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First Mover Asia: As the Fed Hikes Rates, Ether, USDC Lending Yield Pays Less Than T-Bills; Bitcoin Rises, Holds Over $19K

First Mover Asia: The average yield one can expect for lending USDC via DeFi protocols is 0.98%; the current one-year Treasury bond is paying 4.08%......»»

Category: forexSource: coindeskSep 22nd, 2022

Futures Plunge, Yields Roar Higher As Bear-Market Rally Slams Brick Wall On $2.1 Trillion Op-Ex

Futures Plunge, Yields Roar Higher As Bear-Market Rally Slams Brick Wall On $2.1 Trillion Op-Ex The combination of plunging bitcoin prices, the (latest) bursting of the meme bubble courtesy of Ryan Cohen's historic pump and dump, rising Fed warnings that another 75bps rate hike is coming amid fears next week's Jackson Hole meeting will be a hawkano, rising oil prices and TSY yields at the highest level in a month, and mix it all in on a day when there is absolutely no liquidity (one day after the lowest volume of the year) as $2.1 trillion in options expire... ... and you get a perfect storm that has sent futures tumbling 40 points or 0.93%, but another confirmation that BofA's Michael Hartnett is the best strategist on Wall Street (while his peers are nothing more than broken records). Nasdaq 100 futures slumped 1.2% by 7.30 a.m. in New York as the yield on the 10-year Treasury climbed about 5 basis points to 2.95%, the highest level in one month amid divergent signals from Fed officials over the size of the next interest-rate hike. The tech-heavy index is set to end the week lower after four weeks of gains; the Nasdaq 100 underperformed this week in the face of rising bond yields as higher rates weigh on the present value of future profits, hurting growth stocks with the highest valuations. The dollar headed for the biggest weekly rally since June 2021 and bitcoin plunged by $2,000 overnight, crashing below $21,500. In premarket trading, Bed Bath & Beyond shares crashed 45%, after plunging more than 20% during the regular session, after top investor Ryan Cohen pulled the biggest pump and dump in history. Cryptocurrency-exposed stocks like Coinbase and Riot Blockchain also slid amid a broad selloff across digital tokens.  Coinbase (COIN US) fell 7%, Marathon Digital (MARA US) -11%, Riot Blockchain (RIOT US) -9%. Here are other notable premarket movers: Applied Materials (AMAT US) rose as much as 1.4%, with analysts positive on the chip equipment maker’s results, saying it saw a strong performance amid a tough macroeconomic backdrop, though some brokers nudged down their price targets. Morgan Stanley analysts cut their price target on Meta Platforms (META US), saying the social media giant’s shift toward Reels and declining user-engagement rates pose a risk to its revenue growth. The stock was down 1.7%. Bill.com (BILL US) surged 21% after fiscal 4Q results from the infrastructure software firm that analysts said were “perfect” alongside guidance that “blew away” expectations. StoneCo (STNE US) dropped 9% after the Brazilian payments firm reported adjusted net for the second quarter that missed the average analyst estimate. Traders have also turned cautious toward risk assets ahead of the Fed’s annual symposium next week in Jackson Hole. Beyond that, inflation and employment figures will also be closely monitored before the central bank’s highly anticipated interest-rate decision in September. Additionally, on Thursday two Fed voting members - St. Louis’s James Bullard and Kansas City’s Esther George - emphasized that the US central bank will continue to raise interest rates until inflation eased back to its 2% target although their views diverged on how big the Fed’s September move should be. This is notable since traders had continued piling into stocks and bonds, completely ignoring the Fed's repeated jawboning and dismissing the risk of a more aggressive Fed as they expect it to ease the pace of rate hikes while inflation pulls back from its peak, according to Bank of America strategists. US stocks saw $9.2 billion of inflows in the week through Aug. 17 BofA's Michael Hartnett wrote in a note. “The Fed would, in order to get inflation down to the 2% target, have to crush the economy,” said Ann-Katrin Petersen, a senior investment strategist at BlackRock Investment Institute. In order to bolster growth, the Fed will at some point “accept to live with inflation. This dovish pivot is not likely in the very near term, in contrast to what markets seem to be expecting right now, but this dovish pivot may come in 2023,” she told Bloomberg Television. In Europe, the Stoxx 50 fell 0.8%. FTSE 100 outperforms, dropping 0.2%, Travel, real estate and autos are the worst-performing sectors. Italy's FTSE MIB lags, dropping 1.4%.  after a right-wing coalition led by Brothers of Italy party was seen reaching 49.8% level in voting intentions for Italy’s lower house of parliament for September election, according to a Tecne poll on August 18. Center-left bloc at 30%; Five Star Movement at 10.2%; Centrist coalition at 4.8%; Other parties at 5.2%. Here are some of the biggest European movers today: Just Eat Takeaway shares soar as much as 38% in Amsterdam trading, the most ever, after the food delivery firm agreed to sell its 33% stake in iFood for as much as EU1.8b Holmen rises as much as 5.3% on 2Q earnings that beat consensus on adjusted operating profit, net sales and operating profit. The report was strong, but expected, Jefferies writes Kingspan gains as much as 8.6% after 1H results from the Irish insulation supplier that Goodbody says were ahead of expectations U-blox surges as much as 16% after the Swiss semiconductor company lifted FY revenue and Ebit outlooks that it previously raised in May, citing a record- high order book Mobilezone rises as much as 5.3%, the most intraday since March, as analysts note the Swiss firm’s robust 1H earnings and confirmation of guidance in the face of powerful FX headwinds Joules plunges as much as 41% after the UK apparel retailer forecast an FY adjusted pretax loss significantly bigger than market views. Liberum cut its rating on the stock to hold from buy Bachem drops as much as 3.9% after Baader published a note saying the company’s first-half results due on Aug. 25 may be a trigger for a downward revision to consensus Oponeo.pl falls as much as 12% after the Polish distributor of tires, tools and bikes reported a 70% y/y drop in 2Q net income due to higher costs and lower sales of tires Hypoport declines as much as 12% after Metzler downgrades to sell on a slowdown in growth for its Europace unit and as the company’s insurance application “fails to convince” at this stage Earlier in the session, Asian stocks headed for their first weekly drop in five, as renewed concerns about growth in China -- the region’s biggest economy -- damped investor sentiment.   The MSCI Asia Pacific Index retreated as much as 0.7%, set for a decline of more than 1% this week. Meanwhile, a gauge of China stocks listed in Hong Kong posted its worst week in August, losing 2%. Shares in South Korea and India were among the region’s worst performers Friday. Concerns about China’s growth resurfaced as the country planned more fiscal stimulus over a gloomy outlook and as banks were expected to lower borrowing costs next week. Goldman Sachs, Nomura and Citi further cut their growth estimates for China’s gross domestic product earlier this week as a power supply crunch adds more uncertainty to the outlook. “Regulatory issues and sluggish economic recovery are behind the weak performance of stocks in Hong Kong as many of the stocks listed there are related to the real estate sector and regulations,” said Kim Kyung Hwan, a China equity strategist at Hana Financial Investment in Seoul. “There are lingering concerns that China’s economic fundamentals may take an L-shaped recovery and the government’s intervention in the property crisis may be delayed,” he added.  Improved appetite for haven assets was also reflected in the dollar, which rose to the highest in nearly a month following a Bloomberg News report that China’s President Xi Jinping and Russia’s leader Vladimir Putin will attend the G-20 summit in Indonesia later this year.  All but two sectoral indexes declined in Asia’s key benchmark, with health care and financials the biggest losers. Samsung Electronics and NetEase were among the biggest drags on the measure, with the latter tumbling on profit-taking following earnings results.  Caution also prevailed with next week expected to be the busiest period for quarterly earnings announcements from MSCI Asia Pacific Index members. Chinese tech giants Meituan and JD.com Inc. are among the more than 300 companies set to release results In FX, the Bloomberg Dollar Spot Index advanced for a third day and the greenback strengthened against all of its Group-of-10 peers. The pound fell to a one-month low while the euro was steady against the dollar. UK retail sales volumes unexpectedly rose 0.3% last month, but the cost of those sales increased more rapidly by 1.3%. UK consumer confidence fell to a record low as concerns about a recession increased and soaring inflation tightened a squeeze on household finances. GfK said its gauge of confidence declined 3 points to minus 44 in August. The New Zealand dollar was weighed by comments from RBNZ Governor Adrian Orr that the central bank would “retain optionality” over the pace of future rate increases. The yen is headed for its biggest weekly decline in two months as hawkish comments from Fed officials spurred bets for another outsized rate hike. Options traders are finally betting on a rise in the dollar-yen currency pair after staying bearish for two months, as they await cues from the next week’s Jackson Hole symposium by the Federal Reserve. In rates, Treasuries held losses into early US session, leaving yields cheaper by up to 6bp across front-end of the curve, following wider gilt-led selloff after stronger-than-forecast UK retail sales figures in July. US yields cheaper by 6bp to 3.5bp across the curve with front- end led losses flattening 2s10s, 5s30s by around 1bp each; 10- year yields around 2.95%, trading 8.5bp and 7bp richer in the sector vs. gilts and bunds. Bunds and Italian bonds declined for a fourth day, the longest streak since June and July respectively, as 125bps of ECB hikes were briefly priced by year-end, or two half-point increases.  Money markets ramped up ECB tightening wagers following hawkish Fed talk and stronger-than-forecast UK retail sales figures in July.  Peripheral spreads widen to Germany with 10y BTP/Bund adding 2.3bps to 224.3bps. WTI trades within Thursday’s range, falling 1.4% to trade around $89. Spot gold falls roughly $4 to trade around $1,754/oz. Spot silver loses 1.4% around $19. Most base metals trade in the red; LME tin falls 1.2%, underperforming peers. LME nickel outperforms, adding 0.8%. Luckily, there is nothing on today's calendar. Central bank speakers include Richmond Fed President Barkin, and earnings releases include Deere & Company. Market Snapshot S&P 500 futures down 0.9% to 4,250.00 STOXX Europe 600 down 0.6% to 437.98 MXAP down 0.6% to 161.10 MXAPJ down 0.5% to 524.13 Nikkei little changed at 28,930.33 Topix up 0.2% to 1,994.52 Hang Seng Index little changed at 19,773.03 Shanghai Composite down 0.6% to 3,258.08 Sensex down 1.3% to 59,517.87 Australia S&P/ASX 200 little changed at 7,114.46 Kospi down 0.6% to 2,492.69 German 10Y yield little changed at 1.18% Euro little changed at $1.0084 Gold spot down 0.3% to $1,752.91 U.S. Dollar Index up 0.19% to 107.69 Top Overnight News from Bloomberg China’s efforts to stomp out a lucrative carry trade by banks in the nation’s bond market and divert cash to the real economy is meeting with limited success. The spread between the 10-year yield and the overnight borrowing rate remained around 140 basis points, even though the latter rose for four straight days amid the central bank’s cash withdrawals. That means banks can still make a profit by funding from each other in the interbank market and purchasing government bonds A larger-than-forecast £4.9 billion ($5.8 billion) UK budget deficit in July took the total for 2022-23 so far to £55 billion pounds -- £3 billion more than officials forecast in March Investors continued piling into stocks and bonds, dismissing the risk of a more aggressive Federal Reserve as they expect it to ease the pace of rate hikes while inflation pulls back from its peak, according to Bank of America Corp. strategists. Global equity funds attracted $7.9 billion in the week through Aug. 17, strategists led by Michael Hartnett wrote in a note, citing EPFR Global data The right-wing coalition led by Giorgia Meloni’s Brothers of Italy party neared a landmark level of support, registering 49.8% of voter approval for Italy’s Sept. 25 election, in a survey by the Tecne research institute A more detailed look at global markets courtesy of Newsquawk APAC stocks lacked firm direction despite the mild tailwinds from the US where sentiment was somewhat underpinned by mostly encouraging data. ASX 200 just about kept afloat amid outperformance in energy on recent oil price gains although the upside was limited by weakness in financials and amid another influx of earnings results. Nikkei 225 returned to flat territory beneath the 29k level after early momentum petered out. Hang Seng and Shanghai Comp were indecisive amid a lack of macro drivers and with newsflow dominated by earnings, while markets await a cut to the benchmark lending rates early next week. Top Asian News Indonesia May Impose Nickel Export Tax in 2022, Jokowi Says H.K. Home Prices Could Fall 10% After HSBC, StanChart Hike Rates Hong Kong Monetary Authority Deputy CEO Edmond Lau Resigns Moody’s Reviews Huarong AMC’s Ratings for Downgrade Some Country Garden, CIFI USD Notes Set for Record Weekly Gains Modi to Be Challenged by Local Leaders in 2024 India Elections European bourses are under modest pressure, Euro Stoxx 50 -0.6%, in a session of limited newsflow with focus on continuing hawkish price action. Stateside, given the hawkish action, NQ -1.0% is the incremental underperformer ahead of commentary from 2024 voter Barkin. China's CPCA forecast shows August passenger car sales lifting MM to 1.88mln (prev. 1.77mln), latest COVID outbreak is expected to have a relatively limited impact on the auto market. Deere & Co (DE) Q2 2022 (USD): EPS 6.16 (exp. 6.69), Revenue 14.1bln (exp. 12.78bln); FY view Net 7.0-7.2bln (prev. 7.0-7.4bln, exp. 7.1bln). Top European News Gas Heading for Another Weekly Rise Intensifies Europe’s Pain Germany’s Drive to Replace Russian Gas Can’t Rely on Canada Germany Risks a Factory Exodus as Energy Prices Bite Hard Food Banks for Pets Show UK Inflation Reaching Cats and Dogs Londoners Wake to Transit Headaches as Strike Hobbles City FX Dollar continues to reign as risk sentiment sours again and yields ratchet higher, DXY up to 107.930 and close to mid-July high just shy of 108.000 Euro remains relatively resistant amidst further EGB retracement and strong Eurozone inflation data, EUR/USD sub-1.0100, but above 1.0050. No retail therapy for Sterling as wider UK economic worries weigh on the Pound, Cable under 1.1900 and EUR/GBP eyeing 0.8500. NZ trade data fails to give Kiwi a lift as deficit remains wide, NZD/USD hovering above 0.6200. Yen shrugs off Japanese CPI as UST-JGB spreads widen further, USD/JPY touches 136.76 before waning. Loonie and Nokkie undermined by softer oil prices as former awaits Canadian retail sales for independent impetus, USD/CAD 1.2950+, EUR/NOK around 9.8500 Yuan retreats as Moody’s joins list of those downgrading forecasts for Chinese growth this year, USD/CNY over 6.8100 and USD/CNH almost 6.8300 overnight. Fixed Income Only dead cat bounces in debt as hawkish Central Bank and hot inflation vibes persist. Bunds through trendline support to 152.61 and 10 year yield above 1.15% Fib resistance. Gilts probing 113.00 vs 113.45 at best and T-note towards base of 118-11/118-29+ range . Commodities Under broad pressure given USD strength with crude curtailed as it awaits another JCPOA response; benchmarks lower by circa. USD 1.50/bbl, vs USD 7/bbl ranges for the week. Spot gold clipped by the USD, though only by just over USD 5/oz compared to weekly parameters of over USD 50/oz; broader metals in-fitting in limited newsflow. China's daily coal output +19.4% YY, between August 1st and 17th, via the Energy Administration. US Event Calendar Nothing major scheduled DB's Tim Wessel concludes the overnight wrap Filling in again from Stateside much like the rumored involvement of yank Elon Musk in the English product Manchester United. The metaphor does not have much life beyond that, however. Despite what you may have heard, I am not a billionaire nor do I have any designs on going to space, while on the product side, the EMR has a chance of success this year. Taking the developments by time zones. In Europe, yields crept slightly higher on the now familiar formula of tighter expected ECB policy and concerns about energy pricing. On the former, in a Reuters interview, the ECB’s Schnabel said that “The concerns we had in July have not been alleviated... I do not think this outlook has changed fundamentally.” She also said that “I would not exclude that, in the short run, inflation is going to increase further”. The ECB’s Kazaks also echoed this, saying that “we will continue to increase interest rates” so as to prevent inflation becoming entrenched. Markets continue to fully price in another 50bp move at the next meeting in September, with 52bps currently priced in, so some probability of an even larger hike. On the energy front, price pressures continue to get worse, where natural gas futures closed at a record high of €241 per megawatt-hour, with year-ahead German power registering a fresh record of their own, closing at €540 per megawatt-hour. In line with what we’ve covered, Germany is offering fiscal support to alleviate price pressures, as German Chancellor Scholz announced a temporary VAT cut on natural gas from 19% to 7%, which will apply for 18 months from October 1. It’s worth plugging our team’s latest gas supply monitor again, link here to stay on top of the latest. All told, the yield move was rather modest, with 10yr bunds +1.9bps higher, outpacing increases in OATs (+1.7bps) and BTPs (+0.4bps), which helped support risk assets on the day. For their part, equities also posted a modest gain, as the STOXX 600 climbed +0.39%, the DAX gained +0.52%, and the CAC increased +0.45%. In the US, it was another day of mixed, but supportive data on balance. Initial jobless claims fell to 250k (vs. 264k expected). Continuing claims, which our US econ team has identified as one of the best leading indicators for recessionary risk, also came in below expectations at 1437k (vs. 1455k). Reminder, our team has found that when the rolling 4-week average of continuing claims increases around 11% above the last year’s nadir, near-term recession risk increases. That warning level would be around 1456k, still some ways above the 4-week average of 1413k. Indeed, one need go back to the first week of April to find any individual print, let alone moving average, that has breached 1456k, and that was as claims were still falling, only to hit their lows in late May. Elsewhere in data, the Philadelphia Fed Business Outlook surprised to the upside at 6.2, versus expectations of -5.0 and a prior print of -12.3. On the downside, housing activity continued to be strangled by Fed tightening, with existing home sales falling to a 4.81m pace (vs. 4.86m expectations), their lowest since the summer of 2020’s stilted homebuying season. There was a suite of Fed officials on the tape yesterday. Across speakers, they still sounded a resolute tone around current inflationary ills, but offered different prescriptions for the path of policy going forward. On one end, San Francisco Fed President Daly expressed support for a 50bp hike to the fed funds target range at the September FOMC, with policy rates getting “a little” above 3% by then end of this year, reserving the right to go higher if the data call for that. St. Louis Fed President Bullard played the customary foil, preferring to hike rates 75bps in September, getting policy closer to 4% by year-end. Bullard noted that the Fed “shouldn’t drag out process of raising rates”. Splitting the difference, Kansas City President George noted it was too early to declare victory over inflation, so the case for continued hikes remained strong, even if the Committee had to be mindful of what the lagged impact of tightening may look like, echoing the July meeting minutes. Finally, Minneapolis President Kashkari was ambivalent about the prospects of a soft landing, saying he didn’t know if the Fed could bring inflation back to target without a recession given he couldn’t count on supply side expansion, particularly in the labor market. Like other speakers, he re-emphasized breaking inflation’s back was urgent. In short, nothing explicitly new from Fed speakers, so it holds that Chair Powell’s Jackson Hole remarks next Friday, August 26, (confirmed by the Fed yesterday), along with the inflation and employment data before the September FOMC are the key events for policy over the near-term. Yields on 2yr Treasuries fell -8.8bps, while increased +2.7bps, while 10yr yields were -1.5bps lower, driving the 2s10s yield curve to its steepest level in more than two weeks at -32bps. Like their European counterparts, US equities were similarly subdued, with the S&P 500 gaining +0.23%. Energy shares climbed +2.53%, following a +3.14% increase in Brent crude oil, but otherwise sector dispersion was rather narrow between Tech gaining +0.49% and Real Estate lagging at -0.75%. On the war in Ukraine, talks with President Zelenskiy, UN Secretary General Guterres, and Turkish President Erdogan were staged in Lviv. Following the meeting, Turkey is set to evaluate the talks with President Putin, cementing Turkeys status as the key interlocutor between Ukraine and Russia. Reports from the meeting suggested diplomatic progress seemed possible, and our team took it as a positive that both sides appeared to be open to indirect communication, though much work remains. Asian stock markets are mixed this morning following a quiet US session. The Nikkei (+0.10%) and the Hang Seng (+0.46%) are trading in positive territory while the Shanghai Composite (-0.28%), the CSI (-0.27%) and the Kospi (-0.10%) are trading lower. US equity futures are likewise sleepy, with the S&P 500 (-0.08%) and NASDAQ (-0.08%) flitting around zero. Japan’s headline inflation rose +2.6% y/y in July, in line with market expectations and against a +2.4% rise in June, edging past the Bank of Japan's 2% inflation goal for a fourth straight month. The increase in core CPI (+2.4% y/y from +2.2% in June) was the sharpest in about seven and half years. To the day ahead now, and data releases include UK retail sales and German PPI for July. Central bank speakers include Richmond Fed President Barkin, and earnings releases include Deere & Company. Tyler Durden Fri, 08/19/2022 - 08:02.....»»

Category: blogSource: zerohedgeAug 19th, 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

The Era Of A Financialized Fiat-Dollar Standard Is Ending

The Era Of A Financialized Fiat-Dollar Standard Is Ending Authored by Alasdair Macleod via Goldmoney.com, In recent articles I have argued that the era of a financialised fiat dollar standard is ending. This article takes my hypothesis further and explains that it is not just the emergence of new commodity backed currencies in Asia that will threaten the dominance of Western currencies, but the Fed’s failing monetary policies and those of the other major central banks. An unstoppable rise in interest rates will in large part be responsible for their demise. Financial markets in thrall to the state underestimate the forces collapsing the financial bubble. Even the existence of the bubble is disputed by those within its envelope. But financial assets represent most of the collateral securing the banking system, and their collapse triggered by higher interest rates will take out businesses, banks, even central banks and make financing of soaring government deficits impossible without accelerated currency debasement. Will central banks try to preserve financial asset values to stop the West’s financial system from imploding? Keynesian theory demands increased deficit spending to counteract the contraction of bank credit. As long as this is the case, the planners will destroy their currencies - confirmed by the John Law episode in 1715-1720 France. It is from this fate that China, Russia, and the architects planning a new Central Asian trade currency are planning their escape. End of an era and how it all started It’s all about interest rates. Rising interest rates undermine financial asset values and falling rates increase them. From 1981 until March 2020, the trend has been for the inflation of prices to subside and interest rates to decline with them. And following Paul Volcker’s interest rate hikes at that time, this is when the era of economic financialisation commenced. In the early eighties, London underwent a financial revolution with banks taking over stockbrokers and jobbers. It was the end of single capacity, whereby you were either a principal or agent, but never both. America responded to London’s big-bang by rescinding the Glass-Steagall Act, which separated investment from commercial banking following the 1929—1932 Wall Street Crash. Money-centre banking was about to go all-in on financialisation. Increasingly, manufacturing of consumer goods was moving from America and Europe to China and the Far East. The Wall Street megabanks had less of this business as a proportion of total American and European economic activities to finance. Small, local banks, particularly in Europe, continued to be the financing backbone for small enterprises. Banking had begun to split, with financial activities increasingly dominating the business of the larger banks. The rise of derivatives, firstly on new regulated exchanges and then in unregulated over-the-counter markets became a major activity. They promised that risk was eliminated by being hedged — there was a derivative to cover anything and everything. Securitisations became all the rage: mortgage-backed securities, collateralised debt obligations and CDOs-squared. So great was the demand for this business that banks were financing it off-balance sheet due to lack of adequate capital, until the Lehman speedbump temporarily knocked the wheels off from under this business. Since then, government spending has dominated financing requirements, providing high quality collateral for yet further credit expansion, much of it in shadow banking, and leading to a veritable explosion in the size of central bank balance sheets. The decline in interest rates from Paul Volcker’s 20% in 1980 to zero in 2020 drove financial asset values forever upwards, with only brief interruptions. Crises such as in Russia, Asia, the Long-Term Capital Management blow-up, and Lehman merely punctuated the trend. Despite these hiccups the character of collateral for bank lending became increasingly financial as a result. Expanding credit on the back of rising collateral values had become a sure-fire money-spinner for the banks. The aging Western economies had finally evolved from the tangible to ethereal. For market historians it has been an instructive ride, contemporary developments that have matched or even exceeded bubbles of the past. What started as the emergence of yuppies in London wearing red braces, sporting Filofaxes, and earning previously undreamed-of bonuses evolved into a money bubble for anyone who had even a modest portfolio or could get a mortgage to buy a house. The trend of falling interest rates has now ended, and the tide of financialisation is on the ebb. Recent events, covid lockdowns, supply chain disruptions and sanctions against Russia provide the tangible evidence that this must be so. You do not need to be a seer to foretell a commodity price crisis and the prospect of widespread starvation from grain and fertiliser shortages this summer. Common sense tells us that the end of the financialisation era will have far-reaching consequences, yet the outlook is barely discounted in financial markets. With their noses firmly on their valuation grindstones, analysts do not have a grasp of this bigger picture. That is beginning to change, as evidenced by Augustin Carsten’s mea culpa over inflation. Carsten is the General Manager of the Bank for International Settlements, commonly referred to as the central bankers’ central bank, which takes a leadership role in coordinating global monetary policy. The objective of his speech was to assist central banks in coordinating their policy responses to what he belatedly recognises is a new monetary era. Inflation is not about prices: it’s about currency and credit One of the fatal errors made by the macroeconomic establishment is about inflation. The proper definition is that inflation is the debasement of a currency by increasing its quantitiy. It is not about an increase in the general level of prices, which is what the economic establishment would have us believe. The reason this is particularly relevant is because governments through their central banks have come to rely on increases in the quantity of currency and credit to supplement taxes, allowing governments to spend more than they receive in terms of revenue. To properly describe inflation draws unwelcome attention to the facts. Since the Lehman failure in 2008, the combined balance sheets of some of the major central banks have increased from just under $7 trillion to $31 trillion (Fed + ECB + BOJ + PBOC, according to Yardini Research). The steepest part of the rise was from March 2020, when assets for the Fed and ECB soared. While justified, perhaps, by the covid pandemic the effect has been to dilute the purchasing power of each currency unit. And as that dilution works its way into the economy it is reflected in higher prices. That bit is familiar to monetarists. What monetarists fail to account for is the human reaction to the currency dilution. When the public becomes aware that for whatever reason prices are rising at a faster pace, they will increase the ratio between goods purchased and therefore in hand to that of their available currency resources. That drives prices even higher still and there is then a risk that price rises will escalate beyond the authorities’ ability to control them. This phenomenon has been a particular weakness of American and British consumers, who have a low level of savings priority. When Paul Volcker raised interest rates to a penalising 20% in 1980 it was to reverse the tendency for individuals to dispose of their personal liquidity in favour of goods. The sanctions against Russia sent a clear signal to western consumers about rising energy costs, and already they are seeing the impact across a wide range of consumer products. Nothing could be more calculated to convince consumers that they should anticipate and satisfy their future needs now instead of risking yet higher prices and shortages of available goods. And we can be equally sure that governments and their central banks stand ready to ensure that no one need go without. That this has come as a surprise to central banks indicates an appalling failure to anticipate the entirely predictable consequences of inflationary monetary policies. Additionally, central banks have failed to grasp the true relationship between money and interest rates. The errors of interest rate policies Central banks use interest rates as their primary means of managing monetary policy. They make the error of assuming that interest rates are no more than the price of money. If they are raised, demand for money is meant to decrease and if they are lowered demand for money is expected to increase. And through demand for money, demand for goods and their prices can be managed. Therefore, it is assumed that inflation and economic performance are controlled by managing interest rates. This flies in the face of the evidence, as the chart in Figure 1 shows, which is of the relationship between the rate of inflation and interest rates in the form of wholesale borrowing costs in Britain, before the Bank of England muddied the waters by using interest rates to manage monetary and economic outcomes. The correlation was between the general price level and interest rates instead of between the rate of change and interest rates. The distinction might not at first be obvious, but the two are entirely different. Keynes, and all other eminent economists were unable to explain the phenomenon, attributed by Keynes to Arthur Gibson as Gibson’s paradox. The explanation is simple. In his business calculations, an entrepreneur must estimate the price his planned manufactured product would obtain, based on current prices. All his calculations hang on that assessment. It sets the basis of his affordable financing costs, from which he could estimate the profitability of an investment in production after his other costs. If prices were high, he could afford to pay a higher rate of interest and would be willing to bid up interest rates accordingly. If they were low, he could only afford a lower rate. That is why interest rate levels tended to track wholesale price levels and not their rate of change. Thus, it was entrepreneurial borrowers in their business calculations who set interest rates, not, as Keynes assumed, the idle rentier deriving an unearned income by demanding usurious rates of interest from hapless borrowers. If anything, fluctuations in the price level (ie the rate of price inflation) destabilised business calculations. To an investing entrepreneur, interest is certainly a cost. But the position for a lender is entirely different. When he lends money, its usefulness is lost to him over the term of a loan, for which he reasonably expects compensation. This is known as time-preference. Additionally, there is the risk the money might not be returned, if for example, the borrower defaults. This is the risk involved. And in these times of fiat currency, there is the further consideration of its potential debasement by the end of the loan. Unless all these issues are satisfied in the mind of the lender, the availability of monetary capital from savings for business investment and for cash flow purposes will be hampered. Under a gold standard, the debasement issue does not generally apply. An indication of the sum of time preference and lending risk can be judged from the coupons paid on government debt, which in the case of the British government in the nineteenth century was 3% on Consolidated Loan Stock issued between 1751 and 1888, subsequently reduced to 2.75% and then 2.5% in 1902. Even when a currency in which a loan is struck is gold backed, an interest rate of two or three per cent for a prime borrower was shown to be appropriate. For them to go any lower implies, as John Law stated in the quote later in this article, that currency is being expanded with a view to driving interest rates below a natural level. Not only are central bank interest rate policies founded on a misconception proved by Gibson’s paradox and its explanation, but the entire operation distorts economic outcomes and cannot ever succeed in their objective. And as for distortions taking bond yields into unnatural negative territory as has been the case in Japan and the Eurozone, the unwinding thereof promises to result in economic and monetary catastrophe, because borrowers, including governments, have been hoodwinked into irresponsible borrowing for borrowing’s sake. The monetary myths shared by Law and Keynes We know that financial asset values are going to fall, because with consumer and producer prices rising strongly, interest rates and bond yields will continue to rise. So far, the yield on the 10-year US Treasury note has risen from 0.5% in August 2020 to 2.9% this week. The value destruction for this indicator has been over 20% from par so far. But according to government statistics, US consumer prices are rising at 8.5%, and likely to increase at an even faster rate when the consequences of Russian sanctions begin to do their work. Therefore, the yield on US Treasuries of all maturities is set to increase considerably more. Unless, that is, the Fed adopts the policy of the Bank of Japan and intervenes to stop yields rising. We are witnessing the effect of yield suppression on the Japanese yen, which since 4 March has fallen over 12% against the dollar. The relationship between a central bank rigging financial asset values and the effect on the currency is being demonstrated. In 1720 France John Law similarly tried to stop his Mississippi shares from falling by issuing unbacked livres expressly to buy shares in a support operation. It is worth drawing attention to the similarities of that experience with current developments in markets and currencies. Like Keynes over two centuries later, Law believed in stimulating an economy with credit and by suppressing interest rates. Keynes formulated his approach as a response to the great depression, despite (or because of) the US Government’s attempts to fix it having continually failed. Keynes in effect started again, dismissing classical economics and invented macroeconomics in its place. Law similarly recommended a reflationary solution to a struggling French economy burdened by the bankruptcy of royal finances. Law proposed to stimulate it by issuing a new currency, livres, as receipts for deposits in coin. The convenience of notes, which would be accepted as settlement for taxes and other public payments, was expected to ensure they would replace coin. Keynes’ version was the bancor, which was not adopted, but the US dollar acted as the vehicle for global stimulation in its place. Both currency proposals were not overtly inflationary at the outset, nor was the adoption of the dollar in the bancor’s place. But they gave the issuers the flexibility to gradually loosen them from the discipline of metallic money. In October 1715 at a special session at the chateau de Vincennes, Law made his proposal to the Council of Finances, stressing that his proposed bank would only issue notes in return for deposits of coin. In other words, it would be a deposit bank only. The Council turned down Law’s proposal, but in May 1717, he finally got the go-ahead to establish a “general bank”. That became the Royal Bank the following year, a forerunner of today’s central banks. It was then to be merged with Law’s Mississippi venture in February 1720. The Mississippi venture included two other companies which all together represented a monopoly on France’s foreign trade and Law needed to raise funds to build ships. Having obtained his original banking licence, Law proceeded to inflate a financial bubble to finance his project, and to create sufficient revenues to pay down the royal debts. His appointment to the official role of Controller General of Finance in early 1720 enabled him to finance the bubble by expanding a combination of credit and paper currency without having to clear the expansion of currency through Parliament, which was the procedure until then. In late 1719, Law was already buying Mississippi shares using new currency, an action which foreshadowed today’s quantitative easing. Central to Law’s strategy was the suppression of interest rates. As early as 1715, he wrote: “An abundance of money which would lower the interest rate to 2% would in reducing the financing costs of the debts and public offices etc, relieve the King. It would lighten the burden of the indebted noble landowners. This latter group would be enriched because agricultural goods would be sold at higher prices. It would enrich traders who would then be able to borrow at a lower interest rate and give employment to the people.” Today, we know this as Keynesian economic theory. The expansion of the currency was especially dramatic in early-1720, with an already bloated one billion livres in circulation at the end of 1719 from a standing start in only thirty months. In a desperate attempt to support the shares in a falling market, this had expanded to 2.1 billion livres by the middle of May. The addition of all this paper and credit led to prices of goods rising at a monthly rate of over 20% by January 1720. Unsurprisingly, Law refused to pay out gold and silver for the supposedly backed livres, and the collapse of the whole scheme ensued. By September, the Mississippi shares had fallen from 10,000L to 4,000L, but the currency in which the shares were priced was worthless on the London and Amsterdam exchanges. The lessons for today cannot be ignored. Law ruined the French economy with his proto-Keynesian policies. Today, with quantitative easing the same policies are a global phenomenon. Law’s support operations for royal finances are no different from today’s suppression of government bond yields. And now that prices for goods are beginning to rise, in all certainty there will be an even greater crisis for food prices in the coming months, just as there was widespread starvation in France in the summer of 1720. How to profit from these mistakes Not only do we have in 1720s France a precedent for today’s economic and financial conditions, but Richard Cantillon gave us a strategy of how to profit from the situation. He showed that it was not sufficient just to sell financial assets for currency, but the currency itself presented the greater danger of losses. Today, Cantillon is known for his Essay on Economic Theory and the Nature of Trade in General. The Cantillon effect describes how currency debasement gradually progresses through the economy, driving up prices as it enters circulation. Cantillon operated as a banker in Paris during the Mississippi bubble, dealing in both the shares and the currency. He traded both Mississippi shares in Paris and South Sea Company shares in London on the bull tack, selling out before they collapsed. He proved to be an accomplished speculator in these bubble conditions. As a banker, Cantillon extended credit to wealthy speculators, taking in shares as collateral. From the outset he was sceptical of Law’s scheme and would sell the collateral in the market after prices had risen without informing his customers. When Law’s scheme collapsed, he benefited a second time by claiming the debts owed from the original loans, claims that were upheld in a series of court cases in London, because the shares being unnumbered were regarded as fungible property which like money itself could not be specifically identified and reclaimed by an earlier owner. His second fortune was from shorting the currency on the exchanges in London and Amsterdam by selling the livre forward for other currencies which were encashable for specie. And it is that action which can guide us through the end of the era of the dollar’s financialisation and the likely consequences for the currency. Today, the other side of the dollar’s difficulties is the availability of alternatives. Gold is still legally true money in coin form, and it can be expected to protect individual wealth in a livre-style collapse. Today, there are cryptocurrencies, such as bitcoin, but they will never be legal tender and because previous ownership can be traced through the blockchain they can be seized if identified as stolen property. Then there are central bank digital currencies, planned to be issued by the organs of the state that have already made a mess of fiat currencies. Whichever way this question is considered, we always return to gold as the sound money chosen by its users — and that was what Cantillion effectively bought in selling livres for specie-backed currencies. In the current context the concept that future currencies will relate to commodities and not financial assets is particularly interesting. This thinking appears to be embodied in a new pan-Asian replacement for the dollar as a payment medium. The Eurasia Economic Union Russia, China and the members, associates and dialog partners of the Shanghai Cooperation organisation appear to understand the dangers to them from a currency collapse of the dollar, other Western currencies and of associated financial assets. There are three pieces of evidence that this may be so. Firstly, China responded to the Fed reducing its funds rate to zero and the introduction of monthly QE of $120bn in March 2020 by stockpiling commodities, raw materials, and grains. Clearly, China understood the implications for the dollar’s purchasing power. By backing its economy with commodity stocks she was taking steps to protect her own currency from the dollar’s debasement. Secondly, sanctions against Russia rendered the dollar, euro, yen, and pounds valueless in its national reserves. At the same time, sanctions have pushed up commodity prices measured in those currencies. Russia has responded by insisting on payments for energy from “unfriendly nations” in roubles, while the central bank has resumed buying gold from domestic producers. Again, the currency is reflecting its commodity features. And lastly, the Eurasia Economic Union, which combines Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan, has proposed a new currency in conjunction with China. Details are sketchy, but we have been told that the new currency will combine the national currencies of the nations involved and twenty exchange-traded commodities. It sounds like it will be a statist version of earlier gold standards, with perhaps 40-50% commodity backing, presumably to be fixed against national currencies daily. Like the SDR, it will be supplemental to national currencies, but used for cross-border trade settlement. The involvement of both China and Russia suggests that it might be adopted more widely by the Shanghai Cooperation Organisation, representing 40% of the world’s population and freeing them from the dollar’s hegemony. The original motivation was to remove a weaponised dollar from pan-Asian trade, but recent developments have imparted a new urgency. Rapidly rising prices, in other words an accelerating loss of the dollar’s purchasing power, amounts to a transfer of wealth from dollar balances in Asian hands to the US Government. That is undesirable for the EAEU members. Furthermore, the flaws in the yen and the euro have become obvious as well. All Western currencies will almost certainly be undermined by their central banks’ resistance to rising bond yields as the John Law experience Mark 2 plays out. It might prove impractical for westerners to access this new currency to escape the collapse of their own national currencies. Anyway, a new currency must become established before it can be trusted as a medium of exchange. But the concept appears to be in line with Sir Isaac Newton’s rule of a 40% gold backing for a currency to be always maintained. The difference is that instead of the issuer lacking the flexibility to inflate the currency at will, the composition of the proposed Eurasian currency can be altered by the issuer. Putting this objection to one side, prices of commodities measured in goldgrams appear to have been remarkably stable over long periods of time. Certainly, wholesale prices in nineteenth century Britain under its gold standard confirm this is so. Figure 2 shows a remarkable stability of prices for a century under an uninterrupted gold coin exchange standard. The variations, most noticeable before the 1844 Bank Charter Act, are due to a cycle of expansion and contraction of bank credit. And the gentle increase from the late-1880s reflected the increased supply of gold from the Witwatersrand discoveries in South Africa. Whisper it quietly, but this remarkable price stability, coupled with technological developments, with minimum government saw a relatively small nation come to dominate world trade. If the Eurasia Economic Union manages to establish a stable currency similarly backed by commodities as the British pound was by gold, a pre-industrialised Central Asia holds out the promise of a similar economic advancement. But that will also require a hands-off approach to markets, which is not in character for any government, let alone the authoritarians in Central Asia. The value destruction ahead So far, this article has drawn attention to the ending of an era of fiat currency financialisation, the monetary policy errors, and the contrasting developments in Asia, where a preference for commodity backing for roubles, yuan and a new Eurasian currency is emerging. The success of the Asian currencies is set to destabilise those of the West. But irrespective of the future for Asian currencies, the West’s currencies bear the seeds of value destruction within themselves, simply because their evolution has nowhere further to go other than downhill. There is a complacent assumption that central banks are in control of interest rates and always will be. What is missing is an understanding of markets, which ultimately reflect human action. It is an error which eventually leads to states’ combined actions failing completely. We saw this in the 1970s, after the last vestiges of gold backing for the dollar were abandoned with the suspension of the Bretton Woods Agreement. Not only did the dollar lose its tie to gold, but all other currencies from that moment lost it as well. Consequently, inflation in the form of consumer prices began to rise shortly thereafter, fuelled by a combination of monetary expansion and loss of faith in currencies’ purchasing power — the latter particularly from OPEC members who demanded substantially higher dollar prices for crude oil. Despite the prospects for North Sea oil, the consequences for the UK’s government finances were catastrophic, leading to a bailout from the IMF in September 1976 (IMF bailouts were exclusively for third-world nations — for the UK this was beyond embarrassing). And the Labour government was forced to issue gilts bearing coupons of 15%, 15 ¼%, and 15 ½%. Globally, we have a similar situation today, except instead of entering the post-Bretton Wood years with the US dollar’s Fed Funds Rate at 6.62%, we have entered the new commoditisation era with the FFR at zero. We exited the 1970s with a FFR of over 19%. In August 1971 when the Bretton Woods Agreement was suspended the yield on the 10-year US Treasury constant maturity note was 6.86%. By September 1981 it stood at 15.6%. In August 2020 it was at an unnatural 0.5%, going to —who knows? In 1980, Paul Volker slayed the inflation dragon by hiking interest rates to economically destructive levels. It is hard to envisage a similar action being taken by the Fed today. But what we can see is the potential for consumer prices to rise, driven by currency debasement, to at least similar if not greater levels seen during the 1970s decade. Accordingly, bond yields have much, much further to rise. The bankruptcies of over-indebted businesses, their bankers, the central banks loaded with failing financial assets, and governments themselves all beckon. Financial assets are at the top of their bubble, of that there should be little doubt. As interest rates rise, all financial assets will begin to collapse in value. That cannot be denied. And where financial assets interact with the real world, such as mortgage finance, the disruption will undermine values of physical assets as well. Financial assets represent a higher level of collateral backing for bank credit than on previous credit cycles. Forced collateral liquidation will also drive financial asset prices lower. The potential for a crash on the scale of Wall Street between 1929—1932 should be obvious. Equally obvious is the likely reaction of central banks, which will surely redouble their efforts to prevent it happening. Quantitative easing is set to increase to finance all spendthrift government spending shortfalls, which can only escalate in these conditions. Central banks will be doing it not just because they want to preserve a “wealth effect” for the private sector, but to save themselves from the consequences of earlier currency debasement. The central banks of Japan, the euro system, the UK and the US have all loaded up on government bonds, whose prices are just beginning to collapse, if the higher bond yields seen in the 1970s return. Central bank liabilities are beginning to exceed their assets, a situation which in the private sector requires directors to admit to bankruptcy and cease trading. In most cases, recapitalising a central bank is a simple operation, whereby the central bank makes a loan to its government, and though double entry bookkeeping, instead of the government being credited as a depositor it is credited as a shareholder. Simple, but embarrassing in the middle of a developing financial crisis. When pure fiat currencies are involved. Undoubtedly, this is what the Bank of Japan will be forced to do, but for now it is refusing to accept the reality of higher interest rates and the effect on its extensive portfolio of JGBs, corporate bonds and equity ETFs. Consequently, its currency, the yen, is collapsing. The position of the ECB is more complex because its shareholders are the national central banks in the euro system which in turn will need bailing out. The imbalances in the TARGET2 settlement system are an additional complication, and outstanding repos last estimated at €8.725 trillion are there to be unwound. Between Japan and the Eurozone, we can expect to see their currencies collapse first. Initially, the dollar will appear strong on the foreign exchanges reflecting their decline. But foreigners possess financial assets and deposits totalling over US$33 trillion on current valuations. If the Fed is unable to prevent bond yields from soaring much above current levels, most of this, including the $15 trillion invested in equities, will be wiped out. The destruction of value measured in collapsing currencies will be economically catastrophic. It is to avoid this fate that first China, and now Russia are commoditising their currencies and even planning for a new cross-border settlement medium tied partially to commodity values. They hope to escape from interest rates rising in fiat currencies as they lose purchasing power. If the global conflict is financial, the West has lost it already. The geopolitical consequences are another story for a later day. Tyler Durden Sun, 04/24/2022 - 16:30.....»»

