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H&R Block (HRB) Dips More Than Broader Markets: What You Should Know

H&R Block (HRB) closed at $44 in the latest trading session, marking a -1.74% move from the prior day. H&R Block (HRB) closed the most recent trading day at $44, moving -1.74% from the previous trading session. This change lagged the S&P 500's 0.84% loss on the day. At the same time, the Dow lost 0.36%, and the tech-heavy Nasdaq lost 0.18%.Coming into today, shares of the tax preparer had lost 3.62% in the past month. In that same time, the Consumer Discretionary sector lost 11.36%, while the S&P 500 lost 10.24%.Investors will be hoping for strength from H&R Block as it approaches its next earnings release. In that report, analysts expect H&R Block to post earnings of -$0.89 per share. This would mark a year-over-year decline of 14.1%. Meanwhile, our latest consensus estimate is calling for revenue of $204.98 million, up 6.41% from the prior-year quarter.For the full year, our Zacks Consensus Estimates are projecting earnings of $3.78 per share and revenue of $3.55 billion, which would represent changes of +7.69% and +2.56%, respectively, from the prior year.It is also important to note the recent changes to analyst estimates for H&R Block. These revisions typically reflect the latest short-term business trends, which can change frequently. As such, positive estimate revisions reflect analyst optimism about the company's business and profitability.Research indicates that these estimate revisions are directly correlated with near-term share price momentum. To benefit from this, we have developed the Zacks Rank, a proprietary model which takes these estimate changes into account and provides an actionable rating system.The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection remained stagnant. H&R Block currently has a Zacks Rank of #2 (Buy).Valuation is also important, so investors should note that H&R Block has a Forward P/E ratio of 11.85 right now. This represents a premium compared to its industry's average Forward P/E of 11.4.We can also see that HRB currently has a PEG ratio of 0.95. The PEG ratio is similar to the widely-used P/E ratio, but this metric also takes the company's expected earnings growth rate into account. HRB's industry had an average PEG ratio of 1.85 as of yesterday's close.The Consumer Services - Miscellaneous industry is part of the Consumer Discretionary sector. This industry currently has a Zacks Industry Rank of 144, which puts it in the bottom 43% of all 250+ industries.The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.Be sure to follow all of these stock-moving metrics, and many more, on Zacks.com. Just Released: Free Report Reveals Little-Known Strategies to Help Profit from the  $30 Trillion Metaverse Boom It's undeniable. The metaverse is gaining steam every day. Just follow the money. Google. Microsoft. Adobe. Nike. Facebook even rebranded itself as Meta because Mark Zuckerberg believes the metaverse is the next iteration of the internet. The inevitable result? Many investors will get rich as the metaverse evolves. What do they know that you don't? They’re aware of the companies best poised to grow as the metaverse does. And in a new FREE report, Zacks is revealing those stocks to you. This week, you can download, The Metaverse - What is it? And How to Profit with These 5 Pioneering Stocks. It reveals specific stocks set to skyrocket as this emerging technology develops and expands. Don't miss your chance to access it for free with no obligation.>>Show me how I could profit from the metaverse!Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report H&R Block, Inc. (HRB): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 22nd, 2022

Stocks Slide, Ugly Mood Returns As Traders Ask "Did Anything Change"

Stocks Slide, Ugly Mood Returns As Traders Ask 'Did Anything Change' The brief post-BOE euphoria has worn off, and risk-off sentiment returned to markets as concern about inflation and the global economy overshadowed the Bank of England’s desperate attempt to restore calm by restarting QE, exacerbated by more hawkish central bank talk and defiance by British PM Liz Truss's tax plan (which has been slammed from the IMF all the way to the White House). Treasuries resumed their slide with UK gilts, while US equity futures fell as European stocks extended a selloff that’s caused valuations to drop to their lowest since 2012. As of 730am, emini S&P futures slid 0.7% to 3704, recovering from losses as big as 1.5% earlier. The dollar rose and Treasuries resumed their slump as investors focused on expectations the Federal Reserve will continue to deliver aggressive interest-rate hikes. The pound snapped a two-day gain and UK gilt yields rose as Prime Minister Liz Truss defended a giant package of unfunded tax cuts that sent markets into turmoil. “Other than the dollar, there are not many assets that are trading constructively,” said Julia Raiskin, Asia-Pacific head of markets for Citigroup Inc. “The markets are very pessimistic. Investors are fairly on the sidelines.” In premarket trading, US-listed Chinese stocks drop in premarket trading, following in the footsteps of Hong Kong- listed peers as the Hang Seng Tech Index erased almost all gains since a March nadir. Alibaba (BABA US) -3%, Nio (NIO US) -2.9%, Baidu (BIDU US) -2.4%, Pinduoduo (PDD US) -2.6%, JD.com (JD US) -2.4%. Bank stocks also slumped after snapping a six-day losing streak the day earlier. Here are other notable premarket movers: Coinbase falls 2.5% in premarket trading after Wells Fargo starts coverage at underweight, with operating results set to remain under pressure. Bakkt (BKKT US) and Riot Blockchain (RIOT US) are both initiated at equal-weight, with Riot declining 3% in premarket trading. Altus Power (AMPS US) slumped 16% in premarket trading after the company’s secondary offering priced at $11.50 per share, below Wednesday’s record close of $14.23. First Solar (FSLR US) gained 1.3% in premarket trading after Evercore ISI analyst Sean Morgan raised the recommendation to outperform from inline, saying the company is poised to benefit from the Inflation Reduction Act. Apple (AAPL US) shares were down 2.6% in premarket trading, set to extend Wednesday’s decline, as BofA Global Research cut the recommendation on the stock to neutral from buy. European stocks bounced off session lows amid heightened risk-off mood. Euro Stoxx 50 slumped as much as 1.2%. Autos, retailers and real estate are the worst performing sectors as all slump. European miners rose after news that the London Metal Exchange is launching a discussion paper that marks the first step toward a potential ban on new supplies of Russian metal.  Porsche AG rose as much as 5.2% as its shares started trading in Frankfurt after parent Volkswagen AG set the final listing price for the sports-car maker at the upper limit of its offer range. Here are some other notable European movers: Accor shares jumped as much as 8.1%, before paring gains, after the French hospitality company raised FY22 Ebitda guidance to a level which analysts said was above consensus estimates. Rational rose as much as 16% after the German kitchen appliances manufacturer raised its sales and Ebit guidance, citing improvements in the supply chain picture. Capricorn Energy shares rose as much as 8.9% to 261p amid a proposed merger with NewMed Energy that’s expected to deliver total value to Capricorn shareholders of 271 pence per share. H&M shares dropped as much as 7.2%, heading for the lowest close since September 2004, after it reported 3Q results that missed estimates and highlighted “very negative” market conditions. Next fell as much as 10% after the UK high street retailer cut its FY guidance, citing the cost of living crisis and saying the devaluation of the pound is set to prolong inflationary pressures. Colruyt shares plunged 24%, the most intraday on record, after it said the consolidated net result for FY22/23, ex. one-offs, is expected to decrease considerably compared with last year. Ubisoft shares fell after the video-game company pushed back its Skull & Bones title to March 2023 from November, despite maintaining FY guidance. Analysts say the decision raises concern. Wacker Chemie shares dropped as much as 7.8% after Stifel cut its price target, saying lower silicone and polysilicon prices hit sentiment. Hornbach shares dropped as much as 7% after it published its latest 2Q report. The home improvement retailer posted a worse-than expected Ebit decline y/y, Warburg said. European auto stocks fell and were among the worst performing subgroups on the wider market, with Volkswagen and its parent Porsche Automobil Holding SE leading declines. European bond yields also rose as investors digested the latest inflation data and commentary from European Central Bank officials. Euro-area economic confidence dropped to the lowest since 2020. Investors are contending with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the BOE unveiling a £65 billion ($71 billion) plan to support government debt and authorities in Asia trying to prop up weakening currencies. “The central bank is in a very difficult position right now,” Julie Biel, Kayne Anderson Rudnick portfolio manager and senior research analyst, said of the BOE in an interview with Bloomberg TV. “Everyone has been a little bit backed into a corner in seeing the volatility and market reaction.” Former Bank of England Governor Mark Carney accused the UK government of “undercutting” the nation’s economic institutions, and said that its fiscal plans were to blame for the drop in the pound and bonds. Simon Wolfson, the boss of Next Plc and a Conservative peer, also appeared to blame the Tory government for a crash in the currency and a worsening outlook for UK inflation, which the company cited as it lowered guidance for sales and profits. Separately, the European Commission announced an eighth package of sanctions that would include a price cap on Russia’s oil exports as Russia vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after UN-condemned votes, putting the Kremlin on a fresh collision course with the US and its allies. Earlier in the session, Asian stocks pared earlier gains spurred by the Bank of England’s unlimited bond-buying plan, as sentiment again turned cautious with fears over a global recession. The MSCI Asia Pacific Index was up 0.2%, having earlier gained as much as 1.2%. Benchmarks in Australia and Japan outperformed, while South Korea’s market closed almost flat. Gauges in Hong Kong and China ended in the red with tech stocks sliding near the lowest since to a sector index was introduced in 2020. Hang Seng Tech Index Slides Toward Lowest Since 2020 Inception The key Asian equity benchmark slumped Wednesday to its lowest since April 2020 on concerns over the Federal Reserve’s ongoing rate hikes. While the the UK central bank’s intervention to avert a crash in the gilt market helped calm investor nerves briefly, few saw the rally as a signal for a full-fledged rebound.  “We remain very cautious on the markets and would exercise a degree of patience,” Kerry Craig, a global market strategist at JPMorgan Asset Management, said in an interview with Bloomberg TV. Central bank moves, inflation and “the looming risk of recession” need to be monitored, he said. Down almost 12% in September, the MSCI Asian benchmark is set to post its worst monthly performance since the pandemic-triggered crash in March 2020. An index of Asia Pacific stocks excluding Japan is on course for its fifth-straight quarterly loss, its longest losing streak in 21 years. Japanese equities rose, rebounding along with global peers as investors assessed the Bank of England’s move to buy government bonds. More than 1,100 Topix stocks traded without rights to the next dividend. The Topix rose 0.7% to close at 1,868.80, while the Nikkei advanced 0.9% to 26,422.05. Out of 2,169 stocks in the Topix, 1,854 rose and 271 fell, while 44 were unchanged. “Though there is still a strong uncertainty in the US and UK markets over the rise in long-term interest rates, for now there is a sense of relief in the markets as government bond yields in the UK settled down due to the unlimited purchase plan,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management. In Australia, the S&P/ASX 200 index rose 1.4% to close at 6,555.00, boosted by gains in mining shares and banks.  In New Zealand, the S&P/NZX 50 index rose 0.7% to 11,200.04 Stocks in India declined for a seventh straight day in the longest losing streak since February, tracking a selloff across global markets amid worries over possible recession.  The S&P BSE Sensex gave up an advance of as much as 1% to end 0.3% lower at 56,409.96 in Mumbai. The NSE Nifty 50 Index slipped 0.2% as both indexes posted their longest stretch of declines in seven months. The key gauges have dropped more than 5% each this month and are on track to record their worst monthly performance since the pandemic led crash of March 2020. Ten of the 19 sector sub-indexes compiled by BSE Ltd. declined Thursday led by the utilities gauge which has lost 11% for the month, making it the worst sectoral performer. In FX, the Bloomberg Dollar Spot Index first rose then fell, as Treasuries slumped to unwind some of the previous day’s swift rally. The euro fell as much as 1% to $0.9636, before paring losses. It’s significantly more costly to hedge against euro price swings compared to a week ago, as traders bet on wider ranges with risks skewed to the downside. The pound erased losses amid month-end flows, after earlier falling by as much 1.2% to $1.0763. UK bonds extended losses after Prime Minister Liz Truss defended her new government’s giant fiscal package of unfunded tax cuts, which have tipped markets into chaos. Commodity currencies led declines among G-10 peers.  Onshore yuan eked out the first gain in nine days following a stern PBOC warning against “one-sided” speculation, but offshore yuan weakened 0.4% In rates, Treasuries pared Wednesday’s gains with yields cheaper by up to 11bp across the 5-year tenor into early US session, with the belly’s underperformance helped by a large block sale in 5-year note futures. Treasury 10-year yields near highs of the day at around 3.83%, outperforming bunds and gilts by 3.5bp and 4.5bp in the sector; belly-led losses cheapens 2s5s30s Treasuries fly by 7bp on the day. Moves follow a more aggressive bear flattening move in gilts, wit front-end yields are cheaper by 20bp on the day. US session focus on GDP and Fed speakers throughout the day.   Bunds, Italian bonds dropped and money markets raised ECB tightening bets after German state CPIs rose in September while euro-area economic confidence dropped to 93.7 in September, the lowest since 2020. UK 10-year bonds decline after Truss doubled down on her economic package; In commodities, Brent rebounded from earlier lows, to trade near $89.50 following reports of OPEC+ considering production cuts. Spot gold falls roughly $12 to trade near $1,648/oz. Bitcoin is under modest pressure but lies within narrow ranges of less than USD 500 at present and well within recent parameters as such. Looking to the day ahead now, and data releases include German CPI for September, Italian PPI for August, and UK mortgage approvals for August (the calm before the storm). We’ll also get the weekly initial jobless claims from the US, as well as the third estimate of Q2 GDP. From central banks, we’ll also hear from an array of speakers, including ECB Vice President de Guindos, and the ECB’s Simkus, Panetta, Centeno, Villeroy, Knot, Elderson, Rehn, Vasle, Kazaks, Muller and Lane. In addition, there’ll be remarks from the Fed’s Bullard, Mester and Daly, as well as BoE Deputy Governor Ramsden and the BoE’s Tenreyro. Market Snapshot S&P 500 futures down 1.1% to 3,692.25 MXAP up 0.2% to 139.97 MXAPJ little changed at 453.71 Nikkei up 0.9% to 26,422.05 Topix up 0.7% to 1,868.80 Hang Seng Index down 0.5% to 17,165.87 Shanghai Composite down 0.1% to 3,041.21 Sensex down 0.3% to 56,446.56 Australia S&P/ASX 200 up 1.4% to 6,554.97 Kospi little changed at 2,170.93 STOXX Europe 600 down 1.6% to 383.23 German 10Y yield little changed at 2.23% Euro down 0.9% to $0.9650 Brent Futures down 1.2% to $88.23/bbl Brent Futures down 1.2% to $88.23/bbl Gold spot down 0.9% to $1,644.68 U.S. Dollar Index up 0.92% to 113.64 Top Overnight News from Bloomberg Britain is in a self-inflicted financial crisis that threatens to accelerate the economy’s dive into recession -- and the country’s new prime minister is coming under intense pressure to blink The ECB should opt for a “big” increase in interest rates in October, according to Governing Council member Martins Kazaks, who said in an interview that subsequent hikes are likely to be smaller. His Baltic counterparts Gediminas Simkus and Madis Muller also indicated they’d back significant moves, while Mario Centeno of Portugal called for a “measured and balanced” approach The ECB must ensure pay pressures don’t get out of control in its efforts to keep expectations stable, according to Governing Council member Olli Rehn The Riksbank believes it is very important that monetary policy continues to act for inflation to fall back and stabilize at the target of 2% within a reasonable time perspective, the Swedish central bank says in minutes from its latest monetary policy meeting Japan’s capital markets suffered the biggest foreign outflow in three months last week as growing fears of a global downturn fueled a search for liquidity China’s economy stabilized in the current quarter, and the final three months of the year will be key to the nation’s economic recovery, Premier Li Keqiang said As doubts grow over whether Xi Jinping still prioritizes expanding China’s economy over other goals, he’s tipped to appoint a new economic adviser who’s vowed to put growth first OPEC+ has begun discussions about making an oil-output cut when it meets next week, a delegate said A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks traded higher as the region took impetus from the rally on Wall St where risk sentiment was buoyed and yields retreated following the BoE's announcement to resume Gilt purchases. ASX 200 outperformed in which the commodity-related sectors led the broad advances across industries following the recent upside in energy and metal prices, while firm monthly CPI data did little to dent risk sentiment. Nikkei 225 was also positive but with gains initially capped as more than half of the stocks traded ex-dividend. Hang Seng and Shanghai Comp were also firmer with the Hong Kong benchmark spearheaded by tech and energy stocks, while the mainland also digested reports that the PBoC is setting up a more than CNY 200bln re-lending facility quota for equipment upgrades which aims to expand market demand in the manufacturing sector. Top Asian News PBoC injected CNY 105bln via 7-day reverse repos with the rate kept at 2.00% and injects CNY 77bln via 14-day reverse repos with the rate kept at 2.15% for a CNY 180bln net injection. Chinese President Xi told Japanese PM Kishida that they attach great importance to the development of China-Japan relations and he is willing to work with Kishida to build relations, while Kishida told Xi that bilateral relations are currently facing many issues and challenges but he hopes to build constructive and stable relations to boost peace and prosperity, in messages to mark 50 years of diplomatic relations. Hong Kong’s Worst Trading Debut in 2022 Sends EV Maker Down 34% US’s Harris Goes to DMZ Hours After North Korea Missile Launch Japan’s First Bond to Help Ocean Planned by Major Seafood Firm Best HK IPO Quarter in Year Ends With Disaster Debut: ECM Watch Yuan Bears Bet China Is Powerless to Fight the Mighty Dollar China Vows to Speed Up Delayed Homes With Special Loans European stocks are experiencing another bleak session thus far as the overnight gains in futures dissipated heading into the cash open. Sectors are in a sea of red with no clear theme. Autos kicked off the day as the outperformer as the Porsche AG IPO occurred at a premium to the guided price of EUR 82.50/shr. US equity futures are also trading with losses across the board, with relatively broad-based downside of 1.3-1.5% seen across the front-month contracts. Top European News UK PM Truss says the fiscal statement (i.e. mini-Budget) is the correct plan. UK Chief Secretary to the Treasury says the growth plan will get the economy growing, one of the reasons growth plans included tax cuts was to alleviate the household burden. BoE intervention has had the desired effect. Disagrees with the IMF's remarks. US President Biden's administration was reportedly alarmed by the market turmoil caused by the UK's economic program and is seeking ways to encourage PM Truss's team to dial back its tax cuts, according to Bloomberg. France is reportedly considering proposals for up to two hour power cuts for parts of the country on a rotating basis, via Reuters sources; additionally, telecom names have highlighted power issues with the German and Swedish gov'ts. German Network Regulator says recent gas consumption by households is too high to remain sustainable, via Reuters; gas savings of 20% are required to avoid an emergency. German gov't could make a "low three-digit billion amount" available for the gas price break, discussion of EUR 150-200bln, via Handelsblatt citing gov't circles; will reportedly be announced today. Europe Gas Eases With Traders Weighing Impact of Pipeline Blasts Rational Jumps After Boosting Sales Guidance Above Consensus Truss Says UK Tax Cuts Are the ‘Right Plan’ Amid Market Rout German Economy Seen Shrinking Next Year Due to Energy Crisis Profligate Government to Blame for Pound Drop, Says Wolfson FX USD has regained some poise after a mid-week pullback; though, the DXY remains off earlier 113.79 highs and thus shy of the YTD/WTD peak at 114.78. Yuan has derived pronounced support from Reuters reports that China's state banks have been told to stock up for intervention offshore, sending USD/CNH to 7.1437 from circa. 7.20 pre-release. Cable managed to 'recover' to a test of 1.09 but failed to breach the level with multiple BoE speakers in focus later. EUR/USD moving at the whim of broader USD action and failing to glean any real traction from multiple speakers and German state/Spanish mainland CPI data. Fixed Income Core benchmarks are pressured across the board in a modest pullback of the pronounced BoE-induced 'recovery' seen yesterday, with numerous speakers due and the second BoE operation. Specifically, Bund lies towards the bottom of a 200 tick range while Gilts are holding onto the 95.00 handle with the associated yield lifting further above 4.0%. Stateside, USTs are similarly at the lower-end of parameters ahead of data and numerous speakers while the curve flattens further Central Banks ECB's Simkus says his choice of hike for October is 75bp, says 50bp would be the minimum, via Bloomberg. A 100bp hike would be too much at this point. ECB's Centeno says decisions must be measured and balanced, still far from the neutral rate, via Bloomberg. ECB's Rehn says prospect of recession in Euro Area is likely. ECB's Vasle says current hike pace is "appropriate" response to inflation; expects to raise rates at the next several meetings. ECB's de Cos says so far there is no clear evidence of de-anchoring of inflation expectations. Based on current models, median terminal rate value is at 2.25-2.5% (significant uncertainty). ECB's Kazaks says 75bp will likely be appropriate for October, via Bloomberg. PBoC says they are to add more loans to ensure property delivery when required, via Reuters. China's state banks have reportedly been told to stock up for Yuan intervention offshore, according to Reuters sources, in a bid to defend the weakening Yuan.. State banks were asked to asked offshore branches, such as those in Hong Kong, New York and London, to review holding of the CNH to ensure dollar reserves are ready to be deployed. RBI likely selling USD via state-run banks around 81.92-81.93 levels, according to traders cited by Reuters NBH hikes one-week deposit rate by 125bp, to 13.00%. Turkish President Erdogan says interest rates need to come down further; CBRT needs to lower rates at the next meeting, via Reuters. Geopolitics Japanese Chief Cabinet Secretary Matsuno said North Korea's multiple missile launches are unacceptable and Japan will maintain close contact with allies including the US to monitor and deal with North Korea, according to Reuters. Turkish President Erdogan said Turkey will increase its military presence in northern Cyprus, according to Sky News Arabia. EU Official expects an agreement on the next Russian sanctions package, or at least major parts of this, before the EU Summit next week. Expects the discussion to focus on referendums, possible annexation, nuclear threat and Nord Stream. Russian State Duma representatives have received invitations to the Kremlin for Friday, September 30th at 13:00BST, via Ria. Russian Kremlin says the ceremony on incorporating new territories will occur on Friday, September 30th - President Putin will speak. US Event Calendar 08:30: Sept. Initial Jobless Claims, est. 215,000, prior 213,000 08:30: Sept. Continuing Claims, est. 1.39m, prior 1.38m 08:30: 2Q GDP Annualized QoQ, est. -0.6%, prior -0.6% 08:30: 2Q PCE Core QoQ, est. 4.4%, prior 4.4% 08:30: 2Q Personal Consumption, est. 1.5%, prior 1.5% 08:30: 2Q GDP Price Index, est. 8.9%, prior 8.9% Central Bank Speakers 09:30: Fed’s Bullard Discusses Economic Outlook 13:00: Fed’s Mester and ECB’s Lane Take Part in Policy Panel 16:45: Fed’s Mary Daly Speaks at Boise State University DB's Jim Reid concludes the overnight wrap How could you have earned a 42% return yesterday from a AA-rated investment? Simple. At anytime between 8-11am all you had to do was buy 40yr Gilts before the BoE effectively restarted QE only days before QT was suppose to start (it’s been postponed until October 31st - ironically Halloween). The buying operation is aimed at restoring liquidity to a broken long end market and is temporary but it’s another stunning development to a stunning year. I’ve always felt that this debt supercycle would end up with central banks doing QE even if interest rates were positive. The reason being is that the economy can be growing and seeing inflation at a point when investors baulk at funding all the debt. I appreciate this BoE operation is slightly different and I would have never have guessed the series of events that got us here but it might not be the last time a central bank buys government bonds when not at the zero bound given how much debt there is and how much there's likely to be going forward. It's becoming clearer the extent to which Tuesday's rout at the long-end was exacerbated by collateral calls on LDIs (liability driven investments) that pension funds have typically used in some size in recent years. With these swaps moving so far out of the money, the risk was that investors would have to sell liquid assets to meet margin calls. If they didn't have this (which a lot don't), then obviously there would have been huge liquidity events. To understand the fears that were around over the last 48 hours, Sky News’ economics editor Ed Conway said yesterday that “I am told there were a swathe of pension funds that … would have essentially collapsed by this afternoon”. Whether that's true, we'll never know but it shows the level of fear. Overall, this isn't quite monetising debt in the purest sense but at the end of the day we have seen fresh central bank buying of debt after unfunded tax cuts pushed up yields dramatically. Despite the BoE’s insistence that these are targeted, temporary purchases designed to ease market dysfunction, global pricing reacted as if they were launching a new QE program to ease financial conditions. Global equities increased, with the S&P 500 (+1.97%) breaking a run of 6 consecutive losses and global bond yields fell across the curve. In yield terms, 30yr gilts had been trading above 5% prior to the BoE’s announcement, but afterwards they staged a stunning turnaround to fall by an astonishing -105.9bps yesterday. That was easily the largest decline in the 30 years of available Bloomberg data, with the next two closest being a -39.7bps and -30.5bps decline in 1997 and 2009, respectively. It was also the largest absolute daily yield move in the 30yr, with the next two closest being Monday and Tuesday’s sell-offs. The decline takes 30yrs back to 3.92%, which is still above the c.3.5% level prior to the fiscal announcement last Friday but more within normal market reaction levels. Yields on 10yr gilts were down by a smaller -49.8bps, although that reflected the BoE only purchasing gilts with a residual maturity of more than 20 years. Sterling also managed to strengthen for a second day running, with a +1.45% gain against the US Dollar. But that overall performance hides some incredible intraday swings, with sterling moving sharply higher immediately after the BoE’s announcement before tumbling by -2.74% over the subsequent hour and a half before paring back those losses once again. It is down -0.75% in Asia as I type. Remember that markets are still pricing in around +150bps worth of hikes by the next BoE meeting on November 3, and implied sterling-dollar volatility for the next month remains at levels we’ve only previously seen around the GFC, the Covid pandemic and Brexit in the 21st century, so we certainly haven’t heard the end of the UK’s turmoil just yet. That intervention from the BoE helped sovereign bonds across the world. Indeed, yields on 10yr US Treasuries had been trading just above 4% immediately prior to the intervention, before reversing course to close -21.0bps lower on the day at 3.71%, which is their biggest move lower since the wild intraday swings we had in March 2020 when the Fed was stepping in to buy Treasuries and MBS in unlimited size; sound familiar? Those gains came as investors moved to downgrade the likelihood that the Fed would be pursuing aggressive policy into next year, with the rate priced in for December 2023 coming down by -23.3bps. This morning in Asia, yields on 10yr USTs (+3.6bps) have edged higher again to 3.77% as we type. In terms of the Fed, we did hear from Atlanta Fed President Bostic, who said he favoured another 125bps of hikes this year, but Chair Powell didn’t comment on policy in an appearance at a Community Banking Research Conference. Over at the ECB, we heard from an array of speakers yesterday, including President Lagarde who said that the ECB would “continue hiking rates in the next several meetings”. Multiple speakers separately endorsed another 75bps hike next month as well, including Latvia’s Kazaks who said that “I would side with 75 basis points”, Austria’s Holzmann who said that “I think 75 would be a good guess”, and Slovakia’s Kazimir who said that 75bps was “a good candidate to continue and keep tightening.” However, sovereign bonds still rallied across the continent, with yields on 10yr bunds (-11.1bps), OATs (-11.8bps) and BTPs (-22.2bps) all down significantly. When it came to equities, yesterday also finally brought a reprieve from the heavy selling over recent days, which had taken a number of major indices to their lowest levels since late-2020. As mentioned at the top, the S&P 500 (+1.97%) ended its run of 6 consecutive declines with a strong advance that took the index back into positive territory for the week. Despite the rally, the Vix managed to finish above 30 again, as it has every day this week. Indeed, the Vix has finished above 30 on nearly 19% of trading days this year, which is the fourth most in the last 20 years, behind just the crisis years of 2008, 2009, and 2020. The count hides how skewed the distribution is as in ten of those years, the Vix never once finished the trading day above 30. Yesterday's equity rally was less extreme in Europe, with the STOXX 600 (+0.30%), the DAX (+0.36%) and the FTSE 100 (+0.30%) seeing modest gains. In Asia, the Hang Seng (+1.05%) is leading gains, rebounding from recent steep losses with the Kospi (+1.01%), the CSI (+0.50%), the Shanghai Composite (+0.24%) and the Nikkei (+0.25%) are trading higher. Stock futures in the US are pointing to a slightly more negative start though with contracts on the S&P 500 (-0.11%) and NASDAQ 100 (-0.22%) both in the red. As we go to print, the Swedish media is reporting that coast guards have found a fourth leak on the Nord Stream pipeline. What worries me is that if this can be done to this pipeline what stops it being done to a fully working pipeline. Elsewhere, the People’s Bank of China (PBOC) stepped up its efforts to limit FX weakness by warning banks against betting on the yuan, after its rapid decline against the US dollar this week which pushed the Chinese currency to as high as 7.25 yesterday. Indeed, the US dollar index (+0.59%) at 113.27 is trending upwards this morning, after hitting a fresh two-decade peak yesterday before pulling back. There wasn’t much in the way of data yesterday, although US pending home sales for August were down -2.0% (vs. -1.5% expected). With the exception of April 2020 during the lockdowns, that takes them to their lowest level in over a decade. In the meantime, the US goods trade deficit for August narrowed to $87.3bn (vs. $89.0bn expected), which is its smallest level since October 2021. To the day ahead now, and data releases include German CPI for September, Italian PPI for August, and UK mortgage approvals for August (the calm before the storm). We’ll also get the weekly initial jobless claims from the US, as well as the third estimate of Q2 GDP. From central banks, we’ll also hear from an array of speakers, including ECB Vice President de Guindos, and the ECB’s Simkus, Panetta, Centeno, Villeroy, Knot, Elderson, Rehn, Vasle, Kazaks, Muller and Lane. In addition, there’ll be remarks from the Fed’s Bullard, Mester and Daly, as well as BoE Deputy Governor Ramsden and the BoE’s Tenreyro. Tyler Durden Thu, 09/29/2022 - 08:08.....»»

