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Dow Jones Newswires: U.K. consumer confidence falls in June to record low

Confidence among British households deteriorated again in June, setting a record low for the second consecutive month and adding to concerns of a pullback in consumer spending amid sluggish economic growth......»»

Category: topSource: marketwatchJun 23rd, 2022

Futures, Commodities Jump After China Cuts Quarantine

Futures, Commodities Jump After China Cuts Quarantine US stock futures rebounded from Monday's modest losses and traded near session highs after China reduced quarantine times for inbound travelers by half - to seven days of centralized quarantine and three days of health monitoring at home -  the biggest shift yet in a Covid-19 policy that has left the world’s second-largest economy isolated as it continues to try and eliminate the virus. The move, which fueled optimism about stronger economic growth and boosted appetite for both commodities and risk assets, sent S&P 500 futures and Nasdaq 100 contracts higher by 0.6% each at 7:15 a.m. in New York, setting up heavyweight technology stocks for a rebound. Mining and energy shares led gains in Europe’s Stoxx 600 and an Asian equity index erased losses to climb for a fourth session. 10Y TSY yields extended their move higher rising to 3.25% or about +5bps on the session, while the dollar and bitcoin were flat, and oil and commodity-linked currencies strengthened. In premarket trading, the biggest mover was Kezar Life Sciences which soared 85% after reporting positive results for its lupus drug. On the other end, Robinhood shares fell 3.2%, paring a rally yesterday sparked by news that FTX is exploring whether to buy the company. In a statement, FTX head Sam Bankman-Fried said he is excited about the firm’s business prospects, but “there are no active M&A conversations with Robinhood." Here are some of the other most notable premarket movers" Playtika (PLTK US) shares rallied 11% in premarket trading after a report that private equity firm Joffre Capital agreed to acquire a majority stake in the gaming company from a Chinese investment group for $21 a share. Nike (NKE US) shares fell 2.3% in US premarket trading, with analysts reducing their price targets after the company gave a downbeat forecast for gross margin and said it was being cautious in its outlook for the China market. Spirit Airlines (SAVE US) shares rise as much as 5% in US premarket trading after JetBlue boosted its all-cash bid in response to an increased offer by rival suitor Frontier in the days before a crucial shareholder vote. Snowflake (SNOW US) rises 3.3% in US premarket trading after Jefferies upgraded the stock to buy from hold, saying its valuation is now “back to reality” and offers a good entry point given the software firm’s long-term targets. Sutro Biopharma (STRO US) shares rise 34% in US premarket trading after the company and Astellas said they will collaborate to advance development of immunostimulatory antibody-drug conjugates, which are a modality for treating tumors and designed to boost anti-cancer activity. State Street (STT US) shares could be in focus after Deutsche Bank downgraded the stock to hold, while lowering EPS estimates and price targets across interest rate sensitive coverage of trust banks and online brokers. US bank stocks may be volatile during Tuesday’s trading session after the lenders announced a wave of dividend increases following last week’s successful stress test results. Stock rallies have proved fleeting this year as higher borrowing costs to fight inflation restrain economic activity in a range of nations. European Central Bank President Christine Lagarde affirmed plans for an initial quarter-point increase in interest rates in July, but said policy makers are ready to step up action to tackle record inflation if warranted. Some analysts also argue still-bullish earnings estimates are too optimistic. Earnings revisions are a risk with the US economy set to slow next year, though China emerging from Covid strictures could act as a global buffer, according to Lorraine Tan, Morningstar director of equity research. “You got a US slowdown in 2023 in terms of growth, but you have China hopefully coming out of its lockdowns,” Tan said on Bloomberg Radio. In Europe, stocks are well bid with most European indexes up over 1%. Euro Stoxx 50 rose as much as 1.2% before drifting off the highs. Miners, energy and auto names outperform. The Stoxx 600 Basic Resources sub-index rises as much as 3.5% led by heavyweights Rio Tinto and Anglo American, as well as Polish copper producer KGHM and Finnish forestry companies Stora Enso and UPM- Kymmene. Iron ore and copper reversed losses after China eased its quarantine rules for new arrivals, while oil gained for a third session amid risks of supply disruptions. Iron ore in Singapore rose more than 4% after being firmly lower earlier in the session, while copper and other base metals also turned higher. Here are the biggest European movers: Luxury stocks climb boosted by an easing of Covid-19 quarantine rules in the key market of China. LVMH shares rise as much as 2.5%, Richemont +3.1%, Kering +3%, Moncler +3% Energy and mining stocks are the best-performing groups in the rising Stoxx Europe 600 index amid commodity gains. Shell shares rise as much as 3.8%, TotalEnergies +2.7%, BP +3.4%, Rio Tinto +4.6%, Glencore +3.9% Banco Santander shares rise as much as 1.8% after a report that the Spanish bank has hired Credit Suisse and Goldman Sachs for its bid to buy Mexico’s Banamex. GN Store Nord shares gain as much as 4.2% after Nordea resumes coverage on the hearing devices company with a buy rating. Swedish Match shares rise as much as 4% as Philip Morris International’s offer document regarding its bid for the company has been approved and registered by the Swedish FSA. Wise shares decline as much as 15%, erasing earlier gains after the fintech firm reported full- year earnings. Citi said the results were “mixed,” with strong revenue growth being offset by lower profitability. UK water stocks decline as JPMorgan says it is turning cautious on the sector on the view that future regulated returns could surprise to the downside, in a note cutting Severn Trent to underweight. Severn Trent shares fall as much as 6%, Pennon -7.7%, United Utilities -2.3% Akzo Nobel falls as much as 4.5% in Amsterdam trading after the paint maker announced the appointment of former Sulzer leader Greg Poux-Guillaumeas chief executive officer, succeeding Thierry Vanlancker. Danske Bank shares fall as much as 4%, as JPMorgan cut its rating on the stock to underweight, saying in a note that risks related to Swedish property will likely create some “speed bumps” for Nordic banks though should be manageable. In the Bavarian Alps, limiting Russia’s profits from rising energy prices that fuel its war in Ukraine have been among the main topics of discussion at a Group of Seven summit. G-7 leaders agreed that they want ministers to urgently discuss and evaluate how the prices of Russian oil and gas can be curbed. Earlier in the session, Asian stocks erased earlier losses as China’s move to ease quarantine rules for inbound travelers bolstered sentiment. The MSCI Asia Pacific Index rose as much as 0.6% after falling by a similar magnitude. The benchmark is set for a fourth day of gains, led by the energy and utilities sectors. BHP and Toyota contributed the most to the gauge’s advance, while China’s technology firms were among the biggest losers as a plan by Tencent’s major backer to further cut its stake fueled concern of more profit-taking following a strong rally.   A move by Beijing to cut quarantine times for inbound travelers by half is helping cement gains which have made Chinese shares the world’s best-performing major equity market this month. The nation’s stocks are approaching a bull market even as their recent rise pushes them to overbought levels. Still, the threat of a sharp slowdown in the world’s largest economy may pose a threat to the outlook. “US recession risk is still there and I think that’ll obviously have impact on global sectors,” Lorraine Tan, director of equity research at Morningstar, said on Bloomberg TV. “Even if we do get some China recovery in 2023, which could be a buffer for this region, it’s not going to offset the US or global recession.”  Most stock benchmarks in the region finished higher following China’s move to ease its travel rules. Main equity measures in Japan, Hong Kong, South Korea and Australia rose while those in Taiwan and India fell. Overall, Asian stocks are on course to complete a monthly decline of about 4%.    Meanwhile, the People’s Bank of China pledged to keep monetary policy supportive to help the nation’s economy. It signaled that stimulus would likely focus on boosting credit rather than lowering interest rates. Japanese stocks gained as investors adjusted positions heading into the end of the quarter.  The Topix Index rose 1.1% to 1,907.38 as of the market close in Tokyo, while the Nikkei 225 advanced 0.7% to 27,049.47. Toyota Motor contributed most to the Topix’s gain, increasing 2.2%. Out of 2,170 shares in the index, 1,736 rose and 374 fell, while 60 were unchanged. “As the end of the April-June quarter approaches, there is a tendency for institutional investors to rebalance,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley. “It will be easier to buy into cheap stocks, which is a factor that will support the market in terms of supply and demand.” India’s benchmark stock gauge ended flat after trading lower for most of the session as investors booked some profits after a three-day rally.  The S&P BSE Sensex closed little changed at 53,177.45 in Mumbai, while the NSE Nifty 50 Index gained 0.1%.  Six of the the 19 sector sub-gauges compiled by BSE Ltd. dropped, led by consumer durables companies, while oil & gas firms were top performers.  ICICI Bank was among the prominent decliners on the Sensex, falling 1%. Out of 30 shares in the Sensex index, 17 rose and 13 fell. In rates, fixed income sold off as treasuries remained under pressure with the 10Y yield rising as high as 3.26%, following steeper declines for euro-zone and UK bond markets for second straight day and after two ugly US auctions on Monday. Yields across the curve are higher by 2bp-5bp led by the 7-year ahead of the $40 billion auction. In Europe, several 10-year yields are 10bp higher on the day after comments by an ECB official spurred money markets to price in more policy tightening. WI 7Y yield at around 3.32% exceeds 7-year auction stops since March 2010 and compares with 2.777% last month. Monday’s 5-year auction drew a yield more than 3bp higher than its yield in pre-auction trading just before the bidding deadline, a sign dealers underestimated demand. Traders attributed the poor results to factors including short base eroded by last week’s rally, recently elevated market volatility discouraging market-making, and sub-par participation during what is a popular vacation week in the US. Focal points for US session include 7-year note auction at 1pm ET; a 5-year auction Monday produced notably weak demand metrics. The belly of the German curve underperformed as markets focus  on hawkish comments from ECB officials: 5y bobl yields rose 10 bps near 1.46%, red pack euribors dropped 10-13 ticks and ECB-dated OIS rates priced in 163 basis points of tightening by year end. In FX, Bloomberg dollar spot index is near flat as the greenback reversed earlier losses versus all of its Group-of-10 peers apart from the yen while commodity currencies were the best performers. The euro rose above $1.06 before paring gains after ECB Governing Council member Martins Kazaks said the central bank should consider a first rate hike of more than a quarter-point if there are signs that high inflation readings are feeding expectations. Money markets ECB raised tightening wagers after his remarks. ECB President Lagarde later affirmed plans for an initial quarter-point increase in interest rates in July but said policy makers are ready to step up action to tackle record inflation if warranted. The ECB is likely to drain cash from the banking system to offset any bond purchases made to restrain borrowing costs for indebted euro-area members, Reuters reported, citing two sources it didn’t identify. Elsewhere, the pound drifted against the dollar and euro after underperforming Monday, with focus on quarter-end flows, lingering Brexit risks and the UK economic outlook. Scottish First Minister Nicola Sturgeon due to speak later on how she plans to hold a second referendum on Scottish independence by the end of next year. The yen gave up an Asia session gain versus the dollar as US equity futures reversed losses. The Australian dollar rose after China cut its mandatory quarantine period to 10 days from three weeks for inbound visitors in its latest Covid-19 guidance. JPY was the weakest in G-10, drifting below 136 to the USD. In commodities, oil rose for a third day with global output threats compounding already red-hot markets for physical supplies and as broader financial sentiment improved. Brent crude breached $117 a barrel on Tuesday, but some of the most notable moves in recent days have been in more specialist market gauges. A contract known as the Dated-to-Frontline swap -- an indicator of the strength in the key North Sea market underpinning much of the world’s crude pricing -- hit a record of more than $5 a barrel. The rally comes amid growing supply outages in Libya and Ecuador, exacerbating ongoing market tightness. Oil prices also rose Tuesday as broader sentiment was boosted by China’s move to cut in half the time new arrivals must spend in isolation, the biggest shift yet in its pandemic policy. Meanwhile, the G-7 tasked ministers to urgently discuss an oil price cap on Russia.  Finally, the prospect of additional supply from two of OPEC’s key producers also looks limited. On Monday Reuters reported that French President Emmanuel Macron told his US counterpart Joe Biden that the United Arab Emirates and Saudi Arabia are already pumping almost as much as they can. In the battered metals space, LME nickel rose 2.7%, outperforming peers and leading broad-based gains in the base-metals complex. Spot gold rises roughly $3 to trade near $1,826/oz Looking to the day ahead now, data releases include the FHFA house price index for April, the advance goods trade balance and preliminary wholesale inventories for May, as well as the Conference Board’s consumer confidence for June and the Richmond Fed’s manufacturing index. From central banks, we’ll hear from ECB President Lagarde, the ECB’s Lane, Elderson and Panetta, the Fed’s Daly, and BoE Deputy Governor Cunliffe. Finally, NATO leaders will be meeting in Madrid. Market Snapshot S&P 500 futures up 0.5% to 3,922.50 STOXX Europe 600 up 0.6% to 417.65 MXAP up 0.4% to 162.36 MXAPJ up 0.4% to 539.85 Nikkei up 0.7% to 27,049.47 Topix up 1.1% to 1,907.38 Hang Seng Index up 0.9% to 22,418.97 Shanghai Composite up 0.9% to 3,409.21 Sensex down 0.3% to 52,990.39 Australia S&P/ASX 200 up 0.9% to 6,763.64 Kospi up 0.8% to 2,422.09 German 10Y yield little changed at 1.62% Euro little changed at $1.0587 Brent Futures up 1.4% to $116.65/bbl Gold spot up 0.3% to $1,828.78 U.S. Dollar Index little changed at 103.89 Top Overnight News from Bloomberg In Tokyo’s financial circles, the trade is known as the widow- maker. The bet is simple: that the Bank of Japan, under growing pressure to stabilize the yen as it sinks to a 24-year low, will have to abandon its 0.25% cap on benchmark bond yields and let them soar, just as they already have in the US, Canada, Europe and across much of the developing world Bank of Italy Governor Ignazio Visco may leave his post in October, paving the way for the appointment of a high profile executive close to Premier Mario Draghi, daily Il Foglio reported NATO is set to label China a “systemic challenge” when it outlines its new policy guidelines this week, while also highlighting Beijing’s deepening partnership with Russia, according to people familiar with the matter The PBOC pledged to keep monetary policy supportive to aid the economy’s recovery, while signaling that stimulus would likely focus on boosting credit rather than lowering interest rates A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mixed with the region partially shrugging off the lacklustre handover from the US. ASX 200 was kept afloat with energy leading the gains amongst the commodity-related sectors. Nikkei 225 swung between gains and losses with upside capped by resistance above the 27K level. Hang Seng and Shanghai Comp. were pressured amid weakness in tech and lingering default concerns as Sunac plans discussions on extending a CNY bond and with Evergrande facing a wind-up petition. Top Asian News China is to cut quarantine time for international travellers, according to state media cited by Reuters. Shanghai Disneyland (DIS) will reopen on June 30th, according to Reuters. PBoC injected CNY 110bln via 7-day reverse repos with the rate at 2.10% for a CNY 100bln net daily injection. China's state planner official said China faces new challenges in stabilising jobs and prices due to COVID and risks from the Ukraine crisis, while the NDRC added they will not resort to flood-like stimulus but will roll out tools in its policy reserve in a timely way to cope with challenges, according to Reuters. China's state planner NDRC says China is to cut gasoline and diesel retail prices by CNY 320/tonne and CNY 310/tonne respectively from June 29th. BoJ may have been saddled with as much as JPY 600bln in unrealised losses on its JGB holdings earlier this month, as a widening gap between domestic and overseas monetary policy pushed yields higher and prices lower, according to Nikkei. European bourses are firmer as sentiment picked up heading into the cash open amid encouraging Chinese COVID headlines. Sectors are mostly in the green with no clear theme. Base metals and Energy reside as the current winners and commodities feel a boost from China’s COVID updates. Stateside, US equity futures saw a leg higher in tandem with global counterparts, with the RTY narrowly outperforming. Twitter (TWTR) in recent weeks provided Tesla (TSLA) CEO Musk with historical tweet data and access to its so-called fire hose of tweets, according to WSJ sources. Top European News UK lawmakers voted 295-221 to support the Northern Ireland Protocol bill in the first of many parliamentary tests it will face during the months ahead, according to Reuters. Scotland's First Minister Sturgeon will set out a plan today for holding a second Scottish Independence Referendum, according to BBC News. ECB’s Kazaks Says Worth Looking at Larger Rate Hike in July G-7 Latest: Leaders Want Urgent Evaluation of Energy Price Caps Ex- UBS Staffer Wants Payout for Exposing $10 Billion Swiss Stash SocGen Blames Clifford Chance in $483 Million Gold Suit GSK’s £40 Billion Consumer Arm Picks Citi, UBS as Brokers Russian Industry Faces Code Crisis as Critical Software Pulled ECB ECB's Lagarde said inflation in the euro area is undesirably high and it is projected to stay that way for some time to comeFragmentation tool, via the ECB. ECB's Kazaks said 25bps in July and 50bps in September is the base case, via Bloomberg TV. Kazaks said it is worth looking at a 50bps hike in July and front-loading hikes might be reasonable. Fragmentation risks should not stand in the way of monetary policy normalisation. If necessary, the ECB will come up with tools to address fragmentation. ECB's Wunsch said he is comfortable with a 50bps hike in September; adds that 200bps of hikes are needed relatively fast, and anti-fragmentation tool should have no limits if market moves are unwarranted, via Reuters. Bank of Italy said Governor Visco's resignation is not on the table, according to a spokesperson cited by Reuters. Fixed Income Bond reversal continues amidst buoyant risk sentiment, hawkish ECB commentary and supply. Bunds lose two more big figures between 146.80 peak and 144.85 trough, Gilts down to 112.06 from 112.86 at best and 10 year T-note retreats within 117-01/116-14 range FX DXY regroups on spot month end as yields rally and rebalancing factors offer support - index within 103.750-104.020 range vs Monday's 103.660 low. Euro continues to encounter resistance above 1.0600 via 55 DMA (1.0614 today); Yen undermined by latest bond retreat and renewed risk appetite - Usd/Jpy eyes 136.00 from low 135.00 area and close to 134.50 yesterday. Aussie breaches technical and psychological resistance with encouragement from China lifting or easing more Covid restrictions - Aud/Usd through 10 DMA at 0.6954. Loonie and Norwegian Krona boosted by firm rebound in oil as France fans supply concerns due to limited Saudi and UAE production capacity - Usd/Cad sub-1.2850 and Eur/Nok under 10.3500. Yuan receives another PBoC liquidity boost to compliment positive developments on the pandemic front, but Rand hampered by latest power cut warning issued by SA’s Eskom Commodities WTI and Brent futures were bolstered in early European hours amid encouragement seen from China's loosening of COVID restrictions. Spot gold is uneventful, around USD 1,825/oz in what has been a sideways session for the bullion since the reopening overnight. Base metals are posting broad gains across the complex - with LME copper back above USD 8,500/t amid China-related optimism. US Event Calendar 08:30: May Advance Goods Trade Balance, est. -$105b, prior -$105.9b, revised -$106.7b 08:30: May Wholesale Inventories MoM, est. 2.1%, prior 2.2% May Retail Inventories MoM, est. 1.6%, prior 0.7% 09:00: April S&P CS Composite-20 YoY, est. 21.15%, prior 21.17% 09:00: April S&P/CS 20 City MoM SA, est. 1.95%, prior 2.42% 09:00: April FHFA House Price Index MoM, est. 1.4%, prior 1.5% 10:00: June Conf. Board Consumer Confidenc, est. 100.0, prior 106.4 Conf. Board Expectations, prior 77.5; Present Situation, prior 149.6 10:00: June Richmond Fed Index, est. -5, prior -9 DB's Jim Reid concludes the overnight wrap It's been a landmark night in our household as last night was the first time the 4-year-old twins slept without night nappies. So my task this morning after I send this to the publishers is to leave for the office before they all wake up so that any accidents are not my responsibility. Its hopefully the end of a near 7-year stretch of nappies being constantly around in their many different guises and states of unpleasantness. Maybe give it another 30-40 years and they'll be back. Talking of unpleasantness, as we near the end of what’s generally been an awful H1 for markets, yesterday saw the relief rally from last week stall out, with another bond selloff and an equity performance that fluctuated between gains and losses before the S&P 500 (-0.30%) ended in negative territory. In terms of the specific moves, sovereign bonds lost ground on both sides of the Atlantic, with yields on 10yr Treasuries up by +7.0bps following their -9.6bps decline from the previous week. That advance was led by real rates (+9.6bps), which look to have been supported by some decent second-tier data releases from the US during May yesterday. The preliminary reading for US durable goods orders surprised on the upside with a +0.7% gain (vs. +0.1% expected). Core capital goods orders also surprised on the upside with a +0.8% advance (vs. +0.2% expected). And pending home sales were unexpectedly up by +0.7% (vs. -4.0% expected). Collectively that gave investors a bit more confidence that growth was still in decent shape last month, which is something that will also offer the Fed more space to continue their campaign of rate hikes into H2. This morning 10yr USTs yields have eased -2.45 bps to 3.17% while 2yr yields (-4 bps) have also moved lower to 3.08%, as we go to press. Staying at the front end, when it comes to those rate hikes, if you look at Fed funds futures they show that investors are still only expecting them to continue for another 9 months, with the peak rate in March or April 2023 before markets are pricing in at least a full 25bps rate cut by end-2023 from that point. I pointed out in my chart of the day yesterday (link here) that the median time historically from the last hike of the cycle to the first cut was only 4 months, and last time it was only 7 months between the final hike in December 2018 and the next cut in July 2019. So it wouldn’t be historically unusual if Fed funds did follow that pattern whether that fits my view or not. Over in Europe yesterday there was an even more aggressive rise in yields, with those on 10yr bunds (+10.9bps), OATs (+11.0bps) and BTPs (+9.1bps) all rising on the day as they bounced back from their even larger declines over the previous week. That came as investors pared back their bets on a more dovish ECB that they’d made following the more negative tone last week, and the rate priced in by the December ECB meeting rose by +8.5bps on the day. For equities, the major indices generally fluctuated between gains and losses through the day. The S&P 500 followed that pattern and ultimately fell -0.30%, which follows its best daily performance in over 2 years on Friday Quarter-end rebalancing flows seem set to drive markets back-and-forth price this week. Even with the decline yesterday, the index is +6.36% higher since its closing low less than a couple of weeks ago. And over in Europe, the STOXX 600 (+0.52%) posted a decent advance, although that masked regional divergences, including losses for the CAC 40 (-0.43%) and the FTSE MIB (-0.86%). Energy stocks strongly outperformed in the index, supported by a further rise in oil prices that left both Brent crude (+1.74%) and WTI (+1.81%) higher on the day. G7 ministers reportedly agreed to explore a cap on Russian gas and oil exports, with the official mandate expected to be announced today, but it would take time for any mechanism to be developed. The impact on global oil supply is not clear: if Russia retaliates supply could go down, if this enables other third parties to import more Russian oil supply could go up. Elsewhere, political unrest in Libya and Ecuador could simultaneously hit oil supply. In early Asian trading, oil prices continue to move higher, with Brent futures up +1.13% at $116.39/bbl and WTI futures gaining +1% to just above the $110/bbl level. Asian equity markets are struggling a bit this morning. The Hang Seng (-1.00%) is the largest underperformer amid a weakening in Chinese tech stocks whilst the Nikkei (-0.15%), Shanghai Composite (-0.15%) and CSI (-0.19%) are trading in negative territory in early trade. Elsewhere, the Kospi (-0.05%) is just below the flatline. US stock futures are slipping with contracts on the S&P 500 (-0.12%) and NASDAQ 100 (-0.18%) both slightly lower. In central bank news, the People’s Bank of China (PBOC) Governor Yi Gang pledged to provide additional monetary support to the economy to recover from Covid outbreaks and lockdowns and other stresses. In a rare interview conducted in English, the central bank chief did caution though that the real interest rate is low thereby indicating limited room for large-scale monetary easing. Turning to geopolitical developments, the G7 summit continued in Germany yesterday, and in a statement it said they would “further intensify our economic measures against Russia”. Separately, NATO announced that it will increase the number of high readiness forces to over 300,000, with the alliance’s leaders set to gather in Madrid from today. And we’re also expecting a new round of nuclear talks with Iran to take place at some point this week, something Henry mentioned in his latest Mapping Markets out yesterday (link here), which if successful could in time pave the way for Iranian oil to return to the global market. Finally, whilst there were some decent May data releases from the US, the Dallas Fed’s manufacturing activity index for June fell to a 2-year low of -17.7 (vs. -6.5 expected). To the day ahead now, and data releases include Germany’s GfK consumer confidence for July, French consumer confidence for June, whilst in the US there’s the FHFA house price index for April, the advance goods trade balance and preliminary wholesale inventories for May, as well as the Conference Board’s consumer confidence for June and the Richmond Fed’s manufacturing index. From central banks, we’ll hear from ECB President Lagarde, the ECB’s Lane, Elderson and Panetta, the Fed’s Daly, and BoE Deputy Governor Cunliffe. Finally, NATO leaders will be meeting in Madrid. Tyler Durden Tue, 06/28/2022 - 08:00.....»»

Category: blogSource: zerohedgeJun 28th, 2022

Dow Jones Newswires: U.K. consumer confidence falls in June to record low

Confidence among British households deteriorated again in June, setting a record low for the second consecutive month and adding to concerns of a pullback in consumer spending amid sluggish economic growth......»»

Category: topSource: marketwatchJun 23rd, 2022

This Is The Worst Year On Record For Markets... So Far

This Is The Worst Year On Record For Markets... So Far The latest long-awaited chartbook (titled “2022 - One of the worst years on record… so far” and available to pro subs), was just published by DB's head of thematic research Jim Reid, and among many other things, it shows how 2022 is shaping up to be one of the worst years on record for financial markets. In fact, as his chart of the day demonstrates, the S&P 500 is currently on track for its worst H1 performance since 1932 at the depths of the Great Depression, having shed -22.3% so far this year in total return terms. That just edges out 1962, when the index lost -22.2% over the first six months of the year. But for those with a traditional 60/40 type portfolio, the news doesn’t get any better, since 10yr Treasuries are currently on track for their worst H1 since 1788. Globally, bond and stock markets combined have lost a stunning $36 trillion dollars from their peak. It's not all bad news, and those readers looking for some positives may be comforted to learn that the 5 worst H1 performances for the S&P 500 before this year, all saw very good H2 performance. Indeed, on 4 of those 5 occasions, the index went on to gain at least +17%, with the other seeing a +10% gain.  In order of H1 declines, we saw: 1932: H1 -45%, H2 +56%, 1962: H1 -22%, H2 +17%, 1970: H1 -19%, H2 +29%, 1940: H1 -17%, H2 +10%, 1939: H1 -15%, H2 +18%. Still, what happens in H2 is quite binary: if we don’t see a recession materialize over that period, Reid suggests that it might be tough for markets to continue to be as bearish as they have been, and a bounce back resembling history might be possible. However, it’s hard to see markets recovering if we see firm evidence of the recession. For what it's worth, regular readers of the Deutsche Banker will know that he still favors 2023 as the starting point of the US recession (and bigger market falls) but even he now concedes - following Nomura's forecast this weekend that the recession begins in late 2022 - that the risk of an earlier move is clearly building with declining financial conditions, and consumer and business confidence plummeting. The chart book has much more useful data and visualizations on asset performance, central banks still being behind the curve, the end of negative yields, a recession watch, as well as charts from Reid's two recent big publications on asset performance in the 1970s, and the end of the ultra-low default world, all available to professional subs. Tyler Durden Tue, 06/21/2022 - 18:00.....»»

Category: blogSource: zerohedgeJun 21st, 2022

Futures Rise As ECB Panics And Fed Looms

Futures Rise As ECB Panics And Fed Looms After five days of non-stop losses, US index futures finally bounced modestly along with stocks in Europe as the ECB announced it would hold an emergency meeting to undo the damage done by its meeting from last week, and ahead of the Fed which today will hike by 75bps, the most since 1994, and will then scramble to undo the damage from pushing the US into a recession in coming days and weeks. Contracts on the S&P 500 and Nasdaq 100 posted modest gains, rising 0.8% and 1% respectively, ahead of the Fed, with markets fully pricing in the biggest rate hike since 1994 amid worries about the outlook for the economy. Europe's Stoxx Europe 600 index jumped more than 1%, snapping a six-day losing streak, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. Treasury yields dipped and the dollar retreated from a two-year high. In premarket trading, major technology and internet stocks are higher in premarket trading along with US stock futures ahead of Wednesday’s Federal Reserve announcement, with investors expecting a 75 basis-point increase in rates. Bank stocks were also higher in premarket trading. Here are some other notable premarket movers: Spotify (SPOT US) shares gain 2.2% in premarket trading as Wells Fargo upgraded the stock to equal-weight, saying the music streaming firm’s recent investor day laid out a more profitable company than the brokerage has modeled historically. Chinese tech stocks are mostly higher in US premarket trading, with education shares continuing their winning streak since peer Koolearn’s livestreaming hit went viral. Alibaba (BABA US) +1.9%, Baidu (BIDU US) +3.6%, Pinduoduo (PDD US) +2.3%, New Oriental Education (EDU US) +8.4%, TAL Education (TAL US) +4.5%. iQIYI (IQ US) shares decline 3.9% in US premarket trading as Baidu is in talks to sell its majority stake in the streaming service in a deal that could value all of iQIYI at $7 billion, Reuters reported, citing people with knowledge of the matter. Cryptocurrency-related stocks fell in premarket trading on Wednesday as Bitcoin and Ethereum tumbled. MicroStrategy (MSTR US) -7.6%, Marathon Digital Holdings (MARA US) -7.6%, Riot Blockchain (RIOT US) -7%, Coinbase (COIN US) -6.6%. Apple (AAPL US) and other consumer computer-hardware stocks may be in focus today as Morgan Stanley cut its price targets for such shares due to risks related to a potential slowdown in consumer spending. Moderna’s (MRNA US) shares rose 1.2% in US after-hours trading on Tuesday, while analysts said that the unanimous verdict from an FDA panel, which supported the biotech firm’s Covid vaccine for children, came as no surprise. Qualcomm (QCOM US) stocks could be in focus after the company won a European Union court bid to topple a 997 million-euro antitrust fine for allegedly pressuring Apple to only buy its 4G chips. Fears of stagflation have driven stocks into a bear market and triggered a stunning selloff in bonds in recent days. Uncertainty is elevated heading into the Fed decision: increments of 50 basis points, 75 basis points and even 100 basis points have all been chewed over by commentators. Parts of the US yield curve remain inverted, signaling concerns that restrictive monetary policy will lead to an economic downturn. Today's main event is of course the Fed decision which is expected to include a 75bp rate hike, with latest forecasts released at the same time. Swaps market is currently pricing in around 70bp of rate hikes for the meeting with a combined 202bp of additional hikes priced for the June, July and September meetings. From the forecasts, focus will be on revisions to the Fed’s long-term rate; swaps market is currently pricing a rate peak at around 3.90% by the middle of next year (full preview here). “Markets are poised for aggressive rate hikes, but what of US economic growth?” said Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank in Johannesburg. “It might not be in recessionary territory just yet, but the landing is not going to be as soft as the Fed predicates. Anything less than 75 basis points or at least a strong willingness to make more significant adjustments will likely turn the market on its head, eroding total returns of global bonds and equities even further.” European equities trade well but off session highs. FTSE MIB outperforms, rallying as much as 3.3% before stalling. Stoxx 600 rises as much as 1.2% with travel, banks and insurance names doing much of the heavy lifting, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. While new stimulus may not be on the agenda, officials will discuss a crisis strategy and the reinvestment of bond purchases conducted under the now-halted pandemic emergency program, Bloomberg reported. Here are the biggest European movers: Rate-sensitive sectors such as financials and technology gained in Europe as the ECB holds an ad hoc meeting to discuss market conditions and the Fed concludes its two-day policy meeting. Finecobank shares rise as much as 8.4%, Intesa Sanpaolo +7.5%, Assicurazioni Generali +5.3%. Europe auto stocks are among outperforming sectors in the wider equity gauge, led by French part suppliers Faurecia and Valeo, and carmaker Renault. Faurecia shares gain as much as 8.7%, Valeo +6.5%, Renault +5.6% Whitbread shares rise as much as 6.4% after the hotel operator reported quarterly sales, with Barclays noting the company’s “upbeat tone.” Gerresheimer shares rise as much as 17% after a Bloomberg report that the German maker of packaging for drugs and cosmetics rejected an informal takeover approach from Bain Capital in recent weeks. Nordic and European forestry and paper mill companies’ shares rebound, breaking sharp declines triggered after brokers cut their  respective outlooks for the sector in the past week. Smurfit Kappa stock rises as much as 5.3%, BillerudKorsnas +4.8%, Huhtamaki +5.6% H&M shares drop as much as 6.4% with uncertainty about the margin outlook and ongoing cost pressures overshadowing the apparel retailer’s 2Q sales beat. Getinge shares fall as much as 18% after the medical technology firm lowered guidance, projecting flat organic sales growth for the year. Nordea and JPMorgan downgraded their recommendations. Elia Group shares fell as much as 12% after the electricity transmission company laid out plans for a rights offering. Autoneum shares drop as much as 5.2% after the car- parts maker warned on profits. Vontobel analyst Arben Hasanaj noted the firm’s difficulty in passing on higher costs, along with further likely delays in car production recovery. Voltalia slumps as much as 9.1% after Oddo downgrades to neutral in note as it questions what level of growth is possible after 2023. “The ECB is between rock and a hard place, like most other central banks,” said Marija Veitmane, a senior strategist at State Street Global Markets. “Inflation is very high and shows little signs of quickly declining, while the economy is increasingly fragile, particularly with the war in Europe and ever-rising energy costs. So anything the ECB can announce to reduce systemic risk is very welcome.” Earlier in the session, Asian stocks posted modest declines as sentiment improved from earlier in the week, with Chinese shares rising after domestic economic data showed pockets of recovery. The MSCI Asia Pacific Index was down 0.4% as of 6:07 p.m. in Singapore, as losses in regional tech hardware shares offset advances in China’s internet giants. South Korea and the Philippines led declines, while Japanese stocks fell ahead of a central bank policy meeting this week. Gains in China and Hong Kong helped offset losses elsewhere as data showed the country’s industrial production unexpectedly increased in May. Meanwhile the nation’s central bank kept a key policy rate unchanged, avoiding further policy divergence as the Federal Reserve tightens. “A more accommodative policy and fiscal environment together with stronger corporate fundamentals should be positive for Chinese equity assets,” said Jessica Tea, an investment specialist at BNP Paribas Asset Management. The MSCI Asia gauge dropped almost 4% over the previous two sessions as inflation data from the US fueled bets of a 75-basis-point rate hike by the Fed at Wednesday’s meeting. Still, the index has outperformed a measure of global peers this year, with the latter now in a bear market. Japanese stocks dropped ahead of a Federal Reserve rate decision. A Bank of Japan review on Friday is also on the radar.  The Topix Index fell 1.2% to close at 1,855.93 while the Nikkei gauge declined 1.1% to 26,326.16. Keyence Corp. contributed the most to the Topix Index’s decline, decreasing 3.9%. Out of 2,170 shares in the index, 288 rose and 1,829 fell, while 53 were unchanged. “The sharp decline in JGBs is also contributing to the drop in stock prices as uncertainty mounts ahead of the BOJ meeting,” said Hajime Sakai, chief fund manager at Mito Securities Co Indian stocks fell after swinging between gains and losses for the most part of the session, as concerns over higher inflation and likely tighter monetary policy measures weighed on sentiment.   The S&P BSE Sensex slipped 0.3% to close at 52,541.39 in Mumbai to its lowest level since July 28. The NSE Nifty 50 Index also slipped by a similar magnitude. Reliance Industries Ltd. posted its longest run of losses in more than a month and was the biggest drag on the Sensex, which had 17 of 30 member stocks trading lower. Ten of the 19 sector sub-indexes compiled by BSE Ltd fell, led by a gauge of power stocks. Retail inflation in India held above the central bank’s target in May, while wholesale prices accelerated for a third-straight month as input costs continue to rise, hurting company earnings.  “Commodity prices continue to remain elevated and despite passing on the costs to consumers, India Inc. is still facing margin pressures,” Mitul Shah, head of research at Reliance Securities wrote in a note.   Australia's S&P/ASX 200 index fell 1.3% to close at 6,601.00, the fourth straight day of declines. All sectors finished lower, with mining stocks and banks the biggest drags on the index. During early trade, Australia’s industrial relations umpire raised the minimum wage by 5.2% from July 1, a larger-than-expected increase, affirming speculation of faster tightening by the central bank.  Meanwhile, in New Zealand, the S&P/NZX 50 index was little changed at 10,635.92., after entering a bear market Tuesday. The gauge has shed more than 20% from its January 2021 peak. In FX, the Bloomberg Dollar Spot Index fell as the greenback weakened against all of its Group-of-10 peers apart from the Canadian dollar. Risk-sensitive Scandinavian currencies and the Aussie dollar lead gains. The euro rose by as much as 0.9% to 1.0508, and the yield on 10-year Italian bonds fell as much as 30bps after the ECB announced the Governing Council would hold an ad-hoc meeting on Wednesday “to discuss current market conditions.” ECB officials will be invited to sign off on the reinvestment of bond purchases conducted under the now-halted pandemic emergency program, a crisis response that they flagged in their decision last week, according to people familiar with the matter. Three-month euribor fixes higher by the most in more than two years, climbing to the highest since April 2020 as funding rates seek to mirror ECB rate hike expectations. Japanese bond futures drop most since 2013 as traders ramp up bets BOJ will give in to tweak policy. Australian bonds slumped with three-year yields posting steepest two-day climb since 1994. The Aussie extended an advance after the Fair Work Commission said the minimum wage will be increased by 5.2%. Earlier, the RBA said it “will do what’s necessary” to bring inflation back down to its 2-3% target as Goldman sees three more half-point hikes. In rates, Treasuries pared a recent drop, with yields falling up to 8bps led by shorter maturities amid a TSY rally in Asia and early European sessions, leaving yields richer by as much as 12.5bp across front-end leading into US session.  Markets are pricing in 73bps worth of hikes from the Fed today. US 10-year yields around 3.36%, richer by 10bp on the day while front-end outperformance steepens 2s10s, 5s30s spreads by 3bp and 6.5bp respectively. Curve steepens as long-end lags front-end rally and some rate hike premium eases out the swaps market ahead of 2pm ET Fed policy decision. European bonds rallied after ECB announces emergency meeting to discuss market conditions, with French and UK outperforming along with Italy and other peripherals. In commodities, crude futures drop back toward the lows for the week. WTI falls 1.2% near $117.50. Most base metals trade in the green; LME tin rises 2.3%, outperforming peers. Spot gold rises roughly $16 to trade near $1,825/oz Looking to the day ahead, the main highlight will likely be the aforementioned FOMC decision and Chair Powell’s subsequent press conference. There’s also an array of ECB speakers, including President Lagarde, as well as the ECB’s Holzmann, Nagel, Centeno, Muller, De Cos, Panetta and Knot. Otherwise, data releases include Euro Area industrial production for April, US retail sales for May, the NAHB housing market index for June and the Empire State manufacturing survey for June. Market Snapshot S&P 500 futures up 0.8% to 3,768.50 STOXX Europe 600 up 1.2% to 412.15 MXAP down 0.4% to 159.27 MXAPJ little changed at 529.71 Nikkei down 1.1% to 26,326.16 Topix down 1.2% to 1,855.93 Hang Seng Index up 1.1% to 21,308.21 Shanghai Composite up 0.5% to 3,305.41 Sensex up 0.2% to 52,797.58 Australia S&P/ASX 200 down 1.3% to 6,601.03 Kospi down 1.8% to 2,447.38 Brent Futures down 0.2% to $120.90/bbl Gold spot up 0.6% to $1,818.80 U.S. Dollar Index down 0.56% to 104.93 German 10Y yield little changed at 1.77% Euro up 0.6% to $1.0479 Brent Futures down 0.2% to $120.90/bbl Top Overnight News from Bloomberg Federal Reserve Chair Jerome Powell, who’s carefully telegraphed interest rate hikes over four years, looks likely to abandon gradualism and move more forcefully to stamp out inflation along with growing concerns that it will persist The European Central Bank’s Governing Council is ready to step in if it considers moves in government bond markets to be unjustified, according to Belgium’s Pierre Wunsch, as the ECB prepared for an emergency meeting on recent euro-zone bond turbulence The European Union is restarting infringement proceedings against the UK and will launch two new legal actions after London proposed legislation to override part of the Brexit withdrawal agreement, according to an EU official The first batch of a Chinese offshore yuan sovereign bond sale saw the strongest demand in nearly two years, defying a recent stream of outflows at a time when the global debt market is showing deepening levels of stress Even after central banks recognized they got their inflation calls wrong last year, they’ve continued to flub their policy guidance, threatening greater damage to their credibility, roiling markets and undermining the pandemic recovery A more detailed look at markets courtesy of Newsquawk Asia-Pac stocks traded mixed amid cautiousness heading into the FOMC with markets pricing in a more than 90% chance of a 75bps rate hike, while the region also digested better-than-expected Chinese activity data. ASX 200 was led lower by energy, resources and tech, despite a 5.2% national minimum wage increase. Nikkei 225 failed to benefit from strong Machinery Orders data amid the ongoing currency-related jitters. Hang Seng and Shanghai Comp. were positive with encouragement from the latest activity data that showed surprise growth in Industrial Production and a narrower than feared contraction in Retail Sales, while attention was also on the PBoC which rolled over CNY 200bln through its 1-year MLF with the rate unchanged. Top Asian News PBoC injected CNY 200bln via 1-year MLF vs. CNY 200bln maturing with the rate kept at 2.85%, as expected. China's stats bureau said the main indicators show marginal improvement and the economy shows good recovery momentum, but added that the economic recovery still faces many difficulties and challenges. Furthermore, it said policies to stabilise economic growth gained traction and it expects economic performance to improve further in June due to policy support, but noted recovery is still at an initial stage and main indicators are at low levels, according to Reuters. Hong Kong reports 1047 new COVID cases. Appears to be the first time since early April that cases have surpassed the 1k mark. European equities are firmer across the board ahead of the impromptu ECB meeting, Euro Stoxx 50 +1.0%; unsurprisingly,  periphery-nation indexes are outperforming, FTSE MIB +3.0%, given upside in banking names. As such, the Banking sector outperforms with most of its peers also in the green, though the Energy sector lags amid benchmark pricing. Stateside, futures are firmer across the board deriving impetus from European performance, but with overall action somewhat more contained ahead of the Fed and uncertainty around 75bp, ES +0.3%. Baidu (BIDU) is in discussions with potential suitors to offload its 53% stake in video-streaming name Iqiyi, according to Reuters sources. +3.8% in the pre-market. Top European News UK PM Johnson is reportedly determined to reverse Chancellor Sunak's planned GBP 15bln tax raid on business as he tries to firm up support following last week's confidence vote, according to The Times. UK PM Johnson is understood to have told his cabinet to 'de-escalate' the Northern Ireland Protocol stand-off with the EU, according to The Telegraph. UK exports to the EU during H1 of last year fell by 15.6% amid Brexit frictions, according to a study by Aston University cited by FT. Swiss SECO Forecasts (summer): Inflation: 2022 2.5% (prev. 1.9%), 2023 1.4% (prev. 0.7%). GDP: 2022 2.8% (prev. 3.0%), 1.6% (prev. 1.7%) Central Banks BoJ offers an additional emergency bond buying operation; to buy unlimited amounts of 10yr JGBs on June 16th & 17th at 0.25%. Fall in JGB futures has triggered a circuit breaker at the Tokyo stock exchange, via Japan Exchange Group. Japan's Securities Dealer Association's Morita says the JPY may have weakened too much, via Reuters. 8/9 members (vs. 3/9 at the May meeting) of the Times' shadow MPC believe that the BoE should raise rates by 50bps at its policy meeting tomorrow, according to the Times. FX Buck backs off from best levels into FOMC and US data awaiting confirmation of the hawkish hype or half point hike signalled pre-hot CPI; DXY slips from 105.650 peak on Tuesday into 105.380-104.700 range. Aussie rebounds on risk grounds and more aggressive RBA tightening calls, AUD/USD reclaims 0.6900+ status. Yen takes note of latest verbal intervention and Hong Kong Dollar supported by more physical HKMA buying to keep it pegged; USD/JPY sub-134.50 vs 135.50+ overnight. Euro extends recovery rally as ECB holds ad hoc meeting to discuss fragmenting debt markets and Wunsch contends that gradualism does not rule out larger than 25 bp moves; EUR/USD pops over 1.0500 from just below 1.0400 yesterday. Yuan gleans impetus from better than expected or feared Chinese industrial production and retail sales, USD/CNH nearer 6.7200 than 6.7600, USD/CNY close to 6.7100 and not far from 21 DMA at 6.6965 today. Fixed Income Decent bear market retracement in debt approaching the FOMC. Bunds up to 143.79 at best vs new 143.25 cycle low, Gilts towards top of 112.48-111.88 band and 10 year T-note closer to 115-06 than 114-10. BTPs markedly outperform after near 3 full point bounce from Tuesday close in anticipation of an anti-fragmentation tool from the ECB as GC meets for crisis talks. Commodities Currently, WTI and Brent are lower by circa. USD 1.00bbl but reside within comparably narrow ranges of around USD 2.00bbl vs, for instance, yesterday’s USD +6.00/bbl parameters. Curtailed amid COVID updates from China and Hong Kong alongside Biden's reported push for an explanation from producers over why supply isn't increasing. US President Biden has demanded an explanation from oil companies over why they are refraining from putting additional gasoline on the market and wants concrete ideas as to how they can increase supplied, according to a letter seen by Reuters. US Energy Inventory Data (bbls): Crude +0.7mln (exp. -1.3mln), Cushing -1.1mln, Gasoline -2.2mln (exp. +1.1mln), Distillates +0.2mln (exp. +0.3mln) US DoE announced contract awards and issued the fourth emergency sale of crude oil from SPR (as previously announced), in which contracts were awarded to nine including Chevron (CVX), Exxon (XOM) and Marathon Petroleum (MPC). Kazakhstan has capped wheat exports at 550k tonnes and wheat flour at 370k tonnes until September 30th, according to the Agriculture Ministry, via Reuters. Spot gold derives impetus from the USD’s retreat and is now back above USD 1820/oz but still shy of yesterday’s USD 1831/oz best and the subsequent 200-, 10- & 21-DMAs ahead at USD 1842, 1843 & 1845 respectively. US Event Calendar 07:00: June MBA Mortgage Applications +6.6%, prior -6.5% 08:30: May Import Price Index YoY, est. 11.9%, prior 12.0%;  MoM, est. 1.1%, prior 0% May Export Price Index YoY, prior 18.0%; MoM, est. 1.3%, prior 0.6% 08:30: May Retail Sales Advance MoM, est. 0.1%, prior 0.9% May Retail Sales Ex Auto MoM, est. 0.7%, prior 0.6% May Retail Sales Control Group, est. 0.3%, prior 1.0% 08:30: June Empire Manufacturing, est. 2.2, prior -11.6 10:00: April Business Inventories, est. 1.2%, prior 2.0% 10:00: June NAHB Housing Market Index, est. 67, prior 69 14:00: June FOMC Rate Decision 16:00: April Total Net TIC Flows, prior $149.2b DB's Jim Reid concludes the overnight wrap In these crazy days for markets, I'm willing to stake my reputation that I've done something in the last 24 hours that no-one else reading this did. Yes, after a business trip to Europe yesterday, I watched the original Top Gun on my iPad on the plane ride home for the very first time, some 36 years after it came out. My wife wants to watch the sequel, so I thought I ought to see what all the fuss was about. She's seen it around 20 times and always asks what I was doing in my teenage years that's made me miss all the films of her youth. The truth is I was either studying or playing cricket or golf. Not much else. My review is that it was a decent film, but Mavericks' courting technique doesn't really age very well. I'm not sure Maverick and Goose would have been able to get out of the tight spot that the Fed are in at the moment very easily. After the astonishing price action over the previous 2 business days, markets have settled somewhat over the last 24 hours, but overall have continued to struggle as they await today’s all-important Federal Reserve decision. Up until the CPI report last Friday, that decision seemed like a lock in favour of a second consecutive 50bp hike, not because that was the right move, but because the Fed had firmly guided us to such an outcome. The CPI report raised doubts as to whether they could hold that line over the summer, but the WSJ article on Monday night broke the levee as a 75bps move tonight is now suddenly pretty much consensus. Our economics team agrees and have now updated their previously street leading view to have a +75bp hike tonight followed by another +75bp increase in July. The team believes fed funds will reach 3.5% by the end of the year, and hit a terminal rate of 4.1% in Q1 2023, sooner than they thought before the WSJ story. See their full updated call, available here. As we hit this big day, markets now fully price in a 75bps hike today. Indeed, 76.3bps is priced, so that actually incorporates a small risk of 100bps, something former New York Fed President Bill Dudley was openly considering yesterday, which may have contributed to the sentiment that drove the next leg of the selloff in the New York afternoon. A total of 289bps worth of rate hikes by year-end is now priced. So quite the turnaround from a few weeks back when some were even floating the strange idea of a “pause” in September. Clearly the 75bp call is mostly based on a WSJ article so we can't be certain but you would have thought the Fed would have tried to leak out a rebuttal if that wasn't what they wanted to guide the market towards. We will see. Whilst the size of any rate hike will be the focal point, today also brings the latest dot plot from the FOMC and offers an insight into the potential pace of rate hikes over the months ahead. Our US economists expect that to undergo substantial revisions, with the median dot likely rising to 3.5% and 3.8% for 2022 and 2023 respectively. Meanwhile on the economic projections, they think they’ll also show further movements towards a “softish landing”, with growth revised lower throughout the forecast, albeit stopping short of anticipating a recession. Ahead of all that, US equities slipped to fresh lows yesterday with the S&P 500 (-0.37%) falling to its lowest closing level since January 2021. Tech stocks outperformed, in contrast to the recent trend, with the NASDAQ (+0.18%) and the FANG+ Index (+1.97%) bouncing off of recent lows. Small-caps fared less well today and the Russell 2000 (-0.39%) fell to its lowest closing level since November 2020. Over in Europe, equities similarly fell to fresh lows and the STOXX 600 (-1.26%) likewise fell to levels unseen since March 2021. Rates sold off by a smaller magnitude than the previous two sessions (low bar to clear), but an initial rally gave way to a selloff in the European afternoon that continued to gather pace into the New York close. Yields on 10yr Treasuries were up +11.3bps to a fresh post-2011 high of 3.47%, supported by a further rise in the 10yr real yield (+13.7bps) that took it up to a 3-year high of 0.82 The 2s10s curve just about clambered out of inversion territory where it’d closed on Monday, steepening by +3.8bps to end the day at just 3.6bps. But even the Fed’s preferred yield curve measure of the near-term forward spread fell to its flattest level in 3 months, even if it’s still well out of inversion territory for now. This spread will likely collapse in the months ahead. As we go to press, yields on 10yr USTs (-4.63 bps) are moving lower to 3.42% with 2yrs -5.6bps. Today’s focus may be on the Fed, but over at the ECB we had Isabel Schnabel of the Executive Board give a significant speech last night about policy fragmentation. Recall, one of the key takeaways from last week’s ECB meeting was the apparent lack of progress on anti-fragmentation tools, shining a spotlight on Schnabel’s remarks last night. As our European economists emphasised last week, Schnabel argued that any tool would be reactionary, that is in response to more spread widening. She did not offer new details of any potential tool last night, instead echoing President Lagarde that PEPP purchase flexibility would be used to ensure smooth policy transmission in the interim. However, Schnabel also re-emphasised the ECB’s commitment to ensure smooth policy transmission. That Schnabel, a relative hawk on the committee and one that has expressed trepidation about a new facility in the past, so willingly supported the idea of doing what was needed to support policy implementation was an important shift for the ECB. The language Schnabel used last night may support the notion that the spread widening seen to date may already be approaching levels inconsistent with smooth policy transmission. It may not take much more pressure for the ECB to act but we are still in the dark on how they will. Earlier in the day, Dutch central bank governor Knot made some incredibly hawkish comments, saying that if “conditions remain the same as today, we will have to raise rates by more than 0.25 points” in September, and that “our options are not necessarily limited” to a 50bps move, so openly floating the potential to move by even more, which hasn’t been something discussed by the ECB to date. European sovereign bonds sold off significantly against that backdrop, with fresh multi-year highs seen for yields on 10yr bunds (+11.9bps), OATs (+13.7bps) and BTPs (+14.9bps). Peripheral spreads hit new post-Covid highs too, with the gap between Italian and German 10yr yields widening to 241bps. And there were some significant milestones on the credit side as well, with iTraxx Crossover widening +10.4bps to a fresh 10 year high of 544bps outside of 2-months around peak covid, and in North America we saw the CDX IG spread move above 100bps in trading for the first time since April 2020, before settling back at 99.0bps. In Asia markets are mixed with the Hang Seng (+1.44%) trading up boosted by technology stocks following the Nasdaq's overnight gain. Likewise, stocks in mainland China are also higher in early trade with the Shanghai Composite (+1.41%) and CSI (+1.57%) edging higher as the economy showed a slightly better than expected recovery in May (see below). However, the Nikkei (-0.73%) and the Kospi (-1.54%) are trading lower, extending earlier session losses. Outside of Asia, US equity futures are reversing losses this morning with contracts on the S&P 500 (+0.38%) and NASDAQ 100 (+0.59%) trading up. Early this morning, data released showed that China’s industrial production unexpectedly rebounded +0.7% y/y in May (v/s -0.9% expected), against a drop of -2.9% in April, whilst retail sales slid -6.7% in the period, less than -7.1% projected decline and slightly better than April’s -11.1% plunge. Meanwhile, Fixed-asset investment grew +6.2% in the first 5 months of the year (v/s +6.0% expected). Elsewhere, Japan’s core machinery orders strongly beat at +10.8% m/m in April, its fastest pace in 18 months (v/s -1.3% market consensus and +7.1% in March). Yesterday we also heard that the Bank of Japan had bought a record ¥2.2tn in government notes through its fixed-rate operation as they seek to defend their yield curve target and keep 10-year JGB yields beneath their stated limit of 0.25%. This has continued to put pressure on the Yen however, which fell to a closing level of 135.47 per dollar yesterday, thus moving beneath its 2002 closing low of 134.71 and leaving it at levels unseen since 1998. We're at just above 135 this morning after a small rally back. Speaking of currencies under pressure, Bitcoin fell to a 17-month low of $21,966 yesterday, having been trading around $30,000 just prior to the CPI release on Friday. This morning it's at $21,100. Elsewhere, brent crude and WTI futures reversed mid-day gains of near 2% to close -0.90% and -1.65% lower, respectively, following reports that the Biden Administration may pose a surtax on oil company profit margins, as another sign Biden is looking high and low for potential actions to curb oil gains into this year’s mid-terms. The big moves were seen in natural gas however, where US futures were down -16.5% and European futures were up +16.12% after the operator Freeport LNG said that they aiming for a partial resumption of operations at one of their Texas export terminals in 90 days, and that full operations wouldn’t return until late 2022. That’s a longer delay than was expected, and by keeping gas in the US led to that decline in US futures and the rise in European ones. Looking at yesterday’s data, the Fed got a fresh reminder about inflation pressures from the PPI release for May, where the monthly headline gain in prices rose to +0.8% in line with expectations, up from +0.4% in April. That left the year-on-year measure at +10.8% (vs. +10.9% expected), which does mark a second consecutive decline in that measure from its peak of +11.5% in March. One positive for the Fed ahead of today’s meeting is that elements that comprise a larger share of core PCE, such as healthcare, showed some softness, but time will tell. Separately, the UK employment data saw the number of payrolled employees in May grow by +90k (vs. +70k expected), but unemployment ticked up to 3.8% in the three months to April (vs. 3.6% expected). Finally, the ZEW survey from Germany saw an improvement relative to May’s readings, with expectations up to -28.0 (vs. -26.8 expected), and the current situation up to -27.6 (vs. -31.0 expected). To the day ahead now, and the main highlight will likely be the aforementioned FOMC decision and Chair Powell’s subsequent press conference. There’s also an array of ECB speakers, including President Lagarde, as well as the ECB’s Holzmann, Nagel, Centeno, Muller, De Cos, Panetta and Knot. Otherwise, data releases include Euro Area industrial production for April, US retail sales for May, the NAHB housing market index for June and the Empire State manufacturing survey for June. Tyler Durden Wed, 06/15/2022 - 07:53.....»»