Category: blogSource: zerohedgeApr 24th, 2022

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

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

Category: blogSource: zerohedgeApr 20th, 2022

Futures Rebound Ahead Of Critical CPI Print

Futures Rebound Ahead Of Critical CPI Print US futures rebounded on Friday from Thursday's selloff as traders waited with bated breath for an inflation report that could strengthen the case for an aggressive policy tightening by the Federal Reserve, while Oracle Corp jumped on an upbeat third-quarter outlook. At 730 a.m. ET, Dow e-minis were up 109 points, or 0.30%, S&P 500 e-minis were up 16.25 points, or 0.35%, and Nasdaq 100 e-minis were up 53.50 points, or 0.4%. Europe’s Stoxx 600 Index pared an earlier decline, while a Bloomberg gauge of Asian airlines fell. In China, Evergrande chairman Hui Ka Yan sold just over a 2% stake in the company, in the same week the property developer was officially labeled a defaulter for the first time. The dollar, Treasury yields and oil advanced. Shares of Oracle gained 11.2% in premarket trading after posting forecast-beating results for the second quarter, helped by higher technology spending from businesses looking to support hybrid work.  Broadcom Inc rose 7.0% as the semiconductor firm sees first-quarter revenue above Wall Street expectations and announced a $10 billion share buyback plan. So far this week, the Nasdaq and the S&P advanced over 2.8% each and the Dow rallied 3.4%. The S&P is now down 1.6% from its all-time peak. The S&P 500 dropped 5.2% from a record high hit on Nov. 22 as investors digested Jerome Powell's renomination as the Fed's chair, his hawkish commentary to tackle. Meanwhile, the U.S. Senate on Thursday passed and sent to President Joe Biden the first of two bills needed to raise the federal government's $28.9 trillion debt limit and avert an unprecedented default. In other news, the U.S. government moved a step closer to prosecuting Julian Assange on espionage charges, after London judges accepted that the WikiLeaks chief can be safely sent to America. With headline CPI expected to print at 6.8% Y/Y this morning - in what would be its highest level since 1982 - with whisper numbers are high as the low 8% after Biden said that this month's number won't show the drop in gasoline prices (which is certainly transitory now that oil price are on track for the biggest weekly gain since August), it is very likely that the CPI number will miss and we will see a major relief rally. On the other hand, any upside surprise on the reading will likely bolster the case for a faster tapering of bond purchases and bring forward expectations for interest rate hikes ahead of the U.S. central bank's policy meeting next week. “Various FOMC participants, including Chair Powell, have signaled a hawkish shift in their policy stance, catalyzed by increasing discomfort with elevated inflation against a backdrop of robust growth and ongoing strengthening in labor markets conditions,” Morgan Stanley economists and strategists including Ellen Zentner, wrote in a note Thursday. “We revise our Fed call and now expect the FOMC to begin raising rates in Sept. 2022 -- two quarters earlier than our prior forecast.” Discussing today's key event, the CPI print, DB's Jim Reid writes that "our US economists are anticipating that headline CPI will rise to +6.9%, which would be the fastest annual pace since 1982. And they see core inflation heading up to +5.1%, which would be the highest since 1990. Bear in mind as well that this is the last big release ahead of next Wednesday’s Federal Reserve decision, where our economists are expecting they’ll double the pace of tapering. Chair Powell himself reinforced those expectations in recent testimony, stopping just shy of unilaterally announcing the faster taper. Crucially, he noted this CPI print and the evolution of the virus were potential roadblocks to a faster taper next week. That said, the bar is extremely high for today’s data print to alter their course, especially with the Covid outlook having not deteriorated markedly since his testimony. By the close last night, Fed funds futures were fully pricing in a rate hike by the June meeting, alongside more than 70% chance of one by the May meeting." A reminder that last month saw another bumper print, with the monthly price gain actually at its fastest pace since July 2008, which sent the annual gain up to its highest since 1990, at +6.2%. It also marked the 6th time in the last 8 months that the monthly headline print had been above the consensus estimate on Bloomberg, and in another blow for team transitory, the drivers of inflation were increasingly broad-based, rather than just in a few categories affected by the pandemic. It may have been the death knell for team transitory, with Chair Powell taking pains to retire the term in the aforementioned testimony before Congress. In Europe, stocks fell slightly as a rise in coronavirus infections, with the Stoxx 600 dropping 0.3%, weighed down the most by tech, health care and utilities. DAX -0.2%, and FTSE 100 little changed, both off worst levels. Meanwhile, an epidemiologist has said that the omicron strain may be spreading faster in England than in South Africa, with U.K. cases possibly exceeding 60,000 a day by Christmas. Banks in the U.K. have already started telling staff to work from home in response to the government’s guidance.  Daimler AG’s trucks division gained in its first trading day as the storied German manufacturer completed a historic spinoff to better face sweeping changes in the auto industry. Polish retailer LPP rose to a record. Asian stocks fell on worries over the global spread of the omicron virus strain and after China Evergrande and Kaisa Group officially defaulted on their dollar debt. The MSCI Asia Pacific Index lost as much as 0.9%, with healthcare, technology and consumer discretionary sectors being the worst performers. Benchmarks slid in China and Hong Kong after Fitch Ratings cut Evergrande and Kaisa to “restricted default,” with the Hang Seng Index being the region’s biggest loser. Investors remain concerned that the omicron virus strain may crimp the economic rebound. South Korea brought forward the timing for Covid-19 booster shots to just three months after the second dose, as one of Asia’s most-vaccinated countries grapples with its worst ever virus surge. The Kospi snapped a seven-day winning run. Meanwhile, the U.S. appears to be headed for a holiday crisis as virus cases and hospital admissions climb, while London firms started telling thousands of staff to work from home. “In Europe, restrictions are being put in place, not just in the U.K. but also in other countries, due to the spread of the omicron variant, spurring worry over the impact on the economy,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities. “If work-from-home practices are prolonged, consumption will become lackluster, delaying any recovery.” Still, the Asian benchmark is up 1.2% from Dec. 3, poised for its best weekly advance in about two months. That’s owing to gains earlier in the week after China’s move to boost liquidity helped restore investor confidence. Traders are now turning focus to U.S. inflation data due later in the day for clues on the pace of anticipated tapering. China’s central bank took further steps to limit the yuan’s strength -- setting the weakest reference rate relative to estimates compiled by Bloomberg since 2018 -- a day after policy makers raised the foreign currency reserve requirement ratio for banks a second time this year. In rates, the Treasury curve bear flattened with 5s30s printing sub-60bps ahead of today’s November CPI data. Bunds and gilts are quiet; Italy leads a broader tightening of peripheral spreads. In FX, the Bloomberg Dollar Spot Index rises 0.2%, building on modest strength during the Asian session. AUD leads G-10 peers; NZD and SEK are weakest, although ranges are narrow. Demand for euro downside exposure waned this week as investors now focus on the upcoming decisions by the Federal Reserve and the European Central Bank. China’s central bank took further steps to limit the yuan’s strength In commodities, brent crude is slightly higher on the day, hovering around the $74-level, while WTI climbs 0.6% to $71-a-barrel. Base metals are mixed. LME aluminum and copper rise, while zinc and lead declines. Spot gold drops $4 to $1,771/oz. Looking at the day ahead now, and the main data highlight will be the aforementioned US CPI reading for November. In addition, there’s the University of Michigan’s preliminary consumer sentiment index for December, UK GDP for October and Italian industrial production for October. Central bank speakers include ECB President Lagarde, along with the ECB’s Weidmann, Villeroy, Panetta and Elderson. Market Snapshot S&P 500 futures up 0.2% to 4,677.75 STOXX Europe 600 down 0.4% to 474.88 MXAP down 0.8% to 193.90 MXAPJ down 0.8% to 632.63 Nikkei down 1.0% to 28,437.77 Topix down 0.8% to 1,975.48 Hang Seng Index down 1.1% to 23,995.72 Shanghai Composite down 0.2% to 3,666.35 Sensex little changed at 58,799.05 Australia S&P/ASX 200 down 0.4% to 7,353.51 Kospi down 0.6% to 3,010.23 Brent Futures up 0.4% to $74.69/bbl Gold spot down 0.3% to $1,770.81 U.S. Dollar Index little changed at 96.32 German 10Y yield little changed at -0.34% Euro down 0.1% to $1.1281 Top Overnight News from Bloomberg Already fighting economic fires on a number of fronts, China is rushing to clamp down on speculation in its strengthening currency before it gets out of control The arrival of the omicron variant has triggered a global rush for booster shots, but questions remain over whether it is the right strategy against omicron The Biden administration aims to sign what could prove a “very powerful” economic framework agreement with Asian nations -- focusing on areas including coordination on supply chains, export controls and standards for artificial intelligence -- next year, Commerce Secretary Gina Raimondo said A mouse bite is at the center of an investigation into a possible new Covid-19 outbreak in Taiwan, after a worker at a high-security laboratory was confirmed as the island’s first local case in more than a month A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were on the back foot as the region took its cue from the weak performance in the US, where the major indices reversed recent upside in the run-up to today’s US CPI metric. The ASX 200 (-0.4%) was led lower by the underperformance in energy and tech after a retreat in oil prices and similar weakness of their counterpart sectors in US. The Nikkei 225 (-1.0%) remained lacklustre as it succumbed to the recent inflows into the currency, although the downside was stemmed as participants digested a record increase in wholesale prices. The Hang Seng (-1.0%) and Shanghai Comp. (-0.2%) were hindered by several headwinds including lower-than-expected lending and aggregate financing data, as well as China’s latest internet crackdown in which it removed 106 apps from app stores. However, losses were contained by a softer currency after China’s efforts to curb RMB strength including the PBoC’s 200bps FX RRR hike yesterday and its overnight weakening of the reference rate by the widest margin against estimates on record. Finally, 10yr JGBs were quiet after the mixed performance in US fixed income markets and with the risk-averse mood counterbalanced by the lack of BoJ purchases in the market today, although later saw a bout of selling on a breakdown of support at the key 152.00 level. Top Asian News Evergrande’s Hui Forced to Sell Part of Stake in Defaulted Firm Hui Has 277.8m Evergrande Shares Sold Under Enforced Disposal Asia Stocks Fall on Renewed Concerns Over Evergrande and Omicron Gold Heads for Worst Weekly Run Since 2019 Before Inflation Data Cash bourses in Europe kicked off the session with modest losses across the board, but the region has been clambering off worst levels since (Euro Stoxx 50 -0.3%; Stoxx 600 -0.3%) as traders gear up for the US CPI release (full preview available on the Newsquawk headline feed). US equity futures meanwhile post modest broad-based gains across the ES (+0.3%), NQ (+0.3%), RTY (+0.4) and YM (+0.2%). Back to Europe, cash markets see broad but contained downside. Sectors are mixed with no overarching theme or bias. Tech resides at the foot of the bunch with heavyweight SAP (-0.2%) failing to garner impetus from Oracle’s (+11% pre-market) blockbuster earnings after beating expectations on the top and bottom lines and announcing a new USD 10bln stock-repurchase authorisation. The upside meanwhile sees some of the more inflation-related sectors, including Oil & Gas, auto, Goods, Foods, and Beverages. In terms of individual movers, Bayer (+1.8%) is firmer after the Co. won a second consecutive trial in California regarding its Roundup weed killer. Daimler (-15%) sits at the foot of the Stoxx 600 after spinning off its Daimler Trucks unit (+4%) - considered to be a market listing rather than a full initial public offering. Top European News Heathrow Offers Bleak Outlook as Omicron Halts Long-Haul Rebound HSBC, JPMorgan, Deutsche Bank Tell London Staff to Stay Home SocGen CEO Takes Over Compliance After $2.6 Billion Fines Santander AM Names Utrera as Head of Equities as Montero Exits In FX, not a lot of deviation from recent ranges, but the Greenback is grinding higher ahead of US inflation data and Treasuries are bear-steepening to suggest hedging or positioning for an upside surprise following pointers from President Biden and NEC Director Deese to that effect (both advising that recent declines in prices, including energy, will not be reflected in November’s metrics). The index is back above the 96.000 level that has been very pivotal so far this week and hovering near the upper end of a 96.429-157 range, while the benchmark 10 year T-note yield is holding above 1.50% after a so-so long bond auction to wrap up the latest refunding remit. NZD/JPY/GBP - It’s marginal, but the Kiwi, Yen and Pound are lagging behind in the G10 stakes, with Nzd/Usd back below 0.6800 and perhaps taking note of a marked slowdown in the manufacturing PMI to 50.6 in November from 54.3, while Usd/Jpy is straddling 113.50 and eyeing DMAs either side of the half round number and Cable remains choppy around 1.3200 in wake of UK GDP, ip and output all missing consensus. AUD/CAD/EUR/CHF - All a tad more narrowly divergent vs the Buck, and the Aussie managing to keep tabs on 0.7150 after outperformance post-RBA on mainly external and technical impulses. Elsewhere, the Loonie has limited losses through 1.2700 with some assistance from hawkish sounding commentary from BoC Deputy Governor Gravelle rather than choppy crude prices as WTI swings around Usd 71/brl. To recap, he said that concerns over inflation are heightened on the upside much more than usual and the BoC is likely to react a little bit more readily to the upside risk given that inflation is already above the control range. Elsewhere, the Euro continues to fade on advances beyond 1.1300 and hit resistance at or near the 21 DMA and the Franc is more attuned to yields than risk sentiment at present, like the Yen, though is outpacing the Euro, as Eur/Chf veers towards 1.0400 again and Usd/Chf sits closer to 0.9250 vs 0.9200. In commodities, WTI and Brent front-month futures have been edging higher in early European trade following a choppy APAC session and in the run-up today’s main event, the US inflation data. Currently, WTI Jan trades just under USD 71.50/bbl (vs low USD 70.32/bbl) while Brent Feb resides north of USD 74.50/bbl (vs low USD 73.80/bbl), with news flow also on the lighter side ahead of the tier 1 data. In terms of other macro events, sources suggested Iran is willing to work from the basis of texts created in June on nuclear discussions, which will now be put to the test in upcoming days, via a European diplomatic source. This would mark somewhat of a shift from reports last week which suggested that Iran took a tougher stance than it had back in June. Western diplomats last week suggested that Tehran ramped up their conditions, which resulted in talks stalling last Friday. Aside from that, relevant news flow has been light for the complex. Elsewhere, spot gold and silver are drifting lower in tandem gains in the Dollar – spot gold has dipped under USD 1,770/oz, with the current YTD low at 1,676/oz. LME copper holds its head above USD 9,500/t but within a tight range amid the overall indecisive mood across the markets. US Event Calendar 8:30am: Nov. CPI YoY, est. 6.8%, prior 6.2%; MoM, est. 0.7%, prior 0.9% 8:30am: Nov. CPI Ex Food and Energy YoY, est. 4.9%, prior 4.6%; MoM, est. 0.5%, prior 0.6% 8:30am: Nov. Real Avg Hourly Earning YoY, prior -1.2%, revised -1.3% Real Avg Weekly Earnings YoY, prior -1.6% 10am: Dec. U. of Mich. 1 Yr Inflation, est. 5.0%, prior 4.9%; 5-10 Yr Inflation, prior 3.0% Sentiment, est. 68.0, prior 67.4 Expectations, est. 62.5, prior 63.5 Current Conditions, est. 73.5, prior 73.6 DB's Jim Reid concludes the overnight wrap I’m sure if anyone had said to you at the start of 2021 that US CPI would end the year around 7% YoY then there may have been some sleepless nights about how to position your portfolio. The reality is that as inflation has risen, the market has managed to go through denial, transitory, elongated transitory, and now the retirement of transitory, all without much fuss. I’ve said this before but I doubt there is anyone in the world that predicted we’d end the year at near 7% whilst at the same time having 10yr UST yields still at around 1.5%. Today our US economists are anticipating that headline CPI will rise to +6.9%, which would be the fastest annual pace since 1982. And they see core inflation heading up to +5.1%, which would be the highest since 1990. Bear in mind as well that this is the last big release ahead of next Wednesday’s Federal Reserve decision, where our economists are expecting they’ll double the pace of tapering. Chair Powell himself reinforced those expectations in recent testimony, stopping just shy of unilaterally announcing the faster taper. Crucially, he noted this CPI print and the evolution of the virus were potential roadblocks to a faster taper next week. That said, the bar is extremely high for today’s data print to alter their course, especially with the Covid outlook having not deteriorated markedly since his testimony. By the close last night, Fed funds futures were fully pricing in a rate hike by the June meeting, alongside more than 70% chance of one by the May meeting. A reminder that last month saw another bumper print, with the monthly price gain actually at its fastest pace since July 2008, which sent the annual gain up to its highest since 1990, at +6.2%. It also marked the 6th time in the last 8 months that the monthly headline print had been above the consensus estimate on Bloomberg, and in another blow for team transitory, the drivers of inflation were increasingly broad-based, rather than just in a few categories affected by the pandemic. It may have been the death knell for team transitory, with Chair Powell taking pains to retire the term in the aforementioned testimony before Congress. Ahead of this, markets were in slightly subdued mood yesterday as the reality of the new Omicron restrictions in various places soured the mood. Even as the news on Omicron’s severity has remained positive, concern is still elevated that this good news on severity could be outweighed by a rise in transmissibility, which ultimately would lead to a higher absolute number of both infections and hospitalisations. Even if it doesn’t, it seems restrictions are mounting while we wait and see. In response, US equities and oil prices fell back for the first time this week, as did 10yr Treasury yields. The S&P 500 (-0.72%) and the STOXX 600 (-0.08%) fell, whilst the VIX index of volatility ticked back up +1.73pts to move above the 20 mark again. Tech stocks underperformed in a reversal of the previous session, with the NASDAQ down -1.71%, and the small-cap Russell 2000 seeing a hefty -2.27% decline, as it moved lower throughout the day. Other risk assets saw similar declines too, with Brent crude (-1.85%) and WTI (-1.96%) oil prices both paring back their gains of the week so far. The move out of risk benefited safe havens, with sovereign bond yields moving lower across the curve, with those on 10yr Treasuries down -2.2bps to 1.50%. Those moves were echoed in Europe, where yields on 10yr bunds (-4.3bps), OATs (-4.5bps) and BTPs (-2.9bps) fell back as well. That came against the backdrop of a Reuters report saying ECB governors would discuss a temporary increase in the Asset Purchase Programme at their meeting next week, albeit one that would still leave bond purchases significantly beneath their current levels once the Pandemic Emergency Purchase Programme ends in March. Bitcoin fell -5.21% to $47,997 and is now more than -29% below its all-time highs reached a month ago. Marion Laboure from my team published a piece analysing the interaction between Bitcoin and the environment given its huge energy consumption. You can find the piece here. Ahead of today’s US CPI, there was another round of robust labour market data, with the US weekly initial jobless claims down to 184k (vs. 220k expected) in the week through December 4, marking their lowest level since 1969. The 4-week moving average was also down to a fresh post-pandemic low of 218.75k, having fallen for 9 consecutive weeks now. So with the labour market becoming increasingly tight and price pressures continuing to remain strong, it’s no surprise that markets have moved over the last year from pricing no hikes at all in 2022 to almost 3. Overnight in Asia, equities are all trading in the red with the Shanghai Composite (-0.32%), Hang Seng (-0.50%), Nikkei (-0.58%), CSI (-0.62%) and KOSPI (-0.67%) tracking the weaker US close last night after a three day rally. This comes after Chinese real-estate firms Evergrande Group and Kaisa Group were downgraded to restricted default by Fitch Ratings. Elsewhere in Japan, November's PPI reading came in at the highest level since 1980 at +9.0% year-on-year against +8.5% consensus due largely to rising energy prices. Our Japan economist expects CPI rising above 1% next year to be one of the ten key events to watch in 2022. You can read more here. Staying on Japan, the ruling party today will unveil a set of tax policy measures aimed at incentivising businesses to raise wages as Prime Minister Fumio Kishida aims to deliver on campaigning promises. Futures are pointing to a slightly more positive start in the US with S&P 500 futures (+0.10%) trading higher but with DAX futures (-0.24%) catching down to the weaker US close. Out of DC, the Senate approved a one-time procedural measure that will allow them to raise the debt ceiling with a simple majority vote, ostensibly in the coming days, and hopefully for a longer period than the last six-week suspension. Yields on potentially at-risk Treasury bills are at similar levels to neighboring maturities. In terms of the latest on the pandemic, yesterday didn’t see any news of major significance, with the indicators mainly confirming what we already knew. In particular, the EU’s ECDC continued to say that among the 402 confirmed Omicron cases in the EU/EEA, all the cases with known severity were either asymptomatic or mild, with no deaths reported. So positive news for now, although it’ll be very important to keep an eye with what happens with hospitalisations in South Africa, which are continuing to rise, and the country also reported another 22,391 cases yesterday, which is once again the highest number since the Omicron variant was first reported. Separately, the US FDA moved yesterday to expand the eligibility of the Pfizer-BioNTech booster to 16 and 17 year olds. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for November. In addition, there’s the University of Michigan’s preliminary consumer sentiment index for December, UK GDP for October and Italian industrial production for October. Central bank speakers include ECB President Lagarde, along with the ECB’s Weidmann, Villeroy, Panetta and Elderson. Tyler Durden Fri, 12/10/2021 - 07:50.....»»

Category: blogSource: zerohedgeDec 10th, 2021

"The Crisis Is Upon Us" - Macleod Warns "We Have Never Seen Anything Like This"

'The Crisis Is Upon Us' - Macleod Warns 'We Have Never Seen Anything Like This' Authored by Aladair Macleod via GoldMoney.com, Gold has never been more attractive... In our lifetimes, we have not seen anything like the developing economic and financial crisis. Rising interest rates are way, way behind reflecting where they should be. Interest rates have yet to discount the continuing loss of purchasing power in all major currencies. The theory of time preference suggests that central bank interest rates should be multiples higher, to compensate for the current loss of currency purchasing power, enhanced counterparty risk, and a rapidly deteriorating economic and monetary outlook. There is no doubt that the majority of investors are not even aware of the true scale of danger that interest rates pose to their financial assets. Some wealthier, more prescient investors are only in the early stages of beginning to worry. But if you liquidate your portfolio, you end up with depreciating cash paying insufficient interest. What can you do to escape the fiat currency trap? This article argues that having everything in fiat currencies is the problem. The solution is a flight into real money, that is only physical gold — the rest is rapidly depreciating fiat credit. Owning real money is the only way to escape the calamity that is engulfing our current economic, financial, and fiat currency world.  Avoiding risk to one’s capital From conversations with family and friends, one detects an uneasy awareness of increasing risk to investments. There are two broad camps. The first and the majority are only aware that interest rates are rising, and their stocks and shares are falling in value but fail to make the connection fully. The second camp is beginning to worry that there’s something very seriously wrong. Investors in the first camp have usually delegated investment decisions to financial advisers, and through them to portfolio managers of mutual funds. They have taken comfort in leaving investment decisions to the experts, and besides the odd hiccup, have been rewarded with reasonably consistent gains, certainly since the early noughties, and in many cases before. They trust their advisers. Meanwhile, their advisers are rewarded by the volume of assets under their management or by fees. Both methods of reward ensure that the vast majority of professional managers and advisers are perennially bullish, further justified by that long-term bullish trend.  This leaves the majority of investors being led into believing that falling financial asset values represent a buying opportunity. After all, their experience for some time has been that it is wrong to sell when markets fall, because they have always recovered and gone higher. And this is the approach promoted by the majority of professional financial service providers because they are always bullish. The other far smaller camp is comprised of those who think more for themselves. They are beginning to make a connection between rising interest rates and falling markets but are badly underestimating the extent to which interest rates should rise.  This camp knows that the sensible thing to do when interest rates rise materially is to sell financial assets. They know that investing in physical property, tangible assets, is equally dangerous because at the margin prices are set by mortgage interest rates which are now rising. But they equally find that just sitting on cash is an unattractive proposition, with consumer prices rising and chipping away at its purchasing power. So, what is to be done? Just leaving it in the bank pays derisory interest. And besides, the proceeds of liquidated portfolios usually exceed government deposit guarantees, which means taking onboard the risk that banks might fail. There are things that can be done, such as investing in short term government bonds as a temporary solution, and perhaps buying some inflation-linked government bonds (TIPS). Other than investing in TIPS, the loss of purchasing power problem remains unresolved. And increasingly, these savvy investors are now waking up to currency risk, particularly if they are British, European, or Japanese. The cost of investment safety in nearly all currencies is rising relative to the dollar. I tell these people that the problem is simple: they have all their eggs in a fiat currency basket. The black and white solution is to get out of fiat by selling financial assets and the fiat cash raised by hoarding real money, that is physical gold in bar and coin form. The argument usually falls on deaf ears, because people only understood the monetary role of gold before the Second World War. That generation has mainly passed away. Why gold is so important has to be explained all over again to a sceptical audience. We then meet two further barriers raised by the sceptics: gold yields nothing, when investors have been used to receiving dividends and interest. And if gold is the answer, why is it performing so badly? These questions will be addressed. But all is at stake. Driven by interest rates rising even more and as the bear market continues, investors relying on investment managers and financial advisers will lose nearly everything.  A seventies redux Global economic conditions today are strikingly similar to UK financial markets in late-1972 and early 1973. Previously, in the autumn of 1970 the new Chancellor of the Exchequer, Tony Barber, had come under pressure from Prime Minister Edward Heath to stimulate Britain’s economy by running an inflationary budget deficit, combined with a deliberate suppression of interest rates from 7% to 5%. Heath was a Keynesian disciple. And in those days, the Bank of England was under the direct command of Heath’s government, its so-called independence only arriving far later.  The rate of price inflation rose slightly from 6.4% in 1970 to 7.1% in 1972. The inflationary consequences of the Barber boom and the reduction of interest rates to negative real values were beginning to bite. Meanwhile, investors had enjoyed an equity bull market. Consumer price inflation then began to rise in earnest. In 1973 it was 9.1%, in 1974 16%, and in 1975 a staggering 24.2%. All this is being replicated today — we are probably where Britain was in late-1972. While the dramatic increases in the rate of price inflation were unforeseen in 1972, being far greater today the stimulus of budget deficits and suppressed interest rates is having a more rapid effect. The gap between official interest rates and the rate of price inflation is magnitudes greater, with the Bank of England’s base rate at 1.75% and consumer prices rising at 8.6%. Even the Bank expects significantly higher CPI rates, with independent estimates forecasting yet higher CPI rates in the new year. Similar stories are to be found worldwide. The comparison with the UK in the early 1970s suggests the inflationary and interest rate consequences today are likely to be even more dramatic for financial assets and for the currencies themselves. In May 1972, the FT30 Index (the headline measure of share prices at that time) peaked at 534, and a year later had already declined significantly, as interest rates began to rise. In late-October 1973 the bubble in commercial office property began to implode. The proximate cause was the rise in short-term interest rates from 7.5% in June 1973 to 11.5% in July, and 13% in November. Consequently, banks which were lending to commercial property speculators collapsed in the notorious secondary banking crisis. And the FT30 Index continued to decline until early-January 1975, losing 74% from the May-1972 peak. Similarly, this is beginning to play out today. What’s happening now differs in some key respects from the UK in the early seventies. From negative and zero starting points, interest rates have much more substantial increases in prospect. The gap between bond yields and consumer price inflation is now far larger in the US, EU, and UK than anything seen in the early seventies. It suggests the consequences of rising interest rates today are likely to be far more financially violent than that experienced in the UK between May 1972 and January 1975. We will be lucky if equity markets lose only 74% this time. But overall, the lesson is clear: sharply rising interest rates are lethal for investors. We now turn to gold. Bretton Woods having been suspended in August 1971, the price of gold in sterling rose from £17.885 per ounce at that time when sterling interest rates were 6%, to over £40 when interest rates were raised to 13% in November 1974. The lesson learned is that the best hedge out of an inflation-driven collapse of conventional investments is gold. The common belief that rising interest rates are bad for gold because it has no yield is disproved. Furthermore, the evolution of investment services since the 1970s is worth noting. In those days, a good stockbroker was skilled at steering his clients through the dangers to their wealth from market uncertainties. Admittedly, his clients were never the pre-packaged masses, but were typically individuals with personal wealth whom he personally knew. Today, passive investors are little more than cannon fodder for a system that absolves itself of any responsibility for outcomes. They are a majority that always get wiped out by delegating all decision making to the so-called experts.  Only those who think for themselves have come to understand that there is something seriously wrong. Investment risks are escalating, and investors must take proactive steps to protect their capital. Unlike their contemporaries in the 1970s who were not so intellectually corrupted by Keynesianism, they have less knowledge of gold, and why it performed so well as an asset in that decade. They need to have a crash course in understanding money and credit, and the distinction between the two. Gold is money — everything else is credit So said John Pierpont Morgan in his testimony before Congress in 1912. He was not expressing an opinion, but stating a legal fact, a legal fact which is still true to this day. Despite all attempts by the authorities to persuade us otherwise, despite periods of bans on ownership and Roosevelt’s outrageous confiscations of gold bullion and coin from the people he was elected to represent, the legal position of gold being money and the rest only credit remains the case. It is why central banks accumulate and retain large reserve balances in gold, and why they refuse to part with them. It is why in official circles the topic is taboo. Ever since the end of barter many millennia ago, transacting people have used media whose primary function was to allow an exchange of goods. Over time, many forms of money were tried and discarded, leaving metals, particularly copper, silver, and gold universally regarded as most durable and capable of being rendered into recognisable coins of a standard weight. Our coins today reflect this heritage. While not containing the original metals, they often reflect the metals’ colours: the highest value looking like gold, intermediate silver, and the lowest copper.  A few thousand years passed before the Roman jurors ruled on monetary matters. Roman jurists were independent from the state. And despite many attempts by emperors and their henchmen to overturn their rulings, their rulings were robust and survived. Jurisprudence, or the science of law, became an independent profession in the third century B.C. Five centuries later, in the second century A.D., the classical era began. From then onward, the legal solutions offered by independent jurors received such great prestige that the force of law was attached to them.  Of particular interest to our subject were the rulings of Ulpian, who defined the status of moneyin the context of banking. On “depositing and withdrawing”, Ulpian starts with a definition: A deposit is something given another for safekeeping. It is so called because a good is posited [or placed]. The preposition de intensifies the meaning, which reflects that all obligations corresponding to the custody of the good belong to that person.[i] He then makes a distinction between a regular deposit; that is a specific item to be retained in custody, and an irregular deposit of a fungible good, stating that: …if a person deposits a certain amount of loose money, which he counts and does not hand over sealed or enclosed in something, then the only duty of the person receiving it is to return the same amount.[ii] Ulpian’s rulings in the early third century still define money and banking today. They were consolidated in The Digest, one of four books in the Corpus Codex Civilis established by order of the Emperor Justinian in about 530AD. Roman law became the basis of all significant European legal systems, and through Justinian, Ulpian’s rulings continue to apply.  In Britain’s case, Rome had left long before Justinian’s emperorship, so Roman rulings were not an explicit part of common law. However, when common law and the Court of Chancery merged in 1873 the distinction between custody deposits and mutuum contracts (when fungible goods such as money coins are transferred to another’s possession under a commitment to return a similar quantity) became unquestionably recognised, fully validating what had been common banking practice since the seventeenth century. Of the three forms of metallic money, gold became the standard in Britain in 1817, and all significant currencies which had not done so before became exchangeable for gold in preference to silver in the 1870s. It is therefore correct to say that today, gold is the only form of true money in our monetary system, while silver’s monetary role is merely dormant. The rest is credit. Bank notes issued by central banks, are the primary form of credit. No longer exchangeable for gold coin, they are simply issued out of thin air. In addition to the government’s general account with its central bank, in modern times they have started issuing other forms of credit, all of which are provided through commercial banks and reflected in commercial bank credit, such as payment for securities bought from investing institutions which do not have accounts at the central banks. This is the payment mechanism for quantitative easing. Commercial bank credit makes up all the circulating media which are not banknotes, typically representing over 95% of commercial transaction settlements. Bank credit can be expanded at will. The chart below shows how the sum of bank notes and commercial bank credit in US dollars measured by M3 has increased since 1970.  Colloquially, this is monetary inflation. More correctly, it is credit inflation because true money, that is gold, is almost never used in transactions. Since the suspension of Bretton Woods in 1971, the amount of M3 credit has increased by 33 times. At the same time, the price of gold has increased by 38 times from $42.22 per ounce, the rate at which it was fixed to the dollar before Bretton Woods was suspended. In other words, real money, which is gold in metal form, has fully compensated for the devaluation of the dollar due to the increase in dollar credit since 1971, though the credit expansion since Roosevelt devalued the dollar against gold is supplemental to these figures. There is more on this later in this article. If you bought gold when Nixon suspended the Bretton Woods agreement, you would have preserved the purchasing power of your money compared with owning bank notes or possessing instant withdrawal bank deposits. There were ups and downs in the relationship between gold and paper currency, but to make it clear, gold coin or bullion can only be compared with cash and non-yielding bank deposits. It cannot be compared with a yielding asset. Gold is not an investment. But owning bonds, equities, or residential property is most definitely investing for a return. Normally, it makes sense to spend and invest instead of holding onto cash, whether that cash be true money or bank credit. After all, the reason to maintain money and paper credit balances is to enable the buying and selling of goods and services, with any surplus being put to use by investing it. But it must be understood that in these times of rapidly depreciating currency, an investment must also overcome the hurdle of currency depreciation. When stocks are soaring and they pay dividends, the hurdle can be overcome. However, we must introduce a note of caution: when stocks are soaring, it is generally on the back of bank credit expansion which leads to a temporary fall in interest rates, a situation which is reversed in time. The next chart puts residential property prices in context. Priced in sterling, London property prices have soared 114 times since 1968. In true money, which is gold, they have only risen 29%. But the average property buyer buys a house with a mortgage, putting down a partial payment, while paying off the mortgage over time, typically twenty or thirty years. His capital value will have multiplied considerably more than the 114 times reflected in the index, against which mortgage payments including interest will have to be offset to properly evaluate the investment. Furthermore, the utility of the accommodation afforded is not allowed for but is an additional benefit of property ownership. Taking currency prices, mortgage finance, and yield benefits into account, investment in a home in London has proved to be a better use of capital than hoarding gold, but not by as much as you would think. As remarked earlier in this article, at the margin property values depend on the cost of mortgage finance, which is tied to interest rates. So, what is the outlook for interest rates? Understanding interest rates There is a widespread assumption that interest rates represent the cost of borrowing money. In the narrow sense that it is a cost paid by a borrower, this is true. Monetary policy planners enquire no further. Central bankers then posit that if you reduce the cost of borrowing, that is to say the interest rate, demand for credit increases, and the deployment of that credit in the economy naturally leads to an increase in GDP. Every central planner wishes for consistent growth in GDP, and they seek to achieve it by lowering the cost of borrowing money. The origin of this approach is strictly mathematical. First published in 1871, William Stanley Jevons in his The Theory of Political Economy was one of the three original proposers of the price theory of marginal utility and became convinced that mathematics was the key to linking the diverse elements of political science into a unified subject. It was therefore natural for him to treat interest rates as the symptom of supply and demand for money when it passes from one hand to another with the promise of future repayment. Another of the discoverers of the theory of marginal utility was the Austrian Carl Menger, who explained that prices of goods were subjective in the minds of those involved in an exchange. With respect to interest, Menger was the probably the first to argue that as a rule people place a higher value on the possession of goods, compared with possession of them at a later date. Being the medium of exchange, this becomes a feature of money itself, whose possession is also valued more than its possession at a future date. The discounted value of later ownership is reflected in interest rates and is referred to by Mengers’ followers as time preference. He argued that the level of time preference was fundamentally a human choice and therefore could not be predicted mathematically. This undermines the assumption that interest is simply the cost of money because human preferences drive its evaluation. Eugen von Böhm-Bawerk, who followed in Menger’s footsteps saw it from a more capitalistic point of view, that a saver’s money, which was otherwise lifeless, was able to earn the saver a supply of goods through interest earned from it.[iii] Böhm-Bawerk confirmed that interest produced an income for the capitalist and to an entrepreneur was a cost of borrowing. But he agreed with Menger that the discounted value of time preference was a matter for the saver. Therefore, savers are driven mainly by time-preference, while borrowers mainly by cost. In free markets, this was why borrowers had to bid up interest rates to attract savers into lending instead of consuming. In those days, it was unquestionably understood that money was only gold, and credible currencies and credit were gold substitutes. That is to say, they circulated backed by gold and were freely exchangeable for it. Gold and its credit substitutes were the agency by which producers turned the fruits of their labour into the goods and services they needed and desired. The role of money and credit was purely temporary. Temporal men valued gold as a good with the special function of being money. And as a good, its actual possession was worth more than just a claim on it in the future. But do they ascribe the same time preference to a fiat currency? To find out we must explore the nature of time preference further as a concept under a gold standard and also in an unanchored currency environment, in order to fully understand the future course of interest rates. Time-preference in classical economics Time-preference can be simply defined as the desire to own goods at an earlier date rather than later. Therefore, the future value of possessing a good must stand at a discount compared with actual possession, and the further into the future actual ownership is expected to materialise, the greater the discount. But instead of pricing time preference as if it were a zero-coupon bond, we turn it into an annualised interest equivalent.  Obviously, time preference applies primarily to lenders financing production, which requires the passage of time between commencement and output. Borrowed money must cover partly or in whole the acquisition of raw materials, and all the costs required to make a finished article, and the time taken to deliver it to an end-user for profit.  The easiest way to isolate time-preference is to assume an entrepreneur has to borrow some or all of the financial resources necessary. We now have to consider the position of the lender, who is asked to join in with the sacrifice of his current consumption in favour of its future return. The lender’s motivation is that he has a surplus of money to his immediate needs and instead of just sitting on it, is prepared to deploy it profitably. His reward for doing so is that by providing his savings to a businessman, his return must exceed his personal time-preference.  The medium for matching investment and savings is obviously credit. The financing of production above all else is what credit facilitates. We take this obvious function so much for granted and that interest is seen to be a cost of production that we forget that interest rates are actually set by time-preference.  Intermediation by banks and other financial institutions further conceal from us the link between interest and time-preference, often fuelled by the saver’s false assumption he is not parting with his money by depositing it in a bank.  When a saver saves and an entrepreneur invests, the transaction always involves a lender’s savings being turned into the production of goods and services with the element of time. For the lender, the time preference value for which interest compensates him must always exceed the loss of possession of his capital for a stated period. But with credit anchored to sound money, the level of interest compensation demanded by savers for time preference is strictly limited. The case for fiat currencies is radically different. Time preference and fiat money So far, we have considered time preference measured in a currency which is credibly tied to money, legally gold. Under a fiat currency regime, the situation is substantially different because of fiat currency’s instability. The ubiquity of unbacked state currencies certainly introduces uncertainty over future price stability and the value of credit. Not only is the saver isolated from borrowers through the banking system and often has the misconception that his deposits are still his property (in which case time preference does not apply), but his savings are debased through persistent inflation of the currency. The interest he expects is treated as an inconvenient cost of production, to be minimised. Interest earned is taxed as if it were the profit from a capitalist trade, and not compensation for a temporary loss of possession of his property. It is not surprising that with the saver regarded as a pariah by Keynesian economists, little attention is paid to time preference. But if savers were to collectively realise the consequences of this injustice, they would demand far higher interest rate compensation for losing possession of their capital. They would seek redress for loss of possession, monetary depreciation, and counterparty risk, all to be added and grossed up for taxes imposed by the state. That will not happen until markets take pricing of everything out of government control. There is an old adage, that in the struggle between markets and the desires of governments markets always win in the end. It is essential to understand that if the driving forces behind time preference for savers are not satisfied, eventually they will dump their credit liquidity in favour of real money, which is only gold and possibly silver, and for goods that they may need in future. The seventy or so recorded hyperinflations of fiat currencies have demonstrated that when currency and credit lose their credibility, they lose all their purchasing power. As these circumstances unfold, the market response is to drive interest rates and bond yields substantially higher, because time preference is failing to be satisfied. If the authorities resist by suppressing interest rates, the currency simply collapses. And then there is no medium to value financial assets, other than by gold itself. The consequences of contracting bank credit So far, this article has only touched on the important role of bank credit in the economy. Bank credit finances virtually all the transactions that in aggregate make up GDP. Banks are now contracting their credit, being dangerously leveraged in the relationship between total assets and balance sheet equity at a time of failing economies.  The consequences for GDP are widely misunderstood. It is commonly assumed that an economic downturn is driven by higher interest rates and their impact on consumer demand. That is putting the cart before the horse. If banks withdraw credit from the economy, it is a mathematical certainty that nominal GDP falls. It is the withdrawal of credit that is responsible for downturns in GDP. It is the rest that follows. There can be little doubt that with balance sheet leverage averaging over twenty times in the Eurozone and Japan, and with some British banks not far behind, that the global contraction of bank credit will be severe. The effect on less leveraged banking systems, such as that of the US, will be profound due to the international character of modern banking and finance. World-wide, businesses are set to become rapidly insolvent due to credit starvation and bankruptcies will become the order of the day.  Central banks are facing an increasing dilemma, of which the investing public are becoming increasingly aware. Do they intervene with unlimited expansion of their credit to replace contracting commercial bank credit, or do they just stand back and let these distortions wash out? Effectively, it is a choice between undermining their currencies even more or allowing them to stabilise. They will almost certainly attempt to mitigate the effects of commercial bank credit being withdrawn. Attempts by central banks to control the expansion of their own balance sheets through quantitative tightening will be abandoned, and quantitative easing reintroduced instead. And just as the expansion of commercial bank credit reduces interest rates below where they would normally be, the withdrawal of commercial bank credit tends to increase interest rates, as borrowers struggle to find any available credit. There’s no point in central bankers turning to central bank digital currencies for salvation because there is too little time to introduce them. Since the 1980s, having moved progressively towards expanding credit for purely financial activities and taking on financial collateral against loans, the contraction of bank credit is bound to have a profound effect on financial markets as well. Collateral will be sold, market-making curtailed, and derivative positions reduced. Driven partly by Basel 3 regulatory requirements, banks will amend their activities to prioritise balance sheet liquidity. Corporate bond holdings will be sold in favour of short-term government treasury bills. Long-term government debt will be sold for shorter maturities.  There can be little doubt that banks contracting credit exposed to financial markets is far easier and quicker than withdrawing credit for GDP-qualifying transactions. And just as the expansion of commercial bank credit for purely financial activities since the 1980s has been substantial, its contraction will not be trivial. The effect on valuations is set to repeat the consequences of bank failures in the Wall Street crash of 1929-32, when the Dow lost 89% of its value. There is also a symbiotic effect between the contraction of bank credit in the GDP economy and financial markets, with the losses and bankruptcies of the former further depressing confidence in the latter. Unless central banks intervene, it amounts to a perfect storm. But their intervention only serves to destroy the purchasing power of their unbacked currencies, in which case interest rates will rise stratospherically anyway. Comments on gold’s recent underperformance The chart above presents gold as it should be presented, with unstable fiat currencies being priced in real money, which is gold. For technical analysts, the current bear market for these major currencies relative to gold started in mid-December 2015, and the four currencies in the chart have been indexed to that point. Since then, they have all declined, with sterling down 51.6%, the yen down 45.9%, the euro down 41.6%, and the dollar down 37%. It should be noted that at this stage of the global bear market, sterling, the euro, and yen are seen to be most vulnerable to interest rate rises. Their government bond yields have become marooned at lower levels than equivalent US Treasuries, seen in the fiat world as the riskless investment. The euro and yen face the consequences of interest rates suppressed by the ECB and BOJ respectively into negative territory. Sterling has long suffered from a credibility problem relative to the dollar, and gilts still yield less than US Treasuries. While the dollar is the least bad currency, nevertheless inflation of the dollar’s total bank credit over time has been dramatic. It was noted above that since 1971, US M3 credit and currency has multiplied 33 times, while the price of gold in dollars has multiplied 38 times. But M3 had already increased from $44.18bn in 1934, when the dollar was devalued from $20.67 an ounce to $35, to $605bn in August 1971 when Bretton Woods was suspended. Including the expansion of M3 from 1934 makes the increase to date 490 times. In other words, gold has yet to discount much of the dollar’s post-depression credit and currency expansion. In approximate terms we can conclude that the gold-dollar relationship has yet to fully adjust to the dollar’s long-term inflation. In price terms, that gives some comfort to gold bulls, but not too much should be read into the relationship. More importantly, there is nothing discounted in the dollar gold price for the likely future deterioration of the fiat dollar’s purchasing power. Therefore, we can conclude that as well as being real money and all the rest being credit, gold prices at the current level offer an unrecognised safe haven opportunity for investors unhappy to leave the proceeds of their liquidated portfolios in fiat cash. Summary and conclusion It is with great regret that we must admit that the majority of investors who delegate the management of their capital into the hands of professional fund managers and investment advisers are likely to suffer a destruction of wealth that could become almost total. The reason is that these advisers and managers are comprised of a generation which has not experienced how destructive the link between persistent price inflation, rising interest rates, and collapsing financial asset values can be. Furthermore, to fully understand the link and current factors driving interest rates higher is not in their commercial interests. What happened in the 1970s has been described as stagflation — a portmanteau word suggesting something not understood by mainstream economists today. Looking at their economic models and the assumptions behind them, for them a combination of a stagnant economy and soaring inflation is unexplained. The effect they ignore is that inflation is a transfer of wealth from the private sector to the state, and from savers to the commercial banks and their favoured borrowers. The more the expansion of currency and credit, the greater the transfer of wealth becomes, and the impoverishment of ordinary citizen results. We are not arguing necessarily that inflation, measured by consumer price indices, will continue into the indefinite future, though a case for that outcome is easily justified. What is being pointed out is that current interest rates and bond yields should be far, far higher. With CPI already increasing in excess of 8% annualised in the US, EU, and UK factors of time preference indicate that interest rates and bond yields should be multiples higher than they are currently. This article has explained the role of bank credit in the economy. Bank credit finances virtually all the transactions that in aggregate make up GDP and non-qualifying financial activities. Banks are now contracting their credit, being highly leveraged in the relationship between total assets and balance sheet equity. They find themselves exposed to cascading losses in an economic downturn, which risks wiping out their balance sheet equity entirely. Surely, central banks and their governments will do what they have always done in the past in these circumstances: inflate their currencies, if necessary towards worthlessness. The argument in favour of getting out of financial and currency risks into real money — that is gold — has rarely been more conclusive. Tyler Durden Sat, 10/01/2022 - 12:30.....»»

Category: blogSource: zerohedgeOct 1st, 2022

Futures Rebound From 2022 Low After Bank Of England Panics, Restarts Unlimited QE

