dollar Spot Index was little changed after earlier touching a fresh cycle high, and the greenback was mixed versus its Group-of-10 peers as the yen and the Swiss franc led gains while the Canadian dollar and Norwegian krone were the worst performers as commodity prices plunged. Traders pushed back the timing of a 25-basis-point rate increase by the Federal Reserve to July from June, with only one further hike expected for the remainder of 2022. It’s a similar story in the U.K. where the Bank of England is now expected to tighten policy in February instead of next month. Wagers that the ECB will raise its deposit rate by the end of next year have also been slashed, with only a six basis-point increase priced in, half of that seen earlier this week. The European Union is proposing to follow the U.K. in halting air travel from southern Africa after the new Covid-19 variant was identified there. The yen is at the epicenter of skyrocketing currency volatility as the new virus variant shakes markets. The cost of hedging against swings in the Japanese currency over the next week, which captures the release of the next U.S. payrolls report, is the most expensive in more than a year. In commodities, crude futures are hit hard. WTI drops over 7% before finding support near $73, Brent drops over 5% before recovering near $78. Spot gold grinds higher, adding $21 to trade near $1,809/oz. Base metals are sharply offered with much of the complex off as much as 3%. Looking at the otherwise quiet day ahead, data releases include French and Italian consumer confidence for November, as well as the Euro Area M3 money supply for October. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Visco, Schnabel, Centeno, Panetta and Lane, and BoE chief economist Pill. Market Snapshot S&P 500 futures down 1.9% to 4,607.50 STOXX Europe 600 down 2.8% to 468.04 MXAP down 1.8% to 193.33 MXAPJ down 2.2% to 628.97 Nikkei down 2.5% to 28,751.62 Topix down 2.0% to 1,984.98 Hang Seng Index down 2.7% to 24,080.52 Shanghai Composite down 0.6% to 3,564.09 Sensex down 2.7% to 57,234.83 Australia S&P/ASX 200 down 1.7% to 7,279.35 Kospi down 1.5% to 2,936.44 Brent Futures down 5.8% to $77.46/bbl Gold spot up 0.9% to $1,805.13 U.S. Dollar Index down 0.33% to 96.46 German 10Y yield little changed at -0.31% Euro up 0.4% to $1.1259 Top Overnight News from Bloomberg The European Union is proposing to halt air travel from southern Africa over growing concern about a new Covid-19 variant that’s spreading there, as the U.K. said it will also temporarily ban flights from the region Those close to the Kremlin say the Russian president doesn’t want to start another war in Ukraine. Still, he must show he’s ready to fight if necessary in order to stop what he sees as an existential security threat: the creeping expansion of the North Atlantic Treaty Organization in a country that for centuries had been part of Russia Bitcoin tumbled 20% from record highs notched earlier this month as a new variant of the coronavirus spurred traders to dump risk assets across the globe Germany’s Greens tapped their two co- leaders to run the foreign ministry and take charge of an influential portfolio overseeing economy and climate protection in the country’s next government under Social Democrat Olaf Scholz A more detailed breakdown of global markets courtesy of Newsquawk Asian equity markets declined and US equity futures were also on the backfoot on reopen from the prior day’s Thanksgiving lull with markets spooked by new COVID variant concerns related to the B.1.1.529 variant in South Africa that was first detected in Botswana. The new variant showed a high number of mutations and was said to be the most evolved strain ever which spurred fears it could be worse than Delta and is prompting both the UK and Israel to halt flights from several African nations. ASX 200 (-1.7%) was negative with heavy losses in energy and broad underperformance in cyclicals leading the downturn across all sectors, while the much better than expected Australian Retail Sales data was largely ignored. Nikkei 225 (-2.5%) underperformed and gave up the 29k status as selling was exacerbated by detrimental currency inflows and with SoftBank shares among the worst hit on reports that China is said to have asked Didi to delist from US exchanges on security fears, which doesn't bode well for SoftBank given that its Vision Fund is the top shareholder in the Chinese ride hailing group with a stake of more than 20%. Hang Seng (-2.5%) and Shanghai Comp. (-0.7%) conformed to the risk aversion with the mood not helped by ongoing geopolitical concerns after a Chinese Defense Ministry spokesperson noted they are ready to crush Taiwan independence bid "at any time”, while China also said it opposes US sanctions on its companies and will take all necessary measures to firmly defend the rights of Chinese companies. Beijing interference further contributed to the headwinds amid the request by China for Didi to delist from US which reports stated regulators could backtrack on and with Tencent subdued after some Chinese state-run companies restricted the use of Tencent's messaging app. Top Asian News Stocks in Asia Set for Worst Day Since March on Virus Woes Mizuho CEO Steps Down After Regulator Hit on System Issues Meituan 3Q Revenue Meets Estimates Japan’s Kishida Delivers $316 billion Extra Budget for Recovery European equities are trading markedly lower (Stoxx 600 -2.9%) with losses in the Stoxx 600 extending to 3.8% WTD. Sentiment throughout the week has been hampered by various lockdown measures imposed across the region with the latest leg lower accelerated by new COVID variant concerns related to the B.1.1.529 variant in South Africa. The new variant has shown a high number of mutations and is said to be the most evolved strain so far. This has spurred fears it could be worse than Delta and has prompted multiple nations to halt flights from several African nations.The handover from the overnight session was an equally downbeat one with the Nikkei 225 (-2.5%) dealt a hammer blow by the risk environment and unfavourable currency flows. Stateside, futures are lower across the board with the RTY the clear laggard with losses of 4.2% compared to the ES -1.8%, whilst the tech-heavy NQ is faring better than peers but ultimately still lower on the session to the tune of 1.6%. Note, early closures in the US and subsequent liquidity conditions could exacerbate some of the moves throughout the session. With the macro calendar light, focus for the session is likely to centre on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically. Any further clarity on the spread of the variant and its potential to evade vaccines will be of great interest to the market and likely be the main driving force of price action today. Sectors in Europe are lower across the board with the Stoxx 600 Banking (-5.1%) sector bottom of the pile amid the declines seen in global bond yields as markets scale back expectations of central bank tightening (e.g. pricing now assigns a 63% chance of a 15bps hike by the BoE next month vs. 93% a week ago). Oil & Gas names (-4.8%) are suffering on account of the declines in the crude space with WTI crude in freefall with losses of 6.7% given the potential impact of travel restrictions on demand. Travel restrictions on South Africa (from UK, Israel, EU et al) and the potential for further announcements has crushed the Travel & Leisure sector (-5.7%) with airline names dealt a hammer blow; IAG (-13.5%), easyJet (-11%), Deutsche Lufthansa (-12%), Air France (-9.5%). Elsewhere, there are a whole raft of other laggards which are very much in-fitting with the March 2020 playbook but there are simply too many to list for the purpose of this report. Defensives and Tech are faring better than peers but ultimately still lower on the session to the tune of 1% and 1.9% respectively. Finally, for anyone wanting some positivity from today’s session, the potential for further lockdowns has proved to be beneficial for the likes of HelloFresh (+3.2%), Ocado (+2.1%) and Delivery Hero (+1.9%). Top European News Airlines Skid on South Africa Travel Bans Tied to Variant German Coalition Proposes a Combustion-Car Ban Without Saying So Putin Pushes Confrontation With NATO as Hardliners Prevail Siemens Is Said to Kick Off Sale of Postal Logistics Business In FX, the index has been under pressure in the risk-averse environment amid a slump in yields and gains in its basket components – namely the JPY, CHF, EUR (see below) – and with liquidity also thinned by Thanksgiving. From a technical perspective, the index has declined from its 96.787 overnight high, through the 96.500 mark, to a low of 96.332 – with the weekly trough at 96.035. Ahead, the US calendar is once again light, with the US also poised for an early Thanksgiving closure; thus, impulses will likely be derived from the macro environment. JPY, CHF, EUR - Haven FX JPY and CHF are the clear outperformers as a function of risk-related inflows. USD/JPY has retreated from a 115.37 peak and fell through its 21 DMA (114.15) to a base around 113.66 - with the current weekly low around 113.64. USD/CHF retreated from 0.9360 to 0.9260 – with the 50 and 100 DMAs seen at 0.9234 and 0.9219, respectively, ahead of 0.9200. EUR/USD meanwhile gains on what is seemingly an unwind of the carry trade amid a spike in volatility. EUR/USD found support near 1.1200 before rebounding to a current 1.1288 peak. AUD, NZD, CAD, GBP - The non-US Dollar risk currencies bear the brunt of the latest market downturn, with losses across industrial commodities not helping. The Loonie has taken the spot as the biggest G10 loser as hefty COVID-induced losses in the oil complex keep the currency suppressed. USD/CAD trades towards the top of a current 1.2647-2774 range. AUD is also weighed on by softer base metal prices – AUD/USD fell from a 0.7200 overnight high to a current low at 0.7110. On that note, Westpac sees AUD/USD pushed down to 0.7000 by Jun 2022 (prev. 0.7700) amid rate differentials with the US; Westpac made significant changes to its FOMC policy forecast and now expect consecutive increases in the fed funds rate in Jun, Sept, and Dec 2022. NZD/USD is slightly more cushioned amid smaller exposure to commodities, and as the AUD/NZD cross takes aim at 1.0450 to the downside. GBP, meanwhile, was initially among the losers amid its high-beta status but thereafter nursed losses in a move that coincided with EUR/GBP rejecting an upside breach of its 21 DMA at 0.8475. EM - The ZAR is the standout laggard given the new South African COVID variant - B.1.1.529 COVID-19 variant (expected to be named Nu) – which is said to be the most evolved strain so far and thus prompted several countries to halt travel to the country of origin. USD/ZAR currently trades within a 15.9375-16.3630 intraday band. Meanwhile, the downturn oil sees USD/RUB north of 75.00 and closer to 76.00 from a 74.2690 base. The Lira also feels some contagion despite the lower oil prices (Turkey being a large net oil importer) – USD/TRY is back on a 12.00 handle and within 11.92-1226 parameters at the time of writing. In commodities, the crude complex has been hit by compounding COVID fears which in turn triggered various travel restrictions and subsequently took its toll on global crude demand prospects. The new and more evolved South African variant prompted the UK, Singapore, and Israel to expand their travel red lists to include some African nations (Israel reported its first case of the new COVID-19 variant known as B.1.1.529). Japan also imposed tighter border restrictions. China’s Shanghai city see flights impacted by its own outbreak. Europe also tackles its surge in daily cases - German Green Party's Baerbock (incoming Foreign Minister) does not rule out a German lockdown, according to Spiegel. EU Commission President von der Leyen is also to propose activation of the emergency air brake, to halt travel from southern Africa due to the B.1.1.529 COVID-19 variant. Losses in oil have exacerbated - with WTI Jan and Brent Feb now under USD 74/bbl (vs high 78.65/bbl) and USD 77/bbl (vs high 80.42/bbl), -6.0% and -5.0% respectively. This comes ahead of the OPEC+ confab next week, whereby OPEC watchers have suggested that oil prices will be a large contributor to the final decision. It is difficult to see how OPEC+ will increase output to the levels the US et al. will be content with, with the latest COVID downturn building the case for a pause in planned output hikes. Elsewhere, haven demand sees spot gold extend on gains above USD 1,800/oz after topping the 100 DMA (1,792.95/oz), 200 DMA (1,791.38/oz), 50 DMA (1,790.13/oz) overnight. Base metals are softer across the board amid the risk aversion. LME copper posts losses of around 3% at the time of writing, as prices threaten a more convincing downside breach of USD 9,500/t. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap Things have escalated on the covid front quite rapidly over the last 12 hours. Yesterday new covid variant B.1.1.529 was slowly starting to gather increasing attention but overnight it has begun to dominate markets and has caused a notable flight to quality with 10 year USTs -8bps lower. It was originally identified in Botswana and is starting to spread rapidly in Africa. The South African Health Minister has said it is "of serious concern". Almost 100 cases have already been identified in South Africa and the UK moved to put the country back (along with 5 other African nations) on a reinstated red travel list last night with others following this morning. The variant is said to be the most heavily mutated version yet and the WHO will meet today to decide if it is a variant of interest or a variant of concern. So a lot of eyes will be on how severe it is and whether it completely evades vaccines. At this stage very little is known. Mutations are often less severe so we shouldn’t jump to conclusions but there is clearly a lot of concern about this one. Also South Africa is one of the world leaders in sequencing so we are more likely to see this sort of news originate from there than many countries. Suffice to say at this stage no one in markets will have any idea which way this will go. Overnight in Asia all benchmarks are trading lower on the news with the Shanghai Composite (-0.50%), CSI (-0.64%), KOSPI (-1.27%), Hang Seng (-2.13%) and the Nikkei (-2.90%) all lower. Airlines and other travel stocks have obviously fallen heavily. Hong Kong has detected two confirmed cases of the new variant just as Hong Kong and China were considering quarantine-free travel. S&P 500 (-0.93%) and DAX (-1.82%) futures are also much weaker. Elsewhere, in Japan, CPI rose +0.5% year-on-year (+0.4% consensus and +0.1% previously), on the back of 16-month high fuel prices. With the US out on holiday for Thanksgiving, there wasn’t much going on yesterday after a very quiet day in markets. The variant news was only slowly creeping into the news flow so it hardly impacted trading. But in keeping with the theme of recent days, both inflation and the latest covid wave in Europe remained very much in the picture as jitters continue to increase that we could see further lockdowns as we move towards Christmas. Starting with the headline moves, European equities did actually show signs of stabilising yesterday, with the STOXX 600 up +0.42% thanks to a broad-based advance across the continent. In fact that’s actually the index’s best daily performance in over three weeks, although that’s not reflecting any particular strength, but instead the fact the index inched steadily but persistently towards a record high before selling off again a week ago. Other indices moved higher across the continent too, with the FTSE 100 (+0.33%), the CAC 40 (+0.48%) and the DAX (+0.25%) all posting similar advances. These will all likely reverse this morning. One piece of news we did get came from the ECB, who released the account of their monetary policy meeting for October. Something the minutes stressed was the importance that the Governing Council maintain optionality in their policy settings, with one part acknowledging the growing upside risks to inflation, but also saying “it was deemed important for the Governing Council to avoid an overreaction as well as unwarranted inaction, and to keep sufficient optionality in calibrating its monetary policy measures to address all inflation scenarios that might unfold.” Against this backdrop, 10yr bond yields moved lower across multiple countries, with those on bunds (-2.3ps), OATs (-2.3bps) and BTPs (-1.9bps) all declining. There was also a flattening in all 3 yield curves as well, with the 2s10s slope in Germany (-3.0bps), France (-3.7bps) and Italy (-2.8bps) shifting lower. And the moves also coincided with a continued widening in peripheral spreads, with both the Spanish and the Greek spreads over 10yr bund yields widening to their biggest levels in over a year. Of course, one of the biggest concerns in Europe right now remains the pandemic, and yesterday saw a number of fresh measures announced as policymakers seek to get a grip on the latest wave. In France, health minister Veran announced various measures, including the expansion of the booster rollout to all adults, and a reduction in the length of time between the initial vaccination and the booster shot to 5 months from 6. Meanwhile in the Czech Republic, the government declared a state of emergency and approved tighter social distancing measures, including the closure of restaurants and bars at 10pm. And in Finland, the government have said that bars and restaurants not using Covid certificates will not be able to serve alcohol after 5pm. All this came as the European Medicines Agency recommended that the Pfizer vaccine be approved for children aged 5-11, which follows the decision to approve the vaccine in the US. Their recommendation will now go to the European Commission for a final decision. There wasn’t much in the way of data at all yesterday, though German GDP growth in Q3 was revised down to show a +1.7% expansion (vs. +1.8% previous estimate). Looking at the details, private consumption was the only driver of growth (+6.2%), with government consumption (-2.2%), machinery and equipment (-3.7%) and construction (-2.3%) all declining over the quarter. To the day ahead now, and data releases include French and Italian consumer confidence for November, as well as the Euro Area M3 money supply for October. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Visco, Schnabel, Centeno, Panetta and Lane, and BoE chief economist Pill. Tyler Durden Fri, 11/26/2021 - 08:12.....»»

Category: blogSource: zerohedgeNov 26th, 2021

Futures Trade Near All Time High As Traders Shrug At Inflation, Covid Concerns

Futures Trade Near All Time High As Traders Shrug At Inflation, Covid Concerns US equity futures and European markets started the Thanksgiving week on an upbeat note as investors set aside fear of surging inflation and focused on a pickup in M&A activity while China signaled possible easing measures. The euphoria which lifted S&P futures up some 0.5% overnight and just shy of all time highs ended abruptly and futures reversed after German Chancellor Angela Merkel said the Covid situation in the country is worse than anything so far and tighter curbs are needed. At 730 a.m. ET, Dow e-minis were up 95 points, or 0.26%. S&P 500 e-minis were up 12.25 points, or 0.26% and Nasdaq 100 e-minis were up 58.75 points, or 0.357%. U.S. stocks trade near record levels, outpacing the rest of the world, as investors see few alternatives amid rising inflation and a persistent pandemic that undermines global recovery. Concerns about high valuations and the potential for the economy to run too hot on the back of loose monetary and fiscal policies have interrupted, but not stopped the rally. In other words, as Bloomberg puts it "bears are winning the argument, bulls are winning in the market" while Nasdaq futures hit another record high as demand for technology stocks remained strong. “Based on historical data, the Thanksgiving week is a strong week for U.S. equities,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “Black Friday sales will be closely watched. The good news is, people still have money to spend, even though they get less goods and services in exchange of what’s spent.” In premarket moves, heavyweights, including most FAANG majors, rose in premarket trade. Vonage Holdings Corp. jumped 26% in premarket trading after Ericsson agreed to buy it. Telecom Italia SpA jumped as much as 30% in Europe after KKR offered to buy it for $12 billion. Energy stocks recovered slightly from last week's losses, although anticipation of several economic readings this week kept gains in check. Bank stocks rose in premarket trading as the U.S. 10-year Treasury yield climbed for the first time in three sessions to about 1.58%. S&P 500 futures gain as much as 0.5% on Monday morning. Tesla gained 2.8% after Chief Executive Elon Musk tweeted that Model S Plaid will "probably" be coming to China around March. Activision Blizzard (ATVI.O) slipped 1.1% after a media report that the video game publisher's top boss, Bobby Kotick, would consider leaving if he cannot quickly fix culture problems. Travel and energy stocks, which were among the worst performers last week, also marked small gains before the open. Here is a list of the other notable premarket movers: Astra Space (ASTR US) shares surge 33% in premarket trading after the company said its rocket reached orbit. Aurora Innovation (AUR US) falls 8% in premarket, after soaring 71% last week amid a surge in popularity for self-driving technology companies among retail traders. Chinese electric-carmaker Xpeng (XPEV US) rises as much as 2.8% premarket after co. unveils a large sports-utility vehicle pitted more directly against Tesla’s Model Y and Nio’s ES series. Stocks of other EV makers are mixed. Monster Beverage (MNST US)., the maker of energy drinks, is exploring a combination with Corona brewer Constellation Brands (STZ US), according to people familiar with the matter. CASI Pharma (CASI US) jumped 17% in postmarket trading after CEO Wei-Wu He disclosed the purchase of 400,000 shares in a regulatory filing. Along with an eye on the Fed's plans for tightening policy, investors are also watching for an announcement from Joe Biden on his pick for the next Fed chair. Powell was supposed to make his decision by the weekend but has since delayed it repeatedly. Investors expect current chair Jerome Powell to stay on for another term, although Fed Governor Lael Brainard is also seen as a candidate for the position. “Bringing the most dovish of the doves wouldn’t guarantee a longer period of zero rates,” Ozkardeskaya wrote. “If the decisions are based on economic fundamentals, the economy is calling for a rate hike. And it’s calling for it quite soon.” The Stoxx 600 trimmed gains after German Chancellor Angela Merkel called for tighter Covid-19 restrictions. European telecom shares surged after KKR’s offer to buy Telecom Italia for about $12 billion, which boosted sentiment about M&A in the sector. The Stoxx 600 Telecommunications Index gained as much as 1.6%, the best-performing sector gauge for the region: Telefonica +4.8%, Infrastrutture Wireless Italiane +4%, KPN +2.7%. Meanwhile, telecom equipment stock Ericsson underperforms the rest of the SXKP index, falling as much as 4.9% after a deal to buy U.S. cloud communication provider Vonage; Danske Bank says the price is “quite steep”. Earlier in the session, Asian stocks fell as Covid-19 resurgences in Europe triggered risk-off sentiment across markets amid weaker oil prices, a strong U.S. dollar and higher bond yields. The MSCI Asia Pacific Index declined 0.3%, with India’s Sensex measure slumping the most since April as Paytm’s IPO weighed on sentiment. The country’s oil giant Reliance dragged down the Asian index after scrapping a deal with Saudi Aramco, and energy and financials were the biggest sector losers in the region. Asian markets have turned softer after capping their first weekly retreat this month, following lackluster moves from economically sensitive sectors in the U.S., while investors continue to monitor earnings reports of big Chinese technology firms this week. “Some impact from the regulatory risks and dull macroeconomic conditions have shown up in several Chinese big-tech earnings and that may put investors on the sidelines as earnings season continues,” Jun Rong Yeap, a market strategist at IG Asia Pte., wrote in a note. China’s equity gauge posted a second straight day of gains after the central bank’s quarterly report indicated a shift toward easing measures to bolster the economic recovery. South Korea led gains in the region, with the Kospi adding more than 1%, helped by chipmakers Samsung Electronics and SK Hynix. Asia’s chip-related shares rose after comments from Micron Technology CEO Sanjay Mehrotra added to optimism the global shortage of semiconductors is easing. Reports of Japan earmarking $6.8 billion to bolster domestic chipmaking and Samsung planning to announce the location of its new chip plant in the U.S. also aided sentiment. Japanese stocks fluctuated after U.S. shares retreated on Friday following hawkish remarks from Federal Reserve officials. The Topix index was virtually unchanged at 2,044.16 as of 2:21 p.m. Tokyo time, while the Nikkei 225 advanced 0.1% to 29,783.92. Out of 2,180 shares in the index, 1,107 rose and 948 fell, while 125 were unchanged. “There are uncertainties surrounding the direction of U.S. monetary policy,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute Co. “The latest comments from FRB members are spurring talk that steps to taper could accelerate.” Australian stocks sunk as banks tumbled to almost a 4-month low. The S&P/ASX 200 index fell 0.6% to close at 7,353.10, weighed down by banks and technology stocks as the measure for financial shares finished at the lowest level since July 30.  Nickel Mines was the top performer after agreeing to expand its strategic partnership with Shanghai Decent. Flight Centre fell for a second session, ending at its lowest close since Sept. 20, as the Covid-19 situation worsens in Europe. In New Zealand, the S&P/NZX 50 index fell 1% to 12,607.64. In FX, the Bloomberg dollar index holds Asia’s narrow range, trading little changed on the day. AUD outperforms G-10 peers, extending Asia’s modest gains. SEK and JPY are the weakest. RUB lags in EMFX, dropping as much as 1% versus the dollar with USD/RUB on a 74-handle. According to Bloomberg, hedge funds’ bullishness toward the dollar is starting to evaporate amid speculation the U.S. currency has risen too much given the Federal Reserve remains adamant it’s in no rush to raise interest rates. Meanwhile, the euro pared modest Asia session losses to trade below $1.13, while European bond yields edged higher, led by bunds and gilts. The pound dipped after comments from Bank of England policy makers raised questions about the certainty of an interest-rate increase in December. Governor Andrew Bailey said that the risks to the U.K. economy are “two-sided” in a weekend interview. Australian dollar advanced against the kiwi on position tweaking ahead of Wednesday’s RBNZ’s rate decision, and after China’s central bank removed sticking with “normal monetary policy” from its policy outlook. Yen declines as speculation China will steer toward more accommodative policy damps the currency’s haven appeal. Hungary’s forint tumbled to a record low against the euro as back-to-back interest rate increases failed to shield it during a rapidly deteriorating pandemic and a flight to safer assets. In commodities, crude futures drifted higher. WTI rises 0.3% near $76.20, Brent regains at $79-handle. Spot gold has a quiet session trading near $1,844/oz. Base metal are mixed: LME copper, tin and zinc post small losses; lead and nickel are in the green Looking at today's calendar, we get the October Chicago Fed national activity index, existing home sales data, and the Euro Area advance November consumer confidence. Zoom is among the companies reporting earnings. Market Snapshot S&P 500 futures up 0.3% to 4,710.75 STOXX Europe 600 up 0.3% to 487.45 German 10Y yield little changed at -0.34% Euro little changed at $1.1283 MXAP down 0.2% to 198.88 MXAPJ down 0.2% to 647.20 Nikkei little changed at 29,774.11 Topix little changed at 2,042.82 Hang Seng Index down 0.4% to 24,951.34 Shanghai Composite up 0.6% to 3,582.08 Sensex down 2.0% to 58,450.84 Australia S&P/ASX 200 down 0.6% to 7,353.08 Kospi up 1.4% to 3,013.25 Brent Futures up 0.4% to $79.22/bbl Gold spot little changed at $1,846.10 U.S. Dollar Index also little changed at 96.08 Top Overnight News from Bloomberg Negotiators hammering out details of a transformative new global corporate tax regime are shaping the deal to maximize its chance of winning acceptance in the U.S., whose companies face the biggest impact from the overhaul The U.S. has shared intelligence including maps with European allies that shows a buildup of Russian troops and artillery to prepare for a rapid, large-scale push into Ukraine from multiple locations if President Vladimir Putin decided to invade, according to people familiar with the conversations. The ruble slid to the weakest since August and the hryvnia fell With investors ramping up expectations for the Federal Reserve and other developed-market central banks to tighten policy, the likes of the Brazilian real and Hungarian forint have been weighed down by inflation and political concerns even as local officials pushed up borrowing costs. The Chinese yuan, Taiwanese dollar and Russian ruble have been among the few to stand their ground An organization formed by key participants in China’s currency market urged banks to limit speculative foreign-exchange trading after the yuan climbed to a six-year high versus peers The Avalanche cryptocurrency has surged in the past several days, taking it briefly into the top 10 by market value and surpassing Dogecoin and Shiba Inu, after a deal related to improvement of U.S. disaster-relief funding A more detailed breakdown of overnight news courtesy of Newsquawk Asia-Pac stocks traded mixed following last Friday's mostly negative performance stateside, where risk appetite was dampened by concerns of a fourth COVID wave in Europe and recent hawkish Fed rhetoric. Weekend newsflow was light and the mood was tentative heading into this week's risk events including FOMC minutes and US GDP data before the Thanksgiving holiday. The ASX 200 (-0.6%) was subdued with declines led by weakness in gold miners and the energy sector. The Nikkei 225 (+0.1%) was lacklustre after last week’s inflows into the JPY but with downside eventually reversed as the currency faded some of the gains and following the recent cabinet approval of the stimulus spending. The KOSPI (+1.4%) outperformed and reclaimed the 3k level with shares in index heavyweight Samsung Electronics rallying as its de facto leader tours the US which spurred hopes the Co. could deploy its USD 100bln cash pile. The Hang Seng (-0.4%) and Shanghai Comp. (+0.6%) diverged with the mainland kept afloat after the PBoC conducted a mild liquidity injection and maintained its Loan Prime Rate for a 19th consecutive month as expected, although Hong Kong was pressured by losses in energy and cautiousness among developers, as well as the recent announcement of increased constituents in the local benchmark. Finally, 10yr JGBs eked marginal gains amid the cautious risk tone in Asia and following firmer demand at the enhanced liquidity auction for 2yr-20yr JGBs, but with upside capped as T-note futures continued to fade Friday’s early gains that were fuelled by the COVID-19 concerns in Europe before the advances were later halted by hawkish Fed rhetoric calling for a discussion on speeding up the tapering at next month’s meeting. Top Asian News China Blocks Peng Shuai News as It Seeks to Reassure World China FX Panel Urges Banks to Cap Speculation as Yuan Surges Paytm Founder Compares Himself to Musk After Historic IPO Flop China Tech Stocks Are Nearing Inflection Point, UBS GWM Says European cash bourses kicked off the new trading week with mild gains (Euro Stoxx 50 +0.3%; Stoxx 600 +0.3%) following a mixed APAC handover. Some have been attributing the mild gains across Europe in the context of the different approaches of the Fed and ECB, with the latter expected to remain dovish as the former moves tighter, while COVID lockdowns will restrict economic activity. News flow in the European morning has however been sparse, as participants look ahead to FOMC Minutes, Flash PMIs and US GDP ahead of the Thanksgiving holiday (full Newsquawk Desk Schedule on the headline feed) alongside the Fed Chair update from President Biden and a speech from him on the economy. US equity futures see modestly more pronounced gains, with the more cyclically-exposed RTY (+0.6%) performing better than then NQ (+0.4%), ES (+0.4%) and YM (+0.4%). Since the European cash open, the initial mildly positive momentum has somewhat waned across European cash and futures, with the region now conforming to a more mixed picture. Spain's IBEX (+0.7%) is the clear regional outperforming, aided by index heavyweight Telefonica (+5.0%), which benefits from the sectorial boost received by a couple of major M&A updates. Firstly, Telecom Italia (+22%) gapped higher at the open after KKR presented a EUR 0.505/shr offer for Telecom Italia. The offer presents a ~45% premium on Friday's close. Second, Ericsson (-3.5%) made a bid to acquire American publicly held business cloud communications provider Vonage in a deal worth USD 6.2bln. As things stand, the Telecom sector is the clear outperformer, closely followed by banks amid a revival in yields. The other end of the spectrum sees Travel & Leisure back at the foot of the bunch as COVID fears in Europe mount. In terms of individual movers, Vestas Wind Systems (-2.0%) was hit as a cyber incident that impacted parts of its internal IT structure and data has been compromised. Looking ahead, it’s worth noting that volume will likely be more muted towards the latter half of the week on account of the Thanksgiving holiday. Top European News Scholz Closer to German Chancellery as Cabinet Takes Shape Austria Back in Lockdown Ahead of Mandatory Vaccine Policy Energy Crunch Drives Carbon to Record as Europe Burns More Coal BP Goes on Hydrogen Hiring Spree in Bid for 10% Market Share In FX, the Antipodean Dollars are outperforming at the start of the new week on specific supportive factors, like a bounce in the price of iron ore and a further re-opening from pandemic restrictions in both Australia and New Zealand, while the REINZ shadow board is ‘overwhelmingly’ behind another RBNZ rate hike this week. Aud/Usd is holding around 0.7250 and Nzd/Usd is hovering circa 0.7000 as the Aud/Nzd cross pivots 1.0350 in the run up to flash Aussie PMIs and NZ retail sales. DXY - Aussie and Kiwi strength aside, the Greenback retains a solid underlying bid on safe haven and increasingly hawkish Fed grounds after a run of recent much better than expected US data. In index terms, a base just above 96.000 provides a platform to retest last week’s peaks at 96.245 and 96.266 vs 96.223 so far, but Monday’s agenda may not give bulls much in the way of encouragement via data with only existing home sales scheduled. Instead, the Buck could derive more impetus from Treasuries given front-loaded supply ahead of Thanksgiving in the form of Usd 58 bn 2 year and Usd 59 bn 5 year notes. CHF/CAD/EUR/GBP/JPY - All narrowly mixed against their US rival, as the Franc keeps its head above 0.9300 and meanders between 1.0485-61 vs the Euro amidst some signs of official intervention from a rise in weekly Swiss sight deposits at domestic banks. Meanwhile, the Loonie has some leverage from a mild rebound in crude prices to pare declines from sub-1.2650 and should glean support into 1.2700 from 1 bn option expiries at 1.2685 on any further risk aversion or fallout in WTI. Conversely, 1 bn option expiry interest from 1.1300-05 could scupper Euro recoveries from Friday’s new y-t-d low around 1.1250 against the backdrop of ongoing COVID-19 contagion and pre-ECB speakers plus preliminary Eurozone consumer confidence. Elsewhere, the Pound is weighing up BoE tightening prospects and the impact of no breakthrough between the UK and EU on NI Protocol as Cable and Eur/Gbp straddle the 1.3435-40 zone and 0.8400 respectively, while the Yen has unwound more of its safe haven premium within a 114.27-113.91 range eyeing UST yields in relation to JGBs alongside overall risk sentiment. SCANDI/EM - The Nok is deriving some traction from Brent back over Usd 79/brl, but geopolitical concerns are preventing the Rub from benefiting and the Mxn is also on a weaker footing along with most EM currencies. However, the Try is striving to draw a line in the sand irrespective of a marked deterioration in Turkish consumer sentiment and the Cnh/Cny are holding up well regardless of a softer PBoC fix for the onshore unit as LPRs were unchanged yet again and China’s FX regulator told banks to limit Yuan spec trades. In CEE, the Pln has plunged on diplomatic strains between Poland and the EU, the Huf has depreciated to all time lows on virus fears and the Czk has been hampered by CNB’s Holub downplaying the chances of more big tightening surprises such as the aggressive hike last time. In commodities, WTI and Brent front month futures see some consolidation following Friday’s slide in prices. In terms of the fundamentals, the demand side of the equations continues to be threatened by the fourth wave of COVID, namely in the European nations that have not had a successful vaccine rollout. As a reminder, Austria is in a 20-day nationwide lockdown as of today, whilst Germany, Belgium and the Netherlands see tighter restrictions, with the latter two also experiencing COVID-related social unrest over the weekend. The European Commission will on Wednesday issue a set of new recommendations to its member states on non-essential travel, a senior EU diplomat said, which will be watched for activity and jet fuel demand. Over to the supply side, There were weekend reports that Japan and the US are planning a joint announcement regarding the SPR release, although a key Japanese official later noted there was no fixed plan yet on releasing reserves. Japanese PM Kishida confirmed that they are considering releasing oil reserves to curb prices. Meanwhile, Iranian nuclear talks are regaining focus as negotiations are poised to resume on the 29th of November – it is likely we’ll see officials telegraph their stances heading into the meeting. Eyes will be on whether the US offers an olive branch as Tehran stands firm. Elsewhere, the next OPEC+ meeting is also looming, but against the backdrop of lower prices, COVID risk and SPR releases, it is difficult to see a scenario where OPEC+ will be more hawkish than dovish. WTI and Brent Jan trade on either side of USD 76/bbl and USD 79/bbl respectively and within relatively narrow bands. Spot gold and silver meanwhile see a mild divergence, with the yellow metal constrained by resistance in the USD 1,850/oz area, whilst spot silver rebounded off support at USD 24.50/oz. Finally, base metals are relatively mixed with no standout performers to point out. LME copper is flat but holds onto USD 9,500+/t status. US Event Calendar 8:30am: Oct. Chicago Fed Nat Activity Index, est. 0.10, prior -0.13 10am: Oct. Existing Home Sales MoM, est. -1.8%, prior 7.0% 10am: Oct. Home Resales with Condos, est. 6.18m, prior 6.29m DB's Jim Reid concludes the overnight wrap This morning we’ve just published our 2022 credit strategy outlook. 2021 has been one of the lowest vol years for credit on record but we think this is unlikely to last and spreads will sell-off at some point in H1 when markets reappraise how far behind the curve the Fed is. Even with covid restrictions mounting again in Europe as we go to print, we think it’s more likely that we’ll be in a “growthflationary” environment for 2022 and think overheating risks are more acute than the stagflation risk, especially in the US. Strong growth and high liquidity should mean that full year 2022 is a reasonable year for credit overall but if we’re correct there’ll be regular pockets of inflationary/interest rate concerns in the market, which we think is more likely to happen in H1. At the H1 wides, we could see spreads widen as much as 30-40bps in IG and 120-160bps in HY which is consistent with typical mid-cycle ranges through history. We do expect this to mostly retrace in H2 as markets recover from the shock and growth remains decent and liquidity still high. However, with the potential for a shift in the narrative to potential late-cycle dynamics, we think spreads will close 2022 slightly wider than they are today. We will be watching the yield curve closely through the year for clues as to how the cycle will evolve into 2023. This has the ability to move our YE 22 forecasts in both directions as the year progresses. This week will be heavily compressed given Thanksgiving on Thursday. The highlight though will be a likely choice of Fed governor before this, assuming the timetable doesn’t slip again. Overnight it’s been announced that Biden will give a speech to the American people tomorrow on the economy and prices. It’s possible the Fed Chair gets announced here and perhaps plans to release oil from the strategic reserve. We will see. Following that, Wednesday is especially busy as a pre-holiday US data dump descends upon us. We’ll see the minutes of the November 3rd FOMC meeting and earlier that day the core PCE deflator (the Fed's preferred inflation metric), Durable Goods, the UoM sentiment index (including latest inflation expectations), new home sales and jobless claims amongst a few other releases. More internationally, covid will be focus, especially in Europe as Austria enters lockdown today after the shock announcement on Friday. Germany is probably the swing factor here for sentiment in Europe so case numbers will be watched closely. Staying with Germany, there’s anticipation that a coalition agreement could be reached in Germany between the SPD, Greens and the FDP, almost two months after their federal election. Otherwise, the flash PMIs for November will be in focus, with the ECB following the Fed and releasing the minutes from their recent meeting on Thursday. As discussed at the top the most important market event this week is likely to be on the future leadership of the Federal Reserve, as it’s been widely reported that President Biden is expected to announce his choice on who’ll be the next Fed Chair by Thanksgiving on Thursday. Previous deadlines have slipped on this announcement, but time is becoming increasingly limited given the need for Senate confirmation ahead of Chair Powell’s current four-year term expiring in early February. The two names that are quite obviously in the frame are incumbent Chair Powell and Governor Brainard, but there are also a number of other positions to fill at the Fed in the coming months, with Vice Chair Clarida’s term as an FOMC governor expiring in January, Randal Quarles set to leave the Board by the end of this year, and another vacant post still unfilled. So a significant opportunity for the Biden administration to reshape the top positions at the Fed. In spite of all the speculation over the position of the Fed Chair, our US economists write in their latest Fed update (link here), that the decision is unlikely to have a material impact on the broad policy trajectory. Inflation in 2022 is likely to remain at levels that make most Fed officials uncomfortable, whilst the regional Fed presidents rotating as voters lean more hawkish next year, so there’ll be constraints to how policy could shift in a dovish direction, even if an incoming chair wanted to move things that way. Another unconfirmed but much anticipated announcement this week could come from Germany, where there’s hope that the centre-left SPD, the Greens and the liberal FDP will finally reach a coalition agreement. The general secretaries of all three parties have recently said that they hope next week will be when a deal is reached, and a deal would pave the way for the SPD’s Olaf Scholz to become chancellor at the head of a 3-party coalition. Nevertheless, there are still some hurdles to clear before then, since an agreement would mark the start of internal party approval processes. The FDP and the SPD are set to hold a party convention, whilst the Greens have announced that their members will vote on the agreement. On the virus, there is no doubt things are getting worse in Europe but it’s worth putting some of the vaccine numbers in some context. Austria (64% of total population) has a double vaccination rate that is somewhat lower than the likes of Spain (79%), Italy (74%), France (69%), the UK (69%) and Germany (68%). The UK for all its pandemic fighting faults is probably as well placed as any due to it being more advanced on the booster campaign due to an earlier vaccine start date and also due to higher natural infections. It was also a conscious decision back in the summer in the UK to flatten the peak to take load off the winter wave. So this is an area where scientists and the government may have made a calculated decision that pays off. Europe is a bit behind on boosters versus the UK but perhaps these will accelerate as more people get 6 months from their second jab, albeit a bit too late to stop some kind of winter wave. There may also be notable divergence within Europe. Countries like Italy and Spain (and to a slightly lesser extent France) that were hit hard in the initial waves have a high vaccination rate so it seems less likely they will suffer the dramatic escalation that Austria has seen. Germany is in the balance as they have had lower infection rates which unfortunately may have encouraged slightly lower vaccination rates. The irony here is that there is some correlation between early success/lower infections and lower subsequent vaccination rates. The opposite is also true - i.e. early bad outcomes but high vaccination rates. The US is another contradiction as it’s vaccination rate of 58% is very low in the developed world but it has had high levels of natural infections and has a higher intolerance for lockdowns. So tough to model all the above. Overall given that last winter we had no vaccines and this year we have very high levels of protection it seems unfathomable that we’ll have an outcome anywhere near as bad. Yes there will be selected countries where the virus will have a more severe impact but most developed countries will likely get by without lockdowns in my opinion even if the headlines aren’t always going to be pleasant. Famous last words but those are my thoughts. In light of the rising caseloads, the November flash PMIs should provide some context for how the global economy has performed into the month. We’ve already seen a deceleration in the composite PMIs for the Euro Area since the summer, so it’ll be interesting to see if that’s maintained. If anything the US data has reaccelerated in Q4 with the Atlanta Fed GDPNow series at 8.2% for the quarter after what will likely be a revised 2.2% print on Wednesday for Q3. Time will tell if Covid temporarily dampens this again. Elsewhere datawise, we’ll also get the Ifo’s latest business climate indicator for Germany on Wednesday, which has experienced a similar deceleration to other European data since the summer. The rest of the week ahead appears as usual in the day-by-day calendar at the end. Overnight in Asia stocks are mixed with the KOSPI (+1.31%) leading the pack followed by the Shanghai Composite (+0.65%) and CSI (+0.53%), while the Nikkei (-0.18%) and Hang Seng (-0.35%) are lower. Stocks in China are being boosted by optimism that the PBOC would be easing its policy stance after its quarterly monetary policy report on Friday dropped a few hints to that effect. Futures are pointing towards a positive start in the US and Europe with S&P 500 futures (+0.31%) and DAX futures (+0.14%) both in the green. Turning to last week now, rising Covid cases prompted renewed lockdown measures to varying degrees and hit risk sentiment. Countries across Europe implemented new lockdown measures and vaccine requirements to combat the latest rise in Covid cases. The standouts included Austria and Germany. Austria will start a nationwide lockdown starting today and will implement a compulsory Covid vaccine mandate from February. Germany will restrict leisure activities and access to public transportation for unvaccinated citizens and announced a plan to improve vaccination efforts. DM ten-year yields decreased following the headline. Treasury, bund, and gilt yields declined -3.8bps, -6.7bps, and -4.6bps on Friday, respectively, bringing the weekly totals to -1.3bps, -8.3bps, and -3.5bps, respectively. The broad dollar appreciated +0.54% Friday, and +0.98% over the week. Brent and WTI futures declined -2.89% and -3.68% on Friday following global demand fears, after drifting -4.27% and -5.79% lower throughout the week as headlines circulated that the US and allies were weighing whether to release strategic reserves. European equity indices declined late in the week as the renewed lockdown measures were publicized. The Stoxx 600, DAX, and CAC 40 declined -0.33%, -0.38%, and -0.42%, respectively on Friday, bringing their weekly totals to -0.14%, +0.41%, and +0.29%. The S&P 500 index was also hit ending the week +0.32% higher after declining -0.14% Friday, though weekly gains were concentrated in big technology and consumer discretionary stocks. U.S. risk markets were likely supported by the U.S. House of Representatives passing the Biden Administration’s climate and social spending bill. The bill will proceed to the Senate, where its fate lays with a few key moderate Democrats. This follows President Biden signing a physical infrastructure bill into law on Monday. On the Fed, communications from officials took a decidedly more hawkish turn on inflation dynamics, especially from dovish members. Whether the Fed decides to accelerate its asset purchase taper at the December FOMC will likely be the key focus in markets heading into the meeting. Ending the weekly wrap up with some positive Covid news: the U.S. Food and Drug Administration cleared Pfizer and Moderna booster shots for all adults. Additionally, the US will order 10 million doses of Pfizer’s Covid pill. Tyler Durden Mon, 11/22/2021 - 07:49.....»»