Category: dealsSource: nytJun 15th, 2022

Futures Brace To Spike Higher (Or Lower) Depending On Today"s CPI Number

Futures Brace To Spike Higher (Or Lower) Depending On Today's CPI Number After a furious late-day selloff on Thursday as markets digested the probability of another red hot inflation number, S&P Futures traded in a narrow range on Friday ahead of the crucial May CPI Print which will dictate the path of Federal Reserve policy (it means the difference between a 25bps and 50bps Sept rate hike... or 0bps), and which is expected to come in 8.3% Y/Y and 0.7% M/M for headline and 5.9% Y/Y and 0.5% M/M for core. S&P 500 contracts fluctuated between modest gains and losses, while Nasdaq 100 futures rose about 0.4% as of 7:30 a.m. ET. The dollar rose slightly, although it has been trading largely flat throughout the session. The yield on the 10-year Treasury is unchanged at 3.04%, while the 2-year Treasury yield rose about 3.4 basis points to 2.8455%. Gold and bitcoin fell. Oil rose. In premarket trading, DocuSign slumped 25% after the e-signature company earnings missed expectations and cut its full-year billings outlook. Netflix and Roblox declined after Goldman Sachs analysts cut their recommendations on the stocks to sell from neutral amid macroeconomic concerns. Bank stocks are lower in pre-market trading Friday as investors await the release of key inflation data later this morning. In corporate news, Credit Suisse shares hovered near the lowest in at least three decades after State Street Corp. denied that it is interested in taking over the Swiss lender. Here are some other notable premarket movers:   Stitch Fix (SFIX US) slides 14% in premarket trading as analysts cut their price targets on the online styling platform operator after the company reported earnings that missed estimates and confirmed plans to cut 15% of its salaried workforce. Advanced Micro Devices (AMD US) shares rose 1.2% in premarket trading after the chipmaker hosted an analyst event where it outlined long-term financial targets, Xilinx synergies and its plans to take more market share from peers. Chinese stocks in US bounce back in premarket trading, a day after the group posted its biggest one-day drop since May. Alibaba (BABA US) rises 3.8% as investors assess whether Beijing’s easing in regulatory crackdown on internet firms supports speculation that Ant’s IPO may be revived. Investors will be closely watching the US inflation reading. An upside surprise would be a setback for both the Fed and markets, raising doubts about how well rates are working to subdue prices rising at a clip of more than 8%. Policymakers “are looking for ‘clear and convincing evidence’ that inflation in the US is going to start falling back from its eye-watering level,” Nick Chatters, investment manager at Aegon Asset Management, wrote in a note. “Wishful thinking?” “In an environment where most major developed market central banks are taking aggressive action to bring inflation down, risk assets are likely to remain volatile and struggle to sustain rallies,” said UBS Global Wealth Management CIO Mark Haefele in a note. “This dynamic should persist until there is clear indication that inflation is trending lower, which may not occur until well into the second half of the year.” Meanwhile, Bank of America strategists said investors are putting billions of dollars into cash and stock funds as they seek protection from surging inflation, citing EPFR Global data. US equities were the primary beneficiaries of inflows with about $13 billion, while bond fund outflows resumed, the data showed. While US rates were also rangebound, Euro-area peripheral spreads continued blowing out as the ECB left a wide room for interpretation on what their anti-fragmentation policy might be while they begin to raise rates. 10y BTP/Bund widens ~6bps to 222bps, short end lags. Bund, Treasury and gilt curves all bull flatten while Greek bond yields hit the highest level since early 2019. The bond turmoil depressed European markets which saw the stoxx 600 slump 1.5% to session lows, with Italy's FTSE MIB underperforming regional peers in a weak session for European equities. Euro Stoxx 50 slumps as much as 1.7%. FTSE 100  outperforms but remains down ~1.3%. Real estate, banks and insurance are the worst performing sectors. Italian stocks underperformed as the country's bonds slid, banks plunged: the FTSE MIB was the worst-performing index among major European countries Friday, with banks dropping the most as Italian bonds slide, following the ECB meeting on Thursday. FTSE MIB -3.5% vs a decline of 1.4% at the Stoxx Europe 600 Index. BPER -11%, BAMI -6.9%, Unicredit -6.7%, Intesa -6.5%. Here are the biggest European movers: Just Eat Takeaway.com shares rise as much as 9.1% after a Bloomberg report that its US unit Grubhub is attracting preliminary interest from private equity firms including Apollo. Scandic shares rise as much as 13% after the Swedish hotel group flagged “very strong earnings development” during the second quarter on a “greatly improved” hotel market. SAS shares surge as much as 46% after the Danish government reiterated its support for the ailing Scandinavian airline, forgiving and converting its debt and increasing its ownership share. Aryzta shares advance as much as 4.2% after Kepler Cheuvreux upgraded the Swiss baker to hold from reduce, citing “credible” new financial targets and improved balance sheet. Ericsson shares fall as much as 4.6% after the Swedish telecommunications manufacturer said the US SEC will open an investigation into the company’s handling of a 2019 corruption scandal. Shipping stocks drop again, with Maersk down as much as 5.8% and Hapag-Lloyd as much as 7.2% lower, amid ongoing concerns about demand and the normalization of freight rates. Swisscom shares slump as much as 4.6% after UBS cut the telecommunication company to a sell recommendation from neutral, citing “a number of headwinds.” Credit Suisse shares fall as much as 6% on Friday, extending yesterday’s 5.6% slump after State Street said it is not pursuing any acquisition of the Swiss lender. Ageas shares fall as much as 2.5% as ING initiates coverage on the insurer with a hold recommendation, saying that while the potential is there, the “timing is not right.” Earlier in the session, Asian stocks dropped, giving up gains for the week, as chipmakers slid amid renewed concerns about inflation and Covid lockdowns in Shanghai. The MSCI Asia Pacific Index declined as much as 1.2%, with tech and financials sectors the biggest drags. Most major benchmarks in the region were down, with gauges in Japan, South Korea, Australia, India, the Philippines and Indonesia each falling more than 1%.  The region’s semiconductor heavyweights, TSMC and Samsung Electronics, were the largest contributors to the Asian stock benchmark’s decline. China’s tech shares reversed early losses as investors bet the worst of Beijing’s crackdown on the sector may be over even as the nation’s regulator denied a Bloomberg News report that it started early-stage discussions on reviving the initial public offering of Ant Group. Asian shares also slumped after the European Central Bank opened the door to a half-point interest-rate hike in the fall. In addition, sentiment was fragile as investors monitored virus flare-ups in China.  Read: Covid Flares Again in Shanghai, Putting Areas Back in Lockdown “We are seeing a reversal in several developments that had helped markets rebound in the past weeks,” said Heo Pil-Seok, chief executive officer at Midas International Asset Management in Seoul. “With China possibly entering lockdowns again and the ECB moving to raise interest rates, all of these are pouring cold water on markets which believed fear about inflation had eased.” Asia’s equities benchmark is on course for its first weekly loss in four weeks, paring a rebound from a two-year low hit in May Australian stocks tumbled, with the S&P/ASX 200 index falling 1.3% to 6,932.00, its lowest level since Jan. 27. The gauge notched  its biggest weekly loss since April 2020, down 4.2%. Global growth concerns and the RBA’s larger-than-expected rate hike weighed on investor sentiment. All sectors dropped Friday, with real estate and consumer discretionary shares leading declines. In New Zealand, the S&P/NZX 50 index fell 0.7% to 11,136.28. In FX, the Bloomberg Dollar Spot Index was steady after rising to the highest in three weeks in the previous session. NZD and AUD are the strongest performers in G-10 FX, CAD and GBP underperform. USD/JPY drifts back up toward a 134-handle. Economists see US consumer costs rising 8.3% year-on-year in May when data is released later Friday.  Investors are taking profits on dollar-long bets, said Patrick Bennett, strategist at Canadian Imperial Bank of Commerce in Hong Kong. “Dollar gains have dominated recently, there appears to be some squaring into US CPI”. In rates, the Treasuries curve has extended Thursday’s flattening move ahead of today's CPI print, with 10Y yield trading roughly unchanged from yesterday at 3.04%, and 2s10s, 5s30s near session lows in early US trading following a wider flattening move seen across German curve as markets continue to digest Thursday’s ECB policy announcement. Into front-end Treasuries underperformance, 2- and 3-year yields reach year-to-date highs. US yields are cheaper by up to 3.5bp across front-end of the curve while 7-year out to long-end are richer by up to 2bp with 20- year sector outperforming -- 2s10s, 5s30s spreads flatter by 4.3bp and 2.2bp at ~18bp and ~7bp respectively. IG dollar issuance slate empty so far; Thursday session was quiet and Friday also expected to be subdued with CPI data release. In Europe, the German 2s10s, 5s30s curve are both flatter by over 5bp while bunds outperform Treasuries by ~1.5bp over early European session. In commodities, oil rose after erasing an earlier loss triggered in part by new restrictions in Shanghai. Chinese President Xi Jinping called on his government to adhere “unwaveringly” to its Covid Zero policy, while at the same time striking a balance with the needs of the economy. WTI rose 0.3% to trade near $121.80. Most base metals trade in the red; LME nickel falls 1.5%, underperforming peers. Spot gold falls roughly $5 to trade near $1,842/oz.  Bitcoin is softer on the session, though only modestly so, and as such remains in recent ranges which continue to pivot USD 30k. Looking at the day ahead now, economic data slate includes May CPI (8:30am), June University of Michigan sentiment (10am) and May monthly budget statement (2pm). Central bank speakerss include the ECB’s Holzmann and Nagel. Market Wrap S&P 500 futures up 0.2% to 4,022.75 STOXX Europe 600 down 1.3% to 428.90 MXAP down 0.9% to 166.71 MXAPJ down 0.8% to 551.64 Nikkei down 1.5% to 27,824.29 Topix down 1.3% to 1,943.09 Hang Seng Index down 0.3% to 21,806.18 Shanghai Composite up 1.4% to 3,284.83 Sensex down 1.8% to 54,330.71 Australia S&P/ASX 200 down 1.3% to 6,931.98 Kospi down 1.1% to 2,595.87 Brent Futures little changed at $122.99/bbl German 10Y yield little changed at 1.40% Euro little changed at $1.0618 Gold spot down 0.1% to $1,846.06 U.S. Dollar Index little changed at 103.24 Top Overnight News from Bloomberg Shanghai will briefly lock down most of the city this weekend for mass testing as Covid-19 cases continue to emerge, causing more disruption and triggering a renewed run on groceries days after exiting a grueling two-month shutdown. Investors are putting billions of dollars into cash and stock funds as they seek protection from surging inflation. A selloff in Europe’s weakest bond markets is showing no signs of easing, piling pressure on the European Central Bank to make clearer how it plans to keep diverging borrowing costs contained. Public confidence in the Bank of England is at an all-time low, with Britons expecting above-target inflation to persist for years A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly negative after the glum mood rolled over from global counterparts with a hawkish ECB meeting and fresh COVID restrictions in Beijing stoking growth slowdown concerns. ASX 200 was dragged lower by the energy and mining-related sectors after recent declines in underlying commodity prices and with participants taking risk off the table ahead of the extended weekend in Australia. Nikkei 225 retreated beneath the 28k level amid the broad risk aversion and as the domestic currency found some reprieve from its weakening trend. Hang Seng and Shanghai Comp. were both initially subdued after weak earnings and Ant Group’s denial regarding plans to relaunch its mammoth IPO, while participants also digested the mixed inflation data from China and the latest COVID restrictions in Beijing, although the mainland then spent the session recouping lost ground. Top Asian News South Korean Transport Ministry held a meeting with the trucker union leadership on Friday and is holding a working-level meeting with the union, while it added that about 7,500 unionised truck drivers were expected to strike today. It was also reported that striking South Korean truckers halted and turned around non-union truckers from trying to enter the Ulsan petrochemical complex and the movement of containers through South Korea's Ulsan port was totally suspended amid the trucker strike, according to Reuters. Beijing City reports 21 (prev. 3) cases during the 15 hours to 3pm on June 10th, according to an official, via Reuters. Japan Officials Fire Warning on Forex With Yen Near 1998 Low Top Toyota Supplier Denso Mulls $3 Billion Chip Unit Spinoff China’s Moderating Inflation Leaves Room for More Easing Covid Lab Leak Theory Needs More Inquiry, WHO Advisers Say The mood across European equities remains downbeat as the region plays catch-up to yesterday’s Wall Street tumble; Euro Stoxx 50 -1.6%. European cash bourses trade lower across the board with the Dutch AEX and UK’s FTSE 100 slightly more cushioned. Sectors in Europe are all lower but largely hold a defensive bias; EZ Periphery banks continue to lag post-ECB while Luxury slips on China/COVID updates. US equity futures trade with modest gains with the ES -0.2% just about holding onto the 4,000 handle. TSMC (2330 TW) - May (TWD): Sales 185.7bln, +65% YY, +7.6% MM. January-May Sales 849.3bln, +44.9% YY. Tesla (TSLA) CEO Musk says the next FSD beta version will be coming out in two weeks. Amazon (AMZN) is planning to pull out of the USD 7.7bln race for IPL cricket rights, according to Bloomberg. Top European News On the ECB decision, one dovish member said “impression is everybody lost”, described the EGB and EUR downside as “..not what you want”; conversely, a hawk described the meeting as having gone very well. Additionally, re. QT, a dovish member does not believe this will happen any time soon, according to FT. UK employers hired staff at the slowest pace since early 2021, according to a survey by REC cited by Reuters which showed the measure declined for a sixth consecutive month to 59.2 from 59.8 M/M but remained in expansion territory above the 50 benchmark level. Former UK Brexit Minister Frost has warned that PM Johnson must deliver a "new Conservative vision for Britain" or risk being removed from his position by the autumn, according to the Telegraph. FX DXY recovers from overnight lows of 103.04 heading into the US CPI release. Antipodeans stand as the current G10 outperformers with NZD leading the charge, with the AUD/NZD cross subsequently paring back recent ground and falling under 1.1100. CAD is under some pressure pre-jobs data; USD/CAD today sees its 100 DMA at 1.2700, 21 DMA at 1.2722, and 50 DMA at 1.2723. EUR and GBP are now under pressure as the dollar recovers from early losses. The Yen attempts to claw back some ground after the BoJ, MoF, and FSA expressed concern in a joint release. Fixed Income BTP-Bund spread continues to widen, out to 234bp thus far, though, offset amid incremental Bund upside via Holzmann. Hawk Holzmann took perhaps an incrementally more 'dovish' line than usual re. September's hike increment, alluding to a non-standard increment move. USTs are essentially unchanged at 117.30+ pre-CPI though the yield curve continues to flatten in-line with EGBs and after well received long-end issuance. Commodities WTI and Brent futures are choppy with relatively modest intraday gains following yesterday’s China-induced weakness. WTI Jul’ resides just under USD 122/bbl (vs low 120.09/bbl), whilst Brent Aug’ trades around USD 123.50/bbl (vs low 121.60/bbl). Kuwait set July KEC crude OSP for Asia at Oman/Dubai +USD 6.15/bbl vs prev. premium of USD 4.35/bbl in June, according to Reuters. A minimum of four north-Asian refiners are facing crude oil supply cuts from Saudi in July, according to Reuters sources. Peruvian communities said they are ready to end the 51-day shutdown at MMG's (1208 HK) Las Bambas mine and allow the copper mine to restart, while the mine will not begin construction of the Chalcobambas pit during a 30-day truce and the Peru government will lift the state of emergency in the Las Bambas mine area, according to Reuters. Metals markets are relatively tentative and uneventful; spot gold trades on either side of its 21 DMA (1,844/oz), while base metals similarly hold a mild downside bias. US Event Calendar 8:30am: US CPI MoM, May, est. 0.7%, prior 0.3%; YoY, May, est. 8.3%, prior 8.3% 8:30am: US CPI Ex Food and Energy MoM, May, est. 0.5%, prior 0.6%; YoY, May, est. 5.9%, prior 6.2% 2pm: US Monthly Budget Statement, May, est. -$136.5b, prior -$132.0b DB's Jim Reid concludes the overnight wrap I'll be another year older on Sunday which is a sobering thought. In addition, yesterday marked 10 years since I proposed to my wife up the top of a mountain. I wasn't 100% sure I was doing the right thing at the time but am certain of it now! She was 100% certain it was the happiest day of her life back then, but now she's not so sure. Anyway, we shall be celebrating both tomorrow night in a rare evening out alone. It’s been another dramatic 24 hours in markets as the ECB kicked off an incredibly busy week ahead of macro events, including US CPI today, by laying the groundwork for a sustained campaign of rate hikes starting next month. Our European economists' full ECB wrap, and all new updated rates call, is available here. The immediate headlines of their decision were much as expected, with a confirmation that net asset purchases would conclude at the end of the month, and that their conditions for rates liftoff had been satisfied. But looking forward, not only did they confirm their intent to hike by 25bps in July, they formally opened the door to a 50bps increase at the subsequent meeting in September, saying that the “a larger increment will be appropriate at the September meeting” if the inflation outlook “persists or deteriorates”. It seems by "persists", all that need to happen is for their staff inflation forecast for 2024 to at least remain at 2.1%, the level it got upgraded to yesterday. Core CPI was projected to be at +2.3% that year, a bigger move than expected. More broadly, the ECB’s statement and President Lagarde’s press conference struck a hawkish tone, and the first paragraph of the statement openly acknowledged the inflation challenge and the need to return it back to target. And when it came to a potential tool to deal with fragmentation in bond markets, Lagarde said that they would “deploy either existing or new instruments that will be made available.” In light of the decision, our European economists have added to their existing view of a 50bp hike in Q3 and now expect a second 50bp hike in Q4. So their new baseline is for a 25bp move in July, then two consecutive 50bp moves in September and October, and then a 25bp move in December that puts the deposit rate back up to 1% by year-end. The team still thinks the terminal deposit rate will be 2%, reached in the middle of next year, but the path there will be quicker given inflationary pressures and hawkish tone from the ECB. When it came to the market reaction, investors interpreted the ECB’s decision in a hawkish light, with a fresh selloff in sovereign bonds taking yields up to multi-year highs yet again. Those on 10yr bunds were up by +7.4bps to a post-2014 high of 1.42%, with those on OATs (+10.3bps) and BTPs (+22.2bps) also hitting their highest in years. Meanwhile, the decision also coincided with a serious widening in peripheral spreads, with both the Italian and the Spanish 10yr yield spread over bunds widening to 2-year highs of 216bps and 118bps respectively. That widening in spreads was seen on the credit side too, with iTraxx Crossover up 15.9bps to 471bps, and closing back in on its post-Covid closing high of 488bps. Importantly, our European economists connected the peripheral spread widening to an apparent lack of progress on anti-fragmentation tools, with President Lagarde apparently leaning on using PEPP flexibility to support implementation in the interim. They believe a tool is inevitable, but will require market stress first so that policymakers can pass off the tool as “proportionate” to make it more legally durable. That proportionality is harder to prove in advance. So this feels like a slow-motion crisis building for Italy but one that will have a solution with limited stress. An odd state of affairs. Back to markets, and the hawkish rhetoric from the ECB proved similarly bad news for European equities, with the STOXX 600 (-1.36%) losing ground for a third consecutive session. US equities saw an even heftier decline, with the S&P 500 down -2.38%. The Index opened down following the ECB, and slid lower still in the last hour or so of New York trading. Every sector was lower in a broad-based decline, with all but three sectors down by more than 2%. Alongside the ECB, risk appetite was further dampened by an unexpectedly large jump in the US weekly initial jobless claims, with the number for the week through June 4 coming in at 229k (vs. 206k expected), which is also their highest level since January, as well as the largest week-on-week jump in claims since last July. One week doesn't make a trend but this series has been a bit more volatile of late which will increase its relevance in the weeks ahead. Given the ECB’s move yesterday, investors in turn reassessed the likelihood that other central banks were set to move in a more hawkish direction. In fact there was a significant milestone yesterday, since Fed funds futures moved to price in their most aggressive profile of rate hikes for 2022 so far, with the implied rate by the December meeting now at 2.92%, which surpasses the previous record of 2.88% in early May. That was seen for other central banks too, with the rate implied by the December meetings for the Bank of England also at its highest to date. Those moves led to a further rise in bond yields elsewhere, with 10yr US Treasuries up 2.0bps to a one-month high of 3.04%. Real yields led the bulk of the move higher, and the 5yr real yield almost breached positive territory, before ending the day at -0.04%. Meanwhile 10yr gilt yields (+7.6bps) hit a post-2014 high of 2.32%. Speaking of Treasuries, there’s another focal point today in the form of the US CPI reading for May, which is the last major piece of data the FOMC will get before their next decision on Wednesday. Our US economists expect that the monthly headline print will accelerate again to +0.7% (from +0.3% in April), which will keep the year-on-year measure at +8.3%. That’s because of re-accelerating gas prices along with solid food inflation, and they expect the monthly core reading to fall back to +0.5% (vs. +0.6% expected), which will push the year-on-year rise in core down to +5.8%. Given the FOMC are now in their blackout period ahead we won’t be able to get their reaction, but it’s been 9 months since we last saw the monthly CPI print come in beneath the Bloomberg consensus, and it would now be a massive surprise at this point if the Fed did anything other than a second consecutive 50bps hike next week. So most of the action from this report will come in the form of September onwards Fed pricing. A potential portent of today’s print, yesterday the Atlanta Fed wage growth tracker ticked higher to 6.1% in May, its highest reading since the series began publication back in 1983. Overnight markets have stabilised a bit with Chinese equities higher after relatively subdued inflation. PPI climbed 6.4% (vs 8% last month), in-line with estimates but the lowest print since March 2021, with CPI up 2.1%, a tenth lower than expectations and in-line with last month. This has seemingly encouraged markets to believe China can continue to ease policy offsetting the news over the last 24 hours that Shanghai is going to lockdown 7 districts at the weekend for mass testing after six community infections were found. The lockdown may only be for the period of testing but the risk is clearly that more cases are found. Chinese equities are around half a percent higher with tech stocks out-performing as regulatory concerns are easing. Elsewhere the Nikkei is catching down with US markets and is around -1.5% lower as we type. US futures are slightly higher and 10yr treasury yields are up another basis point with 2yr yields up a couple. To the day ahead now, and the highlight will be the aforementioned US CPI reading for May. Other data releases include the University of Michigan’s preliminary consumer sentiment index for June, as well as Italian industrial production for April. Finally, central bank speakers include the ECB’s Holzmann and Nagel. Tyler Durden Fri, 06/10/2022 - 07:51.....»»

Category: blogSource: zerohedgeJun 10th, 2022

Futures Jump, Tech Stocks Rally As Beijing Eases Covid Restrictions

Futures Jump, Tech Stocks Rally As Beijing Eases Covid Restrictions Global markets and US equity futures pushed sharply higher to start the new week (at least until some Fed speakers opens their mouth and threatens a 100bps emergency rate hike) as Beijing’s latest move to ease Covid restrictions injected a note of optimism into markets rattled by inflation and rate-hike concerns. Nasdaq 100 futures climbed 1.4% at 7:15 a.m. in New York after the underlying index erased more than $400 billion in market value on Friday amid renewed concerns about tightening monetary policy, as Beijing rolled back Covid-19 restrictions, boosting global risk appetite after reporting zero local covid cases on Monday while also finding no community cases for three straight days... ... while a Wall Street Journal report that China is preparing to conclude its probe on Didi Global boosted sentiment further, with Didi shares surging 50% and sending the Hang Seng Tech index soaring. S&P 500 futures also climbed, rising about 1% and trading near session highs. Treasuries and the dollar slipped. Among other notable movers in premarket trading, Apple rose 1.6%, Tesla jumped 3.9% after tumbling over 9% by the close on Friday, while cryptocurrency-tied stocks jumped with Bitcoin. Here are some other notable premarket movers: Amazon.com (AMZN US) shares rose as much as 2% following a 20-for-1 stock split. Didi Global Inc. (DIDI US) soared after a report that Chinese regulators are about to conclude a probe into the company and restore its apps to mobile stores as soon as this week. Cryptocurrency-tied stocks climb with Bitcoin, which rose beyond the $30,000 level after languishing at the weekend. Riot Blockchain (RIOT US) +7.1%; Coinbase (COIN US) +6.6%. Crowdstrike (CRWD US) shares rise as much as 3.9% following an upgrade to overweight from equal- weight at Morgan Stanley, with the broker saying that the cyber security firm offers “durable” growth and free cash flow at a discount. ON Semi (ON US) shares rise as much as 8.2%. The sensor maker will be added to the S&P 500 Index this month, S&P Dow Jones Indices said late US stocks slumped in last week’s final session after strong hiring data cleared the way for the Federal Reserve to remain aggressive in its fight against inflation by raising rates, and after repeat warnings by Fed presidents that the central bank was willing to keep hiking. This week, focus will be on the latest US CPI print to assess how much further the Fed will tighten policy. Inflation is likely to “stall by the end of this year unless the energy or oil prices double again, but a lot of it is already priced in,” Shanti Kelemen, chief investment officer at M&G Wealth, said on Bloomberg Television. While the economy is likely to slow, “I don’t think the US will flip into a recession this year. I think there is still too much of a tailwind from spending and economic activity.” Goldman economists said the Fed may be able to pull off its aggressive rate-hike plan without tipping the country into recession. The easing of Chinese lockdowns will help abate supply-chain pressures, said Diana Mousina, a senior economist at AMP Capital. “Positive news around Chinese economic activity and cheaper equity valuations could offer value from a long-term investment perspective, but volatility will remain high in the short-term,” Mousina said in a note. On the other hand, Morgan Stanley's permagloomish Michael Wilson warned that weakening corporate profit forecasts will provide the latest headwind to US stocks, which are likely to fall further before bottoming during the second-quarter earnings season. In Europe, the Stoxx 600 was up 0.9% with technology and mining stocks leading gains. Basic resources led an advance in the Stoxx Europe 600 index as copper rose to its highest since April, with sentiment across industrial metals bolstered by China’s gradual reopening. The technology sector also outperformed, following a gain for Asian peers and amid a recovery in Nasdaq 100 futures in the US. The Stoxx 600 Tech index was up as much as 2.1%; Stoxx 600 benchmark up 0.9%. Tencent-shareholder Prosus was among the biggest contributors to the gain amid a rise for Hong Kong’s Hang Seng tech index, driven by Didi Global and Meituan; Tencent shares rose 2.4% while    Semiconductor-equipment giant ASML was the biggest contributor to the gain; other chip stocks ASMI, Infineon and STMicro all higher too. Just Eat Takeaway also higher following a report that Grubhub co-founder Matt Maloney had worked with private equity investor General Atlantic to buy back the food delivery company he sold to the Dutch firm last year. Here are some of the other notable European movers today: Just Eat Takeaway.com shares rise as much as 12% in the wake of a report saying Grubhub co-founder Matt Maloney had worked with private equity investor General Atlantic to buy back the food delivery company he sold to the Dutch firm last year for $7.3b. Semiconductor-equipment giant ASML climbs as much as 3.1% as European tech stocks outperform the broader benchmark, following a gain for Asian peers and amid a recovery in Nasdaq 100 futures. LVMH gains as much as 1.7% with luxury stocks active as Beijing continues to roll back Covid-19 restrictions in a bid to return to normality. Kering and Hermes both climb as much as 1.9%. Melrose rises as much as 4.7% after the firm said it has entered into an agreement to sell Ergotron to funds managed by Sterling for a total of ~$650m, payable in cash on completion. Serica Energy jumps as much as 12%, the most since March 30, after the oil and gas company published a corporate update and said it expects to benefit from investment incentives packaged with the UK’s windfall tax. Airbus rises as much as 2.8% after Jefferies reinstated the stock as top pick in European aerospace & defense, replacing BAE Systems, as short-term production challenges should not overshadow the potential to double Ebit by 2025. EDF drops as much as 3.3% after HSBC analyst Adam Dickens downgraded to reduce from hold, citing “corroded confidence” Accell falls as much as 4.8%, the most intraday since December, after KKR’s tender offer for the bicycle maker failed to meet the 80% acceptance threshold. Meanwhile, the European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation. The ECB is planniing to strengthen its support of vulnerable euro-area debt markets if they are hit by a selloff, Financial Times reported. Italian and Spanish bonds gained. Earlier in the session, Asian stocks climbed, supported by a rally in Chinese tech shares and positive sentiment following Beijing’s economic reopening.  The MSCI Asia Pacific index rose 0.6% as Hong Kong-listed internet names jumped after a report that authorities are wrapping up their probe into Didi Global. Hong Kong and Chinese shares were among the top gainers in the region, also helped by Beijing moving closer to returning to normal as it rolled back Covid-19 restrictions. “As policymakers continue to deliver on support pledges, the worst is likely behind us,” said Marvin Chen, strategist at Bloomberg Intelligence. “We are seeing the beginning of a recovery into the second half of the year as the growth outlook bottoms out.” Japanese shares were higher, with transportation and restaurant stocks gaining after the Nikkei reported the government is considering restarting the “Go To” domestic travel subsidy campaign as soon as this month. Japanese equities erased early losses and rose with Chinese stocks as a loosening of Covid-19 restrictions in Beijing increased bets that economic activity will pick up. The Topix rose 0.3% to 1,939.11 as of market close Tokyo time, while the Nikkei advanced 0.6% to 27,915.89. Daiichi Sankyo Co. contributed the most to the Topix gain, increasing 3.7%. Foreign investors are returning to emerging Asian equities after several weeks of outflows, data compiled by Bloomberg show. Weekly inflows for Asian stock markets excluding Japan and China climbed to almost $2.7 billion last week, the most since February. Asian stocks have been outperforming their US counterparts over the past few weeks, with the MSCI regional benchmark up 5.7% since May 13, more than double the gains in the S&P 500. Stock markets in South Korea, New Zealand and Malaysia were closed on Monday Stocks in India dropped amid concerns over inflation as the Reserve Bank of India’s interest rate setting panel starts a three-day policy meeting.  The S&P BSE Sensex fell 0.2% to 55,675.32 in Mumbai, while the NSE Nifty 50 Index declined 0.1%. Ten of the 19 sector sub-gauges managed by BSE Ltd. slid, led by an index of realty companies. Makers of consumer discretionary goods were also among the worst performers.  “The market has been exercising caution ahead of the credit policy announcement this week, and hence investors trimmed their position in rate-sensitive sectors such as realty,” according to Kotak Securities analyst Shrikant Chouhan.  The yield on the benchmark 10-year government bond rose to its highest level since 2019 on Monday amid a surge in crude prices and ahead of the RBI’s rate decision on Wednesday. Reliance Industries contributed the most to the Sensex’s decline, decreasing 0.5%. Out of 30 shares in the Sensex index, 9 rose and 21 fell. In Australia, the S&P/ASX 200 index fell 0.5% to close at 7,206.30 after a strong US jobs report reinforced bets for aggressive Fed tightening. The RBA is also expected to lift rates on Tuesday, with the key debate centering on the size of the move. Read: Australia Set for Back-to-Back Rate Hikes Amid Split on Size Magellan was the worst performer after its funds under management for May declined 5.2% m/m. Tabcorp climbed after settling legal proceedings with Racing Queensland. In New Zealand, the market was closed for a holiday In FX, the dollar fell against its Group-of-10 peers as hopes for a recovery in China’s economy damped demand for the haven currency. The Bloomberg Dollar Spot Index fell 0.3% after posting a weekly gain on Friday. China’s equity index jumped after Beijing rolled back Covid-19 restrictions and received a further boost after a report that a ban on Didi adding new users may be lifted. “Further lifting of restrictions in Beijing helped Chinese equities, which spilled over into Europe with risk more ‘on’ than ‘off’,” Societe Generale strategist Kit Juckes wrote in a note to clients. “The dollar is once again on the back foot.” USD/JPY dropped 0.1% to 130.73. It touched 130.99 earlier, inching closer to the 131.35 reached last month, which was the highest since April 2002.  “Dollar-yen is being sold for profit-taking because we don’t have enough catalysts to break 131.35,” said Juntaro Morimoto, a currency analyst at Sony Financial Group Inc. in Tokyo. But, should US inflation data due this week be higher than estimated, it will see dollar-yen break 131.35. In rates, Treasuries, though off session lows, remained under pressure as S&P 500 futures recover a portion of Friday’s loss. 10-year TSY yields rose 1bp to 2.95%, extending the streak of advances to five days, the longest in eight weeks; UK 10-year yield underperformed, jumping 6bps to 2.21% after domestic markets were closed Thursday and Friday for a holiday. US auctions resume this week beginning Tuesday, while May CPI report Friday is the main economic event. IG dollar issuance slate includes Tokyo Metropolitan Govt 3Y SOFR; this week’s issuance slate expected to be at least $25b. Three- month dollar Libor +3.90bp to 1.66500%. Bund, Treasury and gilt curves all bear-flatten, gilts underperform by about 2bps at the 10-year mark. Peripheral spreads tighten to Germany. In commodities, WTI crude futures hover below $120 after Saudis raised oil prices for Asia more than expected. Spot gold is little changed at $1,851/oz. Spot silver gains 1.5% near $22. Most base metals trade in the green; LME nickel rises 5.4%, outperforming peers. LME tin lags, dropping 0.7%. There is no major economic data on the US calendar. Market Snapshot S&P 500 futures up 1.1% to 4,152.50 STOXX Europe 600 up 0.9% to 443.90 MXAP up 0.6% to 169.12 MXAPJ up 0.8% to 558.02 Nikkei up 0.6% to 27,915.89 Topix up 0.3% to 1,939.11 Hang Seng Index up 2.7% to 21,653.90 Shanghai Composite up 1.3% to 3,236.37 Sensex little changed at 55,772.44 Australia S&P/ASX 200 down 0.4% to 7,206.28 Kospi up 0.4% to 2,670.65 German 10Y yield little changed at 1.29% Euro up 0.2% to $1.0742 Brent Futures up 0.5% to $120.28/bbl Gold spot up 0.0% to $1,851.93 U.S. Dollar Index down 0.22% to 101.92 Top Overnight News from Bloomberg Boris Johnson will face a leadership vote in his ruling Conservative Party on Monday following a series of scandals, including becoming the first sitting prime minister found to have broken the law. Chinese regulators are concluding probes into Didi and two other US-listed tech firms, preparing as early as this week to lift a ban on their adding new users, the Wall Street Journal reported, citing people familiar with the matter. The European Central Bank is set to strengthen commitment to support vulnerable euro-area debt markets if they are hit by a selloff, the Financial Times reported, citing unidentified people involved in the discussions. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed following last Friday's post-NFP losses on Wall St and ahead of this week's global risk events - including central bank meetings and US inflation data, while participants also digested the latest Chinese Caixin PMI figures and the North Korean missile launches. ASX 200 was pressured by weakness in tech and mining, with sentiment not helped by frictions with China. Nikkei 225 pared early losses but with upside limited by geopolitical concerns after North Korean provocations. Hang Seng and Shanghai Comp. were encouraged by the easing of COVID restrictions in Beijing, while the Chinese Caixin Services and Composite PMI data improved from the prior month but remained in contraction. Sony Group (6758 JT) said its planned EV JV with Honda Motor (7267 JT) may hold a public share offering, according to Nikkei. Top Asian News China’s Beijing will continue to roll back its COVID-19 restrictions on Monday including allowing indoor dining and public transport to resume in most districts aside from Fengtai and some parts of Changping, according to Reuters and Bloomberg. Furthermore, a China health official called for more targeted COVID control efforts and warned against arbitrary restrictions for COVID, while an official also said that Jilin and Liaoning should stop the spread of COVID at the border. Australia accused China of intercepting a surveillance plane and said that a Chinese military jet conducted a dangerous manoeuvre during routine surveillance by an Australian plane over international waters on May 26th, according to FT. BoJ Governor Kuroda said Japan is absolutely not in a situation that warrants tightening monetary policy and the BoJ's biggest priority is to support Japan's economy by continuing with powerful monetary easing, while he added Japan does not face a trade-off between economic and price stability, so can continue to stimulate demand with monetary policy, according to Reuters. European bourses are firmer on the session, Euro Stoxx 50 +1.3%, with newsflow thin and participants reacting to China's incremental COVID/data developments during reduced trade for Pentecost. Stateside, futures are bid to a similar extent in a paring of the post-NFP pressure on Friday, ES +1.0%, with no Tier 1 events for the region scheduled today and attention very much on inflation data due later. Chinese regulators intend to conclude the DiDi (DIDI) cybersecurity probe, and remove the ban on new users, via WSJ citing sources; could occur as soon as this week. DIDI +50% in pre-market trade Top European News Most of the ECB governing council members are expect to back proposals to create a bond-purchase programme to buy stressed government debt, such as Italy, according to sources cited by the FT. Confidence vote in UK PM Johnson to occur between 18:00-20:00BST today, results to be immediately counted, announcement time TBC. London’s Heathrow Airport ordered carriers to limit ticket sales for flights until July 3rd to maintain safety amid understaffing and overcrowding, according to The Times. French Finance Minister Le Maire expects positive economic growth this year although will revise economic forecasts in July, according to Reuters. EU Commissioner Gentiloni said he aims to propose reform for the EU stability pact after summer which could envisage a specific debt/GDP target for each country, while he added that Italy should show commitment to keeping public debt under control and needs to avoid increasing current spending in a permanent way, according to Reuters. FX Pound perky on return from long Platinum Jubilee holiday weekend as UK yields gap up in catch up trade and Sterling awaits fate of PM; Cable above 1.2550 to probe 10 DMA, EUR/GBP tests 0.8550 from the high 0.8500 area. Dollar eases off post-NFP peaks as broad risk sentiment improves and DXY loses 102.000+ status. Kiwi lofty as NZ celebrates Queen’s birthday and Aussie lags ahead of RBA awaiting a hike, but unsure what size; NZD/AUD above 0.6525, AUD/USD sub-0.7125 and AUD/NZD cross closer to 1.1050 than 1.1100. Euro firmer amidst further declines in EGBs, bar Italian BTPs, eyeing ECB policy meeting and potential news on a tool to curb bond spreads, EUR/USD nearer 1.0750 than 1.0700. Loonie underpinned by rise in WTI after crude price increases from Saudi Arabia, but Lira extends losses irrespective of CBRT lifting collateral requirements for inflation linked securities and Government bonds; USD/CAD under 1.2600, USD/TRY not far from 16.6000. Fixed income Gilts hit hard in catch-up trade, but contain losses to 10 ticks under 115.00 awaiting the outcome of no confidence vote in PM Johnson Bunds underperform BTPs ahead of ECB on Thursday amidst reports that a new bond-buying scheme to cap borrowing costs may be forthcoming; 10 year German bond down to 149.59 at worst, Italian peer up to 123.15 at best US Treasuries relatively flat in post-NFP aftermath and ahead of low-key Monday agenda comprising just employment trends Commodities Crude benchmarks are bid by just shy of USD 1.00/bbl; though, overall action is contained amid limited developments and two-way factors influencing throughout the morning. Saudi Aramco increased its prices to Asia for July with the light crude premium raised to USD 6.50/bbl from USD 4.40/bbl vs Oman/Dubai, while it raised the premium to North West Europe to USD 4.30/bbl from USD 2.10/bbl vs ICE Brent but maintained premiums to the US unchanged from the prior month. Oman announced new oil discoveries that will increase output by 50k-100k bpd in the next 2-3 years, while it noted that its crude reserves stand at 5.2bln bbls and gas reserves are at around 24tln cubic feet, according to the state news agency citing the energy and minerals minister. Libya's El Sharara oil field resumed production at around 180k bpd after having been shut by protests for more than six weeks, according to Argus. French Finance Minister Le Maire said that France is in discussions with the UAE to replace Russian oil supplies, according to Reuters. US will permit Italy’s Eni and Spain’s Repsol to begin shipping oil from Venezuela to Europe as early as next month to replace Russian crude, according to Reuters citing sources familiar with the matter. Austria released strategic fuel reserves to cover for loss of production at a key refinery due to a mechanical incident, according to Reuters. Indonesia will adjust its palm oil export levy with the regulations that will outline the changes expected soon, according to a senior official in the economy ministry cited by Reuters. Turkish presidential spokesman Kalin said deliveries of Ukrainian grain via the Black Sea and through the area of the strait could begin in the near future, according to TASS citing an interview with Anadolu news agency. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap Later this morning, I will be publishing the 24th Annual Default Study entitled "The end of the ultra-low default world?". Please keep an eye out for it but I won't let you miss it in the EMR and CoTD over the next few days! For those in the UK, I hope you had a good four-day weekend. We went to two big parties and my digestive system and liver need a rest. Well, until my upcoming birthday this weekend!. One of the parties had a converted VW campervan with 5 or 6 self-service drinks taps on the outside of which one was filled with ice cold Prosecco. Thankfully the Queen doesn't have a 70-year Jubilee very often! The fun and games in markets this week are heavily back ended as an ECB meeting on Thursday is followed by US CPI on Friday. The rest of the week is scattered with production and trade balance data, while Chinese aggregate financing data is expected at some point. The Fed are now on their pre-FOMC blackout so the attention will be firmly on the ECB this week. So let's preview the two main events. For the ECB, our European economists believe the ECB will confirm that APP net purchases will cease at the end of the month, paving the way for policy rate lift-off at the July meeting. Our economists believe the ECB will have to hike rates by 50 basis points at either the July or September meeting, with the risks skewed toward the latter, to accelerate the policy hiking cycle in light of growing inflationary pressures. Our economists also believe that hiking cycle will ultimately reach a 2 percent terminal rate next summer, some 50 basis points into restrictive territory. As prelude, next week watch for the staff's forecast to upgrade inflation to 2 percent in 2024, satisfying the criteria for lift-off. With all three lift-off conditions met, expect the statement language to upgrade rate guidance for the path of the hiking cycle. Meanwhile, the June meeting should also bring about the expiration of the TLTRO discount. There are two interesting things for the ECB to consider at the extreme end of the spectrum at the moment. Firstly German wages seem to be going higher. In a note on Friday, DB's Stefan Schneider (link here) updated earlier work on domestic wage pressures by highlighting that on Thursday night, the 700k professional cleaners in the country achieved a 10.9% pay rise. In addition, with the nationwide minimum wage legalisation voted through on Friday, the lowest paid in this group will get a +12.6% rise from October. At the other end of the spectrum 10yr Italian BTPs hit 3.40% on Friday, up from 1.12% at the start of the year and as low as 2.85% intra-day the preceding Friday. We're confident that the ECB will create tools to deal with Italy's funding issues, but it is more likely to be reactive than proactive to ensure legal barriers to intervene are not crossed. However, the nightmare scenario we've all been hypothetically thinking about for years, if not decades, is here. Runaway German inflation at the same time as soaring Italian yields. The good news is that this should bring a lot more targeted intervention and a better-balanced policy response than in the last decade where negative rates and blanket QE was a one size fits all policy. High inflation will force the ECB to hike rates while managing the fall out on a more bespoke basis. It won't be easy, but it will likely be better balanced. Following on from the ECB, the next day brings the US CPI data. Month-over-month CPI is expected to accelerate to 0.7% from last month’s 0.3% reading. The core measure stripping out food and energy is expected to print at 0.5%. Those figures would translate to 8.3% and 5.9% for the year-over-year measures, respectively (from 8.3% and 6.2% last month). The Fed policy path for the next two meetings appears to be locked in to 50 basis point hikes, but Fed officials have highlighted the importance of inflation readings to determine the path of policy thereafter. There is a growing consensus that month-over-month inflation readings will have to decelerate in order to slow hikes to 25 basis points come September. Some Fed officials are still considering ramping the pace up to 75 basis points if inflation doesn’t improve. None appear to be considering zero policy action in September. Elsewhere, data will highlight production figures and the impact of the nascent tightening of financial conditions, with PMI, PPI, and industrial production figures due from a number of jurisdictions. Asian equity markets have overcame initial weakness this morning and are moving higher as I type. Across the region, the Hang Seng (+1.14%) is leading gains due to a rally in Chinese listed tech stocks. Additionally, the Shanghai Composite (+1.01%) and CSI (+1.06%) are also trading up after markets resumed trading following a holiday on Friday. The easing of Covid-19 restrictions in Beijing is helping to offset a miss in China’s Caixin Services PMI for May. It came in at 41.4 (vs. 46.0 expected), up from 36.2 last month. Elsewhere, the Nikkei (+0.30%) is also up while markets in South Korea are closed for a holiday. Outside of Asia, US stock futures have been steadily climbing in the last couple of hours before finishing this with contracts on the S&P 500 (+0.55%) and NASDAQ 100 (+0.65%) both in the green. US Treasuries are ever so slightly higher in yield. Recapping last week now and a renewed sense that global central banks would have to tighten policy more than was priced in given historic inflation drove yields higher and equity markets lower over the past week. This reversed a few weeks where market hike pricing had reversed. This move was driven by a series of inflationary data but also came right from the source, as Fed and ECB speakers sounded a hawkish tone ahead of their respective meetings in June. Elsewhere, OPEC+ met and agreed to expand daily production, which was followed by reports that President Biden would visit the Crown Prince in Saudi Arabia. Peeling back the covers. A series of ECB speakers openly considered the merits of +50bp hikes in light of growing inflation prints, as core Euro Area CPI rose to a record high, while German inflation hit figures not seen since the 1950s. In turn, 2yr bund yields climbed +30.9bps (+3.0bps Friday), and the week ended with +122bps of tightening priced in through 2022, the highest to date and implies some hikes of at least +50bps. A reminder that our Europe economists updated their ECB call to at least one +50bp hike in either July or September; full preview of that call and next week’s ECB meeting here. Yields farther out the curve increased as well, including 10yr bunds (+31.0bps, +3.6bps Friday), OATs (+32.3bps, +4.2bps Friday), and gilts (+23.8bps, +5.4bps Friday) on their holiday-shortened week. Italian BTP 10yr spreads ended the week at their widest spread since the onset of Covid at 212bps. The tighter expected policy weighed on risk sentiment, sending the STOXX 600 -0.87% lower over the week (-0.26% Friday). It was a similar story in the US, where a march of Fed officials, led by Vice Chair Brainard herself, again signed on for +50bp hikes at the next two meetings, and crucially, ruling out anything less than a +25bp hike in September. It appeared there was growing consensus on the Committee to size the September hike between +25bp and +50bps based on how month-over-month inflation evolves between now and then, with clear evidence of deceleration needed to slow the pace of hikes. The May CPI data will come this Friday but last week had a series of labour market prints that showed the employment picture remained white hot, capped on Friday with nonfarm payrolls increasing +390k and above expectations of +318k. Meanwhile, average hourly earnings maintained its +0.3% month-over-month pace. Treasury yields thus sold off over the week, with 2yr yields gaining +17.9bps (+2.5bps Friday) and 10yr yields up +20.1bps (+3.1bps Friday). The implied fed funds rate by the end of 2022 ended the week at 2.82%, its highest in two weeks, while the probability of a +50bp September hike ended the week at 66.3%, its highest in a month. The S&P 500 tumbled -1.20% (-1.63% Friday), meaning its run of weekly gains will end at a streak of one. Tech and mega-cap stocks fared better, with the NASDAQ losing -0.98% (-2.47% Friday) and the FANG+ fell -0.30% (-3.76% Friday). Elsewhere OPEC+ agreed to increase their production to +648k bls/day, after a steady flow of reports leaked that the cartel was considering such a move. Nevertheless, futures prices increased around +1.5% (+3.10% Friday) over the week, as it was not clear whether every member had the spare capacity to increase production to the new putative target, while easing Covid restrictions in China helped increase perceived demand. The OPEC+ announcement was closely followed by reports that President Biden would visit the Crown Prince in Saudi Arabia. Tyler Durden Mon, 06/06/2022 - 07:51.....»»

