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Five Warning Signs The End Of Dollar Hegemony Is Near... Here"s What Happens Next

Five Warning Signs The End Of Dollar Hegemony Is Near... Here's What Happens Next Authored by Nick Giambruno via InternationalMan.com, It’s no secret that China and Russia have been stashing away as much gold as possible for many years. China is the world’s largest producer and buyer of gold. Russia is number two. Most of that gold finds its way into the Russian and Chinese governments’ treasuries. Russia has over 2,300 tonnes—or nearly 74 million troy ounces—of gold, one of the largest stashes in the world. Nobody knows the exact amount of gold China has, but most observers believe it is even larger than Russia’s stash. Russia and China’s gold gives them access to an apolitical neutral form of money with no counterparty risk. Remember, gold has been mankind’s most enduring form of money for over 2,500 years because of unique characteristics that make it suitable to store and exchange value. Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities. In other words, gold is the one physical commodity that is the “hardest to produce” (relative to existing stockpiles) and, therefore, the most resistant to inflation. That’s what gives gold its superior monetary properties. Russia and China can use their gold to engage in international trade and perhaps back the currencies. That’s why gold represents a genuine monetary alternative to the US dollar, and Russia and China have a lot of it. Today it’s clear why China and Russia have had an insatiable demand for gold. They’ve been waiting for the right moment to pull the rug from beneath the US dollar. And now is that moment… This is a big problem for the US government, which reaps an unfathomable amount of power because the US dollar is the world’s premier reserve currency. It allows the US to print fake money out of thin air and export it to the rest of the world for real goods and services—a privileged racket no other country has. Russia and China’s gold could form the foundation of a new monetary system outside of the control of the US. Such moves would be the final nail in the coffin of dollar dominance. Five recent developments are a giant flashing red sign that something big could be imminent. Warning Sign #1: Russia Sanctions Prove Dollar Reserves “Aren’t Really Money” In the wake of Russia’s invasion of Ukraine, the US government has launched its most aggressive sanctions campaign ever. Exceeding even Iran and North Korea, Russia is now the most sanctioned nation in the world. As part of this, the US government seized the US dollar reserves of the Russian central bank—the accumulated savings of the nation. It was a stunning illustration of the dollar’s political risk. The US government can seize another sovereign country’s dollar reserves at the flip of a switch. The Wall Street Journal, in an article titled “If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock,” noted: “Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.” Russian President Putin said the US had defaulted on its obligations and that the dollar is no longer a reliable currency. The incident has eroded trust in the US dollar as the global reserve currency and catalyzed significant countries to use alternatives in trade and their reserves. China, India, Iran, and Turkey, among other countries, announced, or already are, doing business with Russia in their local currencies instead of the US dollar. These countries represent a market of over three billion people that no longer need to use the US dollar to trade with one another. The US government has incentivized almost half of mankind to find alternatives to the dollar by attempting to isolate Russia. Warning Sign #2: Rubles, Gold, and Bitcoin for Gas, Oil, and Other Commodities Russia is the world’s largest exporter of natural gas, lumber, wheat, fertilizer, and palladium (a crucial component in cars). It is the second-largest exporter of oil and aluminum and the third-largest exporter of nickel and coal. Russia is a major producer and processor of uranium for nuclear power plants. Enriched uranium from Russia and its allies provides electricity to 20% of the homes in the US. Aside from China, Russia produces more gold than any other country, accounting for more than 10% of global production. These are just a handful of examples. There are many strategic commodities that Russia dominates. In short, Russia is not just an oil and gas powerhouse but a commodity superpower. After the US government seized Russia’s US dollar reserves, Moscow has little use for the US dollar. Moscow does not want to exchange its scarce and valuable commodities for politicized money that its rivals can take away on a whim. Would the US government ever tolerate a situation where the US Treasury held its reserves in rubles in Russia? The head of the Russian Parliament recently called the US dollar a “candy wrapper” but not the candy itself. In other words, the dollar has the outward appearance of money but is not real money. That’s why Russia is no longer accepting US dollars (or euros) in exchange for its energy. They are of no use to Russia. So instead, Moscow is demanding payment in rubles. That’s an urgent problem for Europe, which cannot survive without Russian commodities. The Europeans have no alternative to Russian energy and have no choice but to comply. European buyers must now first buy rubles with their euros and use them to pay for Russian gas, oil, and other exports. This is a big reason why the ruble has recovered all of the value it lost in the initial days of the Ukraine invasion and then made further gains. In addition to rubles, the top Russian energy official said Moscow would also accept gold or Bitcoin in return for its commodities. “If they want to buy, let them pay either in hard currency—and this is gold for us… you can also trade Bitcoins.” Here’s the bottom line. US dollars are no longer needed (or wanted) to buy Russian commodities. Warning Sign #3: The Petrodollar System Flirts With Collapse Oil is by far the largest and most strategic commodity market. For the last 50 years, virtually anyone who wanted to import oil needed US dollars to pay for it. That’s because, in the early ’70s, the US made an agreement to protect Saudi Arabia in exchange for ensuring, among other things, all OPEC producers only accept US dollars for their oil. Every country needs oil. And if foreign countries need US dollars to buy oil, they have a compelling reason to hold large dollar reserves. This creates a huge artificial market for US dollars and forces foreigners to soak up many of the new currency units the Fed creates. Naturally, this gives a tremendous boost to the value of the dollar. The system has helped create a deeper, more liquid market for the dollar and US Treasuries. It also allows the US government to keep interest rates artificially low, thereby financing enormous deficits it otherwise would be unable to. In short, the petrodollar system has been the bedrock of the US financial system for the past 50 years. But that’s all about to change… and soon. After it invaded Ukraine, the US government kicked Russia out of the dollar system and seized hundreds of billions in dollar reserves of the Russian central bank. Washington has threatened to do the same to China for years. These threats helped ensure that China cracked down on North Korea, didn’t invade Taiwan, and did other things the US wanted. These threats against China may be a bluff, but if the US government carried them out—as it recently did against Russia—it would be like dropping a financial nuclear bomb on Beijing. Without access to dollars, China would struggle to import oil and engage in international trade. As a result, its economy would come to a grinding halt, an intolerable threat to the Chinese government. China would rather not depend on an adversary like this. This is one of the main reasons it created an alternative to the petrodollar system. After years of preparation, the Shanghai International Energy Exchange (INE) launched a crude oil futures contract denominated in Chinese yuan in 2017. Since then, any oil producer can sell its oil for something besides US dollars… in this case, the Chinese yuan. There’s one big issue, though. Most oil producers don’t want to accumulate a large yuan reserve, and China knows this. That’s why China has explicitly linked the crude futures contract with the ability to convert yuan into physical gold—without touching China’s official reserves—through gold exchanges in Shanghai (the world’s largest physical gold market) and Hong Kong. PetroChina and Sinopec, two Chinese oil companies, provide liquidity to the yuan crude futures by being big buyers. So, if any oil producer wants to sell their oil in yuan (and gold indirectly), there will always be a bid. After years of growth and working out the kinks, the INE yuan oil future contract is now ready for prime time. And now that the US has banned Russia from the dollar system, there is an urgent need for a credible system capable of handling hundreds of billions worth of oil sales outside of the US dollar and financial system. The Shanghai International Energy Exchange is that system. Back to Saudi Arabia… For nearly 50 years, the Saudis had always insisted anyone wanting their oil would need to pay with US dollars, upholding their end of the petrodollar system. But that could all change soon… Remember, China is already the world’s largest oil importer. Moreover, the amount of oil it imports continues to grow as it fuels an economy of over 1.4 billion people (more than 4x larger than the US). China is Saudi Arabia’s top customer. Beijing buys over 25% of Saudi oil exports and wants to buy more. The Chinese would rather not have to use the US dollar, the currency of their adversary, to buy an essential commodity. In this context, The Wall Street Journal recently reported that the Chinese and the Saudis had entered into serious discussions to accept yuan as payment for Saudi oil exports instead of dollars. The WSJ article claims the Saudis are angry at the US for not supporting it enough in its war against Yemen. They were further dismayed by the US withdrawal from Afghanistan and the nuclear negotiations with Iran. In short, the Saudis don’t think the US is holding up its end of the deal. So they don’t feel like they need to hold up their part. Even the WSJ admits such a move would be disastrous for the US dollar. “The Saudi move could chip away at the supremacy of the US dollar in the international financial system, which Washington has relied on for decades to print Treasury bills it uses to finance its budget deficit.” Here’s the bottom line. Saudi Arabia—the linchpin of the petrodollar system—is flirting in the open with China about selling its oil in yuan. One way or another—and probably soon—the Chinese will find a way to compel the Saudis to accept the yuan. The sheer size of the Chinese market makes it impossible for Saudi Arabia—and other oil exporters—to ignore China’s demands to pay in yuan indefinitely. Moreover, using the INE to exchange oil for gold further sweetens the deal for oil exporters. Sometime soon, there will be a lot of extra dollars floating around suddenly looking for a home now that they are not needed to purchase oil. It signals an imminent and enormous change for anyone holding US dollars. It would be incredibly foolish to ignore this giant red warning sign. Warning Sign #4: Out of Control Money Printing and Record Price Increases In March of 2020, the chair of the Federal Reserve, Jerome Powell, exercised unfathomable power… At the time, it was the height of the stock market crash amid the COVID hysteria. People were panicking as they watched the market plummet, and they turned to the Fed to do something. In a matter of days, the Fed created more dollars out of thin air than it had for the US’s nearly 250-year existence. It was an unprecedented amount of money printing that amounted to more than $4 trillion and nearly doubled the US money supply in less than a year. One trillion dollars is almost an unfathomable amount of money. The human mind has trouble wrapping itself around such figures. Let me try to put it into perspective. One million seconds ago was about 11 days ago. One billion seconds ago was 1988. One trillion seconds ago was 30,000 BC. For further perspective, the daily economic output of all 331 million people in the US is about $58 billion. At the push of a button, the Fed was creating more dollars out of thin air than the economic output of the entire country. The Fed’s actions during the Covid hysteria—which are ongoing—amounted to the biggest monetary explosion that has ever occurred in the US. When the Fed initiated this program, it assured the American people its actions wouldn’t cause severe price increases. But unfortunately, it didn’t take long to prove that absurd assertion false. As soon as rising prices became apparent, the mainstream media and Fed claimed that the inflation was only “transitory” and that there was nothing to be worried about. Of course, they were dead wrong, and they knew it—they were gaslighting. The truth is that inflation is out of control, and nothing can stop it. Even according to the government’s own crooked CPI statistics, which understates reality, inflation is rising. That means the actual situation is much worse. Recently the CPI hit a 40-year high and shows little sign of slowing down. I wouldn’t be surprised to see the CPI exceed its previous highs in the early 1980s as the situation gets out of control. After all, the money printing going on right now is orders of magnitude greater than it was then. Warning Sign #5: Fed Chair Admits Dollar Supremacy Is Dead “It’s possible to have more than one reserve currency.” These are the recent words of Jerome Powell, the Chairman of the Federal Reserve. It’s a stunning admission from the one person who has the most control over the US dollar, the current world reserve currency. It would be as ridiculous as Mike Tyson saying that it’s possible to have more than one heavyweight champion. In other words, the jig is up. Not even the Chairman of the Federal Reserve can go along with the farce of maintaining the dollar’s supremacy anymore… and neither should you. Conclusion It’s clear the US dollar’s days of unchallenged dominance are quickly ending—something even the Fed Chairman openly admits. To recap, here are the five imminent, flashing red warning signs the end of dollar hegemony is near. Warning Sign #1: Russia Sanctions Prove Dollar Reserves “Aren’t Really Money” Warning Sign #2: Rubles, Gold, and Bitcoin for Gas, Oil, and Other Commodities Warning Sign #3: The Petrodollar System Flirts With Collapse Warning Sign #4: Out of Control Money Printing and Record Price Increases Warning Sign #5: Fed Chair Admits Dollar Supremacy Is Dead If we take a step back and zoom out, the Big Picture is clear. We are likely on the cusp of a historic shift… and what’s coming next could change everything. *  *  * The economic trajectory is troubling. Unfortunately, there’s little any individual can practically do to change the course of these trends in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. That’s precisely why bestselling author Doug Casey and his colleagues just released an urgent new PDF report that explains what could come next and what you can do about it. Click here to download it now. Tyler Durden Sat, 05/21/2022 - 14:30.....»»

Category: worldSource: nytMay 21st, 2022

How The West Was Lost: A Faltering World Reserve Currency

How The West Was Lost: A Faltering World Reserve Currency Authored by Matthew Piepenburg via GoldSwitzerland.com, The Western financial system and world reserve currency is now in open decline. From Rigged to Fail to Just Plain Failing Just two years ago, I wrote a book warning that Western markets in general, and US markets in particular, were Rigged to Fail. Well, now, in real time, they are failing. This hard reality has less to do with COVID or the war in the Ukraine and more to do with one simple force, which euphoric markets and clueless leaders have been ignoring for decades, namely: Debt. As I wrote then, and will repeat now: Debt destroys nations, financial systems, markets, and currencies. Always and every time. As we see below, the inflationary financial system is now failing because its debt levels have rendered it impotent to grow economically, react sensibly or sustain its chronic debt addictions naturally. The evidence of this is literally everywhere, from the Fed to the Petrodollar and the bond market to the gold price. Let’s dig in. The Fed: No Best-Case Scenarios Left The Fed has driven itself, and hence the U.S. markets and economy, into an all-too predictable corner and historically dangerous crossroads. If it turns to the left (i.e., more money printing/liquidity) to protect a record-breaking risk asset bubble, it faces an inflationary flood; if it turns to the right (and raises rates or tapers UST purchases), it faces a market inferno. How did we get to this crossroads? Easy: Decades of artificially suppressed rates, cheap credit and a $30T sovereign debt pile of unprecedented (and unsustainable) proportions. The Dying Bond Bull With so much of this unloved debt on its national back, no one but the Fed will buy Uncle Sam’s IOUs. As a result, long-dated Treasuries are falling in price and rising in yield as Bloomberg reminds us of the worst drawdown for global bonds in 20 years. In short, the central-bank created bond bull of the last 40-something years is now falling to its knees. Ironically, the only path to more demand for otherwise unloved bonds is if the stock market fully tanks and stock investors flee blindly back into bonds like passengers looking for lifeboats on the Titanic. Bonds & Stocks—They Can Fall Together Unless Saved by Debased Dollars But as the “Covid crash” of March 2020 painfully reminded us, in a world of central-bank-driven bubbles, historically over-valued stocks and bonds can and will fall together unless the Fed creates yet another multi-trillion-dollar QE lifeboat, which just kills the inherent strength of the dollar in your wallet. Hence and again: There’s no good options left. It’s either inflation or a market implosion. Fantasy & Dishonesty—The New Policy But this never stops the Fed from pretending otherwise or using words rather than growth to cover its monetary sins. Despite almost a year of deliberately lying about “transitory inflation,” the Fed has swallowed what little pride it has left and admitted to a real inflationary problem at home. In short, and as bond legend Mohamed El-Erian recently observed, the increasingly discredited Fed has no “best case” scenarios left. The Fed, along with its economically clue-less politicians, have essentially devolved the once-great US of A from developed country into one that resembles a developing country. In other words, the “American dream” as well as American exceptionalism, is being downgraded into a kind of tragi-comedy in real time—i.e., right now. Nevertheless, the always double-speaking Powell is doubling down on more fantasy (lies) about rising US labor participation and growth to help “produce” the USA out of the debt and inflationary hole which the Greenspan shovel initiated many “exuberant” years ago. But once again, Powell is wrong. Labor Participation—The Latest Fantasy Based on simple demographics, lack of love for US IOU’s, growing trade deficits (alongside rising deficit spending), and an over-priced USD, the US labor force participation will not be going up in time for the land of the world’s reserve currency to grow itself out of the 122% debt to GDP corner which the Fed has driven into (after decades of low-rate drunk driving). Without increased labor force participation, the only DC option left to fight inflation is to either 1) raise rates to induce a killer recession (and market implosion) or else 2) slash government deficits by at least 10%. Unfortunately, cutting deficits by 10% will also kill GDP by at least an equivalent amount, which weakens tax receipts and thus make it nearly impossible for Uncle Sam to pay even the interest alone on his national bar tab, as we’ve shown elsewhere. Addicts Are Predictable Creatures So, what will this cornered and debt-drunk Fed do? Well, what all addicts do—keep drinking—i.e., printing ever-more increasingly debased USD’s—which just creates more tailwinds for, you guessed it: Gold. (But also hard asset commodities in general, industrial equities and agricultural real estate.) In the meantime, the Fed, the US Government and its corporate-owned propaganda arms in the U.S. media will blame all this new money printing and continued deficit spending on Putin rather than decades of financial mismanagement out of DC. No shocker there. But Putin, even if you hate him, sees things the headlines are omitting. De-Dollarization and Petrodollar Rumblings—Uh Oh? There are increasing signs of “uh-oh” in the world of the once-mighty Petrodollar. From Trigger Happy to Shot in the Foot As we’ve been warning in our most recent reports, Western financial sanctions in response to the war in Ukraine have a way of doing as much damage to the trigger-puller as to the intended target. In simplest terms, freezing one county’s FX reserves and SWIFT transactions has a way of frightening other counter-parties, and not just the intended targets. Imagine, for example, if your bank accounts were frozen for any reason. Would you then trust the bank that froze your accounts down the road once the issue was resolved? Would you recommend that bank to others? Well, the world has been watching Western powers effectively freeze Putin’s assets, and regardless of whether you agree or disagree with such measures, other countries (not all of which are “bad actors”) are thinking about switching banks—or at least dollars… If so, the US has just shot itself in the foot while aiming for Putin. As previously warned, the Western sanctions are simply pushing Russia and China further together and further away from US Dollars and US Treasuries. Such shifts have massive ripple effects which Biden’s financial team appears to have ignored. And as everyone from Jamie Dimon to Barack Obama has previously warned, that’s not a good thing and is causing the broader world to re-think US financial leadership and US Dollar hegemony as a world reserve currency. Saudi Arabia: Re-Thinking the Petro-Dollar? Take that not-so-democratic “ally” of the US, Saudi Arabia, who Biden had called a “Pariah State” in 2020… As of March, the news out of Saudi is hinting that they would consider purchases of oil in CNY as opposed to USD, which would signal the slow end to the Petrodollar and only add more inflationary tailwinds to Americans suffering at home. One simply cannot underestimate (nor over-state enough) the profound significance of a weakening Petrodollar world. It would have devastating consequences for the USD and inflation, and would be an absolute boon for gold. Already, Xi is making plans to negotiate with Saudi Arabia, which is China’s top oil supplier. Meanwhile, Aramco is reaching out to China as well. What Can Saudi Do with Chinese Money? Some are arguing that the Saudi’s can’t purchase much with CNY. After all, the USD has more appeal, right? Hmmm. Considering the fact that US Treasuries offer zero to negative real yields, perhaps “all things American” just aren’t what they used to be… Saudis have now seen that the US is willing to seize US Treasuries as a form of financial warfare. Saudis (like many other nations—i.e., India and China) are certainly asking themselves if a similar move could be made against them in the future. Thus, it’s no coincidence that they too are looking East rather than West for future deals, and Russia could use its new Chinese currencies to buy everything from nuclear plants to gold bars in Shanghai—just saying… Oil Matters Meanwhile, and despite the media’s attempt to paint Putin as Hitler 2.0, the Russian leader knows something the headlines are ignoring, namely: The world needs his oil. Without Russian oil, the global energy and economic system implodes, because the system has too much debt to suddenly go it alone and/or fight back. See how sovereign debt cripples options and changes the global stage? Meanwhile Russia, which doesn’t have the same debt to GDP chains around its ankle as the EU and US, can start demanding payment for its oil in RUB rather than USD. As of this writing, Arab states are in private discussions with China, Russia and France to stop selling oil in USD. Such moves would weaken USD demand and strength, adding more inflationary fuel to a growing inflationary fire from Malibu to Manhattan. I wonder if Biden, Harris or anyone in their circle of “experts” thought that part through? Given their strength in optics vs. their weakness as to math, geography and history, it’s quite clear they did not and could not… Not to Worry? Meanwhile, of course, the WSJ and other Western political news organizations are assuring the world not to worry, as USD FX trading volumes dwarf those of Chinese (Russian) and other currencies. Fair enough. But for how long? Again, what many politicians and most journalists don’t understand (besides basic math), is basic history. Their myopic policies and smooth-tongued forecasts are based on the notion that if it’s not raining today, it can’t rain tomorrow. But it’s already raining on the US as well as US global financial leadership. Meanwhile, Russia’s central bank is now in motion to increase gold purchases with all the new RUBs (not USDs) it will be receiving from its oil sales. Investors must track these macro events very carefully in the coming weeks and months. A Multi-Currency New World The bottom line, however, is that the world is slowly moving away from a one-world-reserve-currency era to an increasingly multi-currency system. Once the sanction and financial war genie is out of the bottle, it’s hard to put back. Trust in the West, and its USD-led currency system, is changing. By taking the chest-puffing decision to freeze Russian FX reserves, sanction Russian IMF SDR’s and remove its access to SWIFT payments systems, the US garnered short-term headlines to appear “tough” but ushered a path toward longer term consequences which will make it (and its Dollar) weaker. As multi-currency oil becomes the new setting, the inflationary winners will, again, be commodities, industrials and certain real estate plays. Gold Matters As for gold, it remains the only true neutral reserve asset of global central bank balance sheets and is poised to benefit the most over time as a non-USD denominated energy market slowly emerges. Furthermore, Russia is allowing payments in gold for its natural gas. And for those (i.e., Wall Street) who still argue gold is a “pet rock” and “barbarous relic” of the past, it may be time to rethink. After all, why has the Treasury Department included an entire section in its Russian sanction handbook on gold? The answer is as obvious as it is ignored. Chinese banks (with Russian currency swap lines) can act as intermediaries to help Russia use the gold market to “launder” its sanctioned money. That is, Russia can and will continue to trade globally (Eurasia, Brazil, India, China…) in what boils down to a truly free market of “gold for commodities” which not even those thieves at the COMEX can artificially price fix—something not seen in decades. De-Globalization Stated simply: The mighty dollar and “globalization” dreams of the West are slowly witnessing an emerging era of inflationary de-globalization as each country now does what is required and best for itself rather than Klaus Schwab’s megalomaniacal fantasies. The cornered US, of course, will likely try to sanction gold transactions with Russia, but this would require fully choking Russia energy sales to the EU, which the EU economy (and citizens) simply can’t afford. In the meantime, a desperate French president is considering stimulus checks for gas and food. That, by the way, is inflationary… History Repeating Itself Again, the debt-soaked, energy-dependent West is not as strong as the headlines would have you believe, which means gold, as it has done for thousands of years, will rise as failed leaders, debt-soaked nations and world reserve currencies fall. History, alas, is as important as math, price-discovery and supply and demand. Sadly, the vast of majority of modern leaders know almost nothing of these forces or topics. If gold could speak in words, it would simply say: “Shame on them.” But gold does speak in value, and it’s getting the last laugh on the currencies now weakening in our wallets and the debt-drunk leaders now squawking in our headlines. Tyler Durden Thu, 03/31/2022 - 05:00.....»»

Category: blogSource: zerohedgeMar 31st, 2022

The Dollar: A Victim Of Its Own Success?

The Dollar: A Victim Of Its Own Success? Authored by James Rickards via DailyReckoning.com, America’s most powerful weapon of war does not shoot, fly or explode. It’s not a submarine, plane, tank or laser. America’s most powerful strategic weapon today is the dollar... The U.S. uses the dollar strategically to reward friends and punish enemies. The use of the dollar as a weapon is not limited to trade wars and currency wars, although the dollar is used tactically in those disputes. The dollar is much more powerful than that. The dollar can be used for regime change by creating hyperinflation, bank runs and domestic dissent in countries targeted by the U.S. The U.S. can depose the governments of its adversaries, or at least blunt their policies without firing a shot. Consider the following. The dollar constitutes about 60% of global reserves, 80% of global payments and almost 100% of global oil transactions. European banks that make dollar-denominated loans to customers have to borrow dollars to fund those liabilities. Being based in Switzerland or Germany does not allow you to escape from the dollar’s dominance. The U.S. not only controls the dollar itself. It controls the dollar payments system. This consists of the Treasury’s digital ledger of holders of U.S. debt, the Fedwire payments system among U.S. Fed member banks and the Clearing House Association (successor to the New York Clearing House and proprietor of CHIPS, the Clearing House Interbank Payments System) composed of the largest U.S. banks. A dollar payment going from a bank in Shanghai to another bank in Sydney runs through one of these U.S.-controlled payments systems. In short, the dollar is the oxygen supply for world commerce and the U.S. can cut off your oxygen whenever it wants. The list of ways in which the dollar can be weaponized is extensive. The U.S. uses the dollar to force its enemies into fronts, crude barter or the black market if they want to do business. Examples of the U.S. employing these financial weapons are ubiquitous. The U.S. slapped sanctions on Russia after the 2014 annexation of Crimea and invasion of Eastern Ukraine. The U.S. waged a full-scale financial war with Iran from 2011–13 that resulted in bank runs, hyperinflation, local currency devaluation and social unrest. The U.S. slapped stiff penalties on China for theft of intellectual property. Other obvious victims of U.S. financial weapons are North Korea, Syria, Cuba and Venezuela. The actions described above did not arise in the normal course of trade and finance. The Russian, Iranian and other sanctions noted are explicitly geopolitical, while the Chinese sanctions are geostrategic to the extent the U.S. and China are vying for technological supremacy in the 21st century. None of these sanctions would be effective or even possible without the use of the dollar and the dollar payments system. Yet for every action there is a reaction. America’s adversaries realize how vulnerable they are to dollar-based sanctions. In the short run, they have to grin and bear it. They’re fully invested in the dollar both in their reserves and in the desire of their largest companies like Gazprom (Russia) and Huawei (China) to become major global players. Our adversaries and so-called allies are not standing still. They are already envisioning a world where the dollar is not the major reserve and trade currency. In the longer run, Russia, China, Iran and others are working flat-out to invent and implement non-dollar transactional currencies and independent payments systems. I’ve been warning for years about efforts of nations like Russia and China to escape what they call “dollar hegemony” and create a new financial system that does not depend on the dollar and helps them get out from under dollar-based economic sanctions. These efforts are only increasing. Gold is the oldest form of money. The use of gold is the ideal way to avoid U.S. financial warfare. Gold is physical so it cannot be hacked. It is completely fungible (an element, atomic number 79) so it cannot be traced. Gold can be transported in sealed containers on airplanes so movements cannot be identified through wire transfer message traffic or satellite surveillance. Russia, for example, can settle its balance of payments obligations with gold shipments or gold sales and avoid U.S. asset freezes by not holding assets the U.S. can reach. Russia is providing other nations a model to achieve similar distance from U.S. efforts to use the dollar to enforce its foreign policy priorities. Even Europe is showing signs it wants to escape dollar hegemony. The German foreign minister has called for a new EU-based payments system independent of the U.S. and SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would not involve dollar payments. SWIFT is the nerve center of the global financial network. All major banks transfer all major currencies using the SWIFT message system. Cutting a nation off from SWIFT is like taking away its oxygen. The U.S. had previously banned Iran from the dollar payments system (Fedwire), which it controls, but Iran turned to SWIFT to transfer euros and yen in order to maintain its receipt of hard currency for oil exports. In 2013, the U.S. successfully kicked Iran out of SWIFT. This was a crushing blow to Iran because it could not receive payment in hard currencies for its oil. This pushed Iran to the bargaining table, which resulted in a nuclear deal with the U.S. in 2015. But in the longer run, this is just one more development pushing the world at large away from dollars and toward alternatives of all kinds, including new payment systems and cryptocurrencies, possibly backed by gold. Imagine a three-way trade in which North Korea sells weapons to Iran, Iran sells oil to China and China sells food to North Korea. All of these transactions can be recorded on a blockchain and netted out on a quarterly basis with the net settlement payment made in gold shipped to the party with the net balance due. That’s a glimpse of what a future non-dollar payments system looks like. The bottom line is the world is looking to turn away from dollar dominance in global finance. It may end sooner than most expect. We are getting dangerously close to that point right now. Tyler Durden Fri, 02/25/2022 - 17:00.....»»