Category: blogSource: zerohedgeNov 22nd, 2021

Futures Flat Amid Fresh Inflation Jitters; Yen Tumbles To 5 Year Low

Futures Flat Amid Fresh Inflation Jitters; Yen Tumbles To 5 Year Low Price action has been generally uninspiring, with US index futures and European stocks flat after UK inflation climbed faster than expected to the highest in a decade, heaping pressure on the Bank of England to raise interest rates, while Asian markets fell as investors fretted over early rate hikes by the Federal Reserve after strong retail earnings dented the stagflation narrative.  Ten-year Treasury yields held around 1.63% and the dollar was steady. Cryptocurrencies suffered a broad selloff, while oil extended losses amid talk of a coordinated U.S.-China release of reserves to tame prices. Gold rose. At 7:30 a.m. ET, Dow e-minis were down 14 points, or 0.04%. S&P 500 e-minis were up 1.25 points, or 0.0.3% and Nasdaq 100 e-minis were up 24.75 points, or 0.15%, boosted by gains in Tesla and other electric car-makers amid growing demand for EV makers. Target Corp was the latest big-name retailer to report positive results, as it raised its annual forecasts and beat profit expectations, citing an early start in holiday shopping. But similar to Walmart, shares of the retailer fell 3.1% in premarket trade as its third-quarter margins were hit by supply-chain issues. Lowe's rose 2.2% after the home improvement chain raised its full-year sales forecast on higher demand from builders and contractors, as well as a strong U.S. housing market. Wall Street indexes had ended higher on Tuesday after data showed retail sales jumped in October, and Walmart and Home Depot both flagged strength in consumer demand going into the holiday season. While the readings showed that a rise in inflation has not stifled economic growth so far, any further gains in prices could potentially dampen an economic recovery. Indeed, even as global stocks trade near all-time highs, worries are rising that growth could be derailed by inflation, the resurgent virus, or both. The question remains whether the jump in costs will prove transitory or become a bigger challenge that forces a sharper monetary policy response, roiling both shares and bonds. The market now sees a 19% probability of a rate hike by the Fed in their March 2022 meet, up from 11.8% probability last month. “The markets are still driven by uncertainty regarding how transitory inflation is,” according to Sebastien Galy, senior macro strategist at Nordea Investment Funds. “The market is assessing the situation about inflation -- what is in the price and what is not.” On the earnings front, Baidu reported a 13% jump in sales after growth in newer businesses such as the cloud helped offset a slowdown in its main internet advertising division. Nvidia and Cisco Systems are scheduled to report results later today In premarket trading, Tesla inexplicably rose as much as 2.4% in U.S. pre-market trading, extending a bounce from the previous session after CEO Elon Musk disclosed even more stock sales. Peers Rivian and Lucid added 0.9% and 8.8%, respectively. Here are some of the biggest U.S. movers today: Electric-vehicle makers Rivian Automotive (RIVN US), Lucid (LCID US) and Canoo (GOEV US) all move higher in U.S. premarket trading on heavy volumes, extending their gains and after Rivian and Lucid notched up milestones in their market values on Tuesday. The gains for Rivian on Tuesday saw its market capitalization surpass Germany’s Volkswagen, while Lucid’s market value leapfrogged General Motors and Ford. Tesla (TSLA US) shares rise 1.3% in U.S. premarket trading, extending the bounce the EV maker saw in the prior session and after CEO Elon Musk disclosed more share sales. Visa (V US) shares slip in U.S. premarket trading after Amazon.com said it will stop accepting payments using Visa credit cards issued in the U.K. starting next year. Boeing (BA US) gains 1.9% in premarket trading after Wells Fargo upgrades the airplane maker to overweight from equal weight in a note, saying the risk-reward is now skewed positive. Citi initiates a pair trade of overweight Plug Power (PLUG US) and underweight Ballard Power Systems (BLDP US), downgrading the latter to neutral on weak sales in China and likely delay in meaningful fuel cell adoption. Ballard Power falls 3.4% in premarket trading. La-Z-Boy (LZB US) climbed 7% in postmarket trading after it reported adjusted earnings per share for the fiscal second quarter of 2022 that beat the average analyst estimate and boosted its quarterly dividend. StoneCo’s (STNE US) shares fall as much as 9% in postmarket trading Tuesday after the fintech reported a weaker-than-expected adjusted results for the third quarter. Chembio Diagnostics (CEMI US) rose 11% in extended trading after saying it submitted an Emergency Use Authorization application to the U.S FDA for its new DPP SARS-CoV-2 Antigen test. European stocks treaded water with U.S. equity futures as the worst outbreak of Covid infections since the start of the pandemic held the rally in check. In the U.K., inflation climbed faster than expected to the highest in a decade, heaping pressure on the Bank of England to raise interest rates, pressing on the FTSE 100 to lag peer markets. Asian stocks fell, halting a four-day rally, as investors factored in higher Treasury yields and the outlook for U.S. monetary policy to assess whether the region’s recent gains were excessive.   The MSCI Asia Pacific Index slid as much as 0.7%, pulling back from a two-month high reached Tuesday. The banking sector contributed the most to Wednesday’s drop as the Commonwealth Bank of Australia reported cash earnings that were below some estimates. South Korea led the region’s decline, with the Kospi falling more than 1%, weighed down by bio-pharmaceutical firms. Asia’s stocks are taking a breather from a run-up driven by expectations for earnings to improve and economies to recover from quarters of pandemic-induced weakness. The benchmark is coming off a two-week gain of 1.5%.  “Shares are correcting recent gains, although I’d say it’s not much of a correction as the drop is mild,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo. “The relatively solid economic performances in the U.S. and Europe signal positive trends for Asian exporters,” which will support equities over the long term, he said.  U.S. stocks climbed after data showed the biggest increase in U.S. retail sales since March, while results from Walmart Inc. and Home Depot Inc. showed robust demand. The 10-year Treasury yield hit 1.64%, gaining for a fourth day. Japanese equities fell, cooling off after a four-day advance despite the yen’s drop to the lowest level against the dollar since 2017. Service providers and retailers were the biggest drags on the Topix, which dropped 0.6%. Recruit and Fast Retailing were the largest contributors to a 0.4% loss in the Nikkei 225. The yen slightly extended its decline after tumbling 0.6% against the greenback on Tuesday. The value of Japan’s exports gained 9.4% in October, the slowest pace in eight months, adding to signs that global supply constraints are still weighing on the economy. Indian stocks fell, led by banking and energy companies, as worries over economic recovery and inflation hurt investors’ sentiment. The S&P BSE Sensex fell 0.5% to 60,008.33 in Mumbai, while the NSE Nifty 50 Index declined by 0.6%. The benchmark index has now dropped for five of seven sessions and is off 3.7% its record level reached on Oct. 18. All but five of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by a gauge of real estate companies.  Fitch Ratings kept a negative outlook on India’s sovereign rating, already at the lowest investment grade, citing concerns over public debt that’s the highest among similar rated emerging-market sovereigns.  While high-frequency data suggests India’s economic recovery is taking hold, central bank Governor Shaktikanta Das said at an event on Tuesday that the recovery is uneven. “Feeble global cues are weighing on sentiment,” Ajit Mishra, a strategist with Religare Broking, said in a note. He expects indexes to slide further but the pace of decline to be gradual with Nifty having support at 17,700-17,800 level. Shares of Paytm are scheduled to start trading on Thursday after the digital payment company raised $2.5b in India’s biggest initial share sale. Local markets will be closed on Friday for a holiday.  Reliance Industries contributed the most to Sensex’s decline, decreasing 2.1%. The index heavyweight has lost 5% this week, headed for the biggest weekly drop since June 27. In rates, Treasuries were steady with yields slightly richer across the curve and gilts mildly outperforming after paring early losses. Treasury yields except 20-year are richer by less than 1bp across curve with 30-year sector outperforming slightly; 10-year yields around 1.63% after rising as high as 1.647% in early Asia session. Focal points for U.S. session include 20-year bond auction -- against backdrop of Fed decision to not taper in the sector, made after last week’s poorly bid 30-year bond sale, and seven Fed speakers scheduled. The $23BN 20-year new issue at 1pm ET is first at that size after cuts announced this month; WI yield at 2.06% is 4bp richer than last month’s, which tailed the WI by 2.5bp. In Europe, gilts richen slightly across the short end, short-sterling futures fade an open drop after a hot inflation print. Peripheral spreads are marginally wider to core. In FX, the Bloomberg Dollar Spot Index drifted after earlier rising to its highest level in over a year, spurred by strong U.S. retail sales and factory output data Tuesday; the greenback traded mixed versus its Group-of-10 peers though most currencies were consolidating recent losses against the greenback. The pound reached its strongest level against the euro in nearly nine months after U.K. inflation climbed faster than expected to the highest in a decade, heaping pressure on the Bank of England to raise interest rates. The Australian dollar hit a six-week low as third quarter wage data missed the central bank’s target, prompting offshore funds to sell the currency; the three-year yield fell back under 1%. The yen declined to its lowest level in more than four years as growing wagers of quicker policy normalization in the U.S. contrasted with the outlook in Japan, where interest rates are expected to be kept low. Super-long bonds fell. Volatility broke through the recent calm in currency markets, where the cost of hedging against volatility in the euro against the dollar over the next month climbed the most since the pandemic struck in March 2020. The move comes as traders bake in bets on faster rate hikes to curb inflation. The Turkish lira extended the week’s downward move, weakening another 2% against the dollar after comments from Erdogan sent the USDTRY hitting record highs of 10.5619 The Chinese yuan advanced to its highest level since 2015 against a basket of trading partners’ currencies following the dollar’s surge. Bloomberg’s replica of the CFETS basket index rises 0.3% to 101.9571, closer to the level that triggered a shock devaluation by the PBOC in 2015, testing the central bank’s tolerance before stepping in with intervention. In commodities, crude futures dropped as the market weighs the potential for a join U.S.-China stockpile-reserve release. WTI is down more than 1%, back on a $79-handle; Brent slips back toward $81.50, trading near the middle of this week’s range. Most base metals are under pressure with LME copper down as much as 1.4%. Spot gold adds $10 near $1,860/oz. European gas surged to the highest level in a month as delays to a controversial new pipeline from Russia stoked fears of a supply shortage with winter setting in. Cryptocurrencies remained lower after a tumble, with Bitcoin steadying around the $60,000 level. Looking at the day ahead now, and data releases include October data on UK and Canadian CPI, as well as US housing starts and building permits. Central bank speakers include ECB President Lagarde and the ECB’s Schnabel, the Fed’s Williams, Bowman, Mester, Waller, Daly, Evans and Bostic, and the BoE’s Mann. Finally, the ECB will be publishing their Financial Stability Review, and earnings releases today include Nvidia, Cisco, Lowe’s and Target. Market Snapshot S&P 500 futures little changed at 4,696.00 STOXX Europe 600 up 0.1% to 489.79 MXAP down 0.5% to 200.06 MXAPJ down 0.4% to 656.01 Nikkei down 0.4% to 29,688.33 Topix down 0.6% to 2,038.34 Hang Seng Index down 0.2% to 25,650.08 Shanghai Composite up 0.4% to 3,537.37 Sensex down 0.4% to 60,064.33 Australia S&P/ASX 200 down 0.7% to 7,369.93 Kospi down 1.2% to 2,962.42 Brent Futures down 0.8% to $81.79/bbl Gold spot up 0.5% to $1,859.93 U.S. Dollar Index little changed at 95.95 German 10Y yield little changed at -0.25% Euro little changed at $1.1310 Top Overnight News from Bloomberg Bond traders are bracing for a key test Wednesday as the Treasury looks to sell its first long-dated debt since inflation worries spooked buyers at last week’s poorly received 30-year auction Increasingly stretched prices in property and financial markets, risk-taking by non-banks and elevated borrowing pose a threat to euro-area stability, the European Central Bank warned Germany is giving investors a rare chance to grab some of Europe’s safest and positive-yielding debt. The country will sell one billion euros ($1.13 billion) of its longest-dated debt at 10:30 a.m. London on Wednesday. The country’s 30-year notes are currently trading with a yield 0.09%. It’s a paltry rate, but probably the last time for a while that Germany will offer the maturity ECB Governing Council member Olli Rehn says euro- area inflation is accelerating due to increasing demand pushing up the price of energy and supply bottlenecks, according to interview in Finland’s Talouselama magazine The yuan’s advance to a six-year high versus China’s trading partners this week has investors asking how far the central bank will let the rally run. The yuan extended gains on Wednesday against a basket of 24 currencies of the nation’s trading partners, bringing it close to the level that triggered a shock devaluation by the People’s Bank of China in 2015 Turkish President Recep Tayyip Erdogan vowed to continue fighting for lower interest rates, sending a clear signal to investors a day before the central bank sets its policy. The lira weakened A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mixed and struggled to sustain the positive lead from the US where better than expected Industrial Production and Retail Sales data spurred the major indices, in which the S&P 500 reclaimed the 4,700 level and briefly approached to within four points of its all-time high. ASX 200 (-0.7%) was led lower by underperformance in the top-weighted financials sector amid weakness in the largest lender CBA despite a 20% jump in quarterly cash profit, as operating income was steady and it noted that loan margins were significantly lower. Mining related stocks also lagged in Australia due to the recent declines in global commodity prices amid the stronger USD and higher US yields. Nikkei 225 (-0.4%) retraced its opening gains after disappointing Machinery Orders and miss on Exports which grew at the slowest pace in eight months, while the KOSPI (-1.2%) suffered due to virus concerns with daily infections at the second highest on record for South Korea. Hang Seng (-0.3%) and Shanghai Comp. (+0.4%) were varied with Hong Kong dragged lower by tech stocks including NetEase post-earnings, while the mainland was choppy as markets continued to digest the recent Biden-Xi meeting that was described by President Biden as a 'good meeting' and in which they discussed the need for nuclear “strategic stability” talks. US and China also agreed to provide access to each other’s journalists, although there were also comments from Commerce Secretary Raimondo that China is not living up to phase 1 trade commitments and it was reported that China is to speed up plans to replace US and foreign tech. Finally, 10yr JGBs were flat with demand hampered following the declines in T-notes, although downside was stemmed amid the flimsy sentiment across Asia-Pac trade and with the BoJ also in the market for JPY 925bln of JGBs mostly concentrated in 1-3yr and 5-10yr maturities. Top Asian News Asia Stocks Set to Snap Four-Day Advance as Kospi Leads Decline Gold Rises as Fed Officials Feed Debate on Inflation Response Deadly Toxic Air Chokes Delhi as India Clings to Coal Power PBOC May Start Raising Rates by 10bps Every Quarter in 2022: TD European equities (Stoxx 600 +0.1%) trade with little in the way of firm direction as the Stoxx 600 lingers around its ATH printed during yesterday’s session. The handover from the APAC session was mostly a softer one after the region failed to sustain the positive lead from the US which saw the S&P 500 approach within four points of its all-time high. Stateside, US futures are just as uninspiring as their European counterparts (ES flat) ahead of another busy day of Fed speak and pre-market earnings from retail names Target (TGT) and TJX Companies (TJK) with Cisco (CSCO) and NVIDIA (NVDA) due to report after-hours. Markets still await a decision on the next Fed Chair which President Biden said will come in around four days yesterday; as it stands, PredictIt assigns a circa 65% chance of Powell winning the renomination. Sectors in Europe have a marginal positive tilt with Media names outperforming peers alongside gains in Vivendi (+1.0%) after Italian prosecutors asked a judge to drop a case against Vivendi's owner and CEO for alleged market manipulation. Travel & Leisure names are the notable underperformer amid losses in sector heavyweight Evolution Gaming (-9.6%) who account for 14% of the sector with the Co. accused of taking illegal wagers. In terms of individual movers, Siemens Healthineers (+4.6%) is one of the best performers in the region after the Co. noted that revenues are on track to grow 6-8% between 2023 and 2025. UK Banking names such as Lloyds (+1.3%) and Natwest (+1.1%) have benefitted from the favourable rate environment in the UK with today’s inflation data further cementing expectations for a move in rates by the BoE next month. Conversely, this acted as a drag on the UK homebuilder sector at the open before moves were eventually scaled back. SSE (-4.5%) underperforms after announcing a GBP 12.5bln investment to accelerate its net zero ambitions. Top European News Epstein’s Paris Apartment Listed for $14 Million, Telegraph Says Volkswagen Shares Stall as Analysts Doubt Its EV Street Cred Germany to Move Ahead With Tighter Covid Curbs Amid Record Cases U.K. Urges EU Not to Start Trade War If Brexit Deal Suspended In FX, the Greenback extended Tuesday’s post-US retail sales and ip gains to set new 2021/multi-year highs overnight when the index hit 96.266 and several Dollar pairs probed or crossed psychological round numbers. However, the latest bull run has abated somewhat amidst some recovery gains in certain rival currencies and a general bout of consolidation ahead of housing data, another raft of Fed speakers and Usd 23 bn 20 year supply that will be of note after a bad debut for new long londs last week, not to mention tepid receptions for 3 and 10 year offerings prior to that. NZD/AUD - A marked change in the tide down under as the Aud/Nzd cross reverses sharply from around 1.0450 to sub-1.0400 and gives the Kiwi enough impetus to regain 0.7000+ status vs its US peer with extra incentive provided by NZ PM Ardern announcing that the entire country is expected to end lockdown and move to a new traffic light system after November 29, while Auckland’s domestic borders will reopen from December 15 for the fully vaccinated and those with negative COVID-19 tests. Conversely, the Aussie is struggling to stay within sight of 0.7300 against its US counterpart in wake of broadly in line Q3 wage prices that leaves the y/y rate still some way short of the 3% pace deemed necessary to lift overall inflation by the RBA. GBP/CAD - Sterling is striving to buck the overall trend with help from more forecast-topping UK data that should give the BoE a green light for lifting the Bank Rate in December, as headline CPI came in at 4.2% y/y, core at 3.4% and PPI prints indicate more price pressure building in the pipeline. Cable printed a minor new w-t-d peak circa 1.3474 in response before waning and Eur/Gbp fell below the prior y-t-d low and 0.8400, but is now back above awaiting more news on the Brexit front and a speech from one of the less hawkish MPC members, Mann. Elsewhere, the Loonie is hovering around 1.2550 vs the Greenback and looking toward Canadian inflation for some fundamental direction as oil prices continue to fluctuate near recent lows, but Usd/Cad may also be attracted to decent option expiry interest between 1.2540-55 in 1.12 bn. CHF/EUR/JPY - All straddling or adjacent to round numbers against the Dollar, but the Franc lagging below 0.9300 on yield differentials, while the Euro has recovered from a fresh 2021 trough under 1.1300 and Fib support at 1.1290 to fill a gap if nothing else, and the Yen just defended 115.00 irrespective of disappointing Japanese machinery orders and internals within the latest trade balance. In commodities, WTI and Brent benchmarks are pressured this morning but the magnitude of the action, circa USD 0.70/bbl at the time of writing, is less pronounced when compared to the range of the week thus far and particularly against last week’s moves. Newsflow has been slim and the downside action has arisen without fresh catalysts or drivers; note, participants are cognisant of influence perhaps being exerted by today’s WTI Dec’21 option expiry. To briefly surmise the morning’s action, Vitol executives provided bullish commentary citing limited capacity to deal with shocks and on that theme, there were reports of an explosion at an oil pipeline in Southern Iran, said to be due to aging equipment. This, alongside reports that Belarus is restricting oil flows to Poland for three-days for maintenance purposes, have not steadied the benchmarks. Elsewhere, last night’s private inventories were mixed but bullish overall, with the headline a smaller than expected build and gasoline a larger than expected draw. On gasoline, some desks posit that this draw may serve to increase pressure for a US SPR release, and as such look to today’s EIA release which is expected to print a gasoline draw of 0.575M. Moving to metals, spot gold and silver are firmer this morning but, in a similar vein to crude, remain well within familiar ranges as specific catalysts have been light and initial USD action has largely fizzled out to the index pivoting the U/C mark. More broadly, base metals are pressured as inventories of iron ore are at their highest for almost three years in China as demand drops, with this having a knock-on impact on coking coal, for instance. US Event Calendar 7am: Nov. MBA Mortgage Applications, prior 5.5% 8:30am: Oct. Building Permits, est. 1.63m, prior 1.59m, revised 1.59m 8:30am: Oct. Building Permits MoM, est. 2.8%, prior -7.7%, revised -7.8% 8:30am: Oct. Housing Starts MoM, est. 1.5%, prior -1.6%; Housing Starts, est. 1.58m, prior 1.56m DB's Henry Allen concludes the overnight wrap Even as inflation jitters remained on investors’ radars, that didn’t prevent risk assets pushing onto fresh highs yesterday, as investor sentiment was bolstered by strong economic data and decent corporate earnings releases. In fact by the close of trade, the S&P 500 (+0.39%) had closed just -0.02% beneath its all-time closing record, in a move that also brought the index’s YTD gains back above +25%, whilst Europe’s STOXX 600 (+0.17%) hit an all-time high as it posted its 16th gain in the last 18 sessions. Starting with the data, we had a number of positive US releases for October out yesterday, which echoed the strength we’d seen in some of the other prints, including the ISMs and nonfarm payrolls that had both surprised to the upside in the last couple of weeks. Headline retail sales posted their biggest gain since March, with a +1.7% advance (vs. +1.4% expected), whilst the measure excluding autos and gas stations was also up by a stronger-than-expected +1.4% (vs. +0.7% expected). Then we had the industrial production numbers, which showed a +1.6% gain in October (vs. +0.9% expected), though it’s worth noting around half of that increase was a recovery from Hurricane Ida’s effects. And that came against the backdrop of solid earnings results from Walmart and Home Depot as well earlier in the session. They saw Walmart raise their full-year guidance for adjusted EPS to around $6.40, up from $6.20-$6.35 previously, whilst Home Depot reported comparable sales that were up +6.1%. To be honest it was difficult to find much in the way of weak data, with the NAHB’s housing market index for November up to a 6-month high of 83 (vs. 80 expected). Amidst the optimism however, concerns about near-term (and longer-term) inflation pressures haven’t gone away just yet, and the 5yr US breakeven rose again, increasing +1.1bps yesterday to an all-time high of 3.21%. Bear in mind that just 12 days ago (before the upside CPI release) that measure stood at 2.89%, so we’ve seen a pretty sizeable shift in investor expectations in a very short space of time as they’ve reacted to the prospect inflation won’t be as transitory as previously believed. The increase was matched by a +1.3bps increase in nominal 5yr yields to a post-pandemic high of 1.27%. The 10yr yield also saw a slight gain of +1.9bps to close at 1.63%, and this morning is up a further +0.7bps. Against this backdrop, the dollar index (+0.58%) strengthened further to its highest level in over a year yesterday, though the reverse picture has seen the euro weaken beneath $1.13 this morning for the first time since July 2020. Speaking of inflation, there were fresh pressures on European natural gas prices yesterday, which surged by +17.81% to €94.19 per megawatt-hour. That’s their biggest move higher in over a month, and follows the decision from the German energy regulator to temporarily suspend the certification of the Nord Stream 2 pipeline, adding further short-term uncertainty to the winter outlook. UK natural gas futures (+17.15%) witnessed a similar surge, and their US counterparts were also up +3.19%. Elsewhere in the energy complex, Brent crude (+0.46%) oil prices moved higher as well. Overnight in Asia, equity indices are trading lower this morning including the CSI (-0.05%), the Nikkei (-0.45%) and the Hang Seng (-0.55%), though the Shanghai Composite (+0.19%) has posted a modest advance. There were also some constructive discussions in the aftermath of the Biden-Xi summit the previous day, with US national security adviser Jake Sullivan saying that the two had spoken about the need for nuclear “strategic stability” talks, which could offer the prospect of a further easing in tensions if they do come about. Looking forward, futures are indicating a muted start in US & Europe later on, with those on the S&P 500 (-0.03%) and the DAX (-0.15%) pointing to modest declines. Elsewhere, markets are still awaiting some concrete news on who might be nominated as the next Fed Chair, though President Biden did say to reporters that an announcement would be coming “in about four days”, so investors will be paying close attention to any announcements. Senator Sherrod Brown, who chairs the Senate Banking Committee, who earlier in the week noted a pick was imminent, followed up by proclaiming he was “certain” that the Senate would confirm either of Chair Powell or Governor Brainard. Staying on the US, as Congress waits for the Congressional Budget Office’s score on Biden’s social and climate spending bill, moderate Democratic Senator Manchin noted continued uncertainty about the bill’s anti-inflationary bona fides. Elsewhere, the impending debt ceiling has worked its way back into the spotlight, with Treasury Secretary Yellen saying that she’ll soon provide updates on how much cash the Treasury will have to pay the government’s bills. The market has started to price in at least some risk, with yields on Treasury bills maturing in mid-to-late December higher than neighbouring maturities, and the Washington Post’s Tony Romm tweeted yesterday that the new deadline that the Treasury was expected to share soon was on December 15. Turning to Germany, coalition negotiations are continuing between the centre-left SPD, the Greens and the liberal FDP, and yesterday saw SPD general secretary Lars Klingbeil state that “The goal is very clear, to have a completed coalition agreement in the next week”. We’ve heard similar comments from the Greens’ general secretary, Michael Kellner, who also said that “We aim to achieve a coalition agreement next week". One issue they’ll have to grapple with is the resurgence in Covid-19 cases there, and Chancellor Merkel and Vice Chancellor Scholz (who would become chancellor if agreement on a traffic-light coalition is reached) are set to have a video conference with regional leaders tomorrow on the issue. Staying on the pandemic, it’s been reported by the Washington Post that the Biden administration will announce this week that it plans to purchase 10 million doses of Pfizer’s Covid pill. The company will submit data for the pill to regulators before Thanksgiving. It’s not just the US that will benefit from Pfizer’s pill however, as the pharmaceutical company will also license generic, inexpensive versions of the pill to low- and middle-income countries, which should be a global boost in the fight against the virus. Looking at yesterday’s other data, the main release came from the UK employment numbers, which showed that the number of payrolled employees rose by +160k in October, whilst the unemployment rate in the three months to September fell to 4.3% (vs. 4.4% expected). That release was better than the Bank of England’s MPC had expected in their November projections, and sterling was the top-performing G10 currency yesterday (+0.06% vs. USD) as the statistics were seen strengthening the case for a December rate hike. In response to that, gilts underperformed their European counterparts, with 10yr yields up +2.7bps. That contrasted with yields on 10yr bunds (-1.4bps), OATs (-1.8bps) and BTPs (-2.6bps), which all moved lower on the day. Interestingly, that divergence between bunds and treasury yields widened further yesterday, moving up to 188bps, the widest since late-April. To the day ahead now, and data releases include October data on UK and Canadian CPI, as well as US housing starts and building permits. Central bank speakers include ECB President Lagarde and the ECB’s Schnabel, the Fed’s Williams, Bowman, Mester, Waller, Daly, Evans and Bostic, and the BoE’s Mann. Finally, the ECB will be publishing their Financial Stability Review, and earnings releases today include Nvidia, Cisco, Lowe’s and Target. Tyler Durden Wed, 11/17/2021 - 07:50.....»»