Category: blogSource: zerohedgeJun 6th, 2022

Futures Start New Month Flat As Fed"s QT2 Begins

Futures Start New Month Flat As Fed's QT2 Begins Stocks traded off session highs as weaker-than-average volumes mark the beginning of summer, and as traders awaited the jobs report later this week and eyed the official start of the Fed's second Quantitative Tightening program (which will end as "gloriously" as the first one) which will drain the Fed's balance sheet by $95BN per month. Contracts on the S&P 500 were 0.2% higher by 730 a.m. in New York, after the underlying index finished May up exactly 0.1%;  Nasdaq 100 futures were up 0.1%. European bourses and Asian stocks were modestly in the red to stgart the new quarter. The latest drop in Treasuries pushed 10-year yields closer to 2.9% as traders raised bets on Federal Reserve interest-rate hikes. The dollar advanced against major peers, and bitcoin traded around $31,500. Oil rose as investors assessed the future of OPEC+ unity, just as ministers from the group prepare to meet on Thursday to discuss its supply policy for July. Crude advanced about 10% in May, stoking more inflation worries.   Concerns that the Fed's rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility has picked up. “US markets, and by default, global markets, will still indulge in schizophrenic swings in market sentiment as the FOMO dip-buyers become increasingly frantic in their attempts to pick a cyclical low in equity markets,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Pte. On Tuesday, Joe Biden used a rare meeting with Federal Reserve Chair Jerome Powell to declare that he’s respecting the central bank’s independence and to throw Powell under the bus for any continued high inflation. The meeting came ahead of US payroll numbersFriday. “There are heightened concerns around inflation and where central banks are likely to go trying to combat inflation,” Kristina Hooper, Invesco Advisers chief global markets strategist, said on Bloomberg Radio. “This has gone from just an inflation scare to a growth scare. Uncertainty has grown.” In premarket trading, Salesforce shares jumped 8.3% after the software company raised its full-year forecast for adjusted earnings. HP will be in focus after the company reported better-than-expected sales and profit driven by steady demand for computer systems.  Other notable premarket movers: Digital Turbine (APPS US) fell 4.1% in New York premarket trading on Wednesday after the mobile services platform’s fourth-quarter results and first-quarter forecast. Roth Capital Partners analyst Darren Aftahi says the company provided soft guidance, but noted that its commentary around SingleTap licensing should be supportive. View (VIEW US) shares surge as much as 30% in US premarket trading, after the glass manufacturing firm reported its full-year results late Tuesday, with the company saying it expects to file its delinquent 10-K and 10-Q on or before June 30. ChargePoint (CHPT US) analysts noted that the EV charging network firm’s margins came under pressure due to rising costs and supply-chain disruption, leading some brokers to trim their targets on the stock. ChargePoint shares dropped 2.7% in US postmarket trading on Tuesday after posting a 1Q lossthat was wider than expected. Victoria’s Secret (VSCO US) analysts were positive on the lingerie company’s results, with Wells Fargo saying that its turnaround is on track despite a tough macroeconomic environment, while VitalKnowledge said that the update was a “big victory” amid the retail gloom. The shares gained 7.3% post-market Tuesday. HP (HPQ US) shares edged up in extended trading on Tuesday, after the company reported better-than- expected sales and profit driven by steady demand for computer systems. Analysts lauded the company’s execution as it navigates a challenging supply and macroeconomic environment. Ambarella (AMBA US) shares fell 5.6% in extended trading on Tuesday after the semiconductor device company issued a tepid second-quarter revenue forecast as lockdowns in China weigh on its near-term outlook. Analysts said that there is weakness in the near-term, but the long-term thesis remains intact. Late on Tuersday, Fed's Bostic said there could be a significant reduction in inflation this year and that his suggestion for a pause in September should not be interpreted as a "Fed put" or belief that the Fed would rescue markets, according to an interview in MarketWatch. Elsewhere, Treasury Secretary Yellen said US President Biden's top concern is inflation and shares the Fed's priority of slowing inflation, while she added she was wrong about the path inflation would take and doesn't expect the same pace of job gains going forward, according to Reuters. Citigroup Inc. strategists said that after a difficult first five months of 2022, the pain may not be over yet for global equity markets. The prospect of downward revisions to earnings estimates is the latest headwind to face stock investors, already rattled by runaway inflation and the potential impact of central-bank tightening aimed at controlling it, the strategists led by Jamie Fahy wrote in a note. In Europe, the Stoxx 600 Index erased earlier gains to trade 0.2% lower a day after euro-zone figures showed a record jump in consumer prices and on investor concerns that record inflation will pressure the European Central Bank to act more aggressively, increasing the risk of an economic slump. The DAX outperformed, adding 0.3%. Miners, utilities and real estate are the worst-performing sectors.  Autos are the day’s best performing sector and one of few rising subgroups amid declining markets; the Stoxx 600 Automobiles & Parts Index rises 2.1% as of 1:10pm CET, rebounding after a session of declines on Tuesday and on course for a fifth day of gains in six. Carmakers such as Stellantis, Renault and Volkswagen lead the advances. Stellantis +3.4%, VW +3.4%, Renault +3.4%, Porsche Automobil Holding SE +3.2%, BMW +2.8%, Volvo Car +2.5%, Mercedes-Benz Group +2.5%. Here are the biggest European movers: Dr. Martens shares surge as much as 30%, the most since January 2021, after the UK bootmaker reported pretax profit for the full year that beat the average analyst estimate. Lanxess shares rise as much as 2.5%, adding to an 11% gain on Tuesday. The chemicals group is raised to buy from hold at Stifel. Berenberg also hikes its PT on the stock. Societe Generale shares up as much as 2.6% after UBS upgrades the investment bank to buy from neutral, noting the company’s valuation is “too cheap to ignore.” Capricorn Energy shares rise after company reached an agreement on the terms of a recommended all-share combination with Africa-focused oil and gas developer Tullow Oil. Stadler Rail shares jump as much as 4.3%, most since March, after it signed a contract to deliver up to 510 FLIRT trains to the Swiss Federal Railways, according to a statement. OVS gains as much as 7.1% to highest since end of March after Banca Akros upgrades its rating to buy, saying in note that May appears to have been a strong month for the Italian fashion retailer. Saint-Gobain shares fluctuate after the building material company agreed to buy Canadian siding producer Kaycan for $928m to strengthen its position in the North American building-products market. Zalando shares fall as much as 5.1% after being downgraded to equal- weight from overweight at Barclays, which cites near-term challenges for the online fashion retailer. Earlier in the session, Asian stocks edged lower after fluctuating in a narrow range, as traders assessed China’s easing virus restrictions and the persistent risk of global inflation. The MSCI Asia Pacific Index was down less than 0.1%, with declines in technology and utilities shares offsetting gains in consumer discretionary stocks. Japan’s Topix Index rose more than 1% as the yen weakened, while indexes in Malaysia and the Philippines fell the most. China’s shares were slightly lower after a private gauge showed factory activity in May contracted from the previous month as both production and new orders fell. Meanwhile, Shanghai’s Covid-19 cases continued to decline as most parts of the city reopened after two months under one of the world’s most restrictive pandemic lockdowns.  Asian equities completed their first monthly advance this year in May amid optimism China’s easing lockdowns will improve the region’s growth outlook, even as soaring oil prices and global inflation fuel concerns of tighter monetary policies. Near-term concerns over inflation, economic growth and China’s Zero Covid policy are likely to persist, but investors can expect a “stabilization in 3Q as valuations reset and positive catalysts emerge,” Chetan Seth, Asia Pacific equity strategist at Nomura, wrote in a note. Markets in South Korea and Indonesia were closed for holidays. In FX, the Bloomberg Dollar Spot Index rose 0.1% as the greenback strengthened against all its Group-of-10 peers apart from the Australian dollar. The yen was the worst performer and fell to a two-week low. The euro neared the $1.07 handle before paring losses. Bunds were little changed with focus on ECB rate hike pricing and possible comments by policy makers including President Christine Lagarde before the ‘quiet’ period kicks ahead of next Thursday’s policy decision. The Aussie inched up and Australian bonds fell as data showed the economy grew faster than expected in the fourth quarter. Rising Treasury yields also weighed on Aussie debt. In rates, Treasury yields inched up with the curve slightly bear-flattenning, before the Federal Reserve starts its quantitative-tightening program today. The Fed will start shrinking its balance sheet at a pace of $47.5 billion a month before stepping that up to $95 billion in September. Treasuries were slightly cheaper across the curve, with yields off session highs in early US session. Yields are up 2bp-3bp across the curve, led higher by 5-year sector; the 10-year yield is at 2.87% underperforms bunds and gilts. Economists expect a second straight half-point rate increase from the Bank of Canada at 10am ET; swaps market prices in 52bp and 184bp by year-end. IG dollar issuance slate empty so far; six entities priced a total of $12.6b Tuesday, and two stood down. Bunds and Italian bonds are little changed, with the 10-year yields on both trading off session high after ECB’s Holzmann said new inflation record backs need for a 50bps hike. Money markets are pricing a cumulative 119bps of tightening in December. In commodities, WTI trades within Tuesday’s range, adding 1.6% to above $116. Most base metals are in the red; LME nickel falls 2.4%, underperforming peers. Spot gold falls roughly $8 to trade around $1,829/oz. Looking the day ahead now, data releases include the global manufacturing PMIs for May and the US ISM manufacturing reading for May. Otherwise, there’s German retail sales for April, the Euro Area unemployment rate for April, US construction spending for April, the JOLTS job openings for April and, May ISM manufacturing and the latest Fed Beige Book. From central banks, the Bank of Canada will be making its latest policy decision and the Fed will be releasing their Beige Book. Otherwise, speakers include ECB President Lagarde and the ECB’s Knot, Villeroy, Panetta and Lane, the Fed’s Williams and Bullard, and PBoC Governor Yi Gang. Market Snapshot S&P 500 futures little changed at 4,133.50 STOXX Europe 600 down 0.3% to 442.18 MXAP down 0.1% to 169.26 MXAPJ down 0.5% to 556.42 Nikkei up 0.7% to 27,457.89 Topix up 1.4% to 1,938.64 Hang Seng Index down 0.6% to 21,294.94 Shanghai Composite down 0.1% to 3,182.16 Sensex down 0.4% to 55,336.61 Australia S&P/ASX 200 up 0.3% to 7,233.98 Kospi up 0.6% to 2,685.90 German 10Y yield little changed at 1.14% Euro little changed at $1.0727 Brent Futures up 1.4% to $117.23/bbl Gold spot down 0.2% to $1,834.26 U.S. Dollar Index up 0.16% to 101.92 Top Overnight News from Bloomberg The latest all-time high for euro-zone inflation strengthens the case for the European Central Bank to lift interest rates by a half-point in July, according to Governing Council member Robert Holzmann Croatia is about to find out whether it’s in good enough shape to become the euro zone’s 20th member. Progress made by country will be assessed in reports due Wednesday from the ECB and the European Union’s executive arm Sweden’s main stock exchange venue, Nasdaq Stockholm, is looking into a new service that will provide clearing for inflation-linked swaps in Swedish kronor China’s financial capital reported its fewest Covid-19 cases in almost three months as residents celebrated a significant easing of curbs on movement, while some companies took a more cautious approach, maintaining some restrictions in factories China’s factory activity in May contracted from the previous month as both production and new orders fell, although the slowdown wasn’t as fast as in April, a private gauge showed Wednesday Treasury Secretary Janet Yellen gave her most direct admission yet that she made an incorrect call last year in predicting that elevated inflation wouldn’t pose a continuing problem President Joe Biden said he’ll give Ukraine advanced rocket systems and other US weaponry to better hit targets in its war with Russia, ramping up military support as the conflict drags into its fourth month New Zealand’s central bank is seeking feedback on whether its monetary policy remit is “still fit for purpose,” Deputy Governor Christian Hawkesby said. “It’s not about should it still be about price stability and maximum sustainable employment,” he said. “It’s more about have we got the right inflation targets, are we measuring it the right way, what horizon are we trying to achieve it over, what other things should we have regard to.” A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks traded mixed as risk sentiment only mildly improved from the lacklustre performance stateside as the region digested another slew of data releases including the continued contraction in Chinese Caixin Manufacturing PMI. ASX 200 was kept afloat by strength in industrials, telecoms and the top-weighted financials sector, while better-than-expected Q1 GDP data provides some mild encouragement. Nikkei 225 was underpinned by further currency depreciation and with BoJ Deputy Governor Wakatabe reiterating the BoJ's dovish tone. Hang Seng and Shanghai Comp were indecisive after Chinese Caixin Manufacturing PMI remained in contraction territory and amid mixed COVID-related developments with Shanghai reopening from the lockdown whilst Beijing's Fengtai district tightened curbs and required all residents to work remotely. Top Asian News Beijing reports two COVID cases during 15hrs to 3pm local time on June 1st Hong Kong Retail Sales Unexpectedly Rebound as Covid Curbs Ease Sri Lanka’s President Won’t Be Stepping Down Soon, Minister Says Europe, Asian Factories Under Pressure on China, War in Ukraine Philippine IPO’s Stellar Gain May Wane With Inflation: ECM Watch European bourses are mixed, Euro Stoxx 50 +0.1%, and have struggled to find a clear direction after mixed APAC trade with a busy docket ahead. Stateside, futures are posting similar performance and looking to a busy data and Central Bank afternoon session, ES +0.2%. Top European News UK government is drawing up plans that will task the BoE with stepping in and handling the implosion of a stablecoin in preparation for future crises in the crypto markets, according to The Times. EU Commission President von der Leyen will, on Wednesday, approve Poland’s national recovery plan; however, Politico reports that commissioners, including Timmermans and Vestager, will raise objections to this as Poland has not taken the necessary steps for Commission approval. UK House Prices Defy Slowdown Fears With 10th Consecutive Gain ECB Half-Point Hike Seen as Deutsche Bank Breaks With Consensus Wood to Sell Built-Environment Unit to WSP for $1.9 Billion BT’s Sport TV Deal With Warner Bros. Discovery Gets UK Probe FX Yen extends losses through more technical support levels, 129.0O and 129.50 as BoJ reiterates dovish stance and maintains that it is undesirable for monetary policy to target FX rates. Dollar drifts otherwise after month end squeeze as attention turns to busy midweek agenda and run in to NFP on Friday, DXY retracts into tighter 102.060-101.760 range. Aussie outperforms on the back of firmer than forecast Q1 GDP data, but hampered by decent option expiry interest sub-0.7200 vs Greenback. Euro unable to glean much impetus from hawkish ECB Holzmann as option expiries sit between 1.0740-75. Loonie pivots 1.2650 pre-BoC awaiting confirmation of the 50bp hike expected or something more hawkish. Marked slowdown in Hungarian manufacturing PMI piles more pressure on Forint following half point NBH rate rise vs 60bp consensus, EUR/HUF inching closer to 400.00, at circa 398.50. Commodities WTI and Brent are recovering from yesterday's WSJ source report induced downside, with participants awaiting clarity/details at Thursday's OPEC+ gathering. Currently, the benchmarks are holding around/above USD 117/bbl, vs respective lows of USD 114.58/bbl and USD 115.40/bbl respectively. Russian Foreign Minister Lavrov met with his Saudi counterpart on Tuesday in which they both praised the level of cooperation in OPEC+, while they noted stabilising effect that tight Russia-Saudi coordination has on the global hydrocarbon market, according to Reuters. UAE is considering a plan to increase its oil capacity by an additional 1mln bpd to a total 6mln bpd by 2030, according to Energy Intel. JMMC on Thursday now scheduled for 13:00BST (prev. 12:00BST), OPEC+ at 13:30BST, via Argus' Itayim. Police clashed with communities blocking MMG's Las Bambas copper mine in Peru. China's State Planner says renewable energy consumption is to reach circa. 1bln/T of standard-coal-equivalent by 2025, equal to 20% of total consumption; aims to secure around 33% of electricity from renewable sources by 2025. Spot gold is modestly softer amid ongoing USD upside and continuing to draft from a cluster of DMAs above USD 1840/oz, with base metals broadly lower as well. Central Banks ECB's Holzmann says the record Eurozone inflation print backs the need for a 50bps hike, decisive action is required in order to avoid harsher steps later. A clear rate signal could support EUR. BoJ Deputy Governor Wakatabe said the BoJ must maintain powerful monetary easing and sustain an environment where wages can rise, while he added that the BoJ shouldn't rule out additional easing steps if risks to the economy materialise. Wakatabe also noted that most goods prices aren't increasing with recent inflation driven mostly by energy and some food price increases, as well as noted that consumer inflation has not yet achieved the BoJ's price goal in a sustained and stable manner, according to Reuters. Adds, it is undesirable to target FX in guiding monetary policy; desirable for FX to reflect fundamentals. US Event Calendar 07:00: May MBA Mortgage Applications, prior -1.2% 09:45: May S&P Global US Manufacturing PM, est. 57.5, prior 57.5 10:00: April JOLTs Job Openings, est. 11.3m, prior 11.5m 10:00: April Construction Spending MoM, est. 0.5%, prior 0.1% 10:00: May ISM Manufacturing, est. 54.5, prior 55.4 14:00: U.S. Federal Reserve Releases Beige Book Central Banks 11:30: Fed’s Williams Makes Opening Remarks 13:00: Fed’s Bullard Discusses the Economic and Policy Outlook 14:00: U.S. Federal Reserve Releases Beige Book DB's Jim Reid concludes the overnight wrap We'll be off here in the UK tomorrow and Friday as we'll be celebrating the Queen being on the throne for an astonishing 70 years. I find the best way to celebrate is via the medium of golf! To put things in perspective, when I get to 100 years old I'll be celebrating exactly 70 years at DB. In our absence Tim will still be publishing the EMR for the next couple of days. Believe it or not it's now June! It only seems like yesterday it was Xmas. Perhaps 70 years isn't so long after all. Since it’s the start of the month, our usual performance review for the month just gone will be out shortly. A number of financial assets began to stabilise in May, helped by a combination of factors such as easing Covid restrictions in China and the potential that the Fed wouldn’t hike as aggressively as some had feared. That said, it’s still been an awful performance on a YTD basis, with the S&P 500 having seen its biggest YTD loss after 5 months since 1970, whilst most of the assets in our main sample are still beneath their levels at the start of the year. But after some respite over the last couple of weeks, the last 24 hours have seen equities and bonds sell off in tandem once again as inflation fears cranked up another notch. The main catalyst was the much stronger-than-expected flash CPI reading for the Euro Area, which at +8.1% was the fastest annual pace since the single currency’s formation. In terms of that Euro Area CPI reading, the main headline number of +8.1% was some way above the +7.8% reading expected, whilst core CPI also rose to a record +3.8% (vs. +3.6% expected). Unsurprisingly, this has only intensified the debate on how rapidly the ECB will hike rates, and Slovakian Central Bank Governor Kazimir became the latest member of the Governing Council to say that he was “open to talk about 50 basis points”, even if his baseline was still for a 25bps move in July. The investor reaction was evident too, and overnight index swaps moved to price in 119bps worth of ECB hikes by the December meeting, which is the highest to date. It also implies that the ECB would do more than simply four 25bp moves from July, which would only sum to 100bps. The European economics team published a blog taking a deep dive into underlying inflation across the continent (link here). There are lots of different cuts of the data in the piece, but the headline is a number of underlying metrics are scoring record highs, and that a lot of the pressure is being produced domestically and not just from external shocks. In particular, Germany registers above the rest of the continent with record high underlying inflation readings. All of this underscores the call for tighter ECB policy. Speaking of which, as previewed at the top, DB’s European economists released their ECB preview ahead of next week’s meeting yesterday, and they are now expecting the ECB to implement at least one +50bp rate hike by September, the first shop to take such a stance according to the latest Bloomberg survey. They note a +50bp hike is more likely in September but there’s a risk it comes in July. There is actually a precedent for 50bps from the ECB, although you have to go all the way back to June 2000 to find the last time they moved so quickly at a single meeting, and a +50bp hike is consistent with the reaction function President Lagarde outlined in her recent blog. Our economists also believe the ECB will be underestimating inflation with their forecast updates at next week’s meeting, necessitating a bigger rate increase early in their hiking cycle. Additionally, they expect the ECB to get rates 50bps above neutral by the middle of next year for a modestly restrictive policy stance to fight inflation. For next week’s meeting, they believe the GC will signal the end of net APP (asset purchases), clearing the way for a July liftoff. They also expect the ECB staff to raise 2024 inflation forecast to 2% and confirm the expiration of TLTRO discounts. Elsewhere on the inflation front, it appeared that Brent crude futures were set for a 9th consecutive daily gain and their second highest close in over a decade. However a post-European close Wall Street Journal article reported that OPEC was considering exempting Russia from its oil production deal in light of sanctions, which would pave the way for other members to pump a lot more oil. This drove an intraday reversal in Brent and WTI which closed down -1.14% and -0.35%, respectively having been up +2.97% and +4.27% at their peaks for the day. Growing fears that inflation will prove even stickier than previously hoped led to a major selloff among sovereign bonds on both sides of the Atlantic yesterday. In Europe, yields on 10yr bunds (+6.7bps), OATs (+7.5bps) and BTPs (+12.1bps) all moved higher thanks to a rise in both real rates and inflation breakevens. Meanwhile in the US, yields on 10yr Treasuries were up +10.6bps to 2.84% as markets caught up following the Memorial Day holiday and then added a bit more for good measure. We're another +1.5bps higher this morning. As it happens, today also marks the start of the Fed’s quantitative tightening process, which starts at a pace of $30bn per month for Treasuries, and $17.5bn for MBS, although those numbers will both double after 3 months. For those wanting more details, Tim on my team released a playbook for the process a couple of weeks back (link here). That prospect of stickier inflation and thus more aggressive rate hikes from central banks meant that equities took a knock yesterday as well. The S&P 500 was down -0.63% following its strongest weekly performance since November 2020, and small-cap stocks suffered in particular as the Russell 2000 shed -1.26%. It was a different story for the megacap tech stocks however, with the FANG+ index advancing another +0.69%, having gained more than +12% since its recent closing low last week. Over in Europe, the main indices also lost ground following their Monday gains, with the STOXX 600 (-0.72%), the DAX (-1.29%) and the CAC 40 (-1.43%) all falling back on the day. Equity futures are indicating a more positive start with contracts on the S&P 500 (+0.39%), NASDAQ 100 (+0.30%) and DAX (+0.64%) all higher. Asian equity markets are mixed this morning. The Hang Seng is down -0.67% in early trade, tracking declines in US equity markets along with a pullback in Chinese listed tech stocks. Additionally, in mainland China, the Shanghai Composite (-0.10%) and CSI (-0.13%) are also lagging. Elsewhere, the Nikkei (+0.71%) is leading gains as the Japanese yen weakened -0.32% to 129.08 against the US dollar. Markets in South Korea are closed today for a holiday. Meanwhile, in Australia, the S&P/ASX 200 (+0.12%) is edging higher after Q1 GDP advanced +0.8% from the final three months of last year (v/s +0.7% expected), taking the annual pace to +3.3% and outpacing the pre-pandemic average of around +2%. Other data showed that South Korea’s exports accelerated, growing +21.3% y/y in May (v/s +18.4% expected), against April’s upwardly revised +12.9% increase as shipments to Europe and US improved offsetting disruptions with China's trade. Separately, China’s Caixin manufacturing PMI improved to 48.1 from 46.0 in April. Back to yesterday on the data front, the Conference Board’s consumer confidence indicator for May surprise to the upside at 106.4 (vs. 103.6 expected), although it was still a decline on the previous month. Otherwise in the US, the FHFA house price index for March came in at just +1.5% month-on-month (vs. +2.0% expected), but the S&P CoreLogic Case-Shiller 20-city index surprised on the upside with a +21.2% year-on-year gain (vs. +20.0% expected). Then the MNI Chicago PMI also surprised to the upside with a 60.3 reading (vs. 55.0 expected). Finally, the number of UK mortgage approvals in April fell to their lowest in nearly 2 years at 66.0k (vs. 70.5k expected). To the day ahead now, and data releases include the global manufacturing PMIs for May and the US ISM manufacturing reading for May. Otherwise, there’s German retail sales for April, the Euro Area unemployment rate for April, US construction spending for April and the JOLTS job openings for April. From central banks, the Bank of Canada will be making its latest policy decision and the Fed will be releasing their Beige Book. Otherwise, speakers include ECB President Lagarde and the ECB’s Knot, Villeroy, Panetta and Lane, the Fed’s Williams and Bullard, and PBoC Governor Yi Gang. Tyler Durden Wed, 06/01/2022 - 07:50.....»»

Category: blogSource: zerohedgeJun 1st, 2022

Futures Slide, Yields Jump And Oil Surges As Inflation Fears Return Ahead Of Biden-Powell Meeting

Futures Slide, Yields Jump And Oil Surges As Inflation Fears Return Ahead Of Biden-Powell Meeting After posting solid gains on Monday when cash markets were closed in the US for Memorial Day, boosted by optimism that China's  covid lockdowns are effectively over, and briefly topping 4,200 - after sliding into a bear market below 3,855 just over a week earlier - on Tuesday US equity futures fell as oil’s surge following a partial ban on crude imports from Russia added to concerns over the pace of monetary tightening, exacerbated by the latest data out of Europe which found that inflation had hit a record 8.1% in May.  As of 7:15am ET, S&P futures were down 0.4% while Nasdaq futures rose 0.1% erasing earlier losses. European bourses appeared likely to snap four days of gains, easing back from a one-month high while Treasury yields climbed sharply across the curve, joining Monday’s selloff in German bunds and European bonds. The dollar advanced and bitcoin continued its solid rebound, trading just south of $32,000. Traders will be on the lookout for any surprise announcement out of the White House after 1:15pm when Joe Biden holds an Oval Office meeting with Fed Chair Jerome Powell and Janet Yellen. As noted last night, Brent oil rose to above $124 a barrel after the European Union agreed to pursue a partial embargo on Russian oil in response to the invasion of Ukraine, exacerbating inflation concerns; crude also got a boost from China easing coronavirus restrictions, helping demand. With the price of oil soaring, energy stocks also jumped in premarket trading; Exxon gained as much as 1.5% while Chevron rose as much as 1.4%, Marathon Oil +2.9%, Coterra Energy +3.7%; smaller stocks like Camber Energy +8.8% and Imperial Petroleum rose 15%, leading advance. US-listed Chinese stocks jumped, on track to wipe out their monthly losses, as easing in lockdown measures in major cities and better-than-expected economic data gave investors reasons to cheer. Shares of e-commerce giant Alibaba Group Holding Ltd. were up 4.4% in premarket trading. Among other large-cap Chinese internet stocks, JD.com Inc. advanced 6.7% and Baidu Inc. gained 7%. Cryptocurrency stocks also rose in premarket trading as Bitcoin trades above $31,500, with investors and strategists saying the digital currency is showing signs of bottoming out. Bitcoin, the largest cryptocurrency, advanced 1.2% as of 4:30 a.m. in New York. Crypto stocks that were rising in premarket trading include: Riot Blockchain +9%, Marathon Digital +8.1%, Bit Digital +6.1%, MicroStrategy +9.4%, Ebang +3.4%, Coinbase +5.3%, Silvergate Capital +5.2%. “It’s very hard to have conviction at the moment,” Mike Bell, global market strategist at JPMorgan Asset Management, said in an interview with Bloomberg Television. “We think it makes sense to be neutral on stocks and pretty neutral on bonds actually.” The possibility that Russia could retaliate to the EU move on oil by disrupting gas flows “would make me be careful about being overweight risk assets at the moment,” he said. U.S. stocks are set for a slightly positive return in May despite a dramatic month in markets, which saw seven trading days in which the S&P 500 Index posted a move bigger than 2%. Global stocks are also on track to end the month with modest gains amid skepticism about whether the market is near a trough and as volatility stays elevated. Fears that central bank rate hikes will induce a recession, stubbornly high inflation and uncertainty around how China will boost its flailing economy are keeping investors watchful. On the other hand, attractive valuations, coupled with hopes that inflation may be peaking has made investors buy up stocks. In Europe, Stoxx 600 Index was set to snap four days of gains, retreating from a one-month high, with technology stocks among the heaviest decliners. The UK's FTSE 100 outperforms, adding 0.4%, CAC 40 lags, dropping 0.6%. Travel, real estate and construction are the worst-performing sectors. Among individual stock moves in Europe, Deutsche Bank AG slipped after the lender and its asset management unit had their Frankfurt offices raided by police. Credit Suisse Group AG dropped after a Reuters report that the bank is weighing options to strengthen its capital. Unilever Plc jumped as activist investor Nelson Peltz joined its board. Royal DSM NV soared after agreeing to form a fragrances giant by combining with Firmenich. Asian stocks rose Tuesday, helped by a rally in Chinese shares after Shanghai further eased virus curbs and the nation’s factory activity showed signs of improvement.  The MSCI Asia Pacific Index climbed as much as 0.5% Tuesday, on track for the first monthly advance this year, even as investors sold US Treasuries on renewed inflation concerns. Chinese stocks capped their longest winning streak since June. “Asia has seen the worst earnings revision of any region in the world,” David Wong, senior investment strategist for equities at AllianceBernstein, told Bloomberg Television. “When the news is really bleak, that is when one wants to establish a position in Chinese equities,” he said. “It is very clear that the policy support is on its way.” Tech and communication services shares were among the biggest sectoral gainers on Tuesday.  Asia stocks are on track to eke out a gain of less than a percentage point in May as the easing of China’s lockdowns improves the growth outlook for the region. Still, the impact of aggressive monetary-policy tightening on US growth and higher energy and food costs globally are weighing on sentiment in the equity market as traders struggle to assess the earnings fallout. Japanese stocks dropped after data showed the nation’s factory output dropped in April for the first time in three months as China’s Covid-related lockdowns further disrupted supply chains.  Benchmark gauges were also lower as 22 Japanese companies were set to be deleted from MSCI global standard indexes at Tuesday’s close. The Topix Index fell 0.5% to 1,912.67 on Tuesday, while the Nikkei declined 0.3% to 27,279.80. Nippon Telegraph & Telephone Corp. contributed the most to the Topix’s drop, as the telecom-services provider slumped 2%. Among the 2,171 companies in the index, shares in 1,369 fell, 720 rose and 82 were unchanged. “Until after the FOMC in June, stocks will continue to sway,” said Shingo Ide, chief equity strategist at NLI Research Institute, said referring to the US Federal Reserve.   India’s benchmark equities index clocked its biggest monthly decline since February, as a surge in crude oil prices raised prospects of tighter central bank action to keep a lid on inflation. The S&P BSE Sensex slipped 0.6% to 55,566.41 in Mumbai, taking its monthly decline to 2.6%. The NSE Nifty 50 Index dropped 0.5% on Tuesday. Mortgage lender Housing Development Finance Corp. fell 2.6% and was the biggest drag on the Sensex, which had 16 of the 30 member stocks trading lower.  Of the 19 sectoral indexes compiled by BSE Ltd., 10 declined, led by a measure of power companies.    The price of Brent crude, a major import for India, climbed for a ninth consecutive session to trade around $124 a barrel. “The primary focus in the coming weeks will be on central banks’ policy measures to stabilize inflation,” Mitul Shah, head of research at Reliance Securities Ltd. wrote in a note. “Changes in oil prices and amendments to import and export duties might play a role in assessing the market’s trajectory.” Similarly, in Australia the S&P/ASX 200 index fell 1% to close at 7,211.20, with all sectors ending the session lower. The benchmark dropped 3% in May, notching its largest monthly decline since January. Suncorp was among the worst performers Tuesday after it was downgraded at Morgan Stanley. De Grey Mining rose after an update on its Mallina Gold Project. In New Zealand, the S&P/NZX 50 index rose 1.5% to 11,308.34. With rate hikes in full swing in the US and the UK, the ECB is preparing to lift borrowing costs for the first time in more than a decade to combat the 19-member currency bloc’s unprecedented price spike. In the US, Federal Reserve Governor Christopher Waller said he wants to keep raising interest rates in half-percentage point steps until inflation is easing back toward the central bank’s goal. In rates, Treasuries are off worst levels of the day although yields remain cheaper by 5bp-7bp across the curve as opening gap higher holds. 10-year TSY yields around 2.815%, cheaper by 7.7bp on the day, while intermediate-led losses widen 2s7s30s fly by ~4.5bp; bund yields around 2bp cheaper vs Monday close, following hot euro- zone inflation prints. European bonds also pressure Treasuries lower after euro-zone inflation accelerated to a fresh all-time high and ECB hike premium was added across front-end. Italian bond yields rose by up to 6bps after data showed that euro-zone consumer prices jumped 8.1% from a year earlier in May, exceeding the 7.8% median estimate in a Bloomberg survey. Comments from Fed’s Waller on Monday -- backing half-point hike at several meetings --  saw Treasury yields reset higher from the reopen, following US Memorial Day holiday.Front-end weakness reflects Fed hike premium returning in US swaps, with around 188bp of hikes now priced in for December FOMC vs 182bp at Friday’s close. In FX, the Bloomberg Dollar Spot Index rose 0.2% as the greenback outperformed all Group-of-10 peers apart from the Norwegian krone, though the gauge is still set for its first monthly fall in three. The euro erased Monday’s gain after data showed that euro-zone consumer prices jumped 8.1% from a year earlier in May, exceeding the 7.8% median estimate in a Bloomberg survey. Norway’s krone rallied after the central bank said it will reduce its daily foreign currency purchases on behalf of the government to the equivalent of 1.5 billion kroner ($160 million) next month. Norway has been benefiting from stronger revenue from oil and gas production as the war in Ukraine contributed to higher petroleum prices. Sterling slipped against the broadly stronger dollar. UK business confidence rose for the first time in three months in May, with more companies planning to increase prices. Cable may see its first month of gains since December. The yen fell as Treasury yields surged. Japanese government bonds also took a hit from selling in US bonds while a two-year note auction went smoothly. Australian and New Zealand bonds extended an opening fall as cash Treasuries dropped on return from a long weekend. Dollar strength weighed on the Aussie and kiwi. In commodities, Brent rises 2% to trade around $124 after European Union leaders agreed to pursue a partial ban on Russian oil. Spot gold falls roughly $4 to trade at $1,852/oz. Base metals are mixed; LME nickel falls 1.7% while LME zinc gains 0.9%. Looking at the day ahead, the data highlights will include the flash CPI reading for May from the Euro Area, as well as the country readings from France and Italy. On top of that, we’ll get German unemployment for May, UK mortgage approvals for April, and Canada’s Q1 GDP. Over in the US, there’s then the FHFA house price index for March, the Conference Board’s consumer confidence indicator for May, the MNI Chicago PMI for May and the Dallas Fed’s manufacturing activity for May. Otherwise, central bank speakers include the ECB’s Villeroy, Visco and Makhlouf. Market Snapshot S&P 500 futures little changed at 4,159.50 STOXX Europe 600 little changed at 446.27 MXAP up 0.5% to 169.92 MXAPJ up 0.9% to 559.23 Nikkei down 0.3% to 27,279.80 Topix down 0.5% to 1,912.67 Hang Seng Index up 1.4% to 21,415.20 Shanghai Composite up 1.2% to 3,186.43 Sensex little changed at 55,914.64 Australia S&P/ASX 200 down 1.0% to 7,211.17 Kospi up 0.6% to 2,685.90 German 10Y yield little changed at 1.05% Euro down 0.3% to $1.0743 Brent Futures up 1.6% to $123.60/bbl Gold spot up 0.1% to $1,856.27 U.S. Dollar Index little changed at 101.63 Top Overnight News from Bloomberg ECB Governing Council member Francois Villeroy de Galhau said the latest acceleration in inflation warrants a “gradual but resolute” normalization of monetary policy The ECB’s interest- rate hiking must proceed in an “orderly” way to avoid threatening the integrity of the euro zone, Governing Council member Ignazio Visco said German joblessness dropped the least in more than a year, pointing to labor-market vulnerabilities as the war in Ukraine and surging inflation weigh on Europe’s largest economy China’s factories still struggled in May, but the slower pace of contraction suggests that the worst of the current economic fallout may be coming to an end as the country starts to ease up on its tough lockdowns A debt crisis in China’s property industry has sparked a record wave of defaults and dragged more developer bonds down to distressed levels A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mixed as most indices lacked firm direction amid month-end and mixed data. ASX 200 was subdued by tech underperformance and after a deluge of data releases. Nikkei 225 traded rangebound with the index restricted after Industrial Production data missed forecasts. Hang Seng and Shanghai Comp were initially indecisive following the Chinese PMI data which printed above estimates but remained at a contraction, although risk appetite gradually picked amid further support measures and improved COVID situation in China. Top Asian News China's Cabinet issued a series of policies to stabilise the economy, according to a Cabinet document cited by Reuters. China is to accelerate the issuance of local government special bonds and add new types of infrastructure and energy projects to the project pool eligible for fundraising, while it is to step up VAT credit rebates, boost fiscal spending and will guide actual lending rates lower. China reported 97 new COVID-19 cases on May 30th which was the first time infections were below 100 since March 2nd, according to Bloomberg. Shanghai official said the city is moving into a normalised epidemic control phase and looks to resume normal life. The official added that malls and shops will be able to reopen with capacity capped at 75% although the reopening of high-density venues such as gyms will be slower, while all workers in low-risk areas should be able to return to work from June 1st, according to Reuters. Hong Kong Chief Executive Lam said they will likely begin the third stage of easing COVID-19 restrictions in late June, according to Bloomberg. RBNZ Deputy Governor Hawkesby said the central bank needs to keep decreasing stimulus and tighten conditions beyond the neutral of 2.0%. European bourses are mixed, Euro Stoxx 50 -0.8%, with sentiment cautious after a mixed APAC handover and in wake of hot EZ CPI before Powell's meeting with Biden. Note, the FTSE 100 and AEX are bucking the trend given their exposure to Unilever after Trian Fund Management confirmed a 1.5% stake. US futures are pressured, ES -0.6%, succumbing to the broader risk moves after relatively steady initial trade as sentiment remains cautious with multiple factors in play. IATA Chief says that demand is very strong and traffic will likely return to 2019 levels nearer to 2023 than 2024. Question does remain regarding the impact of inflation on disposable incomes and travel demand. Higher oil prices will result in higher ticket prices; rule of thumb is a 10% change in ticket prices can impact demand by 1%. Top European News Senior Tory MPs said UK PM Johnson is likely to face a no-confidence vote as leader of the Conservative Party if they lose two parliamentary by-elections next month, according to FT. Pressure is increasing for the ECB to hike rates after German CPI rose to its highest in half a century, according to The Times. ECB’s Visco Insists on ‘Orderly’ Rate-Hike Pace to Avoid Stress UK Mortgage Approvals Fall to 65,974 in April Vs. Est. 70,500 UK Could Reopen Top Gas Storage to Endure Energy Crisis BNP Paribas Aims to Hire 7,000 People in France in 2022 Russia’s Biggest Lender Sberbank Targeted in EU Sanctions Plan FX Buck bounces into month end as US Treasury yields rebound amidst rally in crude prices and hawkish Fed commentary, DXY towards top of firmer 101.800-410 range. Kiwi undermined by downbeat NBNZ business survey findings and recession warning from RBNZ; NZD/USD hovering just above 0.6500 and AUD/NZD back over 1.1000. Euro fades from Fib resistance irrespective of Eurozone inflation exceeding consensus, EUR/USD down through 1.0750 vs circa 1.0787 at best on Monday. Yen hampered by mixed Japanese data and UST retreat, but back above 128.00 and retracement level (128.27 Fib retracement). Aussie limits losses alongside recovering Yuan after better than feared Chinese PMIs and economic stability policies from the Cabinet, AUD/USD stays within sight of 0.7200, USD/CNH reverses from 6.6900+ and USD/CNY from just shy of 6.6750. Petro currencies cushioned by oil gains after EU embargo on some Russian exports; USD/CAD beneath 1.2700, EUR/NOK probes 10.1000 with added impetus as Norges Bank plans to trim daily FX purchases in June. Fixed Income Bonds succumb to more downside pressure as oil soars, inflation data exceeds consensus and Central Bank hawks get more aggressive. Bunds only just hold above 152.00, Gilts lose 117.00+ status and 10 year T-note retreats through 120-00 ahead of cash re-open from 3-day holiday weekend. Bobl supply snapped up at final sale of current 5 year batch and end of month Italian offerings relatively well received, albeit at much higher gross yields. BoJ maintains bond-buying operations for June at May levels. Commodities WTI and Brent are bid as China's COVID situation remains fluid, but with incremental improvements, alongside EU leaders reaching a watered-down Russian sanctions package. Currently, the benchmarks are holding comfortably above USD 119/bbl and in proximity to the top-end of the sessions range. Reminder, given the US market holiday there was no settlement on Monday. IEA's Birol says oil market could get tight in the summer and sees bottlenecks with diesel, gasoline, and kerosene, especially in Europe. Spot gold is modestly pressured but yet to stray much from the USD 1850/oz mark while base metals are mixed as sentiment slips. Central Banks ECB's Visco says rate hikes will need to be gradual given uncertainties, recent widening in the IT/GE spread shows the need to strengthen public finances and lower debt. Need to ensure tha t normalisation does not lead to unwarranted fragmentation in the Eurozone. ECB's Villeroy says the May inflation numbers confirm expectations for an increase and need for progressive monetary normalisation. Speaking in relation to the French inflation data. US Event Calendar 09:00: 1Q House Price Purchase Index QoQ, prior 3.3% 09:00: March S&P/Case-Shiller US HPI YoY, prior 19.80% 09:00: March S&P/CS 20 City MoM SA, est. 1.90%, prior 2.39% 09:00: March S&P CS Composite-20 YoY, est. 19.80%, prior 20.20% 09:00: March FHFA House Price Index MoM, est. 2.0%, prior 2.1% 09:45: May MNI Chicago PMI, est. 55.0, prior 56.4 10:00: May Conf. Board Expectations, prior 77.2 10:00: May Conf. Board Present Situation, prior 152.6 10:00: May Conf. Board Consumer Confidenc, est. 103.8, prior 107.3 10:30: May Dallas Fed Manf. Activity, est. 1.5, prior 1.1 DB's Jim Reid concludes the overnight wrap Yesterday we published our May market participant survey with 560 filling in across the globe. The highlights were that property was seen as the best inflation hedge with crypto only winning favour with 1%. 61% think a recession will be necessary to rein in inflation but less think the Fed will be brave enough to take us there. A majority think the ECB will have to throw in a 50bps hike at some point in this cycle but only around a quarter think the Fed will do a 75bps hike. Only a quarter think equities have now bottomed over a horizon of the next 3-6 months but responders have reduced their view of bubbles in the market from the last time we asked. Finally inflation expectations continue to edge up. See the link here for lots of interesting observations and thanks again for your continued support. It may have been a quieter session over the last 24 hours with the US on holiday, but inflation concerns were put firmly back on the agenda thanks to another upside surprise in German inflation, as well as a further rise in oil prices that sent Brent Crude back above $120/bbl (it was as low as $102 three weeks ago). That led to a fresh selloff in sovereign bonds, as well as growing speculation about more hawkish central banks, which marks a shift in the dominant narrative over the last couple of weeks, when growing fears of a recession had led to a rally in sovereign bonds, not least since there were growing doubts about the extent to which central banks would be able to take policy into restrictive territory, if at all. In reality though, that German inflation print for May provided significant ammunition to the hawkish side of the argument, with the EU-harmonised reading coming in above every estimate on Bloomberg at +8.7% (vs. +8.1% expected). For reference, that leaves German CPI at its highest level since the 1950s (using the numbers for West Germany before reunification), and that holds even if you use the national definition of CPI, which rose to a slightly lower +7.9% (vs. +7.6% expected). It was a similar story from Spain earlier in the day, which reported inflation on the EU-harmonised measure at +8.5% (vs. +8.3% expected). Speaking to our German economist Stefan Schneider he thinks temporary energy tax reductions should reduce the annual rate to below 7% in June but it’s likely that it’ll be back above 7% by September when this and other charges roll-off, and then only modestly fall into year-end. That’s a long period of high inflation where second round effect and wage pressures can build. With upside surprises from both Germany and Spain yesterday, that’ll heighten interest in this morning’s flash CPI print for the entire Euro Area, not least since the next ECB meeting is just 9 days away. Indeed, those bumper inflation readings have only added to expectations that the ECB will follow the Fed in moving by a larger-than-usual 50bps rather than 25bps once they start hiking. Overnight index swaps reacted accordingly, and are now pricing in a +33bps move higher in rates by the July meeting, which is the highest to date and leaves it just a few basis points away from being closer to 50bps than 25bps. On top of that, the amount of hikes priced in for the year as a whole rose to 114bps, which again is the highest to date. Ahead of that meeting, there were some further comments from policymakers, with the ECB’s Chief Economist Lane saying in an interview that “increases of 25 basis points in the July and September meetings are a benchmark pace.” Interestingly he didn’t rule out the possibility of a 50bp move, saying that “The discussion will be had”, but also said that their “current assessment … calls for a gradual approach to normalisation.” Against that backdrop, there was a significant selloff in European sovereign bonds, with yields on 10yr bunds (+9.4bps), OATs (+8.5bps) and BTPs (+9.9bps) all moving higher. The prospect of tighter policy meant those rises in yields were more pronounced at the front end of the curve, with 2yr German yields up +10.9bps to 0.43%, which is a level unseen in over a decade. The only major exception to that pattern were Swedish government bonds, where 10yr yields were down -6.2bps after the country’s economy contracted by a larger-than-expected -0.8% in Q1, which was above the -0.4% contraction in the flash estimate from April. Whilst Treasury markets were closed for the US Memorial Day holiday, Fed funds futures provided a sense that the direction of travel was similar in the US to Europe, since the implied fed funds rate by the December FOMC meeting ticked up +7bps. Furthermore, we also had a speech from Fed Governor Waller, who commented that he was in favour of “tightening policy by another 50 basis points for several meetings”, and said that he was “not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2% target”. Up to now, there’s been a pretty strong signal from Fed Chair Powell and others that 50bps were likely at the next two meetings (in June and July), but in September there’s been speculation they might begin to slow down to a 25bp pace, with futures currently pricing in something in between the two at present. In Asia, US sovereign yields are playing catch-up after reopening with 2yr through to 10yr yields 8-11bps higher across the curve. The main other story yesterday was a significant rise in oil prices, with Brent Crude up +1.97% on the day to close at $121.15/bbl, whilst WTI rose +1.82% to $117.17/bbl. That marks an 8th consecutive daily increase in Brent Crude prices, and leaves it at its highest closing level in over two months, and will not be welcome news for policymakers already grappling with higher energy prices. Part of that increase has come amidst the easing of Covid restrictions in China, but the prospect of an EU embargo on Russian oil has also played a role. Indeed, following an extraordinary European Council summit, EU leaders agreed late last night, a political deal to impose a partial ban on most Russian oil imports. Under a compromise plan, the 27-nation bloc has decided to cut 90% of oil imports from Russia by the end of 2022 with EU leaders agreeing to exempt Hungary from Russian oil embargo. The embargo will cover seaborne oil and partially exempt pipeline oil thus providing an important concession to the landlocked nation. Following this, oil prices are building on yesterday's gains with Brent and WTI up just under 1.5% as I type. Asian equity markets are mostly treading water this morning but with China higher. The Nikkei (+0.13%), Hang Seng (+0.24%) and Kospi (+0.11%) are slightly higher with the Shanghai Composite (+0.75%) and CSI (+0.98%) leading gains after China’s official factory activity contracted at a slower pace. The official manufacturing PMI advanced to 49.6 in May (vs 49.0 expected) from 47.4, as COVID-19 curbs in major manufacturing hubs were eased. This is still three months below 50 now. In line with the weakness in the factory sector, services sector activity remained soft, but did bounce. The non-manufacturing PMI came in at 47.8 in May, up from 41.9 in April. US equities were closed for the holiday yesterday, but in spite of the prospect of faster rate hikes being back on the table, futures still managed to put in a decent performance, with those on the S&P 500 up over +0.5% around the time of the European close. That's dipped to +0.2% as I type though. European indices made gains, with the STOXX 600 up +0.59% thanks to an outperformance among the more cyclical sectors, and the index built on its +2.98% advance last week. Those gains were seen across the continent, with the DAX (+0.79%), the CAC 40 (+0.72%) and the FTSE 100 (+0.19%) all moving higher on the day. Finally, there wasn’t much other data yesterday, although the European Commission’s economic sentiment indicator for the Euro Area stabilised in May having fallen in all but one month since October. The measure came in at 105.0 (vs. 104.9 expected), up from a revised 104.9 in April. To the day ahead now, and the data highlights will include the flash CPI reading for May from the Euro Area, as well as the country readings from France and Italy. On top of that, we’ll get German unemployment for May, UK mortgage approvals for April, and Canada’s Q1 GDP. Over in the US, there’s then the FHFA house price index for March, the Conference Board’s consumer confidence indicator for May, the MNI Chicago PMI for May and the Dallas Fed’s manufacturing activity for May. Otherwise, central bank speakers include the ECB’s Villeroy, Visco and Makhlouf. Tyler Durden Tue, 05/31/2022 - 07:51.....»»