Category: blogSource: zerohedgeFeb 25th, 2022

Futures, Yields Slide In Recessionary Start To New Quarter

Futures, Yields Slide In Recessionary Start To New Quarter As DB's Jim Reid puts it "if you want the good news this morning it's that H1 is now finally over. If you want the bad news it's that there's not much good news around as we start H2 and US equity futures are already down around a percent in the first few hours of the new half year. " Indeed, just when you thoughts stocks couldn't possibly slide any more after just concluding the worst first half in 52 years... ... and with investor and consumer sentiment at record lows, you'd be shocked to learn that futures and stocks started the new month and quarter by plumbing fresh lows as fears of soaring inflation and tumbling earnings boosted concerns about an imminent recession, and the resulting risk aversion lifted bonds and havens and sent risk sliding.  The "Big Short" Michael Burry said we may only be about halfway through the market's decline... Adjusted for inflation, 2022 first half S&P 500 down 25-26%, and Nasdaq down 34-35%, Bitcoin down 64-65%. That was multiple compression. Next up, earnings compression. So, maybe halfway there. — Cassandra B.C. (@michaeljburry) June 30, 2022 ... while Goldman was also downbeat, seeing global equities selling off further in the near term. As of 730am, S&P 500 and Nasdaq 100 pointed to declines of 0.3%, having shaved off as much as a 1% drop earlier... ... while 10-year US Treasury yield slid below 3% to the lowest since early June as markets now price in a record 10bps in rate cuts in Q1 2023 with markets confident the Fed will have to pivot to defeat the coming recession. Every Group-of-10 currency fell against the dollar and the yen, traditional havens, while bitcoin reversed a modest attempt at a breakout that briefly pushed it back over $20K. In premarket trading, shares of US chip companies fell after Micron Technology issued a downbeat forecast on weaker demand for phones and computers. Bank stocks are also lower in premarket trading, putting them on track for their fifth straight day of losses amid a broader slump in equity markets. Other notable premarket movers: Kohl’s (KSS US) plunges 15% in US premarket trading after CNBC reported it’s ending sale talks with Vitamin Shoppe owner Franchise Group. Semiconductor companies are falling on Friday after Micron Technology issued a weak forecast for the current quarter due to lower demand for phones and computers. Micron (MU US) -5.5%, Nvidia -1.3% (NVDA US), Qualcomm (QCOM US) -0.7%. Cryptocurrency-exposed stocks could be active again on Friday as Bitcoin dip buyers are triggering a rally for the largest digital token. Riot Blockchain (RIOT US), Marathon Digital (MARA US) edge up 2.4% and 2.6%, respectively, in premarket. XPeng (XPEV US) burning cash in the short-term is unavoidable, Nomura says in a note that downgrades the Chinese EV maker to neutral from buy. Shares down 0.2% premarket. Risk assets continued to be the target of sellers Friday as recession worries overtake concern about runaway inflation. With Federal Reserve policymakers resolute on getting price growth back to their 2% target, investors are assessing the hit to the economy from harsh rate hikes. “Inflation is the key focus of central bankers; investors losing money is way down their list of concerns,” Chris Iggo, chief investment officer at AXA IM Core, wrote in a note to clients. “Interest rate and inflation markets are taking the view that what is priced in terms of monetary tightening will be enough to bring inflation down, but in order for that to happen, there also needs to be a cost to growth.” Meanwhile, both stocks and bonds were rocked by outflows this week, reflecting investor fears about hawkish central bank policy. About $5.8 billion exited global stock funds in the week through June 29, Bank of America said, citing EPFR Global data. Bonds had redemptions of $17 billion. Separately, global companies have pulled more debt sales in the past six months than in all of 2020. More than 70 deals have been postponed or canceled so far in 2022, according to data compiled by Bloomberg. In Europe, markets reversed sharp opening losses with the Stoxx 600 briefly turning green before sliding 0.5% lower with retail and utility names supporting on the recovery. Bund yields rose after data showed euro-area inflation hit a fresh record, surpassing expectations.  Here are some of the biggest European movers today: European airlines rise on Friday, paring some declines from previous sessions, as oil is headed for the third straight weekly drop on concerns that a potential recession will hurt demand. Wizz Air rises as much as +10%, EasyJet +6.2%, British Airways owner IAG +4.4% Airbus shares rise as much as 4% after BofA analysts led by Benjamin Heelan added the aircraft manufacturer to the bank’s ‘3Q Best Ideas list,’ according to a note. SBB shares advance as much as 21.5% Friday, its largest intra-day gain since April 2017, after the company was included in Nasdaq Stockholm’s OMXS30 index. Sodexo shares gain as much as 5.6%, the most since April 8, after the French caterer reported 3Q revenue that beat the average analyst estimate. Morgan Stanley says Friday’s update is a “relief.” Maersk shares rise as much as 3.0% after JPMorgan upgraded the stock to overweight from neutral and placed it and Kuehne Nagel on their “positive Catalyst Watch” for Q2, citing increased confidence in the longevity of current earnings. European semiconductor stocks tumble after US memory- chip maker Micron 4Q outlook fell short of analyst expectations and said the industry demand environment has weakened. Chipmaker Infineon falls as much as 5.0%, ASML drops 4.9% La Francaise des Jeux shares decline as much as 9.0% after Citi cuts the stock to sell from buy, citing concession fee to be paid that is worse than Street expectations. Craneware declines as much as 12% after an offering of ~1.2m shares by holder Abry Partners VII priced at 1,600p, a 13% discount to last close. OVH Groupe shares drop as much as 6.5% after the analysts adjusted their estimates amid a softening demand outlook. Earlier in the session, Asian stocks declined for a third day, as traders assessed recession risks in the global economy after weak US consumer spending and soft factories data from the region. Investors are also keeping an eye on developments from the Chinese President’s Hong Kong visit.  The MSCI Asia Pacific Index slid as much as 1.1%, adding to nearly 2% weekly loss, weighed down by tech and consumer discretionary stocks. Chipmakers including TSMC and Samsung extended their declines, contributing the most to the measure’s loss along with Australian miner BHP and Indian energy giant Reliance.  Taiwan’s benchmark was again the region’s notable underperformer as it is on course for a bear market following more than a 20% fall from its January high, dragged down by technology stocks. Equity benchmarks in Japan and South Korea slipped more than 1%. Stocks in mainland China retreated after meandering between gains and losses while Hong Kong was closed for a holiday as its new chief was sworn in by Chinese President Xi Jinping.  A further slide in June purchasing managers’ indexes in Asian countries except China and the drop in US consumer spending for the first time this year in May highlighted the fragile foundation of the world economy. Those data dimmed global economic outlook and further dented investor sentiment already weakened by ongoing worries about global central banks’ aggressive rate hikes to fight inflation.  “Overall, weakened US consumer spending will lead to a drop in global demand. It will affect export-dominated markets like South Korea in particular,” said Cui Xuehua, a China equity analyst at Meritz Securities in Seoul. “Traders are also looking to see if there will be policies benefiting Hong Kong, such as a re-opening of borders and increased trade” as Xi visits Hong Kong. Asian stocks plunged about 18% during the first half of this year, capping the first six months with the worst annual drop since 2008. Asian equities have struggled to rebound from a low in May as global recession worries and aggressive tightening by central banks triggered heavy outflows of funds from emerging markets. Chinese stocks have remained a bright spot last month as Beijing winds down its stringent virus restrictions and investors expected regulatory and monetary support for key sectors.   In Australia, the S&P/ASX 200 index fell 0.6% for the week, as the risk-sensitive Australian and New Zealand dollars slumped to their lowest levels in two years amid ongoing recession worries that boosted haven assets. After a late sell-off Friday, shares swung to a loss of 0.4% to close at 6,539.90, driven by declines in energy and material stocks, with a group of mining shares hitting the lowest since Nov. 22 following commodity price drops.  In New Zealand, the S&P/NZX 50 index fell 1.1% to 10,753.16 In FX, the Bloomberg Dollar Spot Index rose by around 0.3% as the greenback traded stronger against all of its Group-of-10 peers apart from the yen. Australian and New Zealand dollars plunged to new two-year lows. The euro fluctuated around $1.0450 after the latest data showed that euro-area consumer prices rose 8.6% from a year earlier in June -- up from 8.1% in May. Economists surveyed by Bloomberg saw a gain of 8.5%. The yen rose and the nation’s bonds were steady to higher. One-week options in dollar-yen are once again overpriced as short-term risks make a strong case for long-gamma exposure. Bank of Japan’s quarterly Tankan report of confidence among Japan’s large manufacturers fell to 9 in June from 14 three months ago, the biggest drop since the peak of the pandemic. In rates, the German curve bear-steepened, with long-end yields ~7bps cheaper after a manufacturing PMIs show notable softness in new orders. Cash Treasuries extended Thursday’s bull steepening move, with front-end and belly dropping over 10bp from prior day’s close while richer by ~4bps at the short end. Ten-year yields fell further to below 3%, breaching the 50-day moving average, while eurodollar strip bull flattens as recession risk and Fed rate cuts continue to be priced in for next year.  10-year yields dropped to as low as 2.937%, the lowest since June 6, before edging back above 2.95% in early US session, outperforming bunds by 5.5bps. The belly and front-end outperformance causing a steepening of 5s30s curve by 6bp on the day and 2s10s by 3bps; 5s30s peaks through 20bp and onto widest levels in a month. Two-year yield fell 10bp to 2.85%. The Eurodollar strip continues to bull flatten as rate hike premium is eased out of next year; Dec22/Dec23 spread drops to -63.5bp and fresh cycle lows.  German government benchmark yields rose after data showed euro-area inflation hit a fresh record, surpassing expectations. The Stoxx Europe 600 Index wavered between losses and gains. Gilts are relatively quiet. Most peripheral spreads are modestly wider to core. In commodities, crude futures advance. WTI drifts 1.9% higher to trade near $107.73. Brent rises 2% near $111.23. Most base metals are in the red. LME copper briefly drops below $8,000 a ton for the first time since February 2021. Spot gold falls roughly $12 to trade near $1,795/oz.  Looking to the day ahead, data releases include the flash Euro Area CPI reading for June, as well as June’s global manufacturing PMIs and the ISM manufacturing reading from the US, along with the UK’s mortgage approvals for May. From central banks, we’ll hear from the ECB’s Panetta and De Cos. Market Snapshot S&P 500 futures down 0.4% to 3,774.25 MXAP down 1.0% to 156.37 MXAPJ down 1.0% to 519.11 Nikkei down 1.7% to 25,935.62 Topix down 1.4% to 1,845.04 Hang Seng Index down 0.6% to 21,859.79 Shanghai Composite down 0.3% to 3,387.64 Sensex down 0.6% to 52,688.97 Australia S&P/ASX 200 down 0.4% to 6,539.91 Kospi down 1.2% to 2,305.42 STOXX Europe 600 little changed at 407.16 German 10Y yield little changed at 1.39% Euro down 0.2% to $1.0459 Brent Futures up 0.8% to $109.95/bbl Gold spot down 0.7% to $1,794.17 US Dollar Index up 0.26% to 104.95 Top Overnight News from Bloomberg The Bank of Japan’s decision to pass up an opportunity to ramp up its policy defenses points to a fear of triggering a further weakening of the embattled yen Japan’s state pension fund, the world’s largest, posted its first quarterly loss in two years as declines in global stock and bond markets during the three months through March weighed down the value of its assets After years of subdued price swings caused by central bank intervention, a key gauge of volatility in the 1 quadrillion yen ($7.4 trillion) government bond market has surged in recent weeks to the highest level since 2008. That’s boosting demand for JGB traders, with Nomura Holdings Inc. noting signs of intensifying competition for talent Copper sank below $8,000 a ton, hitting its lowest since early 2021, as deepening fears about a global economic slowdown drive a rout in industrial metals markets Chinese President Xi Jinping urged Hong Kong to shore up its economy after an era of “chaos,” in a landmark visit that offered few clear answers for how to balance Beijing’s demands for limiting perceived foreign threats with its desire to remain an international financial hub A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks began the new trading month mostly in the red as the region digested a slew of data releases and amid headwinds from the US where Consumer Spending data disappointed and Atlanta Fed's GDPnow model alluded to a recession.     ASX 200 was just about kept afloat by resilience in nearly all industries aside from the commodity-related sectors. Nikkei 225 fell beneath the 26,000 level after the latest Tankan survey mostly disappointed. Shanghai Comp. traded indecisively despite the stronger than expected Caixin Manufacturing PMI data which rose to its highest since May 2021 as sentiment in the mainland was constrained by falling commodity prices, as well as the absence of Hong Kong participants and Stock Connect flows. Top Asian News Chinese President Xi said "one country, two systems" has been successful for Hong Kong over the past 25 years and said Hong Kong is a window and a bridge connecting the mainland to the world, while he added that Hong Kong has to defend against interference and focus on development, according to Bloomberg and Reuters. Hong Kong's new Chief Executive Lee was sworn in and stated the National Security Law brought stability after chaos, while he added the government will strive to control and manage COVID-19 through scientific methods, according to Reuters. UK PM Johnson said China has been failing to comply with its commitments on Hong Kong and the UK intends to do all it can to hold China to account, according to Reuters. PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.10% for a CNY 50bln net daily drain, according to Reuters. World’s Top Pension GPIF Posts Quarterly Loss on Stock Rout Three Arrows Crypto Fund CEO Wants to Sell Singapore Mansion Kishida Says LNG Supply From Sakhalin Won’t Immediately Stop Japan Mulls LNG From Spot Market to Replace Russian Supply: METI European bourses are back in the red after briefly recovering from opening losses. Sectors are mixed with no clear theme - Tech is the laggard and Utilities the outperformer. Chip stocks are after sources said TSMC has seen its major clients adjust downward their chip orders for the rest of 2022, whilst Micron's guidance was underwhelming. Stateside, US equity futures remain in negative territory but off worst levels as the contracts coat-tail on some of Europe’s upside. Top European News French government spokesperson said a possible cabinet reshuffle could take place Monday or Tuesday, according to Reuters. Euro-Zone Inflation Hits Record in Boost for Big-Hike Calls Food Inflation Gets a Break as Wheat, Corn and Soy Oil Tumble UK House Sales Slow as ‘Intense’ Market Starts to Cool FX Dollar regroups after late month end fade amidst broad gains ahead of US manufacturing ISM and construction spending - DXY retests 105.000+ levels from 104.640 low yesterday. Yen bucks trend, but off recovery peaks as yields firm up and risk aversion wanes - Usd/Jpy around 135.500 vs 134.74 overnight base. Aussie underperforms and hits fresh 2022 trough sub-6800 and Kiwi under 0.6200 after decline in ANZ consumer sentiment. Pound undermined by downward revision to UK manufacturing PMI with Cable below 1.2100 and prone to test of Fib support if 1.2050 breached. Euro back on 1.0400 handle and propped by better than forecast Eurozone manufacturing PMIs and stronger than expected inflation metrics. Rand extends declines alongside Gold as SA power and pay issues rumble on - Usd/Zar above 16.3400, spot bullion below Usd 1800/oz. Fixed Income Debt futures rack up more safe haven gains before recovery in risk sentiment and sharp reversal. Bunds recoil from 149.46 to 148.24, Gilts retreat to 113.79 from 114.52 and 10 year T-note pulls back from 118-29+ to 118-06 as benchmark yield retests 3% briefly. Bonds subsequently bounce off lows awaiting US manufacturing ISM and construction spending ahead of long Independence Day holiday weekend. Commodities WTI and Brent front-month futures retrace some of yesterday’s losses with upside also spurred the recovery across the stock markets Libya's NOC announced a force majeure over Es Sider, Ras Lanuf Ports and the El Feel oilfield, while it noted that oil production decreased as daily exports ranged between 365-408k BPD which is a decline of 865k BPD, according to Reuters. Spot gold is under pressure after the yellow metal breached USD 1,800/oz to the downside – with the next level to the downside at USD 1,786/oz, the May 16th low. Base metals are softer across the board as recession woes grapple with the risk-correlated market. LME 3M copper briefly fell beneath the USD 8,000/t for the first time since January. India raised the basic import tax on gold to 12.5% from 7.5%, according to BQ Prime citing a Gazette notification. US Event Calendar 09:45: June S&P Global US Manufacturing PM, est. 52.4, prior 52.4 10:00: May Construction Spending MoM, est. 0.4%, prior 0.2% 10:00: June ISM Manufacturing, est. 54.5, prior 56.1 DB's Jim Reid concludes the overnight wrap If you want the good news this morning it's that H1 is now finally over. If you want the bad news it's that there's not much good news around as we start H2 and US equity futures are already down around a percent in the first few hours of the new half year. Having said that it's eminently possible that whatever age you are reading this you might ALL have now witnessed the worst first half of a year in your career either looking back or forward. So if you've survived that it might not all be bad news. Younger readers can come back to me after the awful H1 2055 and tell me I'm wrong. Henry will put out some more stats in our usual month-end performance review shortly, which reads like a bit of a horror story, but for what it’s worth the S&P 500 has now seen its worst H1 total return performance in 60 years, and also in total return terms it’s fallen for two consecutive quarters for the first time since the GFC. Meanwhile 10yr Treasuries look set (with a final calculation imminent) to have recorded their worst H1 since 1788, just before George Washington became President. As I mentioned in a previous chart of the day, bad H1’s for equities have tended to be followed by much better H2’s. But with increasing warnings that a recession is round the corner, it isn’t so obvious where things are headed this time round. Indeed, equities saw another significant selloff yesterday as those fears were magnified yet again by another weaker than expected round of data which genuinely puts the US at risk of a technical recession in H1 already. That included the US weekly initial jobless claims for the week through June 25, which although coming in inline at 231k (vs. 230k expected), did send the smoother 4-week moving average up to its highest level so far this year. Our preferred measure, namely containing claims, edged up but is not yet signalling a recession though. Personal spending also came in at just +0.2% in May (vs. +0.4% expected), and the prior month was revised down three-tenths as well, whilst real personal spending (-0.4%) saw its first monthly decline of the year as well. That translated to a 0.3% MoM Core PCE reading, below expectations of 0.4%, while the YoY reading was 6.3%. The prospect of the Fed being forced into hikes to fight stubborn inflation while growth is rolling over appears to be something the markets will have to wrestle with sooner rather than later. Indeed, the Atlanta Fed’s 2Q GDP nowcast estimate was revised down from 0.3% to -1.0% which if proved correct will signal a technical recession as a minimum. Today's ISM will be a big sentiment driver on this front. Against the weak growth backdrop, the S&P 500 (-0.88%) continued its run of having declined every day this week, whilst Europe’s STOXX 600 (-1.50%) saw even sharper losses. Utilities (+1.10%) were the clear outperformer, as investors rotate into defensive sectors. In turn, the NASDAQ underperformed, closing down -1.33%, also finishing in the red every day this week to date. The S&P 500 lost -20.58% in the first half of the year, its worst first half performance since 1970. Meanwhile, the NASDAQ has fared even worse, declining -22.44% this quarter alone and -29.51% in the first half of the year, its worst first half in the data available in Bloomberg. But in some ways the fear was more evident among sovereign bonds, which rallied significantly as investors continued to seek out safe havens and grew more doubtful about whether central banks would be able to persist in taking policy into aggressive territory. Indeed, the rate priced by Fed funds futures for the December 2022 meeting came down -6.5bps to 3.39%, and the rate priced by December 2023 came down an even larger -13.6bps to 2.96%. Those shifting expectations meant that yields on 10yr Treasuries fell back beneath 3% in the session for the first time in nearly 3 weeks, ultimately settling -7.6bps lower on the day at 3.01%. The decline in 10yr yields was split between breakevens and real yields, as both had a volatile session to end the quarter. Breakevens fell -4.7bps to 2.35%, their lowest levels since September. Other recessionary indicators were flashing warning signs of their own, with the near-term Fed spread down another -14.9bps to 142bps, meanwhile the 2s10s curve managed to eek out a marginal steepening, but is still flirting with inversion, closing at just 5.1bps. This morning, 10yr UST yields (-5.92 bps) are lower again, moving back below 3% to 2.95% with the 2s10 curve flattening -1bps at 4.13% as we type. We saw much the same pattern in Europe yesterday, albeit with even larger moves lower in yields that sent those on 10yr bunds (-18.3bps), OATs (-15.2bps) and BTPs (-13.3bps) sharply lower. As in the US, European sovereign yield declines were driven by falling inflation compensation, with the 10yr German breakeven coming down by -12.3bps to 2.03%, which is its lowest closing level since Russia’s invasion of Ukraine began. That was echoed in a declining oil price with Brent crude down -1.60% yesterday at $109.52/bbl, meaning that oil prices saw a monthly decline in June for the first time since November 2021, back when the Omicron variant first emerged and travel restrictions started going back up again. Speaking of energy prices, there were a few interesting headlines on that front yesterday, including a comment from President Biden that he is seeking more production from the Gulf states. Biden is set to travel to the Middle East from July 13-16, so that’s an important event on the geopolitical calendar, and ahead of that, we also saw the OPEC+ group move to ratify yesterday a further supply hike of +648k barrels per day in August. In Europe however there was more bad news on the energy side, with natural gas futures up a further +3.53% to a fresh three-month high of €144.51 per megawatt-hour. My colleague George Saravelos put out a fascinating blog yesterday (link here) that highlighted how worried he’s becoming on the gas supply situation, with year-ahead natural gas prices making fresh record highs and electricity prices skyrocketing. A key event as part of that will be the shutdown of the Nordstream pipeline from July 11-21 for regular annual maintenance, and press reports are suggesting that authorities are attempting to find a solution on sanctions restrictions to move gas turbine components back to Russia. So while we all spend most of our time thinking about the Fed and recessions, what happens to Russian gas over H2 is potentially an even bigger story. Mark July 22nd in your dairies to see whether the gas supply starts getting back to normal or not. Asian equity markets are reversing early morning gains and are mostly down again. The Kospi (-1.04%) is the largest underperformer across the region followed by the Nikkei (-0.88%). Over in mainland China, the Shanghai Composite (-0.30%) and CSI (-0.20%) are down but are trimming losses, as the nation’s private factory activity rose at the fastest pace in 13 months in June (more on this below). Markets in Hong Kong are closed for a holiday marking the 25th anniversary of Chinese rule. Bucking the regional trend is Australia’s S&P/ASX 200 which is trading +0.26% higher at the time of writing. Outside of Asia, stock futures are once again sliding with contracts on the S&P 500 (-0.84%) and NASDAQ 100 (-0.86%) indicating a disappointing start in the US later today. Early morning data showed that China’s Caixin/Markit manufacturing PMI advanced to 51.7 in June, returning to expansion territory for the first time in four months against a previous reading of 48.1 and well above analyst expectations for an uptick to 50.1. The recovery as suggested in the survey was propelled by a strong rebound in output, as the easing Covid restrictions sent factories racing to meet recovering demand. Over in Japan, Tokyo’s June CPI rose +2.3% y/y (v/s +2.5% expected) and against a +2.4% increase in the prior month. Core CPI advanced +2.1% in June from a year earlier, notching the fastest pace of increase in seven years in a sign of broadening inflationary pressure in the world’s third largest economy. Separately, the unemployment rate in Japan surprisingly edged up to +2.6% in May from +2.5% in April. Meanwhile, sentiment at Japan’s large manufacturers deteriorated in the April-to-June period as the headline index worsened to a level of +9, a decline from the previous quarter’s reading of 14. Looking at yesterday’s other data, French CPI came in at +6.5% as expected on the EU-harmonised measure in June, although German unemployment unexpectedly rose +133k in June (vs -5k expected) as Ukrainian refugees are now being included in those looking for work. Looking back to May however, the Euro Area unemployment rate hit its lowest level since the formation of the single currency at 6.6% (vs. 6.8% expected). Finally in the US, the MNI Chicago PMI came in at 56.0 (vs. 58.0 expected). To the day ahead now, and data releases include the flash Euro Area CPI reading for June, as well as June’s global manufacturing PMIs and the ISM manufacturing reading from the US, along with the UK’s mortgage approvals for May. From central banks, we’ll hear from the ECB’s Panetta and De Cos. Tyler Durden Fri, 07/01/2022 - 07:57.....»»

Category: blogSource: zerohedgeJul 1st, 2022

Dow Jones futures drop 340 points after tough Fed talk drives fresh concerns about a recession

Fed Chair Jerome Powell said interest rate hikes are "highly likely to involve some pain," adding to investors' jitters about slower economic growth. Investors are increasingly worried about the US economy.Justin Sullivan/Getty Images US stock futures fell sharply Thursday, with the Dow dropping 340 points, as traders worried about a recession. Fed Chair Jerome Powell and other central bankers on Wednesday reiterated their commitment to taming inflation, even at the expense of growth. Longer-dated bond yields fell, in a sign investors expect central banks to have to cut interest rates in the future. US stock futures tumbled Thursday after Federal Reserve Chair Jerome Powell's tough talk on inflation sparked fresh concerns among investors about a recession.Dow Jones futures fell as much as 380 points and were down 1.11%, or 343 points, as of 6.00 a.m. ET. S&P 500 futures were 1.43% lower, and Nasdaq 100 futures were down 1.80%.European stocks dropped as economic fears also mounted on the continent, with the pan-continental Stoxx 600 down 1.82% in morning trading. Frankfurt's DAX lost 2.37%, while London's FTSE 100 was 1.80% lower.In Asia overnight, Tokyo's Nikkei 225 fell 1.54%. But China's CSI 300 bucked the trend and rose 1.44% on signs that the outlook is improving for the world's second-biggest economy.Strong words on inflation from the world's most important central bankers on Wednesday triggered the latest sell-off in stocks.Speaking at a European Central Bank conference in Portugal, Powell said the US economy remains strong. But he said there's "no guarantee" that it will avoid a sharp slowdown as the Fed hikes interest rates, underlining the central bank is prioritizing its efforts to tame inflation."The process is highly likely to involve some pain, but the worse pain would be in failing to address this high inflation and allowing it to become persistent," Powell said.ECB President Christine Lagarde and Bank of England Governor Andrew Bailey echoed Powell's commitment to controlling price rises, warning that red-hot inflation could become entrenched if they don't act decisively.Investors should prepare for more challenging months ahead, according to Mark Haefele, chief investment officer at UBS Wealth Management."There are a lot of potential outcomes for markets, but the only near certainty is that the path to the end of the year will be a volatile one," he told clients in a note.The yield on the key 10-year US Treasury note, which moves inversely to the price, fell almost 4 basis points Thursday to 3.057%. Analysts said the fall is a sign investors expect the Fed will be compelled to cut interest rates in the future as growth slows.The May reading on the core US personal consumption expenditure deflator is scheduled for release at 8.30 a.m. ET. Data on personal spending and income are also due."The release of the latest PCE index, a preferred Fed gauge of inflation, will provide further clues on consumers' willingness or otherwise to spend," said Richard Hunter, head of markets at trading platform Interactive Investor.Recent data has suggested this "vital cog of the US economy may be withdrawing in the face of higher energy and food prices," he added.Elsewhere, oil prices were little changed after falling Wednesday thanks to worries about growth and demand. WTI crude was roughly flat in choppy action at $109.44 a barrel, while Brent crude was trading at $112.32.The dollar index was up slightly at 105.17. Meanwhile, bitcoin traded below $20,000 as the dramatic crypto sell-off showed no signs of easing, and was last changing hands down 5% at $19,159.Read more: UBS and Credit Suisse are telling investors the bond market is stabilizing. Here's why this could bring a 10% rally in stocks — and 12 names that could capture the surge.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 30th, 2022

Futures Slide Amid Renewed Recession Fears After China Doubles Down On "Covid Zero"

Futures Slide Amid Renewed Recession Fears After China Doubles Down On "Covid Zero" One day after futures ramped overnight (if only to crater during the regular session) on hopes China was easing its highly politicized  Zero Covid policy after it cut the time of quarantine lockdowns, this morning futures slumped early on after China's President Xi Jinping made clear that Covid Zero isn't going anywhere and remains the most “economic and effective” policy for China during a symbolic visit to the virus ground zero in Wuhan, in which he cast the strategy as proof of the superiority of the country’s political system. That coupled with renewed recession worries (market is again pricing in a rate cut in Q1 2023) even as monetary policy tightens in much of the world to fight supply-side inflation, sent US futures and global markets lower. S&P futures dropped 0.2% and Nasdaq 100 futures were down 0.4% after the underlying index slumped on 3.1% on Tuesday. The dollar was steady after rising the most in over a week while WTI crude climbed above $112 a barrel, set for a fourth session of gains. In cryptocurrencies, Bitcoin dipped below the closely watched $20,000 level on news crypto hedge fund 3 Arrows Capital was ordered to liquidate. The Nasdaq's Tuesday’s slump added to what was already one of the worst years in terms of big daily selloffs in US stocks. The S&P 500 Index has fallen 2% or more on 14 occasions, putting 2022 in the top 10 list, according to Bloomberg data. Not helping the tech sector, on Wednesday morning JPMorgan cut its earnings estimates across the sector, especially for companies exposed to online advertising, citing macroeconomic pressures, forex and company-specific dynamics. One of the chief drivers for overnight weakness, China's Xi said during a trip Tuesday to Wuhan where the virus first emerged in late 2019 that relaxing Covid controls would risk too many lives in the world’s most populous country. China would rather endure some temporary impact on economic development than let the virus hurt people’s safety and health, he said, in remarks reported Wednesday by state media. As a result, China’s CSI 300 Index extended loss to 1.4% after the headline, while the yuan drops as much as 0.2% to trade 6.7132 against the dollar in the offshore market. Among key premarket movers, Tesla slipped in US premarket trading. The electric-vehicle maker laid off hundreds of workers on its Autopilot team as it shuttered a California facility, according to people familiar with the matter. Carnival slumped as Morgan Stanley analysts warned that the London and New York-listed cruise vacation company’s shares could lose all their value in the event of another demand shock. Pinterest gained 3.7% as the company’s co- founder and CEO Ben Silbermann quit and handed the reins to Google and PayPal veteran Bill Ready in a sign the social-media company will focus more on e-commerce. Also, despite the pervasive weakness, the Energy Select Sector SPDR Fund ETF (XLE) rebounded off key support (50% Fibonacci) relative to the SPDR S&P 500 ETF (SPY). That said, energy was alone and most other notable movers were down in the premarket: Carnival (CCL US) shares fall 8% premarket as Morgan Stanley analysts warned that the cruise vacation firm’s shares could lose all their value in the event of another demand shock. Nio (NIO US) shares drop 8.2% after short-seller Grizzly Research published a report on Tuesday alleging that the electric carmaker used battery sales to a related party to inflate revenue and boost net income margins. The company rejected the claims. Upstart Holdings (UPST US) shares slump about 9% after Morgan Stanley downgraded the consumer finance company to underweight from equal-weight amid rising cyclical headwinds. Ormat Technologies (ORA US) rallies as much as 5% after the renewable energy company is set to be included in the S&P Midcap 400 Index. 2U (TWOU US) shares rise 16% premarket. Indian online-education provider Byju’s has offered to buy the company in a cash deal that values the US-listed edtech firm at more than $1 billion, a person familiar with the matter said. Watch Amazon (AMZN US) shares as Redburn initiated coverage of the stock with a buy recommendation and set a Street-high price target, saying “there is a clear path toward a $3 trillion value for AWS alone.” Shares in data center REITs could be active later in the trading session after short-seller Jim Chanos said in an FT interview that he’s betting against “legacy” data centers. Watch Digital Realty (DLR US) and Equinix (EQIX US), as well as data center operators Cyxtera Technologies (CYXT US) and Iron Mountain (IRM US) Investors are growing increasingly skeptical that the Fed can avoid a bruising economic downturn amid sharp interest-rate hikes. Evaporating consumer confidence is feeding into concerns that the US might tip into a recession. Naturally, Fed officials sought to play down recession risk. New York Fed President John Williams and San Francisco’s Mary Daly both acknowledged they had to cool inflation, but insisted that a soft landing was still possible. “It seems the market is in this tug of war between on the one hand the hope that we are close to the peak in inflation and rates, and on the other hand the challenge of a slowing economy and potential recession,” Emmanuel Cau, head of European equity strategy at Barclays Bank Plc, said in an interview with Bloomberg TV. “Central banks are walking a very tight line and to a certain extent dictate the mood in the markets.” European equities snapped three days of gains, trading poorly but off worst levels with sentiment also hurt by China remaining committed to its zero-Covid approach. Spanish inflation unexpectedly surged to a record, dashing hopes that inflation in the euro zone’s fourth-biggest economy had peaked, and emboldening European Central Bank policy makers pushing for big increases in interest rates. The ECB should consider raising interest rates by twice the planned amount next month if the inflation outlook deteriorates, according to Governing Council member Gediminas Simkus, as calls not to exclude an outsized initial move grow. German benchmark bonds rose, while 10-year Treasury yields slipped to 3.16%. DAX lags, dropping as much as 1.8%. Real estate, autos and miners are the worst performing sectors. In notable moves in European stocks, Hennes & Mauritz (H&M) gained after the Swedish low-cost retailer’s earnings beat analyst estimates. Just Eat Takeaway.com NV tumbled to a record low after Berenberg analysts rated the stock sell, saying the food delivery firm’s UK business will remain under pressure. Here are some of the biggest European movers today: Just Eat Takeaway shares plunge as much as 21% after Berenberg initiated coverage with a sell rating, saying the firm’s UK business will remain under pressure and a sale of its Grubhub unit is unlikely to satisfy the bulls. Carnival stocks slumped over 12% in London as Morgan Stanley analysts warned that the cruise vacation firm’s shares could lose all their value in the event of another demand shock. Pearson drops as much as 6.1% after the education company was cut to sell at UBS, which reduced forecasts to reflect a weak outlook for 2022 college enrollments. Grifols shares plunge as much as 13% on a media report the Spanish plasma firm is weighing a capital raise of as much as EU2b to cut its debt. Diageo shares fall after downgrades for the spirits group from Deutsche Bank and Kepler Cheuvreux, while Pernod Ricard also dips on a rating cut from the latter. Diageo declines as much as 4.2%, Pernod Ricard -3.7% Fluidra shares fall as much as 8.4% after Santander cut its rating on the Spanish swimming pools company. The bank’s analyst Alejandro Conde cut the recommendation to neutral from outperform. H&M shares rise as much as 6.8% after the Swedish apparel retailer reported 2Q earnings that beat estimates. Jefferies said the margin beat in particular was reassuring, while Morgan Stanley said it was a “positive surprise” overall. Ipsen shares rise as much as 3.1% after UBS analyst Michael Leuchten said that accepting palovarotene refiling priority review should be a net present value and confidence boost. Asian stocks fell, halting a four-day gain, as renewed angst over the outlook for global economic growth and inflation help drive a selloff across most of the region’s equity markets. The MSCI Asia Pacific Index dropped as much as 1.5%, led by consumer discretionary and information sectors. Chinese equities in particular took a hit, as the CSI 300 Index fell 1.5% Wednesday after Xi Jinping reiterated his firm stance on Covid zero. Tech-heavy indexes in markets such as South Korea and Taiwan took the brunt of Wednesday’s drop amid lingering concerns that monetary tightening in much of the world to fight inflation will cause an economic slowdown. While Federal Reserve members have played down the risk of a US recession, gloomy data such as US consumer confidence have damped investor sentiment. “Volatility is going to be the enduring feature of the market, I suspect, for the next couple of quarters at least until we get a firm sense that peak inflation has passed,” John Woods, Credit Suisse Group AG’s Asia-Pacific chief investment officer, said in an interview with Bloomberg TV. “Markets, I think, have aggressively priced in quite a serious or steep recession.”  China’s four-day winning streak came to a halt, putting its advance toward a bull market on hold.  “We will continue to see a risk of targeted lockdowns, and that spoils the initial euphoria seen in the markets from the announcement on relaxation of quarantine requirements,” said Charu Chanana, market strategist at Saxo Capital Markets. “Still, economic growth will likely be prioritized as this is a politically important year for China.”  Japanese equities decline as investors digested data that showed a drop in US consumer confidence over inflation worries and increased concerns of an economic downturn.  The Topix Index fell 0.7% to 1,893.57 in Tokyo on Wednesday, while the Nikkei declined 0.9% to 26,804.60. Toyota Motor Corp. contributed the most to the Topix’s decline, decreasing 1.8%. Out of 2,170 shares in the index, 1,114 fell, 984 rose and 72 were unchanged. “There are concerns about stagflation,” said Hideyuki Suzuki a general manager at SBI Securities. “The consumer sentiment from the University of Michigan, which provides one of the fastest data points, has already shown poor figures.” Stocks in India tracked their Asian peers lower as brent rose to the highest level in two weeks, while high inflation and slowing global growth continued to dampen risk-appetite for global equities. The S&P BSE Sensex fell 0.3% to 53,026.97 in Mumbai, while the NSE Nifty 50 Index declined by an equal measure. Both gauges have lost more than 4% in June and are set for their third consecutive month of declines. The main indexes have dropped for all but one month this year. Twelve of the 19 sub-sector gauges compiled by BSE Ltd. eased, led by banking companies while power producers were the top performers.   Investors will also be watching the expiry of monthly derivative contracts on Thursday, which may lead to some volatility in the markets.  Hindustan Unilever was the biggest contributor to the Sensex’s decline, decreasing 3.5%. Out of 30 shares in the Sensex, 10 rose and 20 fell. The Bloomberg Dollar Spot Index inched up modestly as the greenback traded mixed against its Group-of-10 peers; the Swiss franc led gains while Antipodean currencies were the worst performers and the euro traded in a narrow range around $1.05. The relative cost to own optionality in the euro heading into the July meetings of the ECB and the Federal Reserve was too low for investors to ignore and has become less and less underpriced. The yen strengthened and US and Japanese bond yields fell. In rates, fixed income has a choppy start. Bund futures initially surged just shy of 200 ticks on a soft regional German CPI print before fading the entire move over the course of the morning as Spanish data hit the tape, delivering a surprise record 10% reading for June and more hawkish ECB comments crossed the wires. Treasuries and gilts followed with curves eventually fading a bull-steepening move. Long-end gilts underperform, cheapening ~4bps near 2.75%. Peripheral spreads are tighter to core.  Treasuries are slightly higher as US trading day begins, off the session lows reached as bund futures jumped after the first monthly drop since November in a German regional CPI gauge. Yields are lower across the curve, by 1bp-2bp for tenors out to the 10-year with long-end yields little changed; 10-year declined as much as 5.3bp vs as much as 8.2bp for German 10- year, which remains lower by ~3bp. Focal points for the US session include a final revision of 1Q GDP, comments by Fed Chair Powell, and anticipation of quarter-end flows favoring bonds. Quarter-end is anticipated to cause rebalancing flows into bonds; Wells Fargo estimated that $5b will be added to bonds, with most of the flows occurring Wednesday and Thursday. In commodities, crude futures advance. WTI drifts 0.3% higher to trade near $112.13. Base metals are mixed; LME tin falls 5.6% while LME zinc gains 0.4%. Spot gold falls roughly $5 to trade near $1,815/oz Looking ahead, the highlight will be the panel at the ECB Forum that includes Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey. We’ll also be hearing from ECB Vice President de Guindos, the ECB’s Schnabel, the Fed’s Mester and Bullard, and the BoE’s Dhingra. On the data side, releases include German CPI for June, Euro Area money supply for May, and the final Euro Area consumer confidence reading for June. From the US, we’ll also get the third reading of Q1 GDP. Market Snapshot S&P 500 futures little changed at 3,829.00 STOXX Europe 600 down 0.8% to 412.69 MXAP down 1.3% to 159.96 MXAPJ down 1.6% to 531.04 Nikkei down 0.9% to 26,804.60 Topix down 0.7% to 1,893.57 Hang Seng Index down 1.9% to 21,996.89 Shanghai Composite down 1.4% to 3,361.52 Sensex little changed at 53,204.17 Australia S&P/ASX 200 down 0.9% to 6,700.23 Kospi down 1.8% to 2,377.99 German 10Y yield little changed at 1.59% Euro little changed at $1.0510 Brent Futures down 0.4% to $117.46/bbl Gold spot down 0.2% to $1,816.09 U.S. Dollar Index little changed at 104.55 Top Overnight News from Bloomberg The Fed’s Loretta Mester said she wants to see the benchmark lending rate reach 3% to 3.5% this year and “a little bit above 4% next year” to rein in price pressures even if that tips the economy into a recession The ECB should consider raising interest rates by twice the planned amount next month if the inflation outlook deteriorates, according to Governing Council member Gediminas Simkus, as calls not to exclude an outsized initial move grow ECB has “ample room” to hike in 25bps-50bps steps to “whatever rate we think, we consider reasonable,” Governing Council member Robert Holzmann said in interview with CNBC Swedish consumers are gloomier than they have been since the mid-1990s, as prices surge on everything from fuel to food and furniture China’s President Xi Jinping declared Covid Zero the most “economic and effective” policy for the nation, during a symbolic visit to Wuhan in which he cast the strategy as proof of the superiority of the country’s political system NATO moved one step closer to bolstering its eastern front with Russia after Turkey dropped its opposition to Swedish and Finnish bids to join the military alliance A more detailed look at markets courtesy of Newsquawk Asia-Pac stocks were pressured amid headwinds from the US where disappointing Consumer Confidence data added to the growth concerns. ASX 200 failed to benefit from better than expected Retail Sales and was dragged lower by weakness in miners and tech. Nikkei 225 fell beneath the 27,000 level as industries remained pressured by the ongoing power crunch. Hang Seng and Shanghai Comp. conformed to the negative picture in the region although losses in the mainland were initially stemmed after China cut its quarantine requirements which the National Health Commission caveated was not a relaxation but an optimization to make it more scientific and precise. Top Asian News Chinese President Xi said China's COVID prevention control and strategy is correct and effective and must stick with it, via state media. Shanghai will gradually reopen museums and scenic sports from July 1st, state media reports. US Deputy Commerce Secretary Graves said the US will take a balanced approach on Chinese tariffs and that a clear response on China tariffs is coming soon, according to Bloomberg. China State Council's Taiwan Affairs Office said it firmly opposes the US signing any agreement that has sovereign connotations with Taiwan, according to Global Times. BoJ Governor Kuroda said Japanese Core CPI reached 2.1% in April and May which is almost fully due to international energy prices and Japan's economy has not been affected much by the global inflationary trend so monetary policy will stay accommodative, according to Reuters. Japanese govt to issue power supply shortage warning for a fourth consecutive day on Thursday, according to a statement. European bourses are on the backfoot as the region plays catch-up to the losses on Wall Street yesterday. Sectors are mostly lower (ex-Energy) with a defensive tilt as Healthcare, Consumer Products, Food & Beverages, and Utilities are more cushioned than their cyclical peers. Stateside, US equity futures trade on either side of the unchanged mark with no stand-out performers thus far, with the contracts awaiting the next catalyst. Top European News UK expects defence spending to reach 2.3% of GDP and said PM Johnson will announce new military commitments to NATO, according to Reuters. UK Weighs Capping Maximum Stake in Online Casinos at £5 Europe Is the Only Region Where Earnings Estimates Are Rising European Gas Prices Rise as Supply Risks Add to Storage Concerns Gold Steady as Traders Weigh Fed Comments on US Recession Risks Choppy Start for Euro-Area Bonds on Mixed Inflation FX Dollar mostly bid otherwise as rebalancing demand underpins - DXY pivots 104.500 within 104.700-350 confines. Franc outperforms on rate and risk considerations - Usd/Chf breaches 0.9550 and Eur/Chf approaches parity. Euro erratic in line with conflicting inflation data - Eur/Usd rotates around 1.0500. Aussie and Kiwi undermined by downturn in sentiment - Aud/Usd loses 0.6900+ status, Nzd/Usd wanes from just over 0.6250. Yen rangy following firmer than forecast Japanese retail sales and BoJ Governor Kuroda reaffirming intent to remain accommodative - Usd/Jpy straddles 136.00. Nokkie welcomes oil worker wage agreement with unions to avert strike action, but Sekkie hampered by softer Swedish macro releases pre-Riksbank policy call tomorrow - Eur/Nok probes 10.3000, Eur/Sek hovers around 10.6800. Rand rattled by decline in Gold and ongoing SA power supply problems, but Rouble rallies irrespective of CBR and Russian Economy Ministry divergence over deflation. Central Banks ECB's Lane said there are two-way inflation risks: "on the one side, there could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure", via ECB. ECB's Holzmann said "We will have to make an assessment where the economic development is going and where inflation stands and afterwards there’s ample room to hike in 0.25 and 0.5 levels to whatever rate we think, we consider reasonable" via CNBC. ECB's Simkus said if data worsens, then he wants a 50bps July hike as an option, 50bps hike is very likely in September; ECB's fragmentation tool should serve as a deterrent, via Bloomberg. ECB's Herodotou said EZ inflation will peak this year, via CNBC. ECB's Wunsch said government aid may spell more rate hikes, via Bloomberg; 150bps of hikes by March 2023 is reasonable ECB is said to be weighting whether or not they should announce the size and duration of their upcoming bond-buying scheme, according to Reuters sources. Fed's Mester (2022, 2024 voter) said on a path towards restrictive interest rates; July debate between 50bps and 75bps hike, via CNBC. Mester said if inflation expectations become unanchored, monetary policy would have to act more forcefully; current inflation situation is a very challenging one, via Reuters. SARB Governor said a 50bps hike is "not off the table", Via Bloomberg CBR Governor said she does not see risks of deflation; sees room to cut rates; sticking to policy of floating RUB exchange rate. PBoC will step up implementation of prudent monetary policy, will keep liquidity reasonably ample. Fixed Income Bunds unwind all and a bit more of their hefty post-NRW CPI gains as other German states show smaller inflation slowdowns and Spanish HICP soars. Gilts suffer more pronounced fall from grace in relative terms and US Treasuries slip from overnight peaks in sympathy. UK debt and STIRs also await testimony from MPC member elect to see if newbie leans dovish, hawkish or middle of the road 10 year benchmarks settle off worst levels within 147.37-145.14, 112.66-11.85 and 117-12+/116-27 respective ranges awaiting comments from ECB, Fed and BoE heads at Sintra Forum. Commodities WTI and Brent front-month futures traded with no firm direction in early European hours before picking up modestly in recent trade. US Private Inventory (bbls): Crude -3.8mln (exp. -0.6mln), Cushing -0.7mln, Distillate +2.6mln (exp. -0.2mln) and Gasoline +2.9mln (exp. -0.1mln). Norway's Industri Energi and SAFE labour unions agreed a wage deal for oil drilling workers and will not go on strike, according to Reuters. OPEC to start today at 12:00BST/07:00EDT; JMMC on Thursday at 12:00BST/07:00EDT followed by OPEC+ at 12:30BST/07:30EDT, via EnergyIntel. Libya's NOC suspends oil exports from Es Sider port. Spot gold is under some mild pressure as the Buck and Bond yields picked up, with the yellow metal back to near-two-week lows Base metals are mixed but off best levels after President Xi reaffirmed China's COVID stance – LME copper fell back under USD 8,500/t US Event Calendar 07:00: June MBA Mortgage Applications, prior 4.2% 08:30: 1Q PCE Core QoQ, est. 5.1%, prior 5.1% 08:30: 1Q GDP Price Index, est. 8.1%, prior 8.1% 08:30: 1Q Personal Consumption, est. 3.1%, prior 3.1% 08:30: 1Q GDP Annualized QoQ, est. -1.5%, prior -1.5% Central Banks 09:00: Powell Takes Part in Panel Discussion at ECB Forum in Sintra 09:00: Lagarde, Powell, Bailey, Carstens Speak in Sintra 11:30: Fed’s Mester Speaks on Panel at ECB Forum in Sintra 13:05: Fed’s Bullard Makes Introductory Remarks DB's Jim Reid concludes the overnight wrap I'm finishing this off in a taxi on the way to the Eurostar this morning and I made the mistake of telling the driver I was slightly pressed for time. He seems to be taking the racing line everywhere and my motion sickness is kicking in. A little like this car journey, it's been another volatile 24 hours in markets, with a succession of weak data releases raising further questions about how close the US and Europe might be to a recession. That saw equities give up their initial gains to post a decent decline on the day, whilst there was little respite from central bankers either, with sovereign bonds selling off further as multiple speakers doubled down on their hawkish rhetoric. That comes ahead of another eventful day ahead on the calendar, with investors primarily focused on a panel featuring Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey, as well as the flash German CPI print for June, who are the first G7 economy to release their inflation print for the month, which will provide some further clues on how fast central banks will need to move on rate hikes. Just as we go to print the NRW region of Germany has seen CPI print at 7.5% YoY, way below last month's 8.1%. This region is around a quarter of GDP so it could imply the national numbers will be notably softer when we get them later. The energy tax cuts were always going to come through in June so some respite was always possible but at first glance this seems materially below what might have been expected. This comes after a significant sovereign bond selloff in Europe once again yesterday as President Lagarde reiterated the central bank’s determination to bring down inflation, and described inflation pressures that were “broadening and intensifying”. And although Lagarde stuck to the existing script about the ECB raising rates by 25bps at the next meeting, we also heard from Latvia’s Kazaks who said that “front-loading the increase would be a reasonable choice” in the event that the situation with inflation or inflation expectations deteriorates. Lagarde did nod to this in part, saying that if the ECB was “to see higher inflation threatening to de-anchor inflation expectations, or signs of a more permanent loss of economic potential that limits resources availability, we would need to withdraw accommodation more promptly to stamp out the risk of a self-fulfilling spiral.” Separately on fragmentation, Lagarde said that they could “use flexibility in reinvesting redemptions” from PEPP starting July 1 in order to deal with the issue. For now, overnight index swaps are only pricing in a +31.3bps move in July from the ECB, so still closer to 25 than 50 for the time being. Meanwhile the rate priced in by year-end rose also by +7.9bps as investors interpreted the comments in a hawkish light. That supported a further rise in yields, with those on 10yr bunds up another +8.1bps yesterday, following on from their +10.7bps move in the previous session. That’s now almost reversed the -21.9ps move over the previous week, which itself was the third-largest weekly decline in bund yields for a decade, and brought the 10yr yield back up to 1.63%, so not far off its multi-year high of 1.77% seen last week. A similar pattern was seen elsewhere, with 10yr yields on 10yr OATs (+9.6bps), BTPs (+4.2bps) and gilts (+7.2bps) all moving higher too. Things turned near the European close with some poor US data releases piling on to some lacklustre confidence figures in Europe. Earlier in the day the GfK consumer confidence reading from Germany fell to -27.4 (vs. -27.3 expected), taking it to another record low. Separately in France, consumer confidence fell to 82 on the INSEE’s measure (vs. 84 expected), which we haven’t seen since 2013. Then in the US, the Conference Board’s measure fell to 98.7 (vs. 100.0 expected), which is the lowest since February 2021. The Conference Board’s one-year ahead inflation expectations hit a record high of 8.0%, surpassing the June 2008 record of 7.7%, adding to the pessimism. Along with waning confidence, the Richmond Fed’s Manufacturing Index registered a -19, its lowest since the peak onset of the pandemic, versus expectations of -7 and a prior of -9, showing that production data has weakened as well. This put a serious damper on risk sentiment which drove Treasury yields and equities lower intraday during the New York session. 10yr Treasury yields ended down -2.8bps after trading as much as +5.5bps higher during the European session. They are down another -4bps this morning. Concerningly as well, there was a fresh flattening in the Fed’s preferred yield curve indicator (which is 18m3m – 3m), which came down another -9.1bps to 165bps, which is the flattest its been since early March. With that succession of bad news helping to dampen risk appetite, US equities gave up their opening gains to leave the S&P 500 down -2.01% on the day. Tech stocks saw the worst losses, with the NASDAQ (-2.98%) and the FANG+ (-3.74%) seeing even larger declines. And whilst there was a stronger performance in Europe, the STOXX 600 ended the day up just +0.27%, having been as high as +0.95% in the couple of hours before the close. We didn’t hear so much from the Fed ahead of Chair Powell’s appearance today, although New York Fed President Williams said that at the upcoming July meeting “I think 50 to 75 is clearly going to be the debate”. Markets are continuing to price something in between the two, although since the last Fed meeting futures have been consistently closer to 75 than 50, with 69.0 bps right now. Those sharp losses in US equities are echoing across Asia this morning. The Hang Seng (-1.86%) is leading the losses followed by the Kospi (-1.82%), the Nikkei (-1.07%) and the ASX 200 (-1.06%). Over in mainland China, the Shanghai Composite (-0.77%) and the CSI (-0.80%) are slightly out-performing after yesterday’s surprise move by China to slash the quarantine period for inbound travellers (more on this below). Looking ahead, US stock index futures point to a positive opening with contracts on the S&P 500 (+0.18%) and NASDAQ 100 (+0.19%) mildly higher. Earlier today, data released showed that Japan’s retail sales advanced for the third consecutive month in May (+3.6% y/y) but lower than the consensus of +4.0%, but with the previous month's data revised up to +3.1% (vs +2.9% preliminary). Meanwhile, South Korea’s consumer sentiment index (CSI) fell sharply to 96.4 in June (vs 102.6 in May), sliding below the long-term average of 100 for the first time since Feb 2021. Separately, Australia’s retail sales put in another strong performance as it climbed +0.9% m/m in May, surpassing analyst estimates of a +0.4% increase. Oil has fallen back slightly overnight after three sessions of gains with Brent futures down -0.84% at $116.99 and WTI futures (-0.64%) at $111.04/bbl as I type. Just after we went to press yesterday, it was also announced that China would be shortening the required quarantine period for inbound travellers to one week from two. So although China is still very-much committed to a Covid-zero strategy for the time being, this step towards loosening rather than tightening restrictions is an interesting development that helped support Chinese equities in yesterday’s session towards the close which filtered through into early northern hemisphere risk performance. In terms of other data yesterday, there were signs that US house price growth might finally be slowing somewhat, with the S&P CoreLogic Case-Shiller index up by +20.4% in April, which is down slightly from the +20.6% gain in March. So still a long way from an absolute decline, but that marks a reversal in the trend after the previous 4 months of rises in the year-on-year measure. To the day ahead now, and the highlight will likely be the panel at the ECB Forum that includes Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey. We’ll also be hearing from ECB Vice President de Guindos, the ECB’s Schnabel, the Fed’s Mester and Bullard, and the BoE’s Dhingra. On the data side, releases include German CPI for June, Euro Area money supply for May, and the final Euro Area consumer confidence reading for June. From the US, we’ll also get the third reading of Q1 GDP. Tyler Durden Wed, 06/29/2022 - 08:00.....»»