Category: dealsSource: nytNov 17th, 2021

Futures Rise Boosted By JNJ Split As Treasuries, Dollar Slide

Futures Rise Boosted By JNJ Split As Treasuries, Dollar Slide U.S. equity index futures were slightly up at the end of a volatile week, trading in a narrow 20 point range for the second day in a row, while Treasuries resumed declines in response to the recent shock inflation data from the world’s largest economies. Contracts on the three main U.S. gauges were higher, with Johnson & Johnson rising in premarket trading after saying it will split into two companies, while tech stocks again led gains at the end of a week scarred by deepening concerns over prolonged inflation. All the major U.S. indexes were set for a more than 1% weekly drop, their first since the week ended Oct. 1, as hot inflation numbers sapped investor sentiment and halted an earnings-driven streak of record closing highs. At 7:15 a.m. ET, Dow e-minis were up 106 points, or 0.3%, S&P 500 e-minis were up 8.5 points, or 0.18%, and Nasdaq 100 e-minis were up 40.25points, or 0.25%. The same bullish sentiment that lifted US futures pushed European shares up as luxury shares gained after Cartier owner Richemont posted better-than-forecast earnings, offsetting a drop in travel stocks. Asian shares also climbed, helped by a rally in Japan. At the same time, Treasuries resumed a selloff after a trading holiday Thursday, with this week’s shock US inflation figures still reverberating through the bond market. Five-year notes led losses on concern the price pressure will force the Federal Reserve to raise rates earlier than anticipated. A gauge of the yield curve flattened to the least since March 2020. While global stocks are set for their first weekly drop since early October, their swings have been muted compared with the gyrations in the bond market. Investor focus on a strong earnings season has tempered worries about higher inflation. “Inflation could remain elevated in the coming months, and each inflation release that comes in above expectations has the potential to cause volatility in rate and equity markets, but we still don’t expect inflation to derail the equity rally,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. In US premarket trading, Johnson & Johnson jumped 4.7% in premarket trading after the drugmaker said it is planning to break up into two companies focused on its consumer health division and the large pharmaceuticals unit. Shares of the GAMMA giga techs (fka as FAAMG) also inched up. Tesla’s boss Elon Musk sold even more shares of the electric car maker, regulatory filings showed, after offloading about $5 billion worth of stock following a poll he posted on Twitter. The sale news naturally pushed TSLA stock price higher.  A gauge of U.S.-listed Chinese stocks jumped more than 5%, helped by Alibaba’s blowout Singles’ Day shopping festival and a report that Didi is getting ready to relaunch its apps. Rivian shares gain as much as 5% in U.S. premarket trading, extending the surge for the EV maker seen since its IPO this week which has sent its market value over $100b. Rivian trading at $122.99 in at 5am in New York, compared to IPO price of $78 Rising price pressures across the globe have been a top concern for market participants, with focus now shifting towards how consumer spending would fare as the holiday shopping season approaches. “The risk-on trading stance remains,” said Pierre Veyret, a technical analyst at ActivTrades in London. “However, markets are likely to remain volatile as investors will need to have more clues on where both the economy and monetary policies are going.” In Europe, gains for consumer and retail stocks balanced out declines for mining and energy companies. The Stoxx Europe 600 Index fluctuated as Bank of America strategists predicted a fall of at least 10% for the continent’s equities by early next year. Here are some of the biggest European movers today: Richemont shares jump as much as 9.8% to a record high, with analysts seeing scope for earnings estimates to be upgraded after the company reported first-half results that Citigroup described as “stellar.” Peer Swatch also bounced. Renault shares gain as much as 4.6% after Morgan Stanley upgraded the French automaker to overweight, saying it should have a stronger 2022 if it can raise production levels from a currently low base. Deutsche Telekom rises as much as 3% with analysts highlighting a good revenue performance and upgraded earnings and cash flow guidance as key positives from its earnings. Intertrust shares surge as much as 40% after the trust and corporate-services firm entered talks to be acquired by private-equity firm CVC. AstraZeneca falls as much as 5.9% after the drugmaker’s 3Q results missed estimates, with analysts noting a big miss for cancer drug Tagrisso. Wise shares sink as much as 8.8% after the money-transfer company won’t be added to an MSCI index in the latest rejig as some investors had expected. JDE Peet’s, Atos and Investor AB also all moved after the MSCI review. Fortum shares decline as much as 3.6% after the Finnish utility’s 3Q sales missed estimates. Uniper, in which Fortum owns a 75% stake, also slid after Fortum said it stopped share purchases in the German group in July owing to high prices. Avon Protection plummet as much as 44% after it warned of testing failures for some body-armor plates ordered by the U.S. military. SimCorp shares drop as much as 7.1% after the financial software and services company’s 3Q earnings, with Handelsbanken calling the quarter “weak,” and saying it raises doubts for the 2022 outlook Earlier in the session, Asia’s regional benchmark advanced, on track for a second day of gains, after sales in the Singles’ Day shopping festival boosted optimism. The MSCI Asia Pacific Index rose as much as 0.9%, with materials and communication stocks driving the benchmark. Tencent climbed 1.6%, after it bought a Japanese game studio and sold HengTen Networks shares. JD.com gained 5.2% after it received record Singles’ Day orders. Adding to sentiment were the mandate for China’s President Xi Jinping to potentially rule for life, which may mean policy continuity and fewer regulatory surprises and Goldman Sachs’ upgrade of offshore China stocks. A report that Didi Global is getting ready to relaunch apps in China further fueled optimism. “Investors are hoping that greenshoots of a loosening of reforms are upon us,” said Justin Tang head of Asian research at United First Partners. It’s clear “tech shares got a little boost from Singles’ Day and the anointing of Xi as forever leader.” JD.com Shines in Muted Singles Day After Sales Beat: Street Wrap South Korea and Japan benchmarks posted the top gains in the region. Australia’s shares also advanced, boosted by mining stocks. Japanese equities also rose, following gains in U.S. peers, erasing virtually all of their losses from earlier in the week. Electronics makers and telecoms were the biggest boosts to the Topix, which gained 1.3%. All 33 industry groups were in the green except energy products. Tokyo Electron and SoftBank Group were the largest contributors to a 1.1% rise in the Nikkei 225. The yen has weakened more than 1% against the dollar since Tuesday. “It’s a favorable environment for risk-taking thanks to China,” said Shogo Maekawa, a strategist at JP Morgan Asset Management in Tokyo, referring to Evergrande’s latest interest payment. Rising U.S. yields and a weaker yen “may serve as a trigger for foreign investors to re-evaluate Japanese equities and shift their focus to stocks here.” Indian stocks also rose, snapping three sessions of declines, boosted by gains in software exporter Infosys. The S&P BSE Sensex climbed 1.3% to 60,686.69 to a two-week high and completed a second successive week of gains with a 1% advance. The NSE Nifty 50 Index increased 1.3% on Friday. All 19 sub-indexes compiled by BSE Ltd. rose, led by a measure of technology companies. In earnings, of the 45 Nifty 50 companies that have announced results so far, 29 have either met or exceeded consensus analyst expectations, 15 have missed estimates, while one couldn’t be compared. Oil & Natural Gas Corp. and Coal India are among those scheduled to announce results today.  Expectations of the U.S. Fed raising interest rates earlier than expected after a surge in inflation weighed on most emerging markets this week. In India, consumer prices probably quickened for the first time in five months in October, according to economists in a Bloomberg survey. The data will be released on Friday after market hours.   In FX, the Bloomberg Dollar Spot Index was little changed, even as the dollar added to gains versus most its Group-of-10 peers, and Treasury yields rose across the curve on concern that rising U.S. inflation would warrant earlier rate hikes. The euro hovered around a more than a one-year low of $1.1450. The pound extended an Asia session advance and was the best performer among G-10 peers; the currency still heads for a third week of losses, having touched its lowest level since Christmas and options suggest the move may have legs to follow. Australian and New Zealand dollars are headed for back-to-back weekly declines as rising Treasury yields stoke further demand for the greenback; A 60% drop in the price of iron ore signals a blow to the Australian government’s efforts to stabilize the fiscal position following massive spending to support the economy through the coronavirus pandemic.Meanwhile, the ruble extended its losses, tracking a decline in Brent crude, as tensions flared up between Russia and Western nations over energy supplies and migrants. The currency tumbled as much as 1.1% to 72.4375 per dollar after the U.S. sounded out its EU allies that Russia may invade Ukraine. That made the ruble the worst performing currency in emerging markets.  In rates, Treasuries were off session lows, but cheaper by 2bp-3bp across belly of the curve which underperforms as reopened cash market catches up with Thursday’s slide in futures. Treasury 10-year yields around 1.566%, cheaper by 2bp on the day, while 5-year topped at 1.262% in early Asia session; curve is flatter amid belly-led losses, with 5s30s spread tighter by ~1bp on the day after touching 63.7bp, lowest since March 2020. On the 2s5s30s fly, belly cheapened 3.5bp on the day, re-testing 2018 levels that were highest since 2008. Bunds advanced, led by the front end, while Italian bonds slid across the curve, pushing the 10-year yield above 1% for the first time since Nov. 4, as money markets held on to aggressive ECB rate-hike bets. The Asia session was relatively calm, while during the European morning, Italian bonds lagged as futures continue to price in aggressive ECB policy. Treasury options activity in U.S. session has included downside protection on 5-year sector, where yields reached YTD high.     In commodities, crude futures dip to lowest levels for the week: WTI drops 1.4% before finding support near $80, Brent dips 1% back onto a $81-handle. Spot gold drifts lower near $1,852/oz. Base metals are mixed: LME aluminum, nickel and tin post modest gains, copper and zinc lag. Looking at the day ahead, data releases from the US include the University of Michigan’s preliminary consumer sentiment index for November, as well as the JOLTS job openings for September. In the Euro Area, there’ll also be industrial production for September. From central banks, we’ll hear from New York Fed President Williams, ECB Chief Economist Lane, and the BoE’s Haskel. Market Snapshot S&P 500 futures little changed at 4,646.50 STOXX Europe 600 little changed at 485.18 MXAP up 0.8% to 199.85 MXAPJ up 0.6% to 653.35 Nikkei up 1.1% to 29,609.97 Topix up 1.3% to 2,040.60 Hang Seng Index up 0.3% to 25,327.97 Shanghai Composite up 0.2% to 3,539.10 Sensex up 1.3% to 60,697.82 Australia S&P/ASX 200 up 0.8% to 7,443.05 Kospi up 1.5% to 2,968.80 Brent Futures down 1.3% to $81.83/bbl Gold spot down 0.5% to $1,853.43 U.S. Dollar Index little changed at 95.20 German 10Y yield little changed at -0.23% Euro little changed at $1.1441 Top Overnight News From Bloomberg Inflation is soaring across the euro area, but it’s also diverging by the most in years in a further complication for the European Central Bank’s ongoing pandemic stimulus The White House is debating whether to act immediately to try to lower U.S. energy prices or hold off on dramatic measures in the hope markets settle, as President Joe Biden’s concern about inflation runs up against climate, trade and foreign policy considerations Reports U.S. is concerned that Russia may be planning to invade Ukraine are “empty and unfounded efforts to exacerbate tensions,” Kremlin spokesman Dmitry Peskov says on conference call Financial problems faced by institutions like China Evergrande Group are “controllable” and spillovers from the nation’s markets to the rest of the world are limited, a former central bank adviser said Hapag-Lloyd AG warned that a crunch in global container shipments could persist into next year, with labor negotiations, environmental pressures and disruptive weather combining to hamper goods flows Japan’s government plans to compile an economic stimulus package of more than 40 trillion yen ($350 billion) in fiscal spending, according to the Nikkei newspaper President Xi Jinping appeared more certain than ever to rule China well into the current decade, as senior Communist Party officials declared that the country had reached a new “historical starting point” under his leadership Italian President Sergio Mattarella tried to quash speculation that he could stay on for a second term, leaving Prime Minister Mario Draghi as the top contender for the role early next year A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mostly higher heading into the weekend as the region attempted to build on the somewhat mixed performance stateside, where price action was contained amid Veterans Day and with US equity futures also slightly picking up from the quasi-holiday conditions. ASX 200 (+0.8%) was lifted in which mining stocks and the tech industry spearheaded the broad gains across sectors aside from healthcare as Ramsay Health Care remained pressured after it recently announced a near-40% decline in Q1 net profit. Nikkei 225 (+1.1%) was underpinned with Japanese exporters benefitting from recent favourable currency flows and with the biggest stock movers influenced by a deluge of earnings. Hang Seng (+0.3%) and Shanghai Comp. (+0.2%) were indecisive with Hong Kong tech stocks encouraged after e-commerce retailers Alibaba and JD.com posted record Singles Day sales, despite a deceleration in revenue growth from the shopping festival to its slowest annual pace since its conception in 2009 amid a toned-down event due to Beijing’s tech crackdown and emphasis on common prosperity. Conversely, mainland bourses were indecisive following a neutral liquidity operation by the PBoC and after US President Biden recently signed the Secure Equipment Act which prevents companies deemed as security threats from receiving new equipment licences from US regulators, which comes ahead of Monday’s potential Biden-Xi virtual meeting. Finally, 10yr JGBs were lower due to a lack of momentum from US treasuries as cash bond markets were closed for the federal holiday, with demand for JGBs also hampered by the gains in stocks and lack of BoJ purchases in the government debt market. Top European News Macron and Draghi Have Plans to Fill the Void Left by Merkel Johnson Burns Through Political Capital Built Up With Tory MPs JPMorgan Hires Zahn as Head of DACH Equity Capital Markets Hapag-Lloyd CEO Says Global Shipping Crunch Could Extend in 2022 European equities (Stoxx 600 -0.1%) have seen a relatively directionless start to the session with the Stoxx 600 set to close the week out with modest gains of around 0.4%. Macro updates have been particularly sparse thus far with today’s data docket also relatively light (highlights include US JOLTS and Uni. of Michigan sentiment). The handover from the APAC region was a predominantly positive one as Japanese equities benefited from favourable currency dynamics and Chinese markets focused on the fallout from Singles Day which saw record sales for Alibaba and JD.com. Stateside, futures are also relatively directionless (ES -0.1%) ahead of aforementioned US data points and Fedspeak from NY Fed President Williams (voter), who will be speaking on heterogeneity in macroeconomics. The latest BofA Flow Show revealed USD 7.3bln of inflows for US equities, whilst tech stocks saw outflows of USD 1.6bln; the largest outflow since June. In Europe, equities saw their largest outflows in seven weeks with USD 1.7bln of selling. In a separate note, BofA projects 10+% of downside by early next year for European stocks amid weakening growth momentum and rising bond yields. Sectors in Europe are mixed with outperformance seen in Personal & Household Goods with Richemont (+8.6%) shares boosted following better-than-expected Q3 results. LVMH (+1.4%) also gained at the open following reports that the Co. could consider opening duty-free stores in China. Telecom names are firmer with Deutsche Telekom (+2.6%) one of the best performers in the DAX after posting solid results and raising guidance. To the downside, commodity-exposed names are lagging peers with Basic Resources and Oil & Gas names hampered by price action in their underlying markets. FTSE-100 heavyweight AstraZeneca (-4.4%) sits at the foot of the index after Q3 profits fell short of expectations. Finally, Renault (+4.3%) is the best performer in the CAC after being upgraded to overweight from equalweight at Morgan Stanley with MS expecting the Co. to have a better year next year. Top Asian News JPMorgan Japan Stocks Downgrade Shows Doubts Before Stimulus Japan Stimulus Package to Top 40 Trillion Yen, Nikkei Reports Hon Hai Warns Chip Shortage Will Outweigh IPhone Boost to Sales AirAsia X Gets Over 95% Support From Creditors for Revamp In FX, it would be far too premature to suggest that the Buck’s winning streak is over, but having rallied so far in relatively short order some consolidation is hardly surprising, especially on a Friday in between a semi US market holiday and the weekend. Hence, the index is hovering just above 95.000 within a 95.078-266 range after a minor extension from yesterday’s peak to set a new 2021 best, and the Dollar is on a more mixed footing vs basket components plus other G10 and EM counterparts, awaiting the return of those not in on Veteran’s Day, JOLTS, preliminary Michigan sentiment and Fed’s Williams for some fresh or additional impetus and direction. GBP/CAD - The Pound and Loonie are flanking the major ranks even though the latest retreat in Brent and WTI is pretty uniform from a change on the day in Usd terms perspective, so it seems like Sterling is getting a boost from a downturn in the Eur/Gbp cross ahead of the UK-EU showdown on Brexit and Article 16, while Usd/Cad remains bullish on technical impulses before the BoC’s Q3 Senior Loan Officer Survey. Cable has bounced from just over 1.3350 to retest 1.3400 with Eur/Gbp probing 0.8550 to the downside, but Usd/Cad is probing 1.2600 irrespective of the Greenback stalling. AUD/JPY - Both fractionally firmer as the Buck takes another breather, though the Aussie is also deriving some traction from favourable Aud/Nzd tailwinds again. Aud/Usd has pared losses sub-0.7300 as the cross hovers around 1.0400, while Usd/Jpy has retreated from around 114.30 towards 1.9 bn option expiries at the 114.00 strike amidst reports that the Japanese Government's economic stimulus package will increase to Yen 40+ tn in fiscal spending, according to the Nikkei citing sources. EUR/NZD/CHF - The Euro is still hanging in following its close below a key technical level for a second consecutive session and fall further from the psychological 1.1500 mark, especially as better than forecast Eurozone ip has not prompted any upside, However, option expiry interest at 1.1450 (1.2 bn) may keep Eur/Usd afloat if only until the NY cut. Similarly, the Kiwi has not gleaned anything via a decent pick-up in NZ’s manufacturing PMI as Nzd/Usd clings to 0.7000+ status and the Franc remains under 0.9200 regardless of an acceleration in Swiss import and producer prices. SCANDI/EM - More transitory inflation remarks from Riksbank Governor Ingves are not helping the Sek fend off another dip through 10.0000 vs the Eur. but the Nok is getting protection from weaker oil prices via unusually large option expiries spanning the same big figure given 1.2 bn at 9.7500, 1.7 bn on the round number and 1 bn at 10.2000. Conversely, the Rub is underperforming as tensions rise around the Russian/Ukraine border and the Kremlin aims blame at the feet of the US alongside NATO, while the Try only just survived the latest assault on 10.00000 against the Usd in wake of below forecast Turkish ip and CBRT survey-based CPI projections for year end rising again. Elsewhere, the Mxn is softer following confirmation of a 25 bp Banxico hike on the basis that the verdict was not unanimous and some were looking for +50 bp, but the Zar retains an underlying bid after Thursday’s supportive SA MTBS and with Eskom reporting no load shedding at present, while the Cnh and Cny are holding gains in advance of the virtual Chinese/US Presidential meeting scheduled for Monday. In commodities, WTI and Brent are pressured in the European morning, experiencing more pronounced downside after a gradual decline occurred in APAC hours. However, the magnitude of today’s performance is comparably minimal when placed against that seen earlier in the week and particularly on Wednesday; in-spite of the earlier pronounced movements, benchmarks are currently set to end the week with losses of less than USD 1.00/bbl – albeit the range is in excess of USD 5.00/bbl. Newsflow this morning has been minimal and thus yesterday’s themes remain in-focus where a firmer USD likely continues to factor but more specifically COVID-19 concerns, with Germany’s Spahn on the wires, and geopolitics via Russia drawing attention. On the latter, tensions are becoming increasingly inflamed as the US said they are concerned that Russia could attack Ukraine and in response Russia said they are not a threat to anyone, but, says US military activity is aggressive and a threat. Moving to metals, spot gold and silver are softer on the session, but remain notably firmer on the week given the CPI-induced move. On this, UBS highlights the risk of additional inflation strength next year which could stoke further gold demand. Elsewhere, base metals are, broadly speaking, marginally softer given tentative APAC performance and the aforementioned COVID concerns, particularly those pertinent for China. In terms of associated bank commentary, SocGen looks for copper to average USD 9.2k/T and USD 8.0k/T in 2021 and 2022 respectively. US Event Calendar 10am: Sept. JOLTs Job Openings, est. 10.3m, prior 10.4m 10am: Nov. U. of Mich. 1 Yr Inflation, est. 4.9%, prior 4.8%; 5-10 Yr Inflation, prior 2.9% 10am: Nov. U. of Mich. Sentiment, est. 72.5, prior 71.7; Current Conditions, est. 77.2, prior 77.7; Expectations, est. 68.8, prior 67.9 DB's Henry Allen concludes the overnight wrap there wasn’t much to speak of in markets yesterday as US bond markets were closed for Veterans Day and investors elsewhere continued to digest the bumper CPI print from the previous session. We did see a bit of residual concern at the prospect of a faster tightening in monetary policy, and implied rates on Eurodollar futures continued to climb, gaining between +4bps and +8bps on contracts maturing through 2023. However, on the whole equities were relatively unfazed on both sides of the Atlantic, and the S&P 500 (+0.06%) stabilised after 2 successive declines thanks to a bounceback among the more cyclical sectors. Looking at those moves in more depth, interest-sensitive tech stocks were a big outperformer yesterday as both the NASDSAQ (+0.52%) and the FANG+ index (+0.98%) of megacap tech stocks moved higher. Material stocks in the S&P (+0.85%) were another sectoral winner, and the VIX index of volatility (-1.07pts) ticked down from its 4-week high on Wednesday. In Europe, the advance was even more prominent, where the STOXX 600 (+0.32%), the DAX (+0.10%) and the CAC 40 (+0.20%) all reached fresh records. Indeed, for the STOXX 600, that now marks the 13th advance in the last 15 sessions, with the index having risen by over +6% in the space of a month. As mentioned, it was a quieter day for sovereign bond markets with the US not trading, but the sell-off continued in Europe as yields on 10yr bunds (+1.7bps), OATs (+1.4bps) and BTPs (+2.7bps) all moved higher. We didn’t get any fresh news on the Fed officials either given the US holiday, but a Washington Post article yesterday said that officials from the White House had stayed in touch with Governor Brainard since her meeting with President Biden last week, albeit still emphasising that no final decision had yet been made. Separately, Bloomberg reported that senior Biden advisors did not view the recent trading scandal at the Federal Reserve as disqualifying Chair Powell. US Treasury markets have reopened overnight, with 10yr yields following their European counterparts higher, moving up +1.4bps to 1.563%. That’s been driven by a +2.4bps rise in the real yield, though 10yr real yields still remain close to their all-time lows since TIPS started trading back in 1997. Otherwise in Asia, markets are mostly trading higher with the KOSPI (+1.48%), Nikkei (+1.07%) and Hang Seng (+0.22%) all advancing, though the Shanghai Composite (-0.01%) is basically unchanged whilst the CSI (-0.31%) is trading lower. Data showed further signs of inflationary pressures in the region, with South Korea’s import price index up +35.8% in October on a year-on-year basis, the highest since 2008. Elsewhere in India, Prime Minister Modi is expected to announce an opening up of the sovereign bond market to retail investors today, which comes amidst rising inflation concerns as well. Looking ahead, futures are indicating a positive start in the US and Europe with those on the S&P 500 (+0.16%) and the DAX (+0.15%) pointing higher. Turning to the geopolitical scene, it was reported by Bloomberg that US officials had briefed their counterparts in the EU about a potential Russian invasion of Ukraine. It follows a build-up in Russian forces near the Ukrainian border that have been reported more widely, and echoes a similar situation back in the spring. The Russian ruble weakened -0.57% against the US dollar yesterday in response, with the declines occurring after the report came out. This comes amidst a number of broader tensions in the region, and natural gas prices in Europe were up +6.66% yesterday after Belarus’ President Lukashenko threatened to cut the transit of gas if the EU placed additional sanctions on his regime. Meanwhile on Brexit, there were potential signs of compromise in the dispute over Northern Ireland, with the Telegraph reporting that the EU was prepared to improve its offer when it came to reducing customs checks. However, the report also said that this would be contingent on the UK ending its demands to remove the European Court of Justice’s role in overseeing the agreement. There has been growing speculation in recent days that the UK could be about to trigger Article 16 of the Northern Ireland Protocol, which allows either side to take unilateral safeguard measures if the deal was causing serious issues. This would risk EU retaliation that could in theory even led to a suspension of the entire trade deal agreed last year, which is an option that has been talked up in recent weeks. For those wanting further reading on the issue, DB’s FX strategist Shreyas Gopal put out a note on Tuesday (link here) looking at the issues surrounding Article 16 and its implications for sterling. Another important thing to keep an eye on over the coming weeks will be any further signs of deterioration in the Covid-19 situation. Cases have been ticking up at the global level for around 4 weeks now, and a number of European countries (including Germany) have seen a major surge over the last few days. In the Netherlands, they actually set a record for the entire pandemic yesterday, and Prime Minister Rutte is due to hold a press conference today where it’s been speculated he’ll announce fresh restrictions. Separately in Austria, Chancellor Schallenberg said that a lockdown for the unvaccinated was “probably unavoidable”, and said that “I don’t see why two-thirds should lose their freedom because one-third is dithering”. On the data front, the only major release was the UK’s Q3 GDP reading yesterday, which surprised on the downside with growth of +1.3% (vs. +1.5% expected), even though Covid-19 restrictions were much easier in Q3 relative to Q2. To be fair, the monthly reading for September did surprise on the upside, with growth of +0.6% (vs. +0.4% expected), but it came as July and August saw downward revisions. On a monthly basis, the September reading meant the UK economy was just -0.6% beneath its pre-pandemic size in February 2020. To the day ahead now, and data releases from the US include the University of Michigan’s preliminary consumer sentiment index for November, as well as the JOLTS job openings for September. In the Euro Area, there’ll also be industrial production for September. From central banks, we’ll hear from New York Fed President Williams, ECB Chief Economist Lane, and the BoE’s Haskel. Tyler Durden Fri, 11/12/2021 - 07:48.....»»

Category: blogSource: zerohedgeNov 12th, 2021

Futures Hit Fresh All-Time Highs, Treasuries Rise On Post-Fed Euphoria

Futures Hit Fresh All-Time Highs, Treasuries Rise On Post-Fed Euphoria US equity futures plowed on to record-er highs overnight, propped up by a slew of stellar earnings reports and as investors shrugged off the Federal Reserve's first steps to begin paring its pandemic-era support as Powell reiterated that the central bank can be patient on raising interest rates (even if rate hikes odds pricing in lliftoff in July were virtually unchanged after Powell's announcement). The Fed Chair announced Wednesday that the central bank will start reducing bond purchases, adding that officials won’t flinch from action if warranted by inflation. The U.S. dollar and Treasuries advanced. “There was no dramatic Hulk-like metamorphosis from the Fed last night as they kept close to expectation," DB's Jim Reid said in a note. At 730 a.m. ET, Dow e-minis were down 7 points, or 0.02%, S&P 500 e-minis were up 6.75 points, or 0.15%, having earlier tagged a record high 4,662.5, and Nasdaq 100 e-minis were up 61.25 points, or 0.39%. The U.S. dollar and Treasuries advanced. The S&P 500 and Nasdaq notched record all-time closes for their fifth straight sessions on Wednesday, while the Dow Jones Industrial Average posted a record close for the fourth session in a row. A cheery third quarter earnings season coupled with upbeat commentary about future growth from corporate America has helped Wall Street largely dismiss concerns around rising prices, supply chain snags and a mixed macro-economic picture. A widely expected move by the Fed on announcing its plan to start tapering its monthly bond purchases beginning this month, while sticking to the belief about the "transitory" nature of inflation and waiting for more job growth - before raising interest rates, also helped sentiment. Fed policy makers announced a stimulus-tapering plan as expected, but expressed no hurry to raise benchmark rates even though inflation may run hot for months. While that supported risk-taking in stock markets, a second-day reality check appeared to have emerged in the bond and currency markets. A tug-of-war looked set to continue between dovish central banks and markets pricing in quicker-than-expected rate hikes. Data due at 08:30 a.m. ET is expected to show the number of Americans filing new claims for unemployment benefits fell to a fresh 19-month low last week; It will be followed by a more comprehensive nonfarm payrolls report on Friday: "The risks are now skewed towards the (payrolls data) finally aligning with signals elsewhere in the U.S. economy, after a few months of disappointments," said Jeffrey Halley, senior market analyst, at OANDA. "A number north of 500K could cause equity markets to reconsider ignoring the implications of the Fed taper. Similarly, a low print will keep the lower-for-longer monetary party in equities going well into the night." Elsewhere, U.S. Representative Rick Larsen said on Wednesday his fellow House Democrats could complete votes on President Joe Biden's social spending and infrastructure bills as early as midday on Friday In premarket trading, shares of Qualcomm jumped 8.1% after the chipmaker forecast better-than-expected profit and revenue for its current quarter on soaring demand for chips used in phones, cars and other internet-connected devices. Tesla added 1.9% and was set for a record open, while mega-cap tech titans GAMMA (f/k/a FAAMG) edged higher. Oil firms including Exxon and Chevron rose 0.9% and 0.5%, respectively, tracking crude prices. Biotech darling Moderna imploded as much as 11% after it missed expectations and guided sharply lower. Here are some of the biggest U.S. movers today: Qualcomm (QCOM US) gains 8% premarket as results at the chip giant showed a robust performance against a backdrop of supply constraints, while strength in Android handsets is underpinning growth. Booking (BKNG US) gained 3.7% in post-market trading Wednesday after the company reported gross bookings that beat analysts’ forecasts, as an increase in Covid-19 vaccination rates helped spur a rebound. Roku (ROKU US) falls 7% in premarket after third-quarter results that missed expectations on key metrics for the maker of streaming equipment. Upland Software (UPLD US) slumps 22% in premarket after results, with Jefferies downgrading the stock as it’s the third quarter in a row the firm has not delivered a beat on the top line. Skilz (SKLZ US) drops as much as 13% in premarket after the mobile games platform operator reported a net loss for the third quarter. TDH (DOGZ US) surges as much as 173% in U.S. premarket trading after the pet food firm and meme-trader favorite announced a placement. Magnite (MGNI US) falls 10% in premarket after the advertising solutions firm reported adjusted revenue for the third quarter that lagged behind the average analyst estimate. Qorvo (QRVO US) falls 7% in premarket trading after a sales forecast for the communications systems-maker that fell short of the average analyst estimate. Fastly (FSLY US) jumped 11% in premarket after the infrastructure software maker reported quarterly revenue that surpassed the average analyst estimate after misses in the past two quarters. QuinStreet (QNST US) climbs 21% premarket as the online marketing company raises its full year outlook. European stocks popped higher on the open, then drifted off best levels. The Euro Stoxx 50 rose as much as 0.7% with real estate, oil & gas and healthcare the strongest sectors. Alstria Office REIT AG soared as much as 20% after Brookfield Asset Management Inc. made a bid to take it private. Earlier in the session, Asian stocks rose, headed for their first gain in three days, after the Federal Reserve moved to taper stimulus while saying it will be patient on raising interest rates.  The MSCI Asia Pacific Index climbed as much as 0.7%, driven by gains in technology shares including Tencent, Alibaba and Keyence. Japan and China led gains around the region, with stocks also climbing in Indonesia, Thailand and Hong Kong. The Fed indicated it was alert to inflation risks but still sees them as transitory due to pandemic-related supply and demand imbalances. The S&P 500 climbed to a fresh record high after the Fed comments, pushing its gain for 2021 to 24%, while the Asian benchmark is little changed on the year. “The Fed seems to create market expectations that the decoupling of asset purchases reduction and rate hikes remains intact,” said Banny Lam, head of research at CEB International Investment Corp. “Widening negative real interest rates also provide continued support to Asian equities.” Markets in Singapore, India and Malaysia are closed for holidays In Australia, the S&P/ASX 200 index rose 0.5% to close at 7,428.00, boosted by banks, real estate and technology shares. Eight of the 11 industry groups closed higher. Nib rose after the insurance provider reported premium revenue A$669.5 million, up 8.5% year on year. Domino’s Pizza plunged after the pizza chain operator outlined some inflationary risks for 2022 and flagged weaker sales in Japan. Australia’s bright trade picture was underpinned by strong commodities exports. September trade data revealed the surplus narrowing to A$12.2 billion, after an estimated A$12.4 billion. In New Zealand, the S&P/NZX 50 index fell 0.4% to 12,943.94 In FX, the Bloomberg Dollar Spot Index recovered Wednesday’s drop and advanced 0.3% versus all of its Group-of-10 peers apart from the yen amid speculation that a buoyant U.S. economy will support the currency. The Bloomberg Dollar index erased its losses this week, staying within a bullish technical range it has traded in since June. The Treasury curve bull-flattened with U.S. 10-year Treasury yields falling 3bps to 1.57%. “Dollar-yen looks to be finding some support” as it seems reasonable to expect Treasury yields to trend higher, said Sean Callow, senior currency strategist at Westpac. The Fed “may not be moving any more swiftly than expected to the exit from emergency levels of policy accommodation, but it is still exiting,” Ryan Wang, a U.S. economist at HSBC Holdings Plc, wrote in a note. “This should be enough to support the dollar against a number of currencies where central-bank guidance is more overtly dovish. The continued moderation in global activity is also likely to support the USD.” The euro fell to its weakest level this week and was the worst performer among G-10 currencies; European bond yields fell, led by the short end. The pound fell against a stronger dollar and gained against the euro as investors weighed up the Bank of England’s upcoming monetary policy announcement. The pound’s volatility skew versus the dollar has shifted modestly higher this week ahead of the Bank of England policy decision, yet remains deeply in favor of downside exposure. Norway’s krone extended losses against both the dollar and the euro, even as Norges Bank left its key rate unchanged at 0.25% as expected while reitirating that the policy rate will most likely be raised in December. In rates, curves flattened as 5-, 10- and 30-year bond yields fell at least two basis points each on Thursday, while the two-year rate was little changed. Treasuries were higher with the curve flatter, erasing a portion of Wednesday’s post-FOMC bear-steepening losses. The 10-year yield was richer by ~3bp at 1.57%, outperforming bunds by ~2bp, gilts by ~1bp; Bank of England rate decision priced into overnight swaps is a hike, while analysts favor no change. Treasuries outperformed European bond markets, with stock futures holding Wednesday’s record highs. Bank of England rate decision at 8am ET may deliver first increase since the pandemic. U.S. curves were flatter, unwinding some of Wednesday’s steepening, with 2s10s tighter by ~2bp. In commodities, crude futures rally, recouping over half of Wednesday’s losses. WTI rises 0.9% to regain a $81-handle, Brent adds over 1% before stalling near $83 ahead of OPEC+ gathering. Spot gold holds Asia’s narrow range near $1,775/oz. Base metals are mixed: LME copper and nickel are the best performers; tin and zinc are in the red. Looking at the day ahead now, and the highlight will be the aforementioned BoE meeting, while there’ll also be remarks from ECB President Lagarde, the ECB’s de Cos, Elderson and Schnabel, and BoE Deputy Governor Cunliffe. On the data side, releases include German factory orders for September, the Euro Area October services and composite PMIs and September PPI reading, whilst from the US there’s the September trade balance and the weekly initial jobless claims. Lastly, the OPEC+ group will be meeting to discuss output, and earnings releases today include Moderna, Square, Airbnb, Uber, Duke Energy and Regeneron. Market Snapshot S&P 500 futures up 0.1% to 4,659.50 STOXX Europe 600 up 0.5% to 483.53 MXAP up 0.6% to 199.02 MXAPJ up 0.4% to 647.67 Nikkei up 0.9% to 29,794.37 Topix up 1.2% to 2,055.56 Hang Seng Index up 0.8% to 25,225.19 Shanghai Composite up 0.8% to 3,526.87 Sensex down 0.4% to 59,771.92 Australia S&P/ASX 200 up 0.5% to 7,427.99 Kospi up 0.3% to 2,983.22 German 10Y yield little changed at -0.18% Euro down 0.5% to $1.1551 Brent Futures up 0.8% to $82.57/bbl Gold spot up 0.3% to $1,776.28 U.S. Dollar Index up 0.37% to 94.21 Top Overnight News from Bloomberg The Bank of England will decide Thursday whether to deliver its first interest-rate hike since the pandemic as a divided Monetary Policy Committee grapples with spiking inflation and slowing growth The U.S. is asking OPEC+ to increase output by as much as 800,000 barrels a day, said delegates and diplomats, but the organization is expected to stick to its planned gradual increase, according to a Bloomberg survey Investors are hoping the Federal Reserve can manage the path toward rate hikes as smoothly as its taper announcement, according to strategists, who are cautiously optimistic the coming months will see moderate advances for yields, the dollar and equities. Friday’s labor report is seen as the next flash point for markets, given rates traders remain relatively aggressive about the need for Chair Jerome Powell to avoid being overly patient about hiking borrowing costs Bank of Japan Governor Haruhiko Kuroda and Prime Minister Fumio Kishida helped further shore up the nation’s commitment to its 2% inflation goal and tamp down any lingering speculation of a rethink of the target or tapering plans Having abandoned its experimental bond-yield target two days ago, the Reserve Bank of Australia is now left with the trusty old tools of policy making -- facing traders who still reckon it’s behind the curve Here is a more detailed breakdown of global markets courtesy of Newsquawk Asia-Pac stocks traded higher amid tailwinds from the fresh record highs stateside in the aftermath of the FOMC where the Fed announced it is to begin tapering asset purchases but suggested it was in no rush to hike rates. ASX 200 (+0.5%) was kept afloat by advances in tech and financials but with gains in the index capped after weak Retail Sales data and rising COVID-19 cases for Australia’s most populous states, while the energy sector underperformed after oil prices tumbled 4.5% yesterday due to bearish inventory data and the announcement that Iran nuclear talks will resume on November 29th in Vienna. Nikkei 225 (+0.9%) was buoyed on return from holiday as it coat-tailed on the recent advances in USD/JPY and with Japan mulling easing border controls as soon as next Monday, with Toyota also holding on to gains after a jump in H1 profits and JPY 150bln buyback announcement, although the Nikkei finished well off intraday highs after stalling on approach to the 30k level. Hang Seng (+0.8%) and Shanghai Comp. (+0.8%) conformed to the broad upbeat mood but was slow to start after another substantial liquidity drain by the PBoC despite the suggestion by Chinese press that recent reverse repo action showed stabilisation efforts. In addition, COVID-19 concerns continued to linger with Beijing having suspended inbound trains from 23 regions to curb the spread of the virus, while there was also attention on the geopolitical front after the US Department of Defense warned that China’s nuclear stockpile is outpacing forecasts and with China conducting week-long live-fire drills in the East China Sea. Finally, 10yr JGBs were steady with only a slight pullback seen from yesterday’s advances and with prices largely ignoring the subdued picture in T-notes which were pressured heading into the Fed taper announcement, while JGBs were also kept afloat after the 10yr inflation-indexed auction from Japan which showed an increase in both the b/c and lowest accepted prices. Top Asian News From Pianos to Paint, the Chip Crunch Is Hurting Japan Earnings Toyota’s Swelling Profits Belie Global Auto Parts Shortages EU Lawmakers’ Call for High Level Taiwan Ties Defies China Shimao Halts Retail Investors’ Bids for Local Bonds After Plunge Stocks in Europe hold onto the positive bias (Euro Stoxx 50 +0.4%; Stoxx 600 +0.5%) - which originally emanated from the post-FOMC Wall Street session and later reverberated across APAC. US equity futures have been consolidating following yesterdays post-Powell ramp, with the NQ (+0.4%) outperforming the RTY (+0.2%), ES (+0.1%) and YM (Unch). Back to Europe, bourses are posting broad-based gains in what was a morning doused in European corporate updates, whilst the UK’s FTSE 100 (+0.4%) is on standby for the BoE policy decision (full preview available in the Newsquawk Research Suite). Sectors in Europe are mostly firmer with no real overarching bias. Oil & Gas lead the gains following yesterday’s underperformance and in the run-up to the JMMC/OPEC+ meetings later today. Healthcare meanwhile is boosted by pharma-behemoths Roche (+2.5%) and Novartis (+1.6%) after the firms agreed on a bilateral transaction for the sale of 53.3mln (approximately 33%) Roche bearer shares held by Novartis for a total consideration of USD 20.7bln. This in turn has pushed the SMI (+0.8%) to modestly outperform the region. The Telecoms sector is also buoyed by BT (+5.7%) amid constructive earnings, but gains for the sector are capped Telefonica (-1.6%), who hold a larger sector weighting, following their metrics. The morning has been busy in terms of bank earnings, although the sector is constrained by yield dynamics. Nonetheless, SocGen (+3.3%), ING (+1.1%), Commerzbank (+5.2%) and Credit Suisse (+0.7%) all reported today – with the latter also announcing the exit of its prime brokerage activities and will be shifting its focus on to its wealth management business in a bid to better manage risks. Over to the consumer sector, Sainsbury’s (-4.3%) trundles lower after flagging complications from supply chain issues. Finally, in terms of M&A, Alstria Office (+17.5%) soars after Brookfield offered to buy the Co. for EUR 19.50/shr in cash, a premium to yesterday’s EUR 16.62/shr closing price. Top European News Brookfield Enters German Real Estate Fray With Bid for Alstria Credit Suisse Flags Loss Next Quarter to Cap Year to Forget Novartis Unwinds Roche Ties With $20.7 Billion Stake Sale Aston Martin Counts on $3 Million Valkyrie as SUV Drives Rebound In FX, the Dollar has erased all and more of its initial or knee-jerk declines in wake of the FOMC policy meeting that confirmed the start of QE tapering in a few days' time at the pre-announced pace, but kept clear distance between the unwinding of asset purchase and rate lift-off. However, there was a subtle tweak to the language regarding inflation to indicate less of a transitory assessment and Fed chair Powell refrained from using the ‘t’ word in his press conference before responding to a question by saying that it is also used to convey the view that prices rises caused by bottlenecks and supply-demand imbalances will not leave a legacy of persistently higher inflation. In index terms, a marginally higher peak at 94.280 vs 94.217 at best on Wednesday follows a fractionally higher low of 93.818 vs 93.809 and brings Monday’s w-t-d apex (94.313) back into contention ahead of Challenger Lay-offs, jobless claims, trade data and Q3 labour costs that were highlighted by Powell as a key gauge of tightness in the labour market, which he expected to reach max employment levels by mid-2022. EUR - Mixed Eurozone services and composite PMIs have not afforded the Euro any protection from the aforementioned Greenback revival, while the yield backdrop is also weighing as EGB/UST spreads widen, but Eur/Usd might glean some support from option expiries as 1.1 bn resides at 1.1550 and 1.1525. Moreover, the headline pair has found underlying bids around the half round number and a recent trough comes in at 1.1535 (October 29) ahead of the double 2021 low of 1.1525. GBP - Sterling is also succumbing to the broad Buck bounce, but also treading cautiously into the BoE amidst a marked unwind of rate hike pricing via Short Sterling contracts alongside a recovery in UK debt. Cable is hovering around 1.3620 having pulled up just shy of 1.3700 and options are anticipating an 80 pip break-even for the live MPC event that is far from certain even though ‘markets’ are anticipating a 15 bp hike. Note also, implied volatility on the Eur/Gbp straddle suggests a 43 pip move either way, though the cross may also be prone to movement from the current 0.8491-65 range pending developments in France where Brexit Minister Frost is aiming to untangle crossed lines over fishing licences. NZD/AUD/CAD - The Kiwi, Aussie and Loonie are all weaker vs their US counterpart, with Nzd/Usd and Aud/Usd hovering in the low 0.7100s and 0.7400s respectively, and the latter not far off post-RBA reversal lows after downbeat Q3 retail sales and exports within the overall trade balance overnight. Meanwhile, only a tame rebound in crude prices appears to be capping Usd/Cad around a 1.2400 axis in advance of Canadian trade and the jobs face-off with the US on Friday. CHF/JPY - Relative outperformers, or at least holding up better than other majors in the face of the Dollar rebound, as the Franc meanders between 0.9144-11 irrespective of a deterioration in Swiss consumer sentiment and the Yen contains losses below 114.00 on the return of Japanese markets from Culture Day to a benign bond backdrop overall. Note, hefty option expiry interest may keep Usd/Jpy restrained as 2.1 bn sits at the round number and a further 1.8 bn at 114.30. In commodities, WTI and Brent front-month futures have firmer on the day as the benchmarks clamber off yesterday’s worst levels despite the rampant Dollar and in the run-up to the JMMC and OPEC+ meetings slated for 13:00GMT and 14:00GMT respectively (full preview available in the Newsquawk Research Suite). Markets expect a continuation of the current plan to ease output curbs by 400k BPD/m. Outside calls have been getting louder for the producers to open the taps more than planned amid inflationary feed-through to consumers and company margins, although ministers, including de-facto heads Saudi and Russia, have been putting weight behind current plans, with no pushback seen from members within OPEC+ thus far. Furthermore, the COVID situation in China is deteriorating, hence ministers will likely express a cautious approach. However, the US is asking OPEC+ to increase supply by 600-800k BPD, according to delegates. Note some journalists noted that there are three options the US has offered OPEC+, 1) a 600k BPD hike, 2) an 800k BPD hike and 3) 100% compliance on a 400k BPD hike. Nonetheless, sources suggested OPEC+ is likely to stick to plans to raise output by 400k BPD despite calls from the US for extra supply; adding that the US has plenty of capacity to raise output itself. The US-OPEC+ dynamics will be worth keeping on the radar following this meeting. As a reminder, the US threatened the release of its SPR whilst also refusing to rule out oil export bans – suggesting that all tools are being looked at in a bid to lower prices. It’s also worth being cognizant of the knock-on effect the OPEC+ decision will have on Iranian nuclear talks – scheduled to resume on November 29th – with higher oil prices and a lack of OPEC+ coordination, possibly providing more incentives for the US to offer more concessions. WTI Dec takes aim at USD 82/bbl (vs 79.74/bbl low) at the time of writing whilst Brent Jan extends above USD 83/bbl (vs 81.07/bbl low). Metals markets are less interesting this morning, spot gold and silver are consolidating and trade relatively flat, with the former around USD 1,775/oz and the latter just north of USD 23.50/oz. Meanwhile, LME copper is modestly firmer but trades on either side of USD 9,500/t. US Event Calendar 8:30am: Oct. Initial Jobless Claims, est. 275,000, prior 281,000; Continuing Claims, est. 2.15m, prior 2.24m 8:30am: 3Q Unit Labor Costs, est. 7.0%, prior 1.3%; Nonfarm Productivity, est. -3.1%, prior 2.1% 8:30am: Sept. Trade Balance, est. -$80.2b, prior -$73.3b DB's Jim Reid concludes the overnight wrap This morning I’m actually going to put a suit on for the first time in nearly 20 months. In a way I’ll be upset if it fits me as I’ve been doing my Bryson DeChambeau weights routine for much of this time between pockets of injuries and surgery. However, I suspect 30-40mins 3 or 4 times a week won’t leave my suit too vulnerable to an “Incredible Hulk” moment when I put it on. There was no dramatic Hulk-like metamorphosis from the Fed last night as they kept close to expectations and delivered the $15/bn a month taper that our US econ team and consensus expected (Their full review is here). They pre-announced the purchase pace for November and December, whilst remarking that a similar pace would likely prevail so long as the economy evolves as expected. The Fed maintained the pace of taper would change in step with any changes to the outlook. The statement slightly tweaked the characterisation of inflation, noting that it was expected to be transitory. Chair Powell explained this in the press conference, maintaining the institutional view that elevated inflation was not expected to remain persistent and would return to the Fed’s long-term goal as supply bottlenecks abated and Covid-19 moved to the rear-view mirror. He also admitted the change reflected the reality that inflation has been much higher than they had expected, and recognised the burdens that it created for everyday consumers. The press conference spent a lot of time focusing on the dichotomy between high near-term inflation and the Committee’s assessment of full employment, as the market moves to pricing when lift-off will take place. The Chair noted the Committee will need to be flexible when judging what constitutes full employment, as it is a moving target and has moved since before the pandemic. A key point he returned to multiple times is the Committee would need to judge how the labour market evolves once the Delta variant is well and truly behind us. While stressing patience in evaluating these incoming data, he maintained optionality by also noting the Fed would stand ready to raise rates if inflation were threating to move persistently above the Fed’s goal. This risk management consideration is why they’re maintaining flexibility over the pace of taper. STIR markets were still pricing lift-off to take place sometime in 3Q 2022, and for there to be 2 hikes next year, unchanged from before the meeting. Equities were mostly flat on the day before the announcement but progressively climbed higher during and after the presser, with the S&P 500, Nasdaq, and DJIA finishing the day +0.65%, +1.04%, and +0.29% higher, respectively. 2yr yields increased +1.8bps on the day but closed roughly where they were pre-announcement. 10yr yields were +5.3bps higher on the day though with around +4bps added post FOMC and around +9bps from the early lows when fixed income was rallying across the globe. Elsewhere, 10yr breakevens were wider, increasing +3.6bps to 2.56%. Meanwhile, ECB President Lagarde sounded in no hurry to follow the BoE (preview immediate below for today) and the Fed on rate hikes. In a speech yesterday, she said that their three conditions for raising rates “are very unlikely to be satisfied next year”, as “the outlook for inflation over the medium term remains subdued” in spite of the recent surge in inflation. She re-emphasised the point in an interview almost verbatim later in the day while the Fed presser was ongoing, stating a 2022 hike was very unlikely, offering more forceful pushback of market pricing than she opted for during last week’s Governing Council meeting. Central banks will remain in the spotlight again today thanks to the BoE’s policy decision, which is out at 12:00 London time. Our UK economists are expecting that they’ll deliver their first post-pandemic rate hike of 15bps, taking the Bank Rate up to 0.25%, as well as end their current QE program. Similarly to the US, this comes amidst inflation readings that have persistently surprised to the upside over recent months, with CPI at +3.1% in September, and our economists write that they see the BoE’s forecasts being upgraded to show peak CPI nearer to 5%, remaining above target for nearly all of next year, which is broadly in line with recent comments from Chief Economist Pill in a recent FT interview. For more details see their preview (link here). Against this backdrop of central bank action, we had some solid economic data out of the US yesterday that further supported risk appetite. First, there was the ISM services index for October, which rose to a record high of 66.7 (vs. 62.0 expected), so a very promising sign at the start of Q4, even if the prices paid measure rose to 82.9, which was the highest since 2005. Before that we also had the ADP’s report of private payrolls for October, which showed an increase of +571k (vs. +400k expected), which is the strongest growth since June. That comes ahead of tomorrow’s US jobs report, where our economists are looking for growth of +400k in the headline nonfarm payrolls number, with the unemployment rate ticking down to 4.7%. I’ve been trying to get my mantra of the US more likely travelling down a “growthflation” path (over “stagflation”) into the vernacular. However, I think I’ll need a better term if I want it to rival say “BRICs”! That backdrop of positive data supported European markets ahead of the Fed, where the STOXX 600 advanced +0.35% to hit another all-time high. Sovereign bonds advanced too, with yields on 10yr bunds (-0.3bps), OATs (-0.8bps) and BTPs (-2.4bps) all moving lower, though gilts (+3.6bps) were the exception ahead of the BoE later. The strong data also lifted us off the yield lows of the day as we started with a big bond rally. We also saw some significant movements in energy prices, with European natural gas futures surging back +13.23% yesterday amidst a recent decline in fuel shipments from Russia, whilst both Brent crude (-3.22%) and WTI (-3.63%) oil prices saw a major pullback ahead of today’s OPEC+ meeting. In Asia, most major indices are trading higher this morning, including the Nikkei 225 (+0.74%), the KOSPI (+0.30%), the Hang Seng (+0.27%) and the Shanghai Composite (+0.64%), amid gains in US equities yesterday. S&P 500 futures (+0.01%) are almost unchanged, while the 10y US Treasury is at 1.60% (-0.5bps). Meanwhile on the political scene, the US Democrats were reacting to a bad set of results in Tuesday’s election, after the Republicans won the Virginia governor’s race. However, the New Jersey governor’s race was won by Democrat Gov. Phil Murphy 50.2% vs 49%, but came in much closer than the polls had suggested before the election. Gov. Murphy is the first Democrat to win re-election as governor in the state since 1977. Overall though, since President Biden won those two states in 2020 by 10pts and 16pts, respectively, the results have obviously come as a shock to many Democrats. The situation has strong echoes of 2009, a year after President Obama’s election when the Democrats also had control of the presidency and both houses of Congress, when they were trying to push through Obamacare. That round of elections saw the Republicans win the gubernatorial elections in both Virginia and New Jersey (following Democratic victories on the previous occasion), before the Republicans went onto make sizeable gains in the 2010 midterm elections the following year. There’s still just over a year until President Biden’s first set of midterm elections, but the Democrats will be hoping this doesn’t presage a repeat of those 2010 losses. Lastly on the data front, US factory orders grew by +0.2% in September (vs. +0.1% expected). Separately, the UK’s composite PMI was revised up a point from the flash reading to 57.8, and the US composite PMI was also revised up three-tenths to 57.6. To the day ahead now, and the highlight will be the aforementioned BoE meeting, while there’ll also be remarks from ECB President Lagarde, the ECB’s de Cos, Elderson and Schnabel, and BoE Deputy Governor Cunliffe. On the data side, releases include German factory orders for September, the Euro Area October services and composite PMIs and September PPI reading, whilst from the US there’s the September trade balance and the weekly initial jobless claims. Lastly, the OPEC+ group will be meeting to discuss output, and earnings releases today include Moderna, Square, Airbnb, Uber, Duke Energy and Regeneron. Tyler Durden Thu, 11/04/2021 - 07:53.....»»