Category: worldSource: nytMay 31st, 2022

S&P Futures Jump Above 4,000 As Fed Fears Fade

S&P Futures Jump Above 4,000 As Fed Fears Fade After yesterday's post-FOMC ramp which sent stocks higher after the Fed's Minutes were less hawkish than feared and also hinted at a timeline for the Fed's upcoming pause (and easing), US index futures initially swung between gains and losses on Thursday as investors weighed the "good news" from the Fed against downbeat remarks on the Chinese economy from premier Li who warned that China would struggle to post a positive GDP print this quarter coupled with Apple’s conservative outlook. Eventually, however, bullish sentiment prevailed and even with Tech stocks underperforming following yesterday's disappointing earnings from Nvidia, e-mini futures rose to session highs as of 715am, and traded up 0.6% above 4,000 for the first time since May 18, while Nasdaq 100 futures were up 0.2% after earlier dropping as much as 0.8%. The tech-heavy index is down 27% this year. Treasury yields and the dollar slipped. Fed policy makers indicated their aggressive set of moves could leave them with flexibility to shift gears later if needed. Investors took some comfort from the Fed minutes that didn’t show an even more aggressive path being mapped to tackle elevated prices, though central banks remain steadfast in their resolve to douse inflation. Still, volatility has spiked as the risk of a US recession, the impact from China’s lockdowns and the war in Ukraine simmer. While the Fed minutes “provided investors with a temporary relief, today’s mixed price action on stocks mostly shows that major bearish leverages linger,” said Pierre Veyret, a technical analyst at ActivTrades in London. “The war in eastern Europe and concerns about the Chinese economy still add stress to market sentiment,” he wrote in a report. “Investors will want to see evidence of improvements regarding the pressure coming from rising prices.” “We expect key market drivers to continue to be centered around inflation and how central banks react; global growth concerns and how China gets to grip with its zero-Covid policy; and the geopolitical conflict between Russia and Ukraine,” said Fraser Lundie, head of fixed income for public markets at Federated Hermes Limited. “Positive news flow on any of these market drivers could sharply improve risk sentiment; however, there is a broad range of scenarios that could play out in the meantime.” In premarket trading, shares in Apple dropped 1.4% after a report said that the tech giant is planning to keep iPhone production flat in 2022, disappointing expectations for a ~10% increase. The company also said it was raising salaries in the US by 10% or more as it faces a tight labor market and unionization efforts. In other premarket moves, Nvidia dropped 5.3% as the biggest US chipmaker by market value gave a disappointing sales forecast. Software company Snowflake slumped 14%, while meme stock GameStop Corp. fell 2.9%. Among gainers, Twitter Inc. jumped 5.2% after billionaire Elon Musk dropped plans to partially fund his purchase of the company with a margin loan tied to his Tesla stake and increased the size of the deal’s equity component to $33.5 billion. Other notable premarket movers include: Shares of Alibaba and Baidu rise following results, sending other US-listed Chinese stocks higher in US premarket trading. Alibaba shares shot up as much as 4.5% after reporting fourth- quarter revenue and earnings that beat analyst expectations. Lululemon’s (LULU US) stock gains 2.4% in premarket trading as Morgan Stanley raised its recommendation to overweight, suggesting that the business can be more resilient through headwinds than what the market is expecting. Macy’s (M US) shares gain 15% in premarket trading after Co. increases its adjusted earnings per share guidance for the full fiscal year Williams-Sonoma (WSM US) shares jumped as much as 9.6% in premarket trading after 1Q sales beat estimates. The retailer was helped by its exposure to more affluent customers, but analysts cautioned that it may be difficult to maintain the sales momentum amid macroeconomic challenges. Nutanix (NTNX US) shares shed about a third of their value in US premarket trading as analysts slashed their price targets on the cloud platform provider after its forecast disappointed. US airline stocks rise in premarket trading on Thursday, after Southwest and JetBlue provided upbeat outlooks for the second-quarter. LUV up 1.5% premarket, after raising its second-quarter operating revenue growth forecast. JBLU up 2% after saying it expects second-quarter revenue at or above high end of previous guidance. Cryptocurrency-tied stocks fall in premarket trading as Bitcoin snaps two days of gains. Coinbase -2.6%; Marathon Digital -2.3%; Riot Blockchain -1.2%. Bitcoin drops 1.9% at 6:11 am in New York, trading at $29,209.88. It’s time to buy the dip in stocks after a steep global selloff in equity markets, according to Citi strategists. Meanwhile, Fidelity International Chief Executive Officer Anne Richards said the risk of a recession has increased and markets are likely to remain volatile, the latest dire warning on the outlook at the World Economic Forum. “If inflation gets tame enough over summer, there may not be continued raising of rates,” Carol Pepper, Pepper International chief executive officer, said on Bloomberg TV, adding that investors should look to buy tech stocks after the selloff. “Stagflation, I just don’t think that’s going to happen anymore. I think we are going to be in a situation where inflation will start tapering down and then we will start going into a more normalized market.” In Europe, the Stoxx Europe 600 Index rose 0.3%, pare some of their earlier gains but remain in the green, led by gains for retail, consumer and energy stocks. IBEX outperforms, adding 0.6%, FTSE MIB is flat but underperforms peers. Retailers, energy and consumer products are the strongest-performing sectors, with energy shares outperforming for the second day as oil climbed amid data that showed a further decrease in US crude and gasoline stockpiles. Here are the most notable European movers: Auto Trader rises as much as 3.5% after its full-year results beat consensus expectations on both top- and bottom-lines. Galp climbs as much as 4.1% as RBC upgrades to outperform, saying the stock might catch up with the rest of the sector after “materially” underperforming peers in recent years. Rightmove rises as much as 1.5% after Shore upgrades to hold from sell, saying the stock has reached an “appropriate” level following a 27% decline this year. FirstGroup soars as much as 16% after the bus and train operator said it received a takeover approach from I Squared Capital Advisors and is currently evaluating the offer. United Utilities declines as much as 8.9% as company reports a fall in adjusted pretax profit. Jefferies says full-year guidance implies a materially-below consensus adjusted net income view. Johnson Matthey falls as much as 7.5% after the company reported results and said it expects operating performance in the current fiscal year to be in the lower half of the consensus range. BT drops as much as 5.7% after the telecom operator said the UK will review French telecom tycoon Patrick Drahi’s increased stake in the company under the National Security and Investment Act. JD Sports drops as much as 12% as the departure of Peter Cowgill as executive chairman is disappointing, according to Shore Capital. Earlier in the session, Asian stocks were mixed as traders assessed China’s emergency meeting on the economy and Federal Reserve minutes that struck a less hawkish note than markets had expected.  The MSCI Asia Pacific Index was little changed after fluctuating between gains and losses of about 0.6% as technology stocks slid. South Korean stocks dipped after the central bank raised interest rates by 25 basis points as expected. Chinese shares eked out a small advance after a nationwide emergency meeting on Wednesday offered little in terms of additional stimulus. The benchmark CSI 300 Index headed for a weekly drop of more than 2%, despite authorities’ vows to support an economy hit by Covid-19 lockdowns. Investors took some comfort from Fed minutes in which policy makers indicated their aggressive set of moves could leave them with flexibility to shift gears later if needed. Still, Asia’s benchmark headed for a weekly loss amid concerns over China’s lockdowns and the possibility of a US recession. “The coming months are ripe for a re-pricing of assets across the board with a further shake-down in risk assets as term and credit premia start to feature prominently,” Vishnu Varathan, the head of economics and strategy at Mizuho Bank, wrote in a research note.  Japanese stocks closed mixed after minutes from the Federal Reserve’s latest policy meeting reassured investors while Premier Li Keqiang made downbeat comments on China’s economy. The Topix rose 0.1% to close at 1,877.58, while the Nikkei declined 0.3% to 26,604.84. Toyota Motor Corp. contributed the most to the Topix gain, increasing 1.9%. Out of 2,171 shares in the index, 1,171 rose and 898 fell, while 102 were unchanged. In Australia, the S&P/ASX 200 index fell 0.7% to close at 7,105.90 as all sectors tumbled except for technology. Miners contributed the most to the benchmark’s decline. Whitehaven slumped after peer New Hope cut its coal output targets. Appen soared after confirming a takeover approach from Telus and said it’s in talks to improve the terms of the proposal. Appen shares were placed in a trading halt later in the session. In New Zealand, the S&P/NZX 50 index fell 0.6% to 11,102.84. India’s key stock indexes snapped three sessions of decline to post their first advance this week on recovery in banking and metals shares. The S&P BSE Sensex rose 0.9% to 54,252.53 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measure. Both benchmarks posted their biggest single-day gain since May 20 as monthly derivative contracts expired today. All but one of the 19 sector sub-indexes compiled by BSE Ltd. gained.  HDFC Bank and ICICI Bank provided the biggest boosts to the two indexes, rising 3% and 2.2%, respectively. Of the 30 shares in the Sensex, 24 rose and 6 fell. As the quarterly earnings season winds up, among the 45 Nifty companies that have so far reported results, 18 have trailed estimates and 27 met or exceeded expectations. Aluminum firm Hindalco Industries is scheduled to post its numbers later today. In FX, the Bloomberg Dollar fell 0.3%, edging back toward the lowest level since April 26 touched Tuesday. The yen jumped to an intraday high after the head of the Bank of Japan said policymakers could manage an exit from their decades-long monetary policy, and that U.S. rate rises would not necessarily keep the yen weak. Commodity currencies including the Australian dollar fell as China’s Premier Li Keqiang offered a bleak outlook on domestic growth. The Chinese economy is in some respects faring worse than in 2020 when the pandemic started, he said. Central banks were busy overnight: Russia’s central bank delivered its third interest-rate reduction in just over a month and said borrowing costs can fall further still, as it looks to stem a rally in the ruble and unwinds the financial defenses in place since the invasion of Ukraine. The Bank of Korea raised its key interest rate on Thursday as newly installed Governor Rhee Chang-yong demonstrated his intention to tackle inflation at his first policy meeting since taking the helm. New Zealand’s central bank has also shown its commitment this week to combat surging prices. In rates, Treasuries bull-steepen amid similar price action in bunds and many other European markets and gains for US equity index futures. Yields richer by ~3bp across front-end of the curve, steepening 2s10 by ~2bp, 5s30s by ~3bp; 10-year yields rose 2bps to 2.76%, keeps pace with bund while outperforming gilts. 2- and 5-year yields reached lowest levels in more than a month, remain below 50-DMAs. US auction cycle concludes with 7-year note sale, while economic data includes 1Q GDP revision. Bund, Treasury and gilt curves all bull-steepen. Peripheral spreads tighten to Germany with 10y BTP/Bund narrowing 5.1bps to 194.6bps. The US weekly auction calendar ends with a $42BN 7-year auction today which follows 2- and 5-year sales that produced mixed demand metrics, however both have richened from auction levels. WI 7-year yield at ~2.735% is ~17bp richer than April’s, which tailed by 1.7bp. IG dollar issuance slate includes Bank of Nova Scotia 3Y covered SOFR; issuance so far this week remains short of $20b forecast, is expected to remain subdued until after US Memorial Day. In commodities,  WTI trades within Wednesday’s range, adding 0.6% to around $111. Spot gold falls roughly $7 to trade around $1,846/oz. Cryptocurrencies decline, Bitcoin drops 2.5% to below $29,000.  Looking at the day ahead now, and data releases from the US include the second estimate of Q1 GDP, the weekly initial jobless claims, pending home sales for April, and the Kansas City Fed’s manufacturing index for May. Meanwhile in Italy, there’s the consumer confidence index for May. From central banks, we’ll hear from Fed Vice Chair Brainard, the ECB’s Centeno and de Cos, and also get decisions from the Central Bank of Russia and the Central Bank of Turkey. Finally, earnings releases include Costco and Royal Bank of Canada. Market Snapshot S&P 500 futures little changed at 3,974.25 STOXX Europe 600 up 0.2% to 435.16 MXAP little changed at 163.17 MXAPJ down 0.3% to 529.83 Nikkei down 0.3% to 26,604.84 Topix little changed at 1,877.58 Hang Seng Index down 0.3% to 20,116.20 Shanghai Composite up 0.5% to 3,123.11 Sensex up 0.4% to 53,975.57 Australia S&P/ASX 200 down 0.7% to 7,105.88 Kospi down 0.2% to 2,612.45 German 10Y yield little changed at 0.90% Euro little changed at $1.0679 Brent Futures up 0.5% to $114.55/bbl Gold spot down 0.3% to $1,847.94 U.S. Dollar Index little changed at 102.11 Top Overnight News from Bloomberg Federal Reserve officials agreed at their gathering this month that they need to raise interest rates in half-point steps at their next two meetings, continuing an aggressive set of moves that would leave them with flexibility to shift gears later if needed. Russia’s central bank delivered its third interest-rate reduction in just over a month and said borrowing costs can fall further still, halting a rally in the ruble as it unwinds the financial defenses in place since the invasion of Ukraine. China’s trade-weighted yuan fell below 100 for the first time in seven months as Premier Li Keqiang’s bearish comments added to concerns that the economy may miss its growth target by a wide margin this year. Bank of Japan Governor Haruhiko Kuroda said interest rate increases by the Federal Reserve won’t necessarily cause the yen to weaken, saying various factors affect the currency market. A more detailed breakdown of global markets courtesy of Newsquawk Asia-Pac stocks were indecisive as risk appetite waned despite the positive handover from Wall St where the major indices extended on gains post-FOMC minutes after the risk event passed and contained no hawkish surprises. ASX 200 failed to hold on to opening gains as weakness in mining names, consumer stocks and defensives overshadowed the advances in tech and financials, while capex data was mixed with the headline private capital expenditure at a surprise contraction for Q1. Nikkei 225 faded early gains but downside was stemmed with Japan set to reopen to tourists on June 6th. Hang Seng and Shanghai Comp were mixed with early pressure after Premier Li warned the economy was worse in some aspects than in 2020 when the pandemic began, although he stated that China will unveil detailed implementation rules for a pro-growth policy package before the end of the month, while the PBoC issued a notice to promote credit lending to small firms and the MoF announced cash subsidies to Chinese airlines. Top Asian News PBoC issued a notice to promote credit lending to small firms and is to boost financial institutions' confidence to lend to small firms, according to Reuters. BoK raised its base rate by 25bps to 1.75%, as expected, via unanimous decision. BoK raised its 2022 inflation forecast to 4.5% from 3.1% and raised its 2023 forecast to 2.9% from 2.0%, while it sees GDP growth of 2.7% this year and 2.4% next year. BoK said consumer price inflation is to remain high in the 5% range for some time and sees it as warranted to conduct monetary policy with more focus on inflation, according to Reuters. Morgan Stanley has lowered China's 2022 GDP estimate to 3.2% from 4.2%. CSPC Drops After Earnings, Covid Impact to Weigh: Street Wrap China Builder Greenland’s Near-Term Bonds Set for Record Drops Debt Is Top Priority for Diokno as New Philippine Finance Chief European bourses are firmer across the board, Euro Stoxx 50 +0.7%, but remain within initial ranges in what has been a relatively contained session with much of northern-Europe away. Stateside, US futures are relatively contained, ES +0.2%, with newsflow thin and on familiar themes following yesterday's minutes and before PCE on Friday.  Apple (AAPL) is reportedly planning on having a 220mln (exp. ~240mln) iPhone production target for 2022, via Bloomberg. -1.4% in  the pre-market. Baidu Inc (BIDU) Q1 2022 (CNY): non-GAAP EPS 11.22 (exp. 5.39), Revenue 28.4bln (exp. 27.82bln). +4.5% in the pre-market. UK CMA is assessing whether Google's (GOOG) practises in parts of advertisement technology may distort competition. Top European News UK Chancellor Sunak's package today is likely to top GBP 30bln, according to sources via The Times; Chancellor will confirm that the package will be funded in part by windfall tax on oil & gas firms likely to come into effect in the autumn. Subsequently, UK Gov't sources are downplaying the idea that the overall support package is worth GBP 30bln, via Times' Swinford; told it is a very big intervention. UK car production declined 11.3% Y/Y to 60,554 units in April, according to the SMMT. British Bus Firm FirstGroup Gets Takeover Bid from I Squared Citi Strategists Say Buy the Dip in Stocks on ‘Healthy’ Returns The Reasons to Worry Just Keep Piling Up for Davos Executives UK Unveils Plan to Boost Aviation Industry, Passenger Rights Pakistan Mulls Gas Import Deal With Countries Including Russia FX Dollar drifts post FOMC minutes that reaffirm guidance for 50bp hikes in June and July, but nothing more aggressive, DXY slips into lower range around 102.00 vs 102.450 midweek peak. Yen outperforms after BoJ Governor Kuroda outlines exit strategy via a combination of tightening and balance sheet reduction, when the time comes; USD/JPY closer to 126.50 than 127.50 where 1.13bln option expiries start and end at 127.60. Rest of G10, bar Swedish Crown rangebound ahead of US data, with Loonie looking for independent direction via Canadian retail sales, USD/CAD inside 1.2850-00; Cable surpassing 1.2600 following reports that the cost of living package from UK Chancellor Sunak could top GBP 30bln. Lira hits new YTD low before CBRT and Rouble weaker following top end of range 300bp cut from CBR. Yuan halts retreat from recovery peaks ahead of key technical level, 6.7800 for USD/CNH. Fixed Income Debt wanes after early rebound on Ascension Day lifted Bunds beyond technical resistance levels to 154.74 vs 153.57 low. Gilts fall from grace between 119.17-118.19 parameters amidst concerns that a large UK cost of living support package could leave funding shortfall. US Treasuries remain firm, but off peaks for the 10 year T-note at 120-31 ahead of GDP, IJC, Pending Home Sales and 7 year supply. Commodities Crude benchmarks inch higher in relatively quiet newsflow as familiar themes dominate; though reports that EU officials are considering splitting the oil embargo has drawn attention. Currently WTI and Brent lie in proximity to USD 111/bbl and USD 115/bbl respectively; within USD 1.50/bbl ranges. Russian Deputy PM Novak expects 2022 oil output 480-500mln/T (prev. 524mln/T YY), via Ria. Spot gold is similarly contained around the USD 1850/oz mark, though its parameters are modestly more pronounced at circa. USD 13/oz Central Banks CBR (May, Emergency Meeting): Key Rate 11.00% (exp. ~11.00/12.00%, prev. 14.00%); holds open the prospect of further reductions at upcoming meetings. BoJ's Kuroda says, when exiting easy policy, they will likely combine rate hike and balance sheet reduction through specific means, timing to be dependent on developments at that point; FOMC rate hike may not necessarily result in a weaker JPY or outflows of funds from Japan if it affects US stock prices, via Reuters. US Event Calendar 08:30: 1Q PCE Core QoQ, est. 5.2%, prior 5.2% 08:30: 1Q Personal Consumption, est. 2.8%, prior 2.7% 08:30: May Continuing Claims, est. 1.31m, prior 1.32m 08:30: 1Q GDP Price Index, est. 8.0%, prior 8.0% 08:30: May Initial Jobless Claims, est. 215,000, prior 218,000 08:30: 1Q GDP Annualized QoQ, est. -1.3%, prior -1.4% 10:00: April Pending Home Sales YoY, est. -8.0%, prior -8.9% 10:00: April Pending Home Sales (MoM), est. -2.0%, prior -1.2% 11:00: May Kansas City Fed Manf. Activity, est. 18, prior 25 DB's Jim Reid concludes the overnight wrap A reminder that our latest monthly survey is now live, where we try to ask questions that aren’t easy to derive from market pricing. This time we ask if you think the Fed would be willing to push the economy into recession in order to get inflation back to target. We also ask whether you think there are still bubbles in markets and whether equities have bottomed out yet. And there’s another on which is the best asset class to hedge against inflation. The more people that fill it in the more useful so all help from readers is very welcome. The link is here. For markets it’s been a relatively quiet session over the last 24 hours compared to the recent bout of cross-asset volatility. The main event was the release of the May FOMC minutes, which had the potential to upend that calm given the amount of policy parameters currently being debated by the Fed. But in reality they came and went without much fanfare, and failed to inject much life into afternoon markets or the debate around the near-term path of policy. As far as what they did say, they confirmed the line from the meeting itself that the FOMC is ready to move the policy to a neutral position to fight the current inflationary scourge, with agreement that 50bp hikes were appropriate at the next couple of meetings. That rapid move to neutral would leave the Fed well-positioned to judge the outlook and appropriate next steps for policy by the end of the year, and markets were relieved by the lack of further hawkishness, with the S&P 500 extending its modest gains following the release to end the day up +0.95%. As the Chair said at the meeting, and has been echoed by other Fed officials since, the minutes noted that the hawkish shift in Fed communications have already had a noticeable effect on financial conditions, with Fed staff pointing out that “conditions had tightened by historically large amounts since the beginning of the year.” Meanwhile on QT, which the Fed outlined their plans for at the May meeting, the minutes expressed some trepidation about market liquidity and potential “unanticipated effects on financial market conditions” as a result, but did not offer potential remedies. With the minutes not living up to hawkish fears alongside growing concerns about a potential recession, investors continued to dial back the likelihood of more aggressive tightening, with Fed funds futures moving the rate priced in by the December meeting to 2.64%, which is the lowest in nearly a month and down from its peak of 2.88% on May 3. So we’ve taken out nearly a full 25bp hike by now, which is the biggest reversal in monetary policy expectations this year since Russia’s invasion of Ukraine began. That decline came ahead of the minutes and also saw markets pare back the chances of two consecutive +50bp hikes, with the amount of hikes priced over the next two meetings falling under 100bps for only the second time since the May FOMC. Yields on 10yr Treasuries held fairly steady, only coming down -0.5bps to 2.745%. Ahead of the Fed minutes, markets had already been on track to record a steady performance, and the S&P 500 (+0.95%) extended its existing gains in the US afternoon. That now brings the index’s gains for the week as a whole to +1.98%, so leaving it on track to end a run of 7 consecutive weekly declines, assuming it can hold onto that over the next 48 hours, and futures this morning are only down -0.13%. That said, we’ve seen plenty of volatility in recent weeks, and after 3 days so far this is the first week in over two months where the S&P hasn’t seen a fall of more than -1% in a single session, so let’s see what today and tomorrow bring. In terms of the specific moves yesterday, it was a fairly broad advance, but consumer discretionary stocks (+2.78%) and other cyclical industries led the way, with defensives instead seeing a much more muted performance. Tech stocks outperformed, and the NASDAQ (+1.51%) came off its 18-month low, as did the FANG+ index (+1.99%). Over in Europe, equities also recorded a decent advance, with the STOXX 600 gaining +0.63%, whilst bonds continued to rally as well, with yields on 10yr bunds (-1.5bps) OATs (-1.5bps) and BTPs (-2.7bps) all moving lower. These gains for sovereign bonds have come as investors have grown increasingly relaxed about inflation in recent weeks, with the 10yr German breakeven falling a further -4.2bps to 2.23% yesterday, its lowest level since early March and down from a peak of 2.98% at the start of May. Bear in mind that the speed of the decline in the German 10yr breakeven over the last 3-4 weeks has been faster than that seen during the initial wave of the Covid pandemic, so a big shift in inflation expectations for the decade ahead in a short space of time that’s reversed the bulk of the move higher following Russia’s invasion of Ukraine. Nor is that simply concentrated over the next few years, since the 5y5y forward inflation swaps for the Euro Area looking at inflation over the five years starting in five years’ time has come down from aa peak of 2.49% earlier this month to 2.07% by the close last night, so almost back to the ECB’s target. To be fair there’s been a similar move lower in US breakevens too, and this morning the 10yr US breakeven is down to a 3-month low of 2.56%. That decline in inflation expectations has come as investors have ratcheted up their expectations about future ECB tightening. Yesterday, the amount of tightening priced in by the July meeting ticked up a further +0.2bps to 32.7bps, its highest to date, and implying some chance that they’ll move by more than just 25bps. We heard from a number of additional speakers too over the last 24 hours, including Vice President de Guindos who said in a Bloomberg interview that the schedule for rate hikes outlined by President Lagarde was “very sensible”, and that the question of larger hikes would “depend on the outlook”. Overnight in Asia, equities are fluctuating this morning after China’s Premier Li Keqiang struck a downbeat note on the economy yesterday. Indeed, he said that the difficulties facing the Chinese economy “to a certain extent are greater than when the epidemic hit us severely in 2020”. As a reminder, our own economist’s forecasts for GDP growth this year are at +3.3%, which if realised would be the slowest in 46 years apart from 2020 when Covid first took off. Against that backdrop, there’s been a fairly muted performance, and whilst the Shanghai Composite (+0.65%) and the CSI 300 (+0.60%) have pared back initial losses to move higher on the day, the Hang Seng (-0.13%) has lost ground and the Nikkei (+0.07%) is only just in positive territory. We’ve also seen the Kospi (-0.08%) give up its initial gains overnight after the Bank of Korea moved to hike interest rates once again, with a 25bp rise in their policy rate to 1.75%, in line with expectations. That came as they raised their inflation forecasts, now expecting CPI this year at 4.5%, up from 3.1% previously. At the same time they also slashed their growth forecast to 2.7%, down from 3.0% previously. There wasn’t much in the way of data yesterday, though we did get the preliminary reading for US durable goods orders in April. They grew by +0.4% (vs. +0.6% expected), although the previous month was revised down to +0.6% (vs. +1.1% previously). Core capital goods orders were also up +0.3% (vs. +0.5% expected). To the day ahead now, and data releases from the US include the second estimate of Q1 GDP, the weekly initial jobless claims, pending home sales for April, and the Kansas City Fed’s manufacturing index for May. Meanwhile in Italy, there’s the consumer confidence index for May. From central banks, we’ll hear from Fed Vice Chair Brainard, the ECB’s Centeno and de Cos, and also get decisions from the Central Bank of Russia and the Central Bank of Turkey. Finally, earnings releases include Costco and Royal Bank of Canada. Tyler Durden Thu, 05/26/2022 - 07:50.....»»

Category: dealsSource: nytMay 26th, 2022

Futures Slide Before Fed Minutes, Dollar Jumps As China Lockdown Fears Return

Futures Slide Before Fed Minutes, Dollar Jumps As China Lockdown Fears Return Another day, another failure by markets to hold on to even the smallest overnight gains: US futures erased earlier profits and dipped as traders prepared for potential volatility surrounding the release of the Federal Reserve’s minutes which may provide insight into the central bank’s tightening path, while fears over Chinese lockdowns returned as Beijing recorded more Covid cases and the nearby port city of Tianjin locked down a city-center district. Contracts on the Nasdaq 100 and the S&P 500 were each down 0.5% at 7:30 a.m. in New York after gaining as much as 1% earlier, signaling an extension to Tuesday’s slide that followed a profit warning from Snap. In premarket trading, Nordstrom jumped 10% after raising its forecast for earnings and revenue for the coming year suggesting that the luxury consumer is doing quite fine even as most of the middle class has tapped out; analysts highlighted the department store’s exposure to higher-end customers.Meanwhile, Wendy’s surged 12% after shareholder Trian Fund Management, billionaire Nelson Peltz' investment vehicle, said it will explore a transaction that could give it control of the fast-food chain. Here are the most notable premarket movers in the US: Urban Outfitters (URBN US) shares rose as much as 5.7% in premarket trading after Nordstrom’s annual forecasts provided some relief for the beaten down retail sector. Shares rallied even as Urban Outfitters reported lower-than-expected profit and sales for the 1Q. Best Buy (BBY US) shares could be in focus as Citi cuts its price target on electronics retailer to a new Street-low of $65 from $80, saying that there continues to be “significant risk” to 2H estimates. Dick’s Sporting Goods (DKS US) sinks as much as 20% premarket after the retailer cut its year adjusted earnings per share and comparable sales guidance for the full year. Peers including Big 5 Sporting Goods, Hibbett and Foot Locker also fell after the DKS earnings release 2U Inc. (TWOU US) shares drop as much as 4.3% in US premarket trading after Piper Sandler downgraded the online educational services provider to underweight from neutral, with broker flagging growing regulatory risk. Verrica Pharma (VRCA US) shares slump as much as 61% in US premarket trading after the drug developer received an FDA Complete Response Letter for its VP-102 molluscum treatment. Shopify’s (SHOP US) U.S.-listed shares fell 0.7% in premarket trading after a second prominent shareholder advisory firm ISS joined its peer Glass Lewis to oppose the Canadian company’s plan to give CEO Tobi Lutke a special “founder share” that will preserve his voting power. Cazoo (CZOO US) shares declined 3.3% in premarket trading as Goldman Sachs initiated coverage of the stock with a neutral recommendation, saying the company is well positioned to capture the significant growth in online used car sales. CME Group (CME US Equity) may be in focus as its stock was upgraded to outperform from market perform at Oppenheimer on attractive valuation and an “appealing” dividend policy. US stocks have slumped this year, with the S&P 500 flirting with a bear market on Friday, as investors fear that the Fed’s active monetary tightening will plunge the economy into a recession: as Bloomberg notes, amid surging inflation, lackluster earnings and bleak company guidance have added to market concerns. The tech sector has been particularly in focus amid higher rates, which mean a bigger discount for the present value of future profits. The Nasdaq 100 index has tumbled to the lowest since November 2020 and its 12-month forward price-to-earnings ratio of 19.7 is the lowest since the start of the pandemic and below its 10-year average. “The consumer in the US is still showing really good signs of strength,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets. “Even if there is a slowdown it’s going to be quite mild,” he said in an interview with Bloomberg Television. Meanwhile, Barclays Plc strategists including Emmanuel Cau see scope for stocks to fall further if outflows from mutual funds pick up, unless recession fears are alleviated. Retail investors have also not yet fully capitulated and “still look to be buying dips in old favorites in tech/growth,” the strategists said. "Our central scenario remains that a recession can be avoided and that geopolitical risks will moderate over the course of the year, allowing equities to move higher,” said Mark Haefele,  chief investment officer at UBS Global Wealth Management. “But recent market falls have underlined the importance of being selective and considering strategies that mitigate volatility." The Fed raised interest rates by 50 basis points earlier this month -- to a target range of 0.75% to 1% -- and Chair Jerome Powell has signaled it was on track to make similar-sized moves at its meetings in June and July. Investors are now awaiting the release of the May 3-4 meeting minutes later on Wednesday to evaluate the future path of rate hikes. However, in recent days, traders have dialed back the expected pace of Fed interest-rate increases over worse-than-expected economic data and the selloff in equities. Sales of new US homes fell more in April than economists forecast, and the Richmond Fed’s measure of business activity dropped to a two-year low. The yield on the 10-year Treasury slipped for a second day to 2.73%. “Given the risks to growth and our view that positive real rates will be unmanageable for any significant length of time, we expect the Fed to deliver less tightening in 2022 overall than it and markets currently expect,” Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, wrote in a note. In Europe, stocks pared an earlier advance but hold in the green while the dollar rallies. The Stoxx 600 gave back most of the morning’s gains with autos, financial services and travel weighing while miners and utilities outperformed. The euro slid as comments by European Central Bank officials indicated policy normalization will be gradual. The ECB is in the midst of a debate over how aggressive it should act to rein in inflation. Here are some of the most notable European movers today: SSE shares rise as much as 6.3% after strong guidance and amid reports that electricity generators are likely to escape windfall taxes being considered by the U.K. government. Air France-KLM jumps as much as 13% in Paris after falling 21% on Tuesday as the airline kicked off a EU2.26 billion rights offering. Mining and energy stocks outperform the broader market in Europe as iron ore rebounded, while oil rose after a report that showed a decline in US gasoline stockpiles. Rio Tinto gains as much as 2.3%, Anglo American +2.6%, TotalEnergies +2.8%, Equinor +3.7% Elekta rises as much as 9.3% after releasing a 4Q earnings report that beat analysts’ expectations. Torm climbs as much as 12% after Pareto initiates coverage at buy and says the company may pay out dividends equal to 40% of its market value over the next 3 years. Mercell rises as much as 104% to NOK6.13/share after recommending a NOK6.3/share offer from Spring Cayman Bidco. Luxury stocks traded lower amid rekindled Covid-19 worries in China as Beijing continued to report new infections while nearby Tianjin locked down its city center. LVMH declines as much as 1.4%, Burberry -2.6% and Hermes -1.7% Sodexo falls as much as 5.7% after the French caterer decided not to open up the capital of its benefits & rewards unit to a partner following a review of the business. Ocado slumps as much as 8% after its grocery joint venture with Marks & Spencer slashed its forecast for FY22 sales growth to low single digits, rather than around 10% guided previously. Earlier in the session, Asian stocks were steady as traders continued to gauge growth concerns and fears of a US recession. The MSCI Asia Pacific Index rose 0.1%, paring an earlier increase of as much as 0.5%, as gains in the financial sector were offset by losses in consumer names. New Zealand equities dipped on Wednesday after the central bank delivered an expected half-point interest rate hike to combat inflation. Chinese shares stabilized after the central bank and banking regulator urged lenders to boost loans as the nation grapples with ongoing Covid outbreaks. The benchmark CSI 300 Index snapped a two-day losing streak to close 0.6% higher. Asian equities have been trading sideways as the prospect of slower growth amid tighter monetary conditions, as well as China’s strict Covid policy and supply-chain disruptions, remain key overhangs for the market. In China, the country’s strict Covid policy is outweighing broad measures to support growth and keeping investors wary. Its commitment to Covid Zero means it’s all but certain to miss its economic growth target by a large margin for the first time ever. The nation’s central bank and banking regulator urged lenders to boost loans in the latest effort to shore up the battered economy. “The valuation is still nowhere near attractive and you have a number of leading indicators, whether its credit, liquidity or growth, which are not yet indicating that we want to take more risks on the market,” Frank Benzimra, head of Asia equity strategy at Societe Generale, said in a Bloomberg TV interview. He added that the preferred strategy in equities will focus on defensive plays like resources and income. Investors will get further clues on the Federal Reserve’s interest-rate policies with the release in Washington of minutes from the latest meeting on Wednesday. Concerns that the Fed’s tightening will plunge the nation into recession had spurred a sharp selloff in US shares recently. Japanese stocks ended a bumpy day lower as investors awaited minutes from the latest Federal Reserve meeting and continued to gauge the impact of China’s rising Covid cases. The Topix fell 0.1% to close at 1,876.58, while the Nikkei declined 0.3% to 26,677.80. Nintendo Co. contributed the most to the Topix Index decline, decreasing 4.3%. Out of 2,171 shares in the index, 793 rose and 1,257 fell, while 121 were unchanged. Meanwhile, Australian stocks bounced with the S&P/ASX 200 index rising 0.4% to close at 7,155.20, with banks and miners contributing the most to its move. Costa Group was the top performer after reaffirming its operating capex guidance. Chalice Mining dropped after an equity raising. In New Zealand, the S&P/NZX 50 index fell 0.7% to 11,173.37 after the RBNZ’s policy decision. The central bank raised interest rates by half a percentage point for a second straight meeting and forecast further aggressive hikes to come to tame inflation. India’s key equity indexes fell for the third consecutive session, dragged by losses in software makers as worries grow over companies’ spending on technology amid a clouded growth outlook. The S&P BSE Sensex slipped 0.6% to 53,749.26 in Mumbai, while the NSE Nifty 50 Index dropped 0.6%. The benchmark has retreated for all but four sessions this month, slipping 5.8%, dragged by Infosys, Tata Consultancy and Reliance Industries. All but two of the 19 sector sub-indexes compiled by BSE Ltd. fell on Wednesday, led by information technology stocks. Out of 30 shares in the Sensex index, 12 rose and 18 fell. The S&P BSE IT Index has lost nearly 26% this year and is trading at its lowest level since June.  In FX, the Bloomberg dollar spot index resumed rising, up 0.3% with all G-10 FX in the red against the dollar. The euro slipped and Italian bonds extended gains after comments from ECB officials. Executive board member Fabio Panetta said the ECB shouldn’t seek to raise its interest rates too far as long as the euro-area economy displays continuing signs of fragility. Board Member Olli Rehn said the ECB should raise rates to zero in autumn. The pound was steady against the dollar and gained versus the euro, paring some of its losses from Tuesday. Focus is on the long-awaited report into lockdown parties at No. 10. The BOE needs to tighten policy further to fight rising inflation, but it’s also wary of acting too quickly and risking pushing the UK into recession, according to Chief Economist Huw Pill. Sweden’s krona slumped on the back of a stronger dollar and amid data showing that consumer confidence fell to the lowest level since the global financial crisis. Yen eased as Treasury yields steadied in Asia from an overnight plunge.  China’s offshore yuan weakened for the first time in five days as Beijing recorded more Covid cases and the nearby port city of Tianjin locked down a city-center district. New Zealand dollar and sovereign yields rose after the RBNZ hiked rates by 50 basis points for a second straight meeting and forecast more aggressive tightening, with the cash rate seen peaking at 3.95% in 2023. Most emerging-market currencies also weakened against a stronger dollar as investors await minutes from the Federal Reserve’s last meeting for clues on the pace of US rate hikes.  The ruble extended its recent rally in Moscow even as Russia’s central bank moved up the date of its next interest-rate meeting by more than two weeks to stem gains in the currency with more monetary easing. Russia has been pushed closer to a potential default. US banks and individuals are barred from accepting bond payments from Russia’s government since 12:01 a.m. New York time on Wednesday, when a license that had allowed the cash to flow ended. The lira lagged most of its peers, weakening for a fourth day amid expectations that Turkey’s central bank will keep rates unchanged on Thursday even after consumer prices rose an annual 70% in April. In rates, Treasuries were steady with yields slightly richer across long-end of the curve as S&P 500 futures edge lower, holding small losses. US 10-year yields around 2.745% are slightly richer vs Tuesday’s close; long-end outperformance tightens 5s30s spread by 1.4bp on the day with 30-year yields lower by ~1bp. Bunds outperform by 2bp in 10-year sector while gilts lag slightly with no major catalyst. Focal points of US session include durable goods orders data, 5-year note auction and minutes of May 3-4 FOMC meeting. The US auction cycle resumes at 1pm ET with $48b 5-year note sale, concludes Thursday with $42b 7-year notes; Tuesday’s 2-year auction stopped through despite strong rally into bidding deadline. The WI 5-year yield at ~2.740% is ~4.5bp richer than April auction, which tailed by 0.9bp. In commodities, WTI pushed higher, heading back toward best levels of the week near $111.60. Most base metals trade in the red; LME aluminum falls 2.3%, underperforming peers. Spot gold falls roughly $10 to trade around $1,856/oz. Spot silver loses 1.1% to around. Bitcoin trades on either side of USD 30k with no real direction. Looking to the day ahead now, and central bank publications include the FOMC minutes from their May meeting and the ECB’s Financial Stability Review. Separately, we’ll hear from ECB President Lagarde, the ECB’s Rehn, Panetta, Holzmann, de Cos and Lane, BoJ Governor Kuroda, Fed Vice Chair Brainard and the BoE’s Tenreyro. Otherwise, data releases from the US include preliminary April data on durable goods orders and core capital goods orders. Market Snapshot S&P 500 futures little changed at 3,942.75 STOXX Europe 600 up 0.4% to 433.41 MXAP little changed at 163.41 MXAPJ up 0.3% to 531.42 Nikkei down 0.3% to 26,677.80 Topix little changed at 1,876.58 Hang Seng Index up 0.3% to 20,171.27 Shanghai Composite up 1.2% to 3,107.46 Sensex down 0.5% to 53,763.20 Australia S&P/ASX 200 up 0.4% to 7,155.24 Kospi up 0.4% to 2,617.22 German 10Y yield little changed at 0.94% Euro down 0.5% to $1.0677 Brent Futures up 1.0% to $114.69/bbl Gold spot down 0.5% to $1,856.22 U.S. Dollar Index up 0.30% to 102.16 Top Overnight News from Bloomberg New Zealand dollar and sovereign yields rose after the RBNZ hiked rates by 50 basis points and forecast more aggressive tightening, with the cash rate seen peaking at 3.95% in 2023 The euro slipped and Italian bonds extended gains after comments from ECB officials. Executive board member Fabio Panetta said the ECB shouldn’t seek to raise its interest rates too far as long as the euro-area economy displays continuing signs of fragility. Board Member Olli Rehn said the ECB should raise rates to zero in autumn The pound was steady against the dollar and gained versus the euro, paring some of its losses from Tuesday. Focus is on the long-awaited report into lockdown parties at No. 10 The BOE needs to tighten policy further to fight rising inflation, but it’s also wary of acting too quickly and risking pushing the UK into recession, according to Chief Economist Huw Pill Sweden’s krona slumped on the back of a stronger dollar and amid data showing that consumer confidence fell to the lowest level since the global financial crisis Yen eased as Treasury yields steadied in Asia from an overnight plunge A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly positive but with gains capped and price action choppy after a lacklustre lead from global counterparts as poor data from the US and Europe stoked growth concerns, while the region also reflected on the latest provocations by North Korea and the RBNZ’s rate increase. ASX 200 was led higher by commodity-related stocks despite the surprise contraction in Construction Work. Nikkei 225 remained subdued after recent currency inflows and with sentiment clouded by geopolitical tensions. Hang Seng and Shanghai Comp were marginally higher following further support efforts by the PBoC and CBIRC which have explored increasing loans with major institutions and with the central bank to boost credit support, although the upside is contained amid the ongoing COVID concerns and with Beijing said to tighten restrictions among essential workers. Top Asian News US SEC official said significant issues remain in reaching a deal with China over audit inspections and even if US and China reach a deal on proceeding with inspections, they would still have a long way to go, according to Bloomberg. China will be seeing a Pacific Island Agreement when Senior Diplomat Wang Yi visits the region next week, according to documents cited by Reuters. North Korea Fires Suspected ICBM as Biden Wraps Up Asia Tour Luxury Stocks Slip Again as China Covid-19 Worries Persist Asia Firms Keep SPAC Dream Alive Despite Poor Returns: ECM Watch Powerlong 2022 Dollar Bonds Fall Further, Poised for Worst Week In Europe the early optimism across the equity complex faded in early trading. Major European indices post mild broad-based gains with no real standouts. Sectors initially opened with an anti-defensive bias but have since reconfigured to a more pro-defensive one. Stateside, US equity futures have trimmed earlier gains, with relatively broad-based gains seen across the contracts; ES (+0.1%). Top European News Aiming ECB Rate at Neutral Risks Hurting Economy, Panetta Says M&S Says Russia Exit, Inflation to Prevent Profit Growth Prudential Names Citi Veteran Wadhwani as Insurer’s Next CEO EU’s Gentiloni Eyes Deal on Russian Oil Embargo: Davos Update UK’s Poorest to See Inflation Hit Near Double Pace of the Rich FX Buck builds a base before Fed speak, FOMC minutes and US data - DXY tops 102.250 compared to low of 101.640 on Tuesday. Kiwi holds up well after RBNZ hike, higher OCR outlook and Governor Orr outlining the need to tighten well beyond neutral - Nzd/Usd hovers above 0.6450 and Aud/Nzd around 1.0950. Euro pulls back sharply as ECB’s Panetta counters aggressive rate guidance with gradualism to avoid a normalisation tantrum - Eur/Usd sub-1.0700 and Eur/Gbp under 0.8550. Aussie undermined by flagging risk sentiment and contraction in Q1 construction work completed - Aud/Usd retreats through 0.7100. Loonie and Nokkie glean some underlying traction from oil returning to boiling point - Usd/Cad capped into 1.2850, Eur/Nok pivots 10.2500. Franc, Yen and Sterling all make way for Greenback revival - Usd/Chf bounces through 0.9600, Usd/Jpy over 127.00 and Cable close to 1.2500. Fixed Income Choppy trade in bonds amidst fluid risk backdrop and ongoing flood of global Central Bank rhetoric, Bunds and Gilts fade just above 154.00 and 119.00. Eurozone periphery outperforming as ECB's Panetta urges gradualism to avoid a normalisation tantrum and Knot backs President Lagarde on ZIRP by end Q3 rather than going 50 bp in one hit. US Treasuries flat-line before US data, Fed's Brainard, FOMC minutes and 5-year supply - 10 year T-note midway between 120-21/09+ parameters. Commodities WTI and Brent July futures are firmer intraday with little newsflow throughout the European morning. US Energy Inventory Data (bbls): Crude +0.6mln (exp. -0.7mln), Gasoline -4.2mln (exp. -0.6mln), Distillates -0.9mln (exp. +0.9mln), Cushing -0.7mln. Spot gold is pressured by the recovery in the Dollar but found some support at its 21 DMA. Base metals are pressured by the turn in the risk tone this morning. US Event Calendar 07:00: May MBA Mortgage Applications -1.2%, prior -11.0% 08:30: April Durable Goods Orders, est. 0.6%, prior 1.1% -Less Transportation, est. 0.5%, prior 1.4% 08:30: April Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.4% 08:30: April Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 1.3% Central Banks 12:15: Fed’s Brainard Delivers Commencement Address 14:00: May FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap This morning we’ve launched our latest monthly survey. In it we try to ask questions that aren’t easy to derive from market pricing. For example we ask whether you think a recession is a price worth paying to tame inflation back to target. We also ask whether you think the Fed will think the same. We ask whether you think bubbles are still in markets and whether the bottom is in for equities. We also ask you the best hedge against inflation from a small list of mainstream assets. Hopefully it will be of use and the more people that fill it in the more useful it might be so all help welcome. The link is here. Talking of inflation I had a huge shock yesterday. The first quote of three came back from builders for what I hope will be our last ever renovation project as we upgrade a dilapidated old outbuilding. Given the job I do I'd like to think I'm fully aware of commodity price effects and labour shortages pushing up costs but nothing could have prepared me for a quote 250% higher than what I expected. We have two quotes to come but if they don't come in nearer to my expectations then we're either going to shelve/postpone the project after a couple of years of planning or my work output might reduce as I learn how to lay bricks, plumb, tile, make and install windows and plaster amongst other things. Maybe I could sell the rights of my journey from banker to builder to Netflix to make up for lost earnings. Rather like my building quote expectations, markets came back down to earth yesterday, only avoiding a fresh closing one-year low in the S&P 500 via a late-day rally that sent the market from intra-day lows of -2.48% earlier in the session to -0.81% at the close and giving back just under half the gains from the best Monday since January. Having said that S&P futures are up +0.6% this morning so we've had a big swing from the lows yesterday afternoon. The blame for the weak market yesterday was put on weak economic data alongside negative corporate news. US tech stocks saw the biggest losses as the NASDAQ (-2.35%) hit its lowest level in over 18 months following Snap’s move to cut its profit forecasts that we mentioned in yesterday’s edition. The stock itself fell -43.08%. Indeed, the NASDAQ just barely avoided closing more than -30% (-29.85%) from its all-time high reached back in November. The S&P 500's closing loss leaves it +1.03% week to date as it tries to avoid an 8th consecutive weekly decline for just the third time since our data starts in 1928. Typical defensive sectors Utilities (+2.01%), staples (+1.66%), and real estate (+1.21%) drove the intraday recovery, so even with the broad index off the day’s lows, the decomposition points to continued growth fears. Investors had already been braced for a more difficult day following the Monday night news from Snap, but further fuel was then added to the fire after US data releases significantly underwhelmed shortly after the open. First, the flash composite PMI for May fell to 53.8 (vs. 55.7 expected), marking a second consecutive decline in that measure. And then the new home sales data for April massively underperformed with the number falling to an annualised 591k (vs. 749k expected), whilst the March reading was also revised down to an annualised 709k (vs. 763k previously). That 591k reading left new home sales at their lowest since April 2020 during the Covid shutdowns, and comes against the backdrop of a sharp rise in mortgage rates as the Fed have tightened policy, with the 30-year fixed rate reported by Freddie Mac rising from 3.11% at the end of 2021 to 5.25% in the latest reading last week. The strong defensive rotation in the S&P 500 and continued fears of a recession saw investors pour into Treasuries, which have been supported by speculation that the Fed might not be able to get far above neutral if those growth risks do materialise. Yields on 10yr Treasuries ended the day down -10.1bps at 2.75%, and the latest decline in the 10yr inflation breakeven to 2.58% leaves it at its lowest closing level since late-February, just after Russia began its invasion of Ukraine that led to a spike in global commodity prices. And with investors growing more worried about growth and less worried about inflation, Fed funds futures took out -11.5bps of expected tightening by the December meeting, and saw terminal fed funds futures pricing next year close below 3.00% for the first time in two weeks. 10 year US yields are back up a basis point this morning. Over in Europe there was much the same pattern of equity losses and advances for sovereign bonds. However, the decline in yields was more muted after there was further chatter about a potential 50bp hike from the ECB. Austrian central bank governor Holzmann said that “A bigger step at the start of our rate-hike cycle would make sense”, and Latvian central bank governor Kazaks also said that a 50bp hike was “certainly one thing that we could discuss”. Along with Dutch central bank governor Knot, that’s now 3 members of the Governing Council who’ve openly discussed the potential they could move by 50bps as the Fed has done, and markets seem to be increasingly pricing in a chance of that, with the amount of hikes priced in by the July meeting closing at a fresh high of 32.5bps yesterday. In spite of the growing talk about a 50bp move at a single meeting, the broader risk-off tone yesterday led to a decline in sovereign bond yields across the continent, with those on 10yr bunds (-4.9bps), OATs (-4.3bps) and BTPs (-5.9bps) all falling back. Equities struggled alongside their US counterparts, and the STOXX 600 (-1.14%) ended the day lower, as did the DAX (-1.80%) and the CAC 40 (-1.66%). The flash PMIs were also somewhat underwhelming at the margins, with the Euro Area composite PMI falling a bit more than expected to 54.9 (vs. 55.1 expected). Over in the UK there were even larger moves after the country’s flash PMIs significantly underperformed expectations. The composite PMI fell to 51.8 (vs. 56.5 expected), which is the lowest reading since February 2021 when the country was still in lockdown. In turn, that saw sterling weaken against the other major currencies as investors dialled back the amount of expected tightening from the Bank of England, with a fall of -0.44% against the US dollar. That also led to a relative outperformance in gilts, with 10yr yields down -8.3bps. And on top of that, there were signs of further issues on the cost of living down the tracks, with the CEO of the UK’s energy regulator Ofgem saying that the energy price cap was set to increase to a record £2,800 in October, an increase of more than 40% from its current level. Asian equity markets are mostly trading higher this morning with the Hang Seng (+0.64%), Shanghai Composite (+0.58%), CSI (+0.17%) and Kospi (+0.80%) trading in positive territory with the Nikkei (-0.03%) trading fractionally lower. Earlier today, the Reserve Bank of New Zealand (RBNZ), in a widely anticipated move, hiked the official cash rate (OCR) by 50bps to 2.0%, its fifth-rate hike in a row in a bid to get on top of inflation which is currently running at a 31-year high. The central bank has significantly increased its forecast of how high the OCR might rise in the coming years with the cash rate jumping to about 3.4% by the end of this year and peaking at 3.95% in the third quarter of 2023. Additionally, it forecasts the OCR to start falling towards the end of 2024. Following the release of the statement, the New Zealand dollar hit a three-week high of 0.65 against the US dollar. Elsewhere, as we mentioned last week, today marks the expiration of the US Treasury Department’s temporary waiver that allowed Russia to make sovereign debt payments to US creditors. US investors will no longer be able to receive such payments, pushing Russia closer to default on its outstanding sovereign debt. To the day ahead now, and central bank publications include the FOMC minutes from their May meeting and the ECB’s Financial Stability Review. Separately, we’ll hear from ECB President Lagarde, the ECB’s Rehn, Panetta, Holzmann, de Cos and Lane, BoJ Governor Kuroda, Fed Vice Chair Brainard and the BoE’s Tenreyro. Otherwise, data releases from the US include preliminary April data on durable goods orders and core capital goods orders. Tyler Durden Wed, 05/25/2022 - 08:00.....»»