Category: smallbizSource: nytJun 29th, 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

Futures Surge To Two Week High As Traders Eye End Of Fed"s Hiking Cycle

Futures Surge To Two Week High As Traders Eye End Of Fed's Hiking Cycle Futures are pointing to solid close to the week - now that a recession and earlier rate cuts are assured... .... with a continuation of the rally which has pushed stocks to two week highs, with Tech continuing to lead while Chinese Tech is helping to fuel the global risk-on rally to end the week. Tech-heavy Nasdaq 100 futures added 1% while contracts on the S&P 500 gained 0.9%, trading near session highs  at 3,833 after the main US stock gauge closed near session highs Thursday, adding more than 3% in three days. In Europe, the Stoxx Europe 600 rose 1.5%, with the benchmark set for a small bounce this week. 10-year Treasury yields rose to 3.13% after earlier sliding as low as 3.04%. In premarket trading, software maker Zendesk Inc. soared over 50% on reports it’s close to reaching a deal to be acquired by a group of buyout firms led by Hellman & Friedman and Permira. Bank stocks were mostly higher as well after the latest stress test that results showed all 34 participating banks had passed (of course). In corporate news, Coinbase will launch its first crypto derivative product on Monday in the midst of the current crypto winter. US-listed Chinese stocks rise in premarket trading, on track for their best week since April as more market watchers turn positive on the group amid a gradual easing in Beijing’s crackdown on tech. Alibaba (BABA US) +3%, Nio (NIO US) +2.8%. Here are some other notable premarket movers: FedEx Corp. (FDX US) shares gained in premarket trading with analysts mostly welcoming its annual earnings forecast that was above expectations amid higher package prices and resolution on some operation issues related to labor shortage. Nevertheless, they still maintained caution amid cost pressures and macroeconomic uncertainty. US bank stocks may be volatile Friday after the Federal Reserve announced after the close of trading on Thursday that all banks had passed its annual stress test. Blackberry (BB CN) gained in postmarket trading after it reported an adjusted basic loss per share for the first quarter of 5c, in line with estimates. LendingTree (TREE US) shares dropped 10% in extended trading on Thursday, after the consumer finance company cut its second-quarter forecast for both revenue and adjusted Ebitda. Sarepta Therapeutics (SRPT US) shares may be under pressure after it announced that the FDA has placed a clinical hold on the company’s peptide-conjugated phosphorodiamidate morpholino oligomer to treat patients with Duchenne muscular dystrophy. That said, analysts believe this is mostly a hiccup and that the stock should get a lift once data from the company’s NT gene therapy is disclosed. In his market wrap note, JPM's Andrew Tyler asks "Does this rally have legs" and answers: "The next major catalyst is the June 30 PCE data. This current rally is seeing Tech and Defensive sectors as the largest outperformers. While some investors may play momentum, there seems to be a collective lack of conviction with many believing that this rally fizzles. Traders are looking for confirmation from a breakout above ~3900 resistant level." To be sure, investors are grappling with the question of what comes next if an economic downturn takes hold. One scenario - the bullish one - predicts cooling price pressures and thus scope for central banks to ease up on the pace of interest-rate hikes. In the other one, Jerome Powell hardened his resolve to cool inflation in testimony to lawmakers this week, after acknowledging that a recession may be the price to pay. “In spite of the hawkish remarks from Fed officials, the growing worries that their hikes would trigger a recession actually meant that investors priced in a shallower pace of rate hikes over the coming 12-18 months,” Deutsche Bank AG strategists led by Jim Reid wrote in a note. “That had a knock-on impact on Treasuries.” We discussed this extensively last night. The rising probability of a peak in rates put the policy-sensitive US two-year yield on course for one of its biggest weekly drops since March 2020. Meanwhile, traders are starting to price out any Fed action on rates beyond the December meeting, scaling back the additional tightening they expect and flirting with the possibility of cuts by in 2023. In Europe, equities traded well with the Stoxx rising 1.5% and the Euro Stoxx 50 1% higher back near Thursday’s highs. CAC 40 outperforms peers. Health care and media are the strongest sectors, autos and retail names lag. Here are some of the biggest European movers today: European health care stocks jump, outperforming the broader market. Societe Generale says the fundamentals of the European pharma sector are healthier than US peers. Roche rises as much as 3.4%, Novo Nordisk +3.2% and AstraZeneca +2.6% among the biggest contributors to the gain Ultra Electronics shares rise as much as 13% after a statement that the UK government is leaning toward approving Cobham’s planned takeover of the British defense-technology specialist. LVMH shares rise as much as 2.9% on Bernstein’s top luxury pick at a time of macroeconomic and geopolitical uncertanties, thanks in part to the French giant’s Dior mega-brand, which analyst Luca Solca says is one of the industry’s biggest success stories Telenet shares rise as much as 6.4%, with Barclays and New Street Research both noting that the stock is cheap and it may become more attractive for majority holder Liberty Global to consider buying the rest of the shares. Zalando shares sink as much as 18%, hitting the lowest since Jan. 2019. The online retailer warning on its sales and earnings outlook was not a total surprise, but the scale of the downgrade to its expectations was more significant than anticipated, analysts say. Fast fashion and online retailers decline in Europe following another warning in the sector, this time from Germany’s Zalando. HelloFresh slumps as much as -9.7%, Delivery Hero -6.0%, Deliveroo -2.7%. Fertilizer stocks sink in Europe with Morgan Stanley flagging the industry’s exposure to surging gas prices, gas supply uncertainties and related government measures in Europe to prevent shortages. K+S shares fall as much as 4.9%, Yara down as much as 4.8% and OCI down 3.9% Earlier in the session, Asian stocks headed for a second day of gains as technology shares staged a comeback amid falling yields, with investors continuing to weigh the prospect of higher inflation and monetary tightening. The MSCI Asia Pacific Index rose as much as 1.2%, lifted by tech-heavy markets such as South Korea. A gauge of Asian tech stocks jumped, rallying from the lowest level since September 2020. A Chinese tech measure in Hong Kong advanced 4%. Consumer and health care names also contributed to Friday’s gains amid a global shift to defensive stocks. Asian equities headed for their first weekly gain in three, as the market took a breather from intense selling pressure fueled by fears that aggressive monetary tightening will push the US economy into a recession. Federal Reserve Chair Jerome Powell in testimony to lawmakers stressed his “unconditional” commitment to bringing down inflation. Stocks have fared relatively better in Asia than in other regions as China’s move to dial back Covid restrictions supports market sentiment. Asia’s benchmark is down about 6% this month, compared with at least 8% declines in the S&P 500 Index and the Euro Stoxx 50. “The growth differentials are going to open up between China and the rest of the world,” Kinger Lau, chief China equity strategist at Goldman Sachs, said in a Bloomberg TV interview. Chinese equities “tend to do quite well going into the party congress, three to six months before that. Right now seems like we are in the sweet spot.” Japanese stocks climbed as investors assessed hawkish comments by Fed Chair Jerome Powell on further interest rate hikes and a rally in Treasuries that sent yields lower, boosting tech shares. The Topix Index rose 0.8% to 1,866.72 as of market close Tokyo time, while the Nikkei advanced 1.2% to 26,491.97. Japan’s Mothers index rallied as much as 5.8%.  Nidec Corp. contributed the most to the Topix Index gain, increasing 6.5%. Out of 2,170 shares in the index, 1,540 rose and 550 fell, while 80 were unchanged. In Australia, the S&P/ASX 200 index completed a weekly gain of 1.6% to close at 6578.70, as technology shares staged a comeback amid falling yields. The tech benchmark had a weekly gain of 8.1%, the most since August. Nine of the 11 subgauges ended Friday higher, with only energy and mining stocks sliding after a gauge of commodities retreated.   New Zealand’s market was closed for a public holiday In FX, the Bloomberg dollar spot index dipped into the red, poised for its first weekly decline in a month as investors gauge whether aggressive Federal Reserve rate hikes would tip the US economy into a recession; the Bloomberg Dollar Spot Index fell 0.5% this week while the policy-sensitive US two-year yield is on course for its biggest weekly drop since March 2020. The Japanese yen was the only Group-of-10 currency to fare worse than the dollar, sliding back under 135. “The dollar is undermined by the weakness in PMI data and growing concerns that aggressive rate hikes will eventually cause growth slowdown,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. “US yields are also stabilizing from recent sharp climb to weigh on the dollar,” he said. NOK and SEK are the strongest in G-10 FX, JPY is the weakest. Rates erase initial gains, with Treasuries now slightly cheaper across the curve as US stock futures advance beyond Thursday’s highs, while core European bond gains fade and European stocks rally. US yields cheaper by 1bp-3bp across the curve and spreads within a basis point of Thursday’s close; 10-year higher by 1.5bp at 3.10%, bunds in the sector by an additional 3.5bp. Bunds futures complete a ~150 tick round trip, rallying near 149.00 before returning toward 147.50. Cash curves remain bear-steeper, long end bunds cheapen ~3bps having initially richened ~5bps. Cash USTs and gilts are comparatively quiet after following bunds price action in early trade. Italian bonds lag peers, widening the 10y BTP/Bund spread back above 200bps. Focal points of US session include early Bullard comments and University of Michigan inflation expectations, cited by Fed Chair Powell in latest policy decision.  In commodities, crude futures advance, albeit holding within a relatively narrow range. West Texas Intermediate crude traded near $105 a barrel after retreating over the previous two sessions. The US benchmark has lost almost 4% this week, putting prices on course for their first monthly drop since November. Base metals complex is under pressure, LME tin drops over 12%, nickel down over 6%. Spot gold rises roughly $4 to trade near $1,827/oz.  Bitcoin traded rangebound on either side of the 21,000 level. Sliding raw materials prices have contributed to a moderation in market-based measures of inflation expectations. Oil headed for its first back-to-back weekly loss since early April amid a broader selloff in commodities markets. To the day ahead now, and data releases include Germany’s Ifo business climate indicator for June, Italian consumer confidence for June, and UK retail sales for May. Over in the US, there’s also the University of Michigan’s final consumer sentiment index for June, and new home sales for May. From central banks, we’ll hear from the ECB’s Centeno and de Cos, the Fed’s Bullard and Daly, the BoE’s Pill and Haskel, and BoJ Deputy Governor Amamiya. Market snapshot S&P 500 futures up 0.7% to 3,826.75 STOXX Europe 600 up 1.1% to 406.65 German 10Y yield little changed at 1.40% Euro little changed at $1.0525 Brent Futures up 0.4% to $110.51/bbl Gold spot up 0.2% to $1,826.53 MXAP up 1.1% to 159.08 MXAPJ up 1.3% to 527.68 Nikkei up 1.2% to 26,491.97 Topix up 0.8% to 1,866.72 Hang Seng Index up 2.1% to 21,719.06 Shanghai Composite up 0.9% to 3,349.75 Sensex up 0.7% to 52,652.22 Australia S&P/ASX 200 up 0.8% to 6,578.70 Kospi up 2.3% to 2,366.60 U.S. Dollar Index little changed at 104.35 Top Overnight News from Bloomberg Global equity funds saw their biggest outflows in nine weeks as investors piled into cash amid fears that the US economy could be headed for a recession. UK consumers are starting to crumple in the face of soaring prices, according a series of reports that paint a grim picture of the nation’s cost of living crisis. Germany’s economy minister said he can’t be sure that Russia will resume shipments through a key gas pipeline following planned maintenance next month, raising the prospect of a fresh surge in prices and rationing this winter. A more detailed look at global markets from Newsquawk Asia-Pac stocks ultimately followed suit to the gains on Wall St where a decline in yields and lower commodity prices helped the major indices claw back from the opening losses which were triggered by disappointing PMI data. ASX 200 was positive with tech stocks encouraged by US counterparts which benefitted from the lower yield environment although gains in the index were capped by weakness in the commodity-related sectors after the recent pressure in energy and metal prices. Nikkei 225 found early momentum alongside currency flows and held on to gains despite the JPY reversal. Hang Seng and Shanghai Comp. were positive after officials recently suggested ample policy space to sustain a steady economic performance and with the PBoC upping its liquidity efforts. Top Asian News PBoC injected CNY 60bln via 7-day reverse repos with the rate at 2.10% for a CNY 50bln net daily injection, according to Reuters. Xi Trip to Hong Kong in Doubt After Top Officials Get Covid Hong Kong’s Jumbo Mystery Deepens as Restaurant May Be Afloat Gold Set for Weekly Drop on Powell’s Unconditional Inflation Vow Iron Ore Poised to End Wild Week Down as Steel Inventories Rise Hedge Funds Buy Dollar-Yen Downside Options on Recession Risks European bourses have coat-tailed on the positivity seen on Wall Street yesterday and across APAC overnight, with European indices firmer to varying degrees. Sectors overall project a modest defensive bias as Healthcare, Media, Consumer Products, and Food & Beverages reside among the winners, although Tech is also buoyed by the pullback in bond yields. Europe's largest online retailer Zalando (-12%) slumped following a profit warning, and in turn dragged the European Retail sector to the lowest level since March 2020. Stateside, US equity futures are firmer across the board – with the NQ narrowly leading the pack – participants also flagged the ES overcoming resistance at 3,800. Top European News UK PM Johnson's Conservatives lost the parliamentary seat in the Wakefield by-election to the Labour Party and lost the by-election in Tiverton and Honiton to the Liberal Democrats, according to Reuters. Subsequently, PM Johnson has been warned to "watch out for a coup", according to reporting in The Telegraph. Furthermore, Conservative Party Chairman Dowden has resigned following the by-elections. 1922 Committee treasurer Sir Geoffrey Clifton-Brown hints that Tory leadership rules could be changed to allow rebels another shot at the PM, according to Mail's Grove. Boris Johnson’s Party Chair Quits After Double Election Blow Zurich Insurance Sells Legacy German Life Portfolio to Viridium Ukraine Latest: Troops to Leave Key Eastern City as Russia Gains Airlines 2Q Seen Profitable for Most, Deterioration in 2023: DB FX Kiwi elevated amidst favourable crosswinds on NZ market holiday - Nzd/Usd probes 0.6300 as Aud/Nzd retreats towards 1.0950. Euro encouraged by elements of German Ifo survey and Pound shrugs off mixed UK consumption data, all time low consumer sentiment and more pain for PM Johnson on risk factors and gravitating Greenback - Eur/Usd firm on 1.0500 handle, Cable tests 1.2300 and DXY close to base of 104.120-510 range. Aussie, Loonie and Franc all bounce within ranges as Buck backs off, but Yen continues to encounter resistance after decent retracement - Aud/Usd back over 0.6900, Usd/Cad fades from pop above 1.3000 and Usd/Chf reverses through 0.9600 pivot. Scandi Crowns claw back lost ground, Yuan underpinned by PBoC liquidity injection and Peso by hawkish Banxico guidance to supplement 75 bp hike - Eur/Sek sub-10.7000, Eur/Nok near 10.4500, Usd/Cnh under 6.7000 and Usd/Mxn beneath 20.0000. Fixed Income Debt recoils after stretching recovery limits further - Bunds top out at 149.00, Gilts at 114.55 and 10 year T-note 118-00 Trading volumes pick-up on the way back down towards or to intraday lows of 147.21, 113.54 and 117-10+, as risk appetite steadily improves and focus turns to pm agenda Commodities WTI and Brent August futures are extending their modest gains in recent trade despite a lack of news flow. EIA said a status update on the weekly DOE oil inventories report will be provided on Monday. Spot gold remains uneventful under USD 1,850/oz – with the Dollar similarly contained intraday thus far. Focus has turned to base metals, with nickel, zinc, and tin among the biggest losers amid demand woes and surplus concerns. Chile state copper miner Codelco reached an agreement with workers to end the strike, according to Reuters. China is to auction 500k tonnes of imported soybeans from state reserves on July 1st, according to the trade centre cited by Reuters. US Event Calendar 10:00: June U. of Mich. Sentiment, est. 50.2, prior 50.2 10:00: June U. of Mich. Expectations, prior 46.8; Current Conditions, est. 55.4, prior 55.4 10:00: June U. of Mich. 1 Yr Inflation, est. 5.4%, prior 5.4%; 5-10 Yr Inflation, est. 3.3%, prior 3.3% 10:00: May New Home Sales, est. 590,000, prior 591,000 MoM, est. -0.2%, prior -16.6% Central Bank speakers 07:30: Fed’s Bullard Discusses Central banks and Inflation 13:15: Fed’s Daly Interviewed on Fox Business News 16:00: Fed’s Daly Speaks at Shadow Open Market Conference DB's Jim Reid concludes the overnight wrap Fears about an imminent recession have continued to dominate markets over the last 24 hours, with a combination of Chair Powell’s comments, weak economic data and renewed concerns about a European gas cutoff all helping to sound the alarm for investors. Indeed, the sudden rush for safe havens (along with doubts over how far central banks will actually hike if there’s a recession) meant that sovereign bonds rallied sharply, with yields on 10yr bunds (-20.6bps) seeing their largest daily decline in over a decade, which is quite something considering just how volatile bonds have been this year. Having said that the S&P 500 finished up +0.95% so it wasn't all doom and gloom on what was a pretty bad day for news. In terms of the various developments, weak data hampered the narrative and led to a flight to bonds from the outset, with the flash PMIs from Europe and the US painting a gloomy economic picture as we round out Q2. For instance, the Euro Area composite PMI fell to a 16-month low of 51.9 (vs. 54.0 expected), including larger-than-expected declines in both Germany and France. Later in the day, the US composite PMI also fell to 51.2 (vs. 53.0 expected), whilst the weekly initial jobless claims of the week through June 18 came in at 229k, thus taking the smoother 4-week moving average to its highest level since early February. So a bad run of numbers that at the very least add to the growing signs that we’re seeing a noticeable slowdown in growth. As the data was getting weaker, there was no sign that Fed Chair Powell was going to be put off from his challenge of restoring price stability, and he even reiterated before the House Financial Services Committee that their commitment to deal with inflation was “unconditional”. Bear in mind that he left that word out of his testimony before the Senate Banking Committee the previous day, which some had interpreted in a dovish light, so there’s no sign that the Fed are set to let up on the task ahead. Furthermore, Fed Governor Bowman became the latest member of the FOMC to endorse another 75bp hike at the next meeting in July, saying beyond that she favoured “increases of at least 50 basis points in the next few subsequent meetings”. In spite of the hawkish remarks from Fed officials, the growing worries that their hikes would trigger a recession actually meant that investors priced in a shallower pace of rate hikes over the coming 12-18 months. For instance, the rate priced in by the December meeting came down a further -5.5bps to 3.46%, whilst the terminal rate is now seen at just over 3.5%, having expected to be above 4% just before the Fed meeting. The market now sees the terminal rate being hit as early as February 2023 after most of the year so far has seen hikes priced in through the third quarter of 2023. That had a knock-on impact on Treasuries, with the 10yr yield down -6.9bps to 3.09%, and the 2s10s curve flattened -2.9bps to just 6.4bps. The Fed’s preferred indicator of the near-term forward spread also saw a large decline, with a -11.8bps move lower to 168bps, which was the lowest since early March. US equities continued trading in wide intraday ranges but were ultimately boosted by the shallower expected path of policy tightening. The S&P 500 gained +0.95%, leaving it +3.29% on the holiday-shortened week and on pace for its first weekly gain in a month. It was an interesting sector breakdown with shares sensitive to discount rates gaining, as one might expect with the rate move, sending the NASDAQ +1.62% higher. Otherwise, there was a clear delineation between defensives, which outperformed due to the slowing outlook, and cyclicals which ended the day in the red. Utilities, health care, real estate, and staples led the index and all ended in the green, while industrials, financials, materials, and energy all finished in the red. So a risk-off defensive rally in the States. Energy was particularly hit by the fall in brent crude futures, which were -1.51% lower on the day and nearly back beneath $110/bbl for the first time since mid-May. Over in Europe, there were further dramatic developments on the energy side, with German economy minister Habeck raising the country’s gas risk level to the second stage of the emergency plan. That takes them from the early warning phase to the alarm phase, with Habeck going as far as to warn about “a Lehman effect in the energy system” if the market collapsed. Our research colleagues in Frankfurt have written more about what this means (link here), but natural gas futures in Europe rose a further +3.33% yesterday to a fresh 3-month high of €131/MWh. The third and final stage of the plan would be the emergency phase, which occurs when there isn’t enough gas to meet general demand. The fears of recession and the threat of energy shortages meant that European equities took a tumble again yesterday, with the STOXX 600 (-0.82%) closing at its lowest level in 16 months with banks (-3.17%) leading the way as cyclicals also got hit hard in Europe. The DAX (-1.76%) was a regional under-performer with all the focus on the German government gas alert. Sovereign bond yields also plummeted, with those on 10yr bunds (-20.6bps) seeing their largest daily move lower in over a decade, whilst those on 10yr OATs (-20.7bps), gilts (-18.2bps) and BTPs (-15.9bps) witnessed a significant pullback as well. Our European economists don’t think that growth uncertainties will derail the near-term exit path for the ECB, but they write in a blog post yesterday (link here) that the release is another catalyst for a shift in the debate from a question of how quickly they need to catch up, to how far they will be able to go. Moving on to Asia, equity markets in the region are seeing decent gains overnight, with the Kospi (+1.66%) leading the pack followed by the Hang Seng (+1.23%), the Nikkei (+0.76%), the CSI (+0.74%) and the Shanghai Composite (+0.54%). Looking forward as well, US stock futures has risen overnight with contracts on the S&P 500 (+0.43%) and NASDAQ 100 (+0.70%) trading higher amidst the decline in bond yields. In economic data, inflation in Japan is likely to remain closely watched after the core consumer prices climbed +2.1% y/y in May as expected, following a similar rise in April, a level not seen in seven years mainly because of higher energy prices. Excluding energy, prices were up +0.8% in May, also in line with market consensus, following a 0.8% increase in the preceding month. Moving on to some political news, the Conservative party lost two parliamentary seats in yesterday’s by-elections, which will be unwelcome news for Prime Minister Johnson, who’s already seen 41% of his own MPs vote no confidence in his leadership at the start of the month. One of the losses was to Labour in the “red wall” seat of Wakefield, which had been Labour for the entire post-war period until it was won by the Conservatives in 2019, and the Conservative vote share was down from 47% at the last general election to 30% yesterday. Elsewhere, they also lost the usually safe Conservative seat of Tiverton and Honiton to the Liberal Democrats, with the Conservative vote share down from 60% in 2019 to 38% yesterday. Meanwhile, there was some bad news overnight on the economic front from the UK, with GfK’s consumer confidence reading dropping to a record low of -41 in June (vs. -40 expected), something not seen since the survey began 48 years ago. To the day ahead now, and data releases include Germany’s Ifo business climate indicator for June, Italian consumer confidence for June, and UK retail sales for May. Over in the US, there’s also the University of Michigan’s final consumer sentiment index for June, and new home sales for May. From central banks, we’ll hear from the ECB’s Centeno and de Cos, the Fed’s Bullard and Daly, the BoE’s Pill and Haskel, and BoJ Deputy Governor Amamiya. Tyler Durden Fri, 06/24/2022 - 07:53.....»»