Category: blogSource: zerohedgeNov 4th, 2021

Futures Flat Ahead Of Historic Taper Announcement, China Warns Of "Downward Pressure" On Economy

Futures Flat Ahead Of Historic Taper Announcement, China Warns Of "Downward Pressure" On Economy US stock futures were flat ahead of today's Fed meeting, where the central bank is widely expected to announce the reduction of asset purchases with a majority of analysts expecting the Fed reducing its monthly purchases of Treasuries by $10 billion and mortgage- backed securities by $5 billion. Nasdaq 100 futures climbed 0.1% while S&P 500 and Dow Jones futures were little changed. Oil fell as the U.S. ramped up pressure on OPEC+ to boost supplies (which will bear zero results). The two-year Treasury yield was steady, while the 30-year rate shed two basis points. European stocks struggled for direction and the dollar fell less than 0.1%.   Despite turmoil in the bond market which sent the MOVE (or bond VIX) index to post-covid highs... ... stocks remain complacent and are likely not under stress “because we all think we know what will come out from today’s meeting: a gradual start of the tapering of the bond purchases program,” said Ipek Ozkardeskaya, senior analyst at Swissquote. A "taper announcement will likely be seamless, what may be less seamless is the rate discussion," she wrote in a note.  In recent weeks, policy makers have come under pressure to reassess their assessment of inflation being transitory, with bond and currency markets pricing in faster-than-expected rate hikes. “The big question will be whether they will signal anything about when the rate hikes will start,” Jeanette Garretty, chief economist at Robertson Stephens Wealth Management, said on Bloomberg Television. “I think they are going to try and avoid that.” Wall Street has also largely shrugged off concerns around rising price pressures and mixed economic growth, boosted by a stellar third-quarter earnings season and an upbeat commentary about growth going forward. In fact, there is absolutely nothing that can dent the ongoing market meltup which according to Morgan Stanley will continue until just around Thanksgiving. "Anything suggesting that the Fed is confident to keep withdrawing monetary policy support following a start today may allow equity investors to buy more," said Charalambos Pissouros, head of research at JFD group. "After all, they may have already digested the idea that interest rates will start rising at some point soon." Meanwhile, Chinese equities drifted lower after what Bloomberg called was a "dour warning" from Premier Li who cautioned about “downward pressure” for the economy. Hang Seng falls as much as 1.2% after tech shares resume slide. Here are some of the most notable premarket moves: Lyft rose after its third-quarter results showed a continued improvement in key metrics for the ride-sharing company. Zillow dropped as the decision to shut its home-flipping business raised questions about its ability to deliver growth. Shale oil producer Devon Energy rose 4.8% in premarket trading on topping earnings estimates as oil prices hit multi-year highs. Mondelez International added 1.9% after the Oreo maker raised its annual sales forecast, helped by price increases and strong demand from emerging markets. T-Mobile gained 3.4% after the U.S. wireless carrier beat third-quarter estimates for adding monthly bill paying phone subscribers. Activision Blizzard tumbled 12.0% after the videogame publisher delayed the launch of two much-awaited titles, as its co-leader Jen Oneal decided to step down from her role On the economic data front, October readings on ADP private payrolls, IHS Markit composite PMI and ISM non-manufacturing activity is due later in the day. Meanwhile, European stocks were flat as losses in energy stocks offset gains in basic resources shares.  Italy's FTSE MIB outperforms, rising as much as 0.3% while Spain's IBEX underperforms. Oil & gas, retail and utilities are the weakest Stoxx 600 sectors; miners and autos outperform. Asia’s equity benchmark was little changed as traders await the outcome of the U.S. Federal Reserve’s policy meeting, with an announcement expected on tapering amid concerns about elevated inflation. The MSCI Asia Pacific Index traded in a narrow range, with Alibaba Group, AIA Group and Samsung Electronics the biggest drags and Tencent among the winners. South Korea’s Kospi tumbled 1.3% on mounting selling by foreign funds. Hong Kong’s benchmark Hang Seng Index declined for a seventh day, extending its longest losing streak since July. The earnings season has failed to boost Asian shares, with the regional benchmark down more than 10% from a February peak as supply-chain and inflation worries persist. Traders will focus on the Fed’s policy move on Wednesday for cues at a time volatility in the bond market has heightened. “U.S. monetary policy has a very direct impact on the Asian market, especially with their plethora of dirty U.S. dollar pegs,” Jeffrey Halley, senior market analyst at Oanda, wrote in a note. Philippine stocks were among the top gainers, advancing for a second day after local Covid-19 cases fell to fewest since March. Stocks in Australia also rose after the country’s central bank scrapped a bond-yield target on Tuesday and said there’s still some time to go for rate hikes. Iron ore’s rebound on Wednesday also bolstered the mining sector. Japan’s equity market was closed for a holiday. Chinese stocks dripped after Premier Li Keqiang said China’s economy faces new downward pressures and has to cut taxes and fees to address the problems faced by small and medium-sized companies. Li did not specify the extent of the new “downward pressure” or its cause, but the phrase is generally used by Chinese officials to refer to a slowing economy. He has used the phrase before, including several times in 2019. The economy needs “cross-cyclical adjustments” to continue in a proper range, Li said during a visit to China’s top market regulator, state broadcaster CCTV reported. That phrase is associated with a more conservative fiscal and monetary approach that focuses more on the long-term outlook instead of immediate economic performance. “There are no obvious growth drivers now, so the government is looking for one,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. “Small businesses’ investment can provide a source of healthier, longer-term growth, compared with government or property investment.” In rates, 10-year Treasury note futures are at the top of Tuesday’s range, gaining over Asia session while eurodollar futures are up 1-2 ticks in red and green packs as shares declined in China and Hong Kong ahead of today’s FOMC decision and after Premier Li’s warning of downward pressures to the economy. Treasury 10-year yields richer by 1.8bp on the day, flattening 2s10s spread with front-end yields unchanged -- bunds and gilts trade slightly cheaper vs. Treasuries. Cash Treasuries resumed trading in London after being closed in Tokyo for a Japanese holiday --curve has flattened with long-end yields richer by as much as 2bp. Focus on U.S. session includes ADP employment and durable goods data, refunding announcement before 2pm ET Fed rate decision. In Europe, Bunds bull flattened, helped in part by dovish comments from ECB’s Lagarde and Muller while peripheral spreads tightened with 10y Bund/BTP narrowing 3bps near 120bps. In FX, the Bloomberg Dollar Spot Index inched lower as the dollar fell versus most of its Group-of-10 peers and Treasury yields fell by up to 3 basis points, led by the long end of the curve. The euro gradually climbed toward the $1.16 handle while European government bonds yields fell and curves flattened. New Zealand’s dollar was among the top G-10 performers, and rose from a two- week low after the unemployment rate dropped more than economists predicted; the Kiwi and Aussie were also boosted by leveraged short covering. The pound inched up from a three-week low against the dollar before a speech by Bank of England Governor Andrew Bailey. Hedging the pound on an overnight basis is the costliest since March as traders focus on the upcoming meetings by the Federal Reserve and the BOE. In commodities, crude futures extend Asia’s softness; WTI drops over 2%, stalling near $82, Brent drops a similar magnitude to trade near $83. Spot gold drifts around Asia’s worst levels near $1,783/oz. Most base metals are up over 1% with LME aluminum and tin outperforming Looking at the day ahead the highlight will be the aforementioned Fed's policy decision along with Chair Powell’s subsequent press conference. Other central bank speakers include ECB President Lagarde, alongside the ECB’s Elderson, Centeno, de Cos and Villeroy. Data releases include the final October services and composite PMIs from the UK and the US, and other US data includes the ISM services index for October, the ADP’s report of private payrolls for October and factory orders for September. Finally, earnings today include Qualcomm, Booking Holdings, Fox Corp and Marriott International. Market Snapshot S&P 500 futures little changed at 4,622.00 STOXX Europe 600 little changed at 479.79 MXAP little changed at 197.87 MXAPJ little changed at 645.10 Nikkei down 0.4% to 29,520.90 Topix down 0.6% to 2,031.67 Hang Seng Index down 0.3% to 25,024.75 Shanghai Composite down 0.2% to 3,498.54 Sensex little changed at 59,993.78 Australia S&P/ASX 200 up 0.9% to 7,392.73 Kospi down 1.3% to 2,975.71 German 10Y yield little changed at -0.18% Euro little changed at $1.1587 Brent Futures down 1.8% to $83.23/bbl Gold spot down 0.3% to $1,782.83 U.S. Dollar Index little changed at 94.05 Top Overnight News from Bloomberg The Federal Reserve is widely expected to announce the reduction of asset purchases at the conclusion of its policy meeting Wednesday, which Chair Jerome Powell will likely say is not a step toward raising interest rates any time soon Traders have had a mixed view for most of this year about when emerging-Asia central banks will begin to normalize policy. Suddenly though, they are rushing to price in rate-hike bets across the region. The hawkish shift is most evident in South Korea and India, where markets are now anticipating at least a quarter-point increase in the next three months, while they are also building in Malaysia and Thailand over a two-year horizon China’s economy faces new downward pressures and has to cut taxes and fees to address the problems faced by small and medium-sized companies, according to the country’s Premier Li Keqiang More provinces in China are fighting Covid-19 than at any time since the deadly pathogen first emerged in Wuhan in 2019 The likelihood that elevated inflation will become entrenched is increasing, according to European Central Bank Governing Council member Bostjan Vasle A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mixed despite another encouraging handover from Wall Street where all major indices notched fresh record closing highs for the third consecutive day, and the DJIA breached the 36k level amid a slew of earnings and absence of any significant catalysts to derail the recent uptrend. Gains in APAC were also capped by holiday-thinned conditions with Japan away for Culture Day and as the FOMC announcement draws closer (full Newsquawk preview available in the Research Suite). The ASX 200 (+0.9%) outperformed amid a resurgence in the top-weighted financials sector as AMP shares were boosted after it announced to divest a 19.1% stake in Resolution Life Australasia for AUD 524mln and with CBA also higher as Australia’s largest bank is to offer customers the ability to conduct crypto transactions via its app. Conversely, the KOSPI (-1.3%) lagged after its automakers posted weak October sales stateside and following comments from South Korean PM Lee that they cannot afford additional cash handouts right now, while there was also attention on Kakao Pay which more than doubled from the IPO price on its debut. The Hang Seng (-0.3%) and Shanghai Comp. (-0.2%) were lacklustre and failed to benefit from the improvement in Chinese Caixin Services and Composite PMI data, amid ongoing concerns related to the energy crunch and with tech subdued after Yahoo pulled out of China due to a challenging business and legal environment. Furthermore, reports also noted that the Chinese version of Fortnite will close in mid-November, while a slightly firmer PBoC liquidity operation failed to spur Chinese markets as its efforts still resulted in a substantial net drain. Aussie yields continued to soften after the RBA affirmed its dovish tone at yesterday’s meeting and with the central bank also present in the market today for AUD 800mln in semi-government bonds which is in line with its regular weekly purchases, while a softer b/c at the 10yr Australian bond auction failed to unnerve domestic bonds and T-notes futures were steady overnight amid the looming FOMC. Top Asian News State Bank of India Profit Tops Estimates on Lower Provisions Chinese Copper Smelters Boost Exports to Ease Historic Squeeze China’s PBOC Says Digital Yuan Users Have Surged to 140 Million Malaysia Holds Rates on Recovery, ‘Benign’ Inflation Outlook European majors have adopted a similarly mixed performance (Euro Stoxx 50 -0.1%; Stoxx 600 Unch) as seen during the APAC session, as markets and participants count down to the FOMC policy decision, with the BoE and NFPs also on the docket for the rest of the week. US equity futures are also mixed but have been drifting mildly higher in European trade thus far, vs a flat overnight session. Back to Europe, there isn’t anything major to report in terms of under/outperformers among European majors, although Spain’s IBEX (-0.7%) lags in the periphery amidst losses in sector heavyweights. Sectors in Europe are mixed with no overarching theme. Basic Resources top the charts in a slight reversal of yesterday’s underperformance and amid a bounce in base metal prices. Travel & Leisure is propped up by Deutsche Lufthansa (+5.0%) post-earnings. Oil & Gas names are pressured by the decline across the crude complex in the run-up to tomorrow’s OPEC+ confab, whilst Banks are lacklustre as yields lose ground. In terms of individual movers, Vestas Wind System (-9.0%) is at the bottom of the Stoxx 600 after cutting guidance. BMW (+0.4%) is choppy after-earnings which saw EBIT top forecasts and targets confirmed, although the group noted that the rise in raw material prices have also had an impact on earnings, but they do not expect short-term magnesium shortage to affect production. Finally, Pandora (+0.8%) reported improvements on their metrics but warned that APAC performance, including China, remains weak and heavily impacted by COVID-19, with China expected to remain a drag on performance for the remainder of the year. Top European News BMW Muscles Through Chip Shortage With Profit Jump Nexans Drops as Morgan Stanley Says 3Q Results Were Weak Russia’s Biggest Alcohol Retailer Seeks $1.3 Billion in IPO LSE Boss Expects London Will Keep EU Clearing Role Post-Brexit In FX, far from all change, but the Kiwi has reclaimed 0.7100+ status against the Greenback and a firmer grasp of the handle in wake of significantly stronger than expected NZ labour market metrics via Q3’s HLFS update overnight, including jobs growth coming in five times higher than forecast and the unemployment rate falling sharply irrespective of a rise in participation. Nzd/Usd is hovering around 0.7135 and the Aud/Nzd cross is under 1.0450 even though the Aussie has regained some composure after its post-RBA relapse to retest 0.7450, albeit with assistance from the Buck’s broad pull-back rather than mixed PMIs and much weaker than anticipated building approvals. Indeed, the Franc has also rebounded from circa 0.9150 with no independent incentive and cognisant that the SNB will be monitoring moves as Eur/Chf meanders within its 1.0604-1.0548 w-t-d range. DXY/JPY/EUR/GBP/CAD - The Dollar index has drifted back down from a fractional new high compared to Tuesday’s best between 94.144-93.970 parameters vs a 94.136-93.818 range yesterday, and for little apparent reason aside from pre-FOMC tinkering and fine-tuning of positions it seems. Nevertheless, DXY components are mostly taking advantage of the situation, albeit in typically tight ranges seen on a Fed day, with the Yen holding above 114.00 on Japanese Culture Day, the Euro just under 1.1600 and amidst more decent option expiry interest (1.1 bn from 1.1585 to the round number), Sterling still trying to retain 1.3600+ status and also close to a fairly big option expiry (821 mn at the 1.3615 strike) and the Loonie striving to contain declines beneath 1.2400 against the backdrop of retreating oil prices. Note, some upside in the Pound via upgrades to UK services and composite PMIs, but limited and Eur/Gbp remains over 0.8500 in advance of the showdown between Britain and France on fishing tomorrow when the BoE also delivers its eagerly anticipated November policy verdict. SCANDI/EM - Not much adverse reaction to a slowdown in Sweden’s services PMI for the Sek, while the Nok is taking the latest downturn in Brent crude largely in stride on the eve of the Norges Bank meeting that is widely seen cementing rate hike guidance for next month. However, scant respite or solace for the Try from sub-consensus Turkish CPI as the near 20% y/y print means more divergence relative to the CBRT’s 1 week repo, and PPI accelerated again to heighten the build up of pipeline price pressures. Conversely, the Cnh and Cny are nudging back above 6.4000 after an encouraging Chinese Caixin services PMI and the Zar is on a firm footing awaiting results of SA local elections. RBNZ said the financial system is well placed to support economic recovery despite uncertainty and risks, while the more recent Delta outbreak is creating stress for some industries and regions, particularly in Auckland. RBNZ also noted that with the risk of global inflation heightened, already stretched asset prices are facing headwinds from rising global interest rates and that supply chain bottlenecks and inflation are adding to stresses in some sectors. Furthermore, they intend to increase the minimum CFR requirement to its previous level of 75% on 1st January 2022, subject to no significant worsening in economic condition, while capital requirements for banks are to progressively increase from 1st July 2022 and it is encouraging to see them increasing ahead of these requirements. (Newswires) In commodities, WTI and Brent front month futures are softer and in proximity to USD 82/bbl and USD 83/bbl respectively with losses today also potentially a function of the downbeat China COVID updates seen overnight. As a reminder, China's most recent COVID-19 outbreak is reportedly the most widespread since Wuhan with infection in 19 of 31 provinces, according to a major newswires article. It was also reported that around half the flights to and from Beijing city’s two airports were cancelled Tuesday, according to aviation industry data site VariFlight. Further, yesterday’s Private Inventory data was also bearish, printing a larger-than-expected build of 3.6mln bbl vs exp. +2.2mln, ahead of today’s DoEs which will take place 1hr earlier for those in Europe. Looking ahead to tomorrow’s OPEC+, markets expect a continuation of the current plan to ease output curbs by 400k BPD/m. Outside calls have been getting louder for the producers to open the taps more than planned amid inflationary feed-through to consumers and company margins, although ministers, including de-factor heads Saudi and Russia, have been putting weight behind current plans, with no pushback seen from members within OPEC+ thus far. Further, the COVID situation in China is deteriorating, hence ministers will likely express a cautious approach. Elsewhere, spot gold and silver are flat within overnight ranges, as is usually the case before FOMC. Base metals are staging a recovery with LME copper back above USD 9,500/t, whilst Chinese thermal coal futures rose some 10% following 10 days of declines US Event Calendar 8:15am: Oct. ADP Employment Change, est. 400,000, prior 568,000 9:45am: Oct. Markit US Services PMI, est. 58.2, prior 58.2 Oct. Markit US Composite PMI, prior 57.3 10am: Sept. Durable Goods Orders, est. -0.4%, prior -0.4% Sept. -Less Transportation, est. 0.4%, prior 0.4% Sept. Cap Goods Orders Nondef Ex Air, prior 0.8% Sept. Cap Goods Ship Nondef Ex Air, prior 1.4% 10am: Sept. Factory Orders, est. 0.1%, prior 1.2% Sept. Factory Orders Ex Trans, est. 0%, prior 0.5% 10am: Oct. ISM Services Index, est. 62.0, prior 61.9 2pm: FOMC Rate Decision DB's Jim Reid concludes the overnight wrap So after much anticipation we’ve finally arrived at the Fed’s decision day, where it’s widely anticipated (including by DB’s US economists) that they’ll announce a tapering in their asset purchases. Such a move has been increasingly anticipated over recent months, not least with the repeated upgrades to inflation forecasts over the course of 2021, and the FOMC themselves flagged this at their September meeting, where their statement said that “if progress continues broadly as expected … a moderation in the pace of asset purchases may soon be warranted.” In terms of what our economists are expecting, their view is that the Fed will announce monthly reductions of $10bn and $5bn in the pace of Treasury and MBS purchases respectively, with the first cut to purchases coming in mid-November. They see this bringing the latest round of QE to an end in June 2022, though this would also offer some flexibility to respond to any changes in the economic environment over the coming eight months should they arise. On the question of rate hikes, they think lift-off won’t take place until December 2022, but don’t see Chair Powell actively pushing back on current market pricing (a full hike nearly priced in by mid-year 22) given the elevated uncertainty about the outlook, particularly on inflation. You can see more details in their preview here. Of course since the Fed’s last meeting, many inflationary pressures have only grown, particularly given the fresh surge in energy prices that’s taken WTI oil up to $83/bbl, having been at just $72/bbl at the time of their September meeting. In turn, this has taken market expectations of future inflation up as well, with the 10yr breakeven now standing at 2.52%, up from 2.28% following Powell’s September press conference. And market pricing has also shifted significantly since the last meeting, with investors having gone from expecting less than one full hike by the December 2022 meeting to more than two. Ahead of all that, global risk assets continued to perform strongly and a number of major indices climbed to fresh all-time highs yesterday. The S&P 500 (+0.37%), the NASDAQ (+0.34%), the Dow Jones (+0.39%) and Europe’s STOXX 600 (+0.14%) all hit new records, whilst France’s CAC 40 (+049%) exceeded its previous closing peak made all the way back in 2000. Positive earnings news helped bolster those indices, with 27 of 29 S&P 500 reporters beating earnings estimates during trading, and 16 of 20 after-hours reporters beating earnings estimates. This included Pfizer during the day, which raised its full-year forecasts on the back of strong vaccine demand and noted it had the capacity to produce as much as 4 billion shots next year. However, the big winner yesterday (the biggest in the small-cap Russell 2000 yesterday) was Avis Budget Group (+108.31%) even if its performance actually marked a fall from its intraday high when the share price had more than tripled. Those moves occurred after Avis posted strong earnings driven by better-than-expected demand. Their CEO said they’d add more electric cars, whilst the stock also got attention on the WallStreetBets forum on Reddit, which readers may recall was behind some big moves at the start of the year in various "meme stocks” like GameStop. The banner day added $8.5bn to its market cap, which helped it leap frog fellow meme stock AMC to become the second biggest company in the Russell 2000 from third slot yesterday. In other such popular retail stocks, Tesla retreated -3.03% after Elon Musk cast some doubt the previous evening over the recently announced deal to sell 100,000 cars to rental car company Hertz. That said, the automaker has still added over $300 billion in market cap over the last month. Sovereign bonds were another asset class that put in a decent performance ahead of the Fed, with yields falling throughout the curve across a range of countries following the relatively dovish tone vs heightened expectations from the RBA yesterday morning. By the close, those on 10yr Treasuries were down -1.4bps to 1.54%, whilst their counterparts in Europe saw even steeper declines, including those on 10yr bunds (-6.3bps), OATs (-8.5bps) and BTPs (-14.1bps). BTPs were the biggest story and the move seemed to coincide with a reappraisal of ECB hike expectations, as pricing through December 2022 declined -6.5 bps, down from c.20 bps of expected tightening priced as of Monday. So a big decline. In Asia, the Shanghai Composite (-0.57%), the Hang Seng (-0.93%) and the KOSPI (-1.23%) are all trading lower. Japan’s markets are closed due to the Culture Day, meaning also that cash treasuries are not trading in the region. In data releases, the Caixin Services PMI for China rose to 53.8 versus 53.1 expected. However, Premier Li’s remarks about new “downward pressure” on China’s economy and latest COVID outbreak, which is now the most widespread since the first emergence of the virus, are weighing down on the sentiment. Meanwhile, China and Hong Kong are discussing reopening of the shared border. The S&P 500 futures (-0.01%) is pretty flat this morning. Aussie yields are again lower especially at the front end with the infamous April 24 bond around -7bps as we type. As we go to print the Associated Press have called the Virginia as a victory for the GOP Youngkin with New Jersey equivalent also looking likely to go to the GOP. So a big blow to the Democrats. Of those, Virginia was being more closely watched. As recently as the Obama years it was a fiercely contested battleground, but it’s trended Democratic over the last few cycles, with Biden’s 10 point margin of victory last year well exceeding his 4.4 point margin nationally. So this will not be good news for the Dems ahead of next year’s mid-terms. It will also increase the odds of legislative and fiscal gridlock after that - although the latter has been increasingly expected. Staying with US Politics, President Biden indicated in a news conference that he was getting closer to announcing whether or not he would re-nominate Fed Chair Powell for another term as head of the central bank, or if he would appoint a new Chair. He said an announcement will come “fairly quickly”. In terms of the latest on the pandemic, the US CDC’s advisory committee on immunization practices met and backed the Pfizer vaccine for 5-11 year olds, joining the FDA who gave the vaccine the green light for the same age group. There wasn’t much in the way of data releases yesterday, though we did get the final manufacturing PMIs from Europe, where the Euro Area PMI for October was revised down two-tenths from the flash estimate to 58.3. Germany also saw a downward revision to 57.8 (vs. flash 58.2), but Italy outperformed expectations with a 61.1 reading (vs. 59.6 expected). To the day ahead now, and the highlight will be the aforementioned policy decision from the Fed, along with Chair Powell’s subsequent press conference. Other central bank speakers include ECB President Lagarde, alongside the ECB’s Elderson, Centeno, de Cos and Villeroy. Data releases include the final October services and composite PMIs from the UK and the US, and other US data includes the ISM services index for October, the ADP’s report of private payrolls for October and factory orders for September. Finally, earnings today include Qualcomm, Booking Holdings, Fox Corp and Marriott International. Tyler Durden Wed, 11/03/2021 - 08:13.....»»