Category: dealsSource: nytSep 29th, 2022

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

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

Category: personnelSource: nytSep 28th, 2022

Cloudflare (NET) Releases Data Localization Suite in Asia

Cloudflare (NET) launches Data Localization Suite in Australia, India and Japan, to aid companies based in these countries to service their traffic locally, making data control easy and compliant. Cloudflare NET, one of the world’s largest website security companies, recently launched the Cloudflare Data Localization Suite (“DLS”) in three new Asian countries — Australia, India and Japan — to aid domestic as well as international companies doing business in these countries comply with their data localization obligations.With a granular approach to data localization, Cloudflare enables companies present in these nations to service their traffic locally while allowing them to benefit from features like speed, security and scalability.The Cloudflare DLS will make it easy for businesses to set rules and controls at the Internet edge, adhere to compliance regulations, and keep data locally stored and protected. Any industry-based business of any size can choose the data center locations and build applications that combine global performance with local compliance regulations. Cloudflare, Inc. Price and Consensus Cloudflare, Inc. price-consensus-chart | Cloudflare, Inc. QuoteCloudflare has been benefiting from solid demand for security solutions, which have become imperative due to aggravated cyberattacks, work and learn from home policies, and a zero-trust approach. With its Area 1 Security buyout in April, Cloudflare intends to provide organizations with a convenient way to block phishing, malware, business email compromise and other advanced threats. This email security will be delivered as part of an integrated, zero-trust approach to secure end applications of enterprise customers.In March, Cloudflare expanded its partnership with the Sunnyvale, CA-based CrowdStrike CRWD, a leader in next-generation endpoint protection, threat intelligence and cyberattack response services. The website security company integrated its Zero Trust platform with CrowdStrike’s Falcon Zero Trust Assessment platform to provide more powerful Zero Trust solutions to the joint customers of both companies.Combining insights from the company's global network with CrowdStrike’s CrowdXDR Alliance platform, Cloudflare helps mutual customers identify and stop cyberattacks. In case of an attack, CrowdStrike helps get NET customers’ web properties and networks back online.Previously, in the same month, the company launched Cloudflare Application Programming Interfaces ("API") Gateway to deliver simple, fast and effective protection to all of its businesses while controlling their APIs. The new release leverages Cloudflare’s Machine Learning engine to analyze API traffic and offers complete visibility by scanning the entire network and listing API endpoints automatically.Cloudflare was recognized under the Leaders category in the IDC MarketScape: Worldwide Commercial CDN 2022 Vendor Assessment, a premier vendor assessment tool providing in-depth quantitative and qualitative technology market assessments of information and communications vendors for a wide range of technology markets.Zacks Rank & Stocks to ConsiderCurrently, Cloudflare carries a Zacks Rank #4 (Sell) while CrowdStrike carries a Zacks Rank #3 (Hold). Shares of NET and CRWD have lost 55.7% and 36.7%, respectively, in the past year.Some better-ranked stocks from the broader Computer and Technology sector are Clearfield CLFD and Silicon Laboratories SLAB, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Clearfield's fourth-quarter fiscal 2022 earnings has been revised 10 cents north to 80 cents per share over the past 60 days. For fiscal 2022, earnings estimates have moved 36 cents north to $3.13 per share in the past 60 days.Clearfield’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 33.9%. Shares of CLFD have improved 97.3% in the past year.The Zacks Consensus Estimate for Silicon Laboratories’ third-quarter 2022 earnings has increased 36% to $1.13 per share over the past 60 days. For 2022, earnings estimates have moved 20.5% up to $4.41 per share in the past 60 days.Silicon Laboratories’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 63.6%. Shares of SLAB have declined 15.9% in the past year. 5 Stocks Set to Double Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Silicon Laboratories, Inc. (SLAB): Free Stock Analysis Report Clearfield, Inc. (CLFD): Free Stock Analysis Report CrowdStrike (CRWD): Free Stock Analysis Report Cloudflare, Inc. (NET): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 26th, 2022

3 Promising Picks from the Slowing Semiconductor Industry

While secular growth prospects for the Semiconductor - General industry remain bright, the deteriorating macroeconomic outlook is exacerbating concerns related to supply-demand imbalance in 2022. STM, ASYS and TXN look relatively safer bets at this point. Companies in the Semiconductor – General industry are at the forefront of the ongoing technological revolution based on HPC, AI, automated driving, IoT and so forth. These semiconductors also enable the cloud to function and help analyze the data into actionable insights that can be used by companies to operate more efficiently.  The pandemic led companies to ramp up technology investments in order to stay operational when it was unsafe for us to go to work or meet people. But since this meant that a lot of infrastructure was built out in advance, demand was expected to slow down in the near future. But a possible recession in 2023 is further weakening the outlook. Longer-term trends continue to favor digitization, cloud, AI, etc., which will drive strong demand for semiconductors. This is not the best place to invest in right now, but STMicroelectronics. Amtech Systems and Texas Instruments look relatively attractive.About the IndustryThe companies grouped under the Semiconductor – General category produce a broad range of semiconductor devices, both integrated and discrete, like microprocessors, graphics processors, embedded processors, chipsets, motherboards, wireless and wired connectivity products, DLPs and analog, serving multiple end markets. It includes companies like NVIDIA, Texas Instruments, Intel and STMicroelectronics.According to the latest data from the Semiconductor Industry Association (SIA), global semiconductor sales growth in the second quarter of 2022 decelerated to 13.3%, reaching $152.5 billion. 2021 sales were up 26.2% to the highest-ever annual total. The Americas were the strongest region, growing 29%. All regions were down month-to-month. The 2022 projection of 8.8% growth was not revised. Gartner forecasts 7.4% growth this year.Major Themes Shaping the IndustryThe long-term outlook for the industry remains robust because of its being on the building-block side of technology, which makes it crucial for the proliferation of the Internet and the ongoing digitization of every aspect of life. The short-term outlook appears bleak however. The pandemic has accelerated the move toward digitization, but it has created a lot of imbalances in demand and supply. The smartphone market for example (a primary application of semiconductors) is seeing issues on both the demand and the supply sides. Demand is affected by inflation while supply is affected by not only inflation but also geo-political tensions, China shutdowns and ongoing supply chain constraints, according to IDC. This has led the research firm to lower its 2022 forecast to a 3.5% decline (previous 1.6% growth), followed by growth of 5% in 2023. The other major chip consumer is the PC market, where the consumer and education segments had been slowing down following two years of very strong growth. The current macroeconomic weakness is also weakening the outlook for enterprise demand. As a result, IDC expects a 12.8% decline this year followed by a 2.6% decline in 2023 before growth returns in 2024. The good news is that some of the weakness in these traditional markets is being made good by strength in emerging areas like AI and machine learning, IoT, and automotive. ReportLinker expects the AI chip market to grow at a CAGR of 29.9% between 2022 and 2030. Driven by Internet connectivity across the developed and developing worlds and supportive technology such as sensor networks and AI adoption, the IoT market is also expected to grow steadily over the next few years. Future Market Insights expects the market to grow at a 5.3% CAGR between 2022 and 2032. Mordor Intelligence expects a stronger 14.7% CAGR between 2022 and 2027. Automotive electronics is another area of evolving needs with increasing electronics (including ADAS), safety enhancements and transition to electrified power trains being important drivers. Grand View Research estimates a 10.7% CAGR through 2025, which it attributes to awareness regarding energy-efficient lighting systems, as well as increasing sales of luxury vehicles that come fitted with navigation and infotainment systems. Automation and robotics, with increasing adoption across industrial operations, are other areas of growth. These strong end markets will drive continued demand for semiconductor components for years to come. As the growth potential in emerging markets grows, regulatory (and/or political) issues in China and the U.S., can play an increasingly important role. The government’s strong stance against prime trading partner China has cast a shadow over the space. Semiconductor companies in particular stand to benefit from a truce between the U.S. and China as the Chinese government’s drive to build its own industry requires collaborations with leading semiconductor players. Moreover, commercial sales to China would help fund costly R&D in the U.S. Such a truce seems increasingly unlikely because of ongoing geopolitics. The government is also concerned about IP protection and is trying to delay as far as possible, China’s own technological maturity. Be that as it may, the $52 billion infusion from the CHIPS Act (when adopted) will be a big boost to the domestic semiconductor market. Because end devices have to be priced lower to reach more people, the pressure on companies to bring down cost remains. But although companies still find it advantageous to move operations to places where labor may be cheaper or where the proximity to manufacturing facilities can lower transportation and other cost, governments across the world are waking up to the strategic value of onshore chip production. The tensions with China have also increased the importance of diverse supply chains. Industry consolidation should continue however, as larger players add expertise and capacity through acquisitions. There’s also likely to be close collaboration with device makers, facilitating quicker consumption and better inventory management.   Zacks Industry Rank Indicates Deteriorating ProspectsThe Zacks Semiconductor-General Industry is a stock group within the broader Zacks Computer and Technology Sector. It carries a Zacks Industry Rank #179, which places it in the bottom 28% of more than 250 Zacks industries.The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates that near-term prospects aren’t too bright. Our research shows that the bottom 50% of the Zacks-ranked industries underperforms the top 50% by a factor of 1:2.An industry’s positioning in the top 50% of Zacks-ranked industries is normally because the earnings outlook for the constituent companies in aggregate is encouraging. The opposite is true for stocks in the bottom 50% of industries. In this case, the aggregate earnings estimate for 2022 is down 25.9% from the year-ago level. The aggregate earnings estimate for 2023 is down 34.2% from last year. The numbers have deteriorated every month since February.Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.Industry Leads on Stock Market PerformanceTracking the performance of the Zacks Semiconductor – General Industry over the past year shows that the industry has traded higher than both the broader Zacks Computer and Technology Sector and the S&P 500 index up to December 2021. But starting this year, its performance has been choppy and other than the pop in March, it has steadily declined. As of now, it trails both the industry and the S&P 500.The industry lost 36.3% over the past year compared to the 31.5% loss of the broader sector and the 13.6% loss of the S&P 500 index.One-Year Price PerformanceImage Source: Zacks Investment ResearchIndustry's Current ValuationOn the basis of forward 12-month price-to-earnings (P/E) ratio, which is a commonly used multiple for valuing semiconductor companies, we see that the industry is currently trading at 21.1X, which is its below its median level of 25.5X over the past year. However, the S&P 500 trades at 16.6X while the sector trades at 19.9X. Therefore, the industry appears overvalued in both these comparisons.The five-year story is the same. During this time, the industry has traded as high as 34.34X, as low as 12.86X and at the median of 19.26X.Forward 12 Month Price-to-Earnings (P/E) RatioImage Source: Zacks Investment Research3 Stocks Worth Considering STMicroelectronics N.V. (STM): The company designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems.STMicroelectronics is seeing strong demand across all segments although the auto market appears to be the strongest.  Favorable mix and strong pricing remain positive for profitability, offsetting the impact of rising input costs. Given its exposure to the automotive market, the replenishment of inventories across the automotive supply chain and the ongoing electrification and digitalization are positives, despite the lower-than-expected number of cars produced.   Industrial, the other significant end market for STMicroelectronics is currently being driven by factory automation, power and energy applications, as well as building and home control. Industrial electrification and digitalization are the main trends accelerating the increase in semiconductor content.STM beat the Zacks Consensus Estimate by 13.6% in the last quarter. In the last 60 days, the current year EPS estimate of this Zacks Rank #1 (Strong Buy) stock increased 55 cents (16.5%).The shares of the company are down 20.6% over the past year, sinking along with all other growth, and particularly, technology stocks.Price & Consensus: STMImage Source: Zacks Investment ResearchAmtech Systems, Inc. (ASYS): Amtech Systems manufactures and sells capital equipment and related consumables for use in fabricating silicon carbide (SiC), silicon power devices, analog and discrete devices, electronic assemblies and light-emitting diodes (LEDs) worldwide.While the near-term outlook remains uncertain and China-related shutdowns led to a significant revenue decline in the last quarter, its leading position in consumables positions it for strong growth in the long term.In the last quarter, Amtech posted a positive surprise of 51.5%. In the last 60 days, the Zacks Consensus Estimate for 2022 has gone from a loss of 32 cents to a profit of 5 cents.The Zacks Rank #1 stock is down 16.2% in the past year.Price & Consensus: ASYSImage Source: Zacks Investment Research Texas Instruments, Inc (TXN): Texas Instruments is an original equipment manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits.Texas Instruments has significant exposure to the industrial and automotive markets, where the semiconductor shortage is driving strong demand and pricing strength. But like STM, the company also sees some impact from China’s pandemic-related shutdowns. TI is known for operating a flexible manufacturing model (including its 300mm facilities) that includes both internal capabilities and external sources, thus making it a bit of a defensive play in downcycles. But the secular growth prospects in its served markets coupled with the current chip shortage is driving the company to increase capacity. Those extra costs notwithstanding, Texas Instruments continues to generate solid cash flows. It also returns cash to investors through regular share repurchases and dividends. This is one of the steadiest performing companies and continues to deliver, quarter upon quarter.In the last quarter, Texas Instruments generated earnings that topped the Zacks Consensus Estimate by 18.4%. The Zacks Consensus Estimate for 2022 is up 57 cents (6.5%) in the last 60 days.Shares of this Zacks Rank #3 company are down 14.5% over the past year, mainly due to the broad market weakness.Price & Consensus: TXNImage Source: Zacks Investment Research This Little-Known Semiconductor Stock Could Be Your Portfolio’s Hedge Against Inflation Everyone uses semiconductors. But only a small number of people know what they are and what they do. If you use a smartphone, computer, microwave, digital camera or refrigerator (and that’s just the tip of the iceberg), you have a need for semiconductors. That’s why their importance can’t be overstated and their disruption in the supply chain has such a global effect. But every cloud has a silver lining. Shockwaves to the international supply chain from the global pandemic have unearthed a tremendous opportunity for investors. And today, Zacks' leading stock strategist is revealing the one semiconductor stock that stands to gain the most in a new FREE report. It's yours at no cost and with no obligation.>>Yes, I Want to Help Protect My Portfolio During the RecessionWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Texas Instruments Incorporated (TXN): Free Stock Analysis Report STMicroelectronics N.V. (STM): Free Stock Analysis Report Amtech Systems, Inc. (ASYS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 21st, 2022

Change Healthcare"s stock is up after judge rules in favor of UnitedHealth acquisition

Shares of Change Healthcare Inc. jumped 7.0% in premarket trading on Tuesday, the day after a federal judge ruled in favor of UnitedHealth Group's acquisition of the company, according to media reports. The Justice Department had tried to block the deal. Change's stock is up 19.1% this year, while the broader S&P 500 is down 18.9%. Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news......»»