Category: smallbizSource: nytJun 24th, 2022

By The Powell Of Greyskull

By The Powell Of Greyskull By Michael Every of Rabobank I am assuming my post-FOMC Chair testimony headline above is the only one which refers to a cheesy 1980’s (and far worse 2022 Netflix rebooted) cartoon. However, I do so deliberately. What we got in Congress yesterday WAS reminiscent of the 1980’s, with Powell refusing to take a 100bps hike off the table as if he were a muscled-up He-Man. Yet while another 75bps in July and more mighty blows were promised, Powell also suggested nobody was going to get really hurt. Ignore what Larry Summers just said about millions of people needing to lose their jobs for years, because a recession is “not inevitable,” says Powell: Oh yes it is, says Philip Marey. Markets agree with Philip, not the guardian of Fedternia. Indeed, we are finally seeing a logically consistent movement: lower stocks, as US stocks head for the worst H1 since 1932, lower bond yields, lower commodities, and a slightly lower US dollar. Real-economy indicators are looking ugly. US data are obvious. Europe can delude itself that there isn’t going to be a recession ahead, but the IEA is warning it to prepare for a total cessation of Russian gas flows, and Germany is listening, and that would feel like a depression. China keeps promising stimulus that doesn’t arrive, and its consumers won’t spend, or its banks productively lend. The strike-laden UK just saw another high inflation print driven by food and energy prices, driving gloom, while two by-election defeats today would suggest doom for the government. Moreover, Korean 20-day export data this week were -10% m-o-m and -3.4% y-o-y. Hong Kong is seeing massive intervention to keep the HK$ pegged to the US$. Sri Lanka is asking civil servants to work a four-day week so they can grow their own food on Fridays. Broader financial stress indicators are also picking up. So, the market now accepts recession is a risk, having been in total denial. Rightly so: we can't expect energy or commodity prices to stay low if demand picks up; and we can't bring new supply online for years. Yet this still does not make the open and shut case for the Fed to pivot as the rapid resolution of a seemingly intractable problem, as in any good 1980’s cartoon. Indeed, the more the market heard ‘By the Powell of Greyskull; I have the power!... but no recession!’, the more stocks and oil actually came off their intra-day lows (before stocks dipped again). The market is pricing in less Fed tightening and earlier Fed cuts than before Powell held aloft his sword. Much more of this, and oil and stocks will both be going up even as bond yields go down, and we will be back to logically inconsistent market moves that will force the Fed to keep punching harder. Yes, Powell repeated he can’t do anything about rising food and energy prices to Congress: but isn’t it amazing that at just the same time as 75bps got wheeled out, both food and energy are (temporarily) falling back? Yesterday’s testimony also took place against the backdrop of a ‘Masters of the Universe’ struggle for global power: it got very little airtime compared to Powell, but the BRICS (Brazil, Russia, India, China, South Africa) summit is now underway. Russia’s President Putin just used the forum to stress: (1) Russia is selling more oil to India and China - who are refining it, and selling it to Europe; and (2) BRICS are developing an alternative global reserve currency backed by commodities, and an international payments system, to reduce their use of USD and EUR. China’s Xi Jinping also backed Russia’s world view that NATO was most responsible for the war in Ukraine, and called it “a wake-up call,” warning against “expanding military alliances and seeking one’s own security at the expense of other countries’ security.” Because China has never done that. For those who haven’t been paying attention to geopolitics, this might be a shock: it is, however, exactly what I was flagging in my (largely unread) report, ‘Why ‘Bretton Woods 3’ Won’t Work’. Let me repeat again that this proposed BRICS system is unlikely to work. For a start, India and China are at geopolitical loggerheads, which makes it BRI/C/S in reality. Worse, there is no history, trade data, or logic to suggest you can just staple together a few big net commodity exporters, with huge linkages to the West, to a massive net commodity importer, with huge linkages to the West, and expect this to work – or to retain those linkages to the West. There was a story this week about a Chinese property developer taking payment in garlic and wheat: you want an alternative global economy and financial system based on that? More importantly, the West will react strongly to any BRICS movement towards breaking US$ global hegemony. Most of the global financial system is based on credit, based on collateral, and so on the US dollar / Eurodollar. That digital green paper sits behind up to $50 trillion in ex-US annual trade-flow and financial liabilities, and vastly more including derivatives. That is backed by only $7 trillion in US$ FX reserves, $3 trillion of which sit in China to back/prop up CNY. It’s a bad, unstable, unfair, bubble-creating system backed by an increasingly dysfunctional hegemon. But it works, in its own way, and it has the all the benefits of the incumbent network effect. A BRICS alternative is that global shadow banking, actual banking, and real trade flows should all start to accept credit based on a new digital FX with commodities as collateral instead. Which also implies people won’t be able to repay their Eurodollar commitments. There are lots of ways the West can respond to this. Hedge fund billionaires and Wall Street can say ‘We want in!’, which is possible given Western financial systems operate like mercenaries rather than an army (which is why there are no countries around today that operate their national defence on that basis.) If that happens, some rich Westerners get richer, but the West loses its global pre-eminence and the geopolitical power to act on issues like Ukraine and Taiwan. Or the Fed can say anyone using a BRICS currency loses access to the US financial system. That would bifurcate the world. As we already see with sanctions against Russia, it would also mean the West, and third parties, doesn’t get the commodities (or industrial goods) that the BRICS produce. That means massive inflation in some places, deflation in others, and global depression, not recession. I wouldn’t rule it out, but the end-game is clear. Or the Fed can keep raising rates to force commodity prices down, raising the collateral attractiveness of the US$ and reducing that of its new rival. That would mean recession – and it already does. It would imply a massive blow-up for those leveraged long commodities - as with crypto. It would also make getting hold of US$ even harder - but that’s what Fed swap-lines, for friends, would be for. This is obviously not what the markets think will happen, and I understand why. (“Because markets.”) However, it’s not cartoonish. It’s just taking monetary policy into the geopolitical dimension, where it always sits, and most so when potential monetary rivals appear. Today we can listen to see if we get any more details from the BRICS. Then we don’t have to wait long for the rival G7 meeting, where we have very few He-Men or Men-at-Arms. The leaders of France, Germany, Italy, the US, UK, and Canada are all struggling, and only Japan’s PM Kishida is showing real confidence to plough ahead - as Jane Foley talks about the possibility of USD/JPY ploughing a fresh low of 140. Then we get the NATO summit next week, as Estonia’s PM warns of the risk of the country being “wiped from the map”, and where we may see exactly what Xi was warning about in terms of expanded alliances and shifts of focus towards China. In short, a paper tiger may turn into a true BattleCat - although it will need the financial Powell of Greyskull to get there. Or tell yourself none of this matters and that we have a happy ending ahead due to Fed rate cuts and more QE. Just recall He-Man’s sister She-Ra rode a unicorn: perhaps it excreted the M&Ms you are eating. Tyler Durden Thu, 06/23/2022 - 11:10.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

Protection From A Currency Collapse

Protection From A Currency Collapse Authored by Alasdair Macleod via GoldMoney.com, While markets seem becalmed, financial conditions are rapidly deteriorating. Last week Jamie Dimon of JPMorgan Chase gave the clearest of signals that bank credit is beginning to contract. Russia has consolidated its rouble, which has now become the strongest currency by far. The Fed announced the previous week that its balance sheet is in negative equity. And there’s mounting evidence that we have a nascent crack-up boom. Russia now appears to be protecting the rouble from these developments in the West, while previously she was only attacking the dollar’s hegemony. China has yet to formulate a defensive currency policy but is likely to back the renminbi with a commodity basket, at least for foreign trade. If it is taken up more widely by the members if the Shanghai Cooperation organisation and the BRICS, the development of a new commodity-based super-currency in Central Asia could end the dollar’s global hegemony. These are major developments. And finally, due to widespread interest in the subject, I examine the outlook for residential property values in the event of a collapse of Western fiat currencies. The mechanics of an apocalypse Against the grain of the establishment, for years I have been warning that the world faces a fiat currency collapse. The reasoning was and still is because that’s where monetary and economic policies are taking us. The only questions arising are whether the authorities around the world would realise the dangers of their inflationary and socialistic policies and change course (extremely unlikely) and in that absence in what form would the final crisis take. History tells us that fiat currencies always fail, only to be replaced by Mankind’s sound money — metallic gold, and silver. And now that fiat currencies have seen a rapid debasement followed by soaring commodity and raw material prices, interest rates should be considerably higher. Yet, in the Eurozone and Japan they are still suppressed in negative territory. The reluctance of the ECB and the Bank of Japan to permit them to rise is palpable. Worse still, even with just the threat of a slowdown in the issuance of extra credit by the commercial banks, we suddenly face a sharp downturn in economic and financial activities. Commercial banks in the Eurozone and Japan are uncomfortably leveraged and unlikely to survive the mixture of higher interest rates, contracting bank credit, and an economic downturn without being bailed out by their respective central banks. But so massive are the central banks’ own bond positions that the losses from rising yields have put them in negative equity. Even the Fed, which is in a far better position than the ECB and BOJ, has admitted unrealised losses on its bond portfolio are $330bn, wiping out its balance sheet equity six times over. So, without the injection of huge amounts of new capital from their existing shareholders the major central banks are bust, the major commercial banks soon will be, and prices are rising uncontrollably driving interest rates and bond yields higher. And like a hole in the head, all we now need to complete the misery is a contraction in bank credit. On cue, last week we got a warning that this is also on the cards, when Jamie Dimon, boss of JPMorgan Chase, the largest commercial bank in America and the Fed’s principal conduit into the commercial banking network, upgraded his summary of the financial scene from “stormy” only nine days before, to “hurricane”. That was widely reported. Less observed were his remarks about what JPMorgan Chase was going to do about it. Dimon went on to say the bank is preparing itself for “a non-benign environment” and “bad outcomes”. We can be sure that the Fed will have spoken to Mr Dimon about this. JPMorgan’s chief economist, Bruce Kasman was then urgently tasked with rowing back, saying he only saw a slowdown. No matter. The signal is sent, and the damage is done. We are unlikely to hear from Dimon on this subject again. But you can bet your bottom dollar that the cohort of international bankers around the world will have taken note, if they hadn’t already, and will be drawing in their lending horns as well. The importance of monitoring bank credit is that when it begins to contract it always precipitates a crisis. This time the crisis revolves more around financial assets than in the past, because for the last forty years, bank credit expansion has increasingly focused not on stimulating production of real things — that has been chased overseas, but the creation of financial ephemera, such as unproductive debt, securitisations of securities, derivatives, and derivatives of derivatives. If you like, the world of unbacked currencies has generated a parallel world of purely financial assets. This is now changing. Commodities are creeping back into the monetary system indirectly due to sanctions against the world’s largest commodities exporter, Russia. Financing for speculation is already contracting, as shown in Figure 1. Given recent equity market weakness this is hardly surprising. But it should be borne in mind that this is unlikely to be driven by speculators cleverly taking profits at the top of the bull market. It is almost certainly forced upon them by margin calls, a fate similarly suffered by punters in cryptos. Bank deposits, which are the other side of bank credit, make up most of the currency in circulation. Since 2008, dollar bank deposits have increased by 160% to nearly $19.5 trillion (M3 less bank notes in circulation). But there is the additional problem of shadow bank credit, which is unknowable and is likely to evaporate with falling financial asset values. And Eurodollars, which similarly are outside the money supply figures will likely contract as well. We are now moving rapidly towards a human desire to protect what we have. This is fear, instead of the desire to make easy money, or greed. We can be reasonably certain that with the reluctance of banks to even maintain levels of bank credit the move is likely to be swift, catching the wider public unawares. It is the stuff of an apocalypse. A financial and economic crisis is now widely expected. Everyone I meet in finance senses the danger, without being able to put a finger on it. They are almost all talking of the authorities taking back control, perhaps of a financial reset, without knowing what that might be. But almost no one considers the possibility that this time the authorities will fail to stop a crisis before it turns our world upside down. Nevertheless, a crisis is always a shock when it comes. But its timing is always anchored in what is happening to bank credit. The bank credit cycle The true role of banks in the economy is as creators of and dealers in credit. The licence granted to them by the state allows them to issue credit where none had existed before. Initially, it stimulates economic activity and is welcomed. The negative consequences only become apparent later, in the form of a fall in the expanded currency’s purchasing power, firstly on the foreign exchanges, followed in markets for industrial commodities and raw materials, and then in the domestic economy. The seeds for the subsequent downturn having been sown by the earlier expansion of credit. As night follows day it duly follows and is triggered by credit contraction. Since the end of the Napoleonic wars, this cycle of credit expansion and contraction has had a regular periodicity of about ten years —sometimes shorter, sometimes longer. A cycle of bank credit is a more relevant description of the origin of periodic booms and slumps than describing them as a trade or business cycle, which implies that the origin is in the behaviour of banking customers rather than the banking system. How it comes about is important for an understanding of why it always leads to a contractionary crisis. The creation of bank credit is a simple matter of double entry bookkeeping. When a bank agrees to lend to a borrower, the loan appears on the banker’s balance sheet as an asset, for which there must be a corresponding liability. This liability is the credit marked on the borrower’s deposit account which will always match the loan shown as an asset. This is a far more profitable arrangement for the bank than paying interest on term deposits to match a bank’s loan, which is the way in which banks are commonly thought to originate credit. The relationship between his own capital and the amount of loan business that a banker undertakes is his principal consideration. By lending credit in quantities which are multiples of his own capital, he enhances the return on his equity. But he also exposes himself to a heightened risk from loan defaults. It follows that when he deems economic prospects to be good, he will lend more that he would otherwise. But bankers though their associations and social and business interactions tend to share a common view of economic prospects at any one time. Furthermore, they have their own sources of economic intelligence, some of which is shared on an industry-wide basis. They are also competitive and prepared to undercut rivals for loan business in good times, reducing their lending rates to below where a free-market rate would perhaps otherwise be. Being dealers in credit and not economists, they probably fail to grasp the fact that improving economic conditions — growth in Keynesian jargon — is little more than a reflection of their own credit expansion. The currency debasement from extra credit results in prices and interest rates rising, especially in fiat currencies, undermining business calculations and assumptions. Bankruptcies begin to increase as the headline below from last Monday’s Daily Telegraph shows: While this headline was about the UK, the same factors are evident elsewhere. No wonder Jamie Dimon is worried. As a rule of thumb, bank credit makes up about 90% of the circulating media, the other 10% being bank notes. Today in the US, bank notes in circulation stand at $2.272 trillion, and M3 broad money, which also contains narrower forms of money stands at $21.8 trillion, so bank notes are 10.4% of the total. The ratio in December 2018 following the Lehman crisis was 10.7%, similar ratios at different stages of the credit cycle. Therefore, at all stages of the cycle, it is the balance between greed for profit and fear of losses in the bankers’ collective minds that set the prospects for boom and bust, and not an increase in the note issue. A further consideration is the lending emphasis, whether credit has been extended primarily to manufacturers of consumer goods and providers of services to consumers, or whether credit has been extended mostly to support financial activities. Since London’s big-bang and America’s repeal of the Glass-Steagall Act, the major banks have increasingly created credit for purely financial activities, leaving credit for Main Street in the hands of smaller banks. Because credit expansion has been aimed at supporting financial activities, it has inflated financial assets values. So, while central banks have been suppressing interest rates, the major banks have created the credit for buyers of financial assets to enjoy the most dramatic, widespread, and long-lasting of investment bubbles in financial history. Now that interest rates are on the rise, the bubble environment is over, to be replaced with a bear market. The smart money is leaving the stage, and the public faces an unwinding of the bubble. The combination of rising interest rates and contracting bank credit is as bearish as falling interest rates and the fuel of expanding bank credit were bullish. As loan collateral, banks have retained financial assets to a greater extent than in the past, and their attempts to protect themselves from losses by fire sales of stocks and bonds when they no longer cover loan obligations can only accelerate a financial market collapse. Russia’s new priority is to escape from the West’s crisis While the financial sanctions imposed on Russia have led to a tit-for-tat situation with Russia saying it will only accept payments in roubles from the “unfriendlies”, there can be little doubt that sanctions have come at an enormous cost to the imposers. In a recent interview, Putin correctly identified the West’s inflation problem: “In a TV interview that followed his meeting with the African Union head Macky Sall in Sochi, Putin added that attempts to blame Ukraine's turmoil for the West's skyrocketing cost of living amount to avoiding responsibility. Almost all governments used the fiscal stimulus to help people and businesses affected by the Covid-19 lockdowns. Putin stressed that Russia did so "much more carefully and precisely," without disrupting the macroeconomic picture or fuelling inflation. In the United States, by contrast, the money supply increased by 38% – or $5.9 trillion – in less than two years, in what he referred to as the ‘unprecedented output of the printing press’." This is important. While the West’s monetary authorities and their governments have suppressed the connection between the unprecedented increase in currency and credit and the consequence for prices, if the quote above is correct, Putin has nailed it. In all logic, since the Russians clearly understand the destabilising ramifications of the West’s monetary policies, it behoves them to protect themselves from the consequences. They will not want to see the rouble sink alongside western currencies. And indeed, the policy of tying Russian energy exports to settlements in roubles divorces the rouble from the West’s mounting financial crisis. It is further confirmation that Zoltan Pozsar’s description of a Bretton Woods 3, whereby currencies are moving from a world of financial activity towards commodity backing, is correct. It’s not just a Russian response in the context of a financial war, but now it’s a protectionist move. Russia enjoys the position of the world’s largest exporter of energy and commodities. For the West to cut itself off from Russia may be justifiable in the narrow political context of a proxy war in Ukraine, but it is madness in the economic perspective. The other nation upon which the West heavily relies, China, has yet to formulate a proper currency policy response. But the alacrity with which China began stockpiling commodities and grains following the Fed’s reduction of interest rates to the zero bound and its increase of QE to $120bn monthly in March 2020 shows she also understands the price consequences of the West’s inflationism. The difference between China and Russia is that while Russia is a commodity exporter, China is a commodity importer. Her currency position is therefore radically different. The Chinese advisers who have absorbed Keynesian economics will be arguing against a stronger currency relationship with the dollar, particularly at a time of a significant slowing of China’s GDP growth. They might also argue that they have preferential access to discounted Russian exports, the benefits of which would be squandered if the yuan strengthened materially. One can imagine that while Russia is certain about her “Bretton Woods 3 strategy”, China has yet to take some key decisions. But everything is relative. It is true that China is offered substantial discounts on Russian energy and other commodities. It is in her interests to accumulate as much of Russia’s commodities as she can — particularly energy. But it must be paid for. Broadly, there are two sources of funding. China can sell down its US Treasury holdings, or alternatively issue additional renminbi. The latter seems more likely since it would keep the dollar well away from any Chinese-Russian trade settlements and could accelerate the start of a new offshore renminbi market. All these moves are responses to a crisis brought about by Western sanctions. Given the history of price stability for energy and most other commodities measured in gold grammes, Russia’s move represents a barely transparent move away from the world of fiat and its associated financial ephemera to a proxy for a gold standard. It is a statist equivalent of the latter, whereby Russia uses commodity markets without having to deliver anything monetary. While protecting the rouble from a collapsing western currency and financial system it works for now, but it will have to evolve into a monetary system that is more secure. One possibility might be to use the new commodity-based trade currency planned for the Eurasian Economic Union (EAEU), which is likely to rope in all the Shanghai Cooperation Organisation network, and possibly the commodity-exporting BRICS as well. It has been reported that even some Middle Eastern states have expressed interest though that’s hard to verify. In the financial war against the dollar, the announcement of the new currency’s terms would represent a significant escalation, cutting the dollar’s hegemony down at a stroke for over half the world’s population. It would also raise a question mark over the estimated $33 trillion dollars of US financial assets and bank deposits owned by foreigners. Timing is an issue, because if the new EAEU trade currency is introduced following a crisis for the dollar, the move would be protectionist rather than aggressive, but it seems likely to trigger substantial dollar liquidation in the foreign exchanges either way. The elephant in the currency room is gold. It is what Zoltan Pozsar of Credit Suisse terms “outside money”. That is, money which is not fiat produced by central banks by keystrokes on a computer, or by expansion of bank credit. A basket of commodities for the proposed EAEU trade currency is little more than a substitute for linking their currencies with gold. So, why don’t Russia and China just introduce gold standards? There are probably three reasons: A working gold standard, by which is meant an arrangement where members of the public and foreigners can exchange currency for coin or bullion takes away control over the currency from the state and places it in the hands of the public. This is a course of action that modern governments will only consider as a last resort, given their natural reluctance to cede control and power to the people. Nowhere is this truer than of dictatorial governments such as those governing Russia and China. It could be argued that to introduce a working gold standard would give America power to disrupt the currency by manipulating gold prices on international markets. But it is hard to see how any such disruption would be anything other than temporary and self-defeating. Proceeding nakedly into a gold standard, when America has spent the last fifty years telling everyone gold is a pet rock, yet at the same time grabbing everyone else’s gold (Germany, Libya, Venezuela, Ukraine… the list is pretty much endless) is probably the financial equivalent of a nuclear escalation, only to be considered as a last resort. Clearly, it is the most sensitive subject and a frontal challenge to the dollar’s post-Bretton Woods hegemony. The flight into real assets While national governments are considering their position in the wake of sanctions against Russia, the status of their reserves, and how best to protect themselves in a worsening financial conflict between Anglo-Saxon led NATO and Russia, ordinary people are acting in their own interest as well. Most of us are aware that second hand values for motor cars have soared, in many cases to levels higher than new models. The phenomenon is reported in yachts and power boats as well. And on Tuesday, it was reported that US citizens had escalated their credit card spending to unexpected heights. Is this evidence of a flight from zero-yielding bank deposits, or the emergence of wider concerns about rising prices and the need to acquire goods while they are available at anything like current prices? When it comes to their own interests, people are not stupid. They understand that prices are rising and there is no sign of this ending. Their mantra is to buy now before prices rise further, while they can be afforded and the liquidity is to hand. While it is probably too dramatic to call this behaviour a crack-up boom, unless something is done to stop it a crack-up boom appears to be developing. But the asset which is on many peoples’ minds is residential property. Where residential property prices are dependent on the availability and cost of mortgage finance, rising interest rates will undermine property values. Given that the loss of currencies’ purchasing power fails to be reflected yet in sufficiently high interest rates, mortgage rates for new and floating rate loans can be expected to rise substantially, driving residential property prices lower. But this assumes that a financial and currency crisis won’t occur before interest rates have risen sufficiently to discount future losses of a currency’s purchasing power. It seems unlikely that that will happen. It is more likely that increases of not more than a few per cent will be sufficient to destabilise the West’s monetary order, with systemic risk spreading rapidly from the weakest points — the Eurozone and Japan, where interest rates rising from negative values will expose as demonstrably insolvent the ECB and the Bank of Japan, while major commercial banks in both jurisdictions are the two most highly leveraged cohorts. That being the case, and if a banking crisis originating in a deflating financial asset bubble requires insolvent central banks to rescue commercial banks, there is a significant risk that the West’s fiat currencies could lose credibility and collapse as well. Therefore, as well as the effect of rising mortgage costs (which will probably be capped by the emerging crisis) we must consider residential property values measured in currencies which have imploded. It is not beyond the bounds of possibility that measured nominally in fiat currencies, after a brief period of uncertainty property prices might rise. A million-dollar house today might become worth many millions, but many millions might buy only a few ounces of gold. That appears to have been the situation in 1923 Germany, reported by Stefan Zweig, the Austrian author who in his autobiography recounted that at the height of the inflation US$100 could buy you a decent town house in Berlin. It might have been several hundred million paper marks, but at the time US$100 was the equivalent of less than five ounces of gold. Any investor in real assets such as real estate and farmland must be prepared to look through a collapse of financial asset values and a currency crisis. For a time, they will have to suffer rents which don’t cover the costs of maintaining property. But the message from Germany in 1923 is that it is far better to hoard what the Romans told us is legally money, that is everlasting physical gold. And the lessons of history backed up by pure logic tell us loud and clear that gold is not a portfolio investment. It is no more than money. An incorruptible means of exchange to be hoarded and spent after all else has failed. Tyler Durden Sat, 06/11/2022 - 19:30.....»»

Category: blogSource: zerohedgeJun 11th, 2022

Futures Rise Ahead Of Hawkish ECB Meeting

Futures Rise Ahead Of Hawkish ECB Meeting US index futures turned positive on Thursday, even as European stock slipped ahead of the ECB decision at 745am ET, with Nasdaq 100 contracts outperforming as oil prices and bond yields stabilized and strategists at Goldman and JPMorgan gave more bullish comments on equities. Sentiment was boosted after Bloomberg reported that China’s crackdown on internet companies may be easing with a revival of the Ant Group IPO, which boosted the country’s US-traded stocks (the news was since refuted by China, but moments later Reuters re-reported what Bloomberg said). S&P 500 futures traded 22 points or 0.5% higher, and Nasdaq 100 futs were 0.4% higher. The dollar slid, and 10Y rates were flat at 3.02%. Markets remain fixated on the risk that central banks intent on cooling inflation snuff out economic recoveries in the process. Money markets have priced in 36.5 basis points of tightening to the ECB’s rate by next month’s meeting, just short of a 50% chance of a half-a-percentage point increase, which would be the first since 2000. “To rein in surging prices the Fed has to increase rates, which can result in a recession,” Geir Lode, head of global equities at Federated Hermes, wrote in a note. “However, the pandemic-induced supply-chain shock and the Ukraine conflict are beyond the central bank’s control. In this environment we need to be lucky to avoid stagflation that could last for a long time.” While the ECB isn’t expected to raise official borrowing costs, President Christine Lagarde signaled in a blog post last month that the central bank will end bond purchases this month, and hike once in July and again in September, lifting the deposit rate from minus 0.5% to zero. Some investors see a new tone reaching beyond the official line as central bankers succumb to huge pressure to rein in record inflation at more than four times their target of 2%. Peers at the Federal Reserve, Bank of Canada and Reserve Bank of Australia have hiked in 50-basis point increments this year. “Chances are that the ECB will have a hawkish pivot today,” Carol Kong, a strategist at Commonwealth Bank of Australia, said on Bloomberg Television. In US premarket trading, Alibaba Group was among the best performers - at least initially - as it pumped, dumped and then rose again after several conflicting reports that Chinese regulators are considering a potential revival of the initial public offering by Jack Ma’s Ant Group. Tesla gained 3% after an upgrade to Buy from UBS and after the company said its deliveries of cars made in China doubled in May compared with April and as UBS recommended buying the stock. Bank stocks also traded higher in premarket trading as the US 10-year Treasury yield hovered just above 3%. In corporate news, Credit Suisse shares dropped after its CEO Thomas Gottstein said he wouldn’t comment on State Street’s reported interest in the Swiss bank. Here are all the notable premarket movers: Five Below (FIVE US) shares decline 7.3% in premarket trading after the company cut its full-year guidance, while analysts trimmed their targets for the stock, but were broadly positive on the firm’s longterm prospects. Spotify (SPOT US) shares could be in focus today as analysts were positive on the streaming giant’s forecast that its podcasting business will turn profitable as the company focuses on more non-music segments like audiobooks. Travel stocks could be active on Thursday following Expedia CEO Peter Kern’s bullish comments on summer travel. Keep an eye on Delta (DAL US), United (UAL US), Marriott (MAR US), Expedia (EXPE US), Airbnb (ABNB US) and Booking Holdings (BKNG US) among others Watch Oxford Industries (OXM US) shares after the company reported results, as Citi says that there is no sign of consumer weakness in any part of the branded apparel retailer’s business. Ollie’s Bargain (OLLI US) stock may be in focus as RBC Capital Markets upgraded the discount retailer to outperform, saying that despite another tough quarter, its fundamentals should improve in the back-half and beyond. In Europe, equities slipped ahead of a European Central Bank decision that will put the region’s monetary policy on a path of tightening and help close the gap with global peers. Real-estate companies and retailers led the Stoxx Europe 600 Index 0.5% lower. EDF jumped the most in three months, after a newspaper report that the new French government is studying two options for the electricity giant’s nationalization, including a buyout offer. Here are the most notable European movers: EDF shares rise as much as 8.3% after Les Echos newspaper reported that nationalization is among priorities for new government after this month’s legislative elections alongside combating inflation and pension reform. Prosus gains as much as 7.4% in Amsterdam and Naspers gains as much as 6.8% in Johannesburg following a report that Chinese financial regulators are considering reviving the IPO of Jack Ma’s Ant Group. Tate & Lyle advances as much as 4.4% after the company reported FY22 results that beat estimates. The FY23 outlook suggests upgrades to consensus estimates, according to Jefferies. Beiersdorf rises as much as 7.8% after the company said in a Capital Markets Day presentation on its website that it targets above-market organic sales growth at its consumer unit in the medium term. Credit Suisse drops as much as 4.9% after State Street declined to comment on a report that it was looking to acquire the Swiss bank. Separately, Bloomberg reported that Credit Suisse is tapping the brakes on its China expansion. CMC Markets falls as much as 19% after cutting its dividend and saying it was boosting spending on new hires, product development and marketing as the firm seeks to diversify amid a fading retail trading boom. Wizz Air drops as much as 8.3%, extending Wednesday’s 9.5% decline after the company gave guidance for an operating loss for the first quarter, while analysts also noted their concern about pricing trends. Asian stocks slipped as technology and financial firms declined and higher oil prices stoked concerns about inflation.  The MSCI Asia Pacific Index fell 0.3%, trimming its gain this week. Chip stocks declined after a warning on demand from Intel Corp., with the Hang Seng Tech Index sliding more than 1%, a breather after its recent rally. Australian banks were among the biggest contributors to the regional benchmark’s loss.  “We are seeing profit-taking moves after Chinese stocks rose a lot in recent sessions,” said Xue Hua Cui, a China equity analyst at Meritz Securities in Seoul. “There are also renewed concerns about the second-quarter corporate earnings.” Australia’s broad benchmark was among the biggest decliners in Asia Pacific as bank stocks slumped on concerns about valuations and macroeconomic risks. Shares in Singapore and Malaysia also fell. South Korean equities erased early-day losses to close nearly flat on options expiry, while Japanese peers also finished little changed amid the yen’s extended weakness.  Read: Australian Bank Stocks Take $32 Billion Hit on Rate Concerns Stocks in much of the region held losses after data showed Chinese exports jumped more than expected in May, while a mini-lockdown weighed on market sentiment. Even with Thursday’s dip, the MSCI Asia Pacific Index remained on track for its fourth straight weekly gain, which would be its longest winning streak since early 2021 Japanese stocks traded in a narrow range as investors continued to worry about inflation and growth while the yen extended losses to a fresh 20-year low.  The Topix Index was virtually unchanged at 1,969.05 as of the market close in Tokyo, while the Nikkei 225 was stable at 28,246.53. Out of 2,170 shares in the index, 937 rose and 1,105 fell, while 128 were unchanged. In Australia, the S&P/ASX 200 index fell 1.4% to close at 7,019.70, its lowest level since May 12. Banks contributed the most to the benchmark’s slump on growing concerns that faster monetary policy tightening might increase housing-market risks and pressure valuations.  Magellan was the top performer after saying co-founder Hamish Douglass will resume working with the business in a new consultancy role. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,211.31. In India, stock gauges advanced for the first session in five, helped by a surge in Reliance Industries and energy companies on the improving outlook for refining margin and software exporters extending recovery.  The S&P BSE Sensex rose 0.8% to 55,320.28 in Mumbai, while the NSE Nifty 50 Index gained 0.7%. Both indexes are still headed for weekly drops of about 0.8% and 0.6%, respectively, their first decline in four weeks. “With policy rate announcements now behind us, investors lapped up stocks that were in a downward spiral for quite some time,” Kotak Securities analyst Shrikant Chouhan said in a note. The market may witness select bouts, but volatility is expected to remain over the near-to-medium term, he added.  Reliance Industries provided the biggest boost to the key gauges, increasing 2.7%. Out of 30 shares in the Sensex index, 21 rose and 9 fell In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed against its Group-of-10 peers. The euro fluctuated around $1.07. Bunds and Italian bonds swung between modest gains and losses. Options pricing in the euro and spot swings suggest not everyone is convinced that the euro will rally after the ECB meeting, which leaves ample room for an advance on a hawkish decision. The yen rebounded after touching a fresh two-decade low against the dollar and seven-year lows against the Australian dollar and the euro, as traders adjusted positions before the ECB. Speculators are gathering around the beleaguered yen and positioning is by no means extended, suggesting there’s still room for bears to pile in. The New Zealand dollar inched up and the nation’s 10-year yield hit a seven-year high after the RBNZ announced plans to offload QE bond holdings. One beneficiary of a hawkish pivot by the ECB would be the euro. The common currency has been bogged down by concerns over euro-area growth while a resurgent dollar and hawkish Fed pushed it to a five-year low against the US currency last month. The euro traded little changed against the dollar at $1.07. “If we do see Christine Lagarde leaning toward a 50 basis-points hike in July, that’s going to be very supportive of the euro-dollar,” Kong said. In rates, Treasuries are narrowly mixed with the yield flatter ahead of ECB rate decision at 7:45am ET and 30-year bond reopening, the last of this week’s coupon auctions. 2-year TSY yields rose to 2.80%, highest level since May 4 YTD high. 10-year little changed at 3.02%, underperforming bunds while gilts trail. US front-end cheapening flattens 2s10s by ~1bp on the day toward lowest level since May 25; as previewed before, the ECB is expected to announce imminent end to large-scale asset purchases, opening the door for interest-rate hikes at the July meeting; swaps price in around 30bp of rate- hike premium. Looking at today's auction we have a $19BN 30-year bond reopening which follows Wednesday’s mediocre 10-year, which tailed by 1.2bp. WI 30-year yield at ~3.16% is above auction stops since 2018 and ~16bp cheaper than May’s, which stopped 0.9bp through. German bonds and the euro are steady ahead of the ECB’s meeting later Thursday, where traders will look for clues on whether the bank will raise rates by 25bps or 50bps in July. Money markets don’t expect a hike today, and currently bet on 36bps next month, and about 132bps by the end of the year. Peripheral spreads tighten to Germany.  Both gilt and Treasury curves flatten.  In commodities, WTI trades within Wednesday’s range around the $122 level. Most base metals trade in the red; LME nickel falls 2.9%, underperforming peers. Spot gold falls roughly $3 to trade near $1,850/oz To the day ahead now, and the main highlight will be the aforementioned ECB decision and President Lagarde’s subsequent press conference. We’ll also hear from Bank of Canada Governor Macklem, and data releases today include the US weekly initial jobless claims. Market Snapshot S&P 500 futures up 0.4% to 4,130.75 STOXX Europe 600 down 0.7% to 437.16 MXAP down 0.4% to 168.75 MXAPJ down 0.6% to 557.70 Nikkei little changed at 28,246.53 Topix little changed at 1,969.05 Hang Seng Index down 0.7% to 21,869.05 Shanghai Composite down 0.8% to 3,238.95 Sensex up 0.2% to 54,988.33 Australia S&P/ASX 200 down 1.4% to 7,019.75 Kospi little changed at 2,625.44 Brent Futures down 0.4% to $123.07/bbl Gold spot down 0.3% to $1,848.12 U.S. Dollar Index little changed at 102.62 German 10Y yield little changed at 1.35% Euro down 0.1% to $1.0701 Top overnight News from Bloomberg The ECB is set to announce an imminent end to large-scale asset purchases, paving the way for the first increase in interest rates in more than a decade next month Traders are betting the BOE will deliver a historic half-point interest-rate hike by September to wrest control of inflation running at the fastest pace in four decades Judging by the latest comments, the yen’s exchange rate still has some way to go before Japan’s finance ministry would consider intervention to prop up the currency via actual purchase operations, something it has avoided for more than two decades. With the US more likely to be against any moves to weaken the dollar, Japan faces the problem that actual intervention may not be effective Japan’s Prime Minister Fumio Kishida appears to be counting on the Bank of Japan to keep borrowing costs near rock-bottom levels as his government paves the way for continued spending even after a record-breaking pandemic splurge and with the yen languishing at two-decade lows Riksbank Deputy Governor Anna Breman said all options are on the table for the June policy meeting as speculation grows over whether the Swedish central bank needs to speed up its interest rate increases China’s exports rebounded in May as Covid-related bottlenecks on production and logistics clear up, but a slowdown looms this year as global consumer demand for goods cools, weakening trade’s ability to act as a driver for economic growth A more detailed look at global markets courtesy of newsquawk Asia-Pac stocks were subdued following a weak handover from the US and with sentiment cautious. ASX 200 was pressured by underperformance in the top-weighted financials sector and weakness in property-related stocks also suffering amid expectations of aggressive RBA rate hikes which increases banks’ funding costs and could threaten the quality of their loan portfolios. Nikkei 225 kept afloat as participants contemplated the ramifications of further currency depreciation. Hang Seng and Shanghai Comp. were lacklustre despite the mostly better than expected Chinese trade data as some COVID concerns resurfaced in Shanghai with the city locking down the Minhang district on Saturday morning for mass COVID testing. Asia headlines Shanghai will lockdown the Minhang district on Saturday morning for mass COVID-19 testing, according to Bloomberg; additionally, Beijing's Chaoyang district is to close all entertainment venues from 14:00 local time (07:00BST) for COVID containment. US Treasury Secretary Yellen said China is guilty of unfair trade practices but some tariffs on Chinese goods do not serve US strategic interests and the Biden administration is looking to reconfigure tariffs in a way that would be more strategic, according to Bloomberg. Japan is planning to expand its prefectural travel subsidies across the entire country, according to Yomiuri. RBNZ outlined plans to sell New Zealand government bonds from July 2022 in which it intends to offload NZD 5bln per fiscal year in order of maturity date until its LSAP holdings are reduced to zero, according to Reuters. Equities are, overall, struggling for clear direction in relatively cautious trade going into ECB; Euro Stoxx 50 -0.5%. Bourses, and US futures, were lifted amid further constructive China tech developments, this time for Ant Group; albeit, we have drifted modestly off best since, ES +0.3%. China is said to be mulling reviving Jack Ma's Ant IPO, with reports framing it as an easing in crackdowns from China, according to Bloomberg sources. *Click here for analysis/reaction. China PCA Retail Passenger Vehicle Sales (May): -17.3% YY; Tesla (TSLA) 32.2k (prev. 33.5k YY). Walgreens Boots Alliance's (WBA) Boots has received a non-binding bid from Apollo Global Management and Reliance Industries, according to FT sources. European headlines Hawkish Lagarde Is Not Fully Priced In the Euro: ECB Cheat Sheet Traders Bet BOE Will Join Peers in Historic Half-Point Rate Hike European Gas Soars as Fire in US Compounds Russia Supply Concern Italy’s Eni to List Renewable Unit Plenitude in Milan FirstGroup Rejects £1.2 Billion Takeover Bid From I Squared FX Yen finally finds some friends amidst less hostile yield environment and supportive risk backdrop; USD/JPY retreats just over 100 pips around 134.00 and EUR/JPY almost 150 pips from 144.00+ peak. DXY remains anchored around 102.500 ahead of Friday’s US CPI data and as Euro pivots 1.0700 pre-ECB; EUR/USD flanked by decent option expiries as well from 1.0750-55 to 1.0605-00 on the downside. Kiwi underpinned after RBNZ outlines schedule for balance sheet rundown; NZD/USD hovers near 0.6450, AUD/NZD sub-1.1150 with AUD/USD capped into 0.7200. Rand continues bull run with extra incentive from wider than forecast SA current account surplus, USD/ZAR straddling 15.2500. Lira rout resumes following fleeting respite on prospect of capital controls raised by S&P, USD/TRY above 17.2200. Yuan retains bulk of Chinese trade data related gains even though parts of Beijing and Shanghai reimpose restrictive Covid measures; USD/CNH closer to 6.6700 than 6.7100, USD/CNY settles sub-6.7000 vs circa 6.7000 high. Fixed Income Bunds choppy and lagging Eurozone periphery within 149.17-148.52 range pre-ECB, as focus falls on fragmentation along with rate and QE guidance Gilts underperforming between 114.86-42 parameters as BoE tightening expectations rise and drag Sonia strip down US Treasuries flat-lining ahead of jobless claims and long bond supply, with 10 year T-note just above par inside tight 118-07/117-26+ band Commodities WTI and Brent are steady after giving up overnight gains with participants cautious and cognizant of China's fluid COVID situation. Currently, the benchmarks are sub-USD 122/bbl and USD 123.50/bbl respectively, vs highs of 122.72 and 124.34. Magnitude 5.6 earthquake hits the Antofagasta region in Chile, according to EMSC. Spot gold is sub-USD1850/oz, having slipped below its falling 10-DMA but holding above the overlapping 200- & 21-DMAs at USD 1842/oz. Central Banks Riksbank's Breman says she will support doing what is required to attain the inflation target, including more hikes than are currently in the path; adding, to control inflation back to target, need to act now. Does not exclude a 50bps hike at the next meeting.   Hungarian Finance Minister says the Hungary has issued FX bonds totalling USD 3bln and EUR 750mln; follows the NBH maintaining its one-week deposit rate at 6.75%. US Event Calendar 08:30: May Continuing Claims, est. 1.3m, prior 1.31m 08:30: June Initial Jobless Claims, est. 206,000, prior 200,000 12:00: 1Q US Household Change in Net Wor, prior $5.3t DB's Jim Reid concludes the overnight wrap I kicked off Day 1 of our annual European LevFin conference in London yesterday and we had a record attendance of over 1100 issuers and investors. It was the first in-person version since 2019 and if this conference is anything to go by, people still like the personal contacts that such an event brings. I also had a dinner at the event last night so I’m a bit shattered this morning so bear with me. This conference has been going now for 26 years at DB and the headline acts at the post conference entertainment have in the past included, The Killers, Duran Duran, Cheryl Crow, Dire Straits, The Corrs, The Sugababes, Stevie Wonder and Bon Jovi. Last night’s entertainment was a pub quiz. How times have changed. If you think the above means Zoom is dead then think again, as I’ll be doing a Zoom webinar next Wednesday (June 15th) at 2pm on my annual Default Study (“The End of the ultra-low default world?”), published earlier this week, that I presented at the conference. Please click here to register, and here to see the report itself. The day before this (June 14th), also at 2pm London time, a selection of our heads of trading and research desks will do a call on the near-term macro outlook across rates, FX, EM, equities and credit. Please click here to register. As I recover from the heckling of telling High Yield investors that defaults are coming, we arrive at the business end of the week with a big 36 hours ahead with the ECB meeting today, and US CPI tomorrow, looming large! And then don’t forget the FOMC, BoE and BoJ meetings next week. Markets approach this busy period on the nervous side with rates and equities selling off over the last 24 hours, and that’s still the case in much of Asia in this morning’s trading. Starting with Europe, sovereign bond yields hit fresh highs yesterday as investors have come to view a potential 50bp hike at some point this year as an increasingly likely possibility. In fact by the close of trade yesterday, overnight index swaps were pricing in 132bps worth of ECB hikes by the December meeting, which is the highest to date and more than double the 63bps of hikes expected after their last meeting in mid-April. So if they don’t hike until July as is widely expected, that implies at least one 50bp move is being fully priced in by year-end. In their preview last week (link here), our European economists agreed with this assessment that a 50bp hike is likely soon, and their view is that one of the two hikes in Q3 will be a 50bp hike, with September being more likely than July. After that, they then see the ECB reverting to continuous back-to-back 25bp hikes until they reach a terminal deposit rate of 2% in mid-summer 2023, although there’s a risk of a second 50bp hike before policy rates reach neutral. In terms of today’s decision however, they expect the ECB to confirm that APP net purchases will cease at the end of June, and that their new staff forecasts will show inflation at 2.0% in 2024, thus satisfying the liftoff criteria. When it comes to new guidance, their view is that the three conditions for policy rate liftoff are likely to be replaced by new guidance on the speed and extent of the hiking cycle. And finally on TLTRO, they expect the end of the TLTRO discount to be confirmed and the ECB to pledge a smooth transmission of monetary tightening through the banking system. With all that in mind, European yields moved higher through the day, with those on 10yr bunds (+6.2bps) and OATs (+7.0bps) both rising to their highest levels since 2014. The selloff was more pronounced among peripheral debt, with yields on 10yr Italian (+8.8bps) and Spanish (+8.2bps) debt seeing even larger rises, although the spread of both over bunds was still tighter than their recent peak last week. There are signs of growing nervousness elsewhere too, with EURUSD overnight implied volatility at its highest level right now since the US presidential election in November 2020. Meanwhile, those at the more hawkish end of the Governing Council received further support yesterday from data revisions, with Euro Area growth in Q1 revised up to show a +0.6% expansion (vs. +0.3% previously). This investor concern about rate hikes and persistent inflation was bad news for equities, first in Europe where the STOXX 600 (-0.57%) fell for a second day running and then extending to a late sell-off across the Atlantic, where the S&P 500 fell -1.08%, with only energy (+0.15%) managing to end the day in the green. This brings the index to +0.18% for the week, as it enters yet another late week showdown to see if it can manage to stay in positive territory. The decline came as 10yr Treasuries eclipsed the 3% mark again, closing up +4.8bps at 3.02%, and we’re up another +1.5 bps higher this morning at 3.036%. The impact of tighter monetary policy extended beyond risk assets and showed some signs of being felt in the real economy, too, with the number of mortgage applications in the US falling to a 22-year low in the week ending June 3. These inflationary worries for investors and central banks were aggravated further by a fresh rise in commodity prices. Oil prices saw further gains, and Brent Crude (+2.50%) moved back above $123/bbl again, inching ever closer to their post-invasion peak levels despite news of OPEC supply expansion and US reserve releases. That trend has continued this morning, with Brent crude up a further +0.33% at $123.98/bbl. WTI (+2.26%) moved above $122/bbl as well, so not far from its peak closing level following the invasion of $123.70/bbl. US natural gas prices displayed a lot of volatility, hitting a post-2008 high intraday before crashing into the close to finish down -6.39% following reports of a fire at a terminal used for exporting, keeping supplies stateside. European natural gas futures fell for a 6th consecutive session to hit another post-Ukraine invasion low of €78.41/MWh. Those losses on Wall Street have carried over into Asia overnight as that rally in oil prices has ramped up worries about inflation and the outlook for interest rates. The Hang Seng (-0.24%), the Shanghai Composite (-0.49%) and the CSI 300 (-0.64%) are all in negative territory, as is the Kospi (-0.31%), although the Nikkei (+0.26%) is up as the weaker Yen has raised hopes for an earnings improvement. Indeed yesterday, the Yen fell a further -1.22% against the US Dollar to close at a 20-year low of 134.25 Yen per dollar, having at one point traded at an intraday low of 134.47. Bear in mind that its intraday low so far in the 21st century was at 135.15 back in January 2002, so we’re not far off reaching levels unseen since the 1990s, although this morning it’s strengthened a touch to 134.06. Outside of Asia, stock futures in the US and Europe are pointing to additional losses today with contracts on the S&P 500 (-0.10%), NASDAQ 100 (-0.11%) and DAX (-0.44%) edging lower. Finally on the data front, China’s May exports advanced +16.9% y/y, beating analyst estimates for a +8.0% rise and faster than the +3.9% increase in April. At the same time, the nation’s trade surplus grew to $78.76 bn in May, (vs. $57.7 bn expected) and compared to a $51.12 bn surplus in April. Separately, German industrial production grew by a weaker-than-expected +0.7% in April (vs. +1.2% expected), which comes on the back of an unexpected contraction in factory orders the previous day. To the day ahead now, and the main highlight will be the aforementioned ECB decision and President Lagarde’s subsequent press conference. We’ll also hear from Bank of Canada Governor Macklem, and data releases today include the US weekly initial jobless claims. Tyler Durden Thu, 06/09/2022 - 07:45.....»»