Category: blogSource: zerohedgeMay 25th, 2022

Gen Z and millennials are terrified about the economy because they"ve never seen a "normal" recession before

"I feel like we're always bracing for catastrophe," one millennial told Insider. "We're just kind of gonna throw our hands up and go through it." ArtMarie / Getty Images If the US falls into a new recession, it will likely be the first mild one Gen Zers and millennials have seen. The two generations have only experienced the historically disastrous downturns of 2008 and 2020. "I think we're just kind of gonna throw our hands up and go through it," 30-year-old Robbie Barnhart said. A recession could be coming, but it's likely to be a mild one. Gen Zers and most millennials have no idea what that will look like.The US has economic downturn on the brain. A growing number of experts see the country entering a recession in late 2022 or 2023 as the Federal Reserve's efforts to cool inflation dramatically slow down economic growth. Financial markets are taking such fears seriously, with stocks staging the biggest sell-off since June 2020 on Wednesday.Yet economists don't expect the slump to be as damaging as the recessions the youngest workers have already experienced.The coming downturn will likely be far less dramatic and only see a moderate slowdown in economic activity, Brett Ryan, a senior US economist at Deutsche Bank, told Insider.That puts younger Americans in an unusual spot. The only recessions they've lived through are the dot-com bubble of the early 2000s, the financial-sector meltdown of the late 2000s, and the once-in-a-century pandemic crash.While the dot-com recession was relatively mild, the latter two had disastrous effects on many Americans' finances — and were probably the most formative for the country's youngest workers. Gen Zers and millennials could be in for the first ordinary recession of their lives. "Our views of recession tend to be colored by the last one," Ryan said. "Excluding the pandemic recession, which was the shortest yet deepest ever, people think about 2008 and 2009. We don't see that. We don't see a massively over-levered consumer that's going to have to slam the brakes on spending."Millennials and Gen Zers don't have much faith in the economy right now. According to a Deloitte survey of 14,808 Gen Zers and 8,412 millennials, just 28% expect the country's economic situation to improve over the next 12 months."I feel like we're always bracing for catastrophe," Robbie Barnhart, a 30-year-old millennial pilot, told Insider. "Truly, we've seen shit hit the fans so many times that this current system that we have is not working out for us, specifically," Barnhart added.The best historical comparisonSo if the coming recession won't resemble 2001, 2008, or 2020, what's the closest comparison? Young Americans looking for clues should study the recession of the early 1990s, Deutsche Bank's Ryan said. That economic decline wasn't a "serious, massive downturn in consumer spending," but instead saw spending pull back in certain categories, he said. Americans ate out less, but spending on necessary services like healthcare held steady.Today's economy also has some key similarities to the early '90s recession. Both periods saw economic growth slow as the Fed raised interest rates to quell inflation. Americans' sentiments were extraordinarily bleak, with soaring prices overshadowing the otherwise healthy economy. And just as Iraq's invasion of Kuwait lifted gas prices in 1990, Russia's invasion of Ukraine is boosting energy costs and exacerbating the global inflation crisis.There are some encouraging differences between the economies of the early 1990s and today. The labor market's recovery remains superlative, with the US on track to recoup all lost jobs by mid-summer. The labor shortage continues to boost wages and give workers historic bargaining power. And with worker demand at a record high, companies will be less likely to lay off workers if growth does slow.Fed Chair Jerome Powell reiterated his confidence in the economy on Tuesday, saying the US is entering the slowdown with an encouraging backdrop."Consumer balance sheets are healthy. Businesses are healthy. The banks are well capitalized. So this is a strong economy, and we think it's well-positioned to withstand less accommodative monetary policy," Fed Chair Jerome Powell said Tuesday.The looming recession, then, is shaping up to be much less harmful than Gen Zers and millennials are used to. After several unprecedented downturns, young Americans are about to learn what a recession usually feels like. "I feel like our generation, the millennials will take it in stride, probably. I think we're just kind of gonna throw our hands up and go through it," Barnhart said. "I do think that Gen Z — the only way I can put it is that they're gonna solve way more problems than we will." Are you a millennial or Gen Zer with strong thoughts about a potential recession? Contact these reporters at jkaplan@insider.com and bwinck@insider.com. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 21st, 2022

Futures Jump After China Cuts Main Lending Rate By Most On Record But $1.9 Trillion Op-Ex Looms...

Futures Jump After China Cuts Main Lending Rate By Most On Record But $1.9 Trillion Op-Ex Looms... After months of endless jawboning and almost no action, overnight China finally cut its main mortgage interest rate by the most on record since the rate was introduced in 2019, as it tries to reduce the economic impact of Covid lockdowns and a property sector slowdown. The five-year loan prime rate was lowered from 4.6% to 4.45% on Friday (even as the 1 Year LPR was unchanged at 3.70%) . The reduction in the rate, which is set by a committee of banks and published by the People’s Bank of China, will directly reduce the borrowing costs on outstanding mortgages across the country (the move wasn’t much of a shock as the central bank had kept the 1-Year MLF Rate unchanged earlier in the week and effectively cut interest rates for first-time homebuyers by 20bps on Sunday). The rate cut was long overdue for China's property market which has experienced 8 straight months of home-price reductions with developers under extreme pressure. There was more bad news for China's embattled tech sector as Canada banned Huawei Technologies and ZTE equipment from use in its 5G network. The good news is that China's easing helped push Asian stocks higher, while European markets and US stock index futures also rose on Friday as buyers returned after a selloff fueled by recession fears saw the underlying S&P 500 lose more than $1 trillion in market value this week. Contracts on the S&P 500 advanced 1.1% as of 7:15a.m. in New York suggesting the index may be able to avoid entering a bear market (which would be triggered by spoos sliding below 3,855) at least for now, although today's $1.9 trillion Option Expiration will likely lead to substantial volatility, potentially to the downside.  Even with a solid jump today, should it not reverse as most ramps in recent days, the index - which is down almost 19% from its January record - is on track for a seventh week of losses, the longest such streak since March 2001. Futures on the Nasdaq 100 and Dow Jones indexes also gained. 10Y TSY yields rebounded from yesterday's tumble while the dollar was modestly lower. Gold and bitcoin were flat. In premarket trading, shares of gigacap tech giants rose, poised to recover some of the losses they incurred this week. Nasdaq 100 futures advanced 1.7%. The tech heavy benchmark has wiped out about $1.3 trillion in market value this month. Apple (AAPL US) is up 1.3% in premarket trading on Friday, Tesla (TSLA US) +2.6%.Palo Alto Networks jumped after topping estimates. Continuing the retail rout, Ross Stores cratered after the discount retailer cut its full-year outlook and first quarter results fell short of expectations. Here are some other notable premarket movers: Chinese stocks in US look set to extend this week’s gains on Friday after Chinese banks cut the five-year loan prime rate by a record amount, an effort to boost mortgage and loan demand in an economy hampered by Covid lockdowns. Alibaba (BABA US) +2.6%, Baidu (BIDU US) +1.1%, JD.com (JD US) +2.6%. Palo Alto Networks (PANW US) rises 11% in premarket trading on Friday after forecasting adjusted earnings per share for the fourth quarter that exceeded the average of analysts’ estimates. Applied Materials (AMAT US) falls 2.1% in premarket trading after its second-quarter results missed expectations as persistent chip shortages weighed on the outlook. However, Cowen analyst Krish Sankar notes that “while the macro/consumer data points have weakened, semicap demand is still healthy.” Ross Stores Inc. (ROST US) shares sank 28% in US premarket trade on Friday after the discount retailer cut its full-year outlook and 1Q results fell short of expectations, prompting analysts to slash their price targets. Foghorn Therapeutics (FHTX US) shares plunged 26% in postmarket trading after the company said the FDA has placed the phase 1 dose escalation study of FHD-286 in relapsed and/or refractory acute myelogenous leukemia and myelodysplastic syndrome on a partial clinical hold. Wix.com (WIX US) cut to equal-weight from overweight at Morgan Stanley as investors are unlikely to “give credit to a show-me story” in the current context which limits upside catalysts in the near term, according to note. Deckers Outdoor (DECK US) jumped 13% in US postmarket trading on Thursday after providing a year sales outlook range with a midpoint that beat the average consensus estimate. VF Corp’s (VFC US) reported mixed results, with analysts noting the positive performance of the company’s North Face brand, though revenues did miss estimates amid a tricky macro backdrop. The outdoor retailer’s shares rose 2.2% in US postmarket trading on Thursday. “The ‘risk-on’ trading mood has registered a solid rebound during the last couple of hours as traders cheered the significantly dovish monetary decision from China after the PBoC cut one of the key interest rates by a record amount,” said Pierre Veyret, a technical analyst at ActivTrades. “This will provide a fresh boost to the economy, helping small businesses and mitigate the negative impacts of lockdowns in the world’s second-largest economy.” Still, the broader market will have to fend off potential risks from options expiration, which is notorious for stirring up volatility. Traders will close old positions for an estimated $1.9 trillion of derivatives while rolling out new exposures on Friday. This time round, $460 billion of derivatives across single stocks is scheduled to expire, and $855 billion of S&P 500-linked contracts will expire according to Goldman. Rebounds in risk sentiment have tended to fizzle this year. Investors continue to grapple with concerns about an economic downturn, in part as the Federal Reserve hikes interest rates to quell price pressures. Global shares are on course for an historic seventh week of declines. “The risk-on trading mood has registered a solid rebound during the last couple of hours as traders cheered the significantly dovish monetary decision from China,” said Pierre Veyret, an analyst at ActivTrades. “This move significantly contrasts with the lingering inflation and recession risks in Western economies, where an increasing number of market operators and analysts are questioning the policies of central banks.” In Europe, the Stoxx Europe 600 index added 1.5%, erasing the week’s losses. The French CAC 40 lags, rising 0.9%. Autos, travel and miners are the strongest-performing sectors, rebounding after two days of declines. Basic resources outperformed as industrial metals rallied. Consumer products was the only sector in the red as Richemont slumped after the Swiss watch and jewelry maker reported operating profit for the full year that missed the average analyst estimate and its Chairman Johann Rupert said China is going to take an economic blow and warned the Chinese economy will suffer for longer than people think. The miss sent luxury stocks plunging: Richemont -11%, Swatch -3.8%, Hermes -3.2%, LVMH -1.9%, Kering -1.7%, Hugo Boss -1.7%, etc. These are the biggest European movers: Rockwool rises as much as 10% as the market continued to digest the company’s latest earnings report, which triggered a surge in the shares, with SocGen and BNP Paribas upgrading the stock. Valeo and other European auto stocks outperformed, rebounding after two days of losses. Citi says Valeo management confirmed that auto production troughed in April and activity is improving. Sinch gained as much as 5.4% after Berenberg said peer’s quarterly results confirmed the cloud communications company’s strong positioning in a fast-growing market. Lonza shares gain as much as 4.1% after the pharmaceutical ingredients maker was raised to outperform at RBC, with the broker bullish on the long-term demand dynamics for the firm. THG shares surge as much as 32% as British entrepreneur Nick Candy considers an offer to acquire the UK online retailer, while the company separately announced it rejected a rival bid. Maersk shares rise as much as 4.6%, snapping two days of declines, as global container rates advance according to Fearnley Securities which says 2H “looks increasingly promising.” PostNL shares jump as much as 8.2% after the announcement that Vesa will acquire sole control of the Dutch postal operator. Analysts say reaction in the shares is overdone. Dermapharm shares gain as much as 6.1%, the most since March 22, with Stifel saying the pharmaceuticals maker is “significantly undervalued” and have solid growth drivers. Richemont shares tumble as much as 14%, the most in more than two years, after the luxury retailer’s FY Ebit was a “clear miss,” with cost increases in operating expenses. Luxury peers were pulled lower alongside Richemont after the company’s disappointing earnings report, in which its CEO also flagged the Chinese market will lag for longer than people assume. Instone Real Estate shares drop as much as 12% as the stock is downgraded to hold from buy at Deutsche Bank, with the broker cutting its earnings estimates for the property developer Earlier in the session, Asia-Pac stocks picked themselves up from recent losses as risk sentiment improved from the choppy US mood. ASX 200 gained with outperformance in tech and mining stocks leading the broad gains across industries. Hang Seng and Shanghai Comp strengthened with a rebound in tech setting the pace in Hong Kong and with the mainland also lifted following the PBoC’s Loan Prime Rate announcement in which it defied the consensus by maintaining the 1-Year LPR at 3.70% but cut the 5-Year LPR by 15bps to 4.45%, which is the reference for mortgages. Nonetheless, this wasn’t much of a shock as the central bank had kept the 1-Year MLF Rate unchanged earlier in the week and effectively cut interest rates for first-time homebuyers by 20bps on Sunday. Japanese stocks regain footing in the wake of Thursday’s selloff, after Chinese banks cut a key interest rate for long-term loans by a record amount. The Topix rose 0.9% to 1,877.37 at the 3 p.m. close in Tokyo, while the Nikkei 225 advanced 1.3% to 26,739.03. Toyota Motor Corp. contributed the most to the Topix’s gain, increasing 2.1%. Out of 2,171 shares in the index, 1,511 rose and 567 fell, while 93 were unchanged. In Australia, the S&P/ASX 200 index rose 1.2% to close at 7,145.60 on the eve of Australia’s national election. Technology shares and miners led sector gains. Chalice Mining climbed after getting approvals for further exploration drilling at the Hartog-Dampier targets within its Julimar project. Novonix advanced with other lithium-related shares after IGO announced its first and consistent production of battery grade lithium hydroxide from Kwinana. In New Zealand, the S&P/NZX 50 index rose 0.5% to 11,267.39 India’s benchmark stocks index rebounded from a 10-month low and completed its first weekly gain in six, boosted by an advance in Reliance Industries.  The S&P BSE Sensex jumped 2.9% to 54,326.39 in Mumbai. The NSE Nifty 50 Index also rose by a similar magnitude on Friday. Stocks across Asia advanced after Chinese banks lowered a key interest rates for long-term loans.   Reliance Industries climbed 5.8%, the largest advance since Nov. 25, and gave the biggest boost to the Sensex, which had all 30 member stocks trading higher. All 19 sector indexes compiled by BSE Ltd. advanced, led by a gauge of realty stocks.  “Stocks in Asia and US futures pushed higher today amid a bout of relative calm in markets, though worries about a darkening economic outlook and China’s Covid struggles could yet stoke more volatility,” according to a note from SMC Global Securities Ltd.  In earnings, of the 36 Nifty 50 firms that have announced results so far, 21 have either met or exceeded analyst estimates, while 15 have missed forecasts. In FX, the Bloomberg Dollar Spot Index inched higher as the greenback traded mixed against its Group-of-10 peers. Treasuries fell modestly, with yields rising 1-2bps. The euro weakened after failing to hold on to yesterday’s gains that pushed it above $1.06 for the first time in more than two weeks. Inversion returns for the term structures in the yen and the pound, yet for the euro it’s all about the next meetings by the European Central Bank and the Federal Reserve. The pound rose to a session high at the London open, coinciding with data showing UK retail sales rose more than forecast in April. Retail sales was up 1.4% m/m in April, vs est. -0.3%. Other showed a plunge in consumer confidence to the lowest in at least 48 years. The Swiss franc halted a three-day advance that had taken it to the strongest level against the greenback this month. Australia’s sovereign bonds held opening gains before a federal election Saturday amid fears of a hung parliament, which could stifle infrastructure spending. The Australian and New Zealand dollar reversed earlier losses. The offshore yuan and South Korean won paced gains in emerging Asian currencies as a rally in regional equities bolstered risk appetite. In rates, Treasuries were slightly cheaper as S&P 500 futures advanced. Yields were higher by 2bp-3bp across the Treasuries curve with 10- year around 2.865%, outperforming bunds and gilts by 1.7bp and 3.5bp on the day; curves spreads remain within 1bp of Thursday’s closing levels. Bunds and Italian bonds fell, underperforming Treasuries, as haven trades were unwound. US session has no Fed speakers or economic data slated. UK gilts 2s10s resume bear-flattening, underperforming Treasuries, after BOE’s Pill said tightening has more to run. Gilts 10y yields regain 1.90%. Bund yield curve-bear steepens. long end trades heavy with 30y yield ~6bps cheaper. Peripheral spreads widen to core with 5y Italy underperforming. Semi-core spreads tighten a touch. In commodities, WTI trades within Thursday’s range, falling 0.5% to around $111. Most base metals trade in the green; LME lead rises 2.6%, outperforming peers. LME nickel lags, dropping 1.5%. Spot gold is little changed at $1,844/oz. KEY HEADLINES: Looking at the day ahead, there is no macro news in the US. Central bank speakers include the ECB’s Müller, Kazāks, Šimkus, Centeno and De Cos, along with the BoE’s Pill. Finally, earnings releases include Deere & Company. Market Snapshot S&P 500 futures up 1.1% to 3,940.00 STOXX Europe 600 up 1.2% to 433.00 MXAP up 1.6% to 164.68 MXAPJ up 2.1% to 539.85 Nikkei up 1.3% to 26,739.03 Topix up 0.9% to 1,877.37 Hang Seng Index up 3.0% to 20,717.24 Shanghai Composite up 1.6% to 3,146.57 Sensex up 2.5% to 54,115.12 Australia S&P/ASX 200 up 1.1% to 7,145.64 Kospi up 1.8% to 2,639.29 German 10Y yield little changed at 0.97% Euro down 0.2% to $1.0567 Gold spot up 0.2% to $1,845.64 U.S. Dollar Index up 0.25% to 102.98 Brent Futures down 0.4% to $111.55/bbl Top Overnight News from Bloomberg BOE Chief Economist Huw Pill said monetary tightening has further to run in the UK because the balance of risks is tilted toward inflation surprising on the upside ECB Governing Council Member Visco says a June hike is ‘certainly’ out of the question while July is ‘perhaps’ the time to start rate hikes China’s plans to bolster growth as Covid outbreaks and lockdowns crush activity will see a whopping $5.3 trillion pumped into its economy this year Chinese banks cut a key interest rate for long- term loans by a record amount, a move that would reduce mortgage costs and may help counter weak loan demand caused by a property slump and Covid lockdowns China’s almost-trillion dollar hedge fund industry risks worsening the turmoil in its stock market as deepening portfolio losses trigger forced selling by some managers. About 2,350 stock-related hedge funds last month dropped below a threshold that typically activates clauses requiring them to slash exposures, with many headed toward a level that mandates liquidation Investors fled every major asset class in the past week, with US equities and Treasuries a rare exception to massive redemptions Ukraine’s central bank is considering a return to regular monetary policy decisions as soon as next month in a sign the country is getting its financial system back on its feet after a shock from Russia’s invasion The Group of Seven industrialized nations will agree on more than 18 billion euros ($19 billion) in aid for Ukraine to guarantee the short-term finances of the government in Kyiv, according to German Finance Minister Christian Lindner The best may already be over for the almighty dollar as growing fears of a US recession bring down Treasury yields A more detailed look at global markets courtesy of Newsquqawk Asia-Pac stocks picked themselves up from recent losses as risk sentiment improved from the choppy US mood.  ASX 200 gained with outperformance in tech and mining stocks leading the broad gains across industries. Nikkei 225 was underpinned following the BoJ’s ETF purchases yesterday and despite multi-year high inflation. Hang Seng and Shanghai Comp strengthened with a rebound in tech setting the pace in Hong Kong and with the mainland also lifted following the PBoC’s Loan Prime Rate announcement in which it defied the consensus by maintaining the 1-Year LPR at 3.70% but cut the 5-Year LPR by 15bps to 4.45%, which is the reference for mortgages. Nonetheless, this wasn’t much of a shock as the central bank had kept the 1-Year MLF Rate unchanged earlier in the week and effectively cut interest rates for first-time homebuyers by 20bps on Sunday. Top Asian News Chinese Premier Li vows efforts to aid the resumption of production, via Xinhua; will continue to build itself into a large global market and a hot spot for foreign investment, via Reuters. US and Japanese leaders are to urge China to reduce its nuclear arsenal, according to Yomiuri. It was also reported that Japanese PM Kishida is expected to announce a defence budget increase during the summit with US President Biden, according to TV Asahi. Offshore Yuan Halts Selloff With Biggest Weekly Gain Since 2017 Hong Kong Dollar Traders Brace for Rate Spike Amid Intervention Shanghai Factory Output Fell 20 Times Faster Than Rest of China Japan’s Inflation Tops 2%, Complicating BOJ Stimulus Message European indices have started the week's last trading day positively and have extended on gains in early trade. Swiss SMI (+0.5%) sees its upside capped by losses in Richemont which provided a downbeat China outlook. European sectors are almost wholly in the green with a clear pro-cyclical bias/anti-defensive bias - Healthcare, Personal & Consumer Goods, Telecoms, Food & Beverages all reside at the bottom of the chart, whilst Autos & Parts, Travel & Leisure and Retail lead the charge on the upside. US equity futures have also been trending higher since the reopening of futures trading overnight Top European News Holcim, HeidelbergCement Said to Compete for Sika US Unit Prosus Looking to Sell $6 Billion Russian Ads Business Avito European Autos Outperform in Rebound, Driven by Valeo, Faurecia Volkswagen Pitted Against Organic Farmer in Climate Court Clash FX DXY bound tightly to 103.000, but only really firm relative to Yen on renewed risk appetite. Yuan back to early May peaks after PBoC easing of 5 year LPR boosts risk sentiment - Usd/Cny and Usd/Cnh both sub-6.7000. Kiwi outperforms ahead of anticipated 50 bp RBNZ hike next week and with tailwind from Aussie cross pre-close call election result. Euro and Pound capped by resistance at round number levels irrespective of hawkish ECB commentary and surprisingly strong UK consumption data. Lira lurching after Turkish President Erdogan rejection of Swedish and Finnish NATO entry bids. Japanese PM Kishida says rapid FX moves are undesirable, via Nikkei interview; keeping close ties with overseas currency authorities, via Nikkei. Fixed Income Debt futures reverse course amidst pre-weekend risk revival, partly prompted by PBoC LPR cut. Bunds hovering above 153.00, Gilts sub-119.50 and T-note just over 119-16. UK debt also taking on board surprisingly strong retail sales metrics and EZ bonds acknowledging more hawkish ECB rhetoric. Commodities WTI and Brent July futures consolidate in early European trade in what has been another volatile week for the crude complex. Spot gold has been moving in tandem with the Buck and rose back above its 200 DMA Base metals are mostly firmer, with LME copper re-eyeing USD 9,500/t to the upside as the red metal is poised for its first weekly gain in seven weeks Russia's Gazprom continues gas shipments to Europe via Ukraine, with Friday volume at 62.4mln cubic metres (prev. 63.3mbm) Central Banks BoE Chief Economist Pill says inflation is the largest challenge faced by the MPC over the past 25 years. The MPC sees an upside skew in the risks around the inflation baseline in the latter part of the forecast period. Pill said further work needs to be done. "In my view, it would be preferable to have any such gilt sales running ‘in the background’, rather than being responsive to month-to-month data news.", via the BoE. ECB's Kazaks hopes the first ECB hike will happen in July, according to Bloomberg. ECB's Muller says focus needs to be on fighting high inflation, according to Bloomberg. ECB's Visco says the ECB can move out of negative rate territory; a June hike is "certainly" out of the question but July is perhaps the time to start Chinese Loan Prime Rate 1Y (May) 3.70% vs. Exp. 3.65% (Prev. 3.70%); Chinese Loan Prime Rate 5Y (May) 4.45% vs. Exp. 4.60% (Prev. 4.60%) Fed's Kashkari (2023 voter) said they are removing accommodation even faster than they added it at the start of COVID and have done quite a bit to remove support for the economy through forward guidance. Kashkari stated that he does not know how high rates need to go to bring inflation down and does not know the odds of pulling off a soft-landing, while he is seeing some evidence they are in a longer-term high inflation regime and if so, the Fed may need to be more aggressive, according to Reuters US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap The good thing about having all these injuries in recent years is that when it comes down to any father's football matches or sport day races I now know that no amount of competitive juices make getting involved a good idea. However my wife has not had to learn her lesson yet and tomorrow plays her first netball match for 37 years in a parents vs schoolgirls match. The mums had a practise session on Tuesday and within 3 minutes one of them had snapped their ACL. I'll be nervously watching from the sidelines. Markets were also very nervous yesterday after a torrid day for risk sentiment on Tuesday. Although equities fell again yesterday it was all fairly orderly. This morning Asia is bouncing though on fresh China stimulus, something we discussed in yesterday's CoTD here. More on that below but working through things chronologically, earlier the Stoxx 600 closed -1.37% lower, having missed a large portion of the previous day’s US selloff, but generally continues to out-perform. US equities bounced around, with the S&P 500 staging a recovery from near intraday lows after the European close, moving between red and green all day (perhaps today's option expiry is creating some additional vol) before closing down -0.58%. This sent the index to a fresh one year low and puts the week to date loss at -3.06%, having declined -18.68% since its January peak. Barring a major reversal today, the index is now on track to close lower for a 7th consecutive week for the first time since 2001. In terms of the sectoral breakdown, it was another broad-based decline yesterday, but consumer discretionary stocks (+0.13%) recovered somewhat following their significant -6.60% decline the previous day. Consumer staples, meanwhile, continued their poor run, falling -1.98%, while tech (-1.07%) was not far behind. Those losses occurred against the backdrop of a fresh round of US data releases that came in beneath expectations, which also helped the dollar index weaken -0.93% to mark its worst daily performance since March. First, there were the weekly initial jobless claims for the week through May 14, which is one of the timeliest indicators we get on the state of the economy. That rose to 218k (vs. 200k) expected, which is its highest level since January. Then there was the Philadelphia Fed’s manufacturing business outlook survey for May, which fell to a two-year low of 2.6 (vs. 15.0 expected). And finally, the number of existing home sales in April fell to its lowest level since June 2020, coming in at an annualised rate of 5.61m (vs. 5.64m expected). The broader risk-off move that created meant that sovereign bonds rallied on both sides of the Atlantic. Yields on 10yr Treasuries were down -4.7bps to 2.84%, which follows their -10.2bps decline in the previous session. We didn’t get much in the way of Fed speakers yesterday, but Kansas City Fed President George nodded to recent equity market volatility, saying that it was “not surprising”, and that whilst policy wasn’t aimed at equity markets, “it is one of the avenues through which tighter financial conditions will emerge”. So no sign yet of the Fed being unhappy about tighter financial conditions so far, and markets are continuing to fully price in two further 50bp moves from the Fed in June and July. Nobody said getting inflation back to target from such lofty levels would be easy. So if you’re looking for a Fed put, it may take a while. Later on, Minneapolis Fed President Kashkari drove that point home, saying he was not sure how high rates ultimately needed to go, but said the Fed must ensure inflation does not get embedded in expectations. Over in Europe debt moves were more significant yesterday, having not taken part in the late US rally on Wednesday. Yiields on 10yr bunds (-8.0bps), OATs (-7.4bps) and BTPs (-6.2bps) all saw a reasonable decline on the day. Over in credit as well, iTraxx Crossover widened +10.2bps to 478bps, which surpasses its recent high earlier this month and takes it to levels not seen since May 2020. We also got the account from the April ECB meeting, although there wasn’t much there in the way of fresh headlines, with hawks believing that it was “important to act without undue delay in order to demonstrate the Governing Council’s determination to achieve price stability in the medium term.” That group also said that the monetary policy stance “was no longer consistent with the inflation outlook”. But then the doves also argued that moving policy “too aggressively could prove counterproductive” since monetary policy couldn’t tackle “the immediate causes of high inflation.” Asian equity markets are trading higher this morning after the People’s Bank of China (PBOC) lowered key interest rates amid the faltering economy. They cut the 5-year loan prime rate (LPR) – which is the reference rate for home mortgages for the second time this year from 4.6% to 4.45%, the largest cut on record, as Beijing seeks to revive the ailing housing sector to prop up the economy. Meanwhile, it left the 1-year LPR unchanged at 3.7%. Across the region, the Hang Seng (+1.83%) is leading gains in early trade with the Shanghai Composite (+1.11%) and CSI (+1.41%) also trading up. Elsewhere, the Nikkei (+1.08%) and Kospi (+1.75%) are trading in positive territory. Outside of Asia, equity futures in DMs indicate a positive start with contracts on the S&P 500 (+0.75%), NASDAQ 100 (+1.01%) and DAX (+1.13%) all notably higher. In other news, Japan’s national CPI rose +2.5% y/y in April, the highest for the headline rate since October 2014 and compared to the previous month’s +1.2% increase. Oil prices are lower with Brent futures -0.77% down to $111.18/bbl, as I type. To the day ahead now, and data releases include UK retail sales and German PPI for April, as well as the advance Euro Area consumer confidence reading for May. Central bank speakers include the ECB’s Müller, Kazāks, Šimkus, Centeno and De Cos, along with the BoE’s Pill. Finally, earnings releases include Deere & Company. Tyler Durden Fri, 05/20/2022 - 08:02.....»»