Futures Rebound From 2022 Low After Bank Of England Panics, Restarts Unlimited QE With everything biw breaking, including an explosive move in bond yields in the UK, 10Y yields rising above 4.00%, and Apple "suddenly" realizing there was not enough demand for the latest iteration of its iPhone 5, it was only a matter of time before some central bank somewhere capitulated and pivoted back to QE, and this morning that's precisely what happened when the BOE delayed the launch of QT and restarted QE "on whatever scale is necessary" on a "temporary and targeted" (lol) basis to restore order, which sent UK bond surging (and yields tumbling the most on record going back to 1996 erasing an earlier jump to the the highest since 1998)... ... the pound first surged before falling back as traders realized the UK now has both rate hikes and QE at the same time, the dollar sliding then spiking, the 10Y US TSY yield dipping from 4.00%, the highest level since 1998, and stock futures spiking from fresh 2022 lows, but then fizzling as traders now demand a similar end to QT/restart of QE from the Fed or else they will similarly break the market. Needless to say, the BOE has opened up the tap on coming central bank pivots, and while the market may be slow to grasp it, risk is cheap here with a similar QE restarted by the Fed just weeks if not days away. Indeed, look no further than the tumbling odds of a November 75bps rate hike as confirmation. As if the BOE's pivot wasn't enough, there was also a barrage of company specific news: in premarket trading, the world's biggest company, Apple tumbled 3.9% after a Bloomberg report said the company was likely to ditch its iPhone production boost, citing people familiar with the matter. Shares of suppliers to Apple also fell in premarket trading after the report, with Micron Technology (MU US) down -1.9%, Qualcomm (QCOM US) -1.8%, Skyworks Solutions (SWKS US) -1.6%. Other notable premarket movers: Biogen shares surged as much as 71% in US premarket trading, with the drugmaker on track for its biggest gain since its 1991 IPO if the move holds, as analysts lauded results of an Alzheimer’s drug study with partner Eisai. Lockheed drops as much as 2.3% in premarket trading as it was downgraded to underweight at Wells Fargo, which is taking a more cautious view on the defense sector on a likely difficult US budget environment into 2023. Mind Medicine slid 35% in premarket trading after an offering of shares priced at $4.25 apiece, representing a 31% discount to last close. Watch insurers, utilities and travel stocks as Hurricane Ian comes closer to making landfall on Florida’s Gulf coast. Keep an eye on southeastern US utilities including NextEra Energy (NEE US), Entergy (ETR US), Duke Energy (DUK US), insurers like AIG (AIG US), Chubb (CB US), as well as airline stocks Netflix (NFLX US) was raised to overweight from neutral at Atlantic Equities, the latest in a slew of brokers to turn bullish on the outlook for the streaming giant’s new ad- supported tier, though the stock was little changed in premarket trading In other news, Hurricane Ian became a dangerous Category 4 storm as it roars toward Florida, threatening to batter the Gulf Coast with devastating wind gusts and floods. European stocks dropped for a fifth day as Citigroup strategists said investors are abandoning the region at levels last seen during the euro area debt crisis. Miners underperformed as the strong dollar and concerns about demand for raw materials sent commodity prices to the lowest level since January. Retail stocks slumped, with the sector underperforming declines for the broader Stoxx 600, as concerns mount about a consumer spending crunch. UK retail stocks are particularly weak amid Britain’s market meltdown and after online clothing retailer Boohoo issued a profit warning. Boohoo cut its guidance for the year, with soaring energy and food bills stopping consumers from splashing out on clothes and shoes; peers including Asos (-7.5%) and Zalando (-3.5%) sank. Here are the biggest European movers: Roche gains as much as 6.5% in early trading, most since March 2020 after Eisai and partner Biogen said their drug significantly slowed Alzheimer’s disease. Roche partner MorphoSys rises as much as 22%. BioArctic jumps as much as 171% in Wednesday trading, its biggest intraday rise since 2018; the Swedish biopharma company is a partner of Eisai Sanofi shares rise as much as 2.2% after saying it sees currency impact of approximately 10%-11% on 3Q sales, according to statement. Burberry rises as much as 4.5% as analysts welcome the appointment of Daniel Lee, formerly of Bottega Veneta, to succeed Riccardo Tisci as creative director at the luxury designer. Retail stocks slide, with the sector underperforming declines for the broader Stoxx 600, as concerns mount about a consumer spending crunch. Boohoo slumped as much as 18% after cutting its guidance for the year, with soaring energy and food bills stopping consumers from splashing out on clothes and shoes; peers fell, with Asos down as much as 9.4% and Zalando -4.3%. Financial sectors including banks, real estate and insurance were the worst performers in Europe on Wednesday as hawkish comments from Fed officials stoked concerns over the economic outlook. HSBC fell as much as 5.3%, Barclays 6%, and insurer Aviva 7.9% Norway unveiled a plan to tap power and fish companies for 33 billion kroner ($3 billion) a year to cover ballooning budget expenditures, sending salmon farmers’ stocks falling. Salmar down as much as 30%, Leroy Seafood dropped as much as 26%, and Mowi slid as much as 21% Truecaller, which offers an app to block unwanted phone calls, falls as much as 23% in Stockholm after short seller Viceroy Research says it’s betting against the stock. Adding to concerns, Deutsche Bank CEO Christian Sewing predicted a severe downturn in the lender’s home region and said the volatility whipsawing markets will continue for another year as central banks tighten rates to fight inflation, while ECB President Christine Lagarde said borrowing costs will be raised at the next “several meetings,” with several Governing Council  members favoring a 75 basis point hike in October. Meanwhile, natural gas prices in Europe surged after Russia said it may cut off supplies via Ukraine and the German Navy was deployed to investigate the suspected sabotage to the Nord Stream pipelines. Putin moved to annex a large chunk of Ukrainian territory amid a string of military setbacks in its seven-month-old invasion. Asian shares also fell: Japanese equities slumped after the latest hawkish comments from Fed officials on raising interest rates in order to bring inflation down. The Topix fell 1% to close at 1,855.15, while the Nikkei declined 1.5% to 26,173.98. Toyota Motor Corp. contributed the most to the Topix decline, decreasing 1.6%. Out of 2,169 stocks in the index, 943 rose and 1,137 fell, while 89 were unchanged. “From here on, U.S. CPI inflation will be the most important factor,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management. “Now that the FOMC meeting is over, we will be getting a good amount of statements from Fed officials, and wondering what kind of statements will come out.” Key equity gauges in India posted their longest stretch of declines in more than three months, as investors continued to sell stocks across global markets on worries over economic growth.  The S&P BSE Sensex dropped 0.9% to 56,598.28 in Mumbai, while the NSE Nifty 50 Index fell by an equal measure. The indexes posted their sixth-consecutive decline, the worst losing streak since mid-June. Fourteen of the 19 sector sub-indexes compiled by BSE Ltd. declined. Metals and banking stocks were the worst performers. Healthcare and software firms gained.  Reliance Industries and HDFC Bank contributed the most to the Sensex’s decline. Reliance Industries has erased its gain for the year and is headed for its lowest close since March. Out of 30 shares in the Sensex index, 12 rose, while 18 fell In FX, the dollar’s rally brought losses to other currencies, including the euro and onshore yuan, which tumbled to its weakest level since 2008. A regulatory body guided by the People’s Bank of China urged banks to protect the authority of the yuan fixing after the onshore yuan fell to the weakest level against the dollar since the global financial crisis in 2008, amid an incessant advance in the greenback and speculation China is toning down its support for the local currency.  The yen remained near the key 145 mark versus the dollar and within sight of levels that have drawn intervention from Japan. Speculation the sliding yen will compel Japan to intervene further, potentially funded by Treasuries sales, weighed on US debt. “The fact we have such a strong increase in US yields is attracting flows into the US dollar,” said Nanette Hechler-Fayd’herbe, chief investment officer of international wealth management for Credit Suisse Group AG. “As long as monetary and fiscal policy worldwide are really not coming to strengthen their own currencies, we should be anticipating a very strong dollar.” In rates, Treasury yields fell, following a more aggressive bull flattening move across the gilt curve, after Bank of England announced it would step into the market and buy long-dated government bonds, financed with new reserves. The Treasury curve remains steeper on the day however, with front-end yields richer by 7bp and long-end slightly cheaper. US session focus on 7-year note auction and a barrage of Fed speakers scheduled.  Treasury 10-year yields around 3.93%, richer by 1.5bp on the day and underperforming gilts by around 25bp in the sector -- gilts curve richer by 3bp to 50bp on the day from front-end out to long-end following Bank of England announcement. US auctions conclude with $36b 7-year note sale at 1pm, follows soft 2- and 5-year auctions so far this week In commodities, WTI trades within Tuesday’s range, falling 0.5% to around $78.14. Spot gold falls roughly $11 to trade near $1,618/oz.  Looking to the day ahead, there are an array of central bank speakers including Fed Chair Powell, the Fed’s Bostic, Bullard, Bowman, Barkin and Evans, ECB President Lagarde, the ECB’s Kazimir, Holzmann and Elderson, as well as BoE Deputy Governor Cunliffe and the BoE’s Dhingra. In the meantime, data releases include pending home sales for August. Market Snapshot S&P 500 futures down 0.6% to 3,637 MXAP down 1.9% to 139.41 MXAPJ down 2.3% to 452.49 Nikkei down 1.5% to 26,173.98 Topix down 1.0% to 1,855.15 Hang Seng Index down 3.4% to 17,250.88 Shanghai Composite down 1.6% to 3,045.07 Sensex down 0.3% to 56,939.09 Australia S&P/ASX 200 down 0.5% to 6,462.03 Kospi down 2.5% to 2,169.29 STOXX Europe 600 down 1.4% to 382.97 German 10Y yield little changed at 2.31% Euro down 0.3% to $0.9561 Brent Futures down 0.4% to $85.94/bbl Brent Futures down 0.4% to $85.94/bbl Gold spot down 0.6% to $1,619.74 U.S. Dollar Index up 0.36% to 114.52 Top Overnight News from Bloomberg ECB President Christine Lagarde said borrowing costs will be raised at the next “several meetings” to ensure inflation expectations remain anchored and price gains return to the 2% target over the medium term The ECB is on track to take interest rates to a level that no longer stimulates the economy by December, Governing Council member Olli Rehn told Reuters Germany’s federal government will increase debt sales by €22.5 billion ($21.5 billion) in the fourth quarter compared with an original plan to help fund generous spending to offset the impact of the energy crisis The cost of protection against European corporate debt has surpassed the pandemic peak as investors fret over the effect of central bank tightening at a time of mounting recession risk The Federal Reserve’s delicate balance between curbing demand enough to slow inflation without causing a recession is a “struggle,” said San Francisco Fed President Mary Daly This week a gauge of one-month volatility in the majors hit its strongest level since the pandemic mayhem of March 2020, as wide price swings in the pound lifted hedging costs across the G-10 space Moscow declared landslide victories in the hastily organized “referendums” it held in the territories currently occupied by its forces and prepared to absorb them within days. The United Nations has condemned the voting as illegal with people at times forced at gunpoint.         US Event Calendar 07:00: Sept. MBA Mortgage Applications, prior 3.8% 08:30: Aug. Retail Inventories MoM, est. 1.0%, prior 1.1% Wholesale Inventories MoM, est. 0.4%, prior 0.6% 08:30: Aug. Advance Goods Trade Balance, est. -$89b, prior -$89.1b, revised - $90.2b 10:00: Aug. Pending Home Sales (MoM), est. -1.5%, prior -1.0% Pending Home Sales YoY, est. -24.5%, prior -22.5% Central Bank Speakers 08:35: Fed’s Bostic Takes Part in Moderated Q&A 10:10: Fed’s Bullard Makes Welcome Remarks at Community Banking... 10:15: Powell Gives Welcoming Remarks at Community Banking Conference 11:00: Fed’s Bowman Speaks at Community Banking Conference 11:30: Fed’s Barkin Speaks at Chamber of Commerce Lunch 14:00: Fed’s Evans Speaks at the London School of Economics DB's Jim Reid concludes the overnight wrap I had my worst nightmare yesterday. One of my wife's friends, who vaguely knows I work in financial markets, urgently contacted me for mortgage advise. She needed to make a decision within hours on what mortgage to take out from a selection of unpalatable options here in the UK. I'll be honest, when I speak to you dear readers and give advice I know you're all big and brave enough to either ignore it or consider it. However it felt very dangerous to be giving my wife's friend my opinion. Hopefully they'll be no fall out at the end of the period I advised on! After the tumultuous events of recent days, market volatility has remained very high over the last 24 hours, with plenty of negative headlines to keep investors alert. In Europe, we got a fresh reminder about the energy situation after leaks in the Nord Stream 1 and 2 pipelines, whilst Gazprom warned that sanctions on Ukraine’s Naftogaz could put flows from Russia at risk. In the meantime, investors’ jitters surrounding the UK showed few signs of abating, with 30yr gilt yields surpassing 5% in trading for the first time since 2002 and a level it hasn't consistently been above since 1998. And even though we got some better-than-expected data releases from the US, they were also seen as giving the Fed more space to keep hiking rates over months ahead, adding to fears that they still had plenty of hawkish medicine left to deliver. We’ll start here in the UK, since it was gilts once again that were at the epicentre of the ongoing repricing in rates, with plenty of signs that investors remain very nervous about the current economic situation. Gilt yields rose to fresh highs across the curve, with the selloff accelerating late in the session to leave the 10yr yield up by +26.1bps at a post-2008 high of 4.50%. Furthermore, the 30yr yield surged +44.8bps to a post-2007 high of 4.97%, closing just beneath the 5% mark that it had exceeded at one point right before the close. This for me is a fascinating development as recently as last December we were at 0.83% and then 2.28% in early August. For many many years the demand for long end gilts were seen as one of the most price insensitive assets in the fixed income world with huge regulatory and asset/liability buying. So the fact that even this has cracked shows the deep trouble the UK market is in at the moment. The moves have been so drastic that even the IMF announced yesterday they were closely monitoring developments in Britain and were engaged with UK authorities. Their rebuke was quite scathing. Staying in the UK, there was an even more significant repricing of real yields, with the 10yr real yield surging by another +52.9bps on the day to 0.77%, having been at -0.84% only a week earlier, so a massive turnaround. Sterling ended a run of 5 consecutive daily losses to strengthen by +0.41% against the US Dollar, taking it back up to $1.073. However it was higher before the IMF statement and is at $1.065 this morning with their rebuke reverberating around markets. Whilst UK assets continued to struggle, we did hear from BoE Chief Economist Pill yesterday, who sits on the 9-member Monetary Policy Committee. The main headline from his remarks was the comment that “this will require a significant monetary policy response”. Investors are still pricing in over +155bps worth of hikes by the next meeting on November 3, as well as a terminal rate above 6% next year. However, investors also continued to lower the chances of an emergency inter-meeting hike, particularly after Pill said that it was better to take a “considered” and “low-frequency” approach to monetary policy. Elsewhere in Europe, the question of energy remained top of the agenda yesterday, with a fresh surge in natural gas futures (+19.65%) that marked a reversal to the declines over the last month. That followed the news of leaks from the Nord Stream 1 and 2 pipelines, which officials across multiple countries said could be the result of sabotage. Danish PM Frederiksen said that it was” hard to imagine that these are coincidences” and the FT reported German officials who said there was concern that a “targeted attack” had caused the sudden loss of pressure. A real nightmare scenario is if the sabotage attempts extended to other pipelines. Indeed Bloomberg reported that Norway was looking to increase security around its own infrastructure. However these pipes are long so it would take a lot of effort to protect them all. On top of the leaks, we also heard from Gazprom, who said that there was a risk that Moscow would sanction Ukraine’s Naftogaz. That would stop them from paying transit fees, which in turn would put gas flows to Europe at risk, and led to a significant jump in prices after the news came through later in the session. Against that unfavourable backdrop, European assets continued to suffer over the last 24 hours across multiple asset classes. Sovereign bonds didn’t do quite as badly as gilts, but it was still a very poor performance by any normal day’s standards, with yields on 10yr bunds (+11.3bps) reaching a post-2010 high of 2.22%. Peripheral spreads continued to widen as well, with the gap between 10yr Italian yields over bunds closing above 250bps for the first time since April 2020. In the meantime, equities lost ground thanks to a late session reversal, leaving the STOXX 600 (-0.13%) at its lowest level since December 2020. And there was little respite for credit either, with the iTraxx Crossover widening +15.2bps to 670bps, which is a closing level we haven’t seen since March 2020. On top of sour risk sentiment, results from Russia’s referendum in four Ukrainian territories unsurprisingly revealed lopsided votes in favour of Russian annexation, topping 85% in each of the regions. That stoked fears that Russia will move to officially annex the territories as soon as this week, thereby claiming any attack on those territories is an attack on sovereign Russia itself and enabling yet further escalation. President Putin is scheduled to address both houses of the Russian Parliament this Friday, which British intelligence reports may be used as a venue to push through an official annexation ratification. Over in the US, there was some better news on the data side that helped to allay fears about an imminent slide into recession. First, the Conference Board’s consumer confidence reading for September rose to 108.0 (vs. 104.6 expected), which is its highest level since April. Second, new home sales in August unexpectedly rebounded to an annualised pace of 685k (vs. 500k expected), which is their highest level since March. Third, the preliminary durable goods orders for August were roughly in line with expectations at -0.2% (vs. -0.3% expected), and core capital goods orders exceeded them with +1.3% growth (vs. +0.2% expected) and a positive revision to the previous month. Finally, the Richmond Fed’s manufacturing index for September came in at 0 (vs. -10 expected), adding to that theme of stronger-than-expected releases. A word of caution, the housing data is typically noisy and subject to revision, so despite the bounce in sales, we don’t think this marks a sea-change in housing markets, which have been battered by tightening financial conditions to date. In the end however, those data releases didn’t manage to stop the S&P 500 (-0.21%) losing ground for a 6th consecutive session, which takes the index back to its lowest closing level since November 2020. In fact for the Dow Jones (-0.43%), yesterday’s losses left it at its lowest closing level since 6 November 2020. That was the last trading session before the news on Monday 9 November from Pfizer that their late-stage vaccine trials had been successful, thus triggering a massive global surge as the way out of the pandemic became much clearer. All-in-all though, equities were a side show to fixed income yesterday. When it came to Treasuries, there was a notable steepening in both the nominal and real yield curves yesterday, and 10yr yields ended the session up +2.1bps at 3.95%. This morning in Asia 10yr yields did trade at 4% for the first time since 2010 before dipping to around 3.98% as I type. In terms of Fed speak yesterday, we heard from Chicago Fed President Evans, who implied that the Fed might take stock of the impact of rate hikes in the spring, saying that “By spring of next year we are going to get to a funds rate that we can sort of sit and watch how things are behaving,” In the meantime, St Louis Fed President Bullard (one of the most hawkish members of the FOMC) said that inflation was a serious problem and that the credibility of the Fed’s inflation target was at risk. This morning Asian equity markets are extending their downtrend. As I type, The Kospi (-3.01%) is sharply lower in early trade with the Hang Seng (-2.40%), the Nikkei (-2.21%), the CSI (-0.77%) and the Shanghai Composite (-0.75%) all trading in negative territory. After a steady start, US stock futures got caught up in the bearish mood with contracts on the S&P 500 (-0.71%) and NASDAQ 100 (-0.98%) both moving lower.Apple reversing plans for an iPhone production boost on waning demand seemed to be a catalyst. The US dollar index (+0.43%) has hit a fresh two-decade high of 114.69 this morning. Early morning data showed that Australia’s August retail sales advanced for the eighth consecutive month, rising +0.6% m/m, faster than the +0.4% increase expected although the pace of growth slowed from the +1.3% rise seen in July. To the day ahead now, and there are an array of central bank speakers including Fed Chair Powell, the Fed’s Bostic, Bullard, Bowman, Barkin and Evans, ECB President Lagarde, the ECB’s Kazimir, Holzmann and Elderson, as well as BoE Deputy Governor Cunliffe and the BoE’s Dhingra. In the meantime, data releases include Germany’s GfK consumer confidence reading for October, and France and Italy’s consumer confidence reading for September. In the US, there’s also pending home sales data for August. Tyler Durden Wed, 09/28/2022 - 07:53.....»»

Category: personnelSource: nytSep 28th, 2022

Neurotic Markets Swing Ahead Of Fed Decision, Eyeing Ukraine War Escalation

Neurotic Markets Swing Ahead Of Fed Decision, Eyeing Ukraine War Escalation With traders nervously doing nothing ahead of today's FOMC meeting, where Powell will announce a 75bps rate hike but all attention will be on whether the 2023 median dot (which as we previewed will unleash havoc if it comes above 4.5% which is where market expectations top out for this hiking cycle), today market got an extra jolt of volatility just before the European open when shortly after 2am ET Vladimir Putin delivered his postponed message to announce a "partial mobilization" over the Ukraine war. The news slammed stocks, yields, and the euro while sending oil and commodities sharply higher. And while the initial spike lower has reversed and futures are modestly in the green now, there is zero liquidity right now and the smallest sell program could topples risk assets. As of 7:15am ET, US futures pointed to a recovery from Tuesday’s tumble on anxiety policy makers are hoping to spark a recession in their zeal to subdue price pressures. S&P futures were up 0.2% after trading down 0.6% earlier, with Nasdaq futures 0.1% in the green. 10Y yields dipped 3bps to 3.54% even though the USD was higher and bitcoin fluctuated between losses and gains.  In premarket trading, the MIC won again with US defense stocks rising amid after Russian President Vladimir Putin declared a “partial mobilization” with the Kremlin also moving to annex occupied regions of Ukraine. Northrop Grumman +1.9%, Lockheed Martin +2.8% and Raytheon +2.5%. Oil and gas shares also rose in US premarket trading, benefiting from a surge in crude prices after Putin ordered a partial mobilization to hold on to disputed territories in Ukraine. Exxon  +1.2%, Devon Energy  +2%, Marathon Oil +1.8%, Occidental Petroleum +1.9%, Schlumberger +1.5%. Other notable premarket movers: Stitch Fix (SFIX US) shares are down 10% in premarket trading after the personal styling company issued a weaker-than-expected 4Q update and disappointed analysts with its FY23 outlook. At least two analysts cut their PT on the stock Keep an eye on Oxford Industries (OXM US) as Citi upgrades it to neutral in note, citing the apparel company’s continued momentum and “attractive” acquisition of the Johnny Was brand Watch Coty (COTY US) as the company raised its outlook for the current quarter because of stronger-than-expected sales of more expensive fragrances and personal-care products, showing demand for higher-end items remains robust despite rising living costs The escalation of the Russian war is likely to reverberate across markets, deepening the energy and food crisis, according to Ales Koutny, portfolio manager at Janus Henderson Investors. Putin’s land grab and military escalation comes after a Ukrainian counteroffensive in the last few weeks dealt his troops their worst defeats since the early months of the conflict, retaking more than 10% of the territory that Russia held. “This will continue to put risk assets under pressure, with sentiment playing a significant part for both equities and credit,” Koutny said. “We believe the USD will continue to benefit as the US is isolated from a geographic perspective and more resilient due to the make-up of its economy.” Turning to today's main event, Powell is widely expected to boost rates by 75 basis points for the third time in a row, according to the vast majority of analysts surveyed by Bloomberg. Only two project a 100 basis points move. “There’s been so much speculation about the Fed’s next step that finally having a decision should provide some much needed relief for investors,” said Danni Hewson, an analyst at AJ Bell Plc. “If it sticks to script and delivers another 75 basis point hike markets are likely to rally somewhat, partly because the specter of a full percentage point rise didn’t come to pass.” European equities also swung higher after posting early losses in the run-up to the Fed meeting; the Stoxx 50 was little changed. FTSE MIB outperforms peers, adding 0.8%, DAX lags, dropping 0.1%. UK stocks climbed and the pound slid after the British government unveiled a £40 billion bailout to help companies with their energy bills this winter amid soaring prices that threaten to put many out of business. Travel, autos and tech are the worst-performing sectors. European defense stocks and energy stocks gain after President Vladimir Putin declared a “partial mobilization” and vowed to use all means necessary to defend Russian territory as the Kremlin moved to annex parts of Ukraine that it’s occupied, threatening to escalate the conflict further. Rheinmetall rises as much as +11%, Thales +6.1%. Energy stocks outperform as oil rallies, with Shell up as much as +3.3% TotalEnergies +3.0%. Here are some other notable premarket movers: UK homebuilders gain, bucking a broader market decline, following a Times of London report saying Prime Minister Liz Truss will outline a plan to cut stamp duty during Friday’s mini budget Persimmon gains 6.2%, Bellway +4.3%, Barratt Developments +4.9% Fortum shares rise as much as 20%, the biggest jump ever, after Germany said it will buy all of the Finnish company’s stock in Uniper at a better-than-expected price of EU1.70 a share. Meanwhile, Uniper slides as much as 39% on the news, its biggest drop ever. Vodafone shares gain as much as 2.4% after French billionaire Xavier Niel’s 2.5% stake in the telecom company adds to the pressure for the telecom giant to accelerate its M&A push, according to New Street Research Renault shares drop as much as 4.0% after Bernstein says it remains cautious about the carmaker’s earnings prospects for 2023 following the stock’s recovery from the Russia crisis earlier this year Autoliv drops as much as 4.7% in Stockholm, to the lowest since mid July, following SEB downgrade in Sept. 20 note citing a “more uncertain” outlook for 2023 Games Workshop shares fall as much as 16%, the most since Jan. 11, after the maker of the Warhammer series of games said pretax profit in the three-month period to Aug. 28 slid to ~£39m from £45m a year earlier Earlier in the session, Asian stocks declined ahead of an expected interest-rate hike by the Federal Reserve and as Russia’s escalation of war sapped investors’ appetite for risk.  The MSCI Asia Pacific Index fell as much as 1.5%, driven by losses in technology shares. The benchmark held the loss as Russia said it was mobilizing more troops for its war against Ukraine.  Hong Kong’s Hang Seng Index led declines among regional measures, with notable drops also in Japan, South Korea, Australia and the Philippines. The main gauge of Hong Kong-listed Chinese firms sank into a technical bear market. With a third 75-basis-point rate hike by the Federal Open Market Committee widely expected, some investors have moved to price in an even larger increase. Fed Chair Jerome Powell’s comments on efforts to fight inflation will be closely parsed for clues on the future rate path.  “Asian markets are still uncertain about size of rate hikes in upcoming FOMC meetings including today’s meeting,” said Banny Lam, head of research at CEB International Investment Corp. “Also, recent depreciation of Asian currencies, especially RMB, enlarges the weakness of equity markets.” The dollar’s strength has pushed a gauge of Asian currencies to a 19-year low, prompting global investors to withdraw funds from the region’s emerging stock markets. Central bank decisions are also due this week from Japan, Taiwan, Indonesia and the Philippines. The Asian Development Bank cut its economic growth forecast for China and also lowered its outlook for developing Asia amid rising interest rates, a prolonged war in Ukraine and Beijing’s Covid-Zero policy. Japanese equities fell as investors await decisions from central banks including the Federal Reserve and the BOJ. The Topix Index fell 1.4% to 1,920.80 as of market close Tokyo time, while the Nikkei declined 1.4% to 27,313.13. Toyota Motor Corp. contributed the most to the Topix Index decline, decreasing 2.4%. Out of 2,169 stocks in the index, 345 rose and 1,734 fell, while 90 were unchanged. “The focus is on the FRB terminal rate and how far the monetary tightening will go,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Limited. “They have a strong stance of controlling inflation no matter what happens to the economy and it’s questionable whether they can really do that.” In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,700.20, with miners and banks weighing the most on the benchmark, as investors positioned for a hefty interest rate hike from a hawkish Federal Reserve. All sectors except communication services declined. In New Zealand, the S&P/NZX 50 index fell 0.6% to 11,498.95 In FX, the dollar headed for a fresh record, rising for a second day as the greenback traded steady to higher against all of its Group-of-10 peers. CHF and JPY are the strongest performers in G-10 FX in haven play, SEK and EUR underperform. Sweden’s krona suffered the steepest loss among G-10 peers to trade at around 11 per dollar, and is set for its longest slump since June, one day after the . The euro plunged as much as 0.9% to $0.9885, a two-week low, after Vladimir Putin threatened to step up his war in Ukraine. Bunds and Italian bonds advanced, outperforming Treasuries on haven buying and snapping two-day declining streaks. The pound dropped to a fresh 37-year low against a broadly stronger US dollar. Data showing a rise in UK government borrowing also weighed on sterling. The offshore yuan fell to the lowest against the greenback since mid 2020, even after the People’s Bank of China set the daily reference rate for the currency stronger-than-expected for a 20th day. In rates, Treasuries advanced, with yields falling up to 4bps, led by the belly of the curve trailing bigger gains for most European bond markets after Russia’s Putin mobilized more troops for Ukraine invasion and referenced nuclear capabilities. US 10-year yields around 3.55%, richer by ~2bp on the day and trailing comparable bunds by ~1bp in the sector; gilts lag by ~3bp; 2s10s curve is flatter by ~2bp, 5s30s by ~1bp. Euro-area bonds advanced, with the German 10-year yield dropping three basis points to 1.89%. Gilts 10-year yield down 2bps to 3.27%. In commodities, WTI drifts 2.7% higher to trade near $86.17. Spot gold rises roughly $9 to trade near $1,674/oz.  Crypto markets saw a leg lower following the Putin-induced risk aversion, with Bitcoin still under the $19,000 mark. In terms of the day ahead, the highlight will be the Fed’s policy decision and Chair Powell’s press conference. We’ll also hear from ECB Vice President de Guindos, and on the data side we’ll get US existing home sales for August. Market Snapshot S&P 500 futures little changed at 3,874.75 STOXX Europe 600 up 0.3% to 404.48 MXAP down 1.4% to 148.38 MXAPJ down 1.4% to 485.75 Nikkei down 1.4% to 27,313.13 Topix down 1.4% to 1,920.80 Hang Seng Index down 1.8% to 18,444.62 Shanghai Composite down 0.2% to 3,117.18 Sensex down 0.2% to 59,574.87 Australia S&P/ASX 200 down 1.6% to 6,700.22 Kospi down 0.9% to 2,347.21 German 10Y yield little changed at 1.85% Euro down 0.7% to $0.9901 Brent Futures up 2.6% to $93.00/bbl Gold spot up 0.4% to $1,670.80 U.S. Dollar Index up 0.51% to 110.77 Top Overnight News from Bloomberg The US dollar’s rally is at risk of a reversal if the Federal Reserve sets its interest-rate outlook at a lower level than traders are betting on after market-implied expectations for the so-called dot plot jumped this month Currency traders are girding for the biggest price swings in months in the build up to this week’s crucial Federal Reserve and Bank of Japan policy decisions Some investors have a message for anyone looking to bet big before one of the most pivotal Federal Reserve policy meetings of this year: don’t, or risk getting burned The ECB faces a delicate balancing act as it seeks to address record euro-zone inflation while the economy weakens, according to European Central Bank Vice President Luis de Guindos The British government unveiled a multibillion-pound bailout to help companies with their energy bills this winter amid soaring prices that threaten to put many out of business Prime Minister Liz Truss will cut the rates of stamp duty for UK home purchases as the government attempts to stimulate growth, The Times of London reported. Shares of UK homebuilders climbed China’s current interest rates are “reasonable” and provide room for future policy action, the People’s Bank of China said, adding to expectations it may resume lowering rates in coming months A right-wing coalition is widely expected to win Italy’s election on Sunday. Such an outcome may raise doubts over the path of reforms that are a condition for the country to receive EU funds to hasten its post-pandemic recovery A more detailed look at global markets courtesy of Newsquawk APAC stocks traded lower as the region followed suit to the global risk aversion heading into today’s FOMC policy announcement and amid heightened geopolitical concerns surrounding Ukraine as several separatist regions plan to hold a referendum to join Russia, while Russian President Putin is to address the nation in which many expect him to call for a mobilisation. ASX 200 declined with the commodity-related sectors and tech leading the downturn seen across all industries. Nikkei 225 was subdued ahead of central bank announcements including the BoJ which began its 2-day meeting. Hang Seng and Shanghai Comp were also negative with underperformance in Hong Kong amid tech weakness and with sentiment not helped by the US FCC adding more companies to its national security threat list. Top Asian News Asian Development Bank cut its Developing Asia growth forecast for 2022 to 4.3% from 5.2% and for 2023 to 4.9% from 5.3%, while it cut its China growth forecast for 2022 to 3.35 from 5.0% and for 2023 to 4.5% from 4.8%. FCC added China Unicom (762 HK) to its national security threats list. North Korean leader Kim sent a message to Chinese President Xi and said that ties with China are to reach a new high stage, according to state media. RBA Deputy Governor Bullock said policy is not restrictive as yet and is looking at opportunities to slow hikes at some point, while she noted concerns about the health of China's economy, zero-COVID policy and property market. RBA announced its review of the pandemic bond-buying program (BPP) in which it found that it should only be used in extreme circumstances and said it recorded large mark to market losses on BPP bonds in 2021/22, while it plans to hold BPP bonds to maturity and receive face value to offset accounting losses, according to Reuters. Stocks in Europe have clambered off worst levels with the region now trading mixed on the eve of the FOMC following initial Russian-induced downside. Overall sectors are now more mixed, and the earlier defensive bias has somewhat dissipated. Stateside, after the dust settled and earlier moves have been trimmed, with US equity futures now trading on either side of the unchanged mark. Top European News UK PM Truss is to tell the UN General Assembly that she will lead a new Britain for a new era and will call on democracies to harness the power of cooperation seen since Russia's invasion of Ukraine "to constrain authoritarianism", according to Downing Street. Furthermore, PM Truss is to tell the UN that Britain will no longer be dependent on those who seek to weaponise the global economy and will argue that the free world must prioritise economic growth and security, according to Reuters and Sky News. Furthermore, PM Truss is to launch a new defence review and call on Russian reparations, according to FT. UK PM Truss is to announce plans to cut stamp duty in the mini-budget this week in an effort to drive economic growth, according to The Times. ECB SSM member McCaul said the ECB is particularly concerned about banks that are heavily exposed to highly vulnerable corporates with a weak debt servicing capacity. ECB's de Guindos said FX rate is one of the most important variables that need to be looked at carefully. FX USD bid on risk-aversion pre-FOMC, though the DXY has since eased from the fresh YTD high at 110.87. Amidst this, the EUR slipped below 0.99 and away from hefty OpEx with G10 peers broadly softer amid the above USD move. However, petro-fx bucks the trend given the pronounced crude rally and has seen the CAD and NOK derive modest upside. PBoC set USD/CNY mid-point at 6.9536 vs exp. 6.9539 (prev. 6.9468). BoC's Beaudry said the bank will continue to do whatever is necessary to restore price stability and maintain confidence it can meet the 2% target, while Beaudry thinks August inflation data is still too high but added that the data shows we are headed in the right direction. Beaudry also stated that to avoid de-anchoring and to bring inflation sustainably back to target, some suggested a substantial slowdown or even a recession be engineered. Fixed Income A concerted initial bid for core benchmarks driven by broad risk-aversion, lifting Bund to a unsuccessful test of 142.00 briefly. Though, as action settles post-Putin and pre-Fed EGBs have backed away from best levels though retain a positive foothold. Note, it is worth caveating that today's upside is well within existing parameters for the week - given the pronounced hawkish action on Tuesday. 10 year T-note is hovering on the 114-00 handle within a 114-07+/113-27+ band and awaiting the Fed & Chair Powell. Commodities The crude complex has been propped up by the escalation in rhetoric from Russia. US Private Inventory Data (bbls): Crude +1.0mln (exp. +2.2mln), Cushing +0.5mln, Gasoline +3.2mln (exp. -0.4mln), Distillates +1.5mln (exp. +0.4mln). Spot gold caught a bid despite the firmer Dollar on the back of post-Putin haven demand. LME copper has given up its earlier gains as the Dollar gained and sentiment soured. US Event Calendar 07:00: Sept. MBA Mortgage Applications +3.8%, prior -1.2% 10:00: Aug. Existing Home Sales MoM, est. -2.3%, prior -5.9% 10:00: Aug. Home Resales with Condos, est. 4.7m, prior 4.81m 14:00: Sept. FOMC Rate Decision (Lower Boun, est. 3.00%, prior 2.25% DB's Jim Reid concludes the overnight wrap Markets are often in a holding pattern when we arrive at Fed decision days, with investors waiting for the policy announcement before the big moves take place. But the last 24 hours have been a very different story, with the selloff accelerating thanks to concerns that the Fed and other central banks still have plenty of hawkish medicine left to deliver. See my CoTD here yesterday for the 500bps of hikes from major central banks expected between yesterday and lunchtime tomorrow. As I also showed the ratio of global hikes to cuts now stand at 25:1, this hasn't got above 5:1 in the 25 years I have comprehensive global data. Email jim-reid.thematicresearch@db.com if you want to be on the daily CoTD list. Those rate hike jitters were present from early in the session yesterday after Sweden’s Riksbank unexpectedly announced a bumper 100bps hike, which came shortly after a stronger-than-expected print on German producer prices for August. In the meantime, the latest on the Ukraine situation didn’t help sentiment either, as it was announced that referendums would be held later this week in the Russian-occupied regions on whether they should be part of Russia. By the close of trade, this had led to a very challenging day across the major asset classes, with little respite for investors anywhere. In particular, there were some big moves on the rates side as Treasury yields hit their highest levels in years, with the 10yr Treasury yield up +7.3bps to a post-2011 high of 3.56% after trading as much as +10bps higher, intraday. The 2yr followed a similar pattern, increasing as much as +5.2bps intraday before ending the day +3.1bps higher at 3.97%, not quite breaching the 4% mark in trading, which would have been for the first time since 2007. This morning in Asia, yields on 10yr USTs (-0.59 bps) are fairly stable. To counter higher bond yields, the Bank of Japan (BOJ) in an unscheduled government bond buying operation this morning, announced that it would purchase 150 billion yen ($1.04 billion) of debt with a remaining life of five to 10 years, and 100 billion yen of securities maturing in 10 to 25 years. The fresh buying would be in addition to the central bank’s already existing daily offer of buying unlimited quantities of 10yr JGBs at 0.25%. However, the response was muted as the Japanese yen was trading flat at about 143.8 against the US dollar, still in the vicinity of a 24-year historical low as we go to print. Debate around the BoJ's defence off its YCC policy will only intensify as global yields are under pressure. One to watch again. Yesterday's bond losses come against the backdrop of the Fed’s decision today at 19:00 London time, where futures are fully pricing in a third consecutive 75bps hike. That’s quite the turnaround since the last meeting in July, when markets initially latched on to a dovish interpretation after Chair Powell said “it likely will become appropriate to slow the pace of increases”, which led to an easing of financial conditions following the meeting and well into August. However, no such slowdown is in sight following last week’s CPI print, which shut down any lingering questions about a slower pace of hikes for the time being. In fact, any doubts over today’s decision are all about whether the Fed might go even faster and hike by 100bps, with futures currently pricing in a 18% chance of such a move. So clearly not dismissing the possibility, although the absence of "well informed" journalist articles preparing the ground for 100bps speaks volumes Our US economists’ expectations (link here) are in line with market pricing today, and they expect a 75bps move that’ll be followed up with another 75bps hike in November. One thing to keep an eye out for will be the latest Summary of Economic Projections, which they expect will signal more pain in the labour market in order to tame inflationary pressures, with an upgrade to their unemployment forecasts. We’ll also get a first look at the 2025 dot plot, which they think will show the Fed funds rate at 3.4%, so still above their long-run estimate for the nominal fed funds rate, and they think the tone in Chair Powell’s press conference will sound more like the hawkish messaging out of Jackson Hole rather than the dovish signals from July. Those hawkish expectations meant that risk assets continued to struggle alongside sovereign bonds, with the S&P 500 (-1.13%) very nearly ending up back in bear market territory. It was much the same story in Europe, where the STOXX 600 (-1.09%) lost ground for a 6th consecutive session for the first time since the June slump, and is within 1% of the YTD lows. Germany’s DAX (-1.03%) is now down by more than -20% on a YTD basis again. Interestingly, European equities had initially opened higher on the day, with the STOXX 600 up +0.96% at its peak. However, sentiment turned around the time we heard of the Riksbank’s policy decision, as they unexpectedly hiked by 100bps, rather than the 75bps expected by the consensus, whilst also signalling further rate hikes ahead. In turn, that fuelled speculation that the Fed might also pull off a surprise move, even if that’s still far from the market’s base case. Staying on Europe, it’s worth noting that the rise in sovereign bond yields there were more dramatic than those seen in the United States. For instance, yields on 10yr bunds (+12.1bps) rose to a post-2014 high of 1.92%, whilst those on BTPs (+10.1bps) hit a post-2013 high of 4.18%. Following the end of European bond trading, ECB President Lagarde noted that inflation was much higher and persistent than anticipated, which has driven the front-loading of ECB rate hikes we’ve seen to date. She reiterated the ECB plans to raise rates over the next few meetings, and will size those hikes on a meeting-by-meeting basis. Like some Fed speakers, she noted the ECB cannot take anchored inflation expectations for granted, but drew contrast to the situation in the United States by spending a lot of her speech outlining why European inflation was not as demand-driven, but a result of supply shocks. I personally would say that’s up for debate with unemployment at the lowest since the Euro came into being and wage growth high. Gilts were the biggest underperformer ahead of tomorrow’s Bank of England decision, with 10yr yields up +15.4bps to a post-2011 high of 3.29%. In terms of market pricing for that decision tomorrow, overnight index swaps are pricing in 65.2bps worth of hikes, so nearly equidistant between 50bps and 75bps. Whilst central banks are in focus this week, there was significant news from Ukraine as four Russian-controlled regions will be holding referendums this week on whether they should be a part of Russia. They’re set to happen from September 23-27, and will take place in the regions of Donetsk and Luhansk, as well as in Kherson and Zaporizhzhia. Further, as reported in Bloomberg, the concern is that Russia is moving toward a more full mobilisation, which would only lead to a further entrenchment of the war. All this news doesn't suggest that the peaceful end of the war is imminent and that the counter offensive successes by Ukraine 10 days ago might have escalated tensions as was feared at the time. We expect to hear public remarks from President Putin later this morning, so more to come on what already promises to be a big macro day for markets. Asian equity markets are continuing with their downward trend this morning. Among the major indices, the Hang Seng (-1.66%) is the biggest laggard in early trade, reversing the previous session’s recovery. Elsewhere, the Nikkei (-1.37%), Shanghai Composite (-0.58%), the CSI (-0.98%) and the Kospi (-0.95%) are all trading in the red. US stock futures are fluctuating with contracts on the S&P 500 (+0.09%) and NASDAQ 100 (+0.07%) just above flat but with DAX futures (-0.29%) lower. In terms of yesterday’s data releases, US housing starts rose by more than expected in August, reaching an annualised rate of 1.575m (vs. 1.45m expected), while the prior month was revised down to 1.404m from 1.446m. Meanwhile, building permits continued to fall, down to an annualised 1.517m (vs. 1.604m expected), which is their lowest level since June 2020. The net impact of the housing data had the Atlanta Fed’s GDPNow model revise down third quarter growth to 0.3% from 0.5% after downgrading residential investment growth to -24.5% from -20.8%. So, we’re a surprise or two away from a third straight quarter of negative headline GDP growth, and yet more equivocation about why the US currently is or is not in a recession. Otherwise, German producer prices were up by +45.8% in August on a year-on-year basis (vs. +36.8% expected). That said, there was some weaker-than-expected inflation from Canada, where CPI fell to +7.0% year-on-year (vs. +7.3% expected). In terms of the day ahead, the highlight will be the Fed’s policy decision and Chair Powell’s press conference. We’ll also hear from ECB Vice President de Guindos, and on the data side we’ll get US existing home sales for August. Tyler Durden Wed, 09/21/2022 - 07:45.....»»

Category: smallbizSource: nytSep 21st, 2022

Futures, Euro, Oil All Jump As Dollar Tumbles

Futures, Euro, Oil All Jump As Dollar Tumbles US equity futures, European stocks, and pretty much all risk assets rose on Friday morning as the dollar finally stumbled, dropping by the most in a month to the lowest level in Septemember, after hitting an all time high just two days earlier. S&P 500 and Nasdaq 100 futures gained more than 0.8% at 730am ET. Europe’s Stoxx 600 Index jumped as miners rallied on optimism over Chinese demand, while banks surged following the European Central Bank’s record rate hike. That’s even as BofA said an “appalling” mood fueled a $11 billion US stock exodus in the week to Sept. 7. The yen headed for its best day in a month as Japanese officials and BOJ governor Kuroda gave the strongest hint yet at possible direct market intervention as a response to weakness in the currency. Oil and cryptos jumped. In premarket trading, DocuSign jumped 17% in premarket trading, after the e- signature company reported second-quarter results that beat expectations and raised its full-year billings forecast. Digital Media Solutions soared 73% in premarket trading after receiving a non-binding “go private” proposal from Prism Data for $2.50/share in cash, representing ~95% premium to last close. Other notable premarket movers: Zscaler (ZS US) was up 13% in premarket trading, after the security software company reported fourth-quarter results that beat expectations and gave an outlook that is seen as strong. Digital World Acquisition (DWAC US), the blank-check firm merging with Trump Media & Technology Group, rises 7.1% premarket, on course for a third day of gains. The shares have had a volatile week, falling 11% on Tuesday, amid uncertainty over a vote to extend the deadline to complete the Trump deal. Marathon Digital (MARA US) and Riot Blockchain (RIOT US) lead cryptocurrency-exposed stocks higher in premarket trading as Bitcoin rises the most in more than a month, breaching the closely watched $20,000 level. MARA +10%, RIOT +8%. RH (RH US) was little-changed in postmarket trading. Analysts were torn on the luxury home furnishings retailer’s results, noting that while the company beat expectations, it lowered its full-year forecast. Global stocks are on course for their first weekly advance in four, a small measure of respite from the bear-market omens circling markets due to monetary tightening, energy woes and China’s growth slowdown. “The market has been extraordinarily focused on the actions of the ECB and Fed as they try to bring inflation under control,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “Eventually this will change and the investment horizon will lengthen considerably. For now though, the market has good reasons not to. Inflation saps consumer confidence and overtightening could send the European and US economies into a recession.” Speaking at a conference, Powell said “we need to act now, forthrightly, strongly as we have been doing” and added that “my colleagues and I are strongly committed to this project and will keep at it.” In contrast with the buoyant mood in equity markets Friday, Bank of America Corp. strategists flagged that investors are rushing out of US stocks as the likelihood of an economic downturn increases amid a myriad of risks. US stock funds posted outflows of $10.9 billion in the week to Sept. 7, according to EPFR Global data cited by the bank, with the biggest exodus in 11 weeks led by technology stocks. In Europe, nat gas prices eased as the region’s energy ministers gathered for a summit to draw up plans to fix an unprecedented crisis that threatens to undermine the broader economy. Expect the news to be a major letdown unless somehow Brussels figured out how to print commodities. The euro touched the highest level in three weeks after the ECB raised rates 75 basis points Thursday. Bets the Federal Reserve will hike by the same margin when it meets later this month increased after chair Jerome Powell reiterated the Fed is determined to curb price pressures. Elsewhere in Europe, stocks rallied as all sectors trade in the green. Euro Stoxx 50 climbs 1.9%. Miners, banks and autos are the strongest-performing sectors. European miners soared, significantly outperforming the Stoxx Europe 600, as iron-ore and base-metals prices rose on improving sentiment surrounding the Chinese market. Here are some of the biggest European movers today: Deutsche Telekom shares gain as much as 3.1% after its unit T-Mobile US embarks on a buyback program of as much as $14b of shares, which Goldman Sachs sees as a positive catalyst for the telecom group Zealand Pharma shares rise as much as 8.7% after Morgan Stanley initiated coverage with overweight rating on near-term catalysts and the biotech’s rich pipeline Synlab shares rise as much as 7% after Berenberg initiated coverage at buy, saying the shares should benefit as investors start to focus on the potential for the diagnostics firm’s core business Rubis climbs as much as 8.9%, the most intraday since March, after the French oil and gas distributor reported a jumped in 1H profit helped by growth in its Caribbean operations TI Fluid Systems shares rise as much as 7.6% after Jefferies upgraded them to buy, saying concerns on the auto parts maker’s outlook are now sufficiently priced in Gear4Music shares plummet as much as 23% after the online retailer said summer trading was hit by the cost-of-living crisis and unusually hot weather. Peel Hunt sees a challenging winter ahead Computacenter shares fall as much as 12%, with analysts saying the IT services firm missed profit estimates in 1H amid continued supply constraints and tough comparisons Immobel shares drop as much as 5.1% after KBC downgraded the real estate developer to accumulate from buy and reduced the PT to a Street-low Melrose shares drop as much as 6.1% in a second day of declines after the company said it will spin off two units. Analysts said the change in strategy raises questions. Earlier in the session, Asian equities advanced, poised to wipe out a weekly loss, as China’s consumer inflation came in lower than expected and the dollar rally showed signs of easing. The MSCI Asia Pacific Index advanced as much as 1.7%, with a materials sub-gauge set for its best day since March --climbing almost 3% -- amid a rally in metals due to supply concerns. Stock gauges in Hong Kong led gains in the region as developer stocks climbed on speculation of more easing of home-purchase restrictions. Mainland Chinese shares had their best day in almost a month as August data showed an unexpected moderation in prices, giving the country’s central bank room to stay accommodative. Markets in South Korea and Taiwan were closed for holidays. A dollar gauge edged lower, helping to lift sentiment, as comments from Federal Reserve Chair Jerome Powell that hardened expectations of another jumbo rate hike appeared to have been largely priced in.  Asian equities fell to a May 2020 low earlier this week as the dollar’s strength put pressure on capital flows amid rising inflation. Meanwhile, China’s continued lockdowns have weighed on supply chains and investor sentiment, and the country is stepping up defenses ahead of a key Communist Party meeting with further restrictions on internal travel. “Growth, inflation and yields have been driving the markets since the beginning of the year and there is still no consensus,” Sanford C. Bernstein strategists including Rupal Agarwal wrote in a note. A global slowdown or recession has historically worked in favor of defensive styles such as high quality, high yield and low volatility in Asia, they added. Japanese equities advanced, driven by gains in telecoms and service providers, after a rally in US peers overnight and as the yen gained against the dollar. The Topix rose 0.4% to close 1,965.53, while the Nikkei advanced 0.5% to 28,214.75. Volumes were above the 30-day averages after special quotation settlement for futures and options. The yen strengthened as much as 1.1% against the greenback in afternoon trading. Nippon Telegraph & Telephone Corp. contributed the most to the Topix gain, increasing 0.7%. Out of 2,169 shares in the index, 1,354 rose and 684 fell, while 131 were unchanged Australian stocks advanced, boosted by banks and miners. The S&P/ASX 200 index increased 0.7% to close at 6,894.20, making a weekly gain of 1%, as banks and mining shares rose. Mineral Resources led lithium shares higher after responding to a media report that the company is considering a spinoff of its lithium mining and processing operations arm, as well as a possible US listing. In New Zealand, the S&P/NZX 50 index rose 0.7% to 11,757.77. In FX, the Bloomberg Dollar Spot Index fell to its lowest level this month as the greenback weakened against all of its G10 peers, while the pound, euro, yen and yuan all rallied against the greenback. Risk-sensitive currencies advanced most, led by Norway’s krone which rose by as much as 2%. The euro rallied by as much as 1.1% to trade around $1.01 for the first time since mid-August. Italian bonds tumbled, snapping the BTP-bund spread wider as money markets cranked up ECB hike bets after Bloomberg reported policy makers are prepared to tighten another 75bps next month, according to people familiar with the debate. The yen rebounded as traders mulled comments from Bank of Japan Governor Haruhiko Kuroda on the currency’s decline amid a broad dollar selloff. The dollar-yen pair fell 1.3% to around the 142.20 level, after climbing for four straight sessions. Kuroda held a meeting with Prime Minister Fumio Kishida in a sign of the nation’s heightened alert levels. The Australian dollar surged the most in a month as the greenback weakens and a rally in equities boosts risk-sensitive currencies In rates, US Treasuries trimmed their retreat, with the policy-sensitive two-year yield still near the highest since 2007. Treasury futures push higher over early US session as S&P 500 futures advance, taking yields richer by up to 7bp across intermediates which lead the rally. The Advance followed wider bull-flattening move seen across UK curve as gilts pare a portion of Thursday’s losses.  10-year TSY yields were around 3.26%, richer by 6bp on the day although lagging gilts where yields drop as much as 9bp out to 10s; in Treasuries, intermediate-led gains richen 2s7s30s fly by 5bp. Bunds 10-year yield is down 1.5bps to 1.73%. Peripheral spreads widen to Germany with 10y BTP/Bund adding 2.2bps to 227.3bps. Oil futures traded at session high, jumping 1.5% to below $85; gold jumped ~$18 to $1,727. Most base metals trade in the green; LME nickel rises 4.4%, outperforming peers. Bitcoin extended gains, rising 6.7% just shy of the $20,000-level, rising the most in more than a month. Looking to To the day ahead now, and EU energy ministers will be meeting in Brussels to discuss emergency measures to deal with high energy prices. Otherwise, data releases include French industrial production for July and Canada’s employment report for August. Finally, central bank speakers includes ECB President Lagarde, and the Fed’s Evans, Waller and George. Market Snapshot S&P 500 futures up 0.8% to 4,035.75 STOXX Europe 600 up 1.4% to 419.91 MXAP up 1.6% to 154.48 MXAPJ up 1.6% to 506.33 Nikkei up 0.5% to 28,214.75 Topix up 0.4% to 1,965.53 Hang Seng Index up 2.7% to 19,362.25 Shanghai Composite up 0.8% to 3,262.05 Sensex up 0.2% to 59,834.09 Australia S&P/ASX 200 up 0.7% to 6,894.18 Kospi up 0.3% to 2,384.28 German 10Y yield little changed at 1.75% Euro up 1.0% to $1.0100 Gold spot up 1.2% to $1,728.41 U.S. Dollar Index down 1.12% to 108.47 Top Overnight News from Bloomberg The EU is throwing together a series of radical plans to tame runaway energy prices and keep the lights on across the continent, but governments across the region are going to need to find common ground and fast The ECB will continue raising interest rates until it reaches its inflation goal, according to Governing Council Member Klaas Knot. Governing Council Member Bostjan Vasle said the ECB will continue the strong normalization of monetary policy with more interest-rate hikes, while Peter Kazimir said euro-zone inflation is “unacceptably high” and sees more hikes in the near future to get inflation under control. Bank of France Governor Francois Villeroy de Galhau said the ECB must be “orderly and determined” with rate increases after hiking by a record 75 basis points Japanese officials sound increasingly alarmed over the yen’s weakness, and while intervention is not imminent, the market takes notice. The pair’s volatility skew turns bearish the dollar this week at the front-end yet topside trades better bid further out; this suggests that traders see risk of a yen rebound, but unilateral intervention won’t have a lasting effect as long as monetary policy divergence between the Fed and the BOJ remains in place A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks followed suit to the gains on Wall St although the upside was capped after recent global central bank activity including a 75bps rate hike by the ECB and Fed Chair Powell's hawkish reiterations. ASX 200 was led by the mining-related sectors although advances were limited by weakness in defensives. Nikkei 225 extended on gains above the 28k level but with upside capped amid currency-related jawboning. Hang Seng and Shanghai Comp were also lifted with property and tech stocks spearheading the outperformance in Hong Kong owing to supportive policy-related headlines, while the mainland was somewhat contained in comparison after softer-than-expected inflation data from China and ahead of the long weekend with markets shut on Monday for the Mid-Autumn Festival. Top Asian News US is considering an order to screen US investment in tech in China and elsewhere, according to WSJ. US Treasury Secretary Yellen said President Biden continues to consider tariff relief on Chinese imports and wants to make sure the decision is good for Americans, while she added that it is important to take a tough stance on China due to its economic practices and national security threat, according to Reuters. US reportedly relaxed Huawei curbs to counter China's push on tech standards with the Commerce Department issuing a new rule to permit sharing of certain 'low-level' technologies and software, according to SCMP. BoJ Governor Kuroda said he met with PM Kishida to explain domestic and overseas economic developments and markets, but noted there was no specific request from PM Kishida on the economy or markets. Kuroda said hediscussed FX moves with Kishida and noted that rapid FX moves are undesirable and heighten uncertainty, as well as make it difficult for companies to do business, according to Reuters. Japanese Finance Minister Suzuki said they are to tap JPY 3.5tln in budget reserves to speedily deliver measures against the negative impact of price hikes, while he added that sharp FX moves are undesirable and won't rule out any options on FX, according to Reuters. Japanese Chief Cabinet Secretary Matsuno said he is concerned about abrupt FX moves and noted that speculation is a factor behind recent moves, while he added that the strong USD is affecting other currencies, not just the JPY, according to Reuters. Matsuno said watching FX carefully, ready to take necessary steps if current FX moves continue, without ruling out options; recent JPY moves show excessive volatility European bourses trade firmer across the board following constructive leads from APAC and Wall Street, with the softer-than-expected Chinese inflation data overnight also lifting spirits. European sectors are in the green but portray a clear anti-defensive bias – Utilities, Healthcare, Food & Beverages, Media, and Personal Care reside at the bottom of the bunch. Stateside, US equity futures are also higher across the board, with the tech-laden NQ leading the charge Top European News ECB's Kazimir said discussion on what levels of rate the ECB aims to reach is premature; priority is to continue fiercely with normalisation of monetary policy, via Reuters. ECB's Knot said ECB has sent a forceful signal with rate rise; sees big risks of second-round effects, via Bloomberg. ECB's Villeroy said half of the current inflation is not linked to energy or agricultural prices; says inflation should be brought back to around 2% by 2024; earlier we act the easier it is to achieve results, via Reuters. Villeroy added that neutral can be estimated in the Euro Area at below or close to 2% according to him, should not speculate on the size of the next rate move - "we did not create a jumbo habit". ECB is said to be ramping up scrutiny of banks' readiness for a gas halt by Russia, according to Bloomberg sources. FX DXY suffers from a large fall amid risk appetite, ECB sources yesterday and Japanese verbal intervention, with the index back around 108.50 from a 109.54 peak. The EUR is probing 1.0100 from a sub-0.9900 midweek trough and pulling away from decent option expiry interest below. The AUD stands as the outperformer amid renewed risk appetite and the revival of base metals. Fixed Income UK Gilts have rebounded to extend well beyond prior session peaks to almost 106.00 Bunds are back around par within extended 143.82-142.46 extremes US Treasuries are near the top of a 116-07+/115-22 range. Commodities WTI and Brent front-month futures have been climbing since the start of the APAC session as a function of the declining Dollar and overall risk appetite in the market. Spot gold is firmer as the DXY losses further ground, with the yellow metal topping yesterday’s high as it eyes its 50 DMA at USD 1,744.12/oz. Base metals are bolstered by the softer Chinese inflation metrics – which also lowers the chances of further state intervention. Indian food secretary said rice production could drop due to droughts; output could drop by 7-8mln tonnes, via Reuters Black Sea grain deal is being fulfilled badly, according to the Russian Foreign Ministry, its extension will depend on implementation, via Ria. US Event Calendar 10:00: July Wholesale Trade Sales MoM, est. 0.8%, prior 1.8% 10:00: July Wholesale Inventories MoM, est. 0.8%, prior 0.8% 12:00: 2Q US Household Change in Net Wor, prior -$544b Central Banks 10:00: Fed’s Evans Discusses Careers in Economics 12:00: Fed’s Waller Discusses Economic Outlook 12:00: Fed’s George Discusses the Economic Outlook DB's Jim Reid concludes the overnight wrap Markets struggled for direction yesterday as it dawned on investors that central banks still aren’t ready to slow down their rate hikes just yet. First, we had the ECB who hiked by 75bps for the first time in their history and signalled that further hikes were still to come. Then we had a Bloomberg report suggesting that ECB officials were prepared to move by the same amount again in October. And finally in the US, Fed Chair Powell delivered remarks that cemented expectations that the Fed are set to hike by 75bps for a third consecutive meeting this month. That combination of hawkish developments meant that sovereign bonds struggled on both sides of the Atlantic, with a fresh surge in real yields that left the 5yr real Treasury yield at a post-2019 high of 0.95%. Looking at the ECB decision in more detail, the Governing Council decided to take their main rates up by 75bps as expected by the consensus, leaving the deposit rate at 0.75% and the main refinancing rate at 1.25%. A number of details also tilted in a hawkish direction, including their statement that they expected “to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.” We even got some detail from Lagarde on what they meant when they said there’d be “several” future hikes, which was that it meant “probably more than two, including this one, but it’s also probably also going to be less than five.” Furthermore, they upgraded their inflation forecasts yet again, now seeing 2023 inflation +5.5% (vs. +3.5% in June), and 2024 inflation at +2.3% (vs. +2.1% in June), so still above their +2.0% target even in a couple of years. They also significantly downgraded growth in 2023, now expecting +0.9% (vs. +2.1% in June), and said that they expected the economy “to stagnate later in the year and in the first quarter of 2023.” Here at DB, our own European economists have now shifted their view for the next meting in October, and now expect another 75bps hike. They write that the guidance from President Lagarde that rates are “far away” from appropriate levels for getting inflation back to target underscores the ECB’s insensitivity to the growth headwinds and their focus on bringing inflation down. They maintain their 2.5% terminal rate forecast for the deposit rate, but the timing for that has moved forward to March 2023, with that 75bp hike in October being followed by a 50bp move in December, and then 25bp moves in February and March. You can see their full reaction note here. European sovereign bonds sold off following the decision, with yields on 10yr bunds (+13.8bps), OATs (+11.0bps) and BTPs (+10.8bps) all moving higher. That also followed an announcement that they were temporarily removing the 0% interest rate ceiling on the remuneration of government deposits, which they said would “prevent an abrupt outflow of deposits into the market”. Instead, the ceiling will be at the lower of either the Eurosystem’s deposit facility rate or the euro short-term rate, with the measure intended to remain in effect until 30 April 2023. Later, we then heard in a Bloomberg article that ECB officials were prepared to move by 75bps again in October, with the report further saying that Chief Economist Lane’s presentation “struck a much more hawkish tone than his latest speech”. All in all, investors took away a very hawkish message, with the rate priced in by the December meeting rising +21.2bps on the day to its highest level to date. Today, attention will remain on Europe since we have the much-awaited meeting of EU energy ministers in Brussels. They’ll be discussing emergency measures to help with high energy prices, and we’re expecting a press conference at 14:30 Brussels time. We’ll have to see what happens, but the tone among policymakers has remained incredibly downbeat, with Belgian Prime Minister De Croo warning that “A few weeks like this and the European economy will just go into a full stop”. In the meantime, natural gas futures recovered +3.40% yesterday, which still leaves them at €221 per megawatt-hour, or more than quadruple their levels from a year ago. For those after more info on the situation, our research colleagues in Frankfurt published their latest gas supply monitor yesterday as well, where they update their scenarios for how fast German gas storages will be depleted, assuming zero gas flows from Russia to Germany. Their model shows that even with a 20% year-on-year reduction in total gas consumption, that would largely deplete the country’s gas storage by the end of the heating season. They also preview what to expect from today’s meeting (link here). Otherwise yesterday, there were mounting expectations that the Fed would hike by 75bps again at their meeting on September 21, which would mark the third consecutive hike of that magnitude. That followed a further set of remarks from Fed Chair Powell, in which he stuck to his resolute tone on beating inflation, saying that “We need to act now, forthrightly, strong as we have been doing”. The FOMC are entering their blackout period tomorrow, so today is the last day ahead of the meeting we’ll hear from any of them, but Chicago Fed President Evans also said that they “could very well do 75 in September”. Fed funds futures responded accordingly, with +71.6bps worth of hikes now priced in for that meeting, and the rate priced in for December went up +4.3bps to 3.82%, which is the most hawkish market pricing to date. The effects of the Fed’s hikes are being increasingly seen in the real economy, and yesterday we got data from Freddie Mac showing that the average 30-year mortgage rate hit a post-2008 high of 5.89%. However, there was a further round of decent data on the labour market, as the weekly initial jobless claims for the week ending September 3 fell to 2322k (vs. 235k expected). That’s their 4th consecutive weekly fall and brings them to their lowest level since May, so it’s becoming harder and harder to dismiss the better-than-expected data as just a blip. There have been some other tailwinds recently too, and daily data from the American Automobile Association is now showing that gasoline prices are down by just over a quarter from their peak in June, having fallen from $5.02/gallon back then to $3.75/gallon on Wednesday. When it came to Treasuries, the hawkish rhetoric and more robust economic data helped yields rise further yesterday, with the 10yr yield up +5.4bps to 3.32%, although there’s been a partial pullback in Asia this morning, with yields down -2.3bps. The rise was driven by higher real yields, with those at shorter maturities hitting their highest levels since before the Covid-19 pandemic. For equities however, the day was marked by significant swings between gains and losses, before the S&P 500 eventually ended the day up +0.66%. It was a similar story in Europe too, where the STOXX 600 eventually ended the day up +0.50%. Looking forward, US stock futures are pointing to further gains today and contracts on the S&P 500 (+0.38%) and the NASDAQ 100 (+0.59%) have both risen. Here in the UK, Prime Minister Truss outlined the government’s plan on consumer energy bills, with a new Energy Price Guarantee that will mean a typical UK household only pays up to an average of £2,500 a year on energy. This applies to all households, and once you take into account the existing £400 discount this winter, it means that average costs over the coming year will be roughly around where the current energy price cap stands, rather than going up to a new cap of £3,549 as had been previously planned. Against that backdrop, we also saw 10yr gilt yields (+11.3bps) rise to a new post-2011 high yesterday, although yesterday’s move was broadly in line with what we saw elsewhere in Europe following the ECB decision. Overnight in Asia, equities are advancing this morning as they follow up the rise on Wall Street yesterday. The Hang Seng (+2.24%) is leading gains followed by the CSI (+1.26%), the Shanghai Composite (+0.84%) and the Nikkei (+0.55%). Elsewhere, markets in South Korea are closed for a holiday. Risk appetite was supported by Chinese inflation data that showed a slowing in the rate of both consumer and producer price growth, which offers the authorities more space to support the economy without sparking further inflation. Consumer prices were up by +2.5% in August (vs. +2.8% expected), while producer prices were up +2.3% (vs. +3.2% expected), and both readings were down on the previous month. Finally, the Japanese Yen has strengthened for the first time this week after BoJ Governor Kuroda commented that “The rapid weakening of the yen is undesirable”, gaining +0.94% against the US Dollar. To the day ahead now, and EU energy ministers will be meeting in Brussels to discuss emergency measures to deal with high energy prices. Otherwise, data releases include French industrial production for July and Canada’s employment report for August. Finally, central bank speakers includes ECB President Lagarde, and the Fed’s Evans, Waller and George. Tyler Durden Fri, 09/09/2022 - 07:56.....»»