Category: smallbizSource: nytJun 9th, 2022

Profit Recession Is Coming To US Equities

Profit Recession Is Coming To US Equities By Simon White, Bloomberg Markets Live Analyst and Commentator There are pervasive and increasingly pronounced signs that US equities will be in a profit recession before the end of this year. Target’s warning on margins yesterday is emblematic of the problems faced by firms in an inflationary regime. Even if an economy-wide recession is avoided, the backdrop for equities is set to get worse before it gets better. Inevitably -- given the unequivocal message from leading indicators earlier this year -- the emphasis in the market debate has shifted from inflation to growth. Higher rates and tighter liquidity have a more immediate effect on growth than inflation, and while inflation has yet to conclusively peak, growth is beginning to show the cracks you’d expect in the face of a Fed on the warpath. US large-cap earnings have been resilient this year, but here too there are worrying signs that seem set to worsen. One of those is sentiment. The Conference Board’s CEO Confidence Index has fallen sharply this year. This typically leads to weaker profit growth in the next 3-6 months. Furthermore, analysts are revising down their earnings estimates which also often precedes weaker earnings growth. The stronger dollar is squeezing profits too. The direct effect comes from the ~40% of S&P revenues that come from abroad. But all revenues are impacted by the depressive influence of a higher dollar on global trade. South Korea, as a relatively small and open economy with a large export sector, is a leading indicator for global trade conditions. A steady decline in South Korean exports growth is a strong indication US earnings growth is facing more downside. The weaker outlook for manufacturing is another rain cloud for earnings. Manufacturing may only be around 11% of US GDP, but it accounts for almost a third of corporate revenues, and therefore has an outsized impact on the whole economy. The fall in manufacturing new orders is gathering pace, yet another bad omen for earnings. The largest corporate cost is labor, and the tightness of the US labor market is the biggest headwind US earnings face. Low unemployment leads to higher wages which eventually erodes margins. Margins will be increasingly squeezed by rising wages in the coming years, the effect multiplied if inflation triggers a wage-price spiral. An earnings recession, though, does not guarantee the hammer-blow of a full recession. Over the last sixty years, there have been several large-cap earnings recessions – e.g. in 1975, 1985-86 and 2015-16 -- that did not coincide or immediately precede an economy-wide recession. Either way, there is no positive angle for equities. Even if a full recession -- when all bets are off for stocks -- is avoided an earnings recession still means equities will find it hard to stage a sustainable rally. Selling in May, and going away until September’s St Leger’s Day, continues to seem like a sound decision. Tyler Durden Wed, 06/08/2022 - 12:39.....»»

Category: smallbizSource: nytJun 8th, 2022

Futures Drop As Yields Push Higher, Hawkish ECB Looms

Futures Drop As Yields Push Higher, Hawkish ECB Looms After yesterday's bizarro rally, US futures and European bourses dipped ending two days of gains, as yields reversed Tuesday's slide and climbed ahead of highly anticipated CPI data on Friday and a hawkish ECB meeting tomorrow, as traders try to predict the Federal Reserve’s policy path. Nasdaq 100 futures were flat at 7:30 a.m. in New York, with contracts on the S&P 500 and Dow Jones also modestly lower. European markets also dipped, with Credit Suisse shares tumbling after the Swiss bank announced that it expects a loss in the 2Q and is weighing a fresh round of job cuts. Meanwhile, Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector. The yield on the 10-year US Treasury resumed its advance, climbing to 3%, while the dollar rose as the yen cratered to fresh 20 year lows, flat and bitcoin traded around $30K again. Among notable premarket movers, energy companies’ extended their Tuesday gains with Imperial Petroleum rising 8.3% and Energy Focus adding 20%. Western Digital shares climbed 4.1% in US premarket trading after the chipmaker said that it’ll consider splitting its main units as part of a review of “strategic alternatives” following talks with activist investor Elliott. US-listed Chinese stocks jump in premarket trading, on track for a third day of gains, after China approved a second batch of video games this year, providing a signal of policy support to the the country’s internet sector; Alibaba (BABA US) gained 5.8%, JD.com (JD US) +4.4%, Pinduoduo (PDD US) +5.9%, Baidu (BIDU US) +2.7%. Other notable premarket movers: Intel (INTC US) shares fell 1.9% in premarket trading as Citi lowered its estimates on the chipmaker after the company’s management mentioned at a conference that circumstances are worse than expected during the quarter. Altria Group (MO US) stock slid 2.4% in premarket trading as Morgan Stanley downgraded it to underweight, citing increasing macro pressures and competitive risks. Western Digital (WDC US) shares rise 4.1% in premarket trading, after the chipmaker said that it will consider splitting its main units as part of a review of “strategic alternatives”. Smartsheet (SMAR US) stock fell about 7% in premarket trading as analysts said the software company delivered a mixed set of results with billings growth decelerating to top estimates by a slimmer margin than in previous quarters. Novavax (NVAX US) shares jump as much as 22% in US premarket trading after the company’s coronavirus vaccine won support from an FDA advisory panel. DBV Technologies ADRs (DBVT US) gain as much as 22% in US premarket trading after a trial for the biotech firm’s peanut allergy treatment met its primary endpoint. Sentiment remains fragile on concerns rising rates will spark a recession as corporate earnings are set to slide. Thursday the ECB is set to wind down trillions of euros of asset purchases in a prelude to a rate hike expected in July that will mark the end of eight years of negative interest rates. "Higher yields will inevitably resume the pressure on valuations,” said Roger Lee, head of UK equity strategy at Investec Bank. Inflation now exceeds 8% in the euro area, and is expected to stay above that level in the US when May data comes out on Friday, increasing pressure on central banks to stick to aggressive rate hikes. “Recent bouts of optimism can only be short-lived for now, as they were based on the wrong assumptions, that lower growth would push central bankers to ease their aggressive path,” Olivier Marciot, a portfolio manager at Unigestion SA, wrote in a report. Yet some argue that central banks will be forced back into dovish mode, among them hedge fund founder Ray Dalio. The billionaire said central banks across the globe will be required to cut interest rates in 2024 after a period of stagflation. On Friday, focus will turn to the US CPI reading for hints on the Fed's tightening path following the central bank’s outsized hike on May 4. The data is expected to show inflation picked up from a month ago, but slightly slowed from a year earlier. Complicating the task of policy makers trying to arrest runaway inflation without choking off growth, the war in Ukraine shows no signs of ending. That’s ignited higher food and energy prices across the world, despite the best efforts of central banks to use higher rates to cool economies. In Europe, the Stoxx 600 Index was down 0.4%, with shares of basic resources companies and financial sector stocks leading the drop,  while the region’s bonds fell as traders braced for a crucial European Central Bank meeting. Credit Suisse shares tumbled as much as 7.6% after the Swiss bank announced that it expects a loss in the 2Q. In addition, people familiar with the matter said that the lender is weighing a fresh round of job cuts. European mining stocks also underperformed the Stoxx 600 benchmark as copper declines, while iron ore fluctuates with investors weighing signs of demand recovery against caution that China may seek to stabilize commodity prices. The Stoxx Europe 600 Basic Resources sub-index slid 1.1% as of 9:45 a.m. in London after rising to the highest since April on Tuesday. Here are the most notable European movers: Prosus’s shares jump as much as 8.6% in Amsterdam trading after China approved its second batch of video games this year, with a total of 60 titles. Naspers, which holds a 29% stake in Tencent through Prosus, up as much as 9.8%. Inditex shares gain as much as 5.3% after the Zara owner reported 1Q results. Analysts were impressed by the sales beat, with Bryan Garnier calling the company a “safe-haven choice” in the retail sector. UK and European retail stocks rise after Inditex’s results helped boost sentiment, with the retail segment the biggest gainer in the Stoxx 600 Index. Asos gained as much as +3.9%, Boohoo +3.1%, JD Sports +2.5%. Voestalpine shares rise as much as 4.5% after the company reported strong results for the business year, even as its guidance for FY23 points at a lack of visibility for fiscal 2H, according to analysts. Haldex shares rise as much as 45% after SAF-Holland offers SEK66 in cash per share for the Swedish brake and air suspension products maker, representing a 46.5% premium to its closing price on Tuesday. Wizz Air shares fall as much as 8.6% after the company reported results that were in line with expectations but flagged an operating loss for the 1Q of fiscal year 2023. European mining stocks underperform the Stoxx 600 benchmark as copper declines, while iron ore fluctuates. Anglo American shares fell as much as 1.7%, Rio Tinto -1.8%, Glencore -1.7%, Antofagasta -3.3%. Orpea shares declined as much as 5.9% as the company said that French police investigators began an evidence-gathering raid on Wednesday at its headquarters. Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector.  The MSCI Asia Pacific Index advanced as much as 1.1%, with Alibaba and Tencent providing the biggest boosts. Benchmarks in Hong Kong outperformed on the approvals news, while Japanese equities climbed as the yen continued to weaken. Stocks in India fell after the country’s central bank raised interest rates as expected while Thai shares inched up after the Bank of Thailand kept its benchmark rate unchanged.  China approved more games in a step toward normalization after a months-long freeze amid the government’s crackdowns on the tech sector. The news follows a report earlier this week that regulators are preparing to conclude an investigation of ride-hailing giant Didi. “We think the significant dangers have passed” in Chinese equities markets, said Eric Schiffer, chief executive officer at California-based private equity firm Patriarch Organization, which holds positions in Alibaba and JD. “The approval on the game titles signals that policymakers are following through on their intention to back off tech regulation and reverse the pain that caused investors to leave the sector."  Optimism toward a less-harsh regulatory environment and China’s post-Covid economic reopening has helped Hong Kong’s tech stocks outperform US peers recently. The Hang Seng Tech Index is up more than 17% the past month compared with little change in the Nasdaq 100. The rebound in Chinese equities also helped the MSCI Asia Pacific Index stage a bigger recovery than the S&P 500 in the same period. Japanese equities advanced for a fourth straight day, as the yen’s weakness provided support for the nation’s exporters.   The Topix rose 1.2% to 1,969.98 as of market close, while the Nikkei advanced 1% to 28,234.29. Toyota Motor Corp. contributed the most to the Topix gain, increasing 1.8%. Out of 2,170 shares in the index, 1,646 rose and 435 fell, while 89 were unchanged. Stocks in India declined as the Reserve Bank of India said it would withdraw pandemic-era accommodation to quell inflation after raising borrowing costs for a second straight month.  The S&P BSE Sensex dropped 0.4% to 54,893.84, as of 2:46 p.m. in Mumbai, while the NSE Nifty 50 Index fell 0.6%. Both gauges erased gains of as much as 0.8% reached during the central bank’s briefing and are heading for a fourth day of declines. Of 30 shares in the Sensex, 13 rose and 17 fell. Sustained high prices could unhinge inflationary expectations and trigger second-round effects, central bank Governor Shaktikanta Das said in an online briefing, emphasizing that preserving price stability is key to ensuring lasting economic growth. Reliance Industries was the biggest drag on the Sensex, while State Bank of India gave the biggest boost. All except two of BSE’s 19 sector sub-gauges declined, with telecom and energy groups the worst performers as realty and metals gained In FX, Yen weakness extends in European trade, with JPY hitting the weakest level since 2002 at 133.77/USD after BOJ’s Kuroda reiterated easing stance. The dollar strengthened against all its group-of-10 peers with the yen and Australian and New Zealand dollars as the worst performers. The euro fluctuated around the $1.07 handle while bunds and Italian bonds fell alongside Treasuries, paring some of Tuesday’s gains. Australian and New Zealand dollars both weakened amid greenback strength and falling US stock futures. Aussie further was weighed by local yields giving up Tuesday’s RBA-driven gains. In rates, Treasuries drifted lower, giving back a portion of Tuesday’s gains and following bigger losses for bunds, which underperformed ahead of Thursday’s ECB policy meeting.  Yields are cheaper by 2bp-3bp across the curve with front-end marginally outperforming, steepening 2s10s spread by ~1.5bp and building curve concession for the auction; bunds underperform by 1.5bp in 10-year sector.  Focal points of US session include 10-year auction, following soft results for Tuesday’s 3-year. $33b 10-year reopening at 1pm ET is second of this week’s three auctions; $19b 30-year reopening is ahead Thursday. WI 10-year yield ~3.015% is above auction stops since 2011 and ~7bp cheaper than May’s, which tailed by 1.4bp. JGBs little changed, with benchmark 10-year bonds trading again after no transactions on Tuesday. Peripheral spreads widen to Germany; Italy lags, widening ~3bps to core at the 10y points ahead of the ECB on Thursday. In commodities, WTI drifts 0.6% higher to trade at around $120. Most base metals are in the green; LME tin rises 2.8%, outperforming peers. Spot gold falls roughly $5 to trade at $1,848/oz. Looking at To the day ahead now, and it’s a fairly quiet one on the calendar, but data releases include German industrial production and Italian retail sales for April, as well as the UK construction PMI for May and the final reading of US wholesale inventories for April. Market Snapshot S&P 500 futures down 0.4% to 4,144.00 STOXX Europe 600 down 0.3% to 441.39 MXAP up 0.8% to 169.14 MXAPJ up 1.1% to 559.98 Nikkei up 1.0% to 28,234.29 Topix up 1.2% to 1,969.98 Hang Seng Index up 2.2% to 22,014.59 Shanghai Composite up 0.7% to 3,263.79 Sensex down 0.4% to 54,907.55 Australia S&P/ASX 200 up 0.4% to 7,121.10 Kospi little changed at 2,626.15 Brent Futures up 0.3% to $120.92/bbl Gold spot down 0.3% to $1,847.71 U.S. Dollar Index up 0.34% to 102.67 German 10Y yield little changed at 1.33% Euro down 0.2% to $1.0686 Top Overnight News from Bloomberg Boris Johnson plans to press ahead with legislation giving him the power to override parts of the Brexit deal, three people familiar with the matter said, a move likely to anger some of his MPs and the EU The yen’s historic weakness is spreading from the dollar into other currency crosses as the Bank of Japan’s policy isolation grows. Bloomberg’s Correlation-Weighted Currency Index for the yen -- a gauge of its relative strength against a broad basket of Group-of-10 peers -- slumped to a seven-year low Wednesday Japanese investors sold US Treasuries for the sixth consecutive month in April, underscoring waning appetite for the securities as the Federal Reserve sticks to its aggressive monetary tightening path Inflation in Hungary exceeded 10% for the first time in more than 20 years, putting pressure on the central bank to tighten monetary policy further and prop up the forint Australian inflation is likely to breach 6% and potentially could go “well above” that level and remain there for the rest of the year, Secretary to the Treasury Steven Kennedy said Wednesday Economists and investors criticized Australia’s central bank for confusing communications after it raised interest rates by twice as much as expected, having previously signaled a preference for quarter-point moves The RBI delivered a 50 basis-point rate hike as predicted by 17 of 41 economists in a Bloomberg survey A slew of China video game approvals is giving stock bulls renewed hope that a nascent rebound in tech shares could become a sustainable rally. The Hang Seng Tech Index jumped more than 4% Wednesday after the government approved 60 licenses A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly higher following the gains on Wall St and optimism of China easing its tech crackdown. ASX 200 recovered from the prior day’s RBA-induced selling with nearly all sectors in the green, although financials underperformed. Nikkei 225 extended further above the 28k level on currency weakness and with Q1 GDP data revised upwards to a narrower contraction. Hang Seng and Shanghai Comp. traded mixed with tech fuelling the gains in Hong Kong after China’s NPPA approved the publishing licences for 60 games this month, while sentiment in the mainland gradually soured despite support efforts as an official also warned that China's foreign trade stabilisation faces uncertainties and large pressure. Top Asian News China Vice Commerce Minister Wang said China's foreign trade stabilisation faces uncertainties and a large pressure from domestic and external factors. Furthermore, he sees global demand growth as low, while he added that China will accelerate export tax rebates and MOFCOM will assist foreign trade companies in securing orders, according to Reuters. Chinese Retail Passenger Car Sales (May) +30% M/M, according to PCA's Prelim data cited by Bloomberg. Japan's CDP has, as expected, submitted a no-confidence motion against the governing administration within the Lower House, motion will be put to a vote on June 9th, via Asahi; Asahi adds that the move is not expected to go anywhere European bourses have trimmed initial upside, Euro Stoxx 50 -0.2%, with macro newsflow limited and the initial strength primarily a continuation of APAC/Wall St. leads. In specifics, Credit Suisse (-5%) issued a Q2 profit warning for the group and its Investment Bank division while noted Retail name Inditex (+4%) provided a positive update. Stateside, futures are modestly pressured overall but well within overnight ranges ahead of a slim docket; ES -0.4%. DiDi (DIDI) is in advanced discussions to own a one-third stake of Sinomach Zhijun, a China state-backed EV maker, according to Reuters sources. Top European News Euro-Zone Economy Grew More Than Estimated at Start of Year Even the ECB’s Most Dire Forecast May Have Been Too Optimistic Euro Options Point to Most-Pivotal ECB Meeting Since 2019 Ireland Accuses Johnson of Acting in ‘Bad Faith’ on Brexit Deal Saudi Wealth Fund Makes Second $1 Billion Bet on Swedish Gaming Central banks RBI hiked the Repurchase Rate by 50bps to 4.90% (exp. 40bps hike) via unanimous decision and dropped mention of "staying accommodative", while RBI Governor Das noted that inflation has increased above upper tolerance levels and they remain focused on bringing down inflation. Das added they will control inflation without losing sight of growth and that further monetary policy measures are necessary to anchor inflation, as well as noted that upside risk to inflation had intensified and materialised sooner than expected. RBI Governor says they dropped the word "accommodative" from their stance, but they remain accommodative; liquidity withdrawal going forward will be calibrated and gradual. BoJ's Kuroda says rapid weakening of JPY as seen recently is undesirable; various macroeconomic models show that a weak JPY is positive. I It is important for FX to move stably, reflecting fundamentals. BoJ is expected to maintain its view that the domestic economy is picking up as a trend and will likely continue improving, according to Reuters sources. PBoC international department official Zhou said the PBoC will keep guiding financing costs lower, while the PBoC also announced that China will extend the trading hours of the interbank FX market, according to Reuters. FX Buck bounces as Yen rout continues after soft verbal intervention from BoJ Governor and Japanese Economy Minister; DXY back around 102.500 axis, USD.JPY climbs to circa 133.86 at one stage. More Lira depreciation on multiple negative factors including unconventional easing policy stance aimed at returning inflation to target, USD/TRY touches 17.1500. Aussie and Kiwi undermined by Greenback rebound and fade in general risk sentiment; AUD/USD loses 0.7200+ status again, NZD/USD sub-0.6450. Franc and Pound down, but Euro and Loonie resilient as former awaits ECB and latter leans on strong crude prices; USD/CHF just shy of 0.9790, Cable under 1.2550, EUR/USD probing 1.0700 and USD/CAD pivoting 1.2550. Forint and Zloty underpinned post-strong Hungarian CPI metrics and pre-NBP that is expected to hike 75bp; EUR/HUF & EUR/PLN around 389.60 and 4.5700 respectively. Fixed Income Bunds and Gilts pare some losses after testing round and half round number levels at 149.00 and 114.50 respectively, with added incentive after solid demand for 10 year German and UK supply. US Treasuries await 2032 issuance with caution given a lukewarm reception at 3 year auction. 10 year note just off base of 118-03/13 overnight range. Commodities WTI and Brent have been moving in-line with broader risk; however, following the UAE Minister the benchmarks have extended to the upside and post gains in excess of USD 1.50/bbl. US Energy Inventory Data (bbls): Crude +1.8mln (exp. -1.9mln), Cushing -1.8mln, Gasoline +1.8mln (exp. +1.1mln), Distillates +3.4mln (exp. +1.1mln) Brazilian government is considering measures to monitor fuel prices at distributors, according to Reuters sources. UAE Energy Minister says situation is not encouraging when it comes to the amounts of crude OPEC+ can bring to the market, via Reuters; Notes conformity with the OPEC+ deal is more than 200%, are risks when China is back, in talks with Germany and other nations to see if they are interested in UAE natgas. Spot gold is essentially unchanged, and continues to pivot its 10-DMA, while base metals are primarily tracking broader risk sentiment. US Event Calendar 07:00: June MBA Mortgage Applications -6.5%, prior -2.3% 10:00: April Wholesale Trade Sales MoM, prior 1.7% 10:00: April Wholesale Inventories MoM, est. 2.1%, prior 2.1% DB's Henry Allen concludes the overnight wrap A reminder that Jim’s annual default study was released yesterday. His view is that while nothing much will change for the remainder of 2022, we might be coming to the end of the ultra-low default world discussed in previous editions. First, there’ll likely be a cyclical US recession to address in 2023, and after that, a risk that various trends reverse that have made the last 20 years so subdued for defaults. See the report here for more details. It’s been another topsy-turvy session for markets over the last 24 hours as investors look forward to the big macro events later in the week, namely the ECB tomorrow and then the US CPI print the day after. Initially it had looked like we were set for another day of higher rates, not least after the hawkish surprise from the RBA we mentioned in yesterday’s edition as they hiked by a larger-than-expected 50bps. But more negative developments subsequently dampened the mood, including an unexpected contraction in German factory orders, and then an announcement by Target (-2.31%) that they were cutting their profit outlook for the second time in three weeks. But then sentiment turned once again later in the US session, with equities seeing a late rally that put the major indices back in positive territory for the day. Against that backdrop, equities swung between gains and losses, but the S&P 500 rallied to a broad-based gain after the European close, finishing the day +0.95% higher after being as much as -1% lower following the open, with only the consumer discretionary (-0.37%) sector finishing in the red after Target updated their guidance again to now expect Q2’s operating margin to be around 2% amid price reductions to reduce inventory. For the index as a whole, it was also the first back-to-back positive start the week since in a month, that’s also seen it recover all of last week’s declines. Energy (+3.14%) was the biggest outperformer in the S&P amidst a further rise in oil prices, with Brent Crude (+0.89%) moving back above the $120/bbl mark. However, Europe’s STOXX 600 (-0.28%) missed the late rally and eventually settled in negative territory. Whilst equities had a mixed session, sovereign bonds put in a more consistent performance ahead of tomorrow’s ECB decision, with decent gains posted on both sides of the Atlantic. Yields on 10yr Treasuries were down -6.6bps to 2.97%, moving back beneath 3% again, although this morning’s +2.8bps rise has taken them just back above that point to 3.001% at time of writing. Yesterday’s moves lower in yields were more pronounced at the long end of the curve, with the 2yr yield essentially flat as investors’ expectations of the near-term path of Fed rate hikes remained fairly steady. Indeed, the futures-implied rate by the December meeting was also down just -1.5bps to 2.84%. It was much the same story in Europe too of lower yields and flatter curves, as the amount of ECB tightening priced in for the rest of the year fell a modest -1.4bps from its high of 125bps the previous day. Yields on 10yr bunds (-2.9bps), OATs (-3.6bps) and gilts (-3.3bps) all fell back, and there was a noticeable decline in peripheral spreads thanks to even larger reductions in the Italian (-12.1bps) and Spanish (-7.4bps) 10yr yields. Interestingly, another trend over recent days that continued was the fall in European natural gas prices (-3.57%), which fell for a 5th consecutive session to hit its lowest level since Russia’s invasion of Ukraine, at €79.61/MWh. Those late gains for US equities have carried over into Asia overnight, with the Hang Seng (+1.70%) the Nikkei (+0.85%) both advancing strongly. The main exception to that has been in mainland China however, where the CSI 300 (-0.41%) and the Shanghai Composite (-0.70%) have just taken a tumble this morning. We’ve also seen that in US equity futures too, with those on the S&P 500 down -0.335 this morning. On the data side, the final estimate of Japan’s GDP for Q1 showed a smaller contraction than initially thought, with GDP only falling by an annualised -0.5%, which is half the -1% decline initially thought. However, the Japanese Yen has continued to weaken overnight, and is currently trading at a fresh 20-year low against the US Dollar of 133.13 per dollar. It’s also at a 7-year low against the Euro of 142.19 per euro. Here in the UK, Brexit could be back in the headlines shortly as it’s been reported by multiple outlets including Bloomberg that legislation will be introduced that would enable the UK government to override the Northern Ireland Protocol. That’s the part of the Brexit deal that avoids the need for a hard border between Northern Ireland and the Republic of Ireland, but has been a persistent source of tension between the two sides since the deal was signed, since it creates an economic border between Northern Ireland and Great Britain that Northern Irish unionists are opposed to. Irish PM Martin said yesterday that Europe would respond in a “calm and firm” way, and Bloomberg’s report suggested the draft bill could be presented to the House of Commons tomorrow. Looking at yesterday’s data releases, German factory orders for April unexpectedly saw a -2.7% contraction (vs. +0.4% expansion expected). That was the third consecutive monthly decline, and was driven by a -4.0% decline in foreign orders. On the other hand, the final PMIs from the UK for May were revised up relative to the flash readings, with the composite PMI at 53.1 (vs. flash 51.8), helping sterling to strengthen +0.48% against the US Dollar. Finally, the World Bank yesterday became the latest body to downgrade their global growth forecast, now projecting a +2.9% rise in GDP for 2022 compared to their 4.1% estimate put out in January, and openly warned about the risk of stagflation. To the day ahead now, and it’s a fairly quiet one on the calendar, but data releases include German industrial production and Italian retail sales for April, as well as the UK construction PMI for May and the final reading of US wholesale inventories for April. Tyler Durden Wed, 06/08/2022 - 08:09.....»»