Category: topSource: marketwatchSep 20th, 2022

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

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

Category: dealsSource: nytSep 7th, 2022

Futures Bounce, Kashkari Unhappy As Post-Jackson Hole Rout Fizzles

Futures Bounce, Kashkari Unhappy As Post-Jackson Hole Rout Fizzles After revealing that he was so "happy" he danced a jig when stocks tumbled after Powell's J-Hole speech sparked a market rout on Friday, we can only imagine that Neel Kashkari's face looked like this when he saw the market update this morning... When he turned on his bbg this morning pic.twitter.com/h6QqIcfgSV — zerohedge (@zerohedge) August 30, 2022 ... because after two days of selling, risk assets are sharply higher this morning, with S&P futures rising 0.8% and Nasdaq 100 futs rising 1.1%, as investor sentiment stabilized, while 10Y Treasury yields slid 5bps, the BBG dollar index lost 0.3%, and oil tumbled, 4% reversing most of Monday's gains. In premarket trading, cryptocurrency-tied stocks climbed as Bitcoin rose: Marathon Digital and Coinbase lead cryptocurrency-exposed stocks higher in premarket trading as Bitcoin trades in a narrow band around $20,000 for the fifth consecutive session: Marathon Digital +5.7%, Coinbase +3.7%, Riot Blockchain +4.9%; Twitter slipped after Elon Musk cited recent accusations from a whistle-blower as a new reason to terminate the $44 billion takeover. Here are some other notable premarket movers: Bed Bath & Beyond (BBBY US) shares jump as much as 16% in premarket trading, putting the home products retailer on track for a third session of straight gains after Monday’s 25% surge. Baidu (BIDU US) shares rise as much as 4.5% in premarket trading, leading China stocks higher, after the internet search company’s profit beat analyst estimates. Gran TierraEnergy (GTE US) shares jump as much as 8.7% in premarket trading, after the oil & gas company said it would buy back as many as 36m shares. Nikola stocks slumped after filing for At-the-Market stock offering With markets once again very volatile, Credit Suisse recommended investors go underweight global equities (or at least short Credit Suisse bank itself) following the Jackson Hole symposium, while JPMorgan Chase strategists say that a reading on the US labor market that spells bad news for the economy is actually a bullish signal for stocks. “The markets are spooked because they are afraid that the Fed could create a hard landing -- that they’ll raise rates into a recession and that will be really painful for the economy and for corporate profits,” Terri Spath, chief investment officer at Zuma Wealth LLC, said on Bloomberg Television Minneapolis Fed President Neel Kashkari said sharp stock-market losses show investors have got the message that the US central bank is determined to contain inflation. “People now understand the seriousness of our commitment to getting inflation back down to 2%,” he said; it wasn't clear what he said this morning when he saw futures sharply higher. In Europe, the Stoxx 50 rallied 1.3%. DAX outperforms, adding 1.5%, FTSE 100 lags, adding 0.4%. Retailers, banks and tech are the strongest-performing sectors while energy companies underperformed as prices plunged on signs that the region is stepping up efforts to curb a crisis. Here are some of the biggest European movers today: Banks and lenders lead a broader rebound in European stocks as yields rise in the UK, with banks in the country resuming trade following Monday’s holiday. Adevinta shares rise as much as 16%, with analysts noting a beat on earnings from the classified advertising firm, along with a strong performance in its Mobile arm and reassuring guidance. Aker Solutions shares rise as much as 17% after the Norwegian offshore firm said it would form a joint venture with Schlumberger and Subsea 7. Pareto notes “significant” cost synergies. Bango shares jump as much as 15% after Liberum increased their price target to a Street high. The broker said the acquisition of NTT DOCOMO’s payments business helps accelerate Bango’s growth strategy. Munters shares rise as much as 8.7% after the Swedish industrial cooling and climate solutions manufacturer said it had received its “largest order ever” for a data center in the US. Technoprobe shares gain as much as 2.5% in Milan as Mediobanca increased its PT on the stock to EU9.10 from EU8.6 ahead of what the broker expects to be “another robust release” on Sep. 27. Diurnal Group shares soar as much as 136%, the most since January 2019, after Neurocrine Biosciences agreed to buy the specialty pharmaceutical company for 27.5p in cash per share. Carrefour shares fall as much as 2.7%, after JPMorgan cut its recommendation on the French grocer to neutral, noting “lackluster” operating momentum and a “lack of short-term catalysts.” Bunzl shares fall as much as 8.1%, the most intraday since March 2020, after the supplies distributor reported 1H results that disappointed, according to Interactive Investor. European mining stocks underperforms all other European industry groups as the regional equity benchmark advances, after iron ore and base metals fell amid concerns over demand in China. Warsaw stocks are worst performers globally so far in August, down 8.2%, on the way to largest monthly drop since April as a domino effect from Europe’s gas crisis hits Polish companies. Asian equities rebounded from a post-Jackson Hole slide, with investors focusing on earnings on the region’s busiest day this season. The MSCI Asia Pacific Index added as much as 1% following Monday’s 2.2% slump, lifted by technology and financial shares. Indian and Japanese shares were among the region’s best performers, while benchmarks in China and Hong Kong declined. Chinese search-engine operator Baidu Inc. and Industrial and Commercial Bank of China Ltd., the world’s biggest bank by assets, were among the 110 MSCI Asia Pacific Index members to report results Tuesday. Investors had been bracing for a poor earnings season in a quarter marred by China’s lockdowns, but an analysis by Bloomberg Intelligence shows the results have surprised to the upside so far. While Asian stocks are set for a 1.1% monthly slump in the wake of Federal Reserve Chair Jerome Powell’s hawkish comments last week, there’s a possibility that the region’s valuations could attract investors, said Christina Woon, an Asian equities investment director at Abrdn in Singapore. Asia has “more of a relative buffer in valuations” given investors are already quite cautious toward the region, Woon said in a Bloomberg TV interview. Many of Asia’s quality companies are “producing earnings that are holding up well,” which may support stock performances, she added. China tech stocks in Hong Kong slid amid lingering uncertainties over discussions to avoid the delisting of companies from New York stock exchanges. Asian emerging market ex-China equities saw a small net outflow last week after five weeks of inflows.   Japanese equities also rebounded after heavy selling on Monday, as investors digested the Federal Reserve’s continued stance to keep up its hawkish monetary policies and the yen stayed near 140 per dollar.  The Topix rose 1.2% to 1,968.38 as of the market close in Tokyo, while the Nikkei 225 advanced 1.1% to 28,195.58. Keyence Corp. contributed the most to the Topix’s gain, increasing 2.1%. Out of 2,169 stocks in the index, 1,839 rose and 257 fell, while 73 were unchanged. “There may be a slight effect from the weak yen,” said Mamoru Shimode, chief strategist at Resona Asset Management. The S&P/ASX 200 index rose 0.5% to close at 6,998.30, boosted by gains in banks and energy shares. All but one of the 11 sector gauge rallied, while mining shares edged lower as iron ore fell below $100 a ton for the first time in five weeks on signs a crisis in China’s steel industry is worsening.  Uranium shares including Paladin surged after Tesla Chief Executive Elon Musk said countries shouldn’t shut down existing nuclear power plants as Europe grapples with an energy crisis.  In FX, the Bloomberg dollar spot index falls 0.3%, its first drop in three days as the greenback weakened against all of its Group-of-10 peers apart from the Swiss franc. The euro rose above parity against the dollar. European bonds advanced as month-on-month numbers for German state CPIs showed signs of slowing. A euro-area economic confidence gauge fell to 97.6 in August, its lowest level in 1 1/2 years, and down from 99 the previous month. Analysts surveyed by Bloomberg had expected a decline to 98. The pound traded near a 2 1/2-year low versus the US dollar amid speculation the UK is headed for recession with further interest-rate hikes potentially deepening an economic downturn. Aussie eased after a sharp drop in building approvals, only to rebound in European trading. Meanwhile, China’s central bank set a stronger-than-expected yuan fixing for a fifth day, a sign it doesn’t want an excessively weak currency. The move highlights how greenback strength is a challenge for Asia as the region’s currencies slip. In rates, treasuries are near session highs as US trading gets under way Tuesday, holding most of gains that were paced by euro-zone bonds during European morning after release of German regional CPIs, with national gauge due out at 8am New York time.  US yields are lower by 2bp-5bp, 10-year TSY sliding by 5.8bp at 3.05%. Gilts curve bear-flattened with 2-year yield 12bps higher as money markets raise BOE tightening bets. Gilts slumped after yesterday’s English holiday as money markets cranked up BOE tightening bets. The UK 2-year yield briefly rose above 3% for the first time since October 2008. Peripheral spreads are mixed to Germany; Italy and Portugal widen, Spain tightens. Australian sovereign bonds extend an opening gain as iron ore slumped back under $100 for the first time this month. IG credit issuance lull expected to last through US Labor Day holiday Sept. 6. In commodities, WTI drifts 2.8% lower to trade near $94.32. Most base metals are in the red; LME copper falls 2.9%, underperforming peers. LME lead outperforms, adding 0.7%. Spot gold falls roughly $2 to trade near $1,735/oz. China was reported to provide Europe with an energy lifeline through the resale of surplus LNG, according to FT. UK PM candidate Truss is set to approve a series of oil and gas drilling licences in the North Sea in one of her first acts as PM, should she be elected, according to The Times. Canada said it is invoking the 1977 pipeline treaty with the US for the second time over Enbridge's (ENB) Line 5 (540k BPD) dispute. On the US calendar today, we get the August Conference Board consumer confidence, July JOLTS job openings, June FHFA house price index, Q2 house price purchase index; Bank of Montreal and Best Buy are among the companies expected to report results today. Market Snapshot S&P 500 futures up 0.9% to 4,066.25 STOXX Europe 600 up 0.8% to 426.16 MXAP up 0.9% to 158.61 MXAPJ up 0.6% to 518.99 Nikkei up 1.1% to 28,195.58 Topix up 1.2% to 1,968.38 Hang Seng Index down 0.4% to 19,949.03 Shanghai Composite down 0.4% to 3,227.22 Sensex up 2.1% to 59,168.51 Australia S&P/ASX 200 up 0.5% to 6,998.33 Kospi up 1.0% to 2,450.93 Gold spot down 0.0% to $1,736.80 U.S. Dollar Index down 0.36% to 108.45 German 10Y yield little changed at 1.46% Euro up 0.3% to $1.0029 Top Overnight News from Bloomberg Bonds are sliding toward the first bear market in a generation, burning investors who erred in bets that central banks would pivot away from rapid interest-rate hikes. The Bloomberg Global Aggregate Index, which tracks total returns from investment- grade government and corporate bonds, is within a percentage point of falling 20% from its peak after another bout of selling following the Federal Reserve’s Jackson Hole symposium The number of container ships headed for the California ports of Los Angeles and Long Beach -- a traffic jam that once symbolized American consumer vigor during the pandemic -- declined to the lowest level since the bottleneck started to build two years ago European energy prices plunged on signs that the region is stepping up efforts to curb a crisis that threatens to tip the region into recession with winter approaching The European Union is set to meet its gas storage filling goal two months ahead of target as the bloc braces for a tough winter with Russia limiting supplies and energy contracts trading at elevated levels throughout the continent China has rolled out “more forceful” economic policies this year than it did in 2020, Premier Li Keqiang said, as he warned the country faces an arduous task in ensuring its recovery China took the most aggressive step in its latest battle to bolster the yuan, setting its reference rate for the currency with the second strongest bias on record. The People’s Bank of China fixed the yuan at 6.8802 per dollar on Tuesday, 249 pips stronger than the average estimate in a Bloomberg survey. The bias was the second largest on the strong side since the survey of analysts and traders began in 2018 The slide in the yen back toward the key psychological 140 per-dollar level is reigniting chatter on the likelihood officials will intervene to support the Japanese currency A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were somewhat mixed as most of the regional bourses recouped some of the prior day’s losses but with gains capped amid a slew of earnings releases and as participants look towards month-end, as well as the upcoming risk events. ASX 200 was led higher by the energy sector after recent gains in oil prices which printed a fresh monthly high and with strong earnings from Woodside Energy. Nikkei 225 outperformed and reclaimed the psychologically key 28k level. Hang Seng and Shanghai Comp were negative with participants digesting earnings releases and amid further COVID-related disruptions as China's Dalian region limited movements for five days and Shenzhen ordered to close the Huaqiangbei subdistrict which is a global electronics sourcing centre. ICBC (1398 HK) - H2 2022 (CNY): net profit 171.51bln vs. Exp. 186.4bln, NII 351.4bln vs. Exp. 360.5bln. Baidu Inc (BIDU) Q2 2022 (CNY): EPS 15.79 (exp. 10.46), Revenue 29.6bln (exp. 29.31bln). Global funds invested into Evergrande's (3333 HK) bonds have determined their own debt restructuring plan, via FT sources; demands the chair repay liabilities with own funds. Top Asian News Chinese Finance Ministry said it will make good use of local government special bonds and strictly curb new local government hidden debt in H2, while it will strive to stabilise employment and prices. US President Biden's administration plans to ask Congress to approve an estimated USD 1.1bln arms sale to Taiwan, according to Politico. PBoC has issued draft rules to regulate related transactions of financial holding firms. All industrial and business power usage has resumed in Sichuan as of August 30th, according to CCTV. Pakistan to Import Onions, Tomatoes To Meet Shortage After Flood Asia Push for Winter LNG Sends Price to New Five-Month High European bourses are supported in tandem with pressure in European gas prices, Euro Stoxx 50 +1.7%, while the FTSE 100 lags somewhat after its Bank Holiday. Stateside, futures are firmer across the board, ES +0.9%, with the NQ +1.2% outperforming modestly as yields ease. Tesla (TSLA) CEO Musk has filed an SEC filing on Twitter (TWTR); on Aug 29th, sent a letter to Twitter notifying he is terminating merger agreement for additional bases separate from bases set forth in July 8th, according to a letter. Top European News Spain is to propose the EU mimics its gas price system, via El Pais. Germany said to be open to discussing an EU gas price cap at the September 9th summit, via Reuters citing an official. Britons Ditch Staycations for Cheaper All-Inclusive Trips Abroad Spanish Inflation Slows But Any Retreat Is Likely to be Gradual UK July Mortgage Approvals Rise to 63.8k vs. Est. 62k Austria Is Probing Trades Behind Wien Energie Margin Call Revolution Beauty Shares to Be Suspended One Year After Listing FX DXY dips under 108.50 after seeing a mild bid overnight to a high of 108.90. Antipodeans lead the gains whilst EUR feels a boost from receding European gas prices. Haven FX are mixed vs the USD with JPY firmer and the CHF in the red. Fixed Income EGBs are bid as the benchmarks recoup from yesterday’s pressure, fresh fundamentals limited though European gas pricing easing has likely assisted. Gilts remain subdued by over a full point, though off worst, as it catches up to the weekend's hawkish rhetoric. USTs are in-fitting with EZ peers and awaiting commentary from Fed's Williams; yields slightly flatter. Commodities WTI and Brent futures have pared back around half of the prior day's gains; relatively pronounced pressure once more in European gas benchmarks. Spot gold is modestly softer intraday and remains under its 21, 50, and 10 DMAs. LME copper has fallen back under USD 8,000/t as the exchange plays catch-up following the UK bank holiday. China was reported to provide Europe with an energy lifeline through the resale of surplus LNG, according to FT. UK PM candidate Truss is set to approve a series of oil and gas drilling licences in the North Sea in one of her first acts as PM, should she be elected, according to The Times Canada said it is invoking the 1977 pipeline treaty with the US for the second time over Enbridge's (ENB) Line 5 (540k BPD) dispute. Sadrist protesters in Iraq reportedly closed the oil production distribution company in Basra and there were explosions in Baghdad's Green Zone from mortars targeting the former PM's residential area, according to Iraqi Day. US Event Calendar 09:00: June S&P Case Shiller Composite-20 YoY, est. 19.20%, prior 20.50% 09:00: June S&P/Case-Shiller US HPI YoY, prior 19.75% 09:00: 2Q House Price Purchase Index QoQ, prior 4.6% 09:00: June S&P/CS 20 City MoM SA, est. 0.90%, prior 1.32% 09:00: June FHFA House Price Index MoM, est. 0.8%, prior 1.4% 10:00: Aug. Conf. Board Consumer Confidence, est. 98.0, prior 95.7 Present Situation, prior 141.3 Expectations, prior 65.3 10:00: July JOLTs Job Openings, est. 10.4m, prior 10.7m DB's Henry Allen concludes the overnight wrap For those also arriving back after the holiday weekend, markets have been playing a familiar tune for 2022, with risk assets losing ground as central banks underlined their determination to keep bearing down on inflation. Fed Chair Powell kicked off the latest selloff in his speech at Jackson Hole on Friday, where he said that getting back to price stability would “likely require maintaining a restrictive policy stance for some time.” He also went on to reiterate that hawkish message at multiple points, saying that “the employment costs of bringing down inflation are likely to increase with delay”, which favoured “acting with resolve now” to avoid a more costly outcome later. With Powell explicitly warning against repeating the mistakes of the 1970s, investors moved to price in a more hawkish response from the Fed over the next year. In fact over Friday and yesterday, the rate that Fed funds futures are pricing in for the December 2022 meeting went up a further +7.1bps to 3.70%. And with a more hawkish Fed being priced in, that’s having an impact on Treasury yields, with the 2yr yield reaching its highest intraday level since 2007 in trading yesterday, at 3.48%, although it’s since fallen back to 3.41% this morning. US equities have also taken a significant hit, with the S&P 500 seeing its worst daily performance in over two months on Friday, with a -3.37% decline, followed by a more modest -0.67% fall yesterday. Strikingly, Minneapolis Fed President Kashkari said that he was “happy to see how Chair Powell’s Jackson Hole speech was received” in markets, saying it reflected an understanding of their commitment to return inflation to 2%. That theme of investors adapting to more hawkish central banks has been seen on this side of the Atlantic as well, since a number of individuals at the ECB are now openly floating the idea of hiking by 75bps at a single meeting like the Fed. On Friday, Austria’s Holzmann said that a 75bps move “should be part of the debate”, and that a 50bps move was “the minimum for me”. Then in an interview on Sunday, Latvia’s Kazaks said that “at least 50 basis points would be appropriate” in September and said “at the current moment, I would say 50 or 75 basis points”. Those may be two of the most hawkish officials on the Governing Council, but the fact that a 75bps move is being openly discussed ahead of next week’s decision just shows how the direction of travel has shifted, and overnight index swaps are now pricing in a 75bps move as more likely than a 50bps one. Nevertheless, there was some pushback yesterday from Chief Economist Lane, who said that a “steady pace” was important when reaching the terminal rate. In light of these developments, our European economists have updated their ECB call (link here), where they bring forward their timing for the terminal rate to mid-2023 from mid-2024, and now see the terminal deposit rate reaching 2.5% (up from 2% previously). In terms of the specific moves to get there, they now expect 50bp hikes at the remaining 3 meetings this year, bringing the deposit rate up to 1.5% in December, before the ECB slows to a 25bp pace at the 4 meetings in H1 2023 that takes the deposit rate up to 2.5%. They are maintaining their call for a 50bp hike at the September meeting for now, but note there are still some key data and risks around energy that could change the September profile. With markets waking up to the prospect of more aggressive ECB hikes, sovereign bonds sold off significantly yesterday. Yields on 10yr bunds (+11.4bps), OATs (+10.6bps) and BTPs (+10.3bps) all moved sharply higher thanks to rises in real yields, whilst gilts were closed given the public holiday. European equities similarly lost ground as they caught up with the late US selloff from Friday, and the STOXX 600 (-0.81%) posted a decent decline, even as nearly a quarter of the index’s weighting didn’t trade given the London holiday. In the US, tech stocks bore the brunt of the decline given the higher yields, and the FANG+ index followed up its -4.26% loss on Friday with another -1.03% move lower yesterday. Overnight in Asia, equity markets have put in a mixed performance, with the Nikkei (+1.02%) and the Kospi (+0.54%) clawing back some of their heavy losses yesterday, whereas the Hang Seng (-1.32%), the Shanghai Composite (-0.68%) and the CSI 300 (-0.61%) are all trading in negative territory. That underperformance in Chinese equities follows the moves from the People’s Bank of China to push back against yuan weakness, with a fix at 6.8802 per US Dollar this morning, which is noticeably stronger than Bloomberg’s survey estimate of 6.9051. Indeed, it was the strongest fix relative to estimates since August 2019. Elsewhere overnight, there are also signs that the recent market selloff could take a breather today, with futures contracts on the S&P 500 (+0.27%) and NASDAQ 100 (+0.3%) both pointing higher. Looking forward now, this week should illuminate plenty on the near-term policy trajectory as a number of important data releases come out. For the Euro Area, the main one will be tomorrow’s flash CPI reading for August, where our economists see year-on-year CPI ticking down from the record +8.9% in July to +8.8% in August. However, we haven’t reached the peak yet in their opinion, as they see CPI rebounding again in September up to +9.3%, so the ECB would still have a long way to go to get back to their target. On the question of core inflation, they see that moving up to +4.3% in August year-on-year, which would be the highest since the formation of the single currency. So an important release for the ECB just over a week before their decision. The other big release this week will be the US jobs report for August on Friday, which could go a long way to determining whether the Fed move by 50bps or 75bps. Our US economists expect that there’ll be another +300k increase in nonfarm payrolls, which would leave the unemployment rate unchanged at 3.5%. Markets are pricing in +69.1bps worth of hikes for September right now, so much closer to 75 than 50 still. But last month we saw how a strong jobs report jolted market expectations towards 75bps, so a surprise in either direction could well see that shift once again. In the meantime, keep an eye out for the July JOLTS data later today as well, which includes measures on job openings and hires. That’ll offer some further signals on whether labour demand is moving back in line with supply. Otherwise this week, a major theme will be the ongoing turmoil in European energy markets, where yesterday saw prices come down from their record highs of last Friday. For instance, natural gas futures were down -19.63% to €273 per megawatt-hour, whist German power prices for next year fell -22.84% to €760 per megawatt-hour, having traded above €1000 for the first time earlier in the day. European Commission President Von der Leyen said yesterday that the EU was “working on an emergency intervention and a structural reform of the electricity market.” Let’s see what happens there, but one piece of better news from Germany came over the weekend after Economy Minister Habeck said in a Sunday statement that the target to see gas storage 85% full by October should be reached by early September. In the meantime oil prices have got the week off to a strong start, with Brent crude advancing +4.06% yesterday to their highest finish so far this month at $105.09/bbl. They’ve maintained the bulk of those gains overnight too, with Brent crude only down -0.69% at $104.36/bbl. Tyler Durden Tue, 08/30/2022 - 08:09.....»»

Category: blogSource: zerohedgeAug 30th, 2022

What Would A Crypto Crash Mean For Markets And The Economy

What Would A Crypto Crash Mean For Markets And The Economy By Peter Tchir of Academy Securities On “bitcoin infinity” day (apparently 8/21 is symbolic of ∞ infinity, the projected value of bitcoin) divided by 21,000,000 (the total number of bitcoin that can ever be mined), it seemed like a good time to explore what a crypto crash would look like and what it would mean for markets and the economy. We all know what a mortgage bank collapse looks like (Washington Mutual). We’ve seen broker dealers collapse (Lehman), we’ve seen the stress on the system when money center banks and insurance companies come under intense pressure. Heck, we’ve even endured a sovereign default (Greece). We’ve also experienced flash crashes in equities and bond yields. In all those cases, I would argue that having a gameplan ahead of time allowed companies and investors to profit from the events (both positive and negative). I haven’t seen much on what a crypto crash would mean, so I figured we could examine that today. Jackson Hole I could have written the 900th Jackson Hole primer, but I couldn’t bring myself to do that. I’ve already covered a lot that is applicable to Jackson Hole in Taxi Strategies, Orwellian Moments, Things You Won’t See, and Inversion and Inventories. My focus right now is pretty simple: What is the real story on jobs? The weak data is a more accurate sign of the current situation. How bad is the inventory build? I think it might be the worst we’ve seen in my lifetime. Is the wealth effect a problem? I think that the concentrated nature of the wealth effect in disruptive stocks and crypto is different than anything else we’ve experienced historically, and the housing sector weakness is ominous to me. Inflation Fighting. Be careful what you wish for is all that comes to mind. Time and again, lower commodity prices have accompanied stock prices as they became much lower as well and I’m not sure why that will be different this time. Anyways, let’s get back to being off topic and discussing a crypto crash. 6 Impossible Things Before Breakfast I cannot come up with 6 impossible things before breakfast, but as the Queen suggested to Alice, you do need to practice. Let’s start with the premise of a crypto crash or crypto collapse. If it is impossible, then there is no point even thinking about it. However, not only is it possible, but I put the possibility of it occurring in the next year at 10% or higher. Still unlikely, but a high enough probability that I should think about what it would mean. Why a crypto crash or collapse seems possible: It has already happened. Luna/Terra is gone. Poof. XRP is down 80% from its highs, Cardano is down 85%, Bitcoin Cash (you got to love the name) is down 91%, and Dogecoin is down 90% as well. Dogecoin was allegedly started as a joke, which makes it all the more ironic (or moronic) that an SNL skit helped pump it to the moon. So, collapses and crashes have occurred in some segments of the market, which alone tells me that it is worth exploring more. This chart is precarious. Bitcoin continues to hover near levels that would ensure that no “hodler,” or someone who buys crypto and will never sell (diamond hands as opposed to lettuce hands), has made money on any purchase in almost two years. That is a long time to wait to make money (or to sit on large losses). FOMO is a big part of crypto trading, and we are on the precipice of declining to levels where many could decide to take their money and run. There is an ongoing theme in crypto that the “whales” keep buying dips, which might be possible, though it seems more likely to me that many have decided to lock in massive amounts of wealth into the much maligned (but useful) “fiat” currency. Crypto bounced here recently, but that was just the first test and I suspect that there were some heavily incentivized holders who went out of their way to support the price (there really are no rules in this space). This chart, by itself, doesn’t convince me that a crash is possible, but when I highlight the other issues, it certainly adds to that overall theme that a crash or collapse is a non-zero probability event. The chart isn’t much better.   The $13.5 billion trust, GBTC, is currently at a 32% discount to NAV. This isn’t an ETF, so it has the ability to trade at a discount or premium to NAV for extended periods. A 33% discount lets you buy bitcoin at the equivalent of under $14,000 ($21,000 * 67%). There is, to some extent, over $4 billion in “free” money in this stock if the discount closes to 0. It is bizarre and scary to me that the discount continues to widen. In ETF’s, I believe that discount/premium to NAV leads the way (cheapness begets lower prices and vice versa). While that view doesn’t quite translate given the nature of GBTC, it is cautionary to me. A lack of interest. Recently one of the largest asset managers on the planet announced plans to collaborate with one of the largest public companies focused on crypto to work on some crypto projects. Two years ago, I can only imagine the impact that headline would have had on bitcoin. My guess is $10k in a heartbeat, but we are already back below the price when that deal was announced. Every headline like that (a year or more ago) was met with thousands (if not millions) of social media posts touting ADOPTION! While adoption is growing and more big banks have announced crypto strategies, the response seems to be more like “well, of course they are going to see if they can make money in it” rather than “OMG, XYZ just endorsed crypto, BUY!” Subtle shift in response, but an important one (albeit subjective). The best “use” cases are diminishing. China, to me, has always been the best use case. A large population with enough money to matter. For all the talk about banking the unbanked, etc., which sounds nice, this isn’t what will drive crypto prices higher. There are stats saying that as many as 4 billion people are unbanked across the globe. According to the World Bank, about 700 million people make less than $2.15 per day. That is depressing, scary, and almost mind-boggling, but from the crypto perspective, it is not the poor that will drive prices (there just isn’t enough money). But China, where millions of “middle class” citizens exist under a regime where they may want to keep money outside of the system, it has always been a good use case. With the property market in tatters, a slowing economy, and the government continuing to crackdown on crypto (outside of the digital Yuan), that use case may be dropping rapidly. Sanction avoidance as a use case may also be diminishing. If you were illicitly trading embargoed products (like oil), crypto may have been the “currency” of choice. But with the U.S. looking to ease restrictions on places like Iran and Venezuela (hypothetically), maybe some of the alleged trade will come back onto the books. With China and India openly buying Russian oil and Chinese currency gaining in stature (at least amongst some nations), there is less reason to use crypto when the Yuan is about 10 times less volatile than bitcoin (30-day vol of 5.4 versus 53). Criminal activity still flourishes, though the ability to track and reclaim ransomware payments seems to be increasing. It’s about blockchain and blockchain technology. The number of pundits, experts, and companies that seem to be doing contortions to pitch themselves as blockchain rather than crypto is high. Again, this is subtle, but it seems that re-positioning oneself as blockchain rather than crypto is occurring, which doesn’t bode well for crypto. It’s a Ponzi scheme, but it’s our Ponzi scheme. There were always the slogans that accompanied crypto, like “have fun staying poor” but they often included passionate explanations about the greatness of crypto. The use cases would take up pages including such themes like it is banking the unbanked (already discussed), that it is an inflation hedge (hasn’t worked on that front for some time), that it is outside the reach of the government (it is being regulated more by the day, and many in crypto, after some recent highly visible failures, now seem to embrace this), that it is lower cost (costs remain high and there is little protection against mistakes or fraud, unlike with bank accounts or credit cards), or speed (but how many people really need to instantaneously shift large amounts of money, but aren’t already served by Venmo or Zell or some similar product?) I still see those arguments being made, but with far less enthusiasm. However, there is another “use case” that seems to be getting traction (at least in my social media streams). It basically amounts to the argument that convincing more people to participate will help. Kind of like “adoption” but with a more cynical tone. Basically, it is admitting that it only really works if more people get in (so get in, and get more people in). It has the advantage of being true and seems honest, but it seems like the last vestige of a pump and dump scam. I’m not sure about you, but that is enough for me to at least take a look at what a crypto collapse or crash would mean. Crypto Market Cap Let’s start with the market capitalization of crypto currencies as that is the most obvious and direct hit to investors. We will use coinmarketcap for this section (beware of using the link as it will ask to send notifications, know your location, etc., but I figured there should be a link to something to verify). Bitcoin at $21,262 has a market cap of $406 billion. Ethereum at $1,628 has a market cap of $199 billion. Binance Coin at $286 has a market cap of $46 billion. Then XRP, Cardano, and Solana come in between $13 billion and $17 billion. Dogecoin, Polkadot (love the name), and Shiba Inu are all about $7 billion, with Avalanche, Polygon, TRON, and Uniswap, all a bit over $5 billion. Let’s call it about $750 billion in total market capitalization for crypto. To make things “simple” let’s assume that after the top 3, most of the coins could disappear and people would hardly notice (I’m assuming that many of those coins are not widely held, and a few “whales” would lose a lot, but the average person wouldn’t lose much more than what they are already prepared to lose.) If you believe that this is an area where many have spent their “winnings” or took money made in bitcoin or Ethereum to really roll the dice (which I believe), that gives us further reason to argue that the hit here would be minimal on the economy (it also makes the analysis much easier as we only have to focus on a few key currencies). Stablecoin Market Cap We need to also consider the stablecoins. Terra/Luna was supposed to be a stablecoin. Stablecoins, in theory, are backed by assets of some sort, except those that were algorithmically backed (whatever that means). Tether (USDT) is still the biggest at $67 billion. I love how much everything is made to sound like dollars (USD) despite the rhetoric against fiat. This stablecoin, in particular, attracts a lot of negative posts about how it is backed. The company asserts that Tether is backed by T-bills, commercial paper, etc., but to my knowledge, it has never produced a detailed list of its holdings, let alone an audited list of its holdings. This behemoth of an account ($67 billion is large even in money markets) is unknown by any money market participant I speak to (albeit that is only a handful of people outside of Academy’s strong short-term liquidity desk). Someone recently pointed out that they apparently manage that much money without a Bloomberg terminal account (there is no Bloomberg account linked to a company called “Tether,” but they could use a different name on Bloomberg to obfuscate their existence, which isn’t unheard of). Tether has seen their market cap drop from $82 billion to $67 billion, and part of that could be that some investors, given what has gone on this year, have shied away from it. USD Coin or USDC (again, notice how much it tries to sound like the dollar) has a market cap of $52 billion. Its market cap only peaked at $55 billion, so it has gained at the expense of USDT. Circle, which is the company behind USDC, makes a big deal out of being transparent and regulated in the U.S. I’ve had brief conversations with people involved in the company and the pitch makes sense to me (though I have not yet gone through the effort of figuring out how granular that transparency is – that’s a project for another day). But they are clearly marketing themselves on the transparency issue and have surged relative to Tether over the past year or so. Binance USD (BUSD) weighs in at $18 billion and is a distant third and seems relatively tied to the Binance ecosystem. Vegan hotdogs. When I see all these names trying so hard to associate themselves with the dollar despite being part of an ecosystem designed to avoid the dollar, I can’t help thinking about vegan hotdogs and why vegans try to replicate an already weird food, when vegan food in its own right can be awesome! But I digress. My view is that stablecoins and their market caps are a function of the overall utility of cryptocurrencies. If crypto crashes, we should see a decline in the market cap of stablecoins. Two things could occur: Those backed by assets will have to sell the assets to meet redemptions. If it is a few billion and they are back by T-bills, then no sweat. Markets would digest that easily and no one would be impacted. But if the size is bigger (10s of billions) and the assets are less liquid (non-standard commercial paper programs for example) then we could see some friction in markets. Again, if we knew exactly what they held we could be more or less prepared. What they hold and the size of the selling would impact the knock-on effects of any unwind (Terra/Luna held nothing, so that didn’t spread to the greater financial system, but this could). If the stablecoins don’t truly hold sufficient assets or the assets are of low quality (there are all sorts of conspiracy theories out there on what it might be invested in that isn’t worth me repeating here, even if they intrigue me) then we could see what looks like a “bank run” occur not just in stablecoins, but ultimately in the assets they hold and asset classes that compete with what they hold. Let’s just pretend, for the moment, that they have money market lending that is off the radar screen, and presumably paid a lot, as it wasn’t standard. If they have to sell, that could cause prices to plummet, possibly to a level that more traditional players sell what they have to buy this stuff, creating that first domino effect. There is a circularity between crypto and stablecoins. They can bring each other down. While crypto losses themselves will be largely isolated to the holders (we still have to dig into that), the unravelling of stablecoins is likely to influence other markets, possibly quite negatively. Direct Losses The direct losses are relatively easy to figure out. Crypto losses. Let’s say $500 billion could be wiped out of crypto. While some evidence points to there being a small subset of “whales” that would bear the brunt of that loss, I think there is a broad enough swath of the population that would take a serious hit and it would affect spending in the near-term. Stablecoin losses. Stablecoins in theory should have an orderly unwind. If, and that remains a question, there is a disorderly unwind of one or more stablecoins, the losses would be in the 10’s of billions (which isn’t so bad). The problem is that unlike crypto losses, where investors presumably treated this as a risky portion of their portfolio, stablecoins are viewed as cash equivalents. Losing cash is always more problematic than losing risky investments. Something to watch. Public Company Losses. There are at least a couple of public companies that are linked to crypto. Then there are the miners, mostly listed on foreign exchanges. HIVE for example went from almost $2 billion to just over $400 million (higher than the recent lows of $237 million). Not a huge market cap loss, but only one of many miners out there. This would add up to more losses, some of which would hit mainstream funds. The bigger losses would likely be felt in the private domain as many of the companies in the space have not yet made the leap from private equity to public equity. The losses shouldn’t be material to the broader market, but would likely be concentrated enough to leave a mark disproportionate to the size of the losses. On the private equity side (even more than the public side) the losses will hit employees the hardest and that will hit spending. Jobs. If you consider day trading crypto and waiting for NFT drops to be a job, then there will be job losses. The companies I’ve mentioned, both the public and private ones, will be forced to let go of employees (that already will have lost significant paper wealth). These are skilled employees, so in theory, could find other jobs, but that could be more difficult to do in an environment where crypto losses cause investors (including private equity) to be more conservative across the fintech space. Domino or knock-on effects. Assuming the stablecoins hold liquid assets, that unwind should be handled easily (there is a risk that isn’t the case, at least for some stablecoins) but I won’t harp on it. There is not a lot of direct debt tied to crypto (though there are some bonds out there, but they are too small to have any material impact). I don’t see crypto being used as a major source of collateral. If bitcoin holdings, for example, were being used to leverage up stock investments, then I’d be very scared. I think some individuals may manage their personal wealth along those lines, but I don’t see it as a widespread issue (unlike housing in 2008, for example). Spending. How much spending is coming from this sector and what does that mean for us? Spurious Correlation or Real Threat You can take any two data series and potentially see a correlation. They may have nothing to do with each other, so we can stare at the “correlation” chart as long as we want, but it isn’t going to help us because there is no causation. Complicating matters further, we should be looking at correlations between the rate of change rather than correlations between asset classes themselves (I vaguely remember the reasons for this, but I will ignore that technicality for today). Here is the SOX (Philadelphia Semiconductor Index) versus bitcoin. I chose to use this index because it is more likely to be spurious and highlights how much more correlated some individual semi-conductor stocks are. Spurious correlation. The argument for “spurious correlation” is strong. It seems impossible that a small segment of the market, like crypto, could have a large effect on such a big diversified market. Many of the things that drove crypto were also driving other industries that placed huge demands on the chip industry (video conferencing, autonomous driving, big data, etc.). So crypto was just one of many things driving those industries and those industries should not be impacted by a crash in crypto. I could go on, but I can see heads nodding here, so I won’t spend any more time arguing what is a consensus (and probably correct) view. What if it is correlated? The wealth being generated by those in crypto was large. From the miners to the “exchanges,” there was a race to capture revenue and there was plenty of revenue to capture. The spending on chips (rigs to mine, servers to provide customer service, etc.) was large. Chip companies presumably saw this demand and knew that they could charge a premium to an industry where speed and timeliness meant everything. Were chips designed specifically for the crypto industry? Was production of generics shifted to higher profit margin lines? Not only were the companies (that succeeded) spending money, but many failed business ideas (or those just not yet successful) had money to spend as well. What if crypto spending went to web services (seems like it would). What if it went to advertising? (It did). What if that spending caused those companies to spend more? Maybe they needed to add systems, components, and people to keep up with the demand from the crypto industry. Did that spending then create more spending and make it very difficult (if not impossible) to figure out where crypto spending ended and where “regular” spending went? How much money was crypto spending on energy? At one time I saw stories that in terms of energy usage, crypto, if treated as a nation, would have been the 10th largest country in terms of energy use. Commodity prices are always affected by the marginal 5% or 10% of demand. Is it possible that part of energy inflation was due to crypto? Does that mean policy makers are responding to a problem (high inflation) while ignoring one of the causes (because it isn’t on their radar screen, except in China, which has been clamping down on mining in that country?) The case for crypto being a bigger driver than previously thought may seem weak, but I cannot help but believe that it is a risk we should be discussing more than I think we are. What if the correlation was a driver for exciting new technologies where enormous wealth seemed possible (to such an extent) that current spending or success was irrelevant? What if crypto’s decline and potential collapse may not be causal, but is correlated to some broader move in markets and the economy? Then in that case, it might be spurious, but is still dangerous. Impossible Things, Black Swans, and Thinking Out of the Box I do not think a crypto collapse is impossible. It isn’t my base case, but there is a real possibility that it occurs. Black swans are things that people didn’t think were possible (and turned out to be possible). We can get a pass on missing black swans, but not if we are looking at a grey swan and choose to ignore it. I’m not lying awake at night thinking about a crypto collapse because: It “probably” won’t happen. If it does happen, the damage to the economy “could” or maybe even “should” be minimal. But I am thinking more and more about it because if there is a correlation between crypto and the broader economy (and markets) or because crypto, the broader markets, and the economy are moving to the same theme, there is serious risk to the downside. Some of this risk may not be getting priced in based on some simple charts of crypto versus other asset classes. On this broader correlation theme, check out ARKK shares outstanding because something seems to have shifted in terms of the investor mentality there. For those who celebrate, enjoy bitcoin infinity day! It really seems weird that not only is that a thing, but on 8/21/21 the CEO of a public company enjoyed tweeting it out. I’m possibly too old and jaded, but stuff like that seems silly rather than compelling. Tyler Durden Sun, 08/21/2022 - 21:30.....»»