Category: blogSource: zerohedgeNov 3rd, 2021

Frenzied Futures Rally Fizzles As All Eyes Turn To Fed"s Taper Announcement

Frenzied Futures Rally Fizzles As All Eyes Turn To Fed's Taper Announcement US futures and European bourses retreated slightly from record highs as investors weighed the ever worsening supply crunch and virus curbs in China against strong earnings with all eyes turning to the conclusion of the Fed's 2-day meeting tomorrow, when Powell will announce the launch of a $15BN/month taper. At 7:20 a.m. ET, Dow e-minis were up 7 points, or 0.02%, S&P 500 e-minis were down 0.50 points, or 0.01%, and Nasdaq 100 e-minis were down 28.75 points, or 0.18%. Iron-ore futures tumbled on shrinking steal output in China. Tesla led premarket losses in New York. Investors paused to reflect on a rally that’s taken U.S. and European stocks to record highs. With a post-pandemic supply crunch stoking inflation and pushing central banks to tighten monetary policy, they have begun to question valuations. Economic recovery is also under strain as countries from China to Bulgaria report rising Covid cases. Both the S&P 500 Index and the Dow have been scaling new peaks as U.S. companies post another stellar quarter for earnings. Of the 295 companies in the equity benchmark that have reported results, 87% have either met or surpassed estimates. Dow futures slipped after the underlying gauge briefly surged past the 36,000 mark on Monday. Russell 2000 contracts rose. Bonds from Europe to the U.S. jumped after Australia signaled patience with rate increases despite abandoning Yield Curve Control due to "economic improvement." Yields on the two-year and five-year Treasuries fell as the RBA joined global central banks inching closer to policy tightening. However, the central bank’s insistence on remaining patient with rate hikes pushed traders to pare back hawkish bets in Australia as well as in global bond markets during European hours. “The Fed meeting could still shake the markets, because even though we know the concrete outcome of the meeting, which is the opening bell of the QE tapering, the risks remain tilted to the hawkish side,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “Still, investors prefer seeing the glass half full.” In early trading, Tesla tumbled 5%, retreating from a gamma-squeeze record on Monday after Elon Musk said the carmaker hasn’t yet signed a contract with Hertz Global for Model 3 sedans. Chegg slumped 32% after the online-education company cut revenue forecasts and its results missed estimates, prompting a raft of downgrades. Clorox rose 1.6% after the bleach maker posted upbeat first-quarter results. Simon Property Group added 4.2% after the mall operator raised its 2021 forecast for profit and quarterly dividend. Pfizer gained 2.4% after the drugmaker boosted (get it "boosted"?) its full-year sales forecast for the company’s COVID-19 vaccine to $36 billion. Here are some of the biggest U.S. movers today: Tesla drops as much as 6.9% in premarket trading after closing at a record on Monday after Elon Musk said the electric vehicle-maker hasn’t yet signed a contract with Hertz Global. Chegg slumps 31% after the online education company slashed revenue forecasts and posted quarterly results that missed estimates. Novavax gains 5.3%, signaling an extension of Monday’s 16% rally, amid optimism over Covid vaccine approvals. Triterras tumbles as much as 20% after the short seller target said it encountered an “unanticipated delay in the finalization” of an independent audit of its financial statements. Teva Pharmaceutical Industries depositary receipts rise 7.7% and Endo International (ENDP US) gains 6.3% after the firms joined other former opioid makers in scoring a litigation win. Geron gains 4.5% and and SAB Bio (SABS US) soars 39% after Baird starts coverage of both with outperform ratings. Cryptocurrency-related stocks gained in premarket trading on Tuesday, as Bitcoin climbed and Etherium hit a record high.    NXT-ID up 38.18% premarket, Marathon Digital +4.0%, Riot Blockchain +2.9%, Bit Digital +2.5%, Canaan +3.2%, Coinbase +2.0%, MicroStrategy +1.5% While stocks continue to trade in a world of their own, just shy of all time highs, bond and currency markets are bracing for the Fed to announce a tapering of asset purchases as an initial step to eventually raising interest rates to contain inflation. Equity markets, on the other hand, are focusing on earnings growth and valuations. Meanwhile, mixed data on the global economic revival is further clouding the picture as the pandemic is making a comeback in parts of the world. “We expect volatility in financial markets to remain high as not only the Fed, but other central banks around the world, extract liquidity to combat the rise in inflation,” Lon Erickson, portfolio manager at Thornburg Investment Management, wrote in a note. Despite Fed rhetoric, “we’ve started to see the market price in earlier policy rate moves, perhaps losing confidence in the ‘transitory’ nature of inflation.” In Europe, the Stoxx Europe 600 Index slid 0.1% from a record reached on Monday, led lower by miners and travel companies. Spain's IBEX and the UK FTSE 100 dropped 0.6%. DAX outperforms. BP dropped 2.8% in London even as the oil giant announced an additional $1.25 billion buyback. HelloFresh jumped 14%, the most this year, after the German meal-kit company raised its full-year outlook. Basic-materials stocks were the weakest of 20 sector indexes in Europe as falling iron ore and steel prices weigh on miners and steel producers. Here are some of the biggest European movers today: HelloFresh shares surge as much as 16%, their best day since Dec. 2020, with analysts positive on the meal-kit maker’s guidance hike. Jefferies says that the company’s 3Q results included “little not to like.” Demant shares rise as much as 6.5%, the most intraday since March 23, after the hearing-aid maker raised its earnings forecast and topped estimates. Fresenius SE shares gain as much as 6.5% after reporting 3Q earnings slightly ahead of analyst estimates, with Jefferies saying the focus lies on the company’s cost-savings efforts and future plans for Kabi. Fresenius Medical shares up as much as 4.5% after posting 3Q earnings. Company’s FY22 recovery is “key to share price development from here,” according to Jefferies. Sinch shares drop as much as 17%, the most on record, after reporting 3Q results which showed organic growth slowing down, a trend Handelsbanken expects to worsen. Standard Chartered shares fall as much as 9.5%, the most since March 2020, as the lender’s third-quarter margins disappointed amid suppressed Asia rates and analysts flagged weakness in its retail operations. Flutter shares drop as much as 9% in London, the most intraday since March 2020, after the gaming company cut its profit outlook on unfavorable sporting results and a regulatory change in the Netherlands. Analysts expect ex-U.S. earnings consensus to fall. Steel makers underperform, with Kloeckner -5.3%, ArcelorMittal -2.9%, ThyssenKrupp -2.5%, Salzgitter -2.5% Asian stocks dipped, led by Chinese shares on concerns about the impact of measures to curb Covid-19 infections, while financials underperformed ahead of key central bank decisions this week. The MSCI Asia Pacific Index erased earlier gains of as much as 0.4% to fall 0.2% in afternoon trading. Blue-chip financial stocks including China Merchants Bank and Westpac Banking were among the biggest drags. Traders are focused on this week’s U.S. Federal Reserve meeting amid concerns about elevated inflation. Sentiment turned sour after authorities in Beijing halted classes at 18 schools amid Covid-19 resurgence. China’s benchmark CSI 300 Index fell 1%, while Hong Kong’s Hang Seng Index reversed an earlier gain of 1.9% to close in negative territory.  China’s CSI 300 Index falls by as much as 1.9% after Beijing’s suspension of classes across 18 schools heightened concerns over the impact of the recent Covid-19 outbreak. China Tourism Group Duty Free slumped as much as 9.8%, the worst performer in the benchmark and one of its biggest drags. The Shanghai Composite Index also extends decline to 1.9% while the ChiNext Index pares a 1.2% gain to trade little changed. “Investors are worried that Beijing’s virus measures may cool down China’s economic activities and hamper its recovery,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong. Asian stocks rose on Monday, a turnaround after a drop of 1.5% during last week, the worst such performance since early October. Shares have been whipsawed by ongoing concern over supply-chain constraints impacting industries such as technology and auto making. Investors are also parsing through earnings data, with more than half of the companies on MSCI’s Asia gauge having reported results.  “At this level, it can be said that investors are no longer pessimistic but are not yet hopeful either,” Olivier d’Assier, head of APAC applied research at Qontigo, wrote in a note.  Japanese stocks fell, halting a two-day rally, as some investors adjusted positions after the market jumped yesterday.  The Topix index slid 0.6% to 2,031.67 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.4% to 29,520.90.  Mitsui & Co. contributed most to the Topix’s loss, decreasing 4%. Out of 2,181 shares in the index, 538 rose and 1,583 fell, while 60 were unchanged. Both the Topix and Nikkei 225 gained more than 2% on Monday after the ruling coalition secured an election victory that was better than many had expected. Japan’s stock market will be closed Wednesday for a national holiday. Australian stocks slide, with the S&P/ASX 200 index falling 0.6% to close at 7,324.30, after the Reserve Bank of Australia abandoned a bond-yield target, following an acceleration in inflation that spurred traders to price in higher borrowing costs. Banks and miners slumped, while real estate and consumer discretionary stocks climbed. Goodman Group was the biggest gainer after the company raised its full-year guidance. Insurance Australia Group tumbled after the firm cut its reported insurance margin forecast for the full year.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 12,992.50. In rates, Treasuries were higher across both the front-end and belly of the curve, led by bull-steepening gains across European bonds with peripherals outperforming. Treasury yields were lower by 2bp-3bp across front-end of the curve, steepening 2s10s by that amount with 10-year little changed around 1.55%; German 10-year is lower by ~4bp, U.K. by ~1bp. Aussie front-end rallied during Asia session after the RBA abandoned its yield target but maintained its bond buying pace; euro-zone money markets subsequently pared the amount of ECB policy tightening that’s priced in. European fixed income rallied with curves bull steepening. Belly of the German curve outperforms, trading ~2-3bps richer to gilts and USTs respectively. Peripheral spreads tighten; long-end Italy outperforms, narrowing ~6bps near 170bps. In FX, the Bloomberg Dollar Spot Index inched up and the greenback advanced versus all its Group-of-10 peers apart from the yen; Treasury yields fell by up to 3bps as the curve bull- steepened. The euro hovered around $1.16 while Italian bonds and bunds jumped, snapping three days of declines and tracking short-end Australian debt. The Australian dollar declined against all Group-of-10 peers and Australian short-end bond yields fell after the central bank dispensed with its bond-yield target and damped expectations of interest-rate hikes.  One-week volatility in the Australian dollar dropped a second day as spot pulls back from its 200-DMA of 0.7556 after the central bank’s policy decision. The pound fell for a third day, to nearly a three-week low, as investors weighed up the possibilities for the Bank of England’s policy meeting on Thursday. The yen strengthened ahead of a local holiday in Japan and amid souring market sentiment. In commodities, crude futures hold a narrow range with WTI near $84 and Brent stalling near $85. Spot gold drift close to $1,795/oz. The base and ferrous metals complex remains under pressure: LME nickel and zinc drop ~1%, iron ore down over 6%. Looking at the day ahead now, and the data highlights include the October manufacturing PMIs for the Euro Area, Germany, France and Italy. Central bank speakers will include the ECB’s Elderson and de Cos, whilst today’s earnings releases include Pfizer, T-Mobile, Estee Lauder and Amgen. Finally, there are US gubernatorial elections in Virginia and New Jersey. Virginia is the more interesting race from a macro perspective: a big, diverse state that has bounced between Democratic and Republican candidates on the national stage. So it could provide the first read of American voter sentiment heading into next year’s mid-terms. Market Snapshot S&P 500 futures little changed at 4,605.25 STOXX Europe 600 down 0.2% to 477.90 MXAP down 0.2% to 198.29 MXAPJ down 0.2% to 646.50 Nikkei down 0.4% to 29,520.90 Topix down 0.6% to 2,031.67 Hang Seng Index down 0.2% to 25,099.67 Shanghai Composite down 1.1% to 3,505.63 Sensex down 0.3% to 59,984.88 Australia S&P/ASX 200 down 0.6% to 7,324.32 Kospi up 1.2% to 3,013.49 German 10Y yield little changed at -0.14% Euro little changed at $1.1603 Brent Futures up 0.5% to $85.17/bbl Gold spot down 0.1% to $1,791.04 U.S. Dollar Index little changed at 93.89 Top Overnight News from Bloomberg Federal Reserve policy makers are expected to announce this week that they will start scaling back their massive asset-purchase program amid greater concern over inflation, economists surveyed by Bloomberg said President Emmanuel Macron backed away from his imminent threat to punish the U.K. for restricting the access of French fishing boats to British waters, saying he would give negotiations more time The Reserve Bank of Australia’s dovish policy statement and downplaying of the inflation threat is likely to reignite a steepening of the yield curve from near the flattest in a year. The spread between three- and 10-year yields jumped as much as 10 basis points on Tuesday after central bank Governor Philip Lowe cooled expectations for any near-term interest-rate increase even though the RBA scrapped its yield- curve control policy A more detailed look at global markets courtesy of Newsquawk Asian equities traded mixed as upcoming risk events kept participants cautious and offset the momentum from the US, where stocks began the month on the front foot in a continuation of recent advances to lift the major indices to fresh record highs. Nonetheless, ASX 200 (-0.6%) was pressured by underperformance in the top-weighted financials sector and notable weakness in mining names, while quasi holiday conditions due to the Melbourne Cup in Australia’s second most populous state of Victoria and the crucial RBA policy announcement in which it maintained the Cash Rate Target at 0.10% but dropped the April 2024 government bond yield target and tweaked its guidance, further added to the cautious mood. Nikkei 225 (-0.4%) was lacklustre as it took a breather from the prior day’s surge after stalling just shy of the 29,600 level and with the index not helped by a slight reversal of the recent beneficial currency flows. Hang Seng (-0.3%) and Shanghai Comp. (-1.4%) were varied as the former initially atoned for yesterday’s losses led by strength in tech and biotech including Alibaba shares with its Singles Day sales event underway. In addition, Hong Kong participants were seemingly unfazed by the recent weaker than expected GDP for Q3 as the data showed it narrowly averted a technical recession, although the gains were later wiped out and the mainland suffered following another substantial liquidity drain and with Chinese commodity prices pressured including iron futures which hit limit down. Finally, 10yr JGBs were flat with price action muted despite the subdued mood for Tokyo stocks and with the presence of the BoJ in the market for over JPY 1tln of JGBs in mostly 1yr-5yr maturities, doing little to spur demand. Top Asian News Bank of Korea Minutes Show Majority Sees Need for Rate Hike China’s Gas Prices Are Surging Just as Coal Market Cools Off China Shares Fall as Shut Schools Spark Concern on Virus Curbs SMBC Nikko Is Working With Securities Watchdog on Investigation Bourses in Europe have now adopted more of a mixed picture (Euro Stoxx 50 +0.1%; Stoxx 600 -0.2%) Stoxx 600 following the lacklustre cash open and downbeat APAC handover. US equity futures meanwhile are somewhat mixed with the RTY (+0.2%) narrowly outperforming the ES (-0.1%), YM (Unch), and NQ (-0.2%) – with the latter also seeing some pressure from Tesla (-6.0% pre-market) after CEO Musk said no deal was signed yet with Hertz and that a deal would have zero impact on Tesla's economics. Back to Europe, a divergence is evident with the DAX 40 (+0.4%) outpacing amid post-earnings gains from HelloFresh (+14%), Fresenius SE (+4.6%) and Fresenius Medical Care (+2.0%). The FTSE 100 (-0.5%) meanwhile lags with the Dec futures and cash both under 7,250 – with the index pressured by heft losses in some of its heaviest sectors. Basic resources sit at the foot of the bunch due to softer base metal prices across the board, which saw Dalian iron ore futures hit limit down at least twice in the overnight session. Travel & Leisure closely follows as sector heavyweight Flutter Entertainment (~23% weighting) slipped after cutting guidance. Oil & Gas and Banks closely follow due to the recent declines in crude (and BP post-earnings) and yields respectively. On the flip side, some of the more defensive sectors stand at the top of the leader board with Healthcare and Food & Beverages the current winners. In terms of other individual movers, THG (-6.1%) resides near the bottom of the Stoxx 600 second-largest shareholder BlackRock (9.5% stake) is reportedly planning to sell 55mln shares equating to around 4% of its holding. It’s also worth noting Apple (-0.1% pre-market) has reportedly reduced iPad production to feed chips to the iPhone 13, according to Nikkei sources; iPad production was reportedly -50% from Apple's original plans, sources added. In terms of broad equity commentary, Credit Suisse remains overweight value in Europe, whilst raising US small caps to overnight and reducing the UK to underweight. Looking at the rationale, CS notes that European value tend to outperform while inflation expectations or Bund yields rise. US small caps meanwhile have underperformed almost all macro drivers, whilst earnings momentum takes a turn for the better. Finally, CS argues UK small caps are much more cyclical than large caps and could face further tailwinds from UK’s macro landscape and with some tightening potentially on the table this week. Top European News BP Grows Buyback as Profit Rises on Higher Prices, Trading Ferrexpo Drops as Credit Suisse Downgrades on Lower Pricing OPEC+ Gets a Warning From Japan Before Key Supply Meeting THG Extends Decline as Key Shareholder BlackRock Reduces Stake In FX, the Aussie has reversed even more sharply from its recent core inflation and yield induced highs in wake of the RBA policy meeting overnight and confirmation of the moves/tweaks most were expecting. To recap, YCT was officially withdrawn after the Bank allowed the 3 year target rate to soar through the 0.1% ceiling and guidance on rates being held at the same level until 2024, at the earliest, was also withdrawn and replaced by a more flexible or conditional timeframe when inflation is sustainably in the 2-3% remit range. However, Governor Lowe retained a decidedly dovish tone in the aftermath, pushing back against more aggressive market pricing for tightening and stressing that it is entirely plausible that the first increase in the Cash Rate will not be before the maturity of the current April 2024 target bond, though it is also plausible that a hike could be appropriate in 2023 and there is genuine uncertainty as to the timing of future adjustments in the Cash Rate. Aud/Usd is now closer to 0.7450 than 0.7550 and the Aud/Nzd cross nearer 1.0400 than the round number above with added weight applied by weakness in copper and iron ore prices especially (latter hit limit down on China’s Dallian exchange). Meanwhile, the Kiwi also felt some contagion after a drop in NZ building consents and as attention turns to the Q3 HLFS report, with Nzd/Usd eyeing 0.7150 having got to within pips of 0.7200 only yesterday. EUR/DXY - Technical forces seem to be having an influence on direction in Eur/Usd amidst somewhat mixed Eurozone manufacturing PMIs as the headline pair topped out precisely or pretty much bang on a 50% retracement of the reversal from 1.1692 to 1.1535 at 1.1613 and subsequently probed the 21 DMA that comes in at 1.1598 today. Moreover, the Euro appears reliant on hefty option expiry interest for support given 1.9 bn rolling off at 1.1585 if it cannot reclaim 1.1600+ status, as the Dollar regroups and trades firmer against most majors, bar the Yen. Indeed, in stark contrast to Monday, the index has bounced off a marginally deeper sub-94.000 low between tight 93.818-985 confines, albeit in cautious, choppy pre-FOMC mood. CHF/CAD/GBP - No traction for the Franc via firmer than forecast Swiss CPI or a faster pace of consumption, while the Loonie is on the defensive ahead of Canadian building permits and Sterling is still on a softer footing awaiting the BoE on Thursday alongside what could be a make or break meeting in France where UK Brexit Minister Frost is due to tackle the fishing dispute face-to-face with Secretary of State for European Affairs Beaune. Usd/Chf is straddling 0.9100, Usd/Cad is hovering around 1.2400, Cable pivots 1.3650 and Eur/Gbp is probing 0.8500. JPY - As noted above, the Yen is bucking the broad G10 trend with gains vs the Greenback amidst appreciably softer US Treasury and global bond yields, as Usd/Jpy retreats from 114.00+ peaks to test support circa 113.50. In commodities, WTI and Brent front-month futures are moving sideways ahead of the OPEC+ meeting on Thursday, whereby expectations are skewed towards an unwind of current curbs by 400k BPD despite outside pressure for the group to further open the taps. Ministers, including de-facto heads Russia and Saudi, have been vocal in their support towards a maintained pace of production hikes. There have also been reports of Angola and Nigeria struggling to keep up with the output hikes, which may further dissuade the producer to further ramp up output. The morning also saw macro commentary from BP, whereby the CFO suggested global oil demand has returned to levels above 100mln BPD. The Co. expects oil prices to be supported by continued inventory draw-down, with the potential for additional demand from gas to oil switching. OPEC+ decision making on production levels continues to be a key factor in oil prices and market rebalancing. Gas markets were very strong in the quarter and BP expect the market to remain tight during the period of peak winter demand. In the fourth quarter industry refining margins are expected to be lower compared to the third quarter driven by seasonal demand. WTI Dec trades on either side of USD 84/bbl and Brent on either side of USD 85/bbl. Elsewhere, spot gold and silver are relatively flat with the former in close proximity to its 200 DMA (1,790/oz), 100 DMA (1,785/oz), 50 DMA (1,780/oz) and 21 DMA (1,778/oz). Over to base metals, Dalian iron ore futures were in focus overnight after prices hit limit down at least twice and nearly hit 1yr lows amid high supply and lower demand, with the latter namely a function of China cutting steel output forecasts. LME copper meanwhile has clambered off worst levels (USD 9,430/t) but remains just under USD 9,500/t as prices track sentiment. US Event Calendar Oct. Wards Total Vehicle Sales, est. 12.5mm, prior 12.2mm DB's Jim Reid concludes the overnight wrap The RBA press conference is still going onas we type this but the key outcome has been that they’ve abandoned the 0.1% target for the April 2024 bond. However they seem to be making it clear in the presser that their expectation is only that rate hikes might creep into 2023 rather than 2024 previously. The governor has said that market expectations of hikes in 2022 are “a complete overreaction to recent inflation data”. So they are trying to pull back the market expectations that ran away from them last week. The reality is that they’ll now be hostage to the data. They don’t expect inflation to be a big problem going forward but time will tell. Yield moves have been relatively subdued but are generally lower with a small steepening seen. 2y (-0.2bps), 3y (-4.5bps) and 5y (-3.3bps) are falling but with the 10y (+0.3bps) steadier. Ahead of the RBA, risk assets got the month off to a strong start as investors awaited tomorrow’s all-important Federal Reserve meeting conclusion. However there was little sign of caution in equities as a range of global indices advanced to all-time records yesterday, including the S&P 500 (+0.18%), the NASDAQ (+0.63%), the STOXX 600 (+0.71%), and the MSCI World Index (+0.50%). Energy (+1.59%) and consumer discretionary (+1.46%) were the clear outperformers in the S&P, with Tesla (+8.49%) doing a lot of the work of boosting the latter sector. While it’s a busy week for earnings, only 2 S&P companies reported during trading hours yesterday, so it didn’t materially drive sentiment. 11 more companies reported after hours, with 7 beating earnings estimates. Elsewhere, the Dow Jones actually crossed the 36,000 mark in trading for the first time. Readers of a certain age may remember an infamous book published in 1999 called “Dow 36,000” during the dot com bubble, which predicted the Dow would more than triple over the next 3-5 years to that level. In reality, even the half way mark of 18k wasn’t reached until late-2014, and of course it took 22 years to get to yesterday’s 36k milestone. So a good case study of the heady optimism many had back then. We’ll see if yesterday’s milestones are the first step on the path to Dow 100k, but one asset inching its way to $100 in oil, with yesterday seeing a fresh recovery in many commodity prices after their declines last week. Both WTI (+0.57%) and Brent crude (+0.39%) posted gains, with copper (+0.58%) also seeing a modest advance. Agricultural prices set fresh records, with wheat prices (+3.17%) climbing above $8/bushel in intraday trading for the first time since 2012. It may be a pretty busy macro week with the Fed, BoE and the US jobs report, but the OPEC+ meeting on output this Thursday could also be a vital one for the global economy in light of the resurgence in energy prices lately. We’ve already heard some frustration at the group from a number of countries, with President Biden saying this Sunday at the G20 that “I do think that the idea that Russia and Saudi Arabia and other major producers are not gonna pump more oil so people can have gasoline to get to and from work for example, is … not right”. So one to keep an eye on, with potentially big implications for inflation and hence central banks. Staying on an inflation theme, investors got a further glimpse of ongoing supply chain issues from the ISM manufacturing print as well yesterday. The overall reading for October actually came in slightly above expectations at 60.8 (vs. 60.5 expected), but the prices paid order similarly rose to 85.7 (vs. 82.0 expected) in its second successive monthly increase. Bear in mind it’s been above the 80 mark for all but one month so far this year, and there were further signs of supply-chain issues from the supplier delivery time measure, which hit a 5-month high of 75.6. With markets attuned to inflation and the potential for plenty of central bank action this week, sovereign bonds came under further pressure yesterday on both sides of the Atlantic, even if they finished well off the yield highs. Yields on 10yr Treasuries ended the session up +0.7 bps to 1.56%, which comes as markets are almost pricing an initial full hike from the Fed by the time of their June 2022 meeting. However we were off the day’s high of 1.60%. Meanwhile in Europe, yields on 10yr bunds (+0.4 bps), OATs (+0.3 bps) and gilts (+2.8 bps) moved higher as well, but interestingly we also saw peripheral sovereign bond spreads closing in on their highest levels for some time. Indeed by the close of trade yesterday, the gap between Italian (+4.4 bps) and Spanish (+2.2 bps) 10yr yields over bunds had widened to their biggest level in almost a year. Meanwhile, 10yr breakevens widened +4.5 bps in the UK and +2.0 bps in Germany. US breakevens were the outlier, narrowing -7.5 bps to 2.51% and now -18.0 bps below the highs reached just a week ago. In Asia, the Nikkei 225 (-0.56%) and the Shanghai Composite (-0.62%) are trading lower, while the Hang Seng (+0.74%) and the KOSPI (+1.36%) are edging higher. Some of the news weighing on Chinese stocks are surging gas prices, which reached a record high today. Elsewhere, the S&P 500 futures (-0.22%) is down this morning and the 10y US Treasury is at 1.55% (-0.9bps). Heads of state gave their opening salvos at COP26 yesterday. The biggest commitment came from Indian Prime Minister Narendra Modi, who said the world’s third-biggest emitter will have zero net pollution by 2070, while also making more near-term commitments to increase reliance on non-fossil fuel energy sources. Looking at yesterday’s other data, German retail sales unexpectedly fell by -2.5% in September (vs. +0.4% expected). However, the final UK manufacturing PMI for October was revised up a tenth from the flash reading to 57.8. Over in the US though, there was a downward revision to 58.4 (vs. flash 59.2). To the day ahead now, and the data highlights include the October manufacturing PMIs for the Euro Area, Germany, France and Italy. Central bank speakers will include the ECB’s Elderson and de Cos, whilst today’s earnings releases include Pfizer, T-Mobile, Estee Lauder and Amgen. Finally, there are US gubernatorial elections in Virginia and New Jersey. Virginia is the more interesting race from a macro perspective: a big, diverse state that has bounced between Democratic and Republican candidates on the national stage. So it could provide the first read of American voter sentiment heading into next year’s mid-terms. Tyler Durden Tue, 11/02/2021 - 07:52.....»»

Category: dealsSource: nytNov 2nd, 2021

Goldman Cut"s China"s 2022 GDP To Just 5.2%

Goldman Cut's China's 2022 GDP To Just 5.2% Less than a month after Goldman stunned its Wall Street peers when it slashed its Q3 China GDP forecast to just 0%, forecasting no growth in the world's second largest economy, Goldman has done it again and in a note published late on Sunday, not only does the bank admit that China has entered a phase of "temporary stagflation", but in a tone that is almost apologetic as Beijing will likely take great offense at this provocation, the bank cut its 2022 GDP forecast form an already low 5.8% to just 5.4%. Goldman first summarizes the stagflationary dynamics of the recently concluded third quarter, in which just Chinese real GDP growth slowed to a 0.8% annual rate while at the same time, PPI inflation reached 10.7% yoy in September, the highest on record. However, and this is where Goldman is ever so sorry for offending Beijing with its "math", Goldman's Hui Shan writes that this "stagflation" is very different from the experience of the US and other developed countries in the 1970 (spoiler alert: it actually isn't different at all as we explained in "Is Stagflation Here: Comparing The 2020s With The 1970s..."). Goldman then spends the balance of the note not so much focusing on China's deep economic problems, as much as apologetically explaining (to anyone who will listen), why these challenges are so transitory, they can effectively be ignored. As Shan writes, "the weakness in Q3 growth was driven by a number of factors, including the August Covid outbreak that impacted many provinces, the sharp slowdown in the property market, and the energy shortages and power cuts in late September. We think the Covid outbreak probably played the biggest role in negatively impacting Q3 activity, followed by property and energy." It gets better: to make sure the message is received loud and clear in Beijing, Goldman goes so hyperbolic as to call events in Q3 a "perfect storm" (which of course is unpredictable, so it's not Beijing's fault for what is taking place in the economy). Here are Goldman's key observations on this topic: The weak Q3 growth was driven by a number of factors – Covid outbreaks and chip shortages that the government has less control over on the one hand, and property tightening and power cuts that are mostly policy-driven on the other. The September activity data show evidence on the combination of various shocks to the economy (fig.3) For example, catering sales (i.e., restaurant services) rebounded sharply in September after slumping in August on Covid lockdowns in multiple provinces. Auto production and sales remained soft on chip shortages. Property sales continued to drop on the government’s deleveraging efforts and lending restrictions. Output of high-emission products such as steel and cement fell sharply on the “dual controls” of energy use and severe coal shortages which led to power cuts and production halts in these sectors. After the anemic sequential growth year-to-date (averaging only about 2% annualized rate), the Chinese economy appears to have gone from a positive output gap at the end of last year to some excess capacity in Q3. Looking across different sectors, Exhibit 5 shows that, with the exception of agriculture, all industries are currently at or below trend level of output, assuming a pre-Covid sector-specific trend. In the case of leasing and commercial services (e.g., travel agencies and large conferences), hotel and restaurant services, and other services (e.g., household cleaning services), the negative output gap remains significant. Eighteen months after the onset of the Covid outbreak early last year and with no end of the “zero Covid” policy in sight, activity in these sectors is at risk for longer-term scarring effects. Household consumption was the hardest-hit part of the economy last year on both lower income growth and a higher saving rate. By Q3, household saving rate has mostly normalized to its pre-Covid level, falling from a peak of 35% in 2020Q1 to 30% now (Exhibit 6). The main constraint to consumption is income growth. As of Q3, the growth of household disposable income averaged only 6.6% per year over the past two years, compared to 8.8% in 2019. Among different sources of income, growth of business income underperformed the most, averaging 3.6% per year over the past two years compared to 8.0% in 2019 (Exhibit 7). In other words, China's stagflation is "temporary" and should reverse soon. Until it does, however, Goldman is tracking the contribution of housing to GDP growth, and calculates it as subtracting 0.5% from Q3 GDP. The bank admits that it expects "even bigger drags in the coming quarters." Meanwhile, as the property market shrinks, and the overall economy is barely growing, PPI inflation soared in September, but here too Goldman expects CPI inflation "to remain muted in the coming months for two reasons. First, food and service inflation has little relationship with PPI inflation and is likely to stay low. Second, even at extremely high levels of PPI inflation, the pass-through into CPI inflation is fairly low: we estimate an additional 1pp increase in PPI inflation raises headline CPI inflation by 0.1pp." It explains further below: September PPI inflation reached the highest level since the data were available in 1997, raising questions about both the duration of the high PPI inflation and its potential passing through into CPI inflation which has remained low. On the first question, PPI inflation is likely to stay high in the near term, but should soften notably in six months on base effect. If prices were to remain unchanged from here, PPI inflation would drop to about 2% in mid-2022. On the latter, we expect the pass-through from PPI to CPI to be limited for two reasons. First, CPI has three distinct components – food, non-food goods, and services (Exhibit 11). Food inflation and service price inflation are likely to remain low in the coming months on depressed pork prices (which dominate food prices) and negative output gap (which is a key driver of service inflation). Second, historically the sensitivity of CPI non-food goods inflation to PPI inflation is statistically significant but economically small. Exhibit 12 shows a nonlinear relationship where relatively mild year-over-year PPI inflation (i.e., between -5% and +5%) appears to have very little impact on CPI non-food goods inflation. But even at more extreme levels of PPI inflation, the magnitude of the pass-through remains modest: an additional 1pp increase in PPI inflation from its currently elevated levels boosts CPI non-food goods inflation by 0.25pp which translates into 0.1pp for headline CPI inflation. Goldman's bottom line is please don't revoke our operating license in China for telling it how it is that things are bad but will get better soon because "unlike the stagflation of the 1970s, the very low growth and high inflation in China in Q3 were policy-driven (e.g., property tightening and decarbonization), partial (e.g., PPI only), and likely temporary (e.g., policies have already been adjusted to boost coal production and accelerate fiscal spending in Q4)." Again, all of this is a pure figment of Goldman's goalseeking imagination. For a full picture of how the 1970s stagflation is ominously similar to what is going on now, read this. In any case, with China's economy now at stall speed, Goldman had a choice: bad news and even worse news, or good, if meaningless news and, well, worse news. The bank picked the latter writing that it now expects a sequential pickup in growth in Q4 - which by the way  is unchanged from Goldman's previous forecast - with year-over-year GDP growth to drop to 3.1%. However, while nobody cares about Q4 without the bigger picture, it was here that Goldman saved its worst news for last, warning that "long-term policy direction such as property deleveraging remains unchanged as evidenced by the latest news on starting property tax trials in select cities." As such, the bank has slashed its 2022 growth forecast to 5.2% from 5.6% previously. And, as was the case with Goldman's overoptimistic 2021 GDP forecasts, expect  many more GDP cuts as China's economy gets dangerously close to a hard landing, if not outright crash. Not surprisingly, Goldman's conclusion suggests as much: Given the continued slowdown in credit growth – the year-over year growth in the stock of total social financing (TSF) dropped to 10.0% in September from 13.5% a year ago – and the “just do enough” approach of policymakers, we revise down our credit growth forecast to 10.5% for 2021 (previously 11.5%). This still implies a modest pick-up in sequential credit growth in Q4. In addition, we recently changed our monetary policy forecast and no longer expect a RRR cut in Q4. This is not a call on the broader monetary policy stance. Rather, recent communications by the PBOC suggest that the central bank is likely to use targeted liquidity instruments (e.g., SME and green financing relending programs) instead of broad-based RRR cut to replace the large amounts of maturing MLF loans. Finally, Goldman looks at its downside case scenario (the onw which will happen), and says that "if growth were to deteriorate sharply, we believe the government will react decisively, especially as China prepares for next year’s Beijing Winter Olympics" (starting from Feb 4)and the 20th Party Congress (October/November). Spoiler alert: growth will deteriorate sharply from here, something which the PBOC clearly see and is why the central bank just injected a net $190BN in reverse repo, the biggest liquidity injection since January. Here, too, expect much more. And while Goldman expects a sequential pickup inQ4, its year-over-year growth is poised to decline further. But under the “just do enough” mentality of policymakers, especially as the unemployment rate remains low despite weak growth, the bank warns that "growth headwinds are likely to linger and the slower-than-expected credit growth over the past few months should weigh on economic activity next year based on historical experience." Tyler Durden Sun, 10/24/2021 - 22:04.....»»