Category: smallbizSource: nytMay 20th, 2022

Futures Slide After Dismal Target Earnings, Plunging Mortgage Apps

Futures Slide After Dismal Target Earnings, Plunging Mortgage Apps The brief bear market rally in US stocks was set to end with a whimper following Tuesday’s strong dead cat bounce, after Fed Chair Jerome Powell gave his most hawkish remarks to date. Hope that China lockdowns would soon end turned to skepticism, as the yuan slumped after its biggest gain since October, while dismal guidance from Target - which warned that inflation was crushing margins - confirmed what Walmart said yesterday, namely that the US consumer is running on fumes. An 11% plunge in the latest weekly mortgage applications only reaffirmed that a hard-landing is inevitable and just a matter of time. Nasdaq 100 futures dropped 1%, while S&P 500 futures slipped 0.7% after US stocks surged on Tuesday. Treasury yields hit session highs, rising back to 3.0%, and the dollar snapped a three-day losing streak. Bitcoin got hammered again, sliding back under $30k. Among the biggest premarket movers, Target crashed 22% with Vital Knowledge calling its margin shortfall “more dramatic” than what Walmart posted on Tuesday, citing industry-wide macro problems. The retailer reduced its full-year forecast on operating income margin to about 6% of sales this year. It also reported first-quarter adjusted earnings per share that came in below expectations. Food and gas inflation is drawing money away from discretionary and general merchandise spending, forcing “aggressive” discounting to clear out product in the latter category, Vital’s Adam Crisafulli said in a note. Elsewhere in US premarket trading, Tesla slipped 1% after its price target was cut at Piper Sandler. Meanwhile, Twitter Inc. also traded slightly lower even as the social media platform’s board said it plans to enforce its $44 billion agreement to be bought by Elon Musk. Here are some other notable premarket movers: US tech hardware stocks may be in focus as Jefferies Group LLC strategists have turned bullish on the likes of IBM (IBM US), Cisco Systems (CSCO US) and Microchip Technology (MCHP US) after this year’s steep declines for US information technology shares National CineMedia (NCMI US) shares jump as much as 33% in US premarket trading after AMC Entertainment (AMC US) reported a 6.8% stake in the cinema advertising company. AMC shares gain 1.2% in premarket trading. DLocal Ltd. (DLO US) shares gain as much as 15% in US premarket trading after the Uruguay-based payment platform posted 1Q revenue that doubled from the year-earlier period and topped expectations. Doximity (DOCS US) shares fall as much as 19% in US premarket trading, after the online healthcare platform provider’s forecast for 1Q revenue missed the average analyst estimate, prompting analysts to slash their price targets on the stock. Penn National (PENN US) may be active on Wednesday as Jefferies raised the recommendation to buy from hold. The company’s shares rose 4% in premarket trading. On Tuesday, Powell said the Fed will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat, which initially pushed stocks lower but then was faded as risk closed near session highs as nothing Powell said was actually new. The S&P 500 is emerging from the longest weekly slump since 2011 as investors have been gripped by fears of hawkish monetary policy and surging inflation driving the economy into a recession. As also discussed yesterday, Bank of America’s survey published yesterday showed that fund managers are the most underweight equities since May 2020 and are piling into cash. “This is one of the most challenging markets I have been in in my career,” Henry Peabody, fixed income portfolio manager at MFS Investment Management, said on Bloomberg Television. “I suspect at a certain point of time we’re going to have the liquidity of the markets challenged. They really haven’t been thus far.” As the Fed embarks on interest-rate hikes, frothy growth shares, including the tech sector, have suffered in particular as higher rates mean a bigger discount for the present value of future profits. This marks a major shift in investor outlook after tech stocks had been some of the market’s best performers for years. “Investor sentiment and confidence remain shaky, and as a result, we are likely to see volatile and choppy markets until we get further clarity on the 3Rs — rates, recession, and risk,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. Rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns. In what’s seen as his most hawkish remarks to date, Powell said that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. “We’ll have this kind of volatility as people jump in and look at opportunities to buy as markets decline,” Shana Sissel, director of investments at Cope Corrales, said on Bloomberg Television, referring to the Wall Street bounce. The Fed is going to struggle to achieve a soft economic landing, she added. In Europe, the Stoxx 600 Index was little changed, with energy stocks outperforming. Spain's IBEX outperformed, adding 0.5%. ABN Amro slumped almost 10% after the Dutch lender reported first-quarter results burdened by rising costs.  The Stoxx Europe 600 Basic Resources sub-index drops, underperforming other sectors in the broader regional benchmark on Wednesday as base metals ended a three-day rebound and as iron ore declined. Base metals paused a recovery from this year’s lows, with copper and aluminum stalling after hawkish remarks from Federal Reserve Chair Jerome Powell. Iron ore futures declined as investors weighed China’s faltering economy and the prospect of support measures amid a mixed outlook for steel demand. Basic resources index -0.6%, halting three days of gains; broader benchmark little changed. Siemens Gamesa jumped as much as 15% as Siemens Energy weighs a bid for the shares of the troubled Spanish wind-turbine maker it doesn’t already own. Here are the most notable movers: European oil and gas stocks rise amid higher crude prices and broker upgrades, while renewables rallied after Siemens Energy confirmed it was considering a buyout offer for Siemens Gamesa. Shell gains as much as 1.8%, BP +1.8%, Equinor +3.4%, Gamesa +15%, Vestas +7.7% Air France-KLM shares rise as much as 7.5% in Paris on news that container line CMA CGM intends to take a stake of up to 9% in the French carrier following the signing of a long-term strategic partnership in the air cargo market. Rockwool shares gain as much as 8.3%, most since Feb. 15, as the company boosts its sales in local currencies forecast for the full year. British Land shares rise as much as 4.2%, as the company’s results show a strong recovery and a good performance in the UK landlord’s portfolio, analysts say. Vistry shares climb as much as 8% with analysts saying the UK homebuilder’s trading update looks positive, particularly the robust momentum in its sales rate. The Stoxx Europe 600 Basic Resources sub-index drops, underperforming other sectors in the broader regional benchmark on Wednesday as base metals ended a three-day rebound and as iron ore declined. Rio Tinto slips as much as 1.5%, Antofagasta -2.7%, Anglo American -1.5% Prosus shares fall as much as 4.2% and Naspers sinks as much as 6.7% after Tencent reported first- quarter revenue and net income that both missed analyst expectations. TUI shares drop as much as 13% in London after the firm announced an equity raise in order to repay a chunk of government aid that helped see it through the coronavirus crisis. ABN Amro shares declined as much as 11% after the lender reported 1Q earnings that showed higher costs related to money laundering. Experian shares fall as much as 5.1% after the consumer-credit reporting company reported full-year results, with Citi saying organic growth missed consensus. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank. The pound weakened and gilt yields fell as traders speculated that the Bank of England will struggle to rein in inflation and avoid a recession. Elsewhere, the Biden administration is poised to fully block Russia’s ability to pay US bondholders after a deadline expires next week, a move that could bring Moscow closer to a default. Sri Lanka, meantime, is on the brink of reneging on $12.6 billion of overseas bonds, a warning sign to investors in other developing nations that surging inflation is set to take a painful toll. Earlier in the session, Asian stocks advanced for a fourth session as strong US economic data allayed worries about the global growth outlook, while Chinese equities slipped. The MSCI Asia-Pacific Index rose as much as 1%, extending its rebound from an almost two-year low reached last Thursday. Materials shares led the gains, with Australia’s BHP Group climbing 3.2%. Benchmarks in most markets were in the black, with Indonesia, Taiwan and Singapore chalking up gains of at least 1%.  Upbeat retail sales and industrial production data from the US underpinned sentiment, so much so that investors barely reacted to hawkish comments from Federal Reserve Chair Jerome Powell. He indicated that policy makers won’t hesitate to raise interest rates beyond neutral levels to contain inflation. Equities in China bucked the trend. Property shares paced the drop after data showed the decline in China’s new home prices accelerated in April, while tech shares also lost steam ahead of Tencent’s earnings which missed expectations and slumped. Local investors may be underwhelmed by a lack of details from Chinese Vice Premier Liu He’s fresh vow to support tech firms. Liu said the government will support the development of digital economy companies and their public listings, in remarks reported by state media after a symposium with the heads of some the nation’s largest private firms. Lee Chiwoong, chief economist at Mitsubishi UFJ Morgan Stanley Securities, said Liu’s comments point to an easing of the crackdown on internet firms. “The Chinese government is stepping up measures to support the economy following the slowdown,” Lee said.  “As bottlenecks stemming from lockdowns in Shanghai ease, that impact will gradually show up in the economy,” Lee added. “We should be able to clearly see an economic recovery in the second half of this year.” Japanese equities gained as investors assessed strong US economic data and comments by Federal Reserve Chair Jerome Powell on the outlook for interest rate hikes.  The Topix Index rose 1% to close at 1,884.69. Tokyo time, while the Nikkei advanced 0.9% to 26,911.20. Sony Group Corp. contributed the most to the Topix gain, increasing 2.9%. Out of 2,172 shares in the index, 1,345 rose and 749 fell, while 78 were unchanged. Chinese stocks erased losses intraday after earlier disappointment over a much-anticipated meeting between Vice Premier Liu He and some of the nation’s tech giants. Overnight, data showed US retail sales grew at a solid pace in April, while factory production rose at a solid pace for a third month. Australia's stocks also gained, with the S&P/ASX 200 index rising 1% to close at 7,182.70, extending its winning streak to a fourth day. Miners contributed the most to its advance. All sectors gained, except for consumer staples and financials. Eagers slumped after saying that its 1H profit will be lower than it was a year ago and flagged reduced new vehicle deliveries. Wage data was also in focus. Australian wages advanced at less than half the pace of consumer-price gains in the first three months of the year, reinforcing the RBA’s signal that it will stick to quarter-point hikes.  In New Zealand, the S&P/NZX 50 index rose 1.1% to 11,258.28 India’s benchmark equities index fell, snapping two sessions of gains, weighed by declines in engineering company Larsen & Toubro Ltd.    The S&P BSE Sensex dropped 0.2% to close at 54,208.53 in Mumbai, after rising as much as 0.9% earlier in the session. The NSE Nifty 50 Index fell 0.1% to 16,240.30.  Larsen & Toubro slipped 2% and was the biggest drag on the Sensex, which saw 17 of its 30 member stocks decline. Sixteen of 19 sectoral sub-indexes compiled by BSE Ltd. dropped, led by a gauge of realty shares.   State-run Life Insurance Corporation, which debuted Tuesday, rose 0.1% to 876 rupees, still below the issue price of 949 rupees. In earnings, of the 34 Nifty 50 firms that have announced results so far, 20 have either met or exceeded analyst estimates, while 14 have missed. Consumer goods company ITC Ltd. is scheduled to announce results on Wednesday. In FX, the Bloomberg Dollar Spot Index reversed an early loss and the greenback advanced versus all of its Group-of-10 peers apart from the yen. The pound was the worst G-10 performer, tracking Gilt yields lower and paring the previous day’s gains. A widely expected jump in UK inflation prompted investors to pare back bets on BOE rate hikes. Money markets are pricing around 120bps of BOE rate hikes by December, down from 130bps from the previous day. UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank. Consumer prices surged 9% in the year through April. The euro fell for the first day in four and weakened beyond $1.05. The Bund curve has twist flattened as traders bet on a faster pace of ECB tightening after Bank of Finland Governor Olli Rehn said there’s broad agreement among members of the Governing Council that policy rates should exit sub-zero terrain “relatively quickly.” That’s to prevent inflation expectations from becoming de- anchored, he said. The Aussie swung between gains and losses while Australia’s bonds trimmed earlier declines after a report showed wage growth last quarter was less than economists forecast. The wage price index climbed an annual 2.4% last quarter, trailing economists’ expectations and coming in well below headline inflation of 5.1%. The yen rose as US yields declined amid fragile risk sentiment. Japanese government bonds were mixed, with a decent five-year auction lending support while an overnight rise in global yields weighed on super-long maturities. In rates, Treasuries were under pressure, though most benchmark yields remained within 1bp of Tuesday’s closing levels. 10-year yields rose just shy of 3.00%, higher by less than 1bp with comparable bund yield +3.3bp and UK 10-year flat. TSY futures erased gains amid a series of block trades in 5- and 10-year note contracts starting at 5:20am ET, apparently selling flow. According to Bloomberg, six 5-year block trades and two 10-year block trades -- all 5,000 lots -- have printed since 5:20am, apparently seller-initiated as cash yields concurrently rebounded from near session lows. Wednesday’s $17b 20-year new-issue auction at 1pm ET may also weigh on the market. 20-year bond auction is this week’s only nominal coupon sale; WI yield ~3.37% exceeds all 20-year auction stops since then tenor was reintroduced in 2020, is ~27.5bp cheaper than last month’s result. Elsewhere, the UK yield curve bull-steepened with the short end richening ~5bps, while pound falls after inflation surged to a four-decade high. Money markets pare BOE rate-hike wagers. Bund curve bear-flattens while money markets bet on a faster pace of ECB tightening after ECB’s Rehn said the central bank needs to move quickly from negative rates. In commodities, WTI trades within Tuesday’s range, adding 1.6% to around $114. Most base metals are in the red; LME tin falls 1.5%, underperforming peers, LME aluminum outperforms, adding 1%. Spot gold is little changed at $1,815/oz. Looking to the day ahead now, and data releases include the UK and Canadian CPI readings for April, along with US data on housing starts and building permits for the same month. Central bank speakers include the Fed’s Harker and the ECB’s Muller. Earnings releases include Cisco, Lowe’s, Target and TJX. Finally, G7 finance ministers and central bank governors will be meeting in Germany. Market Snapshot S&P 500 futures down 0.5% to 4,065.50 STOXX Europe 600 down 0.2% to 438.11 MXAP up 0.8% to 164.43 MXAPJ up 0.7% to 539.81 Nikkei up 0.9% to 26,911.20 Topix up 1.0% to 1,884.69 Hang Seng Index up 0.2% to 20,644.28 Shanghai Composite down 0.2% to 3,085.98 Sensex up 0.3% to 54,469.39 Australia S&P/ASX 200 up 1.0% to 7,182.66 Kospi up 0.2% to 2,625.98 German 10Y yield little changed at 1.03% Euro down 0.4% to $1.0505 Brent Futures up 1.5% to $113.66/bbl Gold spot down 0.0% to $1,815.04 U.S. Dollar Index up 0.33% to 103.70 Top Overnight News from Bloomberg Sweden’s biggest pension company has begun buying government bonds amid a “paradigm shift” in the market that pushed yields to their highest level since 2018. The CIO views Treasuries as “quite attractive” after a prolonged period of razor-thin yields that forced the company into alternative and riskier asset classes to preserve returns across its $117 billion portfolio While outright China bulls may be hard to find, shifts in positioning at least point to improving sentiment. Bearish bets on stocks are being abandoned in Hong Kong, expectations for yuan volatility are falling, domestic equity traders have stopped unwinding leverage and foreigners have slowed their once-record exit from government bonds The EU is set to unveil a raft of measures ranging from boosting renewables and LNG imports to lowering energy demand in its quest to cut dependence on Russian supplies. The 195 billion-euro ($205 billion) plan due Wednesday will center on cutting red tape for wind and solar farms, paving the way for renewables to make up an increased target of 45% of its energy needs by 2030, according to draft documents seen by Bloomberg that are still subject to change A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed as the regional bourses only partially sustained the momentum from global peers. ASX 200 was led higher by outperformance in the mining and materials related sectors, while softer than expected wage price data reduced the prospects of a more aggressive RBA rate hike next month. Nikkei 225 briefly reclaimed the 27,000 level but retreated off its highs as participants digested GDP data which printed in negative territory, albeit at a narrower than feared contraction. Hang Seng and Shanghai Comp were subdued with large-cap tech stocks pressured in Hong Kong including JD.com despite beating earnings expectations and with Tencent bracing for the expected slowest revenue growth since its listing, while the mainland was hampered by the mixed COVID-19 situation as Shanghai registered a 4th consecutive day of zero transmissions outside of quarantine, although Beijing was said to lockdown some areas in its Fengtai district for 7 days. Top Asian News Shanghai authorities issued a new white list containing 864 financial institutions permitted to resume work, according to sources cited by Reuters. China, on May 20th, is to remove some COVID test requirements on travellers to China from the US, according to embassy. China's Foreign Ministry says the BRICS foreign ministers are to meet on May 19th. Goldman Sachs downgrades its 2022 China GDP growth forecast to 4.0% from 4.5%. European bourses are rangebound and relatively directionless, Euro Stoxx 50 U/C, taking impetus from a mixed APAC session which failed to sustain US upside. Stateside, futures are modestly softer and a firmer Wall St. close; ES -0.2%. Limited Fed speak due and near-term focus on retail earnings. Tencent (0700 HK) Q1 2022 (CNY): adj. net profit 25.5bln (exp. 26.4bln), Revenue 135.5bln (exp. 141bln). Lowe's Companies Inc (LOW) Q1 2023 (USD): EPS 3.61 (exp. 3.22/3.23 GAAP), Revenue 23.70bln (exp. 23.76bln). SSS: Lowe's Companies: -4.0% (exp. -2.5%); Lowe's Companies (US): -3.8% (exp. -3.7%). -0.2% in the pre-market Top European News UK Chancellor Sunak is reportedly mulling bringing forward the 1p income tax cut to the basic rate by one year, according to iNews citing Treasury insiders. Other reports suggest that Sunak is putting plans together to raise the warm home discount by hundreds of GBP in July ahead of lowering taxes in autumn to assist with the cost of living crisis, according to The Times. EU is to offer the UK new concessions on the Northern Ireland protocol but has threatened a trade war if UK PM Johnson refuses to agree to a compromise, according to The Telegraph. In FX Sterling slides to the bottom of the major ranks as fractionally sub-forecast UK CPI dampens BoE rate hike expectations; Cable reverses from just over 1.2500 to sub-1.2400, EUR/GBP nearer 0.8500 after dip below 0.8400 only yesterday. Hawkish Fed chair Powell helps Buck bounce ahead of US housing data, DXY towards the upper end of 103.770-180 range. Aussie hampered by softer than expected wage metrics that might convince the RBA to refrain from 40bp hike in June, AUD/USD heavy on the 0.7000 handle. Yen relatively resilient in wake of Japanese GDP showing less contraction in Q1 than feared, USD/JPY closer to 129.00 than 129.50. Euro loses momentum irrespective of comments from ECB’s Rehn echoing Summer rate hike guidance as final Eurozone HICP is tweaked down, EUR/USD fades from 1.0550+ to test support around 1.0500. Loonie treads cautiously before Canadian inflation metrics as oil prices come off the boil, USD/CAD back above 1.2800 within 1.2795-1.2852 range. In Fixed Income Gilts sharply outperform as UK CPI falls just shy pf consensus and dampens BoE tightening expectations. 10 year UK bond rebounds towards 119.50 from sub-119.00 lows, while Bunds lag below 152.50 and T-note under 119-00. Record high cover for 2052 German auction and low retention sets high bar for upcoming 20 year US offering. Central Banks ECB's Rehn says June forecasts are seen near the adverse scenario from March, first rate increase will likely take place in the summer. Many colleagues back stance for quick moves. ECB's de Cos says the end of APP should be finalised early in Q3, first hike shortly afterwards. Further rises could be made in subsequent quarters of medium-term outlook remains around target; the build-up of price pressures in EZ in recent months raises the likelihood of second-round effects, which have not strongly materialised. In commodities WTI and Brent are modestly supported after yesterday's lower settlement; currently, firmer by just over USD 1.00/bbl. Focus has been on the narrowing WTI/Brent spread, particularly going into US driving season; see link below for ING's views. US Energy Inventory Data (bbls): Crude -2.4mln (exp. +1.4mln), Cushing -3.1mln, Gasoline -5.1mln (exp. -1.3mln), Distillates +1.1mln (exp. unchanged). Spot gold and silver are modestly firmer but capped by a firmer USD, yellow metal just shy of USD 1820/oz. US Event Calendar 07:00: May MBA Mortgage Applications, prior 2.0% 08:30: April Building Permits MoM, est. -3.0%, prior 0.4%, revised 0.3% 08:30: April Housing Starts MoM, est. -2.1%, prior 0.3% 08:30: April Building Permits, est. 1.81m, prior 1.87m, revised 1.87m 08:30: April Housing Starts, est. 1.76m, prior 1.79m DB's Jim Reid concludes the overnight wrap Another reminder of my webinar replay from last week discussing our recession call for 2023 and an update on credit spreads. In it I said that while we have high conviction that HY spreads would be +850bp in H2 2023, the outlook over the next few weeks and months may actually be positive from this starting point. I would say I am nervous of that view but I still don't think that the real economic pain comes until deeper into 2023 when the lagged impact of an aggressive Fed starts to bite. Click here to view the webinar and to download the presentation. Good luck to Glasgow Rangers and Eintracht Frankfurt in tonight's Europa League final. These are not teams that any would have expected to reach this final and I will watch with stress free divided loyalties. My father's family were all from the former and supported Rangers while the latter play at the fabulously named Deutsche Bank Park. So good luck to both. I suspect I'll be less stress free in 11 days' time when Liverpool are out for revenge against Real Madrid in the Champions League Final. At the moment I’m feeling nervously optimistic. Talking of which, investor optimism has returned to markets over the last 24 hours as more positive data releases raised hopes that the US economy might be more resilient in the near-term than many have feared. The economic concerns won't go away, but stronger-than-expected numbers on retail sales and industrial production helped the S&P 500 (+2.02%) close at its highest level in over a week. Remember monetary policy acts with a lag and it would be very unusual historically if the data rolled over imminently. By this time next year it will likely be a very different story. The higher yield momentum was reinforced by a Powell speech after Europe went home but there was a steady march of slightly hawkish central bank speakers through the day. Before we review things keep an eye out for UK CPI just after this goes to press. The headline rate is expected to be a huge 9.1%. Expect a lot of headlines reporting of 40 year highs. With regards to Powell, most in focus was his claim that policy rates would rise above neutral if that was required to tame inflation. While the sentiment was not necessarily new, his explicit comment that neutral rates are “not a stopping point” garnered focus, noting that the Fed was looking for “clear and convincing evidence” that inflation was subsiding. The rates market have already priced terminal policy rates above the Fed’s estimate of neutral, but a combination of the risk on, and stronger data meant that equities could go up alongside yields. Earlier in the day we got a smattering of communications from Fed regional Presidents, none of which registered as materially but it reinforced the direction of travel after a month to date where markets have repriced the Fed lower. Indeed, even resident hawk, St Louis Fed President Bullard, reiterated Powell’s message in that the Fed was on course for 50bp hikes at the upcoming meetings and said that “I think we have a good plan for now”. Sovereign bonds had already sold off significantly ahead of all that Fedspeak, aided by the broader risk-on tone yesterday, but continued drifting higher through the US session. Yields on 10yr Treasuries closed +10.4bps to a one-week high of 2.99%, driven by a +7.9bps rise in real yields to 0.24%. The moves were more pronounced at the front-end however, and the 2yr yield rose by a larger +13.1bps as investors priced in a more aggressive path of hikes over the next 12 months after data showed the economy was performing stronger than the consensus had anticipated. In terms of the headlines, retail sales were up by +0.9% in April (vs. +1.0% expected), but the growth in March was revised up to +1.4% (vs. +0.5% previously). Retail sales excluding autos and gas were up by +1.0% as well (vs. +0.7% expected), whilst the industrial production number was another that came in above expectations at +1.1% (vs. +0.5% expected). Europe also had a large move in yields, which followed comments by Dutch central bank Governor Knot who became the first member of the Governing Council to openly float the idea of a 50bp hike. Although he said that “my preference would be to raise our policy rate by a quarter of a percentage point”, he said that “bigger increases must not be excluded” if data were to show inflation “broadening further or accumulating”. So even though he’s one of the more hawkish members of the council, that’s still a significant milestone in that larger moves are being openly discussed, and echoes what we saw with the Fed at the turn of the year when the policy trajectory became increasingly aggressive. Market pricing reflected that shift yesterday, and for the first time overnight index swaps were pricing in that the ECB would hike by more than 100bps by their December meeting and thus catching up with the DB House View. That growing belief behind additional hikes led to a fresh selloff in sovereign bonds, with those on 10yr bunds (+10.9bps), OATs (+10.5bps) and BTPs (+11.7bps) all moving higher. The biggest moves were seen from gilts (+15.0bps) however, which followed data that pointed to an increasingly tight labour market in the UK, and overnight index swaps nearly doubled the probability of a 50bp rate hike from the BoE in June, with the odds moving from 17% on Monday to 33% yesterday. Over in equities, stronger risk appetite led to a significant rebound yesterday, with the S&P 500 (+2.02%) hitting a one-week high, whilst the NASDAQ (+2.76%) saw an even larger rebound in spite of the simultaneous rise in yields. Walmart (-11.38%) was by far the worst performer in the S&P, which came as it cut its earnings per share forecast, which it now expected to decrease by 1%, relative to previous guidance that expected it to rise by the mid single-digits. But that was the exception, and every sector except consumer staples moved higher on the day, with the more cyclical areas leading the advance. Over in Europe the STOXX 600 (+1.22%) posted a strong performance of its own, bringing its advance to more than +5% since its recent closing low just over a week ago. Overnight in Asia, performance in regional stock indices is diverging partly on the back of economic data. Japan’s Q1 GDP (-1.0%) contracted less than expected (-1.8%), lifting the Nikkei (+0.50%) this morning. In China, though, rising covid cases and waning optimism about government’s support of tech companies weighed on the Shanghai composite (-0.37%) and the Hang Seng (-0.66%). New home prices (-0.30%) in the country also slid for an eighth month in a row. This slight souring of sentiment has extended to S&P 500 futures (-0.23%) with the US 10y yield edging back lower by -2.2bps. Elsewhere, tensions over Brexit ratcheted up again yesterday after UK Foreign Secretary Truss announced plans to introduce legislation that would override parts of the Northern Ireland Protocol. Truss said that the UK’s preference “remains a negotiated solution with the EU” and that the bill would contain an “explicit power to give effect to a new, revised Protocol if we can reach an accommodation”, but that “the urgency of the situation means we can’t afford to delay any longer.” Unsurprisingly the EU did not react happily, and Commission Vice President Šefčovič said in a statement that if the UK moved ahead with the bill, then “the EU will need to respond with all measures at its disposal.” Staying on the UK, the latest employment data out yesterday pointed to an increasingly tight labour market, with the unemployment rate falling to 3.7% in the three months to March (vs. 3.8% expected), which is the lowest it’s been since 1974. Furthermore, the number of vacancies was larger than the total number of unemployed for the first time, and the more up-to-date estimate of payrolled employees in April saw an increase of +121k (vs. +51k expected). Elsewhere in Europe, the latest estimate of Euro Area GDP growth in Q1 showed a bigger than expected expansion of +0.3% (vs. +0.2% previously). Elsewhere the chances of a Russian sovereign debt default increased, following the Treasury department confirming a temporary waiver that allowed Russia to pay US creditors would expire on May 25. Meanwhile, the US is reportedly considering a tariff on Russian oil in conjunction with European allies, as the saga about banning imports to Europe drags on. To the day ahead now, and data releases include the UK and Canadian CPI readings for April, along with US data on housing starts and building permits for the same month. Central bank speakers include the Fed’s Harker and the ECB’s Muller. Earnings releases include Cisco, Lowe’s, Target and TJX. Finally, G7 finance ministers and central bank governors will be meeting in Germany. Tyler Durden Wed, 05/18/2022 - 07:51.....»»

Category: blogSource: zerohedgeMay 18th, 2022

Futures, Bonds Rise Ahead Of Critical CPI Print As Chinese Covid Fears Fade

Futures, Bonds Rise Ahead Of Critical CPI Print As Chinese Covid Fears Fade US index futures and European stocks were set to extend their recovery from the longest streak of weekly declines since 2011 ahead of an inflation report that was expected to show prices cooled in April, while falling bond yields supported battered tech stocks; Asian equities also advanced, halting a seven-day slide, as new Covid cases tumbled in Shanghai with the local government saying there was basically no COVID community spread in 8 of 16 districts, and the Chinese covid scare appears set to fade. S&P 500 futures were trading at session highs, up 1.2%, and Nasdaq 100 futures were up 1.4%, while Europe’s Stoxx 600 climbed for a second day. The dollar fell and Treasury yields slumped, with the 10Y trading a 2.91%, a 30 basis points slide in the past three days, providing further support for high duration tech names. US-listed Chinese stocks rallied in New York premarket trading after the Asian nation reported easing Covid cases. Tech stocks also climbed in Hong Kong and Europe on Wednesday. In less than an hour, investors will be analyzing the latest US consumer price index reading, due out at 830am ET,  which is expected to show price gains moderated in April, for clues on the Federal Reserve’s pace of monetary tightening (full preview here). “A soft inflation read will come as a relief that the Fed doesn’t need to get much more aggressive to bring inflation back towards its 2% policy target,” said Swissquote Bank's Ipek Ozkardeskaya. “If however, inflation hasn’t pulled lower as expected -- and worse, if we see a higher figure than last month print -- we would see another big wave of selloff.” The “bar is low” for a surprise from the US data amid ebbing consumer sentiment, according to Brent Schutte, chief investment strategist at Northwestern Mutual Life Insurance Co. “Things are going to be just a bit better at the margin,” he said. “The Fed overall is going to tighten less. That will lead to a market that begins to find its feet and move higher in coming quarters as inflation does come off the boil.” Technology shares have been leading the selloff as higher interest rates mean a bigger discount for the present value of future profits, hurting frothy growth stocks that have been among the past years’ best performers. Even though the Nasdaq 100 rose yesterday, it was trading near its November 2020 low and is down 24% this year.  In premarket trading, Coinbase shares plunged as much as 18% after posting revenue for the first quarter that fell short of estimates. Occidental Petroleum shares were up after adjusted earnings per share for the first quarter beat the average analyst estimate. US-listed Chinese stocks gained as declining Covid cases in Shanghai lifted hopes for a ease in lockdown measures, boosting risk appetite. Embark Technology shares jumped 31% in US premarket trading, after the self-driving truckmaker reported a smaller net loss per share for the first quarter, with KeyBanc saying the firm is seeing “steady progress.” Here are the biggest premarket movers today: Occidental (OXY US) shares rise 1.7% in US premarket after adjusted earnings per share for the 1Q beat the average analyst estimate. The company demonstrated its ability to deleverage its balance sheet, analysts said Chinese stocks rose in premarket trading as declining Covid cases in Shanghai lift hopes for an ease in lockdown measures, boosting risk appetite. Alibaba (BABA US) was up 2.7%, JD.com (JD US) +2.5%, Pinduoduo (PDD US) +2.9% and Baidu (BIDU US) +3.6%. Embark Technology (EMBK US) shares jump as much as 31% in premarket, after the company reported a smaller net loss per share for the 1Q, with KeyBanc saying the firm is seeing “steady progress” Exicure (XCUR US) shares rise 48% in US premarket after the early-stage biotechnology company announced a $5m sale of common stock in a private placement at a premium to the last close Peloton (PTON US) shares up 3.3% premarket after closing at its lowest level since going public in September 2019. Analysts slash price targets as they expect the turnaround process to take time, but they maintained their recommendations on the stock Unity Software (U US) shares slump as much as 30% in U.S. premarket trading, after the 3D game-development company reported its 1Q results and gave a 2Q revenue forecast that was weaker than expected View (VIEW US) shares tumble 54% in premarket trading after the company delayed its 10-Q filing and said it expects to disclose substantial doubt about its ability to continue as a going concern Coinbase (COIN US) shares plunged as much as 18% in premarket after posting worse-than-expected revenue for the 1Q, with analysts pointing to drops in crypto prices impacting the firm’s earnings and outlook Roblox (RBLX US) shares were down 1.6% in premarket as its user growth in North America was slightly negative for the second straight quarter, KeyBanc analyst Tyler Parker says, adding that he continues to see significant growth internationally Despite the gains, sentiment remains fragile as investors seek evidence that price pressures are peaking in the global economy. US data later Wednesday may show inflation moderated in April but stayed above 8%. Traders will use this information to weigh whether the Fed can continue with its half-point hikes as expected or will need to opt for a three-quarter-point increase (or reverse hiking once the US slides into recession). In other words, there’s a lot riding on the inflation figure, Esty Dwek, CIO at Flowbank SA, said in an interview with Bloomberg TV. Still, “the Fed is going to need to see a number of months of lower inflation before they start to even consider taking their foot of the pedal.” In Europe, the Stoxx 600 Index was 1.2% higher, with consumer products and mining stocks leading the gains. The CAC outperforms, rising as much as 2% back to Monday’s best levels. Health care stocks underperformed as Roche Holding slumped as its cancer medicine billed as a potential blockbuster failed in a study on patients with the most common form of lung cancer. Here are some of the biggest European movers today: Compass shares gain as much as 12% after the catering company reported 1H results that beat estimates, increased its FY revenue forecast and announced a buyback. European tobacco stocks rise after Philip Morris offered to buysmokeless tobacco company Swedish Match in a $16b transaction. Swedish Match +9%, Imperial Brands +1.3%, BAT +1% European luxury stocks outperform as investors anticipate improving demand from easing virus cases in China. Kering +3.4%, Hermes +2.8%, Swatch +5.1% Pirelli gains as much as 3.6% in Milan trading after posting what Deutsche Bank called a “good” 1Q with a very strong price/mix. HomeServe rises as much as 14% amid a Bloomberg report that Brookfield Asset Management is near a $5 billion deal for the emergency household repairs provider. Roche falls as much as 7.2% on news that the Skyscraper-01 trial for the lung cancer drug tiragolumab missed co-primary endpoints. Bayer slides as much as 7.6% after the Biden administration recommended the US Supreme Court reject a California Roundup appeal. Alstom declines as much as 11% to erase gains made earlier in the session after full-year results. K+S falls as much as 7% after the potash producer’s 1Q free cash flow was hit by cash out on CO2 certificates, and negative factoring effect, Baader says. Earlier in the session, Asian equities advanced, halting a seven-day slide, as new Covid cases fell in Shanghai and global appetite for risk improved. The MSCI Asia Pacific Index rallied 0.4% as tech giants Tencent and Alibaba climbed alongside consumer discretionary shares. China’s CSI 300 Index led gains in the region after Shanghai reported fewer daily infections Tuesday and zero cases found in the community.  Shanghai Reports No Community Spread as Infections Halve Asia’s benchmark is set to end its longest losing streak since March 2020. The gauge has lost more than $2 trillion in value since a January peak, amid concerns over China’s Covid-Zero stance, inflation and U.S. interest rates. “Asia and EM equities are entering the late stages of a bear market that has traversed valuation, regulation, geopolitics and supply chain pressures,” Morgan Stanley strategists including Jonathan Garner wrote in a report. The firm prefers Japanese shares, due to their return ratios, and Southeast Asian stocks that benefit from higher inflation. Asia’s equity gauge reversed a 0.5% loss as investors awaited the release of U.S. consumer-price index data due later today. Benchmarks in the Philippines and Singapore were among the worst performers in the region. India’s key equity gauges declined for a fourth day as quarterly earnings showed surging inflation eroding profit growth of top companies. The S&P BSE Sensex fell 0.5% to 54,088.39 in Mumbai to stretch its 4-day decline to 2.9%. The NSE Nifty 50 Index lost 0.5% on Wednesday. The key gauges have declined in all but one session this month. Fifteen of the 19 sector sub-indexes compiled by BSE Ltd. retreated, led by gauges of capital goods and information technology stocks. Of the 28 Nifty 50 companies that have announced results so far, 11 missed estimates and 17 matched. Cipla and Asian Paints were the latest to report profits below the consensus view after market hours on Tuesday. “Lack of fresh positive cues is forcing investors to dump equities and switch to safer havens like gold,” according to Shrikant Chouhan, an analyst with Kotak Securities. He expects a sharp pullback in key indexes as they are already trading in oversold territory and sees 16,000 as a key support level for the Nifty 50 index.  Infosys contributed the most to Sensex’s decline, decreasing by 1.7%. Out of 30 shares in the Sensex index, nine rose and 21 fell. In FX, the Bloomberg Dollar Spot Index fell after trading near a recent two-year high as the greenback weakened against all of its Group-of-10 peers. Risk-sensitive Scandinavian and Antipodean currencies led gains as traders positioned ahead of the US inflation data. Treasuries rallied, sending yields up to 7bps lower. The euro traded in a narrow range around $1.055 and European bonds rallied, with the periphery outperforming the core. Australian and New Zealand dollars were bought to reduce short positions against the greenback. Australia’s consumer confidence index fell 5.6% from a month ago to 90.4, the lowest since Aug. 2020, according to a report. In rates, Treasuries rallied for a second day ahead of today's CPI print and 10Y TSY auction. Yields were richer by as much as 6bp in belly of curve which bull-steepened, and tightened the 2s5s30s fly by 4bp on the day to lowest levels since late March; 10-year yields around 2.925%, outperforming bunds and gilts by 3.5bp and 3bp. The front-end lags with 2-year yields richer by ~3bp on the day, flattening 2s5s, 2s10s spreads by ~3bp. The US auction cycle resumes with $36b 10-year at 1pm ET, following well-bid 3-year Tuesday. WI 10- year yield ~2.92% is above auction stops since late 2018 and ~20bp cheaper than April’s, which tailed the WI by 3bp. In Europe, the fixed income rally also extended with 5y Germany richening ~6bps. Peripheral and semi-core spreads narrow with 10y Bund/BTP near 195bps. Gilts bull-flatten slightly with 2s10s narrowing back near 50bps. In commodities, Crude futures advanced; WTI rose over 3% and back on to a $102-handle. Base metals are mixed; LME nickel falls 2% while LME copper gains 1.3%. Spot gold rises roughly $13 to trade near $1,851/oz. Bitcoin rises above $31,000. Bitcoin has stabilised somewhat above the USD 30k mark after the recent bout of stablecoin induced pressure. Looking to the day ahead now, and the main highlight will be the aforementioned US CPI reading for April. Otherwise, central bank speakers include ECB President Lagarde, as well as the ECB’s Nagel, Vasle, Makhlouf, Knot, Centeno, Muller and Schnabel, and the Fed’s Bostic. Finally, earnings releases include Disney. Market Snapshot S&P 500 futures up 1.2% to 4,047 STOXX Europe 600 up 0.9% to 423.91 MXAP up 0.2% to 160.15 MXAPJ up 0.4% to 525.66 Nikkei up 0.2% to 26,213.64 Topix down 0.6% to 1,851.15 Hang Seng Index up 1.0% to 19,824.57 Shanghai Composite up 0.8% to 3,058.70 Sensex down 0.7% to 54,011.37 Australia S&P/ASX 200 up 0.2% to 7,064.68 Kospi down 0.2% to 2,592.27 German 10Y yield little changed at 0.98% Euro up 0.2% to $1.0555 Brent Futures up 2.8% to $105.34/bbl Gold spot up 0.5% to $1,847.30 U.S. Dollar Index down 0.28% to 103.62 Top Overnight News from Bloomberg ECB President Christine Lagarde said a first interest-rate increase in more than a decade may follow “weeks” after net bond-buying ends early next quarter, joining a growing crowd of policy makers signaling a move as soon as July ECB Governing Council member Joachim Nagel says the exit from very accommodative monetary policy should be “swift enough to affect the price path and to prevent second-round effects and a de- anchoring of inflation expectations” ECB Executive Board member Frank Elderson said policy makers can begin looking at raising interest rates from record lows in July, downplaying the risk of a euro-area recession as the war in Ukraine saps growth and fuels already record inflation The UK escalated its threats over the post-Brexit deal for Northern Ireland, saying the European Union’s latest proposals on trading arrangements won’t work and signaling it’s prepared to take unilateral steps unless a new agreement can be negotiated The EU’s executive arm is set to bolster renewables and energy savings goals as part of a 195 billion-euro ($205 billion) plan to end its dependency on Russian fossil fuels by 2027 For many of Sweden’s highly indebted consumers, the Riksbank’s sudden interest-rate increase at the end of April marks the start of a new squeeze that officials have long fretted about Czech policy maker Ales Michl, a vocal opponent of the central bank’s aggressive campaign to increase interest rates, was appointed to take over as the bank’s governor as the country struggles to contain its worst inflation in almost three decades A more detailed look at global markets courtesy of Newsquawk APAC stocks traded mixed following the choppy performance on Wall Street. ASX 200 was subdued and briefly fell below the 7,000 level with sentiment dampened by weak Consumer Confidence data. Nikkei 225 swung between gains and losses with the biggest movers driven by recent earnings releases. Hang Seng and Shanghai Comp were both initially lacklustre as property developer Sunac faces its grace period deadline for a dollar bond interest payment and with participants digesting the latest firmer than expected CPI and PPI data from China, although Chinese markets then strengthened amid speculation of policy easing in Q2 and positive signs from the COVID situation in Shanghai. Top Asian News Why China Is Sticking With Its Covid Zero Strategy: QuickTake Gray Market Hints at Tepid Trading Debut for Biggest India IPO Malaysia Surprises With Rate Hike to Head Off Inflation Defense Official Says Curfew May Be Lifted: Sri Lanka Latest European bourses are firmer across the board, Euro Stoxx 50 +1.4%, with the exception of the SMI -0.2% given the performance of heavyweight Roche, -6.5%. Stateside, futures are bolstered though with gains marginally more contained going into today's inflation data, ES +1.0%. China April vehicles sales -47.6% YY (-11.7% in March), according to the Industry Association; January-April -12.1% YY (prev. +51.8%). On Tuesday, CPCA says China sold 1.062mln passenger cars were sold in April which was -35.7% Y/Y. China's Auto Industry Association says the industry's development situation is gradually improving, firms are seeing May and June  as the window to make up for lost sales and production. Top European News Lagarde Joins ECB Officials Signaling July as Liftoff for Rates Siemens Energy Slides Amid Mounting Losses at Wind-Turbine Unit Ukraine, Russia Gas Clash Raises Threat to Europe’s Supply Bayer Drops After Supreme Court Urged to Reject Roundup Appeal FX Greenback grounded in advance of US CPI as Treasury yields recede and curve re-flattens, DXY slips further below 104.00 and sub-103.50 vs fresh 2022 peak at 104.190 on Monday. Aussie rebounds with iron ore and other commodities, shrugging off a drop in consumer confidence along the way; AUD/USD back on 0.7000 handle, albeit just and AUD/NZD around 1.1050 even though Kiwi relieved with full NZ reopening at the end of July and NZD/USD rebounds towards 0.6350 in response. Franc and Yen appreciate the less bearish bond climate, Euro underpinned as ECB President Lagarde joins others in guiding towards July rate hike; USD/CHF sub-0.9000, USD/JPY under 130.00 and EUR/USD circa 1.0575 at best. Loonie and Nokkie boosted by crude recovery, Swedish Crown supported by sharp rise in 1 year CPIF money market expectations; USD/CAD below 1.3000 and closer to hefty option expiry interest at 1.2950 (1.9bln vs 1.7bln at the round number). Yuan on firmer footing after stronger than forecast Chinese inflation data, but Czech Koruna floored as President confirms appointment of a known dove to govern CNB; USD/CNH around 6.7400, EUR/CZK near 25.4000. Fixed Income Latest recovery leg in debt lifts Bunds, Gilts and 10 year T-note to new WTD peaks, at 153.61, 119.69 and 119-09+ respectively. Solid covers at 10 year German and 7 year UK auctions given recent yield retreat, but some metrics show signs of investor reticence. Min focus ahead, US CPI data, but also USD 36bln T-note leg of refunding.   Commodities WTI and Brent are bolstered in excess of USD 3.00/bbl in a paring of recent losses alongside a positive turn in China's COVID situation. Currently, WTI Jun resides around USD 103/bbl (vs low USD 98.20/bbl) whilst Brent Jul trades around USD 105.50/bbl (vs low USD 101.30/bbl) US Energy Inventory Data (bbls): Crude +1.6mln (exp. -0.5mln), Gasoline +0.8mln (exp. -1.6mln), Distillates +0.7mln (exp. -1.3mln), Cushing +0.1mln. Libyan PM Bashagha announces the success of efforts to reopen the ports and oil fields in Libya, according to Sky News Arabia. Brazilian truck drivers are considering a strike from May 21st to stop a 9% rise in diesel prices by Petrobras, according to Estadão. Spot gold and silver are firmer and benefitting from the USD's continuing pullback to fresh WTD lows, albeit, the yellow metal is steady around USD 1850/oz pre-inflation. Central Banks ECB's Lagarde says we have not yet precisely defined the notion of “some time”, but I have been very clear that this could mean a period of only a few weeks. After the first rate hike, the normalisation process will be gradual. Judging by the incoming data, my expectation is that the (asset purchase programme) should be concluded early in the third quarter. Click here for analysis ECB's Muller says APP should end early July or a few weeks earlier; rate hike must not be far behind; appropriate for rates to be in positive territory by year-end, moves should be in 25bp increments. Rise in spreads is consistent with the changed ECB policy outlook; current policy is inappropriately easy, given high inflation. ECB's Elderson says they can start considering normalisation of the policy rate in July. ECB's Vasle says that inflation is becoming more broad-based and the policy response must follow the changed circumstances; supports further and faster action. Czech President Zeman has appointed Central Bank member Michl as the new governor, as expected; Czech President Zeman says does not wish to see a large decrease in interest rates but does not see a reason for additional increases. CBRT cuts its RRR for financing companies until May 13th, will be implemented at 0.00% until this point, according to the Official Gazette.   US Event Calendar 07:00: May MBA Mortgage Applications, prior 2.5% 08:30: April CPI YoY, est. 8.1%, prior 8.5% April CPI MoM, est. 0.2%, prior 1.2% April CPI Ex Food and Energy YoY, est. 6.0%, prior 6.5% April CPI Ex Food and Energy MoM, est. 0.4%, prior 0.3% April Real Avg Hourly Earning YoY, prior -2.7%, revised -2.6% April Real Avg Weekly Earnings YoY, prior -3.6%, revised -3.5% 14:00: April Monthly Budget Statement, est. $220b, prior - $225.6b DB's Jim Reid concludes the overnight wrap Markets have begun to stabilise over the last 24 hours following Monday’s rout, but there’s no doubt that risk appetite is still very subdued as worries about a potential recession gather pace. The S&P 500 eventually managed to post its first gain in 4 sessions (+0.24%) but only after spending half the day in the red. Today we get the all important US CPI report for April. This will be a very important one for markets and the Fed, since although policymakers have strongly signalled that they’re inclined to continue hiking by 50bps at the next couple of meetings, there is still 25/50/75bps to play for after those meetings. Today's report will help shape the early read into this and has an ability to move markets in a large manner if diverging from consensus too far. On that theme, we heard from an array of Fed speakers yesterday. The main takeaway was that +50bp hikes for the next few meetings is the preferred path, while at the margins the door was opened to consider larger hikes after that. For instance, Cleveland Fed President Mester (a voter this year) said that 75bps increases couldn’t be ruled out forever, and that the Fed could have to speed up in H2 if inflation didn’t ease, which coincided with the move into the red for US equities. Discussing another tool to help speed up that fight, she also noted the Fed could start selling asset holdings instead of letting them mature on their own which is currently the base case. Elsewhere Atlanta Fed President Bostic left the door open, saying that “everything is on the table”, but reinforced +50bp hikes were his preference for the next two or three meetings. Separately, New York Fed President Williams openly discussed the prospect that unemployment could rise as part of the Fed’s “soft landing”, saying that he “would not define a soft landing as unemployment staying at 3.6%”. He also mirrored the tone from Fed Chair Powell last week, who referred to a “softish” landing, which is certainly implying it might not be quite as smooth as they’d like in an ideal world, and speaks to the growing risks on the horizon. Elsewhere on inflation, President Biden gave a speech on this hot topic, saying his administration is weighing whether to cut tariffs which have been in place since the Trump Presidency in order to help fight rising prices, but no decisions have been made. So against that backdrop, all attention will shift over to the US CPI report for April today. Back in March, the year-on-year measure rose to a 4-decade high of +8.5%, but our US economists write in their preview (link here) that’s likely to have been the peak in the year-on-year measure, with today’s reading marking the start of a gradual move lower over the coming months. They see the year-on-year measure coming in at +7.9% as base effects from last year’s surge in used car prices begin to roll off. Meanwhile they see the month-on-month measure at just +0.05% thanks to modest declines in gasoline prices after their near 20% run-up in March. It’ll be important to keep an eye on whether inflationary pressures remain broad-based, so the housing components like rent will be ones to watch. As discussed at the top, US equities stabilised ahead of the print, with the S&P 500 gaining +0.24%, thus bringing its YTD decline to -16.05%. However, tech stocks outperformed thanks to a decline in yields, with the NASDAQ (+0.98%) and the FANG+ index (+1.42%) seeing bigger gains. And Europe also put in a stronger performance, with the STOXX 600 up +0.68% to end a run of 4 consecutive daily declines. For sovereign bonds it was a different story for the most part, as the prospect of a recession brought down inflation expectations and led to a decline in yields across multiple countries. Yields on 10yr Treasuries were down -4.3bps on the day to 2.99%, whilst those on 10yr bunds (-9.5bps), OATs (-9.9bps) and BTPs (-15.0bps) all saw sizeable moves lower as well, in spite of Bundesbank President Nagel’s endorsement of a July rate hike from the ECB. The main exception were front-end Treasury yields, with the 2yr yield ticking up by +1.2bps in light of the renewed chatter around 75bp hikes this cycle and a slightly more risk on day. This shift was also reflected in Fed funds futures, where the rate priced in by the December meeting rose +3.5bps yesterday, paring back a small amount of the -15.5bps decline on Monday. Overnight in Asia, major stock markets are mostly higher, with the Shanghai Composite (+1.63%) and the Hang Seng (+1.78%) racing ahead of the Nikkei (+0.44%) and the KOSPI (-0.05%). Chinese markets got a boost after Shanghai reported zero community cases and a halving of new infections. Optimism on covid powered stocks despite upside beats on both the CPI (2.1% vs 1.8% expected) and the PPI (8.0% vs 7.8% expected) overnight. Elsewhere, S&P 500 futures (+0.37%) are also in the green and the US 10y yield (-0.4bps) is edging lower. Oil has been volatile over the last 24 hours. Brent crude came down a further -3.28% yesterday, which means that it had lost just under $10/bbl over the two days so far this week whilst WTI (-3.23%) slipped back beneath $100/bbl. However this morning the two contracts are back up +2.85% and +1.75% respectively. The EU are continuing to work on further sanctions, and French President Macron spoke about energy security yesterday with Hungarian PM Orban, whose government have been resistant to stronger energy sanctions on Russia. Here in the UK, we had the State Opening of Parliament yesterday where the government outlined its legislative agenda. One potential area to watch out for is on the Brexit side, since there have been reports that legislation will be proposed that overrides parts of the Northern Ireland Protocol, which is the part of the Brexit deal that avoids a hard border between Northern Ireland and the Republic of Ireland, but instead puts an economic border in the Irish Sea between Great Britain and Northern Ireland. The government’s own explanatory notes to the Queen’s Speech yesterday said that “the Protocol needs to change”, but there was a distinctly lukewarm reaction from the EU to this prospect, with Commission Vice President Šefčovič saying in a statement that “Unilateral action by the UK would only make our work on possible solutions more difficult” and that “renegotiation is not an option”. On the data side, Germany’s ZEW survey for May saw the expectations indicator unexpectedly rise to -34.3 (vs. -43.5 expected), up from its 2-year low in April. However, the current situation measure fell by more than expected to -36.5 (vs. -35.0 expected), reaching its lowest level in a year. Elsewhere, Italian industrial production was unchanged in March (vs. -1.5% expected). To the day ahead now, and the main highlight will be the aforementioned US CPI reading for April. Otherwise, central bank speakers include ECB President Lagarde, as well as the ECB’s Nagel, Vasle, Makhlouf, Knot, Centeno, Muller and Schnabel, and the Fed’s Bostic. Finally, earnings releases include Disney. Tyler Durden Wed, 05/11/2022 - 07:52.....»»

Category: blogSource: zerohedgeMay 11th, 2022

National Vision stock falls after surprise decline in revenue, lowered full-year outlook

Shares of National Vision Holdings Inc. dropped 4.7% toward 22-month low in premarket trading Tuesday, after the optical retail company reported a first-quarter profit that topped expectations, but a surprise decline in revenue and a reduced full-year guidance, citing challenges including the COVID-19 pandemic, inflation, risks of recession and constraints on eye exam capacity. Net income fell to $30.15 million, or 34 cents a share, from $43.43 million, or 48 cents a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of 33 cents topped the FactSet consensus of 30 cents. Revenue fell 1.2% to $527.71 million from $534.18 million, while the FactSet consensus was for a rise to $538.4 million. Same-store sales declined 4.9%, missing expectations of a 4.6% decline. "With headwinds from the Omicron variant, weaker consumer confidence, and emerging constraints to exam capacity, our comps declined as we lapped a record performance last year," said Chief Executive Reade Fahs. For 2022, the company cut its guidance ranges for adjusted EPS to 65 cents to 80 cents from $1.03 to $1.10 and for revenue to $2.01 billion to $2.07 billion from $2.12 billion to $2.17 billion. The stock has tumbled 30.1% year to date through Monday, while the S&P 500 has shed 16.3%.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news......»»