Category: blogSource: zerohedgeAug 21st, 2022

Is The Ethereum Merge Priced In?

Is The Ethereum Merge Priced In? By Hal Press, founder of North Rock Digital, first published in Bankless What’s Up With The Merge? As we approach the Merge, we wanted to provide a write-up on how we are thinking about the Ethereum ecosystem and specifically Merge-related investments. This is meant as a follow-up to the prior article we wrote on Ethereum, which can be found here.  Since I published the original article in January much has transpired, some assumptions have changed and the outlook for the future has been altered. Despite this, the core thesis remains, Ethereum is set to undergo the largest structural shift in the history of crypto. Back in January, the path to the Merge was extremely uncertain. Now, that path has crystalized. The final testnet, Goerli, was recently completed successfully and a Mainnet target date has been set for Sep 15/16.  So where do we stand? The Biggest Structural Shift in Crypto History Regarding the Merge the thesis has not changed, Ethereum is set to undergo a massive structural shift as expenses will effectively be reduced to zero. The shift will give rise to the first large-scale structural demand asset in crypto history. As we have stated in our core thesis many times, this paper will address what has changed and new topics not discussed in the prior article. First, it is useful to highlight aspects of the core Ethereum model to get a sense of some of the key fundamentals such as supply reduction and the post-Merge staking rate.  The largest shift since last December is that ETH-denominated fees have fallen significantly. However, there is an interesting dynamic at play here. Although fees have declined, active users have experienced a steady uptrend since late June.  This may seem inconsistent as more users should lead to higher gas. However, we believe this dynamic is caused by recent efficiency optimizations of various popular Ethereum applications. The best and most significant example is Opensea, which in migrating Seaport (from Wyvern) increased gas efficiency by 35%. This has led to a reduction in gas that doesn’t correlate to a decline in activity.  In fact, multiple indicators suggest that despite the low gas readings activity has been increasing recently (more on the specifics here later). This raises an interesting question: what is the optimal fee run rate for Ethereum? Higher fees mean more ETH is burned and post-Merge also correlates to a higher staking rate, but these higher fees also limit adoption.  As we saw in ’21, when fees are too high, some users get pushed to other L1 ecosystems. After roll-ups scale appropriately, Ethereum should be able to achieve both high fees and continued adoption. In the current environment though, it is interesting to think about the optimal mix. We believe the optimal point is approximately the point at which fees are high enough to burn all new issuance. This will enable ETH supply to be stable while also keeping fees low enough not to inhibit adoption. Interestingly, of late, fees have found an equilibrium near this point. Lower fees also seem to be having a positive impact on adoption as active users have begun to increase after a long downtrend.  Despite the fact that we seem to be near an optimal fee run rate, the reduced fees do negatively impact various model outputs. This impact is not critical as at the current run rate the burn would still be still large enough for ETH to be slightly deflationary post-Merge. Importantly, the current run rate would continue to drive structural demand as the majority of issuance is unlikely to be sold, while fees that are used must be purchased off the open market.  The staking rate will increase post-Merge by ~100 bps from 4.2% to 5.2%. However, this does not properly illustrate the true impact. To fully appreciate the shift, we must evaluate the real yield rather than the nominal yield. While the current nominal yield is ~4.2%, the real yield is close to zero, as 4.4% of new ETH is issued every year. In this context, the real yield is currently ~0% but will increase to ~5% post-Merge. This is an enormous shift and will create the highest real yield in crypto by a large margin. The only other comparable yield is BNB with a 1% real yield. ETH’s 5% yield will be a market-leading figure. What is the significance of this yield? Stakers will receive a net ~5% rate, which equates to 100/5= ~20x earnings. This multiple is considerably cheaper than the revenue multiple because the staking participation rate is quite low, meaning stakers receive an outsized share of total rewards. This is one of the key advantages of ETH from an investment standpoint.  As there are so many other uses for ETH, throughout the crypto ecosystem, most ETH ends up locked in those applications rather than staked. This in turn allows stakers to receive an outsized real yield.  In terms of the flows, ETH will transition from enduring structural outflows of ~$18mm/day to structural inflows of ~$0.3mm/day. While the demand side of the flow equation has softened, the complete reduction of the supply side remains the most important variable. Our estimate for the ETH-denominated supply reduction is actually larger than it was previously. This is due to the fact that the price declines from the highs have not been accompanied by a corresponding hash rate reduction. As a result, miner profitability has decreased dramatically, and they are likely selling close to 100% of mined ETH. For calculation’s sake, I have assumed 80% of miner issuance is being sold. In this context, ETH has found an equilibrium in which miners sell roughly 10.8k ETH ($18mm USD) per day. Given that fees have been averaging ~$2mm this yields a net outflow of ~$16mm. Post Merge this sell pressure will reduce to zero, and it is projected that there will be a structural inflow of ~$0.3mm/day post-Merge.  To conclude, while many of the numbers have shifted meaningfully in the last eight months, the conclusion remains roughly the same, ETH will shift from requiring ~$18mm of new money entering the asset to keep the price from declining to requiring ~$0.3mm exiting to keep the price from increasing.  To summarize, the staking rate and structural demand are lower than they were 6 months ago. However, this is to be expected in a period of slower activity, and if activity continues to rebound these rates will increase. The primary investment case remains the same, there is an enormous opportunity to front-run the largest structural shift in the history of crypto.  Another point that I think is often overlooked here is that the Merge is more than a shift in supply and demand. It is also a massive fundamental upgrade for Ethereum as the network becomes much more efficient and secure in many ways. This is part of what differentiates the Merge from prior BTC halvings.  It is 3x as large of a supply reduction combined with a massive improvement in fundamentals compared to a decline in fundamentals in the case of BTC halvings (reduced security).  Finally, there are two additional dynamics worth discussing. 1. Time Harvesting Before addressing how this relates to ETH it is important to lay some contextual groundwork.  Why is it that the SPX (or virtually any US/Global equity index) has been such a profitable and consistent investment vehicle over the long term? Most people think this dynamic has been driven almost entirely by earnings growth and multiple expansion. They would posit that if growth slows or the multiple stops expanding these investments would be unlikely to have positive returns going forward. This is incorrect.  The primary and most reliable source of growth for the price of these indices has been the passage of time.  Here is an example to illustrate this somewhat unintuitive point. A lemonade stand, LEMON (LEMON = The Enterprise, $LEMON = LEMON shares), earns $1 each year. There are 10 shares of $LEMON outstanding. LEMON has no cash or debt on its balance sheet. The market currently values $1 of ex-growth equity earnings at a 10x multiple. What is LEMON worth today? What about each share of $LEMON?  If we assume that next year LEMON will continue to earn $1 annually while the market applies the same multiple, what will LEMON/$LEMON be worth in a year? Take a minute and come to an answer.  If you answered $10/$1 for the first pair of questions you are correct. If you answered $10/$1 for the second pair, you are not. For part 1, LEMON is worth $10 as the market applies a 10x multiple to its $1 of earnings and assigns 0 value to its balance sheet. For part 2, the market continues to apply a 10x multiple to the $1 of earnings, but importantly, it also assigns $1 to the $1 of cash that now sits on LEMON’s balance sheet. LEMON is now worth $11 and each share is worth $1.10. When companies earn money, the money doesn’t disappear, it flows to the company’s balance sheet and the value of it accrues to the owners of the business (the equity holders). $LEMON has appreciated 10% in a year due to the earnings they have generated, despite 0 growth and 0 multiple expansion.  This is the power of earnings yield paired with the passage of time.  Crypto hasn’t benefited from this dynamic at all. In fact, crypto actually suffers from the reverse effect. Since almost all crypto projects’ expenses are greater than their revenues, they must dilute their holders to generate the funds necessary to cover their negative net income. As a result, unless earnings grow or their multiple expands, the price of each individual token will decline. The most notable exception I can think of is BNB, which is the sole current L1 to generate more revenue than expenses. It is no surprise the chart of BNB/BTC is essentially up only and recently broke an ATH. ETH will enter this exclusive class the moment it transitions to PoS. Post-merge ETH will generate a real yield of approximately 5%. This yield will be very different from virtually every other (non-BNB) L1 where the staking yield simply comes from inflation that offsets the yield. All else equal ETH holders will earn 5% each year. Time will become a tailwind rather than the headwind it is for 99.9% of other projects.  This will also change the psychology of holders and incentivize a stronger long-term buy and hold approach, effectively locking up more illiquid supply. Additionally, the “real yield” thesis and the fact that ETH will be the first large-scale real yield crypto asset will be particularly appealing to many institutions and should help accelerate institutional adoption. 2. The Wall of Worry Throughout the last few months, investors have been extremely skeptical about technical risks, edge cases, and timing risks.  The latest edge case that has generated attention is the potential for PoW forks of Ethereum that live on after the Merge. Some PoW maximalists (miners etc.) would prefer to use PoW ETH and think that a forked version of the current ETH is superior to ETC, which already exists as a PoW alternative. We do not believe there is much value in the fork, but our opinion on this matter is not particularly relevant.  The important point is that this fork will have no impact on post-Merge PoS ETH. All of the potential risks are either easily managed or not risks in the first place. For example, replay attacks will most probably not be an issue as the PoW chain is unlikely to use the same chain ID. Furthermore, even if they maliciously choose to use the same chain ID, this can be managed by either not interacting with the PoW chain or first sending the assets to a splitter contract.  Finally, even if a user does get replay attacked, it will only impact that individual user’s assets and not the overall health of the chain. What the PoW fork does do is provide a dividend to ETH holders, further adding to the value of the Merge. If the fork has any value, ETH holders will be able to send it to an exchange and sell it for additional capital, much of which will then be recycled back into PoS ETH. While we view this as a positive for the Merge-related investment case, many are worried about the potential risks and a litany of other edge cases. We have weighed each risk and concluded the upside far outweighs the downside.  Nonetheless, these concerns are keeping many long-term believers sidelined.  As we approach the Merge many of these issues will be addressed. Eventually, many of these skeptics will be converted, creating fueling continued inflows as we approach the event and culminating with a large set of buyers who will purchase ETH the day the Merge occurs successfully. This should help offset any “sell the news” dynamic.  Just last month, less than 1/3 of people thought the Merge would occur before October. Now the date has been confirmed for mid-September and still, the market is only pricing in two-thirds chance of it occurring before October. Given this backdrop how should we expect prices to move as we approach the Merge? This is the central question. First, we acknowledge the reality that macro will continue to have a large impact on absolute price levels despite the Merge. However, it is still reasonable to think through how Merge related alpha will evolve over the coming weeks. In our opinion, the path gets harder to predict the further out you look but then at some point when you’ve gone far enough it starts to become easier again. Short-Term Despite the narrative that has already been building around the Merge, positioning is still quite light within the more discretionary pockets of the market. Perpetual funding has remained negative for most of the rally since June, indicating that there are more shorts than longs in the perp market. Recently, Bitfinex longs, another notable discretionary pocket of ETH exposure, were reduced back to the lows. IMO, this light positioning is likely due to many larger participants viewing this move as a “bear market rally” and therefore wanting to put hedges on as we have continued higher. Historically, there is a large contingent of investors, who lean in the direction of BTC maximalism and will always look to fade the Merge narrative. Their theses primarily revolve around one of two central points.  The first is: “the Merge has been 6 months away for 6 years.” The second concern is around technical/execution risk. After evaluating the timing and execution risk, we have become comfortable with both. After the final testnet, Goerli, was successfully Merged earlier this week, the core developers set a target for the Mainnet Merge for September 15/16. All that remains is coordination. While many are concerned about the execution risk, the upgrade has been tested extremely rigorously over the years and cross-checked by many teams. Furthermore, one of the core pillars of Ethereum is resilience. This is the reason there are so many different clients–the redundancy acts as a safety net to protect against singular edge cases or bugs. Multiple, usually well over two, unrelated fluke events occurring simultaneously would be required to affect the protocol. This built-in resilience, the most accomplished developer team in the space, and many years of preparation have given us comfort that a technical issue, though a risk, is unlikely.  Given the cautious positioning and constant desire to “fade” the trade, I expect the next four weeks to follow a similar path as the prior four. There will be periods of pronounced fear as people overanalyze extremely unlikely edge cases. However, I expect the price declines around these periods to be shallow as there are many underexposed parties looking to add exposure on any weakness. Furthermore, almost everyone selling ETH over these next few weeks is only selling it tactically and planning to buy it back at some point before, or immediately after the Merge occurs.  This dynamic means net outflows are measured. On the flip side, I expect the hype around the Merge to magnify significantly as the date comes into focus and the narrative is picked up by the mainstream media. As I believe the thesis is extremely compelling and digestible by both institutional and retail capital, I expect inflows to accelerate as we approach the Merge creating a higher high, higher low dynamic as we approach the date.  What happens once the Merge actually occurs? Normally, you would think there would be risk of a “sell the news” reaction; many investors concerned about technical risk, plan to buy post-Merge. They believe they will capture the structural effect of the Merge without the technical risks. The post-Merge period will also depend on how much FOMO is generated as we approach the Merge and positioning when we actually get there.  We do expect significant buy flows and follow-through directly after the Merge as it is effectively “de-risked.” Medium-Term We expect a period of range trading as short-term traders sell, and this sell flow will be digested by the structural demand and larger slower moving institutional accounts. Price action in this period is less predictable and depends on the macro environment. As I have said previously, macro is incredibly hard to predict, but I will offer a few thoughts, nonetheless.  The crypto macro environment is driven by one core metric: whether adoption is growing, stable, or declining. This metric is somewhat impacted by the broader macro environment, but ultimately what matters most is this adoption metric. The reason this metric affects prices is because adoption also drives the long-term flow of funds into or out of the space. Simply put, when users are adopting crypto, they are generally also investing new money into the crypto ecosystem, and this is what drives the macro. When adoption is declining macro is hostile, when it is flat, macro is neutral and when it is growing, macro is accommodating. So how does the macro look today?  For the majority of the last 8-9 months, we have been in a declining adoption environment with a net outflow of users departing the ecosystem.   From May ’21 until the end of June daily active users have experienced a declining trend. Over the last ~6 weeks, we have seen a nascent recovery as users have steadily been increasing. This is a green shoot and indicates a potential thawing of the macro environment. We had been in a declining adoption phase, and we have now, at least, entered a stable adoption phase and potentially an increasing adoption phase. There are other green shoots that have been sprouting recently as well. After many weeks of redemptions, Tether has started to slowly mint new coins. After a long period of outflows, new money has started to enter the space again.  This impact is not unique to the Ethereum ecosystem, AVAX has also recently seen daily active users increase. NFT users and transactions have been stable recently. And certain web searches have started to positively inflect, while others are more stable. These are not dramatic increases, nothing like the exponential increases we saw at the start of the ’21 bull market. This is why I label them green shoots. They are still young and fragile. If they are smothered, they will likely wither and die, but if nurtured they could grow into something material.  We think the broader macro environment will play a key role in determining whether these green shoots live or die. To us, inflation is by far the most important macroeconomic variable; therefore, we believe that if inflation moderates and allows the fed to pivot and ease monetary policy there is a good chance these green shoots will grow stronger. However, if inflation remains high and the fed is forced to continue tightening policy they will likely be smothered and die. Predicting the course of inflation is not our primary domain, however, due to its significance in markets today, we studied it closely. After review, we feel moderating inflation is the most likely outcome, which should give these green shoots a chance to blossom.  Another advantage, in favor of a more sustained bottom, is the fact that an enormous amount of vesting from project launches in the last 24 months has now been absorbed. Furthermore, as most of the projects are down 70-95%, the USD notional size of all future vesting is also vastly reduced. Together, these two dynamics help meaningfully reduce the overall daily supply the space must absorb.   Lastly, the final variable that we think will impact this equation is none other than the Merge. Investors underestimate the impact the Merge will have on the macro environment of the entire space. There is some uncertainty about how much the supply reduction caused by prior BTC halvings has fueled the ensuing price action rather than coincidentally aligning with the natural cycles of human emotion and monetary policy.  We sympathize with these uncertainties and think there has been an element of luck in the timing. However, we think the supply reductions also had an impact and the truth likely lies somewhere in the middle. Another common criticism is that supply changes don’t drive price and all that matters are demand changes. We are not in accord with this thinking. A supply reduction is not different than a demand addition. Let’s say miners sell 10k ETH/day, and instead of getting rid of this sell pressure we simply add 10k ETH/day of buy pressure. This would have the exact same impact as eliminating the miners’ sell pressure but would be a demand change rather than a supply change. It is obvious these two options would have the same impact and it, therefore, makes no sense to us why one would matter more than another.  If we then believe that BTC halvings have impacted crypto’s macro, then it stands to reason that the Merge should do the same. While ETH dominance is significantly lower than BTC dominance at the time of the last halving, the impact from the Merge is nearly as large as the prior BTC halving as a % of total crypto market cap and significantly larger on an absolute basis.  Post-Merge crypto will be relieved of ~$16mm of daily supply. This is not an insignificant amount. To recognize this, it is useful to consider the cumulative impact. We think a TWAP of 70k ETH per week would have a market impact. That is effectively the impact the Merge will have except it doesn’t stop after a year; it continues into perpetuity. This has the potential to positively influence the entire space as the positive flow impact trickles into other parts of the market. This should provide an added macro tailwind to help nurture the green shoots we referenced earlier and increases their odds of survival. To conclude, if macro moderates at all, there is a real chance that what began as a bounce off of a capitulation bottom morphs into a more sustainable and organic recovery and the Merge should help aid this process. Long-Term In the long-term, the future becomes easier to predict, as structural flows are most important over this time horizon and easier to forecast. This is where the Merge’s impact is most pronounced. As long as Ethereum’s network adoption continues, which we deem likely, structural demand will remain and further inflows will also exist. This should result in sustainable and consistent appreciation, especially compared to other tokens, over many years (hopefully decades) to come. We expect Ethereum to surpass Bitcoin as the largest cryptocurrency within the next few years as we believe flows are the most important variable in crypto. Ethereum will forever have a flow tailwind post-Merge. Bitcoin will forever have a flow headwind. To get a sense for how things may look, the BNB/BTC chart is a good place to start.  BNB/BTC has steadily increased and made multiple new ATHs during this bear market despite little narrative momentum. We believe this is primarily due to the fact that BNB is the only L1 with structural demand. Post-Merge Ethereum will have greater structural demand than BNB both on an absolute and market cap weighted basis. Investment Strategies to Win the Merge 1. ETH/BTC Before evaluating the ETH/BTC trade it is necessary to provide some more general context on the PoW vs PoS debate. Much of the following is paraphrased from the appendix of the first article but it is worth reiterating. We believe PoS is a fundamentally more secure system for a variety of reasons. Firstly, each unit of security costs less with PoS. To understand why PoS provides more efficient security than PoW we first need to explore how these consensus mechanisms generate security in the first place. A consensus mechanism is as secure as the cost to 51% attack it. The efficiency of the system can then be measured by the cost (issuance) required to generate a unit amount of security.  In other words, how many dollars the network has to pay out to receive $1 of protection from a 51% attack. For PoW, the cost of a 51% attack is primarily the hardware required to obtain 51% of the hash rate. The relevant metric is how much money miners require to invest $1 in mining hardware. The math tends to work out close to 1 to 1 meaning miners require 100% annual rate of return on their investment or in other words $1 of annual issuance for each $1 they spend on hardware and utilities. In this context, the network needs to issue roughly $1 of supply each year to generate $1 of security. In the case of PoS, stakers are not required to purchase hardware, so the question becomes what return do stakers demand to lock up their stake in the PoS consensus mechanism? In general, stakers require a significantly lower rate of return than the 100% miners typically demand. The primary reason for this is that there is no incremental cost outlay and their assets do not depreciate (mining hardware typically depreciates close to 0 after a few years). The required rate should generally fall in the 3-10% range. As we calculated earlier, the current estimated post-Merge staking rate of 5% falls right in the middle of this range. This means that to gain $1 of security a PoS needs to issue $0.03-$0.10 of issuance. This is 10x-33x more efficient than PoW (20x more in the case of Ethereum’s PoS).  To conclude, this means that a PoS network can issue ~1/20th the issuance of a PoW network and be just as secure. In the case of ETH, they will actually issue about 1/10th of the issuance and the network will be twice as secure as it was during PoW. This efficiency is not the only advantage. Both consensus mechanisms share a common issue, which is that the security of the chain is correlated to the price of the token. This has the potential to create a self-reinforcing negative feedback loop whereby the reduction in token price causes a reduction in security, which therefore causes a decrease in confidence and drives a further decrease in token price and then repeats. PoS has a natural defense against this dynamic, PoW doesn’t. The attack vector for PoS is much more secure than PoW. First, to attack a PoS system you must control a majority of the stake. To do this you must purchase at least as many tokens as are staked from the market. However, not all tokens are available for sale. In fact, much of the supply is never traded and is effectively illiquid. Furthermore, and most importantly, with each token acquired the next token becomes harder and more expensive to acquire.  