Category: blogSource: zerohedgeOct 24th, 2021

Futures Slide On Stagflation Fears As 10Y Yields Spike

Futures Slide On Stagflation Fears As 10Y Yields Spike US index futures dropped after IBM and Tesla fell after their quarterly results, with investors turned cautious awaiting more reports to see the see the adverse impact of supply chain disruption and labor shortages on companies even as jitters remained over elevated inflation and the outlook for China’s property sector. The dollar reversed an overnight drop, while Treasuries fell pushing the 10Y yield to a 5-month high of 1.68%. At 745 a.m. ET, Dow e-minis were down 98 points, or 0.3%, S&P 500 e-minis were down 14 points, or 0.31%, and Nasdaq 100 e-minis were down 49.25 points, or 0.32%. In the premarket, Tesla fell 1% in premarket trading as it said on Wednesday its upcoming factories and supply-chain headwinds would put pressure on its margins after it beat Wall Street expectations for third-quarter revenue. AT&T rose 1% in pre-market trading after exceeding Wall Street’s expectations for profit and wireless subscriber growth. PayPal Holdings also climbed as it explores a $45 billion acquisition of social media company Pinterest Inc., in what could be the biggest technology deal of the year. Dow gained 1.1% after it posted a more than a five-fold jump in third-quarter profit as economic recovery boosted prices for chemicals. IBM plunged 4.7% after it missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders. Some other notable premarket movers: Digital World Acquisition (DWAC US) surges 30% after the blank-check company agreed to merge with Trump Media & Technology. Former U.S. President Donald Trump says the new company plans to start a social media firm called Truth Social. Denny’s (DENN US) rises 1.4% as the restaurant chain is upgraded to buy from hold at Truist Securities, which sees upside to 3Q estimates, partly due to expanding operating hours. ESS Tech (GWH US) adds 4.6% as Piper Sandler says the stock offers a compelling entry point for investors seeking exposure to energy storage, initiating coverage at overweight. As Bloomberg notes, corporate results have tempered but not dissipated worries that cost pressures could slow the pandemic recovery. Among S&P 500 companies that have disclosed results, 84% have posted earnings that topped expectations, a hair away from the best showing ever. Yet, the firms that surpassed profit forecasts got almost nothing to show for it in the market. And misses got punisheddearly, by the widest margin since Bloomberg started tracking the data in 2017. European equities faded early losses but remain in small negative territory. Euro Stoxx 50 is 0.4% lower having dropped ~0.8% at the open. IBEX lags peers. Miners led a retreat in Europe’s Stocks 600 index, while industrial commodities including copper and iron ore reversed earlier gains; retail and banks were also among the weakest sectors. Concerns about the inflationary impact of higher prices have risen in recent days, with everyone from Federal Reserve officials to Tesla weighing in on cost pressures. Unilever Plc pushed rising raw material costs onto consumers, increasing prices by the most in almost a decade. Meanwhile, Hermes International said sales surged last quarter, showing resilience compared to rival luxury-goods makers. European autos dropped after Volvo Group warned that the global semiconductor shortage and supply-chain challenges will continue to cap truckmaking. Here are some of the biggest European movers today: Soitec shares gain as much as 7.3% in Paris, the stock’s best day since June, after reporting 2Q results and raising its full- year sales forecast. BioMerieux shares rise as much as 5.9%. Sales in 3Q were well ahead of expectations on strong U.S. demand for BioFire respiratory panels, Jefferies (hold) writes in a note. Randstad shares rise as much as 4.7%, the most intraday since Dec. 2020, with RBC (sector perform) saying the staffing firm’s 3Q earnings topped estimates. Sodexo shares rise as much as 4.8% after activist investor Sachem Head took a stake in the French catering co., saying the investment is passive and that Sodexo is going “activist on itself.” Zur Rose shares fall as much as 8.1% after the Swiss online pharmacy cut its growth guidance and posted 3Q sales that Jefferies says missed consensus expectations. Nordic Semi shares drop as much as 7% before recovering some losses, after results; Mirabaud Securities says any weakness in the stock is a “great buying opportunity.” Eurofins shares drop as much as 7.5%, the most in nearly a year, after the laboratory-testing company left its 2021 Ebitda and free cash flow guidance unchanged, which Morgan Stanley says implies a lower Ebitda margin versus previous guidance. Bankinter shares fell as much as 6.6%, most intraday since December. Jefferies highlighted the weaker trend for the Spanish lender’s 3Q net interest income. Earlier in the session, Asian equities fell in late-afternoon trading as investors sold Japanese and Hong Kong-listed tech shares, which helped trigger broader risk aversion among investors. Ailing China Evergrande Group sank on a worsening cash squeeze, while other developers rallied after regulators said their funding needs are being met. The MSCI Asia Pacific Index slid as much as 0.8%, with Japanese equities slumping by the most in over two weeks as the yen -- typically seen as a safe haven -- strengthened against the dollar, likely boosted by technical factors. Toyota Motor and Alibaba were the biggest drags on the regional benchmark as higher bond yields weighed on sentiment toward the tech sector. The story “shapes up to be worries about higher inflation and the follow-on policy response,” said Ilya Spivak, head of Greater Asia at DailyFX. Bucking the downtrend were Chinese developers, which shrugged off China Evergrande Group’s scrapping of a divestment plan and climbed after regulators said risks in the real estate market are controllable and reasonable funding needs are being met. China was one of the region’s top-performing equity markets.  Still, Asian stocks continue to feel pressure from higher U.S. bond yields as the 10-year rate surpassed 1.6%. In addition, earlier optimism about earnings is being muted by the outlook for inflation and supply-chain bottlenecks. Chinese growth, global supply constraints and inflation are “acting as a bit of a brake on markets,” said Shane Oliver, head of investment strategy & chief economist at AMP Capital. However, with U.S. equities trading near a record high, investors are “a bit confused,” he said. Japanese equities fell by the most in over two weeks, extending losses in afternoon trading as the yen strengthened against the dollar. Electronics and auto makers were the biggest drags on the Topix, which fell 1.3%, with all 33 industry groups in the red. Tokyo Electron and Fast Retailing were the largest contributors to a 1.9% loss in the Nikkei 225. S&P 500 futures and the MSCI Asia Pacific Index similarly extended drops. “There has been a general turn in equity market sentiment evident by the afternoon decline in U.S. equity futures and main regional equity indexes,” said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank Ltd. “The reversal in risk-sensitive FX pairs like the AUD is reflecting this u-turn.” The Japanese currency gained 0.2% to 114.05 per U.S. dollar, while the Australian dollar weakened. The yen is still down 9.5% against the greenback this year, the worst among major currencies. Yen Faces Year-End Slump as U.S. Yield Premium Spikes With Oil The gain in the yen on Thursday probably followed technical indicators suggesting the currency was oversold and positioning seen as skewed, said Shusuke Yamada, head of Japan foreign exchange and rates strategy at Bank of America in Tokyo. The rally may be short-lived, as rising oil prices are expected to worsen Japan’s terms of trade, and monetary policies between Japan and overseas are likely to diverge further In FX, the Bloomberg Dollar Spot Index reversed an earlier loss to rise as much as 0.2% as the greenback advanced versus all its Group- of-10 peers apart from the yen; risk-sensitive currencies, led by the New Zealand dollar, were the worst performers. The pound weakened against the dollar and was little changed versus the euro into the European session. U.K. government borrowing came in significantly lower than official forecasts, but a surge in debt costs sent a warning to the government ahead of the budget next week. The U.K.’s green gilt may price today, subject to market conditions, after being delayed earlier this week. The Australian and New Zealand dollars reversed intraday gains on sales against the yen following losses in regional stock indexes. A kiwi bond auction attracted strong demand. The yen headed for a second session of gains as a selloff in Japanese equities fuels haven bids. Government bonds consolidated. In rates, the Treasury curve flattened modestly as yields on shorter-dated notes inched up, while those on longer ones fell; the bund curve shifted as yields rose about 1bp across the curve. Yields were richer by less than 1bp across long-end of the curve, flattening 2s10s, 5s30s spreads by ~1bp each; 10-year yields rose to a 5 month high of 1.68%, outperforming bunds by 2bp and gilts by 4bp on the day. Long end USTs outperform, richening ~2bps versus both bunds and gilts. Peripheral spreads tighten slightly. U.S. breakevens are elevated ahead of $19b 5Y TIPS new issue auction at 1pm ET. In commodities, oil slipped from 7 year highs, falling amid a broad-based retreat in industrial commodities, though trader focus was glued to a surging market structure as inventories decline in the U.S.; Oil’s refining renaissance is under threat from the natural gas crisis; American drivers will continue to face historically high fuel prices. WTI was lower by 0.5% to trade near $83 while Brent declined 0.8% before finding support near $85. Spot gold is range-bound near $1,785/oz. Base metals are mixed. LME nickel and copper are deep in the red while zinc gains 1.5%.  Bitcoin was volatile and dropped sharply after hitting an all time high just above $66,500. Looking at the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for September, the Conference Board’s leading index for September, and the Philadelphia Fed’s business outlook for October. Central bank speakers will include the Fed’s Waller and the ECB’s Visco, while the Central Bank of Turkey will be making its latest monetary policy decision. Otherwise, earnings releases include Intel, Danaher, AT&T and Union Pacific. Market Snapshot S&P 500 futures down 0.3% to 4,515.25 STOXX Europe 600 down 0.2% to 469.02 MXAP down 0.7% to 199.61 MXAPJ down 0.4% to 659.34 Nikkei down 1.9% to 28,708.58 Topix down 1.3% to 2,000.81 Hang Seng Index down 0.5% to 26,017.53 Shanghai Composite up 0.2% to 3,594.78 Sensex down 1.1% to 60,560.47 Australia S&P/ASX 200 little changed at 7,415.37 Kospi down 0.2% to 3,007.33 Brent Futures down 1.0% to $84.98/bbl Gold spot up 0.2% to $1,785.09 U.S. Dollar Index up 0.11% to 93.67 German 10Y yield up 0.7 bps to -0.119% Euro down 0.1% to $1.1639 Top Overnight News from Bloomberg China Evergrande Group scrapped talks to offload a stake in its property-management arm and said real estate sales plunged about 97% during peak home-buying season, worsening its liquidity crisis on the eve of a dollar-bond deadline that could tip the company into default. Its shares plunged as much as 14% on Thursday. China’s goods imports from the U.S. have only reached about 53% of the $200 billion worth of additional products and services it promised to buy under the trade deal signed last year, far behind its purchasing target. Signs that policy makers are accelerating toward an interest-rate hike have traders fumbling around to figure out what that means for sterling. Money managers at Jupiter Asset Management and Aberdeen Asset Management turned neutral in recent days, following similar moves by Amundi SA and William Blair Investment Management. The price on eight out of 10 bonds sold in the first three quarters of this year by European investment-grade borrowers fell after issuance, wiping almost 23.5 billion euros ($27.3 billion) from portfolios. The Turkish lira is looking vulnerable as speculation grows that policy makers will cut interest rates again despite the deteriorating inflation outlook. Option traders see a more than 60% chance that the currency will weaken to an all-time-low of 9.50 per U.S. dollar over the next month, according to Bloomberg pricing. That’s the next key psychological threshold for a market trading largely in uncharted territory ahead of Thursday’s decision. A more detailed look at global markets courtesy of Newsquawk Asia-Pac indices traded somewhat mixed after the similar performance stateside where the broader market extended on gains in which the DJIA touched a fresh record high and the S&P 500 also briefly approached within 5 points of its all-time peak as attention remained on earnings, although the Nasdaq lagged with tech and duration-sensitive stocks pressured by higher longer-term yields. ASX 200 (+0.1%) was positive as Victoria state approaches the end of the lockdown at midnight and with the index led by outperformance in mining stocks and real estate. However, gains were capped amid weakness in energy as shares in Woodside Petroleum and Santos were pressured following their quarterly production results in which both posted a decline in output from a year ago, albeit with a jump in revenue due to the rampant energy prices, while Woodside also flagged a 27% drop in Wheatstone gas reserves. Nikkei 225 (-1.9%) felt the pressure from the pullback in USD/JPY and with focus shifting to upcoming elections whereby election consulting firm J.A.G Japan sees the LDP losing 40 seats but win enough to maintain a majority with a projected 236 seats at the 465-strong Lower House. Hang Seng (-0.5%) and Shanghai Comp. (+0.2%) were varied despite another respectable PBoC liquidity effort with the mood slightly clouded as Evergrande concerns persisted with Co. shares suffering double-digit percentage losses after it resumed trade for the first time in three weeks and after its deal to sell a stake in Evergrande Property Services fell through, while reports that Modern Land China cancelled its USD 250mln bond repayment plan on liquidity issues added to the ongoing default concerns although it was later reported that Evergrande secured a three-month extension on USD 260mln Jumbo Fortune bond which matured on October 3rd. Finally, 10yr JGBs traded flat with the underperformance in Japanese stocks helping government bonds overlook the pressure in global counterparts and continued losses in T-note futures following the weak 20yr auction stateside, although demand for JGBs was limited by the absence of BoJ purchases. Top Asian News China Vows to Keep Property Curbs, Evergrande Risk Seen Limited Abu Dhabi Funds Hunt for Asian Unicorns Ahead of IPOs: ECM Watch Biden’s Pick for China Envoy Draws Sharp Lines With Beijing Carlyle, KKR Among Firms Said to Mull $2 Billion Tricor Bid Bourses in Europe have held onto the downside bias seen since the cash open, but with losses less pronounced (Euro Stoxx 50 -0.4%; Stoxx 600 -0.2%) despite a distinct lack of news flow in the EU morning, and as Chinese property woes weighed on APAC markets, but with earnings seasons picking up globally. US equity futures are also softer with modest and broad-based losses ranging from 0.2-0.3%. Back to Europe, the Netherland’s AEX (+0.3%) outperforms as Unilever (+3.3%) also lifts the Personal & Household Goods sector (current outperformer) following its earnings, whereby underlying sales growth of +2.5%, as +4.1% price growth offset a -1.5% decline in volumes, whilst the group noted: "Cost inflation remains at strongly elevated levels, and this will continue into next year". The AEX is also lifted by Randstad (+4.5%) post earnings after underlying EBITDA topped forecasts. Sectors in Europe are mixed with a slight defensive bias. On the downside, there is clear underperformance in Basic Resources as base metals pull back, whilst Oil & Gas names similarly make their way down the ranks. In terms of individual movers. ABB (-5%) resides at the foot of the SMI (+0.2%) as the group sees revenue growth hampered by supply constraints. Nonetheless, flows into Food & Beverages supports heavy-weight Nestle (+1.0%) which in turn supports the Swiss index. Other earnings-related movers include Barclays (-0.4%), SAP (+1.5%), Carrefour (+1.5%), Nordea (-1.8%), and Swedbank (+2.7%). Top European News Volvo Warns More Chip Woes Ahead Will Curtail Truck Production Hermes Advances After Dispelling Worries on China Demand Stagflation Risk Still Means Quick Rate Hikes for Czech Banker Weidmann Exit Could Pave Way for Bundesbank’s First Female Chief In FX, the Dollar has regained some composure across the board amidst a downturn in broad risk sentiment, but also further retracement in US Treasuries from bull-flattening to bear-steepening in wake of an abject 20 year auction that hardly bodes well for the announcement of next week’s 2, 5 and 7 year issuance, or Usd 19 bn 5 year TIPS supply due later today. In index terms, a firmer base and platform around 94.500 appears to be forming between 93.494-701 parameters ahead of initial claims, the Philly Fed and more housing data as the focus switches to existing home sales, while latest Fed speak comes via Daly and Waller. However, the DXY and Greenback in general may encounter technical resistance as the former eyes upside chart levels at 93.884 (23.6% Fib of September’s move) and 93.917 (21 DMA), while a major basket component is also looking in better shape than it has been of late as the Yen reclaims more lost ground from Wednesday’s near 4 year lows to retest 114.00 in the run up to Japanese CPI tomorrow. NZD/AUD/NOK - No real surprise to see the high beta Antipodeans bear the brunt of their US rival’s revival and the Kiwi unwind some of its post-NZ CPI outperformance irrespective of the nation’s FTA accord in principle with the UK, while the Aussie has also taken a deterioration in NAB quarterly business business confidence into consideration. Nzd/Usd is back below 0.7200 and Aud/Usd has retreated through 0.7500 after stalling just shy of 0.7550 before comments from RBA Governor Lowe and the flash PMIs. Elsewhere, the Norwegian Crown has largely shrugged off the latest Norges Bank lending survey showing steady demand for credit from households and non-financial institutions, but seems somewhat aggrieved by the pullback in Brent from just above Usd 86/brl to under Usd 85 at one stage given that Eur/Nok is hovering closer to the top of a 9.7325-9.6625 range. EUR/CHF/GBP/CAD - All softer against their US counterpart, albeit to varying degrees as the Euro retains a relatively secure grip around 1.1650, the Franc straddles 0.9200, Pound pivots 1.3800 and Loonie tries to contain declines into 1.2350 having reversed from yesterday’s post-Canadian CPI peaks alongside WTI, with the spotlight turning towards retail sales on Friday after a passing glance at new housing prices. SEK/EM - Some traction for the Swedish Krona in a tight band mostly sub-10.0000 vs the Euro from a fall in the nsa jobless rate, but the Turkish Lira seems jittery following a drop in consumer confidence and pre-CBRT as another 100 bp rate cut is widely expected, and the SA Rand is on a weaker footing ahead of a speech by the Energy Minister along with Eskom’s CEO. Meanwhile, the Cnh and Cnh have lost a bit more momentum against the backdrop of ongoing stress in China’s property market, and regardless of calls from the Commerce Ministry for the US and China to work together to create conditions for the implementation of the Phase One trade deal, or fees on interbank transactions relating to derivatives for SMEs being halved. In commodities, WTI and Brent Dec futures have gradually drifted from the overnight session peaks of USD 83.96/bbl and USD 86.10/bbl respectively. The downturn in prices seems to have initially been a function of risk sentiment, with APAC markets posting losses and Europe also opening on the back foot. At the time of writing, the benchmark resides around under USD 83/bbl for the former and sub-USD 85/bbl for the latter. Participants at this point are on the lookout for state interventions in a bid to keep prices from running. Over in China, it’s worth keeping an eye on the COVID situation – with China's Beijing Daily stating "citizens and friends are not required to leave the country, do not gather, do not travel or travel to overseas and domestic medium- and high-risk areas", thus translating to lower activity. That being said, yesterday’s commentary from the Saudi Energy Minister indicated how adamant OPEC is to further open the taps. UBS sees Brent at USD 90/bbl in December and March, before levelling off to USD 85/bbl for the remainder of 2022 vs prev. USD 80/bbl across all timelines. Elsewhere, spot gold and silver are relatively flat around USD 1,785 and USD 22.25 with nothing new nor interesting to report thus far, and with the precious metals moving in tandem with the Buck. Base metals meanwhile are softer across the board as global market risk remains cautious, with LME copper trading on either side of USD 10k/t. US Event Calendar 8:30am: Oct. Continuing Claims, est. 2.55m, prior 2.59m 8:30am: Oct. Initial Jobless Claims, est. 297,000, prior 293,000 8:30am: Oct. Philadelphia Fed Business Outl, est. 25.0, prior 30.7 9:45am: Oct. Langer Consumer Comfort, prior 51.2 10am: Sept. Existing Home Sales MoM, est. 3.6%, prior -2.0% 10am: Sept. Leading Index, est. 0.4%, prior 0.9% 10am: Sept. Home Resales with Condos, est. 6.09m, prior 5.88m DB's Jim Reid concludes the overnight wrap I watched the first of the new series of Succession last night. I like this program as it makes me think I’ve got a totally normal and non-dysfunctional family. It’s a good benchmark to have. There are few dysfunctional worries in equities at the moment as even with the pandemic moving back onto investors’ radars, the resurgence in risk appetite showed no sign of diminishing yesterday, with the S&P 500 (+0.37%) closing just a whisker below early September’s record high. It’s an impressive turnaround from where the narrative was just a few weeks ago, when the index had fallen by over -5% from its peak as concerns from Evergrande to a debt ceiling crunch set the agenda. But the removal of both risks from the immediate horizon along with another round of positive earnings reports have swept away those anxieties. And this has come even as investors have become increasingly sceptical about the transitory inflation narrative, as well as fresh signs that Covid-19 might be a serious issue once again this winter. Starting with the good news, US equities led the way yesterday as a number of global indices closed in on their all-time highs. As mentioned the S&P 500 rallied to close just -0.02% beneath its record, which came as part of a broad-based advance that saw over 75% of the index move higher. Elsewhere, the Dow Jones (+0.43%) also closed just below its all-time high back in August. After the close, Tesla fell short of revenue estimates but beat on earnings, despite materials shortages and port backlogs that have prevented production from reaching full capacity, a common refrain by now. Overall 17 out of 23 S&P 500 companies beat expectations yesterday, meaning that the US Q3 season beat tally is now 67 out of 80. Meanwhile in Europe, equities similarly saw advances across the board, with the STOXX 600 (+0.32%) hitting its highest level in over a month, as it moved to just 1.2% beneath its record back in August. For sovereign bonds it was a more mixed picture, with 10yr Treasury yields moving higher again as concerns about inflation continued to mount. By the close of trade, the 10yr yield had risen +2.0bps to 1.57%, which was driven by a +4.6bps increase in inflation breakevens to 2.60%, their highest level since 2012. That came as oil prices hit fresh multi-year highs after the US EIA reported that crude oil inventories were down -431k barrels, and gasoline inventories were down -5.37m barrels, which puts the level of gasoline inventories at their lowest since November 2019. That saw both WTI (+1.10%) and Brent crude (+0.87%) reverse their earlier losses, with WTI closing at a post-2014 high of $83.87/bbl, whilst Brent hit a post-2018 high of $85.82/bbl. Yields on 2yr Treasuries fell -1.0bps however, after Fed Vice Chair Quarles and President Mester joined Governor Waller in pushing back against the more aggressive path of Fed rate hikes that has recently been priced in. Even so however, money markets are still implying around 1.75 hikes in 2022, about one more hike than was priced a month ago. Separately in Europe, sovereign bonds posted a much stronger performance, with yields on 10yr bunds (-2.0bps), OATs (-2.6bps) and BTPs (-3.4bps) all moving lower. Overnight in Asia stocks are trading higher this morning with the Shanghai Composite (+0.46%), CSI (+0.35%) and KOSPI (+0.23%) all advancing, whilst the Hang Seng (-0.20%) and the Nikkei (-0.45%) have been dragged lower by healthcare and IT respectively. Meanwhile Evergrande Group (-12.60%) fell sharply in Hong Kong after news that it ended talks on the sale of a majority stake in its property services division to Hopson Development. And we’ve also seen a second day of sharp moves lower in Chinese coal futures (-11.0%) as the government is mulling measures to curb speculation. And there have also been a number of fresh Covid cases in China, with 21 new cases reported yesterday, as the city of Lanzhou moved to shut down schools in response. Elsewhere in Asia, with just 10 days now until Japan’s general election, a poll by Kyodo News found that the ruling Liberal Democratic Party would likely maintain its parliamentary majority. Futures markets are indicating a slow start for markets in the US and Europe, with those on the S&P 500 (-0.09%) and the DAX (-0.05%) both pointing lower. As we’ve been mentioning this week, the Covid-19 pandemic is increasingly returning onto the market radar, with the number of global cases having begun to tick up again. This has been reflected in a number of countries tightening up restrictions, and yesterday saw Russian President Putin approve a government proposal that October 31 to November 7 would be “non-working days”. In the Czech Republic, it was announced that mask-wearing would be compulsory in all indoor spaces from next week, and New York City moved to mandate all municipal workers to get vaccinated, with no alternative negative test result option now available. In Singapore, it was announced that virus restrictions would be extended for another month, which includes a limit on outdoor gatherings to 2 people and a default to work from home. Finally in the UK, the weekly average of cases has risen above 45k per day, up from just under 30k in mid-September. There is lots of talk about the need to put in place some additional restrictions but it feels we’re a fair way from that in terms of government-mandated ones. From central banks, it was announced yesterday that Bundesbank president Weidmann would be stepping down on December 31, leaving his position after just over a decade. He said that he was leaving for personal reasons, and in his letter to the Bundesbank staff, said that “it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either.” It’ll be up to the next government to decide on the new appointment. Staying on Europe, our economists have just released an update to their GDP forecasts, with downgrades to their near-term expectations as supply shortages for goods and energy have created headwinds for the recovery. They now see 2021 growth at +4.9% (down -0.1pp from their previous forecast), whilst 2022 has been downgraded to 4.0% (-0.5pp). Alongside that, they’ve also included the latest oil and gas price movements into their inflation forecasts, and now project Euro Area 2022 HICP at 2.3%, although they don’t see this above-target inflation persisting, with their 2023 HICP forecast remaining unchanged at 1.5%. You can read the full note here. Speaking of inflation, we had a couple of inflation releases yesterday, including the UK’s CPI data for September, which came in slightly beneath expectations at 3.1% (vs. 3.2% expected), whilst core CPI also fell to 2.9% vs. 3.0% expected). As we discussed earlier this week though, there was some downward pressure from base effects, since in September 2020 we had a recovery in restaurant and cafe prices after the government’s Eat Out to Help Out scheme in August ended, and that bounce back has now dropped out of the annual comparisons. UK inflation will rise a fair amount in the months ahead. Otherwise, we also had the CPI release from Canada for September, which rose to 4.4% (vs. 4.3% expected), which is its highest reading since February 2003. Finally, bitcoin hit an all-time high, with the cryptocurrency up +2.92% to close at a record $65,996, which was slightly down from its intraday peak of $66,976. Bitcoin has surged over recent weeks, and as it stands it’s up +49.3% so far this month at time of writing, which would mark its strongest monthly performance so far this year. This latest move has occurred along with the first trading of options on Bitcoin-linked ETFs, which the US first listed the day prior. To the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for September, the Conference Board’s leading index for September, and the Philadelphia Fed’s business outlook for October. Central bank speakers will include the Fed’s Waller and the ECB’s Visco, while the Central Bank of Turkey will be making its latest monetary policy decision. Otherwise, earnings releases include Intel, Danaher, AT&T and Union Pacific. Tyler Durden Thu, 10/21/2021 - 08:20.....»»

Category: blogSource: zerohedgeOct 21st, 2021

Central Banks Will Have To "Pick Their Poison"

Central Banks Will Have To "Pick Their Poison" Earlier today we pointed out the fireworks taking place in the gilt short-end, where 2Y yields surged by the most since 2010, spiking by as much as 17bps to 0.75% while GPB 3M libor soared the most since the Lehman failure. The sharp move followed the latest weeked comments from BOE Governor Bailey (the Bank of England seems to be using the weekends of late to prime the markets for imminent rate hikes as DB's Jim Reid noted) who said inflation “will last longer and it will of course get into the annual numbers for longer as a consequence… That raises for central banks the fear and concern of embedded expectations. That’s why we, at the Bank of England have signalled, and this is another signal, that we will have to act. But of course that action comes in our monetary policy meetings.” So going back to Deutsche Bank, chief credit strategist Jim Reid wrote that "the Bank of England might be the most interesting developed market central bank at the moment" as this morning we are pricing in around 35bps of hikes this year followed by nearly another 80bps next year. This takes place as respondents to DB's latest monthly survey think they’ll be making a policy error with 45% thinking they are risking being too hawkish versus 20% who thought they might be too dovish, 20% thinking they’d get it about right and 16% not sure. This, to Reid, highlights how difficult the current set up is where inflation is rising but the growth outlook is murky, especially since there are valid arguments on both sides of the interest rate ledger. Incidentally the risk of a policy error was seen as the other way round for the Fed and ECB in the survey (i.e. too dovish). Summarizing the dilemma facing the BOE, Reid writes that perhaps ex-Governor Mervyn King’s assertion in 2008 that the NICE (non-inflationary consistently expansionary) era was over was a decade or so too early: "maybe it better fits the current environment. If inflation is stubbornly higher in an era of relatively low structural growth and high debt then life as a central banker becomes the most difficult it’s been for at least 40 years." The bottom line - all else equal - is that central bankers can’t solve for all three and "will have to pick your poison." So will market pricing materialize? Well, the silver lining for the BOE, and as shown in the Reid Chart Of The Day below, is that since the GFC, UK futures markets have been repeatedly too hawkish in their expectations. So if traders believe that the post GFC regime survives "then there is every chance that the BoE will have to stop or reverse course before these futures market levels are realized. However if you think something has changed regarding inflation then these forecasts are hardly excessive." Finally some context: "the BoE has been around since 1694 and base rates were never below 2% in the 314 years before the GFC." Tyler Durden Mon, 10/18/2021 - 18:10.....»»

Category: blogSource: zerohedgeOct 18th, 2021

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000 One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest labor market data and inflation eased stagflation fears for the time being. . The 10-year Treasury yield rose and the dollar was steady. Goldman Sachs reports on Friday. At 715 a.m. ET, Dow e-minis were up 147 points, or 0.42%, S&P 500 e-minis were up 16.5 points, or 0.37%, and Nasdaq 100 e-minis were up 42.75 points, or 0.28%. Oil futures topped $85/bbl, jumping to their highest in three years amid an energy crunch that’s stoking inflationary pressures and prices for raw materials. A gauge of six industrial metals hit a record high on the London Metal Exchange.  Energy firms including Chevron and Exxon gained about half a percent each, tracking Brent crude prices that scaled the 3 year high. Solid earnings in the reporting season are tempering fears that rising costs and supply-chain snarls will hit corporate balance sheets and growth. At the same time, the wider debate about whether a stagflation-like backdrop looms remains unresolved. “We don’t sign up to the stagflation narrative that is doing the rounds,” said Hugh Gimber, global strategist at the perpetually optimistic J.P. Morgan Asset Management. “The economy is being supported by robust consumer balance sheets, rebounding business investment and a healthy labor market.” “After a choppy start to the week, equity markets appear to be leaning towards a narrative that companies can continue to grow profits, despite the combined pressures of higher energy prices and supply chain disruptions,” said Michael Hewson, chief market analyst at CMC Markets in London. Bitcoin and the crypto sector jumped after Bloomberg reported late on Thursday that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading in a watershed moment for the cryptocurrency industry. Bitcoin traded off session highs having tested $60k during Asian hours, but will likely rise to new all time highs shortly. Also overnight, Joe Biden signed a bill providing a short-term increase in the debt limit, averting the imminent threat of a financial calamity. But it only allows the Treasury Department to meets its financial obligations until roughly Dec. 3, so the can has been kicked for less than two months - brace for more bitter partisan battles in the coming weeks. This week’s move into rate-sensitive FAAMG growth names looked set to continue, with their shares inching up. Moderna rose 3.0% after a U.S. FDA panel voted to recommend booster shots of its COVID-19 vaccine for Americans aged 65 and older and high-risk people. Western Digital slipped 2.5% as Goldman Sachs downgraded the storage hardware maker’s stock to “neutral” from “buy”. Here are some of the key premarket movers on Friday morning: Virgin Galactic (SPCE US) shares slump as much as 23% in U.S. premarket trading as the firm is pushing the start of commercial flights further into next year after rescheduling a test flight, disappointing investors with the unexpected delay to its space tourism business plans Cryptocurrency-exposed stocks rise in U.S. premarket trading after a report that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading.  Bit Digital (BTBT US) +6.7%, Riot Blockchain (RIOT US) +4.6%, Marathon Digital (MARA US) +3.6% Alcoa (AA US) shares jump 5.6% in thin volumes after co. reported profits that beat the average analyst estimate and said it will be paying a dividend to its shareholders Moderna (MRNA US) extends Thursday’s gains; Piper Sandler recommendation on Moderna Inc. to overweight from neutral, a day after co.’s Covid-19 booster got FDA nod for use in older, high-risk people Duck Creek Technologies (DCT US) shares fell 12% in Thursday postmarket trading after the software company projected 2022 revenue that fell short of the average analyst estimate 23andMe Holdings (ME US) soared 14% in Thursday postmarket trading after EMJ Capital founder Eric Jackson called the genetics testing company “the next Roku” on CNBC Corsair Gaming (CRSR US) shares fell 3.7% in post-market trading after it cut its net revenue forecast for the full year Early on Friday, China's PBOC broke its silence on Evergrande, saying risks to the financial system are controllable and unlikely to spread. Authorities and local governments are resolving the situation, central bank official Zou Lan said. The bank has asked lenders to keep credit to the real estate sector stable and orderly. In Europe, gains for banks, travel companies and carmakers outweighed losses for utilities and telecommunications industries, pushing the Stoxx Europe 600 Index up 0.3%. Telefonica fell 3.3%, the most in more than four months, after Barclays cut the Spanish company to underweight. Temenos and Pearson both slumped more than 10% after their business updates disappointed investors. Here are some of the biggest European movers today: Devoteam shares rise as much as 25% after its controlling shareholder, Castillon, increased its stake in the IT consulting group to 85% and launched an offer for the remaining capital. QinetiQ rises as much as 5.4% following a plunge in the defense tech company’s stock on Thursday. Investec upgraded its recommendation to buy and Berenberg said the shares now look oversold. Hugo Boss climbs as much as 4.4% to the highest level since September 2019 after the German apparel maker reported 3Q results that exceeded expectations. Jefferies (hold) noted the FY guidance hike also was bigger than expected. Mediclinic rises as much as 7.7% to highest since May 26 after 1H results, which Morgan Stanley says showed strong underlying operating performance with “solid metrics.” Temenos sinks as much as 14% after the company delivered a “mixed bag” with its 3Q results, according to Baader (sell). Weakness in Europe raises questions about the firm’s outlook for a recovery in the region, the broker said. Pearson declines as much as 12%, with analysts flagging weaker trading in its U.S. higher education courseware business in its in-line results. Earlier in the session, Asian stocks headed for their best week in more than a month amid a list of positive factors including robust U.S. earnings, strong results at Taiwan Semiconductor Manufacturing Co. and easing home-loan restrictions in China.  The MSCI Asia Pacific Index gained as much as 1.3%, pushing its advance this week to more than 1.5%, the most since the period ended Sept. 3. Technology shares provided much of the boost after chip giant TSMC announced fourth-quarter guidance that beat analysts’ expectations and said it will build a fabrication facility for specialty chips in Japan. Shares in China rose as people familiar with the matter said the nation loosened restrictions on home loans at some of its largest banks.  Conditions are good for tech and growth shares now long-term U.S. yields have fallen following inflation data this week, Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “If data going forward are able to provide an impression that demand is strong too -- on top of a sense of relief from easing supply chain worries -- it’ll be a reason for share prices to take another leap higher.”  Asia’s benchmark equity gauge is still 10% below its record-high set in February, as analysts stay on the lookout for higher bond yields and the impact of supply-chain issues on profit margins.  Japanese stocks rose, with the Topix halting a three-week losing streak, after Wall Street rallied on robust corporate earnings. The Topix rose 1.9% to close at 2,023.93, while the Nikkei 225 advanced 1.8% to 29,068.63. Keyence Corp. contributed the most to the Topix’s gain, increasing 3.7%. Out of 2,180 shares in the index, 1,986 rose and 155 fell, while 39 were unchanged. For the week, the Topix climbed 3.2% and the Nikkei added 3.6%. Semiconductor equipment and material makers rose after TSMC said it will build a fabrication facility for specialty chips in Japan and plans to begin production there in late 2024.  U.S. index futures held gains during Asia trading hours. The contracts climbed overnight after a report showed applications for state unemployment benefits fell last week to the lowest since March 2020.  “U.S. initial jobless claims fell sharply, and have returned to levels seen before the spread of the coronavirus,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities in Tokyo. “The fact that more people are returning to their jobs will help ease supply chain problems caused by the lack of workers.” Australian stocks also advanced, posting a second week of gains. The S&P/ASX 200 index rose 0.7% to close at 7,362.00, with most sectors ending higher.  The benchmark added 0.6% since Monday, climbing for a second week. Miners capped their best week since July 16 with a 3% advance. Hub24 jumped on Friday after Evans & Partners upgraded the stock to positive from neutral. Pendal Group tumbled after it reported net outflows for the fourth quarter of A$2.3 billion. In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,012.19 In rates, the U.S. 10-year Treasury yield rose over 3bps to 1.54%. Treasuries traded heavy across long-end of the curve into early U.S. session amid earning-driven gains for U.S. stock futures. Yields are higher by more than 3bp across long-end of the curve, 10- year by 2.8bp at about 1.54%, paring its first weekly decline since August; weekly move has been led by gilts and euro-zone bonds, also under pressure Friday, with U.K. 10-year yields higher by 3.3bp. Today's bear-steepening move pares the weekly bull-flattening trend. U.S. session features a packed economic data slate and speeches by Fed’s Bullard and Williams.   In FX, the Bloomberg Dollar Spot Index was little changed even as the greenback weakened against most of its Group-of-10 peers; the euro hovered around $1.16 while European and U.S. yields rose, led by the long end. Norway’s krone led G-10 gains as oil jumped to $85 a barrel for the first time since late 2018 amid the global energy crunch; the currency rallied by as much as 0.6% to 8.4015 per dollar, the strongest level since June. New Zealand’s dollar advanced to a three-week high as bets on RBNZ’s tightening momentum build ahead of Monday’s inflation data; the currency is outperforming all G-10 peers this week. The yen dropped to a three-year low as rising equities in Asia damped demand for low-yielding haven assets. China’s offshore yuan advanced to its highest in four months while short-term borrowing costs eased after the central bank added enough medium-term funds into the financial system to maintain liquidity at existing levels. In commodities, crude futures trade off best levels. WTI slips back below $82, Brent fades after testing $85. Spot gold slips back through Thursday’s lows near $1,786/oz. Base metals extend the week’s rally with LME nickel and zinc gaining over 2%. Today's retail sales report, due at 08:30 a.m. ET, is expected to show retail sales fell in September amid continued shortages of motor vehicles and other goods. The data will come against the backdrop of climbing oil prices, labor shortages and supply chain disruptions, factors that have rattled investors and have led to recent choppiness in the market. Looking at the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs. Market Snapshot S&P 500 futures up 0.3% to 4,443.75 STOXX Europe 600 up 0.4% to 467.66 German 10Y yield up 2.4 bps to -0.166% Euro little changed at $1.1608 MXAP up 1.3% to 198.33 MXAPJ up 1.2% to 650.02 Nikkei up 1.8% to 29,068.63 Topix up 1.9% to 2,023.93 Hang Seng Index up 1.5% to 25,330.96 Shanghai Composite up 0.4% to 3,572.37 Sensex up 0.9% to 61,305.95 Australia S&P/ASX 200 up 0.7% to 7,361.98 Kospi up 0.9% to 3,015.06 Brent Futures up 1.0% to $84.83/bbl Gold spot down 0.5% to $1,787.54 U.S. Dollar Index little changed at 93.92 Top Overnight News from Bloomberg China’s central bank broke its silence on the crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread The ECB has a good track record when it comes to flexibly deploying its monetary instruments and will continue that approach even after the pandemic crisis, according to policy maker Pierre Wunsch Italian Ministry of Economy and Finance says fourth issuance of BTP Futura to start on Nov. 8 until Nov. 12, according to a statement The world’s largest digital currency rose about 3% to more than $59,000 on Friday -- taking this month’s rally to over 35% -- after Bloomberg News reported the U.S. Securities and Exchange Commission looks poised to allow the country’s first futures-based cryptocurrency ETF Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that’s sent spreads spiking and helped drive prices back above $10,000 a ton A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded higher amid tailwinds from the upbeat mood across global peers including the best day for the S&P 500 since March after strong US bank earnings, encouraging data and a decline in yields spurred risk appetite. The ASX 200 (+0.7%) was positive as the tech and mining sectors continued to spearhead the advances in the index in which the former took impetus from Wall St where the softer yield environment was conducive to the outperformance in tech, although mining giant Rio Tinto was among the laggards following weaker quarterly production results. The Nikkei 225 (+1.8%) was buoyed as exporters benefitted from the JPY-risk dynamic but with Fast Retailing failing to join in on the spoils despite an 88% jump in full-year net as its profit guidance underwhelmed with just 3% growth seen for the year ahead, while Taiwan's TAIEX (+2.2%) surged with the spotlight on TSMC earnings which reached a record high amid the chip crunch and with the Co. to also build a factory in Japan that could receive JPY 500bln of support from the Japanese government. The Hang Seng (+1.5%) and Shanghai Comp. (+0.4%) were initially indecisive amid the overhang from lingering developer default concerns although found some mild support from reports that China is to relax banks' mortgage limits through the rest of 2021. Focus was also on the PBoC which announced a CNY 500bln MLF operation, although this just matched the amount maturing this month and there are mixed views regarding prospects of a looming RRR cut with ANZ Bank's senior China strategist recently suggesting the potential for a 50bps cut in RRR or targeted MLF as early as today, although a recent poll showed analysts had pushed back their calls for a RRR cut from Q4 2021 to Q1 2022. Finally, 10yr JGBs marginally pulled back from this week’s advances after hitting resistance at the 151.50 level, with demand hampered amid the firm gains in Japanese stocks and the lack of BoJ purchases in the market today. Top Asian News Hong Kong Probes Going Concern Reporting of Evergrande U.S. Futures Hold Gains as Oil Hits 3-Year High: Markets Wrap Toyota Cuts November Outlook by 15% on Parts Shortage, Covid Yango Group Wires Repayment Fund for Onshore Bond Due Oct. 22 Bourses in Europe have held onto the modest gains seen at the cash open (Euro Stoxx 50 +0.4%; Stoxx 600 +0.3%), but the region is off its best levels with the upside momentum somewhat faded heading into the US open, and amidst a lack of fresh newsflow. US equity futures have remained in positive territory, although the latest leg lower in bonds has further capped the tech-laden NQ (+0.2%), which underperforms vs the ES (+0.3%), YM (+0.3%) and RTY (+0.7%), with traders on the lookout for another set of earnings, headlined by Goldman Sachs at 12:25BST/07:25EDT. Back to Europe, bourses see broad-based gains, whilst sectors are mostly in the green with clear underperformance experienced in defensives, with Telecoms, Utilities, Healthcare and Staples at the foot of the bunch. On the flipside, Banks reap rewards from the uptick in yields, closely followed by Travel & Leisure, Autos & Parts and Retail. Renault (+4%) drives the gains in Autos after unveiling a prototype version of the Renault Master van that will go on sale next year. Travel & Leisure is bolstered by the ongoing reopening trade with potential tailwinds heading into the Christmas period. Retail meanwhile is boosted by Hugo Boss (+1.8%) topping forecasts and upgrading its guidance. Top European News Autumn Heat May Curb European Gas Demand, Prices Next Week Bollore Looking for Buyers for Africa Logistics Ops: Le Monde U.K. Offers Foreign Butchers Visas After 6,000 Pigs Culled Europe’s Car-Sales Crash Points to Worse Year Than Poor 2020 In FX, the Greenback was already losing momentum after a relatively tame bounce on the back of Thursday’s upbeat US initial claims data, and the index failed to sustain its recovery to retest intraday highs or remain above 94.000 on a closing basis. However, the Buck did reclaim some significant and psychological levels against G10, EM currencies and Gold that was relishing the benign yield environment and the last DXY price was marginally better than the 21 DMA from an encouraging technical standpoint. Nevertheless, the Dollar remains weaker vs most majors and in need of further impetus that may come via retail sales, NY Fed manufacturing and/or preliminary Michigan Sentiment before the spotlight switches to today’s Fed speakers featuring arch hawk Bullard and the more neutral Williams. GBP/NZD/NOK - Sterling has refuelled and recharged regardless of the ongoing UK-EU rift over NI Protocol, though perhaps in part due to the fact that concessions from Brussels are believed to have been greeted with welcome surprise by some UK Ministers. Cable has reclaimed 1.3700+ status, breached the 50 DMA (at 1.3716 today) and yesterday’s best to set a marginal new w-t-d peak around 1.3739, while Eur/Gbp is edging closer to 0.8450 having clearly overcome resistance at 1.1800 in the reciprocal cross. Similarly, the Kiwi continues to derive impetus from the softer Greenback and Aud/Nzd flows as Nzd/Usd extends beyond 0.7050 and the Antipodean cross inches nearer 1.0500 from 1.0600+ highs. Elsewhere, the Norwegian Crown is aiming to add 9.7500 to its list of achievements relative to the Euro with a boost from Brent topping Usd 85/brl at one stage and a wider trade surplus. CAD - The Loonie is also profiting from oil as WTI crude rebounds through Usd 82 and pulling further away from 1.5 bn option expiry interest between 1.2415-00 in the process, with Usd/Cad towards the base of 1.2337-82 parameters. EUR/AUD/CHF/SEK - All narrowly mixed and rangy vs the Greenback, or Euro in the case of the latter, as Eur/Usd continues to straddle 1.1600, Aud/Usd churn on the 0.7400 handle, the Franc meander from 0.9219 to 0.9246 and Eur/Sek skirt 10.0000 having dipped below the round number briefly on Thursday. In commodities, WTI and Brent front month futures remain on a firmer footing, aided up the overall constructive risk appetite coupled with some bullish technical developments, as WTI Nov surpassed USD 82/bbl (vs 81.39/bbl low) and Brent Dec briefly topped USD 85/bbl (vs 84.16/bbl low). There has been little in terms of fresh fundamental catalysts to drive the price action, although Russia's Gazprom Neft CEO hit the wires earlier and suggested that reserve production capacity could meet the increase in oil demand, whilst a seasonal decline in oil consumption is possible and the oil market will stabilise in the nearest future. On the Iranian JCPOA front, Iran said it is finalising steps to completing its negotiating team but they are absolutely decided to go back to Vienna discussions and conclude the negotiations, WSJ's Norman. The crude complex seems to have (for now) overlooked reports that the White House is engaged in diplomacy" with OPEC+ members regarding output. UK nat gas prices were higher as European players entered the fray, but prices have since waned off best levels after Russian Deputy PM Novak suggested that gas production in Russia is running at maximum capacity. Elsewhere, spot gold has been trundling amid yield-play despite lower despite the Buck being on the softer side of today’s range. Spot gold failed to hold onto USD 1,800/oz status yesterday and has subsequently retreated below its 200 DMA (1,794/oz) and makes its way towards the 50 DMA (1,776/oz). LME copper prices are on a firmer footing with prices back above USD 10,000/t – supported by technicals and the overall risk tone, although participants are cognizant of potential Chinese state reserves releases. Conversely, Dalian iron ore futures fell for a third straight session, with Rio Tinto also cutting its 2021 iron ore shipment forecasts due to dampened Chinese demand. US Event Calendar 8:30am: Sept. Retail Sales Advance MoM, est. -0.2%, prior 0.7% 8:30am: Sept. Retail Sales Ex Auto MoM, est. 0.5%, prior 1.8% 8:30am: Sept. Retail Sales Control Group, est. 0.5%, prior 2.5% 8:30am: Sept. Retail Sales Ex Auto and Gas, est. 0.3%, prior 2.0% 8:30am: Oct. Empire Manufacturing, est. 25.0, prior 34.3 8:30am: Sept. Import Price Index MoM, est. 0.6%, prior -0.3%; YoY, est. 9.4%, prior 9.0% 8:30am: Sept. Export Price Index MoM, est. 0.7%, prior 0.4%; YoY, prior 16.8% 10am: Aug. Business Inventories, est. 0.6%, prior 0.5% 10am: Oct. U. of Mich. 1 Yr Inflation, est. 4.7%, prior 4.6%; 5-10 Yr Inflation, prior 3.0% 10am: Oct. U. of Mich. Sentiment, est. 73.1, prior 72.8 10am: Oct. U. of Mich. Current Conditions, est. 81.2, prior 80.1 10am: Oct. U. of Mich. Expectations, est. 69.1, prior 68.1 DB's Jim Ried concludes the overnight wrap A few people asked me what I thought of James Bond. I can’t say without spoilers so if anyone wants my two sentence review I will cut and paste it to all who care and reply! At my age I was just impressed I sat for over three hours (including trailers) without needing a comfort break. By the time you email I will have also listened to the new Adele single which dropped at midnight so happy to include that review as well for free. While we’re on the subject of music, risk assets feel a bit like the most famous Chumbawamba song at the moment. They get knocked down and they get up again. Come to think about it that’s like James Bond too. Yesterday was a strong day with the S&P 500 (+1.71%) moving back to within 2.2% of its all-time closing high from last month. If they can survive all that has been thrown at them of late then one wonders where they’d have been without any of it. The strong session came about thanks to decent corporate earnings releases, a mini-collapse in real yields, positive data on US jobless claims, as well as a further fall in global Covid-19 cases that leaves them on track for an 8th consecutive weekly decline. However, inflation remained very much on investors’ radars, with a range of key commodities taking another leg higher, even as US data on producer prices was weaker than expected. Starting with the good news, the equity strength was across the board with the S&P 500 experiencing its best daily performance since March, whilst Europe’s STOXX 600 (+1.20%) also put in solid gains. It was an incredibly broad-based move higher, with every sector group in both indices rising on the day, with a remarkable 479 gainers in the S&P 500, which is the second-highest number we’ve seen over the last 18 months. Every one of the 24 S&P 500 industry groups rose, led by cyclicals such as semiconductors (+3.12%), transportation (+2.51%) and materials (+2.43%). A positive start to the Q3 earnings season buoyed sentiment, as a number of US banks (+1.45%) reported yesterday, all of whom beat analyst estimates. In fact, of the nine S&P 500 firms to report yesterday, eight outperformed analyst expectations. Weighing in on recent macro themes, Bank of America Chief, Brian Moynihan, noted that the current bout of inflation is “clearly not temporary”, but also that he expects consumer demand to remain robust and that supply chains will have to adjust. I’m sure we’ll hear more from executives as earnings season continues today. Alongside those earnings releases, yesterday saw much better than expected data on the US labour market, which makes a change from last week’s underwhelming jobs report that showed the slowest growth in nonfarm payrolls so far this year. In terms of the details, the weekly initial jobless claims for the week through October 9, which is one of the most timely indicators we get, fell to a post-pandemic low of 293k (vs. 320k expected). That also saw the 4-week moving average hit a post-pandemic low of 334.25k, just as the continuing claims number for the week through October 2 hit a post-pandemic low of 2.593m (vs. 2.670m expected). We should get some more data on the state of the US recovery today, including September retail sales, alongside the University of Michigan’s consumer sentiment index for October. That optimism has fed through into Asian markets overnight, with the Nikkei (+1.43%), the Hang Seng (+0.86%), the Shanghai Comp (+0.29%) and the KOSPI (+0.93%) all moving higher. That came as Bloomberg reported that China would loosen restrictions on home loans amidst the concerns about Evergrande. And we also got formal confirmation that President Biden had signed the debt-limit increase that the House had passed on Tuesday, which extends the ceiling until around December 3. Equity futures are pointing to further advances in the US and Europe later on, with those on the S&P 500 (+0.30%) and the STOXX 50 (+0.35%) both moving higher. Even with the brighter news, inflation concerns are still very much with us however, and yesterday in fact saw Bloomberg’s Commodity Spot Index (+1.16%) advance to yet another record high, exceeding the previous peak from early last week. That was partly down to the continued rise in oil prices, with WTI (+1.08%) closing at $81.31/bbl, its highest level since 2014, just as Brent Crude (+0.99%) hit a post-2018 high of $84.00/bbl. Both have posted further gains this morning of +0.58% and +0.61% respectively. Those moves went alongside further rises in natural gas prices, which rose for a 3rd consecutive session, albeit they’re still beneath their peak from earlier in the month, as futures in Europe (+9.14%), the US (+1.74%) and the UK (+9.26%) all moved higher. And that rise in Chinese coal futures we’ve been mentioning also continued, with their rise today currently standing at +13.86%, which brings their gains over the week as a whole to +39.02% so far. As well as energy, industrial metals were another segment where the recent rally showed no sign of abating yesterday. On the London metal exchange, a number of multi-year milestones were achieved, with aluminum prices (+1.60%) up to their highest levels since 2008, just as zinc prices (+3.73%) closed at their highest level since 2018. Separately, copper prices (+2.56%) hit a 4-month high, and other winners yesterday included iron ore futures in Singapore (+1.16%), as well as nickel (+1.99%) and lead (+2.43%) prices in London. With all this momentum behind commodities, inflation expectations posted further advances yesterday. Indeed, the 10yr US Breakeven closed +1.0bps higher at 2.536%, which is just 3bps shy of its closing peak back in May that marked its highest level since 2013. And those moves came in spite of US producer price data that came in weaker than expected, with the monthly increase in September at +0.5% (vs. +0.6% expected). That was the smallest rise so far this year, though that still sent the year-on-year number up to +8.6% (vs. +8.7% expected). That rise in inflation expectations was echoed in Europe too, with the 10yr UK breakeven (+5.6bps) closing at its highest level since 2008, whilst its German counterpart also posted a modest +0.7bps rise. In spite of the rise in inflation expectations, sovereign bonds posted gains across the board as the moves were outweighed by the impact of lower real rates. By the end of yesterday’s session, yields on 10yr Treasuries were down -2.6bps to 1.527%, which came as the 10yr real yield moved back beneath -1% for the first time in almost a month. Likewise in Europe, yields pushed lower throughout the session, with those on 10yr bunds (-6.3bps), OATs (-6.2bps) and BTPs (-7.1bps) all moving aggressively lower. To the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs. Tyler Durden Fri, 10/15/2021 - 07:50.....»»