Category: dealsSource: nytJun 8th, 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 New York Times" Dramatic Shift On Victory In Ukraine

The New York Times' Dramatic Shift On Victory In Ukraine Authored by John Walsh via Consortium News, On May 11 The New York Times ran an article documenting that all was not going well for the U.S. in Ukraine, and a companion opinion piece hinting that a shift in direction might be in order. Then on May 19, the editorial board, the full Magisterium of the Times, moved from hints to a clarion call for a change in direction, declaring that “total victory” over Russia is not possible and that Ukraine will have to negotiate a peace in a way that reflects a “realistic assessment” and the “limits” of U.S. commitment. The Times serves as one the main shapers of public opinion for the elite and so its pronouncements are not to be taken lightly. US Limits The editorial contains the following key passages: “In March, this board argued that the message from the United States and its allies to Ukrainians and Russians alike must be: No matter how long it takes, Ukraine will be free. …” “That goal cannot shift, but in the end, it is still not in America’s best interest to plunge into an all-out war with Russia, even if a negotiated peace may require Ukraine to make some hard decisions.”  And, to ensure that there is no ambiguity, it went on: “A decisive military victory for Ukraine over Russia, in which Ukraine regains all the territory Russia has seized since 2014, is not a realistic goal. …Russia remains too strong…” Image: Flickr Then, to make certain that President Joe Biden and the Ukrainians understand what they should do, it adds: “… Mr. Biden should also make clear to President Volodymyr Zelensky and his people that there is a limit to how far the United States and NATO will go to confront Russia, and limits to the arms, money and political support they can muster. It is imperative that the Ukrainian government’s decisions be based on a realistic assessment of its means and how much more destruction Ukraine can sustain.” As Ukraine’s President Volodymyr Zelensky read those words, he must surely have begun to sweat.  The voice of his masters was telling him that he and Ukraine will have to make some sacrifices for the U.S. to save face.  As he contemplates his options, his thoughts must surely run back to February 2014, and the U.S.-backed Maidan coup that culminated in the hasty exit of President Viktor Yanukovych from his office, his country and almost from this earth. Alexander Mercouris of The Duran explains the shift in Western media reporting: Too dangerous In the eyes of the Times editorial writers, the war has become a U.S. proxy war against Russia using Ukrainians as cannon fodder – and it is careening out of control:  “The current moment is a messy one in this conflict, which may explain President Biden and his cabinet’s reluctance to put down clear goal posts. “The United States and NATO are already deeply involved, militarily and economically. Unrealistic expectations could draw them ever deeper into a costly, drawn-out war… “Recent bellicose statements from Washington — President Biden’s assertion that Mr. Putin ‘cannot remain in power,’ Defense Secretary Lloyd Austin’s comment that Russia must be ‘weakened’ and the pledge by the House speaker, Nancy Pelosi, that the United States would support Ukraine ‘until victory is won’ — may be rousing proclamations of support, but they do not bring negotiations any closer.” While the Times dismisses these “rousing proclamations,” it is all too clear that for the neocons in charge of US foreign policy, the goal has always been a proxy war to bring down Russia. This has not become a proxy war; it has always been a proxy war. The neocons operate by the Wolfowitz Doctrine, enunciated in 1992, soon after the end of Cold War 1.0, by the necoconservative Paul Wolfowitz, then under secretary of defense: “We endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power. “We must maintain the mechanism for deterring potential competitors from even aspiring to a larger regional or global power.” Clearly if Russia is “too strong” to be defeated in Ukraine, it is too strong to be brought down as a superpower. Paul Wolfowitz, then deputy secretary of defense, on March 1, 2001. Image: DoD What Changed? After seven years of slaughter in the Donbas and three months of warfare in southern Ukraine, has the Times editorial board suddenly had a rush of compassion for all the victims of the war and the destruction of Ukraine and changed its opinion?  Given the record of the Times over the decades, it would seem that other factors are at work. First of all, Russia has handled the situation unexpectedly well despite dire predictions from the West. Russian President Vladimir Putin’s support exceeds 80 percent. Out of 195 nations, 165 —including India and China with 35 percent of the world’s population —have refused to join sanctions against Russia, leaving the U.S., not Russia, relatively isolated in the world.  The ruble, which Biden said would be “rubble,” has not only returned to its pre-February levels but is trading recently around a two-year high of about 60 rubles to the dollar compared to 150 in March.  Russia is expecting a bumper harvest and the world is eager for its wheat and fertilizer, oil and gas all of which provide substantial revenue. The EU has largely succumbed to Russia’s demand to be paid for gas in rubles.  U.S. Treasury Secretary Yellin is warning the suicidal Europeans that an embargo of Russian oil will further damage the economies of the West. Russian forces are making slow but steady progress across southern and eastern Ukraine after winning in Mariupol, the biggest battle of the war so far, and a demoralizing defeat for Ukraine. In the U.S., inflation, which was already high before the Ukraine crisis, has been driven even higher and reached over 8 percent with the Federal Reserve now scrambling to control it by raising interest rates.  Partly as a result of this, the stock market has come close to bear territory.  As the war progresses, many have joined Ben Bernanke, former Fed Chair, in predicting a period of high unemployment, high inflation and low growth — the dread stagflation.  US Treasury Secretary Janet Yellen at World Bank meeting in March. Image: World Bank Domestically, there are signs of deterioration in support of the war.  Most strikingly, 57 House Republicans and 11 Senate Republicans voted against the latest package of weaponry to Ukraine, bundled with considerable pork and hidden bonanzas for the war profiteers.  (Strikingly no Democrat, not a single one, not even the most “progressive” voted against pouring fuel on the fire of war raging in Ukraine.  But that is another story.)  And while US public opinion remains in favor of U.S. involvement in Ukraine there are signs of slippage.  For example, Pew reports that those feeling the U.S. is not doing enough declined from March to May.  As more stagflation takes hold with gas and food prices growing and voices like those of Tucker Carlson and Rand Paul pointing out the connection between the inflation and the war, discontent is certain to grow. Finally, as the war becomes less popular and it takes its toll, an electoral disaster looms ahead in 2022 and 2024 for Biden and the Democratic Party, for which the Times serves as a mouthpiece. Note of Panic There is a note of panic in this appeal to find a negotiated solution now.  The US and Russia are the world’s major nuclear powers with thousands of nuclear missiles on launch-on-warning, aka hair-trigger alert.  At moments of high tension, the possibilities of accidental nuclear Armageddon are all too real.  Biden’s ability to stay in command of events is in question. Many people of his age can handle a situation like this, but many cannot and he seems to be in the latter category. The neocons are now in control of the foreign policy of the Biden administration, the Democratic Party and most of the Republican Party. But will the neocons in charge give up and move in a reasonable and peaceful direction as the Times editorial demands?  This is a fantasy of the first order.  As other commentators have observed, hawks such as Secretary of State Antony Blinken, Under Secretary for Political Affairs Victoria Nuland and National Security Advisor Jake Sullivan have no reverse gear; they always double down. They do not serve the interests of humanity nor do they serve the interests of the American people. They are in reality traitors to the US.  They must be exposed, discredited and pushed aside. Our survival depends on it. Tyler Durden Mon, 05/30/2022 - 20:20.....»»

Category: worldSource: nytMay 30th, 2022

Futures Rise As Dip Buyers Emerge To Cap Best Week Since Mid-March

Futures Rise As Dip Buyers Emerge To Cap Best Week Since Mid-March Unless stocks crater today, and the S&P tumbles by 4.3%, the streak of seven consecutive weekly declines in the S&P is about to end... ... as US stock futures rose again on Friday, their third consecutive gain, setting up the underlying indexes for the first strong weekly finish since late March on signs consumers remain resilient despite inflationary pressures, as upbeat earnings from Alibaba and Baidu eased some fears on the economic impact of China’s Covid lockdowns, and as investors (mostly retail) have staged a cautious return to the market hoping that the selloff earlier this month left valuations at bargain levels. Nasdaq 100 contracts rose 0.5% by 7:15 a.m. in New York, while S&P 500 futures were up 0.4%. Still, even after the recent rout, upside may be limited as the S&P 500’s 12-month fwd P/E ratio is now near its 10-year average. Among notable moves in premarket trading, Gap Inc. shares sank as much as 17% as analysts after analysts said that the retailer’s guidance cut was worse than expected, prompting brokers to lower their targets and downgrade the stock given a worsening macroeconomic environment could trigger further bad news. China's Uber, Didi Chuxing, jumped after a Bloomberg News report that state-owned automaker China FAW Group is considering acquiring a significant stake in the ride-hailing company. Zscaler Inc. rose after the security software company reported results above expectations.  Here are some other notable premarket movers: Gap (GPS US) shares dropped as much as 17% in US premarket trading with analysts saying that the retailer’s guidance cut was more than expected, prompting brokers to lower their targets and downgrade the stock given a worsening macroeconomic environment could trigger further bad news. Costco (COST US) shares dropped 2.1% in US after-hours trading on Thursday. While Costco’s margins disappointed analysts, brokers were generally positive on how the wholesale retailer is navigating an environment with rising inflation by controlling expenses. Zscaler (ZS US) shares rose 2% in extended trading on Thursday, after the security software company reported third- quarter results that beat expectations and raised its full-year forecast. Analysts lauded strength in multi-product deals. Marvell Technology (MRVL US) shares climbed 3.4% in US postmarket trading after results. Analysts highlighted that the semiconductor maker is seeing strength across key markets, in particular across data center and carrier infrastructure. 23andMe Holding Co. (ME US) dropped 8.3% in postmarket trading Thursday. It is in a “tough spot,” Citi says in note after the consumer genetics firm gave a fiscal 2023 revenue forecast that missed expectations. Workday (WDAY US) shares fell 9% in extended trading on Thursday, after the software company reported adjusted first-quarter earnings that missed expectations. Analysts noted that software deals were pushed out of the quarter and cut their price targets as they factored in the increased global uncertainty. The latest round of retail earnings have restored some confidence in consumer demand, lifting appetite for risk assets, while speculation is growing that the Federal Reserve will pause its rate hikes later this year as inflation shows signs of peaking. Still, Citigroup strategists on Friday cut their recommendation on US stocks to neutral on the risk of a recession, joining an increasing number of banks in warning of a growth slowdown. The path for the Federal Reserve to successfully bring inflation down while keeping the rate of economic growth above zero is narrow, according to Mark Haefele, chief investment officer at UBS Global Wealth Management. “If Fed policymakers underestimate the strength of the US economy, we face an extended period of above-target inflation. If they overestimate it, we face a recession. And we can’t know with great conviction which path we’re on,” he wrote in a note. Global stock funds saw their biggest inflows in 10 weeks, led by US stocks, according to EPFR data, as cheaper valuations lured buyers after a steep selloff on recession fears. The selloff made valuations attractive and enticed investors back into a market still shadowed by worries about inflation and higher interest rates, China’s downbeat economic outlook and the war in Ukraine. “We may see a little bit more stability here because we have repriced the stocks so much already,” Anastasia Amoroso, iCapital chief investment strategist, said on Bloomberg Television. “In the next three to six months it’s still going to be a constrained market environment.” Meanwhile, China-US tensions are once again being played out after direct comments from Secretary of State Antony Blinken aimed at Chinese President Xi Jinping. And in a fresh challenge to Beijing, the US and Taiwan are planning to announce negotiations to deepen economic ties. And elseshwere, as the Russins war in Ukraine approaches 100 days, the US may announce a new package of aid for Kyiv as soon as next week that would include long-range rocket systems and other advanced weapons. Boris Johnson urged further military support for Ukraine, including sending it more offensive weapons such as Multiple Launch Rocket Systems that can strike targets from much further away. Russia’s efforts to avoid its first foreign default in a century are back in focus on Friday, when investors are supposed to receive about $100 million in interest on Russian debt. Turning back to markets, consumer and technology sectors led gains in Europe’s Stoxx 600 which rose 0.9%, and was headed for its best weekly advance since mid-March, while utilities and energy shared lagged after the UK government announced windfall tax plans on oil and gas companies on Thursday. BP Plc said it will look again at its plans in the country. Here are some of the more notable movers in Europe: Cantargia gains as much as 23%, the largest intraday rise since December, after releasing three research updates late Thursday. The interim readout for the company’s nadunolimab (CAN04), used in combination with gemcitabine and nab-paclitaxel as a first line treatment of PDAC, a type of pancreatic cancer, was the most interesting of the data releases, according Kempen. FirstGroup shares jump as much as 9.8%, extending the gains from yesterday’s confirmation that the public transport operator received an unsolicited takeover approach from I Squared. Richemont shares rise as much as 8.3%, heading for their best weekly advance since November, pushing the Swiss Market Index higher as dip buyers returned more broadly this week. European miners advance for a third day, outperforming all other sectors on the Stoxx 600 on Friday as iron ore futures climb and metals posted broad gains. Hapag-Lloyd falls as much as 7.1% after Citi cut the recommendation to neutral from buy due to valuation versus peers. In note on European shipping, broker says it expects the supply and demand dynamics to remain favorable in the near term. Rieter Holding falls as much as 5.4% as Baader Helvea downgrades its recommendation to reduce from add after the manufacturer of chemical fiber systems said that it’s seeing a challenging first half. Earlier in the session, Asian stocks also advanced as upbeat earnings from Alibaba and Baidu eased some fears on the economic impact of China’s Covid lockdowns and fueled risk-on sentiment. The MSCI Asia Pacific Index rose 1.6%, poised for its first gain in four sessions, led by consumer discretionary and technology shares. Most markets in the region were up, led by Hong Kong.  Alibaba and Baidu both delivered better-than-expected quarterly sales growth, providing investors with some relief after Tencent’s recent lackluster report and amid concerns over China’s virus measure and regulatory crackdowns. The Hang Seng Tech Index, which tracks the nation’s tech giants listed in Hong Kong, surged 3.8%. Asian equities have gained about 0.7% this week, set for a back-to-back weekly advance as dip buyers emerged. The regional MSCI benchmark is still down about 14% this year amid ongoing market concerns over global inflation and higher US interest rates, China’s economic outlook and the war in Ukraine. “The risk of a bull trap cannot be dismissed,” Vishnu Varathan, the head of economics and strategy at Mizuho Bank, wrote in a note. “Bear markets are famous for the pockets of relief rallies,” and increasing strains on liquidity in the coming quarters “may not pass without pain.” Japan’s stocks likewise advanced as the nation prepared to reopen to foreign tourists and China’s tech shares jumped.    The Topix rose 0.5% to 1,887.30 as of the 3pm close in Tokyo, while the Nikkei 225 advanced 0.7% to 26,781.68. Tokyo Electron Ltd. contributed the most to the Topix’s gain, increasing 3.2%. Out of 2,171 shares in the index, 1,480 rose and 615 fell, while 76 were unchanged In Australia, the S&P/ASX 200 index rose 1.1% to close at 7,182.70, the highest level since May 6, led by energy and consumer discretionary shares. Woodside Energy Group was among the biggest gainers as US crude and gasoline stockpiles showed signs of continuing decline ahead of the summer driving season. Appen was the top decliner after saying that Telus revoked its indicative proposal for a takeover. In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,065.15 In FX, the Bloomberg Dollar Spot Index slumped as the dollar was steady to weaker against all of its Group-of-10 peers. Treasuries were steady across the curve. The euro inched up to touch a fresh one- month high of 1.0765 before paring. The bund yield curve bull- flattened slightly, drawing the 10-year yield away from 1%. Risk- sensitive Antipodean and Scandinavian currencies led gains. The Australian dollar climbed as a decent retail sales print brightened the outlook and a drop in the greenback triggered buy-stops. Benchmark bonds slipped. Australian retail sales rose 0.9% m/m in April vs estimate +1% and prior +1.6%. The pound ticked higher, touching its highest level in a month against the dollar, while gilts advanced. Chancellor of the Exchequer Rishi Sunak said that his package of support for the UK economy will have a “minimal” impact on inflation. The yen advanced for a second day as lower Treasury yields weighed on the dollar. Japanese bonds rise after being sold off on Thursday In rates, Treasuries were steady, following gains in European markets where bull-flattening was observed across bunds and gilts. Yields were richer by 1bp-3bp across the curve, the 10-year yield dropped by ~2bp to 2.72%, underperforming bunds by 1.5bp, gilts by ~3bp. IG dollar issuance slate still blank in what has so far been the slowest week of the year for new deals; next week’s calendar is expected to total $25b- $30b. Focal points for US session include several economic data releases including April personal income/spending with PCE deflator. Sifma recommended 2pm close of trading for dollar-denominated fixed income ahead of US holiday weekend.    In commodities, WTI drifts 0.7% higher to trade below $115. Spot gold rises roughly $7 to trade at $1,858/oz. Most base metals are in the green; LME nickel rises 6.6%, outperforming peers. Looking to the day ahead, and data releases include US personal income and personal spending for April, as well as the preliminary wholesale inventories for that month, and the final University of Michigan consumer sentiment index for May. In the Euro Area, there’s also the M3 money supply for April. Otherwise, central bank speakers include ECB Chief Economist Lane. Market Snapshot S&P 500 futures up 0.3% to 4,068.25 STOXX Europe 600 up 0.7% to 440.64 MXAP up 1.6% to 165.89 MXAPJ up 2.1% to 542.44 Nikkei up 0.7% to 26,781.68 Topix up 0.5% to 1,887.30 Hang Seng Index up 2.9% to 20,697.36 Shanghai Composite up 0.2% to 3,130.24 Sensex up 1.2% to 54,919.92 Australia S&P/ASX 200 up 1.1% to 7,182.71 Kospi up 1.0% to 2,638.05 German 10Y yield little changed at 0.99% Euro up 0.1% to $1.0737 Brent Futures up 0.4% to $117.91/bbl Gold spot up 0.5% to $1,859.48 U.S. Dollar Index down 0.16% to 101.67 Top Overnight News from Bloomberg The path for Russia to keep sidestepping its first foreign default in a century is turning more onerous as another coupon comes due on the warring nation’s debt. Investors are supposed to receive about $100 million of interest on Russian foreign debt in their accounts by Friday, payments President Vladimir Putin’s government says it has already made China’s oil trading giant Unipec has significantly increased the number of hired tankers to ship a key crude from eastern Russia A central bank legal proposal envisages Russian eurobond issuers placing “substitute” bonds in order to ensure debt payments come through to local investors, Interfax reported The US and Taiwan are planning to announce negotiations to deepen economic ties, people familiar with the matter said, in a fresh challenge to Beijing, which has cautioned Washington on its relationship with the island. Profits at Chinese industrial firms shrank last month for the first time in two years as Covid outbreaks and lockdowns disrupted factory production, transport logistics and sales “The process of increasing interest rates should be gradual,” ECB Governing Council member Pablo Hernandez de Cos comments in op- ed in Expansion. “The aim is to avoid abrupt movements, which could be particularly damaging in a context of high uncertainty such as the current one” The RBA is poised for its first review in a generation as new Treasurer Jim Chalmers makes good on a pledge to ensure the nation’s monetary and fiscal regimes are fit for purpose The UK signed its first trade agreement with a US state, amid warnings that Prime Minister Boris Johnson’s stance on Brexit is hindering progress on a broader deal with Joe Biden’s administration A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks took impetus from the risk-on mood on Wall St where all major indices were lifted amid month-end flows and encouraging retailer earnings.  ASX 200 was led higher by outperformance in the commodity and resources industries, while consumer stocks were mixed after Retail Sales printed in line with expectations, albeit at a slowdown from the prior month. Nikkei 225 traded positively but with upside capped by a mixed currency and weakness in energy and power names after increases in international prices and with the government looking to address the tight energy market. Hang Seng and Shanghai Comp were firmer with notable outperformance in Hong Kong amid a euphoric tech sector after earnings from Alibaba and Baidu topped estimates which also inspired the NASDAQ Golden Dragon China Index during the prior US session, while advances in the mainland were moderated by the contraction in April Industrial Profits and after Premier Li’s unpublished comments from Wednesday’s emergency meeting came to light in which he warned of dire consequences for the economy. Top Asian News China’s State Council will seek specific implementation rules by May 31st regarding necessary measures at all levels of government and will dispatch inspection teams to all 31 provinces, municipalities and autonomous regions to oversee the rollout amid an urgent need for national economic mobilisation, according to SGH Macro Advisors. US is seeking to hold economic discussions with Taiwan in the latest test with China, while supply chains and agriculture are said to be among the topics, according to Bloomberg. Furthermore, reports noted that bilateral economic talks will be announced in the upcoming weeks. Evergrande (3333 HK) is reportedly considering repaying offshore bondholders in instalments, according to Reuters sources; discussing giving the option of converting part of debt into equity of property management and EV units. China's Health Official says some areas along the Jilin border report local infections without a clear source, close attention should be paid to the risk of importing the virus; COVID infections show a trend of gradual spread from border to inland areas, via Reuters European bourses are firmer, Euro Stoxx 50 +0.9%, drawing impetus from APAC strength into month-end with catalysts thin thus far. Stateside, futures are supported across the board with familiar themes in play pre-PCE Price Index for insight into the 'peak' inflation narrative; ES +0.3%. Note, the FTSE 100 Unch. is the mornings underperformer amid pressure in energy names after Chancellor Sunak's windfall tax announcement on Thursday. DiDi (DIDI) has reportedly drawn interest from FAW Group, regarding a stake purchase, according to Bloomberg. +7.5% in the pre-market Top European News UK Oil Windfall Tax Prompts BP to Review Investment Plans; UK Energy Stocks Extend Windfall Declines as Retailers Gain Richemont Leads Swiss Stocks Higher as Dip Buyers Return Hapag-Lloyd Drops; Cut to Neutral at Citi on Valuation Big Dividend Payers May Be Next After UK Windfall Tax on Energy FX Greenback grinds higher ahead of PCE inflation metrics with month end rebalancing flows providing impetus, DXY bounces from fresh WTD base just under 101.500 to 101.800. Kiwi and Aussie propped by bounce in commodities and Loonie protected by further gains in crude; NZD/USD tests Fib retracement at 0.7129, AUD/USD eyes 0.7150 and USD/CAD probes 1.2750. Big option expiries in the mix and potentially supportive for the Dollar into long US holiday weekend, +1bln rolling off at NY cut not far from spot in EUR/USD, USD/JPY, AUD/USD and USD/CAD. Rand firmer as Gold touches Usd 1860/oz after 200 DMA breach, USD/ZAR below 15.7000. Fixed Income Debt futures on a firmer footing ahead of US PCE price metrics, but some way below weekly peaks. Bunds sub-154.00, Gilts under 119.00 and 10 year T-note below 121-00. Curves a tad flatter following hot reception for 7 year US issuance. Commodities Crude benchmarks are underpinned, but off best levels, by broader sentiment and initial USD weakness going into a long US weekend with Memorial Day touted as the driving seasons commencement. WTI July and Brent August, at best, were in proximity to USD 115/bbl vs troughs of USD 113.61/bbl and USD 113.77/bbl respectively. US Treasury is reportedly expected to renew Chevron’s (CVX) license to operate in Venezuela as soon as Friday, according to Reuters citing sources. China's State Planner has approved a coal mine in the Shanxi area to bolster annual output to 12mln tonnes per annum from 8mln; investment of CNY 5.35bln, via Reuters. Spot gold is steady and holding onto the bulk of overnight upside after breaching the 21-DMA at USD 1850.80/oz; USD 1860.19/oz peak, thus far. US Event Calendar 08:30: April Advance Goods Trade Balance, est. -$114.8b, prior -$125.3b, revised -$127.1b 08:30: April Retail Inventories MoM, est. 2.0%, prior 2.0% April Wholesale Inventories MoM, est. 2.0%, prior 2.3% 08:30: April Personal Income, est. 0.5%, prior 0.5%; April Personal Spending, est. 0.8%, prior 1.1% 08:30: April PCE Deflator MoM, est. 0.2%, prior 0.9%; PCE Deflator YoY, est. 6.2%, prior 6.6% April PCE Core Deflator MoM, est. 0.3%, prior 0.3%; PCE Core Deflator YoY, est. 4.9%, prior 5.2% April Real Personal Spending, est. 0.7%, prior 0.2% 10:00: May U. of Mich. Current Conditions, est. 63.6, prior 63.6; Expectations, est. 56.3, prior 56.3; Sentiment, est. 59.1, prior 59.1 10:00: May U. of Mich. 1 Yr Inflation, est. 5.4%, prior 5.4%; 5-10 Yr Inflation, prior 3.0% DB's Jim Reid concludes the overnight wrap A reminder that it’s your last chance to answer our latest monthly survey, where we try to ask questions that aren’t easy to derive from market pricing. This time we ask if you think the Fed would be willing to push the economy into recession in order to get inflation back to target. We also ask whether you think there are still bubbles in markets and whether equities have bottomed out yet. And there’s another on which is the best asset class to hedge against inflation. The more people that fill it in the more useful so all help from readers is very welcome. The link is here. I did have tickets available for tomorrow night's Champions League final but there is a big 36 hole golf tournament at my club so I decided that at my age you never know when your body will fail next so playing sport now pips watching it live. So I'll be playing golf all day, trying to rescue my marriage for an hour when I get home, and then blaring out the final on the TV at home with a couple of glasses of wine for good measure. I can't honestly think of a better day. However I may come last and Liverpool may lose so let's see what happens! The market comeback this week is on a par with some of Madrid's remarkable ones this year and indeed it’s been another strong performance over the last 24 hours, with better-than-expected outlooks from US retailers helping to bolster sentiment, coupled with growing hopes that the Fed won’t take policy much into restrictive territory, if at all. Those developments helped the S&P 500 to post a +1.99% advance yesterday, bringing its gains for the week to +4.01%, and means we should finally be on the verge of ending a run of 7 consecutive weekly losses. Obviously it’s not impossible things could end up in negative territory given recent volatility, and it was only last week the index posted a one-day decline of more than -4%, but it would still take a massive slump today to get an 8th consecutive week in the red for only the third time since the Great Depression. That advance grew stronger as the day went on, with S&P futures having actually been negative when we went to press yesterday. But sentiment was aided by a number of positive earnings developments, with Macy’s (+19.31%) boosting its adjusted EPS guidance before the US open, whilst the discount retailers Dollar Tree (+21.87%) and Dollar General (+13.72%) both surged as well thanks to decent reports of their own. That helped consumer discretionary (+4.78%) to be the top performing sector in the S&P, and in fact Dollar Tree was the top performing company in the entire index. Cyclicals were the outperformers, but defensives also shared in the advance that saw around 90% of the index’s members move higher on the day. As well as that news on the retail side, risk appetite has been further supported by growing speculation that the Fed won’t be as aggressive in hiking rates as had been speculated just a few weeks ago. I'm not sure I agree with that conclusion but if you look at the futures-implied rate by the December 2022 meeting of 2.64%, that is some way down from its peak of 2.88% back on May 3rd, and in fact means that markets have now taken out just shy of one 25bp hike from the rate implied by year end, which makes a change from that pretty consistent move higher we’ve seen over recent months. Yesterday also brought fresh signs that this re-pricing is beginning to filter its way through to the real economy, with data from Freddie Mac showing that the average rate for a 30-year mortgage fell to 5.10% last week, down from 5.25% the week before. For reference that’s the biggest weekly decline since April 2020, and comes on the back of recent housing data that’s underwhelmed against the backdrop of higher rates. There was another report fitting that pattern yesterday too, with pending home sales for April dropping by a larger than expected -3.9% (vs. -2.1% expected). But as with the retail outlooks, the more timely data was much more positive, with the weekly initial jobless claims falling to 210k (vs. 215k expected) in the week ending May 21, whilst the Kansas City Fed’s manufacturing index for May came in at 23 (vs. 15 expected). Treasuries swung back and forth against this backdrop, but ultimately the more bullish outlook led to a small steepening in the curve, with the 2yr yield down -1.6bps as 10yr yields were essentially flat at 2.75%. In a change from recent weeks, breakevens marched higher despite the little changed headline, with the 10yr breakeven up +7.0bps to come off its two-month low the previous day. But to be fair, that came amidst a big surge in oil prices after US data showed gasoline stockpiles fell to their lowest seasonal level since 2014, with Brent Crude (+2.96%) up to a 2-month high of $117.40/bbl, whilst WTI (+3.41%) rose to $114.09/bbl. European markets followed a pretty similar pattern to the US, with the STOXX 600 advancing +0.78% on the day. However, utilities (-1.12%) were the worst-performing after the UK government moved to impose a temporary windfall tax on oil and gas firms’ profits at a rate of 25%. That came as part of a wider package of measures to help with the cost of living, adding up to £15bn in total. They included a one-off payment of £650 to 8mn households in receipt of state benefits, with separate payments of £300 to pensioner households and £150 to those receiving disability benefits. There was also a doubling in the energy bills discount from £200 to £400, whilst the requirement to pay it back over five years has been removed as well. See Sanjay Raja’s blog on it here and where he also compares the measures to similar ones seen in the big 4 EuroArea economies. With more fiscal spending in the pipeline, UK gilts underperformed their counterparts elsewhere in Europe, with 10yr yields ending the day up +5.9bps. Those on bunds (+4.6bps) and OATs (+3.2bps) also rose too, but the broader risk-on tone led to a tightening in peripheral spreads, with the gap between 10yr BTPs over bunds falling -10.4bps yesterday to 189bps. There was a similar pattern on the credit side, with iTraxx crossover coming down -23.9bps to 439bps, which was its biggest daily decline in nearly 2 months. Asian equity markets are joining in the rally this morning with the Hang Seng rising +2.93% as Chinese listed tech stocks are witnessing big gains after Alibaba (+12.21%) posted better than expected Q4 earnings yesterday. Mainland Chinese stocks are also trading higher with the Shanghai Composite (+0.52%) and CSI (+0.63%) up. Elsewhere, the Nikkei (+0.63%) and Kospi (+0.89%) are also in the green. Outside of Asia, futures contracts on the S&P 500 (-0.11%) and NASDAQ 100 (-0.14%) are seeing mild losses. Data released earlier showed that Tokyo’s core CPI rose +1.9% y/y in May versus +2.0% expected. Core core was +0.9% y/y as expected with nothing here at the moment to change the BoJ's stance. Elsewhere, China’s industrial profits (-8.5% y/y) shrank at the fastest pace in two years in April, swinging from a +12.2% gain in March. On the geopolitical front, we heard from US Secretary of State Blinken yesterday, who gave a significant speech on the Biden Administration’s China policy. Blinken zoomed out to give a view of the forest from the trees, noting that the Russia-Ukraine conflict was not as strategically important as America’s relationship with China over the long-run. He offered a three pillar strategy for managing the relationship with China that involved investing in US competitiveness, aligning strategy with allies to enhance effectiveness, and to compete with China across economic, military, and technological frontiers. He noted the countries’ two different political systems need not impair connection between its peoples, or inhibit dialogue. Staying on the US-China front but switching gears, a bi-partisan group of US senators sent a letter to President Biden urging him to keep tariffs on China, to improve the US’s negotiating position in future deals, pouring cold water on the prospects for tariff relief to provide a temporary salve to raging price pressures. To the day ahead, and data releases include US personal income and personal spending for April, as well as the preliminary wholesale inventories for that month, and the final University of Michigan consumer sentiment index for May. In the Euro Area, there’s also the M3 money supply for April. Otherwise, central bank speakers include ECB Chief Economist Lane.   Tyler Durden Fri, 05/27/2022 - 07:54.....»»