Category: blogSource: zerohedgeSep 9th, 2022

Futures Flat, Dollars Steamrolls To New Record Highs Ahead Of Fed Speaker Barrage

Futures Flat, Dollars Steamrolls To New Record Highs Ahead Of Fed Speaker Barrage S&P futures swung in illiquid overnight trading, first sliding below the key 3,900 level after the Japan open, only to recover all losses after Europe opened, with the dollar storming to new record highs and steamrolling all FX competitors as traders braced for a slew of hawkish Fed speakers to assess the path of monetary policy and its impact on the economy. S&P 500 futures edged 0.1% higher at 7:15 a.m. in New York after the underlying benchmark fell six out of the last seven sessions, while Nasdaq 100 futures rose 0.3%, as both European and Asian market slumped. The Bloomberg Dollar index hit a new record high as the Yen plunge below 144 for the first time since 1998 and the Chinese yuan flirted with the key 7.00 level. Bitcoin recovered modestly after tumbling to new 2022 lows and oil erased a decline after Russian President Vladimir Putin underlined that his country won’t supply oil and fuel if price caps on the country’s exports are introduced.. In premarket trading, UiPath tumbled 21% after the application software company gave weaker-than-expected third-quarter revenue forecast. Meanwhile, Gitlab gained 3% in US premarket trading after second-quarter earnings. While analysts were broadly positive on the software development platform’s increased revenue guidance, especially given a tough backdrop, Piper Sandler flagged “noise” around a deceleration in billings. Here are the other notable premarket movers: Coupa Software (COUP US) rises about 12% in premarket trading on Wednesday after boosting its full-year earnings guidance and posting better-than-expected second-quarter results, helped by strong billings in North America. While analysts were positive about the results, they remained cautious about softness in Europe.   Keep an eye on shares in US utilities and energy suppliers, incuding PG&E (PCG US), Edison International (EIX US) and Sempra Energy (SRE US) amid a deepening power crisis in California, where a heat wave is piling pressure on the US state’s power grid. Watch US digital health companies, as Truist initiates coverage on 16 firms, with a positive view on the industry overall. Progyny (PGNY US), Privia Health (PRVA US), Accolade (ACCD US), Agilon (AGL US) and R1 RCM (RCM US) all started with buy ratings. Watch Petco (WOOF US) stock as it was initiated with an outperform rating and $17 PT at RBC, with the broker saying near-term risks are reflected in the shares and the long-term picture is positive for the pet health company. Keep an eye on Guidewire (GWRE US) as RBC Capital Markets says that the software company has reported a “mixed” quarter amid macroeconomic headwinds with “muted” guidance. Alvotech (ALVO US) stock may be in focus as it was initiated with an equal-weight rating at Morgan Stanley, with broker flagging “many knowns” and a wide range of possible outcomes of the biotech’s US launch of its lead product, the biosimilar Humira. Newell Brands (NWL US) fell 4.6% in US postmarket trading on Tuesday after the consumer-products company cut its normalized earnings per share guidance for the full year. The firm has “limited” visibility and is buffeted by macroeconomic pressures, Morgan Stanley says. On today's calendar, no less than four Fed officials including Vice Chair Lael Brainard and Cleveland President Loretta Mester are set to speak before the release of the US Beige book later this afternoon. Richmond President Thomas Barkin already said rates must stay high until inflation eases. Investors will closely monitor their comments for clues about the pace of interest rate hikes in the face of slowing growth and still-elevated inflation. The consumer-price index reading due next week will also be paramount for the Fed’s September decision.  Bets on another 75 basis points Fed interest-rate hike to tackle high inflation have spurred a selloff in Treasuries, while traders are bracing for a European Central Bank rates decision due on Thursday, with the potential for a similar-size move. Aside from tightening monetary settings and an apparently unstoppable dollar, markets are also contending with a debilitating energy crisis in Europe and Covid lockdowns in China. Concerns are growing about the outlook for company earnings given the various global economic headwinds and a rebound seen in equity markets since mid-June is fading. The S&P 500 rose too much in July and is overvalued by about 10% compared to macroeconomic fundamentals, according to Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. He expects the Federal Reserve to hike rates by 75 basis points even if inflation declined in August. “The current wait-and-see mode of the US market should be short-lived,” he said. “We expect another leg down in the S&P 500 into the fourth quarter before we find a bottom.” “At this point, we see no positive triggers to keep the rally going, while there are rising risks moving into autumn amid a gloomier economic backdrop,” Amundi SA Chief Investment Officer Vincent Mortier and his deputy, Matteo Germano, wrote in a note. “To cope with this environment, we believe investors should adjust their asset allocation stances.” Europe’s Stoxx 600 Index fell 0.4%, with tumbling miners leading the declines; IBEX outperforms, adding 0.4%, FTSE 100 lags, dropping 0.7%. Banks, miners and retailers are the worst-performing sectors. Earlier in the session, Asiun stocks were pressured amid spillover selling from Wall St owing to the higher yield environment and as participants digested the latest Chinese trade data. ASX 200 weakened from the open with the index dragged lower by the energy and mining-related sectors and with somewhat mixed GDP data not doing much to spur risk appetite. Hang Seng and Shanghai Comp were subdued amid the ongoing COVID woes and following the softer than expected Chinese trade data in which all metrics missed forecasts. Japanese stocks also fell as the yen slumped to a level that leaves it on track for its worst year on record, prompting government warnings and putting traders on edge as volatility rises.  The Topix Index fell 0.6% to 1,915.65 as of market close Tokyo time, while the Nikkei declined 0.7% to 27,430.30. Sony Group Corp. contributed the most to the Topix Index decline, decreasing 2.3%. Out of 2,169 stocks in the index, 492 rose and 1,610 fell, while 67 were unchanged.  While currency weakness is generally seen as favorable for exporters, rapid depreciation raises input costs and can complicate business decisions.  “With the yen this weak, it’s difficult for the stock market to rally,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Limited. In Australia, the S&P/ASX 200 index fell 1.4% to close at 6,729.30, dragged by declines in banks and mining shares.  Energy-related shares fell after oil retreated to the lowest level since January on concern a global slowdown will cut demand in Europe and the US just as China’s Covid Zero strategy hurts consumption.  In New Zealand, the S&P/NZX 50 index fell 0.4% to 11,548.30. In India, key equity indexes dropped on Wednesday, tracking a selloff in Asia, with companies such as ICICI Bank and Reliance Industries putting pressure on the market. The S&P BSE Sensex closed 0.3% lower at 59,028.91 in Mumbai, while the NSE Nifty 50 Index fell 0.2%, extending its decline for a second day. Still, all but five of the 19 sector sub-gauges compiled by BSE Ltd. gained, led by an index of basic material companies. Automobile stocks were the worst performers. However, the broader market, including mid- and small-cap companies, gained as basic material stocks advanced on the back of recent decline in commodity prices. The S&P BSE MidCap Index fell as much as 0.5%, before closing higher by an equal measure and climbing to its highest level since Jan. 17. In FX, the Bloomberg dollar index surged to a fresh record as strong US data and hawkish comments from a Federal Reserve official reinforced aggressive tightening bets.   The Bloomberg Dollar Spot Index gained as much as 0.4% fuelling weakness among all of its Group-of-10 peers. Fed’s Richmond President Thomas Barkin said in an interview with the Financial Times that the central bank must raise interest rates to a level that restrains economic activity and keep them there until policy makers are “convinced” that rampant inflation is subsiding. The yen fell to a fresh 24-year low, prompting Japan’s top spokesman Hirokazu Matsuno to say he’s concerned about recent rapid, one-sided moves in the yen and the country would need to take “necessary action” if these movements continue. But despite this verbal intervention, “markets appear quite happy with testing their tolerance” and 145.00 might be the line in the sand, Francesco Pesole, a strategist at ING Groep NV wrote in a note. USD/JPY rose as high as 144.99. The Bank of Japan said it would boost scheduled bond purchases as Japan’s benchmark 10- year yield hit 0.24% -- approaching the 0.25% upper limit of the BOJ’s tolerated trading band GBP/USD fell 0.4% to 1.1471 erasing gains made after reports of Prime Minister Liz Truss’s energy support package. The pound has managed to “discount much of the bad news but that does not mean that it will bound higher anytime soon,” Steve Barrow, a strategist at Standard Bank wrote in a note. AUD/USD lost 0.2% to 0.6722; a drop below the July 14 low of 0.6682 would take it to the lowest since 2020 In rates,Treasuries hold gains, reversing some of Tuesday’s declines, amid a bull-steepening rally in gilts where 2-year yields are richer by around 25bp on the day as BOE speakers discuss inflation outlook amid proposed government action. US yields richer by 2bp to 4bp across the curve with gains led by front-end, steepening 2s10s spread by around 1bp; 10-year yields at 3.33%, richer by 2.5bp and underperforming bunds and gilts in the sector by 3.5bp and 6bp.Sharp bull-steepening in gilts follows dovish comments from BOE’s Tenreyro; UK 2s10s, 5s30s spreads widen 8bp and 7bp into the front-end led rally.Fed speaker slate includes Vice Chair Brainard on the economic outlook; Chair Powell has an appearance scheduled for Thursday; August CPI report to be released Sept. 13 falls during the blackout period.IG dollar issuance slate includes IFC $2b 3Y SOFR and IADB 7Y SOFR; more than $35b priced Tuesday with issuers paying just over 10bps in concessions on deals 2.8x covered, and at least three borrowers stood down. WTI crude drifts 0.6% higher to trade near $87.38 after Putin said Russia won’t supply oil, fuel or gas if price caps are introduced; gold adds about ~$3 to $1,705.  Bitcoin prices slipped overnight to under USD 19,000 whilst Ethereum tested 1,500 to the downside; and gold recovered to trade above $1,700 an ounce. To the day ahead now, and there’s plenty on the central bank side, as the Bank of Canada announce their latest policy decision and the Fed release their Beige Book. We’ll also hear from Bank of England Governor Bailey, as well as the BoE’s Pill, Mann and Tenreyro as they testify before the Treasury Select Committee. In addition, there are scheduled remarks Fed officials, including Vice Chair Brainard, Vice Chair Barr, and Mester and Barkin. Otherwise, data releases include German industrial production and Italian retail sales for July. Market Snapshot S&P 500 futures up 0.1% to 3,915.00 STOXX Europe 600 down 0.5% to 412.19 MXAP down 1.3% to 150.62 MXAPJ down 1.2% to 496.50 Nikkei down 0.7% to 27,430.30 Topix down 0.6% to 1,915.65 Hang Seng Index down 0.8% to 19,044.30 Shanghai Composite little changed at 3,246.29 Sensex down 0.2% to 59,092.96 Australia S&P/ASX 200 down 1.4% to 6,729.34 Kospi down 1.4% to 2,376.46 Brent Futures down 0.3% to $92.56/bbl Gold spot up 0.1% to $1,703.64 U.S. Dollar Index little changed at 110.31 German 10Y yield little changed at 1.59% Euro up 0.1% to $0.9916 Brent Futures down 0.3% to $92.57/bbl Top Overnight News from Bloomberg The Federal Reserve must raise interest rates to a level that restrains economic activity and keep them there until policy makers are “convinced” that rampant inflation is subsiding, Fed Richmond President Thomas Barkin said in an interview with the Financial Times All 31 economists surveyed by Bloomberg expect Bank of Canada policy makers led by Governor Tiff Macklem to raise the benchmark overnight rate by at least 50 basis points, and most say it will be 75 basis points The ECB’s interest-rate hikes may fail to fully filter through into markets without a shift in its policies. Interest-rate rises are already struggling to be reflected across money markets because there’s too much cash chasing scarce high-quality securities, depressing their yields The euro-area economy expanded by more than initially estimated in the second quarter, with the revision revealing greater support from consumer and government spending. Output rose 0.8% from the previous three months -- stronger than an earlier reading of 0.6% “Give us turbines and we’ll turn on Nord Stream tomorrow, but they won’t give us anything,” President Vladimir Putin said at the Eastern Economic Forum in Vladivostok The European Commission recommends member states cap the price of electricity from producers like wind farms, nuclear and coal plants at EU200 per MWh, the Financial Times reported, citing a draft of proposals it has seen The yen has slumped to a level that leaves it on track for its worst year on record, prompting the strongest warnings to date from senior Japanese government officials aimed at stemming the slide The world’s original and longest-running experiment in negative interest rates will finally end this week as Denmark raises borrowing costs in tandem with the euro zone. The move is likely as the ECB delivers a large hike on Thursday, because Danish monetary policy often shadows such moves to protect the krone’s peg to the single currency Developed economies are taking a hit from the dollar’s appreciation to multi-decade highs in ways that were once more familiar to their emerging-market peers China’s export growth slowed in August and imports stagnated, a sign of a darkening global economic picture and weak domestic growth hit by Covid lockdowns and a property slump. Exports in US dollar terms expanded 7.1% last month from a year earlier, far weaker than economists had predicted China sent its most powerful signal yet on its discomfort with the yuan’s weakness by setting its reference rate for the currency with the strongest bias on record A more detailed look at global markets courtesy of Newsquawk Asia stocks were pressured amid spillover selling from Wall St owing to the higher yield environment and as participants digested the latest Chinese trade data. ASX 200 weakened from the open with the index dragged lower by the energy and mining-related sectors and with somewhat mixed GDP data not doing much to spur risk appetite. Nikkei 225 declined despite a further weakening in the JPY as the recent rapid currency depreciation raised further questions surrounding the BoJ’s dovish resolve. Hang Seng and Shanghai Comp were subdued amid the ongoing COVID woes and following the softer than expected Chinese trade data in which all metrics missed forecasts. Top Asian News Japanese Chief Cabinet Secretary Matsuno believes relaxation of border control measures could be an advantage with the weak JPY, while they are concerned by recent rapid, one-sided currency moves and are ready to take appropriate action on FX market moves if necessary, according to Reuters. Japanese Finance Minister Suzuki, when asked about the chance of currency intervention, says will take necessary steps, according to Reuters. Japan's former MOF FX head Watanabe said there is no need for Japan to intervene in the currency market to stem the yen's declines and that Japan intervening solo in the FX market would be meaningless as current FX moves are driven by broad dollar gains, while he noted that intervening solo would be a waste of money as markets would know Tokyo has limited to how much reserves it can tap to continue with such actions. Wakatabe also stated that USD/JPY is overshooting somewhat now and may briefly reach 145 later this month but such increases likely won't last long, while he doesn't think the BoJ will raise rates just to stem JPY's declines. Xi, Putin to Meet for First Time Since Russia’s War in Ukraine China’s Xi Has Broad Support for Continued Rule, Envoy Says Korean Won Still Near 13-Year Low After Central Bank Warning Vietnam Wins Rating Upgrade From Moody’s on stronger Growth China State-Backed Expo Pulls Ukraine Trade Event at Last Minute Goldman Sachs, BNP Paribas at Odds Over Asia Earnings Outlook European bourses have trimmed the losses seen at the open, but still trade mostly lower. European sectors are mostly lower after opening with a mild defensive bias – that bias has since eased somewhat, with some cyclicals making their way up the ranks. Stateside, US equity futures were softer in early trade, but to a lesser extent than peers across the pond, and have since mostly moved into the green as yields ease Top European News UK PM Truss spoke with US President Biden with Truss said to be looking forward to working with Biden to tackle shared challenges, particularly extreme economic problems from Russian President Putin's war, while they discussed domestic issues and agreed on the importance of protecting the Good Friday Agreement, according to Downing Street. UK PM Truss will not activate the emergency Article 16 override provision in the Northern Ireland protocol in the coming weeks and pulling away from an early confrontation with the EU over Brexit, according to FT citing the PM's allies. BoE Governor Bailey noted that we have had volatile markets in the last six weeks, still seeing extreme volatility in energy markets. On the UK exchange rate, said there are dollar-specific factors in play; said the Fed is more focussed on bringing demand shock under control. Bailey added a review of the Bank's mandate would not be a recognition that the BoE regime is failing. BoE Chief Economist Pill said he does not want to comment on fiscal stimulus without seeing the details. He expects headline inflation to decline in the short-term. Pill emphasised the importance of BoE inflation target as an anchor, not considering new regime. BoE's Mann said trade, financial flows, and GBP may have heightened role in the next year. Mann added that more forceful bank rate moves open door for policy to be on hold or a reversal later. She added that short-term inflation spikes are getting increasingly embedded in domestic prices. BoE's Tenreyro said demand is already weakening, and added when close to equilibrium rate, gradual hikes allow BoE to react before it tightens too far into contractionary territory. "Even without rate increases in August, rates were at a sufficient level to return inflation to target over the medium-term." FX DXY maintains bullish momentum but remained under 110.50 throughout most of the European session in a 110.17-69 range (at the time of writing). JPY underperforms with USD/JPY extending above 144.00 despite a slew of verbal intervention by Japanese officials, whilst the Yuan shrugged off another firm CNY fixing by the PBoC. EUR, and CHF are all trading mid-range vs the USD whilst the NZD, AUD, and CAD track risk sentiment. Fixed Income Debt futures are hovering just below best levels having extended rebounds to fresh intraday highs in the run up to UK and German auctions that saw solid demand. Bunds sit under their 145.24 peak (+44 ticks vs -33 ticks at one stage), Gilts skirt 106.00 from 106.11 (+38 ticks vs -59 ticks at the Liffe low). 10yr T-note holds closer to 115-27 than 115-13+ following some hefty block purchases (two 10k clips in particular) Commodities WTI and Brent futures have been bouncing off worst levels after printing multi-month lows. Spot gold fluctuates on either side of USD 1,700/oz, driven largely by bond yields. Base metals are mostly lower with upside hampered by disappointing Chinese trade data overnight. Indian PM Modi said keen to boost ties with Russia; said Russia and India can work closely on coking coal supply. US Event Calendar 07:00: Sept. MBA Mortgage Applications, prior -3.7% 08:30: July Trade Balance, est. -$70.2b, prior -$79.6b 14:00: U.S. Federal Reserve Releases Beige Book Fed Speakers 09:00: Fed’s Barkin Speaks at MIT 10:00: Fed’s Mester speaks at MNI virtual event 12:40: Fed’s Brainard Discusses the Economic Outlook 14:00: Fed’s Barr Speaks on Financial System Fairness and Safety DB's Jim Reid concludes the overnight wrap The air of feral fog will lift from our house this morning as the kids go back to school. Only about 12-50 years, depending on the debts we collectively leave to our children, until they leave home. After the summer she's had looking after them I'm slightly worried my wife will leave first. A big fingers crossed she doesn't. On this theme, today I've just launched a back-to-school survey as part of our regular monthly series. This month we ask whether you think Europe will make it through winter without gas rationing, whether you are thinking about using less energy, at recession probabilities, whether the next big move in bonds and equities will be up or down, your inflation expectations and which if any central banks are likely to make a policy error and in which direction. All help filling it in very much appreciated as usual. See here for the survey. Yesterday I released my latest chartbook, which also has a back-to-school vibe as we review where we are on important issues facing global markets and the economy over the coming months. Among the charts, we look at how August was the worst month for European bonds in decades, why inflation isn’t going away over the medium-to-longer term, the latest on the European energy crisis, and also briefly examine the upcoming Italian election and the Chinese property sector’s troubles. As ever, it’s full of big easy-to-read figures and titles that explain our biases. Here’s the link. *** With different asset classes swinging between gains and losses over the last 24 hours, it’s been difficult to point to a single factor behind the various moves. On the one hand, investors remain cautious about the growing array of risks on the horizon, ranging from the European energy situation to Chinese lockdowns to hawkish central banks. But on the other hand, the latest ISM services index for August added to the recent run of US data releases that’s pointed to an improving outlook, suggesting that the Fed can afford to be more aggressive in raising rates, which in turn led to a sharp selloff in Treasuries that leaves them on track for their 6th consecutive weekly decline. In terms of the details of that ISM print, the headline measure unexpectedly rose in August to a 4-month high of 56.9 (vs. 55.3 expected), with improvements in the new orders and employment components as well. That follows in the footsteps of the ISM manufacturing reading last Thursday that was similarly better than expected, the weekly initial jobless claims that fell for a 3rd week running, and the Conference Board’s consumer confidence measure that hit a 3-month high in August. Now all this might be a last hurrah before our long expected 2023 recession, but there’s no doubt that recent data has been more positive than expected, and is coming alongside some other tailwinds of note like falling gasoline prices. Given the stronger data, there were growing expectations (again) that the Fed might hike by 75bps in a couple of weeks’ time, with the hike priced in for September up by +2.9bps to 68.0bps. Treasury yields surged across the curve in response (with also a small catch-up after being closed on Monday), with some of the increase likely exacerbated by a banner day for corporate debt issuance ahead of the next Fed meeting (not to mention ahead of the next crucial CPI print), with the 10yr yield up +16.0bps on the day to 3.35%, and the 30yr yield (+15.6bps) even hitting a post-2014 high of 3.50%. That was driven by a rise in real yields, with the 10yr real yield (+15.0bps) rising to a post-2019 high of 0.87%. This morning in Asia, yields on the 10yr USTs are fairly stable. Bear in mind that it was less than -1% in early March after Russia invaded Ukraine, so we’ve seen an incredible shift in real borrowing costs over the last 6 months. With US real yields reaching new heights, the dollar index advanced +0.62% to reach its strongest level in over two decades. However, it was bad news for equities and the S&P 500 (-0.41%) built on its run of 3 consecutive weekly declines to close at a 7-week low. The more interest-sensitive sectors were particularly affected, and the NASDAQ (-0.74%) and the FANG+ index (-1.50%) saw even larger declines, while there was a clear preference for defensive sectors with real estate (+1.02%) and utilities (+0.22%) outperforming the rest of the pack. Over in Europe there was a moderately better performance however, with the STOXX 600 up +0.24%, and the German Dax (+0.87%) recovering somewhat from the previous day’s heavy losses. Futures are weak this morning though with contracts on the S&P 500 (-0.52%), NASDAQ 100 (-0.53%) and DAX (-1.15%) lower. When it comes to the energy situation, there wasn’t much respite yesterday as we look forward to Friday’s meeting of EU energy ministers. Natural gas futures in Europe fell by -2.47% to €240 per megawatt-hour, and German power prices for next year were also down -6.02% to €536 per megawatt-hour. But relative to their levels from last year they are still incredibly elevated. One piece of news we did get was from German Chancellor Scholz, who said that when it came to a cap on power prices, “If we have our way, it will take weeks rather than months”. In the meantime, European sovereign bonds lost further ground, with yields on 10yr bunds (+7.4bps), OATs (+3.5bps) and BTPs (+3.3bps) all moving higher. Here in the UK, Liz Truss was appointed as the new Prime Minister yesterday, succeeding Boris Johnson after three years in the job. In her initial speech in front of Downing Street, she said that action would be taken on the energy crisis this week, so that’s one to keep an eye out for, with reports across the press (as we previewed yesterday) indicating that bills will be frozen around current levels rather than going up in October. That came as gilts strongly underperformed their continental counterparts yesterday, with 10yr yields up by +15.7bps to 3.09%, which is their highest closing level since 2011. Interestingly however, there was a major steepening in the yield curve, with 2yr yields down -2.0bps as investors reacted to the prospect of lower short-term inflation in light of the potential freeze on bills. Asian equity markets are weak this morning with the Hang Seng (-1.65%) leading losses followed by the Kospi (-1.50%) and the Nikkei (-0.95%). Over in Mainland China, the Shanghai Composite (-0.05%) and the CSI (-0.08%) are wavering between gains and losses in early trade. The latest trade data coming out of China this morning showed exports growing at a slower pace in August (+7.1% y/y) against market forecast of a +13.0% increase and compared to July’s +18.0% rise as global demand continued to soften. At the same time, imports rose only +0.3%, falling short of expectations for a +1.1% gain. Elsewhere, Australia’s GDP expanded +0.9% in the second quarter, in-line with market expectations as consumers kept spending while energy exports boomed. The growth figure for the previous quarter (+0.7%) was downwardly revised though. In FX news, the Japanese yen (-0.90%) this morning slid to a fresh 24-year low of 144.09 against the US dollar. Widening rate differential is the main reason for yen’s depreciation while yesterday’s better than expected US data probably also pushed the yen weaker. Separately, the People’s Bank of China (PBOC) fixed the yuan at 6.9160 to the dollar, its strongest bias on record and the 11th successive increase as the authorities continue to fight the global trend of a strong dollar against virtually every currency. In energy markets, oil prices are trading lower in Asian trade with Brent futures down -1.45% at $91.48/bbl as the demand could remain under pressure amid China's Covid-19 lockdowns. There wasn’t a great deal of other data yesterday, though in Europe we did get the German and UK construction PMIs for August, which were both in contractionary territory at 42.6 and 49.2 respectively. German factory orders in July also contracted by a faster-than-expected -1.1% (vs. -0.7% expected). Otherwise in the US, the final composite and services PMI for August painted quite a different picture to the ISM numbers, with the final services PMI revised down to 43.7 (vs. flash 44.1) and the final composite PMI revised down to 44.6 (vs. flash 45). To the day ahead now, and there’s plenty on the central bank side, as the Bank of Canada announce their latest policy decision and the Fed release their Beige Book. We’ll also hear from Bank of England Governor Bailey, as well as the BoE’s Pill, Mann and Tenreyro as they testify before the Treasury Select Committee. In addition, there are scheduled remarks Fed officials, including Vice Chair Brainard, Vice Chair Barr, and Mester and Barkin. Otherwise, data releases include German industrial production and Italian retail sales for July. Tyler Durden Wed, 09/07/2022 - 07:52.....»»

Category: dealsSource: nytSep 7th, 2022

Futures Reverse Early Losses As Walmart Beat Sparks Relief Buying

Futures Reverse Early Losses As Walmart Beat Sparks Relief Buying US stock futures drifted modestly lower after hitting a 4-month high just above 4,300 during Monday's session, boosted by solid earnings and a guidance boost from Walmart, as attention turned back to lingering worries about the path of economic growth, how long until the NBER admits the US is in a recession and how Fed policy ties the room together. Contracts on the Nasdaq 100 and the S&P 500 were down less than 0.1% by 7:45 a.m. ET.  Gains in technology stocks on Monday spurred the broader benchmark equity index to its highest since May, with investors shrugging off terrible Chinese economic data. Crude oil reversed some of its recent sharp losses amid economic headwinds that clouded the demand outlook and prospects for an increase in supply. The greenback settled higher after fluctuating between gains and losses, while bitcoin traded above $24K. Chinese stocks listed in the US declined in premarket trading after a Reuters report that Tencent would liquidate its $24BN stake in Meituan to appease Beijing, sparking concerns it would do the same to its other investments. Among notable movers in premarket trading, Snowflake fell 3.5% after Tiger Global Management cut its position in the software firm for the first time in eight quarters, according to latest 13F filings. Chinese stocks listed in New York fell in premarket trading following the Tencent report. Pinduoduo Inc. lost 4%, while JD.com Inc. declined 2.2%. Zoom Video Communications slid 3% after Citigroup Inc. downgraded its recommendation on the stock to sell from neutral, seeing “new hurdles to sustaining growth.”  Here are some other notable premarket movers: Big-box retailers gain in premarket trading after Walmart said it sees a full-year adjusted EPS decline of 9% to 11% -- less steep than its previous projection for a decline of 11% to 13% -- following a stronger-than-expected earnings report for the second quarter. Zoom VideoCommunications (ZM US) down 3% in pre-market trading as Citi cuts its recommendation on the stock to sell from neutral, saying it sees “new hurdles to sustaining growth,” including growing competition from services like Microsoft Teams and macro-related pressures hitting customers. Bird Global (BRDS US) shares drop 6.4% in premarket trading after the electric vehicle company on Aug. 15 posted second-quarter results that showed a wider net loss than the same period a year earlier. Chinese stocks in US fall in premarket trading following a report that Tencent plans to sell all or much of its stake in food delivery company Meituan, in an effort to appease Beijing and lock in profits. Alibaba (BABA US) -2.2%, Nio (NIO US) -1%, Baidu (BIDU US) -1.8% Compass (COMP US) analysts at Barclays and Morgan Stanley cut their price targets on the real estate brokerage after it reduced its full-year guidance and announced plans to cut costs. The shares plunged 12% in US postmarket trading on Monday. Ginkgo Bioworks (DNA US) shares jump as much as 23% in US premarket trading after the cell programming platform operator’s revenue for the second quarter beat estimates. Snowflake (SNOW US) drops 3.5% in premarket trading after Tiger Global Management cut its position in the software firm for the first time in eight quarters, according to latest 13F filings. “The lack of clear direction is driving the markets up and down,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note. “Yesterday’s data softens the case for the continuation of the steep recovery, and throws the foundation of a period of consolidation, and perhaps a downside correction.” A sharp drop in New York state manufacturing, the second-worst reading since 2001, along with the longest streak of declines since 2007 in homebuilder sentiment, sparked another round of "bad news is good news" and boosted hopes that the Fed may slow interest-rate hikes. However, it was soon outweighed by fears of a recession and belief among some traders the Fed could still press ahead with its tightening irrespective of a slowdown.  US stocks have been rallying since mid-June on optimism that corporate earnings are holding up even with higher prices and weakening consumer sentiment. The market also has gotten a boost from speculation that the Fed will slow the pace of interest rate increases after cooler-than-expected inflation data. While some strategists, especially those at JPMorgan, suggest the rebound could extend until the end of the year as investors turn less bearish, others including Michael Wilson at Morgan Stanley have said disappointing earnings are likely to spark another selloff in stocks. As a result of the recent frenzied positional rally, four weeks of gains have pushed more than 90% of S&P 500 members above their 50-day moving averages. That’s been a good omen in the past, with stocks showing gains of 5.7% on average in the following three months and rising 18% in the 12 months after the signal. Negative returns have been a rare exception, with stocks falling only twice. “While this is not a necessary condition for the end of the bear market, it would increase our confidence that a rally back to the old highs will come before a return to the June lows,” Jeff Buchbinder, a strategist at LPL Financial, wrote in a note on Monday. On the other hand, Skylar Montgomery Koning, senior global macro strategist at TS Lombard, said the bar for the Fed to stop its hiking cycle was high. “The market is betting not only that inflation comes down to a level that the Fed is comfortable with, but that the Fed reaction is timely,” she said on Bloomberg Television. “It may take until we get a 75-basis point hike in September or the new set of dot projections, and that may have to be what makes the market narrative shift.” European bourses are firmer across the board after a relatively constructive APAC handover, the Euro Stoxx 50 rising +0.4%, though off best levels post-ZEW. IBEX outperforms, adding 1.1%. Miners, telecoms and utilities are the strongest performing sectors. Here are some of the biggest European movers today: Delivery Hero shares jump as much as 14% after the firm projected 7% q/q growth in gross merchandise value in 3Q, in- line with expectations and putting the firm on track to meet its FY targets Glencore and other European miners outperform the broader market after BHP posted its highest ever FY profit and said it will push ahead with growth options Philips rises as much as 3.6% after its CEO Frans van Houten said he would step down in October, with the current head of the company’s Connected Care division, Roy Jakobs, taking over Watches of Switzerland jumps as much as 7.1%, reaching the highest since June 7, after the watchmaker published a first-quarter trading update. Analysts found the update to be solid Jyske Bank gains as much as 9.1% after the Danish lender reported 2Q pretax profit that topped Citigroup’s estimate by more than 20%, with Citi noting provisions came in well above expectations DFDS climbs as much as 8.7% after the Danish logistics company published 2Q results that beat consensus estimates and boosted its FY22 revenue forecast, RBC writes in a note Pandora drops as much as 8%, the most in more than three months, after the jewelery maker reported Ebit before significant items that missed the average analyst estimate Sonova and other European hearing aid makers lead losses on the Stoxx 600 after the firm and Danish peer Demant cut their guidance, with analysts flagging negative consensus revisions Straumann plunges as much as 14%, the most intraday since May 2020, after the oral care company announced 1H results and reaffirmed its guidance for the year Hemnet falls as much as 16% after the Swedish property ad company offered 8 million shares at SEK147 a share in a secondary offering announced on Monday after markets closed Hargreaves Lansdown declines as much as 1.8% after Credit Suisse downgraded its recommendation to neutral from outperform due to the personal investment firm’s valuation Earlier in the session, Asian equities fell as investors weighed growth risks in the region against the probability of a slower pace of US interest-rate increases. The MSCI Asia Pacific Index declined as much as 0.4%, and is poised to snap a four-day winning streak. Hong Kong shares fell the most, with Meituan among the biggest drags on the regional gauge after Reuters reported that Tencent intends to sell all or much of its $24 billion stake in the food-delivery giant to appease Beijing. Across Asia, energy shares slid as oil prices fell on rapidly cooling US manufacturing that followed weaker-than-expected Chinese data Monday -- offsetting gains in materials and utilities shares. After improving sentiment pushed up the region’s stocks for four straight weeks, markets are looking ahead to minutes of the Federal Reserve’s latest policy meeting due Wednesday for hints on its rate-hike trajectory. Closer to home, China’s surprise interest-rate cut on Monday did little to allay concerns over the property sector and the broader slowdown from Covid restrictions. Economists and state media are calling for additional stimulus, which could aid a rally in Chinese stocks and Asian peers. “While the downside surprises across the economic calendar suggested that growth conditions have clearly worsened, market participants seem willing to ride on optimism” that the Fed may shift to a looser policy stance sooner with easing inflation, Jun Rong Yeap, market strategist at IG Asia said in a note. Japan’s benchmarks dropped while gauges in the Philippines, Malaysia and India rose. Indonesian shares were higher after President Joko Widodo said in his annual budget speech that he aims to narrow next year’s deficit to below 3% of gross domestic product for the first time since 2019. Japanese stocks edged lower as investors remained on the lookout for signs of an economic slowdown in the US and China. The Topix Index fell 0.2% to 1,981.96 at the market close in Tokyo, while the Nikkei 225 was virtually unchanged at 28,868.91. SoftBank Group Corp. contributed the most to the Topix’s decline, decreasing 2.6% after Elliot Management sold off almost all of its position in the company. Out of 2,170 stocks in the index, 908 rose and 1,138 fell, while 124 were unchanged.  Australia's S&P/ASX 200 index rose 0.6% to close at 7,105.40, its highest level since June 8. BHP, the largest-weighted stock in the benchmark, was among the top performers Tuesday after its full-year profit exceeded analysts’ expectations. Challenger slumped after announcing a strategic review of Challenger Bank. In New Zealand, the S&P/NZX 50 index rose 0.5% to 11,847.15. In FX, the Bloomberg Dollar Spot Index advanced a third day as the greenback was steady to higher against all of its Group-of-10 peers. The euro touched an almost two-week low of $1.0125 after German ZEW expecations index came in lower than forecast. Aussie recovered a loss after the Reserve Bank’s August minutes failed to bolster bearish views, only to resume its slide in the European session. Australia’s central bank signaled further interest-rate increases would come in the period ahead, while restating it will be guided by incoming economic data and the inflation outlook. The yen was steady in the Asian session only to slip in the European session. China’s onshore yuan fell to the lowest since May, tracking Monday’s losses in the offshore unit. The nation’s central bank didn’t push back strongly against the currency weakness through its daily reference rate on Tuesday but traders are watching if its stance would change in case the yuan selloff deepens. USD/CNY rose as much as 0.3% to 6.7978, the highest since May 16; USD/CNH falls 0.1% to 6.8113 after surging 1.2% on Monday In rates, Treasuries were mixed, pivoting around a near unchanged 10-year sector with the curve flatter as long-end outperforms. Bunds and gilts underperform with the latter following stronger-than-forecast UK wage figures for June. US yields cheaper by up to 2bp across front-end and richer by 1.5bp in long-end of the curve -- 2s10s, 5s30s spreads subsequently flatter by 1.7bp and 2.7bp on the day; 10-year yields around 2.79% and near unchanged, outperforming both bunds and gilts by over 1bp.  European bonds fall, with the yield on German 10-year up about 2bps, while gilts 10-year yield rises ~3bps following stronger-than-forecast UK wage figures for June. . Both are trading within Monday’s range. Peripheral spreads are mixed to Germany; Italy and Spain widen, Portugal tightens. Italian 10-year yield rises ~7bps to 3.04%. Australian and New Zealand bonds extended opening gains amid concerns over economic growth. Japanese government bonds rallied as a smooth five-year auction and concerns over global economic slowdown encouraged buying. In commodities, WTI traded within Monday’s range when crude futures fell around 5% over the previous two sessions. Besides economic worries, investors are also facing the prospect of rising supply as demand moderates. Libya is pumping more and Iran is edging closer to reviving a nuclear deal that will likely see higher crude flows. On Tuesday, oil reversed recent losses however, and rose more than 1% to over $90 as the prospect of an "imminent" Iranian deal once again faded; Iran responded to the EU's draft nuclear deal and expects a response in the next two days, according to a source cited by ISNA. It was also reported that an adviser to the Iranian negotiating delegation told Al-Jazeera they are not far from an agreement and chances of reaching a nuclear deal are very high. Iran's response to the draft EU JCPOA text will probably fail to satisfy Western parties, particularly the US, according to Iran International; Iran wants further provisions around economic guarantees above the one-year exemption reportedly being offered. Elsewhere, spot gold falls roughly $4 to around $1,775/oz. Base metals are mixed; LME tin falls 1% while LME zinc gains 1.9%. Looking to the day ahead, data releases from the US include July’s industrial production, capacity utilization, housing starts and building permits. In the UK, there’s unemployment for June, Germany has the ZEW survey for August and Canada has July’s CPI. Elsewhere, we’ll get earnings releases from Walmart and Home Depot. Market Snapshot S&P 500 futures little changed at 4,295.50 STOXX Europe 600 up 0.4% to 443.91 MXAP down 0.3% to 163.03 MXAPJ little changed at 529.75 Nikkei little changed at 28,868.91 Topix down 0.2% to 1,981.96 Hang Seng Index down 1.0% to 19,830.52 Shanghai Composite little changed at 3,277.89 Sensex up 0.5% to 59,751.63 Australia S&P/ASX 200 up 0.6% to 7,105.39 Kospi up 0.2% to 2,533.52 German 10Y yield little changed at 0.91% Euro down 0.2% to $1.0140 Gold spot down 0.3% to $1,774.93 U.S. Dollar Index up 0.18% to 106.74 Top Overnight News from Bloomberg Tencent-Backed Giants Dive on Report of $24 Billion Meituan Sale Oil Extends Losses on Global Slowdown and Chance of More Supply Babylon Said to Mull Take-Private Not Long After SPAC Deal Chipmakers’ Pandemic Boom Turns to Bust as Recession Looms Apple Lays Off Recruiters as Part of Its Slowdown in Hiring FAA Warns of Monday Evening Delays at NYC Area Airports Wong Says Singapore Must Compromise Over Law on Sex Between Men ‘Broken’ Barclays ETN Soars to 33% Premium With Issuance Halted Trump Executive Weisselberg in Plea Talks to Resolve Tax Case US Congress Pushes Biden Toward Risky Confrontation With China Twitter Must Give Musk Data, Documents From Ex-Product Head Next Singapore PM Warns US, China May ‘Sleepwalk Into Conflict’ Apple Sets Return-to-Office Deadline of Sept. 5 After Delays Tiger Global, Yale Cut Stocks Last Quarter as Markets Tumbled Druckenmiller Sold Big Tech in Bear Market as Soros Dove Back In A Century of Fed Crises Holds Secrets to Fight Future Recession Compass Stock Slumps as CEO Reffkin Plots Out More Cost Cuts A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly positive as the region followed suit to the gains on Wall Street but with upside limited as economic slowdown concerns lingered. ASX 200 traded higher amid a deluge of earnings and with the index led by the mining sector including BHP shares after the industry giant reported a record FY underlying net and dividend. Nikkei 225 lacked direction amid the absence of any major fresh macro drivers and alongside a choppy currency. Hang Seng and Shanghai Comp were initially kept afloat by support-related optimism with developers encouraged after reports that China is considering issuing government-guaranteed bonds to provide liquidity to certain developers, while PBoC-backed press noted that China needs additional policy stimulus to increase economic growth. However, the Hang Seng later pulled back ahead of the European open to slip below 20k. Top Asian News China's NDRC said macro policies should be strong, reasonable and moderate in expanding demand actively, while it will roll out practical measures to support starting up businesses and job employment, according to Reuters. PBoC-backed Financial News front page report stated that China needs additional policy stimulus to increase economic growth, while Securities Times suggested the recent surprise PBoC rate cut could be the first in a series of measures to stabilise growth. China is to consider issuing government-guaranteed bonds to provide liquidity to certain developers. RBA Minutes from the August 2nd meeting stated the board expects to take further steps in the process of normalising monetary conditions in the months ahead, but is not on a pre-set path and seeks to do this in a way that keeps the economy on an even keel. The minutes also reiterated that members agreed it was appropriate to continue the process of normalising monetary conditions and that inflation was expected to peak later in 2022 and then decline back to the top of the 2%-3% range by the end of 2024. Australian Bureau of Statistics will begin publishing a monthly CPI indicator with the first publication on October 26th to coincide with the release of the quarterly CPI data, while it added that quarterly CPI will continue to be the key measure of inflation. China is reportedly to enhance policy to increase new births, will boost housing support for those with additional children, via Bloomberg. European bourses are firmer across the board after a relatively constructive APAC handover, Euro Stoxx 50 +0.4%, though off best levels post-ZEW. US futures are in contained ranges and pivoting the unchanged mark at this point in time, ES -0.2%; HD and WMT in focus. Home Depot Inc (HD) Q1 2023 (USD): EPS 5.05 (exp. 4.94), Revenue 43.79 (exp. 43.36bln); confirms FY22 guidance. Top European News Delivery Hero Sees Path to 2023 Profit Powered by Asia Unit Pandora Sells Lab-Grown Diamonds in US as Mined Ones Dropped UK Real Wages are Falling at Their Fastest Pace on Record: Chart Hearing Aid Makers Plunge After Sonova, Demant Cut Guidance DFDS Gains on Guidance Upgrade; RBC Sees Future Growth Potential Turkey Limits Resales of Newly Bought Cars by Dealers FX DXY breaches last week’s peak as Treasury yields rebound and Yuan weakens further amidst Chinese growth concerns, index up to 106.860 vs 106.810 on August 8, USD/CNY and USD/CNH approach 6.8000 and 6.8200 respectively. Euro stumbles after unexpected deterioration in German ZEW economic sentiment and Pound slips following mixed UK jobs and wage data, EUR/USD down to 1.0125 and Cable low 1.2000 area. Yen and Franc retreat as risk sentiment improves and bonds back off, USD/JPY tops 134.00 and USD/CHF above 0.9500. Kiwi cautious ahead of RBNZ, but Aussie holds up better post-RBA minutes flagging more hikes, NZD/USD eyes bids into 0.6300 and AUD/USD hovers just under 0.7000. Loonie underpinned awaiting Canadian CPI as crude prices stabilise to a degree, USD/CAD straddles 1.2900. Fixed Income Debt futures retreat further from Monday's lofty levels in corrective price action and as broad risk sentiment improves. Bunds down to 156.07 having been closer to 157.00, Gilts to 116.52 vs 116.99 earlier and 117+ yesterday, T-notes to 119-19 from almost 120-00. UK 2029 and German 2027 supply snapped up amidst given some yield concession. Commodities Crude benchmarks pressure, but off worst levels and well within yesterday's ranges, as the EU receives Iran's response to the JCPOA draft. Initial indications are that a deal is in reach, though, caveats/unknowns remain in focus - particularly the US' response. EIA said US oil output from top shale regions in September is due to increase to the highest since March 2020, according to Reuters. Iran sets September Iranian light crude OSP to Asia at Oman/Dubai + USD 9.50/bbl, via Reuters. Major European zinc smelter (Nyrstar Budel) reportedly to shut due to elevated energy costs, via Bloomberg; will shut as of September 1st. Spot gold under modest pressure as the USD lifts, but still near the 50-DMA while base metals recoup from Monday's data-driven pressure. US Event Calendar 08:30: July Housing Starts, est. 1.53m, prior 1.56m July Housing Starts MoM, est. -2.0%, prior -2.0% July Building Permits, est. 1.64m, prior 1.69m, revised 1.7m July Building Permits MoM, est. -3.3%, prior -0.6%, revised 0.1% 09:15: July Industrial Production MoM, est. 0.3%, prior -0.2% July Capacity Utilization, est. 80.2%, prior 80.0% July Manufacturing (SIC) Production, est. 0.3%, prior -0.5% DB's Henry Allen concludes the overnight wrap Here in the UK we’ve had quite a historic weather spell recently. Last month was the driest July in England since 1935, and a new record temperature just above 40°C was also recorded. But as this dry spell finally comes to an end, there are now weather warnings about thunderstorms over the coming days. My wife and I discovered this to our cost on our evening walk yesterday, when we hadn’t packed an umbrella and got soaked. One thing I hadn’t realised until watching the news the other day was that healthy grass actually absorbs water much quicker than parched grass – I had assumed like humans that the grass that’s been without water for days would drink it up rapidly. So while I’m not paid to give you my bad hunches on how weather works, the risk now is that the water just runs off the hard ground and leads to flooding. Let’s hope we can catch a break from this in the days ahead. Markets were also struggling to catch a break yesterday thanks to a succession of disappointing data releases that brought the risks of a recession back into focus. That marks a shift in the dominant narrative over the last couple of weeks, when there had actually been a small but growing hope that central banks might be able to execute a soft landing, not least after the much stronger-than-expected US jobs report for July. But ultimately, a number of leading indicators are still moving in the wrong direction, and yesterday’s releases served as a reminder that hard landings have historically been the norm when starting from a position as unfavourable as the present one. In terms of the specifics of those data releases, the more negative tone was set from the outset by the Chinese data we mentioned in yesterday’s edition, which showed that retail sales and industrial production for July had been weaker than expected by the consensus. But we then also got the Empire State manufacturing survey for August, which plunged to -31.3 (vs. 5.0 expected), thus also marking its worst performance since the GFC apart from April and May 2020 during the Covid lockdowns. Lastly, we then had the NAHB’s housing market index for August, which similarly fell to its lowest level since May 2020 at 49 (vs. 54 expected). That marked its 8th consecutive move lower, which comes against the backdrop of one of the most aggressive Fed tightening cycles in decades, with housing one of the most sensitive sectors to rate hikes. Growing fears of a slowdown led to a decent risk-off move across multiple asset classes, but one of the places that was most evident was in oil prices, where both Brent crude (-3.11%) and WTI (-2.91%) underwent sizeable declines on the day. In fact on an intraday basis, Brent crude traded at $92.78 per barrel at its lows, which exactly matches its previous intraday low on August 5, and prior to that you’ve got to go back before Russia’s invasion of Ukraine in late February for the last time that oil prices were trading lower. That decline in oil prices was offered further support by the latest developments on the Iran nuclear deal, where Iran sent its response to the European Union’s proposed text to revive the deal. While the specific contents of the response are unknown, it’s been reported by the semi-official Iranian Students’ News Agency that Iran expects a response back from the EU within the next two days, so there could be tangible progress this week. Furthermore, Iran’s foreign minister said that an agreement with the US could be reached in the coming days. That trend towards weaker oil prices has continued this morning as well, with Brent crude down a further -0.87% at $94.27/bbl, and WTI down -0.62% at $88.86/bbl. Whilst oil prices fell back yesterday, the seemingly inexorable move higher in European natural gas continued, with futures up +6.79% on the day to €220 per megawatt-hour, which is just shy of their March peak at €227. Prices have been bolstered by the latest European heatwave, which has seen rivers dry up and caused issues with fuel transportation, further compounding the continent’s existing woes on the energy side. That gloomy backdrop saw Germany’s government announce a levy of an extra 2.419 euro cents per kilowatt hour for natural gas, which comes as policymakers are hoping that measures to reduce demand will help the continent get through the winter. Meanwhile, German and French power prices for next year rose to fresh records yesterday, rising +3.67% and +3.24% respectively. In light of the decline in oil prices and the more general risk-off tone, sovereign bonds rallied on both sides of the Atlantic yesterday, and yields on 10yr Treasuries came down -4.3bps to 2.79%. Inflation breakevens led the bulk of that decline amidst the moves lower in commodity prices, with the 10yr breakeven down by -2.9bps, whilst the 2s10s curve (+2.1bps) remained firmly in inversion territory at -40.0bps, even as it underwent a modest steepening. For Europe there were even larger declines in yields yesterday, with those on 10yr bunds (-8.8bps), OATs (-8.1bps) and BTPs (-6.5bps) all moving lower on the day, which came as investors moved to price in a less aggressive ECB hiking cycle over the coming months, with the June 2023 implied rate down by -9.9bps on the day. In overnight trading, yields on 10yr USTs (-0.9bps) have posted a further decline to 2.78% as we write. One asset class that didn’t fit this pattern so well were equities yesterday, as they pared back their earlier losses to move higher on the day, building on a run of 4 consecutive weekly moves higher. In the US, the S&P had opened -0.54% lower, but reversed course to end the session up +0.40%, which brings its advances from its recent low in mid-June to more than +17% now. It was a fairly broad-based advance across sectors, and the NASDAQ posted a similar +0.62% gain as well, whilst in Europe, the STOXX 600 (+0.34%) also strengthened in the afternoon to post a 4th consecutive daily advance. Those moves in US and European equities have been echoed in Asia this morning, with the Hang Seng (+0.12%), Shanghai Composite (+0.24%), CSI (+0.13%) and the Kospi (+0.31%) all edging higher in early trade. The main exception is the Nikkei (-0.08%), which has lost ground modestly after reaching a 7-month high in the previous session. That said, there are signs that equities may be losing momentum as well this morning, with futures on the S&P 500 (-0.12%) and the NASDAQ 100 (-0.12%) both pointing lower following their strong run of gains recently. To the day ahead now, and data releases from the US include July’s industrial production, capacity utilisation, housing starts and building permits. In the UK, there’s unemployment for June, Germany has the ZEW survey for August and Canada has July’s CPI. Elsewhere, we’ll get earnings releases from Walmart and Home Depot. Tyler Durden Tue, 08/16/2022 - 08:20.....»»