Category: personnelSource: nytOct 15th, 2021

Futures Tumble As Nat Gas Prices Explode, Stagflation Fears Surge

Futures Tumble As Nat Gas Prices Explode, Stagflation Fears Surge In our market comments on Tuesday we were stunned by the resilient surge in tech names and the broader market, even as yields soared on the biggest jump in breakevens since the presidential election, noting that something is very broken with this picture. Well, one day later normalcy is back: US stock index futures tumbled as much as 1.3% on Wednesday before paring some losses, after soaring oil and gas prices (rising as much as 40% in Europe today alone) fed into fears of higher inflation and fueled concerns of sooner-than-expected tapering, which in turn pushed 10Y yields just shy of 1.57%. At 730 a.m. ET, Dow e-minis were down 309 points, or 0.9%, S&P 500 e-minis were down 49 points, or 1.12%, and Nasdaq 100 e-minis were down 181 points, or 1.23%, to the lowest level since June 25 on a closing basis, signaling more downside for tech shares after Tuesday’s short reprieve Up to Tuesday’s close, the S&P 500 index logged its fourth straight day of 1% moves in either direction. According to Reuters, the last time the index saw that much volatility was in November 2020, when it rose or fell 1% or more for seven straight sessions. The selloff was much more severe in Europe, with the Stoxx 600 falling as much as 2% to a 2 month low, with every industry sector firmly in the red as the region’s natural gas prices soared to catastrophic levels... ... even as the European Union pledged swift action to ensure the spiking costs don’t stifle the economy (it just didn't explain precisely what it would do). Asian stocks also dropped amid continued China property contagion fears. The 10-year TSY yield touched their highest since June, slamming shares of mega-cap FAAMGs; tech shares led the stocks selloff Apple (AAPL US -1.5%), Facebook (FB US -1.6%), Microsoft (MSFT US -1.6%), Tesla (TSLA US -1.4%) down in U.S. premarket trading. Economy-sensitive parts of the market also came under pressure, with lenders such as Bank of America Corp , JPMorgan Chase & Co and Morgan Stanley shedding more than 1% each. Boeing and industrial conglomerates Caterpillar Inc and 3M Co dropped between 0.8% and 2.0%. Ironically, even though Brent remained well above $82, energy names also slumped with Exxon sliding 1% on what appears to be profit taking to plug margin holes elsewhere. American Airlines’ shares fell 3.7% in U.S. premarket session after Goldman cut its recommendation for the stock to sell. Meanwhile, Palantir Technologies extended its gains to rise 9.3% as the company said it won a U.S. Army contract to supply data and analytics services. Here are some of the other notable market movers: Gogo (GOGO US) drops 5.3% in U.S. premarket trading after Morgan Stanley downgrades to underweight, with competitive landscape expected to pressure valuation and free cash flow over coming year American Airlines (AAL US) slides 3.6% in U.S. premarket trading on Goldman Sachs downgrade, according to Bloomberg data U.S. Steel (X US) down more than 5% in U.S. premarket trading on Goldman Sachs downgrade, according to Bloomberg data Calyxt (CLXT US) shares jump 5.4% premarket after the company said it will focus on engineering synthetic biology solutions for customers across the nutraceutical, cosmeceutical, pharmaceutical, advanced materials, and chemical industries Indus Realty Trust (INDT US) fell postmarket Tuesday after launching a 2 million stock offering Noodles & Co. (NDLS US) shares rose 2% in Tuesday postmarket trading after Stephens started coverage with an overweight rating, saying the restaurant chain is poised for strong growth that should lead to higher multiples Allison Transmission (ALSN US) is accelerating the development of electrification technology for integration into the U.S. Army’s ground combat vehicle fleet Palantir (PLTR US) shares rise 14% in U.S. premarket trading after the the software company said Tuesday it was selected by the U.S. Army to provide data and analytics for the Capability Drop 2 program "Right now you’re seeing inflation risk really start to percolate and I do think that you’re going to see that really eat into margins as we go through the fourth quarter into 2022,” Erin Browne, multi-asset portfolio manager at Pimco, said on Bloomberg Television. “The energy crisis that’s starting to loom in Europe is a real risk that is being underestimated by the market right now." “The spike in energy prices continue fueling expectations of higher inflation for longer. Therefore, central banks will be forced to cool down the overheating in inflation rather than trying to boost recovery,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Any weakness in the jobs figure could send the U.S. equities back below their 100-dma levels, as soft economic data could no longer revive the central bank doves." As such, all eyes will be on the U.S. private payrolls data, due at 8:15 a.m. ET. The numbers come ahead of the more comprehensive non-farm payrolls data on Friday, which is expected to cement the case for the Federal Reserve’s slowing of asset purchases. Meanwhile, a stalemate over Republicans and Democrats about the debt limit showed no sign of abating, with President Joe Biden saying that his Democrats might make an exception to a U.S. Senate rule to allow them to extend the government’s borrowing authority without Republican help. European stocks fell even more, with the Stoxx Europe 600 index plunging 2% to lowest since July 20; Travel, autos and retail names are the weakest sectors although all Stoxx 600 sub-indexes are off at least 1%, tech was also underperforming. As noted above, gas prices remain a focal pressure point with several measures hitting record levels. Here are some of the biggest European movers today: Adler shares extend decline to 21% in Frankfurt after Viceroy Research publishes a report saying it is short Adler Group SA and its listed subsidiaries. Deutsche Telekom shares fall 4%, close to the level at which Goldman Sachs offered about EU1.5b worth of shares, as part of a deal to swap some of Softbank’s T- Mobile stake for one in Deutsche Telekom. Ambu shares fall as much as 8.1%, most since Aug. 17, after company cut its FY financial outlook. IP Group shares drop as much as 8.1%, their worst day in nine months, after CEO Alan Aubrey and CIO Mike Townend retire. GN Store Nord shares rise as much as 7.5% as it agrees to buy SteelSeries, a maker of software-enabled gaming gear, from Nordic private equity company Axcel for an enterprise value of DKK8b on a cash and debt-free basis. Tesco shares rise as much as 4.6% to an eight-month high after Britain’s biggest supermarket operator said it will buy back GBP500m of stock and raised its FY profit forecast. HSBC rises as much 2.5% as UBS upgrades the Asia-focused lender to buy from neutral, saying the market is taking a risk by being underweight. PageGroup shares jump as much as 6.9%, most since April, as the staffing firm boosts its profit forecast. Peer Hays also gains. Dustin shares jump as much as 11%, most since April 13, after the IT solutions provider’s Ebit for the fourth quarter beat the average analyst estimate. Atlantic Sapphire gains as much as 15% as Pareto sees improvements ahead. Asian stocks headed for their longest losing streak since August as a selloff in the heavyweight tech sector deepened amid rising Treasury yields. The MSCI Asia Pacific Index declined as much as 0.8%, in its fourth day of decline, with Samsung and Tencent among the biggest drags. A benchmark tracking Chinese technology stocks in Hong Kong closed at a record low. Japan’s Nikkei 225 and South Korea’s Kospi were the biggest losers, sliding more than 1% each. China Tech Stock Gauge Falls to Test Record Low as Yields Rise Investors have yet to digest issues such as the inflation outlook, among other concerns including gridlock over the U.S. debt ceiling and higher global energy prices. The MSCI Asia Pacific Index is approaching year-to-date lows seen in August.  “At the moment, given all the uncertainties regarding the growth, inflation and policy outlooks, we are still in the middle of the tempest, so to speak,” Kyle Rodda, an analyst at IG Markets, said by email.  Indonesian, Malaysian and Philippine stock benchmarks were among the region’s best performers. In Japan, the Topix closed 0.3% lower while the Nikkei225 capped its worst daily losing streak since July 2009 and entered a technical correction, as Japanese equities tumbled while Treasury yields climbed. Fast Retailing Co. and Tokyo Electron Ltd. were the largest contributors to a 1.1% loss in the Nikkei 225, which fell for an eighth-straight day. The gauge, which had risen as much as 1.4% earlier in the day, closed more than 10% down from its September high. The broader Topix dipped 0.3%, erasing an early 1.6% advance, driven by losses in automakers. Banks climbed on the spike in Treasury yields. Japanese stocks had opened the day higher, following a rebound in U.S. shares. Both major gauges fell for a seventh day Tuesday amid market disappointment with the new government and a host of threats to global economic growth. ‘Kishida Shock’ Hits Japan Markets Wary of Redistribution Plan “Technicals such as RSI and Bollinger are showing that these moves may have been overdone in the short term, but Japan is hostage to the continued global concerns regarding inflation, supply chains and Chinese credit along with PM Kishida’s ‘new capitalism’ concept,” said Takeo Kamai, head of execution services at CLSA Securities Japan Co Australia's S&P/ASX 200 index fell 0.6% to close at 7,206.50, reversing an earlier advance of as much as 0.4%. Banks contributed the most to the benchmark’s decline after Australia’s banking regulator raised loan buffers in a bid to cool the nation’s booming housing market. a2 Milk was the worst performer after a class action lawsuit was filed against the company. Whitehaven was the top performer, rising for a fourth straight day.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,166.44. The nation’s central bank raised interest rates for the first time in seven years and signaled further increases will likely be needed to tame inflation. The RBNZ lifted the official cash rate by a quarter percentage point to 0.5%. In rates, Treasuries were off their worst levels of the day after the 10Y yield rose briefly topped 1.57%, and remained cheaper by more than 2bps across long-end. The 10-year yield was around 1.55%, cheapest since June 17; U.K. 10-year cheapens by further 1.8bp vs U.S., German 10-year by 0.5bp. In the U.K., the 10-year breakeven rate climbed above 4%, twice the Bank of England’s target, spurred by soaring energy costs. Money markets have almost fully priced a rate hike as soon as December, in what would be the central bank’s first increase in over three years. Peripheral spreads widen to core with long-dated BTPs widening ~3bps to Germany. In FX, USD is well bid with risk assets trading poorly. Bloomberg dollar index rises 0.5%, pushing through last Friday’s highs. NZD, NOK and AUD are the weakest in G-10. Crude futures trade a narrow range near Asia’s opening levels. WTI is down 0.4% near $78.60, Brent briefly trades above $83 before dipping into the red. Spot gold extends Asia’s weakness to print fresh lows for the week near $1,745/oz. Base metals are in the red. LME copper the worst performer, dropping 1.9% to trade near the $9k mark. In commodities, crude futures trade a narrow range near Asia’s opening levels. WTI is down 0.4% near $78.60, Brent briefly trades above $83 before dipping into the red. Spot gold extends Asia’s weakness to print fresh lows for the week near $1,745/oz. Base metals are in the red. LME copper the worst performer, dropping 1.9% to trade near the $9k mark Elsewhere, Bitcoin traded around the $51,000 mark. Looking at the day ahead, data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the ADP’s September report on private payrolls from the US. From central banks, we’ll also hear from the ECB’s Centeno. Market Wrap S&P 500 futures down 0.9% to 4,294.75 STOXX Europe 600 down 1.5% to 449.34 MXAP down 0.7% to 191.25 MXAPJ down 0.8% to 622.40 Nikkei down 1.1% to 27,528.87 Topix down 0.3% to 1,941.91 Hang Seng Index down 0.6% to 23,966.49 Shanghai Composite up 0.9% to 3,568.17 Sensex down 0.2% to 59,596.78 Australia S&P/ASX 200 down 0.6% to 7,206.55 Kospi down 1.8% to 2,908.31 Brent Futures up 0.1% to $82.67/bbl Gold spot down 0.7% to $1,747.69 U.S. Dollar Index up 0.32% to 94.28 German 10Y yield up 2 bps to -0.168% Euro down 0.3% to $1.1560 Top Overnight News from Bloomberg Boris Johnson’s insistence that higher pay for U.K. workers is worth the pain of supply chain turmoil is generating buzz among Conservative Party members that he’s planning to raise the minimum wage in a keynote speech on Wednesday European energy prices extend their blistering rally as the supply crunch shows no sign of easing and the European Union pledged a quick response to keep the crisis from damaging the economy Chinese Fantasia Holdings Group Co., which develops high-end apartments and urban renewal projects, failed to repay a $205.7 million bond that came due Monday. That prompted a flurry of rating downgrades late Tuesday to levels signifying default. The stumble stirred broader angst in volatile markets amid public holidays in China and uncertainty about Evergrande President Emmanuel Macron nominated Bank of France Governor Francois Villeroy de Galhau for a second term, opting for stability in one of the most important appointment decisions on European Central Bank policy making for years to come The German Green Party is seeking to start exploratory talks with the SPD and liberal FDP party on forming a governing coalition, Green Party co-leader Annalena Baerbock said Saudi Arabia reduced oil prices for its main buyers, a day after OPEC+ sent crude futures surging by sticking to a plan for slow and steady supply increases A more detailed look at global markets courtesy of Newsquawk: Asia-Pac bourses traded mostly lower after failing to sustain the initial momentum from Wall St, where all major indices gained as investors bought back into tech and with sentiment helped by better-than-expected ISM services PMI, while continued upside in oil prices and a higher yield environment also underpinned energy and financials. This initially lifted the overnight benchmark indices although gains in the ASX 200 (-0.6%) were later reversed as the strength in energy and tech was overshadowed by weakness in the broader market including underperformance in the top-weighted financials sector after the regulator announced a loan curb measure targeting mortgage lending. Nikkei 225 (-1.1%) faded its opening gains and brief foray into 28k territory with auto names among the laggards amid ongoing production disruptions and with PM Kishida’s new cabinet beginning on shaky ground as polls showed his approval rating was at just 55% heading into the upcoming election, which was also the lowest for a new leader in 13 years, while KOSPI (-1.8%) gave up initial spoils with firmer than expected CPI data supporting the case for another hike by the BoK this year. Hang Seng (-0.6%) conformed to the soured mood amid weakness in property and biotech with participants also focusing on Chief Executive Lam’s final policy address of her current term where she proposed measures to address the housing issue, although this failed to lift the property sector as Evergrande concerns lingered after Hong Kong property agencies sued the Co. to recover overdue commissions and with shares in its New Energy Vehicle unit suffering double-digit percentage losses. Finally, 10yr JGBs were lower on spillover selling from T-notes and despite the downturn in stocks, while the absence of BoJ purchases in the market today added to the lacklustre demand with the central bank instead offering to buy JPY 125bln in corporate bonds from October 11th with 1yr-3yr maturities. Top Asian News China Tech Stock Gauge Falls to Record Low as Yields Rise Top Glove Says Cooperating in Investigation Over Worker’s Death China Resources Unit Said to Be in Talks for JLL China Business Asian Stocks Drop as Tech Selloff Deepens Amid Rising Yields Stocks in Europe have extended on the losses seen at the cash open (Euro Stoxx 50 -2.4%; Stoxx 600 -1.8%) with risk aversion intensifying from a downbeat APAC session as markets grapple with the prospect of stagflation, the energy crunch, Evergrande woes, and geopolitics. US equity futures have conformed to the losses across stocks with the ES (-1.3%) RTY (-1.5%), NQ (-1.5%) and YM (-1.0%) all softer, whilst the former two dipped under 4,300 and 2,200 respectively. From a news-flow standpoint, fresh catalysts have been light. Euro-bouses see broad-based losses whilst the FTSE 100 (-1.6%) is somewhat cushioned (albeit under 7k) by a softer sterling alongside some heavyweight individual stocks including HSBC (+3.3%) following a broker move, and Tesco (+4.5%) after topping H1 forecasts, raised guidance and a GBP 500mln share buyback scheme. Sectors in Europe are all in the red. Banks are the best of the bunch amid the favourable yield environment. On this note, SocGen suggested that the banking sector should benefit from the rise in yields and limited exposure to China, higher energy and supply-chain bottlenecks, while that market consolidation offers some opportunities in the European tech and industrial sectors. Back to sectors, the downside sees some of the more cyclical sectors including Travel & Leisure and Auto names. In terms of some individual movers, Deutsche Telekom (-5.6%) is hit after a bookrunner noted a share offering of some 90mln shares priced at a discount to yesterday’s close. Top European News German Greens Seek Talks With SPD, FDP on Post-Merkel Government European Industry Buckles Under a Worsening Energy Squeeze Polish Central Bank Unbowed Despite Price Spike: Decision Guide Bayer Shares Turn Lower After Initial Gains on Roundup Win In FX, the Dollar is firmly back in the driving seat and the index is eyeing YTD highs having reclaimed 94.000+ status amidst another sharp downturn in risk appetite just a day after what some pundits were dubbing as a ‘turnaround Tuesday’. Instead, Asia-Pacific bourses were reluctant to pick up the baton from Wall Street and the failure to keep the ball rolling against the backdrop of ongoing strength in gas and oil prices has rattled EU equities to the extent that the Dax has lost grip of the 15k handle and FTSE is down below 7k regardless of the fact that the UK benchmark has some positive impulses beyond the obvious revenue implications for the energy sector. Back to the DXY 94.448 is the best so far ahead of 94.500 for sentimental reasons and the current y-t-d peak just a fraction above at 94.504. In terms of fundamentals, next up for the Greenback is ADP as one of the usual pointers for NFP, while Fed speak comes from Bostic who is down to talk twice today. NZD/AUD - Ironically perhaps, the Kiwi is underperforming even though the RBNZ matched market expectations with a 25 bp OCR hike overnight, and this could well be described as a classic ‘buy rumour, sell fact’ reaction given that the move was all priced in. Moreover, the accompanying statement has not altered expectations for further measured tightening and this could compound the inclination to re-position/take profit/cut longs to the detriment of the Nzd. Indeed, the Kiwi has retreated from around 0.6980 vs its US rival to circa 0.6878 and is struggling to tread water on the 1.0500 mark against the Aussie that is also losing out to its US rival on the aforementioned risk dynamic, as Aud/Usd hovers towards the bottom end of 0.7295-0.7227 parameters ahead of AIG’s services sector index. CAD/GBP - Also somewhat perverse, though a measure of the degree that the market mood has changed since yesterday, the Loonie and Sterling are both struggling to derive much from the latest advances in WTI or Brent. In fact, Usd/Cad approached 1.2650 having breached the 50 DMA (1.2626) and pulling away from a cluster of decent option expiries that start at 1.2520-25 (1 bn) and continue through 1.2550-60 (2.1 bn) to 1.2600 (1 bn) and end between 1.2720-30 (1.5 bn, while Cable has reversed through 1.3600 and the 10 DMA (1.3592) with little assistance from a sub-consensus UK construction PMI. EUR/CHF/JPY - All unable to escape the Buck’s clutches, with the Euro down to a minor new 2021 low and probing barriers at 1.1550, while the Franc is treading water around 0.9300 and the Yen is thriving to keep tabs on 111.50 due to its renowned safe-haven properties, and with the prop of JGB yields reaching multi-month peaks, albeit in catch-up trade with US Treasuries and other global bonds. SCANDI/EM - Little solace for the Nok via Brent almost touching Usd 83.50/brl at one stage, though it is holding a firm line following its ascent beyond 10.0000 vs the Eur, while the Sek has largely taken mixed Swedish data and Riksbank rhetoric from Skingsley in stride (caution warranted and now is not the time to change monetary policy), but EM currencies are all floundering with the Try sliding to yet another record trough and on course to hit 9.0000. Ahead, the Zar will be looking for something supportive from SARB Governor Kganyago via a webinar on the economy, jobs and growth. RBNZ hiked the OCR by 25bps to 0.50% as expected and the committee noted further removal of monetary policy stimulus is expected over time. RBNZ added that it is appropriate to continue reducing the level of stimulus and that future moves are contingent on the medium term outlook for inflation and employment, while policy stimulus will need to be reduced to maintain price stability and maximum sustainable employment over the medium term. Furthermore, it noted that cost pressures are becoming more persistent and capacity pressures are still evident, but added that demand shortfalls are less of an issue than the economy hitting capacity constraints and that economic activity will rebound quickly as alert level restrictions ease. (Newswires) In commodities, WTI and Brent front month futures are choppy in early European trade with a downside bias amid the risk tone, but ultimately, prices remain near recent highs with the WTI Nov contract north of USD 78.50/bbl (78.25-79.78/bbl) and Brent Dec around 82/bbl (vs USD 81.92-83.47/bbl range) at the time of writing. Nat gas has once again been the focus in the energy complex, with the UK Nat Gas future surging some 40% intraday at one point, although its US counterpart has lost some steam. A lot of attention has been the Nord Stream 2 pipeline to alleviate some of the supply/demand imbalances in the gas market heading into the winter period. Yesterday, an EU lawmaker suggested that the pipeline does not comply with EU rules, although an EU court adviser noted that Nord Stream 2 could challenge the energy rule and the decision is not final. European natural gas futures climbed to a fresh all-time high. Back to crude, it’s worth being cognizant of the underlying demand that could be fed via the higher gas prices as other energy sources are more sought after, including diesel generators for electricity usually produced by Nat Gas. Over to metals, spot gold and silver are pressured by the firmer Buck with the former back under USD 1,750/oz and at session lows at the time of writing. The downbeat tone has also taken a toll on the base metals complex, with LME copper again dipping below the USD 9,000/t from a USD 9,135/t intraday peak. US Event Calendar 7am: Oct. MBA Mortgage Applications, prior -1.1% 8:15am: Sept. ADP Employment Change, est. 430,000, prior 374,000 DB's Jim Reid concludes the overnight wrap Risk appetite returned to markets yesterday, but not without some astonishing moves in commodities and inflation markets alongside a selloff in bonds. On top of that, we also had a fresh round of signals that supply-chain issues and inflation were beginning to have real economic impacts, thanks to the global September PMI readings. The most eye catching stat of the last 24 hours is probably that the UK’s index linked bonds are now implying that the April 2022 YoY UK RPI print will be c.7%. Thanks to DB’s Sanjay Raja for pointing this out to me. That’s the point in time where Ofgem next updates its price cap for utility bills. This comes after further astonishing moves in natural gas. In the UK, gas prices were up +19.54%, marking the biggest daily percentage increase in over a year and a +183.3% move since the start of August. 10 year UK breakevens closed at an incredible 3.979% (+9.6bps on the day). To be fair this is based on RPI not the CPI that other index linked markets are. As of early next year the UK is moving to a CPI-H benchmark so these numbers will come down but it’s still an astonishing reflection on expectations for 10-year average inflation numbers. Benchmark European natural gas futures weren’t much different and were up by +20.04% to a record €116.02 per megawatt hour. That’s also the biggest daily percentage increase in over a year, and the absolute increase of €19.37 is actually more than the level at which natural gas was trading as recently as Q1 this year! That leaves natural gas prices up more than six-fold since the start of the year, and up more than three-fold since the start of July. In comparison the US gas future was “only” up +9.20%, but still reached its highest closing level since December 2008. And oil itself saw another round of gains, with Brent Crude (+1.60%) rising to its highest in almost 3 years, at $82.56/bbl, whilst WTI was up +1.69% to $78.93/bbl, its highest since 2014. This fresh round of price surges has led to another spike in inflation expectations across multiple countries even in 10 year markets, so way beyond the transitory stage. We’ve already highlighted the UK number but the 10yr German breakeven (+7.6bps) saw its biggest daily increase in nearly a year, hitting a fresh 8-year high of 1.796%. Its Italian counterpart (+8.3bps) hit a new high for the decade at 1.715%. Even in the US, where breakevens have been trading in a fairly tight band recently, we saw a +6.8bps rise to 2.460%, which is its highest closing level in 4 months. With breakevens moving sharply higher, this was clearly bad news for sovereign bonds, which sold off on both sides of the Atlantic across different maturities. Yields on 10yr Treasuries were up +4.7bps to 1.53%, with the entirety of that move resulting from higher inflation expectations rather than real rates, which actually fell on the day (-2.0bps). Over in Europe, gilts saw the biggest declines as investors continue to anticipate a potential BoE rate hike in the coming months, with 10yr yields rising by a further +7.3bps, whilst the spread of UK 10yr yields over bunds actually widened to its biggest level since the day of the Brexit referendum in 2016. That said, yields were also moving higher on the continent, with those on 10yr bunds (+2.6bps), OATs (+2.5bps) and BTPs (+3.0bps) all moving to their highest level in 3 months. The case for inflation was given further support by the September PMI releases, which pointed to supply-chain issues across multiple countries. In the Euro Area, the composite PMI was revised up a tenth to 56.2, but the release said that input prices were rising at the joint-fastest on record. Over in the US, the composite PMI was also revised up half a point from the flash reading to 55.0, but the release similarly mentioned labour shortages and capacity constraints holding back growth. The US composite PMI of 55.0 was its lowest level in a year, albeit still above the 50-mark that separates expansion from contraction. The September US ISM services reading rose 0.2 to 61.9 (59.9 expected) with the report suggesting that delta variant concerns are easing as 17 of the 18 industries reported growth over the last month. However, there were still comments in the report highlighting supply chain issues and some inability to retain or hire labour. In spite of the renewed inflation concerns clouding the Q4 outlook, the major equity indices managed to post a decent rebound from Monday’s losses, although it’s worth noting that many were only recouping those declines rather than advancing to new heights. The S&P 500 was up +1.05%, so still just beneath where it started the week after Monday’s -1.30% decline, whilst the NASDAQ was up +1.25% and the FANG+ recovered +2.23%. It was the 4th straight day that the S&P 500 moved more than 1% in either direction, the longest such streak since November 2020. While yesterday saw a broad-based rally with 21 of the 24 S&P 500 industries gaining, financials were the big outperformer thanks to higher yields. The US Financials sectors added +1.78%, whilst in Europe the STOXX Banks index (+3.99%) hit a post-pandemic high, well outpacing the broader STOXX 600 (+1.17%). Overnight in Asia, most markets continued to slide with the Nikkei (-1.00%), Kospi (-1.00%), Hang Seng (-0.71%) and Australia’s ASX (-0.68%) all moving lower on the back of higher energy prices and inflation concerns. In Japan the Nikkei extended losses for an eighth consecutive session on concerns that new PM Fumio Kishida could be outlining a redistribution plan that includes higher taxes, including on capital gains, although he’s yet to outline the specifics of the policy. Separately the Reserve Bank of New Zealand joined the club of central banks raising rates, hiking by 25bps in a move that was the first rate rise in seven years, as they also indicated more hikes might be warranted. In terms of the latest on Evergrande, the firm is still yet to release details of the “major transaction” we mentioned on Monday, with the company’s shares still suspended, whilst Fantasia saw its long-term rating cut to selective default by S&P yesterday, down from CCC. US futures are pointing to further declines later with those on the S&P 500 down -0.39%. Turning to the ongoing debt ceiling saga, the US Senate has a cloture vote scheduled for today to suspend the ceiling, but Republican leadership are confident they can block the measure and force the Democrats to raise the debt ceiling unilaterally using the budget reconciliation process (which only requires a simple majority of votes in the Senate). So this would tie a move on the debt ceiling into the reconciliation bill that includes President Biden’s “Build Back Better” economic plan. However, the Democrats are maintaining that the reconciliation process takes too long, with the Treasury estimating it will run out of funding around October 18, and have made the case that both parties have a duty to raise the ceiling, since it reflects debts racked up under administrations of both parties rather than just the Democrats. Irrespective of the debt ceiling though, it does continue to sound like there’s movement toward a deal amongst Congressional Democrats on the size of the plan, withSenator Manchin (a key Democratic moderate) reportedly not ruling out a $1.9-2.2 trillion spending plan price tag, which is also the level that President Biden had been floating to House Democrats last week. Speaking of the Senate, yesterday Senator Elizabeth Warren had yet more strong words for Fed Chair Powell. Warren has already said she opposes giving Powell a second term as the Fed Chair, and yesterday’s speech criticised him for his lack of oversight of the trading activity of Federal Reserve officials. She said Powell has “failed as a leader” and that there are “legitimate questions about conflicts of interest and insider trading” around the actions of certain Fed Officials. This follows her actions on Monday, when she called the SEC to investigate Federal Reserve officials for insider trading. At the same time, Chair Powell asked its inspector general to conduct a review of trades made by Federal Reserve members to ensure they complied with the law and Fed rules. While a White House spokesperson said yesterday that President Biden continues to have confidence in Chair Powell, Senator Warren may be setting up to float an alternative candidate for Chair in the coming weeks ahead of Powell’s term ending early next year. To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the ADP’s September report on private payrolls from the US. From central banks, we’ll also hear from the ECB’s Centeno. Tyler Durden Wed, 10/06/2021 - 08:07.....»»