Category: blogSource: zerohedgeMay 27th, 2022

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

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

Category: blogSource: zerohedgeMay 25th, 2022

Market Rout Extends With Futures Tumbling To Verge Of Bear Market

Market Rout Extends With Futures Tumbling To Verge Of Bear Market US stock futures slumped again, extending yesterday’s brutal selloff that erased $1.5 trillion in market value on concerns about everything from slowing growth, to Chinese lockdowns, to soaring inflation and tightening monetary policy. Contracts on the S&P 500 were down 1.2% 7:30 a.m. in New York, having earlier dropped to 3,856, one point away sliding 20% from January's all time highs, and triggering a bear market. The underlying index tumbled 4% on Wednesday, the most since June 2020, as consumer shares cratered after Target slashed its profit forecast due to a surge in costs. Nasdaq 100 futures were down 1.2%. 10Y TSY Yields slumped about 7bps, dropping to 2.833, while the dollar also dropped after yesterday's surge; bitcoin was flat around $29K. The retail rout continued on Thursday: shares of US retailers again tumbled in premarket trading amid growing worries over the impact of rising inflation and the ability of companies to pass on higher costs to consumers; with Bath & Body Works becoming the latest retailer to cut its guidance. Major technology and internet stocks were also down, pointing to further losses in major technology and internet stocks a day after the tech-heavy Nasdaq slumped to its lowest since November 2020. Apple (AAPL US) -1.2%, Microsoft (MSFT US) -1.2%, Meta Platforms (FB US) -1.1%, Netflix (NFLX US) -0.9% and Nvidia (NVDA US) -2.2% in premarket trading. US rail stocks may be in focus as Citi cuts ratings on Norfolk Southern (NSC US), Union Pacific (UNP US) and US Xpress Enterprises (USX US) to neutral from buy, while lowering 2023 estimates “across the board.”Here are some other notable movers: Cisco Systems (CSCO US) plunged 13% in premarket trading after the network-gear maker spooked investors with a warning that Chinese lockdowns and other supply disruptions would wipe out sales growth in the current quarter. Shares of networking equipment makers drop after Cisco cuts outlook, with Broadcom (AVGO US) -3.6% and Juniper Networks (JNPR US) -5.9% in premarket trading. Synopsys (SNPS US) rises 3.8% in premarket trading after the supplier of software used to design semiconductors boosted its profit and revenue guidance for the full year. Target (TGT US) shares fall 2.2% in premarket trading, Walmart (WMT US) -0.3%; Kohl’s (KSS US) is in focus after two senior executives depart Under Armour (UAA US) shares dropped as much as 6% in US premarket trading, with analysts saying that the departure of the sportswear maker’s CEO Patrik Frisk is a surprise and adds uncertainty. Bath & Body Works’s (BBWI US) outlook cut was a little greater than expected, though analysts noted that it was due to higher costs and investment. The company’s shares fell almost 4% in premarket trading. United Wholesale Mortgage (UWMC US) will struggle to main its 1Q earnings level in coming quarters, Piper Sandler says in a note downgrading the stock to underweight from neutral. Shares drop as much as 7% in US premarket trading. The S&P 500 is on track for its longest weekly losing streak since 2001 as traders flee risk assets over fears that the Federal Reserve will push the economy into a recession as it tries to curb inflation. The benchmark is close to falling into a bear market, after dropping 18% from a record high in January. "The US selloff was rather orderly and the market isn’t oversold, yet. That tells us that we are likely not at the bottom yet,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “Consumer sentiment remains depressed and we are seeing consumers retrenching on some discretionary spending.”  Speaking on Tuesday in his most hawkish remarks to date, Fed Chair Jerome Powell said the US central bank will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat. JPMorgan's Marko Kolanovic, meanwhile, said - what else - that things can get better for US stocks. “There will be no recession this year, some summer increase in consumer activity on the back of reopening, China increasing monetary and fiscal measures,” he said.  Bolstering his opinion is a conviction that US inflation has probably peaked, or is about to do so, paving the way for a pullback in price pressures that will eventually allow the Federal Reserve to moderate the pace of monetary tightening.  "Since we are pricing in a growth scare but not yet a recession, we could see further downside in the coming weeks, but we are starting to price in a very negative picture already, suggesting we should, at some point, be closer to the bottom,” said Esty Dwek, chief investment officer at Flowbank SA. US stock investors are pricing in stronger odds of a recession than are evident from positive macroeconomic indicators, according to Goldman Sachs strategists. "A recession is not inevitable,” Goldman strategists led by David J. Kostin wrote in a note. “Rotations within the US equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data.” Bets that robust earnings can help investors weather this year’s turbulence were thrown in doubt after US consumer titans signaled growing impact of high inflation on margins and consumer spending. Meanwhile, Federal Reserve officials reaffirmed that tighter monetary policy lies ahead, and investors fretted over stagflation risks. “We are pricing in a growth scare,” Lori Calvasina, the head of US equity strategy at RBC Capital Markets, told Bloomberg TV. “There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.” There was some more good news on the China covid lockdown front: Shanghai Vice Mayor said Shanghai port throughput recovered to around 90% of the levels a year ago and that Shanghai will expand work resumption in areas with no COVID risk in early June. Furthermore, Shanghai is to gradually restore inter-district public transport from May 22nd and will require residents to show negative PCR tests taken within 48 hours before using public transport, while an economy official said Shanghai will reduce rents for small and medium-sized enterprises by more than CNY 10bln and the city extended CNY 72.3bln of loans to over 10,000 firms since March, according to Reuters. In Europe, the Stoxx 600 retreated 1.8%, after sliding more than 2% earlier, with all industry sectors in the red and personal care and financial services leading the decline as Wednesday’s retailer trouble in the U.S. spills over into Europe. FTSE 100 lags regional peers, dropping 2%. Here are some of the biggest European movers today: HomeServe shares jump as much as 12% after Brookfield agrees to buy the home emergency and repair services company for GBP4.1b. Societe Generale shares rise as much as 1.5%, as it was raised to outperform from market perform at KBW, with the broker saying the sale of Russian activities removes a key overhang for the bank and should result in a re-rating. Generali shares rose as much as 1.4% after 1Q profit beats analyst estimates as EU136m impairments on Russian investments were more than offset by higher operating income. PGNiG shares rise as much as 6.2% after reporting 1Q results that, according to analysts, support Polish gas company’s outlook. Nestle shares drop as much as 5.3% after Bernstein downgraded the stock to market perform from outperform, saying the shares will “struggle” if market sentiment improves and investors exit havens. Royal Mail shares fall as much as 14% after the postal group’s FY results slightly missed estimates and analysts said its outlook is “disappointing.” National Grid shares fall as much as 2.5%, erasing gains from yesterday’s record high, after the utility company reported full-year results. Earlier in the session, shares of Asian retailers follow their US counterparts lower after Target became the second big retailer in two days to trim its profit forecast. Australia: JB Hi-Fi retreats 6.6%, Wesfarmers -7.8%, Harvey Norman -5.5%, Woolworths -5.6% South Korea: E-Mart - 3.4%; apparel makers Hansae -9.4%, F&F -4.2%, Youngone -8.2% Japan: Fast Retailing - 3.1%, MatsukiyoCocokara -1.4%, Ryohin Keikaku -1.7%, Nitori -3% Singapore: Grocery chain operator Sheng Siong slips as much as 1.3% Hong Kong: Sun Art Retail down as much as 4.1% In China, Tencent Holdings Ltd. plunged 6.6% after warning it will take time for Beijing to act on promises to prop up the Chinese tech sector. Cisco Systems Inc. slid in extended US trading on a disappointing revenue outlook. Japan's Nikkei 225 suffered firm losses amid reports the ruling coalition is considering increasing the corporate tax rate and after several data releases in which Machinery Orders topped estimates but Exports missed as China-bound exports declined by the fastest pace since March 2020. Indian stocks declined to a ten-month low, tracking a sell-off across Asia, on concerns the US Fed’s hawkish stance on inflation may cool economic activity and hurt consumer demand.  The S&P BSE Sensex plunged 2.6% to 52,792.23, its lowest level since July 30, in Mumbai, while the NSE Nifty 50 Index slipped 2.7% to 15,809.40  Software exporter Infosys Ltd. fell 5.4% to a 11-month low and was the biggest drag on the Sensex, which had 27 of 30 member stocks trading lower. All 19 sector indexes compiled by BSE Ltd. declined, led by S&P BSE Information Technology index, that dropped the most in over two years.   “Deteriorating macro sentiment such as soaring inflation, recession fears, and the prospect of the Federal Reserve getting even more hawkish will continue to keep benchmarks on the edge,” Prashanth Tapse, an analyst at Mehta Equities Ltd., wrote in a note.  In earnings, of the 36 Nifty 50 firms that have announced results so far, 21 have either met or exceeded analyst estimates, while 15 have missed forecasts. In Australia, the S&P/ASX 200 index fell 1.7% to close at 7,064.50, tumbling with global shares as concerns over inflation, interest-rate hikes and Ukraine piled up. All sectors dropped, except for health. Consumer shares were among the worst performers, following their US peers lower after Target became the second big retailer in two days to trim its profit forecast. Aristocrat rose after it released its 1H results and unveiled buyback plans. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,206.93 And in emerging markets, Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that prompted mass protests and a political crisis. An index of developing-nation stocks slumped more than 2%. In FX, the Bloomberg dollar spot index declines, with all G-10 majors rising against the greenback. CHF is the strongest G-10 performer with USD/CHF snapping lower on to a 0.97 handle and EUR/CHF slumping below 1.03. The Swiss franc diverged from Japanese yen and dollar after hawkish comments from SNB’s Thomas Jordan Wednesday, which assured traders CHF rates could follow EUR higher. Options trades may also be behind the latest move in the spot market. In rates, Treasury yields dropped about seven basis points as investors sought insurance against further declines in risk assets. Treasury yields richer by up to 6bp across belly of the curve, richening the 2s5s30s fly by 2.2bp on the day; 10-year yields around 2.83% with German 10-year outperforming by 2.5bps. Treasuries extended Wednesday’s rally as stocks resume slide with S&P 500 futures dropping under 3,900 to lowest level in a year; on the curve, the belly led the advance while bunds outperform in a more aggressive bull-flattening move as European stocks tumble. US session highlights include 10-year TIPS reopening at 1pm ET. Flurry of block trades during London session follows a spate of trades Wednesday; five blocks worth a combined cash-equivalent $1.2m/DV01 between 3:38am and 5:35am similarly entailed price action consistent with sales. Most European bonds also gained, with the yield on German 10-year securities falling more than basis points.  German yield curve bull-flattens: 30-year yield drops ~9bps before stalling near 1.05% which has acted as support for much of May so far. The Dollar issuance slate empty so far; eight borrowers priced $8.5b Wednesday, and new issue activity is expected to be muted during remainder of the week. Three-month dollar Libor +2.69bp to 1.50486%. Economic data slate includes May Philadelphia Fed business outlook and initial jobless claims (8:30am), April existing homes sales and leading index (10am). In commodities, crude oil extended declines, while most industrial metals were in the red as global growth fears damped the demand outlook. WTI reverses Asia’s gains, dropping back below $110 but holding above Wednesday’s lows. Spot gold is comparatively quiet, holding above $1,810/oz. Most base metals trade in the green; LME tin rises 2.1%, outperforming peers while copper held near a seven-month low and zinc extended losses. Bitcoin is modestly softer in a relatively contained range that lies just shy of the USD 30k mark. Crypto exchange FTX to start rollout of new stock-trading service on Thursday, WSJ reports; will not accept payment for order flow on stock trades. Looking to the day ahead now, and data releases from the US include the weekly initial jobless claims, along with April’s existing home sales and the Philadelphia Fed’s business outlook survey for May. Central bank speakers include ECB Vice President de Guindos, the ECB’s Holzmann and the Fed’s Kashkari. Finally, the ECB will be publishing the minutes from their April meeting. Market Snapshot S&P 500 futures down 1.1% to 3,879.25 STOXX Europe 600 down 1.7% to 426.41 MXAP down 1.8% to 161.60 MXAPJ down 2.2% to 527.30 Nikkei down 1.9% to 26,402.84 Topix down 1.3% to 1,860.08 Hang Seng Index down 2.5% to 20,120.68 Shanghai Composite up 0.4% to 3,096.97 Sensex down 2.4% to 52,926.71 Australia S&P/ASX 200 down 1.6% to 7,064.46 Kospi down 1.3% to 2,592.34 Gold spot down 0.1% to $1,814.49 U.S. Dollar Index down 0.28% to 103.52 German 10Y yield little changed at 0.96% Euro up 0.3% to $1.0496 Brent Futures down 0.1% to $109.00/bbl Top Overnight News from Bloomberg President Joe Biden is set to meet on Thursday with Finland’s President Sauli Niinisto and Swedish Prime Minister Magdalena Andersson at the White House to discuss the Nordic nations’ NATO bids. China’s top diplomat again warned the US over its increased support for Taiwan, showing the island democracy remains a major sticking point between the world’s biggest economies as Beijing sent more military aircraft toward the island Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that prompted mass protests and a political crisis The yuan’s outlook is finally looking more balanced after a 6.5% dive versus its major trading partner currencies since March. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were pressured on spillover selling after the worst day on Wall St in almost two years. ASX 200 was led lower by consumer staples following the retailer woes stateside and mixed Australian jobs data. Nikkei 225 suffered firm losses amid reports the ruling coalition is considering increasing the corporate tax rate and after several data releases in which Machinery Orders topped estimates but Exports missed as China-bound exports declined by the fastest pace since March 2020. Hang Seng and Shanghai Comp initially weakened with the Hong Kong benchmark dragged lower by heavy losses in tech after Tencent’s profit declined by more than 50% and with the mainland pressured as Beijing conducts a fresh round of mass COVID testing, although the mainland bourse recovered most of its losses after Shanghai announced a further gradual easing of restrictions. Xiaomi (1810 HK) Q1 adj. net profit CNY 2.859bln (vs 6.069bln Y/Y), Q1 revenue CNY 73.4bln (vs. 76.9bln Y/Y); global smartphone shipments -10.5% Y/Y at 38.5mln units. Top Asian News Shanghai Vice Mayor said Shanghai port throughput recovered to around 90% of the levels a year ago and that Shanghai will expand work resumption in areas with no COVID risk in early June. Furthermore, Shanghai is to gradually restore inter-district public transport from May 22nd and will require residents to show negative PCR tests taken within 48 hours before using public transport, while an economy official said Shanghai will reduce rents for small and medium-sized enterprises by more than CNY 10bln and the city extended CNY 72.3bln of loans to over 10,000 firms since March, according to Reuters. Japanese MOF official said China's COVID curbs are among the factors that caused a decline in China-bound exports from Japan which fell by the fastest pace since March 2020, while Japan's April imports reached the largest amount on record, according to Reuters. Japan's ruling coalition is reportedly considering increasing the corporate tax rate, according to Jiji. New Zealand sees 2021/22 OBEGAL at NZD -18.98bln (prev. forecast -20.44bln), 2021/22 net debt at 36.9% of GDP (prev. forecast 37.6%) and Cash Balance at NZD -31.78bln (prev. forecast -34.10bln), while Finance Minister Robertson said the economy is expected to be robust in the near term and they see a return to OBEGAL surplus in 2024/25, according to Reuters. European bourses are pressured across the board in a broader risk-off moves after yesterday's Wall St. sell off, as European players look past the brief respite seen overnight on Shanghai's reopening; Euro Stoxx 50 -2.3%. Stateside, the magnitude of the downside is somewhat more contained given newsflow has been limited since Wednesday's downside commenced, ES -1.2%. Top European News EU is reportedly considering a targeted trade war on troublesome Brexiteer MPs and Tory ministers to force UK PM Johnson to do a U-turn on the Northern Ireland protocol, according to The Telegraph. Top UK Economist Defends BOE’s Handling of Inflation Crisis EasyJet Bookings Pick Up Ahead of Uncertain Summer Season Apax-Owned Rodenstock Acquires Spanish Rival Indo European Gas Slips With LNG Imports Helping Boost Stockpiles In FX Franc resurgence and re-emergence as a safe haven currency continues; USD/CHF touches 0.9750 vs 1.0060+ peak on Monday, EUR/CHF sub-1.0250 vs circa 1.0500 at one stage only yesterday. Dollar loses momentum as US Treasury yields retreat further and curve re-flattens amidst ongoing risk rout, DXY ducks under 103.500 after peaking just shy of 104.000 on Wednesday. Kiwi and Aussie find positives via fiscal and fundamental factors to evade aversion; NZD/USD back above 0.6300 after NZ budget and AUD/USD hovering around 0.7000 post- Aussie jobs data. Yen retains underlying bid irrespective of mixed Japanese data, USD/JPY below 128.00 again. Euro firmer beyond EUR/CHF cross ahead of ECB minutes and Sterling off UK inflation data lows awaiting retail sales on Friday, EUR/USD retains sight of 1.0500 and Cable near 1.2400. Rand meandering ahead of SARB in anticipation of 50 bp rate hike, USD/ZAR around 16.0000, irrespective of Gold taking firmer hold of USD 1800/oz handle. Fixed Income Debt resumes safe-haven rally as market mood continues to sour. Bunds top 154.00, Gilts get close to 120.00 and 10 year T-note even nearer the same psychological level. BTPs lag amidst the ongoing aversion to risk, while OATs and Bonos reflect on somewhat mixed auction results. Commodities WTI and Brent are pressured in-fitting with broader sentiment as initial resilience on demand-side positives re. China/COVID were overpowered by the risk move. However, the benchmarks are around USD 1.00/bbl off lows of USD 104.36/bbl and USD 106.76/bbl respectively, following reports that China is discussing the purchase of Russian crude. China is said to be in talks with Russia to purchase oil for strategic reserves, according to Bloomberg sources; detailed on terms and volume reportedly not decided yet Qatar Energy was reportedly selling July Al-Shaheen crude at premiums of USD 5.80-6.40/bbl above Dubai quotes which is the highest in 2 months, according to Reuters sources. Spot gold is bid as it draws haven allure, with the yellow metal marginally surpassing USD 1830/oz. US Event Calendar 08:30: May Initial Jobless Claims, est. 200,000, prior 203,000; Continuing Claims, est. 1.32m, prior 1.34m 08:30: May Philadelphia Fed Business Outl, est. 15.0, prior 17.6 10:00: April Existing Home Sales MoM, est. -2.2%, prior -2.7%; Home Resales with Condos, est. 5.64m, prior 5.77m 10:00: April Leading Index, est. 0%, prior 0.3% DB's Jim Reid concludes the overnight wrap Today is my last day at work this week before I head up to Cambridge tomorrow for my Masters’ graduation. Before you send in a flood of congratulations though, I didn’t actually do any work for this qualification, with not even a single hour of revision. Now at this point you’re probably thinking I’m either a genius or guilty of some serious academic malpractice. I’m hoping the former. But the truth is that I’m benefiting from a quirky tradition that somehow means Cambridge, Oxford and Dublin will upgrade your Bachelors into a Masters after a few years. With the wedding two months away, it appears as though I’m losing all my bachelor status at once. Markets seem ready for a holiday too after the last 24 hours, with the selloff resuming at pace after the brief respite on Tuesday. In fact it was nothing short of a rout with the S&P 500 ending the day down -4.04%, marking its worst daily performance since June 2020, and leaving the index at a fresh one-year low. There wasn’t a single catalyst behind the slump, but weak housing data out of the US along with Target’s move to cut its profit outlook helped feed investor concern that the consumer might not be in as strong a position as previously thought. And that’s on top of all the other worries of late that the global economy is heading in a stagflationary direction amidst various supply-chain issues, alongside the prospect that tighter central bank policy is going to further dent growth and risks tipping various economies into recession. In terms of the specific moves, the S&P 500 gradually tumbled as the day went on, with its -4.04% decline more than reversing its +2.02% bounceback on Tuesday. The decline was an incredibly broad-based one, with just 8 constituents in the index ending the day higher, which is the lowest number since November. That earnings report we mentioned at the top meant that Target (-24.93%) saw the worst performance in the entire S&P 500, after saying they now expected their full-year operating income margin rate to be around 6%. That follows a disappointing report from Walmart the previous day, and meant that consumer staples (-6.38%) and consumer discretionary (-6.60%) were the worst-performing sectors in the S&P yesterday. The latest declines also mean that the S&P is back on track for a 7th consecutive weekly decline, having shed -2.49% since the start of the week, and S&P 500 futures are only up by +0.18% this morning. If the S&P 500 does see a 7th week in negative territory, then that would be the longest run of weekly declines for the index since 2001. Other indices lost ground too given the risk-off move, with the Dow Jones (-3.57%), the NASDAQ (-4.73%), and the small-cap Russell 2000 (-3.56%) all experiencing sizeable declines of their own. European indices had a better performance after closing before the worst of the US declines, and the STOXX 600 was “only” down -1.14% to just remain in positive territory for the week. With recessionary concerns back in focus, sovereign bonds rallied on both sides of the Atlantic as investors sought out safe havens. Yields on 10yr US Treasuries fell by -10.2bps to 2.88%, with the decline mostly led by a -9.6bps move lower in real yields, and nominal yields are only back up +2.5bps this morning. The yield curve also continued to flatten and the 2s10s slope (-6.9ps) fell to its lowest in over two weeks, at 21.0bps, although it’s been over 6 weeks now since the curve last traded in inversion territory. We did get some Fedspeak but to be honest there weren’t any major headlines relative to what we already knew, with Chicago Fed President Evans saying it was “quite likely” the Fed would be at a neutral setting by year-end, whilst Philadelphia Fed President Harker was making the case for more gradual rate hikes after the next few 50bp hikes are delivered. More important for the outlook was the release of various housing data yesterday, where housing starts fell to an annualised rate of 1.724m in April (vs. 1.756m expected), and that was from a downwardly revised 1.728m in March. That comes against the backdrop of rising mortgage rates, and the MBA reported that mortgage purchase applications fell -11.9% in the week ending May 13, leaving them at their lowest levels since May 2020 when the numbers were still recovering from the pandemic slump. Over in Europe, sovereign bond curves also became flatter as investors became increasingly aggressive on the near-term ECB rate path. Indeed the amount of ECB rate hikes priced in by the December meeting hit a fresh high of 108bps, or equivalent to at least four rate hikes of 25bps by year-end. That came amidst further ECB speakers over the last 24 hours, including Finnish central bank governor Rehn, who had already endorsed a July hike and said yesterday that the initial hike was “likely to take place in the summer”. Furthermore, he said that it seemed “necessary that in our policy rates we move relatively quickly out of negative territory”. We also heard from Estonian central bank governor Muller, who also endorsed a July hike and said he “wouldn’t be surprised” if the deposit rate were in positive territory by year-end. However, Spanish central bank governor De Cos said that rate hikes should be gradual as he called for APP purchases to end at the start of Q3, with rate hikes to follow shortly afterwards. Those growing expectations of tighter policy saw shorter-dated yields move higher in Europe once again, with 2yr German yields hitting their highest level since 2011 despite only a marginal +0.1bps move to 0.36%. However, the broader risk-off tone meant it was a different story for their longer-dated counterparts, and yields on 10yr bunds (-1.6bps) and OATs (-2.2bps) both moved lower on the day. Peripheral spreads widened as well, whilst iTraxx Crossover neared its recent highs with a +26.2bps move to 468bps. In terms of the fight against inflation, there was a potential boost on the trade side yesterday as US Treasury Secretary Yellen confirmed ahead of a meeting of G7 finance ministers and central bank governments that the she favoured removing some tariffs on goods that are not considered strategic. Separately the risk-off move also saw oil prices move lower for a 2nd day running yesterday, with Brent crude down -2.52%, although it’s since taken back a decent chunk of that loss this morning with a +1.51% move higher to $110.76/bbl. Over in Asia, equity markets have tracked those steep overnight losses on Wall Street to move sharply lower this morning. Among the key indices, the Hang Seng (-2.25%) is the largest underperformer amidst a broad weakness in tech stocks as the Hang Seng Tech index fell by an even larger -3.40%. Mainland Chinese stocks have performed relatively better however, even if the Shanghai Composite (-0.08%) and CSI (-0.25%) have both moved slightly lower, while the Nikkei (-1.91%) and the Kospi (-1.29%) have seen more substantial losses. Finally there was some important employment data out of Australia this morning ahead of their election on Saturday, with the unemployment rate falling to its lowest since 1974, at 3.9%. The employment gain was a bit softer than expected with just a +4.0k gain (vs. +30.0k expected), but that included a +92.4k gain in full-time employment, offset by a -88.4k decline in part-time employment. Elsewhere on the data side, there were fresh signs of inflationary pressure in the UK after CPI inflation rose to a 40-year high of +9.0% in April. But in spite of the 40-year high, that was actually slightly beneath the +9.1% reading expected by the consensus, which marked the first time in over 6 months that the reading hasn’t been higher than expected. Gilts outperformed following the release as it was also beneath the BoE’s staff projection of +9.1%, and 10yr gilt yields closed down -1.6bps on the day, whilst sterling underperformed the other major currencies leave it -1.28% weaker against the US Dollar. To the day ahead now, and data releases from the US include the weekly initial jobless claims, along with April’s existing home sales and the Philadelphia Fed’s business outlook survey for May. Central bank speakers include ECB Vice President de Guindos, the ECB’s Holzmann and the Fed’s Kashkari. Finally, the ECB will be publishing the minutes from their April meeting. Tyler Durden Thu, 05/19/2022 - 08:02.....»»

Category: personnelSource: nytMay 19th, 2022

Wall Street"s Most Accurate Analyst: "Today"s Bear Market Ends In October With The S&P At 3,000"

Wall Street's Most Accurate Analyst: "Today's Bear Market Ends In October With The S&P At 3,000" Two weeks ago, just when everyone thought that he couldn't turn any more bearish, BofA's chief investment strategist Michael Hartnett, Wall Street's biggest bear who is by implication has also emerged as the most accurate sellside analyst (the average S&P price target of his peers is still around 4,700), stunned everyone when he told readers that while the mood on the street was already dismal, relaying the the Heard on the Street line was "I'm so bearish, and even I'm miserable", he warned that even though everyone was bearish, redemptions were just starting, and the real selling was only just beginning. One week later - and much to the embarrassment of JPM's in house permabull who at the same time said to take the other side of the trade and to buy stocks - Hartnett was again been proven right, with the S&P tumbling and the Nasdaq suffering its worst month since the Lehman bankruptcy. Hartnett also correctly warned that the closer we got to the 4,000 "strange attractor" level, the more aggressive the selling would become (as we discussed in "Hartnett Turns Apocalyptic, Says Carnage To Accelerate With "Max Pain" And "Exit" Waiting Below 4,000") Since then it's gotten even worse, providing the biggest bear on Wall Street with even more ammo for his latest weekly Flow Show note (available to pro subscribers in the usual place), and he wastes no time to terrify his readers of the hell that is coming, warning that with the NYSE Composite (US stocks + ADR's + bond ETFs) down -9% YTD to 100-week moving average, "recession/crises in past 25 years have always seen our fave Wall St barometer break decisively below this level (15350 today)...at 100wma;" And in case that's not enough, he also warns that "every crisis/recession sees meaningful dip below 100wma...game time!" Extending this analogy to all bear markets - because the only ones who still don't realize that the S&P is in a brutal bear market are JPMorgan's strategists - Hartnett compiles the following useful information: 9 bear markets in the past 140 years Average price decline = 37.3% Average duration is 289 days And while past performance no guide to future performance, if it were, today's bear market ends Oct 19th '22 with S&P500 at 3000, Nasdaq at 10000.  There are two silver linings here: first: many stocks are already there, i.e., 49% of Nasdaq >50% below their 52-week highs, 58% of Nasdaq >37.3% down, and 77% of index in bear market, i.e. down >20%; second: bear markets are quicker than bull markets. Hartnett next echoes what we said yesterday in our discussion of the BOE's shocking decision, which we said confirms the worst stagflationary case for the economy. According to the BofA strategist, the BoE projected UK CPI >10% by Oct'22, cut '23 GDP forecast 150bps to -0.25%; in other words, 10% inflation, 0% growth the living definition of stagflation.  It's why to Hartnett, the correct relative playbook is 1973/74 and it shows that cash and commodities beat bonds & stocks (esp consumer & tech; note Big Tech starting to ape Nifty 50 crash). Meanwhile, flows - which are always a leading indicator for sentiment - confirm that none of this is a shock to investors, and after some huge outflows in the past month, the latest weekly flows into the FOMC were massively “risk-off” as investors waved in the cash: $0.3bn from gold, $3.4bn from stocks, $9.1bn from bonds, $14.0bn from cash. Some more details: big inflow to Treasuries ($6.0bn), big outflow from TIPS ($3.2bn), big outflow IG bonds ($7.3bn), largest REIT (real estate) outflow ever ($2.2bn), big outflow financials ($1.6bn), 4-week average of flows to stocks turning most negative since May’20 when the Fed had to step in to bail out the market. Turning from the past - both distant and recent - to the future, and Hartnett's 2022 View, it will come as no surprise that the BofA strategist is not exactly bullish. Here's how he see things playing out Base case remains equity lows, yield highs yet to be reached Wall St to spend much of '22 working through "inflation shock", "rates shock", "recession shock" = negative, volatile returns in absolute terms Relative calls defensive...cash/volatility/commodities>stocks/bonds, IG>HY, defensives>cyclicals Meantime as recession risks next move up in commodities should be tactically sold, Lead indicators of bear market were trough in yields & US$ + peak in EM, crypto, speculative tech (e.g. biotech) in Q1'21; only once yields & US$ peak, and floor in EM, crypto, speculative tech follow, should risk be added, first and foremost in corporate bonds – we are not there yet (and note speculative tech will remain in bear market for next 2 years, a floor does not = new bull market) Finally, Harnett turns to his favorite topic - the three types of shocks that define the transition from 2020 to 2022. According to the BofA strategist, in past 9 months “inflation shock” was priced-in slowly, “rates shock” was priced-in slowly, but “recession shock” was priced-in too quickly; this is a problem as stronger-than-expected economic data in H1’22 is causing market to price-in longer/bigger inflation/rates shock. Inflation shock: inflation set to "peak" but lower inflation likely to be "transitory" given biggest macro story of ‘22...a lack of supply of energy, food, housing, labor relative to demand showing scant signs of improvement... Energy...natural gas prices at highest since '08 as world scrambles to reconfigure energy supplies (note explosive upside of Russian ruble now at new highs vs sterling, euro, US dollar), Food...fertilizer prices @ all-time highs = cost of food production up = supply of food down = price of food up, note corn prices @ new highs & food prices seriously vulnerable to super-spike on poor harvests, Houses...mortgage rate surging but 93% of US mortgages are fixed and supply of existing homes near record low, as evidenced by housing permits highest since '74 Labor...there are 12mn US job openings versus a 6mn supply of unemployed workers , you do the math. Rates shock: yes central banks on course to hike rates 251 times in 2022, yes net 34% tightening monetary policy most since '08, yes QT starts H2'22, yes not a lot rate hikes can do about broken supply chains; but yields & volatility will rise until Fed & central banks ahead of the curve...this week they moved further behind curve; US inflation 8%, EU inflation 8%, UK inflation heading >10%, yet they are quivering at the thought of selling $1 of bonds (QT) after buying $23,000,000,000,000 since Lehman, and $11,000,000,000,000 since COVID-19; little wonder bond vigilantes back to trading “end of central bank credibility” = volatility entrenched. Recession shock: the economy today is strong, a problem; but macro data has turned from unambiguously strong to ambiguously strong; business confidence has stalled (see PMI’s) which threatens to stall improvement in labor market in H2; Asian FX devaluation discounts weaker Asian export growth... ... which discounts weaker US consumer; and quickest route to recession on Main St is via a sharp decline in asset valuations on Wall St, & risk of systemic events on bond/stock/real estate deleveraging in risk parity (RPAR)... ...  private equity, sovereign wealth funds, credit events in speculative tech, shadow banking, US consumer buy now, pay later models, Emerging Markets, zombie corporations, goes up with every rate hike. There is more in the full Hartnett note, available to pro subscribers in the usual place. Tyler Durden Sat, 05/07/2022 - 06:35.....»»