Category: worldSource: nytAug 16th, 2022

Futures Storm Higher To Start The Week As "Most Hated Rally" Steamrolls Bears

Futures Storm Higher To Start The Week As "Most Hated Rally" Steamrolls Bears US equity futures rose to start the week as the "most hated meltup" continued just as we said it would over the weekend as stubborn bears are forced to cover and start chasing higher out of FOMO, while Treasury yields fell while investors assessed the path of monetary policy ahead of this week's critical CPI data. Nasdaq 100 futures rose 0.7% while S&P 500 futures gained 0.5% by 7:30 a.m. in New York after the underlying benchmarks dropped on Friday following news that US job growth soared beyond expectations. Meanwhile, the yield on the 10-year Treasury dropped to 2.79% after soaring at the end of last week, while the dollar dipped and bitcoin jumped above $24K. In premarket trading, stocks tied to renewable energy, such as Tesla, rose after the Senate passed a key bill that Democrats called the largest investment in fighting climate change ever made in the country. Meanwhile, cryptocurrency-exposed companies like Coinbase Global Inc. and Riot Blockchain Inc. climbed as Bitcoin breached $24,000. Bank stocks are also higher in premarket trading as the broader equity market rises. In corporate news, Avalara is being acquired by Vista Equity Partners for $93.50 a share in a deal that values the tax software maker at roughly $8.4 billion. Meanwhile, Robinhood is set to pay $9.9 million to resolve lawsuits over crashes on its trading platform in 2020. “The sentiment will mostly depend on this week’s inflation data,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “If US inflation starts easing, the Fed could rethink about smaller rate hikes, which could give another positive swing to the stocks.” Friday's "stellar" jobs data eased fears of a recession while increasing the chances that the Federal Reserve will be more aggressive in its fight to tame inflation. Over the weekend, San Fran Fed President Mary Daly said the central bank is “far from done yet” in bringing down prices and suggested a 50 basis-point rate increase isn’t the only option on the table for the next meeting. The Friday payrolls data surprise “was large enough to re-ignite the inflation debate and renew focus on US CPI prints,” said Peter McCallum, a strategist at Mizuho. “Indeed, a very unexpected move lower in US CPI is needed for the market to stop thinking about the Fed having to do more. And with more tightening, the probability of a hard landing rises.” Meanwhile, as Bloomberg notes, the S&P 500 climbed more than 6% over the past four weeks, approaching the level of two standard deviations for data going back 30 years. That’s unusual in the absence of a clearly event-driven market such as during the global financial crisis or the start of the Covid-19 pandemic. However, The advance in equities could face another test from a likely contraction in corporate margins next year as costs remain high, according to strategists at Morgan Stanley and Goldman Sachs. "We think it’s premature to sound the all-clear simply because inflation has peaked,” Morgan Stanley strategists led by Michael Wilson said. “The next leg lower may have to wait until September” as the negative effects of falling inflation on company profits become more reflected in earnings. Looking at the week's key data, the closely watched CPI is seen rising 0.2% in July from a month earlier, which would be the smallest advance since the start of 2021. However, the so-called core measure, which strips out energy and food, probably climbed a concerning 0.5%, based on the median estimate in a Bloomberg survey of economists. European stocks tracked US futures higher, with the Euro Stoxx 50 is up 0.5%. IBEX outperforms peers, adding 0.6%, FTSE MIB is flat but underperforms peers. Real estate, tech and financial services are the strongest-performing sectors. Earlier in the session, Asian stocks edged lower as concerns about more aggressive interest-rate hikes by the Federal Reserve and fresh Covid lockdowns on the Chinese resort island of Hainan weighed on sentiment. The MSCI Asia Pacific Index dropped as much as 0.5% before paring, with losses in technology and consumer discretionary shares offsetting gains in materials firms. Hong Kong stocks led declines around the region, even as the government cut the hotel quarantine for inbound travelers to three days from seven. A better-than-expected July jobs report in the US fueled expectations of faster Fed monetary tightening, with investors monitoring this week’s inflation data for further clues. Meanwhile, the lockdowns in China’s Hainan province have stranded tens of thousands of tourists, dealing a blow to its duty-free retail industry. Asian equities capped their third-straight weekly gain last Friday as the region shrugged off rising geopolitical risks in the Taiwan Strait. Investors also continue to assess the ongoing corporate-earnings season. “We believe markets have discounted a fair bit of the earnings cuts to come, partly driven by the tech inventory de-stocking cycle in the coming months,” said Soo Hai Lim, head of Asia ex-China equities, at Barings. “Improving fundamentals, more attractive valuations and relatively looser monetary conditions in Asia can help deliver relative equity outperformance for the region in the coming months.” Japanese stocks reversed earlier losses with the Nikkei 225 Index closing at its highest since March 29, as investors assessed a slew of earnings reports from local firms. The Topix Index rose 0.2% to 1,951.41 as of market close Tokyo time, while the Nikkei advanced 0.3% to 28,249.24. Suzuki Motor Corp. was among the top performers on the Nikkei, jumping more than 10% after an earnings beat. Bandai Namco also advanced after its outlook was raised.   Daiichi Sankyo Co. contributed the most to the Topix Index gain, increasing 5.2%. Out of 2,170 shares in the index, 1,033 rose and 1,030 fell, while 107 were unchanged. “Today’s Japan stocks are moving over micro factors such as the earnings results,” said Hiroshi Matsumoto, a senior client portfolio manager at Pictet Asset Management. “Some Japanese companies are reporting good results.” India’s equity index climbed to its highest level in nearly four months, boosted by gains in HDFC Bank and Reliance Industries.   The S&P BSE Sensex rose 0.8% to close at 58,853.07 in Mumbai, after falling by as much as 0.2% at the start of the session. The NSE Nifty 50 Index gained 0.7%. Of the 30 members on the Sensex, 20 rose and 10 fell. All but one of 19 sectoral indexes compiled by BSE Ltd. advanced, led by a gauge of capital goods companies. The market is shut on Tuesday for a local holiday.  HDFC Bank advanced to its highest level since April 13 as the Economic Times newspaper reported that the private sector lender raised $300 million in deposits from expat Indians, quoting unnamed people familiar with the matter.  Reliance Industries climbed most in a week as the oil-to-retail conglomerate said it will begin investing across the green-energy value chain. State Bank of India dropped after its quarterly report showed net income below analysts’ estimates. Bloomberg dollar spot index flat after paring earlier decline. JPY and EUR are the weakest performers in G-10 FX, AUD and NZD outperform. In rates, Treasuries held gains amassed during European session, led by bigger gains across core European bonds and unwinding a portion of Friday’s jobs-report selloff. US long-end yields richer by ~4bp, flattening 2s10s by ~2bp, 5s30s by less than 1bp; 10-year around 2.79% trails comparable bunds and gilts by 2bp-3bp. Treasuries 2s10s curve inversion deepens to as much as 42.3bps, the lowest since 2000. No US data or Fed speakers are slated for Monday; refunding auctions begin Tuesday, July CPI scheduled for Wednesday.short-end yields underperform bunds by about 4 bps. Peripheral spreads widen to Germany with 10y BTP/Bund adding ~7bps to 212.8bps after Italy’s outlook was cut to negative by Moody’s on political risk. In commodities, WTI trades within Friday’s range, falling 0.3% to around $88. Base metals are mixed; LME nickel falls 2.4% while LME lead gains 1.9%. Spot gold is little changed at $1,775/oz.  In crypto, noted upside for the space amid thin newsflow elsewhere, with Bitcoin surpassing USD 24k at best and thus marginally eclipsing last week's USD 23.9k peak. It's a quiet start to the week in econ data with nothing scheduled on the economic slate and no Fed speakers either; refunding auctions begin Tuesday, July CPI scheduled for Wednesday. Market Snapshot S&P 500 futures up 0.3% to 4,157.75 STOXX Europe 600 up 0.6% to 438.13 MXAP down 0.1% to 160.53 MXAPJ down 0.4% to 524.35 Nikkei up 0.3% to 28,249.24 Topix up 0.2% to 1,951.41 Hang Seng Index down 0.8% to 20,045.77 Shanghai Composite up 0.3% to 3,236.93 Sensex up 0.8% to 58,862.37 Australia S&P/ASX 200 little changed at 7,020.62 Kospi little changed at 2,493.10 German 10Y yield little changed at 0.89% Euro little changed at $1.0187 Gold spot down 0.1% to $1,773.21 U.S. Dollar Index down 0.11% to 106.50 Top Overnight News from Bloomberg China Extends Military Exercises Near Taiwan With New Drill Ships Resume Taiwan Routes Even as China Continues to Drill Oil Endures Choppy Start to Week With Demand Concern to the Fore Senate Passes Democrats’ Landmark Tax, Climate, Drugs Bill Yen Shorts Crumble as 2022’s Hottest FX Trade Comes to an End ‘Most Vulnerable’ Emerging Markets Now Face Euro Recession Risk Jack Dorsey Tweets ‘End the CCP’ After China Covid Report Carlyle CEO Resigns in Sudden Reversal of Generational Shift SoftBank Reports Record $23.4 Billion Loss as Holdings Fall India Seeks To Oust China Firms From Sub-$150 Phone Market Five States Risk Undoing Legitimacy of 2024 Election CVS Health Is Mulling a Bid for Signify Health, WSJ Reports Winners and Losers in Democrats’ Signature Tax and Energy Bill NYC Mayor Greets New Bus of Migrants Sent by Texas Governor Daly Says Fed Is ‘Far From Done Yet’ on Bringing Inflation Down Buffett’s Berkshire Pounces on Market Slump to Scoop Up Equities Bitcoin Believers Are Back to Watching Stocks After Crypto Crash A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks traded mixed with price action choppy as participants reflected on the encouraging Chinese trade data and post-NFP hawkish pricing of Fed rate hike expectations, with sentiment also clouded by geopolitical risks related to China’s military drills near Taiwan and renewed shelling of Ukraine's Zaporizhzhia nuclear plant. ASX 200 traded indecisively around the 7,000 level as weakness in the consumer-related sectors was offset by a strong mining industry, with OZ Minerals the biggest gainer after it rejected an indicative proposal from BHP. Nikkei 225 pared opening losses although the upside was capped amid the ongoing deluge of earnings including SoftBank which is scheduled to announce its results later today and with a cabinet reshuffle set for later this week. Hang Seng and Shanghai Comp were varied with the mainland indecisive as mostly stronger than expected Chinese trade data, including a record surplus in July, was counterbalanced by COVID woes after Sanya in the Hainan province was placed on lockdown which has trapped tens of thousands of tourists. Top Asian News Chinese authorities locked down the southern coastal city of Sanya during the weekend after a highly infectious Omicron strain was detected in the Hainan province, according to FT. China’s aviation regulator shortened the suspension time for inbound flights on routes found to have COVID-19 cases in which flights on a route with an identified COVID case will be suspended for a week if 4% of passengers test positive and will be suspended for two weeks if 8% of passengers test positive, according to Reuters. Hong Kong Chief Executive John Lee announced that the hotel quarantine will be reduced to 3 days from 7, with arrivals to be subject to a 3 + 4 format in which the 4 days will be home monitoring. Japanese PM Kishida said he will reshuffle the cabinet in the week ahead to address issues including COVID-19, inflation and Taiwan affairs, according to Reuters. European bourses are firmer across the board after shrugging off mixed APAC trade, Euro Stoxx 50 +0.8%. Similar directional performance in US futures, though magnitudes are more contained amid limited newsflow with little scheduled ahead, ES +0.3%. Sectors are firmer with no overall theme emerging though Tech, Real Estate and Utilities are among the best performers. Top European News UK Tory party leadership frontrunner Truss is under pressure to promise more to poor households facing a cost of living crisis this autumn after she expressed her preference to reduce taxes over ‘handouts’, according to FT. UK government plan to cut as many as 91k civil servant jobs over 3 years will require deep cuts to public services and cost at least GBP 1bln in redundancy payments, according to a Whitehall review cited by FT. UK government is to conduct a review of the foreign takeover of the National Grid’s gas transmission business amid increased concerns regarding energy security, according to FT. Italy’s centrist Azione party is to abandon the centre-left alliance with the Democratic Party just days after agreeing to an alliance to join forces in an effort to prevent a right-wing landslide, according to Bloomberg. Moody’s has cut its outlook on Italy to Negative from Stable, affirms BAA3 rating; risks to credit profile have been accumulating more recently due to the economic impact of Russia/Ukraine and domestic politics. Under baseline scenario, Italian debt to continue declining in 2022. FX The USD index has pulled back further from Friday’s post-NFP 106.93 before seeing a bounce at its 10 DMA (106.25). Non-Dollar G10s are gaining momentum against peers, and vs the Buck; AUD holds the top spot. EUR/USD and GBP/USD trimmed earlier upside to trade back under 1.0200 and 1.2100. The Yen is the current G10 laggard amid broader risk and as the FOMC-BOJ pricing once again widens. Fixed Income Core debt modestly firmer, experiencing some respite from Friday's post-NFP pressure amid pronounced Fed repricing and yield upside. Albeit, in the context of recent session the circa. 70 tick upside in Bunds is limited. BTPs pressured as Moody's cuts their outlook for Italy while further political developments seemingly strengthen the chances of the right. Commodities WTI and Brent front-month futures saw upside momentum fade alongside a Dollar-rebound off lows. Spot gold is trading sideways around USD 1,775/oz amid a lack of drivers. Overnight, Chinese base metal futures opened firmer with added impetus from the Chinese trade data, whilst LME contracts trade somewhat mixed. Tesla (TSLA) has reportedly signed a contract worth circa. USD 5bln to purchase battery materials from nickel processing companies in Indonesia, via Reuters citing CNBC Indonesia. Russian oil product exports from Black Sea port of Tuapse planned at 1.443mln in Aug (vs 1.388mln in July), according to traders cited by Reuters. China is poised to begin another round of tax inspections on independent refiners, according to Reuters sources. Inspections are to last months, commencing later this month. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap August has been fascinating so far with US recession talk pushed back with a string of better than expected data last week. The US economy simply cannot be deemed to be in a recession in a month when +528k jobs have just been added as payrolls showed on Friday. This still feels to me like a classic (albeit compressed), old fashioned boom bust cycle. The Fed has been aggressively behind the curve with monetary policy amazingly loose versus history. The Fed have tightened a bit but monetary policy operates with a lag and monetary policy was and is still very loose. Remember we’ve only been hiking since March and real Fed Funds are still c.-7%. I still think recession by around the middle of 2023 is a slam dunk and that risk assets will go well below their June 2022 lows when we’re in it but I'm still not convinced the official recession happens over the next few months. As a related aside, the 2s10s yield curve first inverted at the end of March. A recession always eventually follows this in the US but the shortest gap between that and a recession is c.9 months over the last 70 years of data covering 10 recessions. The fact that the yield curve is getting more inverted just cements the likely recessionary signal from the yield curve but it always takes time. Ultimately I think a recession will be a lagged response to the necessary tighter policy put in place since March and the hikes still to come. If payrolls was a bit of a shock, next up will be US CPI on Wednesday which we will review below. Staying with US inflation we will also see PPI on Thursday and the inflation expectations in the University of Michigan consumer survey on Friday. Staying with prices China (CPI, PPI) and Japan (PPI) get in on the act on Wednesday too. A monthly dump of UK data including GDP will be out Friday and will attract attention after the BoE’s forecast of a 5 quarter upcoming recession last week. Elsewhere US earnings are 85% complete so the newsflow will slow down on this front. The full day by day week ahead is at the end but we’ll focus most attention on US CPI here today. Our economists expect the headline YoY rate to finally dip after energy prices have fallen of late. They are looking for 8.8% (from 9.1%) with consensus a tenth lower. Core however is expected to increase two tenths to 6.1% YoY. If we see such an outcome it’ll be interesting if the market cheers what could be the start of a decline from the peak in the headline rate or remains concerned that core continues to edge up. Core should be more important to the Fed but the market has been known to take the dovish interpretation to events of late, payrolls notwithstanding. On US PPI on Thursday, most of our economist’s attention will be on the healthcare component as this feeds directly into core PCE, the Fed preferred measure. So far the wedge between core CPI and PCE has been biased in CPI’s favour (i.e. higher) as CPI has a big bias to rents vs healthcare for PCE. Last month healthcare surged after 4 soft months. Our economists have detailed why they think it will continue to be strong in this note (Link here). Across the Atlantic, this week's UK GDP print is expected to be -0.2% QoQ, the first quarterly contraction since Q1 of 2021. The June figure is expected to contract by -1.2% MoM. Elsewhere earnings season is winding down after 423 S&P 500 and 403 Stoxx 600 companies have now reported. Our equity strategists have reviewed global earnings so far here, noting that while beats are roughly at the historical average in the US, they're exceeding it elsewhere. Yet, bar energy stocks, consensus estimates for Q3 have been declining across regions. Looking at the line up for this week, notable reporters include Disney (Wednesday), Porsche (today), Deutsche Telekom, RWE, Orsted and Siemens (Thursday). Asian equity markets are mostly on the softer side as we start the week. As I type, the Hang Seng (-0.73%) is lagging despite Hong Kong’s move to cut mandatory hotel quarantine from seven days to three. Additionally, the Kospi (-0.10%) is also trading lower in early trade whilst Chinese stocks are mixed with the Shanghai Composite (+0.19%) higher and the CSI (-0.33%) lower. Elsewhere, the Nikkei (+0.25%) is holding on to its gains this morning. Moving ahead, US stock futures point to a slightly negative opening with contracts on the S&P 500 (-0.16%) and NASDAQ 100 (-0.11%) dipping in overnight trading. Early morning data showed that Japan recorded its first current account deficit (-132.4 billion yen) in five months in June (v/s -706.2 billion yen expected) and reversing a +128.4 billion yen surplus in the preceding month as surging imports eclipsed exports. Over the weekend, data revealed that China’s export growth unexpectedly picked up (+18.0% y/y) in July, the fastest pace this year, against a +17.9% increase in June and beating market expectations of a +14.1% gain, thereby offering an encouraging boost to the economy as its struggles to recover from a Covid-induced slump. In overnight news, the US Senate approved a $739 billion climate and healthcare spending package ahead of crucial midterm elections in November. When signed into law, the bill, formally known as the Inflation Reduction Act, would allocate $369bn for climate action - the largest investment in US history. At the same time, it would increase corporate taxes and lower healthcare costs as part of the package. Reviewing last week now and it was a pretty volatile start to August on the back of Pelosi’s visit to Taiwan, the better than expected ISM prints, hawkish Fed speak, and finally the monster payrolls report on Friday which finally got the message through that the narrative of a dovish Fed pivot the week before was exceptionally premature. Quickly recapping Friday’s data, nonfarm payrolls came in at +528k – more than double the final estimate of +260k with a further boost from the upwardly revised June reading of +398k (vs +372k previously). It was also the highest reading since February’s +714k. The July payrolls gains also ensured that the US has now recovered the 22m of job losses in the aftermath of covid outbreak. Other indicators reinforced the risks to inflation - unemployment was down to 3.5% (3.6% previously) and average hourly earnings surprised to the upside at 0.5% or 5.2% YoY (vs consensus of 0.3% and 4.9%, respectively). Slight softness came from a -0.1ppt drop in the participation rate (62.1% vs 62.2% estimates) but this was mostly in the young and not the prime-age cohort which makes it less worrying. Upward beats in employment indices also came from ISM indices earlier in the week, with headline gauges for both beating economists’ estimates as well. The payrolls beat led to the US 2yr and 10yr jumping by +18.3bps and +13.9bps on Friday bringing the total weekly yield gains to +34.1bps and +17.8bps, respectively. These gyrations also inverted the 2s10s further, with the slope touching a low of around -43bps intraday, before finishing the day at -40.3bps, a -4.0bps move, -16bps on the week and to the most inverted since 2000. Fed futures now price in +69bps at the September meeting, so a roughly 76% probability of another +75bps hike in September (up from Thursday’s +59bps, 36%). There’s still along way to go before the next FOMC though with another set of payrolls and two CPI prints before the next meeting. For the S&P 500 it was a week with a few ups and downs (including -1% immediately after payrolls) but ultimately the market rose +0.36% (Friday -0.16%). Higher yields on Friday also drove divergences between benchmarks, with the Nasdaq (-0.50%) struggling a bit but still +2.50% on the week amid decent earnings results. For small caps, though, better economic data than feared overpowered the effect of rates, sending the Russell 2000 up by +0.81% on Friday and +1.94% on the week. Oil moved higher after payrolls (WTI +0.53% and Brent +0.85%), but were still down a significant -9.74% and -13.72% on the week. In Europe, sovereign bonds were also hammered after the payrolls report although the steady march higher started early in the morning and continued until the end of the session. Unlike in the US, however, the curves mainly steepened, with 10yr bund yields +15.2bps (+21bps on the week) edging ahead of the 2yr ones +13.5bps (+19bps on week). Friday also saw yields sell-off further in the UK, with the 2yr yield (+11.1bps) slightly less extreme than the 10yr (+16.0bps). But in part thanks to the BoE, the UK’s front end gained +25.5bps on the week relative to +28bps on the 10yr. The periphery was quiet last week with 10yr Italian spreads declining -6.5bps on Friday and -13.6bps on the week. The market has been more relaxed after the far-right populists (riding high in the polls) suggested they won't abandon EU budget rules if they win the elections. Finally, European stocks dipped as the STOXX 600 closed -0.76% on Friday, and -0.59% for the week. Financials (+0.16%) and energy (+0.54%) were the sole outperformers sector-wise on Friday after the robust payrolls. Tyler Durden Mon, 08/08/2022 - 08:03.....»»

Category: blogSource: zerohedgeAug 8th, 2022

Futures Jump, Dollar Slides As Euro Surges On Hawkish ECB Report

Futures Jump, Dollar Slides As Euro Surges On Hawkish ECB Report After yesterday's sharp late-day swoon sparked by news that Apple is reining in hiring (which, of course, is expects as the US slides into recession, and is a necessary condition for the Fed to end its rate hikes), sentiment reversed overnight and US index futures climbed to session highs, rising as high as 1% just before 7am ET, as traders remained focused on the earnings season, with tech stocks set to rebound following Monday’s losses. Nasdaq 100 and S&P 500 contracts were 0.7% higher by 7:30am in New York. Both indexes declined Monday as investors worried over the strength of the economy after Apple joined a growing number of companies that are slowing hiring. Meanwhile, the euro soared more than 1% against the dollar after a Reuters report that the ECB may consider raising interest rates by 50 basis points because of the worsening inflation backdrop (even though this report was followed by the far more dovish Bloomberg news that "Lagarde Redoubles Push on New ECB Tool to Reach Deal This Week").  German bunds fell, while benchmark Treasuries traded little changed after paring gains following the report. Markets are pricing in about 38 basis points of tightening on Thursday, when the ECB is expected to raise rates for the first time in more than a decade. That reflects about a 50/50 chance of a 50-basis point increase. An outsized hike would put the ECB more in line with global peers moving up their policy rates at warp speed. Back to the US, and looking at premarket trading, cryptocurrency-related stocks gained for the second day as Bitcoin extended its rally but it was ether that stole the show, rising almost 50% in the past week. IBM dropped 5 after the IT services company cut its annual forecast for free cash flow due to the strong dollar and the loss of business in Russia.  Bank stocks climb in premarket trading Tuesday amid a broader push higher by risk assets. S&P 500 futures are also higher this morning, gaining as much as 1%, while the US 10-year yield holds steady at about 2.98%. In corporate news, Veritas Capital is in talks to buy NCR Corp., according to a Dow Jones report. Meanwhile, Jefferies said it plans to spin off its Vitesse Energy unit to shareholders and sell Idaho Timber as part of a strategy to shrink its merchant-banking portfolio. Here are the other notable US premarket movers: Exxon Mobil (XOM US) rises 1.7% in US premarket trading on Tuesday as Piper Sandler upgraded the stock to overweight from neutral, saying in a note that the setup for US energy stocks heading into 2Q earnings is looking increasingly attractive. US cryptocurrency-related stocks gain in premarket trading, as Bitcoin rallies for a second day in a row and comes closer to the breaking of a one-month-old range. Marathon Digital (MARA US) +7.2% after entering into a five-year pact with Applied Blockchain (APLD US), which jumps 33%. Riot Blockchain (RIOT US) +4.3%, Hut 8 Mining (HUT US) +2.9%, Coinbase (COIN US) +1.8% IBM (IBM US) shares were down 5.1% in premarket trading, after the IT services company cut its annual forecast for free cash flow due to the strong dollar and the loss of business in Russia. Piper Sandler says FX headwinds will likely hit other technology companies too. Cinemark (CNK US) shares gain 4.6% in US premarket trading as the stock was upgraded to overweight from equal- weight at Morgan Stanley, with the return of consumers to theaters seemingly not reflected in its shares. Marten Transport (MRTN US) shares rose as much as 4.5% in US postmarket trading on Monday after the firm reported earnings per share for the second quarter that beat the average analyst estimate, with KeyBanc saying results show that the trucking company has seen a “hot start.” Keep an eye on US solar stocks as Piper Sandler cut its ratings on SunRun (RUN US) and Sunnova (NOVA US) and upgraded FTC Solar (FTCI US), saying that the resilience of the sector to recession is likely to come into focus heading into 2Q earnings. Watch Apollo (APO US) and StepStone (STEP US) shares as Morgan Stanley strategists cut the stocks to equal-weight from overweight, taking a more cautious near-term view on alternative asset managers. Investor allocation to stocks plunged in the week through July 15 to levels last seen in October 2008, while exposure to cash surged to the highest since 2001, according to BofA's latest fund manager survey (more details shortly). High inflation is now seen as the biggest tail risk, followed by a global recession, hawkish central banks and systemic credit events.  Signs that high inflation and monetary tightening are squeezing consumers and employment could feed into worries that an equity revival since mid-June is merely brief. Corporate updates such as Apple’s are helping markets to calibrate the risk of recession. Netflix Inc., Johnson & Johnson and Lockheed Martin Corp. headline another busy day for earnings. “Inflation and its detrimental effect on consumers’ pockets and corporate margins is yet to be fully seen,” Mizuho strategists Peter McCallum and Evelyne Gomez-Liechti wrote in a note. “Until then, we don’t expect investors to feel properly comfortable buying on dips other than in the most defensive names.” In Europe, Euro Stoxx 50 reversed an earlier loss of as much as 0.6% and traded 0.2% higher, at session highs. Spain's IBEX outperformed peers, adding 0.8%. Tech, financial services and chemicals are the worst performing Stoxx 600 sectors. Here are some of the biggest European movers today: Electricite de France shares climb as much as 15% as trading resumes after the French government offered to pay about 9.7 billion euros to fully nationalize the utility in a move welcomed by analysts, which say the deal has a high chance of success. Wise shares jump as much as 16%. The money transfer firm’s fiscal 1Q update shows a 12% beat on revenue, Morgan Stanley (equal-weight) writes in a note, while Citi (sell) says update shows a “decent beat” on volumes and revenue, primarily driven by personal remittance business. Informa rises as much as 5% after reporting better-than-expected preliminary 1H results while announcing the acquisition of business news site Industry Dive for $389 million. Citi says the newsflow is encouraging “across the board.” Novartis shares gain as much as 1% after the company reported a “solid” 2Q with a surprise beat in its Sandoz generics unit, analysts say. ZKB notes that Cosentyx sales were weak, but this was offset by Sandoz and a solid performance for other drugs, such as Kesimpta. Deliveroo shares rise for a second day following its trading update, with Berenberg raising the stock to buy from hold on improved risk-reward. Shares rally as much as 5.5% after a 6.9% gain on Monday. Alstom shares were down as much as 6.7% after company reported 1Q earnings. Investor worries are around inflation, potential gas disruptions on production in Europe and chip shortages. Telenor shares dropped as much as 5.2% after Norway’s telecommunications company posted a 2.5 billion-krone ($250 million) impairment on its Pakistan operations due to a jump in funding costs and an adverse court ruling. SGS shares fall as much as 4.7% with analysts saying the testing and inspection firm delivered solid organic growth but with weaker margins. Getinge drops as much as 7.4%, with Handelsbanken analyst Rickard Anderkrans (buy) saying its 2Q results were a “mixed bag” across its divisions and adjusted Ebitda margin looked “fairly soft”. European stocks could slump another 10% if Russia cuts off gas to the region, triggering a recession, according to Citigroup Inc. strategists. A halt of Russian gas supplies could potentially reduce the euro area’s gross domestic product by about 1%, which would imply a 10% contraction in European earnings-per-share over the next 12 months, according to Citi. Earlier in the session, Asian stocks fluctuated as China’s policy efforts to resolve the mortgage boycott crisis failed to lift sentiment amid lingering woes in the sector and global growth concerns. The MSCI Asia Pacific Index erased a drop of as much as 0.4% to trade 0.1% higher as of 5 p.m. Hong Kong time. Technology shares were the biggest drags after a report on Apple Inc.’s plan to slow hiring highlighted growth risks. Industrial and financial shares gained. Hong Kong and Chinese equities were among the worst performers regionally, cutting short a rebound in the previous session. A gauge of developer shares fell despite a report that China may allow homeowners to temporarily halt mortgage payments on stalled projects, part of a broader policy push to stabilize the property market.  Asian equities have seen choppy trading recently as traders expect another large interest rate increase by the Federal Reserve this month. China’s Covid cases are also on the rise again, raising the risk of more lockdowns.  “It is not just the mortgages or the property, but also Covid that has gotten back a lot of attention. It will be quite challenging for the regional markets to overcome the overall bad risk sentiment that we have with the global headwinds,” Stefanie Holtze-Jen, Asia Pacific chief investment officer at Deutsche Bank International Private Bank, said in a Bloomberg TV interview.  Japanese shares edged higher on Tuesday after reopening from a holiday. Traders will look ahead to a policy decision from the Bank of Japan on Thursday Japanese stocks advanced as investors returned from a long weekend and await a policy decision from the Bank of Japan on July 21.  The Topix Index rose 0.5% to 1,902.79 at the market close in Tokyo, while the Nikkei advanced 0.6% to 26,961.68 on Tuesday. Sony Group Corp. contributed the most to the Topix Index gain, increasing 2.3%. Out of 2,170 shares in the index, 1,321 rose and 754 fell, while 95 were unchanged. In Australia, the S&P/ASX 200 index fell 0.6% to close at 6,649.60, as healthcare and technology shares tumbled. Technology shares had their worst day in a month, following regional and US peers lower after Bloomberg reported Apple plans to slow hiring in some divisions to cope with a potential economic downturn. Mining shares swung to a loss after posting early gains following BHP’s production output, as the mining giant joined rival Rio Tinto Group in signaling more turbulence.  Energy shares bucked the trend and edged higher after oil futures jumped above $100 a barrel on concerns about tighter supplies globally. In New Zealand, the S&P/NZX 50 index was little changed at 11,162.73 Stocks in India were mostly higher, with banks and property developers among the winners as signs pointed to improved sales. The S&P BSE Sensex rose 0.5% to 54,767.62 in Mumbai, while the NSE Nifty 50 Index gained 0.4%. Reliance Industries was the biggest contributor to the Sensex, rising 0.8%, followed by ICICI Bank, which rose 1.1%. Out of 30 shares in the Sensex, 19 rose and 11 fell. Among sectoral gauges, the realty index led with a 2.7% gain behind rallies by Sobha Ltd. and Oberoi Realty, the latter on demand outlook for a luxury project in Mumbai.  Consumer-goods producer Hindustan Unilever is scheduled to report quarterly earnings after trading hours, with analysts watching for its outlook to assess recovery in demand.  India’s rupee touched another record low, with one drag being the continued selling of equities by foreign investors. Net outflow of $29.7b of local shares as of July 15 was the most in Asia after China and Taiwan. The Bloomberg Dollar Spot Index fell 0.6%, dropping to its lowest level in two weeks, with Scandinavian currencies outperforming Group-of-10 peers against the greenback. The euro rose to a two-week high in the wake of the reports that the ECB were considering a larger initial move in their tightening cycle, gaining as much as 1.2% to 1.0269, eyeing the 21-DMA at 1.0307. German 2-year yields surged as much as 12 basis points to 0.64% as traders moved in to price at one point over 100 basis points of rate hikes from the ECB by September.Gilts rallied and traders trimmed bets on the pace of BOE interest-rate hikes after lower-than-forecast UK average earnings in May suggest inflation may slow. In rates, Treasuries were little change on the day with yields broadly within one basis point of Monday’s close despite weakness seen across European core rates after Reuters reported ECB officials are discussing a half-point hike on Thursday.  10-year TSY yields around 2.98%, slightly richer from Monday while bunds underperform 4bp in the sector; Treasuries curve is mildly steeper with spreads broadly within one basis point of Monday close also. Following Reuters report on ECB the euro jumped to two-week high while two-year German yields remain cheaper by 8.5bp on the day. US auctions this week include 20-year bond reopening Wednesday and 10-year TIPS on Thursday. German Bund curve bear-flattens with 2s10s narrowing 5.3bps. Peripheral spreads tighten to Germany with 10y BTP/Bund narrowing 0.8bps to 206.0bps. In commodities, oil slipped but held above $100 a barrel after posting the biggest one-day advance since May, aided by a tightening market and a cooling in dollar gains. WTI drifts 0.7% lower to trade near $101.88. Brent falls 0.8% near $105.42. Base metals are mixed; LME lead falls 2.4% while LME nickel gains 2.7%. Spot gold rises roughly $3 to trade near $1,713/oz. Bitcoin remains firmer on the session and have marginall eclipsed Monday's USD 22.75k best to a USD 22.95k high thus far. Looking to the day ahead now, and data releases include UK employment data for June, US housing starts and building permits for June, and the final CPI reading for June from the Euro Area. Central bank speakers include BoE Governor Bailey and the ECB’s Makhlouf. Earnings releases include Johnson & Johnson, Lockheed Martin and Netflix. And in politics, there’s another ballot of UK Conservative MPs as they select their next leader and the country’s next Prime Minister. Market Snapshot S&P 500 futures up 0.8% to 3,863.50 STOXX Europe 600 down 0.6% to 415.27 MXAP little changed at 156.43 MXAPJ down 0.3% to 515.24 Nikkei up 0.6% to 26,961.68 Topix up 0.5% to 1,902.79 Hang Seng Index down 0.9% to 20,661.06 Shanghai Composite little changed at 3,279.43 Sensex up 0.2% to 54,634.07 Australia S&P/ASX 200 down 0.6% to 6,649.60 Kospi down 0.2% to 2,370.97 Gold spot up 0.2% to $1,712.77 US Dollar Index down 0.69% to 106.62 German 10Y yield little changed at 1.26% Euro up 1.0% to $1.0242 Top Overnight News from Bloomberg The European Central Bank may consider raising interest rates on Thursday by double the quarter-point it outlined just last month because of the worsening inflation backdrop, according to people familiar with the situation. The French government offered a premium of more than 50% to minority investors in Electricite de France SA, seeking a swift nationalization of the troubled company that is the backbone of the country’s energy policy. The European Commission doesn’t expect Russia to restart a key natural gas pipeline this week, a senior official said, the clearest indication yet that the bloc is bracing for the worst Mining giant BHP Group has joined rival Rio Tinto Group in signaling more turbulence to come for commodities producers as costs balloon and demand for everything from iron ore to copper hits headwinds. A more detailed look at global markets courtesy of Newsquawk: Asia-Pac stocks mostly fell after reports of Apple slowing its hiring and European energy woes stoked growth fears.  ASX 200 was lacklustre amid weakness in tech and with miners choppy after a mixed quarterly update from BHP.  Nikkei 225 outperformed as it played catch up to the prior day's gains on return from the extended weekend. Hang Seng and Shanghai Comp. were pressured amid earnings updates and the COVID situation in China, but with the losses in the mainland stemmed after reports that China is considering a mortgage grace period. KKR does not plan to lead a bid for Toshiba (6502 JT); could still partake as an equity partner in a deal; waiting for more clarity for Japanese government and Co. management, according to Reuters sources. Top Asian News Searing Heat Tests China’s Ability to Keep Its Factories Running Some China High-Grade Builders’ Dollar Bonds Set for Record Lows China’s Covid Cases Near 700 as Shanghai Widens Testing Country Garden Dollar Bond Plunges, Joining China Junk Selloff India Said to Sell Dollars to Meet Gaps as Exchange-Rate Fair European bourses are under modest pressure continuing with the downbeat APAC handover, with pressure from AAPL, ECB sources and IBM impacting. US futures are modestly firmer having already reacted to the AAPL developments, though IBM (-5.0% in pre-market) is impacting. Within Europe, sectors are predominently in the red though Healthcare and Banking names are proving more resilient. French gov't intends to buy the 15.9% remaining EDF (EDF FP) shares and bonds, offering EUR 12.0/shr (12th July  close EUR 10.23/shr); represents an overall value of circa. EUR 9.7bln. Buyout will be followed by a delisting. Top European News UK government won a vote of confidence in the House of Commons (as expected) after five hours of debate with the vote count at 349 vs. 238, according to Sky News UK Chancellor Zahawi said they can and will get inflation back under control, while he added that they must deliver sound public finances and help households with inflation, not push up demand further. Zahawi stated that he will reform Solvency II rules to give insurers more flexibility to invest in infrastructure and aims to repeal hundreds of EU financial regulations and replace them with a UK version, according to Reuters. France Offers to Pay $9.9 Billion for EDF Nationalization UK Braces for Record-Breaking 40°C as Heat Wave Peaks China Disputes Report Xi Invited Europe Heads to Beijing Meeting Central Banks ECB policymakers are to discuss a rate hike worth 25bp or 50bp at Thursday's meeting, according to Reuters sources; hone in on a deal to make new bond purchases conditional on next-gen EU targets and fiscal rules. Some wanted the ESM involved, but this option has now likely been discarded. ECB may consider increasing rates on Thursday by 50bp, via Bloomberg citing sources; due to the worsening inflation situation. Source stressed that it is unclear if there will be sufficient support for a 50bp hike. RBA July Meeting Minutes stated that the Board remains committed to doing what is necessary to ensure inflation returns to the target over time and members agreed further steps would need to be taken to normalise monetary conditions in the months ahead, while it noted that two options for the size of the Cash Rate increase were considered which were raising the cash rate target by 25bps or by 50bps. RBA Deputy Governor Bullock said wages are starting to rise a little more, while she added that they need to get rates up to some sort of neutral and that neutral is a fair bit higher than where they currently are. HKMA intervenes; buys HKD 6.28bln from market as the HKD hits weak end of trading range. FX Antipodean Dollars take advantage of their US rival’s deeper reversal with the Aussie also acknowledging RBA minutes and rhetoric flagging further hikes, NZD/USD breaches 0.6200 and AUD/USD extends above 0.6850 to within a whisker of 0.6900. Euro boosted by sources suggesting ECB might raise rates by 50bp rather than the 25bp signalled for this week, EUR/USD through 1.0200 again and probes 1.0250. Franc rebounds amidst broad Buck retreat and in wake of Swiss trade data showing wider surplus, USD/CHF tests 0.9700 vs high close to 0.9800. Pound peers over 1.2000 vs Greenback again, but labours after mixed UK jobs and wage metrics. Yen firmer through 138.00, but could be hampered by option expiries at the round number (2.72 bn) and key Fib resistance (at 137.52). Loonie lags as WTI sags, USD/CAD straddles 1.2950 after dip below 1.2900 on Monday. Fixed Income EZ debt rattled by hawkish ECB source report with spill-over to German Bobl auction. Bunds recoil from 152.60 to 151.00 before paring some declines. Gilts hold in after mixed UK labour data and decent DMO 2039 sale with the 10 year benchmark between 115.76-03 parameters vs 115.01 prior Liffe close. 10 year T-note towards bottom of 118-05/118-15+ range ahead of US housing starts and building permits. Commodities Crude benchmarks are pressured and continuing to consolidate with fresh developments relatively light for the complex explicitly. White House Adviser Deese expects gasoline prices will continue to fall this month, according to MSNBC. TC Energy issued a force majeure for oil deliveries on Keystone Pipeline after a third-party power outage in South Dakota, while TC Energy said the Keystone Pipeline is operating at reduced rates with no timeline available for the restoration of full-service, according to Reuters. Saudi Foreign Minister says does not see a lack of oil in the market, there is a lack of refining capacity; adds, Russia is a integral part of OPEC+, via Reuters. EU is set to backlist CEO of Russia's zinc and copper giant UMMC, according to a draft document via Reuters. Spot gold is marginally firmer and comfortably above USD 1700/oz as the USD pulls-back while base metals are more mixed after recent upside in copper, for instance.   US Event Calendar 08:30: June Housing Starts, est. 1.58m, prior 1.55m; Housing Starts MoM, est. 2.0%, prior -14.4% 08:30: June Building Permits, est. 1.65m, prior 1.7m; Building Permits MoM, est. -2.6%, prior -7.0% DB's Jim Reid concludes the overnight wrap Well yesterday was the third hottest day on record here in the UK with today likely to be the hottest. My wife can't sleep with even the quietest fan on in our bedroom and I can't sleep without one. Anyone that can solve this riddle for us without resorting to seperate bedrooms please let me know. Although she might be happy with this solution. I’m too afraid to offer it up in case it’s accepted. I’ve actually slept with ice cubes on my back over the last couple of nights. Now there's an image for you all! Just when it looked like the market ice age was showing signs of thawing on hopes for less aggressive central banks and decent early week results, US sentiment turned late in the day following reports that tech giant Apple would be slowing hiring and spending next year, raising the stakes on the tech earnings out this week. So while European equities managed to post a strong gain, US stocks ended the day in the red (S&P 500 -0.84%). Meanwhile, easing fears of a more aggressive Fed hiking path helped Brent crude oil prices (+5.05%) rebound and the 2s10s Treasury curve (+1.8bps) steepen from its recent lows last week, with Brent crude oil prices (-0.41%) only down slightly overnight at $105.83/bbl. As the back-and-forth in sentiment yesterday showed, there are still plenty of obstacles for investors to navigate over the coming days. Not just recession risk but also the ongoing threat of a Russian gas shut-off at the end of the week. Yesterday saw Reuters report that Gazprom had declared force majeure on gas supplies to at least one major customer, with a letter saying that they couldn’t fulfil their supply obligations due to “extraordinary” circumstances. So a concerning sign amidst concerns that issues with the gas flow will go beyond the scheduled maintenance period on the Nord Stream pipeline. Separately, Germany’s Uniper, which is Europe’s largest buyer of Russian gas, applied to extend their €2bn credit line from the state-owned bank KfW, and Bloomberg also reported that a draft EU document warned that a Russian gas cutoff could cut EU GDP by 1.5% in a worst-case scenario, with even an average winter seeing a decline in EU-wide GDP between 0.6% and 1%. To be fair there have been more aggressive forecasts than this. In spite of the bad news there, European assets still put in a strong performance yesterday, with the STOXX 600 gaining +0.93% as the more cyclical sectors and energy led the way. That positive sentiment was also reflected in sovereign bond markets, where yields on 10yr bunds (+8.2bps) saw their largest daily increase in over a week, and the spread of Italian 10yr yields over bunds (-6.5bps) saw their largest daily decline in over a month as investors await the details of an anti-fragmentation tool from the ECB this week. While there was initial optimism in the US, it eventually soured and left the S&P 500 -0.84% lower at the close. The day started with more positive earnings than we had from financials last week, with Goldman Sachs (+2.51%) and Bank of America (+0.03%) posting better than expected results after last week’s lackluster showing from financials. They traded as much as +6% and +3.5% higher at the open, respectively, before fading later in the day. Tech stocks were a microcosm of the broader index performance on the day. The NASDAQ was as much as +1.5% higher while the FANG+ was more than +3% higher on the early morning optimism, only to turn following news that Apple would be slowing hiring and spending in 2023, stoking fears about the broader macro outlook. The NASDAQ and FANG+ eventually closed -0.81% and +0.06%, respectively. Netflix reports tonight so all eyes on that after two spectacularly bad earnings day equity performance so far this year. In the S&P 500, cyclical stocks still managed to outperform defensives; energy was the clear outperformer, up +1.96%, while discretionary and materials, up +0.22% each, were the only other sectors in the green, and heath care led declines (-2.15%). Treasury yields still managed to climb, and the curve managed to steepen as mentioned, though 10yr yields came off their intraday highs of +10.2bps to finish +7.0bps higher at 2.99%, and this morning they’ve shed a further -2.0bps to come down to 2.97%. With the Fed widely expected to raise rates by 75bps again next week, the latest round of housing data provided further evidence that their tightening cycle is beginning to have a significant impact, with the NAHB housing market index plummeting to 55 in July (vs. 65 expected). That’s the worst reading for the index since the initial wave of the Covid pandemic in May 2020, and if you exclude the pandemic plunge, you’ve got to go back to early 2015 for the last time that sentiment was worse. Furthermore, the 12-point decline relative to July was the largest one-month drop since the series began, with the exception of April 2020 as the world went into lockdowns, so a faster monthly drop even relative to what we saw during the GFC. Markets in Asia are struggling this morning following that overnight sell-off on Wall Street, with major indices trading in negative territory including the Hang Seng (-1.11%), CSI (-0.70%), Shanghai Composite (-0.30%) and the Kospi (-0.23%). The main exception to that is the Nikkei (+0.71%), which is catching up from yesterday’s holiday. As well as the more negative newsflow from the US, China also reported 699 Covid cases on Monday, which is the highest daily number since May 22. Separately, yields on 10yr Australian government bonds are up +7.0bps after minutes from the RBA’s recent meeting revealed that the board saw current interest rates as being “well below” the neutral rate, indicating that further rate hikes will be needed to return inflation to the target over time. Looking forward, there are signs that the selloff has stabilised for now, with S&P 500 futures (+0.12%) pointing slightly higher In terms of the Tory leadership race we are now down to four candidates after Tom Tugendhat was eliminated from contention yesterday. The next rounds of voting are today and tomorrow, by which point there’ll be just two candidates that’ll be voted on by the wider party membership over the coming weeks before a new leader/PM is announced in early September. The government also won a vote of confidence in the House of Commons yesterday, by 349 votes to 238. To the day ahead now, and data releases include UK employment data for June, US housing starts and building permits for June, and the final CPI reading for June from the Euro Area. Central bank speakers include BoE Governor Bailey and the ECB’s Makhlouf. Earnings releases include Johnson & Johnson, Lockheed Martin and Netflix. And in politics, there’s another ballot of UK Conservative MPs as they select their next leader and the country’s next Prime Minister. Tyler Durden Tue, 07/19/2022 - 07:59.....»»