In the case of Ethereum, only ~1/3 of tokens are liquid (moved in the last 90 days). This means that once a steady state staking participation rate of closer to 30% has been reached it will be extremely difficult no matter the amount of money possessed, to attack the network. An attacker would need to purchase the entire liquid supply, which is impractical and nearly impossible. Another important feature of this defense mechanism is that it is relatively unaffected by price. Because the limiting factor to attack is liquid supply rather than money it does not get much easier to attack the network with lower prices. If there is not enough liquid supply (measured as a % of total tokens) to purchase, it doesn’t matter how cheap each token becomes because the limiting factor is not price. This price-insensitive defense mechanism is incredibly important to deter the potential negative feedback loop that declining prices could otherwise create. In the case of PoW, in addition to being 20x less efficient, there is no such defense mechanism. Each hardware unit may be marginally harder to acquire than the next, but there is no direct relationship, and if there is a correlation that does exist, it is weak at best. Importantly, it also becomes significantly easier to attack at lower prices as the number of hardware units required decreases linearly with price and the supply of hardware units does not change. It is not reflexive in the manner the PoS liquid supply defense is.  Other advantages of PoS such as better energy efficiency and better healing mechanisms are articulated clearly elsewhere, therefore we will not focus on them in this piece.  Another misconception about PoS is that it drives centralization by rewarding large stakers more than small stakers. We believe this to be incorrect. While large stakers receive more staking rewards than smaller stakers, this does not drive centralization. Centralization is the process by which large stakeholders increase their percentage of the stake over time. This is not what occurs in the PoS system. As large stakers have a larger stake to begin with, the larger rewards do not increase their percentage of the pool. For example, if 10 ETH is staked between two counterparties, Counterparty X has 9 ETH and counterparty Z has 1 ETH. X controls 90% of the stake. A year later X will have received 0.45 ETH and Z will have received .05 ETH. X has received 9 times the amount of rewards as Z. However, X still controls 90% of the stake and Z still controls 10%. The proportions have not been altered and therefore no centralization has occurred.  These inherent differences impact the debate around ETH/BTC. Most consider ETH a totally different asset to BTC as they do think is designed to be a decentralized SoV (replace gold), while BTC is. We believe in many important ways Ethereum is better suited to be a long-term SoV than Bitcoin. Before we compare the two, it is first necessary to evaluate Bitcoin’s current security model and how it may evolve over time. As discussed earlier, a system’s security is derived from the cost of a 51% attack. As a PoW network, this cost is determined by the amount of money it would take to purchase enough hardware rigs and other equipment/electricity necessary to control 51% of the hash power. This is roughly equivalent to the cost necessary to recreate the current mining hash rate that exists on the network. In an efficient market (mostly an accurate assumption over the medium/long term), the total hash rate is a product of the value of the issuance that miners receive. Bitcoin is as secure as the value of its issuance. As discussed earlier, this security is both inefficient and importantly lacks the reflexive defense of a PoS system. What happens when Bitcoin halves its issuance every four years? The system fundamentally becomes 50% less secure assuming all other variables are held constant. Historically, this has not been a large problem as the value of the issuance (and therefore the security) is a function of two variables: the number of tokens issued and the value of each token. As the price of the tokens has more than doubled around every halving cycle, this has more than compensated for the issuance reduction on an absolute basis. The absolute security of the network has increased through each cycle despite the number of tokens being issued halving. However, this is not a sustainable dynamic long-term for multiple reasons. First, it is not realistic to expect the value of each token to continue to more than double with each cycle. An exponential price increase is mathematically impossible to sustain over long periods of time. To illustrate this point, if BTC price doubled every halving cycle it would exceed global M2 after ~7 more halving cycles. Eventually, BTC price will stop increasing at this rate; when it does each halving cycle will drastically cut into its security. If the BTC price declines around the halving cycle, the security reduction will be even more significant and could trigger the negative feedback loop referred to earlier. This security system is fundamentally unsustainable so long as prices are capped, which they are. The only way to counter this issue is to generate meaningful fee revenue. This fee revenue could then replace some of the issuance and continue providing an incentive for miners and therefore provide security even after issuance is reduced. The issue for Bitcoin is that fee revenue has been negligible, and also declining, over a long period of time. In our opinion, the only practical way to generate security over the long term is through significant fee revenue. Therefore, to function as a sustainable SoV a system must generate fees. The alternative is tail emissions, which guarantees inflation compromising the SoV utility. Long-term security represents the most important property of an SoV. For example, gold has captured the majority of the SoV market for so long as nearly all market participants are confident that it will remain legitimate long into the future. For a crypto asset to become an adopted and successful SoV, it too must convince the market that it is extremely secure and that its legitimacy is guaranteed. This can only be possible if the protocol’s security budget is sustainable for the long term, inherently favoring a PoS system that has a large and durable fee pool. We believe the most likely candidate for this system is ETH. It is one of only two L1s with a significant fee pool. The other, BNB, is extremely centralized.  Credible neutrality is the second critically important characteristic of a successful SoV. Gold has no allegiance or reliance on anything. This independence creates its success as an SoV. For another asset to be widely adopted as an SoV it must also be credibly neutral. For a cryptocurrency credible neutrality is accomplished through decentralization. Today, the most decentralized cryptocurrency is undoubtedly Bitcoin. This is primarily because Bitcoin has very little development effort, and the protocol is mainly ossified, but nonetheless, the fact remains that it is by far the most decentralized protocol today. If you tried to kill Bitcoin today, it would be extremely hard. If you tried to kill ETH today, it would still be extremely hard, but likely easier than BTC.  However, we believe it is more important to look at the end state than the current state so long as there is a realistic path to achieve this end state. Ethereum has a clear roadmap ahead of it. We believe that while we are currently only in the middle of this roadmap, eventually (I’d estimate ~8-12 years) this roadmap will be complete, and the significance of the core developer team will fade. At this point, ETH will have a compelling case that it is more decentralized than BTC in addition to possessing far superior long-term security.  Contrary to popular belief, PoS naturally promotes decentralization more than PoW. Larger PoW miners receive a clear benefit from economies of scale, which drives centralization. Scale is much less relevant for PoS as the cost of setting up a node is vastly lower than a PoW rig and there is no real benefit to large-scale electricity as the electricity required for PoS is 99%+ lower. The economy of scale is a large factor for PoW but is not for PoS. 400,000 unique ETH validators exist today and the top 5 holders only control 2.33% of the stake (excluding smart contract deposit). This level of decentralization and diversity separates ETH from all other PoS L1s. Furthermore, this compares to BTC favorably as the top 5 mining pools today control 70% of the hashrate. While some critics will point out that liquid staking providers control an overwhelming portion of Ethereum’s stake, we believe these concerns are overblown. Additionally, we expect these concerns to be addressed by the liquid staking protocols and expect additional checks to be put in place to further protect against these concerns.  In summary, PoS is a fundamentally better consensus mechanism for a crypto SoV. This is the reason the Merge will represent a major milestone on Ethereum’s roadmap, marking a critical juncture in its journey to become the most appealing cryptographic SoV. The fundamental reasons discussed above are the reason we favor the ETH/BTC trade long-term and specifically around the Merge. However, flows, and specifically structural flows, are most important in determining price. It is the structural shift in flows that the Merge triggers that makes this trade so appealing and why the Merge is such a large catalyst for it. Historically, the structural flow for both BTC and ETH have been quite similar. Although ETH has had a smaller market cap its issuance has been ~3x larger on a market cap weighted basis. This larger issuance has made it extremely difficult for ETH to ever surpass Bitcoin in market cap as it would require ETH to absorb 3x the daily USD denominated supply. An interesting exercise is to think about the chart above and what the inputs are as clearly there has been a strong relationship (stronger than normal correlation would imply). The charted values are a product of tokens issued and token price. What happens if you reduce the tokens issued variable but want to retain the relationship? You must increase token price. So what should we expect to happen when we reduce the token issued variable for Ethereum by 90%? This is not to say that price should 10x to offset this reduction as the impacts are not necessarily linear, but the relationships are worth considering.  To conclude, post-Merge the passage of time will forever be a flow tailwind for Ethereum while for Bitcoin it will always be a headwind. Ultimately, this straightforward reality is what we believe will be the primary driver of the eventual flippening. 2. Staking Derivatives As Ethereum is such a large ecosystem many other areas will be tangentially affected by the Merge. As an investor, it is often interesting (and profitable) to consider the second and third-order effects of certain catalysts to search for opportunities that may be inefficiently priced in the market. Regarding the Merge, there are many options such as L2s, DeFi, and Liquid Staking Derivative (LSD) protocols. After a comprehensive review of the different alternatives, we have concluded that the liquid staking protocols are set to be the largest fundamental beneficiaries of the Merge (even more so than ETH).  The thesis is simple. The LSD protocols’ revenues are directly impacted by the price of ETH plus multiple other Merge related tailwinds that compound each other.  Additionally, their largest expense, the cost of subsidizing the liquidity pool between their staking derivate token and native ETH, declines, effectively to zero, shortly after the Merge. At a high level, I expect a 4-7x Merge driven increase in ETH protocol revenue (assuming only modest a ETH price increase) and a 60-80% reduction in their largest expense. This is a uniquely powerful fundamental impact.  We must examine the revenue and expense model of these protocols to fully comprehend this thesis. Using Lido as an example, as it is the largest of the LSD protocols, let’s examine the model. Note that these principles also apply to the other players as they are generally quite similar. Lido generates revenue as a percentage of the staking rewards that accrue to their liquid staking derivatives, stETH. Lido receives 5% of all staking rewards generated. If a user deposits 10 ETH for 10 stETH and generates an additional 0.4 stETH over the course of a year. The user keeps 90% of 0.4, the validator keeps 5% and Lido keeps the other 5%. As can be seen, Lido’s revenue is purely a function of the staking rewards generated on its LSD.  These staking rewards are a function of four separate variables: total ETH staked, ETH staking rate, LSD market share, and ETH price. Importantly, the staking rewards are the product of all four variables. If multiple variables are impacted their effect on the output compounds. In other words, if you double one and triple the other the impact on the staking rewards is 600%. All the variables, except market share, are directly impacted by the Merge. Total ETH staked will likely increase dramatically from the current 12% to closer to ~30% a 150% increase. As discussed earlier, the staking rate is likely to increase from 4% to ~5%, a 25% increase. There is no reason to think the Merge will significantly impact LSD market share so we can assume this is held constant and has no impact. Lastly, for the sake of this exercise let’s assume a 50% increase in the price of ETH. The aggregate effect of these different variables is 250%*118%*150%= 444% or a ~4.4x increase in revenue.  Expenses also meaningfully drop. The largest expense of these LSD protocols is incentivizing the liquidity pools between their LSD and native ETH. Given there are no withdrawals yet, it is extremely important to create deep liquidity to manage large flows between the LSD and native ETH. However, once withdrawals are enabled these incentives will no longer be required. As there will then be an arbitrage if the two ever differ materially, natural market forces will keep them relatively pegged as arbitrageurs buy the LSD on any dips.  This will allow the LSD protocols to drastically reduce their issuance (expenses), which will also materially reduce the sell pressure on the tokens.  LDO is trading at ~144x revenue on a pre-Merge number but this declines to ~31x when you look at it on a post-Merge number. While not overly cheap by traditional measures, this is attractive for a high-growth strategic asset in the crypto space where valuations are typically elevated. Importantly, this is real revenue that will accrue to the protocol.  A common concern among LDO critics is that this revenue does not get returned to holders. They often compare the protocol to Uniswap for this reason. While it is true the revenue is not passed through to token holders at current, we do not think this is a legitimate concern nor do we think the Uniswap comparison is correct—just because token holders do not receive cash flow today does not mean they will not in the future. We believe there will be a time when these returns are enabled. We also know that multiple large stakeholders agree on this issue. Furthermore, we do not think Lido should return cash today and would actually be very concerned with management’s competence if they did. This is an extremely early-stage business (~1.5 years old) that is still in its infancy growth phase. They require regular cash raises and are burning cash on a run rate basis today (this will change post-Merge). It would not be sensible to raise money from investors to cover the burn and then distribute protocol revenue to token holders, in turn increasing the burn. This would be akin to a startup paying out investor distributions with early revenue despite not generating enough revenue to cover expenses. This would never happen in the traditional capital markets because it is not rational.  Many crypto participants are also concerned about Lido’s dominant market share. They have 90% share of the LSD market and stETH makes up ~31% of total staked ETH. While we think the concerns around centralization are overstated, we still believe Lido should remain below 33% share of staked ETH to eliminate any doubt about Ethereum’s credible neutrality. As far as the investment case for the protocol we do not think a 33% market share cap is concerning. In our opinion, there are many other growth vectors Lido can pursue other than market share, and the investment is already quite compelling with its current share.  To conclude, Lido is a key piece of infrastructure in the Ethereum ecosystem that has established product market fit and dominant market share in what will remain an incredibly fast-growing portion of the market. In our opinion, the frequently cited concerns around the protocol are either misplaced or misrepresented. Furthermore, it is reasonably priced considering its past and expected future growth prospects and therefore represents one of the most investable assets in the space. While Lido is the market leader and largest player there are two other LSD protocols, Rocketpool and Stakewise, that also merit consideration. There are many unique aspects of each LSD and intricate detail that could be expanded upon. However, for the sake of digestibility, we will focus primarily on the high-level differences and expand upon the finer points in future discussions. Both RPL and SWISE should benefit from any share that Lido cedes due to the centralization concerns. While we think any Lido share losses will be modest, even modest losses for Lido would equate to outsized gains for the smaller players. For example, if LDO loses 4% market share, RPL gains 2.5% of that, and SWISE gains 1.5%, LDO will lose ~12% of their market share but RPL will gain ~50% and SWISE ~125%.   The 2nd largest player in the market, Rocketpool (RPL), has a unique staking mechanism and tokenomics. To stake through RPL, validators must pair RPL with native ETH and are required to maintain a minimum ratio between the two. This dynamic creates predictable and guaranteed demand for RPL as the ETH staking participation rises and more validators adopt the solution. Another benefit of RPL is the practice of validators pooling with other users, allowing the required ETH to set up a staking node to be reduced from the normal 32 ETH to only 16 ETH. This reduced minimum allows for smaller operators to set up nodes and further incentivizes decentralization. This makes RPL a perfect complementary player to LDO, which should act as a tailwind for RPL’s market share as they will be a primary beneficiary of Lido’s effective market share cap.  Lastly, Stakewise is another interesting alternative to LDO. Their model is very similar to LDO’s but they are focused increasingly on institutional adoption, which should position them well for a post-Merge marketplace. They also benefit from a highly driven and professional team that has continued to execute well. Notably, they have discussed plans to eventually implement token-holder-friendly tokenomics that would see token holders directly receive excess protocol revenue. Additionally, SWISE has been gaining notable traction with larger accounts looking to diversify their staking products (one proposal alone was recently approved by Nexus Mutual which would increase their TVL by 20-25%). As they are the smallest player with the highest valuation, they are likely the highest risk/reward investment in the category.  To conclude, it’s hard to differentiate between value within the group. LDO is the cheapest and most secure, but with the least market share upside. SWISE is the most expensive, but with the most market share upside and RPL is in between with the added benefit of unique tokenomics and a decentralizing staking mechanism. Relative valuations are rational which suggests to us the market is efficiently pricing the different opportunities. We have elected to own all three. We believe the LSD tokens are the highest EV Merge-related investments! They will likely outperform ETH, but investors should expect higher volatility and lower liquidity. The Merge Is Coming The Ethereum Merge is coming. There’s no doubt about it. With the date locked in for September 15th or 16th, this will be the biggest structural change in the history of crypto. There are a lot of dynamics at play that investors need to consider. Hopefully, this report helps you parse through all the information. What’s the key takeaway? The Merge is not priced in. * * * Tyler Durden Fri, 08/19/2022 - 09:58.....»»

Category: blogSource: zerohedgeAug 19th, 2022

Explosion In Retail Buying Revealed As Source Of Latest Market Meltup, Tesla Stock Surge

Explosion In Retail Buying Revealed As Source Of Latest Market Meltup, Tesla Stock Surge A little less than a month ago we reported that in addition to institutional investors, many of whom we knew had already thrown in the towel with hedge fund gross and net exposure the lowest in years, retail investors had also capitulated as their BTFD euphoria, observed so often during the stimmy days of 2021, was nowhere to be found. Well, not anymore. With TSLA stock soaring 50% from its recent May lows prompting many to wonder if this is another manipulated gamma squeeze by the "usual suspects"... ... this morning Vanda Research writes that retail investor flows have been the major driver of the rebound in equities in the last few days across the broader market, as aggregate buying has been consistently above the YTD average (avg. $1.36BN over the last five days), while the focus has been on classic tech stocks such as TSLA, NVDA, AAPL, AMD, and AMZN. As we discussed recently, the relatively strong earnings season and positive performance of the equity market have drawn attention to single names rather than generic equity ETFs. Vanda suspects that retail investors will continue to buy mainly single stocks and Tech over the next days or weeks – as long as the rally consolidates. However, according to Vanda, the pick-up in risk sentiment is likely to be fragile given the YTD large portfolio losses, and they caution that retail could (re)capitulate if the S&P 500 re-tests the lows which it will likely have to once Powell doubles down on hiking until he crushes inflation. For now however, retail is back with a bang, and one doesn't have to look at the insane surge in meme stocks like HKD that briefly pushed the $25mm revenue company to a market cap of $400 billion yesterday. As Vanda shows, last Friday net retail inflows were massive relative to the equity performance especially given that retail investors are contrarian: they buy when prices fall – as they perceive it as a good buy-the-dip opportunity. On the other side, they are hesitant to chase rallies in the early stages. Nevertheless, on the 29th of July, the net daily imbalance amounted to US$ 1.6Bn, the highest figure in a day of positive S&P 500 performance since the start of the sell-off. What does this mean for markets? Well, as Vanda elaborates, strong retail participation is not necessarily good news, as the strong inflows are coming from momentum retail traders rather than institutional investors. The former are likely to try to recover their YTD losses by increasing their risk exposure aggressively (currently, their portfolio drawdown is at -23%). On the other side, as we have been nothing frequently, hedge funds and discretionary professional investors have been sidelined and are not willing to buy or sell actively. The issue arises from the lack of retail investors' psychological buffer (and lack of infinite bank account) to cope with further losses. Moreover, their conviction is likely to be based on the trend rather than a positive macro outlook. As a consequence, they will capitulate quickly if equities drop again. Of course, as long as the broader momentum is higher - and it is for now thanks to short squeezes, blindly buying CTAs, and stock buybacks - retail buying continues, in the process infuriating those who have dubbed this the most hated rally. Indeed, with more than 60% of S&P 500 firms having reported Q2 earnings, retail investors continue to stick with their usual pattern of buying both on dips and on misses in single stocks during earnings season. Moreover, sector-level data shows that retail’s focus has shifted towards typical growth areas … particularly on EPS beats. Interestingly, while high-beta growth sectors have attracted the most outsized inflows on EPS beats, Tech stocks as a whole have witnessed some outflows on misses so far. This pattern is corroborated by the number of tech companies sold vs. bought. Vanda suspects that retail investors are concentrating all their tech investments on just the usual handful of tech names (FAANGMT), which leaves less capital for disappointing tech stocks. And while the FAAMG, or GAMMA as it is now known, sector has been the focus of retail buying, one specific company has been a supermagent for the renewed retail frenzy: according to Vanda, retail purchases of TSLA are skyrocketing as "retail investors have never been so bullish since summer ‘20." It speculates that the strong buying activity followed the 3-for-1 stock split proposal, and while a stock split shouldn’t have an impact on the stock price, retail investors don't care about fundamentals and instead speculate on the fact that historically stocks rallied after the split announcement as even a flood of even greater fools emerges to buy the stock. If the split will be confirmed, we could even see an acceleration of inflows – which could push the stock price higher. More importantly, perhaps the recent surge in TSLA stock will cheer Elon Musk enough for him to drop his legal challenge to get out of the Twitter deal and accelerate his purchase of the social media company. Of course, it's not just TSLA that experienced a surge in interest from the retail army: the previously discussed likes of HKD, AMTD, and SIGA have been the most recent culprits, gaining significant traction in recent days. Should this market rebound have more legs, Vanda expects retail investors’ appetite for speculative stocks will grow, as they seek the opportunity to further scratch back the losses they’ve accumulated through the year. However, any risk-off moves could easily shift the focus again to broad ETFs (or trigger a capitulation). Finally, while retail has traditionally stayed far away from the energy sector, thanks to the Buffet effect, this is changing and Occidental Petroleum has become a popular retail stock. Ever since regulatory filings disclosed Buffet’s US$ 5bn stake in OXY earlier in March with subsequent modest additions, the stock has witnessed a massive 16.5x increase in average daily net flows from retail investors (from $500k/day to $8.25mn/day). During the same window, the stock has rallied ~16% - outperforming both the S&P500 (-5.5%) and the energy sector (+2.6%) There is more in the full Vanda Research retail tracker note available to pro subscribers Tyler Durden Wed, 08/03/2022 - 15:10.....»»