Category: dealsSource: nytOct 6th, 2021

Powell: Inflation Might Not Be Transitory, After All

At a panel discussion, Fed Chair finally admitted that inflation could be more (!) long-lasting than expected. What does it mean? Hawks. Lots of them. Q2 2021 hedge fund letters, conferences and more Capitulation With Fed Chairman Jerome Powell finally having his ‘come-to-Jesus’ moment on Sep. 29, the central bank chief’s skittish words helped light […] At a panel discussion, Fed Chair finally admitted that inflation could be more (!) long-lasting than expected. What does it mean? Hawks. Lots of them. 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 Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton 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); Q2 2021 hedge fund letters, conferences and more Capitulation With Fed Chairman Jerome Powell finally having his ‘come-to-Jesus’ moment on Sep. 29, the central bank chief’s skittish words helped light a fire under the USD Index. For context, I’ve been warning for months that Powell remains materially behind the inflation curve. And with his indecisive speech upending the Fed’s confidence game, the gambit is showing signs of unraveling. Speaking at an ECB panel discussion on Sep. 29, he said: “The current inflation spike is really a consequence of supply constraints meeting very strong demand. And that is all associated with the reopening of the economy, which is a process that will have a beginning, middle and an end. It’s very difficult to say how big the effects will be in the meantime or how long they last.” For context, first it was “base effects,” then it was “transitory” and now “it’s very difficult to say.” He continued: “It’s also frustrating to see the bottlenecks and supply chain problems not getting better – in fact, at the margins apparently getting a little bit worse. We see that continuing into next year probably, and holding up inflation longer than we had thought.” What’s more, Powell actually admitted that the Fed is facing a conundrum that it hasn’t dealt with “for a very long time.” “Managing through that process over the next couple of years is… going to be very challenging because we have this hypothesis that inflation is going to be transitory. We think that’s right. But we are concerned about underlying inflation expectations remaining stable, as they have so far.” Wow. If that’s not capitulation, I don’t know what is. For context, I wrote on Sep. 24: I’ve warned on several occasions that the only way for the Fed to control inflation is to increase the value of the U.S. dollar and decrease the value of commodities. However, with commodities’ fervor accelerating on Sep. 23 – a day when the USD Index declined – the price action should concern Chairman Jerome Powell. As a result, FOMC participants’ 2022 inflation forecast is likely wishful thinking and they may find that a faster liquidity drain (which is bullish for the U.S. dollar) is their only option to control the pricing pressures. Speaking of which, the S&P Goldman Sachs Commodity Index (S&P GSCI) has rallied by ~5% for the month of September. For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products and two precious metals. However, energy accounts for roughly 54% of the index’s movement. Please see below: Source: S&P Global As well, if you analyze the graphic below, you can see the impact that rising energy prices had on the S&P GSCI’s performance in September (MTD returns as of Sep. 27). To that point, with Brent and WTI surging recently and the latter on track for six straight weeks of weekly gains, Goldman Sachs has upped its year-end Brent target to $90 a barrel. Calling it the “revenge” of the old economy, Jeff Currie, Goldman Sachs global head of commodities research, said that “poor returns saw capital redirected away from the old economy to the new economy. It’s not unique to Europe, it’s not unique to energy, it’s a broad-based old-economy problem.” Thus, in his view, commodity prices need to be “much higher to get returns sufficient to start attracting capital. People wanted a quick return, and now you’re paying the price for it.” Please see below: Supporting the thesis, Bank of America commodities strategist Francisco Blanch told Bloomberg on Sep. 28 that Brent could hit $100 a barrel in 2022 and that a “cold winter” could actually pull forward the forecast. He said: “First, there is plenty of pent up mobility demand after an 18 month lockdown. Second, mass transit will lag, boosting private car usage for a prolonged period of time. Third, pre-pandemic studies show more remote work could result in more miles driven, as work-from-home turns into work-from-car. On the supply side, we expect government policy pressure in the U.S. and around the world to curb cap-ex over coming quarters to meet Paris goals. Secondly, investors have become more vocal against energy sector spending for both financial and ESG reasons. Third, judicial pressures are rising to limit carbon dioxide emissions. In short, demand is poised to bounce back and supply may not fully keep up, placing OPEC in control of the oil market in 2022.” Now, the important point isn’t whether or not Currie and Blanch are correct. The important point is that higher oil prices are mutually exclusive to Powell’s 2% inflation goal. For example, the Commodity Producer Price Index (PPI) – which is a reliable indicator of the next month’s Consumer Price Index (CPI) – recorded its highest monthly year-over-year (YoY) percentage increase in August since 1974. What’s more, the sky-high reading occurred with the S&P GSCI declining by ~2% in August (that’s why monitoring surging container rates is so important). However, as mentioned, the S&P GSCI has already risen by ~5% in September and container rates have also made new highs. As a result, Powell’s hawkish shift isn’t nearly hawkish enough to solve his inflationary dilemma. Inflation Isn’t Going Anywhere As further evidence, the Richmond Fed released its Fifth District Survey of Manufacturing Activity on Sep. 28. And while the headline index turned negative as output slumped, pricing pressures remained materially elevated. Please see below: Source: Richmond Fed Likewise, the Dallas Fed released its Texas Manufacturing Outlook Survey on Sep. 27. The report revealed: “Prices and wages continued to increase strongly in September. The price indexes climbed further, with the raw materials prices index at 80.4 and the finished goods prices index at 44.0, an all-time high. The wages and benefits index held steady at a highly elevated reading of 42.7.” For a visual of the overall index, please see below: Furthermore, the Dallas Fed also released its Texas Service Sector Outlook Survey and its Texas Retail Outlook Survey on Sep. 28. And though the U.S. service sector has suffered the brunt of the Delta variant’s wrath, pricing pressures remained. The report revealed: “Wage pressures eased in September, though remained at historically high levels, while price pressures remained highly elevated. The wages and benefits index declined from 32.6 to 26.9. The selling prices index was largely unchanged at 20.2, with nearly a quarter of firms reporting increased prices compared with August, while the input prices index inched up one point to 42.9.” More importantly, though, the Texas Retail Outlook Survey revealed: “Retail price pressures surged once again in September after some signs of moderation in August, while wage pressures held steady. The selling prices index surged nearly 11 points to 50.4 – with 58 percent of retailers increasing prices compared with August – while the input prices index increased from 41.3 to 50.1. The wages and benefits index was flat at 24.6.” For a visual of the overall index, please see below: And as the drama unfolds and Powell’s inflationary conundrum intensifies, his hawkish rhetoric on Sep. 29 helped sink the EUR/USD. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index. And with the currency pair collapsing below 1.1600 on Sep. 29 and closing below key 2020 support, the European dam could be about to break. Please see below: Reverse Repos Hit Another All-Time High! Also bullish for the U.S. dollar, with Powell’s liquidity circus still on full display, there is too much money floating around with too little use. And upping the ante on what I’ve been highlighting for months, after 80 counterparties drained nearly $1.416 trillion out of the U.S. financial system on Sep. 29, the Fed’s daily reverse repurchase agreements hit another all-time high. Please see below: Source: New York Fed To explain, a reverse repurchase agreement (repo) occurs when an institution offloads cash to the Fed in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the Fed at an alarming rate. I’ve been warning for months that the activity is the fundamental equivalent of a taper  due to the lower supply of U.S. dollars (which is bullish for the USD Index). Thus, while we await a formal announcement from the Fed, the U.S. dollar’s fundamental foundation remains robust. The bottom line? Powell’s only hope to curb inflation is to strengthen the U.S. dollar and weaken commodity (including gold and silver) prices. For context, major futures contracts are priced in U.S. dollars. And when the dollar rallies, it’s more expensive for foreign buyers (in their currency) to purchase the underlying commodities. As a result, a stronger U.S. dollar often stifles demand. And with the current supply/demand dynamics favoring higher commodity prices, Powell will have to work his magic — strengthen the dollar and reduce demand — if he wants his inflation problem to subside. In conclusion, gold, silver (ouch) and mining stocks sunk like stones on Sep. 29. And with the USD Index cutting through 94 like a knife through butter, new 2021 lows in the EUR/USD were accompanied by new 2021 highs in the USD Index. Moreover, with the momentum poised to continue, the PMs’ medium-term outlooks remain quite somber. As a result, further weakness will likely materialize before brighter days emerge (probably) near the end of the year. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and silver that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFA Founder, Editor-in-chief Sunshine Profits: Effective Investment through Diligence & Care All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Updated on Sep 30, 2021, 10:28 am (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: valuewalkSep 30th, 2021

The federal funds rate is the benchmark interest rate that affects borrowing costs across the US economy

The federal funds rate is the interest banks charge each other for overnight loans. Set by the Federal Reserve, it's a basis for other interest rates. While it technically applies only to banks, the federal funds rate impacts interest rates on a variety of loans and investments. Richard Drew/Associated Press Set by the Federal Reserve, the federal funds rate is the interest banks charge each other to borrow money overnight. Changes in the federal funds rate impact the interest rates on consumer loans, credit cards, and bank accounts. The federal funds rate is the key tool the Federal Reserve uses to stimulate or slow down the economy. Visit Insider's Investing Reference library for more stories. The major mandate of the Federal Reserve - the central bank of the US - is to keep the nation's financial system solvent and manage its money supply (the amount of cash and readily available funds in circulation). It does this through a balancing act involving interest rates - specifically one called the federal funds rate. The federal funds rate ("fed funds rate," for short) is only used between banks; it's not an interest rate an individual can apply for or a financial account will earn. But it's a key benchmark. After the Fed sets it, the federal funds rate becomes the basis for interest charged on loans and credit card purchases, and the return offered by fixed-income investments, like bonds and annuities. The level of interest rates - how cheap or expensive it is to borrow money - affects business and consumer spending. So, through the federal funds rate, the Fed tries to keep the entire economy on course. Here's how it works, and the ways it can affect you.What is the federal funds rate?The federal funds rate, also known as the overnight rate, is the interest commercial banks charge when they lend money to one another for extremely short-term periods - literally, overnight. The Fed mandates this activity between banks to ensure they meet their reserve requirements. That is, it requires that each bank must maintain enough cash on hand, plus a reserve balance with the central bank, to cover a certain percentage of its deposits and other liabilities on every business day. These regulations are to make sure that a bank's account-holders always have ready access to their money. If banks are short on funds to maintain their reserve requirement, they borrow from another - at (or very close to) the fed funds rate.There are two types of federal funds rates:The federal funds effective rate is the weighted average of all the interest rates banks pay when they borrow from other banks in the country.The federal funds target rate is the rate set by the Federal Open Market Committee (FOMC), the monetary policy-making body of the Federal Reserve, to serve as the guidepost by which banks charge each other. Made up of the Fed's Board of Governors and five regional Federal Reserve Bank presidents, the FOMC meets at least eight times a year to decide the federal funds rate based on prevailing economic conditions.When people refer to the Fed "slashing the interest rate" or "raising interest rates," they usual mean the federal funds target rate.What is the current federal funds rate?On September 22, 2021, the Federal Reserve maintained the federal funds rate at a range of 0% to 0.25%. This remains unchanged from the first time the Fed lowered the benchmark rate to almost 0% on March 15, 2020 in response to the COVID-19 pandemic. The fed funds rate averaged 5.59% from 1971 until 2020.How does the federal funds rate affect the economy?During its eight meetings a year, the FOMC can raise, lower, or keep the fed funds rate the same. But what motivates the committee to periodically change it? How does the Fed use it as an economy-adjusting tool?When it needs to stimulate economic growth - production, spending, expansion - the Fed lowers the fed funds rate. This move makes it cheaper for banks to borrow money and maintain their reserves. So these banks can then lend out their extra funds at lower financing costs, encouraging companies and individuals to take out loans to expand, invest, and buy things. It increases the money supply in the system, in technical terms.In contrast, when the Fed needs to slow down the economy - say, because prices are climbing too fast, causing rampant inflation - it raises the fed funds rate. To prevent their required reserve balance from going into the red, member banks have to pay more interest. They then raise their interest rates to clients, which tends to slow down any form of borrowing activity. When banks don't finance as much, the money supply contracts, and economic growth goes back to more sustainable levels. !function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"])for(var e in a.data["datawrapper-height"]){var t=document.getElementById("datawrapper-chart-"+e)||document.querySelector("iframe[src*='"+e+"']");t&&(t.style.height=a.data["datawrapper-height"][e]+"px")}}))}();How does the federal funds rate affect you?The federal funds rate is an interbank interest rate. But it has a ripple effect throughout people's financial lives, the interest they pay, and the money they earn. Among its effects:Prime rate: How the fed funds rate moves influences the movement of a number of interest rates, one of the most significant being the prime rate. The prime rate is the rate a bank can offer its best corporate or high-net-worth individual clients. Consumer loans and accounts: A shift in the prime rate influences consumer interest rates as well. When the prime rate rises or drops, you can expect a corresponding adjustment on the monthly charges of your personal loans, credit cards, and adjustable-rate mortgages. If they pay fluctuating interest, your bank accounts and CDs also earn more or less.US Treasuries and other bonds: Changes in the fed funds rate can be paralleled in the interest rates paid by newly issued Treasury notes and bonds. These in turn serve as a benchmark for corporate bond rates. Stocks: A decrease in the feds fund rate can send markets soaring, while an increase can push the markets to decline. Employment: When interest rates go down, it encourages consumers to buy more goods and services. In turn, this propels businesses to meet the demand by expanding production, hiring more workers, and raising wages.The financial takeawayThe federal funds rate is an important tool - the tool, some would say - the Federal Reserve uses to stimulate or slow down the economy. Not to mention, maintain the solvency and reliability of the nation's banks.Financial institutions, corporations, and individuals are all affected by the federal funds rate one way or another. There's not much you can do to alter the Fed's moves or even anticipate them, but it's good to understand how it can influence your daily life and finances. The Federal Reserve is the central bank of the US - here's why it's so powerful and how it affects your financial lifeWhy the Federal Reserve uses contractionary monetary policy to curb the inflation that accompanies an overheating economyWhat is a bond? How to earn a steady stream of income by loaning money to a business or governmentWhat is inflation? Why the cost of goods rise over time and what it means for the value of your moneyRead the original article on Business Insider.....»»

Category: smallbizSource: nytSep 22nd, 2021

Futures Bounce On Evergrande Reprieve With Fed Looming

Futures Bounce On Evergrande Reprieve With Fed Looming Despite today's looming hawkish FOMC meeting in which Powell is widely expected to unveil that tapering is set to begin as soon as November and where the Fed's dot plot may signal one rate hike in 2022, futures climbed as investor concerns over China's Evergrande eased after the property developer negotiated a domestic bond payment deal. Commodities rallied while the dollar was steady. Contracts on the S&P 500 and Nasdaq 100 flipped from losses to gains as China’s central bank boosted liquidity when it injected a gross 120BN in yuan, the most since January... ... and investors mulled a vaguely-worded statement from the troubled developer about an interest payment.  S&P 500 E-minis were up 23.0 points, or 0.53%, at 7:30 a.m. ET. Dow E-minis were up 199 points, or 0.60%, and Nasdaq 100 E-minis were up 44.00 points, or 0.29%. Among individual stocks, Fedex fell 5.8% after the delivery company cut its profit outlook on higher costs and stalled growth in shipments. Morgan Stanley says it sees the company’s 1Q issues getting “tougher from here.” Commodity-linked oil and metal stocks led gains in premarket trade, while a slight rise in Treasury yields supported major banks. However, most sectors were nursing steep losses in recent sessions. Here are some of the biggest U.S. movers: Adobe (ADBE US) down 3.1% after 3Q update disappointed the high expectations of investors, though the broader picture still looks solid, Morgan Stanley said in a note Freeport McMoRan (FCX US), Cleveland- Cliffs (CLF US), Alcoa (AA US) and U.S. Steel (X US) up 2%-3% premarket, following the path of global peers as iron ore prices in China rallied Aethlon Medical (AEMD US) and Exela Technologies (XELAU US) advance along with other retail traders’ favorites in the U.S. premarket session. Aethlon jumps 21%; Exela up 8.3% Other so-called meme stocks also rise: ContextLogic +1%; Clover Health +0.9%; Naked Brand +0.9%; AMC +0.5% ReWalk Robotics slumps 18% in U.S. premarket trading, a day after nearly doubling in value Stitch Fix (SFIX US) rises 15.7% in light volume after the personal styling company’s 4Q profit and sales blew past analysts’ expectations Hyatt Hotels (H US) seen opening lower after the company launches a seven-million-share stock offering Summit Therapeutics (SMMT US) shares fell as much as 17% in Tuesday extended trading after it said the FDA doesn’t agree with the change to the primary endpoint that has been implemented in the ongoing Phase III Ri-CoDIFy studies when combining the studies Marin Software (MRIN US) surged more than 75% Tuesday postmarket after signing a new revenue-sharing agreement with Google to develop its enterprise technology platforms and software products The S&P 500 had fallen for 10 of the past 12 sessions since hitting a record high, as fears of an Evergrande default exacerbated seasonally weak trends and saw investors pull out of stocks trading at lofty valuations. The Nasdaq fell the least among its peers in recent sessions, as investors pivoted back into big technology names that had proven resilient through the pandemic. Focus now turns to the Fed's decision, due at 2 p.m. ET where officials are expected to signal a start to scaling down monthly bond purchases (see our preview here).  The Fed meeting comes after a period of market volatility stoked by Evergrande’s woes. China’s wider property-sector curbs are also feeding into concerns about a slowdown in the economic recovery from the pandemic. “Chair Jerome Powell could hint at the tapering approaching shortly,” said Sébastien Barbé, a strategist at Credit Agricole CIB. “However, given the current uncertainty factors (China property market, Covid, pace of global slowdown), the Fed should remain cautious when it comes to withdrawing liquidity support.” Meanwhile, confirming what Ray Dalio said that the taper will just bring more QE, Governing Council member Madis Muller said the  European Central Bank may boost its regular asset purchases once the pandemic-era emergency stimulus comes to an end. “Dovish signals could unwind some of the greenback’s gains while offering relief to stock markets,” Han Tan, chief market analyst at Exinity Group, wrote in emailed comments. A “hawkish shift would jolt markets, potentially pushing Treasury yields and the dollar past the upper bound of recent ranges, while gold and equities would sell off hunting down the next levels of support.” China avoided a major selloff as trading resumed following a holiday, after the country’s central bank boosted its injection of short-term cash into the financial system. MSCI’s Asia-Pacific index declined for a third day, dragged lower by Japan. Stocks were also higher in Europe. Basic resources - which bounced from a seven month low - and energy were among the leading gainers in the Stoxx Europe 600 index as commodity prices steadied after Beijing moved to contain fears of a spiraling debt crisis. Entain Plc rose more than 7%, extending Tuesday’s gain as it confirmed it received a takeover proposal from DraftKings Inc. Peer Flutter Entertainment Plc climbed after settling a legal dispute.  Here are some of the biggest European movers today: Entain shares jump as much as 11% after DraftKings Inc. offered to acquire the U.K. gambling company for about $22.4 billion. Vivendi rises as much as 3.1% in Paris, after Tuesday’s spinoff of Universal Music Group. Legrand climbs as much as 2.1% after Exane BNP Paribas upgrades to outperform and raises PT to a Street-high of EU135. Orpea shares falls as much as 2.9%, after delivering 1H results that Jefferies (buy) says were a “touch” below consensus. Bechtle slides as much as 5.1% after Metzler downgrades to hold from buy, saying persistent supply chain problems seem to be weighing on growth. Sopra Steria drops as much as 4.1% after Stifel initiates coverage with a sell, citing caution on company’s M&A strategy Despite the Evergrande announcement, Asian stocks headed for their longest losing streak in more than a month amid continued China-related concerns, with traders also eying policy decisions from major central banks. The MSCI Asia Pacific Index dropped as much as 0.7% in its third day of declines, with TSMC and Keyence the biggest drags. China’s CSI 300 tumbled as much as 1.9% as the local market reopened following a two-day holiday. However, the gauge came off lows after an Evergrande unit said it will make a bond interest payment and as China’s central bank boosted liquidity.  Taiwan’s equity benchmark led losses in Asia on Wednesday, dragged by TSMC after a two-day holiday, while markets in Hong Kong and South Korea were closed. Key stock gauges in Australia, Indonesia and Vietnam rose “A liquidity injection from the People’s Bank of China accompanied the Evergrande announcement, which only served to bolster sentiment further,” according to DailyFX’s Thomas Westwater and Daniel Dubrovsky. “For now, it appears that market-wide contagion risk linked to a potential Evergrande collapse is off the table.” Japanese equities fell for a second day amid global concern over China’s real-estate sector, as the Bank of Japan held its key stimulus tools in place while flagging pressures on the economy. Electronics makers were the biggest drag on the Topix, which declined 1%. Daikin and Fanuc were the largest contributors to a 0.7% loss in the Nikkei 225. The BOJ had been expected to maintain its policy levers ahead of next week’s key ruling party election. Traders are keenly awaiting the Federal Reserve’s decision due later for clues on the U.S. central banks plan for tapering stimulus. “Markets for some time have been convinced that the BOJ has reached the end of the line on normalization and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave,” UOB economist Alvin Liew wrote in a note. “Attention for the BOJ will now likely shift to dealing with the long-term climate change issues.” In the despotic lockdown regime that is Australia, the S&P/ASX 200 index rose 0.3% to close at 7,296.90, reversing an early decline in a rally led by mining and energy stocks. Banks closed lower for the fourth day in a row. Champion Iron was among the top performers after it was upgraded at Citi. IAG was among the worst performers after an earthquake caused damage to buildings in Melbourne. In New Zealand, the S&P/NZX 50 index rose 0.3% to 13,215.80 In FX, commodity currencies rallied as concerns about China Evergrande Group’s debt troubles eased as China’s central bank boosted liquidity and investors reviewed a statement from the troubled developer about an interest payment. Overnight implied volatility on the pound climbed to the highest since March ahead of Bank of England’s meeting on Thursday. The British pound weakened after Business Secretary Kwasi Kwarteng warnedthat people should prepare for longer-term high energy prices amid a natural-gas shortage that sent power costs soaring. Several U.K. power firms have stopped taking in new clients as small energy suppliers struggle to meet their previous commitments to sell supplies at lower prices. Overnight volatility in the euro rises above 10% for the first time since July ahead of the Federal Reserve’s monetary policy decision announcement. The Aussie jumped as much as 0.5% as iron-ore prices rebounded. Spot surged through option-related selling at 0.7240 before topping out near 0.7265 strikes expiring Wednesday, according to Asia- based FX traders.  Elsewhere, the yen weakened and commodity-linked currencies such as the Australian dollar pushed higher. In rates, the dollar weakened against most of its Group-of-10 peers. Treasury futures were under modest pressure in early U.S. trading, leaving yields cheaper by ~1.5bp from belly to long-end of the curve. The 10-year yield was at ~1.336% steepening the 2s10s curve by ~1bp as the front-end was little changed. Improved risk appetite weighed; with stock futures have recovering much of Tuesday’s losses as Evergrande concerns subside. Focal point for Wednesday’s session is FOMC rate decision at 2pm ET.   FOMC is expected to suggest it will start scaling back asset purchases later this year, while its quarterly summary of economic projections reveals policy makers’ expectations for the fed funds target in coming years in the dot-plot update; eurodollar positions have emerged recently that anticipate a hawkish shift Bitcoin dropped briefly below $40,000 for the first time since August amid rising criticism from regulators, before rallying as the mood in global markets improved. In commodities, Iron ore halted its collapse and metals steadied. Oil advanced for a second day. Bitcoin slid below $40,000 for the first time since early August before rebounding back above $42,000.   To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference. Otherwise on the data side, we’ll get US existing home sales for August, and the European Commission’s advance consumer confidence reading for the Euro Area in September. Market Snapshot S&P 500 futures up 0.4% to 4,362.25 STOXX Europe 600 up 0.5% to 461.19 MXAP down 0.7% to 199.29 MXAPJ down 0.4% to 638.39 Nikkei down 0.7% to 29,639.40 Topix down 1.0% to 2,043.55 Hang Seng Index up 0.5% to 24,221.54 Shanghai Composite up 0.4% to 3,628.49 Sensex little changed at 59,046.84 Australia S&P/ASX 200 up 0.3% to 7,296.94 Kospi up 0.3% to 3,140.51 Brent Futures up 1.5% to $75.47/bbl Gold spot up 0.0% to $1,775.15 U.S. Dollar Index little changed at 93.26 German 10Y yield rose 0.6 bps to -0.319% Euro little changed at $1.1725 Top Overnight News from Bloomberg What would it take to knock the U.S. recovery off course and send Federal Reserve policy makers back to the drawing board? Not much — and there are plenty of candidates to deliver the blow The European Central Bank will discuss boosting its regular asset purchases once the pandemic-era emergency stimulus comes to an end, but any such increase is uncertain, Governing Council member Madis Muller said Investors seeking hints about how Beijing plans to deal with China Evergrande Group’s debt crisis are training their cross hairs on the central bank’s liquidity management A quick look at global markets courtesy of Newsquawk Asian equity markets traded mixed as caution lingered ahead of upcoming risk events including the FOMC, with participants also digesting the latest Evergrande developments and China’s return to the market from the Mid-Autumn Festival. ASX 200 (+0.3%) was positive with the index led higher by the energy sector after a rebound in oil prices and as tech also outperformed, but with gains capped by weakness in the largest-weighted financials sector including Westpac which was forced to scrap the sale of its Pacific businesses after failing to secure regulatory approval. Nikkei 225 (-0.7%) was subdued amid the lack of fireworks from the BoJ announcement to keep policy settings unchanged and ahead of the upcoming holiday closure with the index only briefly supported by favourable currency outflows. Shanghai Comp. (+0.4%) was initially pressured on return from the long-weekend and with Hong Kong markets closed, but pared losses with risk appetite supported by news that Evergrande’s main unit Hengda Real Estate will make coupon payments due tomorrow, although other sources noted this is referring to the onshore bond payments valued around USD 36mln and that there was no mention of the offshore bond payments valued at USD 83.5mln which are also due tomorrow. Meanwhile, the PBoC facilitated liquidity through a CNY 120bln injection and provided no surprises in keeping its 1-year and 5-year Loan Prime Rates unchanged for the 17th consecutive month at 3.85% and 4.65%, respectively. Finally, 10yr JGBs were flat amid the absence of any major surprises from the BoJ policy announcement and following the choppy trade in T-notes which were briefly pressured in a knee-jerk reaction to the news that Evergrande’s unit will satisfy its coupon obligations tomorrow, but then faded most of the losses as cautiousness prevailed. Top Asian News Gold Steady as Traders Await Outcome of Fed Policy Meeting Evergrande Filing on Yuan Bond Interest Leaves Analysts Guessing Singapore Category E COE Price Rises to Highest Since April 2014 Asian Stocks Fall for Third Day as Focus Turns to Central Banks European equities (Stoxx 600 +0.5%) trade on a firmer footing in the wake of an encouraging APAC handover. Focus overnight was on the return of Chinese participants from the Mid-Autumn Festival and news that Evergrande’s main unit, Hengda Real Estate will make coupon payments due tomorrow; however, we await indication as to whether they will meet Thursday’s offshore payment deadline as well. Furthermore, the PBoC facilitated liquidity through a CNY 120bln injection whilst keeping its 1-year and 5-year Loan Prime Rates unchanged (as expected). Note, despite gaining yesterday and today, thus far, the Stoxx 600 is still lower to the tune of 0.7% on the week. Stateside, futures are also trading on a firmer footing ahead of today’s FOMC policy announcement, at which, market participants will be eyeing any clues for when the taper will begin and digesting the latest dot plot forecasts. Furthermore, the US House voted to pass the bill to fund the government through to December 3rd and suspend the debt limit to end-2022, although this will likely be blocked by Senate Republicans. Back to Europe, sectors are mostly firmer with outperformance in Basic Resources and Oil & Gas amid upside in the metals and energy complex. Elsewhere, Travel & Leisure is faring well amid further upside in Entain (+6.1%) with the Co. noting it rejected an earlier approach from DraftKings at GBP 25/shr with the new offer standing at GBP 28/shr. Additionally for the sector, Flutter Entertainment (+4.1%) are trading higher after settling the legal dispute between the Co. and Commonwealth of Kentucky. Elsewhere, in terms of deal flow, Iliad announced that it is to acquire UPC Poland for around USD 1.8bln. Top European News Energy Cost Spike Gets on EU Ministers’ Green Deal Agenda Travel Startup HomeToGo Gains in Frankfurt Debut After SPAC Deal London Stock Exchange to Shut Down CurveGlobal Exchange EU Banks Expected to Add Capital for Climate Risk, EBA Says In FX, trade remains volatile as this week’s deluge of global Central Bank policy meetings continues to unfold amidst fluctuations in broad risk sentiment from relatively pronounced aversion at various stages to a measured and cautious pick-up in appetite more recently. Hence, the tide is currently turning in favour of activity, cyclical and commodity currencies, albeit tentatively in the run up to the Fed, with the Kiwi and Aussie trying to regroup on the 0.7000 handle and 0.7350 axis against their US counterpart, and the latter also striving to shrug off negative domestic impulses like a further decline below zero in Westpac’s leading index and an earthquake near Melbourne. Next up for Nzd/Usd and Aud/Usd, beyond the FOMC, trade data and preliminary PMIs respectively. DXY/CHF/EUR/CAD - Notwithstanding the overall improvement in market tone noted above, or another major change in mood and direction, the Dollar index appears to have found a base just ahead of 93.000 and ceiling a similar distance away from 93.500, as it meanders inside those extremes awaiting US existing home sales that are scheduled for release before the main Fed events (policy statement, SEP and post-meeting press conference from chair Powell). Indeed, the Franc, Euro and Loonie have all recoiled into tighter bands vs the Greenback, between 0.9250-26, 1.1739-17 and 1.2831-1.2770, but with the former still retaining an underlying bid more evident in the Eur/Chf cross that is consolidating under 1.0850 and will undoubtedly be acknowledged by the SNB tomorrow. Meanwhile, Eur/Usd has hardly reacted to latest ECB commentary from Muller underpinning that the APP is likely to be boosted once the PEPP envelope is closed, though Usd/Cad is eyeing a firm rebound in oil prices in conjunction with hefty option expiry interest at the 1.2750 strike (1.8 bn) that may prevent the headline pair from revisiting w-t-d lows not far beneath the half round number. GBP/JPY - The major laggards, as Sterling slips slightly further beneath 1.3650 against the Buck to a fresh weekly low and Eur/Gbp rebounds from circa 0.8574 to top 0.8600 on FOMC day and T-1 to super BoE Thursday. Elsewhere, the Yen has lost momentum after peaking around 109.12 and still not garnering sufficient impetus to test 109.00 via an unchanged BoJ in terms of all policy settings and guidance, as Governor Kuroda trotted out the no hesitation to loosen the reins if required line for the umpteenth time. However, Usd/Jpy is holding around 109.61 and some distance from 1.1 bn option expiries rolling off between 109.85-110.00 at the NY cut. SCANDI/EM - Brent’s revival to Usd 75.50+/brl from sub-Usd 73.50 only yesterday has given the Nok another fillip pending confirmation of a Norges Bank hike tomorrow, while the Zar has regained some poise with the aid of firmer than forecast SA headline and core CPI alongside a degree of retracement following Wednesday’s breakdown of talks on a pay deal for engineering workers that prompted the union to call a strike from early October. Similarly, the Cnh and Cny by default have regrouped amidst reports that the CCP is finalising details to restructure Evergrande into 3 separate entities under a plan that will see the Chinese Government take control. In commodities, WTI and Brent are firmer this morning though once again fresh newsflow for the complex has been relatively slim and largely consisting of gas-related commentary; as such, the benchmarks are taking their cue from the broader risk tone (see equity section). The improvement in sentiment today has brought WTI and Brent back in proximity to being unchanged on the week so far as a whole; however, the complex will be dictated directly by the EIA weekly inventory first and then indirectly, but perhaps more pertinently, by today’s FOMC. On the weekly inventories, last nights private release was a larger than expected draw for the headline and distillate components, though the Cushing draw was beneath expectations; for today, consensus is a headline draw pf 2.44mln. Moving to metals where the return of China has seen a resurgence for base metals with LME copper posting upside of nearly 3.0%, for instance. Albeit there is no fresh newsflow for the complex as such, so it remains to be seen how lasting this resurgence will be. Finally, spot gold and silver are firmer but with the magnitude once again favouring silver over the yellow metal. US Event Calendar 10am: Aug. Existing Home Sales MoM, est. -1.7%, prior 2.0% 2pm: Sept. FOMC Rate Decision (Lower Boun, est. 0%, prior 0% DB's Jim Reid concludes the overnight wrap All eyes firmly on China this morning as it reopens following a 2-day holiday. As expected the indices there have opened lower but the scale of the declines are being softened by the PBoC increasing its short term cash injections into the economy. They’ve added a net CNY 90bn into the system. On Evergrande, we’ve also seen some positive headlines as the property developers’ main unit Hengda Real Estate Group has said that it will make coupon payment for an onshore bond tomorrow. However, the exchange filing said that the interest payment “has been resolved via negotiations with bondholders off the clearing house”. This is all a bit vague and doesn’t mention the dollar bond at this stage. Meanwhile, Bloomberg has reported that Chinese authorities have begun to lay the groundwork for a potential restructuring that could be one of the country’s biggest, assembling accounting and legal experts to examine the finances of the group. All this follows news from Bloomberg yesterday that Evergrande missed interest payments that had been due on Monday to at least two banks. In terms of markets the CSI (-1.11%), Shanghai Comp (-0.29%) and Shenzhen Comp (-0.53%) are all lower but have pared back deeper losses from the open. We did a flash poll in the CoTD yesterday (link here) and after over 700 responses in a couple of hours we found only 8% who we thought Evergrande would still be impacting financial markets significantly in a month’s time. 24% thought it would be slightly impacting. The other 68% thought limited or no impact. So the world is relatively relaxed about contagion risk for now. The bigger risk might be the knock on impact of weaker Chinese growth. So that’s one to watch even if you’re sanguine on the systemic threat. Craig Nicol in my credit team did a good note yesterday (link here) looking at the contagion risk to the broader HY market. I thought he summed it up nicely as to why we all need to care one way or another in saying that “Evergrande is the largest corporate, in the largest sector, of the second largest economy in the world”. For context AT&T is the largest corporate borrower in the US market and VW the largest in Europe. Turning back to other Asian markets now and the Nikkei (-0.65%) is down but the Hang Seng (+0.51%) and Asx (+0.58%) are up. South Korean markets continue to remain closed for a holiday. Elsewhere, yields on 10y USTs are trading flattish while futures on the S&P 500 are up +0.10% and those on the Stoxx 50 are up +0.21%. Crude oil prices are also up c.+1% this morning. In other news, the Bank of Japan policy announcement overnight was a non-event as the central bank maintained its yield curve target while keeping the policy rate and asset purchases plan unchanged. The central bank also unveiled more details of its green lending program and said that it would immediately start accepting applications and would begin making the loans in December. The relatively calm Asian session follows a stabilisation in markets yesterday following their rout on Monday as investors looked forward to the outcome of the Fed’s meeting later today. That said, it was hardly a resounding performance, with the S&P 500 unable to hold on to its intraday gains and ending just worse than unchanged after the -1.70% decline the previous day as investors remained vigilant as to the array of risks that continue to pile up on the horizon. One of these is in US politics and legislators seem no closer to resolving the various issues surrounding a potential government shutdown at the end of the month, along with a potential debt ceiling crisis in October, which is another flashing alert on the dashboard for investors that’s further contributing to weaker sentiment right now. Looking ahead now, today’s main highlight will be the latest Federal Reserve decision along with Chair Powell’s subsequent press conference, with the policy decision out at 19:00 London time. Markets have been on edge for any clues about when the Fed might begin to taper asset purchases, but concern about tapering actually being announced at this meeting has dissipated over recent weeks, particularly after the most recent nonfarm payrolls in August came in at just +235k, and the monthly CPI print also came in beneath consensus expectations for the first time since November. In terms of what to expect, our US economists write in their preview (link here) that they see the statement adopting Chair Powell’s language that a reduction in the pace of asset purchases is appropriate “this year”, so long as the economy remains on track. They see Powell maintaining optionality about the exact timing of that announcement, but they think that the message will effectively be that the bar to pushing the announcement beyond November is relatively high in the absence of any material downside surprises. This meeting also sees the release of the FOMC’s latest economic projections and the dot plot, where they expect there’ll be an upward drift in the dots that raises the number of rate hikes in 2023 to 3, followed by another 3 increases in 2024. Back to yesterday, and as mentioned US equity markets fell for a second straight day after being unable to hold on to earlier gains, with the S&P 500 slightly lower (-0.08%). High-growth industries outperformed with biotech (+0.38%) and semiconductors (+0.18%) leading the NASDAQ (+0.22%) slightly higher, however the Dow Jones (-0.15%) also struggled. Europe saw a much stronger performance though as much of the US decline came after Europe had closed. The STOXX 600 gained +1.00% to erase most of Monday’s losses, with almost every sector in the index ending the day in positive territory. With risk sentiment improving for much of the day yesterday, US Treasuries sold off slightly and by the close of trade yields on 10yr Treasuries were up +1.2bps to 1.3226%, thanks to a +1.8bps increase in real yields. However, sovereign bonds in Europe told a different story as yields on 10yr bunds (-0.3bps), OATs (-0.3bps) and BTPs (-1.9bps) moved lower. Other safe havens including gold (+0.59%) and silver (+1.02%) also benefited, but this wasn’t reflected across commodities more broadly, with Bloomberg’s Commodity Spot Index (-0.30%) losing ground for a 4th consecutive session. Democratic Party leaders plan to vote on the Senate-approved $500bn bipartisan infrastructure bill next Monday, even with no resolution to the $3.5tr budget reconciliation measure that encompasses the remainder of the Biden Administration’s economic agenda. Democrats continue to work on the reconciliation measure but have turned their attention to the debt ceiling and government funding bills.Congress has fewer than two weeks before the current budget expires – on Oct 1 – to fund the government and raise the debt ceiling. Republicans yesterday noted that the Democrats could raise the ceiling on their own through the reconciliation process, with many saying that they would not be offering their support to any funding bill. Democrats continue to push for a bipartisan bill to raise the debt ceiling, pointing to their votes during the Trump administration. If Democrats are forced to tie the debt ceiling and funding bills to budget reconciliation, it could limit how much of the $3.5 trillion bill survives the last minute negotiations between progressives and moderates. More to come over the next 10 days. Staying on the US, there was an important announcement in President Biden’s speech at the UN General Assembly, as he said that he would work with Congress to double US funding to poorer nations to deal with climate change. That comes as UK Prime Minister Johnson (with the UK hosting the COP26 summit in less than 6 weeks’ time) has been lobbying other world leaders to find the $100bn per year that developed economies pledged by 2020 to support developing countries as they reduce their emissions and deal with climate change. In Germany, there are just 4 days to go now until the federal election, and a Forsa poll out yesterday showed a slight narrowing in the race, with the centre-left SPD remaining on 25%, but the CDU/CSU gained a point on last week to 22%, which puts them within the +/- 2.5 point margin of error. That narrowing has been seen in Politico’s Poll of Polls as well, with the race having tightened from a 5-point SPD lead over the CDU/CSU last week to a 3-point one now. Turning to the pandemic, Johnson & Johnson reported that their booster shot given 8 weeks after the first offered 100% protection against severe disease, 94% protection against symptomatic Covid in the US, and 75% against symptomatic Covid globally. Speaking of boosters, Bloomberg reported that the FDA was expected to decide as soon as today on a recommendation for Pfizer’s booster vaccine. That follows an FDA advisory panel rejecting a booster for all adults last Friday, restricting the recommendation to those over-65 and other high-risk categories. Staying with the US and vaccines, President Biden announced that the US was ordering 500mn doses of the Pfizer vaccine to be exported to the rest of the world. On the data front, there were some strong US housing releases for August, with housing starts up by an annualised 1.615m (vs. 1.55m expected), and building permits up by 1.728m (vs. 1.6m expected). Separately, the OECD released their Interim Economic Outlook, which saw them upgrade their inflation expectations for the G20 this year to +3.7% (up +0.2ppts from May) and for 2022 to +3.9% (up +0.5ppts from May). Their global growth forecast saw little change at +5.7% in 2021 (down a tenth) and +4.5% for 2022 (up a tenth). To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference. Otherwise on the data side, we’ll get US existing home sales for August, and the European Commission’s advance consumer confidence reading for the Euro Area in September. Tyler Durden Wed, 09/22/2021 - 08:05.....»»

Category: blogSource: zerohedgeSep 22nd, 2021