Category: blogSource: zerohedgeJul 19th, 2022

Futures Jump As Traders Scale Back Fed Hike Expectations As Economy Slumps

Futures Jump As Traders Scale Back Fed Hike Expectations As Economy Slumps US equity futures and global markets stormed higher, as the dollar extended its slide from a record high as investors scaled back bets on how aggressively the Federal Reserve will tighten policy in response to growing recession fears which Bloomberg paradoxocially interpreted as "easing recession fears." In other words, rising risk of a recession lowers the risk of a Fed-induced recession. Lovely. In any case, Nasdaq 100 futures rose 1.2% and contracts on the S&P 500 added 1%, with spoos trading back over 3,900 and more than 5% above June’s closing low following Friday’s strong rally on renewed hopes that the Fed will end its rate hikes and soon start cutting rates as well as end QT. West Texas Intermediate crude oil also stormed higher, undoing all recent losses and traded near $100 a barrel while the Bloomberg Dollar Spot Index slipped 0.5%, extending a retreat from a record high. The benchmark Treasury yield rose back toward 3%. As Q2 earnings season rolls out, Goldman Sachs shares surged as much as 4% in premarket trading after the  bank reported second-quarter results that were better than expected in nearly every area. Bank of America Corp.’s results were more mixed. Here are some other notable premarket movers: Lilium (LILM US) shares rise as much as 10% in US premarket trading on Monday after Bristow (VTOL US) secured the option to purchase 50 Lilium Jets in addition to providing maintenance services for the aircraft’s launch network in Florida, and other future U.S and European markets. ITHAX Acquisition (ITHX US) shares rise 32% in US premarket trading, extending gains after its holders approved the previously proposed business combination with Mondee at the EGM held on July 15, 2022. Cryptocurrency-exposed stocks are gaining in premarket trading after Bitcoin rose as much as 7.3% to trade above $22,000 for the first time in more than a month. Marathon Digital (MARA US) +8.8%, MicroStrategy (MSTR US) +5.1%, Coinbase (COIN US) +6.2%, Riot Blockchain (RIOT US) +7.3%, Ebang (EBON US) +2.3% Watch JPMorgan (JPM US) shares as Berenberg raises recommendation to hold, saying the investment bank’s shares are trading at a 20% discount to their long-run average and given the temporary nature of headwinds, downside risks to the stock “are now more limited.” Policy makers pushed back against even bigger hikes in interest rates and fresh data showed a greater decline in US consumers’ long-term inflation expectations. That boosted odds for a 75 basis points July Fed rate hike, squashing talk of a 100 basis-point move after last week flirting with the prospect of a 100 basis-points move after data showed no let-up in stubbornly high price pressures. Yet the bullish market reaction prompted some such as Goldman to ask if the worst is now behind us. Still, the outlook remains troubling for many investors. Gains in stock markets may prove to be short-lived as inflation pressures remain high and a recession seems increasingly likely, according to strategists at Morgan Stanley and Goldman Sachs Group Inc. "Risk-reward at these levels has certainly improved but because we have not yet fully priced in a recession, it’s hard to say that the markets are screaming cheap," said Anastasia Amoroso, the chief investment strategist at iCapital. In Europe, stocks surged to the highest level in more than a month, with the Stoxx 50 jumping 1.3%, and with FTSE MIB outperforming peers, adding 1.4%, while IBEX lags, adding 0.6%. Miners, energy and banks are the strongest-performing Stoxx 600 sectors. Energy and basic resources sectors lead gains in the Stoxx 600 as oil rises after Saudi Arabia refrained from pledges to increase crude supplies, while metals rebound amid reports of China’s steps to help developers. Shell rose as much as 3.8%, TotalEnergies +2.7%, BP +3.7%, Rio Tinto +4.3%, Antofagasta +5.1%, KGHM +6.4%. Here are some of the other notable European movers today: GTT jumps as much as 7.5% as Societe Generale raises its price target on the LNG containment systems firm and reiterates a buy rating, as it sees the firm on the brink of its “strongest and longest period of growth” ever. Solvay rises as much as 5.3% after reporting preliminary results. Citi said the chemicals company reported a solid beat, driven by both volumes and prices contribution from all three segments. Luxury stocks including Cartier owner Richemont and UK trench-coat maker Burberry rebound after declines on Friday, with Deutsche Bank noting that there’s no underlying slowdown in consumer demand for luxury. Richemont shares rise as much as 5%, Burberry +3.8%, LVMH +1.7% BASF gains as much as 4.2% as Bank of America double upgrades the stock to buy from underperform, arguing that the market is overlooking the partial hedge of its oil & gas assets in Wintershall. Nel jumps as much as 16% after the electrolyzer firm announced a 200MW alkaline electrolyzer equipment order. Citi says the order is likely to be taken well by the market as it supports Nel’s medium-term growth outlook and is a positive sign for the trajectory of industry demand. Direct Line falls as much as 15% following profit guidance that was “even worse” than feared amid cost inflation, according to Jefferies, which had cut the stock to hold from buy prior to the statement Monday. Verbund declines as much as 7.8% after Austrian government officials suggested they’re considering a partial cap on household power bills. Asian stocks climbed as investors dial back expectations of aggressive tightening by the Federal Reserve while weighing China’s policy support for the ailing property sector. The MSCI Asia Pacific Index rose as much as 1.4% Monday, poised for the first gain in three days, led by financial and technology shares. Hong Kong and South Korean equities were among the top gainers in the region, while the Japanese market was closed for a holiday. Chinese shares gained after central bank Governor Yi Gang said the monetary authority will step up efforts to provide stronger economic support amid the pandemic and external headwinds. Regulators also urged banks to support developers to help stabilize the real estate market, according to another report. Asian markets took a breather as comments from two Fed officials, as well as a drop in US consumers’ long-term inflation expectations, eased fears about a super-sized interest rate hike this month. Still, ongoing Covid outbreaks in China and woes in the nation’s property sector are clouding the region’s outlook. The Asian stock benchmark is hovering near a two-year low. The Chinese central bank “doesn’t want the economy to overheat in the short term” but more policy initiatives are needed, Vikas Pershad, a fund manager at M&G Investments, said in a Bloomberg TV interview. “The slowdown in the property market is not just a small subset of mortgage payments being held back. It’s the ripple effects that go throughout the economy. And that carries through many different sectors.” Australia's S&P/ASX 200 index rose 1.2% to close at 6,687.10, boosted by gains across miners, banks and energy shares.  A group of materials stocks rebounded as iron ore shook off losses. Whitehaven’s earnings outlook also drove optimism against the backdrop of a tightening market.  In New Zealand, the S&P/NZX 50 index rose 0.4% to 11,163.63. In FX, the Bloomberg Dollar Spot Index fell as much as 0.5%, underperforming other Group-of-10 peers; JPY and NZD are the weakest performers in G-10 FX, while GBP and SEK outperform. MXN (+0.9%) and LB (+0.8%) lead gains in EMFX. The British pound led gains.The euro rose to the highest level in a week against the dollar. The weekly fear-greed indicator hit the most bearish levels since the Greek crisis in early 2015 on Friday. The New Zealand dollar rose as much as 0.6% to $0.6201 before paring the move, after inflation accelerated more than expected in the second quarter to a fresh 32-year high, fueling bets on further aggressive tightening by the central bank, In rates, Treasuries fell across the curve along with German bonds. US yields were cheaper by 2.5bp to 4bp across a slightly steeper curve with 2s10s, 5s30s spreads wider by 1bp and 0.5bp on the day; 10-year yields around 2.96%, cheaper by 4bp on the day while bunds underperform by additional 4bp. Italian benchmark 10-year yields surged as much as 12 basis points to 3.39%, with little sign of reconciliation among Italy’s governing coalition over the weekend. The spread between Italian and German 10-year yields rose to 223 basis points, the widest in a month, before retracing some of the move. Peripheral spreads are mixed to Germany; Italy tightens, Spain widens and Portugal widens. Commodities were broadly stronger after Joe Biden’s trip to the Middle East ended being a total dud and without a firm commitment from Saudi Arabia to boost crude supplies. Wheat climbed after a five-day slump and copper rallied. Crude futures advanced. as WTI drifts 1.9% higher to trade near $99.49. Brent rises 2.2% near $103.34. Most base metals trade in the green; LME nickel rises 3.3%, outperforming peers. Spot gold rises roughly $13 to trade near $1,721/oz. Spot silver gains 1.2% near $19. US nat gas futures extended gains above the $7 level as scorching temperatures across the country boost air-conditioning demand. A heat wave in the UK and France pushed up European natural gas prices, exacerbating the region’s worst energy crunch in decades. Separately, traders are also closely watching whether the Nord Stream pipeline from Russia will fully return to service later this week, when it ends scheduled maintenance. Moscow has already curbed supplies to the continent amid tensions related to its invasion of Ukraine: “The possibility that Russia stops, or severely reduces, their gas exports to Europe should keep markets on edge in the near-term,” Mizuho International Plc strategists Peter McCallum and Evelyne Gomez-Liechti wrote in a note to clients. Bitcoin is bid and lifting above the $22k mark after rising above the $20K support that it has been pivoting, generally speaking, recently. It's a quiet start to an otherwise very busy week (with both the ECB and BOJ on deck), and we only get the NAHB Housing Market Index and the May TIC data later today. We also conclude bank earnings with BofA and Goldman reporting results premarket. Market Snapshot S&P 500 futures up 1.1% to 3,907.00 STOXX Europe 600 up 1.4% to 419.76 MXAP up 1.4% to 156.28 MXAPJ up 1.8% to 516.33 Nikkei up 0.5% to 26,788.47 Topix little changed at 1,892.50 Hang Seng Index up 2.7% to 20,846.18 Shanghai Composite up 1.6% to 3,278.10 Sensex up 1.1% to 54,359.13 Australia S&P/ASX 200 up 1.2% to 6,687.14 Kospi up 1.9% to 2,375.25 German 10Y yield little changed at 1.17% Euro up 0.5% to $1.0134 Gold spot up 0.7% to $1,719.39 US Dollar Index down 0.52% to 107.50 Top Overnight News from Bloomberg After drawing foreign capital into China’s markets for years, President Xi Jinping is now facing the risk of a nasty period of financial de-globalization. Investors point to one main reason why: Xi’s own policies China may allow homeowners to temporarily halt mortgage payments on stalled property projects without incurring penalties, people familiar with the matter said, as authorities race to prevent a crisis of confidence in the housing market from upending the world’s second-largest economy. Prime Minister Mario Draghi is under mounting pressure to reverse his pledge to resign as soon as this week and avoid throwing Italy into chaos as economic warning signs are building Russian Defense Minister Sergei Shoigu ordered part of his forces to focus on destroying Ukraine’s long-range missile and artillery systems during a visit to troops in occupied territory A more detailed look at global markets courtesy of Newsquawk APAC stocks gained with risk appetite spurred after last Friday's firm gains on Wall St. and renewed China support pledges helped markets shrug off China's COVID woes. ASX 200 was underpinned amid M&A activity and with Australia reinstating quarantined-support payments. Nikkei 225 was closed as Japan observed the Marine Day holiday. Hang Seng and Shanghai Comp. outperformed regional counterparts after PBoC Governor Yi pledged to increase the implementation of prudent monetary policy to provide stronger support for the real economy and with the property sector underpinned after the CBIRC asked lenders to provide credit to eligible developers so they can complete unfinished residential properties. Top Asian News China reported 580 local cases on Saturday which was the highest since May 23rd. It was also reported that Shanghai said that the situation in the city remained severe. It was also reported that Shanghai is planning to conduct district-wide testing in 9 COVID-impacted districts and other smaller scope areas from Wednesday-Friday, while China's Tianjin is also planning massive COVID tests, according to Bloomberg and Reuters. China is considering a mortgage grace period for home projects that have stalled, according to Bloomberg sources. Macau will extend its lockdown of businesses and casino closures to July 22nd, according to Reuters; subsequently, a health officials said some social activites could resume in the next week if cases drop. Beijing government official says no cases have been found so far in COVID tests of nearby neighborhoods, according to a media briefing. Chinese cyberspace regulator is to launch a two-month clean-up campaign which will focus on minors use of livestreaming, games and e-commerce platforms, according to State meida. US State Department approved a possible USD 108mln military sale to Taiwan, according to Reuters. Japanese daily COVID infection cases surpassed 110k on Saturday which was a record high, according to Jiji news agency. Japanese Finance Minister Suzuki reiterated sharp volatility is seen in the FX market and that they must watch moves with a strong sense of urgency, while he also noted that G20 affirmed their agreement on FX and that many countries including Japan, strongly condemned Russia’s invasion of Ukraine, according to Reuters. South Korean Finance Minister Choo said they are to exempt taxes on income from Korean treasury bonds to attract foreign investment, according to Reuters. European bourses are firmer across the board in a continuation of and extension on the overnight risk tone, Euro Stoxx 50 +1.4%. Sectors are firmer across the board with the upside spearheaded by Basic Resources, Energy, and Banks – due to price action in underlying commodity prices, alongside yields. US futures are similarly bid, as we await further earnings with key names including Goldman Sachs on the docket. Delta (DAL) to buy 100 737 Max 10 Boeing (BA) craft, option for 30 additional craft. US chip firms are said to be mulling whether to oppose the CHIPS Act as it may disproportionately benefit Intel (INTC), according to Reuters sources   Top European News UK PM Johnson’s allies are stepping up their attacks against former Chancellor Sunak and accused him of going soft on Northern Ireland’s post-Brexit trade regime, according to FT. UK Foreign Secretary Truss signalled she would tighten ministerial scrutiny of the BoE if she becomes the next PM and accused the Bank of failing to tackle inflation, according to FT. A poll by JL Partners of more than 4,400 people found that 48% that backed the Tories in 2019 considered former Chancellor Sunak would be a good PM, while 39% thought the same of Foreign Secretary Truss and 33% thought the same of Trade Secretary Mordaunt, according to The Telegraph. ConservativeHome survey suggested Trade Secretary Mordaunt would lose in a head-to-head against former Chancellor Sunak (41% vs 43%) and against Foreign Secretary Truss (41% vs 48%), according to The Telegraph. UK Foreign Secretary Truss confirms she will not be attending Tuesday's (July 19th) Sky News leadership debate, via Huffington Post's Schofield; additionally, reports that former-Chancellor Sunak is pulling out of the debate. Italy’s League and Forza Italia parties said they can no longer govern with the 5-Star Movement which brings the government closer to collapsing ahead of a potential confidence vote on Wednesday, according to Politico. European Investment Bank said it will reduce road and infrastructure funding in line with its climate objectives, according to FT. Central Banks Fed officials signalled they are likely to increase rates by 75bps at the July meeting and noted that although policymakers left the door open for a 100bps increase, some have simultaneously poured cold water on the idea in recent interviews and comments, according to WSJ. RBNZ announced a new standing repurchase facility which will permit eligible counterparties to lend NZD through the standing repurchase facility from July 20th and will be remunerated at the OCR -15bps, while the RBNZ will deliver to counterparty nominal New Zealand government bonds as collateral in exchange for depositing NZD, according to Reuters. PBoC Governor Yi said China’s economy faces downward pressure due to COVID and external shocks, while he added that the central bank will increase the implementation of prudent monetary policy to provide stronger support for the real economy, according to a PBoC statement cited by Reuters. HKMA said they need to regulate decentralised finance platforms sooner rather than later, while RBA Governor Lowe commented that it is likely better for retail digital currency tokens to be issued by regulated private sector companies than central banks, according to Reuters. SNB intends to increase rates by at least 50bp (from the current -0.25%) at the September gathering, in the scenaro of further inflation upside a 75bp move could occur, according to sources via Schweiz am Wochenende. BoE's Saunders says he will not announce today how he will vote at the August meeting; believes that the tightening cycle has "some way to go", the cost of not tightening promptly enough would be relatively high at present. Czech central bank’s Dedek said it is appropriate today to use FX intervention to prevent the crown from weakening and the aim is not to strengthen the currency, while he added that they are far from the point they would start to feel reserves are getting dangerously low, according to Lidove Noviny. FX Sterling takes advantage of Buck’s demise even before hawkish commentary from BoE’s Saunders, Cable closer to 1.2000 than 1.1850, DXY nearer 107.000 than 108.00. Aussie underpinned by rebound in iron ore ahead of RBA minutes, AUD/USD approaching 0.6850 from sub-0.6800 overnight low. Euro probes 1.0150 vs Greenback ahead of Thursday’s ECB meeting and expected 25 bp hike. Loonie supported by recovery in WTI and BoC Governor Macklem flagging Canadian CPI on 8% handle next week, USD/CAD below 1.3000. Kiwi capped after stronger than forecast NZ inflation data as RBNZ announces standing repo for loans 15 bp below OCR to start on July 20th, NZD/USD hovering under 0.6200 and AUD/NZD cross above 1.1050. Franc lags irrespective of reporting suggesting SNB to hike at least half point again in September as weekly Swiss sight deposits at domestic bank increase, USD/CHF pivots 0.9750. Lira lurches further in wake of Turkish budget balance turning from surplus to deficit, USD/TRY testing 17.5000 offers and semi-psychological resistance. Commodities WTI and Brent have been moving higher with the broader risk tone and after the Biden-Saudi meeting with attention, for the complex, looking to the next OPEC+ gathering. Saudi Arabia’s Crown Prince MBS said adopting unrealistic policies toward energy sources will lead to inflation and he called on Iran to cooperate with the region, according to Reuters. Saudi's Crown Prince also said that they have an immediate capacity to increase production to 12mln bpd and with investments, production can go to 13mln bpd after which the kingdom will not have any additional capacity to increase production. Saudi Foreign Minister said that they listen to their partners and friends across the world especially consumer countries but added that at the end of the day, OPEC+ follows the market situation and will supply energy as needed, according to Bloomberg. US senior envoy for energy security Hochstein said he expects gas prices to decline further towards USD 4/gallon and is confident there will be a few more steps in the coming weeks from OPEC in terms of oil supply, according to Reuters. Energy Intel’s Bakr stated that we are in a situation where capacity is limited which is why the UAE and Saudi Arabia want to remain cautious about how and when it is used. Top German energy regulator said natgas inventories are nearly 65% full but not enough to get through the winter without Russian gas, according to Bild am Sonntag. Libya’s Oil Minister said Libya has resumed oil exports, according to Al Jazeera. It was also reported that the NOC said its board will not cooperate with any illegal dismissal decisions made by an outgoing administration. South Africa’s largest fuel producer Sasol declared a force majeure on the supply of petroleum products due to delays in deliveries of crude to the Natref refinery, while the outage means all refineries in the country are shut, according to Bloomberg. Iran set August Iranian light crude price to Asia at Oman/Dubai + USD 8.90/bbl, according to Reuters sources. Spot gold is bid as the USD pulls-bacl but is yet to breach USD 1725/oz in relatively limited European newsflow. Base metals bid after strong overnight performance. US Event Calendar 10:00: July NAHB Housing Market Index, est. 65, prior 67 16:00: May Total Net TIC Flows, prior $1.3b DB's Jim Reid concludes the overnight wrap It could be a record week here in the UK with temperatures possibly hitting 40 degrees for the first time ever today or tomorrow! While the warm weather has been pleasant of late, I can't wait until Wednesday when it cools down a bit. The coolest I was this weekend was going to a cinema on Saturday night with aircon to see Top Gun Maverick. However that was an incredibly stressful film. I'm not really a fan of action movies but that was edge of the seat stuff and very well done. Looking forward to the third part of the trilogy in 2058. Back to 2022, and with the Fed now on their FOMC blackout period and a lighter US week for data (ex-housing), Q2 US earnings and all things European will be at the forefront of market attention this week with the highlight being the ECB’s likely first rate hike since 2011 on Thursday. Gas flows from Russia after maintenance on the Nord Stream pipeline ends the same day will also be a big focus with the EU expected to detail energy contingency plans the day before. We’ll also get a decision from the BoJ on Thursday too. Global preliminary July PMIs for the US, Japan and key European economies will come out on Friday. Going through some of these themes in more detail now. The ECB meeting on Thursday will likely deliver a +25bps hike, the first rate increase since 2011. Our European economists preview the upcoming meeting here. Their updated call retains the 2% terminal rate forecast but the hiking cycle is expected to be split. The first phase has hikes of +25bp, +50bp, +50bp and +25bp in July, September, October and December. By end-2022, the deposit rate will be 1%, helping to balance inflation and growth risks before the anticipated recession forces a pause. The second phase in H1 2024 is now expected to have four +25bp hikes and push rates into moderately above neutral territory. The ECB’s decision comes as Europe is grappling with significant concerns about the energy supply, a euro that has reached parity against the dollar for the first time since 2002, and inflation at an all-time high of 8.6%. If that’s not enough, it also comes alongside a recent widening in peripheral sovereign bond spreads and an Italian government possibly on the brink of collapse. We should know more on Wednesday when Draghi addresses lawmakers in Rome, however things are escalating quickly. The Five Star Movement (the second largest in the coalition) effectively abstained in a confidence motion in the Senate, triggering the current crisis. This weekend the party have met and don’t seem to be dialling down the rhetoric with leader Conte blaming Draghi for the impasse. Meanwhile the centre-right block are saying the coalition pact has been broken and that they won't now rule in a coalition with Five Star. Probabilities of a snap election are certainly going up. With this unfolding, the details of the anti-fragmentation tool will be highly sought after at the ECB meeting and our economics team reviews the key features of the new tool - size, target, conditionality and sterilisation method - in the same preview note mentioned above. The ECB will also release its Euro area bank lending survey tomorrow and the Survey of Professional Forecasters on Friday. Another event that will keep investors on edge that day is the end of the Nord Stream pipeline’s scheduled maintenance period. Fears that Russia will keep the taps closed have roiled markets in recent weeks and the EU is expected to detail contingency plans on Wednesday. Although the NS1 maintenance period ends on Thursday, it’s possible that there will be ambiguity on supply for a while. Whatever Russia’s plans for supply through the autumn and winter, we may not fully see it in the next few days and weeks. Part of that might be politics and part of it may be operational as the turbine repair may take a while to be fully integrated, or at least that could be the claim. So we may get a few clues from Friday but it is unlikely we’ll know all the answers. See my one-sided devil’s advocate view in Thursday's CoTD here on why it’s not in Putin’s interest to completely cut off the supply of gas. Also on Thursday, the next policy decision from the BoJ will be due. Our chief Japan economist previews the meeting here. While he expects no change in the current monetary stance and forward guidance on policy rates, the BoJ's Outlook Report is expected to show a downgrade in its growth forecast for FY2022 and an increase in its inflation forecast. The national CPI print will be due the next day and our economist expects core inflation (ex. fresh food) to climb to 2.2% YoY (+2.1% in May) and core-core inflation (ex. fresh food and energy) to 0.9% (+0.8% in May). Small fry in a western context but relatively strong for Japan. Back to the data and US housing market indicators will be in focus this week, after the June CPI report showed the fastest monthly gains since 1986 for primary rents and 1990 for owners’ equivalent rent. In terms of data, we have July’s NAHB Housing Market Index (today), followed by June housing starts, building permits (tomorrow) and existing home sales (Wednesday). In European data, the UK will be in focus with June CPI, RPI, PPI and May’s house price index due on Wednesday, preceded by labour market data tomorrow. Also released tomorrow will be July’s consumer confidence for the Eurozone, followed by a similar gauge and June retail sales for the UK on Friday. In terms of earnings, after key US banks started reporting last week, we will get more insight into the state of the economy and consumer spending from Goldman Sachs, Bank of America (today) and American Express (Friday). Amid a mixed-bag performance for commodities in recent weeks, results from Halliburton (tomorrow), Baker Hughes (Wednesday), Schlumberger and NextEra (Friday) will be in focus. Earnings of consumer-oriented companies will be highly anticipated as well, including Johnson & Johnson (tomorrow), United Airlines, Tesla (Wednesday) and American Airlines (Thursday). In tech, key reporting corporates will include IBM (today), Netflix (tomorrow), ASML (Wednesday), SAP (Thursday) and Twitter (Friday). Other corporate earnings reports will feature Lockheed Martin (tomorrow), AT&T, Blackstone (Thursday) and Verizon (Friday). Asian equity markets are higher at start of the week after gains on Wall Street on Friday. As I type, the Hang Seng (+2.45%) is leading the way followed by the Kospi (+1.80%), Shanghai Composite (+1.49%) and the CSI (+1.00%). Elsewhere, markets in Japan are closed today for the Marine Day Holiday. Outside of Asia, stock futures in the DMs are pointing to additional gains with contracts on the S&P 500 (+0.43%), NASDAQ 100 (+0.75%) and DAX (+0.37%) all climbing. Early morning data showed that New Zealand’s consumer price index (+7.3% y/y) climbed to a 32-year high in the June 2022 quarter (v/s +7.1% expected) and speeding up from a +6.9% gain in the first quarter, mainly due to rising prices for construction and rentals for housing. Looking back on another wild week in markets now. The highlight was inflation. The US CPI report came out on Wednesday, where headline yoy inflation bumped up to 9.1%, its highest since 1981. Indeed, each of the headline/core/MoM/YoY measures surpassed expectations. The following day showed producers were also feeling the heat, with final demand PPI measures beating expectations, with the crucial health care component portending an increase in upcoming PCE prints, the Fed’s preferred inflation measure. The prints drove speculation the Fed would deliver a super-charged 100bp hike at the July meeting, but Fed officials threw water on that pricing at the end of the week, signaling a preference for a second consecutive 75bp hike. Nevertheless, the yield curve moved to its most inverted of the cycle, ending the week at -21.3bps, as expected Fed tightening was brought forward, and the resulting landing was expected to get that much harder. All told, 2yr yields increased +1.5bps (-1.2bps Friday) and 10yr yields fell -16.5bps (-4.4bps Friday). While stocks experienced a bump on the easier policy expectations (75 not 100) from Fed speakers at the end of the week, the S&P 500 climbing +1.92% Friday, the index fell the other four days and ended the week -0.93% lower. Tech underperformed with the NASDAQ falling -1.57%, staging a +1.79% recovery of its own on Friday. US earnings season kicked off, with major US financials disappointing, as major money center banks signaled they would likely need to optimise their balance sheets to increase capital ratios over the near-term. A realisation that had JPMorgan temporarily suspending share buybacks. Along with their own inflationary worries, Europe is also facing down political and energy crises. The attempted resignation of Prime Minister Draghi, and subsequent rejection by President Mattarella, injected yet more turmoil into European asset pricing. 10yr BTPs widened 19.4bps versus bunds (+6.5bps Friday), to 212bps, their widest levels since the ECB has floated a new anti-fragmentation tool. Heading into this week’s ECB meeting, pricing currently is at +29.0bps, a smidge higher than the week prior, so some chance the ECB will kick off the hiking cycle with a 50bp hike. 10yr bunds were 21.2bps lower (-4.5bps Friday), giving swirling risk on the continent. Speaking of European natural gas, prices managed to fall -8.23% (-8.84% Friday) following news that Canada would deliver the necessary turbine to restore gas flows from Russia back to the continent, but prices traded in a more than 20% range over the week, showing the anxiety that still dominates the situation. Elsewhere, brent crude fell below $100/bbl intraweek for the first time since mid-April, ultimately falling -5.50% on the week (+2.08% Friday) to $101.16/bbl as global growth fears grip markets. Tyler Durden Mon, 07/18/2022 - 08:24.....»»