Category: dealsSource: nytMay 7th, 2022

Financial War Takes A Nasty Turn

Financial War Takes A Nasty Turn Authored by Alasdair Macleod via GoldMoney.com, The chasm between Eurasia and the Western defence groupings (NATO, Five-eyes, AUKUS etc.) is widening rapidly. While media commentary focuses on the visible side of the conflict in Ukraine, the economic and financial aspects are what really matter. There is an increasing inevitability about it all. China has been riding the inflationist Western tiger for the last forty years and now that it sees the dollar’s debasement accelerating wonders how to get off. Russia perhaps is more advanced in its plans to do without dollars and other Western currencies, hastened by sanctions. Meanwhile, the West is increasingly vulnerable with no apparent alternative to the dollar’s hegemony. By imposing sanctions on Russia, the West has effectively lined up its geopolitical opponents into a common cause against an American dollar-dominated faction. Russia happens to be the world’s largest exporters of energy, commodities, and raw materials. And China is the supplier of semi-manufactured and consumer goods to the world. The consequences of the West’s sanctions ignore this vital point. In this article, we look at the current state of the world’s financial system and assess where it is headed. It summarises the condition of each of the major actors: the West, China, and Russia, and the increasing urgency for the latter two powers to distance themselves from the West’s impending currency, banking, and financial asset crisis. We can begin to see how the financial war will play out. The West and its dollar-based pump-and-dump system The Chinese have viewed the US’s tactics under which she has ensured her hegemony prevails. It has led to a deep-seated distrust in her relationship with America. And this is how she sees US foreign policy in action. Since the end of Bretton Woods in August 1971, for strategic reasons as much as anything else America has successfully continued to dominate the free world. A combination of visible military capability and less visible dollar hegemony defeated the communism of the Soviets and Mao Zedong. Aid to buy off communism in Africa and Latin America was readily available by printing dollars for export, and in the case of Latin America by deploying the US banking system to recycle petrodollars into syndicated loans. In the late seventies, banks in London would receive from Citibank yards-long telexes inviting participation in syndicated loans, typically for $100 million, the purpose of which according to the telex was invariably “to further the purposes of the state.” Latin American borrowing from US commercial banks and other creditors increased dramatically during the 1970s. At the commencement of the decade, total Latin American debt from all sources was $29 billion, but by the end of 1978, that number had skyrocketed to $159 billion. And in early-1982, the debt level reached $327 billion.[i] We all knew that some of it was disappearing into the Swiss bank accounts of military generals and politicians of countries like Argentina. Their loyalty to the capitalist world was being bought and it ended predictably with the Latin American debt crisis. With consumer price inflation raging, the Fed and other major central banks had to increase interest rates in the late seventies, and the bank credit cycle turned against the Latins. Banks sought to curtail their lending commitments and often (such as with floating-rate notes) they were paying higher coupon rates. In August 1982, Mexico was the first to inform the Fed, the US Treasury, and the IMF that it could no longer service its debt. In all, sixteen Latin American countries rescheduled their debts subsequently as well as eleven LDCs in other parts of the world. America assumed the lead in dealing with the problems, acting as “lender of last resort” working with central banks and the IMF. The rump of the problem was covered with Brady Bonds issued between 1990—1991. And as the provider of the currency, it was natural that the Americans gave a pass to their own corporations as part of the recovery process, reorganising investment in production and economic output. So, a Latin American nation would have found that America provided the dollars required to cover the 1970s oil shocks, then withdrew the finance, and ended up controlling swathes of national production. That was the pump and dump cycle which informed Chinese military strategists analysing US foreign policy some twenty years later. In 2014, the Chinese leadership was certain the riots in Hong Kong reflected the work of American intelligence agencies. The following is an extract translated from a speech by Major-General Qiao Liang, a leading strategist for the Peoples’ Liberation Army, addressing the Chinese Communist Party’s Central Committee in 2015: “Since the Diaoyu Islands conflict and the Huangyan Island conflict, incidents have kept popping up around China, including the confrontation over China’s 981 oil rigs with Vietnam and Hong Kong’s “Occupy Central” event. Can they still be viewed as simply accidental? I accompanied General Liu Yazhou, the Political Commissar of the National Defence University, to visit Hong Kong in May 2014. At that time, we heard that the “Occupy Central” movement was being planned and could take place by end of the month. However, it didn’t happen in May, June, July, or August. What happened? What were they waiting for? Let’s look at another timetable: the U.S. Federal Reserve’s exit from the Quantitative Easing (QE) policy. The U.S. said it would stop QE at the beginning of 2014. But it stayed with the QE policy in April, May, June, July, and August. As long as it was in QE, it kept overprinting dollars and the dollar’s price couldn’t go up. Thus, Hong Kong’s “Occupy Central” should not happen either. At the end of September, the Federal Reserve announced the U.S. would exit from QE. The dollar started going up. Then Hong Kong’s “Occupy Central” broke out in early October. Actually, the Diaoyu Islands, Huangyan Island, the 981 rigs, and Hong Kong’s “Occupy Central” movement were all bombs. The successful explosion of any one of them would lead to a regional crisis or a worsened investment environment around China. That would force the withdrawal of a large amount of investment from this region, which would then return to the U.S." For the Chinese, there was and still is no doubt that America was out to destroy China and stood ready to pick up the pieces, just as it had done to Latin America, and South-East Asia in the Asian crisis in 1997. Events since “Occupy Central” will have only confirmed that view and explains why the Chinese dealt with the Hong Kong problem the way they did, when President Trump mounted a second attempt to derail Hong Kong, with the apparent objective to prevent global capital flows entering China through Shanghai Connect. For the Americans the world is slipping out of control. They have had expensive wars in the Middle East, with nothing to show for it other than waves of displaced refugees. For them, Syria was a defeat, even though that was just a proxy war. And finally, they had to give up on Afghanistan. For her opponents, America has lost hegemonic control in Eurasia and if given sufficient push can be removed from the European mainland entirely. Undoubtedly, that is now Russia’s objective. But there are signs that it is now China’s as well, in which case they will have jointly obtained control of the Eurasian land mass. Financial crisis facing the dollar The geopolitics between America and the two great Asian states have been clear for all of us to see. Less obvious has been the crisis facing Western nations. Exacerbated by American-led sanctions against Russia, producer prices and consumer prices are not only rising, but are likely to continue to do so. In particular, the currency and credit inflation of not only the dollar, but also the yen, euro, pound, and other motley fiat currencies have provided the liquidity to drive prices of commodities, producer prices and consumer prices even higher. In the US, reverse repos which absorb excess liquidity currently total nearly $2 trillion. And the higher interest rates go, other things being equal the higher this balance of excess currency no one wants will rise. And rise they will. The strains are most obvious in the yen and the euro, two currencies whose central banks have their interest rates stuck below the zero bound. They refuse to raise them, and their currencies are collapsing instead. But when you see the ECB’s deposit rate at minus 0.5%, producer prices for Germany rising at an annualised rate of over 30%, and consumer prices already rising at 7.5% and sure to go higher, you know they will all go much, much higher. Like the Bank of Japan, the ECB and its national central banks through quantitative easing have assembled substantial portfolios of bonds, which with rising interest rates will generate losses which will drive them rapidly into insolvency. Furthermore, the two most highly leveraged commercial banking systems are the Eurozone’s and Japan’s with assets to equity ratios for the G-SIBs of over twenty times. What this means is that less than a 5% fall in the value of its assets will bankrupt the average G-SIB bank. It is no wonder that foreign depositors in these banking systems are taking fright. Not only are they being robbed through inflation, but they can see the day when the bank which has their deposits might be bailed in. And worse still, any investment in financial assets during a sharply rising interest environment will rapidly lose value. For now, the dollar is seen as a haven from currencies on negative yields. And in the Western world, the dollar as the reserve currency is seen as offering safety. But this safety is an accounting fallacy which supposes that all currency volatility is in the other fiat currencies, and not the dollar. Not only do foreigners already own dollar-denominated financial assets and bank deposits totalling over $33 trillion, but rising bond yields will prick the dollar’s financial asset bubble wiping out much of it. In other words, there are currently winners and losers in currency markets, but everyone will lose in bond and equity markets. Add into the mix counterparty and systemic risks from the Eurozone and Japan, and we can say with increasing certainty that the era of financialisation, which commenced in the 1980s, is ending. This is a very serious situation. Bank credit has become increasingly secured on non-productive assets, whose value is wholly dependent on low and falling interest rates. In turn, through the financial engineering of shadow banks, securities are secured on yet more securities. The $610 trillion of OTC derivatives will only provide protection against risk if the counterparties providing it do not fail. The extent to which real assets are secured on bank credit (i.e., mortgages) will also undermine their values. Clearly, central banks in conjunction with their governments will have no option but to rescue their entire financial systems, which involves yet more central bank credit being provided on even greater scales than seen over covid, supply chain chaos, and the provision of credit to pay for higher food and energy prices. It must be unlimited. We should be in no doubt that this accelerating danger is at the top of the agenda for anyone who understands what is happening — which particularly refers to Russia and China. Russia’s aggressive stance There can be little doubt that Putin’s aggression in Ukraine was triggered by Ukraine’s expressed desire to join NATO and America’s seeming acquiescence. A similar situation had arisen over Georgia, which in 2008 triggered a rapid response from Putin. His objective now is to get America out of Europe’s defence system, which would be the end of NATO. Consider the following: America’s military campaigns on the Eurasian continent have all failed, and Biden’s withdrawal from Afghanistan was the final defeat. The EU is planning its own army. Being an army run by committee it will lack focus and be less of a threat than NATO. This evolution into a NATO replacement should be encouraged. As the largest supplier of energy to the EU, Russia can apply maximum pressure to speed up the political process. The most important commodity for the EU is energy. And through EU policies, which have been to stop producing carbon-based energy and to import it instead, the EU has become dependent on Russian oil, natural gas, and coal. And by emasculating Ukraine’s production, Putin is putting further pressure on the EU with respect to food and fertiliser, which will become increasingly apparent over the course of the summer. For now, the EU is toeing the American line, with Brussels instructing member states to stop importing Russian oil from the end of this year. But already, it is reported that Hungary and Slovakia are prepared to buy Russian oil and pay in roubles. And it is likely that while other EU governments will avoid direct contractual relationships with Russia, ways round the problem indirectly are being pursued. A sticking point for EU governments is having to pay in roubles. Otherwise, the solution is simple: non-Russian, non-EU banks can create a Eurorouble market overnight, creating rouble bank credit as needed. All that such a bank requires is access to rouble liquidity to manage a balance sheet denominated in roubles. The obvious providers of rouble credit are China’s state-controlled megabanks. And we can be reasonably sure that at his meeting with President Xi on 4 February, not only would the intention to invade Ukraine have been discusseded, but the role of China’s banks in providing roubles for the “unfriendlies” (NATO and its supporters) in the event of Western sanctions against Russia will have been as well. The point is that Russia and China have mutual geopolitical objectives, and what might have come as a surprise to the West was most likely agreed between them in advance. The recovery in the rouble from the initial hit to an intraday low of 150 to the dollar has taken it to 64 at the time of writing. There are two factors behind this recovery. The most important is Putin’s announcement that the unfriendlies will have to pay for energy in roubles. But there was a subsidiary announcement that the Russian central bank would be buying gold. Notionally, this was to ensure that Russian banks providing finance to gold mines could gold and other related assets as collateral. But the central bank had stopped buying gold and accumulated the unfriendlies currencies in its reserves instead. This was taken by senior figures in Putin’s administration as evidence that the highly regarded Governor, Elvira Nabiullina, had been captured by the West’s BIS-led banking system. Russia has now realised that foreign exchange reserves which can be blocked by the issuers are valueless as reserves in a crisis, and that there is no point in having them. Only gold, which has no counterparty risk can discharge this role. And it is a lesson not lost on other central banks either, both in Asia and elsewhere. But this sets the rouble onto a different course from the unbacked fiat currencies in the West. This is deliberate, because while rising interest rates will lead to a combined currency, banking, and financial asset crisis in the West, it is a priority of the greatest importance for Russia to protect herself from these developments. A new backing for the rouble Russia is determined to protect herself from a dollar currency collapse. So far as Russia is concerned, this collapse will be reflected in rising dollar prices for her exports. And only last week, one of Putin’s senior advisors, Nikolai Patrushev, confirmed in an interview with Rossiyskaya Gazeta that plans to link the rouble to commodities are now being considered. If this plan goes ahead, the intention must be for the rouble to be considered a commodity substitute on the foreign exchanges, and its protection against a falling dollar will be secured. We are already seeing the rouble trending higher, with it at 64 to the dollar yesterday. Figure 1 below shows its progress, in the dollar-value of a rouble. Keynesians in the West have misread this situation. They think that the Russian economy is weak and will be destabilised by sanctions. That is not true. Furthermore, they would argue that a currency strengthened by insisting that oil and natural gas are paid for in roubles will push the Russian economy into a depression. But that is only a statistical effect and does not capture true economic progress or the lack of it, which cannot be measured. The fact is that the shops in Russia are well stocked, and fuel is freely available, which is not necessarily the case in the West. The advantages for Russia are that as the West’s currencies sink into crisis, the rouble will be protected. Russia will not suffer from the West’s currency crisis, she will still get inflation compensation in commodity prices, and her interest rates will decline while those in the West are soaring. Her balance of trade surplus is already hitting new records. There was a report, attributed to Dmitri Peskov, that the Kremlin is considering linking the rouble to gold and the idea is being discussed with Putin. But that’s probably a rehash of the interview that Nickolai Patrushev recorded with Rossiyskaya Gazeta referred to above, whereby Russia is considering fixing the rouble against a wider range of commodities. At this stage, a pure gold standard for the rouble of some sort would have to take the following into account: History has shown that the Americans and the West’s central banks manipulate gold prices through the paper markets. To fix the rouble against a gold standard would hold it a hostage to fortune in this sense. It would be virtually impossible for the West to manipulate the rouble by intervening in this way across a range of commodities. Over long periods of time the prices of commodities in gold grams are stable. For example, the price of oil since 1950 has fallen by about 30%. The volatility and price rises have been entirely in fiat currencies. The same is true for commodity prices generally, telling us that not only are commodities priced in gold grams generally stable, but a basket of commodities can be regarded as tracking the gold price over time and therefore could be a reasonable substitute for it. If Russia has significant gold bullion quantities in addition to declared reserves, these will have to be declared in conjunction with a gold standard. Imagine a situation where Russia declares and can prove that it has more gold that the US Treasury’s 8,133 tonnes. Those who appear to be in a position to do so assess the true Russian gold position is over 10,000 tonnes. Combined with China’s undeclared gold reserves, such an announcement would be a financial nuclear bomb, destabilising the West. For this reason, Russia’s partner, China, for which exporting semi-manufactured and consumer goods to the West is central to her economy activities, would prefer an approach that does not add to the dollar’s woes directly. The Americans are doing enough to undermine the dollar without a push from Asia’s hegemons. Furthermore, a mechanism for linking the rouble to commodity prices has yet to be devised. The advantage of a gold standard is it is a simple matter for the issuer of a currency to accept notes from the public and to pay out gold coin. And arbitrage between gold and roubles would ensure the link works on the foreign exchanges. This cannot be done with a range of commodities. It will not be enough to simply declare the market value of a commodity basket daily. Almost certainly forex traders will ignore the official value because they have no means of arbitrage. It is likely, therefore, that Russia will take a two-step approach. For now, by insisting on payments in roubles by the unfriendlies domestic Russian prices for commodities, raw materials and foods will be stabilised as the unfriendlies’ currencies fall relative to the rouble. Russia will find that attempts to tie the currency to a basket of currencies is impractical. After the West’s currency, banking, and financial asset crisis has passed then there will be the opportunity to establish a gold standard for the rouble. The Eurasian Economic Union While it is impossible to formally tie a currency which trades on the foreign exchanges to a basket of commodities, the establishment of a virtual currency specifically for trade settlement between jurisdictions is possible. This is the basis of a project being supervised by Sergei Glazyev, whereby such a currency is planned to be used by the member states of the Eurasian Economic Union (EAEU). Glazyev is Russia’s Minister in charge of integration and macroeconomics of the EAEU. While planning to do away with dollars for trade settlements has been in the works for some time, sanctions by the unfriendlies against Russia has brought about a new urgency. We know no detail, other than what was revealed in an interview Glazyev gave recently to a media outlet, The Cradle [ii]. But the desire to do away with dollars for the countries involved has been on the agenda for at least a decade. In October 2020, the original motivation was explained by Victor Dostov, president of the Russian Electronic Money Association: “If I want to transfer money from Russia to Kazakhstan, the payment is made using the dollar. First, the bank or payment system transfers my roubles to dollars, and then transfers them from dollars to tenge. There is a double conversion, with a high percentage taken as commission by American banks.” The new trade currency will be synthetic, presumably price-fixed daily, giving conversion rates into local currencies. Operating rather like the SDR, state banks can create the new currency to provide the liquidity balances for conversion. It is a practical concept, which being relatively advanced in the planning, is probably the reason the Kremlin is considering it as an option for a future rouble. That idea of a commodity basket for the rouble itself is bound to be abandoned, while a successful EAEU trade settlement currency can be extended to both the wider Shanghai Cooperation Organisation and the BRICS members not in the SCO. China’s position We can now say with confidence that at their meeting on 4 February Putin and Xi agreed to the Ukraine invasion. Chinese interests in Ukraine are affected, and the consequences would have had to be discussed. The fact that Russia went ahead with its war on Ukraine makes China complicit, and we must therefore analyse the position from China’s point of view. For some time, America has attacked China’s economy, trying to undermine it. I have already detailed the position over Hong Kong, to which can be added other irritations, such as the arrest of Huawei’s chief financial officer in Canada on American instructions, trade tariffs, and the sheer unpredictability of trade policy during the Trump administration. President Biden and his administration have now been assessed by both Putin and Xi. By 4 February their economic and banking advisors will have made their recommendations. Outsiders can only come to one conclusion, and that is Russia and China decided at that meeting to escalate the financial war on the West. Their position is immensely strong. While Russia is the largest exporter of energy and commodities in the world, China is the largest provider of intermediate and consumer goods. Other than the unfriendlies, nearly all other nations are neutral and will understand that it is not in their interests to side with NATO, the EU, Japan and South Korea. The only missing piece of the jigsaw is China’s commoditisation of the renminbi. Following the Fed’s reduction of its funds rate to the zero bound and its monthly QE increase to $120bn per month, China began to aggressively stockpile commodities and grains. In effect, it was a one-nation crack-up boom, whereby China took the decision to dump dollars. The renminbi rose against the dollar, but by considerably less than the dollar’s loss of purchasing power. This managed exchange rate for the renminbi appears to have been suppressed to relieve China’s exporters from currency pressures, at a time when the Chinese economy was adversely affected first by credit contraction, then by covid and finally by supply chain disruptions. With respect to supply chains, current lockdowns in Shanghai and the logjam of container vessels in the Roads look set to emasculate Western economies with supply chain issues for the rest of the year. All we know is that the authorities are making things worse, but we don’t know whether it is deliberate. It is increasingly difficult to believe that the financial and currency war is not being purposely escalated by the Chinese-Russian partnership. Having attacked Ukraine, the West’s response is undermining their own currencies, and the urgency for China and Russia to protect their currencies and financial systems from the consequences of a fiat currency crisis has become acute. It is the financial war which is going “nuclear”. Talk in the West of the military war escalating towards a physical nuclear war misses this point. China and Russia now realise they must protect themselves from the West’s looming currency and economic crisis as a matter of urgency. To fail to do so would simply ensure the crisis overwhelms them as well. Tyler Durden Fri, 05/06/2022 - 21:00.....»»

Category: dealsSource: nytMay 6th, 2022

Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008

Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008 It has been an illiquid, rollercoaster session on the last day of the week and month, which first saw US index futures modestly rise alongside European stocks propped up by surging Chinese and Asian markets following Beijing's latest vow to use new tools and policies to spur growth, however the initial move higher quickly faded as markets remembered that not only did Amazon report dismal earnings (with Apple also sliding on weak guidance) but the Fed is set to hike 50bps (or maybe 75bps) next week, and put a lit on any upside follow through. As a result, S&P500 futures dropped 0.9%, while Nasdaq futures retreated 1.1% on the last trading day of April, adding to their 9.3% decline so far this month and on pace for the worst monthly performance since November 2008 as fears of rising rates hurt bubbly growth shares and fuel risks for future profits. The yen snapped a slide while staying near 20-year lows. The yuan, euro, pound and commodity-linked currencies made gains while the dollar dipped. 10Y TSY yields rose, rising by about 4bps to 2.87% while gold moved back above $1900. Bitcoin tumbled as usual, and last traded back under $39,000. In premarket trading, Amazon.com plunged 9%, after projecting dismal second-quarter sales growth, while the world's largest company Apple dropped 2.8% after warning on supply constraints. Meanwhile, Tesla shares gained 3.1% premarket after CEO Elon Musk said he doesn’t plan on selling any more stock after a $4 billion stake sale. Here are some other notable premarket movers: Intel (INTC US) shares slide 3.1% premarket as analysts flag “light” guidance for the chipmaker’s second quarter, stoking worries over the impact of waning demand for PCs. Intel’s second-quarter forecast missed the average estimate. Robinhood (HOOD US) shares are set to open at a record low Friday as a lockdown-driven boom in retail trading continues to fade and a stock market selloff squeezes out some clients. Tesla (TSLA US) shares rise as much as 4.2% premarket, after CEO Elon Musk said he doesn’t plan on offloading any more Tesla stock after selling ~$4b of shares in the electric vehicle maker following his deal to buy Twitter. Accolade (ACCD US) plummets 36% premarket after the company’s 2023 revenue forecast fell short of estimates, with Morgan Stanley downgrading the healthcare software provider to equal-weight after the loss of a key customer. Finch Therapeutics (FNCH US) shares soar as much as 54% premarket after the biotech announced that the FDA removed the clinical hold on Finch’s investigational new drug application for CP101. Piper Sandler cut its recommendation on Mastercard (MA US) to underweight, becoming the first broker to downgrade the company with a sell-equivalent rating since August. Shares down 1.1% premarket. U.S.-listed Chinese stocks rally across the board in premarket trading after China’s top leaders pledged more support to spur economic growth and vowed to contain Covid outbreaks. Alibaba (BABA US) +13%, JD.com (JD US) +16%. Zymeworks (ZYME US) climbs 30% premarket; All Blue Capital made a non-binding offer at $10.50 per share in cash for the biotech company, Reuters reports, citing people familiar with the matter. Outside of the flagship tech giant earnings misses, the results season has been reassuring so far. S&P 500 earnings growth is tracking 4.3% year-on-year, with 86% of companies beating estimates, according to Barclays strategists. “With continued solid U.S. growth prospects, robust earnings, and relatively strong household balance sheets, a recession in the next 12 months is not in our base case,” said UBS Wealth Management CIO Mark Haefele.  Meanwhile, as reported earlier, China’s top leaders promised to boost economic stimulus to spur growth.  While China’s announcement brought some relief for markets, many risks remain. They span China’s ongoing Covid challenges, the impact of the Fed on the U.S. economy and Russia’s war in Ukraine. “The Fed’s record on soft landings is not that strong,” Carol Schleif, deputy chief investment officer at BMO Family Office LLC, said on Bloomberg Television. “Markets are watching very, very carefully to see if we can thread that needle.” The latest U.S. data showed that the world’s largest economy unexpectedly shrank for the first time since 2020. That reflected an import surge tied to solid consumer demand, suggesting growth will return imminently.  The figures underscore the debate about how much scope the U.S. central bank has to tighten policy before the economy cracks. Markets continue to project a half-point Fed rate hike next week. “A year from now, 10-year yields are most likely going to be lower than where we are today,” Jimmy Chang, chief investment officer at Rockefeller Financial LLC, said on Bloomberg Television, referring to Treasuries. “I do believe at some point the economy starts to weaken, the Fed will be less hawkish, perhaps even go into a pause mode by, say, early next year.” Meanwhile, China's latest vow to prop up markets helped support European stocks (in addition to Asian and Chinese stocks of course), also spurred by a robust earnings season. The Stoxx Europe 600 Index climbed 0.8%, trimming a monthly decline. The Euro Stoxx 50 gains as much as 1.5% with most cash equity indexes gaining over 1% before stalling. Tech, consumer products and financial services are the strongest performing sectors. Here are some of the biggest European movers today: Novo Nordisk shares gain as much as 7.3% after the Danish pharmaceutical giant reported its latest earnings, which included a large beat on its blockbuster obesity drug Wegovy. The company also hiked its outlook. BBVA rises as much as 5.6% after better-than-expected first-quarter earnings, as the Spanish lender’s performance in Turkey showed signs of vindicating Chief Executive Officer Onur Genc’s bet on the country. Johnson Matthey jumps as much as 36%, the steepest gain since at least 1989 when Bloomberg’s records started, after Standard Industries Inc. bought a stake in the company. Remy Cointreau climbs as much as 3.8% after the French distiller reported 4Q sales that were in line with consensus. Analysts noted the strong start to the current fiscal year and a limited impact so far from a Covid-19 resurgence in the key Chinese market. Spie shares climb as much as 5.1% after the French company reported 1Q figures that Bryan Garnier said were “substantially” above expectations, with planned European investments for energy independence also viewed as a potential headwind. AstraZeneca shares decline as much as 1.3% after the company’s first-quarter earnings included a beat on core EPS and overall revenue, but also a slight miss on Alexion rare disease medication and key growth drugs such as Imfinzi. Neste falls as much as 8.7% even as the Finnish maker of renewable diesel reported first-quarter results that beat estimates. Jefferies (hold) said the lack of longer-term (full-year 2022) margin guidance could disappoint. Henkel tumbles as much as 10% after what RBC says was a “substantial profit warning” for 2022. NatWest falls as much as 6% after its 1Q results got a mixed response from analysts. Some were impressed with the performance of the bank’s Go-Forward business, while others highlighted the very low mortgage spread and miss in the CET1 capital ratio. Orsted drop as much as 3.2% despite reporting a 1Q profit beat, with analysts focusing on the project delays due to supply chain shortages as well as the impact of high input costs. Earlier in the session, Asian stocks climbed for a second day led by a jump in Chinese technology shares, amid a series of new policy promises from the country’s top leaders to bolster the economy and markets.  The MSCI Asia Pacific Index advanced as much as 1.7%, with Tencent and Alibaba among the biggest gainers. The Hang Seng Tech Index soared more than 10%, rebounding from earlier losses, as the country vowed to support healthy growth of platform companies. As reported earlier, China’s Politburo, led by President Xi Jinping, vowed to meet economic targets in a sign that it may step up stimulus to support growth. Shortly before the measures were unveiled, Chinese tech stocks reversed earlier losses as traders speculated about a possible relaxation of the yearlong regulatory clampdown. Chipmakers in Taiwan and South Korea also climbed, helping the region’s tech sector. A Bloomberg index of Asian semiconductor stocks rallied as much as 2.4%, its biggest gain in more than two weeks. A key technical indicator suggested that the sector is still oversold after Intel’s disappointing profit forecast. “After recent selloffs in the semiconductor sector, the price levels have become attractive for dip buyers,” said Seo Jung-Hun, a strategist at Samsung Securities, adding that the rebound may be limited ahead of the U.S. Federal Reserve meeting next week.   Stocks in South Korea, Taiwan and Australia advanced while those in Japan were closed for a holiday. Asia’s equity benchmark was still poised for its steepest monthly drop since March 2020 and its fourth monthly decline. Australian stocks also advanced, paring the week's decline. The S&P/ASX 200 index rose 1.1% to 7,435.00, paring the week’s loss. Technology and communications sectors gained the most Friday. Pointsbet gained the most in almost a month, snapping a five day losing streak after reporting turnover for the third quarter. Domino’s Pizza fell for a fourth day, dropping the most in a month. New Zealand, the S&P/NZX 50 index was little changed at 11,884.30. India’s benchmark equities index completed a third monthly slide this year as higher oil prices weighed on sentiment.  The S&P BSE Sensex fell 0.8% to 57,060.87 in Mumbai on Friday, taking its loss in April to 2.6%. Axis Bank Ltd. dropped 6.6% after reporting earnings and was the biggest drag on the Sensex, which saw 23 of 30 member-stocks fall. The NSE Nifty 50 Index also slipped 0.8% to 17,102.55. All 19 sectoral sub-indexes compiled by BSE Ltd. slipped, led by a gauge of oil and gas companies.  “We’ve been seeing the index oscillating in a broader range for the last two weeks and there’s no clarity over the next directional move yet,” Ajit Mishra, vice president for research at Religare Broking Ltd., wrote in a note.  The brokerage maintains a cautious view, with focus on earnings, auto sales data and the initial share sale of Life Insurance Corporation next week.  Of the 15 Nifty 50 firms that have announced earnings results so far, 10 either met or exceeded analysts’ expectations, while five missed.  In FX, the Bloomberg Dollar Spot Index fell after touching an almost two-year high yesterday as the greenback weakened against all of its Group-of-10 peers. Treasuries underperformed European bonds, with 3-year yields rising by 7bps. Scandinavian currencies were the top performers as they were supported by month-end flows. The Australian dollar extended intra-day gains after China’s top leaders promised to boost economic stimulus to spur growth and vowed to contain the country’s worst Covid outbreak since 2020, which is threatening official targets for this year. The euro snapped six days of losses against the dollar but was still set for its worst monthly performance in almost four years. Bunds extended losses and yields rose by up to 5 bps after data showed euro-area consumer prices rose by 7.5% from a year earlier in April, in line with the median estimate in a Bloomberg survey. A gauge excluding volatile items such as food and energy jumped to 3.5%. The pound advanced against the dollar, trimming a weekly decline of 2.2%. The cost of hedging against swings in the pound over a one-week period rose to the highest since December 2020. Gilts outperformed bunds and Treasuries, as money markets pared BOE tightening wagers. The yen rose on demand over the currency fix in Tokyo but it remains on track for its worst monthly performance since 2016 In rates, Treasuries hold losses into the U.S. session leaving yields down by as much as 6bps across front-end as the curve flattens. 10-year TSY yields were around 2.86%, cheaper by 4bp vs. Thursday close while 2s10s, 5s30s spreads flatten 2bp and 2.5bp amid front-end and belly-led weakness. German short-end cheapens roughly 5 bps to 0.24% as euro-area core inflation accelerated higher than expected. In Europe, peripherals underperform and lead bond losses while Estoxx50 climbs following better sentiment across Asia stocks after China’s pledge to ramp up stimulus.  Dollar issuance slate empty so far; two names priced $4.5b Thursday, taking weekly volumes through $8b vs. $20b forecast. Expectations are for $20b to $25b next week and a total of $125b to $150b for the month of May In commodities, WTI rose 1.2% higher to trade near $107. Saudi Aramco is expected to lower its official selling prices for June-loading crudes, market sources told S&P Global Commodity Insights; following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs. North Sea Crude oil grades underpinning dated Brent Benchmark to average 540k BPD in June (prev. 755k BPD), according to programmes. Indian firms are reportedly seeking oil import deals with Russia, according to sources cited by Reuters; three refiners looking to buy up to 16mln bbl per month of oil from Russia. Spot gold rises roughly $20 to trade around $1,915/oz. Most base metals trade in the green. Bitcoin prices are softer as usual and briefly retreated beneath the 39,000 level. Looking at the day ahead now, and data releases include the flash CPI estimate for the Euro Area in April, as well as the first look at Q1 GDP for the Euro Area, Germany, France and Italy. Otherwise from the US, we’ll get March’s data on personal spending and personal income, the Q1 employment cost index, the NI Chicago PMI for April, and the University of Michigan’s final consumer sentiment index for April. From central banks, we’ll hear from the ECB’s de Cos, and the Central Bank of Russia will be making its latest policy decision. Finally, earnings releases include ExxonMobil, Chevron, AbbVie, Bristol-Myers Squibb, Honeywell International, Charter Communications, Aon and NatWest. Market Snapshot S&P 500 futures down 0.9% to 4,242.00 STOXX Europe 600 up 1.0% to 451.55 MXAP up 2.0% to 169.00 MXAPJ up 2.6% to 561.33 Nikkei up 1.7% to 26,847.90 Topix up 2.1% to 1,899.62 Hang Seng Index up 4.0% to 21,089.39 Shanghai Composite up 2.4% to 3,047.06 Sensex up 0.5% to 57,796.94 Australia S&P/ASX 200 up 1.1% to 7,435.01 Kospi up 1.0% to 2,695.05 German 10Y yield little changed at 0.88% Euro up 0.7% to $1.0574 Brent Futures up 0.9% to $108.51/bbl Brent Futures up 0.9% to $108.51/bbl Gold spot up 1.1% to $1,915.10 U.S. Dollar Index down 0.66% to 102.94 Top Overnight News from Bloomberg More than six years after China’s shock 2015 devaluation roiled global markets and spurred an estimated $1 trillion in capital flight, the yuan is weakening at a similar pace. Onshore it’s lost nearly 4% in eight days, while the offshore rate is heading for its worst month relative to the greenback in history. Selling momentum is the strongest since the height of Donald Trump’s trade war in 2018 Geopolitical turmoil is reviving the dollar’s status as a haven, extending gains seen earlier this year as traders shifted to the U.S. to seize on rising interest rates from the Federal Reserve. On Thursday, one gauge of the greenback pushed through to the strongest level since 2002, swept up by a wave of demand for the world’s reserve currency Russia’s war with Ukraine may persuade the Swiss National Bank to adjust its monetary policy if inflation accelerates, SNB President Thomas Jordan said Economic expansion in the euro zone began 2022 on a weak footing -- underscoring the damage from soaring energy costs and worsening supply snarls following Russia’s invasion of Ukraine. Output increased 0.2% from the previous quarter in the three months through March -- matching the median estimate in a Bloomberg survey U.K. house prices rose for a ninth consecutive month in April as the housing market continued to defy an escalating cost of living crisis. The 0.3% gain marked the longest winning streak since 2016 Oil is poised for a fifth monthly gain after another tumultuous period of trading that saw prices whipsawed by the fallout from Russia’s war in Ukraine and the resurgence of Covid-19 in China A More detailed look at global markets courtesy of Newsquawk APAC stocks gained after the firm lead from the US where stocks looked past the surprise contraction in US GDP, but with advances in the region capped heading into month-end and next week's mass closures. ASX 200 was firmer as tech mirrored the outperformance of the Nasdaq stateside and with gold miners following closely behind after the precious metal reclaimed the psychological USD 1900/oz level. Hang Seng and Shanghai Comp were initially indecisive ahead of next week’s holiday closures including in the mainland where markets will remain closed through to Wednesday, while participants also digested the surprise contraction in Hong Kong’s exports and imports data. However, a surge in Hong Kong tech stocks and policy pledges by China's Politburo helped shake off the indecision. Top Asian News Bets of Easing Crackdown Spur Dizzying Jump in China Tech Stocks Grab Gets Malaysia Digital Bank License as Five Bids Win CATL Posts Sharp Drop in Earnings in Abrupt Reversal of Fortune China Plans Symposium With Big Tech Firms After Labor Day: SCMP European equities remained on the front foot on the last trading day of the month.   In terms of sectors, tech currently stands as the clear outperformer amid the sectoral gains on Wall Street yesterday alongside the surge in Chinese Tech. Overall, sectors have a slight anti-defensive bias. State-side futures were dented overnight amid after-hours losses in Amazon (-9% pre-market) and Apple (-2.4% pre-market) following disappointing guidance and inflationary headwinds. Thus, the NQ (-0.8%) currently lags. Top European News Russia Offers Dual-Payment Plan for Oil, Other Trade With India Germany Says Won’t Block Embargo on Russian Oil to Punish Putin UBS Wealth Says Too Early to Bet on Recession, Fed’s Failure U.K. House Prices Deliver Longest Winning Streak Since 2016 FX Dollar bulls book profits into month end and DXY pulls back further from near 104.000 peak in the process. High betas, cyclical and activity currencies grab the chance to recoup losses vs Buck. Euro rebounds amidst more hot Eurozone inflation data, but could be hampered by big option expiries. Yuan regroups as Chinese Government promises stimulus measures and aid for sectors of the economy suffering worst covid contagion Central Bank of Russia (CBR) cuts key rate by 300bps to 14.00% (exp. 15.00%); sees key rate in 12.5-14.00% range this year (prev. 9.0-11.0%). Russia's Kremlin, when asked about the idea of pegging the RUB to gold prices, says it is under discussion, according to Reuters. Fixed Income Bonds suffer another inflation setback after early EU rebound. Bunds some 100 ticks down from 154.69 peak, Gilts flattish between 119.34-118.73 parameters and 10 year T-note nearer 119-04+ low than 19-24 high. BTPs weak after so-so reception at end of month Italian auctions - US PCE data also adds to caution as Fed's preferred measure of inflation. Commodities WTI and Brent front-month futures have been gaining during the European morning. Saudi Aramco is expected to lower its official selling prices for June-loading crudes, market sources told S&P Global Commodity Insights; following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs. (S&PGlobal) North Sea Crude oil grades underpinning dated Brent Benchmark to average 540k BPD in June (prev. 755k BPD), according to programmes. Indian firms are reportedly seeking oil import deals with Russia, according to sources cited by Reuters; three refiners looking to buy up to 16mln bbl per month of oil from Russia. Spot gold has been rising in tandem with a pullback in the Buck but ahead of the US March PCE metric. Overnight, base metals saw gains in Shanghai, with some also citing a demand front-load ahead of the Chinese Labour Day. US Event Calendar 08:30: 1Q Employment Cost Index, est. 1.1%, prior 1.0% 08:30: March Personal Income, est. 0.4%, prior 0.5% March Personal Spending, est. 0.6%, prior 0.2% March Real Personal Spending, est. -0.1%, prior -0.4% March PCE Deflator MoM, est. 0.9%, prior 0.6% March PCE Deflator YoY, est. 6.7%, prior 6.4% March PCE Core Deflator MoM, est. 0.3%, prior 0.4% March PCE Core Deflator YoY, est. 5.3%, prior 5.4% 09:45: April MNI Chicago PMI, est. 62.0, prior 62.9 10:00: April U. of Mich. Sentiment, est. 65.7, prior 65.7 U. of Mich. Expectations, est. 64.1, prior 64.1 U. of Mich. Current Conditions, est. 68.0, prior 68.1 U. of Mich. 1 Yr Inflation, est. 5.5%, prior 5.4%; 5-10 Yr Inflation, prior 3.0% DB's Jim Reid concludes the overnight wrap By the time you're reading this I'll be lying down with straps around my ankles and wrists and making strange noises while I get manipulated by someone very strict. No I'm not remaking "50 Shades" but instead starting "Reformer Pilates" for the first time at a very early physio appointment. The miracle worker of a back consultant that has for now cured my debilitating sciatica with one simple injection has recommended it as a way of preventing a relapse. At this point, I will do absolutely anything he says so I’m prepared to humiliate myself on a regular basis going forward. So feel free to picture this as you read this. Some of the bearish chains have been loosened in risk markets over the last 24 hours but volatility remains elevated. We’ve seen another major European bond selloff, the highest German inflation since 1950, a further surge in the dollar, an unexpected US economic contraction in Q1, poor Amazon earnings, as well as growing geopolitical tensions as speculation continues about a Russian oil embargo in Europe. In spite of all that however, major equity indices have continued to advance from their Tuesday lows, with the S&P 500 (+2.47%) staging a huge comeback as investors focused on the more positive stories from recent corporate earnings releases. This was before Amazon missed sales expectations after the bell and revised down sales expectations for the second-quarter, fueling fears that consumer spending may slow despite evidence of robust activity in yesterday's GDP data. Amazon shares were -9.15% lower after hours. However, Apple reported earnings that beat estimates on strong iPhone sales, despite supply chain issues coinciding with China’s lockdowns. Shares were -2.19% lower after hours. Overall sentiment still remains fragile with NASDAQ 100 futures (-1.04%) and S&P 500 futures (-0.43%) moving lower in the overnight trade. This followed the best day for the S&P 500 (+2.47%) since the bounceback after the initial invasion in early March, with every sector more than +1.00% higher. Megacap tech stocks led the way as the FANG+ index rose +4.78%, its best day since mid-March. Europe also saw decent gains, although missing most of the rally that took place in the New York afternoon, with the STOXX 600 (+0.62%), the DAX (+1.35%) and the FTSE 100 (+1.13%) all higher. Given the big run-up in the New York afternoon, the S&P 500 was 'only' around +0.8% higher as Europe closed. Bond markets were again lively with most of the action in Europe, with a significant selloff after the German CPI print for April surprised on the upside yet again. Looking at the details, the year-on-year measure rose to +7.8% using the EU-harmonised method (vs. +7.6% expected), which is certainly the fastest pace of inflation since German reunification, and at the same level briefly seen in West Germany after the first oil shock in 1973. Indeed if you’re looking for German inflation faster than that, you’ve got to go all the way back to the 1950s, since West Germany had much more success than the US or UK for example in keeping inflation in the single-digits even during the 1970s. We’ll have to see what the flash CPI reading for the entire Euro Area brings today, but as I mentioned in my Chart of the Day yesterday (link here), this brings home just how far the ECB is behind the curve, since the last time inflation was around these levels in the 70s, the Bundesbank certainly didn’t have a negative deposit rate. With the inflation reading coming in above expectations, that catalysed a fresh bond selloff that took the 10yr bund yield up by +9.8bps to 0.89%. This echoes some of the other big moves higher in yields we’ve seen over the last couple of months, but it still leaves them beneath the peak of 0.97% at the end of last week. What was also noticeable was the fresh widening in spreads that speaks to the building minor stresses in European markets right now, with the gap between Italian and German 10yr yields up a further +4.2bps to 181bps, a level not seen since June 2020. As in the previous session, those moves were seen in the credit space too, with the iTraxx Crossover widening +3.7bps to 418bps, leaving it just shy of its recent peak at 421bps in early March. Another cause for concern in European markets have been the ongoing tensions between Russia and the West over Ukraine, with the Euro falling by a further -0.55% yesterday to $1.0499, the first close below $1.05 since early 2017, although this morning it has moved back up to $1.0514. Conversely the dollar index (+0.65%) continued its upward march, strengthening for the 19th time in the last 21 sessions, and closing at its strongest level since 2002. That comes as the latest reports indicate that a Russian oil embargo is moving closer, with Brent crude ending the day up +2.16% at $107.59/bbl after Dow Jones reported that Germany had dropped its opposition to an embargo, and this morning, Brent has risen further to $108.00/bbl. We also heard from President Biden, who requested $33bn from Congress for further assistance to Ukraine, including $20.4bn on security and military assistance, $8.5bn on economic assistance, and $3bn on humanitarian assistance. Overnight in Asia, equity markets are mostly trading higher following the strong performance on Wall Street, with tech stocks leading the way. The Hang Seng (+2.04%) has seen one of the strongest performances, far outpacing mainland Chinese indices including the Shanghai Composite (+0.37%) and the CSI 300 (-0.06%). That comes amidst persistent concerns over the country’s lockdowns, with Shanghai seeing an increase in Covid-19 cases for the first time in 6 days, and overnight we also heard from China’s Politburo, with CCTV reporting that they’re urging efforts to meet the economic growth targets. Elsewhere, the Kospi (+0.78%) is trading up while markets in Japan are closed for a holiday today. Back on the data front, another notable release yesterday came from the US GDP reading for Q1. On one level it’s a fairly backward-looking reading, but the print saw an unexpected contraction, with the economy shrinking at an annualised rate of -1.4%, marking the first quarterly contraction since the lockdowns of Q2 2020. That said, there are no indications this is going to derail the Fed from their path of rate hikes, with a 50bps move next week still fully priced in. In fact, there was a massive drag coming from the surprisingly large trade deficit, while underlying consumption was actually very robust, suggesting rates need to get even higher to slow demand, as we’ve been arguing. In turn, the amount of Fed hikes priced for the rest of the year moved up +2.2bps to 239bps, and this morning they’re up to 242bps, just shy of their closing high last Friday at 244bps. That led to a renewed flattening in the yield curve, and 2yr yields gained +2.6bps while 10yr yields fell -0.9bps. Despite the tepid headline nominal move, there was a big divergence in 10yr inflation breakevens and real yields. Breakevens gained +7.3bps to 2.98%, a few bps shy of their highest levels on record from last week. By contrast, real yields fell -8.2bps to -0.16%, taking them a further from positive territory ahead of next week’s FOMC where its also widely-anticipated they will announce the beginning of their QT program. To the day ahead now, and data releases include the flash CPI estimate for the Euro Area in April, as well as the first look at Q1 GDP for the Euro Area, Germany, France and Italy. Otherwise from the US, we’ll get March’s data on personal spending and personal income, the Q1 employment cost index, the MNI Chicago PMI for April, and the University of Michigan’s final consumer sentiment index for April. From central banks, we’ll hear from the ECB’s de Cos, and the Central Bank of Russia will be making its latest policy decision. Finally, earnings releases include ExxonMobil, Chevron, AbbVie, Bristol-Myers Squibb, Honeywell International, Charter Communications, Aon and NatWest. Tyler Durden Fri, 04/29/2022 - 07:33.....»»

Category: personnelSource: nytApr 29th, 2022