Category: smallbizSource: nytAug 3rd, 2022

Futures Jump, Bonds Slump As Taiwan Tensions Ease

Futures Jump, Bonds Slump As Taiwan Tensions Ease If yesterday morning markets were losing their mind over the potential risk of World War 3 ahead of Nancy Pelosi's arrival in Taiwan, this morning it has been a mirror image, with risk assets rising and fears unclenching as investor anxiety over tense US-China ties eased after Pelosi left Taiwan less than 24 hours after arriving after pledging solidarity and hailing its democracy, leaving a trail of Chinese anger over her brief visit to the self-ruled island that Beijing claims as its own. Meanwhile, despite all the jawboning, China's response to Pelosi's Taiwan visit fell short of more aggressive expectations raised by nationalists like Hu Xijin, the former editor-in-chief of the Global Times, giving markets a breather. Among them: Trade: Beijing added boycotts to fish and fruit imports from Taiwan and banned natural sand exports. It also prohibited dealings with some Taiwanese companies including Hyweb. Markets: China's potential to weaponize its almost $1 trillion pile of US bonds became a source of chatter after yesterday's surge in Treasury yields. On the ground: Pelosi flew off after vowing the US wouldn't abandon Taiwan as she met with President Tsai Ing-wen. She was expected to meet with TSMC's chairman. As a result, both S&P 500 and Nasdaq 100 futures rose by about 0.5%. In New York premarket trading, while Treasuries extended a slide sparked by hawkish Federal Reserve comments (and the lack of world war). The dollar fell against most G-10 peers, gold fluctuated and oil was lower ahead of an OPEC+ meeting where some report output may be boosted by a modest 100kb/d  (or less jet-fuel than Biden consumed flying on Air Force One to Jedda last month) as Saudis "appease"the president. In premarket trading, Airbnb fell after the home-rental company missed estimates on bookings. Match Group fell after the parent to dating appsincluding Tinder gave a weak revenue forecast. PayPal Holdings jumped after the payments giant said activist investor Elliott Investment Management is now among its biggest shareholders. Robinhood slumped after saying it'll cut 23% of its workforce and shut two offices amid a reorganization. MicroStrategy's Michael Saylor is stepped aside as CEO to focus on Bitcoin after the token's plunge prompted a $1 billion loss. CVS beat and raised guidance. Under Armour,and Moderna are up next. Lucid and eBay are after hours. While an immediate concern around US-China tensions may be fading Wednesday, investors still face a host of worries including inflation and how the policy response by central banks to surging prices could hobble global growth. Equities trading doesn’t reflect the headwinds confronting the market, according to Goldman Sachs strategist Sharon Bell. Additionally, it remains to be seen what China's delayed response to Pelosi's visit will be. Here is a summary of the key overnight Taiwan/Pelosi linked headlines: US House Speaker Pelosi has concluded her Taiwan visit, has now departed on SPAR19 US House Speaker Pelosi said there is bilateral support for Taiwan in the US and that her visit is a reminder of the bedrock promise America to always stand with Taiwan, while she added that the delegation came to Taiwan to make it unequivocally clear that they will not abandon Taiwan. Pelosi also said they explored deepening trade ties with Taiwan and a trade agreement may be imminent, according to Bloomberg and Reuters. Taiwan President Tsai told Pelosi she is one of Taiwan's most devoted friends and the visit shows firm US support for Taiwan, while she thanked Pelosi for her unwavering support of Taiwan on the international stage. President Tsai also said Taiwan will not back down in facing deliberately heightened military threats and Taiwan will do whatever it takes to strengthen its self-defence. White House National Security Council Coordinator for Strategic Communications Kirby said the US is monitoring Pelosi's travel and has taken measures to ensure her safety, while he added that China has positioned itself to take further steps and the White House expects China to react beyond Pelosi's trip including by scheduling live fire exercises, while other steps by China could include economic coercion, according to Reuters. Taiwan Defence Ministry said Chinese drills have invaded Taiwan's territorial space and they will counter any move that violates Taiwan's territorial sovereignty, while it added that Chinese drills violate UN rules and amount to a blockade of Taiwan's air and sea space, according to Reuters. China's Taiwan Affairs Office said it will take disciplinary actions against two Taiwan foundations which will be banned from financially cooperating with mainland firms and individuals. China also announced a stoppage of certain fruit and fish imports from Taiwan and halted exports of natural sands to Taiwan which is a key component used in chip-making, according to Bloomberg. Furthermore, China will adopt criminal penalties regarding Taiwan separatists and vowed criminal punishments for Taiwan-independence diehards, according to Xinhua. China's Vice Foreign Minister Xie lodged representations regarding Pelosi's Taiwan visit, according to Xinhua. Taiwan is negotiating alternative aviation routes with Japan and the Philippines, according to Taiwanese press. Meanwhile, comments from Fed officials including Mary Daly, Loretta Mester and Charles Evans served to highlight a challenging backdrop of rising borrowing costs, price pressures and slowing economic growth.  San Francisco Fed President Daly said the Fed has “a long way to go” on reaching price stability around a 2% inflation target. Cleveland counterpart Mester said she wants to see “very compelling evidence” that month-to-month price increases are moderating. In crypto, Senate Democrats want to expand CFTC oversight to include trading in the largest digital assets. New legislation will be unveiled today amid questions over whether the derivatives regulator or the SEC is best placed to oversee the industry. Also of note: Thousands of Solana wallets were hacked overnight, and at least $8 million appears to have been stolen Europe’s Stoxx 600 was little changed as traders assessed the latest company earnings. BMW AG sank as the carmaker flagged softening demand, while Societe Generale SA rallied after the French lender outlined new revenue targets. Here are the biggest European movers: Infineon rises as much as 3.7% after the chipmaker lifts full- year sales and margin guidance, marking the third straight quarter with an outlook boost. Citi says better margins provide some relief to concerns that the company may not be willing or able to price as aggressively as peers. Just Eat Takeaway’s shares gain as much as 6.1% in Amsterdam after swinging between gains and losses. The food delivery firm’s top-line growth and profit metrics missed consensus estimates but the report reassures investors that the firm is on track to reach positive adjusted Ebitda in FY23, according to analysts. Avast shares jump as much as 43%, the most on record, after the UK’s Competition and Markets Authority provisionally cleared its acquisition by NortonLifeLock, seen as a welcome surprise by analysts. Auto1 shares jump as much as 19% with analysts highlighting a strong quarterly revenue performance from the digital auto platform. JDE Peet’s shares rise as much as 12% after reporting 1H results which Citi called reassuring, noting that both adjusted Ebit and organic sales growth beat consensus expectations. Taylor Wimpey shares rise as much as 4.9%, second-best performer in FTSE 100 Index, after the UK homebuilder released 1H results and forecast FY operating profit around the top end of current market estimates. Citi called it an “encouraging” performance. Rolls- Royce shares gain as much as 4.1% in London after the UK company said that the Spanish government has approved the sale of ITP Aero to a consortium of investors led by Bain Capital Private Equity. Siemens Healthineers shares fell as much as 9.1%, the most ever since 2018 IPO, after the company reported weaker- than-expected earnings as supply chain snarl-ups and pandemic lockdowns in China hurt profits. BMW drops as much as 6.2% in Frankfurt trading despite a beat on second-quarter results; Citi notes that a downgrade to full-year free cash flow forecast “points to growing pressures” in 2H. Oddo BHF says the FY outlook update is likely to disappoint, highlighting a cut to the FCF outlook. Bank of Ireland shares drop as much as 5.9%, with Morgan Stanley saying weaker revenue drove a miss on the bottom line for the lender. Man Group shares fall as much as 5.6% on Wednesday, dropping for a third consecutive day as Barclays cuts its AUM estimate following weaker flow momentum in 2Q. Earlier in the session, Asian stocks pared losses as investors monitored China’s response to US House Speaker Nancy Pelosi’s Taiwan trip along with the latest corporate results.  MSCI Inc.’s Asia-Pacific equity index slipped 0.2% in a mixed day after falling as much as 0.8% earlier. Japanese megabank MUFG was among the biggest drags as it reported a profit decline the previous day. Alibaba was among the biggest gainers and also lifted Hong Kong shares ahead of its earnings report on Thursday.  Key equity gauges in Hong Kong and Taiwan fluctuated before closing slightly higher while equities in mainland China declined. Pelosi reaffirmed US support for the democratically elected government in Taipei. Beijing halted some trade with Taiwan and planned military drills around the island.  “Further deterioration of diplomatic relations between the two countries could hurt manufacturing and supply chains, stoking inflationary pressures,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore.  Heightened US-China tensions have renewed pressure on Asian stocks, which capped their best month this year in July. The regional benchmark has underperformed US and European peers in 2022 amid worries about inflation, rising interest rates as well as China’s property crisis and Covid curbs. Japanese stocks climbed as traders looked past an escalation in US-China tensions and a weaker yen boosted the outlook for exporters’ earnings. The Topix Index rose 0.3% to 1,930.77 as of the close in Tokyo, while the Nikkei advanced 0.5% to 27,741.90. Sony Group Corp. contributed the most to the Topix’s gain as it advanced 2%. Out of 2,170 shares in the index, 756 rose and 1,294 fell, while 120 were unchanged. “While NY stocks fell yesterday, Japan factored in tensions over US House Speaker Pelosi’s visit to Taiwan first,” said Hideyuki Suzuki, general manager at SBI Securities. Australia's S&P/ASX 200 index fell 0.3% to close at 6,975.90, dragged by weakness in banks as well as consumer discretionary and staples stocks. Nine of the 11 sub-gauges finished lower, with only mining and technology shares advancing.  In New Zealand, the S&P/NZX 50 index rose 1.5% to 11,705.03. The nation’s unemployment rate unexpectedly rose from a record low in the second quarter but wages climbed at the fastest pace in 14 years, suggesting the central bank may need to keep raising interest rates aggressively to tame inflation Key Indian equity gauges also rose, capping a rally that’s brought benchmarks back to levels at the start of the year, as foreign inflows and a drop in crude oil prices supported appetite for riskier assets.   The S&P BSE Sensex climbed for a sixth-straight session, rising 0.4% to 58,350.53, its highest level since April 12. The gauge fell as much as 0.6% earlier in the session. The NSE Nifty 50 Index rose 0.3%. Both indexes have gained at least 5.5% over the past six sessions. The rally has been helped by a resumption of inflows from foreign funds, which purchased a net $1.5 billion of local stocks in the quarter through August 1.  “A perceived pivot in the US Fed’s tightening cycle and cooling off of crude oil prices have made the macro environment more favorable for India, which has outperformed emerging markets and Asian peers by 6% in the last week,” S. Hariharan, head of sales trading at Emkay Global Financial Services wrote in a note.  Price of Brent crude, a major import for India, fell below $100 a barrel as part of a drop by about 9% in the week.   All but three of the 19 sector sub-indexes compiled by BSE Ltd. fell Wednesday, led by telecom companies, which were down amid worries over operators’ massive commitment for 5G expansion. A measure of IT companies was the best performer and climbed 1.3%, with heavyweight Infosys giving the Sensex its biggest boost. European yield curves flatten after PMIs reaffirmed economic weakness in Europe, on the heels of hawkish remarks from Fed speakers. Euro Stoxx 50 rises 0.3%. IBEX outperforms peers, adding 0.4%, FTSE 100 is flat but underperforms peers. Travel, tech and insurance are the strongest performing sectors. S&P futures rise 0.2%. Nasdaq contracts are steady. Treasury curve inversion deepens with 2s10s widening 1.8bps. Bund and gilt curves bear-flatten. Bloomberg dollar spot index is slightly down but has steadied since Thursday’s climb. CHF and NZD are the weakest performers in G-10 FX, AUD and CAD outperform. WTI trades within Tuesday’s range, falling 0.5% to around $94. Spot gold rises roughly $7 to trade near $1,767/oz. Most base metals trade in the red; LME tin falls 1.4%, underperforming peers In FX, the Bloomberg dollar spot index fell 0.1% erasing a bigger drop earlier. CHF and NZD are the weakest performers in G-10 FX, AUD and CAD outperform. The yen swung between gains and losses as traders assessed rising US yields and China’s sanctions against Taiwan following US Speaker Nancy Pelosi’s visit to the island. USD/JPY is largely unchanged on the day after snapping four days of losses on Tuesday. The dollar’s better performance followed comments by Fed officials that pushed back against the narrative that policy makers will slow down on rate hikes.  EUR/USD gained as much as 0.3%; still, with more comments from Fed officials expected on Wednesday, “any fresh hawkishness could easily push EUR/USD back to parity,” ING Groep NV strategists wrote in a note. GBP/USD rose 0.2% to 1.2194; UBS analysts see the pound falling to $1.15 this quarter and staying around that level until the end of the year. In rates, the two-year Treasury yield added to its advance beyond 3% following a selloff in bonds on Tuesday sparked by Fed officials indicating the central bank has some way to go to curb inflation, leading traders to trim wagers on policy easing in 2023. Treasuries traded near session lows into early US session, following wider selloff across core European rates which underperform with stocks marginally higher. Yields cheaper by up to 4bp across front-end and belly of the curve, flattening 5s30s, 10s30s spreads by 1bp and 1.5bp; 10- year yields around 2.785%, cheaper by 3.5bp on the day and outperforming bunds by ~4bp. Treasury quarterly refunding announcement is due at 8:30am, where dealers forecast more cuts to issuance with particular emphasis on the 20-year sector. The market is awaiting ISM’s gauge of services in the US: “A reading below 50 might administer a strong shock to markets -- challenging yesterday’s jump in US Treasury yields and sharp fall in the Japanese yen,” according to Saxo Bank strategists. European yield curves flattened after PMIs reaffirmed economic weakness in Europe, on the heels of hawkish remarks from Fed speakers. In commodities, WTI trades within Tuesday’s range, falling 0.5% to around $94. Spot gold rises roughly $7 to trade near $1,767/oz. Most base metals trade in the red; LME tin falls 1.4%, underperforming peers. Bitcoin continues to firm after eclipsing the USD 23k handle from an initial USD 22.6k trough. Looking at today’s economic data, we get July ISM services index and June factory orders for the US, with the focus on signs of economic weakness. A line-up of Fed speakers includes Bullard, Harker, Barkin and Kashkari. In Europe, trade balance will be due for Germany, along with Italy’s July services PMI and June retail sales, UK’s July official reserves changes, and Eurozone’s June PPI and retail sales. Corporate earnings will feature AXA, Maersk, CVS Health, Just Eat, Regeneron, Nintendo, BMW, Vonovia, Moderna, Booking, Fortinet, eBay, Telecom Italia and Robinhood. All eyes will also be on Taiwan. Market Snapshot S&P 500 futures up 0.2% to 4,101.50 MXAP down 0.2% to 159.38 MXAPJ little changed at 517.86 Nikkei up 0.5% to 27,741.90 Topix up 0.3% to 1,930.77 Hang Seng Index up 0.4% to 19,767.09 Shanghai Composite down 0.7% to 3,163.67 Sensex down 0.2% to 58,041.78 Australia S&P/ASX 200 down 0.3% to 6,975.95 Kospi up 0.9% to 2,461.45 STOXX Europe 600 little changed at 435.72 German 10Y yield little changed at 0.85% Euro up 0.2% to $1.0186 Brent Futures down 1.1% to $99.47/bbl Brent Futures down 1.1% to $99.48/bbl Gold spot up 0.4% to $1,766.57 U.S. Dollar Index little changed at 106.15 Top Overnight News from Bloomberg China Warns Airlines to Avoid ‘Danger Zones’ Around Taiwan World’s Food Supply Faces Threat as India Rice Crop Falters Fed Pushes Back Against Pivot Idea, With Inflation Yet to Slow China Hits Taiwan With Trade Curbs Amid Tensions Over Pelosi Pelosi Hints Gender Is Real Reason China Is Mad at Taiwan Trip Pelosi Vows US Won’t Abandon Taiwan in Face of China Threats Oil Swings as OPEC+ Decision on Production Takes Center Stage Taiwan Turmoil Prompts Detours, Delays for Global Shipping Pelosi Knocks Out China’s Weibo as Millions Track Taiwan Trip Pelosi Visit Highlights TSMC and Taiwan’s Global Tech Import ‘Burn Pit’ Bill Passes Senate After Jon Stewart Assails GOP China Disappointment Over Taiwan Response Puts Pressure on Xi Twitter Subpoenas Musk Deal Investors, Digs Into Andreessen, VCs Apollo Said Nearing $3.2 Billion Takeover of Atlas Air Worldwide JPMorgan’s China Calls Show Market Timing Is Tough: Tech Watch Fed Pushes Back Against Pivot Idea, With Inflation Yet to Slow Microsoft Investor Targets Donations to Anti-Abortion GOP Groups A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mostly kept afloat with markets somewhat relieved following US House Speaker Pelosi’s safe arrival in Taiwan but with upside capped given China’s response including the announcement of military drills and bans on trading certain items with Taiwan. ASX 200 was dragged lower by weakness in consumer-related sectors despite better-than-expected Retail Sales. Nikkei 225 gained amid earnings updates and with exporters underpinned after yesterday’s resumption of the currency depreciation. Hang Seng and Shanghai Comp rebounded from recent losses but with the recovery contained by the geopolitical concerns and mixed Chinese Caixin Services and Composite PMI data in which both remained in expansion territory albeit with a slowdown in the latter. Top Asian News Chinese city of Yiwu imposed COVID restrictions and locked down some areas, according to Reuters. Nomura’s 97% Profit Drop Adds Urgency to Shift Away From Trading Billion-Dollar IPOs Keep Coming to Mainland China: ECM Watch Blinken Doesn’t Plan to Meet China’s Wang, Lavrov in Cambodia S. Korea Presidential Office Says Pelosi-Yoon Meeting Unlikely Nomura to Review Retail Costs as Business Trails Daiwa Again Turkish Inflation Approached 80% in July and Has Yet to Peak Stand By Me: The Bloomberg Close, Asia Edition Nintendo Expects Switch Output to Improve From Late Summer European bourses are mixed but with a modest positive underlying bias emerging as the session progresses ahead of key risk events, Euro Stoxx 50 +0.4%. Note, the FTSE 100 -0.1% is the morning's clear laggard owing to its high energy exposure as the broader crude complex comes under pressure. Stateside, futures are firmer across the board, ES +0.4%, moving directionally with their European peers and eyeing US/China/Taiwan, ISM Services and Fed speak. Top European News EDF to Curb Nuclear Output as French Energy Crisis Worsens UK July Composite PMI 52.1 vs Flash Reading 52.8 Ukraine Latest: US Blacklists Former Gymnast Linked to Putin Avast Jumps on UK Regulator’s NortonLifeLock Deal Clearance Vonovia Results Show Resilience, Upside Potential: Analysts Danish Gas Field Delays Restart, Raising Stakes in Energy Crisis FX Buck wanes after decent bounce on hawkish Fed vibes and marked rebound in US Treasury yields, DXY nearer 106.000 than 106.550 recovery high. Aussie pares some post-RBA losses as Kiwi labours in wake of sub-forecast NZ jobs data, AUD/USD back on 0.6900 handle, AUD/NZD just under 1.1100 and NZD/USD hovering around 0.6250. Yen attempts to stabilise following sharp retreat, USD/JPY circa 133.00 between 132.28-133.90 band and sub-130.50 low on Tuesday. Euro derives some support from broadly better than expected Eurozone PMIs, but faces hefty option expiries vs Dollar between 1.0195-1.0200 (1.84bln). Franc lags after fractionally softer anticipated headline YY Swiss CPI, but Lira remains pressured as Turkish inflation metrics rise further, USD/CHF approaching 0.9600 and USD/TRY elevated around 17.9500. Sterling cautious ahead of BoE on Thursday with analysts and markets split on 25/50bp hike verdict, Cable pivots 1.2150 and EUR/GBP straddles 0.8350. Fixed Income Bond reversal extends with Bunds sub-157.00 vs 159.70 at best yesterday, Gilts under 118.00 from almost 120.00 on Tuesday and 10 year T-note just shy of 120-00 compared to 122-02. 2038 German supply lacklustre as demand dips and retention rises. Debt still feeling the after-effects of hawkish Fed commentary and eyeing further speeches in pm session. Commodities Benchmarks have been moving lower as we head into today's JMMC and OPEC+ events, sources thus far suggest production will be maintained or subject to a small increase - newsquawk preview available here. US Private Inventory Data (bbls): Crude +2.2mln (exp. -0.6mln), Cushing +0.7, Distillates -0.2mn (exp. +1.0mln) and Gasoline -0.4mln (exp. -1.6mln). Kazakhstan's Energy Minister says OPEC+ nations are to discuss the fate of the deal after 2022 at Wednesday's meeting. Current prices of USD 100/bbl are above the preferred USD 60-80/bbl corridor; OPEC+ needs to look at prices so they become more realistic. Three OPEC+ sources state that they see "very little chance" for an oil output increase at today's meeting, according to Reuters. OPEC Sec Gen says OPEC expects demand to continue to recover albeit at a slower pace than earlier this year and 2021, according to Algerian TV; Challenges to the supply of US shale is impacting global supply and demand. Three ships may leave Ukrainian ports daily vs one per day following the first ships successful departure, via a Senior Turkish Official. Spot gold is firmer as the USD pulls-back further, but the yellow metal remains well within yesterdays and recent parameters; base metals are mixed owing to broader uncertainty. US Event Calendar 07:00: July MBA Mortgage Applications, prior -1.8% 09:45: July S&P Global US Services PMI, est. 47.0, prior 47.0 09:45: July S&P Global US Composite PMI, prior 47.5 10:00: June Durable Goods Orders, est. 1.9%, prior 1.9%; -Less Transportation, est. 0.3%, prior 0.3% 10:00: June Factory Orders, est. 1.2%, prior 1.6%; Factory Orders Ex Trans, prior 1.7% 10:00: June Cap Goods Ship Nondef Ex Air, prior 0.7% 10:00: June Cap Goods Orders Nondef Ex Air, prior 0.5% 10:00: July ISM Services Index, est. 53.5, prior 55.3 Fed Speakers 07:30: St. Louis Fed President James Bullard speaks on CNBC 10:30: Fed’s Harker speaks on fintech at Philadelphia Fed conference 11:15: Fed’s Daly speaks in Reuters Twitter Space event 11:45: Fed’s Barkin gives speech on inflation 14:30: Fed’s Kashkari speaks in fireside chat DB's Jim Reid concludes the overnight wrap I’m trying not to get too distracted by markets during the day for the next couple of weeks until I have to start work on the EMR as I’m trying to write my annual long-term study before holidays in the second half of the month. However, I couldn’t resist engaging in the bizarre spectacle of tracking and then watching a US politician’s plane land yesterday afternoon US time. It seems like the entire market was also watching if you look at the reaction. Yields sold off and US equities moved back into positive territory as US House leader Pelosi's plane landed in Taiwan without incident at 3:43pm BST yesterday. The last time I watched a plane tracker was when Liverpool tried to sign a player on transfer deadline day. To be fair yields had already moved a lot higher earlier as hawkish Fed speak cast some doubt on the (dubious) Fed pivot narrative that's been developing since the FOMC. Anyway, we’ll move onto a big sell-off in yields in a bit but first more on Speaker Pelosi. In response to Pelosi's visit, China announced a series of military tests and drills from August 4th (tomorrow) to August 7th that will encircle Taiwan. These drills are said to be the most significant since 1995. So things will undoubtedly be tense for a few days. Additionally, China has imposed a series of punitive economic moves, including suspending exports of natural sand to Taiwan and banning various food imports from the Island. 10-year US yields had already climbed 10bps before Speaker Pelosi's safe landing, mostly in the hour or so before the plane landed on comments from San Fran Fed President Daly who said the Fed’s work was “nowhere near” done on fighting inflation. Chicago Evans’ comments didn’t really move the market but Mester highlighted that “monthly inflation hasn’t even stabilized yet”. 2 and 10yr yields eventually closed up +19.7bps and +18.6bps, respectively, and thus inverted the curve back a bit to around cycle lows of -30.6bps. In fact, this move has wiped out the post FOMC dovish pivot interpretation. Indeed, looking at swaps pricing, last Tuesday (pre-FOMC) the terminal rate peaked at 3.40% for the December meeting, in contrast to yesterday’s close that sees it around 3.44% in February. Both dipped to the low 3.20s after the strange interpretation of the FOMC. Speaking after the bell, St. Louis Federal Reserve President James Bullard also gave a hawkish message by expressing confidence in the US economy stating that the economy can avoid a recession, even though he expects the Fed will need to keep hiking rates to control inflation. In fact, the 10yr US move yesterday was the 4th biggest in the last 5 years behind 2 Covid days and the WSJ leaked 75bps story just before the June FOMC last month. The 2yr move was the 4th biggest in the last decade with 9 of the top 10 happening so far in 2022 with one just after the Covid lows. So we're still seeing big volatility in markets. As we go to print, yields on the 10yr USTs are -4.18bps lower, currently at 2.71%. We did highlight that one of the reasons that August is usually bullish for bonds is that corporate issuance is light and thus leaving investors having to park money in government bonds. However, the surprise of the first two days of August is how much US corporate supply there has been. Bloomberg reported that we're already seeing supply estimates for the entire month surpassed already. So maybe some money rolled out of Treasuries yesterday that was loosely parked there. US stocks were originally chiefly preoccupied by geopolitics before the spike in yields gathered momentum, with major benchmarks recouping earlier losses as Speaker Pelosi landed in Taiwan only to dive back into the red again after headlines of China’s missile tests came through shortly after. Dragged lower by the risk sentiment and then ever higher yields, the Nasdaq (-0.16%) outpaced the S&P 500 (-0.67%), although both ended the day way off the intraday highs. As the risk-off mood took over by the close, 76% of the index constituents ended the day lower, with no sector in the green for the day. Most pain came from real estate (-1.30%), financials (-1.07%) and industrials (-1.05%). On the other end of the performance spectrum were communications (-0.18%), energy (-0.21%) and utilities (-0.22%) stocks as investors looked for more stable names. Some dispersion in price action also came from earnings, which provided a boost to sentiment earlier in the day after solid results from Uber and Lyft. Yet, Caterpillar’s results and earnings call sent a gloomy message for capital-intensive stocks by pointing to sticky costs and supply-chain issues. Speaking of the latter, it was a tailwind for Maersk that raised its guidance by expecting full-year EBIT of $31bn (up from $24bn) and the company will report its earnings this morning. It was a more cheerful day for oil firms as well, with BP rounding up oil majors’ reporting season yesterday by raising dividend and boosting buybacks. The five firms have squirreled $62bn in income in the last quarter amid elevated oil prices that helped trading firm Vitol report record profits as well. But with crude prices struggling in recent weeks, the meeting of OPEC+ today will be in focus. Oil prices were up by +0.31% for WTI and +0.08% for Brent yesterday but WTI is around -0.48% lower this morning. European yields were also lifted by the hawkish tone in the US, especially in the front end. Yields on bunds rose +3.9bps, ahead of the +0.9bps rise in breakevens. The 2y (+7.8bps) raced ahead in a bear flattening. A similar picture but with larger magnitudes in moves was seen in France (OATS +5.9bps and front end +17.5bps) and Italy’s (BTPs +6.8bps and front end +8.0bps) markets. Higher yields weighed on stock markets in the region as the STOXX 600 declined by -0.32%. IT (-1.45%) and discretionary (-1.10%) stocks were the main drivers, and only four sectors managed to cling to gains on the day, led by energy (+0.57%) and utilities (+0.51%). So Spain’s IBEX (+0.15%) and the FTSE 100 (-0.06%) were the relative outperformers in the region. Back to yesterday and markets got a brief reprieve from geopolitical headlines when the JOLTS data dropped early in the US session. Going through the numbers, the headline figure fell by more than the median estimate on Bloomberg (10.7m vs 11m) from May’s 11.25m in a sign of some easing in the labour market. In fact, it was the first miss since January. However, this is still relative to 7.2m job openings in January 2020 so it’s all relative. Metrics like private quits (unchanged at 3.1%) and the vacancy yield at 0.56 continued to point to historical tightness despite the miss in openings. In line with warnings we received from US retailers in the recent weeks, retail (-343k) and wholesale trade (-82k) saw the largest decreases in openings. Overall the data is consistent with a historically very tight labour market, albeit one where some of this pressure is loosening. Asian equity markets are mostly trading higher this morning after stumbling earlier following China stepping up the rhetoric with Speaker Pelosi's Taiwan visit. As I type, the Hang Seng (+0.60%) is trading higher led by a rebound in Chinese listed technology stocks whilst the Nikkei (+0.53%) and the Kospi (+0.50%) are also up. Over in Mainland China, markets are mixed with the Shanghai Composite (+0.40%) in the green while the CSI (-0.04%) has been oscillating between gains and losses in early trade. Further, US stock futures are fluctuating in Asia with contracts on the S&P 500 (+0.13%) higher while NASDAQ 100 futures (-0.04%) are just below the flat line. Early morning data showed that Japan’s service sector activity nearly stagnated in July as the final au Jibun Bank Japan Services dropped to a seasonally adjusted 50.3, marking the lowest reading since March. Today’s economic data releases will include July ISM services index and June factory orders for the US, with the focus on signs of economic weakness. A line-up of Fed speakers includes Bullard, Harker, Barkin and Kashkari. In Europe, trade balance will be due for Germany, along with Italy’s July services PMI and June retail sales, UK’s July official reserves changes, and Eurozone’s June PPI and retail sales. Corporate earnings will feature AXA, Maersk, CVS Health, Just Eat, Regeneron, Nintendo, BMW, Vonovia, Moderna, Booking, Fortinet, eBay, Telecom Italia and Robinhood. All eyes will also be on Taiwan. Tyler Durden Wed, 08/03/2022 - 08:05.....»»