Category: personnelSource: nytJul 18th, 2022

Futures Grind Higher With All Eyes On Red-Hot CPI

Futures Grind Higher With All Eyes On Red-Hot CPI After yesterday's last hour stock market puke prompted by a fake CPI "leak" that showed inflation rising more than double digits in June which sent spoos just over 3,800, US index futures advanced ahead of a report that will show inflation hitting a fresh four-decade high according to Bloomberg consensus which expects headline inflation to print 8.8%, ensuring another 75bps rate hike. Contracts on the S&P 500 rose 0.3% by 7:15 a.m. ET after the underlying gauge declined over the past three days. Nasdaq 100 futures were up 0.4% after the tech-heavy index shed 3% this week, reversing most of last week's gains. The dollar dropped from a 2 year high, bitcoin rose but held below $20,000 and WTI crude oil stabilized at about $96 a barrel after a tumble. Among notable pre-market movers, Twitter rose 1% after suing Elon Musk over his abandoned $44 billion takeover bid, accusing the billionaire of having buyer’s remorse after his fortune declined. Meanwhile, Atara Biotherapeutics tumbled 36% after the biotech firm gave an update on its multiple sclerosis therapy with Cowen strategists saying that the interim analysis of the ATA188 Phase 2 study was “inconclusive.” Here are other notable premarket movers: Stitch Fix (SFIX US) jumps 9.3% in premarket trading after J William Gurley, a board member and general partner at venture capital firm Benchmark, bought $5.43 million of shares in the company. Gurley’s purchase comes as the online personal-styling platform’s stock has fallen 73% this year. Atara Biotherapeutics (ATRA US) shares drop 41% in US premarket trading, after the biotech company gave an update on its multiple sclerosis therapy, with Cowen saying that the interim analysis of the Phase 2 study was “inconclusive” and Roth flagging potential “additional risks.” Humanigen (HGEN US) shares plummet as much as 76% in US premarket trading, after the biotech firm said that its Covid-19 drug trial didn’t achieve statistical significance on the primary endpoint, with Cantor Fitzgerald cutting its rating on Humanigen to neutral from overweight. Keep an eye on Apple (AAPL US) shares as Citi lowers its estimates for the company given cooling consumer spending trends amid macro woes and continued supply chain bottlenecks. Hannon Armstrong (HASI US) stocks could be active as analysts defended the climate-change investment firm after its shares slumped 19% on Tuesday. The losses followed a report from short seller Carson Block’s Muddy Waters Capital that criticized its accounting practices. Watch Alphabet (GOOGL US) stocks as Cowen trims 2022 Google Search and YouTube ad estimates, following checks that suggested that Search is seeing healthy demand but the business is decelerating, largely in line with expectations. US inflation is projected to have continued to heat up in June, hitting a fresh pandemic peak. The consumer price index probably increased 8.8% from a year earlier, marking the largest jump since 1981, as discussed some banks expected a slightly softer print although others sees headline CPI rising as much as 9.0%. The consumer-price reading will be a major decisive factor for the Fed in its upcoming meeting as it decides how much further it should tighten policy to tame soaring inflation. Its hawkish policy already stoked fears the economy is heading for a recession this year. “This is widely expected to be a really strong print,” Lauren Goodwin, economist and portfolio strategist at New York Life Investments, said on Bloomberg Television. “Even if it is not, I don’t think that changes the Fed’s perspective in a couple of weeks. We won’t have enough evidence that inflation is convincingly turning over.” Meanwhile, the International Monetary Fund cut its growth projections for the US economy and warned that a broad-based surge in inflation poses “systemic risks” to both the country and the global economy. Traders are also on tenterhooks for the latest corporate earnings getting underway this week and monitoring for a brewing energy crisis in Europe if Russia cuts off gas supplies in the fallout from its invasion of Ukraine. After today's CPI, investor focus will turn to the start of the earnings season, which kicks off tomorrow with major Wall Street banks. Meanwhile in Europe, the region’s benchmark Stoxx 600 Index fell 0.5% while the Euro Stoxx 50 slumped as much as 1.2% before roughly halving losses, amid deteriorating economic outlook. Shares of insurance companies and automakers led the drop.. FTSE 100 and FTSE MIB lag on the recovery. Autos, insurance and travel are the worst-performing sectors. Here are the biggest movers: Saipem shares tumble as much as 45%, extending Tuesday’s 49% slump, after only 70% of its EU2 billion rights offering was taken up by investors, signaling low confidence in the engineering company’s turnaround plan. Svenska Cellulosa falls as much as 4.1% and DS Smith declines 2.7% as Exane BNP downgrades its ratings on both, saying it anticipates a robust 2Q for packaging, but a correction in pulp prices. Bayer drops as much as 3% after a US appeals court reinstated a lawsuit by a Roundup herbicide user who claims the company failed to warn him of cancer risks. Galp Energia falls as much as 2.8% following its second-quarter production update, with analysts saying volumes were softer than anticipated. Vontobel declines as much as 6%, and EFG falls as much as 5.2% after Citi cut both to sell and kept a buy rating on Julius Baer, saying that it still sees good value in Swiss banks and prefers larger players to independents. Evonik falls as much as 3.9% after Barclays cut its rating to equal-weight, saying that it sees opportunities in Brenntag and Lanxess among European chemicals stocks. Orion gains as much as 7.9% after the pharmaceutical company raised its FY outlook after announcing it plans to work with MSD on developing and commercializing ODM-208, a drug for prostate cancer. Outokumpu gains as much as 6.5% after the stainless steel producer sold the majority of its Long Products business, a transaction which Jefferies and Morgan Stanley describe as positive. Hugo Boss rises as much as 3.1% as Jefferies says the company appears to be outperforming its luxury peers, and that expectations of continued growth, “comfortable” guidance and a successful rebrand are starting to move the market. Verallia gains as much as 3.3% after being initiated with a buy rating at Jefferies, which says the glass-packaging maker’s discount to peers is “unjustified.” Earlier in the session, Asian stocks advanced, led by the region’s technology shares. The MSCI Asia Pacific Index gained as much as 0.6%, halting a two-day slide that dragged the benchmark to the lowest level in two years on Tuesday. Tech names such as TSMC, JD.com and Meituan contributed the most to the rally. Information technology was the region’s best-performing sector as the Hang Seng Tech Index bounced back after its recent drops sent the measure into a technical correction.  Taiwan’s benchmark jumped nearly 3% as the government vowed to support the stock market for the first time since the early days of the pandemic. Equities posted moderate gains in South Korea and New Zealand after their central banks hiked interest rates by 50 basis points as expected. Thailand’s stock market was closed for a holiday.  “Central bankers, policy makers all over the world are gonna have to pick their spots on how much inflation they’re prepared to tolerate versus how much a growth downdraft they wanna create,” Ben Powell, chief APAC investment strategist at BlackRock Investment Institute, said in a Bloomberg TV interview. In addition to today's data on consumer prices to assess what the Federal Reserve will do next, traders are also monitoring corporate earnings results in Asia for signs of any impact from China’s lockdowns during the second quarter. Japanese stocks advanced as investors await US data that may show inflation hit a fresh four-decade high. The Topix index rose 0.3% to 1,888.85 at the 3pm close in Tokyo, while the Nikkei 225 advanced 0.5% to 26,478.77. Recruit Holdings Co. contributed the most to the Topix’s gain, increasing 2.9%. Out of 2,170 shares in the index, 1,400 rose and 633 fell, while 137 were unchanged. “Japanese stocks will have a hard time finding a sense of direction before the US CPI announcement,” said Mitsushige Akino a senior executive officer at Ichiyoshi Asset Management.  In FX, the Bloomberg Dollar Spot Index held near its highest level in more than two years and the greenback traded mixed against its Group-of-10 peers as traders awaited US inflation data later on Wednesday for clues on the Federal Reserve’s rate trajectory. JPY and SEK are the weakest performers in G-10 FX, CHF and AUD outperform. EUR/USD stalls again, declining 6 pips shy of parity before recovering slightly.  Money markets raised bets on the pace of BOE rate hikes after the UK economy grew faster than the median estimate in May to ease fears of a recession. UK GDP rose by a surprisingly robust 0.5% amid a surge in visits to doctors and holiday bookings, after an 0.2% decline in April, a figure that was revised higher. New Zealand’s dollar initially fell and then erased losses after the central bank raised interest rates by 50 basis points as economists forecast. The yen underperformed all its Group-of-10 peers amid expectations US CPI will be strong enough to keep wagers high for a continued aggressive rate-hike cycle by the Federal Reserve. Super-long sectors led drop in government bond yields after purchases by the Bank of Japan. In rates, the 10-year Treasury yield was little changed at 2.97% after falling two basis points on Tuesday. Cash TSYs are comparatively quiet ahead of today’s CPI release. German and UK curves bear-flatten, underperforming Treasuries. Peripheral spreads widen to Germany with 10y BTP/Bund back near 200bps.  Gilts and Bunds fell, underperforming Treasuries. Money markets raised bets on the pace of BOE rate hikes after the UK economy grew faster than the median estimate in May to ease fears of a recession. In commodities, crude futures advance. WTI drifts 1.1% higher to trade near $96.90. Most base metals trade in the green; LME lead rises 1.1%, outperforming peers. LME zinc lags, dropping 0.2%. Spot gold is little changed at $1,726/oz To the day ahead now, and data releases include the US CPI release for June, as well as UK monthly GDP for May and Euro Area industrial production for May. Otherwise from central banks, the Bank of Canada will be making their latest policy decision, and the Federal Reserve will release their Beige Book. Market Snapshot S&P 500 futures up 0.2% to 3,830.50 STOXX Europe 600 down 0.8% to 413.52 MXAP up 0.3% to 155.40 MXAPJ up 0.5% to 511.37 Nikkei up 0.5% to 26,478.77 Topix up 0.3% to 1,888.85 Hang Seng Index down 0.2% to 20,797.95 Shanghai Composite little changed at 3,284.29 Sensex down 0.5% to 53,636.37 Australia S&P/ASX 200 up 0.2% to 6,621.56 Kospi up 0.5% to 2,328.61 German 10Y yield little changed at 1.16% Euro little changed at $1.0038 Brent Futures up 1.1% to $100.63/bbl Gold spot up 0.0% to $1,726.85 U.S. Dollar Index little changed at 108.15 Top Overnight News from Bloomberg The planned reopening of a key Russian gas pipeline next week may be a bigger deal for the euro than the first interest-rate hike in a decade by the ECB. Both are set for July 21. While the ECB’s plans to start lifting rates have been well flagged and hence priced in by markets, there’s more doubt over whether Russia will actually restore gas flows to Europe after maintenance on the Nord Stream 1 pipeline is completed China will take advantage of the market-based adjustment mechanism of deposit rates and guide financial institutions to transmit the effect of falling deposit rates to their borrowers as part of efforts to lower real lending rates, Zou Lan, head of PBOC’s monetary policy department, says at a briefing The ECB is watching the euro-dollar exchange rate as recent lows can further stoke already record inflation, according to Governing Council member Francois Villeroy De Galhau A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly positive as the region shrugged off the weak lead from Wall St but with upside capped amid central bank rate hikes and ahead of upcoming key risk events including Chinese trade and US CPI data. ASX 200 traded indecisively as strength in tech was offset by losses in energy after the recent slump in oil prices. Nikkei 225 was underpinned by a weaker currency but with gains limited after a ramp-up in Tokyo COVID cases. Hang Seng and Shanghai Comp. gained but with the mainland choppy ahead of Chinese trade data, while Hong Kong tech stocks were bolstered after China approved 67 domestic games in July. Top Asian News China's Customs said foreign trade is expected to achieve stable growth and that trade growth in May and June reversed the declining trend, but noted that foreign trade faces instabilities and uncertain factors, according to Reuters. "Lanzhou in NW China's Gansu Province has sealed off its 4 districts for 7 days to curb the latest COVID19 flare-up which started from last Friday and has led to 143 infections as of 10 am on Wed", according to Global Times. European bourses are pressured and towards the mid-point of the morning's parameters as we await US inflation data, Euro Stoxx 50 -0.6%.  Sectors, are predominently in the red with defensively-inclined names lagging though Energy outperforms and is green amid benchmark action. Stateside, futures are modestly firmer but have been choppy with pre-CPI positioning underway; ES +0.2%. Alphabet (GOOGL) said, on July 12th, that due to the hiring progress already attained, will slow the hiring process for remainder of year, via Reuters; like all Cos, not immune to economic headwinds. Kroger (KR) is launching an annual membership, provides unlimited free deliveries on orders over USD 35 and fuel discounts of up-to USD 1/gallon alongside other savings. Top European News UK lawmakers are to push ahead with legislation to tear up the post-Brexit trade deal today, according to FT. Network Rail offered workers at two unions pay hikes in a bid to avert further crippling strikes, according to FT. Italy's Salvini says the League Party is not willing to remain in the government if the 5-Star Party quits, adding that if 5-Star does not back a Thursday confidence vote, Italy should call snap elections. Subsequently, Democratic Party is unwilling to form new governments without the 5-Star Party, according to a party source cited by Reuters. Geopolitical China's military said it monitored and drove away a US destroyer which entered the South China Sea Paracel Islands, while it added that the actions of the US military seriously violated China's sovereignty and security. Furthermore, the US military stated that USS Benfold asserted navigational rights and freedoms near the Paracel Islands consistent with international law, according to Reuters. US Navy says the Ronald Reagan Carrier Strike Group is operating in the South China Sea. Venezuela detained at least three Americans earlier this year accused of attempting to enter the country illegally, according to sources cited by Reuters. Iran Foreign Ministry spokesperson says results of the negotiations with Saudi Arabia have been promising, sides have an interest to continue talks. Subsequently, Iran President Raisi says it will not retreat from its 'rightful' stance in talks to revive the 2015 JCPOA, state TV reported. Central Banks RBNZ hiked the OCR by 50bps to 2.50%, as expected, and said it remains appropriate to continue to tighten policy, while it will tighten conditions at a pace to maintain price stability and support maximum sustainable employment. RBNZ added the Committee is resolute in its commitment to ensuring price inflation returns to the 1%-3% target range and it agreed to lift the OCR to a level where it is confident consumer price inflation will settle within the target range but added that once aggregate supply and demand are more balanced, the OCR can return to a lower and more neutral level. Furthermore, the Committee agreed to maintain the approach of briskly lifting the OCR and remained comfortable with the projected path of the OCR it outlined in May, as well as noted that there are near-term upside risks to consumer prices and also medium-term downside risks to economic activity. BoK raised its Base Rate by 50bps to 2.25%, as expected, with the decision made unanimously. BoK stated that South Korea's 2022 growth will moderate further from an earlier projection and inflation will remain high for some time, as well as noted that inflation will surpass the May forecast for the entire of 2022 and that core inflation is to be higher than 4% for a considerable period. Furthermore, BoK Governor Rhee said more policy tightening of 25bps looks appropriate going forward should current inflation continue for the time being and that it is reasonable to expect rates at 2.75%-3.00% by year-end. ECB's Villeroy says it is not the EUR that is weak but the USD that is strong. FX Greenback grinds higher ahead of US inflation data, but remains restrained, DXY back above 108.000 within 108.020-390 range. Aussie regroups alongside base metals and awaits labour report for further impetus; AUD/USD approaching 0.6800 vs sub-0.6750 low. Franc forges safe-haven gains vs Dollar and Euro, USD/CHF below 0.9800 and EUR/CHF under 0.9850. Kiwi somewhat deflated after RBNZ maintained half-point tightening pace, guidance and OCR path, NZD/USD capped into 0.6150. Sterling underpinned by above-forecast UK data and remarks from BoE Governor Bailey leaning towards bigger than 25bp hike, Cable straddling 1.1900 and EUR/GBP pivoting 100 and 200 DMAs. Loonie looking for a BoC boost via 75bp rate increase and hawkish guidance, USD/CAD towards the low end of 1.3050-00 band with 1.57bln option expiries rolling off at the round number. Yen undermined by firmer US Treasury yields pre-CPI and post-weak 10-year note the auction, USD/JPY rebounds through 137.00 again. Yuan pares some losses after China’s trade surplus tops consensus and PBoC pledges to up support for real economy; USD/CNH and USD/CNY testing bids and support on either side of 6.7200. Fixed Income Debt fades from early EU highs irrespective of risk-off sentiment as clock ticks down to key US CPI data. Bunds pull up just ahead of 153.00, Gilts into 116.00 and T-note shy of 119-00. Italian and German supply relatively well received, but impending long bond refunding comes hot on the heels of tepid demand for 10 year issuance. Commodities Crude benchmarks are bid after a concerted pick-up in the European morning that occurred without any obvious fresh fundamental driver. US Private Inventory Data (bbls): Crude +4.7mln (exp. -0.2mln), Gasoline +2.9mln (exp. -0.4mln), Distillates +3.2mln (exp. +1.6mln), Cushing +0.3mln. Libya's Government of National Unity decided to replace the NOC chairman and board, according to a government source. NOC later announced the lifting of the force majeure on exports from the Brega and Zueitina oil terminals, while it added that negotiations were conducted to allow exports from Es Sider port and resume output at the Al Waha and Mellita fields, according to Reuters. Eni (ENI IM) Chair says Italy will be able to replace 50% of Russian gas flows with other sources this winter, and 80% next winter, via Reuters citing a paper. Hungary Foreign Minister says it could purchase up to 700 MCM of gas on the market ahead of the heating season, in addition to long-term supply deal with Russia. IEA OMR: 2023 demand 101.3mln BPD, +2.1mln BPD; led by strong growth in non-OECD countries. 2022 demand cut by 200k BPD, seeing a rise of 1.7mln to 99.2mln BPD Spot gold is modestly firmer managing to capitalise on the session’s bout of USD easing, LME Copper has benefited from the generally constructive APAC tone though participants will remain cognisant of and cautious around the China-COVID situation. US Event Calendar 07:00: July MBA Mortgage Applications -1.7%, prior -5.4% 08:30: June CPI YoY, est. 8.8%, prior 8.6%; MoM, est. 1.1%, prior 1.0% 08:30: June CPI Ex Food and Energy YoY, est. 5.7%, prior 6.0%; MoM, est. 0.5%, prior 0.6% 08:30: June Real Avg Hourly Earning YoY, prior -3.0%, revised -2.9% 08:30: June Real Avg Weekly Earnings YoY, prior -3.9%, revised -4.0% 14:00: U.S. Federal Reserve Releases Beige Book 14:00: June Monthly Budget Statement, est. -$75b, prior -$174.2b DB's Jim Reid concludes the overnight wrap I’m supposed to be off for the next three days with the family but given how busy things are I’m delaying two of the days until August. However I can’t escape a Theme Park outing tomorrow so I’m still doing that. I hate Theme Parks and rollercoasters with a passion. Readers might remember the last time I went I had an argument with someone who pushed in with his whole family in the queue ahead of me. I was most disgruntled at the end of a long day and vowed never to return. However my kids love them. If it were up to me my preferences would dominate and we wouldn’t go but unfortunately my selfless wife puts our kids first. Probably a good thing!! I’ll be here now for the all important US CPI today but I’ll miss the ceremonial start of earnings season tomorrow with this week seeing a small selection of major US financials and consumer packaged goods companies reporting. My colleague Binky has just released his full preview, available here. He expects earnings to beat in the low single digits percentage region, below the long-run historical average of 5%. Earnings are likely to be 3.1% qoq along with downward revisions to forward estimates. Heading into earnings season, estimates have been revised lower for every sector but energy, which has experienced upgrades. Using a bottom-up approach, yoy EPS growth will come in at 5.7%. Heading into CPI and earnings, after markets had climbed a wall of worry since mid-June, they seem to be losing a bit of footing again over the last few days as fears of a recession dominate again, alongside fears of aggressive rate hikes by central banks, rising Covid cases in China and the prospect of Russia cutting off Europe’s gas. This gloomy backdrop saw the S&P 500 (-0.92%) lose ground for a 3rd day running, whilst those fears of weakening demand sent Brent crude oil prices back beneath $100/bbl and also led to day two of a new fresh sizeable rally in sovereign bonds. Oil is little changed in Asia trade with Brent and WTI futures almost flat at $99.76/bbl and $95.99/bbl respectively as we go to press. However, today’s main focus will almost certainly be on the US CPI release for June, which will set the stage for the Fed’s next decision in just two weeks’ time. Remember that it was last month’s much stronger-than-expected report that sparked a tumultuous market reaction that culminated in the Fed moving by 75bps at a single meeting for the first time since 1994, having previously only signalled a 50bps move. So any further surprises today could have a big impact. In terms of what to expect, our US economists are looking for an above-consensus monthly reading for both headline CPI (+1.3%) and core CPI (+0.6%), which in turn would take the year-on-year headline CPI up to its highest level since 1981, at +9.0%. Although we’re expecting another strong inflation print today, ahead of that release there were actually growing signs of respite on the inflation front thanks to further losses amongst a number of key commodities. Brent Crude (-7.11%) and WTI (-7.93%) oil prices saw substantial losses, copper prices (-4.10%) hit a 19-month low and gold (-0.46%) hit a 9-month low. Indeed, the only major exception to that pattern was the usual suspect of European natural gas (+4.92%) which just about reversed the previous day’s decline following cuts to Norwegian capacity. Our research colleagues in Frankfurt published a detailed note yesterday on the gas supply issue (link here), where they run through 3 scenarios of how things might evolve, including what happens if Russia completely turns off the gas taps to Germany after the maintenance period that would involve gas being rationed during the winter months. Although many will welcome the decline in those commodities mentioned above, the bad news is that the reason they’re declining is because of recession fears, and yesterday saw a number of additional recessionary indicators flash with growing alarm. One in particular is the 2s10s curve, which has inverted before every one of the last 10 US recessions, and remains near its most inverted of this cycle so far at -8.5bps after dipping below -12bps intraday. We would stress that while we are the yield curve’s biggest fan, it usually takes a minimum of three quarters from inversion to recession so we still think it may take a bit of time from the first inversion in March to confirm the almost inevitable recession. For the 1s10s and the 2s5s curve, it was much the same story of being the most inverted so far this cycle, and the 3m10s curve reached its flattest since November 2020. And whilst the Fed have told us to focus on their preferred near-term forward spread (18m3m minus 3m), even that closed beneath 100bps for the first time so far this year at 94bps (from a peak of 270bps in early April), so these measures are all trending in the wrong direction from a recessionary standpoint. In terms of the absolute yield moves, the risk-off tone saw them move lower on both sides of the Atlantic. 10yr Treasury yields fell -2.4bps to 2.97% albeit having being as much as -9.6bps lower intraday. There was a discrete bounce in longer-dated Treasury yields following the 2bp tail in the 10yr auction. Yields are fairly stable in Asian trading. Meanwhile in Europe, those on 10yr bunds (-11.3bps), OATs (-12.8bps) and BTPs (-9.8bps) all fell back too, as concerns about the economic situation led investors to price in a less aggressive pace of monetary tightening over the coming months, particularly from the ECB. That also meant that the Euro itself moved ever closer to parity against the US Dollar yesterday, and you had to look to 5 decimal places to see that it just avoided that milestone, with an intraday low of $1.00003 during the European morning, ending the day just a hair lower versus the dollar, down -0.03% at $1.0037. European equities staged a modest comeback from Monday’s selloff, while US equities ended lower after flirting with gains all day. The STOXX 600 gained +0.49%, with the DAX performing a touch better at +0.57%, bringing the STOXX 600 to just under flat for the week, while the DAX is still -0.84% lower on the week. The S&P 500 fell -0.92%, after trading near unchanged most of the day. Theories abounded for the late turnaround. Underlying market technicals pointed to potential algorithmic selling programs, whilst rumours spread in some circles that the CPI report was leaked and revealed a +10% print. Officials disabused us of the latter, but it nevertheless speaks to the heightened anxiety markets are trading with around inflationary data. In terms of the breakdown, energy shares (-2.03%) were the clear underperformer, but a wide-breadth of shares took a dip lower in the afternoon, sending the NASDAQ (-0.95%), FANG+ (-1.01%), and Russell 2000 (-0.22%) all lower on the day. So no clear macro driver for equities yesterday, but again, today’s CPI will be instructive about the near-term path. Overnight in Asia equity markets are trading higher after recent losses. As I type, the Hang Seng (+0.81%) is leading gains across the region with the Kospi (+0.71%), Shanghai Composite (+0.36%), CSI (+0.26%), and the Nikkei (+0.33%) all trading up. Looking ahead, equity futures in the US point to a steady start with contracts on the S&P 500 (+0.14%) and NASDAQ 100 (+0.21%) moving higher. Moving on to monetary policy action, the Bank of Korea (BOK) increased rates by 50bps, bringing the benchmark rate to 2.25% in order to help pullback inflation from a 24-yr high of 6%. The unprecedented rate hike size comes even as the central bank forecasts the country’s growth rate to lag “below the May forecast of 2.7%. Elsewhere, the Reserve Bank of New Zealand (RBNZ) in an expected move also increased its official cash rate (OCR) by 50bps for a third straight meeting to 2.5%. Staying in Asia, another risk that’s been in a few headlines again is Covid. Partly this is because of the ongoing situation in China, where a steady stream of cases have been reported over recent days. But in addition to that, the US is considering whether to expand the recommendation of the second booster to all adults in light of the BA.5 omicron variant’s spread, and White House coronavirus coordinator Ashish Jha said that these discussions “have been going on for a while”. Of particular concern to officials, the BA.5 seems to evade immunity provided from prior infections. Here in the UK, it’ll be another eventful day on the political scene as the first ballot of MPs takes place in the Conservative leadership election, which will also decide the next Prime Minister. 8 candidates will be on today’s ballot, and former Chancellor of the Exchequer Rishi Sunak is currently leading when it comes to MP’s endorsements, with yesterday seeing him gain that of Deputy PM Dominic Raab, among others. Candidates will need the support of at least 30 MPs today to progress onto the next ballot that takes place tomorrow. There wasn’t much data yesterday, but the releases we did get only added to negative sentiment. First the German ZEW survey saw the expectations reading fall to its lowest level since the sovereign debt crisis at -53.8 (vs. -40.5 expected), whilst the current situation reading fell to -45.8 (vs. -34.5 expected). Separately, the NFIB’s small business optimism index from the US fell to 89.5 (vs. 92.5 expected). To the day ahead now, and data releases include the US CPI release for June, as well as UK monthly GDP for May and Euro Area industrial production for May. Otherwise from central banks, the Bank of Canada will be making their latest policy decision, and the Federal Reserve will release their Beige Book. Tyler Durden Wed, 07/13/2022 - 07:57.....»»

Category: worldSource: nytJul 13th, 2022

Futures Flat As Traders Brace For Latest FOMC Minutes

Futures Flat As Traders Brace For Latest FOMC Minutes After yesterday's remarkable U-turn in US stocks which tumbled at the open only to recover all losses by EOD (except the energy sector which suffered a furious rout), overnight futures traded subdued, fluctuating between gains and losses ahead of today's FOMC minutes as traders debate whether the coming recession is good news (more stimulus from the Fed) or bad news (stagflationary, tying the Fed's hands). S&P futures were down 0.1% last, having traded on both sides of the unchanged line for much of the past 12 hours while Europe’s Stoxx 600 was much more excited and climbed the most since June 24. The two- and 10-year US yield curve remained inverted as investors awaited the minutes of the Federal Reserve’s last meeting; the 10-year Treasury yield held steady around 2.81%. The dollar rose for a fourth day as the Euro tumbled while bitcoin traded at $20,000. In China, Shanghai launched mass testing for Covid in nine districts after detecting cases the past two days, fueling concerns that the financial hub may once again find itself locked down in pursuit of Covid Zero. The Shanghai Composite Index slid the most since May 24. In thin premarket trading, bank stocks were lower as investors await the release of the Federal Reserve’s meeting minutes. In corporate news, crypto broker Voyager Digital filed for Chapter 11 bankruptcy protection. Meanwhile, HSBC is in talks to sell its Russia unit to local lender Expobank, according to people familiar with the matter. Stocks related to cryptocurrencies fell in US premarket trading as Bitcoin fell amid mounting concerns of a global recession. Here are some of the most notable premarket movers: Kornit (KRNT US) shares plunged 23% in US premarket trading after the inkjet printer manufacturer issued disappointing preliminary second-quarter results. Stifel cut its recommendation to hold from buy. Chip and chip equipment stocks could be active on Wednesday after Bloomberg reported that the US is pushing the Netherlands to ban ASML from selling some chipmaking tools to China. Watch shares including Applied Materials (AMAT US), Lam Research (LRCX US) and KLA (KLAC US), as well as Nvidia (NVDA US), Qualcomm (QCOM US), Intel (INTC US), Advanced Micro Devices (AMD US) Stocks related to cryptocurrencies decline as Bitcoin drop amid mounting concerns of a global recession. Riot Blockchain (RIOT US) -4.2%, Coinbase (COIN US) -3.3%, Ebang (EBON US) -5.5%, Marathon Digital (MARA US) -1.8%, BitNile -5.2% (NILE US) Shopify (SHOP US) shares slide 0.9% as The Globe and Mail reports, citing people familiar, that the company is delaying a compensation overhaul that would give its employees flexibility on how their salary is paid in stock and cash. Cazoo (CZOO US) and Carvana (CVNA US) fall as Davy cuts earnings estimates and price targets for online auto stocks, citing inflation, higher interest rates and weakening consumer sentiment as threats to operational execution. RADA Electronic Industries (RADA US) sinks 11%, after the Israeli defense firm said that it’s withdrawing its full-year 2022 revenue guidance in light of its pending merger with Leonardo DRS. Watch cybersecurity companies like Palo Alto Networks (PANW US), CrowdStrike Holdings (CRWD US) and Okta (OKTA US) as Morgan Stanley analysts said they expect durable security spending environment in the second half of 2022 against an uncertain macro backdrop. With energy names plunging on expectations of a recession, bargain hunters chased technology stocks boosting US equity indexes on Tuesday, helping mask a deepening slump in stocks linked to economic activity, such as energy, commodity and industrial names. A renewed spike in China’s Covid cases and a worsening gas crisis in Europe signaled that a worldwide slowdown is coming even as central banks tighten monetary policy to contain consumer prices. “Markets are caught between two opposing forces and that’s the place we are going to be in for the next few months,” Diana Amoa, chief investment officer for long-biased strategies at Kirkoswald Asset Management, said on Bloomberg Television. “We go from trading lower growth to trading high inflation.” Today's 2 p.m. release of the June FOMC minutes will provide one of the session highlights. European stocks gave back over half of their opening gains with the Euro Stoxx 50 up 1.25% as of 7:30 a.m. ET having added as much as 2.3% in early trade, clawing back roughly half of Tuesday’s sharp losses. CAC 40 and FTSE 100 outperform. Retail, tech and media names are the best performers among broad-based sectoral gains within the Stoxx 600. European semiconductor stocks bounced back on Wednesday, following heavy selling in the past three sessions spurred by concerns over cooling chip demand. ASML shares rise 3.2% as of 9:39am CET, halting a seven-day losing streak, despite news that the US is pushing the Netherlands to stop the chip tool maker from selling deep ultraviolet lithography systems to China. Banks remain the only European industry group in the red on Wednesday, with the Stoxx 600 Bank Index. Here are the most notable European movers: Just Eat Takeaway shares surge over 20% after the meal delivery firm struck a deal with Amazon for the e-commerce giant to take up to a 15% stake in its US unit Grubhub. Abrdn shares jump as much as 8.8% after the UK asset management firm said it will commence a return of £300m through the repurchase of its shares, with a first phase of up to £150m being undertaken by Goldman Sachs, according to a filing. Atos shares climb as much as 8.1% after a filing shows Bank of America holding a 7.77% stake in the French tech services company. Meanwhile, governance remains in focus amid a fresh news report of shareholder unrest. Airlines rise on Wednesday amid a rebound in the broader European market. Ryanair shares rally as much as 5.1%, EasyJet +4.2%, Wizz Air +4.5%. Shop Apotheke shares gain as much as 13% after jumping 12% yesterday when the online pharmacy reported preliminary 2Q results. Baader notes that e-scripts will be mandatory in all German states by January 2023, further pushing the company’s sales prospects in the country. Trainline stock surges as much as 24% as its new FY23 guidance implies a 27% upgrade to consensus, Morgan Stanley writes in note following trading update. Fresnillo stocks fall as much as 4.2%, while Endeavour rises as much as 4% after Credit Suisse starts coverage of the former with an underperform recommendation and initiates UK-listed shares of the latter at outperform. TotalEnergies and Engie fall in Paris, underperforming peers, as President Emmanuel Macron comes under increasing pressure to introduce a windfall tax on energy and transport giants to fund his bill aimed at protecting consumer purchasing power. Adidas shares fall as much as 5.4% after Hauck & Aufhaeuser double downgrades to sell from buy, also setting a Street low price target for the sports-apparel maker, whose FY22 targets are likely at risk due to a 2Q margin squeeze. Earlier in the session, Asian stocks slipped as fears of a global economic recession and fresh Covid-19 outbreaks in China weighed on sentiment. The MSCI Asia Pacific Index fell as much as 1.3%, led by energy-related shares as oil traded below $100 per barrel, while investors snapped up defensive shares. Stocks in China declined as Shanghai ramped up mass testing in nine districts after detecting cases the past two days, fueling concerns that the financial hub may once again find itself locked down in pursuit of Covid Zero. The Shanghai Composite Index slid the most since May 24. Benchmarks in the tech-heavy markets of Taiwan and South Korea also dropped. In China, Shanghai launched mass testing for Covid The fall in Asia shares came despite US stocks recouping most of their losses in a volatile session overnight. Traders are turning their attention to the minutes of the most-recent Federal Reserve meeting, which will be released later today, for a sense of policy makers’ debate about the near-term path for interest rates.   Asian equities have been stuck in range-bound trading in recent months as investors weigh higher interest rates and the prospect of an economic downturn driven by elevated inflation. Still, narratives of peak inflation are building up as the Fed ramps up its policy-tightening campaign. It’s “much too early, in our view, to think that inflation trades are over,” Frank Benzimra, head of Asia equity strategy at Societe Generale, said in a Bloomberg TV interview. For emerging-market assets, “you also have some valuation buffer, some levels of yields which are becoming interesting. So this is where we are seeing that we may be close to the peak of pain.” Equity measures in the Philippines and New Zealand bucked the regional trend to each rise more than 1.6%. Japanese stocks declined as oil tumbled and concerns of a global economic downturn damped sentiment.  The Topix Index fell 1.2% to 1,855.97 at the market close in Tokyo, while the Nikkei 225 declined 1.2% to 26,107.65. Toyota Motor Corp. contributed the most to the Topix’s loss, decreasing 2.8%. Out of 2,170 shares in the index, 572 rose and 1,520 fell, while 78 were unchanged. “Japanese stocks are seen as representative of the global cyclical economy, so when concerns about recession appear, not only in the US but globally as well, stocks overall are likely to be sold off,” said Yasuhiko Hirakawa, head of an investment department at Rakuten Investment Management.  Oil Steadies Above $100 After Plunging on Recession Concerns Key equity gauges in India rallied as commodity prices eased while a recovery in monsoon rainfall buoyed sentiment. The S&P BSE Sensex Index rose 1.2% to 53,750.97 in Mumbai, while the NSE Nifty 50 Index advanced 1.1%. Hindustan Unilever was the biggest boost to the Sensex, increasing 4%. Out of 30 shares in the index, 25 rose and five fell. Seventeen of the 19 sectoral indexes compiled by BSE Ltd. gained, led by automobile and consumer goods companies. Asia’s biggest software exporter Tata Consultancy Services will kickoff the April-June earnings season for companies on Friday. Australia's S&P/ASX 200 index fell 0.5% to close at 6,594.50, as fears of a global economic recession as well as tumbling commodity prices hit market sentiment.  The benchmark was dragged by a group of mining shares that fell to the lowest level since Nov. 2, and energy stocks that fell the most in over two years. In New Zealand, the S&P/NZX 50 index rose 1.6% to 11,141.07 Fixed income was comparatively quiet. Bunds and USTs bear-steepened as 2y Bunds outperformed. Treasuries are flat in early US trading Wednesday with front end underperforming, pushing 2s10s yield curve into deeper inversion. Yields are mostly lower led by 2-year, at 2.82%; the 10Y yield was trading just south of 2.80% last; 5- to 30-year yields hold increases of less than 2bp after touching lowest levels since late May on Tuesday amid a slump in commodity prices led by oil. 2s10s curve inverted as much as 3.6bp; maximum inversion this year was 9.5bp on April 4, reached as futures markets began to price in bigger Fed rate increases in response to persistently high inflation readings, pushing 2- year yields higher. Latest inversion, by contrast, occurred as 10- year yield declined more than 2-year, with expectations for Fed rate path in broad decline on economic-slowdown concerns. UK Gilts bear-flattened, erasing an initial decline after comments from BOE’s Pill. Peripheral spreads are marginally wider to Germany. In FX, Bloomberg dollar spot index rises 0.2%. JPY is the strongest in G-10, trading near 135.30/USD. EUR sits at the bottom of the scoreboard with EUR/USD trading through Tuesday’s lows. In commodities, crude futures drift off Asia’s best levels. WTI slips below $100, Brent trades on a $104 handle, with Goldman Sachs arguing that a plunge driven by fears a recession will hurt demand was overdone. Today’s gains were small compared to Brent’s decline of more than $10 on Tuesday, its third largest ever in dollar terms. Investors have been pricing in the consequences of a slowdown even as physical crude markets continue to show signs of vigor and the war in Ukraine drags on. Copper dropped as fears of a global economic slowdown piled pressure on industrial metals.. Spot gold holds a narrow range near $1,765/oz. Base metals are mixed; LME tin falls 1.5% while LME lead gains 1.7%. Looking to the day ahead now, today's 2 p.m. release of the June FOMC minutes will provide one of the session highlights. Prior to that, economic data will include the weekly MBA Mortgage Applications release at 7 a.m., the final June Services PMI data at 9:45 a.m. and June's ISM Services Index and the May JOLTS Job Openings at 10 a.m. Elsewhere on the central bank front, the Riksbank's Cecilia Skingsley and BOE's Jon Cunliffe will speak on central bank digital currencies. Fed's John Williams is scheduled to deliver comments at a virtual event on banking culture at 9 a.m. Otherwise from central banks, we’ll get the minutes from the June FOMC meeting, and also hear from the Fed’s Williams, the ECB’s Rehn and the BoE’s Cunliffe and Pill. Market Snapshot S&P 500 futures down 0.2% to 3,825.75 MXAP down 0.8% to 156.29 MXAPJ down 0.9% to 516.65 Nikkei down 1.2% to 26,107.65 Topix down 1.2% to 1,855.97 Hang Seng Index down 1.2% to 21,586.66 Shanghai Composite down 1.4% to 3,355.35 Sensex up 0.8% to 53,570.29 Australia S&P/ASX 200 down 0.5% to 6,594.48 Kospi down 2.1% to 2,292.01 STOXX Europe 600 up 1.4% to 406.26 German 10Y yield little changed at 1.24% Euro little changed at $1.0259 Brent Futures up 1.3% to $104.15/bbl Gold spot up 0.2% to $1,769.16 U.S. Dollar Index little changed at 106.46 Top Overnight News from Bloomberg With the European economy lurching toward a recession, traders are growing more convinced that the euro breaking parity with the dollar is imminent “If the fragmentation in bond markets is unwarranted then we should be as unlimited as possible,” European Central Bank Governing Council member Pierre Wunsch tells the Financial Times. “The case to act is strong when faced with unwarranted fragmentation” German factory orders unexpectedly rose in May, even as global momentum was affected by rampant inflation and uncertainty stoked by Russia’s war in Ukraine. Demand increased 0.1% compared to the previous month, compared to an economist estimate of -0.5% Britain’s new Chancellor of the Exchequer, Nadhim Zahawi, signaled he wants to cut taxes faster than his predecessor Rishi Sunak, as he set out plans to boost the UK’s struggling economy British Prime Minister Boris Johnson is on red alert for signs of a coordinated plot from his ministers to bring him down, according to a senior government official China’s central bank looks set to withdraw cash from its financial system in a sign that it’s moving toward normalizing monetary policy as major global peers are forcefully raising interest rates A combination of the recent bond rebound and the spiraling cost to hedge the volatile yen has wiped out the yield premium a Japanese investor once enjoyed from US debt. The yen-hedged yield on 10-year Treasuries collapsed to 0.24% Tuesday from almost 1.7% in April, just above the 0.22% yield on comparable Japanese debt Emerging-market currencies are tumbling as the twin threats of rising US interest rates and a global recession send traders scurrying to the safety of the dollar. The MSCI Emerging Markets Currency Index dropped for a second day, extending this year’s slide to 4.4%, heading for the steepest annual drop since 2015 A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mostly negative with risk appetite sapped by headwinds from the global growth concerns and US recession fears. ASX 200 was marginally lower with energy leading the descent in the commodity-related sectors, although the downside in the index was stemmed by tech strength following the duration-sensitive bias stateside and lower yield environment. Nikkei 225 weakened alongside a firmer currency and with Japan said to delay the call on the start of the nationwide travel support.Hang Seng and Shanghai Comp. conformed to the downbeat mood after the PBoC continued to drain liquidity and with reports noting that US President Biden could lift tariffs on just USD 10bln of Chinese goods, while the US was also said to pressure ASML to stop selling key chipmaking equipment to China. In addition, COVID-19 concerns persisted after China’s Xi’an city entered a 7-day period of ‘temporary control measures’ and with Macau officials locking down the Grand Lisboa hotel and casino due to a cluster of infections. Top Asian News PBoC injected CNY 3bln via 7-day reverse repos with the rate at 2.10% for a CNY 97bln net drain. Shanghai suspended the operation of KTV venues due to COVID-19 but other entertainment venues can remain open, while the gradual reopening of cinemas and concert venues will go ahead from July 8th, according to Reuters. US top diplomat for East Asia Kritenbrink said the top priority for US Secretary of State Blinken's meeting with Chinese Foreign Minister Wang is to underscore US commitment to diplomacy and maintaining open lines of communication, while he expects Blinken to raise human rights in the meeting with China's Foreign Minister, according to Reuters. Two US senators called for the FTC to investigate TikTok after the disclosure about Chinese access to US data, according to Reuters. Chinese Capital Beijing will resume direct international flights in an orderly way, via Reuters. ‘Bad for EM’: Why Funds Are Furiously Selling Risky Currencies SenseTime Plunge Raises Stakes for Slew of China Lockups Lifts Goldman Sachs Sees Kotak Mahindra Bank to Double Market Value Singapore’s Price for Right to Buy a Car Hits All- Time High European bourses are firmer across the board, Euro Stoxx 50 +1.3%, continuing to take impetus from the NDX-led rebound in US hours on Tuesday and shrugging off negative APAC trade. Stateside, futures are mixed/flat at present, but like their European peers have been choppy in overnight ranges awaiting US data and Fed speak; ES -0.1%. Back to Europe, sectors exhibit a pro-cyclical bias that features Tech as the clear outperformer. China's CPCA says prelim figures show China sold 1.926mln cars in June, +22% Y/Y. Prelim. figures indicate Tesla (TSLA) sold 78k (prev. 32.1k MM) China-made vehicles in June, via Reuters. Top European News Latest British Political Drama Proves ‘Sideshow’ for Investors French Rail Strike Adds to European Summer Travel Havoc Russia Slams Macron for Breaching Diplomatic Confidentiality Bulgaria’s Gerb Holds Narrow Lead Over Ruling PP Party: Poll BOE Chief Economist Says Fighting UK Inflation Is Priority Italy Five Star Party is leaning on keeping support for PM Draghi, according to ANSA. Central Banks ECB's Wunsch said If the fragmentation in bond markets is unwarranted then we should be as unlimited as possible, via the FT. BoE's Cunliffe said we will act to ensure the inflation shock does not become imbedded. BoE's Pill says the (BoE) statement re. acting forcefully if necessary reflects both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle & emphasis conditionality on data; Pill will be data-dependant. Much remains to be resolved before we vote on our August policy decision. Adds, that there is a case of steady-handed approach; one-off bold moves can be disturbing to markets. FX Dollar dips, but retains firm underlying bid ahead of FOMC minutes, Fed’s Williams and services ISM, DXY holds around 106.500 within 106.760-340 range. Yen outperforms on technical grounds and with JPY crosses maintaining downward momentum; USD/JPY closer to 135.00 than 136.00, but faces stiff support if breached via recent lows . Euro remains pressured after largely weak Eurozone construction PMIs and no real compensation from mixed retail sales data, EUR/USD slips to new 20 year low nearer 1.0200. Pound precarious as more UK Tory Party MPs quit to pile pressure on PM Johnson, Cable back under 1.1950 after brief rebound from low 1.1900 area. Yuan bucks downbeat mood in EM currencies even though China suffers more outbreaks of Covid-19 as it adopts regional safe haven status; USD/CNH and USD/CNY straddle 6.7100. Lira lurches again and Forint falls to fresh all time low; USD/TRY tops 17.2550 and EUR/HUF touches 410.50. Fixed Income Bulls keep debt afloat after retreat from Tuesday peaks. Bunds subsequently breach prior session best by a lone tick, at 151.66 before running into supply issues, as new 10 year German benchmark technically uncovered. Gilts back on 116.00 handle from 115.47 Liffe low and T-note hovers nearer top end of 120-03/119-21 overnight range ahead of Fed's Williams, US services ISM and FOMC minutes. UK debt unruffled by more UK Government resignations and BoE rhetoric awaiting PMQs that will put spotlight on under fire Conservative Party leader Johnson. Commodities Crude benchmarks are firmer and having been moving with the equity space after yesterday's significant crude selloff; however, the 'recovery' is limited with WTI pivoting USD 100/bbl. Goldman Sachs said oil has overshot as the global deficit is unresolved and it is premature for oil to drop on recession concerns OPEC Secretary General Barkindo has passed away, according to Arab News. Note, from an OPEC personnel perspective, Barkindo's term as the OPEC SecGen was due to end on July 31st, after which the Kuwaiti oil executive Haitham Al Ghais was due to replace him as the new secretary-general Tengiz field in Kazakhstan continues operations following a blast, according to a source cited by Reuters. Spot gold is lacklustre after Tuesday's USD-driven downside; notably, the yellow metal has been fairly resilient to fresh advances in the DXY. While base metals continue to falter, LME copper below 7.5k/T at worst. US Event Calendar 07:00: July MBA Mortgage Applications -5.4%, prior 0.7% 09:45: June S&P Global US Services PMI, est. 51.6, prior 51.6 10:00: May JOLTs Job Openings, est. 10.9m, prior 11.4m 10:00: June ISM Services Index, est. 54.0, prior 55.9 14:00: June FOMC Meeting Minutes Central Banks 09:00: Fed’s Williams Makes Remarks at Event on Bank Culture 14:00: June FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap It's sports day at school today and I'm going to pop in for an hour to watch. However given that my 4yr old twins are the youngest in their year and my daughter is still in a wheelchair I suspect I won’t be building a new trophy cabinet. For those that have asked about Maisie (thanks by the way) she continues to be in great spirits and is exceptional at swimming for her age (6) so she would likely win that if there was such an event. Fingers crossed she'll be able to get out of the wheelchair in a few months after 8 months so far. The next scan is in 3 weeks and we’ll know if the hip ball has finished collapsing and if it is showing any early sign of regrowing. As my kids are unlikely to win a prize they've asked me to ensure I win some for them to make their tears go away. So if you value our research I would appreciate it if you would vote in the Global Institutional Investor FI survey that opened yesterday. You can see the categories I am up for in this (link here) pdf. There are a number but I've listed the priorities. If you could let us know if you voted that would be appreciated unless it is to tell me you voted for one of our competitors! It’s been another tumultuous 24 hours in markets, with a massive risk-off move reversing late in the US session as the S&P (+0.16%) climbed over 2% after Europe closed. We’ll run through the various headlines in a moment, but there was so much going on here’s a quick highlights reel. We’ve seen the euro decline to a 20-year low against the US Dollar, another round of inversions across the Treasury curve, a mammoth rally in bonds, the tightest financial conditions since the initial wave of the Covid pandemic, a market now pricing in at least two full rate cuts by the Fed in 2023, the German government starting work on bailing out the gas sector, near double-digit percentage drops in oil, and a UK Prime Minister who is getting hit with very high profile cabinet resignations. Running through the day, investor fears were evident from the get-go, with European markets swiftly giving up their gains after the open to move progressively lower through the day. An important catalyst for that was the latest bad news on the energy side, where an escalation in the Norwegian gas strike we mentioned yesterday means that nearly 60% of the country’s gas exports could have been affected from Saturday according to the Norwegian Oil and Gas Association. However, there were some optimistic signs overnight, as it appears the Norway labour minister intervened to put an end to the strike by summoning both sides to the table, saying “When the conflict can have such great social consequences for the whole of Europe, I have no choice but to intervene in the conflict”. It goes without saying that this strike would have been coming at a particularly bad time for the European economy, not least with the scheduled maintenance on Nord Stream that’s occurring from July 11-21 and the uncertainty over what happens next. Germany yesterday accelerated legislation that will allow it to rescue energy companies if the need arises with Uniper looking set to be the first to receive state support. Economy Minister Habeck has talked about gas as potentially being a Lehman Brothers moment so the stakes are high. Indeed this is a heavy cloud hanging over European assets at the moment and they were among the worst global performers yesterday as the prospect of a chaotic gas situation and recession came closer into view. Indeed, the euro itself weakened by a massive -1.50% against the US Dollar yesterday, which was its largest daily decline since March 2020, and left the single currency at its lowest level against the dollar since 2002, closing at just $1.0266. It's dipped another -0.2% overnight. Another factor behind the euro’s weakness were growing doubts that the ECB could embark on as aggressive a hiking cycle as initially thought. That expectation of more dovish central banks was present across the world yesterday in light of the recession fears, but it was particularly prevalent in Europe, where the rate priced in by the June 2023 meeting came down by -11.4bps by the close of trade. It was a similar story in the US where the rate priced in by June 2023 came down by -11.4bps, but what’s becoming increasingly apparent is that investors are now expecting that the Fed will shift towards easing policy by mid-2023, with at least a full 25bp cut now priced in between the February and July meetings in 2023, as well as a further one by year-end. Those fears of a recession were manifesting themselves in other asset classes too, with commodities more broadly (European natural gas excepted) having an awful day as the resiliency of global demand was brought into question. For instance, Brent crude oil prices (-9.45%) witnessed their largest daily move lower since March, taking prices down to their lowest level since early May at $102.77/bbl while WTI (-8.24%) broke beneath $100/bbl for the first time since April. The traditional industrial bellwether of copper was another victim of this trend, plummeting by another -5.36% yesterday to a 19-month low of its own, whilst wheat futures (-4.61%) are now trading beneath their levels prior to Russia’s invasion of Ukraine. In Asia, oil futures have pared bigger bounce back gains but are still trading slightly higher with Brent futures +1.05% and WTI futures (+0.72%) just above the $100/bbl level again. Given the rising doubts about future rate hikes and the weakening inflationary pressures from key commodities, sovereign bonds put in a strong performance as they also benefited from their usual appeal as a haven asset. Yields on 10yr Treasuries came down by -7.5bps to 2.81%, and the 10yr breakeven fell -6.2bps to 2.30%, which takes it to a level unseen since September 2021, back before the Fed had even begun to taper their asset purchases. The declines in yields were concentrated at longer maturities, with the 2s10s curve flattening by -6.2bps to -1.9bps, closing inverted for the first time in nearly a month. And speaking of inversions, another milestone was reached yesterday as the 2s5s curve inverted for the first time this cycle in trading, closing -5.0bps lower at -0.9bps. That picture was echoed over in Europe as well, where yields on 10yr bunds (-15.6bps), OATs (-13.8bps) and BTPs (-9.1bps) all moved lower on the day. This morning yields on 10yr USTs (+2.37 bps) are edging higher as I type. For equities, the layer upon layer of bad news resulted in another significant selloff until the Euro close, with the STOXX 600 shedding -2.11%. However the rate rally supported a steady tech-led march higher in the US after opening very weak and trading more than -2% lower. The S&P 500 finished +0.16% higher and the NASDAQ was up +1.75% on the day. Energy stocks led the moves lower on both sides of the Atlantic, and the index-level gains in the US were supported by a narrow subset of large cap stocks sensitive to lower rates, with only 3 S&P sectors – tech, discretionary, communications – in the green, and a massive 667bps differential between the best performing sector (communications +2.66%) and worst (energy -4.01%). Indeed, the even more concentrated mega-cap FANG+ outperformed the rest of the complex, gaining +3.01%. In line with the late US divergence, it was a tale of two credit markets, with HY credit spreads widening in Europe with the iTraxx crossover +27.4bps to 616bps, a level not seen since early April 2020 at the height of the initial lockdowns, while US HY CDX spreads tightened -11.8bps to 565bps after trading as high as 592bps intra-day. On the UK political scene, Prime Minister Johnson’s position is under significant pressure at the minute with two high profile resignations in his cabinet after yet more conduct issues were raised about the PM's leadership. Johnson has indicated he plans to stay on and has appointed replacements for the outgoing ministers, but his position looks increasingly perilous given the lack of party support. The pound was -1.41% lower versus the US dollar, but most of the decline took place before the news of the resignations and the pound was actually in the middle of the pack for G10 currency performance on the day, with the broader risk environment proving more perilous. If the PM can stay on he will likely pivot towards easier fiscal policy now the Chancellor has resigned. However it's tough to price that in as it's not clear whether the PM can survive this episode. Asian equity markets are lagging this morning even with the late US rally. Across the region, the Hang Seng (-1.56%) is the largest underperformer followed by the Kospi (-1.33%) and the Nikkei (-1.26%) in early trade. Markets in mainland China are also sliding with the Shanghai Composite (-1.20%) and CSI (-1.23%) trading in negative territory dragged down by worries about new COVID-19 cases in Shanghai risking fresh restrictions. Moving ahead, stock futures in the DMs indicate a mixed start with contracts on the S&P 500 (-0.12%) and NASDAQ 100 (-0.10%) edging lower albeit with DAX futures bouncing +1.35% after that late US rally. Moving to Covid news, Shanghai reported 24 infections yesterday, its most in three weeks although the overall case load remains small by global standards. To avert a wider spread and huge disruptions, Shanghai’s municipal government said in a statement that there’d be mass PCR testing in 9 districts and partial areas in another 3 districts, with residents required to take 2 tests within 3 days. The measures follow a reported outbreak, which has driven anxiety that the financial capital will be closed back down after just emerging from a two-month long lockdown. On the data side, US factory orders expanded by a stronger-than-expected +1.6% in May (vs. +0.5% expected), whilst the previous month’s growth was revised up four-tenths to +0.7%. Over in Europe, the final composite PMI for the Euro Area in June was revised up from the flash reading to 52 (vs. flash 51.9). To the day ahead now, and data releases from Europe include German factory orders for May, the German and UK construction PMIs for June, and Euro Area retail sales for May. Over in the US, there’s also the final services and composite PMIs for June, the ISM services index for June, and the JOLTS job openings for May. Otherwise from central banks, we’ll get the minutes from the June FOMC meeting, and also hear from the Fed’s Williams, the ECB’s Rehn and the BoE’s Cunliffe and Pill. Tyler Durden Wed, 07/06/2022 - 07:55.....»»