Category: topSource: marketwatchMay 10th, 2022

Futures Rise Ahead Of Biggest Fed Rate Hike Since The Dot Com Bubble Burst

Futures Rise Ahead Of Biggest Fed Rate Hike Since The Dot Com Bubble Burst May the 4th is here, and US futures are up slightly ahead of a key Federal Reserve meeting in which the Fed is widely expected to raise rates by 50bps, the biggest hike since the dot com bubble burst in May 2000, and to release plans for balance-sheet normalization; Chair Powell’s post-meeting press conference will provide guidance on potential for bigger rate hikes at subsequent meetings and policy makers’ assessment of the neutral rate. As DB's Jim Reid puts it, "if you're under 43, did 3 years at university and then joined financial markets then you won't have worked in an era of 50bps Fed rate hikes. This will very likely change tonight as the Fed are a near certainty to raise rates by 50bps. In fact it'll be the first time the Fed have hiked at consecutive meetings since 2006. So we enter a new era that won't be familiar to many." In any case, investors have already priced in the Fed’s largest hike since 2000 - in fact, OIS contracts currently price in around 160bp of additional hikes over the next three policy meetings -  and they will scrutinize Chair Jerome Powell’s speech for clues on the pace of future rate increases and balance-sheet reduction. Some traders are betting on an even larger 75 basis-point hike in June. As such, even though global financial conditions are already the tightest they have ever been (according to Goldman), S&P and Nasdaq futures are both up 0.5%, while 10-year yields drifts lower, having stalled again near 3% at the European open. "Powell’s words about how aggressively the Fed will tame inflation are likely to shape market sentiment for the next couple of weeks at least," said technical analyst Pierre Veyret at ActivTrades in London. Lyft tumbled 26% in premarket trading after the ride-hailing company’s second-quarter outlook disappointed Wall Street. Global bonds have slumped under a wave of monetary tightening, with German 10-year yields around 1% and the U.K.’s near 2%, while US 10Y yields are circling 3%. Adding to the tightening outlook, European Central Bank Executive Board Member Isabel Schnabel said it’s time for policy makers to take action to tame inflation, and that an interest-rate hike might come as early as July. Meanwhile, Iceland’s central bank delivered its biggest hike since the 2008 financial crisis and India’s raised its key interest rate in a surprise move Wednesday. “There is a difficult set up in general for risk assets” as valuations remain stretched despite a drop in equities, Kathryn Koch, chief investment officer for public markets equity at Goldman Sachs & Co., said on Bloomberg Television. She added that “some people think stagflation is a real risk.” In premarket trading, Didi Global was 6% lower and Chinese technology shares slumped as the U.S. Securities and Exchange Commission is investigating the ride-hailing giant’s chaotic 2021 debut in New York.  Advanced Micro Devices jumped 5.7% in premarket trading after the chipmaker gave a strong sales forecast for the current quarter. Starbucks gained 6.6% after the coffee chain reported higher-than-expected U.S. sales, outweighing the negative impact of high inflation and Chinese lockdowns. Here are some of the biggest U.S. movers today: Lyft (LYFT) shares slump 27% premarket after the ride-hailing company’s second-quarter outlook disappointed Wall Street, highlighting investors’ willingness to dump growth stocks at the first hint of trouble Uber (UBER) slipped as Lyft’s results hit the more diversified peer. Uber said it rescheduled the release of its 1Q financial results and its quarterly conference to Wednesday morning from the afternoon, after rival Lyft gave a weaker-than-expected outlook Airbnb (ABNB) jumps 4.5% premarket after its second-quarter revenue forecast beat estimates, with the company seeing “substantial demand” after more than two years of Covid-19 restrictions Livent (LHTM) shares surge 23% premarket, with KeyBanc highlighting an increase in the lithium product maker’s 2022 Ebitda guidance Match Group (MTCH) slips 6.7% premarket as analysts say the miss in the dating-app company’s guidance takes some of the shine off its revenue beat Didi Global (DIDI) led a drop in U.S.-listed Chinese internet stocks after news of an SEC investigation into the ride-hailing company’s 2021 debut in New York added to investor concerns around the sector Skyworks Solutions (SKWS) shares drop 2.5% premarket after the semiconductor device company gave a forecast that was below the average analyst estimate Herbalife (HLF) sinks 17% premarket after slashing its full-year forecast and setting second-quarter adjusted earnings per share outlook below the average analyst estimate Advanced Micro Devices (AMD) rises as much as 7.5% in premarket trading, with analysts positive on the demand the chipmaker is seeing from data centers Akamai (AKAM) falls as much as 14% after analysts noted that a slowdown in internet traffic and the loss of revenue due to the war in Ukraine hit the company’s first-quarter results and full-year guidance JPMorgan CEO Jamie Dimon said in an interview Wednesday that the Fed should have moved quicker to raise rates as inflation hits the world economy. He said there was a 33% chance of the Federal Reserve’s actions leading to a soft landing for the U.S. economy and a third chance of a mild recession. “The Fed remains very focused on bringing inflation down, however, any further hawkish pivots will likely be tempered to some extent by the desire to achieve a soft landing,” Blerina Uruci, U.S. economist at T. Rowe Price Group Inc., wrote in a note. In Europe, declines for retailers and most other industry groups outweighed gains for energy, media and travel and leisure companies, pulling the Stoxx 600 Europe Index down 0.6%. The DAX outperforms, dropping 0.4%, Stoxx 600 lags, dropping 0.5%. Retailers, financial services and construction are the worst performing sectors. Here are the biggest European movers: Flutter Entertainment rises more than 6.9% its 1Q update matched broker expectations. Jefferies says a strong U.S. performance fuels confidence that a profitability “tipping point” is nearing. Kindred shares advance after its second-biggest shareholder, Corvex Management LP, said it believes Kindred’s board should evaluate strategic alternatives including a sale or merger. Fresenius SE shares rise as much as 4.2% on beating 1Q expectations. The beat was driven by the Kabi pharmaceutical division, which benefited from a positive FX impact, according to Jefferies. Siemens Healthineers rises after the German health care firm upgraded its earnings guidance. The beat was driven by a “strong performance” in its diagnostics division, Jefferies says. Stillfront shares rise as much as 10% after the Swedish video gaming group presented its latest earnings. Handelsbanken says the report provides good news, justifying some relief in the shares. Yara and K+S climb after the EU’s proposal to sanction the largest Belarus potash companies. Yara may see higher input prices but its market share may rise in wake of a ban, analysts note. Skanska falls as much as 12% after the construction group presented its latest earnings. The report was overall in-line, but construction margins were a weakness, Kepler Cheuvreux says. Earlier in the session, Asian stocks declined for a third straight day, with the Federal Reserve’s upcoming policy decision and a U.S. regulatory probe into Didi Global weighing on sentiment. The MSCI Asia Pacific Index fell by as much as 0.5%, with Chinese internet giants Tencent and Alibaba the biggest drags. The sector declined on news that the U.S. regulators are investigating Didi’s 2021 trading debut in New York. India’s stock measures fell the most in the region as the domestic central bank hiked a key policy rate in an unscheduled decision. Benchmarks in Hong Kong and Vietnam also fell as some markets returned from holidays, while Japan and China remained closed. All eyes are now on the Fed’s interest-rate decision on Wednesday, with policy makers expected to hike by 50 basis points, the biggest increase since 2000.   “We have two forces of gravity working on Asian equities -the rising interest rates and the lockdowns and weaker growth in China,” Herald van der Linde, head of Asia Pacific equity strategy at HSBC, told Bloomberg Television. The MSCI Asia gauge has dropped more than 13% this year as rising borrowing costs, China’s Covid-19 lockdowns and rising inflation hurt prospects for corporate profits. Shanghai’s exit from a five-week lockdown that has snarled global supply chains is being delayed by infections persistently appearing in the community. “The most important decision Asian equity investors have to make throughout this year may be duration, how to position themselves if inflation is going to peak,” van der Linde added. In rates, treasuries advanced, outperforming bunds and rising with stock futures, although price action remains subdued ahead of 2pm ET Fed policy decision. Intermediate sectors lead the advance, with yields richer by ~2bp in 5- to 10-year sectors, before Treasury’s quarterly refunding announcement at 8:30am. Yields little changed across 2-year sector, flattening 2s10s by ~1.5bp; 10-year at ~2.96% outperforms bunds and gilts by ~3.5bp. Dollar issuance slate empty so far; two borrowers priced $3.7b Tuesday taking weekly total past $8b as new-issue activity remains light; at least two borrowers stood down from announcing deals. Bund and gilt curves bear flatten. Euribor futures drop 7-8 ticks in red and green packs following comments from ECB’s Schnabel late Tuesday. In FX, the Bloomberg Dollar Spot Index was little changed and the dollar was steady to slightly weaker against most of its Group- of-10 peers. Treasuries were steady, with the 10-year yield nudging 3%. The euro hovered around $1.0520 and European bonds fell. The pound rose past the key $1.25 level and gilts fell in line with euro-area peers, as traders braced for the FOMC rate decision later Wednesday and eyed Thursday’s Bank of England meeting. Data from the British Retail Consortium showed shop price inflation accelerated to 2.7% from a year ago in April, the most since 2011. Australia’s dollar advanced against all its Group-of-10 peers and the nation’s sovereign bonds extended losses as retail sales rising to a record high boosted bets for central bank tightening. Retail sales surged 1.6% in March to A$33.6b, more than triple economists’ forecast for a 0.5% increase. Bitcoin is bid this morning, in contrast to the recent contained sessions, posting upside in excess of 3.0% on the session; albeit, yet to mount a test of the USD 40k mark. In commodities, oil rallies after the European Union proposed to ban Russian crude oil over the next six months; however, sources indicate that Hungary and Slovakia will receive an extend phase-our period in order to appease their known opposition. WTI drifts 3.2% higher with gains capped near $105 so far. Spot gold steady at $1,868/Oz. Most base metals trade in the green Looking at the day ahead, the main highlight will be the aforementioned Fed decision, along with Chair Powell’s subsequent press conference. On the data side, we’ll also get the final services and composite PMIs from around the world, UK mortgage approvals and Euro Area retail sales for March, and US data for the March trade balance, the ISM services index for April, and the ADP’s report of private payrolls for April. Finally, earnings releases include CVS Health, Booking Holdings, Regeneron, Uber, Marriott International and Moderna. Market Snapshot S&P 500 futures up 0.3% to 4,180.00 STOXX Europe 600 down 0.4% to 444.21 MXAP down 0.3% to 167.37 MXAPJ down 0.4% to 553.87 Nikkei down 0.1% to 26,818.53 Topix little changed at 1,898.35 Hang Seng Index down 1.1% to 20,869.52 Shanghai Composite up 2.4% to 3,047.06 Sensex down 1.2% to 56,318.69 Australia S&P/ASX 200 down 0.2% to 7,304.68 Kospi down 0.1% to 2,677.57 German 10Y yield little changed at 1.00% Euro little changed at $1.0527 Brent Futures up 3.6% to $108.77/bbl Gold spot up 0.1% to $1,870.11 U.S. Dollar Index little changed at 103.40 Top Overnight News from Bloomberg A lot is riding on how Federal Reserve Chairman Jerome Powell parries a question he’ll surely be asked after Wednesday’s monetary policy decision: is a 75-basis-point rate hike in the cards at some stage? The negative-yielding bond is nearing extinction: there’s only 100 left in the world. That’s down from over 4,500 such securities last year in the Bloomberg Global Aggregate Negative Yielding Debt index, following a surge in yields as investors bet on imminent interest-rate hikes. The EU plans to ban Russian crude oil over the next six months and refined fuels by the end of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine The ECB should consider raising interest rates as soon as July as inflation accelerates, ERR reported, citing Governing Council member Madis Muller North Korea launched what appeared to be a medium-range ballistic missile Wednesday, as Kim Jong Un ramps up his nuclear program ahead of U.S. President Joe Biden’s first visit to Seoul Iceland’s central bank delivered its biggest hike since the 2008 financial crisis to try to curb inflation and rein in Europe’s fastest house-price rally. The Monetary Policy Committee in Reykjavik lifted the seven-day term deposit rate by 100 basis points to 3.75%, accelerating tightening with its largest move yet since the pandemic. The increase was within the range of outcomes indicated by recent surveys of market participants A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were cautious amid holiday closures and as markets braced for the incoming FOMC. ASX 200 was rangebound as strength in financials was offset by tech and consumer sector losses. Hang Seng underperformed amid a tech rout and after a wider than expected contraction in Hong Kong’s advanced Q1 GDP, while China’s COVID-19 woes persisted with Beijing tightening its restrictions. Top Asian News Hong Kong Plots Different Covid Path to Xi’s Zero Tolerance Beijing Shuts Metro Stations and Suspends Bus Routes Didi Leads Slump in U.S.-Listed Chinese Shares Amid SEC Probe Record India IPO Opens to Retail Amid Fickle Markets: ECM Watch European bourses, Euro Stoxx 50 -0.3%, are modestly softer after another subdued but limited APAC handover amid ongoing regional closures. US futures remain in tight pre-FOMC ranges, with participants also awaiting ISM Services and ADP. In Europe, sectors are mostly lower with the exception. US President Biden's administration is reportedly moving towards the imposition of human-rights related sanctions on Hikvision, according to FT sources; final decision has not been taken. Top European News Hungary Voices Objection to EU Sanctions Plan on Russian Oil U.K. Mortgage Approvals Fall to 70.7k in March Vs. Est. 70k European Energy Prices Jump as EU Proposes Banning Russian Oil Boohoo Plunges as Online Clothing Retailer’s Growth Wilts FX DXY anchored around 103.500 awaiting FOMC and Fed chair Powell for further guidance. Aussie gets retail therapy and hawkish RBA rate calls to consolidate gains made in wake of 25 bp hike; AUD/USD pivots 0.7100 and AUD/NZD 1.1050. Kiwi elevated following NZ labour data showing record low unemployment and strength in wages, NZD/USD tightens grip of 0.6400 handle and closer to half round number above. Loonie on a firmer footing ahead of Canadian trade as oil prices bounce, USD/CAD towards base of a broad 1.2850-00 range. Indian Rupee rallies after RBI lifts benchmark rate and reserve ratio at off-cycle policy meeting, former up 40 bp to 4.40% and latter +50 bp to 4.50%. Euro, Yen and Franc remain in close proximity of round and psychological numbers, circa 1.0500, 130.00 and 0.9800 respectively. RBI raises its key repo rate by 40bps to 4.4% in an off-cycle meeting; Also raises the cash reserve ratio by 50bps to 4.5%. Will retain accommodative policy stands but will remain focused on the withdrawal of accommodation. Fixed Income Bonds attempt to nurse some losses before FOMC and a busy agenda in the run up, including ADP, Quarterly Refunding details and the services ISM. Bunds back from a 152.44 low to 153.00+, Gilts edging towards 118.00 from 117.55 and 10 year T-note fractionally above par within a 118-17+/06 range. German Green issuance well received as cover climbs from prior sale and retention dips, albeit with the average yield sharply higher. Commodities WTI and Brent are bolstered amid the EU unveiling the sixth round of Russian sanctions, seeing a complete import ban on all Russian oil, benchmarks firmer by circa. USD 3.5/bbl However, sources indicate that Hungary and Slovakia will receive an extend phase-our period in order to appease their known opposition. US Energy Inventory Data (bbls): Crude -3.5mln (exp. -0.8mln), Gasoline -4.5mln (exp. -0.6mln), Distillate -4.5mln (exp. -1.3mln), Cushing +1.0mln. India is looking for Russian oil at under USD 70/bbl on a delivered basis in order to compensate for additional components incl. securing financing, via Bloomberg sources; adding, that India has purchased over 40mln/bbl of Russian crude since late-Feb. OPEC+ sees the 2022 surplus at 1.9mln, +600k BPD from the prior forecasts, according to the JTC report. Several OPEC+ officials expected the current oil pact to continue, according to Argus Media. US Event Calendar 07:00: April MBA Mortgage Applications, prior -8.3% 08:15: April ADP Employment Change, est. 382,000, prior 455,000 08:30: March Trade Balance, est. -$107.1b, prior -$89.2b 09:45: April S&P Global US Services PMI, est. 54.7, prior 54.7 09:45: April S&P Global US Composite PMI, est. 55.1, prior 55.1 10:00: April ISM Services Index, est. 58.5, prior 58.3 14:00: May Interest on Reserve Balances R, est. 0.90%, prior 0.40% 14:00: May FOMC Rate Decision; est. 0.75%, prior 0.25% DB's Jim Reid concludes the overnight wrap I feel like I aged 20 years after the first half of the Champions League semi-final last night. Luckily the second half was less stressful and Liverpool are through to the final. I don't think I got those 20 years back though. Talking of age, if you're under 43, did 3 years at university and then joined financial markets then you won't have worked in an era of 50bps Fed rate hikes. This will very likely change tonight as the Fed are a near certainty to raise rates by 50bps. In fact it'll be the first time the Fed have hiked at consecutive meetings since 2006. So we enter a new era that won't be familiar to many. In terms of what to expect later, our US economists are also calling for a 50bps hike in their preview (link here), which follows the comment from Chair Powell before the blackout period that “50 basis points will be on the table” at this meeting. Looking forward, they further see Powell affirming market pricing that further 50bp hikes are ahead, and our US economists believe this will be the first of 3 consecutive 50bp moves, which will eventually take the Fed funds to a peak of 3.6% in mid-2023. We’re also expecting an announcement that balance sheet rundown will begin in June, with terminal cap sizes of $60bn for Treasuries and $35bn for MBS, with both to be phased in over 3 months. See Tim’s preview on QT (link here) for more info on that as well. While the Fed might have already begun their hiking cycle 7 weeks ago now, the sense that they’re behind the curve has only grown over that time. For example, the latest inflation data from March showed CPI hitting a 40-year high of +8.5%, meaning that the Fed Funds rate was beneath -8% in real terms that month, which is lower than at any point during the 1970s. Meanwhile the labour market has continued to tighten as well, with unemployment at a post-pandemic low of 3.6% in March, and data out yesterday showed that the number of job openings hit a record high of 11.55m (vs. 11.2m expected) as well. That means the number of vacancies per unemployed worker stood at a record high of 1.94 in March, which speaks to the labour shortages present across numerous sectors at the minute. Ahead of the decision later on, the S&P 500 surrendered an intraday gain of more than +1% to finish the day +0.48% higher, in another New York afternoon turnaround. Energy (+2.87%) and financials (+1.26%) did most of the work keeping the index afloat after dipping its toes in the red late in the day, while only two sectors ultimately finished lower, staples (-0.24%) and discretionary (-0.29%). A sizable 35 S&P 500 companies reported earnings before the close, but there weren’t any standout results to drive an index-wide response. Indeed, the mega-cap FANG+ index only slightly underperformed the broader index at +0.11%. In Europe the STOXX 600 was up +0.53%, closing before the New York reversal. In line with the turnaround, overall volatility remained elevated, with the VIX index (-3.09pts) closing just below the 30 mark. Ahead of today’s FOMC decision US Treasuries continued their recent back-and-forth price action. The 10yr yield ended ever so slightly lower at -0.1bps. That masks continued rates volatility, however, with the 10yr as much as -8bps lower intraday after having moved above 3% in the previous session for the first time since 2018. The back-and-forth was matched by real yields, as 10yr real yields were as many as -11bps lower before closing down just -0.1bps, comfortably in positive territory for only the second day since March 2020 at 0.14%. The curve flattened as short-end rates moved higher, with 2yr yields gaining +5.1bps, after most tenors were lower earlier in the session. In Europe, yields on 10yr bunds moved above 1% in trading for the first time since 2015 shortly after the open. Yields did then swing lower, but subsequently recovered to be down just -0.2bps at 0.961%. However, bunds were one of the stronger-performing European sovereigns yesterday, and the spread of both Italian (+2.2bps) and Spanish (+1.1bps) 10yr yields over bunds widened to fresh post-Covid highs in both cases, at 191bps and 106bps respectively. Asian equity markets are mixed in a holiday thinned session ahead of the Fed’s key rate decision later. The Hang Seng (-0.90%) is trading in negative territory as a decline in Chinese listed tech stocks is weighing on sentiment. Elsewhere, the Kospi (-0.15%) and S&P/ASX 200 (-0.08%) are fractionally lower. Meanwhile, markets in Japan and mainland China are closed today for holidays. Oil prices are slightly higher amid rising prospects of an EU embargo of Russian crude oil. As I type, Brent and WTI futures are c.+1% up to trade at $106.09/bbl and $103.53/bbl respectively. Early morning data showed that Australia’s retail sales rose for the third consecutive month, advancing +1.6% m/m in March and going past market estimates for a + 0.5% gain. It followed a +1.8% rise in February. Looking at yesterday’s other data releases, US factory orders grew by a stronger-than-expected +2.2% in March (vs. +1.2% expected). And over in Europe, German unemployment fell be -13k in April (vs. -15k expected), whilst the Euro Area unemployment rate in March fell to 6.8%, which is the lowest since the single currency’s formation. Finally, Euro Area PPI in March soared to 36.8% (vs. 36.3% expected), which is also a record since the single currency’s formation. To the day ahead now, and the main highlight will be the aforementioned Fed decision, along with Chair Powell’s subsequent press conference. On the data side, we’ll also get the final services and composite PMIs from around the world, UK mortgage approvals and Euro Area retail sales for March, and US data for the March trade balance, the ISM services index for April, and the ADP’s report of private payrolls for April. Finally, earnings releases include CVS Health, Booking Holdings, Regeneron, Uber, Marriott International and Moderna. Tyler Durden Wed, 05/04/2022 - 07:50.....»»

Category: blogSource: zerohedgeMay 4th, 2022

Futures Rebound From Tuesday Rout As Dip Buyers Emerge

Futures Rebound From Tuesday Rout As Dip Buyers Emerge After the worst day for stocks in a long time, which saw the Dow plunge 800 points or 2.2% and the Nasdaq tumble almost 4% to the lowest level in nearly a year, it seemed that Wednesday would be another puke fest, with Google tumbling as much as 10% afterhours after reporting mixed earnings that missed on YouTube revenues and EPS, and dragging the Nasdaq with it. However, solid results from Microsoft as well as some long overdue stability in Chinese markets helped to reveres the dour mood, and aside for a brief but sharp selloff around the time Europe opened, US equity futures have been a diagonal line up, with the Nasdaq recovering from its lowest level in nearly a year, as dip buyers returned on corporate earnings and “all out” stimulus pledges by China.  As of 7:00am ET, S&P 500 and Nasdaq 100 contracts each rose around 0.8%, 10Y yields rose 3bps to 2.77%, the dollar rose again and Brent was flattish around $105. Fears that the Fed would tip the world’s largest economy into a recession have plagued markets all week, all while activity slows in China as Covid lockdowns bite. Sentiment got a modest pickup overnight after China’s President Xi Jinping made a commitment to boost infrastructure construction in Beijing’s latest bid to rescue economic grow. In Europe, the euro touched the weakest level versus the greenback since 2017 on Wednesday as Russia said it will stop natural gas flows to Poland and Bulgaria. European gas prices surged as traders weighed the risk of other countries being hit next, spurring worries over a further spike in inflation and a sharp slowdown in the economy. However, after initially sliding, European stocks staged a strong rebound. “The backdrop for risk assets continues to be weak, and wasn’t helped by headlines of Russia halting gas supplies to Poland,” wrote Mizuho International Plc strategists including Peter Chatwell. “If we get closer towards the 4200 level on the S&P 500, this may bring some temporary relief for risk, especially with the potential for some earnings positivity today.” “On U.S. earnings, there is a risk of high-profile idiosyncratic disappointments, most likely among beneficiaries of the Covid-19 pandemic,” said UBS Wealth Management chief investment officer Mark Haefele. “Facing geopolitical risks, threats to growth from China’s lockdowns, and uncertainty over the prospect of overtightening by the Fed, equity markets are likely to remain volatile.” Microsoft, along with Google parent Alphabet, kicked off a big week of tech earnings yesterday with a mixed bag that won't fully soothe jittery tech investors. Alphabet posted a rare miss on slower European ad sales and lackluster YouTube performance. YouTube was hit by its rivalry with TikTok and Apple's privacy changes. But Microsoft beat estimates, fueled by robust growth in cloud-services demand. This comes after a big subscriber loss by Netflix last week. Facebook parent Meta Platforms reports later today. The recent selloff in FANG stocks looks more significant than those that preceded it. As a result, Microsoft jumped 5.6% in premarket trading while Alphabet and Texas Instruments dropped as their earnings disappointed, putting the Nasdaq on pace for a 12% loss this month, its worst performance since October 2008 during the global financial crisis. Technology shares have been under particular pressure this year on the risks from rising rates amid a hawkish shift in the Federal Reserve’s monetary policy. Twitter again fell in premarket trading, set to extend losses on Wednesday as shares drop further below Elon Musk’s offer price of $54.20 per share. Tesla Inc. advanced after slumping on Tuesday.  Some other premarket movers: Bank stocks are mostly higher in premarket trading Wednesday as the U.S. 10-year yield rebounds to hit 2.76%. Robinhood stock rose after the company announced it is dismissing 9% of its workforce in a move that Morgan Stanley says boosts its chance to become profitable. Meanwhile, Visa shares jumped after the firm reported “impressive” second-quarter results Mattel shares rise 13% in U.S. premarket amid a WSJ report that the the maker of Barbie and Hot Wheels has held preliminary discussions with at least two private-equity firms about a possible buyout. NCR shares sink 20% in thin premarket trading Wednesday after the company cut its full-year outlook for revenue, adjusted EBITDA and non-GAAP earnings per share due to factors including the war in Ukraine and inflationary pressures. Robert Half rises 2% in premarket trading after the provider of staffing services reported earnings per share for the first quarter that beat the average analyst estimate. BofA lifts the stock’s rating while highlighting “labor market momentum.” “Overall earnings are not that bad and that should come as a support to the market right now,” said Barclays Plc strategist Emmanuel Cau. “It’s essential to focus on earnings to figure out what you want to buy and what you want to sell.” European equities started off in the red but inched higher bouncing off six-week lows, as investors assessed the economic implications of cuts in gas supplies from Russia. Euro Stoxx 50 rises 0.6% having traded down as much as 1.2%. CAC 40 and FTSE 100 outperform slightly. Miners, autos and chemicals are the best performing sectors. Mercedes-Benz jumped 3.4% after the German carmaker published better-than-expected earnings and an upbeat outlook. Michelin also reported earnings beats, helping to turn around an earlier loss in the Stoxx 600 Europe Index and propelling automakers to session leaders. Meanwhile, perennial disappointment Deutsche Bank slumped 5.2%, falling for a fourth consecutive session. Here are some of the other notable European movers today SEB rises as much as 9% after 1Q earnings showed beats across the board, with outperformance on net interest income, fees and trading. Handelsbanken gains as much as 6.3% after the lender’s quarterly results beat analyst estimates on several points, including net interest income, net income and commission. Clariant climbs as much as 12% after the conclusion of investigations into 2020-21 accounting of non-cash reserves proved “positive,” Zurcher Kantonalbank says in a note. Umicore rises as much as 6.3% after the company signed a long-term supply agreement for electric vehicle high-nickel cathode materials with Automotive Cells Company. Deutsche Bank shares fall as much as 6.7% after quarterly results as higher costs offset a better-than-expected performance at its investment banking business. Credit Suisse drops as much as 1.8% as 1Q results fail to ease concerns about the bank’s momentum and provide another negative surprise after its warning earlier in the month. Stoxx 600 Automobiles & Parts Index gains as much as 2.6% and is the second-best performing subgroup on the wider equity gauge after slew of positive 1Q results. Valeo +3%, Mercedes-Benz +3.7%, Michelin +3.1% Aveva slides as much as 21% after the engineering software firm said it ceased new operations in Russia and anticipates its FY23 revenue will be hit by the war in Ukraine. Bank of Ireland drops as much as 8.6% after its 1Q trading update was overshadowed by the announced departure of its CEO Francesca McDonagh. Schneider Electric falls as much as 3.8% following 1Q results as analysts said the beat from the electrical-goods group wasn’t a surprise following recent peer reports. Earlier in the session, Asia’s stocks benchmark declined to the lowest level since July 2020 as caution prevailed in a busy week of earnings. The MSCI Asia Pacific Index slumped as much as 1.3% Wednesday, with all but two sectors in the red. Tech was the biggest sectoral loser, dragged down by giants TSMC and Samsung Electronics. Earnings reports from chipmakers including Texas Instruments and SK Hynix disappointed investors, hurting sentiment in an industry already hammered by rising global interest rates and supply-chain woes.  The overall growth outlook for the region remains weak, with China’s Covid-19 outbreaks and lockdowns in the spotlight. “As bond yields continue to face upward pressure it’s going to be a very, very difficult situation for tech,” Eli Lee, head of investment strategy at Bank of Singapore, told Bloomberg Television. “Value will still outperform growth, large cap will outperform mid cap in the next two to three months. There will be a strong bid for energy and commodity names.”   Equity benchmarks with heavy tech weightings such as those in Taiwan, South Korea and Japan underperformed, with each dropping about 1% or more. China stocks advanced following President Xi Jinping’s pledge to boost construction and infrastructure.   READ: Xi’s Pledge Boosts Hopes Among Jaded China Stock Traders Japanese equities dropped, as disappointing earnings at home and abroad added to concerns on inflation, U.S. monetary policy and China lockdowns.  The Topix Index fell 0.9% to close at 1,860.76, while the Nikkei declined 1.2% to 26,386.63. Shimano Inc. contributed the most to the Topix Index decline, decreasing 13%. Out of 2,170 shares in the index, 768 rose and 1,352 fell, while 50 were unchanged. Australia stocks also fell: the S&P/ASX 200 index fell 0.8% to 7,261.20, capping a third day of declines, after Australia’s core inflation accelerated to the fastest pace since 2009, intensifying pressure on policy makers to raise interest rates during an election campaign. Life360 dropped by a record after releasing a 1Q trading update and saying it’s halting plans for a U.S. dual listing. Downer EDI was a top performer after saying it sees strong demand in 4Q. In New Zealand, the S&P/NZX 50 index fell 0.7% to 11,726.39 In FX, the Bloomberg Dollar Spot Index rose as the greenback advanced against most of its Group-of-10 peers and the three-year Treasury yield added 8bps, The euro extended its drop against the dollar to touch 1.0588, while bunds reversed opening losses, sending yields as much as 3bps lower. Australia’s front-end bond yields rose and the Australian dollar advanced for the first time in five days versus the greenback after trimmed mean CPI climbed to hit 3.7%; swaps traders are now fully pricing in a 15bps hike by the Reserve Bank of Australia on Tuesday that would push up the cash rate to 0.25%. Sweden’s currency fluctuated against the dollar; it rose against the euro and overnight volatility in the euro-krona pair touched the highest level in six weeks as it captured tomorrow’s Riksbank decision where some expect it to raise the repo rate for the first time since 2019. The yen resumed its decline after a two-day gain amid a surge in U.S. Treasury yields on expectations of aggressive policy tightening by global central banks. Benchmark 10-year yields rose near the Bank of Japan’s upper limit ahead of the bank’s policy decision Thursday. In rates, Treasuries bear flatten as stocks recover a portion of Tuesday’s losses, leaving underperforming front-end yields cheaper by up to 7bp into early U.S. session. U.S. 10-year yields around 2.77%, with bunds and gilts outperforming by 4bp and 1.5bp in the sector; front-end led losses flattens 2s10s, 5s30s spreads by 3.1bp and 1.8bp. Bunds, gilts outperform Treasuries; bunds bull steepen, richer by ~1.5bps across the short end. Gilts seen a roughly 1bps parallel cheapening move. Peripheral spreads are wider to core with 10y Bund/BTP spread hitting the widest since June 2020. U.S. session includes 5-year note sale, follows strong 2-year auction on Tuesday. In commodities, crude futures hold a relatively narrow range. WTI is up ~50c near $102.20. Spot gold fades a small dip by remains below $1,900/oz. European gas surged 20% after Russia blocked flows to Poland and Bulgaria. Base metals trade well with LME zinc outperforming.  Bitcoin attempts to recover from yesterday's slide and meanders around 39k. Looking to the day ahead now, and US data releases include preliminary wholesale inventories for March, pending home sales for March, and the advance goods trade balance for March. Over in Europe, there’s also Germany’s GfK consumer confidence reading for May, and France’s consumer confidence for April. Central bank speakers include ECB President Lagarde, the ECB’s Muller and Bank of Canada Governor Macklem. Finally, earnings releases include Meta, T-Mobile, Qualcomm, Amgen, American Tower, Boeing and PayPal. Market Snapshot S&P 500 futures up 0.9% to 4,209.25 MXAP down 1.0% to 164.75 MXAPJ down 0.7% to 541.64 Nikkei down 1.2% to 26,386.63 Topix down 0.9% to 1,860.76 Hang Seng Index little changed at 19,946.36 Shanghai Composite up 2.5% to 2,958.28 Sensex down 0.8% to 56,885.14 Australia S&P/ASX 200 down 0.8% to 7,261.17 Kospi down 1.1% to 2,639.06 STOXX Europe 600 up 0.2% to 441.88 German 10Y yield little changed at 0.80% Euro down 0.2% to $1.0612 Brent Futures up 0.3% to $105.31/bbl Gold spot down 0.5% to $1,895.06 U.S. Dollar Index up 0.26% to 102.57 Top Overnight News from Bloomberg Russia said it stopped natural gas flows to Poland and Bulgaria on Wednesday, making good on a threat to cut off buyers if they refuse President Vladimir Putin’s demand to pay in rubles. European gas prices surged more than 20% on the move and the euro fell to its lowest against the dollar since April 2017 Ten European gas companies have opened the accounts at Gazprombank needed to meet Russia’s demand to pay in rubles and four have already made payments, according to a person familiar with the matter New Zealand’s central bank said it will design a framework to impose debt-to-income mortgage lending restrictions, but indicated they may not be needed anytime soon as the housing market cools Shanghai hinted at an easing of lockdown measures as coronavirus infections dropped to the lowest in three weeks, while case numbers in Beijing stabilized, in a potential sign authorities are starting to bring the twin outbreaks under control. A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mostly negative after the losses in the US where participants braced for the large-cap tech results including Alphabet which disappointed, while the region also navigated through a deluge of earnings. ASX 200 was dragged lower by underperformance in tech and the consumer-related stocks, while mostly firmer than expected CPI data added to the pressure for the RBA to hike as early as next week. Nikkei 225 retreated with the worst-performing stocks in the index pressured by earnings updates. Hang Seng and Shanghai Comp were choppy as Beijing lockdown fears were stoked after Chaoyang district was classified as high-risk and the Tongzhou district halted schools, although participants also digested firmer Industrial Profits and President Xi’s recent announcement to step up infrastructure construction. Top Asian News Malaysia Scraps Covid Tests for Travelers, Outdoor Mask Mandate Hong Kong’s New Travel Easing Leaves Business Still Wanting More HKEX Outlook Weak as Stock Market Activity Sluggish: Street Wrap China’s Covid Outbreak Hits Profits of Foreign Firms European bourses recovered from the losses seen at the cash open, with the region currently posting board-based gains.     Sector performance in Europe is mostly firmer but with no clear theme; Basic Resources is the clear outperformer.     Stateside, US equity futures see slightly more pronounced gains vs Europe following yesterday’s hefty losses.     Alphabet Inc (GOOG) - Q1 2022 (USD): EPS 24.62 (exp. 25.96), Revenue 68bln (exp. 68.1bln); authorised to buyback additional 70bln. (Newswires) Shares fell 3.0% after market. Microsoft (MSFT) - Adj. EPS 2.22 (exp. 2.19), Revenue 49.4bln (exp. 49.05bln). Co. guides Q4 intelligent cloud rev. USD 21.1bln-21.35bln, productivity and business process rev. USD 16.65bln-16.9bln. (PR Newswire) Shares rose 5.4% after market Top European News Moldova’s Transnistria Says It Was Fired Upon From Ukraine: IFX Twitter Extends Losses to Dip Further Below Musk’s Offer Price Private Equity Firms Set Sights on Battered IPO Stocks in Europe Mercedes Sees Strong Returns Persist Through War, Supply Turmoil In FX Greenback continues to grind higher in its guise of global reserve and prime safe haven with DXY inching closer to 103.000, at 102.780 vs 2020 peak of 102.990. Aussie inflated as sizzling CPI metrics up the RBA rate hike ante amidst calls for liftoff next week. Yen hits resistance and importer offers after probing 127.00 vs Dollar. Euro hits new sub-1.0600 multi year low as Russia threatens to suspend gas supplies from more unfriendly nations and Pound flounders mostly under 1.2600 with little help from dire CBI Survey. Yuan loses RRR cut momentum as spread of Covid continues in China - Usd/Cny closes at highest in a year around 6.5500+, Usd/Cnh eyeing 6.6000 again.  In Fixed income Choppy midweek session for bonds, so far, as recovery momentum fades amidst a raft of issuance Bunds fade after topping Tuesday's peak at 155.77 in wake of a lukewarm reception for new 2038 benchmark Gilts top out at 119.72 before much worse than feared UK CPI sales survey Treasuries edgy ahead of 5 year supply with T-note probing 120-00 vs 120-18+ overnight high In commodities WTI and Brent June futures have been moving horizontally since yesterday's settlement, US Private Energy Inventory Data (bbls): Crude +4.8mln (exp. +2.2mln), Gasoline -3.9mln (exp. +0.5mln), Distillates +0.4mln (exp. -0.6mln), Cushing +1.1mln Russian Economy Ministry expects Russian oil exports to fall this year to 228.3mln tonnes (vs 231mln in 2021) in its baseline scenario and to 213.3mln tonnes in its conservative scenario. Spot gold saw some selling pressure in which the yellow metal fell below the 25th April low (USD 1,891.20/oz) and tripped stops below USD 1,890/oz. Base metals markets are relatively mixed, with nothing interesting standing out. US Event Calendar 07:00: April MBA Mortgage Applications -8.3%, prior -5.0% 08:30: March Retail Inventories MoM, est. 1.4%, prior 1.1%; Wholesale Inventories MoM, est. 1.5%, prior 2.5% 08:30: March Advance Goods Trade Balance, est. -$105b, prior -$106.6b, revised -$106.3b 10:00: March Pending Home Sales YoY, est. -8.1%, prior -5.4%; Pending Home Sales (MoM), est. -1.0%, prior -4.1% DB's Jim Reid concludes the overnight wrap Staying in advertising mode, yesterday saw DB’s Head of Research and Chief Economist David Folkerts-Landau publish an important piece alongside Peter Hooper and myself. In our World Outlook earlier in the month, we became the first bank to forecast a US recession by the end of 2023, but in this note we argue that if anything, the risks are skewed towards a much more significant recession. Indeed, we find it bizarre that consensus forecasters expect us to believe there’ll be a soft landing from a starting point at which a soft landing has never been achieved. We outline the full rationale in the report, but our view is that the Fed is behind the curve in a manner unseen in a generation, that inflation is going to prove a lot stickier than expected, and hence monetary tightening will push the US economy into a significant recession, with unemployment ultimately rising several percentage points. The link is here. Speaking of growth concerns, yesterday saw global equities return to the sell-off mode they were in before the second half bounce back yesterday. The S&P 500 gave up a further -2.82%, it’s worst daily return since the Ukraine invasion in early March, to keep the index on track for its worst monthly performance (-7.84%) since the pandemic chaos of March 2020. There wasn’t one single catalyst, but the widespread collection of risks are giving investors serious pause right now, including Chinese lockdowns, persistent inflation, selected corporate earnings weakness, the risk of a hard landing from the Fed, as well as the ongoing geopolitical worries given Russia’s invasion of Ukraine. Some of the media commentary even blamed our note for the market falls. We’ll start with the geopolitics, since there were several negative headlines on that front that dampened risk appetite significantly. First, there were reports from Moldova of a further attack on a military unit yesterday in the breakaway region of Transnistria. The Kremlin said it was following events closely and it was a cause for serious concern, whilst Moldova’s President Sandu said the government would resist “attempts to drag Moldova into actions that may endanger peace within the country.” Then we also saw European gas futures surge in the afternoon after it was reported by the Onet.pl website that gas flows to Poland had been halted, before falling back somewhat to end the day up “only” +6.64%. After European energy markets finished trading, it was revealed Russia would stop flows to Bulgaria as well, so the risk is more countries get added to the list as the payment currency becomes weaponised. This could be a big story today. With energy remaining a significant geopolitical tool right now, we also heard from German economy minister Habeck, who said that an embargo on Russian oil would be “manageable”, with Germany having cut its share of Russian oil in its imports from 35% before the invasion to around 12%. This darkening backdrop saw the selloff gather pace as the day went on, with major equity indices including the S&P 500 (-2.82%), the NASDAQ (-3.95%), the STOXX 600 (-0.90%) and the DAX (-1.20%) all seeing significant losses. The pullback led to the VIX spiking +6.5ppts higher to 33.52, its third highest closing level of the year, only pipped by two days around the invasion of Ukraine in early March. As mentioned, it was the worst day for the S&P 500 since early March, but for the NASDAQ it was the worst day since September 2020, bringing the index into correction territory for the month alone, down -12.16% in April – and that was before mixed mega-tech earnings after the close (more below). The declines in the main index were incredibly broad-based, though Tesla (-12.18%) was the worst performer in the S&P 500 following the move by their CEO Elon Musk to acquire Twitter, whilst General Electric (-10.34%) was the second-worst performer as the company released its earnings and warned of supply-chain challenges. Energy was one of the few outperformers on both sides of the Atlantic, and indeed the only sector to close above flat in both the S&P 500 and STOXX 600, aided by higher prices that included a rebound in Brent Crude (+2.61%) to $104.99/bbl. They are +0.35% this morning. On those aforementioned tech earnings, Alphabet missed revenue expectations on a combination of slower-than-expected ad growth as well as some impact from the war in Europe, sending shares -2.84% lower in after hours trading. Microsoft shares, meanwhile, were supported by growth in their cloud-computing business, which saw shares +4.64% higher after the close. In contrast to the last 3 weeks when US equities and Treasuries sold off side-by-side, the risk-off tone has seen a significant rally back in sovereign bonds over the last couple of days, not least since markets are now assuming that central banks won’t move quite as aggressively as they were expecting at the end of last week. For instance, fed funds futures have taken out -14.5bps of tightening this calendar year relative to Friday, even if they continue to expect +50bp hikes at the next 3 meetings, whilst they’ve also taken out -4.6bps from 2022 ECB tightening this week, too. That helped yields on 2yr Treasury yields fall -14.8bps, while 10yr Treasuries fell a further -9.9bps in yesterday’s session to 2.72%, in another day pocked with rates volatility, as 10yr yields went from +4.1bps higher before the US open to -9.8bps lower around the European close, selling off again before finishing the day at their lows. The decline in 10yr yields was roughly split between real yields and breakevens in line with fears of global growth and the commensurate shallower path of Fed tightening. In Europe it was much the same picture, with yields on 10yr bunds (-2.2bps), gilts (-4.5bps), and BTPs (-2.1bps) all falling back too, while OATs (+0.4bps) underperformed. Other safe havens benefited also, with the dollar index (+0.58%) strengthening for the 17th time in the last 19 sessions, leaving it at a 2-year high, just as gold (+0.42%) rallied as well. The treasury market yo-yo continues this morning with 10yr yields back up c.+5bps and 2yrs +9bps. Asia is playing catch-up to the global sell/off but DM futures are up so there is a circuit breaker for now. The Nikkei (-1.88%) is leading losses across the region with the Kospi (-1.05%) also falling. Stocks in mainland China are attempting to bounce back with the Shanghai Composite (+0.38%) and CSI (+1.05%) higher after President Xi in a statement yesterday pledged to ramp up infrastructure construction to bolster domestic demand and drive economic growth going forward. Outside of Asia, stock futures in the US are indicating a positive start with contracts on the S&P 500 (+0.52%) and Nasdaq (+0.41%) trading up after their poor showing yesterday. In terms of overnight data, China’s industrial profits advanced +8.5% y/y in the January-March period compared to a + 5.0% rise in the preceding three-months. Elsewhere, Australia’s CPI surged by +5.1% y/y for the March quarter, its fastest pace in 21 years and easily topping market estimates of a +4.6% gain, following a + 3.5% increase in the previous quarter. The dramatic rise in the inflation has prompted market participants to price-in an interest rate hike at the Reserve Bank of Australia’s (RBA) next meeting scheduled on May 03. DB now expect a 15bps hike next week with an additional 50bps in June. See their report here. In terms of yesterday’s data, the US Conference Board’s consumer confidence reading for April came in a bit below expectations at 107.3 (vs. 108.2 expected). Otherwise, in the more backward-looking data, preliminary durable goods orders in March rose by +0.8% (vs. +1.0% expected) and core capital goods orders were up +1.0% (vs. +0.5%). Finally in February, there was still significant momentum in house prices, with the FHFA’s house price index rising by +2.1% (vs. +1.5% expected), which is the fastest monthly pace since the index begins in 1991. The year-on-year growth in the Case-Shiller national home price index also moved back up to +19.8% that month. To the day ahead now, and US data releases include preliminary wholesale inventories for March, pending home sales for March, and the advance goods trade balance for March. Over in Europe, there’s also Germany’s GfK consumer confidence reading for May, and France’s consumer confidence for April. Central bank speakers include ECB President Lagarde, the ECB’s Muller and Bank of Canada Governor Macklem. Finally, earnings releases include Meta, T-Mobile, Qualcomm, Amgen, American Tower, Boeing and PayPal. Tyler Durden Wed, 04/27/2022 - 08:00.....»»