Category: blogSource: zerohedgeAug 3rd, 2022

Square Mile Capital Provides $184 Million Loanfor Charlotte Office Development

Square Mile Capital Management LLC (“Square Mile Capital”) today announced that it has originated a $184.3 million loan to facilitate the construction of 600 South Tryon, a 410,000 square foot Class A office building located in Charlotte, NC. Square Mile Capital provided the construction financing to a partnership between the... The post Square Mile Capital Provides $184 Million Loanfor Charlotte Office Development appeared first on Real Estate Weekly. Square Mile Capital Management LLC (“Square Mile Capital”) today announced that it has originated a $184.3 million loan to facilitate the construction of 600 South Tryon, a 410,000 square foot Class A office building located in Charlotte, NC. Square Mile Capital provided the construction financing to a partnership between the Real Estate business within Goldman Sachs Asset Management (“Goldman Sachs”) and Lincoln Harris. The financing was arranged by JLL. Robinson Bradshaw, a Charlotte-based national law firm, has preleased the top four floors of the project (approx. 25 percent of total square footage). The property will feature a state-of-the-art fitness center, collaborative meeting areas, and terraces on levels 9, 20, and 23. The project will be the fourth phase of the Legacy Union master plan. Since 2016, the joint venture has successfully developed the three prior phases of the master plan (Bank of America Tower, Honeywell’s HQ, and SIX50), totaling 1.5 million square feet of office space Square Mile Capital Principal Eric Cohen said, “Despite broader market headwinds in the office sector, we are bullish on investing into best-in-class office product in growth markets such as Charlotte alongside top tier sponsors and developers. We expect this asset to be a great complement to the partnership’s prior success at Legacy Union and we are excited to be a part of this piece of the broader development.” The project is located within the Stonewall Corridor, which serves as the new main street of Charlotte, and features connectivity to neighboring submarkets via walking, driving, and using the city’s Lynx blue line. Additionally, the property is located one block from Interstate 277 and three Blocks from South Boulevard, two of the primary thoroughfares. The post Square Mile Capital Provides $184 Million Loanfor Charlotte Office Development appeared first on Real Estate Weekly......»»

Category: realestateSource: realestateweeklyAug 2nd, 2022

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

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

Category: personnelSource: nytAug 2nd, 2022

Futures Surge Propelled By Stellar Tech, Energy Earnings

Futures Surge Propelled By Stellar Tech, Energy Earnings US and European stock were set for their best month since November 2020 following blowout earnings from the likes of Amazon and Apple last night, and record profits from energy giants Exxon and Chevron this morning, boosted by expectations of shallower Federal Reserve monetary tightening now that the US is technically in a recession. S&P futures rose 0.6% following yesterday's meltup while Nasdaq 100 futures rose more than 1% after US stocks hit a seven-week high Thursday, as record underinvested hedge funds are forced to chase the move higher now that most downside catalysts (peak inflation, hawkish Fed, earnings disappointment) have been eliminated. The dollar was flat, and 10Y yields rose slightly to 2.70% after plunging as low as 2.65% yesterday after the Q2 GDP print confirmed news of the unofficial US recession. In premarket trading, Amazon soared as much as 13% in premarket trading on Friday, after the e-commerce giant reported better-than-expected 2Q results and gave an upbeat forecast. Apple rose 2.8% after the iPhone maker reported third-quarter revenue that was stronger than expected. US energy giants Exxon and Chevron both rose sharply higher in premarket trading after reporting record profits for Q2. here are some other notable premarket movers: Roku (ROKU US) tumbles 26% after the video-streaming platform company issued a 3Q revenue forecast and reported 2Q results that were weaker than expected, citing a slowdown in TV advertising spending. Intel (INTC US) slumps 9.4% after the chip manufacturer reported lower-than-expected 2Q earnings and cut its full-year forecasts US-listed Chinese stocks fall in premarket trading, following Asian peers lower, amid a lack of new stimulus policies from China’s top leadership. Avantor Inc. (AVTR US) analysts pointed to several factors weighing on the life sciences firm’s results, including its exposure to the European market, forex and Covid. Avantor’s shares slid 11% in US postmarket trading on Thursday. Dexcom Inc. (DXCM US) shares slumped as much as 18% in premarket trading, with analysts pointing to disappointing US growth and a delay to the US launch of the medical device maker’s G7 glucose- monitoring system used by people with diabetes. Analysts said the reaction was overdone and a buying opportunity given the growth outlook. Edwards Life (EW US) down after posting second- quarter results below analyst expectations, as hospital staff shortages and FX headwinds weigh on the medical technology company’s growth. Global shares are set for a second weekly advance, paring this year’s rout. The risk is that the recent bout of optimism eventually gets a reality check if inflation stays stubbornly elevated, leaving interest rates higher than investors would like amid an economic downturn. “At some point, the Fed will pivot policy and that should be better for risk markets, but in the meantime, they’re so bent on quelling inflation that we prefer not to buy the dip here,” Thomas Taw, head of APAC iShares Investment Strategy at BlackRock Inc., said on Bloomberg Radio. Elsewhere, a call between US President Joe Biden and China’s Xi Jinping underlined bilateral tension even as the leaders sought an in-person meeting. European stocks also rallied into the month-end after positive earnings buoyed sentiment. The Euro Stoxx 600 rose 0.9%, with Italy's. FTSE MIB outperforms peers, adding 1.6%, FTSE 100 lags, adding 0.6%. Construction, retailers and consumer products are the strongest performing sectors. The banking sector outperformed after a slate of better-than-expected results from Banco Bilbao Vizcaya Argentaria SA, Standard Chartered Plc and BNP Paribas SA. Hermes International rose about 6% after joining LVMH and Kering SA in posting strong results, showing the luxury consumer is resilient so far to high inflation and worries over a potential economic downturn. Here are some other notable European movers: NatWest shares surge as much as 9.5% after the UK lender reported second-quarter earnings that beat estimates, also announcing a special dividend with analysts seeing consensus upgrades ahead. Allfunds jumps as much as 14%, most since May, after reporting adjusted Ebitda ahead of Morgan Stanley’s expectations and providing a “reassuring outlook.” Zalando rises as much as 8.7% alongside other European ecommerce stocks following blowout results from US giant Amazon, which sent its shares surging in premarket trading. Hermes climbs as much as 9.6% to an almost 6-month high after the maker of Kelly handbags reported what Bernstein called a “very strong” beat, with 2Q sales almost 9% ahead. L’Oreal jumps as much as 5.2% after it reported 2Q like-for-like sales that beat estimates, with Jefferies calling the performance “another quarter of gravity- defying growth.” Fluidra gains as much as 12%, the most intraday since October 2020, despite a guidance cut as analysts remain optimistic on longer-term prospects. Kion rises as much as 9.6%, the most since March, bouncing after a post-results decline in the prior session. UBS said it’s positive on the forklift maker’s outlook. Signify slumps as much as 11% after reporting 2Q Ebita below consensus and flagging margin headwinds, which Citi expects will lead to low-single-digit downgrades to full-year estimates. AstraZeneca slides as much as 3.1% on its latest earnings, which exceeded estimates. Analysts say the beat, however, was fueled by one-time items. EssilorLuxottica dips as much as 5.1% after the eyewear firm reported interim results. Jefferies noted the “understandably circumspect” tone of the company’s near-term outlook. Fresenius Medical Care declines as much as 5.7%, extending Thursday’s 14% fall, as the market continued to digest the guidance downgrade. JPMorgan cut its price target by more than 50%. AMS-Osram shares fall as much as 9.7% after its new guidance consensus estimates, with the chipmaker saying production volumes were hit by increasingly unfavorable end markets. Euro-zone GDP rose by more than three times the amount economists expected, putting it on a firmer footing as surging inflation and a possible Russian energy cutoff threaten to tip it into a recession. On the other hand, inflation in the region soared to another all-time high, supporting calls for the European Central Bank to follow up its first interest-rate hike since 2011 with another big move. The tone was more somber in Asia, hampered by a tumble in Chinese tech shares that dragged Hong Kong toward a correction of more than 10% from a June high. Asian stocks slumped as losses in Chinese equities offset gains in the rest of the region, after the nation’s Politburo refrained from announcing new stimulus. The MSCI Asia Pacific Index swung between small gains and losses on Friday. Alibaba and Tencent were among the biggest drags, countering gains in heavyweights including TSMC and Reliance Industries. The Hang Seng Index entered a technical correction, while a gauge of Hong Kong’s tech shares tumbled close to 5%. Sentiment was damped by Chinese leaders’ downbeat assessment of growth and the lack of new measures to boost the economy from a highly anticipated Politburo meeting. Shares of Alibaba tumbled after a report said that Jack Ma was planning to give up control of his fintech unit Ant Group, ahead of the tech giant’s earnings report next week. “We were kind of looking for more policy” from the Chinese government before the National Party Congress later this year, Thomas Taw, head of APAC iShares Investment Strategy at BlackRock Inc., said on Bloomberg Radio. “I think the offshore, foreign sentiment towards China is very, very bearish at the moment.” Investors are also monitoring the latest corporate results while keeping an eye on the property crisis and Covid situation in China. Major overseas earnings before the Asian open were a mixed bag, with strong reports from Apple and Amazon while Intel disappointed. The key Asian stock gauge is still on track for its biggest monthly gain so far in 2022. While stocks in Hong Kong and mainland China are set for a monthly loss, the region’s other markets such as India, Japan and South Korea are poised for their best months of the year. Japanese stocks dipped in afternoon trading as the yen resumed strengthening against the dollar. The Topix fell 0.4% to close at 1,940.31, while the Nikkei was down 0.1% to 27,801.64. Still the Nikkei closed July with a 5.3% gain, its best month since November 2020. The yen rose 0.9% to around 133 per dollar, pushing its three-day advance to 2.8%. Yen Advances to Level That Threatens This Year’s Big FX Short Keyence Corp. contributed the most to the Topix decline, decreasing 2.8% after it missed earnings expectations. Out of 2,170 shares in the index, 601 rose and 1,469 fell, while 100 were unchanged. In FX, the Bloomberg dollar spot index falls 0.3%. GBP and CAD are the weakest performers in G-10 FX, JPY continues to outperform, trading at 133.11/USD.   In fixed income, Treasuries were cheaper across the curve with losses led by the long-end, where yields are higher by around 4bp. Wider losses seen across bunds and gilts, weighing on Treasuries as ECB rate-hike premium is added in after a mix of CPI and GDP data out of Eurozone. US 10-year yields around 2.70%, cheaper by 2bp on the day and outperforming bunds and gilts by 3.5bp and 4.5bp in the sector; long-end led losses steepens 2s10s, 5s30s spreads each by around 2bp on the day. IG issuance slate empty so far; four names priced $5.1b Thursday, paying 15bp in concessions on order books that were 3 times oversubscribed.  WTI trades within Thursday’s range, adding 2.1% to trade around $98. Spot gold rises roughly $8 to trade close to $1,765/oz. Most base metals trade in the green; LME zinc rises 3.9%, outperforming peers. Looking to the day ahead, data includes the employment cost index, PCE, income, and spending data in the US, Tokyo CPI, consumer confidence, jobless rate, retail sales, industrial production, and starts in Japan, CPI and GDP in France, GDP in Germany, and GDP in Canada. It’s another full slate of earnings which will include Sony, Exxon, Procter & Gamble, Chevron, AbbVie, AstraZeneca, Colgate-Palmolive, BNP Paribas, Eni, Intesa Sanpaolo, LyondellBasell, Engie, BBVA, NatWest, and Citrix. Market Snapshot S&P 500 futures up 0.7% to 4,103.00 Gold spot up 0.4% to $1,763.27 U.S. Dollar Index down 0.36% to 105.97   Top Overnight News from Bloomberg Euro-zone inflation climbed to another all-time high, supporting calls for the European Central Bank to follow up its first interest-rate hike since 2011 with another big move The euro-zone economy expanded by more than three times the amount economists expected, putting it on a firmer footing as surging inflation and a possible Russian energy cutoff threaten to tip it into a recession Stocks in Europe and the US are set for their biggest monthly advance since November 2020 on positive earnings and expectations of shallower Federal Reserve monetary tightening China’s top leadership is committing to ample liquidity as the nation contends with a slowdown. So far, a lot of that cash is sitting in the financial system instead of being transmitted to the real economy Biden, Xi Plan In-Person Meet as Taiwan Tensions Intensify Amazon, Apple Poised to Add $230 Billion After Resilient Results Citigroup Drops Some Clients to Boost Trading Returns Credit Suisse Woes Spread to Singapore With $800 Million Trial Bitcoin and Ether Are on Track for Their Best Month Since 2021 Russia Is Wiring Dollars to Turkey for $20 Billion Nuclear Plant Alibaba Slumps as Traders Assess Earnings Risk, Ant Report BofA Says Too Soon for Bull Rally as Investors Pile Into Stocks Singapore, New York Tie for Highest First Half Rental Growth Morgan Stanley Hires Shen as Head of China Onshore Equities Alito Mocks Foreign Leaders Who Attacked His Abortion Opinion A more detailed look at global markets courtesy of Newsquawk APAC stocks traded mixed despite the positive lead from Wall Street, with Chinese markets lagging. ASX 200 was lifted by gold names amid the recent rise in the precious metal. Nikkei 225 saw mild gains throughout the session but eventually fell into the red amid notable JPY strength, whilst Nissan shares fell over 4% at one point after earnings. KOSPI was propelled by its Telecom sector, with Financials and Industrials also aiding. Hang Seng slipped over 2% with Alibaba shedding 6% after WSJ reported that Jack Ma intends to relinquish control of Ant Group. Headlines pointed out the Hang Seng index has fallen 10% from its June peak. Shanghai Comp held a negative bias as traders reacted to the Biden-Xi call, which included no rollback of Trump-era tariffs. Selling thereafter resumed following downbeat commentary from China's MOFCOM, suggesting the outlook for H2 trade growth is not optimistic. Top Asian News China's Commerce Ministry said China's foreign trade faces higher risks; the outlook for China's H2 trade growth is not optimistic, via Bloomberg. MOFCOM said they will study targeted measures for foreign trade, and will step up support for export credit insurance in H2 and expand imports actively and ensure domestic commodity supply, via Reuters. China's Commerce Ministry official said foundation for consumption recovery is not solid yet, more efforts needed to boost consumption, via Reuters. Japanese government decided to tap JPY 257bln in budget reserves to help with rising oil and broader inflation, according to the MoF. PBoC injected CNY 2bln via 7-day reverse repos with the maintained rate of 2.10% for a net drain of CNY 1bln and for a weekly drain of CNY 12bln PBoC set USD/CNY mid-point at 6.7437 vs exp. 6.7414 (prev. 6.7411) Japan's Finance Minister Suzuki provides no comment on day-to-day FX moves, closely watching moves with a sense of urgency while working with the BoJ; Japan's MOF said it did not intervene in FX in the June 29th to July 27th period. European bourses are firmer across the board, Euro Stoxx 50 +0.9%, and are set to post their best monthly performance since Nov'20. Stateside, the NQ continues to outperform, +1.2%, amid after-market earnings from AMZN and AAPL; US PCE Price Index ahead. Top European News Germany Stagnates as Rest of Europe Beats Estimates: GDP Update UK June Mortgage Approvals Fall to 24-Month Low of 63.7k Ukraine Latest: Lavrov in No Rush to Respond to Blinken Request Amundi Defies Gloom Among Managers With $1.8-Billion Inflows Biden, Xi Plan In-Person Meet as Taiwan Tensions Intensify FX Yen recovery momentum gathers pace and extends beyond Dollar pairing to JPY crosses, USD/JPY slides over 2 big figures to test 132.50, EUR/JPY down to 137.56 from 137.32. DXY loses grip of 106.000 post-negative US GDP print and looking for support from PCE, ECI and/or Chicago PMI. Euro fades again irrespective of some encouraging Eurozone data and option expiry interest may be capping, EUR/USD tops out just over 1.0250 yet again and circa 3bln rolling off between 1.2045-50. Rand underpinned by Gold gains and Lira holds above 18.0000 as Turkish trade deficit narrows and Russia transfers funds for a nuclear facility. Sterling fades amidst mixed BoE consumer credit and housing metrics, Cable sub-1.2150 vs 1.2245 at best and EUR/GBP probing 0.8400 vs low around 0.8346 yesterday. Fixed Income Marked debt retracement following run of even more pronounced recovery gains. Bunds fade just shy of 158.00 again and retreat to 156.21, Gilts reverse around 100 ticks from 118.36 and T-note to 120-21+ from 121-08 at best. Stronger than expected Eurozone data also in the mix along with buoyant risk sentiment and firm oil. Bonds braced for busy pm agenda comprising US PCE, ECI and Chicago PMI. Commodities WTI Sep’22 and Brent Oct’22 are posting gains in excess of 2.0% on the session but remain capped by USD 100/bbl and 105/bbl respectively. Dutch TTF Sep’22 has pulled back to modestly below the EUR 200/mWh mark, but remains bid after several sessions of pronounced price action. Spot gold is relatively contained and resides just above the unchanged mark but continues to be dictated by the USD with the JPY-induced pressure lifting the yellow metal briefly overnight. Saudi Energy Minister and Russian Deputy PM Novak met in Riyadh and discussion cooperation between the two nations, according to Twitter, via Reuters. Biden-Xi Call Senior US admin official said US President Biden and China's President Xi discussed face-to-face meeting and directed teams to follow up; did not discuss any potential lifting of US tariffs on Chinese products. White House said presidents Biden and Xi discussed a range of issues important to bilateral relationship and other regional/global issues. Senior US admin official said Biden and Xi had a 'direct and honest' discussion on Taiwan. They discussed areas of cooperation including climate change, health security and counter-narcotics. Biden brought up the long-standing concerns on human rights. Macroeconomic coordination between China and US is of great importance. Biden explained to Xi his core concerns about China's economic practices. China President Xi told US President Biden that the US should abide by the One China principle, and act in line with its words, according to State Media. On the Taiwan issue, Xi told Biden that 'those who play with fire will get burned'. Xi told Biden that China fiercely opposes Taiwan independence and the interference of external forces US President Biden told China President Xi that the US stance on One China policy remains unchanged, according to China's Global Times. Central Banks BoJ Summary of Opinions (Jul meeting): achieving the price stability target in a stable manner is difficult given developments in the output gap and inflation expectations. The recent resurgence of COVID-19 is extremely rapid, and it is necessary to examine how this will affect financial positions, mainly of small and medium-sized firms. The Bank needs to closely monitor the impact that the recent increase in its Japanese government bond (JGB) purchases to contain upward pressure on interest rates has on the functioning of the JGB market. ECB's de Guindos says EUR depreciation has been one of the factors behind high inflation, main factor that guides decisions is the evolution of inflation. HKMA buys around HKD 9.656bln from the market to defend the peg.   US Event Calendar 08:30: 2Q Employment Cost Index, est. 1.2%, prior 1.4% 08:30: June Personal Income, est. 0.5%, prior 0.5% June Personal Spending, est. 0.9%, prior 0.2% June Real Personal Spending, est. 0%, prior -0.4% June PCE Deflator MoM, est. 0.9%, prior 0.6%; PCE Deflator YoY, est. 6.8%, prior 6.3% June PCE Core Deflator MoM, est. 0.5%, prior 0.3%; Core Deflator YoY, est. 4.7%, prior 4.7% 09:45: July MNI Chicago PMI, est. 55.0, prior 56.0 10:00: July U. of Mich. Sentiment, est. 51.1, prior 51.1; Expectations, est. 47.5, prior 47.3 Current Conditions, est. 57.1, prior 57.1 1 Yr Inflation, est. 5.2%, prior 5.2%; 5-10 Yr Inflation, est. 2.8%, prior 2.8% DB's Jim Reid concludes the overnight wrap Morning from sunny Frankfurt. Today we wave goodbye to July which after the worst first half returns since 1788 in treasuries and 1962 for the S&P 500, is set to launch us into a very strong start to H2. A reminder that in a chart of the day I did back in June, it showed that the worst 5 H1s for equities all saw a big H2 rebound. However there are five long months to go before we can relax. The key questions from the last 24 hours were 1) Did the Fed pivot on Wednesday? And 2) Is the US in a recession? Treasury markets continued to think the answer to both was yes, which boosted risk sentiment by further capping how far the market thinks the Fed can go. Meanwhile, Presidents Biden and Xi held a phone call, the markets continued to digest the Inflation Reduction Act, the US did see it's second successive quarter of negative growth, German CPI beat expectations and Amazon and Apple impressed the market with earnings after the bell. The main macro driver continued to be the interpretation of the July FOMC. Specifically, that the Chair said at some point in the future it may be appropriate to slow the pace of tightening and that he and the Committee paid heed to slowing activity data (more below). The current interpretation being that factors other than inflation were seeping into the Fed’s reaction function. Global yields rallied hard yesterday. 2yr yields were -13.6bps lower at 2.86% while 10yr Treasuries were -10.9bps lower at 2.68%, their lowest since early April. Notably, real yields drove the decline, falling -13.1bps (-26.2bps lower over the last two days, their largest two-day decline since the invasion in early March), suggesting easier expected policy without an impact on inflation, with breakevens up a modest +2.1bps. This is a market believing the Fed will be forced into a pivot, and that slowing activity figures will soon translate into lower inflation. This morning in Asia, yields on 10yr USTs (-1.80 bps) are extending their decline, trading at 2.66% as I type. Europe outpaced the US with 2yr bunds -18.7bps lower at 0.22%, their lowest since mid-May. 10yr bunds were -11.8bps lower and OATs fell -13.4bps. 10yr BTPs outperformed on the perceived shift in policy tone, down -14.9bps. Regular readers will know we are skeptical things will work out as the market is increasingly pricing in. Real policy rates remain deeply in negative territory despite the Fed believing they are at neutral. Furthermore, policy works on long and variable lags, not only is 5 months (the amount of time until the market is pricing cuts) a very short amount of time for today’s tightening to bring inflation back from 9%, but the very reaction we’re witnessing in markets means financial conditions have actually eased since the June FOMC meeting. So the Fed has instituted back-to-back 75bp hikes and financial conditions haven’t gotten any tighter. DB research has been putting out a number of pieces addressing this of late. Matt Luzzetti and Peter Hooper put out a piece yesterday showing that the Fed is historically more cautious about cutting rates when core PCE is above 4% (see here), while Tim Wessel on my team showed that markets overestimate how large those cuts will be ahead of time when inflation is that high (see here). However, one needs to be wary of summer seasonals, where August is usually the strongest month of the year, when deciding whether to fight the move now or wait until September. Adding to the yield rally justification, advanced US GDP came in at -0.9% in 2Q, that is in negative territory for a second straight quarter. This has driven much hand-wringing about whether or not the US is currently in a recession. We won’t know for a while if the NBER officially calls this a recession, as the growth data will undergo plenty of revisions before we have a final number. Further, the NBER actually doesn’t use GDP as one of their indicators for defining recessions, funnily enough, instead amalgamating personal income, payrolls, real PCE, retail sales, household survey employment, and industrial production (which eventually wind up looking a whole lot like GDP). Some of those underlying figures still look quite strong even if the headline GDP figure is not. In the end, whether or not the NBER decides in the future that we are in recession today is almost beside the point: markets will continue to trade based on their perception of the Fed’s responsiveness to slowing activity weighed against runaway inflation. On that note, the overwhelming perception over the last two days is that slowing activity, will become increasingly more important for policy going forward. This drove risk assets higher for a second straight day across the Atlantic. The S&P 500 increased +1.21% with all but one sector higher, while the NASDAQ was up +1.08%, bringing them +11.06% and +14.24% higher since terminal rates first fell from above 4% in mid-June. In Europe, the STOXX 600 climbed +1.09%, while the DAX and CAC increased +0.88% and +1.30%, respectively. On the earnings front, Mastercard said that card spending and use of its payments infrastructure have picked up in a big way amidst runaway inflation, pushing the company’s revenue forecast for the year higher. Hard to see how inflation slows if consumers are spending like that. After the close Apple and Amazon reported earnings on the stronger side of what we’ve seen for mega-caps so far, with both releases containing optimism around supply chains and consumer spending. Apple’s revenues and earnings figures beat street estimates, despite supply chain disruptions from China covid lockdowns, on the back of stronger-than-expected iPhone and iPad sales, with shares rising around +3% after hours. Amazon shares rose more than +12% in after hours trading after beating revenue estimates and revising forecasts higher. While hiring appears to be slowing, Amazon also looks to be unwinding storage capacity, again another sign that supply chain pressures may be easing, while cutting costs. We got more international data on the great slower activity versus high inflation dichotomy, with German CPI increasing +0.9% MoM versus expectations of +0.6%, bringing YoY to +7.5% versus +7.4% expectations. The EU harmonised measures also beat expectations, climbing +0.8% MoM versus +0.4% expectations while YoY ticked up to +8.5% versus +8.1% expectations. Asian equity markets are mixed this morning with the Hang Seng (-2.19%) sharply lower and with the Shanghai Composite (-0.71%) and CSI (-1.02%) also slipping on rising expectations of China's economic growth outlook remaining subdued in H2 after yesterday’s high-level Communist Party meeting omitted its full-year GDP growth target and will instead strive to achieve the best results for the economy this year. Elsewhere, the Nikkei (+0.46%) and the Kospi (+0.43%) are trading in positive territory and more matching western markets. Talking of which, stock futures in the US are pointing to a strong start with contracts on the S&P 500 (+0.57%) and NASDAQ 100 (+1.21%) both higher on the positive earnings from Amazon and Apple. Early morning data showed that Japan’s industrial output jumped +8.9% m/m in June (v/s +4.2% expected) posting the biggest one-month gain in nine years as disruptions due to China's COVID-19 curbs eased. It followed a -7.5% drop last month. But retail sales (-1.4% m/m) unexpectedly contracted in June (v/s +0.2% expected) after an upwardly revised +0.7% increase in May. Separately, July Tokyo CPI advanced to +2.5% y/y in July (v/s +2.4% expected, +2.3% in June) on the back of a hike in utility prices. Meanwhile, labour market conditions in the nation remained relatively healthy as the jobless rate stayed at 2.6% in June (v/s 2.5% market consensus) albeit the job-to-applicants ratio improved to 1.27 in June (v/s 1.25 expected) from 1.24 in May. Elsewhere, Presidents Biden and Xi had a two-hour phone call. The call covered foreign policy issues surrounding Taiwan and Ukraine. The two leaders reportedly covered areas of mutual cooperation, as well, including using their economic might to prevent a global recession and tasking aides to follow up on climate and healthy security issues. Aides have been tasked with setting up a face to face meeting which seems an impressive development even with the tensions there obviously are between the two sides. To the day ahead, data includes the employment cost index, PCE, income, and spending data in the US, Tokyo CPI, consumer confidence, jobless rate, retail sales, industrial production, and starts in Japan, CPI and GDP in France, GDP in Germany, and GDP in Canada. It’s another full slate of earnings which will include Sony, Exxon, Procter & Gamble, Chevron, AbbVie, AstraZeneca, Colgate-Palmolive, BNP Paribas, Eni, Intesa Sanpaolo, LyondellBasell, Engie, BBVA, NatWest, and Citrix. Tyler Durden Fri, 07/29/2022 - 08:16.....»»