Category: personnelSource: nytJul 6th, 2022

Futures Slide As Recesson Fears Trump Tariff Optimism

Futures Slide As Recesson Fears Trump Tariff Optimism The rally that pushed stocks well above 3,800 during Monday's illiquid session when US cash stocks were closed for July 4 amid speculation that Biden was about to rollback many Chinese tariffs (unclear how this would help ease inflation but a move that the market clearly read as risk positive), fizzled as soon as Europe opened this morning and alongside the tumbling euro which plunged to a 20-year-low and approached parity with the USD on growing recession fears, also dragged US equity US futures lower as investors turned their focus back to the looming recession, which outweighed optimism around an improvement in Washington’s ties with Beijing. Contracts on the Nasdaq 100 were down 0.7% by 730 a.m. in New York, while S&P 500 futures slipped 0.6%. The cash market was closed for a holiday on Monday.  10Y TSY yields swung from gains to losses before trading 2bps higher around 2.90% while bitcoin rose, and traded around $20K after dropping below $19K over the weekend. US markets are set to reopen Tuesday after capping 11 declines in the past 13 weeks as an unprecedented first-quarter contraction boosted the prospects of a recession to near certainty. At the same time, consumer prices are far from peaking with inflation surging to 8.6% in May that left little room for the Federal Reserve to slow monetary tightening.   Sentiment was lifted on Monday as senior US and Chinese officials discussed US economic sanctions and tariffs amid reports the Biden administration is close to rolling back some of the trade levies imposed by President Donald Trump. While that came as a relief, investors continued to fret over a potential US recession, stubborn inflation and monetary tightening. Economic reports in Europe, including French purchasing managers’ indexes, came in below estimates. “The Fed will likely remain aggressive in its fight against inflation for now,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “At the same time, European growth is slowing down fast. This just puts additional fire on the growth concerns about the US.” “The government is very conscious that they need to act on the supply side of the inflation issue because the Fed has been slamming the brakes on the demand side whereas the real issue is on the supply side,” said Deepak Mehra, the head of investments at the Commercial Bank of Dubai. “Trying to fix that issue is giving the market a bit of an ease and comfort that we are finally addressing the problem where it is and not giving the wrong medicine,” he said in an interview with Bloomberg TV. Among notable moves in premarket trading, cryptocurrency-exposed stocks edged higher as Bitcoin briefly traded above the closely watched $20,000 level.  Recession fears echoed in US premarket trading, where Carnival Corp. and ASML Holding NV dropped more than 4% each. Meanwhile, Morgan Stanley strategists led by Michael Wilson said the US economy is firmly in the middle of a slowdown that’s turning out to be worse than expected amid the war in Ukraine and China’s Covid Zero policy. “Any fall in rates should be interpreted as more of a growth concern rather than as potential relief from the Fed,” they wrote in a note. Here are some other notable premarket movers: Cowen (COWN US) shares jump as much as 14% in US premarket trading, following a report late Friday that Canadian bank Toronto-Dominion was said to be exploring a takeover of the brokerage. Piper Sandler says that a possible combination would be “reasonable” for Cowen at the right price. Antero Resources (AR US) shares rise 2.8% in premarket trading after the stock was upgraded to buy from hold at Truist Securities, with the broker saying that a recent selloff in the oil company is an opportune entry point given gas and natural gas liquids are likely to remain strong. Cryptocurrency-exposed stocks are gaining in US premarket trading on Tuesday as Bitcoin trades above the closely watched $20,000 level. Coinbase (COIN US) +1.4%, Riot Blockchain (RIOT US) +1.9%, Marathon Digital (MARA US) +2.4%, MicroStrategy (MSTR US) +2.8%, Ebang (EBON US) +5.9% Tesla (TSLA US) shares fall 0.8% in premarket trading, though analysts note that the electric vehicle company’s record production in June is a silver lining in an otherwise disappointing quarter of deliveries. Netflix (NFLX US) shares decline 0.8% in premarket trading as Piper Sandler cuts PT to $210 from $293, reiterating neutral recommendations, while estimating that the company’s ad-supported tier, which is expected to launch by year-end, represents a quarterly revenue opportunity of about $1.4 billion. HP Inc. (HPQ) shares slip 2% as Evercore ISI downgrades the tech company to in-line, saying PC “headwinds could get more severe.” Most European equity indexes slumped over 1% with miners, autos and insurance names among the worst-performing Stoxx 600 sectors. CAC 40 and FTSE 100 lag, dropping as much as 1.4%. Miners underperformed the broader European market on Tuesday amid concerns over the risks of a global recession and the blow it would deliver to demand for raw materials. Copper fell to the lowest level in 17 months and traded solidly below $8,000 a ton, as sentiment remains sour toward the industrial material used in everything from construction to new energy vehicles. Stoxx 600 Basic Resources sub-index declines 1.6% as of 9:42am in London, led lower by miners like Antofagasta, KGHM and Anglo American, even as iron ore rises after a four-day slide. Broader European benchmark is down 0.4%. The Stoxx 600 energy sub-index slides 1.3% after rising most since May on Monday. TotalEnergies drops 1.6%, BP -1.1%, Shell -1.3%. Shares in renewable fuel producer Neste outperform, rising 1.3%. The Stoxx 600 Automobiles & Parts Index dropped 1.5%, the third-worst performing subgroup in the broader European equity market. Automakers had their worst June sales in decades in the UK, while German new-car registrations also plunged. Here are some of the biggest European movers today: Miners and energy shares underperform the broader European market on Tuesday amid concerns over the risks of a global recession and the blow it would deliver to demand for raw materials. KGHM shares decline as much as 6.7%, Anglo American -4.5%, TotalEnergies -2.5%, Shell -2.2% Rheinmetall shares fall as much as 6.1%; Deutsche Bank expects 2Q at the lower end of the guidance range for the quarter while most-in-focus unit Defence will likely trend above. SAS falls as much as 15% after the company announced it was filing for chapter 11 bankruptcy protection in the US. European media stocks slide after Goldman Sachs slashed earnings forecasts across its media and internet coverage to factor in a more cautious macro outlook. Prosieben drops as much as 9.5%, Publicis -4.5% Uniper shares edged lower, paring earlier gains of as much as 11%, as analysts speculated on what a possible government bailout might look like. Dechra Pharmaceuticals advances as much as 4.5% on Tuesday after RBC upgrades to outperform in note in which it describes the stock as the “pick of the litter.” Cellnex Telecom shares rise as much as 5% following a Bloomberg News report that a KKR-led consortium is emerging as the frontrunner to buy a stake in Deutsche Telekom’s tower unit, beating out a rival bid from Cellnex and Brookfield Asset Management that had been viewed negatively by analysts. Lonza Group climbs as much as 3.8% after it got upgraded to buy from neutral at Citi, citing the market’s under-appreciation of demand for biologics manufacturing. PGS shares soar as much as 20% as Pareto Securities upgrades the oilfield services firm to buy following a period under review, with the broker saying that “the future is looking brighter” for the company. The euro extended its losses, tumbling to the lowest level since 2002 against the dollar. It also slid to the weakest since January 2015 against the Swiss franc. Earlier in the session, Asian equities were modestly higher Tuesday as China’s stocks gave back early gains after initial enthusiasm about the country’s improving ties with the US waned.  The MSCI Asia Pacific Index rose as much as 0.8% before narrowing the advance to 0.2% as of 6:14 p.m. in Singapore. Energy and health care shares were among the gainers.  Chinese shares fell, after the province of Anhui reported more than 200 Covid cases for Monday and market participants assessed whether the potential scrapping of US tariffs on Chinese goods would help address global inflation concerns. The US 10-year Treasury yield trimmed an intraday advance over recession worries, giving tech shares a slight boost. Australia’s main index edged higher as the domestic central bank met market expectations by raising interest rates a half-percentage point and suggesting that inflation may peak this year. Benchmarks in the Philippines and South Korea led gains in Asia, with each rising at least 1.8%.  “The easing of tariffs -- if confirmed -- comes at the dream timing to save its economy from the endless virus battle,” said Hebe Chen, an analyst at IG Markets, referring to the China. “Even though it may not stop the downtrend, it could at least slow the pace and restore the world’s confidence in the second-largest economy.” Meanwhile, Thailand’s gauge was the latest to enter a technical correction. Asian stocks have been stuck in range-bound trading since the end of April as markets digest higher interest rates, the possibility of a recession in advanced economies and continued virus flareups in China. The MSCI regional gauge is down more than 18% this year In Australia, the central bank raised its key interest rate as expected to 1.35%. It’s among more than 80 central banks to have raised rates this year. The nation’s dollar weakened after the decision. Key equity gauges in India pared early advances to close lower as worries over an economic recession weighed on the sentiments.  The S&P BSE Sensex dropped 0.2% to 53,134.35 in Mumbai, while the NSE Nifty 50 Index also dropped by the same magnitude. Stocks rose earlier in the day, tracking advances in Asian peers on the possibility of US rolling back some levies on China. A fast progress of monsoon rainfall, which waters most farmland in India, along with quarterly earnings for top companies that start this week added to the sentiment.   Consumer goods maker ITC was the biggest drag on the Sensex, falling 1.7%. Seven of BSE Ltd.’s 19 sectoral sub-gauges declined, led by information technology companies.    Asia’s biggest software exporter Tata Consultancy Services, will kickoff the April-June earnings season for companies on Friday In FX, the Bloomberg Dollar Spot Index advanced for a third day as the greenback gained against all of its Group-of-10 peers. Treasuries were mixed. The single currency fell as much as 0.9% to 1.0331, its weakest level since December 2002, with losses compounded by poor liquidity and selling in euro-Swiss franc. German bond curve bull steepened and money markets trimmed ECB tightening bets to less than 140 basis points this year after French services PMI was revised lower. That’s down from more than 190 basis points almost three weeks ago, widening the interest-rate differential with the Federal Reserve. Scandinavian currencies were also dragged down by the euro sell-off and were leading G-10 losses against the greenback. Cable fell amid broad- based dollar strength. Bank of England rate-setter Silvana Tenreyro speaks later Tuesday and the BOE will issue its financial stability report. The Australian dollar extended a slump on the back of the broad-based US dollar strength. The Aussie had already given up gains after the RBA increased its cash rate to 1.35% as expected. It had risen earlier amid reports the US will roll back tariffs on some Chinese goods. The yen pared an Asia session loss as risk sentiment worsened. In rates, Treasuries were off session lows reached during Asia session, remain under pressure as US markets reopen after Monday’s holiday, giving back a portion of Friday’s steep gains. Five- and 10-year yields remain below 50-DMA levels while 2- and 30-year are back above. Yields higher by as much as 6bp at short end vs ~3bp at long end after rising as much as 13bp and 9bp, respectively. 2s10s curve is slightly positive after briefly inverting for first time since mid-June; 5s30s spread ~22bp after reaching widest level since May 31 on Friday. Short-end Germany richens over 10bps, outperforming gilts. Cash USTs fade Asia’s gains. Peripheral spreads widen to core with short-end Italy underperforming. In commodities, brent crude swung between gains and losses, last trading Brent down 1.5% near $111.78, while WTI rose after a long holiday weekend in the US with investors weighing still-strong underlying market signals against concerns a recession will eventually sap demand. Most base metals trade in the red; LME aluminum falls 2.8%, underperforming peers. Spot gold falls roughly $5 to trade near $1,803/oz. Bitcoin resides underneath the USD 20k mark and at session lows of 19.4k amid the broader risk tone. BoE Financial Stability report said falling crypto markets expose vulnerability, but not stability risk overall. To the day ahead now, and data highlights include the global services and composite PMIs for June, as well as the ISM services index from the US. Otherwise, there’s French industrial production for May and US factory orders for May. From central banks, the BoE will be releasing their Financial Stability Report and we’ll also hear from the BoE’s Tenreyro. Market Snapshot S&P 500 futures down 0.3% to 3,814.75 STOXX Europe 600 down 0.3% to 408.04 MXAP up 0.3% to 157.72 MXAPJ up 0.2% to 521.38 Nikkei up 1.0% to 26,423.47 Topix up 0.5% to 1,879.12 Hang Seng Index up 0.1% to 21,853.07 Shanghai Composite little changed at 3,404.03 Sensex up 0.3% to 53,387.68 Australia S&P/ASX 200 up 0.3% to 6,629.33 Kospi up 1.8% to 2,341.78 German 10Y yield little changed at 1.27% Euro down 0.8% to $1.0338 Brent Futures up 0.4% to $114.01/bbl Gold spot down 0.3% to $1,803.33 U.S. Dollar Index up 0.64% to 105.81 Top Overnight News from Bloomberg Senior US and Chinese officials discussed US economic sanctions and tariffs Tuesday amid reports the Biden administration is close to rolling back some of the trade levies imposed by former President Donald Trump UK automakers had their worst June sales in decades in the UK as ongoing components shortages kept them from meeting demand. New-car registrations declined by 24% to 140,958 vehicles, the lowest for the month since 1996, according to data from the Society of Motor Manufacturers and Traders Italy declared a state of emergency in five northern and central regions devastated by a recent drought, as a severe heat wave takes its toll on agriculture and threatens power supplies A more detailed summary of global markets courtesy of newsquawk Asia-Pac stocks traded mostly positive amid a pick-up from the holiday lull although Chinese markets faltered. ASX 200 was led by the tech and commodity-related sectors with further support from a lack of hawkish surprise from the RBA. Nikkei 225 was propelled by a weaker currency but pulled back from early highs after hitting resistance around the 26,500 level and following softer-than-expected wages data. Hang Seng and Shanghai Comp. were both initially lifted following reports US President Biden could make a decision on rolling back some China tariffs as soon as this week and with Vice Premier Liu He said to have had a constructive exchange with US Treasury Secretary Yellen on the economy and supply chains. Furthermore, participants also welcomed the strong Caixin Services and Composite PMI data, although the advances in the mainland were then pared as the central bank continued to drain liquidity and amid lingering COVID concerns. Top Asian News PBoC injected CNY 3bln via 7-day reverse repos with the rate at 2.10% for a CNY 107bln net drain. China is to set up a CNY 500bln state infrastructure investment fund and will issue 2023 advance local government special bonds quota in Q4, according to Reuters sources. Chinese Premier Liu He spoke with US Treasury Secretary Yellen regarding the economy and supply chains, while the exchange was said to be constructive and both sides believed in the need to strengthen communication and coordination of macro policies between China and the US, according to Reuters. US Treasury Department confirmed Treasury Secretary Yellen held a virtual meeting with China's Vice Premier Liu He as part of efforts to maintain open lines of communication, while they discussed macroeconomic and financial developments in both China and US, as well as the global economic outlook and food security challenge. Furthermore, Yellen raised issues of concern including the impact of Russia's war against Ukraine on the global economy and "unfair, non-market PRC economic practices", according to Reuters. RBA hiked the Cash rate Target by 50bps to 1.35%, as expected, while it reiterated that the board expects to take further steps in the process of normalising monetary conditions with the size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market. Furthermore, the central bank noted that Australian inflation was high but was not as high as in other countries and it forecast inflation to peak this year before declining back towards the 2-3% range next year. European bourses are pressured across the board, Euro Stoxx 50 -0.8%, as a broader risk-off move takes hold despite a relatively constructive APAC handover and limited newsflow in European hours. A move that has impaired US futures, ES -0.4%, as we await the lead from stateside participants re-joining after the long-weekend with a quiet schedule ahead. European sectors are predominantly in the red, though the clear defensive bias is keeping the likes of Food and Healthcare afloat. Top European News UK faces its first national train drivers' strike in 25 years with the head of the UK train drivers' union warning of 'massive' disruption as members vote on their first strike since 1995, according to FT. BoE Financial Stability Report (July): will raise the counter-cyclical capital buffer rate to 2% in July 2023. Click here for more detail. Ukraine Latest: Turkey Renews Threat to Veto NATO Expansion Bunds Bull Steepen, ECB Hike Bets Pared After French PMI Revised UK Train Drivers Would Make Threatened Strikes National: Union FX DXY sets new 2022 best above 106.000 after taking time out to mark US Independence Day, reaches 106.24 before waning marginally. Euro slumps to fresh multi-year lows as EGBs rebound strongly and risk appetite evaporates; EUR/USD probes 1.0300, EUR/CHF sub-0.9950 and EUR/JPY below 140.00. Aussie underperforms irrespective of 50bp RBA rate hike as accompanying statement sounds less hawkish on inflation; AUD/USD under 0.6800 from close to 0.6900 overnight and AUD/NZD cross retreats through 1.1050. Pound down regardless of upgrades to final UK services and composite PMIs as Buck rallies broadly and BoE’s FSR flags material deterioration in global economic outlook, Cable beneath 1.2050 from circa 1.2125 peak. Yen holds up better than others amidst Greenback strength on risk and rate grounds; USD/JPY eyes support into 135.50 vs 136.00+ at the other extreme. Fixed Income Bonds on course for a turnaround Tuesday after marked retreat from pre-weekend peaks on Independence Day. Bunds back above 150.00 from 148.72 low and Friday's 151.65 high, Gilts reclaim 115.00+ status within 116.58-114.60 range and 10 year T-note above 119-00 between 119-20+/118-23 parameters. UK 2051 and German 2033 linker supply reasonably well received, but yields considerably higher. In commodities Crude benchmarks were fairly resilient to the broader risk tone, but have most recently succumbed to the pressure and are at the lower-end of a USD 3-4/bbl range. Reminder, the lack of settlement due to the US market holiday is causing some discrepancy between WTI and Brent, though they are directionally moving in tandem. UAE’s ADNOC set Murban crude OSP for August at USD 117.53/bbl vs prev. USD 109.68/bbl in July, according to Reuters. Norway's Lederne union said the strike in the Norwegian oil sector had begun, according to Reuters. Saudi Aramco has increased all oil prices for customers in August; sets Aug light crude OSP to Asia at +9.30/bbl vs Oman/Dubai average, according to Reuters sources; NW Europe set at +USD 5.30 vs. ICE Brent; US set at +USD 5.65 vs. ASCI. Russian Deputy Chair of the Security Council Medvedev says the Japanese proposal to cap Russian oil prices would lead to higher global prices, oil prices could increase to over USD 300-400/bbl, via Reuters. Chile’s Codelco copper output fell 6.3% Y/Y in May to 142.9k tonnes, while Chile’s Collahuasi mine copper output fell 15.4% to 49k tonnes and Chile’s Escondida copper output rose 26% to 106.9k tonnes, according to Cochilco cited by Reuters. Russian billionaire Potanin says he is ready to discuss a possible merger of Nornickel with Rusal, via Reuters citing RBC TV; UK sanctions on him do not target Nornickel, Co. is still working under pressure. Spot gold is impaired by the rampant USD action, pressure seen in base metals as well on such dynamics and LME copper now below 8k/T.   US Event Calendar 10:00: May -Less Transportation, est. 0.7%, prior 0.7% 10:00: May Cap Goods Ship Nondef Ex Air, prior 0.8% 10:00: May Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 0.5% 10:00: May Factory Orders Ex Trans, prior 0.3% 10:00: May Factory Orders, est. 0.5%, prior 0.3% 10:00: May Durable Goods Orders, est. 0.7%, prior 0.7% DB's Jim Reid concludes the overnight wrap I can only apologise in advance for the next few weeks! The Global Institutional Investor Awards will open later this afternoon and not to put it too bluntly we’d like to do well. So if you value our research please vote if you can. More details to follow when the poll opens. It’s been a quieter 24 hours for markets thanks to the US holiday, but the market remains confused about how to price fixed income in an environment where a recession is coming at some point. We've seen a big yield sell-off to start the week even if equities have stabilised, with a fresh rise in energy prices only adding to concerns about how different economies (particularly in Europe) will fare this winter if Russia cuts off the flow of gas. Overnight the US 2s10s curve has inverted again, the RBA has hiked 50bps as expected and Chinese PMI data has massively beat expectations so a few things going on even in a quieter trading period. We’ll start with markets in Europe since they were open yesterday. The biggest story there was a sizeable selloff among sovereign bonds as they gave up some of their gains over the last couple of weeks. Yields on 10yr bunds were up +10.1bps, but they were one of the better performers given the risk-off tone and yields on 10yr OATs (+12.7bps) and BTPs (+15.8bps) saw even larger rises, which followed comments from Bundesbank president Nagel who said that it was “virtually impossible to establish for sure whether or not a widened spread is fundamentally justified”. Nevertheless, Nagel did not entirely rule out an anti-fragmentation instrument but said that this “can be justified only in exceptional circumstances and under narrowly-defined conditions.” This question of how the ECB will deal with a potential widening in spreads is set to come increasingly to the fore as they almost certainly embark on their first hiking cycle in over a decade this month. And yesterday we heard some further comments from ECB officials on that hiking cycle, with Estonia’s Muller pushing back against the calls from others to start with a 50bps hike, saying that it was appropriate to begin with a 25bps move in July, and then 50bps in September as they’ve signalled. In line with the rise in sovereign bond yields, overnight index swaps priced in a slightly more aggressive series of hikes from the ECB, with the rate implied by December up by +7.1 bps on the day. Whilst the ECB is set to hike rates, their life is being made significantly more difficult by the ongoing energy shock that’s creating increasingly stagflationary conditions. Unfortunately, there was more bad news on that front yesterday, with natural gas futures up by another +10.26% to €163 per megawatt-hour, which is their highest rate since early March and more than double their recent low in early June. Matters haven’t been helped by a planned strike in Norway that puts around 13% of Norway’s daily gas exports at risk, according to the Norwegian Oil and Gas Association, which comes ahead of next week’s scheduled maintenance of the Nord Stream pipeline, which will last from July 11-21. When it came to equities, the main European indices mostly managed to advance, although as mentioned at the top that was partly a catch-up to the late rally on Friday afternoon in the US, and the STOXX 600 was up +0.54% thanks to a strong performance amongst energy stocks. By contrast, futures on the S&P 500 were lower throughout European trading even if they have flipped higher this morning (futures +0.36%). One similarity between the US and Europe was a slightly more hawkish path for central bank rates being priced, with Fed funds futures taking the Dec-2022 implied rate up by +3.8 bps after last week’s declines. This fits with what Henry mentioned in his latest newsletter yesterday (link here), in which he points out that the recent repricing of the hiking cycle in a more dovish direction is inconsistent with the historic pattern whereby the Fed has always taken rates above inflation as they hike. This morning, yields on US 10yrs (+6.6bps) and 2yrs (+10.8bps) are catching up the global move after the holiday leaving 2s10s very slightly inverted as we go to press. Speaking of inflation, it was reported by Dow Jones yesterday that President Biden could ease some tariffs on Chinese imports soon, with the article saying that a decision could be announced this week. As discussed in the article and other media reports, this has apparently been a divisive issue inside the administration, since although their removal could help ease inflation, it would also give up leverage in obtaining concessions from China, so there’s geopolitical as well as economic factors at play here. Asian equity markets are mostly trading higher this morning partly on the tariffs story above and partly on better data overall. Across the region, the Kospi (+1.13%) is leading gains followed by the Nikkei (+0.82%) and the Hang Seng (+0.41%). Bucking the trend are the mainland Chinese markets with the Shanghai Composite (-0.20%) and CSI (-0.95%) both slipping as I type, perhaps on less stimulus hopes after a big beat in the Caixin PMI (see below). Outside of Asia, US and European equities are set to follow the Asian trend with futures on the S&P 500 (+0.36%), NASDAQ 100 (+0.47%) and DAX (+0.60%) moving higher. Early morning data showed that Japan’s services activity accelerated at the fastest pace since October 2013 as the Jibun Bank services PMI advanced to 54.0 in June from 52.6 in May. Meanwhile, Japan’s real wages (-1.8% y/y) extended its decline in May, notching its biggest contraction in two years compared to an upwardly revised -1.7% decline in April. At the same time, cash earnings rose +1.0% y/y in May (vs +1.5% market consensus, and +1.3% in April), thus adding downside risk to a consumption driven rebound in 2Q22 GDP. Moving to China, growth in the nation’s services sector surprisingly beat as the Caixin services PMI jumped to 54.5 in June, its highest level in nearly a year from 41.4 in May as Covid curbs eased. Elsewhere in the region, South Korea’s CPI rose +0.6% m/m in June (v/s +0.5% expected) and against a +0.7% increase in the prior month. As widely anticipated, we did see policy tightening by the RBA as the central bank raised its cash rate by 50bps to 1.35% as it moves to tame strengthening inflation. This is the third consecutive increase of the cash rate. The AUD/USD pair was little changed in an immediate reaction. There wasn’t a massive amount of data yesterday, although we did get German trade figures that showed the country had a monthly trade deficit in goods in May for the first time since 1991. That was thanks to higher import costs as a result of the recent commodity shocks, alongside disruptions to trade from factors including sanctions on Russia, which left the monthly deficit at €1.0bn. To the day ahead now, and data highlights include the global services and composite PMIs for June, as well as the ISM services index from the US. Otherwise, there’s French industrial production for May and US factory orders for May. From central banks, the BoE will be releasing their Financial Stability Report and we’ll also hear from the BoE’s Tenreyro. Tyler Durden Tue, 07/05/2022 - 08:03.....»»

Category: dealsSource: nytJul 5th, 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

Rabo: The Market Is Telling The Fed That After September They Are Done

Rabo: The Market Is Telling The Fed That After September They Are Done By Michael Every of Rabobank Hopium and despairium ‘Asia Risk Assets Poised for Goldilocks Friday’, says Bloomberg this morning: “Asia will be hoping to catch the mood of firmer equities and lower yields, along with a softer USD/JPY and commodities. The 3% gain in the Nasdaq Golden Dragon China Index may also provide a boost. In early business on Friday, US equity futures are a tad lower. Federal Reserve Chair Jerome Powell called his commitment to curbing inflation “unconditional”. Meanwhile, the ECB may raise rates by more than 200bps in the next 12 months, Governing Council member Peter Kazimir said.” **Sigh** And if you can’t see why I sighed at the above then I sigh at you again even louder. It was nice, yet depressing, when the market showed logic this week as everything sold off: the sell-off was depressing; the ability to think was nice. Of course, it couldn’t last given our traders and analysts who have never seen real inflation, rate hikes, or geopolitics: their use of the “g” word is as methodologically sound as a doctor talking about “biology” rather than symptoms, diseases, and treatments. So, it was nice, yet depressing, when the market preferred another big prescription of hopium to logic yesterday. We saw another hefty decline in bond yields, helped by weak global PMI data. Yet Mexico raised rates 75bps to 7.75%. The Fed-speak also flagged another 75bps in July, and 50-75bps steps in September, November, and December, at least. Fed Chair Powell even used the “unconditional” word again in his testimony on Thursday, which he had omitted on Wednesday. We also got the Fed mea culpa, "In hindsight, inflation was not transitory." The ECB implied rates will rise 200bp. The market that enthusiastically bought “transitory” is now buying all of the fixed-income things even as rates rise. There was a reassessment in the US short end, with 2 year yields -22bp intraday but closing -4bp at just over 3.0%, but 10s fell by more and are also not far above 3.0%. The market is telling the Fed that after September they are done, or will have to U-turn, which is not what the Fed is telling the market. Recall a month ago when US 10s dropped from 3.15% to 2.75% because the Fed was going to take it easy? Here we are, 75bps later, with another 75bps ready for next month. Yet the hopium sold so well. Bund yields collapsed,… as Europe (finally) prepares for Russian economic warfare, which will mean gas rationing in Germany, and PPI of, what, 50% y-o-y(?), and CPI far higher than where it sits now. UK gilt yields also collapsed,… as it faces 9.1% y-o-y inflation, soon to be over 10%, higher PPI pipeline inflation, what many see as structural high inflation due to Brexit, and more workers walking out on strike in rejection of up to 10% pay rises. Yes, one can make the ‘preservation of capital’ argument – but via buying assets that will soon yield less than the cash rate and inflation? Why not cash / T-bills? Hopium also saw US stocks up. There is a logical case that the Fed over-tightens into a supply shock, prompting a recession. In fact, it’s our base case. Yet there is no logic that says all other assets must rally “because lower yields”. Mathematically, that might happen via multiples; but corporate earnings are not going to tell that story if recession means demand collapses while input costs soar. There is also a logical case that the Fed has to hold off on rate hikes “because markets” – and there is a logical case that it cannot. The latter happens to be what the Fed itself is saying. Yes, recession looms. So what? I keep being told inflation was not about strong demand, but rather weak supply. Indeed, today Bloomberg talks about the next LME crisis being in zinc, which is in very short supply; and someone in energy comments the only reason oil is not at $150 is due to the weak data backdrop, especially in China. Commodity supply can’t come back online via monetary loosening, but monetary tightening can force out speculators from commodity markets, which acts like increased supply – look at the recent dip in broad commodity prices as the Fed got serious and QT started. Now imagine the Fed U-turns from September: commodities would rally again! That’s even before we get to worst-case geopolitical scenarios. For example, where the EU accepts Ukraine and Moldova as accession candidates, and Lithuania cuts off Kaliningrad, which incentivizes Russia to deliberately destabilise the EU even further? As such, even a boring inflation forecast require a geopolitical one. Or how about if the BRICS countries try to create a rival global reserve currency to undermine the USD and EUR, necessitating higher US rates to push back? As such, even a boring rates forecast requires a geopolitical one.  Or how about the growing risks in the Middle East and Indo-Pacific that would also push supply of goods much lower and inflation much higher? These scenarios all imply sustained incession and sustained high rates – as emerging markets who don’t control their supply chains experience all the time. Indeed, if supply can’t come back online we could theoretically be talking about a potential ‘lost decade’, not ‘two quarters of negative growth’ – as emerging markets who don’t control their supply chains experience all the time. So, hard choices need to be made. The upcoming G7 will focus on energy. Proposals to cap Russian oil and gas prices or to stop US oil exports are already being floated but will likely sink. The EU is finding Qatar won’t sell it LNG without a 20-year contract, which clashes with its green targets. The White House wants more solar and yet just signed a law that bans them if they are made in China, where most are. A further Western green transition requires a vast stock of minerals that sit in countries already in or drifting into the Chinese and Russian camps, and/or removing environmental regulations in the West. So, what is to be done? Until we see the answer, we must rely on central banks. Yet where once that meant low rates and QE, now it means high rates and QT. However, I keep repeating I suspect we get more QE and rate hikes, giving us hypothecated credit allocation/rationing in the same way we used to have before financial deregulation in the 1980s. That will be fun for some but hard for others: the Fed can always buy US Treasuries and say, “defence!”, so the government borrows for free, and the private sector pays 3-4% or whatever is needed; the ECB can buy Eurozone peripherals so they borrow for free and say, “anti-fragmentation!”, while infuriating the Germans if that means selling core bonds to do so; but the RBA and BOC would have to buy MBS and say,… “we need high house prices!”. Such policies would also mean downwards pressure on the FX of those economies if they are running balance of payments deficits --except the US-- as emerging markets who don’t control their supply chains experience all the time. (Which is why JPY is so happy that US yields are edging lower.) The logical solution is to increase supply (and until then, rates). That might mean states owning refineries as an energy transition measure, because no private firm will invest in an asset that has to be phased out almost immediately it is finished. Which, to extend an argument I made yesterday, is why markets don’t work in all areas. Paying people to sit around in expensive facilities and only rely on them in an emergency is economically ridiculous – until you call it an army: then it’s common sense. Or rather, it should have been: we are where we are today partly because too many snorting too much hopium for far too long thought it wasn’t. Now it’s despairum in the air, which is a good segue to another Bloomberg story to close, that ‘China’s Tech Giants Lost Their Swagger and May Never Get it Back’: “On trading floors in New York and Hong Kong, the brightening mood toward Chinese technology companies is unmistakable: With stocks like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. surging from multi-year lows, talk of a new bull market is growing louder. Yet speak to executives, entrepreneurs and venture capital investors intimately involved in China’s tech sector and a more downbeat picture emerges. Interviews with more than a dozen industry players suggest the outlook is still far from rosy, despite signs that the Communist Party’s crackdown on big tech is softening at the edges. These insiders describe an ongoing sense of paranoia and paralysis, along with an unsettling realization that the sky-high growth rates of the past two decades are likely never coming back.” The above applies all over when you think about it. Tyler Durden Fri, 06/24/2022 - 09:30.....»»

Category: dealsSource: nytJun 24th, 2022

Futures, Oil Tumble As Attention Turns To Coming Recession, Powell Senate Testimony

Futures, Oil Tumble As Attention Turns To Coming Recession, Powell Senate Testimony Tuesday's euphoric market mood has U-turned into sheer despair with most of yesterday's gains gone overnight as attention turns to the coming US recession (now made official by Bill "The Fed Should Crush Donald Trump" Dudley who just published an Op-Ed "The US Economy Is Headed for a Hard Landing") and as traders await Jerome Powell before Senate testimony. S&P 500 futures declined 1.2%, down 45 points to 3,722 while Nasdaq 100 futures were down 1.5% by 715 a.m. in New York, indicating more declines for heavyweight technology stocks, which have already been hammered by rising rates.  Treasury yields and oil both slumped while the broader commodity sector tipped back toward pre-war levels, as traders increasingly price in a recession. Optimism evaporated that policy makers can achieve a soft landing as they navigate a course of aggressive monetary tightening to tame inflation. Fed Chair Jerome Powell is expected to reinforce the commitment to fighting price pressures when he speaks in front of US lawmakers Wednesday even as a growing number of banks warn that the Fed chair is pushing Biden's economy into a recession. Previewing Powell's appearance before the Senate Banking Committee as part of the Fed’s semiannual Monetary Policy Report, DB economists write that they expect him to reiterate the same themes he gave at his post-meeting press conference last week, where he signaled that they’d likely be deciding between 50bps and 75bps at the July meeting. Fed funds futures are currently implying that another 75bps move is more likely, with +71.8bps currently priced in, but don’t forget that there’s still plenty yet to happen ahead of that meeting in just over a month, including the subsequent CPI release and jobs report for June, and as we found out at the last meeting, it’s not implausible that unexpected data releases throw the previous guidance off course. “Overall, we have a very cautious outlook for equity markets and we would be sellers of all rallies,” said Marija Veitmane, senior strategist at State Street Global Markets. “We continue to see strong inflation and central banks determined to crush it, even if the price for that is economic slowdown.” Meanwhile, fears about the economy spread to commodities, putting oil in line for a monthly loss: “Markets are flip-flopping between recession fears and inflation fears,” UBS Wealth Mgmt chief economist Paul Donovan said in a note. “Today it is recession fears.” In premarket trading, major US technology and internet stocks were lower in premarket trading, poised to snap the two-session rising streak amid mounting concerns of a global recession. Stocks related to cryptocurrencies fell as the price of Bitcoin briefly slipped below $20,000 after rebounding strongly on Tuesday. Alibaba and other US-listed Chinese stocks pare losses in premarket trading after a Bloomberg News report that Jack Ma’s Ant may apply to become a financial holding company as soon as this month. Other notable premarket movers: La-Z-Boy’s (LZB US) shares jumped as much as 8.9% with KeyBanc saying that the furniture maker’s sales and EPS remain strong. The company reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate. Precision BioSciences (DTIL US) shares jump as much as 40% in US premarket trading amid a collaboration and license agreement with Novartis effective June 15. Ormat Technologies (ORA US) shares fell 4.6% in postmarket trading on Tuesday after the company said it will offer $350 million aggregate principal amount of Green Convertible Senior Notes due 2027 in a private offering to institutional buyers. Equity Residential (EQR US) stock may be in focus as it was raised to outperform from sector perform at RBC on the view that the apartment owner is well placed to weather a downturn. Keep an eye on Cigna (CI US) shares as Morgan Stanley upgraded the stock to overweight from equal-weight. The brokerage also downgraded Anthem to equal-weight from overweight. Watch Scotts Miracle-Gro (SMG US) shares as they were downgraded to equal-weight from overweight at Wells Fargo, which said there’s “just not much to get excited about” for the stock in the second half of the year. US equities have been roiled in the past few months amid worries that aggressive monetary tightening by the Fed would spark an economic recession. The S&P 500 is in a bear market after a rout that erased almost $2 trillion from the benchmark last week, and is tracking declines of nearly 9% in June alone. Fed Bank of Richmond President Thomas Barkin said the central bank should raise rates as fast as it can without causing undue harm to financial markets or the economy.  Elsewhere, Joe Biden plans call on Congress to enact a gasoline tax holiday to cool soaring pump prices and alleviate the pressure on consumers. The move is expected to do nothing at all for gas prices. In Europe, the Stoxx 600 Index was down 1.6% after rallying for three days in a row; the Euro Stoxx 50 dropped as much as 2.3%, Italy’s FTSE MIB underperforms.  The FTSE 100 outperformed as the pound weakened after UK inflation rose to a fresh four-decade high in May after broad increases in the cost of everything from fuel and electricity to food and beverages. Risk assets slumped with most European cash equity indexes erasing the week’s gains as recession fears, hot inflation data and energy concerns weigh on sentiment. Miners, energy and autos lead broad losses across all Stoxx 600 sectors. Here are the biggest European movers: European mining stocks sink as a selloff in iron ore worsened amid signs of weakening global demand, while steel shares were pressured by downgrades from JPMorgan. Rio Tinto dropped as much as 3.6%, Glencore -6.1%, Salzgitter -15%, ArcelorMittal -8.2%, Voestalpine -11% Umicore shares plunged as much as 17% after the materials technology company announced plans to spend EU5b by 2026, “meaningfully” higher capital expenditure than Jefferies had expected. Saipem shares tumble as much as 19% after the company set terms for a EU2b capital hike, offering about 2 billion new shares at EU1.013. The subscription period will run from June 27 through July 11, with the final results to be announced on July 15, according to terms seen by Bloomberg. Samhallsbyggnadsbolaget i Norden and Swedish real estate peers added to months of declines as European equities resumed their selloff, with fresh concerns about the possibility of recession. SBB falls as much as 13%, Sagax -6%, Fabege -4%, Castellum -3.7% Kone shares drop as much as 7.5% after the Finnish elevator manufacturer was downgraded at Goldman Sachs and Berenberg, which both cited headwinds from China and the impact of slowing economic growth. Energy stocks are among the worst-performing sectors as oil slumps amid concerns about the US economy, while the Biden administration is set to step up its fight against higher gasoline prices. Shell declines as much as 4.6%, TotalEnergies -4.6%, Repsol -5.1% Accor shares drop as much as 3.8% after the hospitality company said it entered into exclusive negotiations to sell a 10.8% stake in Ennismore for EU185m. JD Sports shares gain as much as 5.2%. The company reported FY results that are in line overall with consensus expectations, and the market should be reassured that the sneaker seller’s recent performance is still on track, according to RBC. NatWest shares gain as much as 4% after the stock was raised to buy from hold at Jefferies, which said its re-rating potential is now more obvious. The UK government also extended its plan to sell more of its stake in the group by a year. Earlier in the session, Asian stocks resumed their slide Wednesday as renewed fears of a crackdown hit Chinese technology shares. The MSCI Asia Pacific Index slipped as much as 1.7%, cutting short a rebound in the previous session. TSMC, Alibaba and Tencent were the biggest drags, with a gauge of Chinese tech firms in Hong Kong falling more than 4%. Shares of online drug sellers slumped on a report that Beijing may ban third-party platforms from offering medicines over the internet. Elsewhere, a sub-gauge on the region’s information tech companies headed for the lowest close since September 2020 amid growing worries over a global recession. South Korea’s benchmark slumped 2.7% as the tech-heavy market continued to face selling pressure amid foreign outflows. The Asian stock benchmark is hovering near a two-year low as the prospect of a slowdown in the US driven by aggressive interest-rate hikes unsettle investors. Tesla Inc. Chief Executive Officer Elon Musk said Tuesday that a recession in the US looks likely in the near future, adding to the growing drumbeat of warnings. “Markets are still looking for the catalyst for a more sustained rebound as headwinds surrounding tightening financial conditions,” said Jun Rong Yeap, a market strategist at IG Asia Pte, adding that gains from any technical rebound may be capped by some wait-and-see sentiments. After falling more than 18% this year, a technical indicator is suggesting the MSCI’s Asian benchmark has reached oversold levels and may be poised for a reprieve. Investors will now shift their focus to Federal Reserve Chair Jerome Powell’s testimony on monetary policy to Congress later Wednesday, which may provide further clues on inflation and rates outlook.  Indian markets snapped a two-day advance as growing concerns of slowing global growth potentially leading to a recession dragged down world equity markets.  The S&P BSE Sensex dropped 1.4% to 51,822.53 in Mumbai, while NSE Nifty 50 Index fell by an equal measure. Reliance Industries, a major drag on both the key gauges, declined 3%, its biggest plunge since May 9.  All of the 19 sectoral indexes compiled by BSE Ltd. slipped, led by a measure of metal companies. All but four of 30 companies in the Sensex declined.  All major stock markets, including Asia, traded lower as investors fear that aggressive monetary tightening moves by global central banks could lead to an economic downturn. “Traders are advised to keep a hedge position, while investors should focus on stock selection,” according to Religare Broking analyst Ajit Mishra. The monsoon’s progress, a correction in oil prices and currency movements will be important factors to watch for the Indian stock market’s outlook, he said.  In rates, havens were re underpinned with major yield curves bull-steepening. A Treasury rally was led by the front-end of the curve, following wider gains across gilts after UK May inflation matches median estimates, trimming expectations for more aggressive BOE rate hikes. US yields richer by 10bp-6bp across the curve with front-end-led advance steepening 2s10s by ~2bp, 5s30s by ~4bp; 10-year yields around 3.20%, richer by nearly 8bp on the day, while gilts outperform by additional 6bp in the sector. Short-dated gilts outperform, richening ~13bps in 2s after another hot inflation print. Gilts lead bunds, Treasuries higher, with traders pulling back from wagers on three 50 basis-points hikes by year end after UK inflation accelerated in line with estimates in May. MPC-dated OIS rates pare back some of the more aggressive pricing seen in recent days. German 10y yields fall 10bps to near 1.67%, Treasury 10-year yield eases ~6bps to near 3.22% ahead of Fed Chair Powell’s semi-annual testimony on monetary policy. Peripheral spreads widen, with long-dated BTPs underperforming.  In FX, early in the session we saw a push toward the dollar, which subsequently was partly faded, but in any case it snapped two days of losses to rise by around 0.2% and the greenback advanced versus all of its Group-of-10 peers apart from the yen. JPY and CHF were the strongest performers in G-10 FX, NZD and AUD underperform. Antipodean currencies and the Norwegian krone were the worst performers and each of them fell by more than 1% against the greenback. The euro traded near $1.05 after dropping to a day low of 1.0469 in early European trading. The yen rebounded after making a fresh multi-decade low versus the greenback. The yen not only held the lead in short-term realized volatility, but traders also bet that it won’t lose its crown any time soon. Demand for low-delta exposure in the Japanese currency is by far the highest among the Group-of-10 peers, with Antipodean and Scandinavian currencies trailing. In commodities, West Texas Intermediate tumbled to $104 a barrel, with prices falling alongside other raw materials including copper. WTI sunk as much as 5.7% before recovering back above $104. Base metals trade poorly; LME tin falls 4.9%, underperforming peers. Spot gold falls roughly $8 to trade near $1,825/oz. Concerns about a broad economic slowdown are eclipsing the fallout from the war in Ukraine and signs of still-tight supply.  Bitcoin is pressured and briefly dipped again below the USD 20k mark, to a trough of USD 19.95k. Though, it remains someway from last week's USD 17.5k low. Looking at the day ahead now, and the main highlight will be Fed Chair Powell’s testimony before the Senate Banking Committee. Other central bank speakers include the Fed’s Barkin, Evans and Harker, as well as BoE Deputy Governor Cunliffe. Otherwise, data releases include UK and Canadian CPI for May, as well as the European Commission’s preliminary consumer confidence indicator for the Euro Area in June. Market Snapshot S&P 500 futures down 1.7% to 3,702.50 STOXX Europe 600 down 1.6% to 401.86 MXAP down 1.7% to 156.08 MXAPJ down 2.3% to 517.35 Nikkei down 0.4% to 26,149.55 Topix down 0.2% to 1,852.65 Hang Seng Index down 2.6% to 21,008.34 Shanghai Composite down 1.2% to 3,267.20 Sensex down 1.2% to 51,918.86 Australia S&P/ASX 200 down 0.2% to 6,508.54 Kospi down 2.7% to 2,342.81 German 10Y yield little changed at 1.69% Euro down 0.2% to $1.0509 Brent Futures down 3.8% to $110.24/bbl Brent Futures down 3.9% to $110.18/bbl Gold spot down 0.4% to $1,825.23 U.S. Dollar Index up 0.23% to 104.67 Top Overnight News from Bloomberg   A more detailed summary of Global Markets courtesy of Newsquawk Asia-Pac stocks were subdued after the risk-on mood from Wall Street waned overnight amid pressure in commodities and with global markets lacking any fresh macro catalysts. ASX 200 pared early gains as resilience in energy and defensives was offset by losses in tech and financials. Nikkei 225 was indecisive after the Japanese currency bounced off its weakest level since 1998. Hang Seng and Shanghai Comp. were subdued amid ongoing COVID woes as Macau closed most public services through to Friday and with the Chinese city of Zhuhai also shutting entertainment venues in some areas, while there was some encouragement for the property sector with Chinese property developers planning to meet with banks regarding relief measures in July. Top Asian News Chinese property developers are planning to meet with banks regarding relief measures in July, according to Shanghai Securities News. Chinese Premier Li Keqiang’s struggle to revive China’s economy under the zero-Covid policy championed by President Xi Jinping has spurred rumours of rifts between the country’s top two leaders and considerable speculation over succession plans, according to SGH Macro Advisors. BoJ April meeting minutes stated board members agreed on no change in the BoJ's stance of taking additional easing steps as needed and a member noted that rising raw material costs would hurt the economy so they must keep powerful monetary easing. Furthermore, it was stated that Japan's monetary policy challenge is to address too-low inflation, unlike in western economies, while a member said it is inappropriate to change the monetary policy stance as Russia's invasion of Ukraine added to the downside risks for Japan's economy. European bourses are subdued, Euro Stoxx 50 -1.9%, as Tuesday's positivity waned in the APAC session as commodities slipped in relatively limited newsflow. Unsurprisingly given this dynamic, the Basic Resources and Energy sectors are the European laggards, amid broader cyclical pressure. Stateside, futures are in-fitting with the above action, ES -1.4%, where participants are awaiting the first session of testimony from Chair Powell, newsquawk primer available here. Ant Group is reportedly to apply, as soon as this month, for a key financial license, via Bloomberg citing sources. Toyota (7203 JT) expects global vehicle production in July to be around 800k. China's CPCA says domestic car rales rose 39% in the week to June 13th Y/Y, +55% M/M, via Reuters. Top European News UK PM Johnson is of the view that the government must win its battle with the rail unions and is prepared for the stand-off to last months, according to The Times. Italy is reportedly preparing EUR 3bln of aid to curb energy bills, according to la Repubblica Italian Foreign Minister Di Maio quit the 5-Star Movement (5SM) to set up a new group, according to Reuters. FX Dollar regains bullish momentum on risk dynamics ahead of Fed testimony; DXY on a firmer footing, but capped ahead of 105.000 within 104.950-430 range. Yen also in demand as a safe haven as sentiment sours, USD/JPY reverses course from around 136.71 to sub-136.00 at one stage. Kiwi and Aussie undermined by risk-off mood, with latter also hampered by heavy decline in iron ore; NZD/USD hovers above 0.6250 and well below 1bln option expiries at 0.6300, AUD/USD capped around 0.6900. Loonie, Nokkie and Peso ruffled by collapse in WTI and Brent crude, USD/CAD rebounds towards 1.3000, EUR/NOK tests 10.5000 and USD/MXN straddles 20.1800. Euro holds around 1.0500 and 10 DMA close by amidst hawkish ECB vibe, Pound pivots 1.2200 after somewhat mixed UK inflation data. Central Banks ECB's de Guindos says he expects inflation to ease after the summer but stay near current levels in the coming months; Governing Council is yet to discuss details of the anti-fragmentation tool. New tool should be different from the prior OMT tool as the circumstances are different, will also differ from APP and PEPP. Norwegian Gov't names Paal Longva as Deputy Norges Bank chief. Fixed Income Bonds bounce firmly as risk sentiment turns bearish again on global inflation and recession concerns. Bunds up to 144.87 before fading after a reasonable 2038 German auction. Gilts top out at 111.89 and largely ignored mixed UK inflation metrics vs consensus. 10 year T-note hovers closer to 116-19 overnight peak than 115-28+ trough pre-Fed chair Powell and 20 year supply plus other Fed speakers. Commodities WTI and Brent are, alongside broader commodities, pressured with fresh catalysts somewhat thin and focused on known themes. Currently, they are lower by over 4% on the session and ahead of Biden's announcement on gas prices; though, if implemented, such measures could serve to push demand and ultimately prices higher. US President Biden will deliver remarks on gas prices at around 14:00EDT/19:00BST on Wednesday and will call on Congress to implement a suspension to the federal fuel tax. Subsequently, multiple Democratic sources said that the effort to to suspend the federal gas tax for three months stands almost no chance of passing, according to Politico. IEA warns Europe to prepare for a complete shutdown of Russian gas exports and that governments should keep ageing nuclear plants open and take other contingency measures, according to FT. World Steel says global steel output -3.5% Y/Y in May at 162.7mln tonnes (prev. -5.1% Y/Y in April); China crude steel output -3.5% Y/Y to 96.6mln tonnes (prev. -5.2% Y/Y in April). Spot gold is softer in-line with other metals, though the magnitude is more contained given its haven allure; broader action that sees LME Copper clipped despite the expected commencement of Chile strike action. US Event Calendar 07:00: June MBA Mortgage Applications, prior 6.6% Central Bank Speakers 09:00: Fed’s Barkin Speaks to West Virginia Chamber of Commerce 09:30: Powell Delivers Semi-Annual Testimony Before Senate Panel 12:00: Fed’s Barkin Speaks to the Federal City Council 12:50: Fed’s Evans Discusses Economic Outlook 13:30: Fed’s Harker and Barkin Discuss the Economic Outlook DB's Jim Reid concludes the overnight wrap Whilst the question of whether we’re about to face a recession is still dominating markets, risk assets posted a sharp rebound yesterday as the US got back from holiday. In fact by the close of trade, the S&P 500 (+2.45%) had put in its strongest daily performance in nearly a month, with every sector higher on the day and energy (+5.13%) doing most of the legwork. Even though the chart book showed that before yesterday the S&P was on course for the worst H1 since 1932 we did show in the CoTD (link here) that the top 5 H1 declines over the last 90 years were all followed by strong H2 performance. Before you think it's safe to come out from behind the sofa, S&P futures are around -1% lower this morning as the recession narrative makes a bit of a comeback. European futures are indicating that yesterday's gains (STOXX 600 +0.35%) will be eradicated which could end a three day winning streak. Oil prices are lower overnight with Brent Crude futures weakening -3.23% to $110.95/bbl while WTI futures are down -4.69% at $105.46/bbl amid a push by US President Joe Biden to bring down soaring fuel costs by calling for a temporary suspension of the 18.4-cents a gallon federal tax on gasoline. The demand destruction narrative is making a comeback in Asia as well. Today's big event is Fed Chair Powell's appearance before the Senate Banking Committee as part of the Fed’s semiannual Monetary Policy Report that they deliver to Congress. According to our US economists, they expect him to reiterate the same themes he gave at his post-meeting press conference last week, where he signalled that they’d likely be deciding between 50bps and 75bps at the July meeting. Fed funds futures are currently implying that another 75bps move is more likely, with +71.8bps currently priced in, but don’t forget that there’s still plenty yet to happen ahead of that meeting in just over a month, including the subsequent CPI release and jobs report for June, and as we found out at the last meeting, it’s not implausible that unexpected data releases throw the previous guidance off course. With all that to look forward to, Treasuries built on their selloff from last week, with the 10yr yield up +4.9bps to 3.27% as it echoed the higher yields we’d seen in Europe the previous day. In Asia, US 10yr yields (-1.89 bps) have dipped back down to 3.25%. They haven't had much in the way of Fedspeak to go off over the last 24 hours, although Richmond Fed President Barkin (a non-voter this year) said he “didn’t have a problem” with Powell’s guidance for the decision next month, and that he was in favour of the 75bps hike they did. Those moves in Treasuries also led to a steepening in the curve, with the 2s10s slope up +3.4bps to 7.2bps as they edged slightly further away from the inversion territory that they’ve briefly fallen into twice this year now. In Europe there was more of a divergence between core and peripheral yields however, and those on 10yr bunds (+2.2bps) closing at a post-2014 high, just as those on BTPs fell by -1.2bps. Some of the most significant news over the last 24 hours has been on the FX front, where the Japanese Yen fell to a fresh low for the 21st century of 136.71 per US Dollar this morning before bouncing back to 136.20 as I type. You’ve got to go all the way back to 1998 for the last time the currency was trading at a weaker level though. Prime Minister Fumio Kishida did not seem too concerned about BoJ monetary policy divergence and the impact on weakening the yen, saying in a debate policy needed to remain easy, perhaps lending more political support to the BoJ’s policies. Stocks across Asian markets are trading lower this morning, with the Kospi (-1.89%) the largest underperformer followed by the Hang Seng (-1.26%) after a two-day winning streak earlier this week. Markets in mainland China are also sliding with the Shanghai Composite (-0.33%) and CSI (-0.62%) both weak. Elsewhere, the Nikkei (+0.04%) gave up its early gains, hovering just above the flatline as I type. Bitcoin is at $20,332 in Asian trading. Here in the UK, gilts underperformed their counterparts elsewhere in Europe following remarks from BoE Chief Economist Pill that they would act “more aggressively” if required. In response, 10yr gilt yields rose +5.0bps to reach a fresh post-2014 high of 2.65%. Overnight index swaps are continuing to price in 50bp moves by the BoE at the next 3 meetings, with a path that would leave Bank Rate above 3% by year-end. There were also reports that former Italian Prime Minister Giuseppe Conte was considering leaving Mario Draghi’s coalition. While Draghi’s party would still likely retain a majority in both chambers of Parliament, it would leave a very narrow path to push through legislation to fix the economy or to resist dissent from coalition members – a theme all too familiar to Senate Democrats in the US. There wasn’t much in the way of data yesterday, although US existing home sales fell broadly as expected to an annualised rate of 5.41m in May (vs. 5.40m expected), which is their lowest level since June 2020 as the numbers were recovering after the initial wave of the pandemic. To the day ahead now, and the main highlight will be Fed Chair Powell’s testimony before the Senate Banking Committee. Other central bank speakers include the Fed’s Barkin, Evans and Harker, as well as BoE Deputy Governor Cunliffe. Otherwise, data releases include UK and Canadian CPI for May, as well as the European Commission’s preliminary consumer confidence indicator for the Euro Area in June. Tyler Durden Wed, 06/22/2022 - 07:52.....»»

Category: worldSource: nytJun 22nd, 2022