Category: personnelSource: nytApr 27th, 2022

Global Markets Tumble On Hawkish Central Bank Anguish, China Lockdown Fears

Global Markets Tumble On Hawkish Central Bank Anguish, China Lockdown Fears The global selloff that started in Asia, sending China's CSI300 plunging to the lowest level since May 2020, slamming the offshore yuan below 6.60 and sparking a liquidation in oil and cryptos amid fears that the Shanghai lockdown will spread to the capital Beijing and lead to an even greater slowdown in the global economy... ... has quickly spread around the globe, slamming not just European markets but US equity futures which slid as much as 1% as traders fretted over the prospects of aggressive tightening by the Federal Reserve, Chinese lockdowns and disappointing earnings. S&P 500 futures were down 0.9% as of 7:00am EDT after plunging 2.8% on Friday, while Nasdaq futures retreated 0.8%, with the rout hammering tech stocks especially hard. Some context: the Nasdaq 100 Index has erased about $1 trillion in market value since Netflix released disappointing earnings and is closing in on oversold levels; the tech-heavy FANGMAN basket has lost $2.4 trillion in market cap from 2021 ATH as Netflix and Facebook  Meta, have lost most of their gains from past 5yrs. Remember when Facebook hit the $1tn market cap club in 2021? Now it’s worth exactly half that. But now the tech bear market is finally spreading all US stocks which closed at their lowest levels in more than a month on Friday as fears over a more aggressive Federal Reserve tightening cycle led to broad-based selling. Investors are entering another busy week for big technology companies’ earnings, with Alphabet, Microsoft, Meta Platforms, Paypal and Apple all reporting results although don't expect some miraculous surge. Investor mood was already morose after Fed chair erome Powell’s hawkish comments last week hurt sentiment already sapped by the war in Ukraine, a slowdown in China and the risks inflation poses to company earnings, according to Michael Hewson, chief analyst at CMC Markets in London. “The final straw appears to be a concern about the prospect of a policy mistake by central banks, and a possible recession by the end of the year,” he said. One sole glimmer of green, Twitter shares, rose 0.6% in premarket trading after a WSJ report that Elon Musk met with the social media platform’s executives on Sunday as the company turns more receptive toward the billionaire’s $43 billion takeover offer. As discussed earlier, U.S.-listed Chinese stocks fell in premarket trading as expanded Covid lockdown measures in major Chinese cities spark concerns over the country’s growth outlook. Pinduoduo led a decline in American depositary receipts, down 4.7% in premarket trade. E-commerce peers Alibaba Group fell 3.9% and JD.com lost 2.5%. Electric carmakers including Nio and Li Auto also fell. The weakness tracks a 4.9% slump in China’s CSI 300 Index, which closed at its lowest level in two years. Here are some other notable premarket movers: U.S.-listed Chinese stocks look set to open lower on Monday as expanded Covid lockdown measures in major cities sparked concerns over the country’s economic growth outlook. Pinduoduo (PDD US) led a decline in American depositary receipts, down 4.7% in premarket trade. E-commerce peers Alibaba (BABA US) fell 3.9% and JD.com (JD US) lost 2.5%. Electric carmakers including Nio (NIO US) and Li Auto (LI US) also fell. AT&T (T US) reinstated with a buy rating at Goldman Sachs with the focus turning to the telecom giant’s core business, while the broker cuts its rating on Verizon (VZ US) on valuation grounds. AT&T up 0.6% in premarket, Verizon -1.4%. Cenntro Electric (CENN US) rises as much as 22% premarket ahead of the electric-vehicle company’s quarterly update due after the close on Monday. Kellogg (K US) was downgraded to hold from buy at Deutsche Bank, which stays cautious and below consensus ahead of 1Q22 results because of headwinds including worsening inflation and supply chain disruptions. Shares down 1.4% in premarket. Morgan Stanley says DoorDash (DASH US) is the “best executor around” among food delivery companies, but awaits a better entry point as initiates at equal-weight with Street- low $100 target. Shares down 1.1% in premarket on low volume. GoDaddy (GDDY US) upgraded to overweight at Piper Sandler on strong free cash flow potential, with the broker cutting its ratings on Wix.com (WIX US) and Squarespace (SQSP US) in a rejig of its digital presence coverage. GoDaddy little changed in premarket, Wix.com and Squarespace not traded. Coca-Cola and Activision Blizzard are among companies reporting earnings today. In Europe, markets are under heavy pressure: Euro Stoxx 50 drops as much as 2.6% with several other core indexes down over 2%. Spain’s IBEX outperforms. Miners are the weakest performers with the Stoxx 600 sector down over 5%. Energy and consumer products and services similarly lag.  Europe’s Basic Resources Index  crashed 6%, and was set for the worst daily drop since March 2020. Here are some of the biggest European movers today: Ubisoft shares rise as much as 12% after Bloomberg reported the video-game publisher is attracting takeover interest from private equity firms including Blackstone and KKR. Garanti stock rallies as much as 5.6% after parent BBVA sweetened its voluntary offer for the Turkish lender and the unit said 1Q net income tripled. Biogaia shares rise as much as 9.6% after the Swedish food-additives and supplements maker published preliminary 1Q sales figures, which included a large beat on operating profit and net sales. Barco shares rise as much as 4.2% after the projector maker’s Cinionic JV won a contract to install laser projectors in 3,500 U.S. auditoriums of cinema chain operator AMC. The Stoxx 600 Basic Resources and Energy sub- indexes both slumped on Monday amid broad declines for commodities prices on concerns that a growing Covid-19 outbreak in China will hit demand. Shell -4.5%, TotalEnergies SE -3.1%, Glencore -6.0%, Anglo American -6.5% Philips stock falls as much as 11% after publishing its latest earnings, where higher provisions related to its recall of Dreamstation breathing machines overshadowed better-than-expected 1Q sales. Roche shares fell as much as 3.6% after the Swiss pharma company reported mixed first quarter results. Sales beat expectations due to a boost to the diagnostics division, while the pharmaceutical unit missed. As we reported on Sunday, the big news out of France is that Macron won the second round of the Presidential Election with 58.6% of the vote vs Le Pen at 41.4%, while Le Pen conceded defeat after the initial projections, according to Reuters and Sky News. Elsewhere, ECB President Lagarde commented that interest rate hikes will not lower energy prices, according to Barron’s. ECB policymakers are said to be keen to finish bond purchases as soon as possible and possibly hike rates in July but no later than August, while they are leaning towards two rate moves this year with three also a possibility, according to Reuters sources. However, an ECB spokesperson declined to comment on the timing of ending bond purchases and potential interest rate increases. The EU is said to prepare the creation of a new trade and tech council with India, according to FT sources. The new forum could be unveiled on Monday during the European Commission President’s visit to India. Earlier in the session, Asian stocks slumped the most since March 11 as China’s worsening Covid-19 outbreak and a looming rate hike by the Federal Reserve hurt risk sentiment.  The MSCI Asia Pacific Index fell as much as 2.2% Monday, setting off a grim start to the region’s busiest week for earnings. The biggest drags were technology stocks sensitive to higher interest rates, including Taiwan Semiconductor Manufacturing, Alibaba and Tencent.  Equities in mainland China and Hong Kong were among the region’s worst performers. Chinese stocks slid to a two year low amid fears that rising infections in Beijing may spur an unprecedented city-wide lockdown of the capital. The Chinese regulator also ordered platform companies to better handle online violence, dragging tech stocks lower. READ: China Lockdown Angst Rips Through Markets as Stocks, Yuan Plunge The lockdowns that have now expanded to parts of Beijing will “cause a logistical problem that’s going to affect not just China but also the rest of the world,” Jeffrey Halley, Asia Pacific senior market analyst at Oanda, said in an interview with Bloomberg TV.  With no signs of change in Covid zero policy and very little in terms of actual stimulus, “that all points to lower China stocks and we are going to see a weaker yuan going forward,” he added. Investors are also on guard for corporate earnings. Stock-market heavyweights including Kweichow Moutai in China and Samsung Electronics in South Korea are expected to release first-quarter results this week.   With a number of Fed speakers recently showing support for 50-basis-point hikes, tech shares led declines of major gauges in the region. Taiwan’s Taiex dropped 10% from its January high.   Japanese equities dropped, extending a global selloff amid prospects for aggressive U.S. interest-rate hikes and a worsening Covid outbreak in China. Electronics and machinery makers were the biggest drags on the Topix, which fell 1.5%, with 32 of 33 industry groups in the red. Fast Retailing and SoftBank Group were the largest contributors to a 1.9% loss in the Nikkei 225. Indian stocks also fell, joining their peers across Asia, as appetite for risk waned amid renewed concerns over Covid infections and its possible impact on business growth.  The S&P BSE Sensex dropped 1.1% to 56,579.89, while the NSE Nifty 50 Index slipped 1.3% to 16,953.95. Reliance Industries Ltd. lost 2.3%, the most in seven weeks. It was the biggest drag on the Sensex, which saw 23 of its 30 stocks trading lower.   All but one of 19 sectoral sub-indexes compiled by BSE Ltd. declined, led by a gauge of metal stocks.  The continued war in Ukraine and fears of a wider lockdown in Beijing are weighing on sentiment, already impacted by the risk of a global slowdown as the U.S. Fed raises rates to tame inflation. Of the six Nifty 50 firms that have announced results so far, four have missed, while two have beaten analyst estimates. Bajaj Finance, Hindustan Unilever, Axis Bank are among the companies releasing Jan-March earnings this week.  With risk off, safe havens were mostly bid: Treasuries advanced across the curve, with yields on the belly falling about 10bps and 10Y yields sliding 8bps to 2.833%. The belly of the UST curve outperforms by 1-2bps. Peripheral spreads widen to core with 10y Italy lagging peers on the rally. European bonds advanced, yet underperformed Treasuries; the spread between French 10-year bond yields and German equivalents tightened at the open after President Emmanuel Macron was re-elected as French president, only to widen as haven demand supported bunds. IG dollar issuance slate empty so far; preliminary estimates are for around $25 billion this week. •    Three-month dollar Libor +1.11bp to 1.22486%. In FX, the Bloomberg Dollar Spot Index rose a third day to the highest level since May 2020; the greenback advanced against all of its Group-of-10 peers apart from the yen and the Swiss franc; AUD and NZD lag G-10 peers. USD/JPY holds above 128. The euro fell to its lowest level versus the dollar since March 2020, erasing earlier gains amid broader greenback strength.  The pound slumped to the lowest versus the dollar since September 2020 and gilts advanced. The Aussie was the worst G-10 performer amid fears over the outlook for China’s demand for iron ore and with the selloff boosted by options-related selling. The yen rose, as concerns about the economic impact of accelerating U.S. rate increases put a pause on the recent aggressive selling of the currency. Japan’s government bonds tracked Treasuries higher with support from purchases by the Bank of Japan. Perhaps most importantly, the yuan - which until now had resisted any weakness - plunged again, dropping to the lowest level in 17 months as the offshore yuan dropped below 6.60 the lowest level since Nov 2020, spurring a selloff in emerging-market currencies. In commodities, crude futures sold ell off with WTI down over 4% and back on a $97-handle. Base metals are similarly deep in the red. Spot gold drops ~$14 to trade near $1,916/oz. Monday’s pullback in the soaring price of commodities since Russia’s invasion of Ukraine has done little to assuage concerns about runaway inflation. Fed Jerome Powell had outlined his most bold approach yet to reining in surging prices and the European Central Bank signaled stronger tightening. Bitcoin continued to tumble alongside the broader crypto market, even though the harder the stocks fall and the more the Fed tightens, the more it will eventually have to ease, unleashing the next surge higher in cryptos which we expect to push bitcoin over $100,000 and Ether over $10,000. Looking at the calendar, the economic data slate includes March Chicago Fed national activity (8:30am) and April Dallas Fed manufacturing activity(10:30am); consumer confidence, GDP, PCE deflator and University of Michigan sentiment are ahead this week. Today we will earnings from Coca-Cola, Activision Blizzard, Vivendi. Market Snapshot S&P 500 futures down 0.7% to 4,235.25 STOXX Europe 600 down 1.8% to 445.31 MXAP down 2.0% to 166.02 MXAPJ down 2.4% to 546.02 Nikkei down 1.9% to 26,590.78 Topix down 1.5% to 1,876.52 Hang Seng Index down 3.7% to 19,869.34 Shanghai Composite down 5.1% to 2,928.51 Sensex down 1.0% to 56,637.35 Australia S&P/ASX 200 down 1.6% to 7,473.28 Kospi down 1.8% to 2,657.13 German 10Y yield little changed at 0.89% Euro down 0.4% to $1.0751 Brent Futures down 4.4% to $101.96/bbl Gold spot down 0.6% to $1,920.54 U.S. Dollar Index up 0.20% to 101.43 Top Overnight  News from Bloomberg China’s coronavirus outbreak worsened as rising cases in Beijing sparked jitters about an unprecedented lockdown of the capital, with policy makers racing to avert a Shanghai-style crisis that’s already wrought havoc on the financial hub China must take stronger action to boost growth above 5% in the second quarter, said a central bank adviser who warned the country needs to lay a foundation for achieving its full-year target in the face of rising economic risks A sustained and substantial increase in U.S. real yields would be bad news for developing nations as it typically boosts the dollar and sucks capital out of riskier assets, like in 2008 and 2013 The U.S. announced it would start sending diplomats back to Ukraine and provide more military aid as Secretary of State Antony Blinken and Secretary of Defense Lloyd Austin visited Kyiv late on Sunday night, in the highest- level U.S. visit to the war-torn country since Russia invaded China’s central bank stepped up its support for several distressed developers by allowing banks and bad-debt managers to loosen restrictions on some loans to ease a cash crunch, according to people familiar with the matter A more detailed look at global markets courtesy of Newsquawk APAC stocks traded negatively after last Friday's stock rout on Wall Street with risk sentiment hampered by holiday closures, China's COVID-19 woes and as participants brace for a busy week of key earnings releases. Nikkei 225 shed around 500 points with sentiment not helped by several earnings guidance downgrades and with Nissan shares were hit as alliance partner Renault mulls selling a partial stake in the Japanese automaker. Hang Seng and Shanghai Comp underperformed on the COVID situation after daily deaths in Shanghai rose again and with the city to conduct another round of mass testing, while Beijing also scrambles to contain an outbreak with its Chaoyang district to require residents and workers to undergo three COVID-19 tests this week. Top Asian News Asia Stocks Fall Most in Six Weeks as China Outbreak Worsens China Woes Stoking Inflation Angst Set to Weigh on the Euro Shimao Unit Proposes to Pay Down Puttable Bond Faster: REDD Loan Curbs Eased for Distressed Developers: Evergrande Update European cash markets kicked off the week lower across the board with a relatively broad-based performance seen across the majors. Sectors are lower across the board with a clear defensive tilt: Energy and Basic Resources sit at the bottom of the bunch amid hefty downside in underlying commodities. Stateside futures are lower in tandem with the broader market sentiment, whilst the NQ is slightly more cushioned by the earlier decline in yields. Twitter is reportedly re-examining Elon Musk’s bid and be more receptive to a deal with the sides meeting on Sunday to discuss the proposal. It was separately reported that Twitter is facing increasing shareholder pressure to negotiate with Elon Musk in his takeover bid and that the Co. is in talks with Elon Musk in which a potential deal could be made as early as this week, according to WSJ. Top European News Macron Gets Second Chance to Show France His Vision Can Work Credit Suisse Special Audit Backed by Norway’s Wealth Fund SocGen Too Quick to Axe Boss Accused of Trying to Kiss Colleague Art Seized at U.S. Homes Part of Crackdown on Wealthy Russians FX: DXY sets new 2022 peak at 101.750 amid safety flight and sharp slide in crude alongside other commodities. Yen back in favour as risk sentiment sours irrespective of denials about joint Japanese and US intervention discussion - Usd/Jpy towards base of 128.87-127.89 range. Aussie underperforms on Anzac Day due to steep decline in copper and iron ore - Aud/Usd tests 0.7150 and Aud/Nzd cross under 1.0850 vs 1.0940 at one stage overnight. Yuan extends depreciation as Covid spreads to a district in Beijing and PBoC continues to lower Cny midpoint reference rate - Usd/Cnh just shy of 6.6000, Usd/Cny eyeing 6.5650. Euro averts 1.0700 test, narrowly, and pares more losses after surprisingly upbeat Ifo survey, on the surface - Eur/Usd rebounds to circa 1.0750, but still well below Macron victory high. Pound loses Fib support on the way through 1.2800 and sub-8400 vs Dollar and Euro respectively. Fixed Income Debt futures firm as risk appetite wanes, but bonds fade beyond 154.50 in Bunds, 119.00 in Gilts and 119-25 in the 10 year T-note. Core EZ bonds lose momentum after German Ifo survey beats and irrespective of less encouraging accompanying statements. French OATs off peak within 147.38-146.28 range posted on confirmation of Macron defeating Le Pen to retain Presidency. European Commission sells EUR 2.499bln (exp. EUR 2.500bln) 0.4% 2037 NGEU; b/c 2.05x (prev. 1.49x), average yield 1.626% (prev. 0.375%). Commodities: WTI and Brent June contacts have continued to decline since the resumption of futures trading. Spot gold has been caged to a near-USD 5/oz range since the European open as the impact of a firming Buck negated the effects of lower yields at the time. Base metals are in a sea of red as China's lockdown woes hit the demand side of the equation – with LME aluminium and zinc the laggards at the time of writing. US Event Calendar 08:30: March Chicago Fed Nat Activity Index, est. 0.45, prior 0.51 10:00: Revisions: Retail Sales, Inventories 10:30: April Dallas Fed Manf. Activity, est. 4.8, prior 8.7 DB's Jim Reid concludes the overnight wrap I survived a weekend alone with my kids but the only way for all of us to cope was to comfort eat and spend so much time on Netflix that I may as well cancel my subscription as there is nothing left to watch now. Never has Mum been so welcome by an adult, 3 kids and a dog, as she was on her return last night. Parenting is hard! Central bankers are finding it hard too at the moment and it was a fascinating past week on that front as several important central bankers belatedly played a game of leapfrog on who could make the most aggressively hawkish rhetoric on taming inflation. Those speaking at the start of the week might have seemed hawkish at the time but by the end of the week they almost looked dovish. The IMF/World Bank gathering probably focused the minds of all the Governors, Presidents and Chairs present and hawkishness spread through the event like wildfire with the notable exception of Japan's Kuroda who is seemingly sticking to the country's YCC. We are now in the Fed blackout period so they won't add to the hawkishness for the 9.5 days before we get the FOMC decision. Note that the BoJ meet on Thursday although nothing suggests they are going to pivot and will remain the last hawkish shoe to drop. The French election has passed without incident with President Macron gaining 58.6% of the vote vs. 41.4% for Le Pen. Macron won 66.1% of the second round vote in 2017 and with him unable to stand in 2027 and with the traditional parties share of the vote at record lows who knows where French politics will be by then. However much water will flow under Le Pont des Arts before we need to worry about that. Meanwhile, the next hurdle for Macron will come with the Parliamentary elections on the 12th and 19th of June. Commonly referred to as the ‘third round’, the elections will be crucial as it will define the make-up of the government Macron must rely on to push through his reform program. See Marc de-Muizon's blog last night here for more on this. The Euro popped nearly +0.6% higher at the Asian open after the results became clear but has subsequently dipped into negative territory as risk off dominates in Asia. Mainland Chinese stocks are sliding with the Shanghai Composite (-1.95%) and CSI (-2.39%) down, falling to its lowest level since 2020 amid the worsening Covid situation in China, particularly in the financial hub of Shanghai. Strict restrictions have begun to spread, with authorities ordering mandatory Covid tests in a district of Beijing and many buildings locked down. The Hang Seng (-2.47%) is also lagging and elsewhere, the Nikkei (-1.94%) and Kospi (-1.44%) are weak. Outside of Asia, futures contracts on the S&P 500 (-0.42%) and Nasdaq (-0.30%) are lower with 2 and 10yr US yields both around -5bps lower. Brent and WTI are both around -2.9%. Moving on to this week now and it is an important one for European inflation with German CPI on Thursday and the French and Italian equivalent (plus PPI) on Friday with the overall Euro CPI the same day. US (Thursday) and European Q1 GDP (Friday) will also be of interest. Back to the US and inflation related data will be the closest watched with Friday's ECI expected to be strong. This is one of the key indicators the Fed use for labour market strength. The core PCE deflator (the Fed's preferred inflation measure) also comes out as part of the income and spending report data on Friday. The rate of growth may well tick down here so this might provide a shred of good news on inflation without changing the story too much. It will be an important week for corporate earnings too with 179 of the S&P 500 reporting and 134 in the Stoxx 600. Big US tech will be the highlight with Microsoft and Alphabet (tomorrow), Meta (Wednesday), and Apple and Amazon (Thursday). Consumption patterns will be in focus when we get results from Coca-Cola (today), Mondelez, Chipotle (tomorrow), Kraft Heinz (Wednesday) and McDonald's (Thursday). Meanwhile, a range of banks across the globe will give a pulse check on consumer credit. Notable reporters will include HSBC, UBS, Santander (tomorrow), Credit Suisse (Wednesday), Barclays (Thursday), finishing with BBVA and NatWest on Friday. Other notable financials reporting will include Visa (tomorrow), PayPal (Wednesday) and Mastercard (Thursday). Other tech-related companies releasing results will include Activision Blizzard (Monday), LG, Qualcomm, Spotify (Wednesday), Samsung, Intel and Twitter (Thursday). In healthcare, another sector that benefitted from the pandemic, reporters will include Novartis (tomorrow), GlaxoSmithKline (Wednesday), Eli Lilly, Merck, Sanofi (Thursday) and AstraZeneca (Friday). To see how the commodity rally and the focus on energy transition affected major commodity companies worldwide, markets will get earnings from Iberdrola, Vale (Wednesday), Total, Repsol (Thursday), Exxon, Orsted, Chevron and Eni (Friday). Downstream users like transport firms will report too, including General Motors (tomorrow), Boeing, Mercedes-Benz and Ford (Wednesday). Other notable corporates releasing results will include Texas Instruments, General Electric, UPS and Caterpillar. The rest of the day by day calendar of events appears at the end as usual on a Monday. Reviewing last week now, as discussed at the top a cadre of central bank officials reinforced the idea that monetary policy needs to tighten on both sides of the Atlantic this year, thus driving sovereign yields higher. Chair Powell, in his last remarks before the Fed’s May meeting communications blackout, lent credence to the wisdom of front loading the hiking cycle and getting policy rates to neutral as quickly as possible. Regional Fed presidents, spanning ideologies, concurred throughout the week. Short-term markets ended the week pricing more than 150 basis points of tightening over the next three meetings, embedding some risk premium for a 75 basis point hike at each meeting. Futures markets are implying Fed policy rates will be north of 2.80% by the end of the year, above the Fed’s estimates of neutral. President Lagarde was careful to draw a distinction between the US and European situation, but nevertheless would not rule out an increase to ECB policy rates as early as July, following the cessation of net APP purchases, which is likely early in the third quarter. Markets are pricing 24 basis points of ECB tightening by the July meeting, and 85 basis points of tightening for the rest of the year. Bank of England Governor Bailey highlighted the path of policy was laced with uncertainty, but inflation was likely to increase due to rising energy costs. Bailey added the bank would not sell its security holdings into fragile markets. Even committed dove, Ingves of the Swedish Central Bank, rowed back on his previous mantras and acknowledged tightening was needed. As a result, Sovereign yields were higher in each jurisdiction, with 10yr Treasury, bund, and gilt yields increasing +8.2bps (-1.2bps Friday), +10.6bps (+2.4bps Friday), and +7.4bps (-4.9bps Friday), respectively. For their part, 10yr OAT yields closed the week at a +44.5bp spread above bund equivalents, their tightest since March, as President Macron’s polling advantage increased heading into yesterday’s election. Equity indices retreated on the tighter policy path. The STOXX 600 fell -1.42% (-1.79% Friday) while the S&P 500 was -2.75% lower (-2.77% Friday), bringing it into correction territory YTD (-10.37%) again. Mega cap tech stocks bore the brunt, with FANG+ falling -8.76% (-1.99%) as higher discount rates hit valuations. The mega cap losses accelerated after Netflix reported it lost subscribers in the first quarter, which sent its share prices more than -35% lower. The reprieve was only temporary the following day when Tesla reported a record profit on the back of surging electric car demand. Brent crude oil futures were relatively subdued by comparison to other asset classes and recent volatility, falling -5.43% (-2.48% Friday) over the week to $105.64/bbl. Elsewhere the IMF revised down their global growth expectations in light of Russia’s invasion, expecting the global economy to grow 3.6 percent in each of the next two years. Fighting continued in eastern Ukraine, with Russia declaring victory over the port city of Mariupol, while there was not any material public progress in peace negotiations. The Credit Derivatives Determinations Committee said Russia’s remuneration of foreign currency bonds with rubles would constitute a default and trigger credit default swaps. Russia has a 30-day grace period, which ends May 4, to make creditors whole. Tyler Durden Mon, 04/25/2022 - 07:48.....»»

Category: worldSource: nytApr 25th, 2022

Futures Jump On Relief From Tesla"s Blowout Earnings

Futures Jump On Relief From Tesla's Blowout Earnings US equity futures traded higher led by tech stocks, after Tesla’s results beat expectations boosting hopes for another strong earnings season and allayed fears of an imminent recession. The electric-vehicle maker’s shares jumped 7.2% in premarket trading on Thursday, while United Airlines rose 7% after forecasting it will return to profit this year. By contrast, Alcoa dropped 5.7% after reporting worse-than-expected sales and higher inventories due to supply-chain disruptions. S&P futures rose 0.85% or 37 points to 4,493 while Nasdaq 100 futs rose 1.2% to 14,175. A selloff in Treasuries resumed with a debate raging around whether inflation is peaking: the 10-year Treasury yield added 4 basis points. The euro and German bund yields rose after hawkish comments from European Central Bank officials. The dollar reversed losses, gold slumped to session lows and bitcoin jumped above $42,000. Tesla’s earnings provided some relief for investors in tech after Netflix’s 35% slump on Wednesday raised concerns that the industry is being hit by inflation and expected rapid monetary-policy tightening by the Federal Reserve, according to Swissquote analyst Ipek Ozkardeskaya. "The macroeconomic conditions are not favorable for tech companies this year,” she said. “Although we haven’t seen a shocking migration from tech to value names, the tech companies that have shaky future earnings, and that can’t pass inflation on to their customers will likely suffer more." Besides the surging Tesla, here are some other notable premarket movers: Alcoa (AA US) shares decline 5.7% in premarket trading Thursday after the aluminum producer’s 1Q revenue missed estimates. Netflix (NFLX US) shares fall 1.1% in premarket trading, extending Wednesday’s 35% plunge after the streaming firm announced a surprise decline in subscribers. Analysts highlight the company’s valuation and business model are under review, while inflation and competition are challenging for the stock. United Airlines (UAL US) shares rise 7.5% in premarket trading after forecasting a profit this year. It has experienced a “rapid improvement” in both demand and revenue, according to MKM Partners. U.S.-listed Macau casino operators Las Vegas Sands (LVS US), MGM Resorts (MGM US) and Melco Resorts (MLCO US) may be active after Shanghai reported a sharp increase in its number of seriously ill Covid patients. Meanwhile, Chinese stocks extended this week’s rout as investors fretted over the economic effects of the nation’s Covid-Zero strategy, with lower-than-expected policy stimulus adding to their disappointment. An address by President Xi Jinping failed to soothe investors pining for more measures to support growth. Bond bears have returned after Wednesday’s rally in Treasuries fueled by some investors including Bank of America and Nomura who said the panic over inflation and rate-hike bets had gone too far. However, a Federal Reserve anecdotal survey showed inflationary pressures remained strong. Meanwhile, equities stayed resilient to higher yields with their focus on earnings. While the peak-inflation debate is intensifying, it’s unlikely to derail global central banks from their tightening path as commodity shortages from the war in Ukraine keep prices elevated. New Zealand inflation accelerated in the first quarter to the fastest pace in 32 years, validating the central bank’s pursuit of an aggressive tightening cycle. As noted yesterday, the U.S. 10-year real yield turned positive on Wednesday for the first time since March 2020 as traders added to bets on an aggressive Fed hiking cycle. However, the level failed to hold for long. Separately, the Fed said in its Beige Book survey released Wednesday revealed that the U.S. economy grew at a moderate pace through mid-April, but rising prices and geopolitical developments created uncertainty and clouded the outlook for future growth. “Strong demand allowed firms to pass through input cost increases in consumers,” Carol Kong, a strategist at Commonwealth Bank of Australia, said in a note. “The anecdotal evidence supports our view the FOMC is well behind the curve and needs to tighten policy aggressively.” In Europe, the travel and construction sectors led gain, pushing the Stoxx Europe 600 Index 0.9% higher. CAC 40 outperforms, adding 1.2%, FTSE 100 lags, dropping 0.3%. Travel, construction and industrials are the strongest-performing sectors. French equities including Alstom and Saint-Gobain outperform after Wednesday’s sole debate between President Emmanuel Macron and nationalist leader Marine Le Pen reassured investors, with the pro-business incumbent seen as having dominated the encounter. Basic resources shares underperform in Europe, heading for the biggest three-day decline on a closing basis since January, as miners fall on 1Q production reports. ABB jumped 5.3% after the Swiss automation group reported better-than-expected earnings. Anglo American fell 8.2% in London after the mining company cut output goals and said costs would be higher than expected. Here are some of the biggest European movers today: Nestle shares advance as much as 1.9% after the food company reported quarterly sales that exceeded market expectations. Analysts were impressed by the quality of the beat, highlighting the company’s pricing power. ABB shares rise as much as 5.9% after the industrial automation and robotics group’s 1Q results topped expectations. Akzo Nobel shares rise as much as 7.7% after the paint maker’s first-quarter adjusted operating income beat estimates, which Citi says is the result of pricing offsetting increased raw material costs for the first time this cycle. Sartorius AG rises as much as 6.1%, biggest gainer on the Stoxx 600 Health Care subindex, after reporting earnings that included consensus beats on adjusted Ebitda and adjusted Ebitda margins. Rexel rose as much as 7.3% after reporting 1Q revenue that topped estimates. The electrical-supplies company enjoyed pricing benefits, though there may be questions about why it didn’t raise guidance, Citi writes in a note. Europeanlong-haul airlines rise on Thursday after U.S. peer United Air forecast a return to profit, with British Airways owner IAG +6.8%, Air France-KLM +4.1% and Lufthansa +3.9%. Anglo American stock drop as much as 9.3% after the miner cut some output goals and raised costs guidance; Antofagasta also slumps following production decline, trades “ex-dividend.” Carrefour falls as much as 4.4%, with Citi saying it could “pause” after a recent run even as it met 1Q sales expectations, with Latin America and French convenience stores outperforming. Kinnevik shares slide as much as 9.2%, the most since February, after reporting its latest earnings, which included a drop in NAV to SEK243.50 from SEK424 y/y Earlier in the session, Asian stocks edged lower, with Chinese and Hong Kong gauges leading losses on mounting growth concerns, while stocks in other parts of the region were mostly higher.  The MSCI Asia Pacific Index dropped as much as 0.5% Thursday before paring losses. Communication and consumer shares slipped as technology stocks got a boost for a second day from stabilizing bond yields. Japanese equities gained as the yen resumed weakening against the dollar. Chinese benchmarks extended declines as investors became increasingly worried about growth in the world’s second-largest economy. Chinese tech stocks fell for a third consecutive day, weighed by shares linked to electric-vehicle production as lockdowns on the mainland disrupt logistics. Investors have so far been disappointed at Chinese attempts to counter the economic impact of lockdowns. JD.com Inc. and Pinduoduo Inc. fell at least 1.4% each in New York premarket trading. The CSI 300 Index capped a fifth day of losses, with lockdown-induced disruptions to supply chains and a series of disappointing monetary policy decisions quelling sentiment. “The timing of the policy stimulus would be key,” said Wai Ho Leong, a strategist at Modular Asset Management, referring to China’s monetary policy. He added that investors are also watching for stabilization of Covid-19 cases. The U.S. 10-year Treasury yield is down from a three-year high as some investors called for dip buying after the recent rout. Still, more monetary tightening is expected as the Federal Reserve said inflation pressures remain strong and that rising prices are clouding the economic outlook. More aggressive tightening by the Fed in early May, “such as a 75 basis-point hike or start of balance sheet reduction, may limit the People’s Bank of China’s options going forward,” said Marvin Chen, a strategist at Bloomberg Intelligence. Japanese equities rose for a third day, driven by advances in electronics and machinery makers. Chemical makers also boosted the Topix, which gained 0.7%. Tokyo Electron and Fast Retailing were the largest contributors to a 1.2% rise in the Nikkei 225. The yen resumed weakening against the dollar after rallying 0.8% Wednesday. India’s stock gauges rose for a second consecutive session to further reduce their sharp losses in the previous five days, driven by a continued recovery in index heavyweight technology and banking stocks. Reliance Industries surged to a record, giving the biggest boost to the indexes, after Morgan Stanley raised the price target on India’s most valuable company by 11%, citing the company’s focus on hydrogen production amid global energy transition. The S&P BSE Sensex rose 1.5% to 57,911.68 in Mumbai, while the NSE Nifty 50 Index advanced by an equal measure. There were 27 advancers, while 3 stocks declined. All but one the 19 sector sub-indexes compiled by BSE Ltd. climbed. Auto, consumer discretionary and finance companies were among the top performers Australia's commodity-heavy stocks rose for a fifth day near a record high. The S&P/ASX 200 index rose 0.3% to close at 7,592.80, climbing for a fifth day, led by gains in the industrial and real estate sectors. The five-day advance brought the benchmark less than 1% shy of a record high hit in August. Brambles rose after boosting its underlying profit at constant FX rates forecast for the full year. Meanwhile, Megaport plunged the most on record following its third-quarter revenue update. Citi said the result was weaker than expected and saw misses on monthly recurring revenue (MRR) and Megaport Virtual Edge (MVE) additions. In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,954.00 In FX, the Bloomberg dollar spot index rebounded back into the green after falling 0.1%. NZD and JPY are the weakest performers in G-10 FX. the Euro rallies while short-end German bond yields rise sharply in response to hawkish comments from ECB’s Wunsch and Guindos. EUR/USD rises 0.7% on to a 1.09 handle, outperforming in G-10. Money markets briefly price 75 bps of interest-rate hikes by the ECB’s December decision. China’s yuan dropped for a third day amid rising volatility; the currency extended declines amid rising volatility spurred by uncertainties surrounding policy support for the slowing economy. Cautious risk sentiment in global markets also weighed on the yuan ahead of Fed Chair Jerome Powell’s speech later on Thursday. In rates, treasuries resumed their drop and are cheaper across the curve, following wider losses across bunds after hawkish comments from ECB’s Wunsch and Guindos as money markets priced in a more aggressive rate path for the euro-zone central bank. Treasury yields cheaper by ~5bp across the curve with 10-year around 2.87%; bunds lead losses in core rates. The German curve leads a broad-based bear-flattening move. Short end moves sharply lower, with 2y and 5y yields rising 10-12bps. USTs and gilts follow but outperform by ~3bps at the 10y point. Peripheral spreads are mixed, tightening to core at the short end, widening a touch at the back end. Futures activity during Asia session and European morning has featured continued selling of 10-year note contracts via 5k-lot block trades, most recent at 6:38am. The IG corporate issuance slate is not too busy and includes Development Bank of Japan 5Y SOFR and KfW 5Y SOFR; four deals priced $10.5b Wednesday, taking weekly volume above $40b. Focal points of U.S. session focus include appearance by Fed Chair Powell and 5-year TIPS auction, both at 1pm ET. European bonds fell, with 10-year bund yields adding 5 basis points. Traders are betting on three quarter-point hikes from the ECB this year, after Governing Council member Pierre Wunsch said policy rates could be raised above zero before year-end, with the bank perhaps even deploying “restrictive” policy to get surging prices under control. Adding to the sense of urgency, fellow members Luis de Guindos and Martins Kazaks said a rate hike in July was possible. In commodities, WTI drifts 1% higher to trade around $103; Brent is also firmer but off best levels and currently reside around the mid-point of USD 2.50/bbl ranges amid multiple pertinent updates. Namely, Russian-Ukraine negotiations and Mariupol developments, though we await Western confirmation, and China's COVID situation with strict curbs seemingly set to remain. Brazilian Oil Minister discussed raising oil output with the US amid the Ukraine crisis, while Brazil is willing to meet India's oil needs and wants Indian investment. Furthermore, the oil minister hopes oil prices stabilise below USD 100/bbl and said a high oil price is not good for producers and consumers, according to Reuters. Spot gold has continued to slip below the USD 1950/oz mark losing the 21-DMA at USD 1947 ahead of potential 50-DMA support at USD 1936.05/oz. Bitcoin is firmer on the session but seemingly remains drawn to the USD 42k mark, in-spite of a brief foray above the figure. Looking to the day ahead now, and central bank speakers include Fed Chair Powell and ECB President Lagarde, who are taking part in a panel on the global economy, as well as BoE Governor Bailey and the BoE’s Mann. Data releases from the US include the weekly initial jobless claims, and from the Euro Area there’s also the European Commission’s advance consumer confidence reading for April. Finally, earnings releases include Danaher, NextEra Energy, Philip Morris International, Union Pacific and Blackstone. Market Snapshot S&P 500 futures up 0.8% to 4,489.75 MXAP down 0.2% to 171.95 MXAPJ down 0.4% to 567.72 Nikkei up 1.2% to 27,553.06 Topix up 0.7% to 1,928.00 Hang Seng Index down 1.3% to 20,682.22 Shanghai Composite down 2.3% to 3,079.81 Sensex up 1.4% to 57,837.40 Australia S&P/ASX 200 up 0.3% to 7,592.79 Kospi up 0.4% to 2,728.21 STOXX Europe 600 up 0.4% to 461.91 Brent Futures up 0.9% to $107.76/bbl German 10Y yield little changed at 0.93% Euro up 0.6% to $1.0916 Gold spot down 0.6% to $1,945.26 U.S. Dollar Index down 0.39% to 100.00 Top Overnight News from Bloomberg The ECB could lift policy rates above zero before the end of the year unless the euro-zone economy suffers a severe shock, and it might even have to deploy “restrictive” policy to get surging prices under control, Governing Council member Pierre Wunsch said The ECB should be able to phase out asset purchases in July to pave the way for an interest-rate increase as early as that month, according to Vice President Luis de Guindos The euro is being used less often as a global payment currency, posting its biggest percentage-point drop in more than a decade in March, as inflation and the war in Ukraine weigh on its appeal for transactions Liquefied natural gas suppliers are asking clients to pay much higher rates for new long-term contracts, as a global effort to cut Russian imports is expected to keep the market tight for the next decade President Xi Jinping defended China’s lockdown-dependent approach to fighting the pandemic, even as he sought to reassure the world that the country was still committed to opening its economy A more detailed look at global markets courtesy of Newsquawk   Top Asian News China State Energy Giants in Talks for Shell’s Russian Gas Stake Japan Upgrades View of Economy Following Lifting of Covid Curbs Bank of Korea Governor Rhee Warns of Debt, Aging Risks BofA Said to Relocate Some Hong Kong Dealmakers to Singapore European bourses are firmer across the board, Euro Stoxx 50 +1.2%, upside that occurred alongside renewed EUR upside; potentially, on a stronger currency alleviating some imported-inflation pain. However, the FTSE 100 -0.1% is the clear laggard in-spite of favourable GBP action with heavy-weight mining names pressured after Q1 production reports. Stateside, US futures are firmer across the board, NQ +1.0%, following a strong TSLA, +7% pre-market, report and ahead of commentary from Fed's Powell at two events. Top European News Fired BNP Boss Accused of ‘Emotional Terrorism’ Seeks $4 Million Macron Brushes Off Attacks as Debate Reassures Investors Dutch Government Votes to Tighten Bonus Rules For Finance Firms Binance Limits Russia Services After EU Sanctions on Crypto FX Euro outperforms as dovish-leaning ECB member de Guindos tilts towards July hike and markets factor in 75 bps tightening before year end; EUR/USD hits 1.0936 high after breaching series of tech resistance levels and huge option expiries between 1.0900-05 (3.3 bln). Dollar rattled by Euro exertions and DXY loses 100.000+ status in response. Loonie and Kiwi diverge after mixed Canadian and NZ inflation data in relation to consensus, USD/CAD sub-1.2500 where 1.36bln expiry interest resides and NZD/USD sub-0.6800. Yen back under pressure as yields rebound markedly and BoJ continues efforts to impose YCT, while keeping verbal currency intervention trained on the pace rather than scale of moves, USD/JPY above 128.00. Pound undermined by EUR/GBP rally through technical resistance awaiting BoE rhetoric, while Yuan extends losses after latest weaker CNY fix and comments from Chinese media citing factors that may lead to further depreciation; Cable capped into 1.3100 and cross up over 21 and 50 DMAs to circa 0.8367. Rouble rebounds as CBR says it is contemplating FX controls, USD/RUB just under 80.0000. Fixed Income Bonds reverse course after latest correction from bear market territory, with Bunds, Gilts and 10 year T-note trying to stay on 154.00, 118.00 and 119-00 handles. Eurozone debt hit by hawkish sounding remarks from usual ECB dove de Guindos to the effect that data may determine a July hike. French OATs hold up better than the rest after strong multi-tranche auction, on balance and Macron's outperformance during Presidential TV debate. Commodities WTI and Brent are firmer but off best levels and currently reside around the mid-point of USD 2.50/bbl ranges amid multiple pertinent updates. Namely, Russian-Ukraine negotiations and Mariupol developments, though we await Western confirmation, and China's COVID situation with strict curbs seemingly set to remain. Brazilian Oil Minister discussed raising oil output with the US amid the Ukraine crisis, while Brazil is willing to meet India's oil needs and wants Indian investment. Furthermore, the oil minister hopes oil prices stabilise below USD 100/bbl and said a high oil price is not good for producers and consumers, according to Reuters. Peru is to declare a state of emergency to restore copper output at the Cuajone mine which was halted by protests in late February, according to Reuters. Spot gold has continued to slip below the USD 1950/oz mark losing the 21-DMA at USD 1947 ahead of potential 50-DMA support at USD 1936.05/oz.   US Event Calendar 08:30: April Continuing Claims, est. 1.46m, prior 1.48m 08:30: April Initial Jobless Claims, est. 180,000, prior 185,000 08:30: April Philadelphia Fed Business Outl, est. 21.4, prior 27.4 10:00: March Leading Index, est. 0.2%, prior 0.3% Central Bank Speakers 13:00: Powell and Lagarde Take Part in IMF Panel on Global Economy DB's Jim Reid concludes the overnight wrap After a major selloff so far in April, sovereign bonds have pared back their losses over the last 24 hours as investors await comments today from Fed Chair Powell and ECB President Lagarde, who’ll be appearing together on an IMF panel on the global economy in the New York afternoon. The moves saw 10yr Treasury yields undergo a major intraday swing, falling more than -13bps from their intraday high of 2.98% during Asian trading, before closing at 2.83%, ahead of a +3bps move back higher this morning. There seemed to be a belief that if inflation was in the process of peaking out, the strength of the recent rates sell-off might be overdone. But even as longer-dated yields moved lower on both sides of the Atlantic, the front end has been much more subdued by comparison, with the 2yr yield falling just -1.6bps yesterday and actually up +3bps this morning as investors continue to price in yet more Fed hikes over the near term. In fact, the amount of hikes priced in by December hit a fresh high of 227bps yesterday, and when you include the 25bp hike from last month, that implies the Fed will have tightened by more than 260bps for the year as a whole, so more than the 250bps worth of tightening we saw back in 1994. Market pricing is in line with what the Fed has been communicating of late. Even yesterday’s dovish leaning speakers, Presidents Daly and Evans, expressed a desire to get policy rates to neutral by the end of this year, which the most recent dot plot pegs at right around 250bps. Looking beyond this year as well, the rate that futures are pricing in for June 2023 hit a fresh closing high of 3.10%, although that’s still beneath our US economists’ call for a rate of 3.6% by then. This growing drumbeat for monetary tightening was echoed in Europe too, where a couple of speakers signalled that an initial rate hike as early as July was potentially on the table. First, we heard from Latvian central bank governor Kazaks in a Bloomberg interview, who said that “A rate increase in July is possible”. And then Bundesbank President Nagel said that there could be a rate hike “at the beginning of the third quarter” if asset purchases were finished at the end of Q2. Currently, overnight index swaps are only fully pricing in a 25bp hike by the September meeting, and that’s when our own European economists are also expecting the ECB to move on rates as well. So if July were realised that would be a step up from where markets currently are right now. That said, this would fit the pattern we saw with the Fed, where markets progressively brought forward the expected timing of the first hike, having initially not expected one in 2022 at all to the point where one got priced in as early as March, even with the shock presented by Russia’s invasion of Ukraine. Even with the increasing chatter around a July ECB hike, sovereign bonds in Europe pretty much echoed their US counterparts, with yields on 10yr bunds (-5.5bps), OATs (-4.6bps) and BTPs (-3.6bps) all moving lower. That came as European natural gas prices fell to another post-invasion low yesterday, down -1.21% at €92.63/MWh, though the war itself continues to show no sign of ending, with the commentary around any negotiations still taking on a very negative tone from both sides. Equities put in a solid performance for the most part, although Netflix plunged -35.12% in trading after it reported a decline in subscribers in the first quarter, marking its worst daily performance since 2004. The move also leaves its share price at its lowest level in over 4 years, and the company’s YTD losses now stand at -62.45%, making it the worst performer in the entire S&P 500 on a YTD basis. My bingeing of Bridgerton 2 on holiday and starting the final series of Better Call Saul (the best show of the last few years) last night obviously hasn’t helped. Netflix’s decline dragged down a number of indices, with the FANG+ index of megacap tech stocks shedding -6.17%, primarily due to the Netflix move, whilst the NASDAQ fell -1.22%. The broader S&P 500 was more resilient, falling a mere -0.06%, with 378 stocks actually advancing showing that big cap tech was a drag. European shares were stronger, with the STOXX 600 gaining +0.84% as it more than recovered from the previous day’s losses. Contrary to Netflix, Tesla revealed a record profit on strong demand for electric vehicles and through the sale of carbon credits in their earnings after the close. Going forward, they believe production will continue to grow despite supply chain issues beleaguering the industry. TSLA shares were +5.59% higher in after hours trading, moving back above $1,000 a share. Most Asian equity markets are trading higher but with mainland China and Hong Kong stocks lagging, hurt by worries about the Chinese economy as the nation continues to battle Covid-19 outbreaks. The Shanghai Composite (-1.68%), CSI (-1.05%) and the Hang Seng (-1.56%) are trading in negative territory as a speech by the Chinese President Xi Jinping failed to bolster investor sentiment as markets have been disappointed with Chinese attempts at tackling the economic impact of lockdowns. Elsewhere, the Nikkei (+1.21%) and the Kospi (+0.48%) are trading up building on previous session gains. Looking ahead, stock futures are indicating a positive start after Tesla's earnings with the S&P 500 (+0.38%), Nasdaq (+0.55%) and DAX (+0.30%) in the green. Oil prices are higher this morning with pressure in Europe to impose formal sanctions on Russian oil mounting. As I type, Brent futures are +1.04% higher at $107.91/bbl. In FX, the Japanese Yen continues to remain weaker and is -0.32% lower. Elsewhere, we’re just 3 days away from the French presidential election runoff now. The second round candidates held their only debate last night, expounding their world views for about three hours. There didn’t seem to be anything from the debate that should tip the scales of the election in either direction. The polls continue to put President Macron ahead of Marine Le Pen, and yesterday’s releases maintained that pattern of Macron’s lead being outside the margin of error, with leads of 56.5-43.5 (Ipsos), 55.5-44.5 (Ifop), 55-45 (from Kantar), and 54-46 (from Harris). There wasn’t a massive amount of data yesterday, but we did get a fresh reminder on inflationary pressures from the German PPI data, which came in at a year-on-year rate of +30.9% in March (vs. +30.0% expected). It’s also the fastest annual rate since the official series begins in 1949. Otherwise, there were US existing home sales for March, which fell to an annualised rate of 5.77m as expected, the lowest rate since June 2020. Elsewhere the Credit Derivatives Determinations Committee said Russia’s remuneration of foreign currency bonds with rubles would constitute a default, triggering credit default swaps on Russian debt. Recall, US bank custodians were prevented from processing Russian dollar debt payments earlier this month. Russia still has some time to avoid a default, with a 30-day grace period to make creditors whole expiring on May 4. To the day ahead now, and central bank speakers include Fed Chair Powell and ECB President Lagarde, who are taking part in a panel on the global economy, as well as BoE Governor Bailey and the BoE’s Mann. Data releases from the US include the weekly initial jobless claims, and from the Euro Area there’s also the European Commission’s advance consumer confidence reading for April. Finally, earnings releases include Danaher, NextEra Energy, Philip Morris International, Union Pacific and Blackstone. Tyler Durden Thu, 04/21/2022 - 07:55.....»»

Category: blogSource: zerohedgeApr 21st, 2022

Sinking Feeling Hits European Shares, Deliveroo Hits Another Bump, Rolls Royce Dives On Downgrade

’That sinking feeling has now hit shares in Europe after falls on Wall Street amid concerns that inflationary pressures are still mounting and growing evidence that consumer confidence is suffering amid the cost of living squeeze. European Shares Take A Hit The FTSE 100 and FTSE 250 have opened lower, but there were sharper falls […] ’That sinking feeling has now hit shares in Europe after falls on Wall Street amid concerns that inflationary pressures are still mounting and growing evidence that consumer confidence is suffering amid the cost of living squeeze. European Shares Take A Hit The FTSE 100 and FTSE 250 have opened lower, but there were sharper falls on the DAX in Germany and the CAC 40 in Paris. Worries are resurfacing about an escalation of the war in Ukraine, with reports of the use of chemical weapons by Russia being investigated. The increasingly entrenched conflict has already sent commodity prices soaring, and investors will be watching for the latest hot inflation reading in the US, which will help determine just how aggressive the Federal Reserve will in in raising rates. 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); Q1 2022 hedge fund letters, conferences and more With the sanctions screw expected to be turned tighter on Russia, with the EU thought to be inching closer towards agreeing a Russian oil embargo, Brent crude has crept back up to above $100 a barrel, after yesterday’s losses. Supply concerns show little signs of evaporating despite the emergency release from stockpiles around the world and prices are set to stay elevated with OPEC warning that it will be nigh on impossible to replace 7 million barrels per day of crude and other products from Russia as many firms continue to shun its exports and if fresh sanctions are imposed. A KPMG-BRC retail snapshot showed a deteriorating picture for the UK’s high streets and shopping centres with purchases slowing, and although growth in total sales was registered, that was buoyed by price rises across the sector. There is recognition that the worst is yet to come for retailers, given inflation is still outrunning wages, despite the bigger pay checks offered by businesses desperate to attract staff in the big fight for talent. With the jobless rate at a 2 year low and vacancies at a record high of 1.28 million, companies may be forced to offer more generous packages to fill vital roles, putting pressure on bottom lines. There is a ‘savings’ grace for the economy for now, due to the piles of cash reserves some consumers were able to build up during the pandemic, and which are now a soft pillow to land on, but as people dip into this and keep spending even as household budgets tighten – his protective cushion will flatten as the year progresses. Delivero's Reliance On Discretionary Spending Deliveroo PLC (LON:ROO)’s tyre risks running flat as budgets are squeezed further, given the company is so highly reliant on discretionary spending.  On the face of it Deliveroo is still in a speedy growth phase with sales riding higher in the first three months of the year and gross transactional value up 11%, as it expanded its footprint and tied up more delivery deals with supermarkets. But there are already worrying signs that its customers are tightening belts with average spend per order falling 7% to £23.50, prompting a 3% share slide in early trade. Deliveroo is also facing fresh competition from a pack of instant delivery start-ups, with the likes of Getir offering cut price deals to lure in new grocery customers. With many supermarkets and restaurants  set to pass on the cost of higher commodity prices, more consumers may begin to trim budgets by starting with little luxuries like on fast food and on demand groceries and that still could prove a big bump in the road for companies like Deliveroo to navigate as it tries to carve out a dominant position in the delivery market. Rolls-Royce Gets A Downgrade Rolls-Royce Holding PLC (LON:RR) shares have been hit with fresh turbulence after a broker downgrade, falling by more than 5% on the open. The company hasn’t been helped by the ongoing conflict in Ukraine, with worries that it could dent confidence in the travelling public for long haul flights in particular and affect its business which is so highly reliant on the health of commercial air travel. A massive restructuring effort which is underway has set the stage for recovery and the company is restoring the balance sheet by paying down debt. It’s now a leaner organisation but with the aviation sector still struggling it's not going to be a smooth ride ahead.’’ Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown About Hargreaves Lansdown Almost 1.7 million clients trust us with £141.2 billion (as at 31 December 2021), making us the UK’s number one platform for private investors. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month. Updated on Apr 12, 2022, 5:10 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkApr 12th, 2022