Category: worldSource: nytJul 29th, 2022

How To Invest During A Recession: Are Quality Stocks Really Recession Proof?

It seems wherever you look at the moment, another talking head is warning of an imminent recession. And who can blame them. Inflation is at 40-year highs, interest rates are rising, and stock markets have had their worst start to a year in recent memory. Now, many are asking whether it is safe to be […] It seems wherever you look at the moment, another talking head is warning of an imminent recession. And who can blame them. Inflation is at 40-year highs, interest rates are rising, and stock markets have had their worst start to a year in recent memory. Now, many are asking whether it is safe to be investing at all. And if so, what kind of stocks should they be buying? .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2022 hedge fund letters, conferences and more To answer these questions, this article gives some historical context to investing during recessions and explains that - while not completely "recession-proof" - quality stocks provide the best form of protection in a recession. Moreover, when these stocks belong to a "defensive" sector, like consumer staples, this provides an extra cushion to investors. Should You Invest in The Stock Market During a Recession? As we hurtle towards a recession, investors want to know one thing. Should they "buy the dip", or "batten down the hatches"? If we look at this from a historical perspective, we see that the S&P 500 actually posted positive returns in over half the 13 years with recessions since World War II - rising an average of 1%. While this might sound surprising to some, it's important to remember that markets are forward-looking. Therefore, it's not unusual for a bear market to start months before a recession and end before its conclusion. However, this is not always the case, as every recession is different. For example, the S&P 500 fell another 30% before bottoming after the 2001 recession officially ended. Moreover, hindsight analysis doesn't really help us in real-time. Since we don't know how long a recession will last in advance, it's hard to know when to buy. In a long, drawn-out recession, markets can go down a lot further than you think before bottoming out. Therefore, you need to assess whether you can stomach the volatility and hold out long enough for markets to turn. This is a function of your personal financial situation and specific investment goals. If you are financially independent and have some cash that you won't need for a long time, you can probably afford to be patient and keep "buying the dips". After all, recessions present some of the best buying opportunities for long-term investors. However, if you have shorter-term investment goals and don't have much capital to invest, you might be best waiting for things to improve first before dipping your toes in. How to Find Recession Proof Stocks If you are going to invest, then you need to make sure you're buying the right stocks. Firstly, it should be said that most stocks go down together in a bear market, so there is technically no such thing as a "recession-proof" stock. What can be said, however, is that certain stocks perform better than others. History shows that companies with healthy balance sheets, stable cash flows, and unique products outperform in a recession. These are otherwise known as "quality stocks". The charts below show that quality stocks outperformed the broader market in the last 2 major bear market recessions in 2007-09 and 2000-02. I use the MSCI World Quality total return index (M1WOQU) as a proxy for quality stocks, and the MSCI World total return index (NDDUWI) as the market proxy. 2007-09 As you can see, quality stocks fell by 47% peak-to-trough in the 2008-09 recession, whereas the MSCI World index fell by 57%. Source: Bloomberg 2000-02 Similarly, quality stocks fell 42% peak-to-trough in 2000-02 recession, compared to the 48% fall in world equities. Source: Bloomberg While these sound like small differences, the effects of compounding mean they grow into large ones over the long-term. The chart below shows that over the last 40 years, returns from quality stocks have dwarfed those of the broader stock market. Source: Bloomberg Therefore, if you're looking for some bargains in this current downturn with: Fantastic long-term prospects, and Limited near-term downside relative to other stocks You should consider adding some quality into your portfolio. Likewise, if you run a long-short portfolio, you should bias your long-book towards these investments. Their relative outperformance during recessions can help you generate some alpha. What are Quality Stocks? While most of us have heard of value and growth stocks, quality stocks are a lesser-known part of the investment universe. Put simply, quality stocks are those that possess strong competitive advantages. These arise when a company has some exclusive niche that's hard to replicate or disrupt. Examples of niches include: Unique Products Brand Strength/Loyalty Network Effects Patents Scale Technology Advantage Warren Buffett refers to these as an "economic moat" - a hypothetical fortress that protects a business model from external threats. Essentially, an economic moat creates barriers to entry for competitors and keeps consumers returning as repeat buyers. The result? Quality stocks generate stable free cash flow; sustainably high returns on capital; and consistent long-term growth. In other words, everything you need in the face of a recession. How to Identify Quality Stocks While quality stocks come in all shapes and sizes, there are some common traits that define them. Owning companies with these characteristics is known as quality investing. Market Share Growth A company with better products and superior execution should regularly attract new customers from competitors and increase market share. Pricing Power Companies able to increase prices without a corresponding reduction in sales have substantial pricing power. Pricing power exists when consumers are insensitive to price increases - a direct result of strong competitive advantages. Brand Strength Strong brands attract loyal customers, which allows for premium pricing and gains in market share. The link between pricing power, market share and brand strength are strong. Strong Margins A combination of pricing power and efficient cost control allow quality companies to maintain high margins in good times and bad. High Return on Capital High returns on capital are a hallmark of competent management teams that allocate capital efficiently. Balance Sheet Strength Quality stocks tend to have strong balance sheets with healthy cash levels, minimal debt, and low leverage (debt-to-equity). Consistent Dividends Another trait of quality stocks is a consistent track record of stable or increasing dividend payments. This provides investors with a degree of certainty in a recession. Note, it's not the amount of dividend being paid, or the dividend yield, that we're interested in. A high dividend-yield stock is more akin to a value stock, which comes with extra risk. Quality Stock Screen With all of this in mind, how can we actually find companies with these traits in practice? The best way to do this is with a stock screener, since we can filter out stocks that don't meet our chosen criteria. Below is an example of some quality stock screener criteria: 5-year average ROIC > 15% Gross Margin > Industry Average Net Debt/Equity < 0.5 Current Ratio > 1.5 Hasn't cut dividend in last 10 years Some of the stocks currently passing this screen include: Microsoft, Nike, Zoetis, and Old Dominion. Great examples of niche businesses with insane track records. Ok, so now we know what to look for in stocks at a micro level during a recession. But is there anything we should look for at a sector level too? It turns out there is. What Sectors Perform Best in a Recession? Defensive sectors tend to perform best in recessions. These are sectors that sell products and services deemed to be essential items, such as food, medicine, and electricity. No matter how bad the economy gets, people still need to buy these goods, which means their profits are relatively immune to the economic cycle. Consumer Staples Consumer staples are about as close as you can get to "recession-proof" stocks. They sell essential, repeat-purchase items, such as toilet roll, toothpaste, cleaning detergent, and food. It is very unlikely that consumers stop purchasing these items because of a weak economy. They are more likely to cut back on are discretionary items like cars, clothing, and travel before they stop buying shampoo, cereal, and Coca-Cola. Some of the most well-known consumer staples companies include: Procter & Gamble, Unilever, L'Oreal, Kroger, and Colgate. Healthcare The healthcare sector is another relatively recession resistant sector. People take their health very seriously and are therefore unlikely to defer spending on medicine or life-saving surgeries. Examples of these stocks include: Johnson & Johnson, Pfizer, Regeneron, Novo Nordisk, and Astrazeneca. Utilities The last group of relatively recession resistant companies are utilities. Demand for electricity, water, and waste collection remains pretty stable throughout a recession, so this sector tends to be a safe place to park your cash in a downturn. Examples of utility companies include: American Water Works, NextEra Energy, and Waste Management. Defensive Sectors are Outperforming in 2022 The chart below shows the year-to-date performances of the 3 aforementioned sectors vs. the S&P 500. As you can see, defensive sectors are living up to their name so far and outperforming the broader market this year. Source: Bloomberg Diversify Your Portfolio Another general piece of advice when investing during a recession is to diversify. This means owning companies across a wide range of sectors, particularly the recession resistant ones mentioned. Recessions tend to reveal weak companies, so spreading your money across a large number of stocks can minimize the risk of suffering steep losses on one particular company. About the Author Harry Turner is the founder of The Sovereign Investor, which is an investing education website. He was formerly a hedge fund manager but now runs his own money. Updated on Jul 20, 2022, 4:16 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkJul 21st, 2022

Zharta Raises $4.3 M to Speed Growth in Instant NFT Lending

Lisbon, Portugal, 20th July, 2022, Chainwire DeFi company Zharta, has secured seed funding from leading Web3 VCs and strategic investors to accelerate its growth to meet customer demand and go to market. Zharta, creator of a lending protocol for instant NFT collateralized loans, has closed a seed round of 4 million dollars in new capital […] Lisbon, Portugal, 20th July, 2022, Chainwire DeFi company Zharta, has secured seed funding from leading Web3 VCs and strategic investors to accelerate its growth to meet customer demand and go to market. Zharta, creator of a lending protocol for instant NFT collateralized loans, has closed a seed round of 4 million dollars in new capital to fuel the company’s next phase of growth. The company had initially raised an acceleration round of $300,000 from angel investors. Prominent investors include Lead Investor Greenfield One, followed by the institutional VCs Shilling Capital and Possible Ventures, core Web3 industry players SpaceShipDao and UniwhalesDao, as well as Clever, Olisipo Way, and other strategic Business Angels. This seed funding round was assisted by the Cuatrecasas Law Firm. Zharta will allocate the new funds primarily to customer demands, followed by R&D, sales, and marketing. The goal is to accelerate market penetration and expand rollouts to improve the instant lending platform. To implement these goals, they will be adding up to 20 new hires to their current, 12-strong team. “Zharta provides an important building block in NFT financialization. We are very pleased to be able to support Zharta as lead investor in bringing this great NFT use case to market quickly”, says David An, Partner at Greenfield One Zharta has created a real-time lending model leveraged on Lending Pools and NFT appraisals with Machine Learning and aims at the DeFi and NFT native holders to quickly prove its platform’s potential, which the company ascribes to its 3 keystones: Simplicity, UX-oriented, and Trustworthy. Nuno Cortesão, Zharta’s co-founder and CEO, hopes that a strong customer-centric oriented foundation will enable them to expand: “We aim to deliver the best user-centric experience so that we can address a broader audience in the future,” said Nuno, “moving from early adopters to the mass market.”  Currently, the collections that can be collateralized are: Doodles, Mutant Ape Yacht Club, Bored Ape Kennel Club, World of Women, VeeFriends, Cool Cats, Hashmasks, and Pudgy Penguins, with “more collections being added in the near future”, guarantees the CEO. “We’re bullish on the future of NFTs and their role in changing the landscape for climate tech, scientific innovation and data platforms more generally. As NFTs become ubiquitous, we see Zharta’s work to unlock liquidity as an essential part of the NFT ecosystem and believe that Nuno and the Zharta team will be important contributors to the NFT community,” said Possible Ventures Partner, Simon Leicht. “We believe the right conditions exist for accelerating protocols at the intersection of DeFi and NFTs, so we couldn’t be more excited to support the Zharta team in this investment round. A core component of the infrastructure yet to be unlocked is collateralization – that’s where Zharta comes in, with a solution that provides liquidity to collectors and the general NFT market, while encouraging new parties to participate in the ecosystem.”  says Pedro Rosa, from Shilling.vc. Zharta has already gone through a testing phase, during which it has collected user feedback to launch a platform that meets consumers’ wants, needs and concerns, enhancing the user experience. This phase also allowed them to solve security issues by auditing Smart-Contracts. Zharta aims to leverage AI-appraisals and DeFi pools to fund NFTs. This includes existing assets such as collectables, but will also cover the emerging play2earn gaming, metaverse and art markets. Evincing a grounded and pragmatic mentality, Zharta is not profligate. It focuses on solid growth and providing the market with a robust value offering that is financially sustainable. It wishes to establish good partnerships in Web3 and build on the value others have created, becoming a vital piece of the whole, building complex primitives, and integrating with institutional players. Zharta envisages a future where TradFi and DeFi reliably collaborate and where digital assets are treated with full respect in the financial system. Zharta’s platform’s official launch is expected to take place in Late Summer. About Zharta: Zharta is a unique blockchain protocol that offers a solution to the illiquidity problem faced by NFT holders. Thanks to its NFT-backed loans, Zharta enables the democratization of the market by allowing every collector and investor to stake their NFT assets in exchange for crypto tokens. The protocol is being built with a strong focus on security, and leverages AI price discovery mechanisms and on-chain index funds to further optimize liquidity, offering a more efficient way to trade NFTs. The project is spearheaded by a trio of entrepreneurs (Diogo Pires, Nuno Cortesão, and Pedro Granate) with vast expertise in computer sciences, business development, blockchain programming, and gamification theory. About Greenfield One Greenfield One is an Early-Stage Crypto Fund based in Berlin and was founded in 2018 by former VC Sebastian Blum and entrepreneur Jascha Samadi. The fund invests early in crypto networks and developer teams across Web 3.0 infrastructure, decentralized finance and NFT technology. Greenfield One pursues a very research-driven investment approach and also actively participates in the portfolio’s crypto networks through its own technical infrastructure and liquidity. Greenfield One currently invests from its third fund, which is Europe’s largest crypto fund, with 135 million euros in volume.  Where to find us: Website | Discord | Telegram | Twitter | Medium Contacts Head of Marketing João Fernando Saddock Zharta joao.saddock@zharta.com +393510275202 Updated on Jul 20, 2022, 4:05 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkJul 20th, 2022

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

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

Category: blogSource: zerohedgeJul 19th, 2022

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

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

Category: personnelSource: nytJul 18th, 2022

Futures Flat As Traders Brace For Latest FOMC Minutes

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

Category: personnelSource: nytJul 6th, 2022

Forget Micron (MU), Buy These 3 Cybersecurity Stocks Instead

Increasing requirement for privileged access security on the back of digital transformation and cloud migration strategies is likely to fuel demand for cybersecurity solutions offered by PANW, CRWD and QLYS. Micron Technology MU shares have plunged 42.4% year to date (YTD), making it one of the most beaten-down stocks in the broader market sell-off witnessed by the U.S. equity market so far this year.Though the majority of the tech stocks have seen a drastic fall in their YTD share prices amid the broader market sell-off, the major concern for Micron is weakening demand for its memory chips. During its recently concluded third-quarter fiscal 2022 earnings conference call, the company stated that consumer spending has softened, resulting in the weakening of the memory chip demand from the smartphone and personal computer end markets.The scenario would lead to dim financial performances in the next few quarters for Micron. The company’s fourth-quarter revenue guidance of $7.2 billion (+/- $400 million) suggests a year-over-year decline of approximately 13%. Similarly, the adjusted earnings projection of $1.63 per share (+/-20 cents) indicates a year-over-year decline of about 33%.Historically, the financial performances of chip-making companies have been a key barometer for the broader stock market and economy. Therefore, the grim sales and profit outlook by Micron has sparked worries that the United States is potentially heading for a recession.In such a scenario, it is prudent for near-term investors to avoid this Zacks Rank #5 (Strong Sell) stock and instead focus on three top-ranked cybersecurity stocks — Palo Alto Networks PANW, CrowdStrike CRWD and Qualys QLYS.Why Invest in Cybersecurity Stocks?Cybersecurity stocks have remained more resilient amid the broader market sell-off this year so far as organizations continue spending more on protecting themselves from rising cyberattack threats.Increasing requirement for privileged access security on the back of digital transformation and cloud migration strategies is also fueling the demand for cybersecurity solutions. The COVID-19 pandemic has further increased cyber onslaughts as businesses of all sizes are transitioning their operations to various online platforms.From education to entertainment, working to shopping, and even healthcare has gone virtual, causing high technology percolation in everyday lives. This puts not only businesses but also schools, hospitals and other organizations at the receiving end of online assaults.While public institutions and large companies have always been the target of hackers, smaller organizations with lower security standards are also on their radars.Further, the advent of 5G will enable other devices to connect to the Internet, thereby expanding the scope of Internet of Things (IoT) and artificial intelligence (AI). While IoT and AI will simplify things, they will also aggravate the rate of cybercrime with increased reliance on technology.A report by Fortune Business Insights stated that the global cybersecurity market is expected to reach $376.32 billion by 2029 from a projected $155.83 billion in 2022, exhibiting a CAGR of 13.4% from 2022 to 2029.Considering the aforementioned factors, it is therefore advisable to invest in cybersecurity stocks in the near term. We have taken the help of the Zacks Stock Screener to shortlist the abovementioned three cybersecurity stocks that are incredible for investments. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy).Also, the stocks have a Growth Score of A or B. Per Zacks’ proprietary methodology, stocks with such a favorable combination offer solid investment opportunities.3 Cybersecurity Stocks to Bet OnPalo Alto Networks: The company currently carries a Zacks Rank #2 and has a Growth Score of B. It is benefiting from increased adoption of its next-generation security platforms, driven by a rise in remote working policy among top-notch companies. The cyber security firm continues to win back-to-back deals for offering unique cyber safety solutions, which block attacks or malicious content. You can see the complete list of today’s Zacks #1 Rank stocks here.The company's current subscription-based model is aiding it in generating stable revenues while expanding margins. Palo Alto's subscription-based services like AutoFocus, Aperture, Traps, WildFire and Virtual are not only witnessing solid growth but also bolstering the customer base. These might help the cybersecurity firm to improve both the top and the bottom lines.The Zacks Consensus Estimate for fourth-quarter fiscal 2022 earnings has been revised upward by 7 cents to $2.28 per share over the past 60 days. The consensus mark for fiscal 2022 earnings has been revised upward by 18 cents to $7.45 per share.Palo Alto Networks, Inc. Price and Consensus Palo Alto Networks, Inc. price-consensus-chart | Palo Alto Networks, Inc. QuoteCrowdStrike: It is a leader in next-generation endpoint protection, threat intelligence and cyberattack response services. The company is benefiting from the rising demand for cyber-security solutions owing to a slew of data breaches and the increasing necessity for security and networking products amid the pandemic-led remote working trend.Continued digital transformation and cloud-migration strategies adopted by organizations are key growth drivers. CrowdStrike’s portfolio strength, mainly the Falcon platform’s 10 cloud modules, boosts its competitive edge and helps add users. Additionally, strategic acquisitions, like that of Humio and Preempt, are expected to drive growth.CrowdStrike carries a Zacks Rank #2 and has a Growth Score of A. The Zacks Consensus Estimate for CRWD’s third-quarter fiscal 2023 earnings has improved by 3 cents to 29 cents per share over the past 30 days. For fiscal 2023, the consensus mark for earnings has been revised upward by 10 cents to $1.23 per share over the past 30 days.CrowdStrike Price and Consensus CrowdStrike price-consensus-chart | CrowdStrike QuoteQualys: The company offers cloud security and compliance solutions that enable organizations to identify security risks to their information technology infrastructures, thus helping protect their IT systems and applications from cyber-attacks.Qualys is gaining from the surging demand for security and networking products amid the coronavirus crisis as a massive global workforce is working remotely. Accelerated digital transformations by organizations are also fueling demand for the company’s cloud-based security solutions.QLYS currently carries a Zacks Rank #2 and has a Growth Score of A. The Zacks Consensus Estimate for third-quarter 2022 earnings has been revised upward by 4 cents to 74 cents per share over the past 60 days. The consensus mark for 2022 earnings has been revised upward by 25 cents to $3.15 per share.Qualys, Inc. Price and Consensus Qualys, Inc. price-consensus-chart | Qualys, Inc. Quote Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Micron Technology, Inc. (MU): Free Stock Analysis Report Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report Qualys, Inc. (QLYS): Free Stock Analysis Report CrowdStrike (CRWD): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJul 5th, 2022